INTERIM INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this 29th day of April, 2011 by and among First Trust
Mortgage Income Fund (formerly known as First Trust/FIDAC Mortgage Income Fund),
a Massachusetts business trust (the "Fund"), First Trust Advisors L.P., an
Illinois limited partnership (the "Manager") and an investment adviser
registered with the Securities and Exchange Commission ("SEC"), and Brookfield
Investment Management Inc., a Delaware corporation and an investment adviser
registered with the SEC (the "Sub-Adviser").
WHEREAS, the Fund is a closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund has retained the Manager to serve as the investment
manager for the Fund pursuant to an Investment Management Agreement between the
Manager and the Fund (as such agreement may be modified from time to time, the
"Management Agreement");
WHEREAS, the Management Agreement provides that the Manager may, subject
to the initial and periodic approvals required under Section 15 of the 1940 Act,
appoint a sub-adviser at its own cost and expense for the purpose of furnishing
certain services required under the Management Agreement;
WHEREAS, in accordance with Rule 15a-4(b)(1) of the 1940 Act, the Fund and
the Manager desire to retain the Sub-Adviser to furnish investment advisory
services for the Fund's investment portfolio, upon the terms and conditions
hereafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. The Fund and the Manager hereby appoint the Sub-Adviser
to provide certain sub-investment advisory services to the Fund for the period
and on the terms set forth in this Agreement. The Sub-Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided. The Sub-Adviser shall, for all purposes herein
provided, be deemed an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for nor represent the
Fund or the Manager in any way, nor otherwise be deemed an agent of the Fund or
the Manager.
2. Services to Be Performed. Subject always to the supervision of the
Fund's Board of Trustees and the Manager, the Sub-Adviser will act as
sub-adviser for, and manage on a discretionary basis the investment and
reinvestment of the assets of the Fund, furnish an investment program in respect
of, make investment decisions for, and place all orders for the purchase and
sale of securities for the Fund's investment portfolio, all on behalf of the
Fund and as described in the Fund's most recent registration statement on Form
N-2 as declared effective by the SEC, and as the same may be amended from time
to time. In the performance of its duties, the Sub-Adviser will in all material
respects (a) satisfy any applicable fiduciary duties it may have to the Fund,
(b) monitor the Fund's investments (provided that except for the compliance
responsibilities of the Sub-Adviser with respect to the portfolio services
described in the first sentence of this Section 2, the Manager shall remain
responsible for the oversight of compliance with the Fund's policies and
procedures and its Prospectus and Statement of Additional Information), (c)
comply with the provisions of the Fund's Declaration of Trust and By-laws, as
amended from time to time and communicated by the Fund or the Manager to the
Sub-Adviser in writing, and the stated investment objectives, policies and
restrictions of the Fund as such objectives, policies and restrictions may
subsequently be changed by the Fund's Board of Trustees and communicated by the
Fund or the Manager to the Sub-Adviser in writing, and (d) assist in the
valuation of portfolio securities held by the Fund as requested by the Manager
or the Fund; provided that prices derived from third parties are the
responsibility of such third parties and do not reflect the professional opinion
of the Sub-Adviser, and information provided by the Sub-Adviser that may be used
to determine "fair value" prices are solely the reflection of the Sub-Adviser's
professional opinion and the Fund and the Manager are free to accept or reject
this information; the Sub-Adviser is not solely responsible for the pricing of
the Fund's securities. The Fund or the Manager has provided the Sub-Adviser with
current copies of the Fund's Declaration of Trust, By-laws, prospectus,
statement of additional information and any amendments thereto, and any
objectives, policies or limitations not appearing therein as they may be
relevant to the Sub-Adviser's performance under this Agreement.
The Sub-Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio investments for the Fund, and is
directed to use its commercially reasonable efforts to obtain best execution,
which includes most favorable net results and execution of the Fund's orders,
taking into account all appropriate factors, including price, dealer spread or
commission, size and difficulty of the transaction and research or other
services provided. The Sub-Adviser is authorized to enter into repurchase
agreements on behalf of the Fund, subject to any applicable policies and
procedures adopted by the Board of Trustees for the Fund. 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
equitable allocation. Whenever the Fund and one or more other investment
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advisory clients of the Sub-Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in a manner
believed by the Sub-Adviser to be equitable to each, although such allocation
may result in a delay in one or more client accounts being fully invested that
would not occur if such an allocation were not made. Moreover, it is possible
that due to differing investment objectives or for other reasons, the
Sub-Adviser and its affiliates may purchase securities of an issuer for one
client and at approximately the same time recommend selling or sell the same or
similar types of securities for another client.
Unless the Fund's Board of Trustees determines otherwise, the Sub-Adviser
will vote all proxies solicited by or with respect to the issuers of securities
which assets of the Fund's investment portfolio allocated by the Manager to the
Sub-Adviser are invested, consistent with the Sub-Adviser's written Proxy Voting
Policies and Procedures. The Sub-Adviser will maintain appropriate records in
accordance with applicable law detailing its voting of proxies on behalf of the
Fund and upon request will provide a report setting forth the proposals voted on
and how the Fund's shares were voted, including the name of the corresponding
issuers.
The Sub-Adviser will not arrange purchases or sales of securities between
the Fund and other accounts advised by the Sub-Adviser or its affiliates unless
(a) such purchases or sales are in accordance with applicable law (including
Rule 17a-7 under the 0000 Xxx) and the Fund's policies and procedures, (b) the
Sub-Adviser reasonably believes the purchase or sale is in the best interests of
the Fund, and (c) the Fund's Board of Trustees has approved these types of
transactions.
The Fund may adopt policies and procedures that modify or restrict the
Sub-Adviser's authority regarding the execution of the Fund's portfolio
transactions provided herein. However, no such policy or procedure shall be
binding on the Sub-Adviser unless it is communicated to the Sub-Adviser in
writing.
The Sub-Adviser will communicate to the officers and Trustees of the Fund
such information relating to transactions for the Fund as they may reasonably
request. In no instance will the Fund's portfolio securities be knowingly
purchased from or sold to the Manager, the Sub-Adviser or any affiliated person
of any of the Fund, the Manager, or the Sub-Adviser, except as may be permitted
under the 1940 Act.
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
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the purpose of reviewing with representatives of the Manager and the Board
of Trustees on a regular basis at such times as the Manager or the Board
of Trustees may reasonably request in writing regarding the management of
the Fund, including, without limitation, review of the general investment
strategies of the Fund, the performance of the Fund's investment portfolio
in relation to relevant standard industry indices and general conditions
affecting the marketplace and will provide various other reports from time
to time as reasonably requested by the Manager or the Board of Trustees of
the Fund; and
(d) will prepare and maintain such books and records with respect
to the Fund's securities and other transactions for the Fund's investment
portfolio as required for registered investment advisers under applicable
law or as otherwise reasonably agreed to by the parties and will prepare
and furnish the Manager and the Fund's Board of Trustees such periodic and
special reports as the Board or the Manager may reasonably request. The
Sub-Adviser further agrees that all records that it maintains for the Fund
are the property of the Fund and the Sub-Adviser will surrender promptly
to the Fund any such records upon the request of the Manager or the Fund
(provided, however, that the Sub-Adviser shall be permitted to retain
copies thereof); and shall be permitted to retain originals (with copies
to the Fund) to the extent required under Rule 204-2 of the Investment
Advisers Act of 1940 or other applicable law.
3. Expenses. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities and other assets (including
brokerage commissions, transfer fees, registration costs, taxes and other
similar costs and transaction-related expenses and fees arising out of
transactions for the Fund, if any) purchased for the Fund. Moreover, the
Sub-Adviser shall not be responsible for payment of any taxes due on capital or
income held or collected for the Fund.
4. Additional Sub-Advisers. Subject to obtaining the initial and periodic
approvals required under Section 15 of the 1940 Act and the approval of the
Manager, the Sub-Adviser may retain one or more additional sub-advisers at the
Sub-Adviser's own cost and expense for the purpose of furnishing one or more of
the services described in Section 2 hereof with respect to the Fund. Retention
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 (which includes assets attributable to the Fund's Preferred Shares (as such
term is defined in the Fund's prospectus), if any, and the principal amount of
borrowings, if any), minus the sum of the Fund's accrued and unpaid dividends on
any outstanding Preferred Shares and accrued liabilities (other than the
principal amount of any borrowings incurred, commercial paper or notes issued by
the Fund and the liquidation preference of any outstanding Preferred Shares of
the Fund). The Management Fee shall accrue on each calendar day and shall be
payable in arrears on or about the first day of each month during the term of
this Agreement.
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For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year, respectively.
6. Custodian. The assets subject to this Agreement shall be held by the
Custodian of the Fund ("Custodian") or by a central depository selected by the
Custodian. In no event shall the Sub-Adviser have the power or authority to take
custody or possession of any assets of the Fund. The Sub-Adviser is authorized
to give instructions to the current or any successor Custodian with respect to
all investment decisions regarding such assets. The Sub-Adviser will promptly
notify the Custodian of all securities transactions for the Fund and will
cooperate with the Custodian in supplying all reasonable information required by
the Custodian. All transactions will be consummated by payment or delivery to
the Custodian of all cash or securities due to or from the Fund. In the event
that any cash or securities are delivered to the Sub-Adviser, the Sub-Adviser
will promptly deliver the same over to the Custodian. The Sub-Adviser will
instruct all brokers executing orders on behalf of the Fund to forward to the
Custodian copies of all brokerage confirmations promptly after execution of each
transaction. The Fund will not change the Custodian without giving the
Sub-Adviser reasonable prior notice of its intention to do so together with the
name of, and other relevant information with respect to, the new Custodian.
7. Services to Others. The Fund and the Manager acknowledge that the
Sub-Adviser now acts, or may in the future act, as an investment adviser to
other managed accounts and as investment adviser or investment sub-adviser to
one or more other investment companies as set forth in the Sub-Adviser's Form
ADV, Part 2. 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.
8. Representations and Warranties. (i) Each of the Fund, the Manager and
the Sub-Adviser represent and warrant with respect to itself as follows:
(a) This Agreement has been duly authorized, executed and delivered
by such party and constitutes its valid and binding obligation,
enforceable in accordance with its terms;
(b) No governmental authorizations, approvals or consents are
required in connection with the execution, delivery or performance of this
Agreement by such party;
(c) To the best of such party's knowledge, there is neither pending
nor threatened in writing any action, suit, proceeding or investigation
before or by any court or governmental, regulatory, self-regulatory,
arbitration or exchange body related to the Fund to which the Manager, the
Sub-Adviser and/or the Fund is a party or to which any of its assets are
subject; and
(d) The foregoing representations and warranties (other than the
representation and warranty in clause (b) above) shall be continuing, and
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if any of them shall cease to be true and accurate in any material
respect, such party shall immediately give notice of such to the other
parties to this Agreement.
(ii) Each of the Manager and the Sub-Adviser represents and warrants to
each other that such party is registered with the SEC under the Investment
Advisers Act of 1940, as amended, as an "investment adviser".
9. 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.
10. Term; Termination. This Agreement shall become effective with respect
to the Fund on April 29, 2011 and shall remain in full force for (i) 150 days
following April 29, 2011, (ii) until a "vote of a majority of the outstanding
voting securities" (as defined in the 0000 Xxx) of the Fund has approved a new
sub-advisory agreement with the Sub-Adviser, or (iii) unless sooner terminated
as hereinafter provided, whichever occurs first.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager or the Sub-Adviser upon sixty (60) days' written notice to the
other parties. This Agreement may also be terminated by the Fund by action of
the Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund upon sixty (60) days' written notice to the
Sub-Adviser by the Fund without payment of any penalty.
This Agreement may be terminated at any time without the payment of any
penalty by the Manager, the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Fund in the event that it
shall have been established by a court of competent jurisdiction that the
Sub-Adviser or any officer or director of the Sub-Adviser has taken any action
that results in a breach of the material covenants of the Sub-Adviser set forth
herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations promulgated thereunder.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 5 earned prior to such termination and for any additional
period during which the Sub-Adviser serves as such for the Fund, subject to
applicable law.
11. Compliance Certification. From time to time the Sub-Adviser shall
provide such certifications with respect to Rule 38a-1 under the 1940 Act as are
reasonably requested by the Fund or Manager. In addition, the Sub-Adviser will,
from time to time, provide a written assessment of its compliance program in
conformity with current industry standards that is reasonably acceptable to the
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Fund to enable the Fund, the Board of Trustees and the Fund's Chief Compliance
Officer to fulfill their obligations under Rule 38a-1 under the 1940 Act.
12. Notice. Any notice under this Agreement shall be sufficient in all
respects if given in writing and delivered by commercial courier providing proof
of delivery and addressed as follows or addressed to such other person or
address as such party may designate in writing for receipt of such notice.
If to the Manager or the Fund: If to the Sub-Adviser:
First Trust Mortgage Income Fund Brookfield Investment Management Inc.
First Trust Advisors L.P. Three World Financial Center
000 X. Xxxxxxx Xxxxx, Xxxxx 000 000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxxx 00000 Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Secretary Attention: General Counsel
13. Limitations on Liability. All parties hereto are expressly put on
notice of the Fund's Declaration of Trust and all amendments thereto, a copy of
which is on file with the Secretary of the Commonwealth of Massachusetts, and
the limitation of shareholder and Trustee liability contained therein, a copy of
which has been provided to the Sub-Adviser prior to the date hereof. This
Agreement is executed on behalf of the Fund by the Fund's officers in their
capacity as officers and not individually and is not binding upon any of the
Trustees, officers, or shareholders of the Fund individually but the obligations
imposed upon the Fund by this Agreement are binding only upon the assets and
property of the Fund, and persons dealing with the Fund must look solely to the
assets of the Fund for the enforcement of any claims.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
15. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 13 hereof, which shall be
construed in accordance with the laws of the Commonwealth of Massachusetts) the
laws of the State of Illinois, without regard to its conflict of laws
principles.
16. Amendment, Etc. This Agreement may only be amended, or its provisions
modified or waived, in a writing signed by the party against which such
amendment, modification or waiver is sought to be enforced.
17. Authority. Each party represents to the others that it is duly
authorized and fully empowered to execute, deliver and perform its obligations
under this Agreement. The Fund represents that engagement of the Sub-Adviser has
been duly authorized by the Fund and is in accordance with the Fund's
Declaration of Trust and other governing documents of the Fund.
18. Severability. Each provision of this Agreement is intended to be
severable from the others so that if any provision or term hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
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affect the validity of the remaining provisions and terms hereof; provided,
however, that the provisions governing payment of the Management Fee described
in Section 5 are not severable.
19. Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties hereto with respect to the subject matter expressly set
forth herein.
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IN WITNESS WHEREOF, the Fund, the Manager and the Sub-Adviser each have
caused this Agreement to be executed as of the day and year first above written.
FIRST TRUST ADVISORS L.P. BROOKFIELD INVESTMENT MANAGEMENT INC.
By /s/ Xxxxx X. Xxxxx By /s/ Xxx Xxxxx
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Title: Xxxxx X. Xxxxx, CEO Title: Xxx Xxxxx, CFO and General Counsel
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FIRST TRUST MORTGAGE INCOME FUND
By /s/ Xxxxx X. Xxxxx
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Title: Xxxxx X. Xxxxx, President
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