INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this 25th day of May, 2004 by and among
FirstTrust/Four Corners Senior Floating Rate Income Fund II, a Massachusetts
business trust (the "Fund"), First Trust Advisors LP, an Illinois limited
partnership and a federally registered investment adviser ("Manager"), and Four
Corners Capital Management, LLC, a Delaware limited liability company and a
federally registered investment adviser ("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
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 Manager desire to retain 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 Manager hereby appoint Sub-Adviser to
provide certain sub-investment advisory services to the Fund for the period and
on the terms set forth in this Agreement. Sub-Adviser accepts such appointment
and agrees to furnish the services herein set forth for the compensation herein
provided.
2. Services to be Performed. Subject always to the supervision of
Fund's Board of Trustees and the Manager, Sub-Adviser will act as sub-adviser
for, and to manage 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
registration statement on Form N-2 (File No. 333-113978) as declared effective
by the Securities and Exchange Commission and as the same may be amended from
time to time. In the performance of its duties, Sub-Adviser will satisfy its
fiduciary duties to the Fund, will monitor the Fund's investments in senior
loans (and other assets in which the Sub-Adviser is authorized to invest), and
will 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 Manager to
Sub-Adviser in writing, and the stated investment objectives, policies and
restrictions of the Fund, as such objectives, policies and restrictions may be
subsequently changed by the Fund's Board of Trustees and communicated by the
Fund or Manager to Sub-Adviser in writing. The Fund or Manager will provide
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 Sub-Adviser's performance under this Agreement.
Sub-Adviser is authorized to select the brokers, dealers or banks that
will execute the purchases and sales of the Fund's assets on behalf of the Fund
upon such instructions as may be given or authorized by Sub-Adviser 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. Notwithstanding the foregoing, in placing orders for
corporate loans, which are generally privately negotiated principal
transactions, Sub-Adviser may select the agent bank or selling party, in its
discretion, in a manner consistent with the principles of best execution. The
selection of the agent or selling party will be determined by Sub-Adviser based
upon a number of factors, including the best price obtainable, dealer spread or
commission, size and difficulty of the transaction the desired time of the
trade, confidentiality, execution and operational capabilities, ongoing borrower
diligence, reputation for integrity, sound financial condition and practices and
research or other services provided. Subject to 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), Sub-Adviser may select brokers or dealers affiliated with
Sub-Adviser. It is understood that 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 transaction for the Fund in
excess of the amount of commission another member of an exchange, broker or
dealer would have charged if 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 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
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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 or loans
of an issuer for one client and at approximately the same time recommend selling
or sell the same or similar types of securities or loans for another client.
Sub-Adviser will not arrange purchases or sales of securities between
the Fund and other accounts advised by 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) Sub-Adviser
determines the purchase or sale is in the best interests of the Fund, and (c)
the Fund's Board of Trustees have 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, Sub-Adviser or any affiliated person of either the Fund,
Manager, or Sub-Adviser, except as may be permitted under the 1940 Act.
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 to all applicable Rules and Regulations of
the Securities and Exchange Commission in all material respects and
comply with all policies and procedures adopted by the Board of
Trustees for the Fund and communicated to Sub-Advisor in writing and,
in addition, will conduct its activities under this Agreement in
accordance with any applicable regulations of any governmental
authority pertaining to its investment advisory activities;
(c) will report regularly to Manager and to the Board of
Trustees of the Fund (generally on a quarterly basis) and will make
appropriate persons available for the purpose of reviewing with
representatives of Manager and the Board of Trustees on a regular basis
at reasonable times 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 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 required for registered investment advisers under
applicable law or as otherwise reasonably requested by Manager and xxxx
Xxxx 3
prepare and furnish Manager and Fund's Board of Trustees such periodic
and special reports as the Board or 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 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, 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 commission, if any) purchased for the Fund.
4. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a portfolio
management fee ("Management Fee") equal to .38% of the Fund's Managed Assets,
subject to paragraph 5 below. For purposes of calculations of the Management
Fee, "Managed Assets" means the average daily gross asset value of the Fund
(including assets attributable to the Fund's preferred shares, 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 other
forms of indebtedness issued by the Fund and the liquidation preference of any
outstanding preferred shares). 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.
5. Expense Reimbursement. Sub-Adviser agrees to pay Manager one-half of
(i) all organizational costs and (ii) all offering costs of the Fund (other than
sales load) that exceed $0.04 per Common Share (as such term is defined in the
Fund's prospectus). The term "organization 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.
6. Services to Others. The Fund and Manager acknowledge that
Sub-Adviser now acts, and 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 Manager acknowledge that the persons employed by
Sub-Adviser to assist in 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.
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7. Limitation of Liability. The Sub-Adviser shall not be liable for,
and the Fund and Manager will not take any action against the Sub-Adviser to
hold Sub-Adviser liable for, any error of judgment or mistake of law or for any
loss suffered by the Fund (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
with respect to the Fund on the same date as the Management Agreement between
the Fund and the Manager becomes effective, provided that it has been approved
by a vote of a majority of the outstanding voting securities of the Fund in
accordance with the requirements of 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 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 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 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 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 4 hereof earned prior to such termination and for any
additional period during which Sub-Adviser serves as such for the Fund, subject
to applicable law.
9. 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.
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If to the Manager or Fund: If to the Sub-Adviser:
First Trust/Four Corners Senior Four Corners Capital Management, LLC
Floating Rate Income Fund II 000 X. Xxxxxx Xxxxxx, Xxxxx 0000
First Trust Advisors Xxx Xxxxxxx, XX 00000
0000 Xxxxxxxxxxx Xxxx, Xxxxx 000 Xxxxxxxxx: Xxxxxxx X. XxXxxxx
Xxxxx, Xxxxxxxx 00000
Attention: General Counsel If by Facsimile: (000) 000-0000
If by Facsimile: (000) 000-0000
10. 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. 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.
11. 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.
12. Applicable Law. This Agreement shall be construed in accordance
with applicable federal law and (except as to Section 10 hereof which shall be
construed in accordance with the laws of Massachusetts) the laws of the State of
Illinois.
13. 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.
14. 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 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.
15. 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 4 are not severable.
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16. Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties hereto. Any written or oral agreements, statements,
promises, negotiations or representations not expressly set forth in this
Agreement are of no force and effect.
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IN WITNESS WHEREOF, the Fund, 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. FOUR CORNERS CAPITAL MANAGEMENT, LLC
By: /s/ Xxxxx X. Xxxxx By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------------- ------------------------------
Title: President Title: Chief Credit Officer
FIRST TRUST/FOUR CORNERS SENIOR FLOATING
RATE INCOME FUND II
By: /s/ Xxxxx X. Xxxxx
-------------------------------
Title: President
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