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/Aberdeen Global
Opportunity Income 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 Aberdeen Asset Management, Inc.
(Aberdeen), the Funds sub-advisor. 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 that included two other
closed-end global income funds using preferred stock leverage or debt
leverage. The Trustees also considered the Funds management fees and
expense ratios as compared to a second peer group of eight other
closed-end funds, including six funds currently using leverage, as selected
by First Trust using data compiled by Xxxxxx. The Trustees noted that the
Funds management fees and expense ratios were the highest in both the
Lipper peer group and the First Trust-selected peer group. The Trustees
noted that in light of the small number of funds in each peer group, and the
differences between the Fund and the other funds in each peer group, the
Funds management fees were within an acceptable range of the peer
group and consistent with reasonable expectations in light of the nature,
quality and extent of services provided by First Trust. The Trustees also
considered the Funds performance for the one-year period ended
December 31, 2005 as compared to that of other funds in the peer group
and performance universe selected by Xxxxxx and the performance
universe selected by First Trust. The Trustees noted that First Trust did
not provide services to any other institutional clients that have similar
investment objectives and policies to the Fund. The Board noted the
strong performance of the Fund over the one-year period. In addition, the
Trustees considered the market price and net asset value performance of
the Fund since inception, and compared the Funds discount to the average
and median discount of each peer group, noting that the Funds discount
was indicative of the asset class. The Trustees concluded that the Funds
performance was reasonable. 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 has continued to invest in
personnel and infrastructure but had not identified any economies of scale
realized by the Fund and had indicated that, because the Fund is a
closed-end fund that is not issuing more shares other than pursuant to its
dividend reinvestment plan, First Trust believed that any discussion of
economies of scale was not meaningful. The Trustees concluded that the
management fee 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 Aberdeen,
after considering the factors discussed above, as well as the following
information. The Trustees considered the nature, quality and extent of
services provided by Aberdeen under the Sub-Advisory Agreement. They
received a presentation from representatives of Aberdeen. They
concluded that Aberdeen had managed the Fund consistent with its
investment objectives and policies. The Trustees also considered
information provided by Aberdeen as to the fees it charges to other clients,
including two other funds managed by it. The Board noted Aberdeens
representation that these funds are not directly comparable to the Fund.
The Board also noted that Xxxxxx had not provided any data on fees paid to
sub-advisors of similar funds. The Trustees considered Aberdeens
representation that because it manages the Fund in a similar fashion to
other accounts it is able to achieve economies of scale through
relationships with brokers, administrative systems and other efficiencies
and that while it expects internal costs to rise, it continues to expect to
experience the benefits of economies of scale. 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 Aberdeen, an unaffiliated third party, and that
First Trust compensates Aberdeen from its fees. The Trustees also
considered data provided by Aberdeen as to the profitability of the
Sub-Advisory Agreement to Aberdeen. 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 noted that Aberdeen does not
maintain any soft-dollar arrangements and that Aberdeen indicated that it
does benefit from having its name associated with the management of the
Fund and the greater prominence that generates for Aberdeen. 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.
