INVESTMENT SUB-ADVISORY AGREEMENT
This Investment Sub-Advisory Agreement (this "Agreement"), made as of
February 4, 2016, by and among the First Trust Exchange-Traded Fund III, a
Massachusetts business trust (the "Trust"), First Trust Advisors L.P., an
Illinois limited partnership (the "Manager") and a registered investment adviser
with the Securities and Exchange Commission (the "SEC"), and RiverFront
Investment Group LLC, a Delaware limited liability company and a registered
investment adviser with the SEC (the "Sub-Adviser").
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company;
WHEREAS, the Trust is authorized to issues shares in separate series, with
each series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Trust intends to offer shares in the series set forth on
Schedule A attached hereto and any other series as to which this Agreement may
hereafter be made applicable and set forth on Schedule A, which may be amended
from time to time (each such series being herein referred to as a "Fund" and
collectively, the "Funds");
WHEREAS, the Trust has retained the Manager to serve as the investment
adviser for each Fund pursuant to an Investment Management Agreement, dated
February 4, 2016, between the Manager and the Trust (as such agreement may be
modified from time to time, the "Management Agreement");
WHEREAS, the Management Agreement provides that the Manager may, subject
to certain requirements, appoint a sub-adviser at its own cost and expense for
the purpose of furnishing certain services required under the Management
Agreement; and
WHEREAS, the Trust and the Manager desire to retain the Sub-Adviser to
furnish investment advisory services for each Fund's investment portfolio, upon
the terms and conditions hereafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. The Trust and the Manager hereby appoint the Sub-Adviser
to serve as sub-adviser to each Fund and to provide certain investment
sub-advisory services to each Fund for the period and on the terms set forth in
this Agreement and Schedule A. The Sub-Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation set forth
in Schedule A. The Sub-Adviser shall, for all purposes herein provided, be
deemed an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for nor represent the Trust, a Fund
or the Manager in any way, nor otherwise be deemed an agent of the Trust, a Fund
or the Manager.
2. Services to Be Performed. Subject always to the supervision of the
Trust's Board of Trustees (the "Board of Trustees") and the Manager, the
Sub-Adviser will act as sub-adviser for, and manage on a discretionary basis the
investment and reinvestment of the assets of each Fund allocated to the
Sub-Adviser from time to time, furnish an investment program in respect of, make
investment decisions for, and place all orders through the Manager for the
purchase and sale of securities and other assets for the respective Fund's
investment portfolio, all on behalf of such Fund and consistent with the Fund's
currently effective registration statement on Form N-1A as the same may
thereafter be amended from time to time. In the performance of its duties, the
Sub-Adviser will in all material respects (a) satisfy any applicable fiduciary
duties it may have to the Fund, (b) monitor the Fund's investments or other
instruments selected for the respective Fund by the Sub-Adviser, (c) comply with
the provisions of the Trust's Declaration of Trust and By-laws, as amended from
time to time and communicated by the Fund or the Manager to the Sub-Adviser in
writing, (d) comply with (i) the investment objectives, policies and
restrictions stated in the applicable Fund's most recently effective prospectus
and statement of additional information, (ii) such other investment objectives,
policies, restrictions or instructions as the Manager or the Trust's Board of
Trustees may communicate to the Sub-Adviser in writing, and (iii) any changes to
the objectives, policies, restrictions or instructions required under the
foregoing (i) and (ii) as communicated to the Sub-Adviser in writing, and (e)
assist in the valuation of portfolio assets held by the respective Fund as
requested by the Manager or the Fund. The Sub-Adviser and Manager will each make
its officers and employees available to the other from time to time at
reasonable times to review the investment objectives, policies and restrictions
of the applicable Fund and to consult with each other regarding the investment
affairs of such Fund. Each Fund or the Manager shall provide the Sub-Adviser
with current copies of the Trust's Declaration of Trust, the Trust's By-laws,
the Fund's prospectus, the Fund's statement of additional information and any
amendments thereto, and any policies or limitations not appearing therein as
they may be relevant to the Sub-Adviser's performance under this Agreement.
Unless otherwise approved by the Board and the Manager, the Sub-Adviser
shall have no authority to select brokers or dealers or otherwise place orders
for the execution of the purchases and sales of portfolio investments on behalf
of the Fund.
The Sub-Adviser will not arrange purchases or sales of securities or other
assets between a Fund and other accounts advised by the Sub-Adviser or its
affiliates unless (a) such purchases or sales are in accordance with applicable
law (including if applicable Rule 17a-7 under the 0000 Xxx) and the Fund's
policies and procedures, (b) the Sub-Adviser determines the purchase or sale is
in the best interests of the Fund, and (c) the Board of Trustees has approved
these types of transactions.
The Sub-Adviser will communicate to the officers and Trustees of the Trust
such information relating to transactions for a Fund as they may reasonably
request. In no instance will a Fund's portfolio assets be purchased from or sold
to the Manager, the Sub-Adviser or any affiliated person of the Trust, the
Manager or the Sub-Adviser, except as may be permitted under the 1940 Act.
For purposes of complying with Rule 10f-3, Rule 12d3-1, Rule 17a-10 and
Rule 17e-1 under the 1940 Act, the Sub-Adviser hereby agrees that it will not
consult with any other sub-adviser of an investment company or a series of an
investment company that is advised by the Manager (the "First Trust Fund
Complex") or an affiliated person of a sub-adviser (including any sub-adviser
that is a principal underwriter or an affiliated person of such principal
underwriter), concerning transactions for a Fund or any fund in the First Trust
Fund Complex in securities or other fund assets. In addition, with respect to a
fund in the First Trust Fund Complex with multiple sub-advisers, the Sub-Adviser
shall be limited to providing investment advice with respect to only the
discrete portion of the fund's portfolio as may be determined from time to time
by the Board of Trustees or the Manager, and shall not consult with the
sub-adviser (including any sub-adviser that is a principal underwriter or an
affiliated person of such principal underwriter) as to any other portion of the
fund's portfolio concerning transactions for the fund in securities or other
assets. Notwithstanding the foregoing, the provisions in this paragraph do not
apply to the consultations between the Sub-Adviser and any sub-adviser retained
by the Sub-Adviser pursuant to Section 4 hereunder.
The Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to other fiduciary accounts for
which it has investment responsibilities;
(b) will (i) conform in all material respects to all applicable
rules and regulations of the SEC, the Commodity Futures Trading Commission
("CFTC") and any other applicable regulatory authority, (ii) comply in all
material respects with all policies and procedures adopted by the Board of
Trustees for the Trust and communicated to the Sub-Adviser in writing, and
(iii) conduct its activities under this Agreement in all material respects
in accordance with any applicable law and regulations of any governmental
authority pertaining to its investment advisory, commodity pool operator
and commodity trading advisory activities;
(c) will report to the Manager and to the Board of Trustees on a
quarterly basis and will make appropriate persons available for the
purpose of reviewing with representatives of the Manager and the Board of
Trustees on a regular basis at such times as the Manager or the Board of
Trustees may reasonably request in writing regarding the management of the
respective Fund, including, without limitation, review of the general
investment strategies of the Fund, the performance of the Fund's
investment portfolio in relation to relevant standard industry indices and
general conditions affecting the marketplace and will provide various
other reports from time to time as reasonably requested by the Manager or
the Board of Trustees;
(d) will prepare and maintain such books and records with respect
to a Fund's assets and other transactions for the Fund's investment
portfolio as required for registered investment advisers performing such
services under applicable law, the Fund's compliance policies and
procedures or as otherwise requested by the Manager or the Board of
Trustees and will prepare and furnish the Manager and the Board of
Trustees such periodic and special reports as the Board of Trustees or the
Manager may request. Such records prepared and maintained by the
Sub-Adviser as required hereunder shall be open to inspection at all
reasonable times by the Manager or the Fund and any appropriate regulatory
authorities. The Sub-Adviser further agrees that all records that it
maintains for a Fund are the property of the Fund and the Sub-Adviser will
surrender promptly to such Fund any such records upon the request of the
Manager or the Fund (provided, however, that the Sub-Adviser shall be
permitted to retain copies thereof); and shall be permitted to retain
originals (with copies to the Fund) to the extent required under Rule
204-2 under the Investment Advisers Act of 1940 or other applicable law;
and
(e) will monitor events relating to the issuers of those assets and
the markets in which the securities or other assets trade in the ordinary
course of managing the portfolio investments of a Fund, and will notify
the Manager promptly of any issuer-specific or market events or other
situations that occur (particularly those that may occur after the close
of a foreign market in which the investments may primarily trade but
before the time at which the Fund's investments are priced on a given day)
that may materially impact the pricing of one or more securities or other
assets in the portfolio. In addition, the Sub-Adviser will at the
Manager's request assist the Manager in evaluating the impact that such an
event may have on the net asset value of a Fund and in determining a
recommended fair value of the affected investment or investments.
3. Expenses. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities and other assets (including, without
limitation, interest, taxes, dividend and distribution expenses from securities
sold short and all other expenses connected with the purchase, sale and
execution, of portfolio transactions, if any) purchased for a Fund.
4. Additional Sub-Advisers. Subject to obtaining the initial and periodic
approvals required under Section 15 of the 1940 Act (after taking into effect
any exemptive order, no-action assurances or other relief, rule or regulation
upon which the Fund may rely) and the approval of the Manager, the Sub-Adviser
may retain one or more additional sub-advisers at the Sub-Adviser's own cost and
expense for the purpose of furnishing one or more of the services described in
Section 2 hereof with respect to a Fund. Retention of a sub-adviser hereunder
shall in no way reduce the responsibilities or obligations of the Sub-Adviser
under this Agreement and the Sub-Adviser shall be responsible to the respective
Fund for all acts or omissions of any sub-adviser in connection with the
performance of the Sub-Adviser's duties hereunder.
5. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee
(the "Sub-Advisory Fee") equal to the annual percentage rate of the average
daily net assets of the respective Fund allocated to the Sub-Adviser set forth
in Schedule A. The Sub-Advisory Fee shall be payable in arrears on or about the
first day of each month during the term of this Agreement.
For the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
this Agreement is in effect during the month and year, respectively.
6. Services to Others. The Trust and the Manager acknowledge that the
Sub-Adviser now acts, or may in the future act, as an investment adviser to
other managed accounts and as investment adviser or investment sub-adviser to
one or more other investment companies that are not series of the Trust. In
addition, the Trust and the Manager acknowledge that the persons employed by the
Sub-Adviser to assist in the Sub-Adviser's duties under this Agreement will not
devote their full time to such efforts. It is also agreed that the Sub-Adviser
may use any supplemental research obtained for the benefit of the Fund in
providing investment advice to its other investment advisory accounts and for
managing its own accounts.
7. Limitation of Liability. The Sub-Adviser shall not be liable for, and
the Trust and the Manager will not take any action against the Sub-Adviser to
hold the Sub-Adviser liable for, any error of judgment or mistake of law or for
any loss suffered by a Fund or the Manager (including, without limitation, by
reason of the purchase, sale or retention of any security or other asset) in
connection with the performance of the Sub-Adviser's duties under this
Agreement, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Sub-Adviser in the performance of its duties
under this Agreement, or by reason of its reckless disregard of its obligations
and duties under this Agreement.
8. Term; Termination. This Agreement shall become effective on the same
date as the Management Agreement between the Trust and the Manager becomes
effective with respect to the applicable Fund (it being understood that the
Manager shall notify the Sub-Adviser of the date of effectiveness of the
Management Agreement as soon as reasonably practical after effectiveness)
provided that it has been approved in the manner required by the 1940 Act (after
taking into effect any exemptive order, no-action assurances, or other relief,
rule or regulation upon which the Fund may rely), and shall remain in full force
until the two year anniversary of the date of its effectiveness unless sooner
terminated as hereinafter provided. This Agreement shall continue in force from
year to year thereafter, but only as long as such continuance is specifically
approved for the respective Fund at least annually in the manner required by the
1940 Act and the rules and regulations thereunder (after taking into effect any
exemptive order, no-action assurances, or other relief, rule or regulation upon
which the Fund may rely); provided, however, that if the continuation of this
Agreement is not approved for the respective Fund, the Sub-Adviser may continue
to serve in such capacity for such Fund in the manner and to the extent
permitted by the 1940 Act and the rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager or the Sub-Adviser upon sixty (60) days' written notice to the
other parties. This Agreement may also be terminated by a Fund by action of the
Board of Trustees or by a vote of a majority of the outstanding voting
securities of such Fund upon sixty (60) days' written notice to the Sub-Adviser
by the Fund without payment of any penalty; provided, however, termination of
this Agreement by one Fund will not terminate this Agreement for the other
Funds.
This Agreement may be terminated at any time without the payment of any
penalty by the Manager, the Board of Trustees or by vote of a majority of the
outstanding voting securities of the applicable Fund in the event that it shall
have been established by a court of competent jurisdiction that the Sub-Adviser
or any officer or director of the Sub-Adviser has taken any action that results
in a breach of the material covenants of the Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations thereunder.
This Agreement shall automatically terminate in the event the Management
Agreement between the Manager and the Trust on behalf of the applicable Fund is
terminated, assigned or not renewed.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 5 earned or accrued prior to such termination and for any
additional period during which the Sub-Adviser serves as such for the Fund,
subject to applicable law.
9. Compliance Certification. From time to time, the Sub-Adviser shall
provide such certifications with respect to Rule 38a-1 under the 1940 Act, as
are reasonably requested by a Fund or the Manager. In addition, the Sub-Adviser
will, from time to time, provide a written assessment of its compliance program
in conformity with current industry standards that is reasonably acceptable to
the Fund to enable the Fund to fulfill its obligations under Rule 38a-1 under
the 1940 Act.
10. Notice. Any notice under this Agreement shall be sufficient in all
respects if given in writing and delivered by commercial courier providing proof
of delivery and addressed as follows or addressed to such other person or
address as such party may designate for receipt of such notice.
If to the Manager or a Fund: If to the Sub-Adviser:
First Trust Exchange-Traded Fund III on RiverFront Investment Group LLC
behalf of the Funds 0000 X. Xxxx Xxxxxx
First Trust Advisors L.P. Xxxxxxxx, Xxxxxxxx 00000
000 X. Xxxxxxx Xxxxx Attention: Xxxxxx Xxxxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Secretary
11. Limitations on Liability. All parties hereto are expressly put on
notice of the Trust's Declaration of Trust and all amendments thereto, a copy of
which is on file with the Secretary of the Commonwealth of Massachusetts, and
the limitation of shareholder and Trustee liability contained therein and a copy
of which has been provided to the Sub-Adviser prior to the date hereof. This
Agreement is executed by the Trust on behalf of each Fund by the Trust's
officers in their capacity as officers and not individually and is not binding
upon any of the Trustees, officers or shareholders of the Trust individually but
the obligations imposed upon the Trust or a Fund by this Agreement are binding
only upon the assets and property of the respective Fund, and persons dealing
with the Trust or a Fund must look solely to the assets of such Fund for the
enforcement of any claims.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
13. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 11 hereof, which shall be
construed in accordance with the laws of the Commonwealth of Massachusetts) the
laws of the State of Illinois.
14. Amendment, Etc. This Agreement may only be amended, or its provisions
modified or waived, in a writing signed by the party against which such
amendment, modification or waiver is sought to be enforced.
15. Authority. Each party represents to the others that it is duly
authorized and fully empowered to execute, deliver and perform this Agreement.
The Trust represents that engagement of the Sub-Adviser has been duly authorized
by the Trust and is in accordance with the Trust's Declaration of Trust and
other governing documents of the applicable Fund.
16. Third Party Beneficiaries. None of the provisions of this Agreement
shall be for the benefit of, or enforceable by, any person or entity that is not
a party hereto.
17. Forum Selection. Any action brought on or with respect to this
Agreement or any other document executed in connection herewith or therewith by
a party to this Agreement against another party to this Agreement shall be
brought only in a court of competent jurisdiction in Chicago, Xxxx County,
Illinois, or if venue does not lie in any such court only in a court of
competent jurisdiction within the State of Illinois (the "Chosen Courts"). Each
party to this Agreement (a) consents to jurisdiction in the Chosen Courts; (b)
waives any objection to venue in any of the Chosen Courts; and (c) waives any
objection that any of the Chosen Courts is an inconvenient forum. In any action
commenced by a party hereto against another party to the Agreement, there shall
be no right to a jury trial. THE RIGHT TO A TRIAL BY JURY IS EXPRESSLY WAIVED TO
THE FULLEST EXTENT PERMITTED BY LAW.
18. Severability. Each provision of this Agreement is intended to be
severable from the others so that if any provision or term hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remaining provisions and terms hereof; provided,
however, that the provisions governing payment of the Sub-Advisory Fee described
in Section 5 are not severable.
19. Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties hereto with respect to the subject matter expressly set
forth herein.
[Signature page follows.]
IN WITNESS WHEREOF, the Trust on behalf of the Funds, the Manager and the
Sub-Adviser have caused this Agreement to be executed as of the day and year
first above written.
FIRST TRUST ADVISORS L.P. RIVERFRONT INVESTMENT GROUP LLC
By /s/ Xxxxx X. Xxxxx By /s/ Xxxxxxx Xxxxx
--------------------------- ---------------------------
Title: CFO Title: Chairman and CIO
FIRST TRUST EXCHANGE-TRADED FUND III on
behalf of the series listed on Schedule A
By /s/ Xxxxx X. Xxxxx
---------------------------
Title: President and CEO
SCHEDULE A
AS OF FEBRUARY 4, 2016
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ANNUAL RATE OF
AVERAGE DAILY
FUNDS NET ASSETS
ALLOCATED TO
SUB-ADVISER EFFECTIVE DATE
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FIRST TRUST RIVERFRONT DYNAMIC 0.35% FEBRUARY 4, 2016
EUROPE ETF
------------------------------------ ----------------------- -------------------
FIRST TRUST RIVERFRONT DYNAMIC 0.35% FEBRUARY 4, 2016
ASIA PACIFIC ETF
------------------------------------ ----------------------- -------------------
FIRST TRUST RIVERFRONT DYNAMIC 0.35% FEBRUARY 4, 2016
EMERGING MARKETS ETF
------------------------------------ ----------------------- -------------------
FIRST TRUST RIVERFRONT DYNAMIC 0.35% FEBRUARY 4, 2016
DEVELOPED INTERNATIONAL ETF
------------------------------------ ----------------------- -------------------
