As filed with the Securities and Exchange Commission on October 19, 2010.
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1933 Act File No. 333-141457
1940 Act File No. 811-22039
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 SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
October 19, 2010
Dear Shareholder:
The accompanying materials relate to the Special Meeting of Shareholders
(referred to as the "Meeting") of First Trust Specialty Finance and Financial
Opportunities Fund (the "Fund"). The Meeting will be held at the offices of
First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois
60187, on Monday, December 6, 2010, at 4:00 p.m. Central time.
At the Meeting, you will be asked (i) to consider and vote on a proposal
to approve a new investment management agreement (the "New Advisory Agreement")
between the Fund and its current investment advisor, First Trust Advisors L.P.
("First Trust Advisors" or the "Advisor"), (ii) to consider and vote on a
proposal to approve a new investment sub-advisory agreement (the "New
Sub-Advisory Agreement") among the Fund, the Advisor and its current investment
sub-advisor, Confluence Investment Management LLC ("Confluence" 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 Proxy Statement, resulted in a "change
in control" of First Trust Advisors, the investment management agreement between
the 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 the Fund, Confluence
and the Advisor. The Advisor and the Sub-Advisor continue to provide investment
advisory and sub-advisory services, respectively, to the 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 the Fund beyond the interim period, as
indicated above, shareholders of the Fund will be asked at the Meeting to vote
to approve the New Advisory Agreement and the New Sub-Advisory Agreement. The
Board of Trustees of the 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 Confluence
will continue to provide investment advisory and sub-advisory
services, respectively, to the 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 Fund or in the operations of
the Fund, or in any changes in the investment approach of the Fund.
YOUR VOTE IS IMPORTANT. Please take a moment now to vote, either by
completing and returning your proxy card in the enclosed postage-paid return
envelope, by telephone or through the Internet. Your prompt response will be
much appreciated.
We appreciate your participation in this important Meeting.
Thank you.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
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IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE PROPOSALS
OR HOW TO VOTE YOUR SHARES, CALL THE FUND'S PROXY SOLICITOR, THE ALTMAN GROUP,
INC., AT (866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
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FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on December 6, 2010
October 19, 2010
To the Shareholders of First Trust Specialty Finance and Financial Opportunities
Fund:
Notice is hereby given that the Special Meeting of Shareholders (referred
to as the "Meeting") of First Trust Specialty Finance and Financial
Opportunities Fund, a Massachusetts business trust (the "Fund") 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. To approve a new investment management agreement between the Fund
and First Trust Advisors L.P., as investment advisor.
2. To approve a new investment sub-advisory agreement among the
Fund, First Trust Advisors L.P., as investment advisor, and Confluence
Investment Management LLC, as investment sub-advisor.
3. 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 Board of Trustees,
/s/ W. Scott Jardine
W. Scott Jardine
Secretary
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IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. IN ORDER
TO AVOID DELAY AND TO ENSURE THAT YOUR SHARES ARE REPRESENTED, PLEASE VOTE AS
PROMPTLY AS POSSIBLE. YOU MAY VOTE EASILY AND QUICKLY BY MAIL, TELEPHONE OR
THROUGH THE INTERNET. TO VOTE BY MAIL, PLEASE COMPLETE AND MAIL YOUR PROXY CARD
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. ALTERNATIVELY, SHAREHOLDERS MAY
VOTE BY TELEPHONE OR THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE
PROXY CARD. IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE
PROPOSALS OR HOW TO VOTE YOUR SHARES, CALL THE FUND'S PROXY SOLICITOR, THE
ALTMAN GROUP, INC., AT (866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M.
EASTERN TIME.
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FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
SPECIAL MEETING OF SHAREHOLDERS
to be held on December 6, 2010
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
PROXY STATEMENT
October 19, 2010
THIS PROXY STATEMENT AND THE ENCLOSED PROXY CARD WILL FIRST BE MAILED TO
SHAREHOLDERS ON OR ABOUT OCTOBER 19, 2010.
This Proxy Statement is furnished by the Board of Trustees (the "Board")
of First Trust Specialty Finance and Financial Opportunities Fund (the "Fund"),
a Massachusetts business trust, in connection with the solicitation by the Board
of proxies to be voted at the Special Meeting of Shareholders of the Fund 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 Special Meeting of
Shareholders and a proxy card accompany this Proxy Statement.
The Board has fixed the close of business on September 30, 2010 as the
record date (the "Record Date") for the determination of shareholders of the
Fund entitled to notice of, and to vote at, the Meeting.
As discussed more fully below, shareholders of the 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 Confluence Investment Management LLC ("Confluence"
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).
The Fund has one class of shares of beneficial interest, par value $0.01
per share, known as common shares ("Shares"). On the Record Date, the Fund had
14,278,252 Shares outstanding. Shares of the Fund are listed on the New York
Stock Exchange under the ticker symbol "FGB." 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.
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 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 Fund, 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187, for inspection by any shareholder during regular
business hours prior to the Meeting. Shareholders will need to show valid
identification and proof of Share ownership to be admitted to the Meeting or to
inspect the list of shareholders.
Under the By-Laws of the 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
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 the Fund. The solicitation of proxies will begin on or
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about October 19, 2010 and will be largely by mail, but may include telephonic,
electronic or oral communication by officers and service providers of the Fund,
as well as affiliates of such service providers. A proxy solicitation firm, The
Altman Group, Inc., has also been engaged to solicit proxies at a cost which is
expected to be approximately $15,692. 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 PROXY STATEMENT IS
AVAILABLE ON THE INTERNET AT: HTTP://WWW.FTPORTFOLIOS.COM/LOADCONTENT/GHHUECBO.
THE FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS ARE ALSO AVAILABLE ON THE
INTERNET AT: HTTP://WWW.FTPORTFOLIOS.COM/RETAIL/CEF/CEFFUNDNEWS.ASPX?TICKER=FGB.
THE FUND WILL FURNISH, WITHOUT CHARGE, COPIES OF ITS MOST RECENT ANNUAL AND
SEMI-ANNUAL REPORTS TO ANY SHAREHOLDER UPON REQUEST. TO REQUEST A COPY, PLEASE
WRITE TO THE ADVISOR AT 120 EAST LIBERTY DRIVE, SUITE 400, WHEATON, ILLINOIS
60187, OR CALL (800) 988-5891.
YOU MAY CALL (800) 988-5891 FOR INFORMATION ON HOW TO OBTAIN DIRECTIONS TO
BE ABLE TO ATTEND THE MEETING AND VOTE IN PERSON.
In order that your Shares may be represented at the Meeting, please vote
your proxy as soon as possible either by mail or by telephone or through the
Internet, as indicated on the enclosed proxy card. If voting by mail, you are
requested to:
o indicate your instructions on the proxy card;
o date and sign the proxy card;
o mail the proxy card promptly in the enclosed envelope which
requires no postage if mailed in the continental United States; and
o allow sufficient time for the proxy card to be received
BY 4:00 P.M. CENTRAL TIME, on MONDAY, DECEMBER 6, 2010. (However,
proxies received after this date may still be voted in the event of
an adjournment or postponement of the Meeting to a later date.)
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BACKGROUND AND REASON FOR VOTE
The Advisor has served as investment advisor to the Fund since its
inception, initially pursuant to an investment management agreement (the
"Original Advisory Agreement"), between the Advisor and the Fund, and currently,
as described below, pursuant to an interim investment management agreement (the
"Interim Advisory Agreement"), also between the Advisor and the Fund. Confluence
has served as the Fund's sub-advisor since August 1, 2008, and, in this
capacity, is responsible for the selection and on-going monitoring of the
securities in the Fund's investment portfolio. Confluence had served as the
Fund's sub-advisor pursuant to an investment sub-advisory agreement among the
Fund, the Advisor and Confluence (the "Original Sub-Advisory Agreement"), and
since October 12, 2010, Confluence has been providing services to the Fund
pursuant to an interim sub-advisory agreement (the "Interim Sub-Advisory
Agreement"), also among the Fund, the Advisor and Confluence.
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, both the Original Advisory Agreement and the
Original Sub-Advisory Agreement provided for their automatic termination in the
event of their assignment. The consummation of the Transaction resulted in a
change in control of the Advisor and constituted an "assignment," as that term
is defined in the 1940 Act, of the Original Advisory Agreement, thus having the
effect of automatically terminating the Original Advisory Agreement on the
Transaction Closing Date. In addition, the consummation of the Transaction may
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have constituted an "assignment," as that term is defined in the 1940 Act, of
the Original Sub-Advisory Agreement, thus having the effect of also
automatically terminating the 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 the Fund pursuant to the
Interim Advisory Agreement and the Interim Sub-Advisory Agreement, respectively.
Shareholders of the Fund are being asked to approve the New Advisory Agreement
and the New Sub-Advisory Agreement. Shareholders should be aware of the
following:
o The Transaction had no effect on the number of Shares you own or the
value of those Shares.
o Subject to shareholder approval, the Advisor and the Sub-Advisor
will continue to provide investment advisory and sub-advisory
services, respectively, to the 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 Fund or in the operations of
the Fund, or in any changes in the investment approach of the Fund.
In anticipation of the completion of the Transaction and the termination
of the Original Advisory Agreement and the Original Sub-Advisory Agreement, the
Board of the Fund held a meeting on September 20, 2010 (the "Board Meeting"), at
which, after careful consideration (see "BOARD CONSIDERATIONS" below), the
Trustees determined that, following the Transaction, it would be in the best
interests of the Fund for the Advisor to continue to act as investment advisor
to the Fund and for Confluence to continue to act as investment sub-advisor to
the Fund. Accordingly, as permitted under the 1940 Act and Rule 15a-4 thereunder
("Rule 15a-4"), the Board of Trustees of the Fund, including all of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Fund (the
"Independent Trustees"), approved the Interim Advisory Agreement and the Interim
Sub-Advisory Agreement to ensure the continuation of investment advisory and
investment sub-advisory services to the Fund. As indicated above, the Interim
Advisory Agreement and the Interim Sub-Advisory Agreement 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 the Original Advisory
Agreement and the Original Sub-Advisory Agreement (see "PROPOSAL 1--THE INTERIM
ADVISORY AGREEMENT" and "PROPOSAL 2--THE INTERIM SUB-ADVISORY AGREEMENT" below).
In addition, at the Board Meeting, the Board approved, subject to shareholder
approval, the New Advisory Agreement and the New Sub-Advisory Agreement. If
shareholders of the Fund do not approve the New Advisory Agreement and/or the
New Sub-Advisory Agreement, the Board will take such action as it deems to be in
the best interests of the Fund.
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BOARD CONSIDERATIONS
The Board, including the Independent Trustees, approved the Interim
Advisory Agreement and the New Advisory Agreement (collectively, the "Advisory
Agreements") and the Interim Sub-Advisory Agreement and New Sub-Advisory
Agreement (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 the Fund. The Board also determined that
it believes that the scope and quality of services to be provided to the Fund
under the Agreements will be at least equivalent to the scope and quality of
services provided under the Original Advisory Agreement and the Original
Sub-Advisory Agreement (collectively, the "Original Agreements").
On August 25, 2010, the Independent Trustees were informed about the
Transaction, including that the consummation of the Transaction would constitute
a change of control of the Advisor and would result in the "assignment" and
termination of the Original Advisory Agreement and may also result in the
"assignment" and termination of the Original Sub-Advisory Agreement pursuant to
their terms and in accordance with Section 15 of the 1940 Act. On August 31,
2010, counsel to the Independent Trustees forwarded to Mr. Bowen and the Advisor
a request for information regarding the Transaction. 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, 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 Agreement and Interim Sub-Advisory Agreement 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 and the terms
of the Original Agreements at a meeting held on March 21-22, 2010 and had
determined to renew the Original Agreements for an additional one-year term (the
"2010 Renewal"). The Board considered that in connection with the 2010 Renewal,
it had received a report from each of the Advisor and the Sub-Advisor that,
among other things, outlined the services provided by the Advisor and the
Sub-Advisor (including the relevant personnel responsible for these services and
their experience); the advisory and sub-advisory fees for the Fund as compared
to fees charged to other clients of the Advisor and the Sub-Advisor and as
compared to fees charged by investment advisors and sub-advisors to comparable
funds; expenses of the Fund as compared to expense ratios of comparable funds;
the nature of expenses incurred in providing services to the Fund and the
potential for economies of scale, if any; financial data on the Advisor 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
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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 updates to its Form ADV and an increase to its professional liability
insurance due to the growth of the Sub-Advisor, there had been no material
changes to the information provided in March 2010 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 in connection with the 2010 Renewal applied to its review
and consideration of the Agreements. Accordingly, the Board took note of such
prior analysis and supplemented it with the additional considerations noted
below. The Independent Trustees also met separately with their independent legal
counsel to discuss the Transaction 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 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 Fund. 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 in connection with the 2010 Renewal, the Board concluded that the nature,
quality and extent of services to be provided to the Fund by the Advisor and the
Sub-Advisor under the Agreements are expected to be satisfactory.
The Board considered the advisory and sub-advisory fees payable under the
Agreements, noting that they would be the same as the fees payable 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 other clients with investment objectives and
policies similar to the Fund's. The Board also considered that it had reviewed
information provided by the Sub-Advisor as to the fees it charges to other
similar clients, noting that the Sub-Advisor does not charge a lower fee to any
other client for which it provides comparable services. The Board also
considered performance information for the Fund, including the Fund's quarterly
performance report, which is part of the process that the Board has established
for monitoring the Fund's performance and portfolio risk on an ongoing basis. In
light of the information presented on the fees and performance of the Fund and
the considerations made at the Board Meeting, including the considerations made
in connection with the 2010 Renewal, the Board concluded that the advisory and
sub-advisory fees were reasonable and appropriate in light of the nature,
quality and extent of services expected to be provided by the Advisor and
Sub-Advisor under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board concluded that the advisory fee
continues to reflect an appropriate level of sharing of any economies of scale
at current asset levels. The Board noted that in connection with the 2010
Renewal it had reviewed the costs of the services provided and profits realized
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by the Advisor from serving as investment manager to the Fund for the twelve
months ended December 31, 2009. The Board considered its prior conclusion that
the Advisor's profitability appeared to be not excessive in light of the
services provided to the Fund. The Board considered whether the Advisor derives
any ancillary benefits from its relationship with the Fund and noted that the
typical fall-out benefits to the Advisor such as soft dollars are not present.
The Board noted the other relationships maintained between the Advisor (or its
affiliate) and the Sub-Advisor as described in connection with the 2010 Renewal.
The Board noted that the Advisor will receive compensation from the Fund for
providing fund reporting services. The Board concluded that any other fall-out
benefits received by the Advisor or its affiliates would appear to be limited.
The Board considered the Sub-Advisor's representation in connection with
the 2010 Renewal that the Sub-Advisor's costs are generally fixed, allowing for
economies of scale with regard to certain costs. The Board considered that the
sub-advisory fee rate was negotiated at arm's length between the Advisor and the
Sub-Advisor. The Board considered the fall-out benefits realized by the
Sub-Advisor from its relationship with the Fund, including its other
relationships with the Advisor and that the Sub-Advisor had recently been
approved to serve as sub-advisor to a new open-end fund to be added to the First
Trust Fund Complex.
Based on all of the information considered and the conclusions reached,
the Board, including the Independent Trustees, determined that the terms of the
Agreements are fair and reasonable and that the approval of the Agreements is in
the best interests of the Fund. No single factor was determinative in the
Board's analysis.
Accordingly, the Board recommends that shareholders vote to approve the
New Advisory Agreement and the New Sub-Advisory Agreement.
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PROPOSAL 1: APPROVAL OF NEW ADVISORY AGREEMENT FOR THE FUND
THE ORIGINAL ADVISORY AGREEMENT
The Original Advisory Agreement was dated May 24, 2007 and was approved by
the Fund's initial shareholder on May 17, 2007. Since the beginning of the
Fund's last fiscal year, the continuation of the Original Advisory Agreement was
approved by the Board at meetings held on March 1-2, 2009 and March 21-22, 2010.
THE INTERIM ADVISORY AGREEMENT
Many of the terms of the Interim Advisory Agreement are the same as those
of the Original Advisory Agreement; however, in addition to various updates,
there are differences in provisions relating to the effective date and,
consistent with the requirements of Rule 15a-4, termination and compensation.
Unless terminated sooner in accordance with its terms, the Interim Advisory
Agreement will continue to be in effect through the Interim Termination Date or
until shareholders of the Fund approve the New Advisory Agreement, whichever
occurs first. In addition, the Interim Advisory Agreement may be terminated by
the Fund (by action of the Board or by a vote of a majority of the outstanding
voting securities (as defined in the 1940 Act and the rules and regulations
thereunder) of the Fund) upon 10 calendar days' written notice to the Advisor,
without the payment of any penalty.
The rate of compensation paid to the Advisor is the same under the
applicable Interim Advisory Agreement, Original Advisory Agreement and New
Advisory Agreement. The compensation accrued under the Interim Advisory
Agreement, however, is to be held in an interest-bearing escrow account with the
Fund's custodian or another bank designated by the Fund. If the New Advisory
Agreement is approved by shareholders of the Fund by the Interim Termination
Date, the amount in the escrow account (including the interest earned) will be
paid to the Advisor. However, if shareholders of the Fund do not approve the New
Advisory Agreement by such date, the Advisor will be paid, out of the escrow
account, the lesser of: (i) any costs incurred by the Advisor in performing
services under the Interim Advisory Agreement (plus interest earned on that
amount while in escrow); or (ii) the total amount in the escrow account (plus
interest earned).
COMPARISON OF CERTAIN TERMS OF THE NEW ADVISORY AGREEMENT AND ORIGINAL ADVISORY
AGREEMENT
Below is a brief comparison of certain terms of the Original Advisory
Agreement to the corresponding terms of the New Advisory Agreement. Many of the
terms of the New Advisory Agreement, including fees payable to the Advisor by
the Fund thereunder, are substantially the same in all material respects to the
terms of the corresponding Original Advisory Agreement; however the New Advisory
Agreement includes a new effective date and has been updated in certain other
respects (including, among other things, the elimination of certain provisions
that are no longer relevant). The form of the New Advisory Agreement is attached
to this Proxy Statement as Exhibit A and the description of the New Advisory
Agreement is qualified in its entirety by reference to such Exhibit.
-9-
Advisory Services. As was the case under the Original Advisory Agreement,
under the New Advisory Agreement, the Advisor will agree to act as the
investment advisor for, and to manage the investment and reinvestment of the
assets of, the Fund in accordance with the Fund's investment 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 Agreement provides that the investment of the Fund's assets will be
subject to the Fund's policies, restrictions and limitations with respect to
securities investments and all applicable laws and the regulations of the SEC
relating to the management of registered closed-end management investment
companies; the Original Advisory Agreement included a similar provision. In
addition, the Advisor agreed under the Original Advisory Agreement, and will
agree under the New Advisory Agreement, to furnish office facilities and
equipment as well as certain clerical, bookkeeping and administrative services.
Finally, as was the case under the Original Agreement, under the New Advisory
Agreement, subject to the applicable requirements of the 1940 Act, the Advisor
may, at its own cost and expense, retain one or more sub-advisors to serve the
Fund.
Fees. As was the case under the Original Advisory Agreement, as
compensation for its services and facilities furnished to the Fund under the New
Advisory Agreement, the Advisor will be entitled to receive, on a monthly basis,
an investment management fee equal to the annual rate of 1.00% of the Fund's
"Managed Assets." The term "Managed Assets" means the average daily gross asset
value of the Fund (including assets attributable to the Fund's preferred shares,
if any, and the principal amount of borrowings, 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. For the Fund's last fiscal year, the
aggregate amount of the advisory fees paid by the Fund to the Advisor under the
Original Advisory Agreement was $805,321.
Limitation of Liability. As was the case under the Original Advisory
Agreement, the New Advisory Agreement provides that the Advisor will not be
liable for any loss sustained by reason of the purchase, sale or retention of
any security, whether or not such purchase, sale or retention has been based
upon the investigation and research made by any other individual, firm or
corporation, if such recommendation has been selected with due care and in good
faith, except loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of the Advisor in the performance of its obligations and
duties, or by reason of its reckless disregard of its obligations and duties
under the Agreement.
Continuance. The Original Advisory Agreement was originally in effect for
an initial term of two years and could be continued thereafter for successive
one-year periods if such continuance was specifically approved, at least
annually, in the manner required by the 1940 Act. Similarly, if the New Advisory
Agreement is approved by shareholders, if not terminated earlier, it will expire
on the two-year anniversary of the date of its effectiveness unless continued
and, thereafter, may be continued for successive one-year periods if such
continuance is specifically approved, at least annually, in the manner required
by the 1940 Act.
-10-
Termination. As was the case under the Original Advisory Agreement, the
New Advisory Agreement provides that it (a) will automatically terminate in the
event of its assignment (as defined in the 1940 Act and the rules and
regulations thereunder) and (b) may be terminated at any time without the
payment of any penalty by the Fund or by the Advisor upon 60 days' written
notice to the other party. The Fund may effect termination by action of the
Board or by a vote of a majority of the outstanding voting securities (as
defined in the 1940 Act and the rules and regulations thereunder) of the Fund,
accompanied by appropriate notice. In addition, the Original Advisory Agreement
was, and the New Advisory Agreement is, terminable at any time, without the
payment of any penalty, by the Board or by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act and the rules and
regulations thereunder) of the Fund, in the event that it is established by a
court of competent jurisdiction that the Advisor or any of its officers or
directors has taken any action that results in a breach of the material
covenants of the Advisor set forth in the Agreement.
SECTION 15(f) OF THE 1940 ACT
Section 15(f) of the 1940 Act is a safe harbor that provides in substance
that, when a sale of a controlling interest in an investment advisor occurs, the
investment advisor or any of its affiliated persons may receive any amount or
benefit in connection with the sale as long as two conditions are met. The first
condition specifies that, during the three-year period immediately following
consummation of the transaction, at least 75% of the investment company's board
of directors/trustees must not be "interested persons" (as defined in the 1940
Act) of the investment advisor or predecessor advisor. The second condition
specifies that no "unfair burden" may be imposed on the investment company as a
result of the transaction relating to the sale of such interest, or any express
or implied terms, conditions or understandings applicable thereto. The term
"unfair burden," as defined in the 1940 Act, includes any arrangement during the
two-year period after the transaction whereby the investment advisor (or
predecessor or successor advisor), or any interested person of any such
investment advisor, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services) or from
any person in connection with the purchase or sale of securities or other
property, to, from or on behalf of the investment company (other than bona fide
ordinary compensation as principal underwriter for the investment company). If
either condition of Section 15(f) is not met, the safe harbor is not available.
The Board has not been advised of any circumstances arising under the
Transaction that might result in the imposition of an "unfair burden" being
imposed on the Fund. In addition, the Fund has adopted procedures which include
steps intended to cause the conditions of Section 15(f) to be met.
-11-
ADDITIONAL INFORMATION ABOUT THE FUND AND THE ADVISOR
A list of the officers of the Fund and the managing directors and
principal officers of the Advisor, their positions with the Fund and/or the
Advisor, and their principal occupations are set forth below. Certain officers
of the Fund have a minority equity interest in the limited partner of the
Advisor.
POSITION WITH
NAME POSITION WITH THE FUND THE ADVISOR PRINCIPAL OCCUPATION
James A. Bowen President, Chairman of the Board, Managing Director and President, First Trust Advisors L.P.
Chief Executive Officer and President and First Trust Portfolios L.P.;
Trustee Chairman of the Board of Directors,
BondWave LLC and Stonebridge Advisors LLC
Mark R. Bradley Treasurer, Chief Financial Managing Chief Financial Officer, First Trust
Officer and Chief Director and Advisors L.P. and First Trust
Accounting Officer Chief Financial Portfolios L.P.; Chief Financial
Officer Officer, BondWave LLC and Stonebridge
Advisors LLC
Kathleen W. Brown None Chief Compliance Chief Compliance Officer, First Trust
Officer Advisors L.P. and First Trust
Portfolios L.P.
Robert F. Carey None Chief Investment Chief Investment Officer, First Trust
Officer Advisors L.P. and First Trust Portfolios L.P.
Erin E. Chapman Assistant Secretary Assistant Assistant General Counsel, First
General Counsel Trust Advisors L.P. and First Trust
Portfolios L.P.
James M. Dykas Assistant Treasurer Senior Vice Senior Vice President, First Trust
President Advisors L.P. and First Trust Portfolios L.P.
Christopher R. Fallow Assistant Vice President Assistant Vice Assistant Vice President, First Trust
President Advisors L.P. and First Trust Portfolios L.P.
R. Scott Hall None Managing Managing Director, First Trust
Director 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 Senior Vice President, First Trust
President Advisors L.P. and First Trust Portfolios L.P.
Coleen D. Lynch Assistant Vice President Assistant Vice Assistant Vice President, First Trust
President Advisors L.P. and First Trust Portfolios L.P.
-12-
POSITION WITH
NAME POSITION WITH THE FUND THE ADVISOR PRINCIPAL OCCUPATION
Kristi A. Maher Assistant Secretary and Deputy General Deputy General Counsel, First Trust
Deputy Chief Compliance Counsel Advisors L.P. and First Trust Portfolios L.P.
Officer
Ronald D. McAlister None Managing Managing Director, First Trust
Director Advisors L.P. and First Trust Portfolios L.P.
Andrew S. Roggensack None Managing Managing Director, First Trust
Director 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.
SHAREHOLDER APPROVAL AND REQUIRED VOTE
To become effective, the New Advisory Agreement must be approved by a vote
of a majority of the outstanding voting securities of the Fund. The "vote of a
majority of the outstanding voting securities" of the Fund for this purpose, as
defined in the 1940 Act, means the vote of the lesser of (i) 67% or more of the
Shares of the Fund present at the Meeting if the holders of more than 50% of the
outstanding Shares of the Fund are present in person or represented by proxy; or
(ii) more than 50% of the outstanding Shares of the Fund. For purposes of
determining the approval of the New Advisory Agreement, abstentions and broker
non-votes will have the effect of a vote against this Proposal.
IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING PROPOSAL 1 OR
HOW TO VOTE YOUR SHARES, CALL THE FUND'S PROXY SOLICITOR, THE ALTMAN GROUP,
INC., AT (866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE NEW
ADVISORY AGREEMENT. PROPOSAL 2: APPROVAL OF A NEW
SUB-ADVISORY AGREEMENT FOR THE FUND
-13-
CONFLUENCE INVESTMENT MANAGEMENT LLC
General and Organizational Information
Confluence Investment Management LLC is located at 349 Marshall Avenue,
Suite 302, St. Louis, Missouri 63119. Confluence is a St. Louis, Missouri based,
SEC registered investment advisor founded in December 2007, specializing in
equity portfolio management, asset allocation portfolio management and
alternative investment management. Confluence had approximately $814 million in
assets under management or supervision as of August 31, 2010.
Confluence was organized as a Delaware limited liability company in
December 2007. Currently three members, Brian N. Hansen, Mark A. Keller and
Tortoise Capital Advisors, L.L.C. ("Tortoise L.L.C."), each own interests of
more than 10%, but less than 25%, in Confluence. Tortoise L.L.C., a Delaware
limited liability company organized in 2002, is an investment advisor located at
11550 Ash Street, Suite 300, Leawood, Kansas 66211. Tortoise L.L.C. is
wholly-owned by Tortoise Holdings, LLC, a holding company. Mariner Holdings,
LLC, an independent investment firm with affiliates focused on wealth and asset
management, through its wholly-owned subsidiary, Montage Asset Management, LLC,
owns a majority interest in Tortoise Holdings, LLC with the remaining interests
held by the five members of Tortoise L.L.C.'s investment committee and certain
other senior employees of Tortoise L.L.C.
Organizational Information
The following chart lists the directors and principal executive officers
of Confluence and their principal occupations:
----------------------------- ----------------------------------------------------------------------------------
POSITION WITH CONFLUENCE AND
NAME PRINCIPAL OCCUPATION
----------------------------- ----------------------------------------------------------------------------------
Mark A. Keller Member, Director, Chief Executive Officer, Chief Investment
Officer and Portfolio Manager
----------------------------- ----------------------------------------------------------------------------------
Brian N. Hansen Member, Director, President and Chief Operating Officer
----------------------------- ----------------------------------------------------------------------------------
David J. Schulte Director (Confluence); Managing Director (Tortoise L.L.C.)
----------------------------- ----------------------------------------------------------------------------------
William D. O'Grady Member, Director, Executive Vice President and Chief Market Strategist
----------------------------- ----------------------------------------------------------------------------------
David B. Miyazaki Member, Senior Vice President and Portfolio Manager
----------------------------- ----------------------------------------------------------------------------------
Daniel T. Winter Member, Senior Vice President and Portfolio Manager
----------------------------- ----------------------------------------------------------------------------------
Patricia A. Dahl Member, Senior Vice President and Portfolio Manager
----------------------------- ----------------------------------------------------------------------------------
Joseph J. Hanzlik Member, Senior Vice President, Chief Financial Officer and
Chief Compliance Officer
----------------------------- ----------------------------------------------------------------------------------
F. Christopher Stein Member, Vice President and Portfolio Manager
----------------------------- --------------------------------------------------
Tore L. Stole Member, Vice President and Director of Research
----------------------------- ----------------------------------------------------------------------------------
Dustin A. Hausladen Member, Vice President and Director of Business Development
----------------------------------------------------------------------------------------------------------------
The business address of each of the Confluence directors and principal
executive officers is 349 Marshall Avenue, Suite 302, St. Louis, Missouri 63119.
-14-
Certain Transactions Involving Confluence, First Trust Advisors and First Trust
Portfolios L.P.
On May 7, 2008, First Trust Portfolios paid $200,000 for an equity
ownership interest in Confluence. On June 30, 2008, First Trust Portfolios and
Confluence agreed to convert such equity ownership interest into debt.
Accordingly, First Trust Portfolios currently holds a promissory note from
Confluence with a stated principal amount of $200,000, an annual interest rate
of 3.20% and a stated maturity date of June 30, 2015.
On August 25, 2008, Confluence and First Trust Advisors entered into an
agreement pursuant to which Confluence will provide certain financial advisory
services to First Trust Advisors for an annual fee of $430,000. In addition,
First Trust Advisors and Confluence entered into an agreement as of May 7, 2008
pursuant to which Confluence assists in providing sub-portfolio supervisory
services to a limited number of unit investment trusts sponsored by First Trust
Portfolios for an annual fee based on $0.002 per unit. Confluence also provides
portfolio consulting services to construct portfolios for unit investment
trusts. Confluence will not provide services to the Fund pursuant to either of
the agreements described in this paragraph.
THE ORIGINAL SUB-ADVISORY AGREEMENT
The Original Sub-Advisory Agreement was dated November 17, 2008 and was
approved by the shareholders of the Fund at a special meeting held on such date;
in that regard, Confluence succeeded Gallatin Asset Management, Inc. as
sub-advisor to the Fund. Since the beginning of the Fund's last fiscal year, the
continuation of the Original Sub-Advisory Agreement was approved by the Board at
a meeting held on March 21-22, 2010.
THE INTERIM SUB-ADVISORY AGREEMENT
Many of the terms of the Interim Sub-Advisory Agreement are substantially
the same as those of the 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, the
Interim Sub-Advisory Agreement will continue to be in effect through the Interim
Termination Date or until shareholders of the Fund approve the New Sub-Advisory
Agreement, whichever occurs first. In addition, the Interim Sub-Advisory
Agreement may be terminated by action of the Board or by a vote of a majority of
the outstanding voting securities (as defined in the 1940 Act and the rules and
regulations thereunder) of the Fund upon 10 calendar days' written notice to the
Sub-Advisor, without payment of any penalty.
The rate of compensation paid to the Sub-Advisor is the same under the
applicable Interim Sub-Advisory Agreement, Original Sub-Advisory Agreement and
New Sub-Advisory Agreement. The compensation accrued under the Interim
Sub-Advisory Agreement, however, is to be held in an interest-bearing escrow
account with the Fund's custodian or another bank designated by the Fund. If the
New Sub-Advisory Agreement is approved by shareholders of the Fund by the
Interim Termination Date, the amount in the escrow account (including the
interest earned) will be paid to the Sub-Advisor. However, if shareholders of
-15-
the Fund do not approve the New Sub-Advisory Agreement by such date, the
Sub-Advisor will be paid, out of the escrow account, the lesser of: (i) any
costs incurred by the Sub-Advisor in performing services 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 AGREEMENT AND ORIGINAL SUB-ADVISORY
AGREEMENT
Below is a brief comparison of certain terms of the Original Sub-Advisory
Agreement to the corresponding terms of the New Sub-Advisory Agreement. Many of
the terms of the New Sub-Advisory Agreement, 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
Agreement; however the New Sub-Advisory Agreement includes a new effective date
and has been updated in certain other respects. The form of the New Sub-Advisory
Agreement is attached to this Proxy Statement as Exhibit B and the description
of the New Sub-Advisory Agreement is qualified in its entirety by reference to
such Exhibit.
Sub-Advisory Services. As was the case under the Original Sub-Advisory
Agreement, under the New Sub-Advisory Agreement, 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 the Fund's investment
portfolio, all on behalf of the 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 Agreement, under the New Sub-Advisory Agreement, the Sub-Advisor is
required to monitor the 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.
Brokerage. As was the case under the Original Sub-Advisory Agreement, the
New Sub-Advisory Agreement authorizes the Sub-Advisor to select the brokers or
dealers that will execute the purchases and sales of portfolio investments for
the Fund, and directs the Sub-Advisor 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.
Fees. As was the case under the Original Sub-Advisory Agreement, under the
New Sub-Advisory Agreement, the Advisor will pay the Sub-Advisor a portfolio
management fee on a monthly basis. Both the Original Sub-Advisory Agreement and
the New Sub-Advisory Agreement provide that for services provided and expenses
assumed, the Advisor will pay the Sub-Advisor a fee equal to the annual rate of
0.50% of the Fund's "Managed Assets." The term "Managed Assets" means the
average daily gross asset value of the Fund (including assets attributable to
the Fund's preferred shares, if any, and the principal amount of borrowings, 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.
For the Fund's last fiscal year, the aggregate amount of fees paid by the
Advisor to the Sub-Advisor under the Original Sub-Advisory Agreement was
$402,660.
-16-
Payment of Expenses. As was the case under the Original Sub-Advisory
Agreement, under the 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, if any) purchased for the Fund.
Limitation on Liability. As was the case under the Original Sub-Advisory
Agreement, the New Sub-Advisory Agreement provides that the Sub-Advisor will not
be liable for, and the 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 Fund or the Advisor in connection with
the performance of the Sub-Advisor's duties under the 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.
Continuance. The Original Sub-Advisory Agreement provided that it would be
in effect initially until November 17, 2010 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 New Sub-Advisory Agreement is approved by
shareholders, if not terminated earlier, it will expire on the two-year
anniversary of the date of its effectiveness unless continued and, thereafter,
may be continued for successive one-year periods if such continuance is
specifically approved, at least annually, in the manner required by the 1940 Act
and the rules and regulations thereunder.
Termination. As was the case under the Original Sub-Advisory Agreement,
the 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 Fund by action of the Board
or by a vote of a majority of the outstanding voting securities (as defined in
the 1940 Act and the rules and regulations thereunder) of the Fund upon 60 days'
written notice to the Sub-Advisor by the Fund without the payment of any
penalty. In addition, the Original Sub-Advisory Agreement was, and the 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 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, the New Sub-Advisory Agreement must be approved by a
vote of a majority of the outstanding voting securities of the Fund. The "vote
of a majority of the outstanding voting securities" of the Fund for this
purpose, as defined in the 1940 Act, means the vote of the lesser of (i) 67% or
more of the Shares of the Fund present at the Meeting if the holders of more
than 50% of the outstanding Shares of the Fund are present in person or
represented by proxy; or (ii) more than 50% of the outstanding Shares of the
-17-
Fund. For purposes of determining the approval of the 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 FUND'S PROXY SOLICITOR, THE ALTMAN GROUP,
INC., AT (866) 530-8634 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE NEW
SUB-ADVISORY AGREEMENT.
-18-
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 the 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 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 the Fund's outstanding Shares, except as
described in the following table. Information below as to beneficial ownership
of Shares, including percentage of Shares beneficially owned, is based on a
securities position listing report from The Depository Trust & Clearing
Corporation as of the Record Date. The Fund does 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 the Fund or acknowledges the existence of control.
SHAREHOLDER AND ADDRESS PERCENT OWNERSHIP NUMBER OF SHARES HELD
----------------------- ----------------- ----------------------
First Clearing, LLC 67.24% 9,600,322
One North Jefferson Street
St. Louis, MO 63103
Stifel, Nicolaus & Company, Inc. 6.65% 950,045
813 Shades Creek Parkway
Suite 100-B
Birmingham, AL 35242
Trustees and Officers
As of July 31, 2010, the Trustees of the Fund beneficially owned the
following number of Shares of the Fund:
------------------------------------- ----------------------------------------
TRUSTEE SHARES OWNED
------------------------------------- ----------------------------------------
INTERESTED TRUSTEE
------------------------------------- ----------------------------------------
James A. Bowen 0
------------------------------------- ----------------------------------------
INDEPENDENT TRUSTEES
------------------------------------- ----------------------------------------
Richard E. Erickson 0
------------------------------------- ----------------------------------------
Thomas R. Kadlec 0
------------------------------------- ----------------------------------------
Robert F. Keith 0
------------------------------------- ----------------------------------------
Niel B. Nielson 0
------------------------------------- ----------------------------------------
As of July 31, 2010, the Trustees and officers as a group beneficially
owned none of the outstanding Shares of the Fund.
-19-
SHAREHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Shareholders of
the Fund 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 the Fund if timely written notice (the "Shareholder Notice") is provided to
the Secretary of the Fund. In accordance with the advance notice provisions
included in the Fund's By-Laws, unless a greater or lesser period is required
under applicable law, to be timely, the Shareholder Notice must be delivered to
or mailed and received at the Fund's address, 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187, Attn: W. Scott Jardine, 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.
FISCAL YEAR
The fiscal year end for the Fund is November 30.
SHAREHOLDER COMMUNICATIONS
Shareholders of the Fund who want to communicate with the Board of
Trustees or any individual Trustee should write the Fund to the attention of the
Fund Secretary, W. Scott Jardine. The letter should indicate that you are a Fund
shareholder. If the communication is intended for a specific Trustee and so
indicates, it will be sent only to that Trustee. If a communication does not
indicate a specific Trustee, it will be sent to the chairman of the Nominating
and Governance Committee of the Board and the independent legal counsel to the
Independent Trustees for further distribution as deemed appropriate by such
persons.
DELIVERY OF CERTAIN DOCUMENTS
Annual reports will be sent to shareholders of record of the Fund
following the Fund's fiscal year end. The Fund will furnish, without charge, a
copy of its annual report and/or semi-annual report as available upon request.
Such written or oral requests should be directed to the Fund at 120 East Liberty
Drive, Suite 400, Wheaton, Illinois 60187 or by calling (800) 988-5891.
-20-
Please note that only one annual or semi-annual report, proxy statement or
Notice of Internet Availability of Proxy Materials, as applicable, may be
delivered to two or more shareholders of the Fund who share an address, unless
the Fund has received instructions to the contrary. To request a separate copy
of an annual or semi-annual report, proxy statement or Notice of Internet
Availability of Proxy Materials, as applicable, or for instructions as to how to
request a separate copy of such documents or as to how to request a single copy
if multiple copies of such documents are received, shareholders should contact
the Fund at the address and phone number set forth above. Pursuant to a request,
a separate copy will be delivered promptly.
OTHER MATTERS TO COME BEFORE THE MEETING
No business other than the matters described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment or postponement of the
Meeting, the persons named on the enclosed proxy card will vote thereon
according to their best judgment in the interests of the Fund.
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 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.
--------------------------------------------------------------------------------
-21-
EXHIBIT A
FORM OF
NEW ADVISORY AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT made this [ ] day of [ ], by and between
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND, 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 1940 (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.
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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 1.00% of the Fund's Managed Assets, as such term is defined
herein. 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.
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
overall responsibilities with respect to its accounts, including the Fund, as to
which it exercises investment discretion.
A-2
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;
(b) will (i) conform in all material respects to all applicable
rules and regulations of the Securities and Exchange Commission, (ii)
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,
(iii) conduct its activities under this Agreement in all material respects
A-3
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
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
A-4
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 in the manner required by 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
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-5
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
FIRST TRUST SPECIALTY FINANCE AND
FINANCIAL OPPORTUNITIES FUND
By:____________________________________
Name:
Title:
ATTEST: _________________________
Name:
Title:
FIRST TRUST ADVISORS L.P.
By:____________________________________
Name:
Title:
ATTEST: _________________________
Name:
Title:
A-6
EXHIBIT B
FORM OF
NEW SUB-ADVISORY AGREEMENT
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this [ ] day of [ ] by and among First Trust
Specialty Finance and Financial Opportunities Fund, 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 Confluence Investment Management LLC, a
Delaware limited liability company 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; and
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
B-1
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, (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. 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
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
B-2
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.
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 either the Fund, the Manager, or the Sub-Adviser, except as may be permitted
under the 1940 Act.
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
B-3
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, if any) purchased 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
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 0.50% 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.
B-4
6. 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. 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.
7. Limitation of Liability. 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.
8. 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 thereunder.
B-5
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.
9. 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 the 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.
10. 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 for receipt of such notice.
If to the Manager or the Fund: If to the Sub-Adviser:
First Trust Specialty Finance and Confluence Investment Management LLC
Financial Opportunities Fund 349 Marshall Avenue, Suite 302
First Trust Advisors L.P. St. Louis, Missouri 63119
120 E. Liberty Drive, Suite 400 Attention: Brian N. Hansen, President
Wheaton, Illinois 60187
Attention: Secretary
11. 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 and 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.
12. 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.
13. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 11 hereof, which shall be
construed in accordance with the laws of Massachusetts) the laws of the State of
Illinois.
B-6
14. 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.
15. Authority. Each party represents to the others that it is duly
authorized and fully empowered to execute, deliver and perform 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.
16. 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.
17. 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-7
IN WITNESS WHEREOF, the Fund, the Manager and the Sub-Adviser have caused
this Agreement to be executed as of the day and year first above written.
FIRST TRUST ADVISORS L.P. CONFLUENCE INVESTMENT MANAGEMENT LLC
By_____________________________________ By__________________________________
Title:____________________________ Title:__________________________
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
By_________________________________
Title:______________________________________
B-8
FORM OF PROXY CARD
------------------
[LOGO OMITTED] FIRST TRUST FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
Proxy Card for the Special Meeting of
Shareholders - December 6, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of Common Shares of the First Trust Specialty
Finance and Financial Opportunities 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 Special Meeting of Shareholders of the Fund (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 Special Meeting of
Shareholders and Proxy Statement dated October 19, 2010, and hereby instructs
said attorneys and proxies to vote said shares as indicated hereon. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting and any adjournments or postponements thereof
(including, but not limited to, any questions as to adjournment or postponement
of the Meeting). A majority of the proxies present and acting at the Meeting in
person or by substitute (or, if only one shall be so present, then that one)
shall have and may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL
BE VOTED IN THE MANNER DIRECTED BY THE
Registration dynamically UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
printed here IS MADE, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS SET FORTH.
PLEASE VOTE, DATE AND SIGN ON REVERSE
SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE FOLD HERE AND RETURN ENTIRE PROXY CARD - DO NOT DETACH
--------------------------------------------------------------------------------
[GRAPHIC BY INTERNET
OMITTED] -----------
To vote on the Internet, go to www.proxyonline.com and enter the
12-digit control number found on the reverse side of this Proxy
Card. Follow the instructions provided.
[GRAPHIC BY TELEPHONE
OMITTED] ------------
To cast your vote by phone with a proxy voting representative,
call toll-free 1-866-530-8634 and provide the representative the
control number found on the reverse side of this Proxy Card.
Representatives are available to take your voting instructions
Monday through Friday 9:00 a.m. to 10:00 p.m. Eastern Time.
[GRAPHIC BY MAIL
OMITTED] -------
To vote by mail, mark the appropriate voting boxes on the reverse
side of this Proxy Card, sign and date the Proxy Card and return
it in the enclosed postage-paid envelope or mail to: FIRST TRUST
FUNDS, P.O. BOX 6500, CARLSTADT, NJ 07072.
PLEASE VOTE, SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES 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
Confluence Investment Management LLC 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
Special Meeting [ ]
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