UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-23072
First Trust Dynamic Europe Equity Income Fund
(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
(Name and address of agent for service)
registrant’s telephone number, including area code: (630) 765-8000
Date of fiscal year end:December 31
Date of reporting period:December 31, 2019
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
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Fund Statistics | |
Symbol on New York Stock Exchange | FDEU |
Common Share Price | $14.93 |
Common Share Net Asset Value (“NAV”) | $16.18 |
Premium (Discount) to NAV | (7.73)% |
Net Assets Applicable to Common Shares | $278,737,959 |
Current Monthly Distribution per Common Share(1) | $0.1210 |
Current Annualized Distribution per Common Share | $1.4520 |
Current Distribution Rate on Common Share Price(2) | 9.73% |
Current Distribution Rate on NAV(2) | 8.97% |
Performance | |||
Average Annual Total Returns | |||
1 Year Ended 12/31/19 | Inception (9/24/15) to 12/31/19 | ||
Fund Performance(3) | |||
NAV | 22.24% | 5.47% | |
Market Value | 30.82% | 2.40% | |
Index Performance | |||
MSCI Europe Index | 23.77% | 7.61% |
(1) | Most recent distribution paid or declared through 12/31/2019. Subject to change in the future. |
(2) | Distribution rates are calculated by annualizing the most recent distribution paid or declared through the report date and then dividing by Common Share Price or NAV, as applicable, as of 12/31/2019. Subject to change in the future. |
(3) | Total return is based on the combination of reinvested dividend, capital gain, and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
Top Ten Holdings | % of Total Investments |
National Grid PLC | 2.8% |
SSE PLC | 2.8 |
British Land (The) Co., PLC | 2.6 |
BASF SE | 2.6 |
British American Tobacco PLC | 2.5 |
Sanofi | 2.5 |
Reckitt Benckiser Group PLC | 2.5 |
ABB Ltd. | 2.4 |
GlaxoSmithKline PLC | 2.3 |
AXA S.A. | 2.3 |
Total | 25.3% |
Sector Allocation | % of Total Investments |
Financials | 17.3% |
Industrials | 14.8 |
Consumer Staples | 13.7 |
Health Care | 9.6 |
Utilities | 9.2 |
Energy | 9.1 |
Materials | 7.0 |
Communication Services | 6.8 |
Information Technology | 5.3 |
Real Estate | 3.9 |
Consumer Discretionary | 3.3 |
Total | 100.0% |
Country Allocation | % of Total Investments |
United Kingdom | 28.8% |
France | 16.4 |
Switzerland | 15.8 |
Germany | 10.7 |
Netherlands | 7.6 |
Spain | 5.6 |
Italy | 4.2 |
Finland | 2.5 |
Sweden | 1.8 |
Austria | 1.7 |
Denmark | 1.7 |
Luxembourg | 1.5 |
Norway | 1.1 |
Belgium | 0.6 |
Total | 100.0% |
1 | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
Shares | Description | Value | ||
COMMON STOCKS (a) – 123.8% | ||||
Aerospace & Defense – 2.2% | ||||
827,061 | BAE Systems PLC | $6,187,525 | ||
Air Freight & Logistics – 0.8% | ||||
201,130 | bpost S.A. | 2,323,757 | ||
Auto Components – 2.4% | ||||
54,062 | Cie Generale des Etablissements Michelin SCA | 6,615,971 | ||
Banks – 7.9% | ||||
147,225 | ABN AMRO Bank N.V. (b) (c) | 2,678,608 | ||
137,909 | BAWAG Group AG (b) (c) | 6,280,516 | ||
482,760 | ING Groep N.V. | 5,787,679 | ||
444,748 | Nordea Bank Abp | 3,591,659 | ||
240,656 | Swedbank AB, Class A | 3,582,984 | ||
21,921,446 | ||||
Beverages – 1.5% | ||||
123,053 | Coca-Cola HBC AG | 4,180,847 | ||
Building Products – 2.3% | ||||
154,757 | Cie de Saint-Gobain | 6,336,069 | ||
Capital Markets – 3.1% | ||||
404,050 | Credit Suisse Group AG | 5,471,250 | ||
200,477 | St. James’s Place PLC | 3,092,351 | ||
8,563,601 | ||||
Chemicals – 3.3% | ||||
122,182 | BASF SE | 9,230,422 | ||
Commercial Services & Supplies – 2.9% | ||||
630,522 | Babcock International Group PLC | 5,256,682 | ||
1,763,586 | Prosegur Cash S.A. (b) (c) | 2,686,415 | ||
7,943,097 | ||||
Construction Materials – 1.0% | ||||
50,473 | LafargeHolcim Ltd. | 2,800,579 | ||
Containers & Packaging – 1.1% | ||||
196,923 | SIG Combibloc Group AG | 3,145,722 | ||
Diversified Financial Services – 1.8% | ||||
586,846 | Banca Farmafactoring S.p.A. (b) (c) | 3,515,136 | ||
504,886 | M&G PLC (d) | 1,586,327 | ||
5,101,463 | ||||
Diversified Telecommunication Services – 3.6% | ||||
250,000 | Orange S.A. | 3,679,176 | ||
359,683 | Telefonica S.A. | 2,512,323 | ||
217,798 | Telenor ASA | 3,906,040 | ||
10,097,539 | ||||
Electric Utilities – 5.4% | ||||
49,985 | Endesa S.A. | 1,333,862 | ||
365,138 | Iberdrola S.A. | 3,759,901 | ||
520,086 | SSE PLC | 9,909,911 | ||
15,003,674 | ||||
Electrical Equipment – 3.1% | ||||
361,659 | ABB Ltd. | 8,733,179 |
Shares | Description | Value | ||
COMMON STOCKS (a) (Continued) | ||||
Energy Equipment & Services – 1.9% | ||||
472,510 | Tenaris S.A. | $5,326,645 | ||
Food Products – 3.1% | ||||
58,713 | Danone S.A. | 4,866,933 | ||
35,108 | Nestle S.A. | 3,801,009 | ||
8,667,942 | ||||
Gas Utilities – 1.1% | ||||
600,572 | Snam S.p.A. | 3,156,778 | ||
Household Products – 5.5% | ||||
63,319 | Henkel AG & Co., KGaA (Preference Shares) | 6,548,498 | ||
108,759 | Reckitt Benckiser Group PLC | 8,829,570 | ||
15,378,068 | ||||
Industrial Conglomerates – 1.7% | ||||
36,875 | Siemens AG | 4,820,408 | ||
Insurance – 9.5% | ||||
23,112 | Allianz SE | 5,661,961 | ||
297,839 | AXA S.A. | 8,388,899 | ||
77,181 | NN Group N.V. | 2,927,930 | ||
348,042 | Prudential PLC | 6,680,128 | ||
24,690 | Swiss Re AG | 2,773,097 | ||
26,432,015 | ||||
Machinery – 3.7% | ||||
98,159 | Alstom S.A. | 4,649,732 | ||
258,971 | OC Oerlikon Corp. AG | 3,039,792 | ||
134,435 | SKF AB, Class B | 2,718,454 | ||
10,407,978 | ||||
Media – 2.4% | ||||
175,000 | Eutelsat Communications S.A. | 2,844,351 | ||
600,287 | Mediaset Espana Comunicacion S.A. | 3,811,115 | ||
6,655,466 | ||||
Metals & Mining – 1.6% | ||||
98,583 | Anglo American PLC | 2,837,569 | ||
68,419 | BHP Group PLC | 1,610,275 | ||
4,447,844 | ||||
Multi-Utilities – 5.4% | ||||
793,977 | National Grid PLC | 9,931,221 | ||
187,490 | Veolia Environnement S.A. | 4,986,392 | ||
14,917,613 | ||||
Oil, Gas & Consumable Fuels – 9.7% | ||||
537,036 | Eni S.p.A. | 8,340,737 | ||
365,405 | Repsol S.A. | 5,709,556 | ||
177,646 | Royal Dutch Shell PLC, Class A | 5,213,782 | ||
140,774 | TOTAL S.A. | 7,768,985 | ||
27,033,060 | ||||
Paper & Forest Products – 2.0% | ||||
157,991 | UPM-Kymmene OYJ | 5,477,824 | ||
Personal Products – 1.6% | ||||
75,267 | Unilever N.V. | 4,325,195 |
Shares | Description | Value | ||
COMMON STOCKS (a) (Continued) | ||||
Pharmaceuticals – 12.3% | ||||
356,087 | GlaxoSmithKline PLC | $8,391,060 | ||
86,845 | Novartis AG | 8,246,596 | ||
103,443 | Novo Nordisk A.S., Class B | 6,003,773 | ||
8,635 | Roche Holding AG | 2,801,602 | ||
88,365 | Sanofi | 8,883,046 | ||
34,326,077 | ||||
Professional Services – 2.3% | ||||
102,507 | Adecco Group AG | 6,484,272 | ||
Semiconductors & Semiconductor Equipment – 4.5% | ||||
179,610 | BE Semiconductor Industries N.V. | 6,942,606 | ||
248,560 | Infineon Technologies AG | 5,662,626 | ||
12,605,232 | ||||
Software – 2.4% | ||||
48,355 | SAP SE | 6,526,133 | ||
Textiles, Apparel & Luxury Goods – 1.9% | ||||
68,259 | Cie Financiere Richemont S.A. | 5,364,517 | ||
Tobacco – 6.0% | ||||
213,841 | British American Tobacco PLC | 9,153,346 | ||
304,771 | Imperial Brands PLC | 7,545,147 | ||
16,698,493 | ||||
Wireless Telecommunication Services – 2.8% | ||||
4,035,972 | Vodafone Group PLC | 7,845,861 | ||
Total Common Stocks | 345,082,312 | |||
(Cost $361,736,765) | ||||
REAL ESTATE INVESTMENT TRUSTS (a) – 5.0% | ||||
Equity Real Estate Investment Trusts – 5.0% | ||||
1,107,517 | British Land (The) Co., PLC | 9,371,305 | ||
159,462 | Eurocommercial Properties N.V. | 4,471,713 | ||
Total Real Estate Investment Trusts | 13,843,018 | |||
(Cost $18,253,693) | ||||
RIGHTS (a) – 0.0% | ||||
Oil, Gas & Consumable Fuels – 0.0% | ||||
365,405 | Repsol S.A., expiring 12/31/19 (d) | 173,377 | ||
(Cost $173,618) | ||||
Total Investments – 128.8% | 359,098,707 | |||
(Cost $380,164,076) (e) |
Number of Contracts | Description | Notional Amount | Exercise Price (Euro) | Expiration Date | Value | |||||
CALL OPTIONS WRITTEN – (0.3)% | ||||||||||
(540) | EURO STOXX 50 Index | $(22,685,047) | €3,725.00 | Jan 2020 | (272,573) | |||||
(540) | EURO STOXX 50 Index | (22,685,047) | 3,750.00 | Feb 2020 | (373,728) |
Number of Contracts | Description | Notional Amount | Exercise Price (Euro) | Expiration Date | Value | |||||
CALL OPTIONS WRITTEN (Continued) | ||||||||||
(530) | EURO STOXX 50 Index | $(22,264,953) | €3,800.00 | Mar 2020 | $(317,464) | |||||
Total Call Options Written | (963,765) | |||||||||
(Premiums received $993,450) |
Outstanding Loans – (36.1)% | (100,524,149) | ||
Net Other Assets and Liabilities – 7.6% | 21,127,166 | ||
Net Assets – 100.0% | $278,737,959 |
(a) | All or a portion of these securities are available to serve as collateral for the outstanding loans and call options written. |
(b) | This security may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933, as amended (the “1933 Act”). |
(c) | This security is exempt from registration upon resale under Rule 144A of the 1933 Act and may be resold in transactions exempt from registration, normally to qualified institutional buyers. This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. |
(d) | Non-income producing security. |
(e) | Aggregate cost for federal income tax purposes was $379,259,579. As of December 31, 2019, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $17,226,441 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $38,351,078. The net unrealized depreciation was $21,124,637. The amounts presented are inclusive of derivative contracts. |
ASSETS TABLE | ||||
Total Value at 12/31/2019 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Common Stocks* | $ 345,082,312 | $ 345,082,312 | $ — | $ — |
Real Estate Investment Trusts* | 13,843,018 | 13,843,018 | — | — |
Rights* | 173,377 | 173,377 | — | — |
Total Investments | $ 359,098,707 | $ 359,098,707 | $— | $— |
LIABILITIES TABLE | ||||
Total Value at 12/31/2019 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Call Options Written | $ (963,765) | $ — | $ (963,765) | $ — |
* | See Portfolio of Investments for industry breakout. |
Currency Exposure Diversification | % of Total Investments |
EUR | 51.3% |
GBP | 28.5 |
CHF | 14.7 |
SEK | 2.7 |
DKK | 1.7 |
NOK | 1.1 |
Total | 100.0% |
Currency Abbreviations | |
CHF | Swiss Franc |
DKK | Danish Krone |
EUR | Euro |
GBP | British Pound Sterling |
NOK | Norwegian Krone |
SEK | Swedish Krona |
ASSETS: | |
Investments, at value (Cost $380,164,076) | $ 359,098,707 |
Cash | 18,490,500 |
Foreign currency (Cost $296,990) | 297,012 |
Receivables: | |
Dividend reclaims | 1,993,212 |
Dividends | 721,638 |
Investment securities sold | 370,016 |
Prepaid expenses | 2,214 |
Total Assets | 380,973,299 |
LIABILITIES: | |
Outstanding loans | 100,524,149 |
Options written, at value (Premiums received $993,450) | 963,765 |
Payables: | |
Investment advisory fees | 345,110 |
Interest and fees on loans | 233,224 |
Audit and tax fees | 77,504 |
Administrative fees | 39,829 |
Shareholder reporting fees | 25,762 |
Custodian fees | 11,681 |
Legal fees | 5,125 |
Transfer agent fees | 3,306 |
Financial reporting fees | 771 |
Trustees’ fees and expenses | 124 |
Other liabilities | 4,990 |
Total Liabilities | 102,235,340 |
NET ASSETS | $278,737,959 |
NET ASSETS consist of: | |
Paid-in capital | $ 299,274,954 |
Par value | 172,319 |
Accumulated distributable earnings (loss) | (20,709,314) |
NET ASSETS | $278,737,959 |
NET ASSET VALUE,per Common Share (par value $0.01 per Common Share) | $16.18 |
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) | 17,231,908 |
INVESTMENT INCOME: | ||
Dividends (net of foreign withholding tax of $2,059,035) | $ 19,193,279 | |
Interest | 250,261 | |
Other | 45 | |
Total investment income | 19,443,585 | |
EXPENSES: | ||
Investment advisory fees | 3,923,839 | |
Interest and fees on loans | 789,581 | |
Administrative fees | 150,621 | |
Shareholder reporting fees | 121,384 | |
Audit and tax fees | 76,358 | |
Custodian fees | 66,946 | |
Listing expense | 25,050 | |
Legal fees | 23,880 | |
Transfer agent fees | 19,525 | |
Trustees’ fees and expenses | 16,604 | |
Financial reporting fees | 9,250 | |
Other | 34,928 | |
Total expenses | 5,257,966 | |
NET INVESTMENT INCOME (LOSS) | 14,185,619 | |
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on: | ||
Investments | 8,063,694 | |
Written options | (9,764,182) | |
Forward foreign currency contracts | (545,398) | |
Foreign currency transactions | 2,226,571 | |
Net realized gain (loss) | (19,315) | |
Net change in unrealized appreciation (depreciation) on: | ||
Investments | 38,352,299 | |
Written options | (1,251,513) | |
Forward foreign currency contracts | (28,155) | |
Foreign currency translation | (142,997) | |
Net change in unrealized appreciation (depreciation) | 36,929,634 | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | 36,910,319 | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ 51,095,938 |
Year Ended 12/31/2019 | Year Ended 12/31/2018 | ||
OPERATIONS: | |||
Net investment income (loss) | $ 14,185,619 | $ 12,768,847 | |
Net realized gain (loss) | (19,315) | 14,673,240 | |
Net change in unrealized appreciation (depreciation) | 36,929,634 | (92,141,533) | |
Net increase (decrease) in net assets resulting from operations | 51,095,938 | (64,699,446) | |
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (18,600,328) | (25,020,730) | |
Return of capital | (6,420,402) | — | |
Total distributions to shareholders | (25,020,730) | (25,020,730) | |
Total increase (decrease) in net assets | 26,075,208 | (89,720,176) | |
NET ASSETS: | |||
Beginning of period | 252,662,751 | 342,382,927 | |
End of period | $ 278,737,959 | $ 252,662,751 | |
COMMON SHARES: | |||
Common Shares at end of period | 17,231,908 | 17,231,908 |
Cash flows from operating activities: | ||
Net increase (decrease) in net assets resulting from operations | $51,095,938 | |
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: | ||
Purchases of investments | (230,691,238) | |
Sales of investments | 217,124,038 | |
Proceeds from written options | 7,081,248 | |
Amount paid to close written options | (18,355,556) | |
Net realized gain/loss on investments and written options | 1,700,488 | |
Net change in unrealized appreciation/depreciation on investments and written options | (37,100,786) | |
Net change in unrealized appreciation/depreciation on forward foreign currency contracts | 28,155 | |
Changes in assets and liabilities: | ||
Increase in dividend reclaims receivable | (233,848) | |
Increase in dividends receivable | (108,340) | |
Decrease in prepaid expenses | 716 | |
Increase in interest and fees payable on loans | 44,864 | |
Increase in investment advisory fees payable | 24,136 | |
Increase in audit and tax fees payable | 18,454 | |
Decrease in legal fees payable | (3,086) | |
Decrease in shareholder reporting fees payable | (3,034) | |
Decrease in administrative fees payable | (14,149) | |
Decrease in custodian fees payable | (4,935) | |
Increase in transfer agent fees payable | 303 | |
Increase in Trustees’ fees and expenses payable | 57 | |
Increase in other liabilities payable | 1,765 | |
Cash used in operating activities | $(9,394,810) | |
Cash flows from financing activities: | ||
Distributions to Common Shareholders from investment operations | (18,600,328) | |
Distributions to Common Shareholders from return of capital | (6,420,402) | |
Repayment of borrowings | (42,359,400) | |
Proceeds from borrowings | 55,065,149 | |
Effect of exchange rate changes on Euro Loans (a) | 168,526 | |
Cash used in financing activities | (12,146,455) | |
Decrease in cash and foreign currency (b) | (21,541,265) | |
Cash and foreign currency at beginning of period | 40,328,777 | |
Cash and foreign currency at end of period | $18,787,512 | |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest and fees | $744,717 |
(a) | This amount is a component of net change in unrealized appreciation (depreciation) on foreign currency translation as shown on the Statement of Operations. |
(b) | Includes net change in unrealized appreciation (depreciation) on foreign currency of $25,529, which does not include the effect of exchange rate changes on Euro borrowings. |
Year Ended December 31, | Period Ended 12/31/2015 (a) | ||||||||
2019 | 2018 | 2017 | 2016 | ||||||
Net asset value, beginning of period | $ 14.66 | $ 19.87 | $ 17.96 | $ 19.07 | $ 19.10 | ||||
Income from investment operations: | |||||||||
Net investment income (loss) | 0.82 | 0.74 | 0.78 | 0.73 | 0.04 | ||||
Net realized and unrealized gain (loss) | 2.15 | (4.50) | 3.02 | (0.39) | 0.05 | ||||
Total from investment operations | 2.97 | (3.76) | 3.80 | 0.34 | 0.09 | ||||
Distributions paid to shareholders from: | |||||||||
Net investment income | (1.08) | (0.70) | (0.14) | (1.13) | (0.07) | ||||
Net realized gain | — | (0.75) | (0.75) | — | (0.05) | ||||
Return of capital | (0.37) | — | (1.00) | (0.32) | — | ||||
Total distributions paid to Common Shareholders | (1.45) | (1.45) | (1.89) | (1.45) | (0.12) | ||||
Net asset value, end of period | $16.18 | $14.66 | $19.87 | $17.96 | $19.07 | ||||
Market value, end of period | $14.93 | $12.64 | $18.83 | $15.52 | $17.16 | ||||
Total return based on net asset value (b) | 22.24% | (19.36)% | 22.66% | 3.30% | 0.52% | ||||
Total return based on market value (b) | 30.82% | (26.64)% | 34.51% | (0.80)% | (13.61)% | ||||
Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) | $ 278,738 | $ 252,663 | $ 342,383 | $ 309,455 | $ 328,648 | ||||
Ratio of total expenses to average net assets | 1.99% | 1.91% | 1.85% | 1.83% | 1.72% (c) | ||||
Ratio of total expenses to average net assets excluding interest expense | 1.69% | 1.65% | 1.60% | 1.59% | 1.56% (c) | ||||
Ratio of net investment income (loss) to average net assets | 5.37% | 4.19% | 4.09% | 4.13% | 0.82% (c) | ||||
Portfolio turnover rate | 64% | 44% | 39% | 41% | 5% | ||||
Indebtedness: | |||||||||
Total loans outstanding (in 000’s) | $ 100,524 | $ 87,650 | $ 101,987 | $ 85,791 | $ 89,113 | ||||
Asset coverage per $1,000 of indebtedness (d) | $ 3,773 | $ 3,883 | $ 4,357 | $ 4,607 | $ 4,688 |
(a) | The Fund was seeded on August 20, 2015 and commenced operations on September 24, 2015. |
(b) | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan, and changes in net asset value per share for net asset value returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
(c) | Annualized. |
(d) | Calculated by subtracting the Fund’s total liabilities (not including the loans outstanding) from the Fund’s total assets, and dividing by the outstanding loans balance in 000’s. |
1) | the type of security; |
2) | the size of the holding; |
3) | the initial cost of the security; |
4) | transactions in comparable securities; |
5) | price quotes from dealers and/or third-party pricing services; |
6) | relationships among various securities; |
7) | information obtained by contacting the issuer, analysts, or the appropriate stock exchange; |
8) | an analysis of the issuer’s financial statements; and |
9) | the existence of merger proposals or tender offers that might affect the value of the security. |
1) | the value of similar foreign securities traded on other foreign markets; |
2) | ADR trading of similar securities; |
3) | closed-end fund or exchange-traded fund trading of similar securities; |
4) | foreign currency exchange activity; |
5) | the trading prices of financial products that are tied to baskets of foreign securities; |
6) | factors relating to the event that precipitated the pricing problem; |
7) | whether the event is likely to recur; and |
8) | whether the effects of the event are isolated or whether they affect entire markets, countries or regions. |
• | Level 1 – Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
• | Level 2 – Level 2 inputs are observable inputs, either directly or indirectly, and include the following: |
o | Quoted prices for similar investments in active markets. |
o | Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. |
o | Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). |
o | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
• | Level 3 – Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the investment. |
Distributions paid from: | 2019 | 2018 |
Ordinary income | $18,600,328 | $18,854,304 |
Capital gains | — | 6,166,426 |
Return of capital | 6,420,402 | — |
Undistributed ordinary income | $— |
Undistributed capital gains | — |
Total undistributed earnings | — |
Accumulated capital and other losses | (1,805,309) |
Net unrealized appreciation (depreciation) | (18,904,005) |
Total accumulated earnings (losses) | (20,709,314) |
Other | — |
Paid-in capital | 299,447,273 |
Total net assets | $278,737,959 |
Asset Derivatives | Liability Derivatives | |||||||||
Derivative Instrument | Risk Exposure | Statement of Assets and Liabilities Location | Value | Statement of Assets and Liabilities Location | Value | |||||
Written Options | Equity Risk | — | — | Options written, at value | $ 963,765 |
Statement of Operations Location | |
Currency Risk Exposure | |
Net realized gain (loss) on forward foreign currency contracts | $(545,398) |
Net change in unrealized appreciation (depreciation) on forward foreign currency contracts | (28,155) |
Equity Risk Exposure | |
Net realized gain (loss) on written options | $(9,764,182) |
Net change in unrealized appreciation (depreciation) on written options | (1,251,513) |
(1) | If Common Shares are trading at or above net asset value (“NAV”) at the time of valuation, the Fund will issue new shares at a price equal to the greater of (i) NAV per Common Share on that date or (ii) 95% of the market price on that date. |
(2) | If Common Shares are trading below NAV at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase Common Shares in the open market, on the NYSE or elsewhere, for the participants’ accounts. It is possible that the market price for the Common Shares may increase before the Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Shares issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase Common Shares in the open market within 30 days of the valuation date except where temporary curtailment or suspension of purchases is necessary to comply with federal securities laws. Interest will not be paid on any uninvested cash payments. |
Name, Year of Birth and Position with the Fund | Term of Office and Year First Elected or Appointed(1) | Principal Occupations During Past 5 Years | Number of Portfolios in the First Trust Fund Complex Overseen by Trustee | Other Trusteeships or Directorships Held by Trustee During Past 5 Years |
INDEPENDENT TRUSTEES | ||||
Richard E. Erickson, Trustee (1951) | • Three Year Term • Since Fund Inception | Physician; Officer, Wheaton Orthopedics; Limited Partner, Gundersen Real Estate Limited Partnership (June 1992 to December 2016); Member, Sportsmed LLC (April 2007 to November 2015) | 169 | None |
Thomas R. Kadlec, Trustee (1957) | • Three Year Term • Since Fund Inception | President, ADM Investor Services, Inc. (Futures Commission Merchant) | 169 | Director of ADM Investor Services, Inc., ADM Investor Services International, Futures Industry Association, and National Futures Association |
Robert F. Keith, Trustee (1956) | • Three Year Term • Since Fund Inception | President, Hibs Enterprises (Financial and Management Consulting) | 169 | Director of Trust Company of Illinois |
Niel B. Nielson, Trustee (1954) | • Three Year Term • Since Fund Inception | Senior Advisor (August 2018 to Present), Managing Director and Chief Operating Officer (January 2015 to August 2018), Pelita Harapan Educational Foundation (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services) | 169 | None |
INTERESTED TRUSTEE | ||||
James A. Bowen(2), Trustee and Chairman of the Board (1955) | • Three Year Term • Since Fund Inception | Chief Executive Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chairman of the Board of Directors, BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) | 169 | None |
(1) | Currently, Robert F. Keith, as a Class I Trustee, is serving as a trustee until the Fund’s 2020 annual meeting of shareholders. Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until the Fund’s 2021 annual meeting of shareholders. James A. Bowen and Niel B. Nielson, as Class III Trustees, are serving as trustees until the Fund’s 2022 annual meeting of shareholders. |
(2) | Mr. Bowen is deemed an “interested person” of the Fund due to his position as CEO of First Trust Advisors L.P., investment advisor of the Fund. |
Name and Year of Birth | Position and Offices with Fund | Term of Office and Length of Service | Principal Occupations During Past 5 Years |
OFFICERS(3) | |||
James M. Dykas (1966) | President and Chief Executive Officer | • Indefinite Term • Since January 2016 | Managing Director and Chief Financial Officer (January 2016 to Present), Controller (January 2011 to January 2016), Senior Vice President (April 2007 to January 2016), First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) |
Donald P. Swade (1972) | Treasurer, Chief Financial Officer and Chief Accounting Officer | • Indefinite Term • Since January 2016 | Senior Vice President (July 2016 to Present), Vice President (April 2012 to July 2016), First Trust Advisors L.P. and First Trust Portfolios L.P. |
W. Scott Jardine (1960) | Secretary and Chief Legal Officer | • Indefinite Term • Since Fund Inception | General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P.; Secretary and General Counsel, BondWave LLC; Secretary, Stonebridge Advisors LLC |
Daniel J. Lindquist (1970) | Vice President | • Indefinite Term • Since Fund Inception | Managing Director, First Trust Advisors L.P. and First Trust Portfolios L.P. |
Kristi A. Maher (1966) | Chief Compliance Officer and Assistant Secretary | • Indefinite Term • Since Fund Inception | Deputy General Counsel, First Trust Advisors L.P. and First Trust Portfolios L.P. |
(3) | The term “officer” means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. |
• | Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; |
• | Information about your transactions with us, our affiliates or others; |
• | Information we receive from your inquiries by mail, e-mail or telephone; and |
• | Information we collect on our website through the use of “cookies”. For example, we may identify the pages on our website that your browser requests or visits. |
• | In order to provide you with products and services and to effect transactions that you request or authorize, we may disclose your personal information as described above to unaffiliated financial service providers and other companies that perform administrative or other services on our behalf, such as transfer agents, custodians and trustees, or that assist us in the distribution of investor materials such as trustees, banks, financial representatives, proxy services, solicitors and printers. |
• | We may release information we have about you if you direct us to do so, if we are compelled by law to do so, or in other legally limited circumstances (for example to protect your account from fraud). |
FUND ACCOUNTANT, AND
CUSTODIAN
PUBLIC ACCOUNTING FIRM
Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
(c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
(d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
(e) | Not applicable. |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is “independent,” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a)Audit Fees(Registrant) — The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $39,500 for the fiscal year ended December 31, 2018 and $39,500 for the fiscal year ended December 31, 2019.
(b)Audit-Related Fees(Registrant) — The aggregate fees billed in each of the last two fiscal years, for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2018 and $0 for the fiscal year ended December 31, 2019.
Audit-Related Fees(Investment Adviser) — The aggregate fees billed in each of the last two fiscal years of the registrant for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2018 and $0 for the fiscal year ended December 31, 2019.
(c)Tax Fees(Registrant)—The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant were $16,800 for the fiscal year ended December 31, 2018 and $18,248 for the fiscal year ended December 31, 2019.
Tax Fees(Investment Adviser) — The aggregate fees billed in each of the last two fiscal years of the registrant for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning to the registrant’s adviser were $0 for the fiscal year ended December 31, 2018 and $0 for the fiscal year ended December 31, 2019.
(d)All Other Fees(Registrant) — The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended December 31, 2018 and $0 for the fiscal year ended December 31, 2019.
All Other Fees(Investment Adviser) — The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant’s investment adviser, other than services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended December 31, 2018 and $0 for the fiscal year ended December 31, 2019.
(e)(1) | Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the“Committee”) is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent auditor’s engagements for non-audit services with the registrant’s adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant, subject to thede minimisexceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant’s adviser (other than any sub-adviser whose role is primarily portfolio management and is sub-contracted with or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor’s independence.
(e)(2) | The percentage of services described in each of paragraphs (b) through (d) for the registrant and the registrant’s investment adviser of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: |
(b) 0%
(c) 0%
(d) 0%
(f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
(g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the Registrant’s fiscal year ended December 31, 2018 were $16,800 for the Registrant and $48,190 for the Registrant’s investment adviser and for the Registrant’s fiscal year ended December 31, 2019 were $18,248 for the Registrant and $75,670 the Registrant’s investment adviser. |
(h) | The Registrant’s audit committee of its Board of Trustees determined that the provision of non-audit services that were rendered to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed registrants.
(a) | The registrant has a separately designated audit committee consisting of all the independent trustees of the Registrant. The members of the audit committee are: Thomas R. Kadlec, Niel B. Nielson, Richard E. Erickson and Robert F. Keith. |
Item 6. Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Proxy Voting Policies, as of December 31, 2019, are attached herewith.
Proxy Voting Guidelines
February 2019
Janus Capital Management LLC
Perkins Investment Management LLC
The Janus Proxy Voting Guidelines (the “Guidelines”) below summarize Janus Capital Management LLC’s (“Janus”) positions on various issues of concern to investors and are intended to provide a general indication of how portfolio securities may be voted on proposals dealing with particular issues. The Guidelines, together with the Janus Proxy Voting Procedures (the “Procedures”), will be used for voting proxies on behalf of all Janus clients (including mutual funds) for which Janus has voting authority, except with respect to the Participating Affiliate Funds listed in Schedule 1 hereto and as otherwise noted below. Proxy votes for such Participating Affiliate Funds will be made in accordance with the Proxy Policies and Procedures attached as Annex A to the Procedures. Subject to specific provisions in a client’s account documentation related to exception voting, Janus only accepts direction from a client to vote proxies for that client’s account pursuant to: 1) the Guidelines; 2) the Benchmark Policy recommendations of Institutional Shareholder Services Inc. (“ISS”) (the “Proxy Voting Service”); or 3) upon request by a client as set forth in a client’s investment management agreement, the ISS Taft-Hartley voting guidelines (“Taft-Hartley Guidelines”). Perkins Investment Management LLC has adopted the Guidelines.
Janus has retained the services of the Proxy Voting Service, an industry expert in proxy issues and corporate governance matters. The Proxy Voting Service provides Janus with in-depth analysis and recommendations on complex proxy issues. While Janus attempts to apply the following Guidelines to proxy proposals, Janus reserves the right to use the Proxy Voting Service’s expertise and recommendations on a variety of proxy voting issues, including foreign issuer proxies and proposals that may not otherwise be addressed by the Guidelines. The Proxy Voting Service is instructed to vote all proxies relating to portfolio securities in accordance with these Guidelines, except as otherwise instructed by Janus. The Proxy Voting Service, may not, in all instances, have or provide research, analysis and recommendations on proxy issues. For example, the Proxy Voting Service may not provide such analysis and research for privately held companies. In such instances, the Proxy Administrator shall refer such proxy proposal to the portfolio manager.
The Guidelines are not exhaustive and do not include all potential voting issues. Because proxy issues and the circumstances of individual companies are so varied, there may be instances when Janus may not vote in strict adherence to the Guidelines. In addition, Janus portfolio managers, assistant portfolio managers, and analysts covering specific companies are responsible for monitoring significant corporate developments, including proxy proposals submitted to shareholders and notifying the Proxy Administrator in Denver Operations Control of circumstances where the interests of Janus’ clients may warrant a vote contrary to the Guidelines. In such instances, the portfolio manager, assistant portfolio manager or analyst will submit a written rationale to the Proxy Administrator. The Proxy Voting Committee periodically reviews rationales provided to determine: i) whether the rationales appear reasonable; and ii) whether any business relationship with the issuer of the proxy could have created a conflict of interest influencing the votes (see Procedures for additional Conflicts of Interest details).
In many foreign markets, shareholders who vote proxies for shares of a foreign issuer are not able to trade in that company’s stock within a given period of time on or around the shareholder meeting date. This practice is known as “share blocking.” In countries where share blocking is practiced, Janus will only vote proxies if the portfolio manager or assistant portfolio manager determines that the shareholder benefit of voting the proxies outweighs the risk of not being able to sell the securities. In addition, international issuers may be subject to corporate governance standards and a proxy solicitation process that substantially differs from domestic standards and practices. Janus will generally vote international issuer proxies using the Guidelines unless the application of the Guidelines is inconsistent with corporate governance standards and practices in the foreign market, in which case Janus may refer to the research, analysis and recommendations provided by the Proxy Voting Service.
The Janus funds may participate in a securities lending program under which shares of an issuer may be on loan while that issuer is conducting a proxy solicitation. Generally, if shares of an issuer are on loan during a proxy solicitation, a fund cannot vote the shares. Janus fund managers have discretion to instruct the Proxy Administrator to pull back lent shares before proxy record dates and vote proxies.
In circumstances where the Janus funds held a security as of record date, but Janus sells its holdings prior to the shareholder meeting, Janus may abstain from voting that proxy.
The following guidelines are grouped according to the types of proposals generally presented to shareholders.
Board of Directors Issues
The quality of management is a key consideration in the decision to invest in a company. Because management is in the best possible position to evaluate the qualifications and needs of a particular board, Janus considers the recommendation of management to be an important factor in making these decisions.
1. | For domestic market and applicable foreign market issuers, Janus will generally vote in favor of slates of director candidates that have a majority of independent directors (as determined by the Proxy Voting Service) and oppose slates of director candidates that do not have a majority of independent directors. |
2. | After taking into consideration country-specific practices, Janus will generally vote in favor of uncontested director candidates, unless they: |
· | attend less than 75% of the board and committee meetings without a valid excuse; |
· | ignore or otherwise fail to support shareholder proposals as determined by the proxy voting service; |
· | are not responsive to advisory votes on executive compensation matters (as determined by the proxy voting service); |
· | fail to provide appropriate oversight of company's risk management practices (as determined by the proxy voting service); |
· | are non-independent directors and sit on the audit, compensation or nominating committees; |
· | are non-independent directors and the board does not have an audit, compensation, or nominating committees; |
· | are audit committee members and the non-audit fees paid to the auditor are excessive (as determined by the Proxy Voting Service); |
· | are audit committee members and poor accounting practices rise to a level of serious concern, or other serious issues surrounding the audit process or arrangement exist (as determined by the Proxy Voting Service); |
· | serve as directors on an excessive number of boards (“Overboarded”) (as determined by the Proxy Voting Service); |
· | are compensation committee members and the company has poor compensation practices (as determined by Janus), or adopt a long term poison pill without shareholder approval or make material adverse changes to an existing poison pill (as determined by the Proxy Voting Service) |
· | amend the company's bylaws or charter without shareholder approval in a manner that materially diminishes shareholders' rights or that could adversely impact shareholders. |
3. | Janus will evaluate proposals relating to contested director candidates and/or contested slates of directors on case-by-case basis.* |
4. | Janus will generally vote in favor of proposals to increase the minimum number of independent directors. |
5. | Janus believes that attracting qualified director candidates is important to overall company success and effective corporate governance. As such, Janus will generally vote in favor of proposals regarding director indemnification arrangements. |
6. | Janus will generally vote in favor of proposals to increase the size of a board of directors so long as the board has a majority of independent directors. |
7. | If the purpose of the proposal is to promote anti-takeover measures, Janus will generally vote against proposals relating to decreasing the size of a board of directors. |
8. | Janus will generally vote against proposals advocating classified or staggered boards of directors. |
9. | Janus will generally vote with management regarding proposals to declassify a board. |
10. | Janus will generally vote in favor of proposals to separate the role of the Chairman from the role of the CEO. |
Auditors
11. | Janus will vote in favor of proposals asking for approval of auditors, unless: (1) an auditor has a financial interest in or association with the company, and is therefore not independent; (2) fees for non-audit services are excessive (as determined by the Proxy Voting Service); (3) there is reason to believe that the independent auditor has rendered an opinion, which is neither accurate nor indicative of the company's financial position; or (4) the auditors are being changed without explanation or are not named. |
12. | Janus will evaluate proposals relating to contested auditors on a case-by-case basis.* |
13. | Janus will generally vote in favor of proposals to appoint internal statutory auditors. |
Equity Based Compensation Plans
14. | Equity based compensation plans are important tools in attracting and retaining desirable employees. Janus believes these plans should be carefully applied with the intention of maximizing shareholder value. With this in mind, Janus will evaluate proposals relating to executive and director compensation plans on a case-by-case basis, utilizing the research of the Proxy Voting Service. |
The Proxy Voting Service research is designed to estimate the total cost of a proposed plan and identify plan features and grant practices that demonstrate good stewardship of investors’ interests regarding executive compensation. The Proxy Voting Service evaluates whether the estimated cost is reasonable by comparing the cost to an allowable cap. The allowable cap is industry-specific, market cap-based,and
pegged to the average amount paid by companies performing in the top quartile of their peer groups. Janus will generally vote against plans if the estimated cost is above the allowable cap and/or plan features and grant practices are determined to be misaligned with maximizing shareholder value.
Janus will generally oppose plans that:
· | provide for re-pricing of underwater options; |
· | provide for automatic replenishment (“evergreen”) or reload options; |
· | create an inconsistent relationship between long term share performance and compensation increases; and/or |
· | are proposed by management and do not demonstrate good stewardship of investors’ interests regarding executive compensation or are a vehicle for poor compensation practices. |
Other Compensation Related Proposals
15. | Janus will generally vote in favor of proposals relating to ESPPs – so long as shares purchased through plans are priced no less than 15% below market value and/or do not contain other features disadvantageous to shareholders (as determined by the Proxy Voting Service). |
16. | Janus will generally vote in favor of proposals requiring the expensing of options. |
17. | Janus will generally oppose proposals requesting approval to make material amendments to equity based compensation plans without shareholder approval. |
18. | Janus will generally oppose proposals regarding the re-pricing of underwater options. |
19. | Janus will generally oppose proposals requesting approval of loans to officers, executives and board members of an issuer. |
20. | Janus will generally oppose proposals requesting approval of automatic share replenishment (“evergreen”) features of equity based compensation plans. |
21. | Janus will generally oppose the issuance of reload options (stock option that is automatically granted if an outstanding stock option is exercised during a window period). |
22. | Janus will generally vote in favor of annual advisory votes on executive compensation (say-on-frequency). |
23. | Janus will generally vote in favor with regard to advisory votes on executive compensation (say-on-pay), unless Janus determines problematic pay practices are maintained; |
24. | Janus will vote in favor of proposals to require golden parachutes or executive severance agreements to be submitted for shareholder approval, unless the proposal requires shareholder approvalpriorto entering into employment contracts. |
25. | Janus will vote on a case-by-case basis on proposals to approve or cancel golden or tin parachutes*. An acceptable parachute should include the following: |
· | The parachute should be less attractive than an ongoing employment opportunity with the firm; |
· | The triggering mechanism should be beyond the control of management; and |
· | The amount should not exceed three times base salary plus guaranteed benefits. |
26. | Janus will generally vote in favor of proposals intended to increase long-term stock ownership by executives, officers and directors. These may include: |
· | requiring executive officers and directors to hold a minimum amount of stock in the company; |
· | requiring stock acquired through exercised options to be held for a certain period of time; and |
· | using restricted stock grants instead of options. |
Other Corporate Matters
27. | Janus will generally vote in favor of proposals relating to the issuance of dividends. |
28. | Janus will evaluate proposals relating to stock splits on a case-by-case basis.* |
29. | Janus will generally vote against proposals regarding supermajority voting rights (for example to approve acquisitions or mergers). |
30. | Janus will generally oppose proposals for different classes of stock with different voting rights. |
31. | Janus will evaluate proposals relating to issuances with and without preemptive rights on a case-by-case basis. For foreign issuer proxies, Janus will solicit research from the Proxy Voting Service.* |
32. | Janus will generally vote against proposals seeking to implement measures designed to prevent or obstruct corporate takeovers (includes poison pills), unless such measures are designed primarily as a short-term means to protect a tax benefit, or are structured in such a way that they give shareholders the ultimate decision on any proposal or offer, and are proposed in a transparent and independent fashion. |
33. | Janus will evaluate proposals seeking to increase the number of shares of common or preferred stock authorized for issue on a case-by-case basis. For domestic issuers, Janus will use quantitative criteria provided by the Proxy Voting Service to measure the reasonableness of the proposed share increase as compared against a measure of industry peers. For foreign issuer proxies, Janus will solicit research from the Proxy Voting Service.* |
34. | Janus will evaluate proposals regarding the issuance of debt, including convertible debt, on a case-by-case basis.* |
35. | Janus will generally vote in favor of proposals regarding the authorization of the issuer’s Board of Directors to repurchase shares. |
36. | Janus will evaluate plans of reorganization on a case-by-case basis.* |
37. | Janus will generally vote in favor of proposals regarding changes in the state of incorporation of an issuer. |
38. | Janus will generally vote in favor of proposals regarding changes in company name. |
39. | Janus will evaluate proposals relating to the continuance of a company on a case-by-case basis.* |
40. | Janus will evaluate proposals regarding acquisitions, mergers, tender offers or changes in control on a case- by-case basis, including any related advisory votes on golden parachutes.* |
41. | Janus will generally oppose proposals to authorize preferred stock whose voting, conversion, dividend and other rights are determined at the discretion of the Board of Directors when the stock is issued (“blank check stock”). |
42. | Janus will generally vote in favor of proposals to lower the barriers to shareholder action (i.e., limited rights to call special meetings, limited rights to act by written consents) and against proposals restricting or prohibiting the ability to act by written consent. |
43. | Janus will generally vote in favor of proposals to adopt cumulative voting unless otherwise recommended by the Proxy Voting Service. |
44. | Janus will generally vote in favor of proposals to require that voting be confidential. |
45. | Janus will generally oppose proposals requesting authorization of political contributions (mainly foreign), except for proposals designed to insure that the charitable giving does not violate laws on political contributions. |
46. | Janus will generally vote in favor of proposals relating to the administration of an annual shareholder meeting. |
47. | Janus will generally vote against proposals to approve “other business” when it appears as a voting item. |
48. | Janus will evaluate proposals related to proxy access on a case-by-case basis.* |
Shareholder Proposals
49. | Janus is primarily concerned with the economic impact of shareholder proposals on a company’s short and long-term share value. Janus will generally apply the Guidelines to shareholder proposals while weighing the following considerations: |
50. | Janus’ first priority is to act as a fiduciary in the best financial interests of our clients. Janus recognizes that environmental, social, moral or ethical issues present risks and opportunities that can have an impact on company financial performance. Janus strives to balance these issues in a manner consistent with our fiduciary obligations. Janus will generally vote with management on these matters unless we identify areas of weakness or deficiency relative to peers and/or industry best practices or feel that management has failed to adequately respond to shareholder concerns. In such instances Janus will review these matters on a case-by-case basis, consistent with our fiduciary obligations to clients. |
51. | For shareholder proposals outside the scope of the Guidelines, Janus will solicit additional research and a recommendation from the Proxy Voting Service. Janus will always reserve the right to over-ride a recommendation provided by the Proxy Voting Service.* |
* All discretionary votes of this nature are cast solely in the interests of shareholders and without regard to any
other Janus relationship, business or otherwise.
Schedule 1
The “Participating Affiliate Funds”
Fund Name
• | Janus Henderson All Asset Fund |
• | Janus Henderson Asia Equity Fund |
• | Janus Henderson Dividend & Income Builder Fund |
• | Janus Henderson Emerging Markets Fund |
• | Janus Henderson European Focus Fund |
• | Janus Henderson Global Equity Income Fund |
• | Janus Henderson Global Real Estate Fund |
• | Janus Henderson International Opportunities Fund |
• | Janus Henderson International Small Cap Fund |
• | Janus Henderson Strategic Income Fund |
· | Janus Henderson Emerging Markets Equity Fund LLC |
Proxy Voting Procedures
February 2019
Janus Capital Management LLC
Perkins Investment Management LLC
The following represents the Proxy Voting Procedures (“Procedures”) for Janus Capital Management LLC (“Janus”) with respect to the voting of proxies on behalf of all clients, including mutual funds and exchange-traded funds (“ETFs”), except for those funds listed on Schedule 1 hereto (the “Participating Affiliate Funds”), advised by Janus, for which Janus has voting responsibility and the keeping of records relating to proxy voting. Perkins Investment Management LLC (“Perkins”) has adopted the Procedures.
Each of the Participating Affiliate Funds shall follow the procedures attached as Annex A.
General Policy: Janus seeks to vote proxies in the best interest of its clients. Janus will not accept direction as to how to vote individual proxies for which it has voting responsibility from any other person or organization (other than the research and information provided by the Proxy Voting Service (as hereinafter defined)). Subject to specific provisions in a client’s account documentation related to exception voting, Janus only accepts direction from a client to vote proxies for that client’s account pursuant to: 1) the Janus Capital Management LLC Proxy Voting Guidelines (“Guidelines”); 2) the Benchmark Policy recommendations of Institutional Shareholder Services Inc. (“ISS”) (the “Proxy Voting Service”); or 3) upon request by a client as set forth in a client’s investment management agreement, the ISS Taft-Hartley voting guidelines (“Taft-Hartley Guidelines”).
ERISA Plan Policy: On behalf of client accounts subject to ERISA, Janus seeks to discharge its fiduciary duty by voting proxies solely in the best interest of the participants and beneficiaries of such plans. Janus recognizes that the exercise of voting rights on securities held by ERISA plans for which Janus has voting responsibility is a fiduciary duty that must be exercised with care, skill, prudence and diligence. In voting proxies for ERISA accounts, Janus will exercise its fiduciary responsibility to vote all proxies for shares for which it has investment discretion as investment manager unless the power to vote such shares has been retained by the appointing fiduciary as set forth in the documents in which the named fiduciary has appointed Janus as investment manager.
Proxy Voting Committee: The Janus Henderson Proxy Voting Committee (the “Committee”) develops Janus’ positions on all major corporate issues, creates guidelines and oversees the voting process. The Committee is comprised of representatives from the Office of the Treasurer, Denver Operations Control, the Governance and Responsible Investing Team, and Compliance, and one or more portfolio management representatives (or their respective designees) who provide input on behalf of the portfolio management team. Internal legal counsel serves as a consultant to the Committee and is a non-voting member. A quorum is required for all Committee meetings. In formulating proxy voting recommendations, the Committee analyzes proxy proposals from the Proxy Voting Service from the prior year, and evaluates whether those proposals would adversely or beneficially affect clients’ interests. The Committee also reviews policy rationale provided by the Proxy Voting Service related to voting recommendations for the upcoming proxy season. Once the Committee establishes its recommendations and revises the Guidelines, they are distributed to Janus’ portfolio managers1 for review and implementation. While the Committee sets the Guidelines and serves as a resource for Janus portfolio management, it does not have proxy
1All references to portfolio managers include assistant portfolio managers.
voting authority for any proprietary or non-proprietary mutual fund, ETF, or any investment advisory client. The portfolio managers are responsible for proxy votes on securities they own in the portfolios they manage. Most portfolio managers vote consistently with the Guidelines. However, a portfolio manager may choose to vote contrary to the Guidelines. When portfolio managers cast votes which are contrary to the Guidelines, the manager is required to document the reasons in writing for the Committee. In many cases, a security may be held by multiple portfolio managers. Portfolio managers are not required to cast consistent votes. Annually the Janus Funds Board of Trustees, or a committee thereof, will review Janus’ proxy voting process, policies and voting records.
Securities Operations Group: Denver Operations Control is responsible for administering the proxy voting process as set forth in these procedures, the Guidelines, and as applicable, the Taft-Hartley Guidelines. The Proxy Administrator in Denver Operations Control works with the Proxy Voting Service and is responsible for ensuring that all meeting notices are reviewed against the Guidelines, and as applicable, the Taft-Hartley Guidelines, and proxy matters are communicated to the portfolio managers and analysts for consideration pursuant to the Guidelines.
Voting and Use of Proxy Voting Service: Janus has engaged an independent proxy voting service, ISS, to assist in the voting of proxies. The Proxy Voting Service is responsible for coordinating with the clients’ custodians to ensure that all proxy materials received by the custodians relating to the clients’ portfolio securities are processed in a timely fashion. In addition, the Proxy Voting Service is responsible for maintaining copies of all proxy statements received by issuers and to promptly provide such materials to Janus upon request.
To the extent applicable, the Proxy Voting Service will process all proxy votes in accordance with the Guidelines. Portfolio managers may decide to vote their proxies consistent with the Guidelines in all cases and instruct the Proxy Administrator to vote all proxies accordingly pursuant to account-specific procedures approved by the Committee. He or she may also request to review all vote recommendations prior to the meeting cut-off date, or may choose to review only those votes to be cast against management. Notwithstanding the above, with respect to clients who have instructed Janus to vote proxies in accordance with the Taft-Hartley Guidelines, the Proxy Voting Service will process all proxy votes in strict accordance with the Taft-Hartley Guidelines. In all cases, the portfolio managers receive a monthly report summarizing all proxy votes in his or her client accounts. The Proxy Administrator is responsible for maintaining this documentation.
The Proxy Voting Service will refer proxy questions to the Proxy Administrator for instructions under circumstances where: (1) the application of the Guidelines is unclear; (2) the proxy question relates to a company and/or issue in which the Proxy Voting Services does not have research, analysis and/or a recommendation available, or (3) the Guidelines call for Janus portfolio manager input. The Proxy Administrator solicits feedback from the Portfolio Manager or the Committee as required. Janus also utilizes research services relating to proxy questions provided by the Proxy Voting Service. In the event a portfolio manager is unable to provide input on a proxy item referred to him or her, Janus will abstain from voting the proxy item.
Procedures for Proxy Issues Outside the Guidelines: In situations where the Proxy Voting Service refers a proxy question to the Proxy Administrator, the Proxy Administrator will consult with the portfolio manager regarding how the shares will be voted. The Proxy Administrator will refer such questions, through a written request, to the portfolio manager(s) who hold(s) the security for a voting recommendation. The Proxy Administrator may also refer such questions, through a written request to any member of the Committee, but the Committee cannot direct the Proxy Administrator how to vote. If the proxy issue raises a conflict of interest (see Conflict of Interest discussion below), the portfolio manager will document how the proxy should be voted and the rationale for such
recommendation. If the portfolio manager has had any contact with persons outside of Janus (excluding routine communications with issuers and proxy solicitors) regarding the proxy issue, the portfolio manager will disclose that contact to the Committee. In such cases, the Committee will review the portfolio manager’s voting recommendation. If the Committee believes a conflict exists and that the portfolio manager’s voting recommendation is not in the best interests of the clients, the Committee will refer the issue to the appropriate Chief Investment Officer(s) (“CIO”) (or the Director of Research, if such CIO is conflicted or otherwise unavailable) to determine how to vote.
Procedures for Voting Janus “Fund of Funds”: Janus advises certain portfolios or “fund of funds” that invest in other Janus funds. From time to time, a fund of funds may be required to vote proxies for the underlying Janus funds in which it is invested. Accordingly, if an underlying Janus fund submits a matter to a vote of its shareholders, votes for and against such matters on behalf of the owner fund of funds will be cast in the same proportion as the votes of the other shareholders in the underlying fund (also known as “echo-voting”). In addition, Janus advises certain funds of funds that invest in unaffiliated ETFs. The Janus funds may enter into a written participation agreement with an underlying ETF in accordance with an exemptive order obtained by the ETF that allows a Janus fund to own shares of the ETF in excess of what is generally permitted by the 1940 Act. Participation agreements generally require funds whose ownership of the underlying ETF exceeds a certain percentage to agree to “echo-vote” shares of the ETF. Accordingly, if an underlying ETF submits a matter to a vote of its shareholders, votes for and against such matters on behalf of a Janus fund will be echo-voted to the extent required by a participation agreement.
Conflicts of Interest: The Committee is responsible for monitoring and resolving possible material conflicts with respect to proxy voting. Because the Guidelines are pre-determined and designed to be in the best interests of shareholders, application of the Guidelines to vote client proxies should, in most cases, adequately address any possible conflicts of interest. On a quarterly basis, the Committee reviews records of votes that were cast inconsistently with the Guidelines and the related rationale for such votes. Additionally, and in instances where a portfolio manager has discretion to vote differently than the Guidelines and proposes to vote a proxy inconsistent with the Guidelines and a potential conflict of interest is identified, the Committee will review the proxy votes to determine whether the portfolio manager’s voting rationale appears reasonable and no material conflict exists. Similarly, the Taft-Hartley Guidelines are pre-determined, so application of the Taft-Hartley Guidelines to vote client proxies should, in most cases, adequately address any possible conflicts of interest. In the unusual circumstance that the Proxy Voting Service seeks direction on any matter, the matter shall be handled in accordance with theProcedures for Proxy Issues Outside the Guidelinesset forth above, and reviewed by the Committee.
A conflict of interest may exist, for example, if Janus has a business relationship with (or is actively soliciting business from) either the company soliciting the proxy or a third party that has a material interest in the outcome of a proxy vote or that is actively lobbying for a particular outcome of a proxy vote. In addition, any portfolio manager with knowledge of a personal conflict of interest (e.g., a family member in a company’s management) relating to a particular referral item shall disclose that conflict to the Committee and may be required to recuse himself or herself from the proxy voting process. Issues raising possible conflicts of interest are referred by the Proxy Administrator to the Committee for resolution. If the Committee does not agree that the portfolio manager’s rationale is reasonable, the Committee will refer the matter to the appropriate Chief Investment Officer(s) (or the Director of Research) to vote the proxy.
If a matter is referred to the Chief Investment Officer(s) (or the Director of Research) the decision made and basis for the decision will be documented by the Committee.
Reporting and Record Retention: Upon request, on an annual basis, Janus will provide its non-investment company clients with the proxy voting record for that client’s account.
On an annual basis, Janus will provide its proxy voting record for each proprietary mutual fund or ETF for the one- year period ending on June 30th on Janus’ website atwww.janushenderson.com/proxyvoting. Such voting record, on Form N-PX, is also available on the SEC’s website athttp://www.sec.gov. A complete copy of Janus Capital’s proxy voting policies and procedures, including specific guidelines, is available atwww.janushenderson.com/proxyvoting.
Janus retains proxy statements received regarding client securities, records of votes cast on behalf of clients, records of client requests for proxy voting information and all documents prepared by Janus regarding votes cast in contradiction to the Janus Guidelines. In addition, any document prepared by Janus that is material to a proxy voting decision such as the Guidelines, Committee materials and other internal research relating to voting decisions will be kept. Proxy statements received from issuers are either available on the SEC’s EDGAR database or are kept by a third party voting service and are available on request. All proxy voting materials and supporting documentation are retained for a minimum of 6 years.
Except as noted in these Procedures or required by law, Janus does not provide information to anyone on how it voted or intends to vote on a particular matter. Denver Operations Control may confirm to issuers or their agents whether votes have been cast, but will not disclose the size of the position or how the votes were cast. Members of the Janus investment team have the discretion to indicate to issuers or their agents how they voted or intend to vote in the context of discussions with issuers and their management as part of Janus’ ongoing investment analysis process.
Schedule 1
The “Participating Affiliate Funds”
Fund Name
• | Janus Henderson All Asset Fund |
• | Janus Henderson Asia Equity Fund |
• | Janus Henderson Dividend & Income Builder Fund |
• | Janus Henderson Emerging Markets Fund |
• | Janus Henderson European Focus Fund |
• | Janus Henderson Global Equity Income Fund |
• | Janus Henderson Global Real Estate Fund |
• | Janus Henderson International Opportunities Fund |
• | Janus Henderson International Small Cap Fund |
• | Janus Henderson Strategic Income Fund |
· | Janus Henderson Emerging Markets Equity Fund LLC |
Annex A
Proxy Policies and Procedures
It is the intent of the Participating Affiliates2, to vote proxies in the best interests of the firm’s clients, which include those Participating Affiliate Funds listed on Schedule 1. The Participating Affiliates believe that in order to achieve long-term success, companies need not only to conceive and execute appropriate business strategies, but also to maintain high standards of corporate governance and corporate responsibility.Wetherefore expect companies to operate according to recognised national and international standards in these areas.
This policy sets out the Participating Affiliates’ approach to corporate governance, corporate responsibility and proxy voting.
1. Responsibilities: The Governance and Responsible Investment Team atJanusHenderson Investors (“Janus Henderson”), acting on behalf oftheParticipating Affiliates, is responsible for the implementation of the Proxy Voting Policies.
2. Service Providers: The Participating Affiliates have contracted ISS Europe Ltd. to provide policy development, research, advisory and voting disclosure services.
Proxy voting services are provided by BNP Paribas Securities Services plc, which provides a range of administrative services to Janus Henderson. BNP Paribas Securities Services plc is provided with voting services by ISS.
2 The portfolio managers that provide investment advisory services to each of the Participating Affiliate Funds listed on Schedule 1 act under a participating affiliate arrangement between Janus Capital Management LLC and each of Henderson Global Investors Limited, Henderson Global Investors (Singapore) Ltd., and Henderson Global Investors (Japan) Ltd. (each a “Participating Affiliate” and together, the “Participating Affiliates”). Each Participating Affiliate is party to a Memorandum of Understanding with Janus Capital Management LLC, dated January 1, 2018.
3. Voting Guidelines: The Participating Affiliates have adopted the Henderson Global Investors Responsible Investment policy. This policy sets outJanusHenderson’s approach to monitoring and taking action on financial performance, corporate governance and corporate responsibilitywith respecttocertain products, includingtheParticipating Affiliates Funds.The International Corporate Governance Policy is detailed below.
3.1. International Corporate Governance Policy: International corporate governance systems vary a great deal according to factors such as the legal system, the extent of shareholder rights and the level of dispersed ownership. In formulating our approach to corporate governance we are conscious that a ‘one size fits all’ policy is not appropriate.Wetherefore seek to vary our voting and engagement activities according to the market, and pay close attention to local market codes of best practice.
Notwithstanding these differences, we consider that certain core principles of corporate governance apply across all markets, and we seek to apply these in our voting policy. The paragraphs below elaborate on these core principles.3
3.2. Corporate Objective: The overriding objective of the company should be to optimize over time the returns to its shareholders. Where other considerations affect this objective, they should be clearly stated and disclosed.
To achieve this objective, the company should endeavour to ensure the long-term viability of its business, and to manage effectively its relationships with stakeholders.
3.3. Disclosure and Transparency:Companies should disclose accurate, adequate and timely information, in particular meeting market guidelines where they exist, so as to allow investors to make informed decisions about the acquisition, ownership obligations and rights, and sale of shares. Clear and comprehensive information on directors, corporate governance arrangements and the company’s management of corporate responsibility issues should be provided.
Shareholders should be given sufficient and timely information about all proposals to allow them to make an informed judgment and exercise their voting rights. Each proposal should be presented separately to shareholders – multiple proposals should not be combined in the same resolution. In the absence of sufficient information provided by a company on a proposed resolutionwewill vote against.
3.4. Boards of Directors:Janus Henderson recognises the plurality of corporate governance models across different markets and does not advocate any one form of board structure. However, for any corporate board there are certain key functions which apply.
· | Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures. |
· | Monitoring the effectiveness of the company's governance practices and making changes as needed. |
· | Selecting, compensating, monitoring and, where necessary, replacingkeyexecutives and overseeing succession planning. |
· | Aligning key executive and board remuneration with the longer term interests of the company anditsshareholders. |
3 These Principles are based on the Organisation for Economic Development (OECD) Corporate Governance Principles and those of the International Corporate Governance Network (ICGN).
· | Ensuring a formal and transparent board nomination and election process. |
· | Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions. |
· | Ensuring the integrity of the corporation's accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards. |
· | Overseeing the process of disclosure and communications. |
The board of directors, or supervisory board, as an entity, and each of its members, as an individual, is a fiduciary for all shareholders, and should be accountable to the shareholder body as a whole. Each member should stand for election on a regular basis.
Boards should include a sufficient number of independent non-executive members with appropriate skills, experience and knowledge. Responsibilities should include monitoring and contributing effectively to the strategy and performance of management, staffing key committees of the board, and influencing the conduct of the board as a whole.
Audit, remuneration and nomination/succession committees should be established. These should be composed wholly or predominantly of independent non-executives. Companies should disclose the terms of reference of these committees and give an account to shareholders in the annual report of how their responsibilities have been discharged. The chairmen and members of these committees should be appointed by the board as a whole according to a transparent procedure.
When determining how to vote on the election of a non-executive director, we will give close consideration to their independence and to the proportion of independent directors on the Board as a whole.
3.5. Shareholder rights: All shareholders should be treated equitably. Companies’ ordinary shares should provide one vote for each share, and companies should act to ensure the owners’ rights to vote.
Major strategic modifications to the core business(es) of a company should not be made without prior shareholder approval. Equally, major corporate changes which in substance or effect materially dilute the equity or erode the economic interests or share ownership rights of existing shareholders should not be made without prior shareholder approval of the proposed change. Such changes include modifications to articles or bylaws, the implementation of shareholder rights plans or so called "poison pills", and the equity component of compensation schemes.
We will not support proposals that have the potential to reduce shareholder rights such as significant open-ended authorities to issue shares without pre-emption rights or anti-takeover proposals unless companies provide a compelling rationale for why they are in shareholder interests.
3.6. Audit and internal control: Company boards should maintain robust structures and processes to ensure sound internal controls and to oversee all aspects of relationships with external auditors. The Audit Committee should ensure that the company gives a balanced and clear presentation of its financial position and prospects, and clearly explains its accounting principles and policies. Audit Committee members should have appropriate levels of financial expertise, in accordance with prevailing legislation or best practice. The Audit Committee should ensure that the independence of the external auditors is not compromised by conflicts of interest (arising,forexample, from the award of non-audit consultancy assignments).
Where we have serious concerns over auditor independence we will vote against the re-election of the auditor.
3.7. Remuneration: Remuneration of executive directors and key executives should be aligned with the interests of shareholders. Performance criteria attached to share-based remuneration should be demanding and should not reward performance that is not clearly superior to that of a group of comparable companies that is appropriately selected in sector, geographical and index terms. Requirements on directors and senior executives to acquire and retain shareholdings in the company that are meaningful in the context of their cash remuneration are also appropriate.
The design of senior executives’ contracts should not commit companies to ‘payment for failure’. Boards should pay attention to minimising this risk when drawing up contracts and to resist pressure to concede excessively generous severance conditions.
Companies should disclose in each annual report or proxy statement the board’s policies on remuneration - and, preferably, the remuneration of individual board members and top executives, as well as the composition of that remuneration - so that investors can judge whether corporate pay policies and practices are appropriately designed.
Broad-based employee share ownership plans or other profit-sharing programmes are effective market mechanisms that promote employee participation.
When reviewing whether to support proposed new share schemes we place particular importance on the following factors:
· | the overall potential cost of the scheme, including the level of dilution the issue price of share options relative to the market price |
· | the use of performance conditions aligning the interests of participants with shareholders the holding period ie. the length of time from the award date to the earliest date of exercise the level of disclosure. |
4. | Voting Procedures: The procedure for casting proxy votes is as follows: |
a. | Custodians notify ISS of forthcoming company meetings and send proxy materials. |
b. | ISS notifiesJanus Henderson of meetings via its ProxyExchange website. |
c. | ISS provides voting recommendations based on the Participating Affiliates’s Proxy Voting Policies. |
d. | The Governance and Responsible Investment Team consults with fund managers and analysts as appropriate. |
e. | The Governance and Responsible Investment Team decides in conjunction with the relevant fund managers and analysts whether to accept or override the voting recommendations provided by ISS. |
f. | Voting instructions are sent to custodians via the ProxyExchange website and executed by the custodians. |
g. | If at any time during implementation of the above procedures a conflict of interest is identified, the matter,includingproposed votinginstructions,will be referred forresolutionto the Janus Henderson Proxy Voting Committee (the “Committee”) via the Governance and Responsible Investment Team. |
5. Shareblocking: In a number of markets in which the funds invest, shares must be suspended from trading (‘blocked’) for a specified period before the Annual General Meeting if voting rights are to be exercised. Such restrictionsmayplace constraints on portfolio managers that mean exercising proxy votes is not in clients’
interest. In other markets casting proxy votes may involve costs that are disproportionate to any benefit gained. In markets where share blocking applies or additional costs are incurred that outweigh the potential benefits of voting,theParticipating Affiliates will vote only in exceptional circumstances.
6. Conflicts of interest: For each director, officer and employee of a Participating Affiliate (“Participating Affiliate Person”), the interests of the Participating Affiliate’s clients must come first, ahead of the interest of any Participating Affiliate and any person within the Participating Affiliate’s organization, which includes the Participating Affiliate’s affiliates.
Accordingly, each Participating Affiliate Person must not put “personal benefit”, whether tangible or intangible, before the interests of clients of any Participating Affiliate or otherwise take advantage of the relationship to the Participating Affiliate’s clients. “Personal benefit” includes any intended benefit for oneself or any other individual, company, group or organization of any kind whatsoever except a benefit for a client of a Participating Affiliate, as appropriate. It is imperative that each of the Participating Affiliates’ directors, officers and employees avoid any situation that might compromise, or call into question, the exercise of fully independent judgment in the interests of any Participating Affiliate’s clients.
It is the responsibility of each director, officer and employee of the Participating Affiliates to report any actual conflict of interest, including any attempts to improperly influence voting decisions, to theGovernanceandResponsible InvestmentTeam,who shall present any such information to theCommittee.However, once a particular conflict has been reported to the Governance and Responsible Investment Team, this requirement shall be deemed satisfied with respect to all individuals with knowledge of such conflict. To the extent a conflict of interest is reported, the Committee will review the proposed voting instructions. If the Committee believes a conflict exists and that the proposed voting instructions are not in the best interests of the clients, the Committee will refer the issue to the appropriate Chief Investment Officer(s) (“CIO”) (or the Director of Research, if such CIO is conflicted or otherwise unavailable) to determine how to vote. Otherwise, the matter will be referred back to the Governance and Responsible Investment Team to be voted in accordance with the proposed voting instructions.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) | Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members. |
Information provided as of December 31, 2019
Janus Capital Management LLC, (“Janus Capital”), an indirect wholly-owned subsidiary of Janus Henderson Group plc doing business as Janus Henderson Investors, serves as the Fund’s investment sub-advisor. Janus Capital Investors is headquartered in London and is a global investment management firm that provides a full spectrum of investment products and services to clients around the world. With offices in 28 cities with more than 2,000 employees, Janus Henderson Investors managed approximately $374.8 billion in assets as of December 31, 2019. Janus Capital is responsible for the day-to-day investment decisions of the Fund other than the Option Overlay Strategy.
The members of the portfolio management team responsible for the day-to-day management of the Fund’s investment portfolio other than the Option Overlay Strategy are Alex Crooke and Ben Lofthouse. The members of the portfolio management team responsible for implementing the Option Overlay Strategy are John Gambla and Rob A. Guttschow.
1. ALEX CROOKE
Co-Head of Equities – Europe, the Middle East and Africa (EMEA) and Asia Pacific (APAC) at Janus Henderson Investors
Alex Crooke is Co-Head of Equities – Europe, the Middle East and Africa (EMEA) and Asia Pacific (APAC) at Janus Henderson, a position he has held since 2018. Mr. Crooke is responsible for equities in the EMEA and APAC regions and is a Portfolio Manager for the Global Equity Income and Global Dividend & Income strategies. In addition, Mr. Crooke is a member of the Janus Henderson Investors Executive Committee. Previously, he was head of Global Equity Income and Specialist Equities from 2013. Mr. Crooke was recruited by Janus Henderson Investors to co-manage the UK assets of an investment trust in 1994 as an associate director. He later became the fund manager responsible for a number of UK and Global income orientated equity products. Mr. Crooke began his investment career with Equitable Life Assurance Society in 1980 as a U.S. investment analyst. Mr. Crooke holds a BSc (Hons) in physics and astrophysics from Manchester University and is an associate member of the Society of Investment Professionals. He has 28 years of financial industry experience.
2. BEN LOFTHOUSE, CFA
Head of Global Equity Income; Portfolio Manager
Ben Lofthouse is Head of Global Equity Income at Janus Henderson Investors, a position he has held since 2018. Prior to this, he was a director, Global Equity Income, and has been part of the Global Equity Income Team since joining the company in 2004. Additionally, he is a Portfolio Manager and has managed a range of equity income mandates since 2008. Prior to Janus Henderson Investors, Mr. Lofthouse worked as an accountant at PricewaterhouseCoopers where he started his career in 1998. Mr. Lofthouse graduated with a BA (Hons) in business economics from Exeter University. He is a Chartered Accountant (ACA) and holds the Chartered Financial Analyst designation. He has 20 years of financial industry experience.
3. JOHN GAMBLA, CFA
SENIOR PORTFOLIO MANAGER FOR THE ALTERNATIVES AND ACTIVE EQUITY INVESTMENT TEAM AT FIRST TRUST ADVISORS L.P. (“FIRST TRUST”)
Mr. Gambla, CFA, FRM, PRM, is a senior portfolio manager for the Alternatives Investment Team at First Trust. Prior to joining First Trust in July 2011, Mr. Gambla was co-Chief Investment Officer at the Nuveen HydePark Group LLC where he started in 2007. While at Nuveen HydePark Group LLC, Mr. Gambla co-directed investment activities including research, product development, trading, portfolio management and performance attribution. Mr. Gambla also led the research systems and infrastructure development for Nuveen HydePark Group LLC. Previously, Mr. Gambla was a Senior Trader and Quantitative specialist at Nuveen Asset Management. While there, he was responsible for trading all derivatives for the 120+ municipal mutual funds with Nuveen Asset Management. Mr. Gambla has served in a variety of roles throughout his career including: portfolio management, research, business development and strategy development.
4. ROB A. GUTTSCHOW, CFA
SENIOR PORTFOLIO MANAGER FOR THE ALTERNATIVES AND ACTIVE EQUITY INVESTMENT TEAM AT FIRST TRUST
Mr. Guttschow, CFA, is a senior portfolio manager for the Alternatives Investment Team at First Trust. Prior to joining First Trust in July 2011, Mr. Guttschow was co-Chief Investment Officer at the Nuveen HydePark Group LLC where he started in 2007. While at Nuveen HydePark Group LLC, Mr. Guttschow co-directed investment activities including research, product development, trading, portfolio management and performance attribution. Previously, Mr. Guttschow was an Overlay Manager and Senior Portfolio Manager at Nuveen Asset Management. While there, he developed Nuveen’s buy-side derivative desk for fixed income and equity portfolio hedging.
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts of Interest
Other accounts managed by the Portfolio Managers as of December 31, 2018:
Name of Portfolio Manager or Team Member | Type of Accounts* | Total # of Accounts Managed | Total Assets | # of Accounts Managed for which Advisory Fee is Based on Performance | Total Assets for which Advisory Fee is Based on Performance |
1Alex Crooke | Registered Investment Companies: | 2 | $4,983,900,000 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 1 | $ 1,619,100,000 | 0 | $ 0 | |
Other Accounts: | 1 | $ 90,300,000 | 0 | $ 0 | |
2.Ben Lofthouse | Registered Investment Companies: | 2 | $4,983,900,000 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 4 | $ 1,466,700,000 | 1 | $ 7,700,000 | |
Other Accounts: | 2 | $ 90,500,000 | 0 | $ 0 | |
3. John Gambla | Registered Investment Companies: | 8 | $678,489,612 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 0 | $ 0 | 0 | $ 0 | |
Other Accounts: | 4 | $ 408,752 | 0 | $ 0 | |
4. Rob Guttschow | Registered Investment Companies: | 8 | $678,489,612 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 0 | $ 0 | 0 | $ 0 | |
Other Accounts: | 4 | $408,752 | 0 | $ 0 |
POTENTIAL CONFLICTS OF INTERESTS
JANUS HENDERSON INVESTORS POTENTIAL CONFLICTS OF INTERESTS
Portfolio Management Conflicts of Interest.
Janus Henderson isnot aware of any conflicts of interest specific to this relationship. Nonetheless, there are potential conflicts of interest inherent in every investment advisory relationship, including the risks that the investment adviser will favor itself over its clients, that the investment adviser will favor one client over another and that the investment adviser’s employees will favor themselves over the investment adviser and its clients. Regardless of the nature and source of the potential conflict, Janus Henderson believes its core responsibility is to ensure that effective policies and procedures are in place to eliminate, mitigate and/or disclose the conflict as appropriate. In recognition of this obligation, Janus Hendersonrecords all personal conflicts in a conflict of interest register (the “Register”) and all business conflicts in a conflicts of interest matrix (the “Matrix”), which list the conflicts, relevant controls and residual risk ratings. Although the Register and Matrix are confidential and internal use only, Janus Henderson has included certain conflictscontained in the Matrix below: •Janus Henderson may have proprietary investments in certain accounts or may receive greater fees from certain accounts which may cause them to favor those accounts over others in trade execution, trade allocation, trade aggregation, limited offering allocation and cross trading (collectively, “side-by-side matters”).•Janus Henderson may receive fees from its proprietary funds or accounts or from its affiliates which may cause it to direct investments to those accounts or investments and services to those affiliates.•Janus Henderson may hold securities long in one account and short in another account.•Janus Henderson may be restricted from participating in certain transactions due to its possession of material non-public information, aggregated holdings limits or other restrictions imposed by its affiliations.•Janus Henderson may have professional relationships which may cause it to favor those relationships over others in proxy voting, trade execution, vendor and service provider engagement, investment selection and side-by-side matters.•Employees involved in portfolio management may have personal investments in certain accounts or may receive greater compensation from certain accounts which may cause them to favor those accounts over others in side-by-side matters.•Employees may have personal relationships, affiliations or investments which may cause them to favor those relationships over others in vendor and service provider engagement, investment selection and side-by-side matters. Please refer to the Janus Capital Management LLC Form ADV Part 2A for a fuller discussion of potential conflicts.
FIRST TRUST, POTENTIAL CONFLICTS OF INTERESTS
First Trust and its affiliate, First Trust Portfolios L.P. (“FTP”), have in place a joint Code of Ethics and Insider Trading Policies and Procedures that are designed to (a) prevent First Trust personnel from trading securities based upon material inside information in the possession of such personnel and (b) ensure that First Trust personnel avoid actual or potential conflicts of interest or abuse of their positions of trust and responsibility that could occur through such activities as front running securities trades for the Registrant. Personnel are required to have duplicate confirmations and account statements delivered to First Trust and FTP compliance personnel who then compare such trades to trading activity to detect any potential conflict situations.
(a)(3) Compensation Structure of Portfolio Manager(S) or Management Team Members
Information provided as of December 31, 2019
ALEX CROOKE AND BEN LOFTHOUSE, JANUS HENDERSON INVESTORS
Portfolio Management Compensation.
The firm is aware of the importance of selecting and retaining high quality staff, not only in its investment teams, but also across the support functions that assist them. Business critical employees are identified in all areas of the business. A summary of the overall compensation package is as follows:
SENIOR MANAGEMENT MEMBER COMPENSATION.
The compensation for Janus Henderson’s senior management includes fixed compensation and variable compensation. Base Salary: Members of the Janus Henderson’s Executive Committee receive an annual base salary based on competitive market data and factors such as performance, knowledge, skills, ability and experience. Variable Compensation: Executive Committee members’ variable compensation is typically determined based on overall company pre-incentive operating income and individual performance against both financial and strategic objectives. Variable compensation is typically deferred according to a progressive schedule. Deferrals are typically made in Janus Henderson Group restricted stock, although individuals can elect to receive up to 50% of their deferral in funds (subject to satisfying a de-minimis threshold). Individuals Awards, if any, are discretionary and given based on company, department and individual performance.
PORTFOLIO MANAGERS / INVESTMENT PROFESSIONALS.
Janus Henderson portfolio managers are compensated for managing portfolios or accounts for which they have exclusive or shared responsibilities through two components: fixed compensation and variable compensation. The overall investment team variable compensation pool is based on Janus Henderson profitability and is fully discretionary. Portfolio managers are eligible for an annual variable compensation award based on management’s discretion. Both quantitative and qualitative factors will be used to determine these awards. Such factors include, among other things, consistent short-term and long-term performance (i.e., one-, three- and five-year performance calculated using pre-tax performance compared to dividend delivery, peer group performance and MSCI Europe), client support and investment team support through the sharing of ideas, leadership, development, mentoring and team work. Fixed Compensation: Paid in cash and comprises an annual base salary. The base salary is based on factors such as performance, complexity of managing portfolios, scope of responsibility (including assets under management), skills, knowledge, experience, ability and market competitiveness. Variable Compensation: Paid in the form of cash and deferred awards. Deferrals are typically made in Janus Henderson Group restricted stock, although individuals can elect to receive up to 50% of their deferral in funds (subject to satisfying a de-minimis threshold). Individuals Awards, if any, are discretionary and given based on company, department and individual performance.
As previously mentioned, there is an incentive funding framework which applies to determine overall incentive pool funding for direct, front line investment professionals. The framework is centered around a ‘partnership’ approach in which profits are shared between employees and shareholders in a predetermined manner to create an ‘Investment Pool’. The construct creates a pool for the Investment teams by reference to a pre-determined share of the firm’s Pre- Incentive Operating Income (‘PIOI’). Overall pool funding is subject to risk adjustment by the Committee taking into account the recommendations of the Risk function in relation to the nature and incidence of risk events, and an overall assessment of risk management relative to the Risk Appetite Statement. A separate pool (the ‘Core Pool’) is created for other staff using similar principles. Team and individual allocations remain discretionary, with allocations within the Investment team being assessed primarily in relation to the individual’s contribution to Performance, Profitability and Partnership principles.
All variable incentive awards are subject to mandatory deferral of up to 60% (40% of bonus above $75,000) is deferred with deferred awards being delivered over a three year period in the form of Janus Henderson Group shares and/or interests in proprietary funds.
JOHN GAMBLA AND ROB GUTTSCHOW, FIRST TRUST
The compensation structure for John Gambla and Rob Guttschow is based upon a fixed salary as well as a discretionary bonus determined by the management of the Advisor. Salaries are determined by management and are based upon an individual’s position and overall value to the firm. Bonuses are also determined by management and are generally based on a variety of factors, including, but not limited to, an individual’s overall contribution to the success of the firm and the profitability of the firm. Salaries and bonuses are not based upon criteria such as performance of the Funds or the value of assets included in the Fund’s portfolio.
(a)(4) Disclosure of Securities Ownership
Information provided as of December 31, 2019
Portfolio Manager | Shares owned |
Alex Crooke | None |
Ben Lofthouse | $10,001-$50,000 |
John Gambla | None |
Rob A. Guttschow | None |
(b) | Not applicable. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a) | Not applicable. |
(b) | Not applicable. |
Item 13. Exhibits.
(a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto. |
(c) | Notices to the registrant’s common shareholders in accordance with the order under Section 6(c) of the 1940 Act granting an exemption from Section 19(b) of the 1940 Act and Rule 19a-l under the 1940 Act, dated March 24, 2010. (1) |
(1) The Fund received exemptive relief from the Securities and Exchange Commission which permits the Fund to make periodic distributions of long-term capital gains as frequently as monthly each taxable year. The relief is conditioned, in part, on an undertaking by the Fund to make the disclosures to the holders of the Fund’s common shares, in addition to the information required by Section 19(a) of the 1940 Act and Rule 19a-1 thereunder. The Fund is likewise obligated to file with the SEC the information contained in any such notice to shareholders. In that regard, attached as an exhibit to this filing is a copy of such notice made during the period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) | First Trust Dynamic Europe Equity Income Fund |
By (Signature and Title)* | /s/ James M. Dykas | |||
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
Date | March 3, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/ James M. Dykas | |||
James M. Dykas, President and Chief Executive Officer (principal executive officer) |
Date | March 3, 2020 |
By (Signature and Title)* | /s/ Donald P. Swade | |||
Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
Date | March 3, 2020 |
* Print the name and title of each signing officer under his or her signature.