0001445546-12-002304.txt : 20120518
0001445546-12-002304.hdr.sgml : 20120518
20120518121957
ACCESSION NUMBER: 0001445546-12-002304
CONFORMED SUBMISSION TYPE: 40-APP/A
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20120518
DATE AS OF CHANGE: 20120518
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST DEFINED PORTFOLIO FUND LLC
CENTRAL INDEX KEY: 0001076487
IRS NUMBER: 000000000
STATE OF INCORPORATION: IL
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-06
FILM NUMBER: 12854567
BUSINESS ADDRESS:
STREET 1: C/O FIRST TRUST PORTFOLIOS LP
STREET 2: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: C/O FIRST TRUST PORTFOLIOS LP
STREET 2: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FORMER COMPANY:
FORMER CONFORMED NAME: FIRST DEFINED PORTFOLIO MANAGEMENT FUND LLC
DATE OF NAME CHANGE: 19990108
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST ADVISORS LP
CENTRAL INDEX KEY: 0001125816
IRS NUMBER: 363788904
STATE OF INCORPORATION: IL
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-07
FILM NUMBER: 12854568
BUSINESS ADDRESS:
STREET 1: 12O EAST LIBERTY DRIVE
STREET 2: SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 12O EAST LIBERTY DRIVE
STREET 2: SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST PORTFOLIOS LP
CENTRAL INDEX KEY: 0001184765
IRS NUMBER: 000000000
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-08
FILM NUMBER: 12854569
BUSINESS ADDRESS:
STREET 1: 12O EAST LIBERTY DRIVE
STREET 2: SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 12O EAST LIBERTY DRIVE
STREET 2: SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED FUND
CENTRAL INDEX KEY: 0001329377
IRS NUMBER: 000000000
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895
FILM NUMBER: 12854561
BUSINESS ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED FUND II
CENTRAL INDEX KEY: 0001364608
IRS NUMBER: 000000000
STATE OF INCORPORATION: MA
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-01
FILM NUMBER: 12854562
BUSINESS ADDRESS:
STREET 1: 12O EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 12O EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND
CENTRAL INDEX KEY: 0001383496
IRS NUMBER: 000000000
STATE OF INCORPORATION: MA
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-04
FILM NUMBER: 12854565
BUSINESS ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: First Trust Exchange Traded Fund III
CENTRAL INDEX KEY: 0001424212
IRS NUMBER: 000000000
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-02
FILM NUMBER: 12854563
BUSINESS ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE
STREET 2: SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE
STREET 2: SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST SERIES FUND
CENTRAL INDEX KEY: 0001497778
IRS NUMBER: 000000000
STATE OF INCORPORATION: MA
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-09
FILM NUMBER: 12854570
BUSINESS ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED ALPHADEX FUND II
CENTRAL INDEX KEY: 0001510337
IRS NUMBER: 000000000
STATE OF INCORPORATION: MA
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-05
FILM NUMBER: 12854566
BUSINESS ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED FUND IV
CENTRAL INDEX KEY: 0001517936
IRS NUMBER: 000000000
STATE OF INCORPORATION: MA
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-03
FILM NUMBER: 12854564
BUSINESS ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED FUND V
CENTRAL INDEX KEY: 0001549548
IRS NUMBER: 000000000
STATE OF INCORPORATION: MA
FILING VALUES:
FORM TYPE: 40-APP/A
SEC ACT: 1940 Act
SEC FILE NUMBER: 812-13895-10
FILM NUMBER: 12854560
BUSINESS ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
BUSINESS PHONE: 630-765-8000
MAIL ADDRESS:
STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400
CITY: WHEATON
STATE: IL
ZIP: 60187
40-APP/A
1
application.txt
APPLICATION FOR EXEMPTIVE RELIEF
As filed with the Securities and Exchange Commission on May 18, 2012
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
File No. 812-13895
===============================================
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 AlphaDEX(R) Fund
First Trust Exchange-Traded AlphaDEX(R) Fund II
First Trust Series Fund
First Defined Portfolio Fund, LLC
First Trust Advisors L.P. and
First Trust Portfolios L.P.
===============================================
Amendment No. 2 to an Application for an Order under Section 12(d)(1)(J) of the
Investment Company Act of 1940, as amended (the "1940 Act"), for exemptions from
Sections 12(d)(1)(A), 12(d)(1)(B) and 12(d)(1)(C) of the 1940 Act, under
Sections 6(c) and 17(b) of the 1940 Act for an exemption from Section 17(a) of
the 1940 Act, and under Section 6(c) of the 1940 Act for an exemption from Rule
12d1-2(a) under the 1940 Act.
All communications, notices 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 AlphaDEX(R) Fund Chicago, IL 60603
First Trust Exchange-Traded AlphaDEX(R) Fund II
First Trust Series Fund
First Defined Portfolio Fund, LLC
First Trust Advisors L.P.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
Attn: W. Scott Jardine
Page 1 of 41 sequentially numbered pages
In the matter of: ) AMENDMENT NO. 2 TO AN
) APPLICATION FOR AN ORDER
First Trust Exchange-Traded Fund ) UNDER SECTION 12(D)(1)(J)
First Trust Exchange-Traded Fund II ) OF THE INVESTMENT COMPANY
First Trust Exchange-Traded Fund III ) ACT OF 1940, AS AMENDED
First Trust Exchange-Traded Fund IV ) (THE "1940 ACT"), FOR
First Trust Exchange-Traded Fund V ) EXEMPTIONS FROM SECTIONS
First Trust Exchange-Traded AlphaDEX(R) Fund ) 12(D)(1)(A), 12(D)(1)(B)
First Trust Exchange-Traded AlphaDEX(R) Fund II ) AND 12(D)(1)(C) OF THE
First Trust Series Fund ) 1940 ACT, UNDER SECTIONS
First Defined Portfolio Fund, LLC ) 6(C) AND 17(B) OF THE
First Trust Advisors L.P. and ) 1940 ACT FOR AN EXEMPTION
First Trust Portfolios L.P. ) FROM SECTION 17(A) OF THE
1940 ACT, AND UNDER
SECTION 6(C) OF THE 1940
ACT FOR AN EXEMPTION FROM
RULE 12d1-2(A) UNDER THE
1940 ACT
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 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" and, together with the Series Trust and the ETF Trusts, the
"Acquiring Companies"), First Trust Advisors L.P. (the "Advisor") and First
Trust Portfolios L.P. (the "Distributor" and, together with the Advisor and the
Acquiring Companies, the "Applicants")(1) hereby submit this amended application
(this "Application") for an order of the U.S. Securities and Exchange Commission
(the "Commission") as described below. The Applicants request that the order
apply not only to any existing series of the Acquiring Companies, but that the
order also extend to any future series of the Acquiring Companies, and any other
existing or future registered open-end management investment companies and any
series thereof that are part of the same group of investment companies, as
defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as
amended (the "1940 Act"), as the Acquiring Companies and are, or may in the
future be, advised by the Advisor or any other investment adviser controlling,
controlled by, or under common control with the Advisor (together with the
existing series of the Acquiring Companies, each series a "Fund," and
collectively, the "Funds").
The Applicants request that the Commission issue an order under Section
12(d)(1)(J) of the 1940 Act exempting them from the limitations set forth in
Sections 12(d)(1)(A), (B) and (C) of the 1940 Act to the extent necessary to
permit: (1) a Fund (each a "Fund of Funds," and collectively, the "Funds of
Funds") to acquire shares of management investment companies, including
-------------
(1) All references herein to the term "Advisor" include successors-in-interest
to the Advisor. A successor-in-interest is limited to an entity that
results from a reorganization into another jurisdiction or a change in the
type of business organization.
Page 2 of 41
registered open-end management investment companies (each an "Unaffiliated
Open-End Investment Company"), closed-end management investment companies,
including registered closed-end management investment companies and "business
development companies", as defined by Section 2(a)(48) of the 1940 Act
("business development companies")(2) (each registered closed-end management
investment company and each business development company, an "Unaffiliated
Closed-End Investment Company" and, together with the Unaffiliated Open-End
Investment Companies, the "Unaffiliated Investment Companies"), and registered
unit investment trusts ("UITs") (the "Unaffiliated Trusts," and together with
the Unaffiliated Investment Companies, the "Unaffiliated Funds"), in each case,
that are not part of the same "group of investment companies"(3) as the Funds of
Funds; (2) the Unaffiliated Funds, their principal underwriters and any broker
or dealer registered under the Securities Exchange Act of 1934, as amended (the
"1934 Act") ("Broker") to sell shares of such Unaffiliated Funds to the Funds of
Funds; (3) the Funds of Funds to acquire shares of other registered investment
companies, including open-end management investment companies and series
thereof, closed-end management investment companies and UITs in the same group
of investment companies as the Funds of Funds (collectively, the "Affiliated
Funds," and, together with the Unaffiliated Funds, the "Underlying Funds"(4);
and (4) the Affiliated Funds, their principal underwriters and any Broker to
sell shares of the Affiliated Funds to the Funds of Funds. The Applicants also
request that the Commission issue an order under Sections 6(c) and 17(b) of the
1940 Act exempting the transactions described in (1) through (4) above from
-------------
(2) While business development companies are not required to register under
the 1940 Act, they are subject to the provisions of Sections 55 through 65
thereof. The Applicants do not believe that investments in business
development companies present any particular considerations or concerns
that may be different from those presented by investments in registered
closed-end investment companies. Shares of business development companies,
like shares of registered closed-end investment companies, are traded on a
national securities exchange, thereby providing investors with the same
degree of liquidity as other publicly traded investments. In addition,
business development companies are registered under the Securities
Exchange Act of 1934, as amended, and their shares are registered under
the Securities Act of 1933, as amended, and are subject to all
registration and reporting requirements under those two statutes.
Accordingly, the Applicants do not believe, for purposes of the relief
requested herein, there are any fundamentally different issues between
investments in business development companies and investments in
registered closed-end investment companies.
(3) For purposes of this Application, the term "group of investment companies"
means any two or more registered investment companies, including
closed-end investment companies, that hold themselves out to investors as
related companies for purposes of investment and investor services.
(4) A Fund of Funds may invest in Unaffiliated Funds and/or Affiliated Funds.
In addition, certain of the Underlying Funds currently pursue, or may in
the future pursue, their investment objectives through a master-feeder
arrangement in reliance on Section 12(d)(1)(E) of the 1940 Act. Each Fund
of Funds may invest in an Underlying Fund that operates as a feeder fund
in a master-feeder arrangement. In accordance with Condition 12, a Fund of
Funds may not invest in an Underlying Fund that operates as a feeder fund
unless the feeder fund is part of the same "group of investment
companies," as defined in Section 12(d)(1)(G)(ii) of the 1940 Act, as its
corresponding master fund or the Fund of Funds. If a Fund of Funds invests
in an Affiliated Fund that operates as a feeder fund and the corresponding
master fund is not within the same "group of investment companies," as
defined in Section 12(d)(1)(G)(ii) of the 1940 Act, as the Fund of Funds
and Affiliated Fund, the master fund would be an Unaffiliated Fund for
purposes of this Application and its conditions.
Page 3 of 41
Section 17(a) of the 1940 Act to the extent necessary to permit such purchases
and redemptions by the Funds of Funds of shares of the Underlying Funds and to
permit sales and redemptions by the Underlying Funds of their shares in
transactions with the Funds of Funds, as and to the extent described in this
Application. Certain of the Underlying Funds may be registered under the 1940
Act as either UITs or open-end management investment companies and have obtained
exemptions from the Commission necessary to permit their shares to be listed and
traded on a national securities exchange at negotiated prices and, accordingly,
to operate as exchange-traded funds (collectively, "ETFs" and each, an "ETF").
In addition to investing in Underlying Funds, each Fund of Funds may invest in
other securities and financial instruments that are not issued by registered
investment companies or business development companies and that are consistent
with its investment objective(s) and restrictions.
The Applicants' requested relief differs from the existing precedent
granting exemptive relief from the limitations of Section 12(d)(1) of the 1940
Act to management investment companies only in that the Applicants seek an order
that would allow the Funds of Funds to invest in closed-end investment companies
in addition to open-end investment companies and UITs.(5) As discussed more
fully below, however, the Applicants' requested relief is consistent with the
protection of investors as well as with Section 12(d)(1) exemptive relief
previously granted to UITs permitting them to invest in closed-end funds.
The Applicants further request that the Commission issue an order under
Section 6(c) of the 1940 Act to permit any existing or future Fund of Funds that
relies on Section 12(d)(1)(G) of the 1940 Act ("Section 12(d)(1)(G) Fund of
Funds") and that otherwise complies with Rule 12d1-2 under the 1940 Act, to also
invest, to the extent consistent with its investment objective(s), policies,
strategies and limitations, in other financial instruments that may not be
securities within the meaning of Section 2(a)(36) of the 1940 Act ("Other
Investments").
All entities that currently intend to rely on the requested order are
named as Applicants. Any other entity that relies on the order in the future
will comply with the terms and conditions of this Application.(6)
II. THE APPLICANTS
A. THE ACQUIRING COMPANIES
Each Acquiring Company is or will be registered under the 1940 Act. Each
Acquiring Company other than First Defined was organized as a Massachusetts
business trust. The ETF Trusts have received and/or may rely on exemptive relief
-------------
(5) The Applicants note, however, that the Commission has recently issued a
Notice of Application with respect to an application for relief similar to
that requested by the Applicants relating to investments in closed-end
investment companies. In the Matter of Van Eck VIP Trust, et al.,
Investment Company Act Release No. 30063 (May 10, 2012).
(6) In no case will a Fund of Funds rely on the exemption from Section
12(d)(1) granted to First Trust Exchange-Traded Fund, et al. in 2007. In
the Matter of First Trust Exchange-Traded Fund, et al., Investment Company
Act Release Nos. 27812 (Apr. 30, 2007) (notice) and 27845 (May 30, 2007)
(order).
Page 4 of 41
to offer series that sell their shares on a national securities exchange at
negotiated prices.(7) Each ETF represents a separate investment portfolio. As of
the date of the filing of this Application, each ETF Trust other than First
Trust Exchange-Traded Fund III, First Trust Exchange-Traded Fund IV and First
Trust Exchange-Traded Fund V has series with publicly outstanding shares. In
addition, as of the date of the filing of this Application, the Series Trust has
two existing series with publicly outstanding shares.
First Defined, which is currently comprised of eight series (each, a
"First Defined Fund"), is organized as a Delaware limited liability company and,
as such, does not issue shares of stock. Instead, ownership rights are contained
in "membership interests" ("Interests"). Additional First Defined Funds may be
added in the future. Interests of the First Defined Funds are not offered
directly to the public, but rather are sold only to Prudential Annuities Life
Assurance Corporation Variable Account B ("Account B"), a separate account of
Prudential Annuities Life Assurance Corporation ("Prudential"), to fund the
benefits of variable annuity policies ("Policies") issued by Prudential. Account
B is the sole member of First Defined. Variable annuity owners of Account B who
have policy values allocated to any of the First Defined Funds ("contract
holders") have indirect rights in such First Defined Fund's interests. For
purposes of this Application, (1) registered separate accounts of insurance
companies are referred to as "Registered Separate Accounts," (2) unregistered
separate accounts of insurance companies are referred to as "Unregistered
Separate Accounts," and (3) Registered Separate Accounts and Unregistered
Separate Accounts are referred to collectively as "Separate Accounts."
B. THE ADVISOR
The Advisor, an Illinois limited partnership, is a registered investment
adviser under the Investment Advisers Act of 1940 with its principal office
located at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187. The
Advisor will serve as the investment adviser to each of the Funds of Funds.
-------------
(7) Pursuant to relief previously obtained, the applicable Applicants may, in
general terms, operate actively managed exchange-traded funds (i) 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)) and (ii) that invest
in fixed income securities and combinations of fixed income securities and
equity 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 applicable Applicants 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). Finally, certain of the ETF Trusts, the
Advisor and the Distributor have applied to the Commission for exemptive
relief to operate exchange-traded funds that, in general terms, invest in
fixed income securities and combinations of fixed income securities and
equity securities selected to correspond generally to the price and yield
performance of a specified domestic or international securities index.
Page 5 of 41
C. THE DISTRIBUTOR
The Distributor is a Broker and currently serves as the principal
underwriter and distributor for the Funds. The Applicants request that the order
requested herein apply to the Distributor and to any future principal
underwriter and distributor for any of the Funds that complies with the terms
and conditions of this Application.
III. INVESTMENT STRATEGIES OF THE FUNDS
Each Fund's investment objective(s) and investment strategies are or will
be described in its prospectus and statement of additional information and each
Fund will pursue its own investment objective(s) and strategies. Certain Funds
are or may be structured as "funds of funds," as they invest or may invest a
portion or all of their assets in the securities of investment companies.
Because certain Funds invest in the shares of the Underlying Funds, they are
subject to the limitations of Section 12(d)(1) of the 1940 Act, which, as
described in further detail below, limits the ability of investment companies to
invest their assets in, or sell their assets to, other investment companies.
The Advisor seeks to create Funds that invest in securities that are
issued by entities that are registered investment companies or business
development companies, including securities that are also held, or that may be
held, by UITs sponsored and deposited by the Distributor (each, a "First Trust
UIT" and, collectively, the "First Trust UITs"). The Advisor serves as the
portfolio supervisor and evaluator for the First Trust UITs. Certain of the
First Trust UITs invest in securities of other investment companies in reliance
on an order from the Commission pursuant to Section 12(d)(1)(J) of the 1940 Act
(the "UIT Order").(8) The UIT Order permits each First Trust UIT to acquire
shares of registered investment companies in excess of the percentage limits set
by Sections 12(d)(1)(A) and (C) of the 1940 Act. It also permits such registered
investment companies to sell such shares to a First Trust UIT in excess of the
limitations set forth in Section 12(d)(1)(B) of the 1940 Act.
Section 12(d)(1)(F) of the 1940 Act exempts a registered investment
company from the limits of Section 12(d)(1) on investing in other investment
companies so long as the acquiring fund complies with the limits set forth
therein. More specifically, Section 12(d)(1)(F)(i) provides that immediately
after the purchase or acquisition of the securities of another investment
company, not more than 3% of the total outstanding stock of such issuer may be
owned by such registered investment company and all affiliated persons of such
registered investment company. Over time, compliance with the requirements of
Section 12(d)(1)(F) has become more difficult as new Funds have been created and
as the Funds have gathered additional assets.
The restrictions of Section 12(d)(1), coupled with the increasing
difficulty in complying with Section 12(d)(1)(F), could inhibit the ability of
the Advisor to develop and market new products with investment objectives and/or
-------------
(8) See Investment Company Act Release Nos. 26261 (Nov. 21, 2003) (notice) and
26297 (Dec. 17, 2003) (order).
Page 6 of 41
strategies that would include investing in other investment companies. In view
of the foregoing, the Applicants are seeking exemptive relief from Section
12(d)(1) as specified herein.
IV. APPLICABLE LAW AND LEGAL ANALYSIS
A. SECTION 12(D)(1)
(1) EXPLANATION OF SECTION 12(D)(1)
Section 12(d)(1) of the 1940 Act generally makes it unlawful for a
registered investment company to purchase or otherwise acquire any security
issued by another investment company except in accordance with the limits set
forth in that Section. Section 12(d)(1) of the 1940 Act was enacted to prevent
unregulated pyramiding of investment companies and the abuses that are perceived
to arise from such pyramiding such as:
o duplicative costs;
o the exercise of undue influence or control over the underlying
funds; and
o the complexity of such arrangements.(9)
Specifically, Section 12(d)(1)(A) of the 1940 Act prohibits a registered
investment company from acquiring the securities of any other investment company
if, immediately after the acquisition: (a) the acquiring company owns more than
3% of the total outstanding voting stock of the acquired company, (b) the value
of the securities of the acquired company exceeds 5% of the total assets of the
acquiring company, or (c) the aggregate value of those securities and the
securities of all other investment companies owned by the acquiring company
exceeds 10% of its total assets.
Section 12(d)(1)(B) of the 1940 Act prohibits a registered open-end
investment company, its principal underwriter and any broker or dealer from
selling or otherwise disposing of any of the shares of the investment company to
another investment company if immediately after such sale or disposition: (a)
more than 3% of the total outstanding voting stock of the acquired company is
owned by the acquiring company and any company or companies controlled by it, or
(b) more than 10% of the total outstanding voting stock of the acquired company
is owned by the acquiring company and other investment companies and companies
controlled by them.
Section 12(d)(1)(C) provides, in pertinent part, that "[i]t shall be
unlawful for any investment company (the 'acquiring company') and any company or
companies controlled by the acquiring company to purchase or otherwise acquire
any security issued by a registered closed-end investment company, if
immediately after such purchase or acquisition the acquiring company, other
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(9) See Report of the Commission on the Public Policy Implications of
Investment Company Growth, in H.R. Rep. No. 2337, at 311-24 (1966) (the
"PPI Report").
Page 7 of 41
investment companies having the same investment adviser, and companies
controlled by such investment companies, own more than 10 per centum of the
total outstanding voting stock of such closed-end company."
(2) REQUEST FOR AN ORDER OF EXEMPTION PURSUANT TO SECTION 12(D)(1)(J)
Section 12(d)(1)(J) 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 provision of Section 12(d)(1) if the
exemption is consistent with the public interest and the protection of
investors. Therefore, the Applicants request an exemption under Section
12(d)(1)(J) of the 1940 Act from the limitations of Sections 12(d)(1)(A), (B)
and (C) to the extent necessary to permit: (i) the Funds of Funds to acquire
shares of Underlying Funds in excess of the limits set forth in Section
12(d)(1)(A) and (C) of the 1940 Act; and (ii) the Underlying Funds, their
principal underwriters and any Broker to sell shares of the Underlying Funds to
the Funds of Funds in excess of the limits set forth in Section 12(d)(1)(B) of
the 1940 Act.
For the reasons discussed below, the proposed arrangement will not give
rise to the policy concerns, each discussed specifically below, which underlie
Sections 12(d)(1)(A), (B) and (C). Accordingly, the Applicants believe that the
requested exemptions are consistent with the public interest and protection of
investors.
(3) NO UNDUE INFLUENCE
The Applicants submit that the proposed structure will not result in the
exercise of undue influence by a Fund of Funds or its affiliated persons over
the Underlying Funds. The concern about undue influence does not arise in
connection with a Fund of Funds' investment in the Affiliated Funds, since they
are part of the same group of investment companies. Each Unaffiliated Investment
Company will operate independently as determined by its own board of directors
or trustees ("Board")(10) and management. Moreover, Applicants represent that,
to the extent they are relying on the requested order, they will not invest in
the Underlying Funds with any purpose, or with the effect of, changing or
influencing the control of the Underlying Funds, or in connection with or as a
participant in any transaction having that purpose or effect(11), and they will
not take any action to influence the investment advisers or Boards of the
Underlying Funds. Additionally, to limit the control a Fund of Funds or its
affiliated persons may have over an Unaffiliated Fund, the Applicants submit
that as reflected in Condition 1:
o the Advisor and any person controlling, controlled by or under
common control with the Advisor, and any investment company and any
issuer that would be an investment company but for Section 3(c)(1)
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(10) The term "Board," as used in this Application, refers to the board of
directors or trustees, as applicable, of the specified entity.
(11) Applicants acknowledge the requirement to file a Schedule 13G with the
Commission with respect to beneficial ownership of more than 5% of any
equity security issued by an Underlying Fund that is a closed-end fund.
Page 8 of 41
or Section 3(c)(7) of the 1940 Act advised or sponsored by the
Advisor or any person controlling, controlled by or under common
control with the Advisor (collectively, the "Group") will not
control (individually or in the aggregate) an Unaffiliated Fund
within the meaning of Section 2(a)(9) of the 1940 Act, and
o any other investment adviser within the meaning of Section
2(a)(20)(B) of the 1940 Act to a Fund of Funds ("Sub-Adviser") and
any person controlling, controlled by or under common control with
the Sub-Adviser, and any investment company or issuer that would be
an investment company but for Section 3(c)(1) or 3(c)(7) of the 1940
Act (or portion of such investment company or issuer) advised by the
Sub-Adviser or any person controlling, controlled by or under common
control with the Sub-Adviser (collectively, the "Sub-Adviser Group")
will not control (individually or in the aggregate) an Unaffiliated
Fund within the meaning of Section 2(a)(9) of the 1940 Act.
With respect to a Fund's investment in an Unaffiliated Closed-End
Investment Company, (i) each member of the Group or Sub-Adviser Group that is an
investment company or an issuer that would be an investment company but for
Section 3(c)(1) or 3(c)(7) of the 1940 Act will vote its shares of the
Unaffiliated Closed-End Investment Company in the manner prescribed by Section
12(d)(1)(E) of the 1940 Act and (ii) each other member of the Group or
Sub-Adviser Group will vote its shares of the Unaffiliated Closed-End Investment
Company in the same proportion as the vote of all other holders of the same type
of such Unaffiliated Closed-End Investment Company's shares (except that any
member of the Group or Sub-Adviser Group that is a Separate Account will instead
be subject to the voting procedures described below). If, as a result of a
decrease in the outstanding voting securities of an Unaffiliated Fund, the Group
or a Sub-Adviser Group, each in the aggregate, becomes a holder of more than 25%
of the outstanding voting securities of any other Unaffiliated Fund, then it
(except for any member of the Group or Sub-Adviser Group that is a Separate
Account) will vote its shares of the Unaffiliated Fund in the same proportion as
the vote of all other holders of the Unaffiliated Fund's shares. This condition
will not apply to the Sub-Adviser Group with respect to an Unaffiliated Fund for
which the Sub-Adviser or a person controlling, controlled by or under common
control with the Sub-Adviser acts as the investment adviser within the meaning
of Section 2(a)(20)(A) of the 1940 Act (in the case of an Unaffiliated
Investment Company) or as the sponsor (in the case of an Unaffiliated Trust).
A Registered Separate Account will seek voting instructions from its
contract holders and will vote its shares of an Unaffiliated Fund in accordance
with the instructions received and will vote those shares for which no
instructions were received in the same proportion as the shares for which
instructions were received. An Unregistered Separate Account will either (a)
vote its shares of the Unaffiliated Fund in the same proportion as the vote of
all other holders of the Unaffiliated Fund's shares or (b) seek voting
instructions from its contract holders and vote its shares in accordance with
the instructions received and vote those shares for which no instructions were
received in the same proportion as the shares for which instructions were
received.
Page 9 of 41
To further limit the potential for undue influence by a Fund of Funds
and/or its affiliated persons over an Unaffiliated Fund, Condition 2 precludes a
Fund of Funds or the Advisor, any Sub-Adviser, promoter or principal underwriter
of a Fund of Funds, as well as any person controlling, controlled by or under
common control with any of those entities (each, a "Fund of Funds Affiliate")
from taking advantage of an Unaffiliated Fund with respect to transactions
between a Fund of Funds or a Fund of Funds Affiliate and the Unaffiliated Fund
or its investment adviser(s), sponsor, promoter and principal underwriter and
any person controlling, controlled by or under common control with any of those
entities (each, an "Unaffiliated Fund Affiliate"). No Fund of Funds or Fund of
Funds Affiliate will cause any existing or potential investment by the Fund of
Funds in shares of an Unaffiliated Fund to influence the terms of any services
or transactions between the Fund of Funds or a Fund of Funds Affiliate and the
Unaffiliated Fund or an Unaffiliated Fund Affiliate.
With respect to investing in Unaffiliated Investment Companies, in seeking
to limit the potential for undue influence and conflicts of interest, Condition
3 provides that prior to investing in Unaffiliated Investment Companies, the
Board of each Fund of Funds, including a majority of the trustees who are not
"interested persons" as defined in Section 2(a)(19) of the 1940 Act (the
"Independent Trustees"), will adopt procedures reasonably designed to ensure
that the Advisor and any Sub-Adviser to the Fund of Funds are conducting the
investment program of the Fund of Funds without taking into account any
consideration the Fund of Funds or a Fund of Funds Affiliate receives from an
Unaffiliated Trust or any Unaffiliated Investment Company or an Unaffiliated
Fund Affiliate of such Unaffiliated Investment Company or Unaffiliated Trust in
connection with any services or transactions.
Condition 4 further provides that once an investment by a Fund of Funds in
the securities of an Unaffiliated Investment Company exceeds the limit of
Section 12(d)(1)(A)(i) of the 1940 Act, the Board of the Unaffiliated Investment
Company, including a majority of the Independent Trustees, will determine that
any consideration paid by the Unaffiliated Investment Company to the Fund of
Funds or a Fund of Funds Affiliate in connection with any services or
transactions: (a) is fair and reasonable in relation to the nature and quality
of services and benefits received by the Unaffiliated Investment Company; (b) is
within the range of consideration that the Unaffiliated Investment Company would
be required to pay to another unaffiliated entity in connection with the same
services or transactions; and (c) does not involve overreaching on the part of
any person concerned. This condition will not apply with respect to any services
or transactions between an Unaffiliated Investment Company and its investment
adviser(s), or any person controlling, controlled by or under common control
with such investment adviser(s).
Additionally, Condition 5 provides that no Fund of Funds or Fund of Funds
Affiliate (except to the extent it is acting in its capacity as an investment
adviser to an Unaffiliated Investment Company or sponsor to an Unaffiliated
Trust) will cause an Unaffiliated Fund to purchase a security in an offering of
securities during the existence of any underwriting or selling syndicate of
which a principal underwriter is an officer, director, trustee, advisory board
member, investment adviser, sub-adviser or employee of the Fund of Funds, or a
person of which any such officer, director, trustee, investment adviser,
sub-adviser, member of an advisory board or employee is an affiliated person
(each, an "Underwriting Affiliate," except that any person whose relationship to
the Unaffiliated Fund is covered by Section 10(f) of the 1940 Act is not an
Page 10 of 41
Underwriting Affiliate). An offering of securities during the existence of an
underwriting or selling syndicate of which a principal underwriter is an
Underwriting Affiliate is referred to as an "Affiliated Underwriting."
Condition 6 further requires that the Board of an Unaffiliated Investment
Company, including a majority of the Independent Trustees, will adopt procedures
reasonably designed to monitor any purchases of securities by the Unaffiliated
Investment Company in an Affiliated Underwriting once an investment by a Fund of
Funds in the securities of the Unaffiliated Investment Company exceeds the limit
of Section 12(d)(1)(A)(i) of the 1940 Act, including any purchases made directly
from an Underwriting Affiliate. The Board of the Unaffiliated Investment Company
will be required to review these procedures periodically, but no less frequently
than annually, to determine whether the purchases were influenced by the
investment by the Fund of Funds in the Unaffiliated Investment Company. The
Board of the Unaffiliated Investment Company will be required to consider, among
other things: (a) whether the purchases were consistent with the investment
objective(s) and policies of the Unaffiliated Investment Company; (b) how the
performance of securities purchased in an Affiliated Underwriting compares to
the performance of comparable securities purchased during a comparable period of
time in underwritings other than Affiliated Underwritings or to a benchmark such
as a comparable market index; and (c) whether the amount of securities purchased
by the Unaffiliated Investment Company in Affiliated Underwritings and the
amount purchased directly from an Underwriting Affiliate have changed
significantly from prior years. The Board of the Unaffiliated Investment Company
will be required to take any appropriate actions based on its review, including,
if appropriate, the institution of procedures designed to assure that purchases
of securities in Affiliated Underwritings are in the best interests of
shareholders.
Condition 7 will require that the Unaffiliated Investment Company keep
records concerning its purchases in Affiliated Underwritings. Specifically, the
Unaffiliated Investment Company will be required to maintain and preserve
permanently, in an easily accessible place, a written copy of the procedures
described above, and any modifications to such procedures, and to maintain and
preserve for a period of not less than six years from the end of the fiscal year
in which any purchase in an Affiliated Underwriting occurred, the first two
years in an easily accessible place, a written record of each such purchase made
once an investment by a Fund of Funds in the securities of an Unaffiliated
Investment Company exceeds the limit of Section 12(d)(1)(A)(i) of the 1940 Act,
setting forth from whom the securities were acquired, the identity of the
underwriting syndicate's members, the terms of the purchase, and the information
or materials upon which the determinations of the Board of the Unaffiliated
Investment Company were made.
To further ensure that an Unaffiliated Investment Company understands and
appreciates the implications of a Fund of Funds' investment under the requested
exemptive relief, as required by Condition 8, prior to its investment in the
shares of an Unaffiliated Investment Company in excess of the limit of Section
12(d)(1)(A)(i) of the 1940 Act, a Fund of Funds and the Unaffiliated Investment
Company will execute an agreement stating, without limitation, that each of
their Boards and their investment advisers understand the terms and conditions
of the order and agree to fulfill their responsibilities under the order (the
"Participation Agreement"). At the time of its investment in shares of an
Unaffiliated Investment Company in excess of the limit in Section
Page 11 of 41
12(d)(1)(A)(i), a Fund of Funds will notify the Unaffiliated Investment Company
of the investment. At such time, the Fund of Funds also will transmit to the
Unaffiliated Investment Company a list of the names of each Fund of Funds
Affiliate and Underwriting Affiliate. The Fund of Funds will notify the
Unaffiliated Investment Company of any changes to the list of names as soon as
reasonably practicable after a change occurs. The Unaffiliated Investment
Company and the Fund of Funds will be required to maintain and preserve a copy
of the order, the Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not less than
six years thereafter, the first two years in an easily accessible place. An
Unaffiliated Investment Company (other than an ETF or closed-end fund whose
shares are purchased by a Fund of Funds in the secondary market) will retain its
right at all times to reject any investment by a Fund of Funds.(12)
In contrast to open-end investment companies, closed-end investment
companies do not issue redeemable securities. Accordingly, the threat of
large-scale redemptions is non-existent with respect to Unaffiliated Closed-End
Investment Companies. However, closed-end investment companies are generally
required to hold annual meetings at which directors are elected and shareholder
proposals respecting a variety of matters relating to the management and
operations of the funds may be presented including, among other things,
proposals to terminate the investment advisory contract or to convert the fund
to an open-end fund. By contrast, open-end investment companies generally are
not required to hold shareholder meetings except in special circumstances.
Therefore, with respect to closed-end funds, concerns arise that Unaffiliated
Closed-End Investment Companies may be unduly influenced by a holder's ability
to vote a large block of stock. As the Commission observed in the PPI Report:
Although the acquisition of the stock of closed-end companies does not
pose the same problem of control through the right of redemption, the
power to vote a significant block of stock of a closed-end company may
represent the potential for exercise of control.(13)
The concerns of undue influence through voting the securities of the
Unaffiliated Closed-End Investment Companies, however, have been addressed in
Condition 1, as noted above. Coupled with the requirement that the Group will
not control (individually or in the aggregate) an Unaffiliated Fund within the
meaning of Section 2(a)(9) of the 1940 Act, apart from special voting procedures
for members of the Group or Sub-Adviser Group that are Separate Accounts, (i)
each member of the Group or Sub-Adviser Group that is an investment company or
an issuer that would be an investment company but for Section 3(c)(1) or 3(c)(7)
of the 1940 Act will vote its shares of the Unaffiliated Closed-End Investment
Company in the manner prescribed by Section 12(d)(1)(E) of the 1940 Act and (ii)
each other member of the Group or Sub-Adviser Group will vote its shares of the
Unaffiliated Closed-End Investment Company in the same proportion as the vote of
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(12) An Unaffiliated Investment Company (including an ETF or an Unaffiliated
Closed-End Investment Company) would retain its right to reject any
initial investment by a Fund of Funds in excess of the limits in Section
12(d)(1)(A)(i) of the 1940 Act by declining to execute the Participation
Agreement with the Fund of Funds. In addition, solely upon notice to a
Fund of Funds, an Unaffiliated Fund could terminate a Participation
Agreement with the Fund of Funds, effective at the end of the notice
period specified in such Participation Agreement.
(13) See PPI Report at 324.
Page 12 of 41
all other holders of the same type of such Unaffiliated Closed-End Investment
Company's shares (i.e., mirror voting). Similarly, the voting procedures
applicable to Separate Accounts impose mirror voting by requiring that (i) a
Registered Separate Account seek voting instructions from its contract holders
and vote its shares of an Unaffiliated Fund (which would include an Unaffiliated
Closed-End Investment Company) in accordance with the instructions received and
vote those shares for which no instructions were received in the same proportion
as the shares for which instructions were received and (ii) an Unregistered
Separate Account either (a) vote its shares of the Unaffiliated Fund in the same
proportion as the vote of all other holders of the Unaffiliated Fund's shares or
(b) seek voting instructions from its contract holders and vote its shares in
accordance with the instructions received and vote those shares for which no
instructions were received in the same proportion as the shares for which
instructions were received. These requirements for mirror voting ensure that the
Fund of Funds will not have an effective voice over the management and
operations of the Unaffiliated Closed-End Investment Company. They are imposed
regardless of the amount of shares of the Unaffiliated Closed-End Investment
Company owned by the Fund of Funds. Unlike activist shareholders who acquire
closed-end fund shares to influence the policies of such funds, the Fund of
Funds is a passive investor with respect to voting. The mirror voting eliminates
the ability of the Fund of Funds to influence the Unaffiliated Closed-End
Investment Company through voting its shares. In addition to mirror voting, the
Applicants also recognize the requirement to file Schedule 13G with respect to
beneficial ownership of more than 5% of any equity securities issued by the
Unaffiliated Closed-End Investment Company. Schedule 13G requires the filer to
certify that it has acquired such securities in the ordinary course of business
and not with the purpose nor with the effect of changing or influencing the
control of the issuer, nor in connection with or as a participant in any
transaction having such purpose or effect. Applicants believe the foregoing
conditions address the concerns of undue influence underlying Section 12(d)(1).
(4) NO EXCESSIVE LAYERING OF FEES
Based on the proposed structure, the Applicants do not believe the
arrangement will result in excessive layering of fees because the arrangement
includes safeguards designed to address this issue. Within the structure, the
Underlying Funds may pay advisory fees to their adviser. In addition, the
Underlying Funds will pay fees to their service providers for all other services
relating to their operations, including custody, transfer agency and fund
administration (e.g., fund accounting). Underlying Funds may also impose Rule
12b-1 fees or service fees from which payments are made to third parties for
providing administrative, sub-transfer agency or other services beneficial to
shareholders. Shareholders of each Fund of Funds indirectly will pay their
proportionate share of any Underlying Fund fees and expenses.
Each Fund of Funds will also pay its own advisory, administrative,
custody, transfer agency, legal, accounting and other expenses. Such services to
the Funds of Funds are different from the services provided to the Underlying
Funds because each Fund of Funds is a separate entity with its own advisory,
administrative, compliance, record keeping, and custody needs.
Page 13 of 41
To ensure that the investment advisory or management fees are not
duplicative, prior to reliance on the requested order and subsequently in
connection with the approval of any investment advisory or management contract
under Section 15 of the 1940 Act, the Board of each Fund of Funds, including a
majority of the Independent Trustees, will find that the management or advisory
fees charged under a Fund of Funds' advisory contract are based on services
provided that are in addition to, rather than duplicative of, services provided
under the advisory contract(s) of any Underlying Fund in which the Fund of Funds
may invest. Such finding, and the basis upon which the finding was made, will be
recorded fully in the minute books of the appropriate Fund of Funds.
In addition, the Advisor will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including fees
received pursuant to any plan adopted by an Unaffiliated Investment Company
pursuant to Rule 12b-1 under the 1940 Act) received from an Unaffiliated Fund by
the Advisor, or an affiliated person of the Advisor, other than any advisory
fees paid to the Advisor or an affiliated person of the Advisor by the
Unaffiliated Investment Company, in connection with the investment by the Fund
of Funds in the Unaffiliated Fund. Any Sub-Adviser for a Fund of Funds will
waive fees otherwise payable to the Sub-Adviser, directly or indirectly, by the
Fund of Funds in an amount at least equal to any compensation received by the
Sub-Adviser, or an affiliated person of the Sub-Adviser, from an Unaffiliated
Fund, other than any advisory fees paid to the Sub-Adviser or its affiliated
person by the Unaffiliated Investment Company, in connection with the investment
by the Fund of Funds in the Unaffiliated Fund made at the direction of the
Sub-Adviser. In the event that the Sub-Adviser waives fees, the benefit of the
waiver will be passed through to the Fund of Funds.
With respect to Registered Separate Accounts that invest in a Fund of
Funds, no sales load will be charged at the Fund of Funds level or at the
Underlying Fund level. Other sales charges and service fees, as defined in Rule
2830 of the Conduct Rules of the NASD ("NASD Conduct Rule 2830"),(14) if any,
will only be charged at the Fund of Funds level or at the Underlying Fund level,
not both. With respect to other investments in a Fund of Funds, any sales
charges and/or service fees charged with respect to shares of a Fund of Funds
will not exceed the limits applicable to funds of funds set forth in NASD
Conduct Rule 2830. In this regard, Applicants note that with respect to
closed-end funds, shares of closed-end funds generally are purchased in the
secondary market without sales loads (although the Fund of Funds may incur
customary brokerage commissions) and closed-end funds do not pay 12b-1 fees.
Accordingly, there should be no concern of layering of sales loads and 12b-1
fees when the Underlying Fund is a closed-end fund.
(5) STRUCTURE IS NOT OVERLY COMPLEX
The proposed arrangement will not create an overly complex fund structure
that would confuse investors because no Underlying Fund will acquire securities
of any other investment company or company relying on Section 3(c)(1) or 3(c)(7)
of the 1940 Act in excess of the limits contained in Section 12(d)(1)(A) of the
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(14) Any references to NASD Conduct Rule 2830 include any successor or
replacement FINRA rule to NASD Conduct Rule 2830.
Page 14 of 41
1940 Act, except to the extent that such Underlying Fund (a) acquires such
securities in compliance with Section 12(d)(1)(E) of the 1940 Act and either is
an Affiliated Fund or is in the same "group of investment companies" as its
corresponding master fund; (b) receives securities of another investment company
as a dividend or as a result of a plan of reorganization of a company (other
than a plan devised for the purpose of evading Section 12(d)(1) of the 1940
Act); or (c) acquires (or is deemed to have acquired) securities of another
investment company pursuant to exemptive relief from the Commission permitting
such Underlying Fund to: (i) acquire securities of one or more investment
companies for short-term cash management purposes or (ii) engage in inter-fund
borrowing and lending transactions.
Additionally, the proposed arrangement will not confuse investors because
the Funds of Funds' prospectus and sales literature will contain clear, concise
"plain English" disclosure designed to inform investors about the unique
characteristics of the proposed arrangement, including, but not limited to, the
expense structure and the additional expenses of investing in Underlying Funds.
In the case of those Underlying Funds that operate using a master-feeder
structure, having a Fund of Funds as an investor could result in a three-tier
arrangement (a Fund of Funds investing in a feeder fund investing in a master
fund). However, the Applicants do not believe that this will result in an overly
complex structure. The master-feeder arrangement is entirely transparent. For
any investor, whether a Fund of Funds or any other investor, an investment in an
Underlying Fund that was a feeder fund in a master-feeder arrangement would be
no different than investing in an Underlying Fund that does not use a
master-feeder arrangement (i.e., an Underlying Fund that invests directly in
portfolio securities).
B. SECTION 17(A)
Section 17(a) of the 1940 Act prohibits the purchase or sale of securities
between a registered investment company and its affiliated persons or affiliated
persons of such persons. An "affiliated person" of another person is defined in
Section 2(a)(3) of the 1940 Act as:
(A) any person directly or indirectly owning, controlling or holding
with power to vote, 5 per centum or more of the outstanding voting
securities of such other person; (B) any person 5 per centum or more
of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other person;
(C) any person directly or indirectly controlling, controlled by, or
under common control with, such other person; (D) any officer,
director, partner, copartner, or employee of such other person; (E)
if such other person is an investment company, any investment
adviser thereof or any member of an advisory board thereof; and (F)
if such other person is an unincorporated investment company not
having a board of directors, the depositor thereof.
Page 15 of 41
The sale of shares by the Underlying Funds organized as open-end
investment companies ("Underlying Open-End Funds") to the Funds of Funds and the
purchase of those shares from the Funds of Funds by the Underlying Open-End
Funds (through redemptions) could be deemed to be principal transactions between
an affiliated person of a registered investment company and that company under
Section 17(a).(15) For example, because the Advisor serves as investment adviser
to the Funds of Funds and to the Affiliated Funds, the Funds of Funds and the
Affiliated Funds may be deemed to be under the common control of the Advisor
and, therefore, affiliated persons of one another. The Funds of Funds and the
Underlying Open-End Funds may also be deemed to be affiliated persons of one
another if a Fund of Funds owns 5% or more of the outstanding voting securities
of one or more of such Underlying Open-End Funds.
Section 17(b) of the 1940 Act, however, permits the Commission to grant an
order permitting such transactions as otherwise might be prohibited under
Section 17(a) if the Commission finds that: (1) the terms of the proposed
transaction, including the consideration to be paid or received, are reasonable
and fair and do not involve overreaching on the part of any person concerned;
(2) the proposed transaction is consistent with the policy of each registered
investment company concerned; and (3) the proposed transaction is consistent
with the general purposes of the 1940 Act.
Additionally, Section 6(c) of the 1940 Act provides that: "[t]he
Commission, by rules and regulations upon its own motion, or by order upon
application, may conditionally or unconditionally exempt any person, security,
or transaction, or any class or classes of persons, securities, or transactions,
from any provision or provisions of this title or of any rule or regulation
thereunder, if and to the extent that 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 this title."
The Applicants believe that the proposed transactions satisfy the
requirements for relief under both Sections 17(b) and 6(c) of the 1940 Act as
the terms are fair and reasonable and do not involve overreaching. The terms
upon which an Underlying Open-End Fund will sell its shares to or purchase its
shares from a Fund of Funds will be based on the net asset value of each
Underlying Open-End Fund.(16) Finally, the proposed transactions will be
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(15) The Applicants acknowledge that receipt of any compensation by (a) an
affiliated person of a Fund of Funds, or an affiliated person of such
person, for the purchase by the Fund of Funds of shares of an Underlying
Fund or (b) an affiliated person of an Underlying Fund, or an affiliated
person of such person, for the sale by the Underlying Fund of its shares
to a Fund of Funds may be prohibited by Section 17(e) of the 1940 Act. The
Participation Agreement also will include this acknowledgement.
(16) The Applicants note that a Fund of Funds generally would purchase and sell
shares of an Underlying Fund that operates as an ETF through secondary
market transactions rather than through principal transactions with the
Underlying Fund. Applicants nevertheless request relief from Sections
17(a)(l) and (2) to permit each Fund of Funds that is an affiliated
person, or an affiliated person of an affiliated person, as defined in
Section 2(a)(3) of the 1940 Act, of an ETF to purchase or redeem shares
from the ETF. The Applicants are not seeking relief from Section 17(a)
for, and the requested relief will not apply to, transactions where an ETF
could be deemed an affiliated person, or an affiliated person of an
affiliated person, of a Fund of Funds because an investment adviser to the
ETF is also an investment adviser to the Fund of Funds. Applicants note
that a Fund of Funds will purchase and sell shares of an Underlying Fund
Page 16 of 41
consistent with the policies of each Fund of Funds and Underlying Open-End Fund,
and with the general purposes of the 1940 Act. The investment by a Fund of Funds
in shares of the Underlying Open-End Funds and the issuance of shares of the
Underlying Open-End Funds to a Fund of Funds will be effected in accordance with
the investment policies contained in the registration statement of such Fund of
Funds and the Underlying Fund.
C. RULE 12D1-2 RELIEF
(1) EXPLANATION OF RULE 12D1-2
Section 12(d)(1) of the 1940 Act generally makes it unlawful for a
registered investment company to purchase or otherwise acquire any security
issued by another investment company except in accordance with the limits set
forth in that Section. Section 12(d)(1)(G) of the 1940 Act, in relevant part,
provides that Section 12(d)(1) will not apply to securities of a registered
open-end investment company or a registered UIT (hereinafter in this paragraph
referred to as the "acquired company") purchased or otherwise acquired by a
registered open-end investment company or a registered UIT (hereinafter in this
paragraph referred to as the "acquiring company"), if (a) the acquired company
and the acquiring company are part of the same "group of investment companies,"
(b) securities of the acquired company, securities of other registered open-end
investment companies and registered UITs that are part of the same "group of
investment companies," Government securities, and short-term paper are the only
investments held by the acquiring company, (c) the aggregate sales loads and
distribution-related fees of the acquiring company and acquired company are not
excessive under rules adopted pursuant to Section 22(b) or Section 22(c) of the
1940 Act by a securities association registered under Section 15A of the 1934
Act or by the Commission, and (d) the acquired company has a policy that
prohibits it from acquiring any securities of registered open-end investment
companies or registered UITs in reliance on Section 12(d)(1)(G) or Section
12(d)(1)(F).
In 2006, the Commission adopted Rule 12d1-2 under the 1940 Act.(17) Rule
12d1-2 permits a registered open-end investment company or a registered UIT that
relies on Section 12(d)(1)(G) of the 1940 Act to acquire, in addition to
securities issued by another registered investment company in the same group of
investment companies, Government securities, and short-term paper: (1)
securities issued by an investment company that is not in the same group of
investment companies, when the acquisition is in reliance on Section 12(d)(1)(A)
or 12(d)(1)(F) of the 1940 Act; (2) securities (other than securities issued by
an investment company); and (3) securities issued by a money market fund, when
the investment is in reliance on Rule 12d1-1 under the 1940 Act. For the
purposes of Rule 12d1-2, the term "securities" means any security as that term
is defined in Section 2(a)(36) of the 1940 Act.(18) The Commission noted in the
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that is a closed-end fund through secondary market transactions at market
prices rather than through principal transactions with the closed-end
fund. Accordingly, Applicants are not requesting Section 17(a) relief with
respect to principal transactions with closed-end funds.
(17) See Fund of Funds Investments, Investment Company Act Release No. 27399
(June 20, 2006) (the "Rule 12d1-2 Adopting Release").
(18) See id. at 17, n.58.
Page 17 of 41
Rule 12d1-2 Adopting Release that permitting an affiliated fund of funds to
invest, consistent with the fund's investment policies, directly in stocks,
bonds, and other types of securities "would allow an acquiring fund greater
flexibility in meeting investment objectives that may not be met as well by
investments in other funds in the same fund group, while not presenting any
additional concerns that Section 12(d)(1)(G) was intended to address."(19) The
adoption of Rule 12d1-2 also reflects the Commission's response to Congress'
expectation "that the Commission will use this authority [set forth in Section
12(d)(1)(J)] to adopt rules and process exemptive applications in the fund of
funds area in a progressive way as the fund of funds concept continues to evolve
over time."(20)
Section 6(c) of the 1940 Act provides a means for the Commission to
respond to developments in the financial markets not specifically contemplated
when the 1940 Act was passed or subsequently amended. It permits the Commission
to grant exemptions from particular provisions of the 1940 Act, or any rule
thereunder, that would inhibit the development of new and innovative investment
products. Section 6(c) of the Act provides that the Commission may exempt any
person, security, or transaction, or any class or classes of persons, securities
or transactions, from any provision or provisions of the 1940 Act or of any rule
or regulation thereunder, if and to the extent that 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.
(2) BASIS FOR RULE 12D1-2 RELIEF
The opportunity to invest in Other Investments will allow a Section
12(d)(1)(G) Fund of Funds greater flexibility to meet its investment objective.
A Section 12(d)(1)(G) Fund of Funds would use Other Investments for a purpose
that is consistent with its investment objective, policies, strategies and
limitations. Consistent with its fiduciary obligations under the 1940 Act, a
Section 12(d)(1)(G) Fund of Funds' Board will review the advisory fees charged
by the Section 12(d)(1)(G) Fund of Funds' investment adviser(s) to ensure that
the fees are based on services provided that are in addition to, rather than
duplicative of, services provided pursuant to the advisory agreement of any
investment company in which the Section 12(d)(1)(G) Fund of Funds may invest.
The Applicants request an order under Section 6(c) of the 1940 Act for an
exemption from Rule 12d1-2(a) thereunder to allow the Section 12(d)(1)(G) Funds
of Funds to invest in Other Investments. The Applicants state that the proposed
arrangement would comply with Rule 12d1-2 under the 1940 Act, but for the fact
that the Section 12(d)(1)(G) Funds of Funds may invest a portion of their assets
in Other Investments. The Applicants believe that permitting a Section
12(d)(1)(G) Fund of Funds to invest in Other Investments would not raise any of
the concerns that Section 12(d)(1) of the 1940 Act, as originally adopted and as
amended in 1970, was intended to address, namely: (1) undue influence over
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(19) Id. at 17-18.
(20) See H.R. Rep. No. 622, 104th Cong. 2nd Sess., at 43-44 (1996).
Page 18 of 41
portfolio management of underlying funds through the threat of large-scale
redemptions; (2) unnecessary duplication of costs (such as sales loads, advisory
fees and administrative costs); (3) pyramiding of voting control of the
underlying funds; and (4) complex pyramidal structures that may be confusing to
investors.(21) Section 12(d)(1)(G) reflects a determination by Congress that
certain fund of funds arrangements do not raise the concerns underlying the
prohibitions in Sections 12(d)(1)(A) and 12(d)(1)(B). Section 12(d)(1)(G)
addresses these concerns by (i) requiring that the acquiring company and the
acquired company be part of the same group of investment companies, (ii)
limiting charges and fees of the acquiring company and acquired company, and
(iii) requiring that the acquired company not act as a fund of funds itself. The
adoption of Rule 12d1-2 demonstrates a determination by the Commission that fund
of funds investments in stocks, bonds and other types of securities that are not
issued by registered investment companies do not raise any of the concerns that
Section 12(d)(1)(G) was intended to address.
Likewise, permitting a Section 12(d)(1)(G) Fund of Funds to invest in
Other Investments in furtherance of its investment objective, policies,
strategies and limitations as requested herein will not raise any of the
concerns underlying the prohibitions in Sections 12(d)(1)(A), 12(d)(1)(B) and
12(d)(1)(C). Rather, this additional flexibility will provide a Section
12(d)(1)(G) Fund of Funds with a broader array of investment options through
which to pursue its investment objective.
The Applicants submit that the requested exemption offers significant
benefits, as detailed above, and 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]," and therefore meets
the standards for relief set forth in Section 6(c) of the 1940 Act. As indicated
below, the Commission has already granted to a number of other applicants relief
similar to the relief from Rule 12d1-2 requested in this Application.
V. PRECEDENTS IN SUPPORT OF THE REQUEST FOR EXEMPTION
A. INVESTMENTS IN UNDERLYING FUNDS BY FUNDS OF FUNDS
The Commission has granted exemptive orders to other mutual fund complexes
to establish funds of funds arrangements with affiliated and unaffiliated
open-end investment companies. See In the Matter of Schwab Capital Trust, et al.
("Schwab"), Investment Company Act Release Nos. 24067 (Oct. 1, 1999) (notice)
and 24113 (Oct. 27, 1999) (order) (the "Schwab Order"). Schwab requested an
exemption under Section 12(d)(1)(J) of the 1940 Act from Sections 12(d)(1)(A)
and (B) of the 1940 Act to permit certain series of the Schwab trusts ("Schwab
Trusts") to invest (a) in other series of the Schwab Trusts and other registered
open-end management investment companies that are part of the same "group of
investment companies" as defined in Section 12(d)(1)(G) of the 1940 Act, and (b)
in other registered open-end investment companies that are not part of the same
group of investment companies as the Schwab Trusts. The Schwab Order also
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(21) See PPI Report at 311-24.
Page 19 of 41
permits the Schwab Trusts to make direct investments in stocks, bonds, and any
other securities which are consistent with their investment objective(s).(22)
The Applicants also note that substantially similar relief was granted in
In the Matter of Pacific Life Insurance Company, et al., Investment Company Act
Release Nos. 29944 (Feb. 13, 2012) (notice) and 29979 (Mar. 12, 2012)
(order)(23); In the Matter of Henderson Global Funds, et al., Investment Company
Act Release Nos. 29942 (Feb. 1, 2012) (notice) and 29970 (Feb. 28, 2012)
(order); In the Matter of Jackson National Life Insurance Company, et al.,
Investment Company Act Release Nos. 29442 (Sept. 27, 2010) (notice) and 29484
(Oct. 25, 2010) (order)(24); and In the Matter of EQ Advisors Trust, et al.,
Investment Company Act Release Nos. 29294 (June 4, 2010) (notice) and 29336
(June 30, 2010) (order). The Applicants' requested relief differs from this
precedent only in that the Applicants seek an order that would allow the Funds
of Funds to invest in closed-end investment companies, in addition to open-end
investment companies and UITs.(25)
The Applicants do not see any policy reason to restrict Section 12(d)(1)
exemptive relief to investments in, in addition to UITs, open-end funds only.
Indeed, the Applicants believe that, in one respect, a Fund of Funds'
investments in closed-end funds raise less concern under Section 12(d) than do
investments in open-end funds. One of the principal concerns intended to be
addressed by Section 12(d) is the potential for a fund of funds to exercise
undue influence over the management and operation of an Underlying Fund through
the threat of large-scale redemptions. This concern is not applicable to a Fund
of Funds' investments in closed-end funds because closed-end funds do not issue
redeemable securities. Rather, sales can only be effected through transactions
in the secondary market. Because these sales would not require the closed-end
fund to alter its investments nor deplete assets of the closed-end fund, a Fund
of Funds should not be able to influence the management or operation of a
closed-end fund through threats of large-scale redemptions of shares. On the
other hand, as noted above, with respect to closed-end funds, concerns arise
that Unaffiliated Closed-End Investment Companies may be unduly influenced by a
holder's ability to vote a large block of stock. Condition 1, however, protects
Underlying Funds from such undue influence by requiring that the Group and any
Sub-Adviser Group mirror vote any interest in any Unaffiliated Closed-End
Investment Company (subject to separate but similar procedures for Separate
Accounts).
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(22) See also In the Matter of MetLife Investors USA Insurance Company, et al.,
Investment Company Act Release Nos. 27028 (Aug. 11, 2005) (notice) and
27059 (Sept. 7, 2005) (order).
(23) This relief extended to funds of funds investing in underlying funds that
serve as feeder funds in a master-feeder arrangement.
(24) This relief extended to funds of funds investing in underlying funds that
serve as feeder funds in a master-feeder arrangement.
(25) As noted above, however, the Commission has recently issued a Notice of
Application with respect to an application for relief similar to that
requested by the Applicants relating to investments in closed-end
investment companies. See supra note 5.
Page 20 of 41
With respect to the other concerns designed to be addressed by Section
12(d)(1), including layering of fees and expenses, and unnecessary complexity,
the Applicants believe the conditions appropriately address these concerns
regardless of whether the Underlying Funds are closed-end funds or open-end
funds. With respect to the layering of fees, subject to special provisions to
limit sales loads and other sales charges and service fees when Registered
Separate Accounts invest in Funds of Funds, Condition 11 requires compliance
with NASD Conduct Rule 2830 so no Fund of Funds can exceed the applicable limits
contained therein. Such rule applies to the Fund of Funds as the acquiring fund
regardless of whether the Fund of Funds invests in an Underlying Fund that is an
open-end or closed-end fund. In applying such rule, the Applicants recognize,
however, that shares of closed-end funds are generally purchased in the
secondary market without sales loads (although a brokerage commission may be
incurred) and closed-end funds do not pay Rule 12b-1 fees. Accordingly, there is
no concern of layering of sales loads and 12b-1 fees when the Underlying Fund is
a closed-end fund. Further, as in the case of Underlying Funds that are open-end
funds, Underlying Funds that are closed-end investment companies will have their
own operating expenses, including advisory fees. Shareholders in a Fund of Funds
will indirectly pay their proportionate share of the fees and expenses of the
Underlying Fund, regardless of whether the Underlying Fund is an open-end fund
or a closed-end fund. To address the concerns of potential duplicative fees,
Condition 9 requires the Board of each Fund of Funds, including a majority of
the Independent Trustees, to find that the advisory fees are in addition to,
rather than duplicative of, services provided under the advisory contracts of
any Underlying Fund. The Applicants note that the Fund of Funds will have to
disclose the indirect fees of an acquired fund incurred regardless of whether
the Underlying Fund is an open-end fund or closed-end fund under current
disclosure requirements. Condition 10 also requires the Advisor to waive certain
fees received from the Fund of Funds in an amount at least equal to any
compensation received from the Underlying Fund (including a closed-end fund) in
connection with the Fund of Funds' investment. As closed-end funds do not pay
12b-1 fees and generally are purchased in the secondary market without sales
loads, the opportunities for the Advisor to receive compensation from such
Underlying Funds appear more limited than if the Underlying Fund were an
open-end fund.
In addition, with respect to unnecessary complexity, Condition 12
addresses such concern. Condition 12 generally will limit the Fund of Funds'
structure to two layers of funds, regardless of whether the Underlying Fund is
an open-end or closed-end fund. More specifically, Condition 12, in general
terms, precludes the Underlying Fund from acquiring the securities of another
investment company, or any company relying on Section 3(c)(1) or 3(c)(7) of the
1940 Act, in excess of the limits set forth in Section 12(d)(1)(A), subject to
certain limited exceptions. Accordingly, the Underlying Fund (whether a
closed-end or open-end fund) cannot itself be a fund of funds. Additional
complexity is not added by virtue of the Underlying Fund being a closed-end
fund. In light of the above, the Applicants believe the conditions in this
application appropriately address the concerns of layering of fees and
unnecessary complexity, whether the Underlying Fund is an open-end fund or a
closed-end fund.
Further, the Applicants note that the Commission has granted Section
12(d)(1) exemptive relief similar to that requested in this Application to funds
of funds organized as UITs, which extends to investments in both open-end and
Page 21 of 41
closed-end funds.(26) The Applicants have reviewed the conditions imposed in the
Prior UIT Orders and the reasons therefor and believe they are comparable to
those contained in this Application. Distinctions between UITs and the Funds of
Funds, however, raise questions regarding whether the Funds of Funds'
investments in closed-end funds implicate greater concerns with respect to (i)
the layering of fees and expenses; and (ii) the exercise of undue influence over
Underlying Funds, discussed above in Section IV.A. As discussed above, the
Applicants believe that the proposed conditions in this Application adequately
address these two concerns.
With respect to layering of fees and expenses, because UITs have unmanaged
portfolios, they do not charge advisory fees and thus the layering of advisory
fees is not a concern. While the Funds of Funds do charge advisory fees, the
Applicants believe that Condition 9, discussed above, adequately addresses this
concern because it would require that the Board of each Fund of Funds, including
a majority of the Independent Trustees, find that the advisory fees charged
under the advisory contract are based on services provided that are in addition
to, rather than duplicative of, services provided under the advisory contract(s)
of any Underlying Fund in which the Fund of Funds invests, including any
closed-end Underlying Fund.(27) With respect to undue influence, in the context
of a UIT, the possibility exists that a depositor or sponsor could use its
ability to control the secondary markets in units of a UIT to exercise undue
control over an underlying fund. Specifically, a depositor or sponsor could
potentially accumulate a large position in a UIT and threaten to redeem such a
position or cause large-scale redemptions by ceasing to maintain a secondary
market in units, with adverse consequences to the UIT's underlying fund
investments. This concern is not present in the case of the Funds because the
Funds, the Advisor and their affiliates do not maintain a secondary market in
the Funds' shares.(28) Also, as discussed above, a Fund of Funds may exercise
undue influence over a closed-end fund through the voting of shares. This
concern may be greater with respect to the Funds of Funds investing in
closed-end funds rather than with respect to UITs investing in closed-end funds,
but, as discussed above in this Application, the Applicants believe that
Condition 1 adequately addresses this concern.
-------------
(26) See, e.g., the UIT Order; In the Matter of Matrix Capital Group, Inc., et
al., Investment Company Act Release Nos. 26173 (Sept. 4, 2003) (notice)
and 26197 (Sept. 30, 2003) (order); In the Matter of Nuveen Investments,
et al., Investment Company Act Release Nos. 24892 (Mar. 13, 2001) (notice)
and 24930 (Apr. 6, 2001) (order); and In the Matter of Van Kampen Funds
Inc. and Van Kampen Focus Portfolios, Investment Company Act Release Nos.
24548 (June 29, 2000) (notice) and 24566 (July 25, 2000) (order) (the
"Prior UIT Orders").
(27) With respect to fees payable by a Fund of Funds to the Fund of Funds'
Advisor or Sub-Adviser, sales charges and/or service fees, the Applicants
assert that the issues raised where the fund of funds is a UIT do not
differ substantially from the issues raised where the fund of funds is a
Fund of Funds, and the conditions in the Prior UIT Orders addressing these
fees are substantially similar to Conditions 10 and 11 of this
Application, discussed above.
(28) The threat of large-scale redemptions of the Underlying Fund's securities
is another potential channel for the exercise of undue influence, and
another consequence of the unmanaged nature of UITs is that the threat of
large-scale redemptions is mitigated. However, as discussed above, even
where the fund of funds is managed, this concern is of little relevance to
closed-end Underlying Funds.
Page 22 of 41
Based on the foregoing, notwithstanding the differences between UITs and
the Funds of Funds discussed above, the Applicants believe that the Prior UIT
Orders support the view that the conditions included in the Application
adequately address the concerns underlying Section 12(d)(1) as they relate to
investments in closed-end funds.
B. OTHER INVESTMENTS BY SECTION 12(D)(1)(G) FUNDS OF FUNDS
The Commission has granted exemptive orders authorizing registered
investment companies relying on Section 12(d)(1)(G) and Rule 12d1-2 to invest in
Other Investments.(29)
VI. CONCLUSIONS
Based upon the foregoing, the Applicants believe that it is 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 to issue
an order (i) pursuant to Sections 6(c) and 17(b) for an exemption from the
provisions of Section 17(a), (ii) pursuant to Section 12(d)(1)(J) for an
exemption from the provisions of Sections 12(d)(1)(A), 12(d)(1)(B) and
12(d)(1)(C) and (iii) pursuant to Section 6(c) for an exemption from Rule
12d1-2(a).
VII. APPLICANTS' CONDITIONS
INVESTMENTS BY FUNDS OF FUNDS IN UNDERLYING FUNDS
The Applicants agree that the order granting the requested relief to
permit Funds of Funds to invest in Underlying Funds shall be subject to the
following conditions:
1. The members of the Group will not control (individually or in
the aggregate) an Unaffiliated Fund within the meaning of Section 2(a)(9)
of the 1940 Act. The members of a Sub-Adviser Group will not control
(individually or in the aggregate) an Unaffiliated Fund within the meaning
of Section 2(a)(9) of the 1940 Act. With respect to a Fund's investment in
an Unaffiliated Closed-End Investment Company, (i) each member of the
Group or Sub-Adviser Group that is an investment company or an issuer that
would be an investment company but for Section 3(c)(1) or 3(c)(7) of the
1940 Act will vote its shares of the Unaffiliated Closed-End Investment
Company in the manner prescribed by Section 12(d)(1)(E) of the 1940 Act
and (ii) each other member of the Group or Sub-Adviser Group will vote its
shares of the Unaffiliated Closed-End Investment Company in the same
proportion as the vote of all other holders of the same type of such
Unaffiliated Closed-End Investment Company's shares (except that any
member of the Group or Sub-Adviser Group that is a Separate Account will
instead be subject to the voting procedures described below). If, as a
result of a decrease in the outstanding voting securities of any other
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(29) See, e.g., In the Matter of Pacific Life Insurance Company, et al.,
Investment Company Act Release Nos. 29944 (Feb. 13, 2012) (notice) and
29979 (Mar. 12, 2012) (order); In the Matter of Henderson Global Funds, et
al., Investment Company Act Release Nos. 29942 (Feb. 1, 2012) (notice) and
29970 (Feb. 28, 2012) (order); In the Matter of Jackson National Life
Insurance Company, et al., Investment Company Act Release Nos. 29442
(Sept. 27, 2010) (notice) and 29484 (Oct. 25, 2010) (order).
Page 23 of 41
Unaffiliated Fund, the Group or a Sub-Adviser Group, each in the
aggregate, becomes a holder of more than 25% of the outstanding voting
securities of such Unaffiliated Fund, then the Group or the Sub-Adviser
Group (except for any member of the Group or Sub-Adviser Group that is
Separate Account) will vote its shares of the Unaffiliated Fund in the
same proportion as the vote of all other holders of the Unaffiliated
Fund's shares. This condition will not apply to a Sub-Adviser Group with
respect to an Unaffiliated Fund for which the Sub-Adviser or a person
controlling, controlled by or under common control with the Sub-Adviser
acts as the investment adviser within the meaning of Section 2(a)(20)(A)
of the 1940 Act (in the case of an Unaffiliated Investment Company) or as
the sponsor (in the case of an Unaffiliated Trust).
A Registered Separate Account will seek voting instructions
from its contract holders and will vote its shares of an Unaffiliated Fund
in accordance with the instructions received and will vote those shares
for which no instructions were received in the same proportion as the
shares for which instructions were received. An Unregistered Separate
Account will either (a) vote its shares of the Unaffiliated Fund in the
same proportion as the vote of all other holders of the Unaffiliated
Fund's shares or (b) seek voting instructions from its contract holders
and vote its shares in accordance with the instructions received and vote
those shares for which no instructions were received in the same
proportion as the shares for which instructions were received.
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in an Unaffiliated
Fund to influence the terms of any services or transactions between the
Fund of Funds or a Fund of Funds Affiliate and the Unaffiliated Fund or an
Unaffiliated Fund Affiliate.
3. The Board of each Fund of Funds, including a majority of the
Independent Trustees, will adopt procedures reasonably designed to ensure
that its Advisor and any Sub-Adviser to the Fund of Funds are conducting
the investment program of the Fund of Funds without taking into account
any consideration received by the Fund of Funds or Fund of Funds Affiliate
from an Unaffiliated Investment Company or Unaffiliated Trust or any
Unaffiliated Fund Affiliate of such Unaffiliated Investment Company or
Unaffiliated Trust in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of an
Unaffiliated Investment Company exceeds the limit of Section
12(d)(1)(A)(i) of the 1940 Act, the Board of the Unaffiliated Investment
Company, including a majority of the Independent Trustees, will determine
that any consideration paid by the Unaffiliated Investment Company to a
Fund of Funds or a Fund of Funds Affiliate in connection with any services
or transactions: (a) is fair and reasonable in relation to the nature and
quality of the services and benefits received by the Unaffiliated
Investment Company; (b) is within the range of consideration that the
Unaffiliated Investment Company would be required to pay to another
unaffiliated entity in connection with the same services or transactions;
and (c) does not involve overreaching on the part of any person concerned.
This condition does not apply with respect to any services or transactions
Page 24 of 41
between an Unaffiliated Investment Company and its investment adviser(s),
or any person controlling, controlled by, or under common control with
such investment adviser(s).
5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Unaffiliated Investment Company or sponsor to an Unaffiliated Trust) will
cause an Unaffiliated Fund to purchase a security in any Affiliated
Underwriting.
6. The Board of an Unaffiliated Investment Company, including a
majority of the Independent Trustees, will adopt procedures reasonably
designed to monitor any purchases of securities by the Unaffiliated
Investment Company in an Affiliated Underwriting once an investment by a
Fund of Funds in the securities of the Unaffiliated Investment Company
exceeds the limit of Section 12(d)(1)(A)(i) of the 1940 Act, including any
purchases made directly from an Underwriting Affiliate. The Board of the
Unaffiliated Investment Company will review these procedures periodically,
but no less frequently than annually, to determine whether the purchases
were influenced by the investment by the Fund of Funds in the Unaffiliated
Investment Company. The Board of the Unaffiliated Investment Company will
consider, among other things: (a) whether the purchases were consistent
with the investment objectives and policies of the Unaffiliated Investment
Company; (b) how the performance of securities purchased in an Affiliated
Underwriting compares to the performance of comparable securities
purchased during a comparable period of time in underwritings other than
Affiliated Underwritings or to a benchmark such as a comparable market
index; and (c) whether the amount of securities purchased by the
Unaffiliated Investment Company in Affiliated Underwritings and the amount
purchased directly from an Underwriting Affiliate have changed
significantly from prior years. The Board of the Unaffiliated Investment
Company will take any appropriate actions based on its review, including,
if appropriate, the institution of procedures designed to assure that
purchases of securities in Affiliated Underwritings are in the best
interests of shareholders.
7. Each Unaffiliated Investment Company will maintain and preserve
permanently, in an easily accessible place, a written copy of the
procedures described in the preceding condition, and any modifications to
such procedures, and will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any purchase in an
Affiliated Underwriting occurred, the first two years in an easily
accessible place, a written record of each purchase of securities in an
Affiliated Underwriting once an investment by a Fund of Funds in the
securities of an Unaffiliated Investment Company exceeds the limit of
Section 12(d)(1)(A)(i) of the 1940 Act, setting forth (1) the party from
whom the securities were acquired, (2) the identity of the underwriting
syndicate's members, (3) the terms of the purchase, and (4) the
information or materials upon which the determinations of the Board of the
Unaffiliated Investment Company were made.
8. Prior to its investment in shares of an Unaffiliated Investment
Company in excess of the limit set forth in Section 12(d)(1)(A)(i) of the
1940 Act, the Fund of Funds and the Unaffiliated Investment Company will
execute a Participation Agreement stating, without limitation, that their
Page 25 of 41
Boards and their investment advisers understand the terms and conditions
of the order and agree to fulfill their responsibilities under the order.
At the time of its investment in shares of an Unaffiliated Investment
Company in excess of the limit set forth in Section 12(d)(1)(A)(i), a Fund
of Funds will notify the Unaffiliated Investment Company of the
investment. At such time, the Fund of Funds will also transmit to the
Unaffiliated Investment Company a list of the names of each Fund of Funds
Affiliate and Underwriting Affiliate. The Fund of Funds will notify the
Unaffiliated Investment Company of any changes to the list as soon as
reasonably practicable after a change occurs. The Unaffiliated Investment
Company and the Fund of Funds will maintain and preserve a copy of the
order, the Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
9. Before approving any advisory contract under Section 15 of the
1940 Act, the Board of each Fund of Funds, including a majority of the
Independent Trustees, shall find that the advisory fees charged under the
advisory contract are based on services provided that are in addition to,
rather than duplicative of, services provided under the advisory
contract(s) of any Underlying Fund in which the Fund of Funds may invest.
Such finding, and the basis upon which the finding was made, will be
recorded fully in the minute books of the appropriate Fund of Funds.
10. The Advisor will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including fees
received pursuant to any plan adopted by an Unaffiliated Investment
Company pursuant to Rule 12b-1 under the 1940 Act) received from an
Unaffiliated Fund by the Advisor, or an affiliated person of the Advisor,
other than any advisory fees paid to the Advisor or its affiliated person
by the Unaffiliated Investment Company, in connection with the investment
by the Fund of Funds in the Unaffiliated Fund. Any Sub-Adviser will waive
fees otherwise payable to the Sub-Adviser, directly or indirectly, by the
Fund of Funds in an amount at least equal to any compensation received by
the Sub-Adviser, or an affiliated person of the Sub-Adviser, from an
Unaffiliated Fund, other than any advisory fees paid to the Sub-Adviser or
its affiliated person by the Unaffiliated Investment Company, in
connection with the investment by the Fund of Funds in the Unaffiliated
Fund made at the direction of the Sub-Adviser. In the event that the
Sub-Adviser waives fees, the benefit of the waiver will be passed through
to the Fund of Funds.
11. With respect to Registered Separate Accounts that invest in a
Fund of Funds, no sales load will be charged at the Fund of Funds level or
at the Underlying Fund level. Other sales charges and service fees, as
defined in NASD Conduct Rule 2830, if any, will only be charged at the
Fund of Funds level or at the Underlying Fund level, not both. With
respect to other investments in a Fund of Funds, any sales charges and/or
service fees charged with respect to shares of a Fund of Funds will not
exceed the limits applicable to funds of funds set forth in NASD Conduct
Rule 2830.
12. No Underlying Fund will acquire securities of any other
investment company or company relying on Section 3(c)(1) or 3(c)(7) of the
1940 Act, in excess of the limits contained in Section 12(d)(1)(A) of the
Page 26 of 41
1940 Act, except to the extent that such Underlying Fund: (a) acquires
such securities in compliance with Section 12(d)(1)(E) of the 1940 Act and
either is an Affiliated Fund or is in the same "group of investment
companies" as its corresponding master fund; (b) receives securities of
another investment company as a dividend or as a result of a plan of
reorganization of a company (other than a plan devised for the purpose of
evading Section 12(d)(1) of the 1940 Act); or (c) acquires (or is deemed
to have acquired) securities of another investment company pursuant to
exemptive relief from the Commission permitting such Underlying Fund to:
(i) acquire securities of one or more investment companies for short-term
cash management purposes or (ii) engage in inter-fund borrowing and
lending transactions.
OTHER INVESTMENTS BY SECTION 12(D)(1)(G) FUNDS OF FUNDS
The Applicants agree that the order granting the requested relief to
permit Section 12(d)(1)(G) Funds of Funds to invest in Other Investments shall
be subject to the following condition:
13. The Applicants will comply with all provisions of Rule 12d1-2
under the 1940 Act, except for paragraph (a)(2) to the extent that it
restricts any Section 12(d)(1)(G) Fund of Funds from investing in Other
Investments as described in this Application.
VIII. PROCEDURAL MATTERS
All actions necessary to authorize the execution and filing of this
Application have been taken and the persons signing and filing this Application
are authorized to so sign and file the same.
The Applicants request that the Commission issue an order without a
hearing pursuant to Rule 0-5 under the 1940 Act.
The Applicants request that any questions regarding this Application be
directed to the persons listed on the facing page of this Application.
IX. REQUEST FOR AN ORDER OF EXEMPTION
For the foregoing reasons, the Applicants request that the Commission
enter an order pursuant to Sections 6(c), 12(d)(1)(J) and 17(b) of the 1940 Act
granting the relief sought by this Application. The Applicants submit that the
requested exemptions are 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.
Page 27 of 41
X. NAMES AND ADDRESSES
The following are the names and addresses of the Applicants:
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 AlphaDEX(R) Fund
First Trust Exchange-Traded AlphaDEX(R) Fund II
First Trust Series Fund
First Defined Portfolio Fund, LLC
First Trust Advisors L.P.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
Page 28 of 41
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 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
Page 29 of 41
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 ADVISORS L.P.
By: /s/ James A. Bowen
-------------------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
FIRST TRUST PORTFOLIOS L.P.
By: /s/ James A. Bowen
-------------------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
Dated: May 18, 2012
Page 30 of 41
XI. AUTHORIZATION AND SIGNATURES
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 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: May 18, 2012
Page 31 of 41
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 Portfolios 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 PORTFOLIOS L.P.
By: /s/ James A. Bowen
-------------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
Dated as of: May 18, 2012
Page 32 of 41
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, First Trust
Exchange-Traded AlphaDEX(R) Fund, First Trust Exchange-Traded AlphaDEX(R) Fund
II, First Trust Series Fund and First Defined Portfolio Fund, LLC (collectively,
the "Investment Companies"). Mark R. Bradley is authorized to sign and file this
document on behalf of the Investment Companies pursuant to (a) the general
authority vested in him as President, (b) for each of the Investment Companies
except First Trust Exchange-Traded Fund V, resolutions adopted by the respective
Boards of Trustees, which are attached hereto as Appendix A and (c) for First
Trust Exchange-Traded Fund V, resolutions set forth in the written consent of
the initial trustee, which are attached hereto as Appendix B.
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 ALPHADEX(R) FUND
FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II
FIRST TRUST SERIES FUND
FIRST DEFINED PORTFOLIO FUND, LLC
By: /s/ Mark R. Bradley
-----------------------------------------
Name: Mark R. Bradley
Title: President
Dated as of: May 18, 2012
Page 33 of 41
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 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/ James A. Bowen
-----------------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
Page 34 of 41
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 PORTFOLIOS L.P.; that he is Chief Executive Officer 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/ James A. Bowen
-----------------------------------------
Name: James A. Bowen
Title: Chief Executive Officer
Page 35 of 41
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 ALPHADEX(R) FUND,
FIRST TRUST EXCHANGE-TRADED ALPHADEX(R) FUND II, FIRST TRUST SERIES FUND and
FIRST DEFINED PORTFOLIO FUND, LLC; that he is President of such companies; 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/ Mark R. Bradley
-----------------------------------------
Name: Mark R. Bradley
Title: President
Page 36 of 41
APPENDIX A
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 12(d)(1)(A) of the Investment Company
Act of 1940, as amended (the "1940 Act"), in general terms,
prohibits a registered investment company from acquiring
securities of any other investment company in excess of
certain percentage limits; and
WHEREAS, Section 12(d)(1)(B) of the 1940 Act, in
general terms, prohibits a registered open-end investment
company, its principal underwriter, or any broker-dealer
from selling shares of such investment company to any other
investment company in excess of certain percentage limits;
and
WHEREAS, Section 12(d)(1)(C) of the 1940 Act, in
general terms, prohibits an investment company from
acquiring securities of a registered closed-end investment
company if, as a result, the acquiring company and other
investment companies with the same investment adviser will
own more than 10% of the total outstanding voting stock of
the closed-end company (Sections 12(d)(1)(A), (B) and (C)
are referred to collectively as the "Statutory
Limitations"); and
WHEREAS, certain existing and future series of the
Funds ("acquiring funds") may seek to invest in other
registered investment companies that are within or outside
the same group of investment companies as the Funds
(including open-end investment companies (including
exchange-traded funds), closed-end investment companies and
unit investment trusts; collectively, "acquired funds") in
excess of the Statutory Limitations; and
WHEREAS, Section 17(a) of the 1940 Act generally
prohibits certain transactions between registered investment
companies and their "affiliated persons" (as defined in the
1940 Act), or "affiliated persons" of such persons; and
WHEREAS, certain of the acquired funds in which the
acquiring funds may seek to invest may be affiliated
persons, or affiliated persons of affiliated persons, of the
acquired funds and, therefore, Section 17(a) may prohibit
the purchases and redemptions by such acquiring funds of
securities of the acquired funds and the sales and
redemptions by the acquired funds of their securities in
Page 37 of 41
transactions with such acquiring funds ("affiliated
transactions"); and
WHEREAS, First Trust Advisors L.P., the investment
adviser to the Funds, recommends that the Funds be
authorized to seek an order of exemption (an "Order of
Exemption") from the Securities and Exchange Commission (the
"Commission") that contains relief that will permit, among
other things, the acquiring funds to invest in acquired
funds in excess of the Statutory Limitations.
NOW THEREFORE BE IT
RESOLVED, that James A. Bowen 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
exemptions from various provisions of the 1940 Act to the
extent necessary to permit, among other things (as described
in such Application or Applications), (a) the acquiring
funds to invest in acquired funds in excess of the Statutory
Limitations, (b) the acquired funds, their principal
underwriters, and any broker-dealer to sell shares or units,
as applicable, of such acquired funds to the acquiring funds
and (c) the acquiring funds and the acquired funds to engage
in affiliated transactions in connection therewith; and
FURTHER RESOLVED, that James A. Bowen and any other
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 Application or Applications, 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
FURTHER RESOLVED, that upon issuance of an Order of
Exemption by the Commission in accordance with the terms and
conditions of any Application described above, the
respective Fund is authorized to act in accordance with the
provisions of such Application and the related Order of
Exemption.
Page 38 of 41
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 AlphaDEX(R) Fund
First Trust Exchange-Traded AlphaDEX(R) Fund II
First Trust Series Fund
First Defined Portfolio Fund, LLC
Page 39 of 41
APPENDIX B
RESOLUTIONS AUTHORIZING MARK R. BRADLEY TO SIGN AND FILE
THIS APPLICATION ON BEHALF OF FIRST TRUST EXCHANGE-TRADED FUND V
The following resolutions were adopted by the written consent of the sole
initial trustee and remain in full force and effect:
WHEREAS, Section 12(d)(1)(A) of the Investment Company
Act of 1940, as amended (the "1940 Act"), in general terms,
prohibits a registered investment company from acquiring
securities of any other investment company in excess of
certain percentage limits; and
WHEREAS, Section 12(d)(1)(B) of the 1940 Act, in
general terms, prohibits a registered open-end investment
company, its principal underwriter, or any broker-dealer
from selling shares of such investment company to any other
investment company in excess of certain percentage limits;
and
WHEREAS, Section 12(d)(1)(C) of the 1940 Act, in
general terms, prohibits an investment company from
acquiring securities of a registered closed-end investment
company if, as a result, the acquiring company and other
investment companies with the same investment adviser will
own more than 10% of the total outstanding voting stock of
the closed-end company (Sections 12(d)(1)(A), (B) and (C)
are referred to collectively as the "Statutory
Limitations"); and
WHEREAS, certain series of the First Trust
Exchange-Traded Fund V (the "Fund," and such series,
"acquiring funds") may seek to invest in other registered
investment companies that are within or outside the same
group of investment companies as the Fund (including
open-end investment companies (including exchange-traded
funds), closed-end investment companies and unit investment
trusts; collectively, "acquired funds") in excess of the
Statutory Limitations; and
WHEREAS, Section 17(a) of the 1940 Act generally
prohibits certain transactions between registered investment
companies and their "affiliated persons" (as defined in the
1940 Act), or "affiliated persons" of such persons; and
WHEREAS, certain of the acquired funds in which the
acquiring funds may seek to invest may be affiliated
persons, or affiliated persons of affiliated persons, of the
acquired funds and, therefore, Section 17(a) may prohibit
Page 40 of 41
the purchases and redemptions by such acquiring funds of
securities of the acquired funds and the sales and
redemptions by the acquired funds of their securities in
transactions with such acquiring funds ("affiliated
transactions"); and
WHEREAS, the Fund wishes to seek an order of exemption
(an "Order of Exemption") from the Securities and Exchange
Commission (the "Commission") that contains relief that will
permit, among other things, the acquiring funds to invest in
acquired funds in excess of the Statutory Limitations.
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 exemptions from
various provisions of the 1940 Act to the extent necessary
to permit, among other things (as described in such
Application or Applications), (a) the acquiring funds to
invest in acquired funds in excess of the Statutory
Limitations, (b) the acquired funds, their principal
underwriters, and any broker-dealer to sell shares or units,
as applicable, of such acquired funds to the acquiring funds
and (c) the acquiring funds and the acquired funds to engage
in affiliated transactions in connection therewith; and
FURTHER RESOLVED, that Mark R. Bradley and any other
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 Application or
Applications, 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
FURTHER RESOLVED, that upon issuance of an Order of
Exemption by the Commission in accordance with the terms and
conditions of any Application described above, the Fund is
authorized to act in accordance with the provisions of such
Application and the related Order of Exemption.
Page 41 of 41