INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT made this 1 day of February, 2013, by
and between FIRST TRUST EXCHANGE-TRADED FUND III, a Massachusetts business trust
(the "Trust"), and FIRST TRUST ADVISORS L.P., an Illinois limited partnership
(the "Adviser").
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company;
WHEREAS, the Trust is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Trust intends to initially offer shares in series as set
forth on Schedule A attached hereto and any other series as to which this
Agreement may hereafter be made applicable and set forth on Schedule A, which
may be amended from time to time (each such series being herein referred to as a
"Fund," and collectively as the "Funds"); and
WHEREAS, the Trust desires to retain the Adviser as investment adviser, to
furnish certain investment advisory and portfolio management services to the
Trust with respect to the Funds, and the Adviser is willing to furnish such
services.
W I T N E S S E T H:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Trust hereby engages the Adviser to act as the investment
adviser for, and to manage the investment and reinvestment of the assets
of, each Fund in accordance with each Fund's investment objectives and
policies and limitations, and to administer each Fund's affairs to the
extent requested by and subject to the supervision of the Board of
Trustees of the Company for the period and upon the terms herein set
forth. The investment of each Fund's assets shall be subject to the Fund's
policies, restrictions and limitations with respect to securities
investments as set forth in the Fund's then current registration statement
under the l940 Act, and all applicable laws and the regulations of the
Securities and Exchange Commission relating to the management of
registered open-end management investment companies.
The Adviser accepts such employment and agrees during such period
to render such services, to furnish office facilities and equipment and
clerical, bookkeeping and administrative services (other than such
services, if any, provided by the Funds' transfer agent, administrator or
other service providers) for the Funds, to permit any of its officers or
employees to serve without compensation as trustees or officers of the
Trust if elected to such positions, and to assume the obligations herein
set forth for the compensation herein provided. The Adviser shall at its
own expense furnish all executive and other personnel, office space, and
office facilities required to render the investment management and
administrative services set forth in this Agreement. In the event that the
Adviser pays or assumes any expenses of a Fund not required to be paid or
assumed by the Adviser under this Agreement, the Adviser shall not be
obligated hereby to pay or assume the same or similar expense in the
future; provided, that nothing contained herein shall be deemed to relieve
the Adviser of any obligation to a Fund under any separate agreement or
arrangement between the parties.
2. The Adviser shall, for all purposes herein provided, be deemed
to be an independent contractor and, unless otherwise expressly provided
or authorized, shall neither have the authority to act for nor represent
the Trust in any way, nor otherwise be deemed an agent of the Trust.
3. For the services and facilities described in Section 1, each
Fund will pay to the Adviser, at the end of each calendar month, and the
Adviser agrees to accept as full compensation therefor, an investment
management fee equal to the annual rate of each Fund's average daily net
assets as set forth on Schedule A.
For the month and year in which this Agreement becomes effective, or
terminates, there shall be an appropriate proration on the basis of the
number of days that the Agreement shall have been in effect during the
month and year, respectively. The services of the Adviser to the Trust
under this Agreement are not to be deemed exclusive, and the Adviser shall
be free to render similar services or other services to others so long as
its services hereunder are not impaired thereby.
4. During the term of this Agreement, the Adviser shall pay all of
the expenses of each Fund of the Trust (including the cost of transfer
agency, custody, fund administration, legal, audit and other services) but
excluding the fee payment under this Agreement, interest, taxes, brokerage
commissions and other expenses connected with the execution of portfolio
transactions, distribution and service fees pursuant to a Rule 12b-1 plan,
if any, and extraordinary expenses.
5. The Adviser shall arrange for suitably qualified officers or
employees of the Adviser to serve, without compensation from the Trust, as
trustees, officers or agents of the Trust, if duly elected or appointed to
such positions, and subject to their individual consent and to any
limitations imposed by law.
6. For purposes of this Agreement, brokerage commissions paid by a
Fund upon the purchase or sale of a Fund's portfolio securities shall be
considered a cost of securities of the Fund and shall be paid by the Fund.
7. The Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of a Fund's securities on behalf of
the Fund, and is directed to use its commercially reasonable efforts to
obtain best execution, which includes most favorable net results and
execution of the Fund's orders, taking into account all appropriate
factors, including price, dealer spread or commission, size and difficulty
of the transaction and research or other services provided. Subject to
approval by the Trust's Board of Trustees and to the extent permitted by
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and in conformance with applicable law (including Rule 17e-1 of the 1940
Act), the Adviser may select brokers or dealers affiliated with the
Adviser. It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the Trust, or be
in breach of any obligation owing to the Trust under this Agreement, or
otherwise, solely by reason of its having caused the Fund to pay a member
of a securities exchange, a broker or a dealer a commission for effecting
a securities transaction for the Fund in excess of the amount of
commission another member of an exchange, broker or dealer would have
charged if the Adviser determined in good faith that the commission paid
was reasonable in relation to the brokerage or research services provided
by such member, broker or dealer, viewed in terms of that particular
transaction or the Adviser's overall responsibilities with respect to its
accounts, including the Fund, as to which it exercises investment
discretion.
In addition, the Adviser may, to the extent permitted by applicable
law and the rules and regulations thereunder, aggregate purchase and sale
orders of securities with similar orders being made simultaneously for
other accounts managed by the Adviser or its affiliates, if in the
Adviser's reasonable judgment such aggregation shall result in an overall
economic benefit to a Fund, taking into consideration the selling or
purchase price, brokerage commissions and other expenses. In the event
that a purchase or sale of an asset of a Fund occurs as part of any
aggregate sale or purchase orders, the objective of the Adviser and any of
its affiliates involved in such transaction shall be to allocate the
securities so purchased or sold, as well as expenses incurred in the
transaction, among the Fund and other accounts in an equitable manner.
Nevertheless, each Fund acknowledges that under some circumstances, such
allocation may adversely affect the Fund with respect to the price or size
of the securities positions obtainable or salable. Whenever a Fund and one
or more other investment advisory clients of the Adviser have available
funds for investment, investments suitable and appropriate for each will
be allocated in a manner believed by the Adviser to be equitable to each,
although such allocation may result in a delay in one or more client
accounts being fully invested that would not occur if such an allocation
were not made. Moreover, it is possible that due to differing investment
objectives or for other reasons, the Adviser and its affiliates may
purchase securities of an issuer for one client and at approximately the
same time recommend selling or sell the same or similar types of
securities for another client.
The Adviser will not arrange purchases or sales of securities
between a Fund and other accounts advised by the Adviser or its affiliates
unless (a) such purchases or sales are in accordance with applicable law
(including Rule 17a-7 of the 0000 Xxx) and the Com Trust pany's policies
and procedures, (b) the Adviser determines the purchase or sale is in the
best interests of each Fund, and (c) the Trust's Board of Trustees have
approved these types of transactions.
To the extent a Fund seeks to adopt, amend or eliminate any
objectives, policies, restrictions or procedures in a manner that modifies
or restricts Adviser's authority regarding the execution of the Fund's
portfolio transactions, the Fund agrees to use reasonable commercial
efforts to consult with the Adviser regarding the modifications or
restrictions prior to such adoption, amendment or elimination.
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The Adviser will communicate to the officers and trustees of the
Company such information relating to transactions for the Funds as they
may reasonably request. In no instance will portfolio securities be
purchased by or sold to the Adviser or any affiliated person of either the
Trust or the Adviser, except as may be permitted under the 1940 Act.
The Adviser further agrees that it:
(a) will use the same degree of skill and care in providing
such services as it uses in providing services to fiduciary accounts
for which it has investment responsibilities;
(b) will conform in all material respects to all applicable
rules and regulations of the Securities and Exchange Commission and
comply in all material respects with all policies and procedures
adopted by the Board of Trustees for the Trust and communicated to
the Adviser and, in addition, will conduct its activities under this
Agreement in all material respects in accordance with any applicable
regulations of any governmental authority pertaining to its
investment advisory activities;
(c) will report regularly to the Board of Trustees of the
Trust (generally on a quarterly basis) and will make appropriate
persons available for the purpose of reviewing with representatives
of the Board of Trustees on a regular basis at reasonable times the
management of each Fund, including, without limitation, review of
the general investment strategies of each Fund, the performance of
each Fund's investment portfolio in relation to relevant standard
industry indices and general conditions affecting the marketplace
and will provide various other reports from time to time as
reasonably requested by the Board of Trustees of the Trust; and
(d) will prepare and maintain such books and records with
respect to each Fund's securities and other transactions as required
under applicable law and will prepare and furnish the Trust's Board
of Trustees such periodic and special reports as the Board of
Trustees may reasonably request. The Adviser further agrees that all
records which it maintains for each Fund are the property of the
Fund and the Adviser will surrender promptly to the Fund any such
records upon the request of the Fund (provided, however, that
Adviser shall be permitted to retain copies thereof); and shall be
permitted to retain originals (with copies to the Fund) to the
extent required under Rule 204-2 of the Investment Advisers Act of
1940, as amended, or other applicable law.
8. Subject to applicable statutes and regulations, it is
understood that officers, trustees, or agents of the Trust are, or may be,
interested persons (as such term is defined in the 1940 Act and rules and
regulations thereunder) of the Adviser as officers, directors, agents,
shareholders or otherwise, and that the officers, directors, shareholders
and agents of the Adviser may be interested persons of the Fund otherwise
than as trustees, officers or agents.
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9. The Adviser shall not be liable for any loss sustained by
reason of the purchase, sale or retention of any security, whether or not
such purchase, sale or retention shall have been based upon the
investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been selected with due care
and in good faith, except loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Adviser in the performance
of its obligations and duties, or by reason of its reckless disregard of
its obligations and duties under this Agreement.
10. Subject to obtaining the initial and periodic approvals
required under Section 15 of the 1940 Act, the Adviser may retain one or
more sub-advisers at the Adviser's own cost and expense for the purpose of
furnishing one or more of the services described in Section 1 hereof with
respect to a Fund. Retention of a sub-adviser shall in no way reduce the
responsibilities or obligations of the Adviser under this Agreement and
the Adviser shall be responsible to a Fund for all acts or omissions of
any sub-adviser in connection with the performance of the Adviser's duties
hereunder.
Subject to the provisions of this Agreement, the duties of any
sub-adviser or delegate, the portion of portfolio assets of the Trust that
the sub-adviser or delegate shall manage and the fees to be paid to the
sub-adviser or delegate by the Adviser under and pursuant to any
sub-advisory agreement or other arrangement entered into in accordance
with this Agreement may be adjusted from time to time by the Adviser,
subject to the prior approval of a majority of the Trustees who are not
"interested persons," as defined in the 1940 Act.
11. The Trust acknowledges that the Adviser now acts, and intends
in the future to act, as an investment adviser to other managed accounts
and as investment adviser or sub-investment adviser to one or more other
investment companies that are not a series of the Trust. In addition, the
Trust acknowledges that the persons employed by the Adviser to assist in
the Adviser's duties under this Agreement will not devote their full time
to such efforts. It is also agreed that the Adviser may use any
supplemental research obtained for the benefit of the Trust in providing
investment advice to its other investment advisory accounts and for
managing its own accounts.
12. This Agreement shall be effective on the date provided on
Schedule A for each respective Fund, provided it has been approved by a
vote of a majority of the outstanding voting securities held by
shareholders of the respective Fund in accordance with the requirements of
the 1940 Act. This Agreement shall continue in effect until the two-year
anniversary of the date of its effectiveness, unless and until terminated
by either party as hereinafter provided, and shall continue in force from
year to year thereafter, but only as long as such continuance is
specifically approved, at least annually, in the manner required by the
1940 Act.
This Agreement shall automatically terminate in the event of its
assignment, and may be terminated at any time without the payment of any
penalty by a Fund or by the Adviser upon sixty (60) days' written notice
to the other party. Each Fund may effect termination by action of the
Board of Trustees of the Trust or by vote of a majority of the outstanding
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voting securities of the Fund, accompanied by appropriate notice. This
Agreement may be terminated, at any time, without the payment of any
penalty, by the Board of Trustees of the Trust, or by vote of a majority
of the outstanding voting securities of the Trust, in the event that it
shall have been established by a court of competent jurisdiction that the
Adviser, or any officer or director of the Adviser, has taken any action
which results in a breach of the material covenants of the Adviser set
forth herein. Termination of this Agreement shall not affect the right of
the Adviser to receive payments on any unpaid balance of the compensation,
described in Section 3, earned prior to such termination and for any
additional period during which the Adviser serves as such for the Fund,
subject to applicable law. The terms "assignment" and "vote of the
majority of outstanding voting securities" shall have the same meanings
set forth in the 1940 Act and the rules and regulations thereunder.
13. This Agreement may be amended or modified only by a written
instrument executed by both parties.
14. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder
shall not be thereby affected.
15. Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for receipt of such notice.
16. All parties hereto are expressly put on notice of the Trust's
Agreement and Declaration of Trust and all amendments thereto, a copy of
which is on file with the Secretary of the Commonwealth of Massachusetts
and the limitation of shareholder and trustee liability contained therein.
This Agreement is executed on behalf of the Trust by the Trust's officers
as officers and not individually and the obligations imposed upon the
Trust by this Agreement are not binding upon any of the Trust's Trustees,
officers or shareholders individually but are binding only upon the assets
and property of the Trust, and persons dealing with the Trust must look
solely to the assets of the Trust and those assets belonging to the
subject Trust, for the enforcement of any claims.
17. This Agreement shall be construed in accordance with applicable
federal law and (except as to Section 16 hereof which shall be construed
in accordance with the laws of Massachusetts) the laws of the State of
Illinois.
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IN WITNESS WHEREOF, the Trust and the Adviser have caused this Agreement
to be executed on the day and year above written.
FIRST TRUST EXCHANGE-TRADED FUND III
By: /s/ Xxxx X. Xxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxx
Title: President & CEO
ATTEST: /s/ Xxxxx X. Xxxxx
----------------------------
Name: Xxxxx X. Xxxxx
Title: Treasurer, CFO, CAO
FIRST TRUST ADVISORS L.P.
By: /s/ Xxxx X. Xxxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxxx
Title: CFO & COO
ATTEST: /s/ Xxxxx X. Xxxxx
----------------------------
Name: Xxxxx X. Xxxxx
Title: Controller
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SCHEDULE A
FUNDS
ANNUAL RATE OF
AVERAGE DAILY
Series NET ASSETS EFFECTIVE DATE
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First Trust Preferred Securities and Income Fund ETF .85% February 1, 2013
