SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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In the Matter of the Application of:
FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY INCOME FUND
FIRST TRUST ENHANCED EQUITY INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST TAX-ADVANTAGED PREFERRED INCOME FUND
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY INCOME FUND
FIRST TRUST ADVISORS L.P.
FIRST TRUST PORTFOLIOS L.P.
File No. 812-13161
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AMENDMENT NO. 4 TO AN
APPLICATION FOR AN ORDER PURSUANT TO SECTION 6(c) OF THE
INVESTMENT COMPANY ACT OF 1940 FOR EXEMPTIONS
FROM SECTION 19(b) OF THE ACT AND RULE 19b-1 THEREUNDER
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Please direct all communications, notices and orders to:
Eric F. Fess
Suzanne M. Russell
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
(312) 845-3446
(312) 701-2361 (fax)
1 of 40 sequentially numbered pages (including exhibits)
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TABLE OF CONTENTS
PAGE
I. DESCRIPTION OF APPLICANTS...............................................5
A. Organization and Capital Structure..............................5
B. Investment Objectives of the Funds.............................10
C. The Investment Adviser.........................................13
D. First Trust Portfolios.........................................14
II. RELIEF REQUESTED.......................................................14
III. REPRESENTATIONS OF THE APPLICANTS......................................15
IV. JUSTIFICATION FOR THE REQUESTED RELIEF.................................17
1. Receipt of the Order would serve shareholder interests..............18
2. Each Fund's shareholders would receive information sufficient
to clearly inform them of the nature of the distributions they
are receiving.......................................................18
3. Under certain circumstances, Rule 19b-1 gives rise to improper
influence on portfolio management decisions, with no offsetting
benefit to shareholders.............................................19
4. Other concerns leading to adoption of Rule 19b-1 are not
applicable..........................................................21
5. Further limitations of Rule 19b-1...................................21
6. General.............................................................23
V. APPLICANTS' CONDITIONS.................................................24
VI. APPLICABLE PRECEDENT...................................................33
VII. PROCEDURAL COMPLIANCE..................................................33
VIII. CONCLUSION............................................................36
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UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
------------------------------------------------------
In the Matter of AMENDMENT NO. 4 TO AN
APPLICATION PURSUANT
FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY TO SECTION 6(c) OF THE
INCOME FUND INVESTMENT COMPANY ACT
FIRST TRUST ENHANCED EQUITY INCOME FUND OF 1940 (THE "ACT") FOR
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE AN ORDER OF EXEMPTION
INCOME FUND FROM SECTION 19(b) OF
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE THE ACT AND RULE 19b-1
INCOME FUND II THEREUNDER
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/
UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST TAX-ADVANTAGED PREFERRED INCOME FUND
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY INCOME FUND
FIRST TRUST ADVISORS L.P.
FIRST TRUST PORTFOLIOS L.P.
FILE NO. 812-13161
------------------------------------------------------
First Trust/Aberdeen Global Opportunity Income Fund (the
"FT/Aberdeen Global Opportunity Fund"), First Trust Enhanced Equity Income
Fund (formerly known as First Trust/Fiduciary Asset Management Covered Call
Fund) (the "FT/Enhanced Equity Income Fund"), First Trust/Four Corners
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Senior Floating Rate Income Fund (the "FT/Four Corners Fund"), First
Trust/Four Corners Senior Floating Rate Income Fund II (the "FT/Four
Corners Fund II"), Macquarie/First Trust Global Infrastructure/Utilities
Dividend & Income Fund (the "Macquarie/FT Fund"), First Trust/FIDAC
Mortgage Income Fund (the "FT/FIDAC Fund"), First Trust Strategic High
Income Fund (the "FT/Strategic Fund"), First Trust Strategic High Income
Fund II (the "FT/Strategic Fund II"), First Trust Strategic High Income
Fund III (the "FT/Strategic Fund III"), First Trust Tax-Advantaged
Preferred Income Fund (the "FT/Tax-Advantaged Preferred Fund"), First
Trust/Aberdeen Emerging Opportunity Fund (the "FT/Aberdeen Emerging
Opportunity Fund"), First Trust Specialty Finance and Financial
Opportunities Fund (formerly known as the First Trust/Gallatin Specialty
Finance and Financial Opportunities Fund) (the "FT/Specialty Finance
Fund"), First Trust Active Dividend Income Fund (the "FT/Active Dividend
Fund"), First Trust Municipal Target Term Trust (the "FT/Municipal Fund"),
First Trust/StoneCastle Bank Select Income Fund (the "FT/StoneCastle
Fund"), First Trust Income Fund (the "FT/Income Fund") and First
Trust/Chartwell Total Return Equity Income Fund (the "FT/Chartwell Fund")
(collectively, the "Current Funds"), First Trust Advisors L.P. ("First
Trust" or the "Investment Adviser"), and First Trust Portfolios L.P.
("First Trust Portfolios") (the Current Funds, First Trust and First Trust
Portfolios, collectively, the "Applicants"), hereby apply for an order (the
"Order") of the Securities and Exchange Commission (the "Commission")
pursuant to Section 6(c) of the Act providing each Current Fund and each
existing or future closed-end investment company in the future that seeks
to rely on the Order currently advised or to be advised in the future by
the Investment Adviser (including any successor in interest)(1) or by an
entity controlling, controlled by or under common control (within the
meaning of Section 2(a)(9) of the Act) with the Investment Adviser an
---------------
(1) A successor in interest is limited to entities that result from a
reorganization into another jurisdiction or a change in the type of
business organization.
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exemption from the provisions of Section 19(b) of the Act and Rule 19b-1
thereunder, as more fully set forth below.(2) The Current Funds and such
additional existing or future closed-end investment companies that may rely
on the Order in the future are hereinafter collectively referred to as the
"Funds" and separately as a "Fund."
I. DESCRIPTION OF APPLICANTS.
A. Organization and Capital Structure.
Each of the Current Funds that relies on the Order is or will be,
and each Fund that relies on the Order in the future will be, a closed-end
management investment company registered under the Act. Each of the Current
Funds is organized as a Massachusetts business trust. The Current Funds
were organized on the following respective dates: FT/Aberdeen Global
Opportunity Fund - September 7, 2004, FT/Enhanced Equity Income Fund - May
20, 2004, FT/Four Corners Fund - May 13, 2003 (as a Delaware statutory
trust) and reorganized on August 8, 2003 (as a Massachusetts business
trust), FT/Four Corners Fund II - March 25, 2004, Macquarie/FT Fund -
January 21, 2004, FT/FIDAC Fund - February 22, 2005, FT/Strategic Fund -
April 15, 2005, FT/Strategic Fund II - January 17, 2006, FT/Strategic Fund
III - November 14, 2006, FT/Tax-Advantaged Preferred Fund - March 9, 2006,
FT/Aberdeen Emerging Opportunity Fund - May 16, 2006, FT/Specialty Finance
Fund - March 20, 2007, FT/Active Dividend Fund - June 14, 2007,
FT/Municipal Fund - January 22, 2009, FT/StoneCastle Fund -- February 20,
2008, FT/Income Fund -- September 7, 2006 and FT/Chartwell Fund --
September 6, 2007. The common shares(3) of the FT/Four Corners Fund and
---------------
(2) All existing registered closed-end investment companies that currently
intend to rely on the requested Order are named as Applicants. Any
existing or future closed-end investment company that may rely on the
Order in the future will comply with the terms and conditions of this
amended application (this "Application").
(3) When used herein, the term "common shares" refers to common shares of
beneficial interest and the term "preferred shares" refers to
preferred shares of beneficial interest.
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FT/Tax-Advantaged Preferred Fund are listed on the NYSE Amex (formerly
known as the NYSE Alternext US and the American Stock Exchange). The common
shares of the FT/Aberdeen Global Opportunity Fund, FT/Enhanced Equity
Income Fund, FT/Four Corners Fund II, Macquarie/FT Fund, FT/Aberdeen
Emerging Opportunity Fund, FT/FIDAC Fund, FT/Strategic Fund, FT/Strategic
Fund II, FT/Strategic Fund III, FT/Specialty Finance Fund and FT/Active
Dividend Fund are listed on the New York Stock Exchange. It is currently
contemplated that the common shares of the FT/Municipal Fund, the
FT/StoneCastle Fund, the FT/Income Fund and the FT/Chartwell Fund (when and
if issued) and the common shares of the future Funds will be listed and
traded on the New York Stock Exchange, the Nasdaq or another national
securities exchange as defined in Section 2(a)(26) of the Act (each, an
"Exchange").
The FT/Aberdeen Global Opportunity Fund, the FT/Enhanced Equity
Income Fund, the FT/Four Corners Fund, the FT/Four Corners Fund II, the
FT/FIDAC Fund, the FT/Strategic Fund, the FT/Strategic Fund II, the
FT/Strategic Fund III, the FT/Tax-Advantaged Preferred Fund, the
FT/Aberdeen Emerging Opportunity Fund, the FT/Active Dividend Fund, the
FT/Municipal Fund and the FT/StoneCastle Fund are each organized as a
diversified closed-end management investment company. The Macquarie/FT Fund
and the FT/Specialty Finance Fund are each organized as a non-diversified
closed-end management investment company. The registration statements for
the FT/Income Fund and the FT/Chartwell Fund, when and if filed with the
Commission, will specify whether each such fund is a diversified or
non-diversified closed-end management investment company.
As of February 27, 2009, the Current Funds with publicly offered
common shares had issued and outstanding common shares with a par value of
$.01 per share and total assets as set forth below:
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TABLE 1
------------------------------------------------------ --------------------------------- -----------------------------
ISSUED AND TOTAL ASSETS
FUND OUTSTANDING AS OF
COMMON SHARES FEBRUARY 27, 2009
AS OF FEBRUARY 27, 2009
------------------------------------------------------ --------------------------------- -----------------------------
FT/Aberdeen Global Opportunity Fund 17,365,236 $ 304,604,567
------------------------------------------------------ --------------------------------- -----------------------------
FT/ Enhanced Equity Income Fund 19,973,164 $ 192,858,610
------------------------------------------------------ --------------------------------- -----------------------------
FT/Four Corners Fund 4,924,349 $ 73,530,498
------------------------------------------------------ --------------------------------- -----------------------------
FT/Four Corners Fund II 25,291,939 $ 389,277,637
------------------------------------------------------ --------------------------------- -----------------------------
Macquarie/FT Fund 9,077,963 $ 123,326,956
------------------------------------------------------ --------------------------------- -----------------------------
FT/FIDAC Fund 4,048,993 $ 82,833,205
------------------------------------------------------ --------------------------------- -----------------------------
FT/Strategic Fund 9,078,630 $ 37,134,736
------------------------------------------------------ --------------------------------- -----------------------------
FT/Strategic Fund II 9,489,766 $ 58,687,548
------------------------------------------------------ --------------------------------- -----------------------------
FT/Strategic Fund III 9,113,638 $ 39,509,452
------------------------------------------------------ --------------------------------- -----------------------------
FT/Tax-Advantaged Preferred Fund 2,978,819 $ 19,514,500
------------------------------------------------------ --------------------------------- -----------------------------
FT/Aberdeen Emerging Opportunity Fund 5,827,883 $ 81,079,803
------------------------------------------------------ --------------------------------- -----------------------------
FT/Specialty Finance Fund 14,231,333 $ 54,230,625
------------------------------------------------------ --------------------------------- -----------------------------
FT/Active Dividend Fund 7,205,236 $ 59,657,908
------------------------------------------------------ --------------------------------- -----------------------------
The FT/Four Corners Fund, FT/Four Corners Fund II and
FT/Tax-Advantaged Preferred Fund have issued preferred shares.
As of February 27, 2009, the FT/Four Corners Fund had issued and
outstanding 880 preferred shares known as Money Market Cumulative Preferred
Shares (the "MMP Shares"). The MMP Shares have a liquidation preference of
$25,000 per share, plus accumulated unpaid dividends and a par value of
$0.01 per share. Following the initial rate period, the FT/Four Corners
Fund pays dividends based on a rate set at auction usually held every 28
days.
The FT/Four Corners Fund II has issued preferred shares known as
Auction Market Preferred Shares (hereinafter, the "AMPS"), Series A and B.
AMPS have a liquidation preference of $25,000 per share, plus accumulated
unpaid dividends and a par value of $0.01 per share. As of February 27,
2009, the FT/Four Corners Fund II had issued and outstanding 1,600 Series A
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AMPS and 1,600 Series B AMPS. Following the initial rate period, the
FT/Four Corners Fund II pays dividends on the AMPS Series A and B based on
a rate set at auction, usually held every seven days for Series A and every
28 days for Series B.
The FT/Tax-Advantaged Preferred Fund has issued preferred shares
known as Series M Auction Preferred Shares ("APS"). APS have a liquidation
preference of $25,000 per share, plus accumulated and unpaid distributions
and a par value of $0.01 per share. As of February 27, 2009, the
FT/Tax-Advantaged Preferred Fund had issued and outstanding 320 APS.
Following the initial rate period, the FT/Tax-Advantaged Preferred Fund
pays dividends on the APS based on a rate set at auction, usually held
every seven days.
Generally, the rate set at auction for AMPS, MMP Shares and APS
will not be higher than the maximum rate set forth in the respective Fund's
prospectus. MMP Shares, AMPS and APS are not traded on an Exchange.
Investors may purchase or sell the MMP Shares, AMPS or APS at an auction
with or through a broker-dealer that has entered into an agreement with the
auction agent or with certain other broker-dealers. In addition,
broker-dealers may maintain a secondary trading market for MMP Shares, AMPS
or APS outside of auctions, but are not obligated to do so and may
discontinue this activity at any time.
Except for the initial dividend period between the initial
offering of shares and the first auction, the rate of dividend on MMP
Shares, AMPS or APS is not set and will not be set by the respective board
of trustees (the "Board") of such Funds, but instead the rate will be
established at auction as provided in the organizational documents of the
applicable Fund (i.e., the statement establishing and fixing rights and
preferences for the respective preferred shares or other organizational
documents), subject to limited exceptions (such as the auction rate is
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subject to certain maximum and minimum rate requirements or in cases in
which a Fund failed to deposit the requisite dividend amount, a default
rate (or other specified rate) may apply).(4)
While the Current Funds (other than FT/Four Corners Fund, FT/Four
Corners Fund II and FT/Tax-Advantaged Preferred Fund) do not currently
contemplate issuing any preferred shares, they could do so in the future.
(5) In such cases, Applicants contemplate that the preferred shares of such
Current Funds as well as future Funds will also pay dividends based on a
rate set at auction (generally held every seven days or at such other
intervals specified in the corporate organizational documents creating or
establishing the rights and preferences of such preferred shares) or
remarketings or with reference to an objective index. It is contemplated
that such preferred shares also will not be listed on an Exchange.
Similar to that described above for the MMP Shares, AMPS and APS,
if the dividends are set at auction, investors may be able to purchase or
sell the preferred shares at an auction with or through a broker-dealer
that has entered into an agreement with the auction agent and the
respective Fund or with other broker-dealers. In addition to the auctions,
broker-dealers may maintain a secondary market in any Fund's preferred
shares outside of the auctions, but could discontinue this activity at any
time. Except for the initial dividend period between the initial offering
of shares and the first auction, the dividend rate on any preferred shares
is not set and will not be set by the Board of the respective Fund, but
instead the rate will be established at auction as provided in the
organizational documents of the applicable Fund (i.e., the statement
establishing and fixing rights and preferences for the respective preferred
---------------
(4) Subject to certain conditions that vary among the respective Funds
(e.g., sufficient clearing bids existed in the most recent auction;
cumulative dividends, amounts due to mandatory redemptions and any
additional dividends have been paid; the applicable rating agency
determines the special dividend period will not adversely affect the
rating on the preferred shares, and the lead broker-dealer designated
by the respective Fund does not object), the Fund may designate a
special rate period.
(5) Moreover, it is possible that certain Funds may use alternative means
of financial leverage (e.g., by issuing notes or commercial paper, or
by incurring other indebtedness).
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shares or other organizational documents), subject to limited exceptions
(such as the auction rate is subject to certain maximum and minimum rate
requirements or in cases in which a Fund fails to deposit the requisite
dividend amount, a default rate (or other specified rate) may apply).
B. Investment Objectives of the Funds.
The primary investment objective of the FT/Aberdeen Global
Opportunity Fund is to seek a high level of current income. As a secondary
objective, the FT/Aberdeen Global Opportunity Fund will seek capital
appreciation. Under normal market conditions, the FT/Aberdeen Global
Opportunity Fund invests substantially all of its managed assets in a
diversified portfolio of fixed-income securities, including government and
corporate bonds, of U.S. and non-U.S. issuers.
The investment objective of the FT/Enhanced Equity Income Fund is
to provide a high level of current income and gains and, to a lesser
extent, capital appreciation. The Fund seeks to achieve its investment
objective by investing in a diversified portfolio of equity securities and
writing (selling) call options.
The primary investment objective of the FT/Four Corners Fund and
FT/Four Corners Fund II is to seek a high level of current income. As a
secondary objective, these Funds will attempt to preserve capital. The
FT/Four Corners Fund and FT/Four Corners Fund II will pursue these
objectives through investment in a portfolio of senior secured floating
rate corporate loans.
The investment objective of the Macquarie/FT Fund is to seek a
high level of current return consisting of dividends, interest and other
similar income while attempting to preserve capital. The Fund seeks to
achieve its investment objective by investing in a portfolio of equity,
debt, preferred or convertible securities and other instruments (for
instance, other instruments could include Canadian income trusts and
Australian stapled securities) issued by U.S. and non-U.S. issuers
("Infrastructure Issuers") that have as their primary focus (in terms of
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income and/or assets) the management, ownership and/or operation of
infrastructure and utilities assets in a select group of countries.
The Macquarie/FT Fund intends to invest the net proceeds from the
issuance of its common shares primarily in equity securities and securities
and instruments with equity characteristics issued by Infrastructure
Issuers but may also invest in other securities and instruments issued by
Infrastructure Issuers. The Macquarie/FT Fund also intends to invest the
net proceeds raised from any leverage, such as preferred shares, commercial
paper or notes and/or borrowings, in U.S. dollar-denominated senior secured
floating-rate loans of Infrastructure Issuers.
The primary investment objective of the FT/FIDAC Fund is to
provide a high level of current income. As a secondary objective, the Fund
will seek preservation of capital. The Fund pursues its investment
objectives by investing primarily in mortgage-backed securities that
represent part ownership in a pool of either residential or commercial
mortgage loans that, in the opinion of its sub-adviser, Fixed Income
Discount Advisory Company ("FIDAC"), offer an attractive combination of
credit quality, yield and maturity.
The primary investment objective of the FT/Strategic Fund,
FT/Strategic Fund II and FT/Strategic Fund III is to provide a high level
of current income. As a secondary objective, these Funds seek capital
growth. The FT/Strategic Fund intends to achieve its investment objectives
by investing in a diversified portfolio of high income producing securities
that its sub-adviser, Valhalla Capital Partners, LLC ("Valhalla"), believes
offer attractive yield and capital appreciation potential. The FT/Strategic
Fund II and the FT/Strategic Fund III each pursue their investment
objectives by investing in a diversified portfolio of below-investment
grade and investment grade debt securities, and equity securities that such
Funds' sub-adviser, Valhalla, believes offer attractive yield and/or
capital appreciation potential.
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The primary investment objective of the FT/Tax-Advantaged
Preferred Fund is to seek current income. As a secondary objective, such
Fund will seek preservation of capital. The FT/Tax-Advantaged Preferred
Fund invests in preferred securities that its sub-adviser, Stonebridge
Advisors, LLC, believes at the time of investment are eligible to pay
dividends that qualify for certain favorable federal income tax treatment
as "tax-advantaged" when received by shareholders of such Fund.
The investment objective of the FT/Aberdeen Emerging Opportunity
Fund is to provide a high level of total return. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
and fixed-income securities of issuers in emerging market countries.
The primary investment objective of the FT/Specialty Finance Fund
is to seek a high level of current income. The Fund seeks attractive total
return as a secondary objective. The FT/Specialty Finance Fund seeks to
achieve its investment objectives by investing at least 80% of its managed
assets in a diversified portfolio of securities of specialty finance and
other financial companies that its sub-adviser, Confluence Investment
Management LLC, believes offer attractive opportunities for income and
capital appreciation.
The primary investment objective of the FT/Active Dividend Fund is
to seek a high level of current income. The Fund has a secondary objective
of capital appreciation. The FT/Active Dividend Fund seeks to achieve its
investment objectives by investing at least 80% of its managed assets in a
diversified portfolio of dividend-paying multi-cap equity securities of
both U.S. and non-U.S. issuers that its sub-adviser, Aviance Capital
Management, LLC, believes offer the potential for attractive income and/or
capital appreciation.
It is currently anticipated, based on its registration statement
filed with the Commission on January 23, 2009, that the investment
objective of the FT/Municipal Fund will be to provide current income exempt
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from regular federal income tax. Moreover, it is expected that the
FT/Municipal Fund will seek to achieve its objective by investing in a
diversified portfolio of tax-exempt municipal securities that, in the
opinion of its sub-adviser, Mariner Municipal Managers LLC, are
undervalued.
It is currently anticipated, based on its registration statement
filed with the Commission on May 5, 2008, that the investment objective of
the FT/StoneCastle Fund will be to seek current income. Moreover, it is
expected that the FT/StoneCastle Fund will seek to achieve its investment
objective by investing at least 80% of its managed assets in a diversified
portfolio of: (i) fixed-income and equity securities issued by banks,
thrifts, credit unions and non-bank finance companies, or holding companies
thereof (collectively, "Banks") and (ii) asset-backed securities secured
by, or payable from, pools of Bank securities, in each case that its
sub-adviser, StoneCastle Advisors, LLC, believes offer attractive
opportunities for current income.
The foregoing investment objectives and policies for the
registered Current Funds may be modified from time to time. To date, the
FT/Income Fund and the FT/Chartwell Fund have not filed a registration
statement with the Commission; the investment objectives and policies of
such Funds will be set forth in their respective registration statements
when and if filed with the Commission.
C. The Investment Adviser.
First Trust acts as investment adviser to the Current Funds, with
responsibility for implementing each Current Fund's overall investment
strategy. First Trust is a registered investment adviser under the
Investment Advisers Act of 1940 ("Advisers Act"). As of January 31, 2009,
First Trust served as investment adviser or portfolio supervisor to
investment portfolios with approximately $17 billion in assets. First Trust
is an Illinois limited partnership formed in 1991 with one limited partner,
Grace Partners of DuPage L.P. ("Grace Partners"), and one general partner,
13 of 40
The Charger Corporation. Grace Partners is a limited partnership with one
general partner, The Charger Corporation, and a number of limited partners.
Grace Partners' and The Charger Corporation's primary business is
investment advisory and broker/dealer services through their interests. The
Charger Corporation is an Illinois corporation controlled by the Robert
Donald Van Kampen family. First Trust is controlled by Grace Partners and
The Charger Corporation.
D. First Trust Portfolios.
First Trust Portfolios is a broker-dealer registered under the
Securities Exchange Act of 1934 and an "affiliated person" of First Trust
under Section 2(a)(3) of the Act. First Trust Portfolios specializes in the
underwriting, trading and distribution of unit investment trusts and other
securities, and maintains a Web site that includes information on financial
products offered and/or distributed by First Trust Portfolios and First
Trust, including information about the Current Funds that have issued
publicly offered shares. Neither the Investment Adviser nor the Current
Funds have their own Web site; rather they use the Web site maintained by
First Trust Portfolios.
II. RELIEF REQUESTED.
Section 19(b) of the Act provides that it shall be unlawful in
contravention of such rules, regulations, or orders as the Commission may
prescribe as necessary or appropriate in the public interest or for the
protection of investors for any registered investment company to distribute
long-term capital gains, as defined in the Internal Revenue Code of 1986
(the "Code"), more often than once every twelve months. Rule 19b-1 under
the Act provides that no registered investment company which is a
"regulated investment company" as defined in Section 851 of the Code shall
make more than (i) one "capital gain dividend," as defined in Section
852(b)(3)(C) of the Code, in any one taxable year of the company, (ii) one
additional capital gain distribution made in whole or in part to avoid
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payment of excise tax under Section 4982 of the Code plus (iii) one
supplemental "clean-up" capital gain dividend pursuant to Section 855 of
the Code, which amount may not exceed 10% of the total amount distributed
for the year.
The Applicants believe that Rule 19b-1 should be interpreted to
permit each Fund to make an unlimited number of distributions on its common
and preferred shares (if any) so long as it makes the designation necessary
under the Code and Rule 19b-1 to transform such distributions into "capital
gain dividends" restricted by Rule 19b-1 only as often as is permitted by
Rule 19b-1, even if the Code would then require retroactively spreading the
capital gain resulting from such designation over more than the permissible
number of distributions. However, in order to obtain certainty for the
Funds' proposed distribution policies, in the absence of such an
interpretation, Applicants hereby request an order pursuant to Section 6(c)
of the Act (see below) granting an exemption from Section 19(b) of the Act
and Rule 19b-1 thereunder. The Order would permit each Fund to make
periodic capital gain dividends (as defined in Section 852(b)(3)(C) of the
Code) as frequently as monthly in any one taxable year in respect of its
common shares and as frequently as specified by or determined in accordance
with the terms thereof in respect of its preferred shares (if any) that it
has issued or may issue in the future.
III. REPRESENTATIONS OF THE APPLICANTS.
Applicants make the following representations regarding the
requested relief:
Before any Fund implements a proposed distribution policy with
respect to its common shares to make level, periodic distributions as
described below in reliance on the Order, the Board of such Fund, including
a majority of the trustees who are not "interested persons" of the
respective Fund, as defined in Section 2(a)(19) of the Act (each an
"Independent Trustee") will approve the Fund's adoption of such policy. The
Board will request, and the Investment Adviser will provide, such
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information as is reasonably necessary to an informed determination of
whether the Fund should adopt the proposed distribution policy. In
particular, the Board, including the Independent Trustees, will review
information regarding the purpose and terms of the proposed distribution
policy, the likely effects of such policy on the Fund's long-term total
return (in relation to market price and net asset value per common share)
and the relationship between the Fund's distribution rate on its common
shares under the policy and the Fund's total return (in relation to net
asset value per common share). The Independent Trustees will also consider
what conflicts of interest the Investment Adviser and the affiliated
persons of the Investment Adviser and the Fund might have with respect to
the adoption or implementation of such policy. After considering such
information, the Board, including the Independent Trustees, will approve
the distribution policy with respect to the Fund's common shares (the
"Plan"), provided that the Board, including the Independent Trustees,
determines that the Plan is consistent with the Fund's investment
objective(s) and in the best interests of the Fund's common shareholders.
Applicants represent that the purpose of any Plan will be to
permit a Fund to provide its common shareholders with level, periodic
distributions. Under the Plan of a Fund, such Fund would distribute to its
respective common shareholders a fixed percentage of the market price of
such Fund's common shares at a particular point in time or a fixed
percentage of net asset value per common share at a particular point in
time or a fixed amount per common share, any of which may be adjusted from
time to time. Under the Plan, the minimum annual distribution rate with
respect to such Fund's common shares would be independent of the Fund's
performance during any particular period but would be expected to correlate
with the Fund's performance over time. Except for extraordinary
distributions and potential increases or decreases in the final dividend
periods in light of the Fund's performance for the entire calendar or
taxable year and to enable the Fund to comply with the distribution
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requirements of Subchapter M of the Code for the calendar or taxable year,
each distribution on the common shares would be at the stated rate then in
effect.
In conjunction with approving a Plan, the Fund's Board will also
approve the Fund's adoption of compliance policies and procedures under
Rule 38a-1 that:
(i) are reasonably designed to ensure that all
notices required to be sent to the Fund's shareholders
pursuant to Section 19(a) of the Act, Rule 19a-1
thereunder and condition 4 below (each, a "19(a) Notice")
include the disclosure required by Rule 19a-1 and by
condition 2(a) below, and that all other written
communications by the Fund or its agents described in
condition 3(a) below about the distributions under the
Plan include the disclosure required by condition 3(a)
below; and
(ii) require the Fund to keep records that
demonstrate its compliance with all of the conditions of
the Order and that are necessary for the Fund to form the
basis for, or demonstrate the calculation of, the amounts
disclosed in its 19(a) Notices.
The records of the actions of a Fund's Board will summarize the
basis for its approval of the Plan for a Fund, including its consideration
of the factors described above, and be contained in its respective meeting
minutes. Such records will be maintained for a period of at least six years
from the date of such meeting, the first two years in an easily accessible
place, or for such longer period as may otherwise be required by law.
IV. JUSTIFICATION FOR THE REQUESTED RELIEF.
Section 6(c) of the Act provides that the Commission may exempt
any person or transaction from any provision of the Act or any rule under
the Act to the extent that such exemption is necessary or appropriate in
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the public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act. For the
reasons set forth below, Applicants submit that the requested exemption
from Section 19(b) of the Act and Rule 19b-1 thereunder would be consistent
with the standards set forth in Section 6(c) of the Act and in the best
interests of the Current Funds and their respective shareholders.
1. Receipt of the Order would serve shareholder interests.
Applicants believe that the shareholders of the Current Funds are
or will be, as applicable, generally conservative, dividend- and
income-sensitive investors who desire current income periodically and may
favor a fixed distribution policy. An exemption from Rule 19b-1 would
benefit shareholders in another way. Common shares of closed-end funds,
including common shares of the Current Funds with publicly offered common
shares, often trade in the marketplace at a discount to their net asset
value. In the view of the Applicants, this discount may be reduced if the
Funds are permitted to pay relatively frequent dividends on their common
shares at a consistent rate, whether or not those dividends contain an
element of capital gain. Such a reduction in discount would benefit the
Funds' common shareholders along with the Funds.
2. Each Fund's shareholders would receive information
sufficient to clearly inform them of the nature of the
distributions they are receiving.
One of the concerns leading to the enactment of Section 19(b) and
adoption of Rule 19b-1 was that shareholders might be unable to distinguish
between frequent distributions of capital gains and dividends from
investment income.(6) However, Rule 19a-1 under the Act effectively
---------------
(6) See Securities and Exchange Commission 1966 Report to Congress on
Investment Company Growth (H.R. Rep. No. 2337, 89th Cong., 2d Sess.
190-95 (1966)); S. Rep. No. 91-184, 91st Cong., 1st Sess. 29 (1969);
H.R. Rep. No. 91-1382, 91st Cong., 2d Sess. 29 (1970).
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addresses this concern by requiring that distributions (or the confirmation
of the reinvestment thereof) estimated to be sourced in part from capital
gains or capital be accompanied by a separate statement showing the sources
of the distribution (e.g., estimated net income, net short-term capital
gains, net long-term capital gains and/or return of capital). The Current
Funds' annual reports to shareholders include related information.
Moreover, IRS Form 1099-DIV, which is sent to each common and preferred
shareholder who received distributions during a particular year (including
shareholders who have sold shares during the year), instructs shareholders
regarding how to report the distributions for federal income tax purposes.
In addition, each of the Current Funds that relies on the
requested Order will make the additional disclosures required by the
conditions set forth in Part V below, and each of them will adopt
compliance policies and procedures in accordance with Rule 38a-1 under the
Act to ensure that all required notices and disclosures are sent to
shareholders.
Rule 19a-1, the Plans and the compliance policies ensure that each
Fund's shareholders would be provided sufficient information to understand
that their periodic distributions are not tied to the Fund's net investment
income (which for this purpose is the Fund's taxable income other than from
capital gains) and realized capital gains to date, and may not represent
yield or investment return. Accordingly, continuing to subject the Funds to
Section 19(b) and Rule 19b-1 would afford shareholders no extra protection.
In addition, the Funds will undertake to request intermediaries to forward
19(a) Notices to their customers and, upon request, will reimburse such
intermediaries for the costs of forwarding. Such forwarding may occur in
any manner permitted by statute, rule, order or the staff.
3. Under certain circumstances, Rule 19b-1 gives rise to
improper influence on portfolio management decisions,
with no offsetting benefit to shareholders.
Rule 19b-1, when applied to a Plan, actually gives rise to one of
the concerns that Rule 19b-1 was intended to avoid: inappropriate influence
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on portfolio management decisions. Funds that pay long-term capital gains
distributions only once per year in accordance with Rule 19b-1 impose no
pressure on management to realize capital gains at any time when purely
investment considerations do not dictate doing so. In the absence of an
exemption from Rule 19b-1, the adoption of a periodic distribution plan
imposes pressure on management (i) not to realize any net long-term capital
gains until the point in the year that the fund can pay all of its
remaining distributions in accordance with Rule 19b-1 and (ii) not to
realize any long-term capital gains during any particular year in excess of
the amount of the aggregate pay-out for the year (since as a practical
matter excess gains must be distributed and accordingly would not be
available to satisfy pay-out requirements in following years),
notwithstanding that purely investment considerations might favor
realization of long-term gains at different times or in different amounts.
No purpose is served by the distortion in the normal operation of
a periodic distribution plan required in order to comply with Rule 19b-1.
There is no reason or logic in requiring any fund that adopts a periodic
distribution plan either to retain (and pay taxes on) long-term capital
gains (with the resulting additional tax return complexities for the fund's
shareholders) or to avoid designating its distributions of long-term gains
as capital gains dividends for tax purposes (thereby avoiding a Rule 19b-1
problem but providing distributions taxable at ordinary income rates rather
than the much lower long-term capital gains rates and being required to pay
income tax on the amount of such income). The desirability of avoiding
these anomalous results creates pressure to limit the realization of
long-term capital gains that otherwise would be taken for purely investment
considerations.
The Order requested by the Applicants would minimize these
anomalous effects of Rule 19b-1 by enabling the Funds to realize long-term
capital gains as often as investment considerations dictate without fear of
violating Rule 19b-1.
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4. Other concerns leading to adoption of Rule 19b-1 are not
applicable.
Another concern that led to the enactment of Section 19(b) of the
Act and adoption of Rule 19b-1 was that frequent capital gains
distributions could facilitate improper fund share sales practices,
including, in particular, the practice of urging an investor to purchase
shares of a fund on the basis of an upcoming capital gains dividend
("selling the dividend"), where the dividend would result in an immediate
corresponding reduction in net asset value and would be in effect a taxable
return of the investor's capital. Applicants submit that this concern
should not apply to closed-end investment companies, such as the Funds,
which do not continuously distribute shares. Furthermore, if the underlying
concern extends to secondary market purchases of shares of closed-end funds
that are subject to a large upcoming capital gains dividend, adoption of a
periodic distribution plan actually helps minimize the concern by avoiding,
through periodic distributions, any buildup of large end-of-the-year
distributions.
The Applicants also submit that the "selling the dividend" concern
is not applicable to preferred shares, which entitle a holder to no more
than a specified periodic dividend and, like debt securities, are initially
sold at a price based upon their liquidation preference, credit quality and
frequency of payment. Investors buy preferred shares for the purpose of
receiving specific payments at the frequency bargained for, and any
application of Rule 19b-1 to preferred shares would be contrary to the
expectation of investors. There is also currently a tax rule that provides
that any loss attributable to a long-term capital gain dividend realized
within six months of the acquisition of such shares must be treated as a
long-term capital loss to avoid the selling of dividends.
5. Further limitations of Rule 19b-1.
Subparagraphs (a) and (f) of Rule 19b-1 limit the number of
capital gains dividends, as defined in Section 852(b)(3)(C) of the Code,
that a fund may make with respect to any one taxable year to one, plus a
supplemental "clean-up" distribution made pursuant to Section 855 of the
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Code not exceeding 10% of the total amount distributed for the year, plus
one additional capital gain dividend made in whole or in part to avoid the
excise tax under Section 4982 of the Code.
Applicants assert that by limiting the number of capital gain
dividends that a fund may make with respect to any one year, Rule 19b-1 may
prevent the normal and efficient operation of a periodic distribution plan
whenever that fund's realized net long-term capital gains in any year
exceed the total of the periodic distributions that may include such
capital gains under the Rule. Rule 19b-1 thus may force the fixed regular
periodic distributions to be funded with returns of capital(7) (to the
extent net investment income and realized short-term capital gains are
insufficient to fund the distribution), even though realized net long-term
capital gains otherwise would be available. To distribute all of a fund's
long-term capital gains within the limits in Rule 19b-1, a fund may be
required to make total distributions in excess of the annual amount called
for by its periodic distribution plan or to retain and pay taxes on the
excess amount. Applicants believe that the application of Rule 19b-1 to a
fund's periodic distribution plan may create pressure to limit the
realization of long-term capital gains based on considerations unrelated to
investment goals.
Revenue Ruling 89-81 under the Code requires that a fund that
seeks to qualify as a regulated investment company under the Code and that
has both common stock and preferred stock outstanding designate the types
of income, e.g., investment income and capital gains, in the same
proportion as the total distributions distributed to each class for the tax
year. To satisfy the proportionate designation requirements of Revenue
Ruling 89-81, whenever a fund has realized a long-term capital gain with
respect to a given tax year, the fund must designate the required
proportionate share of such capital gain to be included in common and
preferred stock dividends. Although Rule 19b-1 allows a fund some
---------------
(7) These would be returns of capital for financial accounting purposes
and not for tax accounting purposes.
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flexibility with respect to the frequency of capital gains distributions, a
fund might use all of the exceptions available under Rule 19b-1 for a tax
year and still need to distribute additional capital gains allocated to the
preferred stock to comply with Revenue Ruling 89-81.
The potential abuses addressed by Section 19(b) and Rule 19b-1 do
not arise with respect to preferred shares issued by a closed-end fund.
Such distributions are fixed, determined in periodic auctions or
remarketings by reference to short-term interest rates, or are otherwise
determined by means other than by reference to performance of the issuer,
and Revenue Ruling 89-81 determines the proportion of such distributions
that are comprised of the long-term capital gains.
Applicants also submit that the "selling the dividend" concern is
not applicable to preferred shares, which entitle a holder to no more than
a periodic dividend at a fixed rate or the rate determined by the market,
and, like debt securities, are priced based upon their liquidation value,
credit quality, and frequency of payment. Investors buy preferred shares
for the purpose of receiving payments at the frequency bargained for and do
not expect the liquidation value of their shares to change.
The proposed Order will assist the Funds in avoiding these Rule
19b-1 problems.
6. General.
The relief requested is that the Commission permit the Funds to
make periodic distributions in respect of their common shares consisting in
whole or in part of capital gain dividends as frequently as monthly in any
one taxable year and in respect of their preferred shares, if any,
consisting in whole or in part of capital gain dividends as frequently as
specified by or determined in accordance with the terms thereof. Granting
this relief would provide the Funds with flexibility in meeting investor
interest in receiving more frequent distributions. By reducing the amount
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of individual periodic distributions even further, implementation of the
additional relief would actually ameliorate the concerns that gave rise to
Section 19(b) and Rule 19b-1 and help avoid the "selling of dividends"
problem, which Section 19(b) and Rule 19b-1 are not effective in
preventing.
The potential issues under Rule 19b-1 are basically not relevant
to distributions on preferred shares. Not only are such distributions
fixed, determined in periodic auctions or remarketings by reference to
short-term interest rates, or otherwise determined by means other than by
reference to performance of the issuer, but also the long-term capital gain
component is mandated by the Internal Revenue Service to be the same
proportion as the proportion of long-term gain dividends bears to the total
distributions in respect of the common shares and consequently the
long-term gain component cannot even be known until the last dividend of
the year. In these circumstances it would be very difficult for any of the
potential abuses reflected in Rule 19b-1's restrictions to occur.
In summary, Rule 19b-1 in the circumstances referred to above
distorts the effective and proper functioning of the Funds' distributions
and gives rise to the very pressures on portfolio management decisions that
Rule 19b-1 was intended to avoid. These distortions forced by Rule 19b-1
serve no purpose and are not in the best interests of shareholders.
V. APPLICANTS' CONDITIONS.
Applicants agree that, with respect to each Fund seeking to rely
on the Order, the Order will be subject to the following conditions:
1. Compliance Review and Reporting
The Fund's chief compliance officer will: (a) report to the Fund's
Board, no less frequently than once every three months or at the next
regularly scheduled quarterly Board meeting, whether (i) the Fund and its
Investment Adviser have complied with the conditions to the Order, and (ii)
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a material compliance matter, as defined in Rule 38a-1(e)(2) under the Act,
has occurred with respect to compliance with such conditions; and (b)
review the adequacy of the policies and procedures adopted by the Fund no
less frequently than annually.
2. Disclosures to Fund Shareholders
(a) Each 19(a) Notice to the holders of the Fund's common
shares, in addition to the information required by Section 19(a)
and Rule 19a-1:
(i) will provide, in a tabular or graphical format:
(1) the amount of the distribution, on a
per common share basis, together with the
amounts of such distribution amount, on a per
common share basis and as a percentage of such
distribution amount, from estimated: (A) net
investment income; (B) net realized short-term
capital gains; (C) net realized long-term
capital gains; and (D) return of capital or
other capital source;
(2) the fiscal year-to-date cumulative
amount of distributions, on a per common share
basis, together with the amounts of such
cumulative amount, on a per common share basis
and as a percentage of such cumulative amount of
distributions, from estimated: (A) net
investment income; (B) net realized short-term
capital gains; (C) net realized long-term
capital gains; and (D) return of capital or
other capital source;
(3) the average annual total return in
relation to the change in net asset value per
common share ("NAV") for the 5-year period (or,
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if the Fund's history of operations is less than
five years, the time period commencing
immediately following the Fund's first public
offering) ending on the last day of the month
prior to the most recent distribution record
date compared to the current fiscal period's
annualized distribution rate expressed as a
percentage of NAV as of the last day of the
month prior to the most recent distribution
record date; and
(4) the cumulative total return in
relation to the change in NAV from the last
completed fiscal year to the last day of the
month prior to the most recent distribution
record date compared to the fiscal year-to- date
cumulative distribution rate expressed as a
percentage of NAV as of the last day of the
month prior to the most recent distribution
record date.
Such disclosure shall be made in a type size at least as
large and as prominent as the estimate of the sources of
the current distribution; and
(ii) will include the following disclosure:
(1) "You should not draw any conclusions
about the Fund's investment performance from the
amount of this distribution or from the terms of
the Fund's Plan.";
(2) "The Fund estimates that it has
distributed more than its income and net
realized capital gains; therefore, a portion of
your distribution may be a return of capital. A
return of capital may occur, for example, when
some or all of the money that you invested in
the Fund is paid back to you. A return of
capital distribution does not necessarily
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reflect the Fund's investment performance and
should not be confused with `yield' or
`income'.";(8) and
(3) "The amounts and sources of
distributions reported in this Notice are only
estimates and are not being provided for tax
reporting purposes. The actual amounts and
sources of the amounts for [accounting and] tax
reporting purposes will depend upon the Fund's
investment experience during the remainder of
its fiscal year and may be subject to changes
based on tax regulations. The Fund will send
you a Form 1099-DIV for the calendar year that
will tell you how to report these distributions
for federal income tax purposes."
Such disclosure shall be made in a type size at least as
large as and as prominent as any other information in the
19(a) Notice and placed on the same page in close
proximity to the amount and the sources of the
distribution.
(b) On the inside front cover of each report to
shareholders under Rule 30e-1 under the Act, the Fund will:
(i) describe the terms of the Plan (including the
fixed amount or fixed percentage of the distributions and
the frequency of the distributions);
(ii) include the disclosure required by condition
2(a)(ii)(1) above;
---------------
(8) The disclosure in this condition 2(a)(ii)(2) will be included only if
the current distribution or the fiscal year-to-date cumulative
distributions are estimated to include a return of capital.
27 of 40
(iii) state, if applicable, that the Plan provides
that the Board may amend or terminate the Plan at any
time without prior notice to Fund shareholders; and
(iv) describe any reasonably foreseeable
circumstances that might cause the Fund to terminate the
Plan and any reasonably foreseeable consequences of such
termination.
(c) Each report provided to shareholders under Rule 30e-1
under the Act and each prospectus filed with the Commission on
Form N-2 under the Act will provide the Fund's total return in
relation to changes in NAV in the financial highlights table and
in any discussion about the Fund's total return.
3. Disclosure to Common Shareholders, Prospective Common
Shareholders and Third Parties
(a) The Fund will include the information contained in
the relevant 19(a) Notice, including the disclosure required by
condition 2(a)(ii) above, in any written communication (other than
a Form 1099) about the Plan or distributions under the Plan by the
Fund, or agents that the Fund has authorized to make such
communication on the Fund's behalf, to any Fund common
shareholder, prospective common shareholder or third-party
information provider;
(b) The Fund will issue, contemporaneously with the
issuance of any 19(a) Notice, a press release containing the
information in the 19(a) Notice and will file with the Commission
the information contained in such 19(a) Notice, including the
disclosure required by condition 2(a)(ii) above, as an exhibit to
its next filed Form N-CSR; and
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(c) The Fund will post prominently a statement on the Web
site maintained by First Trust Portfolios, an affiliated person of
the Fund's Investment Adviser,(9) containing the information in
each 19(a) Notice, including the disclosure required by condition
2(a)(ii) above, and will maintain such information on such Web
site for at least 24 months.
4. Delivery of 19(a) Notices to Beneficial Owners
If a broker, dealer, bank or other person ("financial
intermediary") holds common shares issued by the Fund in nominee name, or
otherwise, on behalf of a beneficial owner, the Fund: (a) will request that
the financial intermediary, or its agent, forward the 19(a) Notice to all
beneficial owners of the Fund's shares held through such financial
intermediary; (b) will provide, in a timely manner, to the financial
intermediary, or its agent, enough copies of the 19(a) Notice assembled in
the form and at the place that the financial intermediary, or its agent,
reasonably requests to facilitate the financial intermediary's sending of
the 19(a) Notice to each beneficial owner of the Fund's shares; and (c)
upon the request of any financial intermediary, or its agent, that receives
copies of the 19(a) Notice, will pay the financial intermediary, or its
agent, the reasonable expenses of sending the 19(a) Notice to such
beneficial owners.
---------------
(9) Neither the Fund nor its Investment Adviser has its own Web site.
However, First Trust Portfolios, a broker-dealer registered under the
Securities Exchange Act of 1934 and an affiliated person of the Fund's
Investment Adviser, maintains a Web site which is used by First Trust
Portfolios, the Fund and the Fund's Investment Adviser.
29 of 40
5. Additional Board Determinations for Funds Whose Common Shares
Trade at a Premium If:
(a) The Fund's common shares have traded on the exchange
that they primarily trade on at the time in question at an average
premium to NAV equal to or greater than 10%, as determined on the
basis of the average of the discount or premium to NAV of the
Fund's common shares as of the close of each trading day over a
12-week rolling period (each such 12-week rolling period ending on
the last trading day of each week); and
(b) The Fund's annualized distribution rate for such
12-week rolling period, expressed as a percentage of NAV as of the
ending date of such 12-week rolling period, is greater than the
Fund's average annual total return in relation to the change in
NAV over the 2-year period ending on the last day of such 12-week
rolling period;
then:
(i) At the earlier of the next regularly
scheduled meeting or within four months of the last day
of such 12-week rolling period, the Board, including a
majority of the Independent Trustees:
(1) will request and evaluate, and the
Fund's Investment Adviser will furnish, such
information as may be reasonably necessary to
make an informed determination of whether the
Plan should be continued or continued after
amendment;
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(2) will determine whether continuation,
or continuation after amendment, of the Plan is
consistent with the Fund's investment
objective(s) and policies and in the best
interests of the Fund and its shareholders,
after considering the information in condition
5(b)(i)(1) above, including, without limitation:
(a) whether the Plan is
accomplishing its purpose(s);
(b) the reasonably foreseeable
material effects of the Plan on the
Fund's long-term total return in
relation to the market price and NAV of
the Fund's common shares; and
(c) the Fund's current
distribution rate, as described in
condition 5(b) above, compared with the
Fund's average annual total return over
the 2-year period, as described in
condition 5(b), or such longer period as
the Board deems appropriate; and
(3) based upon that determination, will
approve or disapprove the continuation, or
continuation after amendment, of the Plan; and
(ii) The Board will record the information
considered by it and the basis for its approval or
disapproval of the continuation, or continuation after
amendment, of the Plan in its meeting minutes, which must
be made and preserved for a period of not less than six
years from the date of such meeting, the first two years
in an easily accessible place.
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6. Public Offerings
The Fund will not make a public offering of the Fund's common
shares other than:
(a) a rights offering below NAV to holders of the Fund's
common shares;
(b) an offering in connection with a dividend
reinvestment plan, merger, consolidation, acquisition, spin off or
reorganization of the Fund; or
(c) an offering other than an offering described in
conditions 6(a) and 6(b) above, unless, with respect to such other
offering:
(i) the Fund's average annual distribution rate
for the six months ending on the last day of the month
ended immediately prior to the most recent distribution
record date,(10) expressed as a percentage of NAV per
share as of such date, is no more than 1 percentage point
greater than the Fund's average annual total return for
the 5-year period ending on such date;(11) and
(ii) the transmittal letter accompanying any
registration statement filed with the Commission in
connection with such offering discloses that the Fund has
received an order under Section 19(b) to permit it to
make periodic distributions of long-term capital gains
with respect to its common shares as frequently as twelve
times each year, and as frequently as distributions are
specified by or determined in accordance with the terms
---------------
(10) If the Fund has been in operation fewer than six months, the measured
period will begin immediately following the Fund's first public
offering.
(11) If the Fund has been in operation fewer than five years, the measured
period will begin immediately following the Fund's first public
offering.
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of any outstanding preferred shares that such Fund may
issue.
7. Amendments to Rule 19b-1
The requested relief will expire on the effective date of any
amendment to Rule 19b-1 that provides relief permitting certain closed-end
investment companies to make periodic distributions of long-term capital
gains with respect to their outstanding common shares as frequently as
twelve times each year.
VI. APPLICABLE PRECEDENT.
The Commission has recently granted relief substantially the same
as that sought here.(12)
VII. PROCEDURAL COMPLIANCE.
At a meeting held on December 13, 2004, the Board of the
FT/Aberdeen Global Opportunity Fund, the FT/Enhanced Equity Income Fund,
the FT/Four Corners Fund, the FT/Four Corners Fund II and the Macquarie/FT
Fund each adopted, in relevant part, the following resolutions authorizing
the execution and filing of this Application.
Resolved, that the officers of the Funds be, and
each hereby is, authorized to prepare, execute and submit
to the Securities and Exchange Commission, on behalf of
the Funds and in their name, an application or
applications seeking exemptive relief from the provisions
of Section 19(b) of the Investment Company Act of 1940
(the "1940 Act") and related rules under the 1940 Act to
---------------
(12) See In the Matter of ING Clarion Real Estate Income Fund, et al.,
Investment Company Act Release Nos. 28329 (July 8, 2008)(notice) and
28352 (August 5, 2008)(order); In the Matter of The Mexico Fund, Inc.,
et al., Investment Company Act Release Nos. 28332 (July 17,
2008)(notice) and 28357 (August 12, 2008)(order); In the Matter of
Cohen & Steers Advantage Income Realty Fund, Inc., et al., Investment
Company Act Release Nos. 28341 (July 24, 2008)(notice) and 28358
(August 19, 2008)(order); and In the Matter of DNP Select Income Fund
Inc., et al., Investment Company Act Release Nos. 28348 (July 31,
2008)(notice) and 28368 (August 26, 2008)(order). Prior to the
granting of the foregoing relief, the Commission granted relief
substantially the same as that sought here on several occasions.
However, the conditions of such orders were substantially different
and, accordingly, Applicants do not cite any of such prior relief.
33 of 40
permit the Funds to distribute capital gains more often
than once each twelve month period; and it is further
Resolved, that the officers of the Funds be, and
each hereby is, authorized and directed to take such
additional actions and to execute and deliver on behalf
of the Funds such other documents or instruments as they
deem necessary or appropriate in furtherance of the above
resolution, including, without limitation, the
preparation, execution and filing of any necessary or
appropriate amendment(s) or supplement(s) to such
application, his or her authority therefore to be
conclusively evidenced by the taking of any such actions
or the execution or delivery of any such documents; and
it is further
Resolved, that upon issuance of an Order of
Exemption by the Securities and Exchange Commission in
accordance with the terms and conditions of the
above-described application, the Funds are authorized to
act in accordance with the provisions of the Order of
Exemption.
At the respective organizational meeting of the FT/FIDAC Fund, the
FT/Strategic Fund, the FT/Strategic Fund II, the FT/Strategic Fund III, the
FT/Tax-Advantaged Preferred Fund, the FT/Aberdeen Emerging Opportunity
Fund, the FT/Specialty Finance Fund, the FT/Active Dividend Fund, the
FT/Municipal Fund, the FT/StoneCastle Fund, the FT/Income Fund and the
FT/Chartwell Fund, the Board of each such Fund adopted, in relevant part,
resolutions substantially identical to the following authorizing the
execution and filing of this Application:
Whereas, the Boards of Trustees of other
closed-end funds advised by First Trust Advisors L.P.
have previously authorized the preparation, execution and
filing with the Securities and Exchange Commission, on
behalf of such funds, of an application or applications
seeking exemptive relief from the provisions of Section
19(b) of the Investment Company Act of 1940 (the "1940
Act") and related rules under the 1940 Act to permit such
funds to distribute capital gains more often than once
each twelve month period (the "Exemptive Application");
and
Whereas, the Board of Trustees of the Fund has
determined that it is beneficial for the Fund to receive
similar exemptive relief as that sought in the Exemptive
Application.
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Now Therefore Be It Resolved, that the officers
of the Fund be, and each hereby is authorized to take
such action as is necessary to add the Fund as an
applicant to the Exemptive Application; and
Further Resolved, that the officers of the Fund
be, and each hereby is, authorized and directed to take
such additional actions and to execute and deliver on
behalf of the Fund such other documents or instruments as
they deem necessary or appropriate in furtherance of the
above resolution and in furtherance of obtaining the
exemptive relief requested in the Exemptive Application,
including, without limitation, the preparation, execution
and filing of any necessary or appropriate amendment(s)
or supplement(s) to such application, his or her
authority therefore to be conclusively evidenced by the
taking of any such actions or the execution or delivery
of any such documents; and
Further Resolved, that upon issuance of an Order
of Exemption by the Securities and Exchange Commission in
accordance with the terms and conditions of the
above-described application, the Fund is authorized to
act in accordance with the provisions of the Order of
Exemption.
Pursuant to Rule 0-2(c) under the Act, each Applicant hereby
states that the person signing and filing this Application on its behalf is
fully authorized to do so, and that such Applicant has complied with all
requirements for the execution and filing of this Application in its name
and on its behalf. Further, each Applicant that is a Current Fund hereby
states that under the provisions of the Declaration of Trust of such
Applicant, responsibility for the management of the affairs of such
Applicant is vested in its Board.
These verifications required by Rule 0-2(d) are attached to this
Application as Exhibit A. Pursuant to Rule 0-2(f) under the Act,
the Applicants further state that:
1. The address of each of the Applicants, is as follows:
120 E. Liberty Drive
Suite 400
Wheaton, Illinois 60187
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2. Any questions regarding this Application should be directed to:
Suzanne M. Russell
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
(312) 845-3446
(312) 701-2361 (fax)
VIII. CONCLUSION.
On the basis of the foregoing, the Applicants respectfully request
that the Commission enter an order pursuant to Section 6(c) of the Act
exempting the Funds from the provisions of Section 19(b) of the Act and
Rule 19b-1 thereunder to permit each Fund to make distributions on its
common shares consisting in whole or in part of capital gain dividends as
frequently as once per month so long as it complies with the conditions of
the Order and maintains in effect a distribution policy with respect to its
common shares calling for periodic distributions of an amount equal to a
fixed amount per share, a fixed percentage of market price per share or a
fixed percentage of such Fund's net asset value per share. In addition,
each Fund requests that the Order permit each Fund to make distributions on
its preferred shares (if any) that it has issued or may issue in the future
consisting in whole or in part of capital gain dividends as frequently as
specified by or determined in accordance with the terms thereof.
*****
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FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY
INCOME FUND
FIRST TRUST ENHANCED EQUITY INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND II
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/
UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST TAX-ADVANTAGED PREFERRED INCOME FUND
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY INCOME FUND
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
FIRST TRUST ADVISORS L.P.
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
FIRST TRUST PORTFOLIOS L.P.
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
Dated: April 20, 2009
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EXHIBIT A
VERIFICATION
The undersigned states that he has duly executed the attached
Application for and on behalf of each of the Current Funds listed below
(the "Current Funds"); that he is the President of each of the Current
Funds; and that all actions by stockholders, trustees, and other bodies
necessary to authorize the undersigned to execute and file such Application
have been taken. The undersigned further states that he is familiar with
such Application, and the contents thereof, and that the facts therein set
forth are true to the best of his knowledge, information, and belief.
FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY
INCOME FUND
FIRST TRUST ENHANCED EQUITY INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND II
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/
UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST TAX-ADVANTAGED PREFERRED INCOME FUND
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY INCOME FUND
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
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EXHIBIT A
VERIFICATION
The undersigned states that he has duly executed the attached
Application for and on behalf of First Trust Advisors L.P. ("First Trust");
that he is the President of First Trust; and that all actions by
stockholders, directors, and other bodies necessary to authorize the
undersigned to execute and file such Application have been taken. The
undersigned further states that he is familiar with such Application, and
the contents thereof, and that the facts therein set forth are true to the
best of his knowledge, information, and belief.
FIRST TRUST ADVISORS L.P.
By /s/ James A. Bowen
---------------------------------------------
James A. Bowen
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EXHIBIT A
VERIFICATION
The undersigned states that he has duly executed the attached
Application for and on behalf of First Trust Portfolios L.P. ("First Trust
Portfolios"); that he is the President of First Trust Portfolios; and that
all actions by stockholders, directors, and other bodies necessary to
authorize the undersigned to execute and file such Application have been
taken. The undersigned further states that he is familiar with such
Application, and the contents thereof, and that the facts therein set forth
are true to the best of his knowledge, information, and belief.
FIRST TRUST PORTFOLIOS L.P.
By /s/ James A. Bowen
---------------------------------------------
James A. Bowen
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