As filed with the Securities and Exchange Commission on October 19, 2010.
===============================================================================
1933 Act File No. 333-124146
1940 Act File No. 811-21756
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 STRATEGIC HIGH INCOME FUND
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(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:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(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):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] 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:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
October 19, 2010
Dear Shareholder:
The accompanying materials relate to the Joint Special Meetings of
Shareholders (referred to as the "Meeting") of First Trust Strategic High Income
Fund, First Trust Strategic High Income Fund II and First Trust Strategic High
Income Fund III (each, a "Fund" and collectively, the "Funds"). 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 consider and vote on a proposal
to approve a new investment management agreement (the "New Advisory Agreement")
between your Fund and its current investment advisor, First Trust Advisors L.P.
("First Trust Advisors" or the "Advisor"), (ii) to consider and vote on a
proposal to approve a new investment sub-advisory agreement (the "New
Sub-Advisory Agreement") among your Fund, the Advisor and its current investment
sub-advisor, Brookfield Investment Management Inc. ("Brookfield" or the
"Sub-Advisor") and (iii) to transact any other business as may properly come
before the Meeting and any adjournments or postponements thereof.
Upon the closing on October 12, 2010 of a transaction (the "Transaction"),
which, as described in the accompanying Joint Proxy Statement, resulted in a
"change in control" of First Trust Advisors, the investment management agreement
between your Fund and the Advisor automatically terminated in accordance with
its terms. Moreover, the closing of the Transaction may have also resulted in
the automatic termination of the investment sub-advisory agreement among your
Fund, Brookfield and the Advisor. The Advisor and the Sub-Advisor continue to
provide investment advisory and sub-advisory services, respectively, to each
Fund on an interim basis, as permitted by the Investment Company Act of 1940.
However, in order for them to continue to provide services to each Fund beyond
the interim period, as indicated above, shareholders of each Fund will be asked
at the Meeting to vote to approve the respective New Advisory Agreement and New
Sub-Advisory Agreement. The Board of Trustees of each Fund is recommending that
shareholders approve both of these agreements.
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 Subject to shareholder approval, First Trust Advisors and Brookfield
will continue to provide investment advisory and sub-advisory
services, respectively, to each Fund.
o The contractual advisory and sub-advisory fee rates will not
increase.
o The Transaction is not expected to result in a change in the persons
responsible for the management of the Funds or in the operations of
the Funds, or in any changes in the investment approach of the
Funds.
YOUR VOTE IS IMPORTANT. Please take a moment now to vote, either by
completing and returning your proxy card(s) 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 each Board of Trustees
--------------------------------------------------------------------------------
IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE PROPOSALS
OR HOW TO VOTE YOUR SHARES, CALL YOUR 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.
--------------------------------------------------------------------------------
- 2 -
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
NOTICE OF JOINT SPECIAL MEETINGS OF SHAREHOLDERS
to be held on December 6, 2010
October 19, 2010
To the Shareholders of First Trust Strategic High Income Fund, First Trust
Strategic High Income Fund II and First Trust Strategic High Income Fund III:
Notice is hereby given that the Joint Special Meetings of Shareholders
(referred to as the "Meeting") of First Trust Strategic High Income Fund, First
Trust Strategic High Income Fund II and First Trust Strategic High Income Fund
III (each, a "Fund" and collectively, the "Funds"), each a Massachusetts
business trust , will be held on Monday, December 6, 2010, 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, for the following purposes:
1. For each Fund, to approve a new investment management agreement
between such Fund and First Trust Advisors L.P., as investment advisor.
2. For each Fund, to approve a new investment sub-advisory
agreement among such Fund, First Trust Advisors L.P., as investment
advisor, and Brookfield Investment Management Inc., as investment
sub-advisor.
3. For each Fund, to transact any other business as may properly
come before the Meeting (including any adjournments or postponements
thereof).
The close of business on September 30, 2010 has been fixed 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 Boards of Trustees,
/s/ W. Scott Jardine
W. Scott Jardine
Secretary
--------------------------------------------------------------------------------
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(S) 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 PROPOSALS OR HOW TO VOTE YOUR SHARES, CALL YOUR 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.
--------------------------------------------------------------------------------
- 2 -
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
JOINT SPECIAL MEETINGS OF SHAREHOLDERS
to be held on December 6, 2010
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
JOINT PROXY STATEMENT
October 19, 2010
THIS JOINT PROXY STATEMENT AND THE ENCLOSED PROXY CARD WILL FIRST BE
MAILED TO SHAREHOLDERS ON OR ABOUT OCTOBER 19, 2010.
This Joint Proxy Statement is furnished by the Boards of Trustees (each, a
"Board" and collectively, the "Boards") of First Trust Strategic High Income
Fund (the "High Income Fund"), First Trust Strategic High Income Fund II (the
"High Income Fund II") and First Trust Strategic High Income Fund III (the "High
Income Fund III" and, together with the High Income Fund and the High Income
Fund II, the "Funds"), each a Massachusetts business trust, in connection with
the solicitation by the Boards of proxies to be voted at the Joint Special
Meetings of Shareholders of the Funds to be held on Monday, December 6, 2010, at
the offices of First Trust Advisors L.P., located at 120 East Liberty Drive,
Suite 400, Wheaton, Illinois 60187, at 4:00 p.m. Central time and at any and all
adjournments or postponements thereof (referred to collectively as the
"Meeting"). A Notice of Joint Special Meetings of Shareholders and a proxy card
accompany this Joint Proxy Statement. The Boards of the Funds have determined
that the use of this Joint Proxy Statement is in the best interests of each Fund
in light of the same matters being considered and voted on by shareholders.
The Boards have fixed the close of business on September 30, 2010 as the
record date (the "Record Date") for the determination of shareholders of each
Fund entitled to notice of, and to vote at, the Meeting.
As discussed more fully below, shareholders of each Fund are being asked:
1. 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.
2. To approve a new investment sub-advisory agreement (the "New
Sub-Advisory Agreement"), among the Fund, First Trust Advisors, as
investment advisor, and Brookfield Investment Management Inc.
("Brookfield" or the "Sub-Advisor"), the investment sub-advisor to the
Fund.
3. To transact any other business as may properly come before the
Meeting (including any adjournments or postponements).
Each 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.
On the Record Date, each Fund had the following number of Shares
outstanding:
--------------------------------------------------- ---------------------------
FUND AND TICKER SYMBOL SHARES OUTSTANDING
--------------------------------------------------- ---------------------------
First Trust Strategic High Income Fund (FHI) 9,150,594
--------------------------------------------------- ---------------------------
First Trust Strategic High Income Fund II (FHY) 9,533,776
--------------------------------------------------- ---------------------------
First Trust Strategic High Income Fund III (FHO) 9,156,182
--------------------------------------------------- ---------------------------
Shares of each Fund are listed on the New York Stock Exchange under the
ticker symbol shown above.
For shareholders voting by mail, if the enclosed proxy card is properly
executed and returned in time to be voted at the Meeting, the 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 proposal to approve the New Advisory Agreement, FOR the proposal
to approve the New Sub-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 applicable Fund at the above address. 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 Funds, 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 By-Laws of each Fund, 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
- 2 -
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 with respect to one or more matters 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 or adjournments.
Broker-dealer firms holding Shares in "street name" for the benefit of
their customers and clients may request voting instructions from such customers
and clients. Because broker-dealers may be subject to rules which will not
permit them to vote your Shares without instructions, you are encouraged to
contact your broker-dealer and record your voting instructions.
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 each 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 Funds,
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 $9,320 for the High Income Fund; $9,556 for the
High Income Fund II; and $7,151 for the High Income Fund III. As indicated
above, this cost will be borne by the Advisor.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON DECEMBER 6, 2010. THIS JOINT PROXY STATEMENT
IS AVAILABLE ON THE INTERNET AT
HTTP://WWW.FTPORTFOLIOS.COM/LOADCONTENT/GHHUGQJW. THE FUNDS' MOST RECENT ANNUAL
AND SEMI-ANNUAL REPORTS ARE ALSO AVAILABLE ON THE INTERNET AT:
(i) HTTP://WWW.FTPORTFOLIOS.COM/RETAIL/CEF/CEFFUNDNEWS.ASPX?TICKER=FHI
(FOR THE HIGH INCOME FUND);
(ii) HTTP://WWW.FTPORTFOLIOS.COM/RETAIL/CEF/CEFFUNDNEWS.ASPX?TICKER=FHY
(FOR THE HIGH INCOME FUND II); AND
(iii) HTTP://WWW.FTPORTFOLIOS.COM/RETAIL/CEF/CEFFUNDNEWS.ASPX?TICKER=FHO
(FOR THE HIGH INCOME FUND III).
THE FUNDS WILL FURNISH, WITHOUT CHARGE, COPIES OF THEIR 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.
- 3 -
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 of an adjournment or
postponement of the Meeting to a later date.)
- 4 -
BACKGROUND AND REASON FOR VOTE
The Advisor has served as investment advisor to each Fund since its
inception, initially pursuant to separate investment management agreements
(each, an "Original Advisory Agreement"), between the Advisor and the respective
Fund, and currently, as described below, pursuant to separate interim investment
management agreements (each, an "Interim Advisory Agreement"), also between the
Advisor and the respective Fund. Brookfield has served as each Fund's
sub-advisor since June 29, 2009, and, in this capacity, is responsible for the
selection and on-going monitoring of the securities in each Fund's investment
portfolio. Brookfield had served as sub-advisor to the Funds pursuant to
separate investment sub-advisory agreements among the respective Fund, the
Advisor and Brookfield (each, an "Original Sub-Advisory Agreement"), and since
October 12, 2010, Brookfield has been providing services to the Funds pursuant
to separate interim sub-advisory agreements (each, an "Interim Sub-Advisory
Agreement"), also among the respective Fund, the Advisor and Brookfield.
The Advisor is an Illinois limited partnership formed in 1991 and an
investment advisor registered with the Securities and Exchange Commission
("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 Securities Exchange Act of
1934, as amended (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 a Trustee who is an "interested person" (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund, 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 Proposal 1.
As required by the 1940 Act, each Original Advisory Agreement and Original
Sub-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
- 5 -
in the 1940 Act, of each Original Advisory Agreement, thus having the effect of
automatically terminating each Original Advisory Agreement on the Transaction
Closing Date. In addition, the consummation of the Transaction may have
constituted an "assignment," as that term is defined in the 1940 Act, of each
Original Sub-Advisory Agreement, thus having the effect of also automatically
terminating each Original Sub-Advisory Agreement on the Transaction Closing
Date. Since that date, the Advisor and the Sub-Advisor have served as investment
advisor and investment sub-advisor to each Fund pursuant to the applicable
Interim Advisory Agreement and Interim Sub-Advisory Agreement, respectively.
Shareholders of each Fund are being asked to approve the New Advisory Agreement
and the New Sub-Advisory Agreement for their Fund.
Shareholders should be aware of the following:
o The Transaction had no effect on the number of Fund shares you own
or the value of those Fund shares.
o Subject to shareholder approval, the Advisor and the Sub-Advisor
will continue to provide investment advisory and sub-advisory
services, respectively, to each Fund.
o The contractual advisory and sub-advisory fee rates will not
increase.
o The Transaction is not expected to result in a change in the persons
responsible for the management of the Funds or in the operations of
the Funds, or in any changes in the investment approach of the
Funds.
In anticipation of the completion of the Transaction and the termination
of each Original Advisory Agreement and Original Sub-Advisory Agreement, the
Board of each 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 each Fund for the Advisor to continue to act as investment advisor
to the respective Fund and for Brookfield to continue to act as investment
sub-advisor to the respective Fund. Accordingly, as permitted under the 1940 Act
and Rule 15a-4 thereunder ("Rule 15a-4"), the Board of Trustees of each Fund,
including all of the Trustees who are not "interested persons" (as defined in
the 1940 Act) of each Fund (the "Independent Trustees"), approved each Interim
Advisory Agreement and Interim Sub-Advisory Agreement to ensure the continuation
of investment advisory and investment sub-advisory services to the respective
Fund. As indicated above, the Interim Advisory Agreements and Interim
Sub-Advisory Agreements have 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 each Original Advisory Agreement and Original Sub-Advisory
Agreement (see "PROPOSAL 1 - THE INTERIM ADVISORY AGREEMENTS" and "PROPOSAL 2 -
THE INTERIM SUB-ADVISORY AGREEMENTS" below). In addition, at the Board Meeting,
the Boards approved, subject to shareholder approval, the New Advisory Agreement
and the New Sub-Advisory Agreement of each Fund. If shareholders of a Fund do
- 6 -
not approve the applicable New Advisory Agreement and/or New Sub-Advisory
Agreement, the respective Board will take such action as it deems to be in the
best interests of the Fund.
BOARD CONSIDERATIONS
The Board of each Fund, including the Independent Trustees, approved the
Interim Advisory Agreement and the New Advisory Agreement for each Fund
(collectively, the "Advisory Agreements") and the Interim Sub-Advisory Agreement
and New Sub-Advisory Agreement for each Fund (collectively, the "Sub-Advisory
Agreements" and together with the Advisory Agreements, 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 each Fund.
The Board also determined that it believes that the scope and quality of
services to be provided to each Fund under the Agreements will be at least
equivalent to the scope and quality of services provided under each Original
Advisory Agreement and each 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 each Original Advisory Agreement and may also result in the
"assignment" and termination of each 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. At the Board Meeting, the
Board considered the information provided by Mr. Bowen and the Advisor in
response to the Independent Trustees' request for information and considered the
approval of the Agreements.
To reach its determination for each Fund, 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. In connection with its
deliberations regarding the Agreements, the Board noted the Advisor's
representation that apart from their effective and termination dates and any
provisions of the Interim Advisory Agreements and Interim Sub-Advisory
Agreements required by Rule 15a-4, the Advisory Agreements and Sub-Advisory
Agreements were the same in all material respects as the Original Agreements.
The Board noted that it had recently considered the Advisor's and Sub-Advisor's
capabilities at a meeting held on March 21-22, 2010 and had determined to renew
each Original Advisory Agreement for an additional one-year term (the "2010
Renewal"). The Board noted that shareholders of each Fund had approved the
Original Sub-Advisory Agreement for their respective Fund for a two-year term at
a special meeting held on October 14, 2009. The Board considered that in
connection with the 2010 Renewal and its approval of the each Original
Sub-Advisory Agreement in 2009, it had received a report from each of the
Advisor and the Sub-Advisor that, among other things, outlined the services
provided by the Advisor and the Sub-Advisor to each Fund (including the relevant
personnel responsible for these services and their experience); the advisory and
sub-advisory fees for each Fund as compared to fees charged to other clients of
- 7 -
the Advisor and the Sub-Advisor and as compared to fees charged by investment
advisors and sub-advisors to comparable funds; expenses of each Fund as compared
to expense ratios of comparable funds; the nature of expenses incurred in
providing services to each Fund and the potential for economies of scale, if
any; financial data on the Advisor and the Sub-Advisor; any fall-out benefits to
the Advisor and the Sub-Advisor; and information on the Advisor's and the
Sub-Advisor's compliance programs. 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 Agreements and
that the Board could continue to rely on such information. In addition, the
Sub-Advisor represented to the Board that, except for the addition of certain
portfolio management techniques that the Sub-Advisor had discussed with the
Board, there had been no material changes to the information previously provided
to the Board and that the Board could continue to rely on such information.
Because the Board determined that any differences between the Original
Agreements and the Agreements were immaterial, the Board determined that much of
its previous analysis of the Original Agreements 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 and their consideration of the Agreements.
In reviewing the Agreements, the Board considered the nature, quality and
extent of services to be provided by the Advisor and the Sub-Advisor to each
Fund under the Agreements. The Board noted that the Transaction was not expected
to result in any changes to the personnel of the Advisor and Sub-Advisor
responsible for providing services to the Funds. The Board also considered the
representations of both the Advisor and the Sub-Advisor that there will be no
diminution in services provided under the Agreements. In light of the
information presented and the considerations made at the Board Meeting,
including the considerations made with respect to the Original Agreements, the
Board concluded that the nature, quality and extent of services to be provided
to each Fund by the Advisor and the Sub-Advisor under the Agreements are
expected to be satisfactory.
The Board considered the advisory and sub-advisory fees payable by each
Fund under the Agreements, noting that they would be the same as the fees
payable by each Fund under the Original Agreements. The Board 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 Funds'. The Board also considered that it had
reviewed information provided by the Sub-Advisor as to the fees it charges to
other similar clients. The Board also considered performance information for
each Fund, including each Fund's quarterly performance report, which is part of
the process that the Board has established for monitoring each Fund's
performance and portfolio risk on an ongoing basis. The Board also considered
the changes in each Fund's investment strategies and changes made to each Fund's
portfolio since the Sub-Advisor began managing each Fund's portfolio in 2009. In
light of the information presented on the fees and performance of each Fund and
the considerations made at the Board Meeting, including the considerations made
with respect to the Original Agreements, the Board concluded that the advisory
and sub-advisory fees for each Fund were reasonable and appropriate in light of
- 8 -
the nature, quality and extent of services expected to be provided by the
Advisor and Sub-Advisor to each Fund under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels for each Fund reflect any
economies of scale for the benefit of shareholders. The Board concluded that the
advisory fee for each Fund continues to reflect an appropriate level of sharing
of any economies of scale at each Fund's 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 each Fund for the twelve months ended December 31, 2009. The Board
considered its prior conclusion that the Advisor's profitability for each Fund
appeared to be not excessive in light of the services provided to each Fund. The
Board considered whether the Advisor derives any ancillary benefits from its
relationship with each 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 each 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. The Board also considered information
regarding a private lawsuit involving the Advisor and each Fund alleging
misleading disclosure in each Fund's registration statement. The Board noted the
Advisor's representation that the lawsuit would not impact the Advisor's ability
to perform under the Agreements.
The Board considered that the sub-advisory fee rate for each Fund was
negotiated at arm's length between the Advisor and the Sub-Advisor, an
unaffiliated third party. The Board noted that the overall management fee
structure for each Fund reflects an appropriate level of sharing of any
economies of scale. The Board noted that the Sub-Advisor does not maintain
soft-dollar arrangements in connection with its management of each Fund's
portfolio and that the Sub-Advisor indicated that it does not receive any
material fall-out benefits from its relationship to each Fund.
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 each Fund. No single factor was determinative in the
Board's analysis.
Accordingly, the Board recommends that shareholders of each Fund vote to
approve the New Advisory Agreement and the New Sub-Advisory Agreement on behalf
of their respective Fund.
- 9 -
PROPOSAL 1: APPROVAL OF NEW ADVISORY AGREEMENTS FOR THE FUNDS
THE ORIGINAL ADVISORY AGREEMENTS
Set forth below, with respect to each Original Advisory Agreement, are:
(1) the date of the Original Advisory Agreement; (2) the date on which the
Original Advisory Agreement was last submitted to a vote of the shareholders of
the applicable Fund and the purpose of such submission; and (3) the actions
taken by the applicable Fund's Board with respect to the Original Advisory
Agreement since the beginning of the Fund's last fiscal year:
------------------------------ --------------------------- --------------------------- ---------------------------
DATE OF ORIGINAL DATE AND PURPOSE BOARD ACTION SINCE
ADVISORY OF LAST BEGINNING OF LAST FISCAL
FUND AGREEMENT SUBMISSION TO SHAREHOLDERS YEAR
------------------------------ --------------------------- --------------------------- ---------------------------
July 19, 2005 Approval of continuation
(Initial shareholder (March 1-2, 2009 and March
High Income Fund July 26, 2005 approval) 21-22, 2010)
------------------------------ --------------------------- --------------------------- ---------------------------
March 21, 2006 Approval of continuation
(Initial shareholder (March 1-2, 2009 and March
High Income Fund II March 28, 2006 approval) 21-22, 2010)
------------------------------ --------------------------- --------------------------- ---------------------------
March 21, 2007 Approval of continuation
(Initial shareholder (March 1-2, 2009 and March
High Income Fund III March 27, 2007 approval) 21-22, 2010)
------------------------------ --------------------------- --------------------------- ---------------------------
THE INTERIM ADVISORY AGREEMENTS
Many of the terms of each Interim Advisory Agreement are the same as those
of the respective 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, each Interim Advisory
Agreement will continue to be in effect through the Interim Termination Date or
until shareholders of the respective Fund approve the New Advisory Agreement for
such Fund, whichever occurs first. In addition, each Interim Advisory Agreement
may be terminated by the respective Fund (by action of the respective 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 such Fund) upon 10
calendar days' written notice to the Advisor without the payment of any penalty.
- 10 -
The rates of compensation paid to the Advisor are the same under each
applicable Interim Advisory Agreement, Original Advisory Agreement and New
Advisory Agreement. The compensation accrued under each Interim Advisory
Agreement, however, is to be held in an interest-bearing escrow account with the
respective Fund's custodian or another bank designated by such Fund. If each New
Advisory Agreement is approved by shareholders of the respective Fund by the
Interim Termination Date, the amount in the escrow accounts (including the
interest earned) will be paid to the Advisor. However, if shareholders of a Fund
do not approve its New Advisory Agreement by such date, the Advisor will be
paid, out of such Fund's 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 AGREEMENTS AND ORIGINAL ADVISORY
AGREEMENTS
Below is a brief comparison of certain terms of the Original Advisory
Agreements to the corresponding terms of the New Advisory Agreements. Many of
the terms of the New Advisory Agreements, including fees payable to the Advisor
by each Fund thereunder, are substantially the same in all material respects to
the terms of the corresponding Original Advisory Agreements; however the New
Advisory Agreements include new effective dates and have been updated in certain
other respects (including, among other things, the elimination of certain
provisions that are no longer relevant). The form of New Advisory Agreement
(which applies to each Fund) is attached to this Joint Proxy Statement as
Exhibit A and the description of the New Advisory Agreements is qualified in its
entirety by reference to such Exhibit.
Advisory Services. As was the case under the Original Advisory Agreements,
under the New Advisory Agreements, the Advisor will agree to act as the
investment advisor for, and to manage the investment and reinvestment of the
assets of, each Fund in accordance with such Fund's investment objectives 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 Agreements provide that the investment of each 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 Agreements included a similar provision. In
addition, the Advisor agreed under the Original Advisory Agreements, and will
agree under the New Advisory Agreements, to furnish office facilities and
equipment as well as certain clerical, bookkeeping and administrative services.
Finally, as was the case under the Original Advisory Agreements, under the New
Advisory Agreements, 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 Funds.
Fees. As was the case under the Original Advisory Agreements, as
compensation for its services and facilities furnished to each Fund under the
New Advisory Agreements, the Advisor will be entitled to receive, on a monthly
basis, an investment management fee equal to the annual rate of 0.90% of such
Fund's "Managed Assets." The term "Managed Assets" means the average daily gross
asset value of a Fund, which includes assets attributable to the Fund's
- 11 -
preferred shares, if any, and the principal amount of borrowings, if any, 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 each Fund's
last fiscal year, the aggregate amount of the advisory fees paid to the Advisor
under the respective Original Advisory Agreement by (i) the High Income Fund was
$308,473; (ii) the High Income Fund II was $484,956; and (iii) the High Income
Fund III was $241,569; on September 21, 2009, the Board of the High Income Fund
III approved a change in the fiscal year end for that Fund from January 31 to
October 31.
The Funds have similar investment objectives. As of September 10, 2010,
the approximate amount of managed assets of (i) the High Income Fund was
$40,854,128; (ii) the High Income Fund II was $59,371,595; and (iii) the High
Income Fund III was $55,113,528.
Limitation of Liability. As was the case under the Original Advisory
Agreements, each 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 such Agreement.
Continuance. Each 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
Agreements are approved by shareholders, if not terminated earlier, each 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 each Original Advisory Agreement, each
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 respective Fund or by the Advisor upon 60 days'
written notice to the other party. A 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
respective Fund, accompanied by appropriate notice. In addition, each Original
Advisory Agreement was, and each 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 respective 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
material covenants of the Advisor set forth in such Agreement.
- 12 -
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 Boards have not been advised of any circumstances arising under the
Transaction that might result in the imposition of an "unfair burden" being
imposed on the Funds. In addition, the Funds have adopted procedures which
include steps intended to cause the conditions of Section 15(f) to be met.
ADDITIONAL INFORMATION ABOUT THE FUNDS AND THE ADVISOR
A list of the officers of each Fund and the managing directors and
principal officers of the Advisor, their positions with each Fund and/or the
Advisor, and their principal occupations are set forth below. Certain officers
of each 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
- 13 -
POSITION WITH THE POSITION WITH THE
NAME TRUSTS ADVISOR PRINCIPAL OCCUPATION
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.
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 officer and managing director
of the Advisor is 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187.
- 14 -
SHAREHOLDER APPROVAL AND REQUIRED VOTE
To become effective for a Fund, the applicable New Advisory Agreement must
be approved by a vote of a majority of the outstanding voting securities of such
Fund. The "vote of a majority of the outstanding voting securities" of a 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 each 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 PROPOSAL 1 OR
HOW TO VOTE YOUR SHARES, CALL THE FUNDS' 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 OF EACH FUND RECOMMENDS THAT SHAREHOLDERS VOTE TO
APPROVE THE NEW ADVISORY AGREEMENTS.
- 15 -
PROPOSAL 2: APPROVAL OF NEW SUB-ADVISORY AGREEMENTS FOR THE
FUNDS
BROOKFIELD INVESTMENT MANAGEMENT INC.
General and Organizational Information
Brookfield Investment Management Inc. ("Brookfield"), an indirect
wholly-owned subsidiary of Brookfield Asset Management Inc. Brookfield is an
indirect wholly-owned subsidiary of BAM. HCM Holdings, Inc. ("HCM") is the sole
shareholder of Brookfield. HCM is a wholly-owned subsidiary of Brookfield
Investment Management Holdings Inc. ("Brookfield Holdings"). Brookfield Holdings
is a wholly-owned subsidiary of Brookfield US Corporation, which is a
wholly-owned subsidiary of Brookfield US Holdings Inc. Brookfield US Holdings
Inc. is a wholly-owned subsidiary of BAM. Brookfield, HCM, Brookfield Holdings
and Brookfield US Corporation are each located at Three World Financial Center,
200 Vesey Street, 10th Floor, New York, New York 10281-1010. BAM and Brookfield
US Holdings Inc. are each located at Brookfield Place, 181 Bay Street, Suite
300, P.O. Box 762, Toronto, Ontario M5J 2T3. ("BAM"), is a Delaware corporation
organized in 1989 and a registered investment adviser under the Investment
Advisers Act of 1940, as amended. The business address of Brookfield and its
officers and directors is Three World Financial Center, 200 Vesey Street, 10th
Floor, New York, New York 10281-1010. As of August 31, 2010, Brookfield and its
affiliates had approximately $23 billion in assets under management.
Brookfield's clients include pension plans, foundations and endowments,
insurance companies, financial institutions, mutual funds, closed-end funds and
structured products. Brookfield also provides portfolio evaluation and
consultation services. In its investment process, Brookfield focuses on relative
value opportunities. BAM, an Ontario, Canada corporation, is a global asset
manager focused on property, power and other infrastructure assets and has its
principal place of business at Brookfield Place, 181 Bay Street, Suite 300, P.O.
Box 762, Toronto, Ontario M5J 2T3.
--------------------------
1 Brookfield is an indirect wholly-owned subsidiary of BAM. HCM Holdings,
Inc. ("HCM") is the sole shareholder of Brookfield. HCM is a wholly-owned
subsidiary of Brookfield Investment Management Holdings Inc. ("Brookfield
Holdings"). Brookfield Holdings is a wholly-owned subsidiary of Brookfield
US Corporation, which is a wholly-owned subsidiary of Brookfield US
Holdings Inc. Brookfield US Holdings Inc. is a wholly-owned subsidiary of
BAM. Brookfield, HCM, Brookfield Holdings and Brookfield US Corporation
are each located at Three World Financial Center, 200 Vesey Street, 10th
Floor, New York, New York 10281-1010. BAM and Brookfield US Holdings Inc.
are each located at Brookfield Place, 181 Bay Street, Suite 300, P.O. Box
762, Toronto, Ontario M5J 2T3.
- 16 -
A list of the directors and principal officers of the Sub-Advisor, their
positions with the Sub-Advisor and their principal occupations are set forth
below:
NAME POSITION WITH BROOKFIELD PRINCIPAL OCCUPATION
Kim G. Redding Member of the Board of Directors, Chief Executive Chief Executive Officer and
Officer, Chief Investment Officer Chief Investment Officer of
President of several investment companies advised Brookfield
by Brookfield
Jonathan C. Tyras Managing Director, Secretary, General Counsel and Managing Director, Secretary,
Chief Financial Officer General Counsel and Chief
Secretary of several investment companies advised by Financial Officer of Brookfield
Brookfield
Seth A. Gelman Director, Chief Compliance Officer ("CCO") CCO of Brookfield
CCO of several investment companies advised by
Brookfield
SIMILAR INVESTMENT COMPANIES ADVISED BY BROOKFIELD
In addition to the Funds, which, as noted in Proposal 1 under "COMPARISON
OF CERTAIN TERMS OF THE NEW ADVISORY AGREEMENTS AND ORIGINAL ADVISORY
AGREEMENTS--Fees" have similar investment objectives, Brookfield currently acts
as investment adviser to several other investment companies, set forth in the
table below, with investment objectives and policies that are similar to, or
that overlap with, those of the Funds:
------------------------------------------------- ----------------------------- ----------------------------------
APPROXIMATE NET
ASSETS AS OF INVESTMENT ADVISORY
FUND AUGUST 31, 2010 ANNUAL FEE RATE
------------------------------------------------- ----------------------------- ----------------------------------
Helios Advantage Income Fund, Inc. (HAV)(1) $ 48.5 million 0.65% of average daily net assets
------------------------------------------------- ----------------------------- ----------------------------------
Helios High Income Fund, Inc. (HIH)(1) $ 36.7 million 0.65% of average daily net assets
------------------------------------------------- ----------------------------- ----------------------------------
Helios Multi-Sector High Income Fund, Inc.
(HMH)(1) $ 40.5 million 0.65% of average daily net assets
------------------------------------------------- ----------------------------- ----------------------------------
Helios Strategic Income Fund, Inc. (HSA)(1) $ 34.8 million 0.65% of average daily net assets
------------------------------------------------- ----------------------------- ----------------------------------
Helios Strategic Mortgage Income Fund, Inc.
(HSM)(2) $ 63.6 million 0.65% of average weekly net assets
------------------------------------------------- ----------------------------- ----------------------------------
Helios Total Return Fund, Inc. (HTR)(2) $ 182 million 0.65% of average weekly net assets
------------------------------------------------- ----------------------------- ----------------------------------
- 17 -
------------------------------------------------- ----------------------------- ----------------------------------
APPROXIMATE NET
ASSETS AS OF INVESTMENT ADVISORY
FUND AUGUST 31, 2010 ANNUAL FEE RATE
------------------------------------------------- ----------------------------- ----------------------------------
Helios High Yield Fund (HHY) (3) $ 65.3 million 0.70% of average weekly net assets
------------------------------------------------- ----------------------------- ----------------------------------
----------------------
(1) Until July 28, 2010, annual operating expenses were capped at 1.30%
of the fund's net assets. These funds are subject to an additional
annual fee payable to Brookfield of 0.15% of the fund's average daily
net assets for administrative services.
(2) These funds are subject to an additional annual fee payable to
Brookfield of 0.20% of average weekly net assets for administrative
services.
(3) The fund's operating expenses are capped at 1.65% of the average
annual value of the total assets minus the sum of accrued liabilities
(other than the aggregate indebtedness constituting financial
leverage).
THE ORIGINAL SUB-ADVISORY AGREEMENTS
Each Original Sub-Advisory Agreement was dated October 14, 2009 and was
approved by the shareholders of the respective Fund at a special meeting held on
such date; in that regard, Brookfield succeeded Valhalla Capital Partners, LLC
as sub-advisor to each Fund. Since the beginning of each Fund's last fiscal
year, the respective Original Sub-Advisory Agreement was approved by its Board
at a meeting held on June 29, 2009.
THE INTERIM SUB-ADVISORY AGREEMENTS
Many of the terms of each Interim Sub-Advisory Agreement are substantially
the same as those of each Original Sub-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, each
Interim Sub-Advisory Agreement will continue to be in effect through the Interim
Termination Date or until shareholders of each respective Fund approve the New
Sub-Advisory Agreement for such Fund, whichever occurs first. In addition, each
Interim Sub-Advisory Agreement may be terminated by action of the respective
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
respective Fund upon 10 calendar days' written notice to the Sub-Advisor,
without payment of any penalty.
The rates of compensation paid to the Sub-Advisor are the same under each
applicable Interim Sub-Advisory Agreement, Original Sub-Advisory Agreement and
New Sub-Advisory Agreement. The compensation accrued under each Interim
Sub-Advisory Agreement, however, is to be held in an interest-bearing escrow
account with the respective Fund's custodian or another bank designated by such
Fund. If each New Sub-Advisory Agreement is approved by shareholders of the
respective Fund by the Interim Termination Date, the amounts in the escrow
accounts (including the interest earned) will be paid to the Sub-Advisor.
However, if shareholders of a Fund do not approve its New Sub-Advisory Agreement
by such date, the Sub-Advisor will be paid, out of such Fund's escrow account,
the lesser of: (i) any costs incurred by the Sub-Advisor in performing services
- 18 -
under the Interim Sub-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 THE NEW SUB-ADVISORY AGREEMENTS AND ORIGINAL SUB-ADVISORY
AGREEMENTS
Below is a brief comparison of certain terms of the Original Sub-Advisory
Agreements to the corresponding terms of the New Sub-Advisory Agreements. Many
of the terms of the New Sub-Advisory Agreements, including fees payable to the
Sub-Advisor by the Advisor thereunder, are substantially the same in all
material respects to the terms of the corresponding Original Sub-Advisory
Agreements; however the New Sub-Advisory Agreements include a new effective date
and have been updated in certain other respects. The form of New Sub-Advisory
Agreement (which applies to each Fund) is attached to this Joint Proxy Statement
as Exhibit B and the description of the New Sub-Advisory Agreements is qualified
in its entirety by reference to such Exhibit.
Sub-Advisory Services. As was the case under the Original Sub-Advisory
Agreements, under the New Sub-Advisory Agreements, the Sub-Advisor will furnish
an investment program in respect of, make investment decisions for, and place
all orders for the purchase and sale of securities for each Fund's investment
portfolio, all on behalf of such Fund and subject to the supervision of the
Fund's Board and the Advisor. In addition, as was the case under the Original
Sub-Advisory Agreements, under the New Sub-Advisory Agreements, the Sub-Advisor
is required to monitor each Fund's investments and to comply with the provisions
of the Fund's Declaration of Trust and By-Laws and the stated investment
objectives, policies and restrictions of the Fund; however, with respect to the
obligation to monitor a Fund's investments, except for the Sub-Advisor's
compliance responsibilities with respect to its portfolio services, the Advisor
will remain responsible for the oversight of compliance with the Fund's policies
and procedures and its Prospectus and Statement of Additional Information. In
addition, as was the case under each Original Sub-Advisory Agreement, under each
New Sub-Advisory Agreement, the Sub-Advisor will assist in the valuation of
portfolio securities held by the Fund as requested by the Advisor or the Fund.
Moreover, each Original Sub-Advisory Agreement provided and each New
Sub-Advisory Agreement provides that unless the applicable Board determines
otherwise, the Sub-Advisor will vote proxies solicited by or with respect to the
issuers of securities corresponding to assets of the Fund's investment portfolio
allocated by the Advisor to the Sub-Advisor.
Brokerage. As was the case under the Original Sub-Advisory Agreements, the
New Sub-Advisory Agreements authorize the Sub-Advisor to select the brokers or
dealers that will execute the purchases and sales of portfolio investments for
the respective Fund, and direct the Sub-Advisor to use its commercially
reasonable efforts to obtain best execution, which includes most favorable net
results and execution of each 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.
Fees. As was the case under the Original Sub-Advisory Agreements, under
the New Sub-Advisory Agreements, the Advisor will pay the Sub-Advisor a
portfolio management fee on a monthly basis. Both the Original Sub-Advisory
- 19 -
Agreements and the New Sub-Advisory Agreements provide that for services
provided and expenses assumed, the Advisor will pay the Sub-Advisor a fee equal
to the annual rate of 0.45% of the respective Fund's "Managed Assets." The term
"Managed Assets" means the average daily gross asset value of a Fund (including
assets attributable to such Fund's preferred shares, if any, and the principal
amount of borrowings, if any), 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); the liquidation preference of any outstanding preferred
shares of the Fund is not treated as a liability for purposes of determining
"Managed Assets." For each Fund's last fiscal year, the aggregate amount of the
sub-advisory fees paid by the Advisor to the Sub-Advisor (from June 29, 2009
through October 31, 2009 under the respective Original Sub-Advisory Agreement
and interim sub-advisory agreement in effect prior thereto) for (i) the High
Income Fund was $36,348.29; (ii) the High Income Fund II was $60,655.75; and
(iii) the High Income Fund III was $47,913.81; on September 21, 2009, the Board
of the High Income Fund III approved a change in the fiscal year end for that
Fund from January 31 to October 31.
Payment of Expenses. As was the case under the Original Sub-Advisory
Agreements, under each New Sub-Advisory Agreement, the Sub-Advisor will agree to
pay all expenses it incurs in connection with its activities under such
Agreement other than the cost of securities and other assets (including
brokerage commissions, transfer fees, registration costs, taxes and other
similar costs and transaction-related expenses and fees arising out of
transactions for the Fund, if any) purchased for each Fund. Moreover, the
Sub-Advisor shall not be responsible for payment of any taxes due on capital or
income held or collected for the Fund.
Limitation on Liability. As was the case under the Original Sub-Advisory
Agreements, each New Sub-Advisory Agreement provides that the Sub-Advisor will
not be liable for, and the applicable Fund and the Advisor will not take any
action against the Sub-Advisor to hold the Sub-Advisor liable for, any error of
judgment or mistake of law or for any loss suffered by the respective Fund or
the Advisor in connection with the performance of the Sub-Advisor's duties under
such Agreement, except for a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Sub-Advisor in the performance of its
duties under the Agreement, or by reason of its reckless disregard of its
obligations and duties under the Agreement.
Indemnification. As was the case under the Original Sub-Advisory
Agreements, under each New Sub-Advisory Agreement, the respective Fund will
indemnify and hold harmless the Sub-Advisor, its affiliates and their directors,
officers, employees, agents and any person controlled by or controlling the
Sub-Advisor from and against, any and all losses, claims, damages, liabilities
or litigation (including reasonable attorney's fees and expenses) (collectively,
"Losses") incurred by the Sub-Advisor directly relating to the actions of any
previous sub-advisor of the Fund, including any claims by third parties
(including, but not limited to, any claims made or actions brought by any
administrative or regulatory authority) relating to, arising from or premised on
any Losses arising out of or relating to the Fund's investments in any
securities that were owned by the Fund on June 29, 2009 (provided that such
indemnification arising from or premised on any Losses arising out of or
relating to the Fund's investments in any securities that were owned by the Fund
on June 29, 2009 shall not apply in the event that such Losses are finally
- 20 -
judicially determined to have resulted from the willful misfeasance, bad faith
or gross negligence on the part of the Sub-Advisor in the performance of its
duties under such Agreement, or by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under such Agreement).
Continuance. Each Original Sub-Advisory Agreement provided that it would
be in effect for an initial term until October 14, 2011 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 and the rules
and regulations thereunder. If the shareholders of a Fund approve the applicable
New Sub-Advisory Agreement, 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 and the rules and regulations thereunder.
Termination. As was the case under each Original Sub-Advisory Agreement,
each New Sub-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), (b) may be terminated at any time without the
payment of any penalty by the Advisor or the Sub-Advisor upon 60 days' written
notice to the other parties, and (c) may be terminated by the respective 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 such Fund upon 60 days' written notice to the Sub-Advisor by the Fund without
payment of any penalty. In addition, each Original Sub-Advisory Agreement was,
and each New Sub-Advisory Agreement is, terminable at any time without the
payment of any penalty by the Advisor, the Board or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act and the rules and
regulations thereunder) of the respective Fund in the event that it is
established by a court of competent jurisdiction that the Sub-Advisor or any of
its officers or directors has taken any action that results in a breach of the
material covenants of the Sub-Advisor set forth in the Agreement.
SHAREHOLDER APPROVAL AND REQUIRED VOTE
To become effective for a Fund, the applicable New Sub-Advisory Agreement
must be approved by a vote of a majority of the outstanding voting securities of
such Fund. The "vote of a majority of the outstanding voting securities" of a
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 each New Sub-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 PROPOSAL 2 OR
HOW TO VOTE YOUR SHARES, CALL THE FUNDS' 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 OF EACH FUND RECOMMENDS THAT SHAREHOLDERS VOTE TO
APPROVE THE NEW SUB-ADVISORY AGREEMENTS.
- 21 -
ADDITIONAL INFORMATION
THE ADMINISTRATOR, ACCOUNTING AGENT AND TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc. acts as the administrator,
accounting agent and transfer agent to each Fund and its principal U.S. office
is located at 4400 Computer Drive, Westborough, Massachusetts 01581.
BENEFICIAL OWNERSHIP OF SHARES
Control Persons and Principal Holders
To the knowledge of the respective Board of Trustees, as of the Record
Date, no single shareholder or "group" (as that term is used in Section 13(d) of
the 1934 Act) beneficially owned more than 5% of a Fund's outstanding Shares,
except as described in the following tables. Information as to beneficial
ownership of Shares, including percentage of Shares beneficially owned, is based
on reports filed with the SEC by such holders and a securities position listing
report from The Depository Trust & Clearing Corporation as of the Record Date.
The Funds do not have any knowledge of the identity of the ultimate
beneficiaries of the Shares listed below. A control person is one who owns,
either directly or indirectly, more than 25% of the voting securities of a Fund
or acknowledges the existence of control.
High Income Fund
----------------
PERCENT NUMBER OF
SHAREHOLDER AND ADDRESS OWNERSHIP SHARES HELD
----------------------- ----------------- ----------------
Charles Schwab & Co., Inc. 6.29% 575,506
2423 E. Lincoln Drive
Phoenix, AZ 85016
First Clearing, LLC 11.38% 1,040,906
One North Jefferson Street
St. Louis, MO 63103
National Financial Services LLC 13.57% 1,241,584
200 Liberty Street
New York, NY 10281
Pershing LLC 7.32% 670,252
Securities Corporation
1 Pershing Plaza
Jersey City, NJ 07399
RBC Capital Markets Corporation 9.11% 833,640
510 Marquette Avenue South
Minneapolis, MN 55402
- 22 -
PERCENT NUMBER OF
SHAREHOLDER AND ADDRESS OWNERSHIP SHARES HELD
----------------------- ----------------- ----------------
TD Ameritrade Clearing, Inc. 6.50% 595,127
1005 Ameritrade Place
Bellevue, NE 68005
High Income Fund II
-------------------
PERCENT NUMBER OF
SHAREHOLDER AND ADDRESS OWNERSHIP SHARES HELD
----------------------- ----------------- ----------------
First Clearing, LLC 15.82% 1,508,350
One North Jefferson Street
St. Louis, MO 63103
National Financial Services LLC 7.48% 713,195
200 Liberty Street
New York, NY 10281
Oppenheimer & Co., Inc. 5.34% 509,445
125 Broad Street
15th Floor
New York, NY 10004
Pershing LLC 11.06% 1,054,005
Securities Corporation
1 Pershing Plaza
Jersey City, NJ 07399
RBC Capital Markets Corporation 9.82% 936,279
510 Marquette Avenue South
Minneapolis, MN 55402
- 23 -
High Income Fund III
--------------------
PERCENT NUMBER OF
SHAREHOLDER AND ADDRESS OWNERSHIP SHARES HELD
----------------------- ----------------- ----------------
Charles Schwab & Co., Inc. 7.38% 675,723
2423 E. Lincoln Drive
Phoenix, AZ 85016
Citigroup Global Markets Inc. 8.98% 822,494
700 Red Brook Blvd.
Suite 300
Owings Mills, MD 21117
First Clearing, LLC 12.48% 1,142,653
One North Jefferson Street
St. Louis, MO 63103
National Financial Services LLC 6.71% 614,649
200 Liberty Street
New York, NY 10281
Pershing LLC 8.12% 743,279
Securities Corporation
1 Pershing Plaza
Jersey City, NJ 07399
RBC Capital Markets Corporation 13.91% 1,273,416
510 Marquette Avenue South
Minneapolis, MN 55402
Trustees and Officers
As of July 31, 2010, the Trustees of the Funds beneficially owned the
following number of Shares of each Fund as set forth below:
TRUSTEE HIGH INCOME FUND HIGH INCOME FUND II HIGH INCOME FUND III
INTERESTED TRUSTEE
James A. Bowen 1,000 3,750 0
INDEPENDENT TRUSTEES
Richard E. Erickson 0 0 0
Thomas R. Kadlec 0 0 0
Robert F. Keith 0 0 0
Niel B. Nielson 535 526 0
- 24 -
As of July 31, 2010, (1) each Trustee beneficially owned less than 1% of
the outstanding Shares of each Fund and (2) the Trustees and officers as a group
beneficially owned 1,535 Shares of the High Income Fund, 4,276 Shares of the
High Income Fund II and 0 Shares of the High Income Fund III, which, in each
case is less than 1% of the respective Fund's outstanding Shares.
SHAREHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Shareholders of
the Funds to be held in 2011, 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 November 22,
2010.
Any proposals by shareholders may only be brought before an annual meeting
of a 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 each 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, 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.
Timely submission of a proposal does not mean that such proposal will be
included in a proxy statement.
SHAREHOLDER COMMUNICATIONS
Shareholders of each Fund who want to communicate with the Board of
Trustees or any individual Trustee should write the respective 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.
FISCAL YEAR
The fiscal year end for each Fund is October 31.
- 25 -
DELIVERY OF CERTAIN DOCUMENTS
Annual reports will be sent to shareholders of record of each Fund
following each Fund's respective fiscal year end. Each Fund will furnish,
without charge, a copy of its annual report and/or semi-annual report as
available upon request. Such written or oral requests should be directed to the
applicable 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 a Fund who share an address, unless
such 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.
Dated: 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 PROPOSALS OR HOW
TO VOTE YOUR SHARES, CALL THE FUNDS' PROXY SOLICITOR, THE ALTMAN GROUP, INC., AT
(866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
--------------------------------------------------------------------------------
- 26 -
EXHIBIT A
FORM OF
NEW ADVISORY AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT made this [ ] day of [ ], by and between
FIRST TRUST STRATEGIC HIGH INCOME FUND [II] [III], 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 objectives 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 therefor, an investment management fee equal to the
annual rate of 0.90% of the Fund's Managed Assets, as such term is defined
herein. "Managed Assets" means the average daily gross asset value of the Fund
which includes assets attributable to the Fund's Preferred Shares (as such term
is defined in the Fund's prospectus), if any, and the principal amount of
borrowings, if any, 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 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. The 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), the Adviser may select brokers or dealers
affiliated with the Adviser. It is understood that the 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 the
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 the Adviser's
A-2
overall responsibilities with respect to its accounts, including the Fund, as to
which it exercises investment discretion.
In addition, the Adviser may, to the extent permitted by applicable law,
aggregate purchase and sale orders of securities with similar orders being made
simultaneously for other accounts managed by the Adviser or its affiliates, if
in the Adviser's reasonable judgment such aggregation shall result in an overall
economic benefit to the Fund, taking into consideration the selling or purchase
price, brokerage commissions and other expenses. In the event that a purchase or
sale of an asset of the Fund occurs as part of any aggregate sale or purchase
orders, the objective of the 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 the Adviser have
available funds for investment, investments suitable and appropriate for each
will be allocated in a manner believed by the 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, the 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.
The Adviser will not arrange purchases or sales of securities between the
Fund and other accounts advised by the 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) the 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.
The 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 by or sold to the
Adviser or any affiliated person of either the Fund or the Adviser, except as
may be permitted under the 1940 Act.
The 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;
A-3
(b) will conform in all material respects to all applicable rules
and regulations of the Securities and Exchange Commission and comply in
all material respects 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 all material
respects in accordance with any applicable regulations of any governmental
authority pertaining to its investment advisory activities;
(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 of Trustees may reasonably
request. The Adviser further agrees that all records which it maintains
for the Fund are the property of the Fund and the 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 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
A-4
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 the 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 the
Adviser to assist in the Adviser's duties under this Agreement will not devote
their full time to such efforts. It is also agreed that the Adviser may use any
supplemental research obtained for the benefit of the Fund in providing
investment advice to its other investment advisory accounts and for managing its
own accounts.
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 material 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 and for any additional period during which
the Adviser serves as such for the Fund, subject to applicable law. The terms
"assignment" and "vote of the majority of outstanding voting securities" shall
have the same meanings set forth in the 1940 Act and the 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
A-5
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.
A-6
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
FIRST TRUST STRATEGIC HIGH INCOME FUND
[II] [III]
By:____________________________________
Name:
Title:
ATTEST: _________________________
Name:
Title:
FIRST TRUST ADVISORS L.P.
By:____________________________________
Name:
ATTEST: _________________________
Name:
Title:
A-7
EXHIBIT B
FORM OF
NEW SUB-ADVISORY AGREEMENT
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this [ ] day of [ ] by and among First Trust
Strategic High Income Fund [II] [III], a Massachusetts business trust (the
"Fund"), First Trust Advisors L.P., an Illinois limited partnership (the
"Manager") and a registered investment adviser with the Securities and Exchange
Commission ("SEC"), and Brookfield Investment Management Inc., a Delaware
corporation and a registered investment adviser with the SEC (the
"Sub-Adviser").
WHEREAS, the Fund is a closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund has retained the Manager to serve as the investment
manager for the Fund pursuant to an Investment Management Agreement between the
Manager and the Fund (as such agreement may be modified from time to time, the
"Management Agreement");
WHEREAS, the Management Agreement provides that the Manager may, subject
to the initial and periodic approvals required under Section 15 of the 1940 Act,
appoint a sub-adviser at its own cost and expense for the purpose of furnishing
certain services required under the Management Agreement;
WHEREAS, the Fund and the Manager desire to retain the Sub-Adviser to
furnish investment advisory services for the Fund's investment portfolio, upon
the terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. The Fund and the Manager hereby appoint the Sub-Adviser
to provide certain sub-investment advisory services to the Fund for the period
and on the terms set forth in this Agreement. The Sub-Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided. The Sub-Adviser shall, for all purposes herein
provided, be deemed an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for nor represent the
Fund or the Manager in any way, nor otherwise be deemed an agent of the Fund or
the Manager.
2. Services to Be Performed. Subject always to the supervision of the
Fund's Board of Trustees and the Manager, the Sub-Adviser will act as
sub-adviser for, and manage on a discretionary basis the investment and
reinvestment of the assets of the Fund, furnish an investment program in respect
of, make investment decisions for, and place all orders for the purchase and
sale of securities for the Fund's investment portfolio, all on behalf of the
Fund and as described in the Fund's most recent registration statement on Form
N-2 as declared effective by the SEC, and as the same may thereafter be amended
from time to time. In the performance of its duties, the Sub-Adviser will in all
material respects (a) satisfy any applicable fiduciary duties it may have to the
Fund, (b) monitor the Fund's investments (provided that except for the
compliance responsibilities of the Sub-Adviser with respect to the portfolio
services described in the first sentence of this Section 2, the Manager shall
remain responsible for the oversight of compliance with the Fund's policies and
procedures and its Prospectus and Statement of Additional Information), (c)
comply with the provisions of the Fund's Declaration of Trust and By-laws, as
amended from time to time and communicated by the Fund or the Manager to the
Sub-Adviser in writing, and the stated investment objectives, policies and
restrictions of the Fund as such objectives, policies and restrictions may
subsequently be changed by the Fund's Board of Trustees and communicated by the
Fund or the Manager to the Sub-Adviser in writing, and (d) assist in the
valuation of portfolio securities held by the Fund as requested by the Manager
or the Fund; provided that prices derived from third parties are the
responsibility of such third parties and do not reflect the professional opinion
of the Sub-Adviser, and information provided by the Sub-Adviser that may be used
to determine "fair value" prices are solely the reflection of the Sub-Adviser's
professional opinion and the Fund and the Manager are free to accept or reject
this information; the Sub-Adviser is not solely responsible for the pricing of
the Fund's securities. The Fund or the Manager has provided the Sub-Adviser with
current copies of the Fund's Declaration of Trust, By-laws, prospectus,
statement of additional information and any amendments thereto, and any
objectives, policies or limitations not appearing therein as they may be
relevant to the Sub-Adviser's performance under this Agreement.
The Sub-Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio investments for the Fund, and is
directed to use its commercially reasonable efforts to obtain best execution,
which includes most favorable net results and execution of the Fund's orders,
taking into account all appropriate factors, 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
compliance with the policies and procedures adopted by the Board of Trustees for
the Fund and to the extent permitted by and in conformance with applicable law
(including Rule 17e-1 of the 1940 Act), the Sub-Adviser may select brokers or
dealers affiliated with the Sub-Adviser. It is understood that the Sub-Adviser
will not be deemed to have acted unlawfully, or to have breached a fiduciary
duty to the 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 the
Sub-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 the Sub-Adviser's
overall responsibilities with respect to its accounts, including the Fund, as to
which it exercises investment discretion.
In addition, the Sub-Adviser may, to the extent permitted by applicable
law, aggregate purchase and sale orders of securities placed with respect to the
assets of the Fund with similar orders being made simultaneously for other
B-2
accounts managed by the Sub-Adviser or its affiliates, if in the Sub-Adviser's
reasonable judgment such aggregation shall result in an overall economic benefit
to the Fund, taking into consideration the selling or purchase price, brokerage
commissions and other expenses. In the event that a purchase or sale of an asset
of the Fund occurs as part of any aggregate sale or purchase orders, the
objective of the Sub-Adviser and any of its affiliates involved in such
transaction shall be to allocate the securities so purchased or sold, as well as
expenses incurred in the transaction, among the Fund and other accounts in a
fair and equitable manner. Nevertheless, the Fund and the Manager acknowledge
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, and neither the Fund nor the Manager shall object to any such fair and
equitable allocation. Whenever the Fund and one or more other investment
advisory clients of the Sub-Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in a manner
believed by the Sub-Adviser to be equitable to each, although such allocation
may result in a delay in one or more client accounts being fully invested that
would not occur if such an allocation were not made. Moreover, it is possible
that due to differing investment objectives or for other reasons, the
Sub-Adviser and its affiliates may purchase securities 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.
Unless the Fund's Board of Trustees determines otherwise, the Sub-Adviser
will vote all proxies solicited by or with respect to the issuers of securities
which assets of the Fund's investment portfolio allocated by the Manager to the
Sub-Adviser are invested, consistent with the Sub-Adviser's written Proxy
Policies and Procedures. The Sub-Adviser will maintain appropriate records in
accordance with applicable law detailing its voting of proxies on behalf of the
Fund and upon request will provide a report setting forth the proposals voted on
and how the Fund's shares were voted, including the name of the corresponding
issuers.
The Sub-Adviser will not arrange purchases or sales of securities between
the Fund and other accounts advised by the Sub-Adviser or its affiliates unless
(a) such purchases or sales are in accordance with applicable law (including
Rule 17a-7 of the 1940 Act) and the Fund's policies and procedures, (b) the
Sub-Adviser reasonably believes the purchase or sale is in the best interests of
the Fund, and (c) the Fund's Board of Trustees has approved these types of
transactions.
The Fund may adopt policies and procedures that modify or restrict the
Sub-Adviser's authority regarding the execution of the Fund's portfolio
transactions provided herein. However, no such policy or procedure shall be
binding on the Sub-Adviser unless it is communicated to the Sub-Adviser in
writing.
The Sub-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 the Fund's portfolio securities be knowingly
purchased from or sold to the Manager, the Sub-Adviser or any affiliated person
of any of the Fund, the Manager, or the Sub-Adviser, except as may be permitted
under the 1940 Act.
B-3
The Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to other accounts for which it
has investment responsibilities under the Investment Advisers Act of 1940;
(b) will (i) conform in all material respects to all applicable
rules and regulations of the SEC, (ii) comply in all material respects
with all policies and procedures adopted by the Board of Trustees for the
Fund and communicated to the Sub-Adviser in writing and (iii) conduct its
activities under this Agreement in all material respects in accordance
with any applicable law and regulations of any governmental authority
pertaining to its investment advisory activities;
(c) will report to the Manager and to the Board of Trustees of the
Fund on a quarterly basis and will make appropriate persons available for
the purpose of reviewing with representatives of the Manager and the Board
of Trustees on a regular basis at such times as the Manager or the Board
of Trustees may reasonably request in writing regarding the management of
the Fund, including, without limitation, review of the general investment
strategies of the Fund, 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 Manager or 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 for the Fund's investment
portfolio as required for registered investment advisers under applicable
law or as otherwise reasonably agreed to by the parties and will prepare
and furnish the Manager and the Fund's Board of Trustees such periodic and
special reports as the Board or the Manager may reasonably request. The
Sub-Adviser further agrees that all records that it maintains for the Fund
are the property of the Fund and the Sub-Adviser will surrender promptly
to the Fund any such records upon the request of the Manager or the Fund
(provided, however, that the Sub-Adviser shall be permitted to retain
copies thereof); and shall be permitted to retain originals (with copies
to the Fund) to the extent required under Rule 204-2 of the Investment
Advisers Act of 1940 or other applicable law.
3. Expenses. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities and other assets (including
brokerage commissions, transfer fees, registration costs, taxes and other
similar costs and transaction-related expenses and fees arising out of
transactions for the Fund, if any) purchased for the Fund. Moreover, the
Sub-Adviser shall not be responsible for payment of any taxes due on capital or
income held or collected for the Fund.
4. Additional Sub-Advisers. Subject to obtaining the initial and periodic
approvals required under Section 15 of the 1940 Act and the approval of the
Manager, the Sub-Adviser may retain one or more additional sub-advisers at the
Sub-Adviser's own cost and expense for the purpose of furnishing one or more of
the services described in Section 2 hereof with respect to the Fund. Retention
B-4
of a sub-adviser hereunder shall in no way reduce the responsibilities or
obligations of the Sub-Adviser under this Agreement and the Sub-Adviser shall be
responsible to the Fund for all acts or omissions of any sub-adviser in
connection with the performance of the Sub-Adviser's duties hereunder.
5. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a portfolio
management fee (the "Management Fee") equal to the annual rate of 0.45% of the
Fund's Managed Assets (as defined below). For purposes of calculating the
Management Fee, Managed Assets means the average daily gross asset value of the
Fund (including assets attributable to the Fund's Preferred Shares (as such term
is defined in the Fund's prospectus), if any, and the principal amount of
borrowings, if any), 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). For purposes of determining Managed Assets, the liquidation
preference of any outstanding Preferred Shares of the Fund is not treated as a
liability. The Management Fee shall be payable in arrears on or about the first
day of each month during the term of this Agreement.
For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year, respectively.
6. Custodian. The assets subject to this Agreement shall be held by the
Custodian of the Fund ("Custodian") or by a central depository selected by the
Custodian. In no event shall the Sub-Adviser have the power or authority to take
custody or possession of any assets of the Fund. The Sub-Adviser is authorized
to give instructions to the current or any successor Custodian with respect to
all investment decisions regarding such assets. The Sub-Adviser will promptly
notify the Custodian of all securities transactions for the Fund and will
cooperate with the Custodian in supplying all reasonable information required by
the Custodian. All transactions will be consummated by payment or delivery to
the Custodian of all cash or securities due to or from the Fund. In the event
that any cash or securities are delivered to the Sub-Adviser, the Sub-Adviser
will promptly deliver the same over to the Custodian. The Sub-Adviser will
instruct all brokers executing orders on behalf of the Fund to forward to the
Custodian copies of all brokerage confirmations promptly after execution of each
transaction. The Fund will not change the Custodian without giving the
Sub-Adviser reasonable prior notice of its intention to do so together with the
name of, and other relevant information with respect to, the new Custodian.
7. Services to Others. The Fund and the Manager acknowledge that the
Sub-Adviser now acts, or may in the future act, as an investment adviser to
other managed accounts and as investment adviser or investment sub-adviser to
one or more other investment companies as set forth in the Sub-Adviser's Form
ADV, Part II. In addition, the Fund and the Manager acknowledge that the persons
employed by the Sub-Adviser to assist in the Sub-Adviser's duties under this
Agreement will not devote their full time to such efforts. It is also agreed
that the Sub-Adviser may use any supplemental research obtained for the benefit
of the Fund in providing investment advice to its other investment advisory
accounts and for managing its own accounts.
B-5
8. Representations and Warranties.
(i) Each of the Fund, the Manager and the Sub-Adviser represent and
warrant with respect to itself as follows:
(a) This Agreement has been duly authorized, executed and delivered
by such party and constitutes its valid and binding obligation, enforceable in
accordance with its terms;
(b) No governmental authorizations, approvals or consents are
required in connection with the execution, delivery or performance of this
Agreement by such party;
(c) To the best of such party's knowledge, there is neither pending
nor threatened in writing any action, suit, proceeding or investigation before
or by any court or governmental, regulatory, self-regulatory, arbitration or
exchange body related to the Fund to which the Manager, the Sub-Adviser and/or
the Fund is a party or to which any of its assets are subject, other than what
has been previously disclosed to the other parties to this Agreement at the time
of the execution and delivery of this Agreement; and
(d) The foregoing representations and warranties (other than the
representation and warranty in clause (b) above) shall be continuing, and if any
of them shall cease to be true and accurate in any material respect, such party
shall immediately give notice of such to the other parties to this Agreement.
(ii) Each of the Manager and the Sub-Adviser represents and warrants
to each other that such party is registered with the SEC under the U.S.
Investment Advisers Act of 1940, as amended, as an "investment adviser".
9. Limitation of Liability; Indemnification. The Sub-Adviser shall not be
liable for, and the Fund and the Manager will not take any action against the
Sub-Adviser to hold the Sub-Adviser liable for, any error of judgment or mistake
of law or for any loss suffered by the Fund or the Manager (including, without
limitation, by reason of the purchase, sale or retention of any security) in
connection with the performance of the Sub-Adviser's duties under this
Agreement, except for a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Sub-Adviser in the performance of its duties
under this Agreement, or by reason of its reckless disregard of its obligations
and duties under this Agreement.
The Fund will indemnify and hold harmless the Sub-Adviser, its affiliates
and their directors, officers, employees, agents and any person controlled by or
controlling the Sub-Adviser from and against, any and all losses, claims,
damages, liabilities or litigation (including reasonable attorney's fees and
expenses) (collectively, "Losses") incurred by the Sub-Adviser directly relating
to the actions of any previous sub-adviser of the Fund, including any claims by
third parties (including, but not limited to, any claims made or actions brought
by any administrative or regulatory authority) relating to, arising from or
premised on any Losses arising out of or relating to the Fund's investments in
any securities that were owned by the Fund on June 29, 2009 (provided that such
B-6
indemnification arising from or premised on any Losses arising out of or
relating to the Fund's investments in any securities that were owned by the Fund
on June 29, 2009 shall not apply in the event that such Losses are finally
judicially determined to have resulted from the willful misfeasance, bad faith
or gross negligence on the part of the Sub-Adviser in the performance of its
duties under this Agreement, or by reason of the Sub-Adviser's reckless
disregard of its obligations and duties under this Agreement). The Sub-Adviser
shall give the Fund prompt notice of any claim asserted or threatened against
the Sub-Adviser with respect to which the Sub-Adviser intends to seek
indemnification from the Fund as herein provided. The Fund shall be entitled to
participate at its own expense in the defense of such action. In addition, if
the Fund notifies the Sub-Adviser in writing within a reasonable time after the
Fund receives such notice, the Fund may assume the defense of such action with
counsel chosen by the Fund which counsel is reasonably acceptable to the
Sub-Adviser. Nothing in this Agreement shall in any way constitute a waiver or
limitation of any rights which the Fund may have under federal securities laws.
10. Term; Termination. This Agreement shall become effective on the date
provided above (the "Effective Date") provided that it has been approved in the
manner required by the 1940 Act, and shall remain in full force until the
two-year anniversary following the date of its effectiveness unless sooner
terminated as hereinafter provided. This Agreement shall continue in force from
year to year thereafter, but only as long as such continuance is specifically
approved for the Fund at least annually in the manner required by the 1940 Act
and the rules and regulations thereunder; provided, however, that if the
continuation of this Agreement is not approved for the Fund, the Sub-Adviser may
continue to serve in such capacity for the Fund in the manner and to the extent
permitted by the 1940 Act and the rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager or the Sub-Adviser upon sixty (60) days' written notice to the
other parties. This Agreement may also be terminated by the Fund by action of
the Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund upon sixty (60) days' written notice to the
Sub-Adviser by the Fund without payment of any penalty.
This Agreement may be terminated at any time without the payment of any
penalty by the Manager, the Board of Trustees 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
Sub-Adviser or any officer or director of the Sub-Adviser has taken any action
that results in a breach of the material covenants of the Sub-Adviser set forth
herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations promulgated thereunder.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 5 earned prior to such termination and for any additional
period during which the Sub-Adviser serves as such for the Fund, subject to
applicable law.
B-7
11. Compliance Certification. From time to time the Sub-Adviser shall
provide such certifications with respect to Rule 38a-1 under the 1940 Act as are
reasonably requested by the Fund or Manager. In addition, the Sub-Adviser will,
from time to time, provide a written assessment of its compliance program in
conformity with current industry standards that is reasonably acceptable to the
Fund to enable the Fund to fulfill its obligations under Rule 38a-1 under the
1940 Act.
12. Notice. Any notice under this Agreement shall be sufficient in all
respects if given in writing and delivered by commercial courier providing proof
of delivery and addressed as follows or addressed to such other person or
address as such party may designate in writing for receipt of such notice.
If to the Manager or the Fund: If to the Sub-Adviser:
First Trust Strategic High Income Brookfield Investment Management Inc.
Fund [II] [III] Three World Financial Center
First Trust Advisors L.P. 200 Vesey Street, 10th Floor
120 E. Liberty Drive, Suite 400 New York, New York 10281-1010
Wheaton, Illinois 60187 Attention: General Counsel
Attention: Secretary
13. Limitations on Liability. 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, a copy of
which has been provided to the Sub-Adviser prior to the date hereof. This
Agreement is executed on behalf of the Fund by the Fund's officers in their
capacity as officers and not individually and is not binding upon any of the
Trustees, officers or shareholders of the Fund individually but the obligations
imposed upon the Fund by this Agreement 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.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
15. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 13 hereof, which shall be
construed in accordance with the laws of the Commonwealth of Massachusetts) the
laws of the State of Illinois, without regard to its conflict of laws
principles.
16. Amendment, Etc. This Agreement may only be amended, or its provisions
modified or waived, in a writing signed by the party against which such
amendment, modification or waiver is sought to be enforced.
B-8
17. Authority. Each party represents to the others that it is duly
authorized and fully empowered to execute, deliver and perform its obligations
under this Agreement. The Fund represents that engagement of the Sub-Adviser has
been duly authorized by the Fund and is in accordance with the Fund's
Declaration of Trust and other governing documents of the Fund.
18. Severability. Each provision of this Agreement is intended to be
severable from the others so that if any provision or term hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remaining provisions and terms hereof; provided,
however, that the provisions governing payment of the Management Fee described
in Section 5 are not severable.
19. Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties hereto with respect to the subject matter expressly set
forth herein.
B-9
IN WITNESS WHEREOF, the Fund, the Manager and the Sub-Adviser each have
caused this Agreement to be executed as of the day and year first above written.
FIRST TRUST ADVISORS L.P. BROOKFIELD INVESTMENT MANAGEMENT INC.
By____________________________________ By_____________________________________
Title:___________________________ Title:_____________________________
FIRST TRUST STRATEGIC HIGH INCOME FUND
[II] [III]
By____________________________________
Title:___________________________
B-10
FORM OF PROXY CARD
------------------
[LOGO OMITTED] FIRST TRUST FIRST TRUST STRATEGIC HIGH INCOME FUND
Proxy Card for Joint Special Meetings 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 Strategic High Income
Fund (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 Joint Special Meetings 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 Joint Special Meetings of Shareholders and
Joint 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 STRATEGIC HIGH INCOME FUND
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" EACH PROPOSAL. 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 Proposal to
approve a new Investment Management Agreement with First Trust Advisors L.P.
for the Fund
FOR AGAINST ABSTAIN
Approval of New Investment Management Agreement [ ] [ ] [ ]
PROPOSAL 2 - The Board of Trustees recommends a vote FOR the Proposal to
approve a new Investment Sub-Advisory Agreement with
Brookfield Investment Management Inc. for the Fund.
FOR AGAINST ABSTAIN
Approval of New Investment Sub-Advisory 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
Joint Special Meetings [ ]
------------------------------------------------------------------
CHANGE OF ADDRESS - Please print new address below.
------------------------------------------------------------------
------------------------------------------------------------------
COMMENTS - Please print your comments below.
------------------------------------------------------------------
(BARCODE HERE) (TAGID HERE) (CUSIP HERE)