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, 2020
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.
(a) Report to Shareholders is attached herewith.
2 | |
3 | |
5 | |
8 | |
13 | |
14 | |
15 | |
16 | |
17 | |
18 | |
25 | |
26 | |
29 | |
35 | |
37 |
Fund Statistics | |
Symbol on New York Stock Exchange | FDEU |
Common Share Price | $11.80 |
Common Share Net Asset Value (“NAV”) | $13.67 |
Premium (Discount) to NAV | (13.68)% |
Net Assets Applicable to Common Shares | $235,504,594 |
Current Monthly Distribution per Common Share(1) | $0.0600 |
Current Annualized Distribution per Common Share | $0.7200 |
Current Distribution Rate on Common Share Price(2) | 6.10% |
Current Distribution Rate on NAV(2) | 5.27% |
Performance | |||
Average Annual Total Returns | |||
1 Year Ended 12/31/20 | 5 Years Ended 12/31/20 | Inception (9/24/15) to 12/31/20 | |
Fund Performance(3) | |||
NAV | -7.79% | 2.86% | 2.82% |
Market Value | -13.74% | 2.01% | -0.88% |
Index Performance | |||
MSCI Europe Index | 5.38% | 6.77% | 7.18% |
(1) | Most recent distribution paid or declared through 12/31/2020. 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 12/31/2020. 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 |
Nestle S.A. | 2.9% |
Novartis AG | 2.7 |
National Grid PLC | 2.5 |
British Land (The) Co., PLC | 2.4 |
Henkel AG & Co., KGaA (Preference Shares) | 2.3 |
SSE PLC | 2.3 |
Anglo American PLC | 2.2 |
Vodafone Group PLC | 2.2 |
GlaxoSmithKline PLC | 2.1 |
Allianz SE | 2.1 |
Total | 23.7% |
Sector Allocation | % of Total Investments |
Financials | 18.6% |
Industrials | 17.2 |
Consumer Staples | 14.1 |
Health Care | 9.2 |
Utilities | 9.0 |
Communication Services | 8.8 |
Materials | 6.4 |
Consumer Discretionary | 5.0 |
Energy | 4.6 |
Information Technology | 3.7 |
Real Estate | 3.4 |
Total | 100.0% |
Country Allocation | % of Total Investments |
United Kingdom | 32.5% |
Switzerland | 17.7 |
France | 16.0 |
Germany | 11.5 |
Netherlands | 6.6 |
Spain | 5.4 |
Sweden | 3.5 |
Italy | 1.9 |
Norway | 1.8 |
Austria | 1.7 |
Finland | 1.2 |
Bermuda | 0.2 |
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) – 126.3% | ||||
Aerospace & Defense – 3.0% | ||||
14,972 | Airbus SE (b) | $1,642,125 | ||
827,061 | BAE Systems PLC | 5,528,357 | ||
7,170,482 | ||||
Auto Components – 2.5% | ||||
45,459 | Cie Generale des Etablissements Michelin SCA | 5,828,397 | ||
Banks – 6.7% | ||||
111,666 | BAWAG Group AG (b) (c) (d) | 5,183,837 | ||
70,692 | BNP Paribas S.A. (b) | 3,722,586 | ||
453,326 | HSBC Holdings PLC (b) | 2,348,579 | ||
482,760 | ING Groep N.V. (b) | 4,506,385 | ||
15,761,387 | ||||
Beverages – 2.7% | ||||
123,053 | Coca-Cola HBC AG | 3,999,896 | ||
58,180 | Diageo PLC | 2,289,770 | ||
6,289,666 | ||||
Building Products – 2.6% | ||||
134,570 | Cie de Saint-Gobain (b) | 6,164,904 | ||
Capital Markets – 3.9% | ||||
150,530 | 3i Group PLC | 2,383,740 | ||
209,890 | Ashmore Group PLC | 1,237,650 | ||
176,214 | St. James’s Place PLC | 2,731,425 | ||
197,086 | UBS Group AG | 2,776,079 | ||
9,128,894 | ||||
Commercial Services & Supplies – 1.8% | ||||
630,522 | Babcock International Group PLC (b) | 2,413,406 | ||
1,763,586 | Prosegur Cash S.A. (c) (d) | 1,723,588 | ||
4,136,994 | ||||
Construction Materials – 1.2% | ||||
50,473 | LafargeHolcim Ltd. | 2,771,939 | ||
Containers & Packaging – 1.5% | ||||
154,982 | SIG Combibloc Group AG | 3,595,764 | ||
Diversified Financial Services – 2.3% | ||||
510,485 | Banca Farmafactoring S.p.A. (b) (c) (d) | 3,080,752 | ||
843,470 | M&G PLC | 2,283,245 | ||
5,363,997 | ||||
Diversified Telecommunication Services – 4.6% | ||||
212,521 | Deutsche Telekom AG | 3,882,711 | ||
359,683 | Telefonica S.A. | 1,425,875 | ||
318,706 | Telenor ASA | 5,423,122 | ||
10,731,708 | ||||
Electric Utilities – 7.0% | ||||
49,985 | Endesa S.A. | 1,364,784 | ||
271,611 | Enel S.p.A. | 2,746,089 | ||
365,138 | Iberdrola S.A. | 5,219,029 | ||
344,571 | SSE PLC | 7,068,013 | ||
16,397,915 |
Shares | Description | Value | ||
COMMON STOCKS (a) (Continued) | ||||
Electrical Equipment – 3.5% | ||||
161,450 | ABB Ltd. | $4,506,302 | ||
26,220 | Schneider Electric SE | 3,789,346 | ||
8,295,648 | ||||
Entertainment – 1.1% | ||||
82,619 | Vivendi S.A. | 2,662,573 | ||
Food & Staples Retailing – 1.9% | ||||
1,409,800 | Tesco PLC | 4,461,164 | ||
Food Products – 4.9% | ||||
40,000 | Danone S.A. | 2,627,036 | ||
76,631 | Nestle S.A. | 9,024,679 | ||
11,651,715 | ||||
Hotels, Restaurants & Leisure – 2.5% | ||||
54,854 | Sodexo S.A. | 4,638,597 | ||
30,377 | Whitbread PLC (b) | 1,287,757 | ||
5,926,354 | ||||
Household Products – 4.0% | ||||
63,319 | Henkel AG & Co., KGaA (Preference Shares) | 7,139,742 | ||
25,280 | Reckitt Benckiser Group PLC | 2,261,596 | ||
9,401,338 | ||||
Industrial Conglomerates – 2.3% | ||||
37,347 | Siemens AG | 5,361,846 | ||
Insurance – 11.5% | ||||
26,163 | Allianz SE | 6,414,779 | ||
61,792 | ASR Nederland N.V. | 2,479,787 | ||
150,747 | AXA S.A. | 3,593,331 | ||
523,022 | Direct Line Insurance Group PLC | 2,281,592 | ||
77,181 | NN Group N.V. | 3,350,059 | ||
142,954 | Prudential PLC | 2,633,245 | ||
15,194 | Zurich Insurance Group AG | 6,410,210 | ||
27,163,003 | ||||
Internet & Direct Marketing Retail – 0.9% | ||||
19,887 | Prosus N.V. | 2,146,702 | ||
Machinery – 4.5% | ||||
258,971 | OC Oerlikon Corp. AG | 2,676,589 | ||
208,707 | SKF AB, Class B | 5,413,252 | ||
101,846 | Volvo AB, Class B (b) | 2,398,969 | ||
10,488,810 | ||||
Media – 1.8% | ||||
150,530 | Informa PLC (b) | 1,130,115 | ||
600,287 | Mediaset Espana Comunicacion S.A. (b) | 3,124,031 | ||
4,254,146 | ||||
Metals & Mining – 4.0% | ||||
202,168 | Anglo American PLC | 6,702,887 | ||
37,812 | Rio Tinto PLC | 2,828,423 | ||
9,531,310 |
Shares | Description | Value | ||
COMMON STOCKS (a) (Continued) | ||||
Multi-Utilities – 4.8% | ||||
651,785 | National Grid PLC | $7,709,883 | ||
146,809 | Veolia Environnement S.A. | 3,588,778 | ||
11,298,661 | ||||
Oil, Gas & Consumable Fuels – 6.0% | ||||
713,189 | BP PLC | 2,485,029 | ||
109,665 | Frontline Ltd. | 694,499 | ||
365,405 | Repsol S.A. | 3,682,776 | ||
177,646 | Royal Dutch Shell PLC, Class A | 3,171,548 | ||
94,735 | TOTAL SE | 4,085,375 | ||
14,119,227 | ||||
Paper & Forest Products – 1.6% | ||||
102,950 | UPM-Kymmene OYJ | 3,832,177 | ||
Personal Products – 2.2% | ||||
86,347 | Unilever PLC | 5,228,404 | ||
Pharmaceuticals – 12.0% | ||||
27,528 | Bayer AG | 1,619,433 | ||
356,087 | GlaxoSmithKline PLC | 6,534,855 | ||
86,845 | Novartis AG | 8,205,788 | ||
16,951 | Roche Holding AG | 5,916,479 | ||
61,839 | Sanofi | 5,945,440 | ||
28,221,995 | ||||
Professional Services – 3.5% | ||||
68,109 | Adecco Group AG | 4,551,371 | ||
98,445 | Bureau Veritas S.A. (b) | 2,616,974 | ||
47,886 | RELX PLC | 1,173,802 | ||
8,342,147 | ||||
Semiconductors & Semiconductor Equipment – 3.3% | ||||
55,488 | BE Semiconductor Industries N.V. | 3,360,875 | ||
112,552 | Infineon Technologies AG | 4,316,098 | ||
7,676,973 | ||||
Software – 1.5% | ||||
27,831 | SAP SE | 3,645,452 | ||
Textiles, Apparel & Luxury Goods – 0.6% | ||||
57,714 | Burberry Group PLC (b) | 1,412,343 | ||
Tobacco – 2.7% | ||||
304,771 | Imperial Brands PLC | 6,399,570 | ||
Trading Companies & Distributors – 1.3% | ||||
38,186 | Brenntag AG | 2,954,806 | ||
Wireless Telecommunication Services – 4.1% | ||||
218,379 | Tele2 AB, Class B | 2,882,488 | ||
4,035,972 | Vodafone Group PLC | 6,674,910 | ||
9,557,398 | ||||
Total Common Stocks | 297,375,809 | |||
(Cost $305,306,364) |
Shares | Description | Value | ||
REAL ESTATE INVESTMENT TRUSTS (a) – 4.4% | ||||
Equity Real Estate Investment Trusts – 4.4% | ||||
1,107,517 | British Land (The) Co., PLC | $7,406,049 | ||
159,462 | Eurocommercial Properties N.V. (b) | 2,996,128 | ||
Total Real Estate Investment Trusts | 10,402,177 | |||
(Cost $18,253,693) | ||||
RIGHTS (a) – 0.0% | ||||
Oil, Gas & Consumable Fuels – 0.0% | ||||
365,405 | Repsol S.A., expiring 01/14/21 (b) | 125,304 | ||
(Cost $128,862) | ||||
Total Investments – 130.7% | 307,903,290 | |||
(Cost $323,688,919) (e) |
Number of Contracts | Description | Counterparty | Notional Amount | Exercise Price (Euro) | Expiration Date | Value | ||||||
CALL OPTIONS WRITTEN – (2.2)% | ||||||||||||
(470) | EURO STOXX 50 Index | BNS | $20,398,390 | €3,275.00 | Jan 2021 | (1,765,589) | ||||||
(450) | EURO STOXX 50 Index | SG | 19,530,373 | 3,350.00 | Jan 2021 | (1,291,895) | ||||||
(430) | EURO STOXX 50 Index | BNS | 18,662,357 | 3,500.00 | Feb 2021 | (738,060) | ||||||
(420) | EURO STOXX 50 Index | UBS | 18,228,348 | 3,600.00 | Feb 2021 | (401,239) | ||||||
(430) | EURO STOXX 50 Index | UBS | 18,662,357 | 3,475.00 | Mar 2021 | (930,323) | ||||||
Total Call Options Written | (5,127,106) | |||||||||||
(Premiums received $2,790,045) |
Outstanding Loans – (33.6)% | (79,232,494) | ||
Net Other Assets and Liabilities – 5.1% | 11,960,904 | ||
Net Assets – 100.0% | $235,504,594 |
(a) | All or a portion of these securities are available to serve as collateral for the outstanding loans and call options written. |
(b) | Non-income producing security. |
(c) | 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”). |
(d) | 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. |
(e) | Aggregate cost for federal income tax purposes was $321,505,538. As of December 31, 2020, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $28,641,177 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $47,370,531. The net unrealized depreciation was $18,729,354. The unrealized amounts presented are inclusive of derivative contracts. |
Counterparty Abbreviations | |
BNS | Bank of Nova Scotia |
SG | Societe Generale |
UBS | UBS |
ASSETS TABLE | ||||
Total Value at 12/31/2020 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Common Stocks* | $ 297,375,809 | $ 297,375,809 | $ — | $ — |
Real Estate Investment Trusts* | 10,402,177 | 10,402,177 | — | — |
Rights* | 125,304 | 125,304 | — | — |
Total Investments | $ 307,903,290 | $ 307,903,290 | $— | $— |
LIABILITIES TABLE | ||||
Total Value at 12/31/2020 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Call Options Written | $ (5,127,106) | $ — | $ (5,127,106) | $ — |
* | See Portfolio of Investments for industry breakout. |
Currency Exposure Diversification | % of Total Investments |
EUR | 47.1% |
GBP | 31.0 |
CHF | 16.4 |
SEK | 3.5 |
NOK | 2.0 |
Total | 100.0% |
Currency Abbreviations | |
CHF | Swiss Franc |
EUR | Euro |
GBP | British Pound Sterling |
NOK | Norwegian Krone |
SEK | Swedish Krona |
ASSETS: | |
Investments, at value (Cost $323,688,919) | $ 307,903,290 |
Cash | 9,219,432 |
Foreign currency (Cost $85,572) | 85,614 |
Receivables: | |
Dividend reclaims | 2,637,283 |
Dividends | 736,617 |
Investment securities sold | 360 |
Prepaid expenses | 408 |
Total Assets | 320,583,004 |
LIABILITIES: | |
Outstanding loans | 79,232,494 |
Options written, at value (Premiums received $2,790,045) | 5,127,106 |
Payables: | |
Investment advisory fees | 290,048 |
Interest and fees on loans | 247,518 |
Audit and tax fees | 93,788 |
Administrative fees | 45,055 |
Shareholder reporting fees | 18,478 |
Legal fees | 10,334 |
Custodian fees | 5,463 |
Transfer agent fees | 1,652 |
Financial reporting fees | 771 |
Other liabilities | 5,703 |
Total Liabilities | 85,078,410 |
NET ASSETS | $235,504,594 |
NET ASSETS consist of: | |
Paid-in capital | $ 289,819,121 |
Par value | 172,319 |
Accumulated distributable earnings (loss) | (54,486,846) |
NET ASSETS | $235,504,594 |
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) | $13.67 |
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 $1,065,729) | $ 10,713,757 | |
Interest | 34,955 | |
Other | 13 | |
Total investment income | 10,748,725 | |
EXPENSES: | ||
Investment advisory fees | 3,143,206 | |
Interest and fees on loans | 937,235 | |
Administrative fees | 121,442 | |
Audit and tax fees | 118,583 | |
Shareholder reporting fees | 118,348 | |
Legal fees | 46,538 | |
Custodian fees | 44,655 | |
Listing expense | 26,250 | |
Transfer agent fees | 25,847 | |
Trustees’ fees and expenses | 15,741 | |
Financial reporting fees | 9,250 | |
Other | 37,235 | |
Total expenses | 4,644,330 | |
NET INVESTMENT INCOME (LOSS) | 6,104,395 | |
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on: | ||
Investments | (25,973,885) | |
Written options contracts | (6,126,522) | |
Foreign currency transactions | 770,565 | |
Net realized gain (loss) | (31,329,842) | |
Net change in unrealized appreciation (depreciation) on: | ||
Investments | 5,279,740 | |
Written options contracts | (2,366,746) | |
Foreign currency translation | (4,309,353) | |
Net change in unrealized appreciation (depreciation) | (1,396,359) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | (32,726,201) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $(26,621,806) |
Year Ended 12/31/2020 | Year Ended 12/31/2019 | ||
OPERATIONS: | |||
Net investment income (loss) | $ 6,104,395 | $ 14,185,619 | |
Net realized gain (loss) | (31,329,842) | (19,315) | |
Net change in unrealized appreciation (depreciation) | (1,396,359) | 36,929,634 | |
Net increase (decrease) in net assets resulting from operations | (26,621,806) | 51,095,938 | |
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (7,155,726) | (18,600,328) | |
Return of capital | (9,455,833) | (6,420,402) | |
Total distributions to shareholders | (16,611,559) | (25,020,730) | |
Total increase (decrease) in net assets | (43,233,365) | 26,075,208 | |
NET ASSETS: | |||
Beginning of period | 278,737,959 | 252,662,751 | |
End of period | $ 235,504,594 | $ 278,737,959 | |
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 | $(26,621,806) | |
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: | ||
Purchases of investments | (116,692,778) | |
Sales of investments | 147,563,706 | |
Proceeds from written options | 8,031,874 | |
Amount paid to close written options | (12,361,801) | |
Net realized gain/loss on investments and written options | 32,100,407 | |
Net change in unrealized appreciation/depreciation on investments and written options | (2,912,994) | |
Changes in assets and liabilities: | ||
Increase in dividend reclaims receivable | (644,071) | |
Increase in dividends receivable | (14,979) | |
Decrease in prepaid expenses | 1,806 | |
Increase in interest and fees payable on loans | 14,294 | |
Decrease in investment advisory fees payable | (55,062) | |
Increase in audit and tax fees payable | 16,284 | |
Increase in legal fees payable | 5,209 | |
Decrease in shareholder reporting fees payable | (7,284) | |
Increase in administrative fees payable | 5,226 | |
Decrease in custodian fees payable | (6,218) | |
Decrease in transfer agent fees payable | (1,654) | |
Decrease in trustees’ fees and expenses payable | (124) | |
Increase in other liabilities payable | 713 | |
Cash provided by operating activities | $28,420,748 | |
Cash flows from financing activities: | ||
Distributions to Common Shareholders from investment operations | (7,155,726) | |
Distributions to Common Shareholders from return of capital | (9,455,833) | |
Repayment of borrowings | (52,825,180) | |
Proceeds from borrowings | 27,000,000 | |
Effect of exchange rate changes on Euro Loans (a) | 4,533,525 | |
Cash used in financing activities | (37,903,214) | |
Decrease in cash and foreign currency | (9,482,466) | |
Cash and foreign currency at beginning of period | 18,787,512 | |
Cash and foreign currency at end of period | $9,305,046 | |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest and fees | $922,941 |
(a) | This amount is a component of net change in unrealized appreciation (depreciation) on foreign currency translation as shown on the Statement of Operations. |
Year Ended December 31, | |||||||||
2020 | 2019 | 2018 | 2017 | 2016 | |||||
Net asset value, beginning of period | $ 16.18 | $ 14.66 | $ 19.87 | $ 17.96 | $ 19.07 | ||||
Income from investment operations: | |||||||||
Net investment income (loss) | 0.35 | 0.82 | 0.74 | 0.78 | 0.73 | ||||
Net realized and unrealized gain (loss) | (1.90) | 2.15 | (4.50) | 3.02 | (0.39) | ||||
Total from investment operations | (1.55) | 2.97 | (3.76) | 3.80 | 0.34 | ||||
Distributions paid to shareholders from: | |||||||||
Net investment income | (0.41) | (1.08) | (0.70) | (0.14) | (1.13) | ||||
Net realized gain | — | — | (0.75) | (0.75) | — | ||||
Return of capital | (0.55) | (0.37) | — | (1.00) | (0.32) | ||||
Total distributions paid to Common Shareholders | (0.96) | (1.45) | (1.45) | (1.89) | (1.45) | ||||
Net asset value, end of period | $13.67 | $16.18 | $14.66 | $19.87 | $17.96 | ||||
Market value, end of period | $11.80 | $14.93 | $12.64 | $18.83 | $15.52 | ||||
Total return based on net asset value (a) | (7.79)% | 22.24% | (19.36)% | 22.66% | 3.30% | ||||
Total return based on market value (a) | (13.74)% | 30.82% | (26.64)% | 34.51% | (0.80)% | ||||
Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) | $ 235,505 | $ 278,738 | $ 252,663 | $ 342,383 | $ 309,455 | ||||
Ratio of total expenses to average net assets | 2.15% | 1.99% | 1.91% | 1.85% | 1.83% | ||||
Ratio of total expenses to average net assets excluding interest expense | 1.71% | 1.69% | 1.65% | 1.60% | 1.59% | ||||
Ratio of net investment income (loss) to average net assets | 2.82% | 5.37% | 4.19% | 4.09% | 4.13% | ||||
Portfolio turnover rate | 43% | 64% | 44% | 39% | 41% | ||||
Indebtedness: | |||||||||
Total loans outstanding (in 000’s) | $ 79,232 | $ 100,524 | $ 87,650 | $ 101,987 | $ 85,791 | ||||
Asset coverage per $1,000 of indebtedness (b) | $ 3,972 | $ 3,773 | $ 3,883 | $ 4,357 | $ 4,607 |
(a) | 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. |
(b) | 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: | 2020 | 2019 |
Ordinary income | $7,155,726 | $18,600,328 |
Return of capital | 9,455,833 | 6,420,402 |
Undistributed ordinary income | $— |
Undistributed capital gains | — |
Total undistributed earnings | — |
Accumulated capital and other losses | (33,668,770) |
Net unrealized appreciation (depreciation) | (20,818,076) |
Total accumulated earnings (losses) | (54,486,846) |
Other | — |
Paid-in capital | 289,991,440 |
Total net assets | $235,504,594 |
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 | $ 5,127,106 |
Statement of Operations Location | |
Equity Risk Exposure | |
Net realized gain (loss) on written options contracts | $(6,126,522) |
Net change in unrealized appreciation (depreciation) on written options contracts | (2,366,746) |
(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. |
• | May invest, under normal market conditions, 20% of its managed assets in domestic and foreign fixed income securities of any maturity and credit quality, including corporate and government debt securities. |
• | May invest up to15% of its Managed Assets in securities that, at the time of investment, are illiquid. |
• | May invest, without limit, in securities that have not been registered under the Securities Act of 1933, as amended, and continue to be subject to restrictions on resale; securities held by control persons of the issuer of such securities; and |
securities that are subject to contractual restrictions on their resale (collectively, “restricted securities”). However, restricted securities determined by the Advisor or the Sub-Advisor to be illiquid are subject to the above limitation on the amount of illiquid securities in which the Fund may invest. |
Assumed Portfolio Total Return (Net of Expenses) | -10% | -5% | 0% | 5% | 10% |
Common Share Total Return | -13.72% | -7.04% | -0.36% | 6.32% | 13.00% |
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) | 190 | None |
Thomas R. Kadlec, Trustee (1957) | • Three Year Term
• Since Fund Inception | President, ADM Investor Services, Inc. (Futures Commission Merchant) | 190 | 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) | 190 | 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) | 190 | 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) | 190 | None |
(1) | Currently, 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. Robert F. Keith, as a Class I Trustee, is serving as a trustee until the Fund’s 2023 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 professional 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
(b) Not applicable.
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. |
(f) | A copy of the code of ethics that applies o the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller is filed as an exhibit pursuant to Item 13(a)(1). |
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, 2019 and $39,500 for the fiscal year ended December 31, 2020.
(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, 2019 and $0 for the fiscal year ended December 31, 2020.
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, 2019 and $0 for the fiscal year ended December 31, 2020.
(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 $18,248 for the fiscal year ended December 31, 2019 and $61,976 for the fiscal year ended December 31, 2020. These fees were for tax consultation and/or tax return preparation and professional services rendered for PFIC (Passive Foreign Investment Company) Identification Services.
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, 2019 and $0 for the fiscal year ended December 31, 2020.
(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, 2019 and $0 for the fiscal year ended December 31, 2020.
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, 2019 and $0 for the fiscal year ended December 31, 2020.
(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 the de minimis exceptions 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, 2019 were $18,248 for the Registrant and $75,670 for the Registrant’s investment adviser and for the Registrant’s fiscal year ended December 31, 2020 were $61,976 for the Registrant and $23,200 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, 2020, are attached herewith.
Janus Capital Management LLC
Perkins Investment Management LLC
Proxy Voting Guidelines
February 2020
The Proxy Voting Guidelines (the “Guidelines”) below summarize how Janus Capital Management LLC and Perkins Investment Management LLC (the “Advisers”) will generally evaluate various issues that may be raised through proxy voting proposals. The Guidelines, together with the Proxy Voting Procedures (the “Procedures”), will be used for voting proxies on behalf of all clients, including mutual funds and exchange-traded funds, for which the Advisers have voting authority except as otherwise noted below. Subject to specific provisions in a client’s account documentation related to exception voting, the Advisers only accept direction from a client to vote proxies for that client’s account pursuant to: 1) the Guidelines; 2) the Institutional Shareholder Services, Inc. (ISS) (the “Proxy Voting Service”) Benchmark Policy; or 3) the ISS Taft-Hartley Voting Guidelines.
The Advisers have instructed the Proxy Voting Service to vote all proxies relating to portfolio securities held in client accounts in accordance with these Guidelines, except as otherwise instructed by the Advisers. While the Advisers attempt to address most commonly-raised issues through the Guidelines, there will be various proxy voting issues that are not addressed by the Guidelines or that require case-by-case resolution under the Guidelines. Moreover, there may be various proxy voting issues as to which the Proxy Voting Service does not have or provide research, analysis and recommendations. For example, the Proxy Voting Service may not provide research, analysis and recommendations for privately-held companies. In such instances, those proposals will be referred to the relevant portfolio managers, assistant portfolio managers and analysts (together, “Portfolio Management”) or the Governance and Responsible Investment team (the “GRI Team”) for resolution. In exercising discretion, the Advisers may take into consideration the information and recommendations of the Proxy Voting Service, but will vote all proxies based on their own conclusions regarding the best interests of clients.
Furthermore, because proxy issues and the circumstances of individual companies are so varied, there may be instances when the Advisers may not vote in strict adherence to the Guidelines. Portfolio Management and the GRI Team are responsible for monitoring significant corporate developments, including proxy proposals submitted to shareholders, and instructing votes contrary to the Guidelines where they reasonably believe that is in the best interest of clients.
In addition, non-U.S. issuers may be subject to corporate governance standards and a proxy solicitation process that substantially differs from U.S. standards and practices. The Advisers will generally vote non-U.S. issuer proxies in accordance with the Guidelines unless the application of the Guidelines is inconsistent with corporate governance standards and practices in that market, in which case the Advisers may refer to the research, analysis and recommendations provided by the Proxy Voting Service.
In exercising their fiduciary duties to clients, the Advisers recognize that in certain circumstances the cost to clients associated with casting a proxy vote may exceed the benefits received by clients from doing so. In those situations, the Advisers may decide to abstain from voting. For instance, 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 (“share blocking”). In countries where share blocking is practiced, the Advisers will only vote proxies if the Advisers determine that the benefit of voting the proxies outweighs the risk of not being able to sell the securities. Similarly, in some instances, the Advisers may participate in a securities lending
program. Generally, if shares of an issuer are on loan, the voting rights are transferred and the lending party cannot vote the shares. In deciding whether to recall securities on loan, the Advisers will evaluate whether the shareholder benefit of voting the proxies outweighs the cost of recalling them. Furthermore, in circumstances where a client held a security as of record date, but the holdings were sold prior to the shareholder meeting, the Advisers 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, the Advisers consider the recommendation of management to be an important factor in making these decisions.
1. | For domestic market and applicable foreign market issuers, the Advisers 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, the Advisers 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 committee; |
• | 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 (as determined by the Proxy Voting Service); |
• | are compensation committee members and the company has poor compensation practices (as determined by the Advisers), 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); |
• | are the chair of the nominating committee, or are otherwise responsible for the nomination process, of a board that does not have any female directors, and the company has not provided a reasonable explanation for its lack of gender diversity (as determined by the Advisers); and/or |
2
• | 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. | The Advisers will evaluate proposals relating to contested director candidates and/or contested slates of directors on case-by-case basis. |
4. | The Advisers will generally vote in favor of proposals to increase the minimum number of independent directors. |
5. | The Advisers believe that attracting qualified director candidates is important to overall company success and effective corporate governance. As such, the Advisers will generally vote in favor of proposals regarding director indemnification arrangements. |
6. | The Advisers 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, the Advisers will generally vote against proposals relating to decreasing the size of a board of directors. |
8. | The Advisers will generally vote against proposals advocating classified or staggered boards of directors. |
9. | The Advisers will generally vote with management regarding proposals to declassify a board. |
10. | The Advisers will generally vote in favor of proposals to separate the role of the Chairman from the role of the CEO. |
Auditors
11. | The Advisers 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. | The Advisers will evaluate proposals relating to contested auditors on a case-by-case basis. 13. The Advisers will generally vote in favor of proposals to appoint internal statutory auditors. |
Equity-Based Compensation Plans
14. | The Advisers will generally vote in favor of equity-based compensation plans unless they create an inconsistent relationship between long-term share performance and compensation, do not demonstrate good stewardship of investors’ interests, or contain problematic features (as determined by the Advisers). Without limitation, the Advisers consider the following practices to be problematic and generally votes against 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 |
3
• | 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. | The Advisers will generally vote in favor of proposals relating to ESPPs – unless the shares purchased through the ESPP are discounted more than the market norm, the shares allocated to the ESPP are excessive, and/or the ESPP contains other problematic features. |
16. | The Advisers will generally vote in favor of proposals requiring the expensing of options. |
17. | The Advisers will generally oppose proposals requesting approval to make material amendments to equity based compensation plans without shareholder approval. |
18. | The Advisers will generally oppose proposals regarding the re-pricing of underwater options. |
19. | The Advisers will generally oppose proposals requesting approval of loans to officers, executives and board members of an issuer. |
20. | The Advisers will generally oppose proposals requesting approval of automatic share replenishment (“evergreen”) features of equity based compensation plans. |
21. | The Advisers 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. | The Advisers will generally vote in favor of annual advisory votes on executive compensation (say-on-pay frequency). |
23. | The Advisers will generally vote in favor with regard to advisory votes on executive compensation (say-on-pay), unless the Advisers determine problematic pay practices are maintained. |
24. | The Advisers 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 approval prior to entering into employment contracts. |
25. | The Advisers 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. | The Advisers 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. |
4
Other Corporate Matters
27. | The Advisers will generally vote in favor of proposals relating to the issuance of dividends. |
28. | The Advisers will generally vote in favor of proposals relating to stock splits that are not likely to negatively affect the ability to trade shares or the economic value of a share. |
29. | The Advisers will generally vote against proposals regarding supermajority voting rights (for example to approve acquisitions or mergers). |
30. | The Advisers will generally oppose proposals for different classes of stock with different voting rights. |
31. | The Advisers will generally vote in favor of proposals related to share issuances with and without preemptive rights, provided that voting in favor of such proposals is consistent with local market standards and such proposals are not considered excessive in the context of the issuer. |
32. | The Advisers 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. | Subject to local market standards, the Advisers will generally vote in favor of proposals seeking to increase the number of shares of common or preferred stock authorized for issue unless the company does not adequately justify the need for the additional shares. |
34. | The Advisers will evaluate proposals regarding the issuance of debt, including convertible debt, on a case-by-case basis. |
35. | The Advisers will generally vote in favor of proposals regarding the authorization of the issuer’s Board of Directors to repurchase shares. |
36. | The Advisers will evaluate plans of reorganization on a case-by-case basis. |
37. | The Advisers will generally vote in favor of proposals regarding changes in the state of incorporation of an issuer. |
38. | The Advisers will generally vote in favor of proposals regarding changes in company name. |
39. | The Advisers will evaluate proposals relating to the continuance of a company on a case-by-case basis. |
40. | The Advisers 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. | The Advisers 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. | The Advisers 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. | The Advisers will generally vote in favor of proposals to adopt cumulative voting unless otherwise recommended by the Proxy Voting Service. |
44. | The Advisers will generally vote in favor of proposals to require that voting be confidential. |
5
45. | The Advisers 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. | The Advisers will generally vote in favor of proposals relating to the administration of an annual shareholder meeting. |
47. | The Advisers will generally vote against proposals to approve “other business” when it appears as a voting item. |
48. | The Advisers will evaluate proposals related to proxy access on a case-by-case basis. |
Shareholder Proposals
49. | The Advisers are primarily concerned with the economic impact of shareholder proposals on a company’s short and long-term share value. The Advisers will generally apply the Guidelines to shareholder proposals while weighing the following considerations: |
The Advisers’ first priority is to act as a fiduciary in the best interests of their clients. The Advisers recognize that environmental, social, moral or ethical issues present risks and opportunities that can have an impact on company financial performance. The Advisers strive to balance these issues in a manner consistent with their fiduciary obligations. The Advisers will generally vote with management on these matters unless they 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, the Advisers will review these matters on a case-by-case basis, consistent with their fiduciary obligations to clients.
Other
50. | For proposals outside the scope of the Guidelines, the Advisers will solicit additional research and a recommendation from the Proxy Voting Service. The Advisers will consider, but are not obligated to accept, the recommendation provided by the Proxy Voting Service. |
6
Janus Capital Management LLC
Perkins Investment Management LLC
Proxy Voting Procedures
March 2020
The following represents the Proxy Voting Procedures (“Procedures”) for Janus ?apital Management LL? (“Janus”) and Perkins Investment Management LL? (each, an “Adviser,” and together, the “Advisers”) with respect to the voting of proxies on behalf of all accounts for which they have voting authority, including mutual funds and exchange-traded funds (“ETFs”). Any accounts advised by the Advisers through participating affiliate agreements with other entities in Janus Henderson Group plc are subject to these Procedures except as otherwise set forth in Annex A.
Where the Advisers have been provided voting discretion, the Advisers seek to vote proxies in the best interest of their clients.1 Subject to specific provisions in a client’s account documentation related to exception voting, the Advisers only accept direction from a client to vote proxies for that client’s account pursuant to: 1) the Advisers’ Proxy Voting Guidelines (the “Guidelines”); 2) the Institutional Shareholder Services Inc. (ISS) (the “Proxy Voting Service”) Benchmark Policy; or 3) the ISS Taft-Hartley Voting Guidelines (the “Taft-Hartley Guidelines”).
The Advisers have adopted these Procedures and the Guidelines to ensure that proxies are voted in the best interest of clients, without regard to any relationship that the Advisers or any affiliated person of the Advisers may have with the issuer or personnel of the issuer.
Roles and Responsibilities
Proxy Voting Committee. The Janus Henderson Proxy Voting ?ommittee (the “Committee”) develops the Advisers’ positions on all major corporate issues, manages conflicts of interest related to proxy voting and oversees the voting process generally. The Committee is comprised of representatives from the Office of the Treasurer, Operations Control, Compliance, as well as the Governance and Responsible Investing team (the “GRI Team”) and equity portfolio management who provide input on behalf of Investments. Internal legal counsel serves as a consultant to the Committee and is a non-voting member. A quorum is required for all Committee meetings. The Committee reviews and approves the Guidelines and Procedures on an annual basis.
In reviewing the Guidelines and Procedures, the Committee reviews the Advisers’ proxy voting record over the prior year, including exceptions to the Guidelines directed by relevant portfolio managers, assistant portfolio managers, and analysts (together, “Portfolio Management”), to determine whether any adjustments should be made. The Committee also reviews changes to the Guidelines recommended by the Proxy Voting Service, discusses such changes with the Proxy Voting Service, and solicits feedback from Investments on such changes. Once the Committee approves changes to the Guidelines, they are distributed to Operations Control and the Proxy Voting
1 On behalf of accounts subject to ERISA, the Advisers will vote all proxies for shares for which it has investment discretion unless the power to vote such shares has been expressly retained by the appointing fiduciary in the investment management agreement. The Advisers recognize that the exercise of voting rights on securities held by ERISA plans is a fiduciary duty that must be exercised with care, skill, prudence and diligence. As such, where the Advisers have voting responsibility for ERISA plans, they will vote proxies solely in the best interest of the participants and beneficiaries of such plans.
Service for implementation. The Committee provides oversight of the proxy voting process, including by reviewing results of diligence on the Proxy Voting Service.
Portfolio Management. Portfolio Management is responsible for determining how to vote proxies with respect to securities held in the portfolios they manage. While the Committee establishes the Guidelines and Procedures and serves as a resource for Portfolio Management, it does not have authority to direct votes for any client or account except as set forth in Procedures for Addressing Conflicts of Interest below. While Portfolio Management generally votes consistently with the Guidelines, there may be instances where they may choose to vote contrary to the Guidelines. In those circumstances and as otherwise specified herein, Portfolio Management is required to provide a sufficient written rationale for their vote. In many cases, a security may be held by accounts managed by multiple portfolio managers. While the Advisers generally cast votes consistently across accounts they manage, they may vote differently on the same matters in the exercise of their discretion. For example, different portfolio managers may reasonably reach different conclusions as to what is in the best interest of their clients based on their independent judgments. In addition, in rare circumstances, an individual portfolio manager may reasonably reach multiple conclusions as to what is in the best interests of different clients depending on the account’s investment strategy or its objectives.
Operations Control. Operations Control is responsible for administering the proxy voting process as set forth in these Procedures, the Guidelines, and as applicable, the ISS Benchmark Policy and the Taft-Hartley Guidelines. The proxy administrator in Operations Control (the “Proxy Administrator”) works with the Proxy Voting Service and is responsible for ensuring that all meeting notices are reviewed against the Guidelines, the ISS Benchmark Policy or the Taft-Hartley Guidelines, and proxy matters are communicated to Portfolio Management for consideration pursuant to the Guidelines.
The Proxy Voting Service. The Advisers have engaged the Proxy Voting Service to assist in certain functions relating to the voting of proxies. Among other things, 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. The Proxy Voting Service also provides research services relating to proxy issues. In addition, the Proxy Voting Service is responsible for submitting the Advisers’ votes in accordance with the Guidelines or as otherwise instructed by the Advisers and is responsible for maintaining copies of all proxy statements received from issuers and promptly providing such materials to the Advisers upon request.
While the Advisers take into consideration the information and recommendations of the Proxy Voting Service, the Advisers vote all proxies based on their own proxy voting policies (unless a client has directed the use of the ISS Benchmark Policy or the Taft-Hartley Guidelines), including the Advisers’ conclusions regarding the best interests of advisory clients.
2
Proxy Voting Process
Procedures for Proxy Issues Within the Guidelines. Where the Guidelines address the proxy matter being voted on, the Proxy Voting Service will generally process all proxy votes in accordance with the Guidelines. Portfolio Management may provide instructions to vote contrary to the Guidelines in their discretion and with sufficient rationale documented in writing. To aid in the exercise of this discretion, portfolio managers initially inform Operations Control of how they wish to manage proxy voting in their accounts, and may change such elections at any time. 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. Portfolio managers may also request to review all vote recommendations or only those votes recommended to be cast against management.
In addition to portfolio manager-directed review, 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 matter being voted on relates to a company and/or issue for which the Proxy Voting Services does not have research, analysis and/or a recommendation available; or (3) the Guidelines call for Portfolio Management input. The Proxy Administrator will then solicit feedback from Portfolio Management or the Committee through a written request. In the event Portfolio Management is unable to provide input on a referred proxy item, the Advisers will abstain from voting the proxy item.
Notwithstanding the above, with respect to clients who have instructed the Advisers to vote proxies in accordance with the Taft-Hartley Guidelines, the Proxy Voting Service will cast all proxy votes in strict accordance with the Taft-Hartley Guidelines.
In all cases, portfolio managers receive a monthly report summarizing all proxy votes for securities held in their client accounts. The Proxy Administrator is responsible for maintaining this documentation.
Procedures for Proxy Issues Outside the Guidelines. Where the Guidelines do not address the proxy matter being voted on, the Proxy Voting Service will refer that issue to the Proxy Administrator. The Proxy Administrator will then solicit feedback from Portfolio Management or the Committee through a written request. In the event Portfolio Management is unable to provide input on a referred proxy item, the Advisers will abstain from voting the proxy item.
Procedures for “Fund of Funds” Voting. Janus advises certain portfolios that invest in other funds (“funds of funds”) advised by the Advisers. From time to time, a fund of funds may be required to vote proxies for the underlying funds in which it is invested. In those circumstances, there may be a conflict of interest between the Advisers and their clients. To mitigate that conflict, whenever an underlying fund submits a matter to a vote of its shareholders, the Advisers will cast their votes in the same proportion as the votes of the other shareholders in the underlying fund (“echo-voting”).
In addition, Janus advises certain funds of funds that invest in unaffiliated ETFs. These funds of funds may enter into a written participation agreement with an underlying ETF that allows the fund to own shares of the ETF in excess of what is generally permitted by the Investment Company Act of 1940. 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, the Advisers will cast their votes in the same proportion as the votes of the other shareholders in the underlying fund to the extent required by a participation agreement.
3
Procedures for Addressing Conflicts of Interest. A conflict of interest may arise from a number of situations, including but not limited to a business relationship between the Adviser and the issuer, an inducement provided to Portfolio Management by the issuer or its agents or a personal relationship between Portfolio Management and the management of the issuer. Because the Guidelines, the ISS Benchmark Policy and the Taft-Hartley Guidelines are designed to be in the best interests of advisory clients, application of the Guidelines to vote client proxies should, in most cases, adequately address any possible conflicts of interest. For situations where Portfolio Management or the GRI Team seek to exercise discretion, the Advisers have implemented a number of additional policies and controls to mitigate any conflicts of interest.
Portfolio Management or the GRI Team are required to disclose any actual or potential conflicts of interest that may affect the exercise of voting discretion. This includes but is not limited to the existence of any communications from the issuer, proxy solicitors or others designed to improperly influence Portfolio Management or the GRI Team in exercising their discretion. In the event a personal conflict of interest is disclosed or identified, the Committee will determine whether that person should recuse himself or herself from the voting determination process. In such circumstances, the proxy vote will be cast in accordance with the Guidelines or as instructed by the Chief Investment Officer (the “?IO”) or his or her delegate.
The Advisers also proactively monitors and tests proxy votes for any actual or potential conflicts of interest. The Advisers maintain a list of significant relationships for purposes of proxy voting, which includes significant intermediaries, vendors, service providers, clients and other relationships. In the event Portfolio Management or the GRI Team intend to vote against the Guidelines with respect to an issuer on the significant relationships list, the Proxy Administrator will notify the Committee which will review the rationale provided by Portfolio Management in advance of the vote. In the event Portfolio Management or the GRI Team intend to exercise discretion to vote contrary to the ISS recommendations and with management as to an issuer on the significant relationships list, the Proxy Administrator will notify the Committee, which will review the rationale provided by Portfolio Management or the GRI Team in advance of the vote. If the Committee determines the rationale is inadequate, the proxy vote will be cast as in accordance with the Guidelines or as instructed by the Committee. In addition, the Committee reviews all votes that deviate from the Guidelines and assesses the adequacy of the portfolio managers’ stated rationale on a quarterly basis. Compliance also reviews all refer votes contrary to the ISS recommendations and with management to identify any undisclosed conflicts of interest.
If a proxy vote is referred to the CIO or his or her delegate or the Committee, the decision made and basis for the decision will be documented by the Committee.
Vendor Oversight, Record-Keeping and Reporting
Retention and Oversight of the Proxy Voting Service. The Advisers will conduct periodic due diligence reviews of the Proxy Voting Service via on-site or telephonic meetings and by written questionnaires. As part of this periodic due diligence process, the Advisers shall collect information that is reasonably sufficient to support the conclusion that the Proxy Voting Service has the capacity and competency to adequately analyze the matters for which they have voting responsibility. In connection with the periodic due diligence review, the Advisers shall consider, among other things, (1) the adequacy and quality of the Proxy Voting Service’s staffing, personnel, and/or technology; (2) disclosure from the Proxy Voting Service regarding its methodologies in formulating voting recommendations; and (3) whether the Proxy Voting Service has adequate policies and procedures to identify, disclose, and address actual and potential conflicts of interest. In further exercise of its oversight responsibility, the Advisers shall periodically sample the proxy votes cast on behalf of clients to ensure whether such votes complied with these Procedures and the Guidelines.
4
Board Reporting. The Advisers shall present these Procedures and the Guidelines to the board of trustees of mutual funds and ETFs advised by the Advisers at least annually and shall provide such other information and reports requested by such boards to fulfill their oversight function.
Reporting and Record Retention. On an annual basis, the Advisers will provide their proxy voting records for each proprietary mutual fund or ETF for the one-year period ending on June 30th on the Advisers’ website at www.janushenderson.com/proxyvoting. Such voting record, on Form N-PX, is also available on the SEC’s website at www.sec.gov.
On an annual basis, and upon request, the Advisers will provide other clients with the proxy voting record for their accounts.
Except as noted in these Procedures or required by law, the Advisers do not provide information to anyone on how they voted or intend to vote on a particular matter. 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. Portfolio Management and the GRI 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 the Advisers’ ongoing investment analysis process.
The Advisers will retain 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 Guidelines. In addition, the Advisers will retain any internally-generated documents that are material to a proxy voting decision, such as the Guidelines, Committee materials and other internal research relating to voting decisions. Proxy statements received from issuers are either available on the SE?’s website or are kept by a third-party voting service and are available on request. All materials discussed above will be retained for a minimum of 6 years.
A complete copy of the Advisers’ proxy voting policies and procedures, including specific guidelines, is available at www.janushenderson.com/proxyvoting.
Annex A
The procedures described in this Annex A apply to accounts advised by the Advisers through participating affiliate agreements with other entities in Janus Henderson Group plc (the “Participating Affiliates”). For such accounts, to the extent of any ambiguity or conflict, the procedures discussed in this Annex A take precedence over the Procedures.
1. | Responsibilities. The GRI Team is responsible for administering the proxy voting process as set forth in these Procedures and the Guidelines for accounts advised by the Participating Affiliates. The GRI Team reviews shareholder meeting agendas, voting policy recommendations, and additional relevant documents and makes voting decisions in consultation with Portfolio Management. |
2. | Service Providers. The Participating Affiliates have contracted with the Proxy Voting Service to provide policy development, research, advisory and voting disclosure services. Proxy voting administrative services are provided by BNP Paribas Securities Services plc (“?NP”), which provides a range of administrative services to Janus Henderson. In providing proxy voting administrative services, BNP is supported by the Proxy Voting Service. |
5
3. | Voting Procedures. The procedure for casting proxy votes for accounts advised through Participating Affiliates is as follows: |
a) | Custodians notify the Proxy Voting Service of forthcoming company meetings and send proxy materials. |
b) | The Proxy Voting Service notifies the GRI Team of meetings via its ProxyExchange website. |
c) | The Proxy Voting Service provides voting recommendations based on the Guidelines. |
d) | The GRI Team consults with Portfolio Management as appropriate. |
e) | The GRI Team decides in conjunction with Portfolio Management whether to accept or override the voting recommendations provided by the Proxy Voting Service. In the event they decide to vote contrary to the Guidelines or management’s recommendation, the GRI Team provides a written rationale for the decision. |
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, including proposed voting instructions, will be referred for resolution to the Committee via the GRI Team. |
6
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, 2020
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 $401.6 billion in assets as of December 31, 2020. Janus Capital is responsible for the day-to-day investment decisions of the Fund other than the Option Overlay Strategy.
Effective November 1, 2020, Alex Crooke no longer serves as a portfolio manager of the Fund and, as of such date, Faizan Baig, CFA, was added as a co-portfolio manager of the Fund, joining Ben Lofthouse, CFA, as management of the Fund’s investment portfolio other than the Option Overlay Strategy. The Fund does not anticipate the foregoing changes to the portfolio managers of the Fund will materially change the day-to-day management of the Fund.
The members of the portfolio management team responsible for implementing the Option Overlay Strategy are John Gambla and Rob A. Guttschow.
1. 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.
2. FAIZAN BAIG, CFA
Global Equity Income; co-Portfolio Manager
Faizan Baig is a Portfolio Manager on the Global Equity Income Team at Janus Henderson Investors, a position he has held since 2020. Before that, he was a Research Analyst at the firm, picking stocks for income funds with sector expertise in technology and industrials. Prior to joining the firm in 2015, Mr. Baig was a senior global long/short equity analyst at RWC Partners generating fundamentally researched long and short ideas across all sectors. Before that, he worked for Morgan Stanley Wealth Management, where he began his career as a global equity analyst and later became a junior portfolio manager performing fundamental bottom-up analysis of companies across all sectors. In addition to generalist stock picking, he was responsible for the technology sector and advised on construction of global equity portfolios.
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, 2020:
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 |
1. Ben Lofthouse | Registered Investment Companies: | 2 | $4,720,000,000 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 4 | $ 1,430,300,000 | 1 | $10,500,000 | |
Other Accounts: | 2 | $ 106,400,000 | 0 | $ 0 | |
2 Faizan Baig | Registered Investment Companies: | 1 | $165,500,000 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 0 | $ 0 | 0 | $ 0 | |
Other Accounts: | 1 | $ 106,400,000 | 0 | $ 0 | |
3. John Gambla | Registered Investment Companies: | 8 | $857,404,887 | 0 | $ 0 |
Other Accounts: | 4 | $ 404,871 | 0 | $ 0 | |
4. Rob Guttschow | Registered Investment Companies: | 8 | $857,404,887 | 0 | $ 0 |
Other Accounts: | 4 | $404,871 | 0 | $ 0 |
POTENTIAL CONFLICTS OF INTERESTS
JANUS HENDERSON INVESTORS POTENTIAL CONFLICTS OF INTERESTS
Portfolio Management Conflicts of Interest.
As reflected in the table above, portfolio managers and investment personnel (for the purposes of this section, are together referred to as “portfolio managers”) generally manage other accounts, including accounts that may hold the same securities as or pursue investment strategies similar to the CEF. Those other accounts may include other Janus Henderson funds, private-label funds for which Janus Capital or an affiliate serves as sub-adviser, separately managed accounts or other pooled investment vehicles, such as hedge funds, which may have different fee structures or rates than the CEF or may have a performance-based management fee. As such, fees earned by Janus Capital or an affiliate vary among these accounts. Janus Capital or an affiliate may also proprietarily invest in or provide seed capital to some but not all of these accounts. In addition, portfolio managers may personally invest in or provide seed capital to some but not all of these accounts, and certain of these accounts may have a greater impact on their compensation than others. Further, portfolio managers (or their family members) may beneficially own or transact in the same securities as those held in the CEF’s portfolio. Portfolio managers also have roles with an affiliate of Janus Capital and provide advice on behalf of Janus Capital through participating affiliate agreements and receive compensation attributable to their role with the affiliate in addition to Janus Capital. These factors could create conflicts of interest because a portfolio manager may have incentives to favor one or more accounts over others or one role over another in the allocation of time, resources, or investment opportunities and the sequencing of trades, resulting in the potential for the CEF to be disadvantaged if, for example, one or more accounts outperform the CEF. A conflict may arise if a portfolio manager identifies a limited investment opportunity that may be appropriate for the CEF, but the CEF is not able to take full advantage of that opportunity due to the need to allocate that opportunity among other accounts also managed by the portfolio manager. A conflict may also arise if a portfolio manager executes transactions in one or more accounts that adversely impact the value of securities held by the CEF. Janus Capital believes that these and other conflicts are mitigated by policies, procedures, and practices in place, including those governing personal trading, proprietary trading and seed capital deployment, aggregation and allocation of trades, allocation of limited offerings, cross trades, and best execution. In addition, Janus Capital generally requires portfolio managers to manage accounts with similar investment strategies in a similar fashion, subject to a variety of exceptions, including, but not limited to, investment restrictions or policies applicable only to certain accounts, certain portfolio holdings that may be transferred in-kind when an account is opened, differences in cash flows and account sizes, and similar factors. Janus Capital monitors accounts with similar strategies for any holdings, risk, or performance dispersion.
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, 2020
BEN LOFTHOUSE AND FAIZAN BAIG, JANUS HENDERSON INVESTORS
Portfolio Management Compensation.
Janus Henderson 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 based on overall company and individual performance against both financial and strategic objectives. All employees are subject to the Company’s standard deferral arrangements which apply to variable incentive awards. Deferral rates apply to awards that exceed a minimum threshold, rates of deferral increase for larger incentive awards. Deferred awards vest in three equal instalments over a 3-year period and are delivered into JHG restricted stock and/or funds. 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 the recommendations of line managers and in consideration of individual performance appraisals. 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), 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. All employees are subject to the Company’s standard deferral arrangements which apply to variable incentive awards. Deferral rates apply to awards that exceed a minimum threshold, rates of deferral increase for larger incentive awards. Deferred awards vest in three equal instalments over a 3-year period and are delivered into JHG restricted stock and/or funds.
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 pre-determined 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.
JOHN GAMBLA AND ROB GUTTSCHOW, FIRST TRUST
The compensation structure for internal portfolio managers is based upon a fixed salary as well as a discretionary bonus determined by the management of FTA. 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 upon an individual’s or team’s overall contribution to the success of the firm, assets under management and the profitability of the firm. Certain internal portfolio managers have an indirect ownership stake in the firm and will therefore receive their allocable share of ownership related distributions.
(a)(4) Disclosure of Securities Ownership
Information provided as of December 31, 2020
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.
On October 19, 2020, after a thorough review, and consistent with the interests of the Fund, the Board of Trustees adopted Amended and Restated By-Laws, dated October 19, 2020 (the “Amended and Restated By-Laws”).
Among other changes, the Amended and Restated By-Laws contain new timelines for advance notice of nominees for Trustee to be brought before a meeting of shareholders. Further, the Amended and Restated By-Laws require compliance with certain procedural and informational requirements in connection with the advance notice of nominations, including a requirement to provide certain information about the nominee, and if requested, requires a nominee to sit for an interview with the Board to determine whether the nominee has the ability to critically review, evaluate, question and discuss information provided to the Board, and interact effectively with the other Trustees and management of the Fund, among other parties. Additionally, the Amended and Restated By-Laws include qualifications and eligibility requirements for Trustees. Any shareholder considering making a nomination should carefully review and comply with those provisions of the Amended and Restated By-Laws.
This discussion is only a high-level summary of certain aspects of the Amended and Restated By-Laws, and is qualified in its entirety by reference to the Amended and Restated By-Laws. Shareholders should refer to the Amended and Restated By-Laws for more information. A copy of the Amended and Restated By-Laws can be found in the Current Report on Form 8-K filed by the Fund with the Securities and Exchange Commission on October 20, 2020, which is available at www.sec.gov, and may also be obtained by writing to the Secretary of the Fund at the Fund’s principal executive office.
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 11, 2021 |
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 11, 2021 |
By (Signature and Title)* | /s/ Donald P. Swade | |||
Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
Date | March 11, 2021 |
* Print the name and title of each signing officer under his or her signature.