INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this 28th day of March, 2006 by and
among First Trust Strategic High Income Fund II, a Massachusetts
business trust (the "Fund"), First Trust Advisors L.P., an Illinois limited
partnership (the "Manager") and a registered investment adviser with the
Securities and Exchange Commission ("SEC"), and Valhalla Capital
Partners, LLC, a Kentucky limited liability company and a registered
investment adviser with the SEC (the "Sub-Adviser").
WHEREAS, the Fund is a closed-end management investment
company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Fund has retained the Manager to serve as the
investment manager for the Fund pursuant to an Investment Management
Agreement between the Manager and the Fund (as such agreement may be
modified from time to time, the "Management Agreement");
WHEREAS, the Management Agreement provides that the Manager
may, subject to the initial and periodic approvals required under
Section 15 of the 1940 Act, appoint a sub-adviser at its own cost and
expense for the purpose of furnishing certain services required under the
Management Agreement;
WHEREAS, the Fund and the Manager desire to retain the Sub-
Adviser to furnish investment advisory services for the Fund's investment
portfolio, upon the terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Appointment. The Fund and the Manager hereby appoint the
Sub-Adviser to provide certain sub-investment advisory services to the
Fund for the period and on the terms set forth in this Agreement. The Sub-
Adviser accepts such appointment and agrees to furnish the services herein
set forth for the compensation herein provided. The Sub-Adviser shall, for
all purposes herein provided, be deemed an independent contractor and,
unless otherwise expressly provided or authorized, shall have no authority
to act for nor represent the Fund or the Manager in any way, nor otherwise
be deemed an agent of the Fund or the Manager.
2. Services to Be Performed. Subject always to the supervision
of the Fund's Board of Trustees and the Manager, the Sub-Adviser will act
as sub-adviser for, and manage on a discretionary basis the investment and
reinvestment of the assets of the Fund, furnish an investment program in
respect of, make investment decisions for, and place all orders for the
purchase and sale of securities for the Fund's investment portfolio, all on
behalf of the Fund and as described in the Fund's initial registration
statement on Form N-2 (File No. 333-131194) as declared effective by the
SEC, and as the same may thereafter be amended from time to time. In the
performance of its duties, the Sub-Adviser will in all material respects
(a) satisfy any applicable fiduciary duties it may have to the Fund,
(b) monitor the Fund's investments, and (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. 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.
Sub-Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio investments for the Fund, and
is directed to use its commercially reasonable efforts to obtain best
execution, which includes most favorable net results and execution of the
Fund's orders, taking into account all appropriate factors, including price,
dealer spread or commission, size and difficulty of the transaction and
research or other services provided. Subject to approval by the Fund's
Board of Trustees and compliance with the policies and procedures
adopted by the Board of Trustees for the Fund and to the extent permitted
by and in conformance with applicable law (including Rule 17e-1 of the
1940 Act), the Sub-Adviser may select brokers or dealers affiliated with
the Sub-Adviser. It is understood that the Sub-Adviser will not be deemed
to have acted unlawfully, or to have breached a fiduciary duty to the Fund,
or be in breach of any obligation owing to the Fund under this Agreement,
or otherwise, solely by reason of its having caused the Fund to pay a
member of a securities exchange, a broker or a dealer a commission for
effecting a securities transaction for the Fund in excess of the amount of
commission another member of an exchange, broker or dealer would have
charged if the Sub-Adviser determined in good faith that the commission
paid was reasonable in relation to the brokerage or research services
provided by such member, broker or dealer, viewed in terms of that
particular transaction or the Sub-Adviser's overall responsibilities with
respect to its accounts, including the Fund, as to which it exercises
investment discretion.
In addition, 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 Sub-Adviser or its affiliates, if in 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 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 an equitable manner. Nevertheless,
the Fund and 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. Whenever the Fund and
one or more other investment advisory clients of Sub-Adviser have
available funds for investment, investments suitable and appropriate for
each will be allocated in a manner believed by 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, Sub-Adviser and its affiliates
may purchase securities of an issuer for one client and at approximately
the same time recommend selling or sell the same or similar types of
securities for another client.
The Sub-Adviser will not arrange purchases or sales of securities
between the Fund and other accounts advised by the Sub-Adviser or its
affiliates unless (a) such purchases or sales are in accordance with
applicable law (including Rule 17a-7 of the 0000 Xxx) and the Fund's
policies and procedures, (b) the Sub-Adviser determines 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.
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 portfolio securities be
purchased from or sold to the Manager, the Sub-Adviser or any affiliated
person of either the Fund, the Manager, or the Sub-Adviser, except as may
be permitted under the 1940 Act.
The Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in
providing such services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(b) will conform in all material respects to all
applicable rules and regulations of the Securities and Exchange
Commission and 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, in addition, will
conduct its activities under this Agreement in all material respects
in accordance with any applicable law and regulations of any
governmental authority pertaining to its investment advisory
activities;
(c) will report to the Manager and to the Board of
Trustees of the Fund on a quarterly basis and will make appropriate
persons available for the purpose of reviewing with representatives
of the Manager and the Board of Trustees on a regular basis at such
times as the Manager or the Board of Trustees may reasonably
request in writing regarding the management of the Fund,
including, without limitation, review of the general investment
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 requested
by the Manager and will prepare and furnish the Manager and
Fund's Board of Trustees such periodic and special reports as the
Board or the Manager may reasonably request. The Sub-Adviser
further agrees that all records that it maintains for the Fund are the
property of the Fund and the Sub-Adviser will surrender promptly
to the Fund any such records upon the request of the Manager or
the Fund (provided, however, that the Sub-Adviser shall be
permitted to retain copies thereof); and shall be permitted to retain
originals (with copies to the Fund) to the extent required under
Rule 204-2 of the Investment Advisers Act of 1940 or other
applicable law.
3. Expenses. During the term of this Agreement, the Sub-
Adviser will pay all expenses incurred by it in connection with its
activities under this Agreement other than the cost of securities and other
assets (including brokerage commissions, if any) purchased for the Fund.
4. Additional Sub-Advisers. Subject to obtaining the initial and
periodic approvals required under Section 15 of the 1940 Act and the
approval of the Manager, the Sub-Adviser may retain one or more
additional sub-advisers at the Sub-Adviser's own cost and expense for the
purpose of furnishing one or more of the services described in Section 2
hereof with respect to the Fund. Retention of a sub-adviser hereunder
shall in no way reduce the responsibilities or obligations of the Sub-
Adviser under this Agreement and the Sub-Adviser shall be responsible to
the Fund for all acts or omissions of any sub-adviser in connection with
the performance of the Sub-Adviser's duties hereunder.
5. Compensation. For the services provided and the expenses
assumed pursuant to this Agreement, the Manager will pay the Sub-
Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a portfolio management fee (the "Management Fee") equal to the
annual rate of 0.40% of the Fund's Managed Assets (as defined below),
subject to paragraph 6 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), 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 be payable in arrears on or about the first day of
each month during the term of this Agreement.
For the month and year in which this Agreement becomes effective
or terminates, there shall be an appropriate proration on the basis of the
number of days that the Agreement is in effect during the month and year,
respectively.
6. Expense Reimbursement. The Sub-Adviser agrees to pay the
Manager one-half of (i) all organizational costs and (ii) all offering costs
of the Fund (other than sales load, but including the reimbursement of
underwriting expenses as described in the Fund's prospectus) that exceed
$0.04 per Common Share (as such term is defined in the Fund's
prospectus). The term "organizational costs" and "offering costs" shall
have the meanings ascribed to them in Sections 8.18-8.25 of the AICPA
Audit and Accounting Guide, Audits for Investment Companies, with
Conforming Changes as of May 1, 2002. [To pay such amount due under
this provision, the Sub-Adviser shall waive its sub-advisory fee to the
extent and for the period necessary to cover its obligation hereunder.]
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 sub-
investment adviser to one or more other investment companies that are not
a series of the Fund. 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. 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.
9. Term; Termination; Amendment. This Agreement shall
become effective with respect to the Fund on the same date as the
Management Agreement between the Fund and the Manager becomes
effective (it being understood that the Manager shall notify the Sub-
Adviser of the date of effectiveness of the Management Agreement as
soon as reasonably practical after effectiveness), provided that it has been
approved in the manner required by the 1940 Act, and shall remain in full
force until the two-year anniversary of the date of its effectiveness unless
sooner terminated as hereinafter provided. This Agreement shall continue
in force from year to year thereafter, but only as long as such continuance
is specifically approved for the Fund at least annually in the manner
required by the 1940 Act and the rules and regulations thereunder;
provided, however, that if the continuation of this Agreement is not
approved for the Fund, the Sub-Adviser may continue to serve in such
capacity for the Fund in the manner and to the extent permitted by the
1940 Act and the rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any
penalty by the Manager or the Sub-Adviser upon sixty (60) days' written
notice to the other parties. This Agreement may also be terminated by the
Fund by action of the Board of Trustees of the Fund or by a vote of a
majority of the outstanding voting securities of such Fund upon sixty (60)
days' written notice to the Sub-Adviser by the Fund without payment of
any penalty.
This Agreement may be terminated at any time without the
payment of any penalty by the Manager, the Board of Trustees of the Fund
or by vote of a majority of the outstanding voting securities of the Fund in
the event that it shall have been established by a court of competent
jurisdiction that the Sub-Adviser or any officer or director of the Sub-
Adviser has taken any action that results in a breach of the material
covenants of the Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the 1940 Act and the
rules and regulations thereunder.
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.
10. Notice. Any notice under this Agreement shall be sufficient
in all respects if given in writing and delivered by commercial courier
providing proof of delivery and addressed as follows or addressed to such
other person or address as such party may designate for receipt of such
notice.
If to the Manager or the
Fund:
If to the Sub-Adviser:
First Trust Strategic High
Income Fund II
First Trust Advisors
0000 Xxxxxxxxxxx Xxxx,
Xxxxx 000
Xxxxx, Xxxxxxxx 00000
Attention: General
Counsel
Valhalla Capital
Partners, LLC
000 Xxxxx Xxxxxx
Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: President
11. Limitations on Liability. All parties hereto are expressly put
on notice of the Fund's Agreement and Declaration of Trust and all
amendments thereto, a copy of which is on file with the Secretary of the
Commonwealth of Massachusetts, and the limitation of shareholder and
trustee liability contained therein and a copy of which has been provided to
the Sub-Adviser prior to the date hereof. This Agreement is executed on
behalf of the Fund by the Fund's officers in their capacity as officers and
not individually and are 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 and those assets belonging to the subject Fund, for the
enforcement of any claims.
12. Miscellaneous. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or effect. This
Agreement will be binding upon and shall inure to the benefit of the
parties hereto and their respective successors.
13. Applicable Law. This Agreement shall be construed in
accordance with applicable federal law and (except as to Section 11 hereof
which shall be construed in accordance with the laws of Massachusetts)
the laws of the State of Illinois.
14. Amendment, Etc. This Agreement may only be amended, or
its provisions modified or waived, in a writing signed by the party against
which such amendment, modification or waiver is sought to be enforced.
15. Authority. Each party represents to the others that it is duly
authorized and fully empowered to execute, deliver and perform this
Agreement. The Fund represents that engagement of the Sub-Adviser has
been duly authorized by the Fund and is in accordance with the Fund's
Declaration of Trust and other governing documents of the Fund.
16. Severability. Each provision of this Agreement is intended to
be severable from the others so that if any provision or term hereof is
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the validity of the remaining provisions and terms hereof;
provided, however, that the provisions governing payment of the
Management Fee described in Section 5 are not severable.
17. Entire Agreement. This Agreement constitutes the sole and
entire agreement of the parties hereto with respect to the subject matter
expressly set forth herein.
IN WITNESS WHEREOF, the Fund, the Manager and the Sub-Adviser
have caused this Agreement to be executed as of the day and year first
above written.
FIRST TRUST ADVISORS L.P. VALHALLA CAPITAL
PARTNERS, LLC
By By
Title: Title:
FIRST TRUST STRATEGIC HIGH INCOME FUND II
By
Title:
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