INVESTMENT SUB-ADVISORY AGREEMENT
INVESTMENT SUB-ADVISORY AGREEMENT made as of this 25th day of July, 2014
by and among the First Trust Exchange-Traded Fund IV, a Massachusetts business
trust (the "Trust"), First Trust Advisors L.P., an Illinois limited partnership
(the "Manager") and a registered investment adviser with the Securities and
Exchange Commission ("SEC"), and First Trust Global Portfolios Limited, a Public
Limited Company organized under the laws of the U.K. [a registered investment
adviser with the SEC (the "Sub-Adviser")].
WHEREAS, the First Trust Strategic Income ETF (the "Fund") is a series of
the Trust, an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust has retained the Manager to serve as the investment
adviser for the Fund pursuant to an Investment Management Agreement between the
Manager and the Trust (as such agreement may be modified from time to time, the
"Management Agreement");
WHEREAS, the Management Agreement provides that the Manager may, subject
to certain requirements, appoint a sub-adviser at its own cost and expense for
the purpose of furnishing certain services required under the Management
Agreement;
WHEREAS, pursuant to the Management Agreement, the Fund will pay to the
Manager, at the end of each calendar month, and the Manager agrees to accept as
full compensation therefor, an investment management fee equal to an annual rate
of 0.85% of the Fund's average daily net assets (the "Investment Management
Fee"), and the Manager will pay all of the expenses of the Fund (including the
cost of transfer agency, custody, fund administration, legal, audit and other
services and license fees) but excluding the fee payment under the Management
Agreement, interest, taxes, brokerage commissions and other expenses connected
with the execution of portfolio transactions, distribution and service fees
payable pursuant to a Rule 12b-1 Plan, if any, and extraordinary expenses
(collectively, the "Fund Expenses"); and
WHEREAS, the Trust and the Manager desire to retain the Sub-Adviser to
furnish investment advisory services for the portion of the investment portfolio
of the Fund that the Manager allocates to the Sub-Adviser from time to time,
upon the terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. The Trust and the Manager hereby appoint the Sub-Adviser
to provide certain sub-investment advisory services to the Fund for the period
and on the terms set forth in this Agreement. The Sub-Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided. The Sub-Adviser shall, for all purposes herein
provided, be deemed an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for nor represent the
Trust, the Fund or the Manager in any way, nor otherwise be deemed an agent of
the Trust, the Fund or the Manager.
2. Services to Be Performed. Subject always to the supervision of the
Trust's Board of Trustees (the "Board of Trustees") and the Manager, the
Sub-Adviser will act as sub-adviser for, and manage on a discretionary basis the
investment and reinvestment of the assets of the Fund allocated to the
Sub-Adviser by the Manager, furnish an investment program in respect of, make
investment decisions for, and place all orders (either directly or through the
Manager) for the purchase and sale of securities and other assets for the Fund's
investment portfolio allocated to it by the Manager, all on behalf of the Fund
and consistent with the Fund's currently effective registration statement on
Form N-1A as the same and such investment policies applicable to the
Sub-Adviser's portion of the Fund's portfolio described therein may be amended
from time to time. In the performance of its duties, the Sub-Adviser will in all
material respects (a) satisfy any applicable fiduciary duties it may have to the
Fund, (b) monitor the Fund's investments or other instruments selected for the
Fund by the Sub-Adviser, (c) comply with the provisions of the Trust's
Declaration of Trust and By-laws, as amended from time to time and communicated
by the Fund or the Manager to the Sub-Adviser in writing, (d) comply with (i)
the investment objectives, policies and restrictions stated in the Fund's most
recently effective prospectus and statement of additional information that are
applicable to the Fund's investment portfolio (including the asset class of the
Fund's investment portfolio) allocated to the Sub-Adviser from time to time,
(ii) such other investment objectives, policies, restrictions or instructions as
the Manager or Fund's Board of Trustees may communicate to the Sub-Adviser in
writing, and (iii) any changes to the objectives, policies, restrictions or
instructions required under the foregoing (i) and (ii) as communicated to the
Sub-Adviser in writing and (e) assist in the valuation of portfolio assets held
by the Fund as reasonably requested by the Manager or the Fund. The Sub-Adviser
and Manager will each make its officers and employees available to the other
from time to time at reasonable times to review the investment objectives,
policies and restrictions of the Fund applicable to the portion of the portfolio
allocated to the Sub-Adviser and to consult with each other regarding the
investment affairs of the Fund. For the avoidance of doubt, the Sub-Adviser will
not be responsible for compliance with the Fund's investment objectives,
policies and restrictions with respect to assets of the Fund's portfolio not
allocated to the Sub-Adviser or for the investment program or services provided
by any other sub-adviser to the Fund. The Fund or the Manager shall provide the
Sub-Adviser with current copies of the Trust's Declaration of Trust, By-laws,
the Fund's prospectus, the Fund's statement of additional information and any
amendments thereto, and any objectives, policies or limitations not appearing
therein as they may be relevant to the Sub-Adviser's performance under this
Agreement.
Unless otherwise provided by the Manager, the Sub-Adviser is authorized to
select the brokers, dealers, futures commission merchants, banks or any other
agent or counterparty that will execute the purchases and sales of portfolio
investments for 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 in
the reasonable discretion of the Sub-Adviser, including among other things,
price, dealer spread or commission, size and difficulty of the transaction and
research or other services provided. Subject to approval by the Board of
Trustees and compliance with the policies and procedures adopted by the Board of
Trustees for the Fund and to the extent permitted by and in conformance with
applicable law (including if applicable Rule 17e-1 under the 1940 Act), the
Sub-Adviser may select brokers or dealers affiliated with the Sub-Adviser. It is
understood that the Sub-Adviser will not be deemed to have acted unlawfully, or
to have breached a fiduciary duty to the Trust or the Fund, or be in breach of
any obligation owing to the Trust or the Fund 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
Sub-Adviser determined in good faith that the commission paid was reasonable in
relation to the value of the brokerage or research services provided by such
member, broker or dealer, viewed in terms of that particular transaction or the
Sub-Adviser's overall responsibilities with respect to its accounts, including
the Fund, as to which it exercises investment discretion.
In addition, the Sub-Adviser may, to the extent permitted by applicable
law, aggregate purchase and sale orders of securities or other instruments
placed with respect to the assets of the Fund with similar orders being made
simultaneously for other accounts managed by the Sub-Adviser or its affiliates,
if in the Sub-Adviser's reasonable judgment such aggregation shall result in an
overall economic benefit to the 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 the Fund occurs as part of any aggregate sale or
purchase orders, the objective of the Sub-Adviser and any of its affiliates
involved in such transaction shall be to allocate the assets so purchased or
sold, as well as expenses incurred in the transaction, among the Fund and other
accounts in a fair and equitable manner as determined in Sub-Adviser's
reasonable discretion. Nevertheless, the Fund and the Manager acknowledge that
under some circumstances, such allocation may adversely affect the Fund with
respect to, among other things, the price or size of the securities positions
obtainable or salable. Whenever the Fund and one or more other investment
advisory clients of the Sub-Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in a manner
believed by the Sub-Adviser to be equitable to each, although such allocation
may result in a delay in one or more client accounts being, or the inability of
one or more accounts to be, 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 Sub-Adviser and its affiliates
may purchase securities or other instruments of an issuer for one client and at
approximately the same time recommend selling or sell the same or similar types
of securities or instruments for another client.
The Sub-Adviser will not arrange purchases or sales of securities or other
assets between the Fund and other accounts advised by the Sub-Adviser or its
affiliates unless (a) such purchases or sales are in accordance with applicable
law (including if applicable Rule 17a-7 under the 0000 Xxx) and the Fund's
policies and procedures, (b) the Sub-Adviser determines the purchase or sale is
in the best interests of the Fund, and (c) the Board of Trustees has approved
these types of transactions.
The Fund may adopt policies and procedures that modify or restrict the
Sub-Adviser's authority regarding the execution of the Fund's portfolio
transactions provided herein. Such policies and procedures and any amendments
thereto will be communicated by the Manager to the Sub-Adviser. The Manager
shall provide reasonable advance notice to the Sub-Adviser of such policies and
procedures and any amendments thereto.
The Sub-Adviser will communicate to the officers and Trustees of the Trust
such information relating to transactions for the Fund as they may reasonably
request. In no instance will the Fund's portfolio assets be purchased from or
sold to the Manager, the Sub-Adviser or any affiliated person of either the
Trust, the Manager, or the Sub-Adviser, except as may be permitted under the
1940 Act and under no circumstances will the Sub-Adviser select brokers or
dealers for Fund transactions on the basis of Fund share sales by such brokers
or dealers.
The Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to other fiduciary accounts for
which it has investment responsibilities;
(b) will (i) conform in all material respects to all applicable
rules and regulations of the SEC, (ii) comply in all material respects
with all policies and procedures adopted by the Board of Trustees for the
Fund that are relevant to the portion of the portfolio allocated to the
Sub-Adviser and communicated to the Sub-Adviser in writing and (iii)
conduct its activities under this Agreement in all material respects in
accordance with any applicable law and regulations of any governmental
authority pertaining to its investment advisory activities;
(c) will report to the Manager and to the Board of Trustees on a
quarterly basis and will make appropriate persons available for the
purpose of reviewing with representatives of the Manager and the Board of
Trustees on a regular basis at such times as the Manager or the Board of
Trustees may reasonably request in writing regarding the management of the
Fund, including, without limitation, review of the general investment
strategies of the Fund with respect to the portion of the Fund's portfolio
allocated to the Sub-Adviser, the performance of the Fund's investment
portfolio allocated to the Sub-Adviser in relation to relevant standard
industry indices and general conditions affecting the marketplace and will
provide various other reports from time to time as reasonably requested by
the Manager or the Board of Trustees;
(d) will prepare and maintain such books and records with respect
to the Fund's assets and other transactions for the Fund's investment
portfolio as required for registered investment advisers performing such
services under applicable law, the Fund's compliance policies and
procedures (but only upon notice to the Sub-Adviser) or as otherwise
requested by the Manager or the Board of Trustees and will prepare and
furnish the Manager and the Board of Trustees such periodic and special
reports as the Board or the Manager may request. For avoidance of doubt,
the Sub-Adviser will have no responsibility for the maintenance of Fund
records except insofar as it relates to the services the Sub-Adviser
provides to the Fund. Such records prepared and maintained by the
Sub-Adviser as required hereunder shall be open to inspection at all
reasonable times by the Manager or Fund and any appropriate regulatory
authorities. The Sub-Adviser further agrees that all records that it
maintains for the Fund are the property of the Fund and the Sub-Adviser
will surrender promptly to the Fund any such records upon the request of
the Manager or the Fund (provided, however, that the Sub-Adviser shall be
permitted to retain copies thereof); and shall be permitted to retain
originals (with copies to the Fund) to the extent required under Rule
204-2 of the Investment Advisers Act of 1940 or other applicable law; and
(e) will monitor the pricing of portfolio assets, and events
relating to the issuers of those assets and the markets in which the
securities or other assets trade in the ordinary course of managing the
portfolio investments of the Fund, and will notify the Manager promptly of
any issuer-specific or market events or other situations that occur
(particularly those that may occur after the close of a foreign market in
which the investments may primarily trade but before the time at which the
Fund's investments are priced on a given day) that may materially impact
the pricing of one or more securities or other assets in the Sub-Adviser's
portion of the portfolio. In addition, the Sub-Adviser will at the
Manager's request assist the Manager in evaluating the impact that such an
event may have on the net asset value of the Fund and in determining a
recommended fair value of the affected investment or investments.
3. Expenses. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities and other assets (including
brokerage commissions, if any) purchased for the Fund.
4. Additional Sub-Advisers. Subject to obtaining the initial and periodic
approvals required under Section 15 of the 1940 Act and the approval of the
Manager, the Sub-Adviser may retain one or more additional sub-advisers at the
Sub-Adviser's own cost and expense for the purpose of furnishing one or more of
the services described in Section 2 hereof with respect to the Fund. Retention
of a sub-adviser hereunder shall in no way reduce the responsibilities or
obligations of the Sub-Adviser under this Agreement and the Sub-Adviser shall be
responsible to the Fund for all acts or omissions of any sub-adviser in
connection with the performance of the Sub-Adviser's duties hereunder.
5. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee
(the "Sub-Advisory Fee") equal to 40% monthly in arrears of any remaining
monthly Investment Management Fee paid to the Manager for the average daily net
assets allocated to the Sub-Adviser after the average Fund Expenses for the
average daily net assets allocated to the Sub-Adviser accrued during the most
recent twelve months (or shorter period during the first eleven months of this
Agreement) are subtracted from the Investment Management Fee for that month. If
the average accrued Fund Expenses for any rolling average twelve-month period
are greater than the Investment Management Fee for the twelfth month of such
period, no Sub-Advisory Fee will be due the Sub-Adviser for such month. For the
avoidance of doubt, any deficit will not be carried forward for purposes of
calculating the Sub-Advisory Fee in any subsequent month. 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 is
in effect during the month and year, respectively. At the request of the
Sub-Adviser, the Manager shall provide the Sub-Adviser with an accounting
reasonably satisfactory to the Sub-Adviser of the calculation of the
Sub-Advisory Fee. The Manager shall provide prompt advance notice to the
Sub-Adviser of any change to the Manager's compensation agreements with respect
to the Fund, which change may require approval by the Board of Trustees.
6. Services to Others. The Trust and the Manager acknowledge that the
Sub-Adviser now acts, or may in the future act, as an investment adviser to
other managed accounts and as investment adviser or investment sub-adviser to
one or more other investment companies that are not series of the Trust. In
addition, the Trust and the Manager acknowledge that the persons employed by the
Sub-Adviser to assist in the Sub-Adviser's duties under this Agreement will not
devote their full time to such efforts. It is also agreed that the Sub-Adviser
may use any supplemental research obtained for the benefit of the Fund in
providing investment advice to its other investment advisory accounts and for
managing its own accounts.
7. Limitation of Liability. The Sub-Adviser shall not be liable for, and
the Trust and the Manager will not take any action against the Sub-Adviser to
hold the Sub-Adviser liable for, any error of judgment or mistake of law or for
any loss suffered by the Fund or the Manager (including, without limitation, by
reason of the purchase, sale or retention of any security) in connection with
the performance of the Sub-Adviser's duties under this Agreement, except for a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Sub-Adviser in the performance of its duties under this Agreement,
or by reason of its reckless disregard of its obligations and duties under this
Agreement.
8. Term; Termination. This Agreement shall become effective on the same
date as the Management Agreement between the Trust and the Manager becomes
effective with respect to the Fund (it being understood that the Manager shall
notify the Sub-Adviser of the date of effectiveness of the Management Agreement
as soon as reasonably practical after effectiveness) provided that it has been
approved in the manner required by the 1940 Act (after taking into effect any
exemptive order, no-action assurances, or other relief, rule or regulation upon
which the Fund may rely), and shall remain in full force until the two year
anniversary of the date of its effectiveness unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only as long as such continuance is specifically approved for
the Fund at least annually in the manner required by the 1940 Act and the rules
and regulations thereunder (after taking into effect any exemptive order,
no-action assurances, or other relief, rule or regulation upon which the Fund
may rely); provided, however, that if the continuation of this Agreement is not
approved for the Fund, the Sub-Adviser may continue to serve in such capacity
for the Fund in the manner and to the extent permitted by the 1940 Act and the
rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager or the Sub-Adviser upon sixty (60) days' written notice to the
other parties. This Agreement may also be terminated by the Fund by action of
the Board of Trustees or by a vote of a majority of the outstanding voting
securities of the Fund upon sixty (60) days' written notice to the Sub-Adviser
by the Fund without payment of any penalty.
This Agreement may be terminated at any time without the payment of any
penalty by the Manager, the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund in the event that it shall have been
established by a court of competent jurisdiction that the Sub-Adviser or any
officer or director of the Sub-Adviser has taken any action that results in a
breach of the material covenants of the Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations thereunder.
This Agreement shall automatically terminate in the event the Management
Agreement between the Manager and the Trust on behalf of the Fund is terminated,
assigned or not renewed.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 5 earned or accrued prior to such termination and for any
additional period during which the Sub-Adviser serves as such for the Fund,
subject to applicable law.
9. Compliance Certification. From time to time the Sub-Adviser shall
provide such certifications with respect to Rule 38a-1 under the 1940 Act, as
are reasonably requested by the Fund or the Manager. In addition, the
Sub-Adviser will, from time to time, provide a written assessment of its
compliance program in conformity with current industry standards that is
reasonably acceptable to the Fund to enable the Fund to fulfill its obligations
under Rule 38a-1 under the 1940 Act.
10. Notice. Any notice under this Agreement shall be sufficient in all
respects if given in writing and delivered by commercial courier providing proof
of delivery and addressed as follows or addressed to such other person or
address as such party may designate for receipt of such notice.
If to the Manager or the Fund: If to the Sub-Adviser:
First Trust Exchange-Traded Fund IV on First Trust Global Portfolios Limited
behalf of First Trust 8 Angel Court
Strategic Income ETF Xxxxxx XX0X 0XX
First Trust Advisors L.P. Attention: Xxxxx Xxxxxx, CEO
000 X. Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Secretary
11. Limitations on Liability. All parties hereto are expressly put on
notice of the Trust's Declaration of Trust and all amendments thereto, a copy of
which is on file with the Secretary of the Commonwealth of Massachusetts, and
the limitation of shareholder and Trustee liability contained therein and a copy
of which has been provided to the Sub-Adviser prior to the date hereof. This
Agreement is executed by the Trust on behalf of the Fund by the Trust's officers
in their capacity as officers and not individually and is not binding upon any
of the Trustees, officers or shareholders of the Trust individually but the
obligations imposed upon the Trust or Fund by this Agreement are binding only
upon the assets and property of the Fund, and persons dealing with the Trust or
Fund must look solely to the assets of the Fund for the enforcement of any
claims.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
13. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 11 hereof, which shall be
construed in accordance with the laws of Massachusetts) the laws of the State of
Illinois.
14. Amendment, Etc. This Agreement may only be amended, or its provisions
modified or waived, in a writing signed by the party against which such
amendment, modification or waiver is sought to be enforced.
15. Authority. Each party represents to the others that it is duly
authorized and fully empowered to execute, deliver and perform this Agreement.
The Trust represents that engagement of the Sub-Adviser has been duly authorized
by the Trust and is in accordance with the Trust's Declaration of Trust and
other governing documents of the Fund.
The Manager further represents and warrants to the Sub-Adviser that (i)
the retention of the Sub-Adviser by the Manager as contemplated by this
Agreement is authorized by the governing documents of the Manager; (ii) the
execution, delivery and performance of each of this Agreement and the Management
Agreement does not violate any obligation by which the Manager, the Trust or
their property is bound, whether arising by contract, operation of law or
otherwise; and (iii) each of this Agreement and the Management Agreement has
been duly authorized by appropriate action of the Manager and Trust and when
executed and delivered by the Manager and Trust will be the legal, valid and
binding obligation of the Manager and Trust, enforceable against the Manager and
Trust in accordance with its terms hereof subject, as to enforcement, to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general equitable principles (regardless of whether enforcement
is sought in a proceeding in equity or law).
The Sub-Adviser further represents and warrants to the Manager that (i)
the retention of the Sub-Adviser by the Manager as contemplated by this
Agreement is authorized by the governing documents of the Sub-Adviser; (ii) the
execution, delivery and performance of this Agreement does not violate any
obligation by which the Sub-Adviser or its property is bound, whether arising by
contract, operation of law or otherwise; and (iii) this Agreement has been duly
authorized by appropriate action of the Sub-Adviser and when executed and
delivered by the Sub-Adviser will be the legal, valid and binding obligation of
the Sub-Adviser, enforceable against the Sub-Adviser in accordance with its
terms hereof subject, as to enforcement, to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and to general equitable
principles (regardless of whether enforcement is sought in a proceeding in
equity or law).
16. Severability. Each provision of this Agreement is intended to be
severable from the others so that if any provision or term hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remaining provisions and terms hereof; provided,
however, that the provisions governing payment of the Sub-Advisory Fee described
in Section 5 are not severable.
17. Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties hereto with respect to the subject matter expressly set
forth herein.
IN WITNESS WHEREOF, the Trust on behalf of the Fund, the Manager and the
Sub-Adviser have caused this Agreement to be executed as of the day and year
first above written.
FIRST TRUST ADVISORS L.P. FIRST TRUST GLOBAL PORTFOLIOS LTD.
By /s/ Xxxx Xxxxxxx By /s/ Xxxxx Xxxxxx
------------------------------------ ------------------------------------
Title: COO Title: CEO
------------------------------ ------------------------------
FIRST TRUST EXCHANGE-TRADED FUND IV on
behalf of First Trust Strategic Income ETF
By /s/ Xxxxx X. Xxxxx
------------------------------------
Title: CFO
------------------------------
