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, 2022
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.
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Fund Statistics | |
Symbol on New York Stock Exchange | FDEU |
Common Share Price | $11.28 |
Common Share Net Asset Value (“NAV”) | $12.87 |
Premium (Discount) to NAV | ( | )%
Net Assets Applicable to Common Shares | $221,838,178 |
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) | 6.38% |
Current Distribution Rate on NAV(2) | 5.59% |
Performance | |||
Average Annual Total Returns | |||
1 Year Ended 12/31/22 | 5 Years Ended 12/31/22 | Inception (9/24/15) to 12/31/22 | |
Fund Performance(3) | |||
NAV | -9.56% | -0.78% | 2.83% |
Market Value | -9.63% | -2.31% | 0.35% |
Index Performance | |||
MSCI Europe Index | -15.06% | 1.87% | 4.98% |
(1) | Most recent distribution paid through December 31, 2022. Subject to change in the future. |
(2) | Distribution rates are calculated by annualizing the most recent distribution paid through the report date and then dividing by Common Share Price or NAV, as applicable, as of December 31, 2022. 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. |
Fund Allocation | % of Net Assets |
Common Stocks | 123.4% |
Real Estate Investment Trusts | 3.4 |
Call Options Written | (0.5) |
Outstanding Loans | (33.0) |
Net Other Assets and Liabilities | 6.7 |
Total | 100.0% |
Top Ten Holdings | % of Total Investments |
Sanofi | 3.4% |
Nestle S.A. | 3.0 |
BHP Group Ltd. | 2.8 |
Imperial Brands PLC | 2.7 |
TotalEnergies SE | 2.7 |
Novartis AG | 2.5 |
Cie Financiere Richemont S.A., Class A | 2.5 |
AstraZeneca PLC | 2.5 |
Unilever PLC | 2.4 |
Shell PLC | 2.4 |
Total | 26.9% |
Sector Allocation | % of Total Investments |
Financials | 17.2% |
Health Care | 14.1 |
Consumer Staples | 12.9 |
Industrials | 11.4 |
Consumer Discretionary | 11.2 |
Energy | 9.2 |
Materials | 6.6 |
Utilities | 6.3 |
Communication Services | 4.9 |
Information Technology | 3.5 |
Real Estate | 2.7 |
Total | 100.0% |
Country Allocation | % of Total Investments |
United Kingdom | 31.7% |
France | 20.2 |
Switzerland | 14.0 |
Netherlands | 7.9 |
Spain | 5.2 |
Germany | 5.2 |
Australia | 4.7 |
Sweden | 3.3 |
Italy | 2.3 |
Denmark | 1.8 |
Finland | 1.4 |
Austria | 1.2 |
Norway | 1.1 |
Total | 100.0% |
Average Annual Total Returns | |||
1 Year Ended 12/31/22 | 5 Years Ended 12/31/22 | Inception (9/24/15) to 12/31/22 | |
Fund Performance(1) | |||
NAV | -9.56% | -0.78% | 2.83% |
Market Value | -9.63% | -2.31% | 0.35% |
Index Performance | |||
MSCI Europe Index | -15.06% | 1.87% | 4.98% |
Performance figures assume reinvestment of all distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund’s past performance does not predict future performance.
(1) | Total return is based on the combination of reinvested dividend, capital gain and return of capital distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in NAV per share for NAV returns and changes in Common Share Price for market value returns. Total returns do not reflect sales load and are not annualized for periods of less than one year. Past performance is not indicative of future results. |
Shares | Description | Value | ||
COMMON STOCKS (a) – 123.4% | ||||
Aerospace & Defense – 2.6% | ||||
30,992 | Airbus SE | $3,683,131 | ||
630,522 | Babcock International Group PLC (b) | 2,151,125 | ||
5,834,256 | ||||
Auto Components – 1.0% | ||||
80,568 | Cie Generale des Etablissements Michelin SCA | 2,241,051 | ||
Automobiles – 1.9% | ||||
32,839 | Mercedes-Benz Group AG | 2,158,364 | ||
138,755 | Stellantis N.V. | 1,970,106 | ||
4,128,470 | ||||
Banks – 6.8% | ||||
64,085 | BAWAG Group AG (c) (d) | 3,416,269 | ||
80,814 | BNP Paribas S.A. | 4,606,516 | ||
482,760 | ING Groep N.V. | 5,884,982 | ||
478,591 | Intesa Sanpaolo S.p.A. | 1,064,575 | ||
14,972,342 | ||||
Beverages – 5.0% | ||||
144,061 | Coca-Cola HBC AG | 3,436,227 | ||
72,445 | Diageo PLC | 3,196,757 | ||
22,656 | Pernod Ricard S.A. | 4,456,326 | ||
11,089,310 | ||||
Building Products – 1.8% | ||||
82,061 | Cie de Saint-Gobain | 4,009,996 | ||
Capital Markets – 4.8% | ||||
295,188 | 3i Group PLC | 4,787,378 | ||
56,728 | Amundi S.A. (c) (d) | 3,218,398 | ||
203,621 | St. James’s Place PLC | 2,695,535 | ||
10,701,311 | ||||
Commercial Services & Supplies – 0.5% | ||||
1,763,586 | Prosegur Cash S.A. (c) (d) | 1,128,923 | ||
Construction Materials – 1.2% | ||||
50,473 | Holcim AG | 2,613,580 | ||
Diversified Financial Services – 2.9% | ||||
469,330 | BFF Bank S.p.A. (c) (d) | 3,722,742 | ||
1,228,449 | M&G PLC | 2,789,823 | ||
6,512,565 | ||||
Diversified Telecommunication Services – 2.5% | ||||
130,761 | Deutsche Telekom AG | 2,608,819 | ||
318,706 | Telenor ASA | 2,979,898 | ||
5,588,717 | ||||
Electric Utilities – 5.1% | ||||
313,981 | Enel S.p.A. | 1,690,588 | ||
437,264 | Iberdrola S.A. | 5,115,996 | ||
217,504 | SSE PLC | 4,501,729 | ||
11,308,313 | ||||
Electrical Equipment – 2.2% | ||||
34,436 | Schneider Electric SE | 4,818,603 |
Shares | Description | Value | ||
COMMON STOCKS (a) (Continued) | ||||
Food Products – 4.8% | ||||
40,000 | Danone S.A. | $2,107,930 | ||
73,549 | Nestle S.A. | 8,522,187 | ||
10,630,117 | ||||
Hotels, Restaurants & Leisure – 3.8% | ||||
61,952 | Sodexo S.A. | 5,934,002 | ||
78,788 | Whitbread PLC | 2,447,944 | ||
8,381,946 | ||||
Household Durables – 1.9% | ||||
140,111 | Persimmon PLC | 2,061,442 | ||
278,206 | Vistry Group PLC | 2,103,789 | ||
4,165,231 | ||||
Insurance – 7.3% | ||||
49,701 | ASR Nederland N.V. | 2,359,528 | ||
221,761 | AXA S.A. | 6,185,041 | ||
1,003,590 | Direct Line Insurance Group PLC | 2,685,011 | ||
720,374 | Legal & General Group PLC | 2,172,886 | ||
69,158 | NN Group N.V. | 2,824,992 | ||
16,227,458 | ||||
Internet & Direct Marketing Retail – 1.6% | ||||
52,751 | Prosus N.V. | 3,639,318 | ||
Machinery – 3.6% | ||||
258,971 | OC Oerlikon Corp. AG | 1,697,252 | ||
165,898 | Sandvik AB | 2,995,269 | ||
180,798 | Volvo AB, Class B | 3,265,673 | ||
7,958,194 | ||||
Media – 0.5% | ||||
2,701,287 | MFE-MediaForEurope N.V., Class A | 1,045,021 | ||
Metals & Mining – 5.5% | ||||
107,669 | Anglo American PLC | 4,212,837 | ||
254,015 | BHP Group Ltd. | 7,892,249 | ||
12,105,086 | ||||
Multi-Utilities – 2.9% | ||||
356,889 | National Grid PLC | 4,303,391 | ||
85,741 | Veolia Environnement S.A. | 2,202,755 | ||
6,506,146 | ||||
Oil, Gas & Consumable Fuels – 11.7% | ||||
409,425 | Repsol S.A. | 6,508,294 | ||
234,614 | Shell PLC | 6,650,255 | ||
119,260 | TotalEnergies SE | 7,487,368 | ||
218,116 | Woodside Energy Group Ltd. | 5,247,458 | ||
25,893,375 | ||||
Paper & Forest Products – 1.7% | ||||
102,950 | UPM-Kymmene Oyj | 3,849,385 | ||
Personal Products – 3.1% | ||||
135,008 | Unilever PLC | 6,773,620 |
Shares | Description | Value | ||
COMMON STOCKS (a) (Continued) | ||||
Pharmaceuticals – 17.9% | ||||
51,167 | AstraZeneca PLC | $6,939,269 | ||
27,528 | Bayer AG | 1,424,010 | ||
160,635 | GSK PLC | 2,791,814 | ||
78,869 | Novartis AG | 7,129,897 | ||
38,591 | Novo Nordisk A.S., Class B | 5,210,796 | ||
20,746 | Roche Holding AG | 6,517,832 | ||
100,605 | Sanofi | 9,675,105 | ||
39,688,723 | ||||
Professional Services – 3.7% | ||||
76,661 | Adecco Group AG | 2,525,381 | ||
207,816 | RELX PLC | 5,748,352 | ||
8,273,733 | ||||
Semiconductors & Semiconductor Equipment – 2.1% | ||||
646,495 | Alphawave IP Group PLC (b) | 797,212 | ||
1,337 | ASML Holding N.V. | 721,034 | ||
101,607 | Infineon Technologies AG | 3,092,195 | ||
4,610,441 | ||||
Software – 2.4% | ||||
51,567 | SAP SE | 5,320,718 | ||
Specialty Retail – 0.9% | ||||
74,392 | Industria de Diseno Textil S.A. | 1,978,878 | ||
Textiles, Apparel & Luxury Goods – 3.1% | ||||
53,526 | Cie Financiere Richemont S.A., Class A | 6,940,753 | ||
Tobacco – 3.4% | ||||
304,771 | Imperial Brands PLC | 7,630,659 | ||
Wireless Telecommunication Services – 3.2% | ||||
365,976 | Tele2 AB, Class B | 2,984,668 | ||
4,035,972 | Vodafone Group PLC | 4,110,312 | ||
7,094,980 | ||||
Total Common Stocks | 273,661,219 | |||
(Cost $307,271,945) | ||||
REAL ESTATE INVESTMENT TRUSTS (a) – 3.4% | ||||
Equity Real Estate Investment Trusts – 3.4% | ||||
1,107,517 | British Land (The) Co., PLC | 5,290,123 | ||
2,191,821 | Hipgnosis Songs Fund (The) Ltd. (c) | 2,286,779 | ||
Total Real Estate Investment Trusts | 7,576,902 | |||
(Cost $13,916,386) | ||||
Total Investments – 126.8% | 281,238,121 | |||
(Cost $321,188,331) |
Number of Contracts | Description | Counterparty | Notional Amount | Exercise Price (Euro) | Expiration Date | Value | ||||||
CALL OPTIONS WRITTEN – (0.5)% | ||||||||||||
(470) | EURO STOXX 50 Index | UBS | $(19,086,129) | €3,825.00 | 01/20/23 | (266,649) | ||||||
(450) | EURO STOXX 50 Index | SG | (18,273,954) | 3,950.00 | 01/20/23 | (55,396) | ||||||
(450) | EURO STOXX 50 Index | SG | (18,273,954) | 3,975.00 | 01/20/23 | (39,981) | ||||||
(470) | EURO STOXX 50 Index | UBS | (19,086,129) | 3,850.00 | 02/17/23 | (363,247) |
Number of Contracts | Description | Counterparty | Notional Amount | Exercise Price (Euro) | Expiration Date | Value | ||||||
CALL OPTIONS WRITTEN (Continued) | ||||||||||||
(470) | EURO STOXX 50 Index | UBS | $(19,086,129) | €3,875.00 | 02/17/23 | $(370,290) | ||||||
Total Call Options Written | (1,095,563) | |||||||||||
(Premiums received $2,172,219) |
Outstanding Loans – (33.0)% | (73,139,134) | ||
Net Other Assets and Liabilities – 6.7% | 14,834,754 | ||
Net Assets – 100.0% | $221,838,178 |
(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. |
Counterparty Abbreviations | |
SG | Societe Generale |
UBS | UBS |
Currency Exposure Diversification | % of Total Investments |
EUR | 48.2% |
GBP | 32.8 |
CHF | 12.8 |
SEK | 3.3 |
DKK | 1.8 |
NOK | 1.1 |
Total | 100.0% |
Currency Abbreviations | |
CHF | Swiss Franc |
DKK | Danish Krone |
EUR | Euro |
GBP | British Pound Sterling |
NOK | Norwegian Krone |
SEK | Swedish Krona |
ASSETS TABLE | ||||
Total Value at 12/31/2022 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Common Stocks* | $ 273,661,219 | $ 273,661,219 | $ — | $ — |
Real Estate Investment Trusts* | 7,576,902 | 7,576,902 | — | — |
Total Investments | $ 281,238,121 | $ 281,238,121 | $— | $— |
LIABILITIES TABLE | ||||
Total Value at 12/31/2022 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |
Call Options Written | $ (1,095,563) | $ — | $ (1,095,563) | $ — |
* | See Portfolio of Investments for industry breakout. |
ASSETS: | |
Investments, at value (Cost $321,188,331) | $ 281,238,121 |
Cash | 2,534,466 |
Foreign currency (Cost $960,862) | 937,064 |
Restricted Cash | 9,288,000 |
Receivables: | |
Dividend reclaims | 2,431,736 |
Dividends | 721,700 |
Prepaid expenses | 2,666 |
Total Assets | 297,153,753 |
LIABILITIES: | |
Outstanding loans | 73,139,134 |
Options written, at value (Premiums received $2,172,219) | 1,095,563 |
Payables: | |
Interest and fees on loans | 557,611 |
Investment advisory fees | 275,522 |
Administrative fees | 107,421 |
Audit and tax fees | 87,682 |
Shareholder reporting fees | 19,814 |
Custodian fees | 12,179 |
Transfer agent fees | 3,060 |
Legal fees | 1,954 |
Financial reporting fees | 771 |
Trustees’ fees and expenses | 62 |
Other liabilities | 14,802 |
Total Liabilities | 75,315,575 |
NET ASSETS | $221,838,178 |
NET ASSETS consist of: | |
Paid-in capital | $ 285,944,232 |
Par value | 172,319 |
Accumulated distributable earnings (loss) | (64,278,373) |
NET ASSETS | $221,838,178 |
NET ASSET VALUE, per Common Share (par value $0.01 per Common Share) | $12.87 |
Number of Common Shares outstanding (unlimited number of Common Shares has been authorized) |
INVESTMENT INCOME: | ||
Dividends (net of foreign withholding tax of $905,769) | $ 14,772,063 | |
Interest | 224,581 | |
Other | 254 | |
Total investment income | 14,996,898 | |
EXPENSES: | ||
Investment advisory fees | 3,302,502 | |
Interest and fees on loans | 1,434,564 | |
Administrative fees | 133,645 | |
Audit and tax fees | 89,005 | |
Shareholder reporting fees | 84,427 | |
Legal fees | 72,648 | |
Custodian fees | 37,990 | |
Listing expense | 29,351 | |
Transfer agent fees | 22,728 | |
Trustees’ fees and expenses | 18,540 | |
Financial reporting fees | 9,250 | |
Other | 48,936 | |
Total expenses | 5,283,586 | |
NET INVESTMENT INCOME (LOSS) | 9,713,312 | |
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||
Net realized gain (loss) on: | ||
Investments | (2,310,937) | |
Written options contracts | 878,033 | |
Forward foreign currency contracts | 484,630 | |
Foreign currency transactions | (195,471) | |
Net realized gain (loss) | (1,143,745) | |
Net change in unrealized appreciation (depreciation) on: | ||
Investments | (39,053,489) | |
Written options contracts | 1,279,019 | |
Forward foreign currency contracts | (7,097) | |
Foreign currency translation | 2,579,064 | |
Net change in unrealized appreciation (depreciation) | (35,202,503) | |
NET REALIZED AND UNREALIZED GAIN (LOSS) | (36,346,248) | |
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $(26,632,936) |
Year Ended 12/31/2022 | Year Ended 12/31/2021 | ||
OPERATIONS: | |||
Net investment income (loss) | $ 9,713,312 | $ 10,714,795 | |
Net realized gain (loss) | (1,143,745) | 6,829,972 | |
Net change in unrealized appreciation (depreciation) | (35,202,503) | 20,235,701 | |
Net increase (decrease) in net assets resulting from operations | (26,632,936) | 37,780,468 | |
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||
Investment operations | (8,839,335) | (12,099,724) | |
Return of capital | (3,567,639) | (307,250) | |
Total distributions to shareholders | (12,406,974) | (12,406,974) | |
Total increase (decrease) in net assets | (39,039,910) | 25,373,494 | |
NET ASSETS: | |||
Beginning of period | 260,878,088 | 235,504,594 | |
End of period | $ 221,838,178 | $ 260,878,088 | |
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 | $(26,632,936) | |
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities: | ||
Purchases of investments | (63,242,939) | |
Sales of investments | 62,097,199 | |
Proceeds from written options | 12,135,740 | |
Amount paid to close written options | (11,256,732) | |
Net realized gain/loss on investments and written options | 1,432,904 | |
Net change in unrealized appreciation/depreciation on investments and written options | 37,774,470 | |
Net change in unrealized appreciation/depreciation on forward foreign currency contracts | 7,097 | |
Changes in assets and liabilities: | ||
Increase in dividend reclaims receivable | (60,939) | |
Increase in dividends receivable | (150,351) | |
Decrease in prepaid expenses | 735 | |
Increase in interest and fees payable on loans | 393,982 | |
Decrease in investment advisory fees payable | (29,391) | |
Increase in audit and tax fees payable | 10,324 | |
Decrease in legal fees payable | (4,500) | |
Decrease in shareholder reporting fees payable | (13,330) | |
Increase in administrative fees payable | 35,735 | |
Increase in custodian fees payable | 5,808 | |
Increase in transfer agent fees payable | 1,408 | |
Increase in trustees’ fees and expenses payable | 62 | |
Increase in other liabilities payable | 7,878 | |
Cash provided by operating activities | $12,512,224 | |
Cash flows from financing activities: | ||
Distributions to Common Shareholders from investment operations | (8,839,335) | |
Distributions to Common Shareholders from return of capital | (3,567,639) | |
Effect of exchange rate changes on Euro Loans (a) (b) | (2,742,416) | |
Cash used in financing activities | (15,149,390) | |
Decrease in cash, foreign currency and restricted cash | (2,637,166) | |
Cash, foreign currency and restricted cash at beginning of period | 15,396,696 | |
Cash, foreign currency and restricted cash at end of period | $12,759,530 | |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest and fees | $1,040,582 | |
Cash, foreign currency and restricted cash reconciliation: | ||
Cash and foreign currency | $3,471,530 | |
Restricted cash | 9,288,000 | |
Cash, foreign currency and restricted cash at end of period | $12,759,530 |
(a) | This amount is a component of net change in unrealized appreciation (depreciation) on foreign currency translation as shown on the Statement of Operations. |
(b) | Includes net change in unrealized appreciation (depreciation) on foreign currency of $(163,352), which does not include the effect of exchange rate changes on Euro borrowings. |
Year Ended December 31, | |||||||||
2022 | 2021 | 2020 | 2019 | 2018 | |||||
Net asset value, beginning of period | $ 15.14 | $ 13.67 | $ 16.18 | $ 14.66 | $ 19.87 | ||||
Income from investment operations: | |||||||||
Net investment income (loss) | 0.56 | 0.62 | 0.35 | 0.82 | 0.74 | ||||
Net realized and unrealized gain (loss) | (2.11) | 1.57 | (1.90) | 2.15 | (4.50) | ||||
Total from investment operations | (1.55) | 2.19 | (1.55) | 2.97 | (3.76) | ||||
Distributions paid to shareholders from: | |||||||||
Net investment income | (0.51) | (0.70) | (0.41) | (1.08) | (0.70) | ||||
Net realized gain | — | — | — | — | (0.75) | ||||
Return of capital | (0.21) | (0.02) | (0.55) | (0.37) | — | ||||
Total distributions paid to Common Shareholders | (0.72) | (0.72) | (0.96) | (1.45) | (1.45) | ||||
Net asset value, end of period | $ | $15.14 | $13.67 | $16.18 | $14.66 | ||||
Market value, end of period | $ | $13.28 | $11.80 | $14.93 | $12.64 | ||||
Total return based on net asset value (a) | (9.56)% | 17.01% | (7.79)% | 22.24% | (19.36)% | ||||
Total return based on market value (a) | (9.63)% | 18.90% | (13.74)% | 30.82% | (26.64)% | ||||
Ratios to average net assets/supplemental data: | |||||||||
Net assets, end of period (in 000’s) | $ 221,838 | $ 260,878 | $ 235,505 | $ 278,738 | $ 252,663 | ||||
Ratio of total expenses to average net assets | 2.32% | 1.93% | 2.15% | 1.99% | 1.91% | ||||
Ratio of total expenses to average net assets excluding interest expense | 1.69% | 1.64% | 1.71% | 1.69% | 1.65% | ||||
Ratio of net investment income (loss) to average net assets | 4.26% | 4.23% | 2.82% | 5.37% | 4.19% | ||||
Portfolio turnover rate | 22% | 33% | 43% | 64% | 44% | ||||
Indebtedness: | |||||||||
Total loans outstanding (in 000’s) | $ 73,139 | $ 75,882 | $ 79,232 | $ 100,524 | $ 87,650 | ||||
Asset coverage per $1,000 of indebtedness (b) | $ 4,033 | $ 4,438 | $ 3,972 | $ 3,773 | $ 3,883 |
(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 number of shares authorized are unlimited |
1) | the last sale price on the exchange on which they are principally traded or, for Nasdaq and AIM securities, the official closing price; |
2) | the type of security; |
3) | the size of the holding; |
4) | the initial cost of the security; |
5) | transactions in comparable securities; |
6) | price quotes from dealers and/or third-party pricing services; |
7) | relationships among various securities; |
8) | information obtained by contacting the issuer, analysts, or the appropriate stock exchange; |
9) | an analysis of the issuer’s financial statements; |
10) | the existence of merger proposals or tender offers that might affect the value of the security; and |
11) | other relevant factors. |
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; |
8) | whether the effects of the event are isolated or whether they affect entire markets, countries or regions; and |
9) | other relevant factors. |
• | 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: | 2022 | 2021 |
Ordinary income | $8,839,335 | $12,099,724 |
Capital gains | — | — |
Return of capital | 3,567,639 | 307,250 |
Undistributed ordinary income | $— |
Undistributed capital gains | — |
Total undistributed earnings | — |
Accumulated capital and other losses | (28,734,328) |
Net unrealized appreciation (depreciation) | (35,842,443) |
Total accumulated earnings (losses) | (64,576,771) |
Other | 298,398 |
Paid-in capital | 286,116,551 |
Total net assets | $221,838,178 |
Tax Cost | Gross Unrealized Appreciation | Gross Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | |||
$319,680,341 | $17,433,636 | $(56,971,419) | $(39,537,783) |
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 | $ 1,095,563 |
Statement of Operations Location | |
Currency Risk Exposure | |
Net realized gain (loss) on forward foreign currency contracts | $484,630 |
Net change in unrealized appreciation (depreciation) on forward foreign currency contracts | (7,097) |
Equity Risk Exposure | |
Net realized gain (loss) on written options contracts | $878,033 |
Net change in unrealized appreciation (depreciation) on written options contracts | 1,279,019 |
(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 | -13.87% | -7.22% | -0.57% | 6.07% | 12.72% |
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, Edward-Elmhurst Medical Group; Physician and Officer, Wheaton Orthopedics (1990 to 2021) | 222 | None |
Thomas R. Kadlec, Trustee (1957) | • Three Year Term • Since Fund Inception | Retired; President, ADM Investor Services, Inc. (Futures Commission Merchant) (2010 to July 2022) | 222 | Director, National Futures Association and ADMIS Singapore Ltd.; Formerly, Director of ADM Investor Services, Inc., ADM Investor Services International, ADMIS Hong Kong Ltd., and Futures Industry Association |
Denise M. Keefe, Trustee (1964) | • Three Year Term • Since 2021 | Executive Vice President, Advocate Aurora Health and President, Advocate Aurora Continuing Health Division (Integrated Healthcare System) | 222 | Director and Board Chair of Advocate Home Health Services, Advocate Home Care Products and Advocate Hospice; Director and Board Chair of Aurora At Home (since 2018); Director of Advocate Physician Partners Accountable Care Organization; Director and Board Chair of RML Long Term Acute Care Hospitals; and Director of Senior Helpers (since 2021) |
Robert F. Keith, Trustee (1956) | • Three Year Term • Since Fund Inception | President, Hibs Enterprises (Financial and Management Consulting) | 222 | Formerly, Director of Trust Company of Illinois |
Niel B. Nielson, Trustee (1954) | • Three Year Term • Since Fund Inception | Senior Advisor (2018 to Present), Managing Director and Chief Operating Officer (2015 to 2018), Pelita Harapan Educational Foundation (Educational Products and Services) | 222 | None |
(1) | Currently, Denise M. Keefe and Robert F. Keith, as Class I Trustees, are serving as trustees until the Fund’s 2023 annual meeting of shareholders. Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until the Fund’s 2024 annual meeting of shareholders. James A. Bowen and Niel B. Nielson, as Class III Trustees, are serving as trustees until the Fund’s 2025 annual meeting of shareholders. |
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 |
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) | 222 | None |
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 2016 | Managing Director and Chief Financial Officer, First Trust Advisors L.P. and First Trust Portfolios L.P.; Chief Financial Officer, 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 2016 | Senior Vice President, 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. |
(1) | Currently, Denise M. Keefe and Robert F. Keith, as Class I Trustees, are serving as trustees until the Fund’s 2023 annual meeting of shareholders. Richard E. Erickson and Thomas R. Kadlec, as Class II Trustees, are serving as trustees until the Fund’s 2024 annual meeting of shareholders. James A. Bowen and Niel B. Nielson, as Class III Trustees, are serving as trustees until the Fund’s 2025 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. |
(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 to 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, 2021 and $41,500 for the fiscal year ended December 31, 2022.
(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, 2021 and $0 for the fiscal year ended December 31, 2022.
Audit-Related Fees (Investment Advisor) — 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, 2021 and $0 for the fiscal year ended December 31, 2022.
(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 $27,634 for the fiscal year ended December 31, 2021 and $39,000 for the fiscal year ended December 31, 2022. 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 Advisor) — 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 Advisor were $0 for the fiscal year ended December 31, 2021 and $0 for the fiscal year ended December 31, 2022.
(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, 2021 and $0 for the fiscal year ended December 31, 2022.
All Other Fees (Investment Advisor) — 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 Advisor, other than services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended December 31, 2021 and $0 for the fiscal year ended December 31, 2022.
(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 Advisor (not including a sub-advisor whose role is primarily portfolio management and is sub-contracted or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor 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 advisor (other than any sub-advisor whose role is primarily portfolio management and is sub-contracted with or overseen by another investment advisor) and any entity controlling, controlled by or under common control with the investment advisor 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 advisor 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 advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant for the registrant’s fiscal year ended December 31, 2021 were $27,634 for the registrant and $16,500 for the registrant’s investment advisor and for the registrant’s fiscal year ended December 31, 2022 were $39,000 for the registrant and $0 the registrant’s investment advisor. |
(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 advisor (not including any sub-advisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor 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. |
(i) | Not applicable. |
(j) | Not applicable. |
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, Denise M. Keefe, 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.
A description of the policies and procedures used to vote proxies on behalf of the Fund is attached as an exhibit.
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, 2022
Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC), (“Janus Henderson” or the “Sub-Advisor”), a legal entity of Janus Henderson Investors, serves as the Fund’s investment sub-advisor. Janus Henderson 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 25 cities with more than 2,300 employees, Janus Henderson Investors managed approximately $287.3 billion in assets as of December 31, 2022. Janus Capital is responsible for the day-to-day investment decisions of the Fund other than the Option Overlay Strategy.
The members of the portfolio management team responsible for 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; Portfolio Manager
Faizan Baig is a Portfolio Manager on the Global Equity Income Team at Janus Henderson Investors, a position he has held since 2021. 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
CO-HEAD OF THE ALTERNATIVES INVESTMENT TEAM AT FIRST TRUST ADVISORS L.P. (“FIRST TRUST”)
Mr. Gambla, CFA, FRM, PRM, is Co-Head of the Alternatives Investment Team at First Trust responsible, along with John Gambla, for all decisions regarding the option portfolio. 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
CO-HEAD OF THE ALTERNATIVES INVESTMENT TEAM AT FIRST TRUST
Mr. Guttschow, CFA, is Co-Head of the Alternatives Investment Team at First Trust responsible, along with Rob A. Guttschow, for all decisions regarding the option portfolio. 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, 2022:
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 | $5,851.4m | 0 | $ 0 |
Other Pooled Investment Vehicles: | 2 | $1,280.1m | 1 | $0 | |
Other Accounts: | 2 | $132.8m | 0 | $ 0 | |
2 Faizan Baig | Registered Investment Companies: | 1 | $106.7m | 0 | $ 0 |
Other Pooled Investment Vehicles: | 2 | $132.8m | 0 | $ 0 | |
Other Accounts: | 0 | $0 | 0 | $ 0 | |
3. John Gambla | Registered Investment Companies: | 7 | $4,517,752,651 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 1 | $10,716,894 | 0 | $ 0 | |
Other Accounts: | 5 | $ 508,494 | 0 | $ 0 | |
4. Rob Guttschow | Registered Investment Companies: | 7 | $4,517,752,651 | 0 | $ 0 |
Other Pooled Investment Vehicles: | 1 | $10,716,894 | 0 | $ 0 | |
Other Accounts: | 5 | $ 508,494 | 0 | $ 0 |
POTENTIAL CONFLICTS OF INTERESTS
JANUS HENDERSON INVESTORS POTENTIAL CONFLICTS OF INTERESTS
Portfolio Management Conflicts of Interest.
As shown 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 separately managed accounts, model or emulation accounts, Janus Henderson mutual funds and ETFs, private-label funds for which Janus Henderson or an affiliate serves as sub-adviser, 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. Janus Henderson 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 Henderson and provide advice on behalf of Janus Henderson through participating affiliate agreements and receive compensation attributable to their role with the affiliate in addition to Janus Henderson. 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 relative to one or more other accounts.
A conflict of interest between the CEF and other clients 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 Henderson 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 Henderson 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 Henderson monitors accounts with similar strategies for any holdings, risk, or performance dispersion or unfair treatment.
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 Managers or Management Team Members
Information provided as of December 31, 2022
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 teamwork. 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.
A portion of compensation is based on the performance of the fund calculated using pre-tax performance. Fund performance is compared to dividend delivery, peer group performance and MSCI Europe over a 3, 5 and 1 year (in order of importance) time period. Performance of other accounts are included when determining compensation. Compensation is a blend of the relevant performance metrics (benchmark and peers) across the funds/portfolios that each manager manages.
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, 2022
Portfolio Manager | Shares owned |
Faizan Baig | None |
Ben Lofthouse | $10,001-$50,000 |
John Gambla | None |
Rob A. Guttschow | None |
(b) | Not applicable. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
None.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a) | Not applicable. |
(b) | Not applicable. |
Item 13. Exhibits.
(a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(c) | Notices to the registrant’s common shareholders in accordance with the order under Section 6(c) of the 1940 Act granting an exemption from Section 19(b) of the 1940 Act and Rule 19a-l under the 1940 Act, dated March 24, 2010. (1) |
(1) | The Fund received exemptive relief from the Securities and Exchange Commission which permits the Fund to make periodic distributions of long-term capital gains as frequently as monthly each taxable year. The relief is conditioned, in part, on an undertaking by the Fund to make the disclosures to the holders of the Fund’s common shares, in addition to the information required by Section 19(a) of the 1940 Act and Rule 19a-1 thereunder. The Fund is likewise obligated to file with the SEC the information contained in any such notice to shareholders. In that regard, attached as an exhibit to this filing is a copy of such notice made during the period. |
(d) | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies required by Item 7 is attached hereto. |
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 10, 2023 |
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 10, 2023 |
By (Signature and Title)* | /s/ Donald P. Swade | |
Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) |
Date: | March 10, 2023 |
* Print the name and title of each signing officer under his or her signature.