INTERIM INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this 12th day of October, 2010 by and among First
Trust Specialty Finance and Financial Opportunities Fund, 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 Confluence Investment Management
LLC, a Delaware 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; and
WHEREAS, the Fund and the Manager have retained the Sub-Adviser to furnish
investment advisory services for the Fund's investment portfolio pursuant to an
Investment Sub-Advisory Agreement dated November 17, 2008 (the "Sub-Advisory
Agreement");
WHEREAS, effective this date, Xxxxx X. Xxxxx, the President of the
Manager, has acquired all the common stock of The Charger Corporation, the
general partner to the Manager (the "Transaction");
WHEREAS, the Transaction may operate as an "assignment" of the
Sub-Advisory Agreement that terminates the Sub-Advisory Agreement pursuant to
Section 8 thereof;
WHEREAS, the Fund and the Manager desire to continue to retain the
Sub-Adviser to furnish certain investment advisory services for the Fund's
investment portfolio; and
WHEREAS, the Fund and the Manager desire to enter into this agreement (the
"Agreement") pursuant to Rule 15a-4 under the 1940 Act, under which the
Sub-Adviser will furnish certain investment advisory services for the Fund 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. 333-141457) 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, (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.
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. 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
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.
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 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 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 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
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, 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 0.50% of the
Fund's Managed Assets (as defined below). The compensation accrued hereunder
will be held in an interest-bearing escrow account with the Fund's custodian or
another bank (as defined in the 0000 Xxx) designated by the Fund. If a new
investment sub-advisory agreement (the "New Sub-Advisory Agreement") with the
Sub-Adviser for the Fund is approved by the vote of a majority of the
outstanding voting securities of the Fund by the end of the 150-day term of this
Agreement, the amount in the escrow account (including the interest earned) will
be paid to the Sub-Adviser. If a majority of the outstanding voting securities
of the Fund does not approve the New Sub-Advisory Agreement with the Sub-Adviser
within the 150-day period, the Sub-Adviser will be paid, out of the escrow
account, the lesser of: (i) any costs incurred by the Sub-Adviser in performing
this Agreement (plus interest earned on that amount while in escrow) or (ii) the
total amount in the escrow account (plus interest earned).
For purposes of calculating the Management Fee, Managed Assets means the
average daily gross asset value of the Fund (including 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). For purposes of determining
Managed Assets, the liquidation preference of any outstanding Preferred Shares
of the Fund is not treated as a liability.
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. 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. 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.
7. 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.
8. Term; Termination; Amendment. This Agreement shall become effective
upon consummation of the Transaction (the "Effective Date") and shall remain in
full force for (i) 150 days following the Effective Date or (ii) until a vote of
a majority of the outstanding voting securities of the Fund shall approve the
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 ten (10) calendar 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.
9. 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 the 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 Fund to enable the Fund to fulfill its obligations
under Rule 38a-1 under the 1940 Act.
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 Specialty Finance and Confluence Investment Management LLC
Financial Opportunities Fund 000 Xxxxxxxx Xxxxxx, Xxxxx 000
First Trust Advisors L.P. Xx. Xxxxx, Xxxxxxxx 00000
000 X. Xxxxxxx Xxxxx Attention: Xxxxx X. Xxxxxx, President
Xxxxxxx, Xxxxxxxx 00000
Attention: Secretary
11. 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 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 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.
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. CONFLUENCE INVESTMENT MANAGEMENT LLC
By /s/ Xxxxx X. Xxxxx By /s/ Xxxxx X. Xxxxxx
----------------------------------- ---------------------------------
Title: President Title: President
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
By /s/ Xxxxx X. Xxxxx
-----------------------------------
Title: President
