Advisory Agreement
Board Considerations Regarding Continuation of Management and
Sub-Advisory Contracts
The Trustees unanimously approved the continuation of the
Investment Management Agreement (the Agreement) between First Trust
Advisors L.P. (First Trust) and First Trust/Fiduciary Asset Management
Covered Call Fund (the Fund) at a meeting held on March 13, 2006. The
Board of Trustees determined that the Agreement is in the best interests of the
Fund and that the compensation arrangement set forth in the Agreement is fair
and reasonable in light of the nature, extent and quality of the services
provided by First Trust and such other matters as the Trustees considered to
be relevant in the exercise of their reasonable business judgment.
To reach this determination, the Trustees considered their duties under
the Investment Company Act of 1940, as amended (the 1940 Act) as well as
under the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisers with respect to advisory agreements and compensation;
the standards used by courts in determining whether investment company
boards have fulfilled their duties; and the factors to be considered by the
Trustees in voting on such agreements. The Independent Trustees received
advice from independent legal counsel. The Trustees also applied their
business judgment to determine whether the arrangement between the Fund
and First Trust was a reasonable business arrangement from the Funds
perspective as well as from the perspective of its shareholders. In reviewing
such arrangement, the Board of Trustees considered factors such as the nature,
quality and extent of services provided by First Trust under the Agreement
and the fairness of the fee charged, whether the fee level reflects any
economies of scale, and any profitability realized by First Trust under the
Agreement.
The Trustees considered the nature, quality and extent of services
provided by First Trust, including the overall administration of the Fund and
First Trusts oversight of Fiduciary Asset Management, LLC (FAMCO), the
Funds sub-adviser. The Board considered the experience and skills of the
personnel primarily responsible for providing services to the Fund and noted
the compliance program that had been developed by First Trust. In light of
these considerations and their overall familiarity with First Trust, the
Trustees concluded that the nature, quality and extent of services provided by
First Trust to the Fund have been and are expected to remain satisfactory.
The Trustees reviewed data prepared by Lipper Inc. (Lipper), an
independent source, showing the management fees and expense ratios of the
Fund compared to those of a peer group of five other similar non-leveraged
closed-end funds. The Trustees also considered the Funds management fees
and expense ratios as compared to a second peer group of eight other similar
non-leveraged funds, as selected by First Trust using data compiled by ▇▇▇▇▇▇.
The Trustees noted that the Funds management fees and expense ratios were
above the median of the Lipper peer group and that information was not
provided for the median management fees and expense ratios of the First
Trust-selected peer group, although the Funds management fees were shown
to be the highest of the First Trust-selected peer group. The Trustees noted
that First Trust did not provide advisory services to institutional clients
with investment objectives and policies similar to the Funds. The Trustees
also considered the Funds performance for the one-year and since-inception
periods ended December 31, 2005 as compared to that of a relevant benchmark
index and the other closed-end funds in the performance universe selected by
▇▇▇▇▇▇ and the performance universe selected by First Trust. The Board noted
that the Funds performance was near the median for the one-year period and that
the Funds absolute performance was positive for both periods reviewed. The
Trustees noted that ▇▇▇▇▇▇ had not provided data on the market price and net
asset value performance of the Fund, but that another independent source had
provided this information, and that First Trust had indicated that the Funds
premium/discount was indicative of the asset class. The Trustees concluded
that the Funds performance was reasonable, particularly in light of the
difficulty in identifying peer funds for comparison. On the basis of the
information provided, the Trustees concluded that the Funds management fees
were reasonable and appropriate in light of the nature, quality and extent
of services provided by First Trust.
The Trustees noted that First Trust had not identified any economies of
scale realized by the Fund and had indicated that, for a closed-end fund of
this size, any discussion of economies of scale was not meaningful. The
Trustees concluded that the management fee schedule reflects an appropriate
level of sharing of any economies of scale. The Trustees also considered the
costs of the services provided and profits realized by First Trust from its
relationship with the Fund for the twelve months ended December 31, 2005, as
set forth in the materials provided to the Board. The Trustees noted the
inherent limitations in the profitability analysis, and concluded that First
Trusts profitability appeared to be not unreasonable in light of the services
provided to the Fund. In addition, the Trustees considered and discussed any
ancillary benefits derived by First Trust from its relationship with the Fund
and noted that First Trust receives no brokerage or soft dollars from the Fund
and therefore the typical fall-out benefits are not present. The Trustees
concluded that any other fall-out benefits received by First Trust or its
affiliates would appear to be attenuated. Based on all of the factors
considered, the Trustees concluded that it was in the best interests of the
Fund to approve the continuation of the Agreement, including the fees to be
charged for the services thereunder. No single factor was determinative in
the Boards analysis.
At the March 13, 2006 meeting, the Trustees also approved the
continuation of the Investment Sub-Advisory Agreement (the Sub-Advisory
Agreement) among the Fund, First Trust and FAMCO, after considering the
factors discussed above, as well as the following information. The Trustees
considered the nature, quality and extent of services provided by FAMCO
under the Sub-Advisory Agreement. They received a presentation from
representatives of FAMCO. They concluded that FAMCO had managed the
Fund consistent with its investment objectives and policies. The Trustees
considered the sub-advisory fee rate (which is paid by First Trust out of the
management fee it receives from the Fund) as compared to the sub-advisory
fees of two other similar sub-advised funds based on data provided by ▇▇▇▇▇▇,
and noted that the Funds sub-advisory fee rate was higher than that of the
other funds. The Trustees also considered information provided by FAMCO
as to the fees it charges to other clients, which were similar to or higher
than those it receives under the Sub-Advisory Agreement. The Trustees
considered FAMCOs representation that economies of scale are not as
evident in regards to closed-end funds since the assets are fixed and that any
economies of scale realized by FAMCO will be across a variety of products
and services and not only in respect to the Fund. Based on the information
provided, the Trustees concluded that the sub-advisory fees were reasonable.
The Trustees considered the sub-advisory fee rate and how it related to the
overall management fee structure of the Fund. The Trustees considered that
the sub-advisory fee rate was negotiated at arms length between First Trust
and FAMCO, an unaffiliated third party, and that First Trust compensates
FAMCO from its management fee. The Trustees also considered data
provided by FAMCO as to the profitability of the Sub-Advisory Agreement to
FAMCO. The Trustees noted the inherent limitations in this profitability
analysis and concluded that the profitability analysis for First Trust was more
relevant, although the profitability of the Sub-Advisory Agreement appeared
to be not unreasonable in light of the services provided to the Fund. The
Trustees considered the fall-out benefits realized by FAMCO from its
relationship with the Fund and noted that FAMCO maintains soft-dollar
arrangements. The Board considered FAMCOs summary of its soft-dollar
policies and procedures. Based on all of the factors considered, the Trustees
concluded that it was in the best interests of the Fund to approve the
continuation of the Sub-Advisory Agreement, including the fees to be charged
for the services thereunder. No single factor was determinative in the Boards
analysis.
