As filed with the Securities and Exchange Commission on October 19, 2010.
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1933 Act File No. 333-113978
1940 Act File No. 811-21539
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
(formerly known as First Trust/Four Corners Senior Floating Rate Income Fund II)
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
(formerly known as First Trust/Four Corners Senior Floating Rate Income Fund II)
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
October 19, 2010
Dear Shareholder:
The accompanying materials relate to the Annual Meeting of Shareholders
(the "Meeting") of First Trust Senior Floating Rate Income Fund II (formerly
known as First Trust/Four Corners Senior Floating Rate Income Fund II) (the
"Fund"). The Meeting will be held at the offices of First Trust Advisors L.P.,
120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on Monday, December
6, 2010, at 4:00 p.m. Central Time.
At the Meeting, you will be asked (i) to vote on a proposal to elect
certain of the Trustees of the Fund, (ii) as described below, to consider and
vote on a proposal to approve a new investment management agreement (the "New
Advisory Agreement") between the Fund and its current investment advisor, First
Trust Advisors L.P. ("First Trust Advisors" or the "Advisor") and (iii) to
transact such other business as may properly come before the Meeting and any
adjournments or postponements thereof. The proposals are described in the
accompanying Notice of Annual Meeting of Shareholders and Proxy Statement.
Upon the closing on October 12, 2010 of a transaction (the "Transaction"),
which, as described in the accompanying Proxy Statement, resulted in a "change
in control" of the Advisor, the investment management agreement between the Fund
and the Advisor automatically terminated in accordance with its terms. The
Advisor continues to provide investment advisory services to the Fund on an
interim basis, as permitted by the Investment Company Act of 1940. However, in
order for the Advisor to continue to provide investment advisory services to the
Fund beyond the interim period, shareholders of the Fund will be asked at the
Meeting to vote to approve a new investment management agreement between the
Advisor and the Fund. The Board of Trustees of the Fund is recommending that
shareholders approve the new investment management agreement.
Some important facts to note about the Transaction are:
o The Transaction had no effect on the number of Fund shares you own
or the value of those Fund shares.
o Your Fund's contractual advisory fee rate will not increase. As
described in Proposal 2 of the Proxy Statement, the Fund is now
managed by a portfolio management team of the Advisor. Therefore,
the Advisor will retain the entire amount of the advisory fee and
will not pay any portion of such fee to any sub-advisor.
YOUR VOTE IS VERY IMPORTANT. Please take a moment now to vote, either by
completing and returning your proxy card in the enclosed postage-paid return
envelope, by telephone or through the Internet. Your prompt response will be
much appreciated.
We appreciate your participation in this important Meeting.
Thank you.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
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IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE MEETING OR
HOW TO VOTE YOUR SHARES, CALL THE FUND'S PROXY SOLICITOR, THE ALTMAN GROUP,
INC., AT (866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
(formerly known as First Trust/Four Corners Senior Floating Rate Income Fund II)
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on December 6, 2010
October 19, 2010
To the Shareholders of First Trust Senior Floating Rate Income Fund II:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of First Trust Senior Floating Rate Income Fund II (formerly known as
First Trust/Four Corners Senior Floating Rate Income Fund II) (the "Fund"), a
Massachusetts business trust, will be held at the offices of First Trust
Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on
Monday, December 6, 2010, at 4:00 p.m. Central Time, for the following purposes:
1. To elect three Trustees (including one Class I Trustee and two
Class III Trustees) of the Fund.
2. To approve a new investment management agreement between the
Fund and First Trust Advisors L.P., as investment advisor.
3. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
The Board of Trustees has fixed the close of business on September 30,
2010 as the record date for the determination of Shareholders entitled to notice
of and to vote at the Meeting and any adjournments or postponements thereof.
By Order of the Board of Trustees,
/s/ W. Scott Jardine
W. Scott Jardine
Secretary
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IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. IN ORDER
TO AVOID DELAY AND TO ENSURE THAT YOUR SHARES ARE REPRESENTED, PLEASE VOTE AS
PROMPTLY AS POSSIBLE. YOU MAY VOTE EASILY AND QUICKLY BY MAIL, TELEPHONE OR
THROUGH THE INTERNET. TO VOTE BY MAIL, PLEASE COMPLETE AND MAIL YOUR PROXY CARD
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. ALTERNATIVELY, SHAREHOLDERS MAY
VOTE BY TELEPHONE OR THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE
PROXY CARD. IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE
MEETING OR HOW TO VOTE YOUR SHARES, CALL THE FUND'S PROXY SOLICITOR, THE ALTMAN
GROUP, INC., AT (866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN
TIME.
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FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
(formerly known as First Trust/Four Corners Senior Floating Rate Income Fund II)
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 6, 2010
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
PROXY STATEMENT
October 19, 2010
THIS PROXY STATEMENT AND THE ENCLOSED PROXY CARD WILL FIRST BE MAILED TO
SHAREHOLDERS ON OR ABOUT OCTOBER 19, 2010.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of First Trust Senior Floating Rate Income Fund
II (formerly known as First Trust/Four Corners Senior Floating Rate Income Fund
II) (the "Fund"), a Massachusetts business trust, for use at the Annual Meeting
of Shareholders of the Fund to be held on Monday, December 6, 2010, at 4:00 p.m.
Central Time, at the offices of First Trust Advisors L.P., 120 East Liberty
Drive, Suite 400, Wheaton, Illinois 60187, and at any adjournments or
postponements thereof (collectively, the "Meeting"). A Notice of Annual Meeting
of Shareholders and a proxy card accompany this Proxy Statement.
The expense of preparing, printing and mailing the enclosed proxy,
accompanying notice and this Proxy Statement, and all other costs in connection
with the solicitation of proxies to be voted at the Meeting, will be borne by
the Advisor. The Advisor will also reimburse brokerage firms and others for
their expenses in forwarding proxy solicitation materials to the person(s) for
whom they hold Shares of the Fund. The solicitation of proxies will begin on or
about October 19, 2010 and will be largely by mail, but may include telephonic,
electronic or oral communication by officers and service providers of the Fund,
as well as affiliates of such service providers. A proxy solicitation firm, The
Altman Group, Inc., has also been engaged to solicit proxies at a cost which is
expected to be approximately $19,670. As indicated above, this cost will be
borne by the Advisor.
The close of business on September 30, 2010 has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of and to vote at the Meeting. The Fund has one class of shares of
beneficial interest, par value $0.01 per share, known as common shares
("Shares"). Shareholders of record on the Record Date are entitled to one vote
for each Share the shareholder owns and a proportionate fractional vote for any
fraction of a Share the shareholder owns.
As discussed more fully below, shareholders of the Fund are being asked:
1. To elect three Trustees (including one Class I Trustee and two
Class III Trustees) of the Fund ("Proposal 1").
2. To approve a new investment management agreement (the "New
Advisory Agreement"), between the Fund and First Trust Advisors L.P.
("First Trust Advisors" or the "Advisor"), the investment advisor to the
Fund ("Proposal 2").
3. To transact any other business as may properly come before the
Meeting (including any adjournments or postponements).
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON DECEMBER 6, 2010. THIS PROXY STATEMENT IS
AVAILABLE ON THE INTERNET AT: HTTP://WWW.FTPORTFOLIOS.COM/LOADCONTENT/GHHUGQJI.
THE FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS, INCLUDING ITS ANNUAL
REPORT FOR THE FISCAL YEAR ENDED MAY 31, 2010, ARE AVAILABLE ON THE INTERNET AT
HTTP://WWW.FTPORTFOLIOS.COM/RETAIL/CEF/CEFFUNDNEWS.ASPX?TICKER=FCT. THE FUND
WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS MOST RECENT ANNUAL AND SEMI-ANNUAL
REPORTS TO ANY SHAREHOLDER UPON REQUEST. TO REQUEST A COPY, PLEASE WRITE TO THE
ADVISOR AT 120 EAST LIBERTY DRIVE, SUITE 400, WHEATON, ILLINOIS 60187, OR CALL
(800) 988-5891.
YOU MAY CALL (800) 988-5891 FOR INFORMATION ON HOW TO OBTAIN DIRECTIONS TO
BE ABLE TO ATTEND THE MEETING AND VOTE IN PERSON.
In order that your Shares may be represented at the Meeting, please vote
your proxy as soon as possible either by mail or by telephone or through
the Internet, as indicated on the enclosed proxy card. If voting by mail,
you are requested to:
o indicate your instructions on the proxy card;
o date and sign the proxy card;
o mail the proxy card promptly in the enclosed envelope which requires
no postage if mailed in the continental United States; and
o allow sufficient time for the proxy card to be received BY 4:00 P.M.
CENTRAL TIME, on MONDAY, DECEMBER 6, 2010. (However, proxies
received after this date may still be voted in the event the Meeting
is adjourned or postponed to a later date.)
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VOTING
For shareholders voting by mail, if the enclosed proxy card is properly
executed and returned in time to be voted at the Meeting, the Fund Shares
represented thereby will be voted in accordance with the instructions marked
thereon, or, if no instructions are marked thereon, will be voted in the
discretion of the persons named on the proxy card. Accordingly, unless
instructions to the contrary are marked thereon, a properly executed and
returned proxy will be voted FOR the election of the nominees as Trustees, FOR
the proposal to approve the New Advisory Agreement and at the discretion of the
named proxies on any other matters that may properly come before the Meeting, as
deemed appropriate. Any shareholder who has given a proxy has the right to
revoke it at any time prior to its exercise either by attending the Meeting and
voting his or her Shares in person, or by timely submitting a letter of
revocation or a later-dated proxy to the Fund at its address above. A list of
shareholders entitled to notice of and to be present and to vote at the Meeting
will be available at the offices of the Fund, 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187, for inspection by any shareholder during regular
business hours prior to the Meeting. Shareholders will need to show valid
identification and proof of Share ownership to be admitted to the Meeting or to
inspect the list of shareholders.
Under the Fund's By-Laws, a quorum is constituted by the presence in
person or by proxy of the holders of thirty-three and one-third percent
(33-1/3%) of the voting power of the outstanding Shares entitled to vote on a
matter. For the purposes of establishing whether a quorum is present, all Shares
present and entitled to vote, including abstentions and broker non-votes (i.e.,
Shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter), shall be counted. Any meeting of shareholders may be postponed prior to
the meeting with notice to the shareholders entitled to vote at that meeting.
Any meeting of shareholders may, by action of the chairman of the meeting, be
adjourned to permit further solicitation of proxies without further notice with
respect to one or more matters to be considered at such meeting to a designated
time and place, whether or not a quorum is present with respect to such matter.
In addition, upon motion of the chairman of the meeting, the question of
adjournment may be submitted to a vote of the shareholders, and in that case,
any adjournment must be approved by the vote of holders of a majority of the
Shares present and entitled to vote with respect to the matter or matters
adjourned, and without further notice. Unless a proxy is otherwise limited in
this regard, any Shares present and entitled to vote at a meeting, including
broker non-votes may, at the discretion of the proxies named therein, be voted
in favor of such an adjournment.
OUTSTANDING SHARES
On the Record Date, the Fund had 25,291,939 Shares outstanding. Shares of
the Fund are listed on the New York Stock Exchange ("NYSE") under the ticker
symbol FCT.
To the knowledge of the Board of Trustees, as of the Record Date, no
single shareholder or "group" (as that term is used in Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act")) beneficially owned more than
5% of the Fund's outstanding Shares, except as described in the following table.
A control person is one who owns, either directly or indirectly, more than 25%
of the voting securities of the Fund or acknowledges the existence of control. A
party that controls the Fund may be able to significantly affect the outcome of
any item presented to shareholders for approval. Information as to beneficial
ownership of Shares, including percentage of outstanding Shares beneficially
owned, is based on securities position listing reports as of the Record Date and
reports filed with the Securities and Exchange Commission ("SEC") by
- 3 -
shareholders. The Fund does not have any knowledge of the identity of the
ultimate beneficiaries of the Shares listed below.
SHAREHOLDER AND ADDRESS** PERCENT OWNERSHIP NUMBER
OF SHARES
First Clearing, LLC 18.18% 4,597,923
One North Jefferson Street
St. Louis, MO 63103
Merrill Lynch, Pierce Fenner & Smith Safekeeping 20.30% 5,134,613
101 Hudson Street
8th Floor
Jersey City, NJ 07302
National Financial Services LLC 7.60% 1,922,394
200 Liberty Street
New York, NY 10281
Raymond James & Associates, Inc. 11.09% 2,804,528
880 Carilion Parkway
P.O. Box 12749
St. Petersburg, FL 33716
UBS Financial Services Inc. 7.08% 1,789,738
1200 Harbor Blvd.
Weehawken, NJ 07086
--------------------------
* Morgan Stanley and Morgan Stanley Smith Barney LLC , 1585 Broadway, New
York, NY 10036, reported beneficial ownership of 262,862 Shares of the
Fund as of December 31, 2009 according to Schedule 13G filed with the SEC.
- 4 -
PROPOSAL 1: ELECTION OF THREE TRUSTEES
TWO (2) CLASS III TRUSTEES AND ONE (1) CLASS I TRUSTEE ARE TO BE ELECTED
BY SHAREHOLDERS OF THE FUND. JAMES A. BOWEN AND ROBERT F. KEITH ARE THE NOMINEES
FOR ELECTION AS CLASS III TRUSTEES FOR THREE-YEAR TERMS AND THOMAS R. KADLEC IS
THE NOMINEE FOR ELECTION AS A CLASS I TRUSTEE FOR A ONE-YEAR TERM.
The Fund has established a staggered Board pursuant to its By-Laws.
Holders of Shares vote for Trustees who are divided into three (3) classes.
James A. Bowen is currently a Class III Trustee of the Fund with a term expiring
at this year's Meeting, Richard E. Erickson is currently a Class I Trustee of
the Fund with a term expiring at the Fund's annual meeting of shareholders in
2011, and Niel B. Nielson is currently a Class II Trustee of the Fund, with a
term expiring at the Fund's annual meeting of shareholders in 2012. Each Trustee
serves until his successor is elected and qualified, or until he resigns,
retires or is otherwise removed. At the Annual Meeting of Shareholders of the
Fund held in 2009, Thomas R. Kadlec and Robert F. Keith (the "Preferred
Trustees") were elected for one-year terms by the holders of the Fund's
then-outstanding Series A and Series B Auction Market Preferred Shares
("Preferred Shares") expiring at this year's meeting. All of the Fund's
Preferred Shares were subsequently redeemed, with a final redemption occurring
on November 18, 2009, and are no longer outstanding. As a consequence, the Board
subsequently approved the nomination of Robert F. Keith as a Class III Trustee
for a three-year term expiring at the Fund's annual meeting of shareholders in
2013 and Thomas R. Kadlec as a Class I Trustee with a term expiring at the
Fund's annual meeting of shareholders in 2011. Therefore, in accordance with the
recommendations of the Advisor and the Nominating and Governance Committee of
the Board of Trustees of the Fund and pursuant to the Fund's By-Laws, it is
proposed that the Preferred Trustees be elected to the classes and for the terms
described in this Proposal.
If elected, (1) Messrs. Bowen and Keith, as Class III Trustees, will hold
office for three-year terms expiring at the Fund's annual meeting of
shareholders in 2013, or in each case until their successors are elected and
qualified, or until they resign, retire or are otherwise removed and (2) Mr.
Kadlec, as a Class I Trustee, will hold office for a one-year term expiring at
the Fund's annual meeting of shareholders in 2011, or until his successor is
elected and qualified, or until he resigns, retires or is otherwise removed.
SHAREHOLDER APPROVAL AND REQUIRED VOTE
A nominee for election as Trustee must be elected by the affirmative vote
of the holders of a plurality of the Shares of the Fund, cast in person or by
proxy at the Meeting and entitled to vote thereon, provided a quorum is present.
Abstentions and broker "non-votes" will have no effect on the approval of the
proposal. Proxies cannot be voted for a greater number of persons than the
number of nominees named.
If voting by mail, unless you give contrary instructions on your proxy
card, your Shares will be voted FOR the election of each nominee listed if your
proxy card has been properly executed and timely received by the Fund. If a
nominee should withdraw or otherwise become unavailable for election prior to
the Meeting, the proxies named on your proxy card intend to vote FOR any
substitute nominee or nominees recommended by the Fund in accordance with the
Fund's procedures.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF EACH NOMINEE.
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MANAGEMENT
MANAGEMENT OF THE FUND
The general supervision of the duties performed for the Fund under its
investment management agreement with the Advisor is the responsibility of the
Board. The Trustees set broad policies for the Fund and choose the Fund's
officers. The following is a list of the Trustees and officers of the Fund and a
statement of their present positions and principal occupations during the past
five years, the number of portfolios each Trustee oversees and the other
directorships each Trustee holds or has held during the past five years, if
applicable. As noted above, the Fund has established a staggered Board
consisting of five (5) Trustees divided into three (3) classes: Class I, Class
II and Class III. The length of the term of office of each Trustee is generally
three years, and when each Trustee's term begins and ends depends on the
Trustee's designated class. The officers of the Fund serve indefinite terms.
James A. Bowen is deemed an "interested person" (as that term is defined in the
Investment Company Act of 1940, as amended ("1940 Act")) ("Interested Trustee")
of the Fund due to his position as President of the Advisor. Each Trustee,
except for Mr. Bowen, is not an "interested person" (as that term is defined in
the 1940 Act) and is therefore referred to as an "Independent Trustee."
The remainder of this page is intentionally left blank.
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INTERESTED TRUSTEE
------------------------------ ----------------- --------------- --------------------------------- -------------- -----------------
NUMBER OF
TERM OF PORTFOLIOS IN OTHER
NAME, ADDRESS, AND DATE OF POSITION(S) HELD OFFICE(2) AND PRINCIPAL OCCUPATION(S) FIRST TRUST DIRECTORSHIPS
BIRTH WITH FUND LENGTH OF TIME DURING PAST FIVE YEARS FUND COMPLEX HELD BY TRUSTEE
SERVED(3) OVERSEEN BY DURING PAST FIVE
TRUSTEE YEARS
------------------------------ ----------------- --------------- --------------------------------- -------------- -----------------
James A. Bowen(1) President, Class III President, First Trust Advisors 64 Portfolios Trustee of
120 East Liberty Drive Chairman of the Nominee L.P. and First Trust Portfolios Wheaton College
Suite 400 Board, Chief L.P.; Chairman of the Board of
Wheaton, IL 60187 Executive Since Fund Directors, BondWave LLC
DOB: 9/55 Officer and Inception (Software Development
Trustee Company/Investment Advisor) and
Stonebridge Advisors LLC
(Investment Advisor)
------------------------------ ----------------- --------------- --------------------------------- -------------- -----------------
INDEPENDENT TRUSTEES
------------------------------ ----------------- --------------- --------------------------------- --------------- ----------------
Richard E. Erickson Trustee Class I Physician; President, Wheaton 64 Portfolios NONE
c/o First Trust Advisors L.P. Orthopedics; Co-owner and
120 East Liberty Drive Since Fund Co-Director (January 1996 to May
Suite 400 Inception 2007), Sports Med Center for
Wheaton, IL 60187 Fitness; Limited Partner,
DOB: 4/51 Gundersen Real Estate Limited
Partnership; Member, Sportsmed
LLC
------------------------------ ----------------- --------------- --------------------------------- --------------- ----------------
Thomas R. Kadlec Trustee Class I President (March 2010 to 64 Portfolios Director of ADM
c/o First Trust Advisors L.P. Nominee Present), Senior Vice President Investor
120 East Liberty Drive and Chief Financial Officer (May Services, Inc.
Suite 400 Since Fund 2007 to March 2010), Vice and ADM
Wheaton, IL 60187 Inception President and Chief Financial Investor
DOB: 11/57 Officer (1990 to May 2007), ADM Services
Investor Services, Inc. (Futures International
Commission Merchant)
------------------------------ ----------------- --------------- --------------------------------- --------------- ----------------
Robert F. Keith Trustee Class III President (2003 to Present), 64 Portfolios NONE
c/o First Trust Advisors L.P. Nominee Hibs Enterprises (Financial and
120 East Liberty Drive Management Consulting)
Suite 400 Since June
Wheaton, IL 60187 2006
DOB: 11/56
------------------------------ ----------------- --------------- --------------------------------- --------------- ----------------
Niel B. Nielson Trustee Class II President (2002 to Present), 64 Portfolios Director of
c/o First Trust Advisors L.P. Covenant College Covenant
120 East Liberty Drive Since Fund Transport Inc.
Suite 400 Inception
Wheaton, IL 60187
DOB: 3/54
------------------------------ ----------------- --------------- --------------------------------- --------------- ----------------
OFFICERS
---------------------------- -------------------------- -------------------------- ------------------------------------------------
NAME, ADDRESS, AND DATE OF POSITION(S) HELD WITH TERM OF OFFICE(2) AND PRINCIPAL OCCUPATION(S)
BIRTH FUND LENGTH OF TIME SERVED(3) DURING PAST FIVE YEARS
---------------------------- -------------------------- -------------------------- ------------------------------------------------
Mark R. Bradley Treasurer, Chief Indefinite Chief Financial Officer, First Trust Advisors
120 East Liberty Drive Financial Officer and Since Fund Inception L.P. and First Trust Portfolios L.P.; Chief
Suite 400 Chief Accounting Officer Financial Officer, BondWave LLC (Software
Wheaton, IL 60187 Development Company/Investment Advisor) and
DOB: 11/57 Stonebridge Advisors LLC (Investment Advisor)
---------------------------- -------------------------- -------------------------- ------------------------------------------------
- 7 -
---------------------------- -------------------------- -------------------------- ------------------------------------------------
NAME, ADDRESS, AND DATE OF POSITION(S) HELD WITH TERM OF OFFICE(2) AND PRINCIPAL OCCUPATION(S)
BIRTH FUND LENGTH OF TIME SERVED(3) DURING PAST FIVE YEARS
---------------------------- -------------------------- -------------------------- ------------------------------------------------
Erin E. Chapman Assistant Secretary Indefinite Assistant General Counsel (October 2007 to
120 East Liberty Drive Since June 2009 Present), Associate Counsel (March 2006 to
Suite 400 October 2007), First Trust Advisors L.P. and
Wheaton, IL 60187 First Trust Portfolios L.P.; Associate Attorney
DOB: 8/76 (November 2003 to March 2006), Doyle & Bolotin,
Ltd.
---------------------------- -------------------------- -------------------------- ------------------------------------------------
James M. Dykas Assistant Treasurer Indefinite Senior Vice President (April 2007 to Present),
120 East Liberty Drive Since December 2005 Vice President (January 2005 to April 2007),
Suite 400 First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
DOB: 1/66
---------------------------- -------------------------- -------------------------- ------------------------------------------------
Christopher R. Fallow Assistant Vice President Indefinite Assistant Vice President (August 2006 to
120 East Liberty Drive Since December 2006 Present), Associate (January 2005 to August
Suite 400 2006), First Trust Advisors L.P. and First
Wheaton, IL 60187 Trust Portfolios L.P.
DOB: 4/79
---------------------------- -------------------------- -------------------------- ------------------------------------------------
W. Scott Jardine Secretary and Chief Indefinite General Counsel, First Trust Advisors L.P.,
120 East Liberty Drive Compliance Officer Secretary and CCO since First Trust Portfolios L.P. and BondWave LLC
Suite 400 ("CCO") Fund Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor); Secretary of Stonebridge Advisors LLC
DOB: 5/60 (Investment Advisor)
---------------------------- -------------------------- -------------------------- ------------------------------------------------
Daniel J. Lindquist Vice President Indefinite Senior Vice President (September 2005 to
120 East Liberty Drive Since December 2005 Present), Vice President (April 2004 to
Suite 400 September 2005), First Trust Advisors L.P. and
Wheaton, IL 60187 First Trust Portfolios L.P.
DOB: 2/70
---------------------------- -------------------------- -------------------------- ------------------------------------------------
Coleen D. Lynch Assistant Vice President Indefinite Assistant Vice President (January 2008 to Present), First
120 East Liberty Drive Since July 2008 Trust Advisors L.P. and First Trust Portfolios
Suite 400 L.P.; Vice President (May 1998 to January 2008),
Wheaton, IL 60187 Van Kampen Asset Management and Morgan Stanley
DOB: 7/58 Investment Management
---------------------------- -------------------------- -------------------------- ------------------------------------------------
Kristi A. Maher Assistant Secretary and Indefinite Deputy General Counsel (May 2007 to Present),
120 East Liberty Drive Deputy Chief Compliance Assistant Secretary since Assistant General Counsel (March 2004 to May
Suite 400 Officer July 2004; Deputy Chief 2007), First Trust Advisors L.P. and First
Wheaton, IL 60187 Compliance Officer since Trust Portfolios L.P.
DOB: 12/66 November 2009
---------------------------- -------------------------- -------------------------- -------------------------------------------------
1 Mr. Bowen is deemed an "interested person" of the Fund due to his position
as President of First Trust Advisors L.P., investment advisor of the Fund.
2 Currently, James A. Bowen, as the Class III Trustee, is serving a term
until the Meeting; Richard E. Erickson, as the Class I Trustee, is serving
a term until the Fund's 2011 annual meeting; and Niel B. Nielson, as the
Class II Trustee, is serving a term until the Fund's 2012 annual meeting.
At the Fund's 2009 annual meeting, Thomas R. Kadlec and Robert F. Keith
were elected by holders of Preferred Shares (which are no longer
outstanding) for a term until the Meeting. Officers of the Fund have an
indefinite term.
3 All Trustees and officers, except for Robert F. Keith, Daniel J.
Lindquist, James M. Dykas, Coleen D. Lynch, Christopher R. Fallow, Erin E.
Chapman and Kristi A. Maher (only with respect to her appointment as
Deputy Chief Compliance Officer) were elected in 2004. Robert F. Keith was
appointed to the Fund's Board by the Trustees on June 12, 2006. Daniel J.
Lindquist and James M. Dykas were elected Vice President and Assistant
Treasurer, respectively, of all funds in the First Trust Fund Complex,
including the Fund, on December 12, 2005. Christopher R. Fallow was
elected Assistant Vice President of the Fund on December 10, 2006. Coleen
D. Lynch was elected Assistant Vice President of all funds in the First
Trust Fund Complex, including the Fund, on July 29, 2008. Erin E. Chapman
was elected Assistant Secretary of all funds in the First Trust Fund
Complex, including the Fund, on June 1, 2009. Kristi A. Maher was
appointed Deputy Chief Compliance Officer of all funds in the First Trust
Fund Complex, including the Fund, on November 2, 2009.
- 8 -
The same five persons serve as Trustees on the Fund's Board and on the
boards of all other funds in the First Trust Fund Complex (the "First Trust
Funds"). The unitary board structure was adopted for the First Trust Funds
because of the efficiencies it achieves with respect to the governance and
oversight of the First Trust Funds. Each First Trust Fund is subject to the
rules and regulations of the 1940 Act (and other applicable securities laws),
which means that many of the First Trust Funds face similar issues with respect
to certain of their fundamental activities, including risk management, portfolio
liquidity, portfolio valuation and financial reporting. In addition, all of the
First Trust Funds that are closed-end funds (the "First Trust Closed-end Funds")
are managed by the Advisor and employ common service providers for custody, fund
accounting, administration and transfer agency that provide substantially
similar services to the First Trust Closed-end Funds pursuant to substantially
similar contractual arrangements. Because of the similar and often overlapping
issues facing the First Trust Funds, including among the First Trust Closed-end
Funds, the Board of the First Trust Funds believes that maintaining a unitary
board structure promotes efficiency and consistency in the governance and
oversight of all First Trust Funds and reduces the costs, administrative burdens
and possible conflicts that may result from having multiple boards. In adopting
a unitary board structure, the Trustees seek to provide effective governance
through establishing a board the overall composition of which will, as a body,
possess the appropriate skills, diversity, independence and experience to
oversee the First Trust Funds' business.
Annually, the Board reviews its governance structure and the committee
structures, their performance and functions and reviews any processes that would
enhance Board governance over the Fund's business. The Board has determined that
its leadership structure, including the unitary board and committee structure,
is appropriate based on the characteristics of the funds it serves and the
characteristics of the First Trust Fund Complex as a whole. The Board is
composed of four Independent Trustees and one Interested Trustee. The Interested
Trustee serves as the Chief Executive Officer, President, and Chairman of the
Board of the Fund.
In order to streamline communication between the Advisor and the
Independent Trustees and create certain efficiencies, the Board has a Lead
Independent Trustee who is responsible for: (i) coordinating activities of the
Independent Trustees; (ii) working with the Advisor, Fund counsel and the
independent legal counsel to the Independent Trustees to determine the agenda
for Board meetings; (iii) serving as the principal contact for and facilitating
communication between the Independent Trustees and the Fund's service providers,
particularly the Advisor; and (iv) any other duties that the Independent
Trustees may delegate to the Lead Independent Trustee. The Lead Independent
Trustee is selected by the Independent Trustees and serves a two-year term until
his successor is selected. Effective January 1, 2010, Niel B. Nielson serves as
the Lead Independent Trustee.
The Board has established four standing committees (as described below)
and has delegated certain of its responsibilities to those committees. The Board
and its committees meet frequently throughout the year to oversee the Fund's
activities, review contractual arrangements with and performance of service
providers, oversee compliance with regulatory requirements, and review Fund
performance. The Independent Trustees are represented by independent legal
counsel at all Board and committee meetings. Generally, the Board acts by
majority vote of all the Trustees, including a majority vote of the Independent
Trustees, except where a different vote is required by applicable law.
- 9 -
The three committee chairs and the Lead Independent Trustee rotate every
two years in serving as chair of the Audit Committee, the Nominating and
Governance Committee or the Valuation Committee, or as Lead Independent Trustee.
The Lead Independent Trustee also serves on the Executive Committee with the
Interested Trustee.
In addition to the Fund, the First Trust Fund Complex includes: First
Defined Portfolio Fund, LLC, an open-end management investment company with 8
portfolios advised by First Trust Advisors; 12 other closed-end funds advised by
First Trust Advisors; and First Trust Exchange-Traded Fund, First Trust
Exchange-Traded Fund II and First Trust Exchange-Traded AlphaDEX(R) Fund, each
an exchange-traded fund with 18, 9 and 16 operating portfolios, respectively,
advised by First Trust Advisors.
The four standing committees of the Board are: the Executive Committee
(and Pricing and Dividend Committee), the Nominating and Governance Committee,
the Valuation Committee and the Audit Committee. The Executive Committee, which
meets between Board meetings, is authorized to exercise all powers of and to act
in the place of the Board of Trustees to the extent permitted by the Fund's
Declaration of Trust and By-Laws. The members of the Executive Committee also
serve as a special committee of the Board known as the Pricing and Dividend
Committee which is authorized to exercise all of the powers and authority of the
Board in respect of the issuance and sale, through an underwritten public
offering, of the Shares of the Fund and all other such matters relating to such
financing, including determining the price at which such Shares are to be sold,
approval of the final terms of the underwriting agreement, and approval of the
members of the underwriting syndicate. Such Committee is also responsible for
the declaration and setting of dividends. Mr. Nielson and Mr. Bowen are members
of the Executive Committee. The Executive Committee held 12 meetings during the
Fund's last fiscal year.
The Nominating and Governance Committee is responsible for appointing and
nominating non-interested persons to the Board of Trustees. Messrs. Erickson,
Kadlec, Keith and Nielson are members of the Nominating and Governance
Committee, and each is an Independent Trustee who is also an "independent
director" within the meaning of the listing standards of the NYSE. The
Nominating and Governance Committee operates under a written charter adopted and
approved by the Board, a copy of which is available on the Fund's website at
http://www.ftportfolios.com. If there is no vacancy on the Board of Trustees,
the Board will not actively seek recommendations from other parties, including
shareholders. The Committee will not consider new trustee candidates who are 72
years of age or older or will turn 72 years old during the initial term. When a
vacancy on the Board of Trustees occurs and nominations are sought to fill such
vacancy, the Nominating and Governance Committee may seek nominations from those
sources it deems appropriate in its discretion, including shareholders of the
Fund. The Nominating and Governance Committee may retain a search firm to
identify candidates. To submit a recommendation for nomination as a candidate
for a position on the Board of Trustees, shareholders of the Fund shall mail
such recommendation to W. Scott Jardine, Secretary, at the Fund's address, 120
East Liberty Drive, Suite 400, Wheaton, Illinois 60187. Such recommendation
shall include the following information: (i) evidence of Fund ownership of the
person or entity recommending the candidate (if a Fund shareholder); (ii) a full
description of the proposed candidate's background, including their education,
experience, current employment and date of birth; (iii) names and addresses of
at least three professional references for the candidate; (iv) information as to
whether the candidate is an "interested person" in relation to the Fund, as such
term is defined in the 1940 Act, and such other information that may be
considered to impair the candidate's independence; and (v) any other information
- 10 -
that may be helpful to the Committee in evaluating the candidate (see also
"ADDITIONAL INFORMATION--SHAREHOLDER PROPOSALS" below). If a recommendation is
received with satisfactorily completed information regarding a candidate during
a time when a vacancy exists on the Board or during such other time as the
Nominating and Governance Committee is accepting recommendations, the
recommendation will be forwarded to the Chair of the Nominating and Governance
Committee and the counsel to the Independent Trustees. Recommendations received
at any other time will be kept on file until such time as the Nominating and
Governance Committee is accepting recommendations, at which point they may be
considered for nomination. In connection with the evaluation of candidates, the
review process may include, without limitation, personal interviews, background
checks, written submissions by the candidates and third party references. Under
no circumstances shall the Nominating and Governance Committee evaluate nominees
recommended by a shareholder of the Fund on a basis substantially different than
that used for other nominees for the same election or appointment of Trustees.
The Nominating and Governance Committee held 4 meetings during the Fund's last
fiscal year.
The Valuation Committee is responsible for the oversight of the pricing
procedures of the Fund. Messrs. Erickson, Kadlec, Keith and Nielson are members
of the Valuation Committee. The Valuation Committee held 4 meetings during the
Fund's last fiscal year.
The Audit Committee is responsible for overseeing the Fund's accounting
and financial reporting process, the system of internal controls, audit process
and evaluating and appointing independent auditors (subject also to Board
approval). Messrs. Erickson, Kadlec, Keith and Nielson, all of whom are
"independent" as defined in the listing standards of the NYSE, serve on the
Audit Committee. Messrs. Kadlec and Keith serve as Audit Committee Financial
Experts. The Audit Committee held 8 meetings during the Fund's last fiscal year.
In carrying out its responsibilities, as described below under
"INDEPENDENT AUDITORS' FEES--Pre-Approval," the Audit Committee pre-approves all
audit services and permitted non-audit services for the Fund (including the fees
and terms thereof) and non-audit services to be performed for the Advisor by
Deloitte & Touche LLP ("Deloitte & Touche"), the Fund's independent registered
public accounting firm ("independent auditors") if the engagement relates
directly to the operations and financial reporting of the Fund.
RISK OVERSIGHT
As part of the general oversight of the Fund, the Board is involved in the
risk oversight of the Fund. The Board has adopted and periodically reviews
policies and procedures designed to address the Fund's risks. Oversight of
investment and compliance risk, including oversight of sub-advisors, is
performed primarily at the Board level in conjunction with the Advisor's
investment oversight group and the Fund's Chief Compliance Officer ("CCO") and
Deputy Chief Compliance Officer. Oversight of other risks also occurs at the
Committee level. The Advisor's investment oversight group reports to the Board
at quarterly meetings regarding, among other things, Fund performance and the
various drivers of such performance as well as information related to the Fund's
sub-advisor and its operations and processes. The Board reviews reports on the
Fund's and the service providers' compliance policies and procedures at each
quarterly Board meeting and receives an annual report from the CCO regarding the
operations of the Fund's and the service providers' compliance program. In
addition, the Independent Trustees meet privately each quarter with the CCO. The
- 11 -
Audit Committee reviews with the Advisor the Fund's major financial risk
exposures and the steps the Advisor has taken to monitor and control these
exposures, including the Fund's risk assessment and risk management policies and
guidelines. The Audit Committee also, as appropriate, reviews in a general
manner the processes other Board committees have in place with respect to risk
assessment and risk management. The Nominating and Governance Committee monitors
all matters related to the corporate governance of the Funds. The Valuation
Committee monitors valuation risk and compliance with the Fund's Valuation
Procedures and oversees the pricing agents and actions by the Advisor's Pricing
Committee with respect to the valuation of portfolio securities.
BOARD DIVERSIFICATION AND TRUSTEE QUALIFICATIONS
As described above, the Nominating and Governance Committee of the Board
oversees matters related to the nomination of Trustees. The Nominating and
Governance Committee seeks to establish an effective Board with an appropriate
range of skills and diversity, including, as appropriate, differences in
background, professional experience, education, vocations, and other individual
characteristics and traits in the aggregate. Each Trustee must meet certain
basic requirements, including relevant skills and experience, time availability,
and if qualifying as an Independent Trustee, independence from the Advisor,
sub-advisors, underwriters or other service providers, including any affiliates
of these entities.
Listed below for each current Trustee and nominee are the experiences,
qualifications and attributes that led to the conclusion, as of the date of this
Proxy Statement, that each current Trustee and nominee should serve as a
trustee.
Independent Trustees
Richard E. Erickson, M.D., is an orthopedic surgeon and President of
Wheaton Orthopedics. He also has been a co-owner and director of a fitness
center and a limited partner of two real estate companies. Dr. Erickson has
served as a Trustee of the Fund since its inception and of the First Trust Funds
since 1999. Dr. Erickson has also served as the Lead Independent Trustee (2008 -
2009), Chairman of the Nominating and Governance Committee (2003 - 2007) and
Chairman of the Valuation Committee (June 2006 - 2007 and since 2010)
of the First Trust Funds.
Thomas R. Kadlec is President of ADM Investor Services Inc. ("ADMIS"), a
futures commission merchant and wholly-owned subsidiary of the Archer Daniels
Midland Company ("ADM"). Mr. Kadlec has been employed by ADMIS and its
affiliates since 1990 in various accounting, financial, operations and risk
management capacities. Mr. Kadlec serves on the boards of several international
affiliates of ADMIS and is a member of ADM's Integrated Risk Committee, which is
tasked with the duty of implementing and communicating enterprise-wide risk
management. Mr. Kadlec has served as a Trustee of the Fund since its inception.
Mr. Kadlec has also served on the Executive Committee since the organization of
the first First Trust Closed-end Fund in 2003 until he was elected as the first
Lead Independent Trustee in December 2005, serving as such through 2007. He also
served as Chairman of the Valuation Committee (2008 - 2009) and currently serves
as Chairman of the Audit Committee (since 2010) of the First Trust Funds.
Robert F. Keith is President of Hibs Enterprises, a financial and
management consulting firm. Mr. Keith has been with Hibs Enterprises since 2004.
Prior thereto, Mr. Keith spent 18 years with ServiceMaster and Aramark,
including three years as President and COO of ServiceMaster Consumer Services,
- 12 -
where he led the initial expansion of certain products overseas, five years as
President and COO of ServiceMaster Management Services Company and two years as
President of Aramark ServiceMaster Management Services. Mr. Keith is a certified
public accountant and also has held the positions of Treasurer and Chief
Financial Officer of ServiceMaster, at which time he oversaw the financial
aspects of ServiceMaster's expansion of its Management Services division into
Europe, the Middle East and Asia. Mr. Keith has served as a Trustee of the First
Trust Funds since June 2006. Mr. Keith has also served as the Chairman of the
Audit Committee (2008 - 2009) of the First Trust Funds and currently serves as
Chairman of the Nominating and Governance Committee (since 2010) of the First
Trust Funds.
Niel B. Nielson, Ph.D., has served as the President of Covenant College
since 2002. Mr. Nielson formerly served as a partner and trader (of options and
futures contracts for hedging options) for Ritchie Capital Markets Group (1996 -
1997), where he held an administrative management position at this proprietary
derivatives trading company. He also held prior positions in new business
development for ServiceMaster Management Services Company, and in personnel and
human resources for NationsBank of North Carolina, N.A. and Chicago Research and
Trading Group, Ltd. ("CRT"). His international experience includes serving as a
director of CRT Europe, Inc. for two years, directing out of London all aspects
of business conducted by the U.K. and European subsidiary of CRT. Prior to that,
Mr. Nielson was a trader and manager at CRT in Chicago. Mr. Nielson has served
as a Trustee of the Fund since its inception and of the First Trust Funds since
1999. Mr. Nielson has also served as the Chairman of the Audit Committee (2003 -
2007), Chairman of the Nominating and Governance Committee (2008 - 2009) and
currently serves as Lead Independent Trustee (since 2010) of the First Trust
Funds.
Interested Trustee
James A. Bowen is President and Chief Executive Officer of the First Trust
Funds and President of First Trust Advisors L.P. and First Trust Portfolios L.P.
Mr. Bowen is involved in the day-to-day management of the First Trust Funds and
serves on the Executive Committee. He has over 26 years of experience in the
investment company business in sales, sales management and executive management.
Mr. Bowen has served on the Board of Trustees for Wheaton College since October
2005. Mr. Bowen has served as a Trustee of the Fund since its inception and of
the First Trust Funds since 1999.
OTHER INFORMATION
During the past five years, none of the Independent Trustees, nor any of
their immediate family members, has been a director, trustee, officer, general
partner or employee of, or consultant to, First Trust Advisors, First Trust
Portfolios L.P. (an affiliate of First Trust Advisors), any sub-advisor to any
fund in the First Trust Fund Complex, or any of their affiliates.
The officers of the Fund, including Mr. Bowen, Chief Executive Officer of
the Fund, hold the same positions with each fund in the First Trust Fund Complex
(representing 64 portfolios) as they hold with the Fund, except for Christopher
R. Fallow. Mr. Fallow is an officer of 13 closed-end funds in the First Trust
Fund Complex, but is not an officer of First Defined Portfolio Fund, LLC, First
Trust Exchange-Traded Fund, First Trust Exchange-Traded Fund II or First Trust
Exchange-Traded AlphaDEX(R) Fund.
- 13 -
BENEFICIAL OWNERSHIP OF SHARES HELD IN THE FUND BY TRUSTEES AND OFFICERS
The following table sets forth the dollar range and number of equity
securities beneficially owned by the Trustees in the Fund and all funds in the
First Trust Fund Complex, including the Fund, as of July 31, 2010:
---------------------------------------------------------------------------------------------------------------------------
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND AND FIRST TRUST FUND COMPLEX
(NUMBER OF SHARES HELD)
---------------------------------------------------------------------------------------------------------------------------
----------------------------- -------------------- ------------------------------------------------------------------------
INTERESTED TRUSTEE INDEPENDENT TRUSTEES
----------------------------- -------------------- ------------------------------------------------------------------------
James A. Bowen Richard E. Erickson Thomas R. Kadlec Robert F. Keith Niel B. Nielson
----------------------------- -------------------- -------------------- ------------------ --------------- ----------------
FUND $10,001 - $50,000 $1-$10,000 $1-$10,000 $0 $1-$10,000
(1,000 Shares) (272 Shares) (600 Shares) (0 Shares) (739 Shares)
----------------------------- -------------------- -------------------- ------------------ --------------- ----------------
AGGREGATE DOLLAR RANGE OF $50,001-$100,000 Over $100,000 Over $100,000 Over $100,000 Over $100,000
EQUITY SECURITIES IN ALL (7,250 Shares) (10,140 Shares) (10,249 Shares) (7,602 Shares) (6,776 Shares)
REGISTERED INVESTMENT
COMPANIES IN THE FIRST TRUST
FUND COMPLEX OVERSEEN BY
TRUSTEE
----------------------------- -------------------- -------------------- ------------------ --------------- ----------------
As of July 31, 2010, the Independent Trustees and their immediate family
members did not own, beneficially or of record, any class of securities of First
Trust Advisors or any sub-advisor or principal underwriter of the Fund or any
person, other than a registered investment company, directly or indirectly
controlling, controlled by, or under common control with First Trust Advisors or
any sub-advisor or principal underwriter of the Fund, nor, since the beginning
of the most recently completed fiscal year of the Fund, did any Independent
Trustee purchase or sell securities of First Trust Advisors, or any sub-advisor
to any fund in the First Trust Fund Complex, their parents or any subsidiaries
of any of the foregoing.
As of July 31, 2010, the Trustees and officers of the Fund as a group
beneficially owned 2,611 Shares, which is less than 1% of the Fund's outstanding
Shares. As of July 31, 2010, the Trustees and officers of the Fund as a group
beneficially owned approximately 44,391 shares of the funds in the First Trust
Fund Complex (less than 1% of the shares outstanding).
COMPENSATION
Under the Trustees' compensation plan, each Independent Trustee is paid an
annual retainer of $10,000 per trust for the first 14 trusts in the First Trust
Fund Complex and an annual retainer of $7,500 per trust for each subsequent
trust added to the First Trust Fund Complex. The annual retainer is allocated
equally among each of the trusts. No additional meeting fees are paid in
connection with Board or committee meetings. Additionally, effective January 1,
2010, Mr. Nielson is paid annual compensation of $10,000 to serve as the Lead
Independent Trustee, Mr. Kadlec is paid annual compensation of $5,000 to serve
as the Chairman of the Audit Committee, Dr. Erickson is paid annual compensation
of $2,500 to serve as the Chairman of the Valuation Committee and Mr. Keith is
paid annual compensation of $2,500 to serve as the Chairman of the Nominating
and Governance Committee. Each Committee Chairman and the Lead Independent
Trustee will serve a two-year term expiring December 31, 2011 before rotating to
serve as a chairman of another committee or as Lead Independent Trustee. The
additional compensation is allocated equally among each of the trusts in the
First Trust Fund Complex. Trustees are also reimbursed by the trusts in the
- 14 -
First Trust Fund Complex for travel and out-of-pocket expenses in connection
with all meetings.
The aggregate fees and expenses paid to the Trustees by the Fund for its
most recent fiscal year ended May 31, 2010 (including reimbursement for travel
and out-of-pocket expenses) amounted to $39,509.
The following table sets forth certain information regarding the
compensation of the Fund's Trustees (including reimbursement for travel and
out-of-pocket expenses) for the Fund's most recently completed fiscal year. The
Fund has no retirement or pension plans. The officers and the Interested Trustee
of the Fund receive no compensation from the Fund for serving in such
capacities.
--------------------------- -------------------------------------------------------------------------- ---------------
AGGREGATE COMPENSATION
--------------------------- ------------------ ------------------------------------------------------- ---------------
INTERESTED INDEPENDENT TRUSTEES
TRUSTEE
--------------------------- ------------------ ------------------- ------------------ ---------------- ---------------
James A. Bowen Richard E. Erickson Thomas R. Kadlec Robert F. Keith Niel B. Nielson
--------------------------- ------------------ ------------------- ------------------ ---------------- ---------------
FUND $0 $10,027 $9,712 $9,784 $9,986
--------------------------- ------------------ ------------------- ------------------ ---------------- ---------------
TOTAL COMPENSATION FROM $0 $176,733 $168,750 $171,250 $171,591
THE FIRST TRUST FUND
COMPLEX(1)
--------------------------- ------------------ ------------------- ------------------ ---------------- ---------------
1 For calendar year ended December 31, 2009.
The Board held 10 meetings during the Fund's fiscal year ended May 31,
2010. Each of the Trustees attended all of such meetings.
ATTENDANCE AT ANNUAL MEETINGS OF SHAREHOLDERS
The policy of the Board is to have as many Trustees as possible in
attendance at annual meetings of shareholders. The policy of the Nominating and
Governance Committee relating to attendance by Trustees at annual meetings of
shareholders is contained in the Fund's Nominating and Governance Committee
Charter, which is available on the Fund's website located at
http://www.ftportfolios.com. All of the Trustees attended the Annual Meeting of
Shareholders of the Fund held in 2009.
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board of Trustees in its
oversight of the Fund's accounting and financial reporting process. The Audit
Committee operates pursuant to a charter (the "Charter") that was most recently
reviewed and approved by the Board of Trustees on June 16, 2010, a copy of which
is attached as Exhibit A hereto, and is available on the Fund's website located
at http://www.ftportfolios.com. As set forth in the Charter, management of the
Fund is responsible for maintaining appropriate systems for accounting and
internal controls and the audit process. The Fund's independent auditors are
responsible for planning and carrying out proper audits of the Fund's financial
statements and expressing an opinion as to their conformity with accounting
principles generally accepted in the United States of America.
- 15 -
In performing its oversight function, the Audit Committee reviewed and
discussed with management and the independent auditors, Deloitte & Touche, the
audited financial statements of the Fund for the fiscal year ended May 31, 2010
at a meeting held on July 21, 2010, and discussed the audit of such financial
statements with the independent auditors and management.
In addition, the Audit Committee discussed with the independent auditors
the accounting principles applied by the Fund and such other matters brought to
the attention of the Audit Committee by the independent auditors as required by
the Public Company Accounting Oversight Board ("PCAOB") AU 380, Communication
with Audit Committees. The Audit Committee also received from the independent
auditors the written disclosures and letter required by PCAOB Ethics and
Independence Rule 3526, Communication with Audit Committees Concerning
Independence, delineating relationships between the independent auditors and the
Fund and discussed the impact that any such relationships may have on the
objectivity and independence of the independent auditors.
The members of the Fund's Audit Committee are not full-time employees of
the Fund and are not performing the functions of auditors or accountants. As
such, it is not the duty or responsibility of the Audit Committee or its members
to conduct "field work" or other types of auditing or accounting reviews or
procedures or to set auditor independence standards. Members of the Fund's Audit
Committee necessarily rely on the information provided to them by Fund
management and the independent auditors. Accordingly, the Audit Committee's
considerations and discussions referred to above do not assure that the audit of
the Fund's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the independent auditors are in fact "independent."
Based on its consideration of the Fund's audited financial statements and
the discussions referred to above with Fund management and Deloitte & Touche,
and subject to the limitations on the responsibilities and role of the Audit
Committee as set forth in the Charter and discussed above, the Audit Committee
recommended to the Board the inclusion of the Fund's audited financial
statements for the year ended May 31, 2010.
Submitted by the Audit Committee of the Fund:
Richard E. Erickson
Thomas R. Kadlec
Robert F. Keith
Niel B. Nielson
INDEPENDENT AUDITORS' FEES
Deloitte & Touche has been selected to serve as the independent auditors
for the Fund for its current fiscal year, and acted as the independent auditors
for the Fund for its most recently completed fiscal year. Deloitte & Touche has
advised the Fund that, to the best of its knowledge and belief, Deloitte &
Touche professionals did not have any direct or material indirect ownership
interest in the Fund inconsistent with independent professional standards
pertaining to independent registered public accounting firms. It is expected
that representatives of Deloitte & Touche will be present at the Meeting to
answer any questions that may arise and will have the opportunity to make a
statement if they desire to do so. In reliance on Rule 32a-4 under the 1940 Act,
- 16 -
the Fund is not seeking shareholder ratification of the selection of Deloitte &
Touche as independent auditors.
Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees
During each of the last two fiscal years of the Fund, Deloitte & Touche
has billed the Fund and the
Advisor for the following fees:
------------------------------ ---------------------- ------------------ ------------------ ---------------------
FEES BILLED TO AUDIT FEES AUDIT-RELATED TAX FEES(1) ALL OTHER FEES
FEES
----------- ---------- -------- --------- --------- -------- ---------- ----------
2009 2010 2009 2010 2009 2010 2009 2010
------------------------------ ----------- ---------- -------- --------- --------- -------- ---------- ----------
Fund $51,500 $63,500 $0 $0 $5,200 $5,200 $0 $0
Advisor NA NA $0 $0 $0 $0 $0 $0
------------------------------ ----------- ---------- -------- --------- --------- -------- ---------- ----------
1 These fees were for tax consultation and tax preparation.
Non-Audit Fees
During each of the last two fiscal years of the Fund, Deloitte & Touche
has billed the Fund and the Advisor for the non-audit fees listed below for
services provided to the entities indicated.
--------------------------------------------------------------------------------
AGGREGATE NON-AUDIT FEES
--------------------------------------------------------------------------------
2009 2010
--------------------------------------- ------------------ --------------------
Fund $5,200 $5,200
Advisor $6,000 $36,000
--------------------------------------- ------------------ --------------------
Pre-Approval
Pursuant to its Charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee of the Fund 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 Fund by its independent auditors. The
chairman of the Audit Committee is authorized to give such pre-approvals on
behalf of the Audit Committee up to $25,000 and report any such pre-approval to
the full Audit Committee.
The Audit Committee is also responsible for the pre-approval of the
independent auditors' engagements for non-audit services with the Advisor and
any entity controlling, controlled by or under common control with the Advisor
that provides ongoing services to the Fund, if the engagement relates directly
to the operations and financial reporting of the Fund, subject to the de minimis
exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If
the independent auditors have provided non-audit services to the Advisor or any
entity controlling, controlled by or under common control with the Advisor that
provides ongoing services to the Fund that were not pre-approved pursuant to its
policies, the Audit Committee will consider whether the provision of such
non-audit services is compatible with the auditors' independence.
None of the Audit Fees, Audit-Related Fees, Tax Fees, and All Other Fees
and Aggregate Non-Audit Fees disclosed above that were required to be
pre-approved by the Audit Committee pursuant to its pre-approval policies were
- 17 -
pre-approved by the Audit Committee pursuant to the pre-approval exceptions
included in Regulation S-X.
The Audit Committee of the Fund has considered whether the provision of
non-audit services that were rendered to the Advisor and any entity controlling,
controlled by or under common control with the Advisor that provides ongoing
services to the Fund 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.
- 18 -
PROPOSAL 2: APPROVAL OF NEW ADVISORY AGREEMENT FOR THE FUND
BACKGROUND AND REASON FOR VOTE
The Advisor has served as investment advisor to the Fund since its
inception, initially pursuant to an investment management agreement (the
"Original Advisory Agreement"), between the Advisor and the Fund, and currently,
as described below, pursuant to an interim investment management agreement (the
"Interim Advisory Agreement"), also between the Advisor and the Fund.
The Advisor is an Illinois limited partnership formed in 1991 and an
investment advisor registered with the SEC under the Investment Advisers Act of
1940. The Advisor has one limited partner, Grace Partners of DuPage L.P. ("Grace
Partners"), and one general partner, The Charger Corporation, and is controlled
by Grace Partners and The Charger Corporation. Grace Partners is a limited
partnership that is controlled by its general partner, The Charger Corporation,
and has a number of limited partners. The Charger Corporation is an Illinois
corporation that was previously controlled by the Robert Donald Van Kampen
family. Grace Partners and The Charger Corporation are each located at 120 East
Liberty Drive, Suite 400, Wheaton, Illinois 60187, and have a primary business
that consists of investment advisory and broker/dealer services through their
ownership interests in various entities. In this regard, in addition to their
interests in the Advisor, Grace Partners is the sole limited partner, and The
Charger Corporation is the sole general partner, of First Trust Portfolios L.P.
("First Trust Portfolios"), a broker-dealer registered under the 1934 Act.
On August 24, 2010, members of the Robert Donald Van Kampen family entered
into a stock purchase agreement with James A. Bowen, the President of the
Advisor, to sell 100% of the common stock of The Charger Corporation to Mr.
Bowen (who will hold the interest through a limited liability company of which
he is the sole member) (the "Transaction") for $3,000,000 payable at the
Transaction closing. The Transaction was completed in accordance with its terms
on October 12, 2010 (the "Transaction Closing Date"). The Transaction is not
anticipated to result in any changes in the personnel or operations of the
Advisor. Mr. Bowen is the Fund's Interested Trustee, the Chairman of the Board
and the President of the Fund, the President of the Advisor and of First Trust
Portfolios and a limited partner of Grace Partners. In light of the Transaction
and his interest in and role with the Advisor, Mr. Bowen has an interest in this
Proposal.
As required by the 1940 Act, the Original Advisory Agreement provided for
its automatic termination in the event of its assignment. The consummation of
the Transaction resulted in a change in control of the Advisor and constituted
an "assignment," as that term is defined in the 1940 Act, of the Original
Advisory Agreement, thus having the effect of automatically terminating the
Original Advisory Agreement on the Transaction Closing Date. Since that date,
the Advisor has served as investment advisor to the Fund pursuant to the Interim
Advisory Agreement. Shareholders of the Fund are being asked to approve the New
Advisory Agreement. Shareholders should be aware of the following:
o The Transaction had no effect on the number of Shares you own or the
value of those Shares.
- 19 -
o The advisory fee rate paid by Fund to the Advisor will not increase.
As described below, the Fund is now managed by a portfolio
management team of the Advisor. Therefore, the Advisor will retain
the entire amount of the advisory fee and will not pay any portion
of such fee to any sub-advisor.
In anticipation of the completion of the Transaction and the termination
of the Original Advisory Agreement, the Board of the Fund held a meeting on
September 20, 2010 (the "Board Meeting"), at which, after careful consideration
(see "BOARD CONSIDERATIONS" below), the Trustees determined that, following the
Transaction, it would be in the best interests of the Fund for First Trust
Advisors to continue to act as investment advisor to the Fund. Accordingly, as
permitted under the 1940 Act and Rule 15a-4 thereunder ("Rule 15a-4"), the Board
of Trustees of the Fund, including all of the Independent Trustees, approved the
Interim Advisory Agreement to ensure the continuation of investment advisory
services to the Fund. As indicated above, the Interim Advisory Agreement has
been in effect since the Transaction Closing Date and, pursuant to Rule 15a-4,
will be in effect no longer than through March 11, 2011 (the "Interim
Termination Date"), which will occur 150 days after the termination of the
Original Advisory Agreement (see "THE INTERIM ADVISORY AGREEMENT" below). In
addition, at the Board Meeting, the Board approved, subject to shareholder
approval, the New Advisory Agreement. If shareholders of the Fund do not approve
the New Advisory Agreement, the Board will take such action as it deems to be in
the best interests of the Fund.
In addition to terminating the Original Advisory Agreement, shareholders
of the Fund are advised that the completion of the Transaction also resulted in
the assignment and automatic termination on the Transaction Closing Date of the
investment sub-advisory agreement dated May 25, 2004 (the "Prior Sub-Advisory
Agreement") among the Fund, the Advisor and Four Corners Capital Management, LLC
("Four Corners") and that this agreement was not renewed. Effective on the
Transaction Closing Date, the Leveraged Finance Team of First Trust Advisors
(the "Leveraged Finance Team") assumed day-to-day responsibility for the
management of the Fund's portfolio. The Fund will continue to seek its primary
investment objective of a high level of current income with a secondary
objective to preserve capital. The Fund will also continue to pursue these
objectives through investment in a portfolio of senior secured floating rate
corporate loans. Shareholders should be aware, however, that the investment
approach taken by the Leveraged Finance Team in managing the Fund may differ
from that of Four Corners.
The Fund's new portfolio management team is led by William A. Housey, Jr.
and Scott D. Fries:
WILLIAM A. HOUSEY, JR., CFA -- CO-HEAD OF LEVERAGED FINANCE GROUP AND
SENIOR PORTFOLIO MANAGER. William Housey has nearly 15 years of investment
experience, most recently as Executive Director and Portfolio Manager at Van
Kampen Funds, Inc., a wholly-owned subsidiary of Morgan Stanley ("Morgan Stanley
/ Van Kampen"). Prior to joining First Trust Advisors, he served as Portfolio
Manager of structured products and as a Senior Analyst in the Senior Loan Group.
Mr. Housey has extensive experience in portfolio management of both leveraged
and unleveraged credit products, including senior loans, high-yield bonds,
credit derivatives and corporate restructurings. He received a B.S. in Finance
from Eastern Illinois University and an M.B.A. in Finance as well as Management
and Strategy from Northwestern University's Kellogg School of Business.
- 20 -
SCOTT D. FRIES, CFA -- PORTFOLIO MANAGER. Mr. Fries, currently a
Co-Portfolio Manager in the Leveraged Finance Group, previously served as
Co-Portfolio Manager of Institutional Separately Managed Accounts (SMAs) for
Morgan Stanley / Van Kampen. He was responsible for managing three SMAs
representing over $1 billion of assets under management. In addition to
portfolio management, client interaction and reporting responsibilities, Mr.
Fries has been a Senior Credit Analyst. He began his career at Morgan Stanley /
Van Kampen in 1994 and has 15 years of investment industry experience. Mr. Fries
received a B.A. in International Business from Illinois Wesleyan University and
an M.B.A. in Finance from DePaul University.
THE ORIGINAL ADVISORY AGREEMENT
The Original Advisory Agreement was dated May 25, 2004 and was approved by
the Fund's initial shareholder on May 24, 2004. Since the beginning of the
Fund's last fiscal year, the continuation of the Original Advisory Agreement was
approved by the Board at a meeting held on March 21-22, 2010.
THE INTERIM ADVISORY AGREEMENT
Many of the terms of the Interim Advisory Agreement are the same as those
of the Original Advisory Agreement; however, in addition to various updates,
there are differences in provisions relating to the effective date and,
consistent with the requirements of Rule 15a-4, termination and compensation.
Unless terminated sooner in accordance with its terms, the Interim Advisory
Agreement will continue to be in effect through the Interim Termination Date or
until shareholders of the Fund approve the New Advisory Agreement, whichever
occurs first. In addition, the Interim Advisory Agreement may be terminated by
the Fund (by action of the Board or by a vote of a majority of the outstanding
voting securities (as defined in the 1940 Act and the rules and regulations
thereunder) of the Fund) upon 10 calendar days' written notice to the Advisor,
without the payment of any penalty.
The rate of compensation paid to the Advisor is the same under the
applicable Interim Advisory Agreement, Original Advisory Agreement and New
Advisory Agreement. The compensation accrued under the Interim Advisory
Agreement, however, is to be held in an interest-bearing escrow account with the
Fund's custodian or another bank designated by the Fund. If the New Advisory
Agreement is approved by shareholders of the Fund by the Interim Termination
Date, the amount in the escrow account (including the interest earned) will be
paid to the Advisor. However, if shareholders of the Fund do not approve the New
Advisory Agreement by such date, the Advisor will be paid, out of the escrow
account, the lesser of: (i) any costs incurred by the Advisor in performing
services under the Interim Advisory Agreement (plus interest earned on that
amount while in escrow); or (ii) the total amount in the escrow account (plus
interest earned).
COMPARISON OF CERTAIN TERMS OF THE NEW ADVISORY AGREEMENT AND ORIGINAL ADVISORY
AGREEMENT
Below is a brief comparison of certain terms of the Original Advisory
Agreement to the corresponding terms of the New Advisory Agreement. Many of the
terms of the New Advisory Agreement, including fees payable to the Advisor by
the Fund thereunder, are substantially the same in all material respects to the
terms of the corresponding Original Advisory Agreement; however the New Advisory
- 21 -
Agreement includes a new effective date and has been updated in certain other
respects (including, among other things, the elimination of certain provisions
that are no longer relevant). The form of the New Advisory Agreement is attached
to this Proxy Statement as Exhibit B and the description of the New Advisory
Agreement is qualified in its entirety by reference to such Exhibit.
Advisory Services. As was the case under the Original Advisory Agreement,
under the New Advisory Agreement, the Advisor will agree to act as the
investment advisor for, and to manage the investment and reinvestment of the
assets of, the Fund in accordance with the Fund's investment objective and
policies and limitations, and will administer the Fund's affairs to the extent
requested by and subject to the supervision of the Fund's Board. Moreover, the
New Advisory Agreement provides that the investment of the Fund's assets will be
subject to the Fund's policies, restrictions and limitations with respect to
securities investments and all applicable laws and the regulations of the SEC
relating to the management of registered closed-end management investment
companies; the Original Advisory Agreement included a similar provision. In
addition, the Advisor agreed under the Original Advisory Agreement, and will
agree under the New Advisory Agreement, to furnish office facilities and
equipment as well as certain clerical, bookkeeping and administrative services.
Finally, as was the case under the Original Advisory Agreement, under the New
Advisory Agreement, subject to the applicable requirements of the 1940 Act, the
Advisor may, at its own cost and expense, retain one or more sub-advisors to
serve the Fund.
Fees. As was the case under the Original Advisory Agreement, as
compensation for its services and facilities furnished to the Fund under the New
Advisory Agreement, the Advisor will be entitled to receive, on a monthly basis,
an investment management fee equal to the annual rate of 0.75% of the Fund's
"Managed Assets." The term "Managed Assets" means the average daily gross asset
value of the Fund (including assets attributable to the Fund's preferred shares,
if any, and the principal amount of borrowings), minus the sum of the Fund's
accrued and unpaid dividends on any outstanding preferred shares and accrued
liabilities (other than the principal amount of any borrowings incurred,
commercial paper or notes issued by the Fund and the liquidation preference of
any outstanding preferred shares). For the Fund's last fiscal year, the
aggregate amount of the advisory fees paid by the Fund to the Advisor under the
Original Advisory Agreement was $3,499,429. (For the Fund's last fiscal year,
the aggregate amount of the sub-advisory fees paid by the Advisor to Four
Corners under the Prior Sub-Advisory Agreement was $1,773,049.)
Limitation of Liability. As was the case under the Original Advisory
Agreement, the New Advisory Agreement provides that the Advisor will not be
liable for any loss sustained by reason of the purchase, sale or retention of
any security, whether or not such purchase, sale or retention has been based
upon the investigation and research made by any other individual, firm or
corporation, if such recommendation has been selected with due care and in good
faith, except loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Advisor in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the Agreement.
Continuance. The Original Advisory Agreement was originally in effect for
an initial term of two years and could be continued thereafter for successive
one-year periods if such continuance was specifically approved, at least
annually, in the manner required by the 1940 Act. Similarly, if the New Advisory
- 22 -
Agreement is approved by shareholders, if not terminated earlier, it will expire
on the two-year anniversary of the date of its effectiveness unless continued
and, thereafter, may be continued for successive one-year periods if such
continuance is specifically approved, at least annually, in the manner required
by the 1940 Act.
Termination. As was the case under the Original Advisory Agreement, the
New Advisory Agreement provides that it (a) will automatically terminate in the
event of its assignment (as defined in the 1940 Act and the rules and
regulations thereunder) and (b) may be terminated at any time without the
payment of any penalty by the Fund or by the Advisor upon 60 days' written
notice to the other party. The Fund may effect termination by action of the
Board or by a vote of a majority of the outstanding voting securities (as
defined in the 1940 Act and the rules and regulations thereunder) of the Fund,
accompanied by appropriate notice. In addition, the Original Advisory Agreement
was, and the New Advisory Agreement is, terminable at any time without the
payment of any penalty, by the Board or by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act and the rules and
regulations thereunder) of the Fund, in the event that it is established by a
court of competent jurisdiction that the Advisor or any of its officers or
directors has taken any action that results in a breach of the covenants of the
Advisor set forth in the Agreement.
SECTION 15(f) OF THE 1940 ACT
Section 15(f) of the 1940 Act is a safe harbor that provides in substance
that, when a sale of a controlling interest in an investment advisor occurs, the
investment advisor or any of its affiliated persons may receive any amount or
benefit in connection with the sale as long as two conditions are met. The first
condition specifies that, during the three-year period immediately following
consummation of the transaction, at least 75% of the investment company's board
of directors/trustees must not be "interested persons" (as defined in the 1940
Act) of the investment advisor or predecessor advisor. The second condition
specifies that no "unfair burden" may be imposed on the investment company as a
result of the transaction relating to the sale of such interest, or any express
or implied terms, conditions or understandings applicable thereto. The term
"unfair burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the transaction whereby the investment advisor (or
predecessor or successor advisor), or any interested person of any such
investment advisor, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services) or from
any person in connection with the purchase or sale of securities or other
property, to, from or on behalf of the investment company (other than bona fide
ordinary compensation as principal underwriter for the investment company). If
either condition of Section 15(f) is not met, the safe harbor is not available.
The Board has not been advised of any circumstances arising under the
Transaction that might result in the imposition of an "unfair burden" being
imposed on the Fund. In addition, the Fund has adopted procedures which include
steps intended to cause the conditions of Section 15(f) to be met.
- 23 -
BOARD CONSIDERATIONS
The Board, including the Independent Trustees, approved the Interim
Advisory Agreement and the New Advisory Agreement (collectively, the
"Agreements") at the Board Meeting. The Board determined that the terms of the
Agreements are fair and reasonable and that the Agreements are in the best
interests of the Fund. The Board also determined that it believes that the scope
and quality of services to be provided to the Fund under the Agreements will be
at least equivalent to the scope and quality of services provided under the
Original Advisory Agreement and the Original Sub-Advisory Agreement
(collectively, the "Original Agreements").
On August 25, 2010, the Independent Trustees were informed about the
Transaction, including that the consummation of the Transaction would constitute
a change of control of the Advisor and would result in the "assignment" and
termination of the Original Advisory Agreement and may also result in the
"assignment" and termination of the Original Sub-Advisory Agreement pursuant to
their terms and in accordance with Section 15 of the 1940 Act. On August 31,
2010, counsel to the Independent Trustees forwarded to Mr. Bowen and the Advisor
a request for information regarding the Transaction. Subsequent to August 31,
2010, the Advisor provided the Board with a written proposal to transition
portfolio management for the Fund from the Sub-Advisor to the Advisor's
Leveraged Finance Team. The Advisor informed the Board that if the portfolio
management transition for the Fund was approved, the Advisor would not seek
approval for a new Sub-Advisory Agreement following the termination of the
Original Sub-Advisory Agreement upon the consummation of the Transaction. At the
Board Meeting, the Board considered (1) the information provided by Mr. Bowen
and the Advisor in response to the Independent Trustees' request for
information, (2) information regarding Fund performance versus performance of
peers, the distribution yield of the Fund versus peers, the trading discount of
the Fund's common shares and the proposal to transition portfolio management for
the Fund to the Advisor's Leveraged Finance Team, and (3) the approval of the
Agreements.
To reach its determination, the Board considered its duties under the 1940
Act, as well as under the general principles of state law in reviewing and
approving advisory contracts; the requirements of the 1940 Act in such matters;
the fiduciary duty of investment advisors with respect to advisory agreements
and compensation; the standards used by courts in determining whether investment
company boards have fulfilled their duties; and the factors to be considered by
the Board in voting on such agreements. The Board noted that it had recently
considered the Advisor's capabilities and the terms of the Original Advisory
Agreement at a meeting held on March 21-22, 2010 and had determined to renew the
Original Advisory Agreement for an additional one-year term (the "2010
Renewal"). The Board considered that in connection with the 2010 Renewal, it had
received a report from the Advisor that, among other things, outlined the
services provided by the Advisor (including the relevant personnel responsible
for these services and their experience); the advisory fees for the Fund as
compared to fees charged to other clients of the Advisor and as compared to fees
charged by investment advisors to comparable funds; expenses of the Fund as
compared to expense ratios of comparable funds; the nature of expenses incurred
in providing services to the Fund and the potential for economies of scale, if
any; financial data on the Advisor; any fall-out benefits to the Advisor; and
information on the Advisor's compliance program. Prior to the Board Meeting, the
Advisor represented to the Board that there had been no material changes to the
information provided in March 2010 with respect to the Original Advisory
- 24 -
Agreement and that the Board could continue to rely on such information. The
Board determined that much of its previous analysis in connection with the 2010
Renewal applied to its review and consideration of the Agreements. Accordingly,
the Board took note of such prior analysis and supplemented it with the
additional considerations noted below. The Independent Trustees also met
separately with their independent legal counsel to discuss the Transaction, the
proposal to transition portfolio management to the Advisor's Leveraged Finance
Team and the consideration of the Agreements.
In reviewing the Agreements, the Board considered the nature, quality and
extent of services to be provided by the Advisor under the Agreements. The Board
noted that the Fund would no longer employ an advisor/sub-advisor management
structure, but rather, the Advisor would provide all management services for the
Fund, including the day-to-day management of the Fund's investment portfolio.
The Board considered the Advisor's statement that it plans to apply the same
oversight model internally with its Leveraged Finance Team as it uses for
overseeing external sub-advisors. The Board considered the information provided
by the Advisor regarding the capabilities of the Advisor's Leveraged Finance
Team, including information regarding the backgrounds of the Team members, past
performance of other registered investment companies and other accounts managed
by the Team and the Team's investment process, as well as information it had
learned from presentations at prior meetings by members of the Team. At the
Board Meeting, the Board received a presentation from the members of the
Leveraged Finance Team regarding the proposed management of the Fund. Finally,
the Board considered the Advisor's representation that it does not expect any
diminution in services provided under the Agreements. In light of the
information presented and the considerations made at the September meeting,
including the considerations made in connection with the 2010 Renewal, the Board
concluded that the nature, quality and extent of services to be provided to the
Fund by the Advisor under the Agreements are expected to be satisfactory.
The Board considered the advisory fee payable under the Agreements, noting
that it would be the same as the fee payable under the Original Advisory
Agreement. The Board considered information provided by the Advisor comparing
the Fund's advisory fee to a peer group of other floating rate funds compiled by
Lipper, Inc. The Board noted that, based on the information provided, the Fund's
advisory fee was within the range of the advisory fees of the peer funds. The
Board also considered that in connection with the 2010 Renewal it had reviewed
the advisory fees charged by the Advisor to similar funds and other non-fund
clients, and had noted that the Advisor does not provide advisory services to
clients with investment objectives and policies similar to the Fund's other than
to two other closed-end funds (one of which had subsequently been liquidated) to
which different advisory fee rates are charged. In light of the information
presented on the advisory fee for the Fund and the considerations made at the
Board Meeting, including the considerations made in connection with the 2010
Renewal, the Board concluded that the advisory fee was reasonable and
appropriate in light of the nature, quality and extent of services expected to
be provided by the Advisor under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board concluded that the advisory fee
continues to reflect an appropriate level of sharing of any economies of scale
at current asset levels. The Board noted that in connection with the 2010
Renewal it had reviewed the costs of the services provided and profits realized
by the Advisor from serving as investment manager to the Fund for the twelve
months ended December 31, 2009. The Board considered its prior conclusion that
the Advisor's profitability appeared to be not excessive in light of the
- 25 -
services provided to the Fund; however, the Board noted that the profitability
information previously provided reflected the costs and profits associated with
an advisor/sub-advisor management structure. The Board considered the Advisor's
statement at the Board Meeting that it anticipates that it will be less
profitable for the Advisor under the New Advisory Agreement. The Board
considered whether the Advisor derives any ancillary benefits from its
relationship with the Fund and noted that the typical fall-out benefits to the
Advisor such as soft dollars are not present. The Board noted that the Advisor
will receive compensation from the Fund for providing fund reporting services.
The Board concluded that any other fall-out benefits received by the Advisor or
its affiliates would appear to be limited.
Based on all of the information considered and the conclusions reached,
the Board, including the Independent Trustees, determined that the terms of the
Agreements are fair and reasonable and that the approval of the Agreements is in
the best interests of the Fund. No single factor was determinative in the
Board's analysis.
Accordingly, the Board recommends that shareholders vote to approve the
New Advisory Agreement.
ADDITIONAL INFORMATION ABOUT THE FUND AND THE ADVISOR
A list of the officers of the Fund and the managing directors and
principal officers of the Advisor, their positions with the Fund and/or the
Advisor, and their principal occupations are set forth below. Certain officers
of the Fund have a minority equity interest in the limited partner of the
Advisor.
POSITION WITH THE POSITION WITH THE
NAME TRUSTS ADVISOR PRINCIPAL OCCUPATION
James A. Bowen President, Chairman Managing Director; President, First Trust Advisors L.P. and
of the Board, Chief President First Trust Portfolios L.P.; Chairman of
Executive Officer the Board of Directors, BondWave LLC and
and Trustee Stonebridge Advisors LLC
Mark R. Bradley Treasurer, Chief Managing Director; Chief Financial Officer, First Trust
Financial Officer Chief Financial Advisors L.P. and First Trust Portfolios
and Chief Accounting Officer L.P.; Chief Financial Officer, BondWave
Officer LLC and Stonebridge Advisors LLC
Kathleen W. Brown None Chief Compliance Chief Compliance Officer, First Trust
Officer Advisors L.P. and First Trust Portfolios, L.P.
Robert F. Carey None Chief Investment Chief Investment Officer, First Trust
Officer Advisors L.P. and First Trust Portfolios L.P.
Erin E. Chapman Assistant Secretary Assistant General Assistant General Counsel, First Trust
Counsel Advisors L.P. and First Trust Portfolios L.P.
James M. Dykas Assistant Treasurer Senior Vice President Senior Vice President, First Trust
Advisors L.P. and First Trust Portfolios L.P.
Christopher R. Fallow Assistant Vice Assistant Vice Assistant Vice President, First
President President Trust Advisors L.P. and First Trust
Portfolios L.P.
- 26 -
POSITION WITH THE POSITION WITH THE
NAME TRUSTS ADVISOR PRINCIPAL OCCUPATION
R. Scott Hall None Managing Director Managing Director, First Trust Advisors
L.P. and First Trust Portfolios L.P.
W. Scott Jardine Secretary and Chief General Counsel General Counsel, First Trust Advisors
Compliance Officer L.P., First Trust Portfolios L.P. and BondWave
LLC; Secretary, Stonebridge Advisors LLC
Daniel J. Lindquist Vice President Senior Vice President Senior Vice President, First Trust
Advisors L.P. and First Trust Portfolios L.P.
Coleen D. Lynch Assistant Vice Assistant Vice Assistant Vice President, First Trust
President President Advisors L.P. and First Trust Portfolios L.P.
Kristi A. Maher Assistant Secretary Deputy General Deputy General Counsel, First Trust
and Deputy Chief Counsel Advisors L.P. and First Trust Portfolios L.P.
Compliance Officer
Ronald D. McAlister None Managing Director Managing Director, First Trust Advisors L.P.
and First Trust Portfolios L.P.
Andrew S. Roggensack None Managing Director Managing Director, First Trust Advisors L.P.
and First Trust Portfolios L.P.
The business address of the Advisor and each principal officer and
managing director of the Advisor is 120 East Liberty Drive, Suite 400, Wheaton,
Illinois 60187.
SIMILAR INVESTMENT COMPANIES
The Advisor currently acts as investment advisor to the fund listed below,
which has an investment objective and/or policies similar to those of the Fund.
-------------------------------- -------------------------------- -----------------------------------------------
FUND NAME APPROXIMATE MANAGED ASSETS ANNUAL RATE OF COMPENSATION
AS OF SEPTEMBER 10, 2010
-------------------------------- -------------------------------- -----------------------------------------------
Macquarie/First Trust Global $179,308,579 (a) 0.40% of the fund's Total Assets for Total
Infrastructure/Utilities Assets of the fund up to and including $250
Dividend & Income Fund million and (b) 0.35% of the fund's Total
Assets for Total Assets of the fund over $250
million. For this purpose, the term "Total
Assets" means the average daily gross asset
value of the fund (including assets
attributable to the fund's preferred shares,
if any, and the principal amount of
borrowings), minus the sum of the fund's
accrued and unpaid dividends on any
outstanding preferred shares and accrued
liabilities (other than the principal amount
of any borrowings incurred, commercial paper
or notes issued by the fund and the
liquidation preference of any outstanding
preferred shares).
-------------------------------- -------------------------------- -----------------------------------------------
- 27 -
SHAREHOLDER APPROVAL AND REQUIRED VOTE
To become effective, the New Advisory Agreement must be approved by a vote
of a majority of the outstanding voting securities of the Fund. The "vote of a
majority of the outstanding voting securities" of the Fund for this purpose, as
defined in the 1940 Act, means the vote of the lesser of (i) 67% or more of the
Shares of the Fund present at the Meeting if the holders of more than 50% of the
outstanding Shares of the Fund are present in person or represented by proxy; or
(ii) more than 50% of the outstanding Shares of the Fund. For purposes of
determining the approval of the New Advisory Agreement, abstentions and broker
non-votes will have the effect of a vote against this Proposal.
IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE MEETING
OR HOW TO VOTE YOUR SHARES, CALL THE FUND'S PROXY SOLICITOR, THE ALTMAN GROUP,
INC., AT (866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE
NEW ADVISORY AGREEMENT.
- 28 -
ADDITIONAL INFORMATION
SHAREHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Shareholders of
the Fund to be held in 2011 (the "2011 Meeting"), a shareholder proposal
submitted pursuant to Rule 14a-8 of the 1934 Act must be received at the offices
of the Fund at 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, not
later than June 21, 2011 if the date of the 2011 Meeting is within 30 days of
December 6, 2011; otherwise, the Fund will establish a shareholder proposal
deadline in accordance with Rule 14a-8 of the 1934 Act.
Under the Fund's By-Laws, any proposal to elect any person nominated by
shareholders for election as Trustee and any other proposals by shareholders may
only be brought before an annual meeting of the Fund if timely written notice
(the "Shareholder Notice") is provided to the Secretary of the Fund. In
accordance with the advance notice provisions included in the Fund's By-Laws,
unless a greater or lesser period is required under applicable law, to be
timely, the Shareholder Notice must be delivered to or mailed and received at
the Fund's address, 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187,
Attn: W. Scott Jardine, Secretary, not less than forty-five (45) days nor more
than sixty (60) days prior to the first anniversary date of the date of the
proxy statement released to shareholders for the preceding year's annual
meeting. However, if and only if the annual meeting is not scheduled to be held
within a period that commences thirty (30) days before the first anniversary
date of the annual meeting for the preceding year and ends thirty (30) days
after such anniversary date (an annual meeting date outside such period being
referred to herein as an "Other Annual Meeting Date"), such Shareholder Notice
must be given as described above by the later of the close of business on (i)
the date forty-five (45) days prior to such Other Annual Meeting Date or (ii)
the tenth (10th) business day following the date such Other Annual Meeting Date
is first publicly announced or disclosed.
Any shareholder submitting a nomination of any person or persons (as the
case may be) for election as a Trustee or Trustees of the Fund is required to
deliver, as part of such Shareholder Notice: (i) a statement in writing setting
forth: (A) the name, age, date of birth, business address, residence address and
nationality of the person or persons to be nominated; (B) the class or series
and number of all Shares of the Fund owned of record or beneficially by each
such person or persons, as reported to such shareholder by such nominee(s); (C)
any other information regarding each such person required by paragraphs (a),
(d), (e) and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of
Rule 14a-101 (Schedule 14A) under the 1934 Act (or any successor provision
thereto); (D) any other information regarding the person or persons to be
nominated that would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitation of proxies for
election of trustees or directors pursuant to Section 14 of the 1934 Act and the
rules and regulations promulgated thereunder; and (E) whether such shareholder
believes any nominee is or will be an "interested person" of the Fund (as
defined in the 1940 Act) and, if not an "interested person," information
regarding each nominee that will be sufficient for the Fund to make such
determination; and (ii) the written and signed consent of any person nominated
to be named as a nominee and to serve as a Trustee if elected. In addition, the
Trustees may require any proposed nominee to furnish such other information as
they may reasonably require or deem necessary to determine the eligibility of
such proposed nominee to serve as a Trustee.
- 29 -
Without limiting the foregoing, any shareholder who gives a Shareholder
Notice of any matter proposed to be brought before a shareholder meeting
(whether or not involving nominees for Trustees) is required to deliver, as part
of such Shareholder Notice: (i) the description of and text of the proposal to
be presented; (ii) a brief written statement of the reasons why such shareholder
favors the proposal; (iii) such shareholder's name and address as they appear on
the Fund's books; (iv) any other information relating to the shareholder that
would be required to be disclosed in a proxy statement or other filings required
to be made in connection with the solicitation of proxies with respect to the
matter(s) proposed pursuant to Section 14 of the 1934 Act and the rules and
regulations promulgated thereunder; (v) the class or series and number of all
Shares of the Fund owned beneficially and of record by such shareholder; (vi)
any material interest of such shareholder in the matter proposed (other than as
a shareholder); (vii) a representation that the shareholder intends to appear in
person or by proxy at the shareholder meeting to act on the matter(s) proposed;
(viii) if the proposal involves nominee(s) for Trustees, a description of all
arrangements or understandings between the shareholder and each proposed nominee
and any other person or persons (including their names) pursuant to which the
nomination(s) are to be made by the shareholder; and (ix) in the case of a
shareholder (a "Beneficial Owner") that holds Shares entitled to vote at the
meeting through a nominee or "street name" holder of record, evidence
establishing such Beneficial Owner's indirect ownership of, and entitlement to
vote, Shares at the meeting of shareholders. Shares "beneficially owned" means
all Shares which such person is deemed to beneficially own pursuant to Rules
13d-3 and 13d-5 under the 1934 Act.
Timely submission of a proposal does not mean that such proposal will be
included in a proxy statement.
SHAREHOLDER COMMUNICATIONS
Shareholders of the Fund who want to communicate with the Board of
Trustees or any individual Trustee should write the Fund to the attention of the
Fund Secretary, W. Scott Jardine. The letter should indicate that you are a Fund
shareholder. If the communication is intended for a specific Trustee and so
indicates, it will be sent only to that Trustee. If a communication does not
indicate a specific Trustee, it will be sent to the chairman of the Nominating
and Governance Committee of the Board and the independent legal counsel to the
Independent Trustees for further distribution as deemed appropriate by such
persons.
ADMINISTRATOR AND TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc. acts as the administrator,
accounting agent and transfer agent to the Fund, and its principal U.S. office
is located at 4400 Computer Drive, Westborough, Massachusetts 01581.
SECTION 30(h) AND SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(h) of the 1940 Act and Section 16(a) of the 1934 Act require
the Fund's officers and Trustees, certain persons affiliated with First Trust
Advisors and any sub-advisor and persons who beneficially own more than 10% of
the Fund's Shares to file reports of ownership and changes of ownership with the
SEC and the NYSE and to furnish the Fund with copies of all Section 16(a) forms
they file. Based solely upon a review of copies of such forms received by the
Fund and certain written representations, the Fund believes that during the
fiscal year ended May 31, 2010, all such filing requirements applicable to such
persons were met.
- 30 -
FISCAL YEAR
The Fund's fiscal year end is May 31.
DELIVERY OF CERTAIN DOCUMENTS
Annual reports will be sent to shareholders of record of the Fund
following the Fund's fiscal year end. The Fund will furnish, without charge, a
copy of its annual report and/or semiannual report as available upon request.
Such written or oral requests should be directed to the Fund at 120 East Liberty
Drive, Suite 400, Wheaton, Illinois 60187 or by calling (800) 988-5891.
Please note that only one annual or semi-annual report, proxy statement or
Notice of Internet Availability of Proxy Materials (as applicable) may be
delivered to two or more shareholders of the Fund who share an address, unless
the Fund has received instructions to the contrary. To request a separate copy
of an annual or semi-annual report, proxy statement or Notice of Internet
Availability of Proxy Materials (as applicable), or for instructions as to how
to request a separate copy of such documents or as to how to request a single
copy if multiple copies of such documents are received, shareholders should
contact the Fund at the address and phone number set forth above. Pursuant to a
request, a separate copy will be delivered promptly.
OTHER MATTERS TO COME BEFORE THE MEETING
No business other than the matters described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment or postponement of the
Meeting, the persons named on the enclosed proxy card will vote thereon
according to their best judgment in the interests of the Fund.
October 19, 2010
--------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS ARE THEREFORE
URGED TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID ENVELOPE OR ALTERNATIVELY, TO VOTE BY TELEPHONE OR
THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD.
--------------------------------------------------------------------------------
IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE MEETING OR HOW
TO VOTE YOUR SHARES, CALL THE FUND'S PROXY SOLICITOR, THE ALTMAN GROUP, INC. AT
(866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
- 31 -
EXHIBIT A
AUDIT COMMITTEE CHARTER
I. PURPOSE
The Audit Committee (the "Committee") is appointed by the Boards of
Trustees (the "Boards") of investment companies (the "Funds") advised by First
Trust Advisors L.P. ("Fund Management") for the following purposes:
1. to oversee the accounting and financial reporting processes of
each Fund and its internal controls and, as the Audit Committee deems
appropriate, to inquire into the internal controls of certain third-party
service providers;
2. to oversee the quality and integrity of each Fund's financial
statements and the independent audit thereof;
3. to oversee, or, as appropriate, assist Board oversight of, each
Fund's compliance with legal and regulatory requirements that relate to
the Fund's accounting and financial reporting, internal controls and
independent audits; and
4. to approve, prior to the appointment, the engagement of each
Fund's independent auditor and, in connection therewith, to review and
evaluate the qualifications, independence and performance of the Fund's
independent auditor.
II. COMMITTEE ORGANIZATION AND COMPOSITION
A. Size and Membership Requirements.
1. The Committee shall be composed of at least three members, all
of whom shall be trustees of the Funds. Each member of the Committee, and
a Committee chairperson, shall be appointed by the Board on the
recommendation of the Nominating and Governance Committee.
2. Each member of the Committee shall be independent of the Fund
and must be free of any relationship that, in the opinion of the Board,
would interfere with the exercise of independent judgment as a Committee
member. With respect to the Funds which are closed-end funds or open-end
exchange-traded funds ("ETFs"), each member must meet the independence and
experience requirements of the New York Stock Exchange, NYSE Arca, NYSE
AMEX or the NASDAQ Stock Market (as applicable), and Section 10A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
10A-3 thereunder, and other applicable rules and regulations of the
Securities and Exchange Commission ("SEC"). Included in the foregoing is
the requirement that no member of the Committee be an "interested person"
of the Funds within the meaning of Section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act"), nor shall any Committee
member accept, directly or indirectly, any consulting, advisory or other
compensatory fee from the Funds (except in the capacity as a Board or
committee member).
3. At least one member of the Committee shall have been determined
by the Board, exercising its business judgment, to qualify as an "audit
committee financial expert" as defined by the SEC.
4. With respect to Funds whose shares are listed on NYSE Arca or
on the New York Stock Exchange, each member of the Committee shall have
been determined by the Board, exercising its business judgment, to be
"financially literate" as required by the New York Stock Exchange or NYSE
Arca (as applicable). In addition, at least one member of the Committee
shall have been determined by the Board, exercising its business judgment,
to have "accounting or related financial management expertise," as
required by the New York Stock Exchange or NYSE Arca (as applicable). Such
member may, but need not be, the same person as the Funds' "audit
committee financial expert." With respect to Funds that are closed-end
funds or ETFs whose shares are listed on the NYSE AMEX or the NASDAQ Stock
Market, each member of the Committee shall be able to read and understand
fundamental financial statements, including a Fund's balance sheet, income
statement and cash flow statement. In addition, at least one member of the
Committee shall have been determined by the Board, exercising its business
judgment, to be "financially sophisticated," as required by the NYSE AMEX
or the NASDAQ Stock Market (as applicable). A member whom the Board
determines to be the Funds' "audit committee financial expert" shall be
presumed to qualify as financially sophisticated.
5. With respect to Funds that are closed-end funds, Committee
members shall not serve simultaneously on the audit committee of more than
two public companies, in addition to their service on the Committee.
B. Frequency of Meetings.
The Committee will ordinarily meet once for every regular meeting of the
Board. The Committee may meet more or less frequently as appropriate, but no
less than twice per year.
C. Term of Office.
Committee members shall serve until they resign or are removed or replaced
by the Board.
III. RESPONSIBILITIES
A. With respect to Independent Auditors:
1. The Committee shall be responsible for the appointment or
replacement (subject, if applicable, to Board and/or shareholder
ratification), compensation, retention and oversight of the work of any
registered public accounting firm engaged (including resolution of
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disagreements between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Funds ("External
Auditors"). The External Auditors shall report directly to the Committee.
2. The Committee shall meet with the External Auditors and Fund
Management to review the scope, fees, audit plans and staffing of the
proposed audits for each fiscal year. At the conclusion of the audit, the
Committee shall review such audit results, including the External
Auditor's evaluation of the Fund's financial and internal controls, any
comments or recommendations of the External Auditors, any audit problems
or difficulties and Fund Management's response, including any restrictions
on the scope of the External Auditor's activities or on access to
requested information, any significant disagreements with Fund Management,
any accounting adjustments noted or proposed by the auditor but not made
by the Fund, any communications between the audit team and the audit firm
's national office regarding auditing or accounting issues presented by
the engagement, any significant changes required from the originally
planned audit programs and any adjustments to the financial statements
recommended by the External Auditors.
3. The Committee shall meet with the External Auditors in the
absence of Fund Management, as necessary.
4. The Committee shall pre-approve all audit services and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Fund by its External Auditors in accordance with the
Audit and Non-Audit Services Pre-Approval Policy. The Chairman of the
Committee is authorized to give such pre-approvals on behalf of the
Committee where the fee for such engagement does not exceed the amount
specified in the Audit and Non-Audit Services Pre-Approval Policy, and
shall report any such pre-approval to the full Committee.
5. The Committee shall pre-approve the External Auditor's
engagements for non-audit services to Fund Management and any entity
controlling, controlled by or under common control with Fund Management
that provides ongoing services to the Fund, if the engagement relates
directly to the operations and financial reporting of the Fund, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee, and shall report any such
pre-approval to the full Committee.
6. If the External Auditors have provided non-audit services to
Fund Management and any entity controlling, controlled by or under common
control with Fund Management that provides ongoing services to the Fund
that were not pre-approved pursuant to the de minimis exception, the
Committee shall consider whether the provision of such non-audit services
is compatible with the External Auditor's independence.
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7. The Committee shall obtain and review a report from the
External Auditors at least annually (including a formal written statement
delineating all relationships between the auditors and the Fund consistent
with PCAOB Ethics and Independence Rule 3526) regarding (a) the External
Auditor's internal quality-control procedures; (b) any material issues
raised by the most recent internal quality-control review, or peer review,
of the firm, or by an inquiry or investigation by governmental or
professional authorities within the preceding five years, respecting one
or more independent audits carried out by the firm; (c) any steps taken to
deal with any such issues; and (d) the External Auditor's independence,
including all relationships between the External Auditors and the Fund and
its affiliates; and evaluating the qualifications, performance and
independence of the External Auditors, including their membership in the
SEC practice section of the AICPA and their compliance with all applicable
requirements for independence and peer review, and a review and evaluation
of the lead partner, taking into account the opinions of management and
discussing such reports with the External Auditors. The Committee shall
present its conclusions with respect to the External Auditors to the
Board.
8. The Committee shall review reports and other information
provided to it by the External Auditors regarding any illegal acts that
the External Auditors should discover (whether or not perceived to have a
material effect on the Fund' s financial statements), in accordance with
and as required by Section 10A(b) of the Exchange Act.
9. The Committee shall ensure the rotation of the lead (or
concurring) audit partner having primary responsibility for the audit and
the audit partner responsible for reviewing the audit as required by law,
and further considering the rotation of the independent auditor firm
itself.
10. The Committee shall establish and recommend to the Board for
ratification a policy of the Funds with respect to the hiring of employees
or former employees of the External Auditors who participated in the
audits of the Funds' financial statements.
11. The Committee shall take (and, where appropriate, recommend
that the Board take) appropriate action to oversee the independence of the
External Auditors.
12. The Committee shall report regularly to the Board on the
results of the activities of the Committee, including any issues that
arise with respect to the quality or integrity of the Funds' financial
statements, the Funds' compliance with legal or regulatory requirements,
the performance and independence of the Funds' External Auditors, or the
performance of the internal audit function, if any.
B. With respect to Fund Financial Statements:
1. The Committee shall meet to review and discuss with Fund
Management and the External Auditors the annual audited financial
statements of the Funds, major issues regarding accounting and auditing
principles and practices, and the Funds' disclosures under "Management's
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Discussion and Analysis," and shall meet to review and discuss with Fund
Management the semi-annual financial statements of the Funds and the
Funds' disclosures under "Management's Discussion and Analysis."
2. The Committee shall review and discuss reports, both written
and oral, from the External Auditors or Fund Management regarding (a) all
critical accounting policies and practices to be used; (b) all alternative
treatments of financial information within generally accepted accounting
principles ("GAAP") for policies and practices that have been discussed
with management, including the ramifications of the use of such
alternative treatments and disclosures and the treatment preferred by the
External Auditors; (c) other material written communications between the
External Auditors and management, such as any management letter or
schedule of unadjusted differences; and (d) all non-audit services
provided to any entity in the investment company complex (as defined in
Rule 2-01 of Regulation S-X) that were not pre-approved by the Committee.
3. The Committee shall review disclosures made to the Committee by
the Funds' principal executive officer and principal financial officer
during their certification process for the Funds' periodic reports about
any significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving management
or other employees who have a significant role in the Funds' internal
controls.
4. The Committee shall discuss with the External Auditors the
matters required to be discussed by PCAOB AU Section 380 that arise during
the External Auditor's review of the Funds' financial statements.
5. The Committee shall review and discuss with management and the
External Auditors (a) significant financial reporting issues and judgments
made in connection with the preparation and presentation of the Funds'
financial statements, including any significant changes in the Funds'
selection or application of accounting principles and any major issues as
to the adequacy of the Funds' internal controls and any special audit
steps adopted in light of material control deficiencies, and (b) analyses
prepared by Fund Management or the External Auditors setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of
the effects of alternative GAAP methods on the financial statements.
6. The Committee shall review and discuss with management and the
External Auditors the effect of regulatory and accounting initiatives on
the Funds' financial statements.
7. The Committee shall discuss with Fund Management the Funds'
press releases regarding financial results and dividends, as well as
financial information and earnings guidance provided to analysts and
rating agencies. This discussion may be done generally, consisting of
discussing the types of information to be disclosed and the types of
presentations to be made. The Chairman of the Committee shall be
A-5
authorized to have these discussions with Fund Management on behalf of the
Committee, and shall report to the Committee regarding any such
discussions.
8. The Committee shall discuss with Fund Management the Funds'
major financial risk exposures and the steps Fund Management has taken to
monitor and control these exposures, including the Funds' risk assessment
and risk management policies and guidelines. In fulfilling its obligations
under this paragraph, the Committee may, as applicable, review in a
general manner the processes other Board committees have in place with
respect to risk assessment and risk management.
C. With respect to serving as a Qualified Legal Compliance Committee:
1. The Committee shall serve as the Funds' "qualified legal
compliance committee" ("QLCC") within the meaning of the rules of the SEC
and, in that regard, the following shall apply.
(i) The Committee shall receive and retain, in confidence,
reports of evidence of (a) a material violation of any federal or
state securities laws, (b) a material breach of a fiduciary duty
arising under any federal or state laws or (c) a similar material
violation of any federal or state law by a Fund or any of its
officers, trustees, employees or agents (a "Report of Material
Violation"). Reports of Material Violation may be addressed to the
Funds, attention W. Scott Jardine, at the address of the principal
offices of the Funds, which currently is 120 East Liberty Drive,
Wheaton, Illinois 60187, who shall forward the Report of Material
Violation to the Committee.
(ii) Upon receipt of a Report of Material Violation, the
Committee shall (a) inform the Fund's chief legal officer and chief
executive officer (or the equivalents thereof) of the report (unless
the Committee determines it would be futile to do so), and (b)
determine whether an investigation is necessary.
(iii) After considering the Report of a Material Violation, the
Committee shall do the following if it deems an investigation
necessary:
(1) Notify the full Board;
(2) Initiate an investigation, which may be conducted
either by the chief legal officer (or the equivalent thereof)
of the Fund or by outside attorneys; and
(3) Retain such additional expert personnel as the
Committee deems necessary.
(iv) At the conclusion of any such investigation, the
Committee shall:
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(1) Recommend, by majority vote, that the Fund
implement an appropriate response to evidence of a material
violation; and
(2) Inform the chief legal officer and the chief
executive officer (or the equivalents thereof) and the Board
of the results of any such investigation and the appropriate
remedial measures to be adopted.
2. The Committee shall take all other action that it deems
appropriate in the event that the Fund fails in any material respect to
implement an appropriate response that the Committee, as the QLCC, has
recommended the Fund take.
D. Other Responsibilities:
1. The Committee shall receive, retain and handle complaints
received by the Funds regarding accounting, internal accounting controls,
or auditing matters from any person, whether or not an employee of the
Funds or Fund Management, and shall receive submissions of concerns
regarding questionable accounting or auditing matters by employees of the
Funds and Fund Management, administrator, principal underwriter, or any
other provider of accounting-related services for the Funds. All such
complaints and concerns shall be handled in accordance with the
Committee's procedures for operating as a QLCC, outlined in III.C above.
2. The Committee shall review, with fund counsel and independent
legal counsel, any legal matters that could have significant impact on the
Fund's financial statements or compliance policies and the findings of any
examination by a regulatory agency as they relate to financial statement
matters.
3. The Committee shall review and reassess the adequacy of this
charter on an annual basis and provide a recommendation to the Board for
approval of any proposed changes deemed necessary or advisable by the
Committee.
4. The Committee shall evaluate on an annual basis the performance
of the Committee.
5. The Committee shall review with the External Auditors and with
Fund Management the adequacy and effectiveness of the Funds' internal
accounting and financial controls.
6. The Committee shall discuss with Fund Management and the
External Auditors any correspondence with regulators or governmental
agencies that raise material issues regarding the Funds' financial
statements or accounting policies.
7. The Committee shall obtain any reports from Fund Management
with respect to the Funds' policies and procedures regarding compliance
with applicable laws and regulations. The Committee shall perform other
special reviews, investigations or oversight functions as requested by the
Board and shall receive and review periodic or special reports issued on
A-7
exposure/controls, irregularities and control failures related to the
Funds.
8. The Committee shall prepare any report of the Committee
required to be included in a proxy statement for a Fund.
9. The Committee may request any officer or employee of a Fund or
Fund Management, independent legal counsel, fund counsel and the External
Auditors to attend a meeting of the Committee or to meet with any members
of, or consultants to, the Committee.
10. The Committee shall maintain minutes of its meetings.
11. The Committee shall perform such other functions and have such
powers as may be necessary or appropriate in the efficient and lawful
discharge of its responsibilities.
IV. AUTHORITY TO ENGAGE ADVISERS
The Committee may engage independent counsel and other advisers, as it
determines necessary to carry out its duties. The Funds' External Auditors shall
have unrestricted accessibility at any time to Committee members.
V. FUNDING PROVISIONS
A. The Committee shall determine the:
1. Compensation to any independent registered public accounting
firm engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for a Fund; and
2. Compensation to any advisers employed by the Committee.
B. The expenses enumerated in this Article V and all necessary and
appropriate administrative expenses of the Committee shall be paid by the
applicable Fund or Fund Management.
VI. MANAGEMENT AND EXTERNAL AUDITOR'S RESPONSIBILITIES
A. Fund Management has the primary responsibility for establishing and
maintaining systems for accounting, reporting, disclosure and internal controls.
The External Auditors have the primary responsibility to plan and implement an
audit, with proper consideration given to the accounting, reporting and internal
controls. All External Auditors engaged for the purpose of preparing or issuing
an audit report or performing other audit, review or attest services for the
Funds shall report directly to the Committee. The External Auditors' ultimate
A-8
accountability is to the Board and the Committee, as representatives of
shareholders.
B. While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Funds' financial statements are complete and accurate and
are in accordance with GAAP, nor is it the duty of the Committee to assure
compliance with laws and regulations and/or the Funds' Code of Ethics.
C. In discharging its responsibilities, the Committee and its members are
entitled to rely on information, opinions, reports, or statements, including
financial statements and other financial data, if prepared or presented by: (1)
one or more officers of a Fund; (2) legal counsel, public accountants, or other
persons as to matters the Committee member reasonably believes are within the
person's professional or expert competence; or (3) a Board committee of which
the Committee member is not a member.
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EXHIBIT B
FORM OF NEW ADVISORY AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT made this [ ] day of [ ], by and between
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II (formerly known as First
Trust/Four Corners Senior Floating Rate Income Fund II), a Massachusetts
business trust (the "Fund"), and FIRST TRUST ADVISORS L.P., an Illinois limited
partnership (the "Adviser").
WITNESSETH:
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby engages the Adviser to act as the investment adviser
for, and to manage the investment and reinvestment of the assets of the Fund in
accordance with the Fund's investment objective and policies and limitations,
and to administer the Fund's affairs to the extent requested by and subject to
the supervision of the Board of Trustees of the Fund for the period and upon the
terms herein set forth. The investment of the Fund's assets shall be subject to
the Fund's policies, restrictions and limitations with respect to securities
investments as set forth in the Fund's most recent effective registration
statement under the Investment Company Act of l940 (the "1940 Act") and as such
policies, restrictions and limitations may be amended by the Board of Trustees
of the Fund from time to time, and all applicable laws and the regulations of
the Securities and Exchange Commission relating to the management of registered
closed-end management investment companies.
The Adviser accepts such employment and agrees during such period to
render such services, to furnish office facilities and equipment and clerical,
bookkeeping and administrative services (other than such services, if any,
provided by the Fund's transfer agent, administrator or other service providers)
for the Fund, to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions,
and to assume the obligations herein set forth for the compensation herein
provided. The Adviser shall at its own expense furnish all executive and other
personnel, office space, and office facilities required to render the investment
management and administrative services set forth in this Agreement. In the event
that the Adviser pays or assumes any expenses of the Fund not required to be
paid or assumed by the Adviser under this Agreement, the Adviser shall not be
obligated hereby to pay or assume the same or similar expense in the future;
provided that nothing contained herein shall be deemed to relieve the Adviser of
any obligation to the Fund under any separate agreement or arrangement between
the parties.
2. The Adviser shall, for all purposes herein provided, be deemed to be
an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for nor represent the Fund in any
way, nor otherwise be deemed an agent of the Fund.
3. For the services and facilities described in Section 1, the Fund will
pay to the Adviser, at the end of each calendar month, and the Adviser agrees to
accept as full compensation therefore, an investment management fee equal to the
annual rate of .75% of the Fund's Managed Assets, as such term is defined
herein. "Managed Assets" means the average daily gross asset value of the Fund
(including assets attributable to the Fund's preferred shares, if any, and the
principal amount of borrowings), minus the sum of the Fund's accrued and unpaid
dividends on any outstanding preferred shares and accrued liabilities (other
than the principal amount of any borrowings incurred, commercial paper or notes
issued by the Fund and the liquidation preference of any outstanding preferred
shares).
For the month and year in which this Agreement becomes effective, or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement shall have been in effect during the month and year,
respectively. The services of the Adviser to the Fund under this Agreement are
not to be deemed exclusive, and the Adviser shall be free to render similar
services or other services to others so long as its services hereunder are not
impaired thereby.
4. The Adviser shall arrange for suitably qualified officers or employees
of the Adviser to serve, without compensation from the Fund, as trustees,
officers or agents of the Fund, if duly elected or appointed to such positions,
and subject to their individual consent and to any limitations imposed by law.
5. For purposes of this Agreement, brokerage commissions paid by the Fund
upon the purchase or sale of the Fund's portfolio securities shall be considered
a cost of securities of the Fund and shall be paid by the Fund.
6. Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of the Fund's securities on behalf of the Fund,
and is directed to use its commercially reasonable efforts to obtain best
execution, which includes most favorable net results and execution of the Fund's
orders, taking into account all appropriate factors, including price, dealer
spread or commission, size and difficulty of the transaction and research or
other services provided. Subject to approval by the Fund's Board of Trustees and
to the extent permitted by and in conformance with applicable law (including
Rule 17e-1 of the 1940 Act), Adviser may select brokers or dealers affiliated
with Adviser. It is understood that Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Fund, or be in breach of
any obligation owing to the Fund under this Agreement, or otherwise, solely by
reason of its having caused the Fund to pay a member of a securities exchange, a
broker or a dealer a commission for effecting a securities transaction for the
Fund in excess of the amount of commission another member of an exchange, broker
or dealer would have charged if Adviser determined in good faith that the
commission paid was reasonable in relation to the brokerage or research services
provided by such member, broker or dealer, viewed in terms of that particular
transaction or Adviser's overall responsibilities with respect to its accounts,
including the Fund, as to which it exercises investment discretion.
In addition, Adviser may, to the extent permitted by applicable law,
aggregate purchase and sale orders of securities with similar orders being made
B-2
simultaneously for other accounts managed by Adviser or its affiliates, if in
Adviser's reasonable judgment such aggregation shall result in an overall
economic benefit to the Fund, taking into consideration the selling or purchase
price, brokerage commissions and other expenses. In the event that a purchase or
sale of an asset of the Fund occurs as part of any aggregate sale or purchase
orders, the objective of Adviser and any of its affiliates involved in such
transaction shall be to allocate the securities so purchased or sold, as well as
expenses incurred in the transaction, among the Fund and other accounts in an
equitable manner. Nevertheless, the Fund acknowledges that under some
circumstances, such allocation may adversely affect the Fund with respect to the
price or size of the securities positions obtainable or salable. Whenever the
Fund and one or more other investment advisory clients of Adviser have available
funds for investment, investments suitable and appropriate for each will be
allocated in a manner believed by Adviser to be equitable to each, although such
allocation may result in a delay in one or more client accounts being fully
invested that would not occur if such an allocation were not made. Moreover, it
is possible that due to differing investment objectives or for other reasons,
Adviser and its affiliates may purchase securities of an issuer for one client
and at approximately the same time recommend selling or sell the same or similar
types of securities for another client.
Adviser will not arrange purchases or sales of securities between the Fund
and other accounts advised by Adviser or its affiliates unless (a) such
purchases or sales are in accordance with applicable law (including Rule 17a-7
of the 1940 Act) and the Fund's policies and procedures, (b) Adviser determines
the purchase or sale is in the best interests of the Fund, and (c) the Fund's
Board of Trustees have approved these types of transactions.
To the extent the Fund seeks to adopt, amend or eliminate any objectives,
policies, restrictions or procedures in a manner that modifies or restricts
Adviser's authority regarding the execution of the Fund's portfolio
transactions, the Fund agrees to use reasonable commercial efforts to consult
with the Adviser regarding the modifications or restrictions prior to such
adoption, amendment or elimination.
Adviser will communicate to the officers and trustees of the Fund such
information relating to transactions for the Fund as they may reasonably
request. In no instance will portfolio securities be purchased or sold to
Adviser or any affiliated person of either the Fund or Adviser, except as may be
permitted under the 1940 Act.
Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to fiduciary accounts for which
it has investment responsibilities;
(b) will conform to all applicable Rules and Regulations of the
Securities and Exchange Commission in all material respects and comply
with all policies and procedures adopted by the Board of Trustees for the
Fund and communicated to the Adviser and, in addition, will conduct its
activities under this Agreement in accordance with any applicable
regulations of any governmental authority pertaining to its investment
advisory activities;
B-3
(c) will report regularly to the Board of Trustees of the Fund
(generally on a quarterly basis) and will make appropriate persons
available for the purpose of reviewing with representatives of the Board
of Trustees on a regular basis at reasonable times the management of the
Fund, including, without limitation, review of the general investment
strategies of the Fund, the performance of the Fund's investment portfolio
in relation to relevant standard industry indices and general conditions
affecting the marketplace and will provide various other reports from time
to time as reasonably requested by the Board of Trustees of the Fund; and
(d) will prepare and maintain such books and records with respect
to the Fund's securities and other transactions as required under
applicable law and will prepare and furnish the Fund's Board of Trustees
such periodic and special reports as the Board may reasonably request.
Adviser further agrees that all records which it maintains for the Fund
are the property of the Fund and Adviser will surrender promptly to the
Fund any such records upon the request of the Fund (provided, however,
that Adviser shall be permitted to retain copies thereof); and shall be
permitted to retain originals (with copies to the Fund) to the extent
required under Rule 204-2 of the Investment Advisers Act of 1940 or other
applicable law.
7. Subject to applicable statutes and regulations, it is understood that
officers, trustees, or agents of the Fund are, or may be, interested persons (as
such term is defined in the 1940 Act and the rules and regulations thereunder)
of the Adviser as officers, directors, agents, shareholders or otherwise, and
that the officers, directors, shareholders and agents of the Adviser may be
interested persons of the Fund otherwise than as trustees, officers or agents.
8. The Adviser shall not be liable for any loss sustained by reason of
the purchase, sale or retention of any security, whether or not such purchase,
sale or retention shall have been based upon the investigation and research made
by any other individual, firm or corporation, if such recommendation shall have
been selected with due care and in good faith, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
9. Subject to obtaining the initial and periodic approvals required under
Section 15 of the 1940 Act, the Adviser may retain one or more sub-advisers at
the Adviser's own cost and expense for the purpose of furnishing one or more of
the services described in Section 1 hereof with respect to the Fund. Retention
of a sub-adviser shall in no way reduce the responsibilities or obligations of
the Adviser under this Agreement and the Adviser shall be responsible to the
Fund for all acts or omissions of any sub-adviser in connection with the
performance of the Adviser's duties hereunder.
10. The Fund acknowledges that Adviser now acts, and intends in the future
to act, as an investment adviser to other managed accounts and as investment
adviser or investment sub-adviser to one or more other investment companies. In
addition, the Fund acknowledges that the persons employed by Adviser to assist
in Adviser's duties under this Agreement will not devote their full time to such
efforts. It is also agreed that Adviser may use any supplemental research
B-4
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts and for managing its own accounts.
11. This Agreement shall be effective on the date provided above, provided
it has been approved by a vote of a majority of the outstanding voting
securities of the Fund in accordance with the requirements of the 1940 Act. This
Agreement shall continue in effect until the two-year anniversary of the date of
its effectiveness, unless and until terminated by either party as hereinafter
provided, and shall continue in force from year to year thereafter, but only as
long as such continuance is specifically approved, at least annually, in the
manner required by the 1940 Act.
This Agreement shall automatically terminate in the event of its
assignment, and may be terminated at any time without the payment of any penalty
by the Fund or by the Adviser upon sixty (60) days' written notice to the other
party. The Fund may effect termination by action of the Board of Trustees or by
vote of a majority of the outstanding voting securities of the Fund, accompanied
by appropriate notice. This Agreement may be terminated, at any time, without
the payment of any penalty, by the Board of Trustees of the Fund, or by vote of
a majority of the outstanding voting securities of the Fund, in the event that
it shall have been established by a court of competent jurisdiction that the
Adviser, or any officer or director of the Adviser, has taken any action which
results in a breach of the covenants of the Adviser set forth herein.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation, described in Section
3, earned prior to such termination. The terms "assignment" and "vote of the
majority outstanding voting securities" shall have meanings set forth in the
1940 Act and rules and regulations thereunder.
12. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's
Declaration of Trust and all amendments thereto, a copy of which is on file with
the Secretary of the Commonwealth of Massachusetts and the limitation of
shareholder and trustee liability contained therein. This Agreement is executed
on behalf of the Fund by the Fund's officers as officers and not individually
and the obligations imposed upon the Fund by this Agreement are not binding upon
any of the Fund's Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Fund, and persons dealing with
the Fund must look solely to the assets of the Fund for the enforcement of any
claims.
15. This Agreement shall be construed in accordance with applicable
federal law and (except as to Section 14 hereof which shall be construed in
accordance with the laws of Massachusetts) the laws of the State of Illinois.
B-5
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
FIRST TRUST SENIOR FLOATING RATE INCOME
FUND II
By:_____________________________________
Name:
Title:
ATTEST: ____________________________
Name:
Title:
FIRST TRUST ADVISORS L.P.
By:_____________________________________
Name:
Title:
ATTEST: ____________________________
Name:
Title:
B-6
FORM OF PROXY CARD
------------------
[LOGO OMITTED] FIRST TRUST FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
(formerly known as FIRST TRUST/FOUR CORNERS
SENIOR FLOATING RATE INCOME FUND II)
Proxy Card for Annual Meeting of Shareholders -
December 6, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of Common Shares of the First Trust Senior Floating Rate
Income Fund II (the "Fund"), a Massachusetts business trust, hereby appoints W.
Scott Jardine, Mark R. Bradley, Kristi A. Maher, James M. Dykas and Erin E.
Chapman as attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the Fund that the undersigned is entitled to
vote at the Annual Meeting of Shareholders (the "Meeting") to be held at the
offices of First Trust Advisors L.P., 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187, at 4:00 p.m. Central time on the date indicated above,
and any adjournments or postponements thereof. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement dated October 19, 2010, and hereby instructs said attorneys and
proxies to vote said shares as indicated hereon. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Meeting and any adjournments or postponements thereof (including, but
not limited to, any questions as to adjournment or postponement of the Meeting).
A majority of the proxies present and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the power and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL
BE VOTED IN THE MANNER DIRECTED BY THE
Registration dynamically UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
printed here IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS SET FORTH.
PLEASE VOTE, DATE AND SIGN ON REVERSE
SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE FOLD HERE AND RETURN ENTIRE PROXY CARD - DO NOT DETACH
--------------------------------------------------------------------------------
[GRAPHIC BY INTERNET
OMITTED] -----------
To vote on the Internet, go to www.proxyonline.com and enter the
12-digit control number found on the reverse side of this Proxy
Card. Follow the instructions provided.
[GRAPHIC BY TELEPHONE
OMITTED] ------------
To cast your vote by phone with a proxy voting representative,
call toll-free 1-866-530-8634 and provide the representative the
control number found on the reverse side of this Proxy Card.
Representatives are available to take your voting instructions
Monday through Friday 9:00 a.m. to 10:00 p.m. Eastern Time.
[GRAPHIC BY MAIL
OMITTED] -------
To vote by mail, mark the appropriate voting boxes on the reverse
side of this Proxy Card, sign and date the Proxy Card and return
it in the enclosed postage-paid envelope or mail to: FIRST TRUST
FUNDS, P.O. BOX 6500, CARLSTADT, NJ 07072.
PLEASE VOTE, SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
FIRST TRUST SENIOR FLOATING RATE INCOME FUND II
(formerly known as FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II)
CONTROL NUMBER
-----------------------------
-----------------------------
PLEASE CAST YOUR VOTE PROMPTLY. EVERY SHAREHOLDER'S VOTE IS IMPORTANT.
THE PROXY CARD MUST BE SIGNED AND DATED FOR YOUR INSTRUCTIONS TO BE COUNTED AND
WILL BE VOTED IN THE MANNER INDICATED. IF NO INSTRUCTIONS HAVE BEEN INDICATED
BELOW, A VOTE WILL BE CAST "FOR" THE ELECTION OF EACH NOMINEE SET FORTH IN
PROPOSAL 1 AND "FOR" PROPOSAL 2. PLEASE COMPLETE AND RETURN THIS PROXY CARD
PROMPTLY.
TO VOTE, MARK BOXES BELOW IN BLUE OR BLACK INK AS FOLLOWS. EXAMPLE: [ ]
PROPOSAL 1 - The Board of Trustees recommends a vote FOR the election of
James A. Bowen and Robert F. Keith for three-year terms and Thomas R. Kadlec
for a one-year term.
To vote with respect to the 3 nominees set forth in the same manner, please use
the boxes immediately below.
FOR ALL WITHHOLD ALL
[ ] [ ]
To vote with respect to each nominee individually, please use the boxes
immediately below.
FOR WITHHOLD
01- James A. Bowen (Class III) [ ] [ ]
02- Robert F. Keith (Class III) [ ] [ ]
03- Thomas R. Kadlec (Class I) [ ] [ ]
PROPOSAL 2 - The Board of Trustees recommends a vote FOR the Proposal to
approve a new Investment Management Agreement between the Fund and
First Trust Advisors L.P.
FOR AGAINST ABSTAIN
Approval of New Investment Management Agreement [ ] [ ] [ ]
Please be sure to sign and date this Proxy Card. Please sign exactly as your
name(s) appear(s) on this Proxy Card. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by an authorized officer. If a partnership, please sign in
partnership name by an authorized person.
__________________________________________________________
Shareholder sign here
__________________________________________________________
Joint owner sign here
__________________________________________________________
Date:
NON-VOTING ITEMS
MEETING ATTENDANCE - Mark the box to the right if you plan to attend the
Annual Meeting [ ]
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(BARCODE HERE) (TAGID HERE) (CUSIP HERE)