SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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In the Matter of the Application of:
FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY INCOME FUND
FIRST TRUST ENHANCED EQUITY INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND II
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY INCOME FUND
FIRST TRUST/ABERDEEN GLOBAL CREDIT STRATEGIES FUND
FIRST TRUST ADVISORS L.P.
FIRST TRUST PORTFOLIOS L.P.
File No. 812-13161
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AMENDMENT NO. 5 TO AN
APPLICATION FOR AN ORDER PURSUANT TO SECTION 6(c) OF THE
INVESTMENT COMPANY ACT OF 1940 FOR EXEMPTIONS
FROM SECTION 19(b) OF THE ACT AND RULE 19b-1 THEREUNDER
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Please direct all communications, notices and orders to:
Eric F. Fess
Suzanne M. Russell
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
(312) 845-3446
(312) 701-2361 (fax)
1 of 42 sequentially numbered pages (including exhibits)
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TABLE OF CONTENTS
PAGE
I. DESCRIPTION OF APPLICANTS...............................................5
A. Organization and Capital Structure..............................5
B. Investment Objectives of the Funds..............................9
C. The Investment Adviser.........................................13
D. First Trust Portfolios.........................................14
II. RELIEF REQUESTED.....................................................14
III. REPRESENTATIONS OF THE APPLICANTS....................................15
IV. JUSTIFICATION FOR THE REQUESTED RELIEF...............................17
1. Receipt of the Order would serve shareholder interests............18
2. Each Fund's shareholders would receive information
sufficient to clearly inform them of the nature of
the distributions they are receiving..............................18
3. Under certain circumstances, Rule 19b-1 gives
rise to improper influence on portfolio management
decisions, with no offsetting benefit to shareholders.............19
4. Other concerns leading to adoption of Rule 19b-1
are not applicable................................................20
5. Further limitations of Rule 19b-1.................................21
6. General...........................................................23
V. APPLICANTS' CONDITIONS...............................................24
VI. APPLICABLE PRECEDENT.................................................33
VII. PROCEDURAL COMPLIANCE................................................33
VIII. CONCLUSION...........................................................37
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UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
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In the Matter of AMENDMENT NO. 5 TO AN
APPLICATION PURSUANT
FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY TO SECTION 6(c) OF THE
INCOME FUND INVESTMENT COMPANY ACT
FIRST TRUST ENHANCED EQUITY INCOME FUND OF 1940 (THE "ACT") FOR
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE AN ORDER OF EXEMPTION
INCOME FUND FROM SECTION 19(b) OF
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE THE ACT AND RULE 19b-1
INCOME FUND II THEREUNDER
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/
UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY
INCOME FUND
FIRST TRUST/ABERDEEN GLOBAL CREDIT
STRATEGIES FUND
FIRST TRUST ADVISORS L.P.
FIRST TRUST PORTFOLIOS L.P.
FILE NO. 812-13161
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First Trust/Aberdeen Global Opportunity Income Fund (the "FT/Aberdeen
Global Opportunity Fund"), First Trust Enhanced Equity Income Fund (formerly
known as First Trust/Fiduciary Asset Management Covered Call Fund) (the
"FT/Enhanced Equity Income Fund"), First Trust/Four Corners Senior Floating Rate
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Income Fund (the "FT/Four Corners Fund"), First Trust/Four Corners Senior
Floating Rate Income Fund II (the "FT/Four Corners Fund II"), Macquarie/First
Trust Global Infrastructure/Utilities Dividend & Income Fund (the "Macquarie/FT
Fund"), First Trust/FIDAC Mortgage Income Fund (the "FT/FIDAC Fund"), First
Trust Strategic High Income Fund (the "FT/Strategic Fund"), First Trust
Strategic High Income Fund II (the "FT/Strategic Fund II"), First Trust
Strategic High Income Fund III (the "FT/Strategic Fund III"), First
Trust/Aberdeen Emerging Opportunity Fund (the "FT/Aberdeen Emerging Opportunity
Fund"), First Trust Specialty Finance and Financial Opportunities Fund (formerly
known as the First Trust/Gallatin Specialty Finance and Financial Opportunities
Fund) (the "FT/Specialty Finance Fund"), First Trust Active Dividend Income Fund
(the "FT/Active Dividend Fund"), First Trust Municipal Target Term Trust (the
"FT/Municipal Fund"), First Trust/StoneCastle Bank Select Income Fund (the
"FT/StoneCastle Fund"), First Trust Income Fund (the "FT/Income Fund"), First
Trust/Chartwell Total Return Equity Income Fund (the "FT/Chartwell Fund") and
First Trust/Aberdeen Global Credit Strategies Fund (the "FT/Aberdeen Global
Credit Fund") (collectively, the "Current Funds"), First Trust Advisors L.P.
("First Trust" or the "Investment Adviser"), and First Trust Portfolios L.P.
("First Trust Portfolios") (the Current Funds, First Trust and First Trust
Portfolios, collectively, the "Applicants"), hereby apply for an order (the
"Order") of the Securities and Exchange Commission (the "Commission") pursuant
to Section 6(c) of the Act providing each Current Fund and each existing or
future closed-end investment company in the future that seeks to rely on the
Order currently advised or to be advised in the future by the Investment Adviser
(including any successor in interest)(1) or by an entity controlling, controlled
by or under common control (within the meaning of Section 2(a)(9) of the Act)
with the Investment Adviser an exemption from the provisions of Section 19(b) of
---------------
(1) A successor in interest is limited to entities that result from a
reorganization into another jurisdiction or a change in the type of
business organization.
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the Act and Rule 19b-1 thereunder, as more fully set forth below.(2) The Current
Funds and such additional existing or future closed-end investment companies
that may rely on the Order in the future are hereinafter collectively referred
to as the "Funds" and separately as a "Fund."
I. DESCRIPTION OF APPLICANTS.
A. Organization and Capital Structure.
Each of the Current Funds that relies on the Order is or will be, and
each Fund that relies on the Order in the future will be, a closed-end
management investment company registered under the Act. Each of the Current
Funds is organized as a Massachusetts business trust. The Current Funds were
organized on the following respective dates: FT/Aberdeen Global Opportunity Fund
- September 7, 2004, FT/Enhanced Equity Income Fund - May 20, 2004, FT/Four
Corners Fund - May 13, 2003 (as a Delaware statutory trust) and reorganized on
August 8, 2003 (as a Massachusetts business trust), FT/Four Corners Fund II -
March 25, 2004, Macquarie/FT Fund - January 21, 2004, FT/FIDAC Fund - February
22, 2005, FT/Strategic Fund - April 15, 2005, FT/Strategic Fund II - January 17,
2006, FT/Strategic Fund III - November 14, 2006, FT/Aberdeen Emerging
Opportunity Fund - May 16, 2006, FT/Specialty Finance Fund - March 20, 2007,
FT/Active Dividend Fund - June 14, 2007, FT/Municipal Fund - January 22, 2009,
FT/StoneCastle Fund -- February 20, 2008, FT/Income Fund -- September 7, 2006,
FT/Chartwell Fund -- September 6, 2007 and FT/Aberdeen Global Credit Fund --
July 24, 2009. The common shares(3) of the FT/Four Corners Fund are listed on
----------------------
(2) All existing registered closed-end investment companies that currently
intend to rely on the requested Order are named as Applicants. Any
existing or future closed-end investment company that may rely on the
Order in the future will comply with the terms and conditions of this
amended application (this "Application").
(3) When used herein, the term "common shares" refers to common shares of
beneficial interest and the term "preferred shares" refers to preferred
shares of beneficial interest.
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the NYSE Amex (formerly known as the NYSE Alternext US and the American Stock
Exchange). The common shares of the FT/Aberdeen Global Opportunity Fund,
FT/Enhanced Equity Income Fund, FT/Four Corners Fund II, Macquarie/FT Fund,
FT/Aberdeen Emerging Opportunity Fund, FT/FIDAC Fund, FT/Strategic Fund,
FT/Strategic Fund II, FT/Strategic Fund III, FT/Specialty Finance Fund and
FT/Active Dividend Fund are listed on the New York Stock Exchange. It is
currently contemplated that the common shares of the FT/Municipal Fund, the
FT/StoneCastle Fund, the FT/Income Fund, the FT/Chartwell Fund and the
FT/Aberdeen Global Credit Fund (when and if issued) and the common shares of the
future Funds will be listed and traded on the New York Stock Exchange, the
Nasdaq or another national securities exchange as defined in Section 2(a)(26) of
the Act (each, an "Exchange").
The FT/Aberdeen Global Opportunity Fund, the FT/Enhanced Equity Income
Fund, the FT/Four Corners Fund, the FT/Four Corners Fund II, the FT/FIDAC Fund,
the FT/Strategic Fund, the FT/Strategic Fund II, the FT/Strategic Fund III, the
FT/Aberdeen Emerging Opportunity Fund, the FT/Active Dividend Fund, the
FT/Municipal Fund and the FT/StoneCastle Fund are each organized as a
diversified closed-end management investment company. The registration statement
for the FT/Aberdeen Global Credit Fund filed with the Commission on July 31,
2009 states that it is a diversified closed-end management investment company.
The Macquarie/FT Fund and the FT/Specialty Finance Fund are each organized as a
non-diversified closed-end management investment company. The registration
statements for the FT/Income Fund and the FT/Chartwell Fund, when and if filed
with the Commission, will specify whether each such fund is a diversified or
non-diversified closed-end management investment company.
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As of July 31, 2009, the Current Funds with publicly offered common
shares had issued and outstanding common shares with a par value of $.01 per
share and total assets as set forth below:
TABLE 1
-------------------------------------- --------------------- ------------------
ISSUED AND
OUTSTANDING TOTAL ASSETS
COMMON SHARES AS OF
FUND AS OF JULY 31, 2009 JULY 31, 2009
-------------------------------------- --------------------- ------------------
FT/Aberdeen Global Opportunity Fund 17,365,236 $358,704,992
-------------------------------------- --------------------- ------------------
FT/Enhanced Equity Income Fund 19,973,164 $226,979,070
-------------------------------------- --------------------- ------------------
FT/Four Corners Fund 4,924,349 $82,871,900
-------------------------------------- --------------------- ------------------
FT/Four Corners Fund II 25,291,939 $435,074,231
-------------------------------------- --------------------- ------------------
Macquarie/FT Fund 9,077,963 $149,589,164
-------------------------------------- --------------------- ------------------
FT/FIDAC Fund 4,048,993 $99,165,132
-------------------------------------- --------------------- ------------------
FT/Strategic Fund 9,150,594 $26,956,417
-------------------------------------- --------------------- ------------------
FT/Strategic Fund II 9,533,776 $43,616,342
-------------------------------------- --------------------- ------------------
FT/Strategic Fund III 9,156,182 $34,622,100
-------------------------------------- --------------------- ------------------
FT/Aberdeen Emerging Opportunity Fund 5,669,926 $109,314,908
-------------------------------------- --------------------- ------------------
FT/Specialty Finance Fund 14,231,333 $90,807,327
-------------------------------------- --------------------- ------------------
FT/Active Dividend Fund 7,215,625 $72,198,777
-------------------------------------- --------------------- ------------------
The FT/Four Corners Fund and FT/Four Corners Fund II have issued
preferred shares.
As of July 31, 2009, the FT/Four Corners Fund had issued and
outstanding 67 preferred shares known as Money Market Cumulative Preferred
Shares (the "MMP Shares"). The MMP Shares have a liquidation preference of
$25,000 per share, plus accumulated unpaid dividends and a par value of $0.01
per share. Following the initial rate period, the FT/Four Corners Fund pays
dividends based on a rate set at auction usually held every 28 days.
The FT/Four Corners Fund II has issued preferred shares known as
Auction Market Preferred Shares (hereinafter, the "AMPS"), Series A and B. AMPS
have a liquidation preference of $25,000 per share, plus accumulated unpaid
dividends and a par value of $0.01 per share. As of July 31, 2009, the FT/Four
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Corners Fund II had issued and outstanding 1,600 Series A AMPS and 1,600 Series
B AMPS. Following the initial rate period, the FT/Four Corners Fund II pays
dividends on the AMPS Series A and B based on a rate set at auction, usually
held every seven days for Series A and every 28 days for Series B.
Generally, the rate set at auction for AMPS and MMP Shares will not be
higher than the maximum rate set forth in the respective Fund's prospectus. MMP
Shares and AMPS are not traded on an Exchange. Investors may purchase or sell
the MMP Shares or AMPS at an auction with or through a broker-dealer that has
entered into an agreement with the auction agent or with certain other
broker-dealers. In addition, broker-dealers may maintain a secondary trading
market for MMP Shares or AMPS outside of auctions, but are not obligated to do
so and may discontinue this activity at any time.
Except for the initial dividend period between the initial offering of
shares and the first auction, the rate of dividend on MMP Shares or AMPS is not
set and will not be set by the respective board of trustees (the "Board") of
such Funds, but instead the rate will be established at auction as provided in
the organizational documents of the applicable Fund (i.e., the statement
establishing and fixing rights and preferences for the respective preferred
shares or other organizational documents), subject to limited exceptions (such
as the auction rate is subject to certain maximum and minimum rate requirements
or in cases in which a Fund failed to deposit the requisite dividend amount, a
default rate (or other specified rate) may apply).(4)
While the Current Funds (other than FT/Four Corners Fund and FT/Four
Corners Fund II) do not currently contemplate issuing any preferred shares, they
-----------------
(4) Subject to certain conditions that vary among the respective Funds
(e.g., sufficient clearing bids existed in the most recent auction; any
failures to pay the full amount of any dividend or redemption price
will have been cured; the applicable rating agency determines the
special dividend period will not adversely affect the rating on the
preferred shares; and the lead broker-dealer designated by the
respective Fund does not object), the Fund may designate a special rate
period.
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could do so in the future.(5) In such cases, Applicants contemplate that the
preferred shares of such Current Funds as well as future Funds will also pay
dividends based on a rate set at auction (generally held every seven days or at
such other intervals specified in the corporate organizational documents
creating or establishing the rights and preferences of such preferred shares) or
remarketings or with reference to an objective index. It is contemplated that
such preferred shares also will not be listed on an Exchange.
Similar to that described above for the MMP Shares and AMPS, if the
dividends are set at auction, investors may be able to purchase or sell the
preferred shares at an auction with or through a broker-dealer that has entered
into an agreement with the auction agent and the respective Fund or with other
broker-dealers. In addition to the auctions, broker-dealers may maintain a
secondary market in any Fund's preferred shares outside of the auctions, but
could discontinue this activity at any time. Except for the initial dividend
period between the initial offering of shares and the first auction, the
dividend rate on any preferred shares is not set and will not be set by the
Board of the respective Fund, but instead the rate will be established at
auction as provided in the organizational documents of the applicable Fund
(i.e., the statement establishing and fixing rights and preferences for the
respective preferred shares or other organizational documents), subject to
limited exceptions (such as the auction rate is subject to certain maximum and
minimum rate requirements or in cases in which a Fund fails to deposit the
requisite dividend amount, a default rate (or other specified rate) may apply).
B. Investment Objectives of the Funds.
The primary investment objective of the FT/Aberdeen Global Opportunity
Fund is to seek a high level of current income. As a secondary objective, the
FT/Aberdeen Global Opportunity Fund will seek capital appreciation. Under normal
-----------------------
(5) Moreover, it is possible that certain Funds may use alternative means
of financial leverage (e.g., by issuing notes or commercial paper, or
by incurring other indebtedness).
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market conditions, the FT/Aberdeen Global Opportunity Fund invests substantially
all of its managed assets in a diversified portfolio of fixed-income securities,
including government and corporate bonds, of U.S. and non-U.S. issuers.
The investment objective of the FT/Enhanced Equity Income Fund is to
provide a high level of current income and gains and, to a lesser extent,
capital appreciation. The Fund seeks to achieve its investment objective by
investing in a diversified portfolio of equity securities and writing (selling)
call options.
The primary investment objective of the FT/Four Corners Fund and
FT/Four Corners Fund II is to seek a high level of current income. As a
secondary objective, these Funds will attempt to preserve capital. The FT/Four
Corners Fund and FT/Four Corners Fund II will pursue these objectives through
investment in a portfolio of senior secured floating rate corporate loans.
The investment objective of the Macquarie/FT Fund is to seek a high
level of current return consisting of dividends, interest and other similar
income while attempting to preserve capital. The Fund seeks to achieve its
investment objective by investing in a portfolio of equity, debt, preferred or
convertible securities and other instruments (for instance, other instruments
could include Canadian income trusts and Australian stapled securities) issued
by U.S. and non-U.S. issuers ("Infrastructure Issuers") that have as their
primary focus (in terms of income and/or assets) the management, ownership
and/or operation of infrastructure and utilities assets in a select group of
countries.
The Macquarie/FT Fund intends to invest the net proceeds from the
issuance of its common shares primarily in equity securities and securities and
instruments with equity characteristics issued by Infrastructure Issuers but may
also invest in other securities and instruments issued by Infrastructure
Issuers. The Macquarie/FT Fund also intends to invest the net proceeds raised
from any leverage, such as preferred shares, commercial paper or notes and/or
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borrowings, in U.S. dollar-denominated senior secured floating-rate loans of
Infrastructure Issuers.
The primary investment objective of the FT/FIDAC Fund is to provide a
high level of current income. As a secondary objective, the Fund will seek
preservation of capital. The Fund pursues its investment objectives by investing
primarily in mortgage-backed securities that represent part ownership in a pool
of either residential or commercial mortgage loans that, in the opinion of its
sub-adviser, Fixed Income Discount Advisory Company ("FIDAC"), offer an
attractive combination of credit quality, yield and maturity.
The primary investment objective of the FT/Strategic Fund, FT/Strategic
Fund II and FT/Strategic Fund III is to provide a high level of current income.
As a secondary objective, these Funds seek capital growth. Currently, the
FT/Strategic Fund pursues its investment objectives by investing at least 80% of
its managed assets in a diversified portfolio of high income producing
securities that its sub-adviser, Hyperion Brookfield Asset Management, Inc.,
believes offer attractive yield and capital appreciation potential;
however, the Board of the FT/Strategic Fund has approved a change in this
non-fundamental investment policy so that, effective on or about September 1,
2009, it may invest up to 100% of its managed assets in below-investment grade
debt securities. The FT/Strategic Fund II and the FT/Strategic Fund III may each
invest up to 100% of their respective managed assets in below-investment grade
debt securities.
The investment objective of the FT/Aberdeen Emerging Opportunity Fund
is to provide a high level of total return. The Fund seeks to achieve its
investment objective by investing in a diversified portfolio of equity and
fixed-income securities of issuers in emerging market countries.
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The primary investment objective of the FT/Specialty Finance Fund is to
seek a high level of current income. The Fund seeks attractive total return as a
secondary objective. The FT/Specialty Finance Fund seeks to achieve its
investment objectives by investing at least 80% of its managed assets in a
diversified portfolio of securities of specialty finance and other financial
companies that its sub-adviser, Confluence Investment Management LLC, believes
offer attractive opportunities for income and capital appreciation.
The primary investment objective of the FT/Active Dividend Fund is to
seek a high level of current income. The Fund has a secondary objective of
capital appreciation. The FT/Active Dividend Fund seeks to achieve its
investment objectives by investing at least 80% of its managed assets in a
diversified portfolio of dividend-paying multi-cap equity securities of both
U.S. and non-U.S. issuers that its sub-adviser, Aviance Capital Management, LLC,
believes offer the potential for attractive income and/or capital appreciation.
It is currently anticipated, based on its registration statement filed
with the Commission on January 23, 2009, that the investment objective of the
FT/Municipal Fund will be to provide current income exempt from regular federal
income tax. Moreover, it is expected that the FT/Municipal Fund will seek to
achieve its objective by investing in a diversified portfolio of tax-exempt
municipal securities that, in the opinion of its sub-adviser, Mariner Municipal
Managers LLC, are undervalued.
It is currently anticipated, based on its registration statement filed
with the Commission on May 5, 2008, that the investment objective of the
FT/StoneCastle Fund will be to seek current income. Moreover, it is expected
that the FT/StoneCastle Fund will seek to achieve its investment objective by
investing at least 80% of its managed assets in a diversified portfolio of: (i)
fixed-income and equity securities issued by banks, thrifts, credit unions and
non-bank finance companies, or holding companies thereof (collectively, "Banks")
and (ii) asset-backed securities secured by, or payable from, pools of Bank
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securities, in each case that its sub-adviser, StoneCastle Advisors, LLC,
believes offer attractive opportunities for current income.
It is currently anticipated, based on its registration statement filed
with the Commission on July 31, 2009, that the primary investment objective of
the FT/Aberdeen Global Credit Fund will be to provide current income and that,
as a secondary objective, it will seek capital appreciation. It is expected that
the FT/Aberdeen Global Credit Fund will seek to achieve its investment
objectives by investing at least 80% of its managed assets in a diversified
portfolio of U.S. and foreign corporate fixed-income securities of varying
maturities.
The foregoing investment objectives and policies for the registered
Current Funds may be modified from time to time. To date, the FT/Income Fund and
the FT/Chartwell Fund have not filed a registration statement with the
Commission; the investment objectives and policies of such Funds will be set
forth in their respective registration statements when and if filed with the
Commission.
C. The Investment Adviser.
First Trust acts as investment adviser to the Current Funds, with
responsibility for implementing each Current Fund's overall investment strategy.
First Trust is a registered investment adviser under the Investment Advisers Act
of 1940 ("Advisers Act"). As of July 31, 2009, First Trust served as investment
adviser or portfolio supervisor to investment portfolios with approximately $22
billion in assets. First Trust is an Illinois limited partnership formed in 1991
with one limited partner, Grace Partners of DuPage L.P. ("Grace Partners"), and
one general partner, The Charger Corporation. Grace Partners is a limited
partnership with one general partner, The Charger Corporation, and a number of
limited partners. Grace Partners' and The Charger Corporation's primary business
is investment advisory and broker/dealer services through their interests. The
Charger Corporation is an Illinois corporation controlled by the Robert Donald
13 of 42
Van Kampen family. First Trust is controlled by Grace Partners and The Charger
Corporation.
D. First Trust Portfolios.
First Trust Portfolios is a broker-dealer registered under the
Securities Exchange Act of 1934 and an "affiliated person" of First Trust under
Section 2(a)(3) of the Act. First Trust Portfolios specializes in the
underwriting, trading and distribution of unit investment trusts and other
securities, and maintains a Web site that includes information on financial
products offered and/or distributed by First Trust Portfolios and First Trust,
including information about the Current Funds that have issued publicly offered
shares. Neither the Investment Adviser nor the Current Funds have their own Web
site; rather they use the Web site maintained by First Trust Portfolios.
II. RELIEF REQUESTED.
Section 19(b) of the Act provides that it shall be unlawful in
contravention of such rules, regulations, or orders as the Commission may
prescribe as necessary or appropriate in the public interest or for the
protection of investors for any registered investment company to distribute
long-term capital gains, as defined in the Internal Revenue Code of 1986 (the
"Code"), more often than once every twelve months. Rule 19b-1 under the Act
provides that no registered investment company which is a "regulated investment
company" as defined in Section 851 of the Code shall make more than (i) one
"capital gain dividend," as defined in Section 852(b)(3)(C) of the Code, in any
one taxable year of the company, (ii) one additional capital gain distribution
made in whole or in part to avoid payment of excise tax under Section 4982 of
the Code plus (iii) one supplemental "clean-up" capital gain dividend pursuant
to Section 855 of the Code, which amount may not exceed 10% of the total amount
distributed for the year.
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The Applicants believe that Rule 19b-1 should be interpreted to permit
each Fund to make an unlimited number of distributions on its common and
preferred shares (if any) so long as it makes the designation necessary under
the Code and Rule 19b-1 to transform such distributions into "capital gain
dividends" restricted by Rule 19b-1 only as often as is permitted by Rule 19b-1,
even if the Code would then require retroactively spreading the capital gain
resulting from such designation over more than the permissible number of
distributions. However, in order to obtain certainty for the Funds' proposed
distribution policies, in the absence of such an interpretation, Applicants
hereby request an order pursuant to Section 6(c) of the Act (see below) granting
an exemption from Section 19(b) of the Act and Rule 19b-1 thereunder. The Order
would permit each Fund to make periodic capital gain dividends (as defined in
Section 852(b)(3)(C) of the Code) as frequently as monthly in any one taxable
year in respect of its common shares and as frequently as specified by or
determined in accordance with the terms thereof in respect of its preferred
shares (if any) that it has issued or may issue in the future.
III. REPRESENTATIONS OF THE APPLICANTS.
Applicants make the following representations regarding the requested
relief:
Before any Fund implements a proposed distribution policy with respect
to its common shares to make level, periodic distributions as described below in
reliance on the Order, the Board of such Fund, including a majority of the
trustees who are not "interested persons" of the respective Fund, as defined in
Section 2(a)(19) of the Act (each an "Independent Trustee") will approve the
Fund's adoption of such policy. The Board will request, and the Investment
Adviser will provide, such information as is reasonably necessary to an informed
determination of whether the Fund should adopt the proposed distribution policy.
In particular, the Board, including the Independent Trustees, will review
information regarding the purpose and terms of the proposed distribution policy,
15 of 42
the likely effects of such policy on the Fund's long-term total return (in
relation to market price and net asset value per common share) and the
relationship between the Fund's distribution rate on its common shares under the
policy and the Fund's total return (in relation to net asset value per common
share). The Independent Trustees will also consider what conflicts of interest
the Investment Adviser and the affiliated persons of the Investment Adviser and
the Fund might have with respect to the adoption or implementation of such
policy. After considering such information, the Board, including the Independent
Trustees, will approve the distribution policy with respect to the Fund's common
shares (the "Plan"), provided that the Board, including the Independent
Trustees, determines that the Plan is consistent with the Fund's investment
objective(s) and in the best interests of the Fund's common shareholders.
Applicants represent that the purpose of any Plan will be to permit a
Fund to provide its common shareholders with level, periodic distributions.
Under the Plan of a Fund, such Fund would distribute to its respective common
shareholders a fixed percentage of the market price of such Fund's common shares
at a particular point in time or a fixed percentage of net asset value per
common share at a particular point in time or a fixed amount per common share,
any of which may be adjusted from time to time. Under the Plan, the minimum
annual distribution rate with respect to such Fund's common shares would be
independent of the Fund's performance during any particular period but would be
expected to correlate with the Fund's performance over time. Except for
extraordinary distributions and potential increases or decreases in the final
dividend periods in light of the Fund's performance for the entire calendar or
taxable year and to enable the Fund to comply with the distribution requirements
of Subchapter M of the Code for the calendar or taxable year, each distribution
on the common shares would be at the stated rate then in effect.
16 of 42
In conjunction with approving a Plan, the Fund's Board will also
approve the Fund's adoption of compliance policies and procedures under Rule
38a-1 that:
(i) are reasonably designed to ensure that all notices
required to be sent to the Fund's shareholders pursuant to
Section 19(a) of the Act, Rule 19a-1 thereunder and condition
4 below (each, a "19(a) Notice") include the disclosure
required by Rule 19a-1 and by condition 2(a) below, and that
all other written communications by the Fund or its agents
described in condition 3(a) below about the distributions
under the Plan include the disclosure required by condition
3(a) below; and
(ii) require the Fund to keep records that demonstrate
its compliance with all of the conditions of the Order and
that are necessary for the Fund to form the basis for, or
demonstrate the calculation of, the amounts disclosed in its
19(a) Notices.
The records of the actions of a Fund's Board will summarize the basis
for its approval of the Plan for a Fund, including its consideration of the
factors described above, and be contained in its respective meeting minutes.
Such records will be maintained for a period of at least six years from the date
of such meeting, the first two years in an easily accessible place, or for such
longer period as may otherwise be required by law.
IV. JUSTIFICATION FOR THE REQUESTED RELIEF.
Section 6(c) of the Act provides that the Commission may exempt any
person or transaction from any provision of the Act or any rule under the Act to
the extent that such exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. For the reasons set forth
below, Applicants submit that the requested exemption from Section 19(b) of the
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Act and Rule 19b-1 thereunder would be consistent with the standards set forth
in Section 6(c) of the Act and in the best interests of the Current Funds and
their respective shareholders.
1. Receipt of the Order would serve shareholder interests.
Applicants believe that the shareholders of the Current Funds are or
will be, as applicable, generally conservative, dividend- and income-sensitive
investors who desire current income periodically and may favor a fixed
distribution policy. An exemption from Rule 19b-1 would benefit shareholders in
another way. Common shares of closed-end funds, including common shares of the
Current Funds with publicly offered common shares, often trade in the
marketplace at a discount to their net asset value. In the view of the
Applicants, this discount may be reduced if the Funds are permitted to pay
relatively frequent dividends on their common shares at a consistent rate,
whether or not those dividends contain an element of capital gain. Such a
reduction in discount would benefit the Funds' common shareholders along with
the Funds.
2. Each Fund's shareholders would receive information sufficient
to clearly inform them of the nature of the distributions they
are receiving.
One of the concerns leading to the enactment of Section 19(b) and
adoption of Rule 19b-1 was that shareholders might be unable to distinguish
between frequent distributions of capital gains and dividends from investment
income.(6) However, Rule 19a-1 under the Act effectively addresses this concern
by requiring that distributions (or the confirmation of the reinvestment
thereof) estimated to be sourced in part from capital gains or capital be
accompanied by a separate statement showing the sources of the distribution
(e.g., estimated net income, net short-term capital gains, net long-term capital
------------------------
(6) See Securities and Exchange Commission 1966 Report to Congress on
Investment Company Growth (H.R. Rep. No. 2337, 89th Cong., 2d Sess.
190-95 (1966)); S. Rep. No. 91-184, 91st Cong., 1st Sess. 29 (1969);
H.R. Rep. No. 91-1382, 91st Cong., 2d Sess. 29 (1970).
18 of 42
gains and/or return of capital). The Current Funds' annual reports to
shareholders include related information. Moreover, IRS Form 1099-DIV, which is
sent to each common and preferred shareholder who received distributions during
a particular year (including shareholders who have sold shares during the year),
instructs shareholders regarding how to report the distributions for federal
income tax purposes.
In addition, each of the Current Funds that relies on the requested
Order will make the additional disclosures required by the conditions set forth
in Part V below, and each of them will adopt compliance policies and procedures
in accordance with Rule 38a-1 under the Act to ensure that all required notices
and disclosures are sent to shareholders.
Rule 19a-1, the Plans and the compliance policies ensure that each
Fund's shareholders would be provided sufficient information to understand that
their periodic distributions are not tied to the Fund's net investment income
(which for this purpose is the Fund's taxable income other than from capital
gains) and realized capital gains to date, and may not represent yield or
investment return. Accordingly, continuing to subject the Funds to Section 19(b)
and Rule 19b-1 would afford shareholders no extra protection. In addition, the
Funds will undertake to request intermediaries to forward 19(a) Notices to their
customers and, upon request, will reimburse such intermediaries for the costs of
forwarding. Such forwarding may occur in any manner permitted by statute, rule,
order or the staff.
3. Under certain circumstances, Rule 19b-1 gives rise to improper
influence on portfolio management decisions, with no
offsetting benefit to shareholders.
Rule 19b-1, when applied to a Plan, actually gives rise to one of the
concerns that Rule 19b-1 was intended to avoid: inappropriate influence on
portfolio management decisions. Funds that pay long-term capital gains
distributions only once per year in accordance with Rule 19b-1 impose no
pressure on management to realize capital gains at any time when purely
investment considerations do not dictate doing so. In the absence of an
exemption from Rule 19b-1, the adoption of a periodic distribution plan imposes
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pressure on management (i) not to realize any net long-term capital gains until
the point in the year that the fund can pay all of its remaining distributions
in accordance with Rule 19b-1 and (ii) not to realize any long-term capital
gains during any particular year in excess of the amount of the aggregate
pay-out for the year (since as a practical matter excess gains must be
distributed and accordingly would not be available to satisfy pay-out
requirements in following years), notwithstanding that purely investment
considerations might favor realization of long-term gains at different times or
in different amounts.
No purpose is served by the distortion in the normal operation of a
periodic distribution plan required in order to comply with Rule 19b-1. There is
no reason or logic in requiring any fund that adopts a periodic distribution
plan either to retain (and pay taxes on) long-term capital gains (with the
resulting additional tax return complexities for the fund's shareholders) or to
avoid designating its distributions of long-term gains as capital gains
dividends for tax purposes (thereby avoiding a Rule 19b-1 problem but providing
distributions taxable at ordinary income rates rather than the much lower
long-term capital gains rates and being required to pay income tax on the amount
of such income). The desirability of avoiding these anomalous results creates
pressure to limit the realization of long-term capital gains that otherwise
would be taken for purely investment considerations.
The Order requested by the Applicants would minimize these anomalous
effects of Rule 19b-1 by enabling the Funds to realize long-term capital gains
as often as investment considerations dictate without fear of violating Rule
19b-1.
4. Other concerns leading to adoption of Rule 19b-1 are not applicable.
Another concern that led to the enactment of Section 19(b) of the Act
and adoption of Rule 19b-1 was that frequent capital gains distributions could
facilitate improper fund share sales practices, including, in particular, the
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practice of urging an investor to purchase shares of a fund on the basis of an
upcoming capital gains dividend ("selling the dividend"), where the dividend
would result in an immediate corresponding reduction in net asset value and
would be in effect a taxable return of the investor's capital. Applicants submit
that this concern should not apply to closed-end investment companies, such as
the Funds, which do not continuously distribute shares. Furthermore, if the
underlying concern extends to secondary market purchases of shares of closed-end
funds that are subject to a large upcoming capital gains dividend, adoption of a
periodic distribution plan actually helps minimize the concern by avoiding,
through periodic distributions, any buildup of large end-of-the-year
distributions.
The Applicants also submit that the "selling the dividend" concern is
not applicable to preferred shares, which entitle a holder to no more than a
specified periodic dividend and, like debt securities, are initially sold at a
price based upon their liquidation preference, credit quality and frequency of
payment. Investors buy preferred shares for the purpose of receiving specific
payments at the frequency bargained for, and any application of Rule 19b-1 to
preferred shares would be contrary to the expectation of investors. There is
also currently a tax rule that provides that any loss attributable to a
long-term capital gain dividend realized within six months of the acquisition of
such shares must be treated as a long-term capital loss to avoid the selling of
dividends.
5. Further limitations of Rule 19b-1.
Subparagraphs (a) and (f) of Rule 19b-1 limit the number of capital
gains dividends, as defined in Section 852(b)(3)(C) of the Code, that a fund may
make with respect to any one taxable year to one, plus a supplemental "clean-up"
distribution made pursuant to Section 855 of the Code not exceeding 10% of the
total amount distributed for the year, plus one additional capital gain dividend
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made in whole or in part to avoid the excise tax under Section 4982 of the Code.
Applicants assert that by limiting the number of capital gain dividends
that a fund may make with respect to any one year, Rule 19b-1 may prevent the
normal and efficient operation of a periodic distribution plan whenever that
fund's realized net long-term capital gains in any year exceed the total of the
periodic distributions that may include such capital gains under the Rule. Rule
19b-1 thus may force the fixed regular periodic distributions to be funded with
returns of capital(7) (to the extent net investment income and realized
short-term capital gains are insufficient to fund the distribution), even though
realized net long-term capital gains otherwise would be available. To distribute
all of a fund's long-term capital gains within the limits in Rule 19b-1, a fund
may be required to make total distributions in excess of the annual amount
called for by its periodic distribution plan or to retain and pay taxes on the
excess amount. Applicants believe that the application of Rule 19b-1 to a fund's
periodic distribution plan may create pressure to limit the realization of
long-term capital gains based on considerations unrelated to investment goals.
Revenue Ruling 89-81 under the Code requires that a fund that seeks to
qualify as a regulated investment company under the Code and that has both
common stock and preferred stock outstanding designate the types of income,
e.g., investment income and capital gains, in the same proportion as the total
distributions distributed to each class for the tax year. To satisfy the
proportionate designation requirements of Revenue Ruling 89-81, whenever a fund
has realized a long-term capital gain with respect to a given tax year, the fund
must designate the required proportionate share of such capital gain to be
included in common and preferred stock dividends. Although Rule 19b-1 allows a
fund some flexibility with respect to the frequency of capital gains
-----------------------
(7) These would be returns of capital for financial accounting purposes
and not for tax accounting purposes.
22 of 42
distributions, a fund might use all of the exceptions available under Rule 19b-1
for a tax year and still need to distribute additional capital gains allocated
to the preferred stock to comply with Revenue Ruling 89-81.
The potential abuses addressed by Section 19(b) and Rule 19b-1 do not
arise with respect to preferred shares issued by a closed-end fund. Such
distributions are fixed, determined in periodic auctions or remarketings by
reference to short-term interest rates, or are otherwise determined by means
other than by reference to performance of the issuer, and Revenue Ruling 89-81
determines the proportion of such distributions that are comprised of the
long-term capital gains.
Applicants also submit that the "selling the dividend" concern is not
applicable to preferred shares, which entitle a holder to no more than a
periodic dividend at a fixed rate or the rate determined by the market, and,
like debt securities, are priced based upon their liquidation value, credit
quality, and frequency of payment. Investors buy preferred shares for the
purpose of receiving payments at the frequency bargained for and do not expect
the liquidation value of their shares to change.
The proposed Order will assist the Funds in avoiding these Rule 19b-1
problems.
6. General.
The relief requested is that the Commission permit the Funds to make
periodic distributions in respect of their common shares consisting in whole or
in part of capital gain dividends as frequently as monthly in any one taxable
year and in respect of their preferred shares, if any, consisting in whole or in
part of capital gain dividends as frequently as specified by or determined in
accordance with the terms thereof. Granting this relief would provide the Funds
with flexibility in meeting investor interest in receiving more frequent
distributions. By reducing the amount of individual periodic distributions even
further, implementation of the additional relief would actually ameliorate the
23 of 42
concerns that gave rise to Section 19(b) and Rule 19b-1 and help avoid the
"selling of dividends" problem, which Section 19(b) and Rule 19b-1 are not
effective in preventing.
The potential issues under Rule 19b-1 are basically not relevant to
distributions on preferred shares. Not only are such distributions fixed,
determined in periodic auctions or remarketings by reference to short-term
interest rates, or otherwise determined by means other than by reference to
performance of the issuer, but also the long-term capital gain component is
mandated by the Internal Revenue Service to be the same proportion as the
proportion of long-term gain dividends bears to the total distributions in
respect of the common shares and consequently the long-term gain component
cannot even be known until the last dividend of the year. In these circumstances
it would be very difficult for any of the potential abuses reflected in Rule
19b-1's restrictions to occur.
In summary, Rule 19b-1 in the circumstances referred to above distorts
the effective and proper functioning of the Funds' distributions and gives rise
to the very pressures on portfolio management decisions that Rule 19b-1 was
intended to avoid. These distortions forced by Rule 19b-1 serve no purpose and
are not in the best interests of shareholders.
V. APPLICANTS' CONDITIONS.
Applicants agree that, with respect to each Fund seeking to rely on the
Order, the Order will be subject to the following conditions:
1. Compliance Review and Reporting
The Fund's chief compliance officer will: (a) report to the Fund's
Board, no less frequently than once every three months or at the next regularly
scheduled quarterly Board meeting, whether (i) the Fund and its Investment
Adviser have complied with the conditions to the Order, and (ii) a material
compliance matter, as defined in Rule 38a-1(e)(2) under the Act, has occurred
24 of 42
with respect to compliance with such conditions; and (b) review the adequacy of
the policies and procedures adopted by the Fund no less frequently than
annually.
2. Disclosures to Fund Shareholders
(a) Each 19(a) Notice to the holders of the Fund's common
shares, in addition to the information required by Section 19(a) and
Rule 19a-1:
(i) will provide, in a tabular or graphical format:
(1) the amount of the distribution, on a per
common share basis, together with the amounts of such
distribution amount, on a per common share basis and
as a percentage of such distribution amount, from
estimated: (A) net investment income; (B) net
realized short-term capital gains; (C) net realized
long-term capital gains; and (D) return of capital or
other capital source;
(2) the fiscal year-to-date cumulative amount
of distributions, on a per common share basis,
together with the amounts of such cumulative amount,
on a per common share basis and as a percentage of
such cumulative amount of distributions, from
estimated: (A) net investment income; (B) net
realized short-term capital gains; (C) net realized
long-term capital gains; and (D) return of capital or
other capital source;
(3) the average annual total return in relation
to the change in net asset value per common share
("NAV") for the 5-year period (or, if the Fund's
history of operations is less than five years, the
time period commencing immediately following the
25 of 42
Fund's first public offering) ending on the last day
of the month prior to the most recent distribution
record date compared to the current fiscal period's
annualized distribution rate expressed as a
percentage of NAV as of the last day of the month
prior to the most recent distribution record date;
and
(4) the cumulative total return in relation to
the change in NAV from the last completed fiscal year
to the last day of the month prior to the most recent
distribution record date compared to the fiscal
year-to- date cumulative distribution rate expressed
as a percentage of NAV as of the last day of the
month prior to the most recent distribution record
date.
Such disclosure shall be made in a type size at least as large
and as prominent as the estimate of the sources of the current
distribution; and
(ii) will include the following disclosure:
(1) "You should not draw any conclusions about
the Fund's investment performance from the amount of
this distribution or from the terms of the Fund's
Plan.";
(2) "The Fund estimates that it has distributed
more than its income and net realized capital gains;
therefore, a portion of your distribution may be a
return of capital. A return of capital may occur, for
example, when some or all of the money that you
invested in the Fund is paid back to you. A return of
capital distribution does not necessarily reflect the
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Fund's investment performance and should not be
confused with 'yield' or 'income'.";(8) and
(3) "The amounts and sources of distributions
reported in this Notice are only estimates and are
not being provided for tax reporting purposes. The
actual amounts and sources of the amounts for
[accounting and] tax reporting purposes will depend
upon the Fund's investment experience during the
remainder of its fiscal year and may be subject to
changes based on tax regulations. The Fund will send
you a Form 1099-DIV for the calendar year that will
tell you how to report these distributions for
federal income tax purposes."
Such disclosure shall be made in a type size at least as large
as and as prominent as any other information in the 19(a)
Notice and placed on the same page in close proximity to the
amount and the sources of the distribution.
(b) On the inside front cover of each report to shareholders
under Rule 30e-1 under the Act, the Fund will:
(i) describe the terms of the Plan (including the
fixed amount or fixed percentage of the distributions and the
frequency of the distributions);
(ii) include the disclosure required by condition
2(a)(ii)(1) above;
---------------------
(8) The disclosure in this condition 2(a)(ii)(2) will be included only if
the current distribution or the fiscal year-to-date cumulative
distributions are estimated to include a return of capital.
27 of 42
(iii) state, if applicable, that the Plan provides that
the Board may amend or terminate the Plan at any time without
prior notice to Fund shareholders; and
(iv) describe any reasonably foreseeable circumstances
that might cause the Fund to terminate the Plan and any
reasonably foreseeable consequences of such termination.
(c) Each report provided to shareholders under Rule 30e-1
under the Act and each prospectus filed with the Commission on Form N-2
under the Act will provide the Fund's total return in relation to
changes in NAV in the financial highlights table and in any discussion
about the Fund's total return.
3. Disclosure to Common Shareholders, Prospective Common
Shareholders and Third Parties
(a) The Fund will include the information contained in the
relevant 19(a) Notice, including the disclosure required by condition
2(a)(ii) above, in any written communication (other than a Form 1099)
about the Plan or distributions under the Plan by the Fund, or agents
that the Fund has authorized to make such communication on the Fund's
behalf, to any Fund common shareholder, prospective common shareholder
or third-party information provider;
(b) The Fund will issue, contemporaneously with the issuance
of any 19(a) Notice, a press release containing the information in the
19(a) Notice and will file with the Commission the information
contained in such 19(a) Notice, including the disclosure required by
condition 2(a)(ii) above, as an exhibit to its next filed Form N-CSR;
and
28 of 42
(c) The Fund will post prominently a statement on the Web site
maintained by First Trust Portfolios, an affiliated person of the
Fund's Investment Adviser,(9) containing the information in each 19(a)
Notice, including the disclosure required by condition 2(a)(ii) above,
and will maintain such information on such Web site for at least 24
months.
4. Delivery of 19(a) Notices to Beneficial Owners
If a broker, dealer, bank or other person ("financial intermediary")
holds common shares issued by the Fund in nominee name, or otherwise, on behalf
of a beneficial owner, the Fund: (a) will request that the financial
intermediary, or its agent, forward the 19(a) Notice to all beneficial owners of
the Fund's shares held through such financial intermediary; (b) will provide, in
a timely manner, to the financial intermediary, or its agent, enough copies of
the 19(a) Notice assembled in the form and at the place that the financial
intermediary, or its agent, reasonably requests to facilitate the financial
intermediary's sending of the 19(a) Notice to each beneficial owner of the
Fund's shares; and (c) upon the request of any financial intermediary, or its
agent, that receives copies of the 19(a) Notice, will pay the financial
intermediary, or its agent, the reasonable expenses of sending the 19(a) Notice
to such beneficial owners.
------------------
(9) Neither the Fund nor its Investment Adviser has its own Web site.
However, First Trust Portfolios, a broker-dealer registered under
the Securities Exchange Act of 1934 and an affiliated person of the
Fund's Investment Adviser, maintains a Web site which is used by First
Trust Portfolios, the Fund and the Fund's Investment Adviser.
29 of 42
5. Additional Board Determinations for Funds Whose Common Shares Trade
at a Premium
If:
(a) The Fund's common shares have traded on the exchange that
they primarily trade on at the time in question at an average premium
to NAV equal to or greater than 10%, as determined on the basis of the
average of the discount or premium to NAV of the Fund's common shares
as of the close of each trading day over a 12-week rolling period (each
such 12-week rolling period ending on the last trading day of each
week); and
(b) The Fund's annualized distribution rate for such 12-week
rolling period, expressed as a percentage of NAV as of the ending date
of such 12-week rolling period, is greater than the Fund's average
annual total return in relation to the change in NAV over the 2-year
period ending on the last day of such 12-week rolling period;
then:
(i) At the earlier of the next regularly scheduled
meeting or within four months of the last day of such 12-week
rolling period, the Board, including a majority of the
Independent Trustees:
(1) will request and evaluate, and the Fund's
Investment Adviser will furnish, such information as
may be reasonably necessary to make an informed
determination of whether the Plan should be continued
or continued after amendment;
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(2) will determine whether continuation, or
continuation after amendment, of the Plan is
consistent with the Fund's investment objective(s)
and policies and in the best interests of the Fund
and its shareholders, after considering the
information in condition 5(b)(i)(1) above, including,
without limitation:
(a) whether the Plan is accomplishing
its purpose(s);
(b) the reasonably foreseeable material
effects of the Plan on the Fund's long-term
total return in relation to the market price
and NAV of the Fund's common shares; and
(c) the Fund's current distribution
rate, as described in condition 5(b) above,
compared with the Fund's average annual total
return over the 2-year period, as described
in condition 5(b), or such longer period as
the Board deems appropriate; and
(3) based upon that determination, will approve
or disapprove the continuation, or continuation after
amendment, of the Plan; and
(ii) The Board will record the information considered
by it and the basis for its approval or disapproval of the
continuation, or continuation after amendment, of the Plan in
its meeting minutes, which must be made and preserved for a
period of not less than six years from the date of such
meeting, the first two years in an easily accessible place.
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6. Public Offerings
The Fund will not make a public offering of the Fund's common shares
other than:
(a) a rights offering below NAV to holders of the Fund's
common shares;
(b) an offering in connection with a dividend reinvestment
plan, merger, consolidation, acquisition, spin off or reorganization of
the Fund; or
(c) an offering other than an offering described in conditions
6(a) and 6(b) above, unless, with respect to such other offering:
(i) the Fund's average annual distribution rate for
the six months ending on the last day of the month ended
immediately prior to the most recent distribution record
date,(10) expressed as a percentage of NAV per share as of
such date, is no more than 1 percentage point greater than the
Fund's average annual total return for the 5-year period
ending on such date;(11) and
(ii) the transmittal letter accompanying any
registration statement filed with the Commission in connection
with such offering discloses that the Fund has received an
order under Section 19(b) to permit it to make periodic
distributions of long-term capital gains with respect to its
common shares as frequently as twelve times each year, and as
frequently as distributions are specified by or determined in
---------------------
(10) If the Fund has been in operation fewer than six months, the measured
period will begin immediately following the Fund's first public
offering.
(11) If the Fund has been in operation fewer than five years, the measured
period will begin immediately following the Fund's first public
offering.
32 of 42
accordance with the terms of any outstanding preferred shares
that such Fund may issue.
7. Amendments to Rule 19b-1
The requested relief will expire on the effective date of any amendment
to Rule 19b-1 that provides relief permitting certain closed-end investment
companies to make periodic distributions of long-term capital gains with respect
to their outstanding common shares as frequently as twelve times each year.
VI. APPLICABLE PRECEDENT.
The Commission has recently granted relief substantially the same as
that sought here.(12)
VII. PROCEDURAL COMPLIANCE.
At a meeting held on December 13, 2004, the Board of the FT/Aberdeen
Global Opportunity Fund, the FT/Enhanced Equity Income Fund, the FT/Four Corners
Fund, the FT/Four Corners Fund II and the Macquarie/FT Fund each adopted, in
relevant part, the following resolutions authorizing the execution and filing of
this Application.
Resolved, that the officers of the Funds be, and each
hereby is, authorized to prepare, execute and submit to the
Securities and Exchange Commission, on behalf of the Funds and
in their name, an application or applications seeking
exemptive relief from the provisions of Section 19(b) of the
Investment Company Act of 1940 (the "1940 Act") and related
rules under the 1940 Act to permit the Funds to distribute
----------------------
(12) See In the Matter of ING Clarion Real Estate Income Fund, et al.,
Investment Company Act Release Nos. 28329 (July 8, 2008)(notice) and
28352 (August 5, 2008)(order); In the Matter of The Mexico Fund, Inc.,
et al., Investment Company Act Release Nos. 28332 (July 17,
2008)(notice) and 28357 (August 12, 2008)(order); In the Matter of
Cohen & Steers Advantage Income Realty Fund, Inc., et al., Investment
Company Act Release Nos. 28341 (July 24, 2008)(notice) and 28358
(August 19, 2008)(order); and In the Matter of DNP Select Income Fund
Inc., et al., Investment Company Act Release Nos. 28348 (July 31,
2008)(notice) and 28368 (August 26, 2008)(order). Prior to the granting
of the foregoing relief, the Commission granted relief substantially
the same as that sought here on several occasions. However, the
conditions of such orders were substantially different and,
accordingly, Applicants do not cite any of such prior relief.
33 of 42
capital gains more often than once each twelve month period;
and it is further
Resolved, that the officers of the Funds be, and each
hereby is, authorized and directed to take such additional
actions and to execute and deliver on behalf of the Funds such
other documents or instruments as they deem necessary or
appropriate in furtherance of the above resolution, including,
without limitation, the preparation, execution and filing of
any necessary or appropriate amendment(s) or supplement(s) to
such application, his or her authority therefore to be
conclusively evidenced by the taking of any such actions or
the execution or delivery of any such documents; and it is
further
Resolved, that upon issuance of an Order of Exemption
by the Securities and Exchange Commission in accordance with
the terms and conditions of the above-described application,
the Funds are authorized to act in accordance with the
provisions of the Order of Exemption.
At the respective organizational meeting of the FT/FIDAC Fund, the
FT/Strategic Fund, the FT/Strategic Fund II, the FT/Strategic Fund III, the
FT/Aberdeen Emerging Opportunity Fund, the FT/Specialty Finance Fund, the
FT/Active Dividend Fund, the FT/Municipal Fund, the FT/StoneCastle Fund, the
FT/Income Fund and the FT/Chartwell Fund, the Board of each such Fund adopted,
in relevant part, resolutions substantially identical to the following
authorizing the execution and filing of this Application:
Whereas, the Boards of Trustees of other closed-end
funds advised by First Trust Advisors L.P. have previously
authorized the preparation, execution and filing with the
Securities and Exchange Commission, on behalf of such funds,
of an application or applications seeking exemptive relief
from the provisions of Section 19(b) of the Investment Company
Act of 1940 (the "1940 Act") and related rules under the 1940
Act to permit such funds to distribute capital gains more
often than once each twelve month period (the "Exemptive
Application"); and
Whereas, the Board of Trustees of the Fund has
determined that it is beneficial for the Fund to receive
similar exemptive relief as that sought in the Exemptive
Application.
34 of 42
Now Therefore Be It Resolved, that the officers of
the Fund be, and each hereby is authorized to take such action
as is necessary to add the Fund as an applicant to the
Exemptive Application; and
Further Resolved, that the officers of the Fund be,
and each hereby is, authorized and directed to take such
additional actions and to execute and deliver on behalf of the
Fund such other documents or instruments as they deem
necessary or appropriate in furtherance of the above
resolution and in furtherance of obtaining the exemptive
relief requested in the Exemptive Application, including,
without limitation, the preparation, execution and filing of
any necessary or appropriate amendment(s) or supplement(s) to
such application, his or her authority therefore to be
conclusively evidenced by the taking of any such actions or
the execution or delivery of any such documents; and
Further Resolved, that upon issuance of an Order of
Exemption by the Securities and Exchange Commission in
accordance with the terms and conditions of the
above-described application, the Fund is authorized to act in
accordance with the provisions of the Order of Exemption.
On August 3, 2009, James A. Bowen, the sole initial Trustee of the
FT/Aberdeen Global Credit Fund, consented to and approved the adoption of the
following resolutions and the taking of the actions provided therein authorizing
the execution and filing of this Application as if said resolutions and actions
had been approved and adopted at a meeting duly called and held:
Whereas, the Boards of Trustees of other closed-end
funds advised by First Trust Advisors L.P. have previously
authorized the preparation, execution and filing with the
Securities and Exchange Commission, on behalf of such funds,
of an application or applications seeking exemptive relief
from the provisions of Section 19(b) of the Investment Company
Act of 1940 (the "1940 Act") and related rules under the 1940
Act to permit such funds to distribute capital gains more
often than once each twelve month period (the "Exemptive
Application"); and
Whereas, the sole initial Trustee of the Fund has
determined that it is beneficial for the Fund to receive
similar exemptive relief as that sought in the Exemptive
Application;
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Now Therefore Be It Resolved, that James A. Bowen and
any other officer of the Fund be, and each hereby is
authorized to take such action as is necessary to add the Fund
as an applicant to the Exemptive Application; and
Further Resolved, that James A. Bowen and any other
officer of the Fund be, and each hereby is, authorized and
directed to take such additional actions and to execute and
deliver on behalf of the Fund such other documents or
instruments as they deem necessary or appropriate in
furtherance of the above resolution and in furtherance of
obtaining the exemptive relief requested in the Exemptive
Application, including, without limitation, the preparation,
execution and filing of any necessary or appropriate
amendment(s) or supplement(s) to such application, his or her
authority therefor to be conclusively evidenced by the taking
of any such actions or the execution or delivery of any such
documents; and
Further Resolved, that upon issuance of an Order of
Exemption by the Securities and Exchange Commission in
accordance with the terms and conditions of the
above-described application, the Fund is authorized to act in
accordance with the provisions of the Order of Exemption.
Pursuant to Rule 0-2(c) under the Act, each Applicant hereby states
that the person signing and filing this Application on its behalf is fully
authorized to do so, and that such Applicant has complied with all requirements
for the execution and filing of this Application in its name and on its behalf.
Further, each Applicant that is a Current Fund hereby states that under the
provisions of the Declaration of Trust of such Applicant, responsibility for the
management of the affairs of such Applicant is vested in its Board.
These verifications required by Rule 0-2(d) are attached to this
Application as Exhibit A. Pursuant to Rule 0-2(f) under the Act, the
Applicants further state that:
1. The address of each of the Applicants, is as follows:
120 E. Liberty Drive
Suite 400
Wheaton, Illinois 60187
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2. Any questions regarding this Application should be directed to:
Suzanne M. Russell
Chapman and Cutler LLP
111 West Monroe Street
Chicago, Illinois 60603
(312) 845-3446
(312) 701-2361 (fax)
VIII. CONCLUSION.
On the basis of the foregoing, the Applicants respectfully request that
the Commission enter an order pursuant to Section 6(c) of the Act exempting the
Funds from the provisions of Section 19(b) of the Act and Rule 19b-1 thereunder
to permit each Fund to make distributions on its common shares consisting in
whole or in part of capital gain dividends as frequently as once per month so
long as it complies with the conditions of the Order and maintains in effect a
distribution policy with respect to its common shares calling for periodic
distributions of an amount equal to a fixed amount per share, a fixed percentage
of market price per share or a fixed percentage of such Fund's net asset value
per share. In addition, each Fund requests that the Order permit each Fund to
make distributions on its preferred shares (if any) that it has issued or may
issue in the future consisting in whole or in part of capital gain dividends as
frequently as specified by or determined in accordance with the terms thereof.
* * * * *
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FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY
INCOME FUND
FIRST TRUST ENHANCED EQUITY INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND II
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/
UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY INCOME FUND
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
FIRST TRUST/ABERDEEN GLOBAL CREDIT STRATEGIES FUND
By /s/ James A. Bowen
------------------------------------
James A. Bowen
Sole Initial Trustee
FIRST TRUST ADVISORS L.P.
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
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FIRST TRUST PORTFOLIOS L.P.
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
Dated August 11, 2009
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EXHIBIT A
VERIFICATION
The undersigned states that he has duly executed the attached Application
for and on behalf of each of the Current Funds listed below (the "Current
Funds"); that he is the President or sole initial Trustee, as applicable, of
each of the Current Funds; and that all actions by stockholders, trustees, and
other bodies necessary to authorize the undersigned to execute and file such
Application have been taken. The undersigned further states that he is familiar
with such Application, and the contents thereof, and that the facts therein set
forth are true to the best of his knowledge, information, and belief.
FIRST TRUST/ABERDEEN GLOBAL OPPORTUNITY
INCOME FUND
FIRST TRUST ENHANCED EQUITY INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND
FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE
INCOME FUND II
MACQUARIE/FIRST TRUST GLOBAL INFRASTRUCTURE/
UTILITIES DIVIDEND & INCOME FUND
FIRST TRUST/FIDAC MORTGAGE INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND
FIRST TRUST STRATEGIC HIGH INCOME FUND II
FIRST TRUST STRATEGIC HIGH INCOME FUND III
FIRST TRUST/ABERDEEN EMERGING OPPORTUNITY FUND
FIRST TRUST SPECIALTY FINANCE AND FINANCIAL
OPPORTUNITIES FUND
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
FIRST TRUST MUNICIPAL TARGET TERM TRUST
FIRST TRUST/STONECASTLE BANK SELECT INCOME FUND
FIRST TRUST INCOME FUND
FIRST TRUST/CHARTWELL TOTAL RETURN EQUITY INCOME FUND
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
FIRST TRUST/ABERDEEN GLOBAL CREDIT STRATEGIES FUND
By /s/ James A. Bowen
------------------------------------
James A. Bowen
Sole Initial Trustee
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EXHIBIT A
VERIFICATION
The undersigned states that he has duly executed the attached Application
for and on behalf of First Trust Advisors L.P. ("First Trust"); that he is the
President of First Trust; and that all actions by stockholders, directors, and
other bodies necessary to authorize the undersigned to execute and file such
Application have been taken. The undersigned further states that he is familiar
with such Application, and the contents thereof, and that the facts therein set
forth are true to the best of his knowledge, information, and belief.
FIRST TRUST ADVISORS L.P.
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
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EXHIBIT A
VERIFICATION
The undersigned states that he has duly executed the attached Application
for and on behalf of First Trust Portfolios L.P. ("First Trust Portfolios");
that he is the President of First Trust Portfolios; and that all actions by
stockholders, directors, and other bodies necessary to authorize the undersigned
to execute and file such Application have been taken. The undersigned further
states that he is familiar with such Application, and the contents thereof, and
that the facts therein set forth are true to the best of his knowledge,
information, and belief.
FIRST TRUST PORTFOLIOS L.P.
By /s/ James A. Bowen
------------------------------------
James A. Bowen
President
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