INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this 28th day of April, 2006 by
and among First Trust Strategic High Income 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 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. 333-124146) 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 Manager or its designee will vote all proxies
solicited by or with respect to the issuers of securities
which assets of the Fund's investment portfolio allocated by
the Manager to the Sub-Adviser are invested.
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 upon the date above, provided that it
has been approved in the manner required by the 1940 Act,
and shall remain in full force until July 26, 2007. 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:
First Trust Strategic High Income Fund
First Trust Advisors
0000 Xxxxxxxxxxx Xxxx, Xxxxx 000
Xxxxx, Xxxxxxxx 00000
Attention: General Counsel
If to the Sub-Adviser:
If by Facsimile: (000) 000-0000
Valhalla Capital Partners, LLC
000 Xxxxx Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: President
If by Facsimile: ______________
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
By
Title:
8
