CUSTODY AGREEMENT
AGREEMENT, dated as of September 22, 2005 between First Trust
Exchange-Traded Fund, a business trust organized and existing under the laws of
the Commonwealth of Massachusetts having its principal office and place of
business at 0000 Xxxxxxxxxxx Xxxx, Xxxxx, Xxxxxxxx 00000 (the "Fund") and The
Bank of New York, a New York corporation authorized to do a banking business
having its principal office and place of business at Xxx Xxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000 ("Custodian").
WITNESSETH:
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words shall have the
meanings set forth below:
"Authorized Person" shall be any person, whether or not an officer or
employee of the Fund, duly authorized by the Fund's board to execute any
Certificate or to give any Oral Instruction with respect to one or more
Accounts, such persons to be designated in a Certificate annexed hereto as
Schedule I hereto or such other Certificate as may be received by Custodian from
time to time.
"BNY Affiliate" shall mean any office, branch or subsidiary of The Bank
of New York Company, Inc.
"Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for receiving and delivering securities, its successors and nominees.
"Business Day" shall mean any day on which Custodian and relevant
Depositories are open for business.
"Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to Custodian,
which is actually received by Custodian by letter or facsimile transmission and
signed on behalf of the Fund by an Authorized Person or a person reasonably
believed by Custodian to be an Authorized Person.
"Composite Currency Unit" shall mean the Euro or any other composite
currency unit consisting of the aggregate of specified amounts of specified
currencies, as such unit may be constituted from time to time.
"Depository" shall include (a) the Book-Entry System, (b) the
Depository Trust Company, (c) any other clearing agency or securities depository
registered with the Securities and Exchange Commission identified to the Fund
from time to time, and (d) the respective successors and nominees of the
foregoing.
"Foreign Depository" shall mean (a) Euroclear, (b) Clearstream Banking,
societe anonyme, (c) each Eligible Securities Depository as defined in Rule
17f-7 under the Investment Company Act of 1940, as amended, identified to the
Fund prior to the use of such Foreign Depository on Schedule III (as the same
may be changed by Custodian from time to time and identified to the Fund) and
(d) the respective successors and nominees of the foregoing identified to the
Fund prior to the use of such successor or nominee.
"Instructions" shall mean communications transmitted by electronic or
telecommunications media, including S.W.I.F.T., computer-to-computer interface,
or dedicated transmission lines.
"Oral Instructions" shall mean verbal instructions received by
Custodian from an Authorized Person or from a person reasonably believed by
Custodian to be an Authorized Person.
"Series" shall mean the various portfolios, if any, of the Fund listed
on Schedule II hereto, and if none are listed references to Series shall be
references to the Fund.
"Securities" shall include, without limitation, any common stock and
other equity securities, bonds, debentures and other debt securities, notes,
mortgages or other obligations, and any instruments representing rights to
receive, purchase, or subscribe for the same, or representing any other rights
or interests therein (whether represented by a certificate or held in a
Depository or by a Subcustodian).
"Subcustodian" shall mean a bank (including any branch thereof) or
other financial institution (other than a Foreign Depository) located outside
the U.S. which is utilized by Custodian in connection with the purchase, sale or
custody of Securities hereunder and identified to the Fund from time to time,
and their respective successors and nominees.
"Transfer Agent" shall mean The Bank of New York.
ARTICLE II
APPOINTMENT OF CUSTODIAN; ACCOUNTS;
REPRESENTATIONS, WARRANTIES, AND COVENANTS
Section 1. (a) The Fund hereby appoints Custodian as custodian of all
Securities and cash at any time delivered to Custodian during the term of this
Agreement, and authorizes Custodian to hold Securities in registered form in its
name or the name of its nominees. Custodian hereby accepts such appointment and
agrees to establish and maintain one or more securities accounts and cash
accounts for each Series in which Custodian will hold Securities and cash as
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provided herein. Custodian shall maintain books and records segregating the
assets of each Series from the assets of any other Series. Such accounts (each,
an "Account"; collectively, the "Accounts") shall be in the name of the Fund.
(b) Custodian may from time to time establish on its books and records
such sub-accounts within each Account as the Fund and Custodian may agree upon
(each a "Special Account"), and Custodian shall reflect therein such assets as
the Fund may specify in a Certificate or Instructions.
(c) Custodian may from time to time establish pursuant to a written
agreement with and for the benefit of a broker, dealer, future commission
merchant or other third party identified in a Certificate or Instructions such
accounts on such terms and conditions as the Fund and Custodian shall agree, and
Custodian shall transfer to such account such Securities and money as the Fund
may specify in a Certificate or Instructions.
Section 2. The Fund hereby represents and warrants, which
representations and warranties shall be continuing and shall be deemed to be
reaffirmed upon each delivery of a Certificate or each giving of Oral
Instructions or Instructions by the Fund, that:
(a) It is duly organized and existing under the laws of the
jurisdiction of its organization, with full power to carry on its
business as now conducted, to enter into this Agreement, and to perform
its obligations hereunder;
(b) This Agreement has been duly authorized, executed and
delivered by the Fund, approved by a resolution of its board,
constitutes a valid and legally binding obligation of the Fund,
enforceable in accordance with its terms, and there is no statute,
regulation, rule, order or judgment binding on it, and no provision of
its charter or by-laws, nor of any mortgage, indenture, credit
agreement or other contract binding on it or affecting its property,
which would prohibit its execution or performance of this Agreement;
(c) It is conducting its business in substantial compliance
with all applicable laws and requirements, both state and federal, and
has obtained all regulatory licenses, approvals and consents necessary
to carry on its business as now conducted;
(d) It will not use the services provided by Custodian
hereunder in any manner that is, or will result in, a violation of any
law, rule or regulation applicable to the Fund;
(e) If the Fund's foreign custody manager is not the
Custodian or a BNY Affiliate, the Fund's Board or its foreign custody
manager, as defined in Rule 17f-5 under the Investment Company Act of
1940, as amended (the "`40 Act"), has determined that use of each
Subcustodian (including any Replacement Custodian (as defined below))
which Custodian or any Subcustodian is authorized to utilize in
accordance with Section 1(a) of Article III hereof, satisfies the
applicable requirements of the `40 Act and 17f-5 thereunder, as the
case may be;
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(f) The Fund or its investment adviser has determined that
the custody arrangements of each Foreign Depository provide reasonable
safeguards against the custody risks associated with maintaining assets
with such Foreign Depository within the meaning of Rule 17f-7 under the
`40 Act;
(g) It is fully informed of the protections and risks
associated with various methods of transmitting Instructions and Oral
Instructions and delivering Certificates to Custodian, shall cause each
Authorized Person to safeguard and treat with extreme care any user and
authorization codes, passwords and/or authentication keys, understands
that there may be more secure methods of transmitting or delivering the
same than the methods selected by the Fund, agrees that the security
procedures (if any) to be utilized provide a commercially reasonable
degree of protection in light of its particular needs and
circumstances, and acknowledges and agrees that Instructions need not
be reviewed by Custodian, may conclusively be presumed by Custodian to
have been given by person(s) duly authorized, and may be acted upon as
given;
(h) It shall manage its borrowings, including, without
limitation, any advance or overdraft (including any day-light
overdraft) in the Accounts, so that the aggregate of its total
borrowings for each Series does not exceed the amount such Series is
permitted to borrow under the `40 Act;
(i) Its transmission or giving of, and Custodian acting upon
and in reliance on, Certificates, Instructions, or Oral Instructions
pursuant to this Agreement shall at all times comply with the `40 Act;
(j) It shall impose and maintain restrictions on the
destinations to which cash may be disbursed by Instructions to ensure
that each disbursement is for a proper purpose; and
(k) It has the right to make the pledge and grant the
security interest and security entitlement to Custodian contained in
Section 1 of Article V hereof, free of any right of redemption or prior
claim of any other person or entity, such pledge and such grants shall
have a first priority subject to no setoffs, counterclaims, or other
liens or grants prior to or on a parity therewith, and it shall take
such additional steps as Custodian may require to assure such priority.
Section 3. The Fund hereby covenants that it shall from time to time
complete and execute and deliver to Custodian upon Custodian's request a Form FR
U-1 (or successor form) whenever the Fund borrows from Custodian any money to be
used for the purchase or carrying of margin stock as defined in Federal Reserve
Regulation U.
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ARTICLE III
CUSTODY AND RELATED SERVICES
Section 1. (a) Subject to the terms hereof, the Fund hereby
authorizes Custodian to hold any Securities received by it from time to time for
the Fund's Account. Custodian shall be entitled to utilize, subject to
subsection (c) of this Section 1, Depositories, Subcustodians (provided if the
Fund's foreign custody manager is not the Custodian or a BNY Affiliate, the
Custodian has received notice of the Subcustodians approved by the Fund's board
or foreign custody manager), and, subject to subsection (d) of this Section 1,
Foreign Depositories, to the extent possible in connection with its performance
hereunder. Securities and cash held in a Depository or Foreign Depository will
be held subject to the rules, terms and conditions of such entity. Securities
and cash held through Subcustodians shall be held subject to the terms and
conditions of Custodian's agreements with such Subcustodians. Subcustodians may
be authorized to hold Securities in Foreign Depositories in which such
Subcustodians participate. Unless otherwise required by local law or practice or
a particular subcustodian agreement, Securities deposited with a Subcustodian, a
Depositary or a Foreign Depository will be held in a commingled account, in the
name of Custodian, holding only Securities held by Custodian as custodian for
its customers. Custodian shall identify on its books and records the Securities
and cash belonging to the Fund and each Series thereof, whether held directly or
indirectly through Depositories, Foreign Depositories, or Subcustodians.
Custodian shall, directly or indirectly through Subcustodians, Depositories, or
Foreign Depositories, endeavor, to the extent feasible, to hold Securities in
the country or other jurisdiction in which the principal trading market for such
Securities is located, where such Securities are to be presented for
cancellation and/or payment and/or registration, or where such Securities are
acquired. Custodian at any time may cease utilizing any Subcustodian and/or may
replace a Subcustodian with a different Subcustodian (the "Replacement
Subcustodian"). In the event Custodian selects a Replacement Subcustodian,
Custodian shall not utilize such Replacement Subcustodian until after the Fund's
board or foreign custody manager has determined that utilization of such
Replacement Subcustodian satisfies the requirements of the `40 Act and Rule
17f-5 thereunder.
(b) In the event that the Fund desires to have the Custodian serve as
foreign custody manager to a Series of the Fund, and the Custodian agrees to
provide such services, the Fund and Custodian shall enter into a Foreign Custody
Manager Agreement substantially in the form attached as Appendix II.
(c) Unless Custodian has received a Certificate or Instructions to the
contrary, Custodian shall hold Securities indirectly through a Subcustodian only
if (i) the Securities are not subject to any right, charge, security interest,
lien or claim of any kind in favor of such Subcustodian or its creditors or
operators, including a receiver or trustee in bankruptcy or similar authority,
except for a claim of payment for the safe custody or administration of
Securities on behalf of the Fund by such Subcustodian, and (ii) beneficial
ownership of the Securities is freely transferable without the payment of money
or value other than for safe custody or administration.
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(d) With respect to each Depository, Custodian (i) shall exercise due
care in accordance with reasonable commercial standards in discharging its
duties as a securities intermediary to obtain and thereafter maintain Securities
or financial assets deposited or held in such Depository and (ii) will provide,
promptly upon request by the Fund, such reports as are available concerning the
internal accounting controls and financial strength of Custodian.
(e) With respect to each Foreign Depository, Custodian shall exercise
reasonable care, prudence, and diligence (i) to provide the Fund with an
analysis of the custody risks associated with maintaining assets with the
Foreign Depository in accordance with Rule 17f-7(a)(1)(i)(A) of the `40 Act, and
(ii) to monitor such custody risks on a continuing basis and promptly notify the
Fund of any material change in such risks in accordance with Rule
17f-7(a)(1)(i)(B) of the x00 Xxx. The Custodian shall only utilize a Foreign
Depository that it has determined satisfies the requirements of Rule 17f-7(b)(1)
as an "Eligible Securities Depository" (as defined in Rule 17f-7(b)(1)) and has
provided the risk analysis required in (i) of this paragraph (e). In such a
manner as Custodian deems reasonable, Custodian shall give the Fund prompt
notice of any material change known to Custodian, that would adversely affect
Custodian's determination that an entity is an Eligible Securities Depository.
The Fund acknowledges and agrees that such analysis and monitoring shall be made
on the basis of, and limited by, information gathered from Subcustodians or
through publicly available information otherwise obtained by Custodian, and
shall not include any evaluation of Country Risks. As used herein the term
"Country Risks" shall mean with respect to any Foreign Depository: (a) the
financial infrastructure of the country in which it is organized, (b) such
country's prevailing custody and settlement practices, (c) nationalization,
expropriation or other governmental actions, (d) such country's regulation of
the banking or securities industry, (e) currency controls, restrictions,
devaluations or fluctuations, and (f) market conditions which affect the order
execution of securities transactions or affect the value of securities.
Section 2. Custodian shall furnish the Fund with an advice of daily
transactions (including a confirmation of each transfer of Securities) and a
monthly summary of all transfers to or from the Accounts.
Section 3. With respect to all Securities held hereunder, Custodian
shall, unless otherwise instructed to the contrary:
(a) Receive all income and other payments and advise the Fund
as promptly as practicable of any such amounts due but not paid;
(b) Present for payment and receive the amount paid upon all
Securities which may mature and advise the Fund as promptly as
practicable of any such amounts due but not paid;
(c) Forward to the Fund copies of all information or
documents that it may actually receive from an issuer of Securities
which, in the opinion of Custodian, are intended for the beneficial
owner of Securities;
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(d) Execute, as custodian, any certificates of ownership,
affidavits, declarations or other certificates under any tax laws now
or hereafter in effect in connection with the collection of bond and
note coupons;
(e) Hold directly or through a Depository, a Foreign
Depository, or a Subcustodian all rights and similar Securities issued
with respect to any Securities credited to an Account hereunder; and
(f) Endorse for collection checks, drafts or other negotiable
instruments.
Section 4. (a) Custodian shall notify the Fund of rights or
discretionary actions with respect to Securities held hereunder, and of the date
or dates by when such rights must be exercised or such action must be taken,
provided that Custodian has actually received, from the issuer or the relevant
Depository (with respect to Securities issued in the United States) or from the
relevant Subcustodian, Foreign Depository, or a nationally or internationally
recognized bond or corporate action service to which Custodian subscribes,
timely notice of such rights or discretionary corporate action or of the date or
dates such rights must be exercised or such action must be taken. Absent actual
receipt of such notice, Custodian shall have no liability for failing to so
notify the Fund.
(b) Whenever Securities (including, but not limited to, warrants,
options, tenders, options to tender or non-mandatory puts or calls) confer
discretionary rights on the Fund or provide for discretionary action or
alternative courses of action by the Fund, the Fund shall be responsible for
making any decisions relating thereto and for directing Custodian to act. In
order for Custodian to act, it must receive the Fund's Certificate or
Instructions at Custodian's offices, addressed as Custodian may from time to
time request, not later than noon (New York time) at least two (2) Business Days
prior to the last scheduled date to act with respect to such Securities (or such
earlier date or time as Custodian may specify to the Fund). Absent Custodian's
timely receipt of such Certificate or Instructions, Custodian shall not be
liable for failure to take any action relating to or to exercise any rights
conferred by such Securities.
Section 5. All voting rights with respect to Securities, however
registered, shall be exercised by the Fund or its designee. For Securities
issued in the United States, Custodian's only duty shall be to mail to the Fund
any documents (including proxy statements, annual reports and signed proxies)
actually received by Custodian relating to the exercise of such voting rights.
With respect to Securities issued outside of the United States, Custodian's only
duty shall be to provide the Fund with access to a provider of global proxy
services at the Fund's request. The Fund shall be responsible for all costs
associated with its use of such services.
Section 6. Custodian shall promptly advise the Fund upon Custodian's
actual receipt of notification of the partial redemption, partial payment or
other action affecting less than all Securities of the relevant class. If
Custodian, any Subcustodian, any Depository, or any Foreign Depository holds any
Securities in which the Fund has an interest as part of a fungible mass,
Custodian, such Subcustodian, Depository, or Foreign Depository may select the
Securities to participate in such partial redemption, partial payment or other
action in any non-discriminatory manner that it customarily uses to make such
selection.
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Section 7. Custodian shall not under any circumstances accept bearer
interest coupons which have been stripped from United States federal, state or
local government or agency securities unless explicitly agreed to by Custodian
in writing.
Section 8. The Fund shall be liable for all taxes, assessments,
duties and other governmental charges, including any interest or penalty with
respect thereto ("Taxes"), with respect to any cash or Securities held on behalf
of the Fund or any transaction related thereto. The Fund shall indemnify
Custodian and each Subcustodian for the amount of any Tax that Custodian, any
such Subcustodian or any other withholding agent is required under applicable
laws (whether by assessment or otherwise) to pay on behalf of, or in respect of
income earned by or payments or distributions made to or for the account of the
Fund (including any payment of Tax required by reason of an earlier failure to
withhold). Custodian shall, or shall instruct the applicable Subcustodian or
other withholding agent to, withhold the amount of any Tax which is required to
be withheld under applicable law upon collection of any dividend, interest or
other distribution made with respect to any Security and any proceeds or income
from the sale, loan or other transfer of any Security. In the event that
Custodian or any Subcustodian is required under applicable law to pay any Tax on
behalf of the Fund, Custodian is hereby authorized to withdraw cash from any
cash account in the amount required to pay such Tax and to use such cash, or to
remit such cash to the appropriate Subcustodian or other withholding agent, for
the timely payment of such Tax in the manner required by applicable law. If the
aggregate amount of cash in all cash accounts is not sufficient to pay such Tax,
Custodian shall promptly notify the Fund of the additional amount of cash (in
the appropriate currency) required, and the Fund shall directly deposit such
additional amount in the appropriate cash account promptly after receipt of such
notice, for use by Custodian as specified herein. In the event that Custodian
reasonably believes that Fund is eligible, pursuant to applicable law or to the
provisions of any tax treaty, for a reduced rate of, or exemption from, any Tax
which is otherwise required to be withheld or paid on behalf of the Fund under
any applicable law, Custodian shall, or shall instruct the applicable
Subcustodian or withholding agent to, either withhold or pay such Tax at such
reduced rate or refrain from withholding or paying such Tax, as appropriate;
provided that Custodian shall have received from the Fund all documentary
evidence of residence or other qualification for such reduced rate or exemption
required to be received under such applicable law or treaty. In the event that
Custodian reasonably believes that a reduced rate of, or exemption from, any Tax
is obtainable only by means of an application for refund, Custodian and the
applicable Subcustodian shall have no responsibility for the accuracy or
validity of any forms or documentation provided by the Fund to Custodian
hereunder. The Fund hereby agrees to indemnify and hold harmless Custodian and
each Subcustodian in respect of any liability arising from any underwithholding
or underpayment of any Tax which results from the inaccuracy or invalidity of
any such forms or other documentation, and such obligation to indemnify shall be
a continuing obligation of the Fund, its successors and assigns notwithstanding
the termination of this Agreement.
Section 9. (a) For the purpose of settling Securities and foreign
exchange transactions, the Fund shall provide Custodian with sufficient
immediately available funds for all transactions by such time and date as
conditions in the relevant market dictate. As used herein, "sufficient
immediately available funds" shall mean either (i) sufficient cash denominated
in U.S. dollars to purchase the necessary foreign currency, or (ii) sufficient
applicable foreign currency, to settle the transaction. Custodian shall provide
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the Fund with immediately available funds each day which result from the actual
settlement of all sale transactions, based upon advices received by Custodian
from Subcustodians, Depositories, and Foreign Depositories. Such funds shall be
in U.S. dollars or such other currency as the Fund may specify to Custodian.
(b) Any foreign exchange transaction effected by Custodian in
connection with this Agreement may be entered with Custodian or a BNY Affiliate
acting as principal or otherwise through customary banking channels. The Fund
may issue a standing Certificate or Instructions with respect to foreign
exchange transactions, but Custodian may establish rules or limitations
concerning any foreign exchange facility made available to the Fund. The Fund
shall bear all risks of investing in Securities or holding cash denominated in a
foreign currency.
(c) To the extent that Custodian has agreed to provide pricing or other
information services in connection with this Agreement, Custodian is authorized
to utilize any vendor (including brokers and dealers of Securities) reasonably
believed by Custodian to be reliable to provide such information. The Fund
understands that certain pricing information with respect to complex financial
instruments (e.g., derivatives) may be based on calculated amounts rather than
actual market transactions and may not reflect actual market values, and that
the variance between such calculated amounts and actual market values may or may
not be material. Where vendors do not provide information for particular
Securities or other property, an Authorized Person may advise Custodian in a
Certificate regarding the fair market value of, or provide other information
with respect to, such Securities or property as determined by it in good faith.
Custodian shall not be liable for any loss, damage or expense incurred as a
result of errors or omissions with respect to any pricing or other information
utilized by Custodian hereunder.
Section 10. Custodian shall promptly send to the Fund (a) any reports
it receives from a Depository on such Depository's system of internal accounting
control, and (b) such reports on its own system of internal accounting control
as the Fund may reasonably request from time to time.
Section 11. Until such time as Custodian receives a certificate to the
contrary with respect to a particular Security, Custodian may release the
identity of the Fund to an issuer which requests such information pursuant to
the Shareholder Communications Act of 1985 for the specific purpose of direct
communications between such issuer and shareholder.
ARTICLE IV
PURCHASE AND SALE OF SECURITIES; CREDITS TO ACCOUNT
Section 1. Promptly after each purchase or sale of Securities by the
Fund, the Fund shall deliver to Custodian a Certificate or Instructions, or with
respect to a purchase or sale of a Security generally required to be settled on
the same day the purchase or sale is made, Oral Instructions specifying all
information Custodian may reasonably request to settle such purchase or sale.
Custodian shall account for all purchases and sales of Securities on the actual
settlement date unless otherwise agreed by Custodian.
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Section 2. The Fund understands that when Custodian is instructed to
deliver Securities against payment, delivery of such Securities and receipt of
payment therefor may not be completed simultaneously. Notwithstanding any
provision in this Agreement to the contrary, settlements, payments and
deliveries of Securities may be effected by Custodian or any Subcustodian in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction in which the transaction
occurs, including, without limitation, delivery to a purchaser or dealer
therefor (or agent) against receipt with the expectation of receiving later
payment for such Securities. The Fund assumes full responsibility for all risks,
including, without limitation, credit risks, involved in connection with such
deliveries of Securities.
Section 3. Custodian may, as a matter of bookkeeping convenience or
by separate agreement with the Fund, credit the Account with the proceeds from
the sale, redemption or other disposition of Securities or interest, dividends
or other distributions payable on Securities prior to its actual receipt of
final payment therefor. All such credits shall be conditional until Custodian's
actual receipt of final payment and may be reversed by Custodian to the extent
that final payment is not received. Payment with respect to a transaction will
not be "final" until Custodian shall have received immediately available funds
which under applicable local law, rule and/or practice are irreversible and not
subject to any security interest, levy or other encumbrance, and which are
specifically applicable to such transaction.
ARTICLE V
OVERDRAFTS OR INDEBTEDNESS
Section 1. If Custodian should in its sole discretion advance funds
on behalf of any Series which results in an overdraft (including, without
limitation, any day-light overdraft) because the money held by Custodian in an
Account for such Series shall be insufficient to pay the total amount payable
upon a purchase of Securities specifically allocated to such Series, as set
forth in a Certificate, Instructions or Oral Instructions, or if an overdraft
arises in the separate account of a Series for some other reason, including,
without limitation, because of a reversal of a conditional credit or the
purchase of any currency, or if the Fund is for any other reason indebted to
Custodian with respect to a Series, including any indebtedness to The Bank of
New York under a cash management and related services agreement with the Fund,
if any, (except a borrowing for investment or for temporary or emergency
purposes using Securities as collateral pursuant to a separate agreement and
subject to the provisions of Section 2 of this Article), such overdraft or
indebtedness shall be deemed to be a loan made by Custodian to the Fund for such
Series payable on demand and shall bear interest from the date incurred at a
rate per annum ordinarily charged by Custodian to its institutional customers,
as such rate may be adjusted from time to time. In addition, the Fund hereby
agrees that Custodian shall to the maximum extent permitted by law have a
continuing lien, security interest, and security entitlement in and to any
property, including, without limitation, any investment property or any
financial asset, of such Series at any time held by Custodian for the benefit of
such Series or in which such Series may have an interest which is then in
Custodian's possession or control or in possession or control of any third party
acting in Custodian's behalf. The Fund authorizes Custodian, in its sole
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discretion, at any time to charge any such overdraft or indebtedness together
with interest due thereon against any balance of account standing to such
Series' credit on Custodian's books.
Section 2. If the Fund borrows money from any bank (including
Custodian if the borrowing is pursuant to a separate agreement) for investment
or for temporary or emergency purposes using Securities held by Custodian
hereunder as collateral for such borrowings, the Fund shall deliver to Custodian
a Certificate specifying with respect to each such borrowing: (a) the Series to
which such borrowing relates; (b) the name of the bank, (c) the amount of the
borrowing, (d) the time and date, if known, on which the loan is to be entered
into, (e) the total amount payable to the Fund on the borrowing date, (f) the
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (g) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the `40 Act and the Fund's prospectus. Custodian shall
deliver on the borrowing date specified in a Certificate the specified
collateral against payment by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable as set
forth in the Certificate. Custodian may, at the option of the lending bank, keep
such collateral in its possession, but such collateral shall be subject to all
rights therein given the lending bank by virtue of any promissory note or loan
agreement. Custodian shall deliver such Securities as additional collateral as
may be specified in a Certificate to collateralize further any transaction
described in this Section. The Fund shall cause all Securities released from
collateral status to be returned directly to Custodian, and Custodian shall
receive from time to time such return of collateral as may be tendered to it. In
the event that the Fund fails to specify in a Certificate the Series, the name
of the issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by Custodian, Custodian
shall not be under any obligation to deliver any Securities.
ARTICLE VI
SALE AND REDEMPTION OF SHARES
Custodian shall, upon receipt of instructions from the Transfer Agent,
make funds and securities available for payment to, or in accordance with the
instructions of, the Transfer Agent for the redemption or repurchase of shares
of the Fund ("Shares") which shall have been accepted by the Transfer Agent. The
Custodian will transfer any Securities to or on the order of the person
identified by the Transfer Agent in the manner specified by the Transfer Agent
(either through the Depository Trust Company ("DTC") or otherwise). Any cash
redemption payment (less any applicable cash redemption transaction fees) shall
be effected as specified by the Transfer Agent either through DTC or through
wire transfer in the case of redemptions effected outside of DTC. All funds and
securities to be made available for payment with respect to a transaction, shall
be out of funds and securities held for the Account of the specified Series.
- 11 -
ARTICLE VII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
Section 1. Whenever the Fund shall determine to pay a dividend or
distribution on Shares it shall furnish to Custodian Instructions or a
Certificate setting forth with respect to the Series specified therein the date
of the declaration of such dividend or distribution, the total amount payable,
and the payment date.
Section 2. Upon the payment date specified in such Instructions or
Certificate, Custodian shall pay out of the money held for the account of such
Series the total amount payable to the dividend agent of the Fund specified
therein.
ARTICLE VIII
CONCERNING CUSTODIAN
Section 1. (a) Except as otherwise expressly provided herein,
Custodian shall not be liable for any costs, expenses, damages, liabilities or
claims, including attorneys' and accountants' fees (collectively, "Losses"),
incurred by or asserted against the Fund, except those Losses arising out of
Custodian's own negligence or willful misconduct. Custodian shall have no
liability whatsoever for the action or inaction of any Depositories or of
Foreign Depositories, except in each case to the extent such action or inaction
is a direct result of the Custodian's failure to fulfill its duties hereunder.
With respect to any Losses incurred by the Fund as a result of the acts or any
failures to act by any Subcustodian (other than a BNY Affiliate), Custodian
shall take appropriate action to recover such Losses from such Subcustodian; and
Custodian's sole responsibility and liability to the Fund shall be limited to
amounts so received from such Subcustodian (exclusive of costs and expenses
incurred by Custodian). In no event shall Custodian be liable to the Fund or any
third party for special, indirect or consequential damages, or lost profits or
loss of business, arising in connection with this Agreement, except Custodian
shall be liable to the Fund for direct money damages caused by Custodian's own
negligence or willful misconduct, nor shall BNY or any Subcustodian be liable:
(i) for acting in accordance with any Certificate or Oral Instructions actually
received by Custodian and reasonably believed by Custodian to be given by an
Authorized Person; (ii) for acting in accordance with Instructions without
reviewing the same; (iii) for conclusively presuming that all Instructions are
given only by person(s) duly authorized; (iv) for conclusively presuming that
all disbursements of cash directed by the Fund, whether by a Certificate, an
Oral Instruction, or an Instruction, are in accordance with Section 2(i) of
Article II hereof; (v) for holding property in any particular country,
including, but not limited to, Losses resulting from nationalization,
expropriation or other governmental actions; regulation of the banking or
securities industry; exchange or currency controls or restrictions, devaluations
or fluctuations; availability of cash or Securities or market conditions which
prevent the transfer of property or execution of Securities transactions or
affect the value of property; (vi) for any Losses due to forces beyond the
control of Custodian, including without limitation strikes, work stoppages, acts
of war or terrorism, insurrection, revolution, nuclear or natural catastrophes
or acts of God, or interruptions, loss or malfunctions of utilities,
communications or computer (software and hardware) services; (vii) for the
- 12 -
insolvency of any Subcustodian (other than a BNY Affiliate), any Depository, or,
except to the extent such action or inaction is a direct result of the
Custodian's failure to fulfill its duties hereunder, any Foreign Depository;
(viii) for any Losses arising from the applicability of any law or regulation
now or hereafter in effect, or from the occurrence of any event, including,
without limitation, implementation or adoption of any rules or procedures of a
Foreign Depository, which may affect, limit, prevent or impose costs or burdens
on, the transferability, convertibility, or availability of any currency or
Composite Currency Unit in any country or on the transfer of any Securities, and
in no event shall Custodian be obligated to substitute another currency for a
currency (including a currency that is a component of a Composite Currency Unit)
whose transferability, convertibility or availability has been affected,
limited, or prevented by such law, regulation or event, and to the extent that
any such law, regulation or event imposes a cost or charge upon Custodian in
relation to the transferability, convertibility, or availability of any cash
currency or Composite Currency Unit, such cost or charge shall be for the
account of the Fund, and Custodian may treat any account denominated in an
affected currency as a group of separate accounts denominated in the relevant
component currencies; or (ix) for any action or inaction taken or omitted to by
Custodian in good faith in accordance with the advice or opinion of counsel for
the Fund or its own outside counsel.
(b) Custodian may enter into subcontracts, agreements and
understandings with any BNY Affiliate, whenever and on such terms and conditions
as it deems necessary or appropriate to perform its services hereunder. No such
subcontract, agreement or understanding shall discharge Custodian from its
obligations hereunder.
(c) The Fund agrees to indemnify Custodian and hold Custodian harmless
from and against any and all Losses sustained or incurred by or asserted against
Custodian by reason of or as a result of any action or inaction, or arising out
of Custodian's performance hereunder, including reasonable fees and expenses of
counsel incurred by Custodian in a successful defense of claims by the Fund;
provided however, that the Fund shall not indemnify Custodian for those Losses
arising out of Custodian's own negligence or willful misconduct. This indemnity
shall be a continuing obligation of the Fund, its successors and assigns,
notwithstanding the termination of this Agreement.
Section 2. Without limiting the generality of the foregoing,
Custodian shall be under no obligation to inquire into, and shall not be liable
for:
(a) Any Losses incurred by the Fund or any other person as a
result of the receipt or acceptance of fraudulent, forged or invalid
Securities, or Securities which are otherwise not freely transferable
or deliverable without encumbrance in any relevant market;
(b) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale
or writing thereof, or the propriety of the amount paid or received
therefor;
(c) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor;
- 13 -
(d) The legality of the declaration or payment of any
dividend or distribution by the Fund;
(e) The legality of any borrowing by the Fund;
(f) The legality of any loan of portfolio Securities, nor
shall Custodian be under any duty or obligation to see to it that any
cash or collateral delivered to it by a broker, dealer or financial
institution or held by it at any time as a result of such loan of
portfolio Securities is adequate security for the Fund against any loss
it might sustain as a result of such loan, which duty or obligation
shall be the sole responsibility of the Fund. In addition, Custodian
shall be under no duty or obligation to see that any broker, dealer or
financial institution to which portfolio Securities of the Fund are
lent makes payment to it of any dividends or interest which are payable
to or for the account of the Fund during the period of such loan or at
the termination of such loan, provided, however that Custodian shall
promptly notify the Fund in the event that such dividends or interest
are not paid and received when due;
(g) The sufficiency or value of any amounts of money and/or
Securities held in any Special Account in connection with transactions
by the Fund; whether any broker, dealer, futures commission merchant or
clearing member makes payment to the Fund of any variation margin
payment or similar payment which the Fund may be entitled to receive
from such broker, dealer, futures commission merchant or clearing
member, or whether any payment received by Custodian from any broker,
dealer, futures commission merchant or clearing member is the amount
the Fund is entitled to receive, or to notify the Fund of Custodian's
receipt or non-receipt of any such payment; or
(h) Whether any Securities at any time delivered to, or held
by it or by any Subcustodian, for the account of the Fund and
specifically allocated to a Series are such as properly may be held by
the Fund or such Series under the provisions of its then current
prospectus and statement of additional information, or to ascertain
whether any transactions by the Fund, whether or not involving
Custodian, are such transactions as may properly be engaged in by the
Fund.
Section 3. Custodian may, with respect to questions of law
specifically regarding an Account, obtain the advice of outside counsel and
shall not be liable with respect to anything done or omitted by it in good faith
in conformity with such advice.
Section 4. Custodian shall be under no obligation to take action to
collect any amount payable on Securities in default, or if payment is refused
after due demand and presentment.
Section 5. Custodian shall have no duty or responsibility to inquire
into, make recommendations, supervise, or determine the suitability of any
transactions affecting any Account.
Section 6. The Fund shall pay to Custodian the fees and charges as
may be specifically agreed upon from time to time and such other fees and
charges at Custodian's standard rates for such services as may be applicable.
- 14 -
The Fund shall reimburse Custodian for all costs associated with the conversion
of the Fund's Securities hereunder and the transfer of Securities and records
kept in connection with this Agreement. The Fund shall also reimburse Custodian
for out-of-pocket expenses which are a normal incident of the services provided
hereunder.
Section 7. Custodian has the right to debit any cash account for any
amount payable by the Fund in connection with any and all obligations of the
Fund to Custodian. In addition to the rights of Custodian under applicable law
and other agreements, at any time when the Fund shall not have honored any of
its obligations to Custodian, Custodian shall have the right without notice to
the Fund to retain or set-off, against such obligations of the Fund, any
Securities or cash Custodian or a BNY Affiliate may directly or indirectly hold
for the account of the Fund, and any obligations (whether matured or unmatured)
that Custodian or a BNY Affiliate may have to the Fund in any currency or
Composite Currency Unit. Any such asset of, or obligation to, the Fund may be
transferred to Custodian and any BNY Affiliate in order to effect the above
rights.
Section 8. The Fund agrees to forward to Custodian a Certificate or
Instructions confirming Oral Instructions by the close of business of the same
day that such Oral Instructions are given to Custodian. The Fund agrees that the
fact that such confirming Certificate or Instructions are not received or that a
contrary Certificate or contrary Instructions are received by Custodian shall in
no way affect the validity or enforceability of transactions authorized by such
Oral Instructions and effected by Custodian. If the Fund elects to transmit
Instructions through an on-line communications system offered by Custodian, the
Fund's use thereof shall be subject to the Terms and Conditions attached as
Appendix I hereto, and Custodian shall provide user and authorization codes,
passwords and authentication keys only to an Authorized Person or a person
reasonably believed by Custodian to be an Authorized Person.
Section 9. The books and records pertaining to the Fund which are in
possession of Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the `40 Act and the
rules thereunder. The Fund, or its authorized representatives, shall have access
to such books and records during Custodian's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by Custodian to the Fund or its authorized representative. Upon the
reasonable request of the Fund, Custodian shall provide in hard copy or on
computer disc any records included in any such delivery which are maintained by
Custodian on a computer disc, or are similarly maintained.
Section 10. It is understood that Custodian is authorized to supply
any information regarding the Accounts which is required by any law, regulation
or rule now or hereafter in effect. The Custodian shall provide the Fund with
any report obtained by the Custodian on the system of internal accounting
control of a Depository, and with such reports on its own system of internal
accounting control as the Fund may reasonably request from time to time.
Section 11. Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied against
Custodian in connection with this Agreement.
- 15 -
Section 12. From time to time as requested by the Fund, the Custodian
shall provide to the Trust such certifications and sub-certifications, in the
form agreed to by the Fund and the Custodian, with respect to Form N-Qs, Form
N-CSRs, compliance policies and procedures under Rule 38a-1 under the Investment
Company Act of 1940, as amended, and such other matters that may be reasonably
requested by the Fund or the Fund's Chief Compliance Officer from time to time.
In addition, the Custodian 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 of the Investment Company Act of 1940, as amended.
ARTICLE IX
TERMINATION
Section 1. Either of the parties hereto may terminate this Agreement
by giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. In the event such notice is given by the Fund, it shall
be accompanied by a copy of a resolution of the board of the Fund, certified by
the Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating a successor custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. In the event such notice is given by Custodian, the Fund
shall, on or before the termination date, deliver to Custodian a copy of a
resolution of the board of the Fund, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In the absence of
such designation by the Fund, Custodian may designate a successor custodian
which shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to the
successor custodian all Securities and money then owned by the Fund and held by
it as Custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.
Section 2. If a successor custodian is not designated by the Fund or
Custodian in accordance with the preceding Section, the Fund shall upon the date
specified in the notice of termination of this Agreement and upon the delivery
by Custodian of all Securities (other than Securities which cannot be delivered
to the Fund) and money then owned by the Fund be deemed to be its own custodian
and Custodian shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement, other than the duty with respect to Securities which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
- 16 -
ARTICLE X
MISCELLANEOUS
Section 1. Each party shall keep confidential any information
relating to the other party's business ("Confidential Information").
Confidential Information shall include (a) any data or information that is
competitively sensitive material, and not generally known to the public,
including, but not limited to, information about product plans, marketing
strategies, finances, operations, customer relationships, customer profiles,
customer lists, sales estimates, business plans, and internal performance
results relating to the past, present or future business activities of the Fund
or Custodian and their respective subsidiaries and affiliated companies; (b) any
scientific or technical information, design, process, procedure, formula, or
improvement that is commercially valuable and secret in the sense that its
confidentiality affords the Fund or Custodian a competitive advantage over its
competitors; (c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, and trade secrets, whether or not
patentable or copyrightable; and (d) anything designated as confidential.
Notwithstanding the foregoing, information shall not be Confidential Information
and shall not be subject to such confidentiality obligations if: (a) it is
necessary for Custodian to release such information in connection with the
provision of services under this Agreement; (b) it is already known to the
receiving party at the time it is obtained; (c) it is or becomes publicly known
or available through no wrongful act of the receiving party; (d) it is
rightfully received from a third party who, to the best of the receiving party's
knowledge, is not under a duty of confidentiality; (e) it is released by the
protected party to a third party without restriction; (f) it is requested or
required to be disclosed by the receiving party pursuant to a court order,
subpoena, governmental or regulatory agency request or law (provided the
receiving party will provide the other party written notice of the same, to the
extent such notice is permitted); (g) it is relevant to the defense of any claim
or cause of action asserted against the receiving party; (h) it has been or is
independently developed or obtained by the receiving party; or (i) it is
necessary for Custodian to release such information to Custodian's internal or
external accountants or legal counsel who are subject to a duty of
confidentiality. Custodian acknowledges and agrees that in connection with its
services under this Agreement it receives non-public confidential portfolio
holdings information ("Portfolio Information") with respect to the Fund.
Custodian agrees that, subject to the foregoing provisions of and the exceptions
set forth in this Article X Section 1 (other than the exception set forth above
in this Article X Section 1 as sub-item (a), which exception set forth in
sub-item (a) shall not be applicable to the Fund's Portfolio Information),
Custodian will keep confidential the Fund's Portfolio Information and will not
disclose the Fund's Portfolio Information other than pursuant to a written
Certificate or Instructions; provided that without the need for such a written
Certification or Instructions and notwithstanding any other provision of this
Article X Section 1 to the contrary, the Fund's Portfolio Information may be
disclosed to third party pricing services which are engaged by Custodian in
connection with the provision of services under this Agreement and which shall
be subject to a duty of confidentiality with respect to such Portfolio
Information.
Section 2. The Fund agrees to furnish to Custodian a new Certificate
of Authorized Persons in the event of any change in the then present Authorized
Persons. Until such new Certificate is received, Custodian shall not be liable
- 17 -
in acting upon Certificates or Oral Instructions of such present Authorized
Persons.
Section 3. Each notice, request, demand, approval or other
communication which may be or is required to be given under this Agreement shall
be in writing in English and shall be deemed to have been properly given when
delivered personally at the address set forth below for the intended party
during normal business hours at such address, when sent by facsimile
transmission to the respective facsimile transmission numbers of the parties set
forth below, or when sent by recognized overnight courier service or by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Fund: First Trust Exchange-Traded Fund
0000 Xxxxxxxxxxx Xxxx, Xxxxx 000
Xxxxx, Xxxxxxxx 00000
Attention: General Counsel
Facsimile: 000-000-0000
Confirm: 000-000-0000
If to Custodian: The Bank of New York
000 Xxxxxxx Xxxxxx, 00X
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx
Facsimile: 000-000-0000
Confirm: 000-000-0000
Notices shall be given to such other addressee or address, or both, or by way of
such other facsimile transmission number, as a particular party may from time to
time designate by written notice to the other parties hereto given in accordance
with this Section. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received
for all purposes of this Agreement as of three business days after the date of
deposit thereof for mailing in a duly constituted United States post office or
branch thereof, one business day after deposit with a recognized overnight
courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be
given and received when actually received in writing by such party.
Section 4. Each and every right granted to either party hereunder or
under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of either party to exercise, and no delay in
exercising, any right will operate as a waiver thereof, nor will any single or
partial exercise by either party of any right preclude any other or future
exercise thereof or the exercise of any other right.
- 18 -
Section 5. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any exclusive
jurisdiction, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected thereby. This Agreement may not be
amended or modified in any manner except by a written agreement executed by both
parties, except that any amendment to the Schedule I hereto need be signed only
by the Fund and any amendment to Appendix I hereto need be signed only by
Custodian. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by either party without the written
consent of the other.
Section 6. This Agreement shall be construed in accordance with the
substantive laws of the State of New York, without regard to conflicts of laws
principles thereof. The Fund and Custodian hereby consent to the jurisdiction of
a state or federal court situated in New York City, New York in connection with
any dispute arising hereunder. The Fund hereby irrevocably waives, to the
fullest extent permitted by applicable law, any objection which it may now or
hereafter have to the laying of venue of any such proceeding brought in such a
court and any claim that such proceeding brought in such a court has been
brought in an inconvenient forum. The Fund and Custodian each hereby irrevocably
waives any and all rights to trial by jury in any legal proceeding arising out
of or relating to this Agreement.
Section 7. It is expressly acknowledged and agreed that the
obligations of the Fund hereunder shall not be binding upon any of the
shareholders, Trustees, officers, employees or agents of the Trust, personally,
but shall bind only the trust property of the Trust, as provided in its
Declaration of Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in its Declaration
of Trust.
Section 8. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
- 19 -
IN WITNESS WHEREOF, the Fund and Custodian have caused this Agreement
to be executed by their respective officers, thereunto duly authorized, as of
the day and year first above written.
FIRST TRUST EXCHANGE-TRADED FUND
By
Title:________________________________
Tax Identification No:________________
THE BANK OF NEW YORK
By
Title:________________________________
- 20 -
SCHEDULE I
CERTIFICATE OF AUTHORIZED PERSONS
(THE FUND - ORAL AND WRITTEN INSTRUCTIONS)
The undersigned hereby certifies that he/she is the duly elected and
acting Secretary of First Trust Exchange-Traded Fund (the "Fund"), and further
certifies that the following officers or employees of the Fund have been duly
authorized in conformity with the Fund's Declaration of Trust and By-Laws to
deliver Certificates and Oral Instructions to The Bank of New York ("Custodian")
pursuant to the Custody Agreement between the Fund and Custodian dated September
22, 2005 and that the signatures appearing opposite their names are true and
correct:
NAME TITLE SIGNATURE
Xxxxx X. Xxxxx Chairman of the Board and President
--------------------------- ----------------------------------- ------------
NAME TITLE SIGNATURE
Xxxx X. Xxxxxxx Treasurer
--------------------------- ----------------------------------- ------------
NAME TITLE SIGNATURE
W. Xxxxx Xxxxxxx Secretary
--------------------------- ----------------------------------- ------------
NAME TITLE SIGNATURE
Xxxxx Xxxxxx Vice President
--------------------------- ----------------------------------- ------------
NAME TITLE SIGNATURE
--------------------------- ----------------------------------- ------------
NAME TITLE SIGNATURE
--------------------------- ----------------------------------- ------------
NAME TITLE SIGNATURE
--------------------------- ----------------------------------- ------------
NAME TITLE SIGNATURE
--------------------------- ----------------------------------- ------------
This certificate supersedes any certificate of Authorized Persons you
may currently have on file.
[seal]
By:_______________________________________
Title: Secretary
Date:____________________________________
SCHEDULE II
First Trust Dow Xxxxx Select MicroCap Index(sm) Fund
SCHEDULE III
FOREIGN DEPOSITORIES
APPENDIX I
THE BANK OF NEW YORK
ON-LINE COMMUNICATIONS SYSTEM (THE "SYSTEM")
TERMS AND CONDITIONS
1. License; Use. Upon delivery to an Authorized Person or a person
reasonably believed by Custodian to be an Authorized Person the Fund of software
enabling the Fund to obtain access to the System (the "Software"), Custodian
grants to the Fund a personal, nontransferable and nonexclusive license to use
the Software solely for the purpose of transmitting Written Instructions,
receiving reports, making inquiries or otherwise communicating with Custodian in
connection with the Account(s). The Fund shall use the Software solely for its
own internal and proper business purposes and not in the operation of a service
bureau. Except as set forth herein, no license or right of any kind is granted
to the Fund with respect to the Software. The Fund acknowledges that Custodian
and its suppliers retain and have title and exclusive proprietary rights to the
Software, including any trade secrets or other ideas, concepts, know-how,
methodologies, or information incorporated therein and the exclusive rights to
any copyrights, trademarks and patents (including registrations and applications
for registration of either), or other statutory or legal protections available
in respect thereof. The Fund further acknowledges that all or a part of the
Software may be copyrighted or trademarked (or a registration or claim made
therefor) by Custodian or its suppliers. The Fund shall not take any action with
respect to the Software inconsistent with the foregoing acknowledgments, nor
shall you attempt to decompile, reverse engineer or modify the Software. The
Fund may not copy, sell, lease or provide, directly or indirectly, any of the
Software or any portion thereof to any other person or entity without
Custodian's prior written consent. The Fund may not remove any statutory
copyright notice or other notice included in the Software or on any media
containing the Software. The Fund shall reproduce any such notice on any
reproduction of the Software and shall add any statutory copyright notice or
other notice to the Software or media upon Custodian's request.
2. Equipment. The Fund shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to communications
services, necessary for it to utilize the Software and obtain access to the
System, and Custodian shall not be responsible for the reliability or
availability of any such equipment or services.
3. Proprietary Information. The Software, any data base and any
proprietary data, processes, information and documentation made available to the
Fund (other than which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of Custodian or its suppliers. The
Fund shall keep the Information confidential by using the same care and
discretion that the Fund uses with respect to its own confidential property and
trade secrets, but not less than reasonable care. Upon termination of the
Agreement or the Software license granted herein for any reason, the Fund shall
return to Custodian any and all copies of the Information which are in its
possession or under its control.
4. Modifications. Custodian reserves the right to modify the Software
from time to time and the Fund shall install new releases of the Software as
Custodian may direct. The Fund agrees not to modify or attempt to modify the
Software without Custodian's prior written consent. The Fund acknowledges that
any modifications to the Software, whether by the Fund or Custodian and whether
with or without Custodian's consent, shall become the property of Custodian.
5. NO REPRESENTATIONS OR WARRANTIES. CUSTODIAN AND ITS MANUFACTURERS
AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE
SOFTWARE, SERVICES OR ANY DATABASE, EXPRESS OR IMPLIED, IN FACT OR IN LAW,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE FUND ACKNOWLEDGES THAT THE SOFTWARE, SERVICES AND ANY
DATABASE ARE PROVIDED "AS IS." IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE
LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL,
WHICH THE FUND MAY INCUR IN CONNECTION WITH THE SOFTWARE, SERVICES OR ANY
DATABASE, EVEN IF CUSTODIAN OR SUCH SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ACTS
OF GOD, MACHINE OR COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR
MALFUNCTION OF COMMUNICATION FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR
OR DISSIMILAR CAUSE BEYOND THEIR REASONABLE CONTROL.
6. Security; Reliance; Unauthorized Use. The Fund will cause all
persons utilizing the Software and System to treat all applicable user and
authorization codes, passwords and authentication keys with extreme care, and it
will establish internal control and safekeeping procedures to restrict the
availability of the same to persons duly authorized to give Instructions.
Custodian is hereby irrevocably authorized to act in accordance with and rely on
Instructions received by it through the System. The Fund acknowledges that it is
its sole responsibility to assure that only persons duly authorized use the
System and that Custodian shall not be responsible nor liable for any
unauthorized use thereof.
7. System Acknowledgments. Custodian shall acknowledge through the
System its receipt of each transmission communicated through the System, and in
the absence of such acknowledgment Custodian shall not be liable for any failure
to act in accordance with such transmission and the Fund may not claim that such
transmission was received by Custodian.
8. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED
STATES LAW. THE FUND MAY NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT, TRANSFER,
TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO ANY OTHER
COUNTRY. IF CUSTODIAN DELIVERED THE SOFTWARE TO THE FUND OUTSIDE OF THE UNITED
STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN ACCORDANCE WITH THE
EXPORTER ADMINISTRATION REGULATIONS. DIVERSION CONTRARY TO U.S. LAW IS
PROHIBITED.
The Fund hereby authorizes Custodian to report its name and address to
government agencies to which Custodian is required to provide such information
by law.
9. Encryption. The Fund acknowledges and agrees that encryption may
not be available for every communication through the System, or for all data.
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The Fund agrees that Custodian may deactivate any encryption features at any
time, without notice or liability to the Fund, for the purpose of maintaining,
repairing or troubleshooting the System or the Software.
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APPENDIX II
FOREIGN CUSTODY MANAGER AGREEMENT
AGREEMENT made as of _______________________________, 200__ between
________________________________________________________ (the "Fund") and The
Bank of New York ("BNY").
W I T N E S S E T H:
WHEREAS, the Fund desires to appoint BNY as a Foreign Custody Manager
(as such term is defined in Rule 17f-5 of the Investment Company Act of 1940, as
amended (the "1940 Act")) on the terms and conditions contained herein with
respect to the Series (as such term is defined below) of the Fund;
WHEREAS, BNY desires to serve as a Foreign Custody Manager and perform
the duties set forth HEREIN on the terms and conditions contained herein;
NOW THEREFORE, in consideration of the mutual promises hereinafter
contained in this Agreement, the Fund and BNY hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
"Board" shall mean the board of directors or board of trustees, as the
case may be, of the Fund.
"Eligible Foreign Custodian" shall have the meaning provided in the
Rule.
"Foreign Assets" shall have the meaning provided in the Rule.
"Monitoring System" shall mean a system established by BNY to fulfill
the Responsibilities specified in clauses (d) and (e) of Section 1 of Article
III of this Agreement.
"Responsibilities" shall mean the responsibilities delegated to BNY
under the Rule as a Foreign Custody Manager to the Series of the Fund with
respect to each Specified Country and each Eligible Foreign Custodian selected
by BNY, as such responsibilities are more fully described in Article III of this
Agreement.
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"Rule" shall mean Rule 17f-5 under the Investment Company Act of 1940,
as amended from time to time.
"Series" shall mean the various portfolios, if any, of the Fund listed
on Schedule I hereto, and if none are listed, references to Series shall be
references to the Fund.
"Specified Country" shall mean each country listed on Schedule II
attached hereto and each country, other than the United States, constituting the
primary market for a security with respect to which the Fund has given
settlement instructions to The Bank of New York as custodian (the "Custodian")
under its Custody Agreement with the Fund.
ARTICLE II
BNY AS A FOREIGN CUSTODY MANAGER
Section 1. The Fund on behalf of its Board hereby delegates to BNY
with respect to each Specified Country the Responsibilities to be performed for
each Series of the Fund.
Section 2. BNY accepts the Board's delegation of Responsibilities
with respect to each Specified Country and agrees in performing the
Responsibilities as a Foreign Custody Manager to exercise reasonable care,
prudence and diligence such as a person having responsibility for the
safekeeping of the Fund's Foreign Assets would exercise.
Section 3. BNY shall provide to the Board at such times as the Board
deems reasonable and appropriate based on the circumstances of the Fund's
foreign custody arrangements written reports notifying the Board of the
placement of the Foreign Assets of the Fund with a particular Eligible Foreign
Custodian within a Specified Country and of any material change in the
arrangements (including the contract governing such arrangements) with respect
to the Foreign Assets of the Fund with any such Eligible Foreign Custodian.
ARTICLE III
RESPONSIBILITIES
Section 1. Subject to the provisions of this Agreement, BNY shall
with respect to each Specified Country select an Eligible Foreign Custodian. In
connection therewith, BNY shall: (a) determine that Foreign Assets of the Fund
held by such Eligible Foreign Custodian will be subject to reasonable care,
based on the standards applicable to custodians in the relevant market in which
such Eligible Foreign Custodian operates, after considering all factors relevant
to the safekeeping of such Foreign Assets, including, without limitation, those
contained in paragraph (c)(1) of the Rule; (b) determine that the Fund's foreign
custody arrangements with each Eligible Foreign Custodian are governed by a
written contract with the Custodian which will provide reasonable care for the
Fund's Foreign Assets based on the standards specified in paragraph (c)(1) of
the Rule; (c) determine that each contract with an Eligible Foreign Custodian
shall include the provisions specified in paragraph (c)(2)(i)(A) through (F) of
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the Rule or, alternatively, in lieu of any or all of such (c)(2)(i)(A) through
(F) provisions, such other provisions as BNY determines will provide, in their
entirety, the same or a greater level of care and protection for the Foreign
Assets of the Fund as such specified provisions; (d) monitor pursuant to the
Monitoring System the appropriateness of maintaining the Foreign Assets of the
Fund with a particular Eligible Foreign Custodian pursuant to paragraph (c)(1)
of the Rule and the performance of the contract governing such arrangement; and
(e) advise the Fund whenever BNY determines under the Monitoring System that an
arrangement (including, any material change in the contract governing such
arrangement) described in preceding clause (d) no longer meets the requirements
of the Rule.
Section 2. For purposes of preceding Section 1 of this Article, BNY's
determination of appropriateness shall not include, nor be deemed to include,
any evaluation of Country Risks associated with investment in a particular
country. For purposes hereof, "Country Risks" shall mean systemic risks of
holding assets in a particular country including but not limited to (a) such
country's financial infrastructure; (b) such country's prevailing custody and
settlement practices; (c) nationalization, expropriation or other governmental
actions; (d) regulation of the banking or securities industry; (e) currency
controls, restrictions, devaluations or fluctuations; and (f) market conditions
which affect the orderly execution of securities transactions or affect the
value of securities.
ARTICLE IV
REPRESENTATIONS
Section 1. The Fund hereby represents that: (a) this Agreement has
been duly authorized, executed and delivered by the Fund on behalf of the
Series, constitutes a valid and legally binding obligation of the Fund
enforceable in accordance with its terms, and no statute, regulation, rule,
order, judgment or contract binding on the Fund prohibits the Fund's execution
or performance of this Agreement; (b) this Agreement has been approved and
ratified by the Board at a meeting duly called and at which a quorum was at all
times present, and (c) the Board or the Fund's investment advisor has considered
the Country Risks associated with investment in each Specified Country and will
have considered such risks prior to any settlement instructions being given to
the Custodian with respect to any other country.
Section 2. BNY hereby represents that: (a) BNY is duly organized and
existing under the laws of the State of New York, with full power to carry on
its businesses as now conducted, and to enter into this Agreement and to perform
its obligations hereunder; (b) this Agreement has been duly authorized, executed
and delivered by BNY, constitutes a valid and legally binding obligation of BNY
enforceable in accordance with its terms, and no statute, regulation, rule,
order, judgment or contract binding on BNY prohibits BNY's execution or
performance of this Agreement; and (c) BNY has established the Monitoring
System.
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ARTICLE V
CONCERNING BNY
Section 1. BNY shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys' and accountants' fees, sustained or
incurred by, or asserted against, the Fund except to the extent the same arises
out of the failure of BNY to exercise the care, prudence and diligence required
by Section 2 of Article II hereof. In no event shall BNY be liable to the Fund,
the Board, or any third party for special, indirect or consequential damages, or
for lost profits or loss of business, arising in connection with this Agreement.
Section 2. The Fund shall indemnify BNY and hold it harmless from and
against any and all costs, expenses, damages, liabilities or claims, including
attorneys' and accountants' fees, sustained or incurred by, or asserted against,
BNY by reason or as a result of any action or inaction, or arising out of BNY's
performance hereunder, provided that the Fund shall not indemnify BNY to the
extent any such costs, expenses, damages, liabilities or claims arises out of
BNY's failure to exercise the reasonable care, prudence and diligence required
by Section 2 of Article II hereof.
Section 3. For its services hereunder, the Fund agrees to pay to BNY
such compensation and out-of-pocket expenses as shall be mutually agreed.
Section 4. BNY shall have only such duties as are expressly set forth
herein. In no event shall BNY be liable for any Country Risks associated with
investments in a particular country.
ARTICLE VI
MISCELLANEOUS
Section 1. This Agreement constitutes the entire agreement between
the Fund and BNY as a Foreign Custody Manager, and no provision in the Custody
Agreement between the Fund and the Custodian shall affect the duties and
obligations of BNY hereunder, nor shall any provision in this Agreement affect
the duties or obligations of the Custodian under the Custody Agreement.
Section 2. Each notice, request, demand, approval or other
communication which may be or is required to be given under this Agreement shall
be in writing in English and shall be deemed to have been properly given when
delivered personally at the address set forth below for the intended party
during normal business hours at such address, when sent by facsimile
transmission to the respective facsimile transmission numbers of the parties set
forth below, or when sent by recognized overnight courier service or by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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If to the Fund: First Trust Exchange-Traded Fund
0000 Xxxxxxxxxxx Xxxx, Xxxxx 000
Xxxxx, Xxxxxxxx 00000
Attention: General Counsel
Facsimile: 000-000-0000
Confirm: 000-000-0000
If to BNY: The Bank of New York
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx
Facsimile: 000-000-0000
Confirm: 000-000-0000
Notices shall be given to such other addressee or address, or both, or by way of
such other facsimile transmission number, as a particular party may from time to
time designate by written notice to the other parties hereto given in accordance
with this Section. Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed given and received
for all purposes of this Agreement as of three business days after the date of
deposit thereof for mailing in a duly constituted United States post office or
branch thereof, one business day after deposit with a recognized overnight
courier service or upon confirmation of receipt of any facsimile transmission.
Notice given to a party hereto by any other method shall only be deemed to be
given and received when actually received in writing by such party.
Section 3. Each party shall keep confidential any information
relating to the other party's business ("Confidential Information").
Confidential Information shall include (a) any data or information that is
competitively sensitive material, and not generally known to the public,
including, but not limited to, information about product plans, marketing
strategies, finances, operations, customer relationships, customer profiles,
customer lists, sales estimates, business plans, and internal performance
results relating to the past, present or future business activities of the Fund
or BNY and their respective subsidiaries and affiliated companies; (b) any
scientific or technical information, design, process, procedure, formula, or
improvement that is commercially valuable and secret in the sense that its
confidentiality affords the Fund or BNY a competitive advantage over its
competitors; (c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, and trade secrets, whether or not
patentable or copyrightable; and (d) anything designated as confidential.
Notwithstanding the foregoing, information shall not be Confidential Information
and shall not be subject to such confidentiality obligations if: (a) it is
necessary for BNY to release such information in connection with the provision
of services under this Agreement; (b) it is already known to the receiving party
at the time it is obtained; (c) it is or becomes publicly known or available
through no wrongful act of the receiving party; (d) it is rightfully received
from a third party who, to the best of the receiving party's knowledge, is not
under a duty of confidentiality; (e) it is released by the protected party to a
- 8 -
third party without restriction; (f) it is requested or required to be disclosed
by the receiving party pursuant to a court order, subpoena, governmental or
regulatory agency request or law (provided the receiving party will provide the
other party written notice of the same, to the extent such notice is permitted);
(g) it is relevant to the defense of any claim or cause of action asserted
against the receiving party; (h) it has been or is independently developed or
obtained by the receiving party; or (i) it is necessary for BNY to release such
information to BNY's internal or external accountants or legal counsel who are
subject to a duty of confidentiality. BNY acknowledges and agrees that in
connection with its services under this Agreement it receives non-public
confidential portfolio holdings information ("Portfolio Information") with
respect to the Fund. BNY agrees that, subject to the foregoing provisions of and
the exceptions set forth in this Section 3 (other than the exception set forth
above in this Section 3 as sub-item (a), which exception set forth in sub-item
(a) shall not be applicable to the Fund's Portfolio Information), BNY will keep
confidential the Fund's Portfolio Information and will not disclose the Fund's
Portfolio Information other than pursuant to a written instruction from the
Fund; provided that without the need for such a written instruction and
notwithstanding any other provision of this Section 3 to the contrary, the
Fund's Portfolio Information may be disclosed to third party pricing services
which are engaged by BNY in connection with the provision of services under this
Agreement and which shall be subject to a duty of confidentiality with respect
to such Portfolio Information.
Section 4. From time to time as requested by the Fund, BNY shall
provide to the Fund such certifications and sub-certifications, in the form
agreed to by the Fund and BNY, with respect to Form N-Qs, Form N-CSRs, and
compliance policies and procedures under Rule 38a-1 under the 1940 Act, as
amended, and such other matters that may be reasonably requested by the Fund or
the Fund's Chief Compliance Officer from time to time. In addition, BNY will,
from time to time, provide a written assessment of its compliance program in
conformity with current industry standards that is reasonably acceptable to
enable the Fund to fulfill its obligations under Rule 38a-1 of the 1940 Act.
Section 5. In the event that the Fund establishes one or more
additional Series with respect to which it desires to have BNY serve as Foreign
Custody Manager under the terms hereof, it shall so notify BNY in writing, and
if BNY agrees in writing to provide such services, such Series will be added to
this Agreement.
Section 6. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected thereby. This Agreement may not be amended or modified in
any manner except by a written agreement executed by both parties. This
Agreement shall extend to and shall be binding upon the parties hereto, and
their respective successors and assigns; provided however, that this Agreement
shall not be assignable by either party without the written consent of the
other.
Section 7. This Agreement shall be construed in accordance with the
substantive laws of the State of New York, without regard to conflicts of laws
principles thereof. The Fund and BNY hereby consent to the jurisdiction of a
state or federal court situated in New York City, New York in connection with
any dispute arising hereunder. The Fund hereby irrevocably waives, to the
- 9 -
fullest extent permitted by applicable law, any objection which it may now or
hereafter have to the laying of venue of any such proceeding brought in such a
court and any claim that such proceeding brought in such a court has been
brought in an inconvenient forum. The Fund and BNY each hereby irrevocably
waives any and all rights to trial by jury in any legal proceeding arising out
of or relating to this Agreement.
Section 8. The parties hereto agree that in performing hereunder, BNY
is acting solely on behalf of the Fund and no contractual or service
relationship shall be deemed to be established hereby between BNY and any other
person by reason of this Agreement.
Section 9. It is expressly acknowledged and agreed that the
obligations of the Fund hereunder shall not be binding upon any of the
shareholders, Trustees, officers, employees or agents of the Fund, personally,
but shall bind only the trust property of the Fund, as provided in its
Declaration of Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Fund and signed by an officer of the Fund,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been by any of
them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Fund as provided in its Declaration of
Trust.
Section 10. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
Section 11. This Agreement shall terminate simultaneously with the
termination of the Custody Agreement between the Fund and the Custodian, and may
otherwise be terminated by either party giving to the other party a notice in
writing specifying the date of such termination, which shall be not less than
thirty (30) days after the date of such notice.
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IN WITNESS WHEREOF, the Fund and BNY have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first above written.
----------------------------------------
By
Title:
Tax Identification No.:
THE BANK OF NEW YORK
By
Title:
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