As filed with the Securities and Exchange Commission on November 20, 2007.
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1933 Act File No. 333-141457
1940 Act File No. 811-22039
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement.
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
PRELIMINARY COPY -- DRAFT DATED NOVEMBER 20, 2007
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND
FINANCIAL OPPORTUNITIES FUND
1001 WARRENVILLE ROAD
SUITE 300
LISLE, ILLINOIS 60532
_______, 2007
Dear Shareholder:
The accompanying materials relate to the Special Meeting of
Shareholders (referred to as the "Meeting") of First Trust/Gallatin
Specialty Finance and Financial Opportunities Fund (the "Fund"). The
Meeting will be held at the offices of First Trust Advisors L.P., 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532, on Wednesday, January
23, 2008, at 4:00 p.m. Central Time.
At the Meeting, you will be asked to vote on a proposal to
approve a new investment sub-advisory agreement among the Fund, First
Trust Advisors L.P. and Gallatin Asset Management, Inc. and to transact
such other business as may properly come before the Meeting and any
adjournments thereof. The proposal is described in the accompanying
Notice of Special Meeting of Shareholders and Proxy Statement.
YOUR PARTICIPATION AT THE MEETING IS VERY IMPORTANT. If you
cannot attend the Meeting, you may participate by proxy. As a
Shareholder, you cast one vote for each share of the Fund that you own
and a proportionate fractional vote for any fraction of a share that you
own. Please take a few moments to read the enclosed materials and then
cast your vote on the enclosed proxy card.
VOTING TAKES ONLY A FEW MINUTES. EACH SHAREHOLDER'S VOTE IS
IMPORTANT. YOUR PROMPT RESPONSE WILL BE MUCH APPRECIATED. After you have
voted on the proposal, please be sure to sign your proxy card and return
it in the enclosed postage-paid envelope.
We appreciate your participation in this important Meeting.
Thank you.
Sincerely,
James A. Bowen
Chairman of the Board
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IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE PROPOSAL
OR HOW TO VOTE YOUR SHARES, CALL YOUR FUND'S PROXY SOLICITOR, THE ALTMAN
GROUP, AT (866) 406-2283 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN
TIME.
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INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and avoid the time and expense involved in validating
your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in
the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the
party signing should conform exactly to the name shown in the
registration.
3. All Other Accounts: The capacity of the individual signing
the proxy should be indicated unless it is reflected in the form of
registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 Jane B. Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr., UGMA John B. Smith
(2) John B. Smith John B. Smith, Jr., Executor
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
1001 WARRENVILLE ROAD
SUITE 300
LISLE, ILLINOIS 60532
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 23, 2008
_______________, 2007
To the Shareholders of the above Fund:
Notice is hereby given that the Special Meeting of Shareholders
(referred to as the "Meeting") of First Trust/Gallatin Specialty Finance and
Financial Opportunities Fund (the "Fund"), a Massachusetts business trust, will
be held at the offices of First Trust Advisors L.P., 1001 Warrenville Road,
Suite 300, Lisle, Illinois 60532, on Wednesday, January 23, 2008, at 4:00 p.m.
Central Time, for the following purposes:
1. To approve a new investment sub-advisory agreement
among the Fund, First Trust Advisors L.P., as investment
adviser, and Gallatin Asset Management, Inc., as investment
sub-adviser.
2. To transact such other business as may properly
come before the Meeting and any adjournments thereof. The Board
of Trustees has fixed the close of business on ________, 2007 as
the record date for the determination of
Shareholders entitled to notice of and to vote at the Meeting and any
adjournments or postponements thereof.
By order of the Board of Trustees,
W. Scott Jardine
Secretary
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SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REQUESTED TO
PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED
ENVELOPE WHICH DOES NOT REQUIRE POSTAGE IF MAILED IN THE CONTINENTAL
UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF PROXIES ARE SET
FORTH ON THE INSIDE COVER. IF YOU NEED ANY ASSISTANCE, OR HAVE ANY
QUESTIONS REGARDING THE PROPOSAL OR HOW TO VOTE YOUR SHARES, CALL YOUR
FUND'S PROXY SOLICITOR, THE ALTMAN GROUP, AT (866) 406-2283 WEEKDAYS FROM
9:00 A.M. TO 10:00 P.M. EASTERN TIME.
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This page intentionally left blank.
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
SPECIAL MEETING OF SHAREHOLDERS
JANUARY 23, 2008
1001 WARRENVILLE ROAD
SUITE 300
LISLE, ILLINOIS 60532
PROXY STATEMENT
_______________, 2007
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Trustees (the "Board") of First Trust/Gallatin
Specialty Finance and Financial Opportunities Fund (the "Fund"), a Massachusetts
business trust, for use at the Special Meeting of Shareholders of the Fund to be
held on Wednesday, January 23, 2008, at 4:00 p.m. Central Time, at the offices
of First Trust Advisors L.P., 1001 Warrenville Road, Suite 300, Lisle, Illinois
60532, and at any adjournments or postponements thereof (referred to
collectively as the "Meeting"). A Notice of Special Meeting of Shareholders and
a proxy card accompany this Proxy Statement.
Proxy solicitations will be made, beginning on or about
_______________, 2007, primarily by mail. However, proxy solicitations may also
be made by telephone or personal interviews conducted by (i) officers of the
Fund; (ii) The Altman Group ("Altman"), a proxy solicitor; (iii) First Trust
Advisors L.P. ("First Trust Advisors" or the "Adviser"), the investment adviser
of the Fund; (iv) PFPC Inc. ("PFPC"), the administrator, accounting agent and
transfer agent of the Fund and a subsidiary of The PNC Financial Services Group
Inc.; or (v) any affiliates of those entities.
THE FUND'S SEMI-ANNUAL REPORT IS, AND ITS FIRST ANNUAL REPORT WILL BE,
AVAILABLE UPON REQUEST, WITHOUT CHARGE, BY WRITING TO THE ADVISER AT 1001
WARRENVILLE ROAD, SUITE 300, LISLE, ILLINOIS 60532, BY CALLING (800) 988-5891 OR
BY VISITING THE FUND'S WEBSITE AT HTTP://WWW.FTPORTFOLIOS.COM. THIS PROXY
STATEMENT AND THE ENCLOSED PROXY CARD WILL FIRST BE MAILED TO SHAREHOLDERS ON OR
ABOUT _______________, 2007.
The costs of preparing, printing and mailing this Proxy Statement and
its enclosures and all other costs in connection with the solicitation of
proxies (including amounts charged by Altman for its proxy solicitation
services, which amounts are expected to be approximately $30,000), will be paid
by Gallatin Asset Management, Inc. ("Gallatin" or the "Sub-Adviser"). Gallatin
will also reimburse brokerage firms and others for their expenses in forwarding
solicitation materials to the beneficial owners of Fund shares.
If the enclosed proxy card is properly executed and returned in time to
be voted at the Meeting, the Fund shares represented thereby will be voted in
accordance with the instructions marked thereon. If no instructions are marked
on the enclosed proxy card, Fund shares represented thereby will be voted in the
discretion of the persons named on the proxy card. Accordingly, unless
instructions to the contrary are marked thereon, a proxy will be voted FOR the
proposal to approve the new investment sub-advisory agreement and at the
discretion of the named proxies on any other matters that may properly come
before the Meeting and any adjournments thereof as deemed appropriate. Any
shareholder who has given a proxy has the right to revoke it at any time prior
to its exercise either by attending the Meeting and voting his or her shares in
person, or by timely submitting a letter of revocation or a later-dated proxy to
the Fund at the above address. A list of shareholders entitled to notice of and
to be present and to vote at the Meeting will be available at the offices of the
Fund, 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532, for inspection by
any shareholder during regular business hours beginning 10 days prior to the
date of the Meeting. Shareholders will need to show valid identification and
proof of share ownership to be admitted to the Meeting or to inspect the list of
shareholders.
Under the By-Laws of the Fund, a quorum is constituted by the presence
in person or by proxy of the holders of thirty-three and one-third percent
(33-1/3%) of the voting power of the outstanding shares entitled to vote on a
matter. For the purposes of establishing whether a quorum is present, all shares
present and entitled to vote, including abstentions and broker non-votes (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter), shall be counted. Any meeting of shareholders may be postponed prior to
the meeting with notice to the shareholders entitled to vote at that meeting.
Any meeting of shareholders may, by action of the chairman of the meeting, be
adjourned to permit further solicitation of proxies without further notice with
respect to one or more matters to be considered at such meeting to a designated
time and place, whether or not a quorum is present with respect to such matter.
In addition, upon motion of the chairman of the meeting, the question of
adjournment may be submitted to a vote of the shareholders, and in that case,
any adjournment with respect to one or more matters must be approved by the vote
of holders of a majority of the shares present and entitled to vote with respect
to the matter or matters adjourned, and without further notice. Unless a proxy
is otherwise limited in this regard, any shares present and entitled to vote at
a meeting including broker non-votes, may, at the discretion of the proxies
named therein, be voted in favor of such an adjournment or adjournments.
The close of business on ____________, 2007 has been fixed as the
record date (the "Record Date") for the determination of shareholders entitled
to notice of and to vote at the Meeting and any adjournments or postponements
thereof.
The Fund has one class of shares of beneficial interest, par value
$0.01 per share, known as common shares ("Shares"). On the Record Date, the Fund
had ____ Shares outstanding. Shares of the Fund are listed on the New York Stock
Exchange under the ticker symbol "FGB."
The vote of a majority of the outstanding voting securities will be
required for the approval of the new investment sub-advisory agreement for the
Fund. The "vote of a majority of the outstanding voting securities" is defined
in the Investment Company Act of 1940, as amended (together with the rules and
regulations thereunder, the "1940 Act"), as the vote of the lesser of (i) 67% or
more of the shares of the Fund present at the Meeting if the holders of more
than 50% of the outstanding shares of the Fund are present in person or
represented by proxy; or (ii) more than 50% of the outstanding shares of the
Fund. Abstentions and broker non-votes will have the effect of a vote against
the proposal. Shareholders of record on the Record Date are entitled to one vote
for each Share the shareholder owns and a proportionate fractional vote for any
fraction of a Share the shareholder owns.
In order that your Shares may be represented at the Meeting, you
are requested to:
o indicate your instructions on the proxy card;
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o date and sign the proxy card;
o mail the proxy card promptly in the enclosed envelope which
requires no postage if mailed in the continental United States; and
o allow sufficient time for the proxy card to be received BY 5:00
P.M. EASTERN TIME, on Tuesday, January 22, 2008. (However, proxies
received after this date may still be voted in the event the
Meeting is adjourned or postponed to a later date.)
-3-
PROPOSAL 1: APPROVAL OF A NEW INVESTMENT SUB-ADVISORY AGREEMENT FOR THE FUND
As described below, the Fund's original investment sub-advisory
agreement among the Fund, the Adviser and Gallatin (the "Original Sub-Advisory
Agreement") automatically terminated on October 1, 2007. In anticipation of the
termination of the Original Sub-Advisory Agreement, on September 21, 2007, the
Board approved, subject to shareholder approval, a new investment sub-advisory
agreement among the Fund, the Adviser and Gallatin (the "New Sub-Advisory
Agreement"). In addition, as permitted by the 1940 Act, on September 21, 2007,
to avoid a disruption in the provision of sub-advisory services to the Fund, the
Board of Trustees of the Fund, including a majority of the Trustees who are not
"interested persons" of the Fund as that term is defined in the 1940 Act (such
Trustees, the "Independent Trustees"), approved an interim investment
sub-advisory agreement among the Fund, the Adviser and Gallatin (the "Interim
Sub-Advisory Agreement"), which is currently in effect and will continue to be
in effect for 150 days after the closing of the transaction described below or
until shareholders approve the New Sub-Advisory Agreement, whichever occurs
first (unless terminated sooner in accordance with its terms). The Board
recommends that shareholders approve the New Sub-Advisory Agreement.
BACKGROUND AND REASON FOR VOTE
On May 24, 2007, the Fund entered into the Original Sub-Advisory
Agreement with the Adviser and Gallatin, which was then a wholly-owned
subsidiary of A.G. Edwards, Inc. ("A.G. Edwards"). On May 31, 2007, A.G. Edwards
and Wachovia Corporation ("Wachovia Corp.") announced that they had agreed that
Wachovia Corp. would acquire A.G. Edwards, and that A.G. Edwards & Sons, Inc.
(another wholly-owned subsidiary of A.G. Edwards) would be combined with
Wachovia Securities, LLC ("Wachovia Securities"), a subsidiary of Wachovia Corp.
(the "Transaction"). As described in the proxy statement-prospectus dated August
28, 2007 which was mailed to shareholders of A.G. Edwards in late August, 2007
(the "Transaction Proxy Statement-Prospectus"), the Transaction was to be
effected pursuant to an Agreement and Plan of Merger among Wachovia Corp., White
Bird Holdings, Inc. ("White Bird"), a wholly-owned subsidiary of Wachovia Corp.
that was formed for purposes of effecting the Transaction, and A.G. Edwards (the
"Transaction Agreement"). More specifically, as described in the Transaction
Proxy Statement-Prospectus, under the Transaction Agreement, Wachovia Corp. was
to acquire A.G. Edwards by merging A.G. Edwards with and into White Bird.
Following the Transaction, White Bird would continue to be a subsidiary of
Wachovia Corp., and Wachovia Corp. would combine the retail securities
businesses of A.G. Edwards & Sons, Inc. with Wachovia Corp's retail securities
brokerage businesses under the name "Wachovia Securities."
On September 28, 2007, A.G. Edwards announced that its shareholders had
approved the Transaction Agreement. On October 1, 2007, Wachovia Corp. announced
that it had completed its acquisition of A.G. Edwards and indicated that the
merger integration process was scheduled to be completed in early 2009. Although
as of the date of this Proxy Statement the strategic plan for Gallatin in
connection with the Transaction is in development, it is anticipated that
Gallatin will become an operating unit of Evergreen Investments, the investment
management division of Wachovia Corp. In addition, it is anticipated that the
key personnel at Gallatin supporting the Fund will remain with the firm.
Evergreen Investments, a family of affiliated investment advisers, is a leading
asset management firm with over 70 years of experience serving institutional and
individual investors through a broad range of investment products. As of June
30, 2007, Evergreen Investments managed [approximately] $281.5 billion in
assets.
-4-
The consummation of the Transaction resulted in a change of control of
the Sub-Adviser, which constituted an "assignment" of the Original Sub-Advisory
Agreement, as that term is used in the 1940 Act. Pursuant to the terms of the
Original Sub-Advisory Agreement and the requirements of the 1940 Act, the
Original Sub-Advisory Agreement automatically terminated upon its assignment on
October 1, 2007. At a meeting of the Board held on September 21, 2007, the
Board, after careful consideration (see "BOARD CONSIDERATIONS" below),
determined that following the Transaction, it was in the best interests of the
Fund for Gallatin to continue to act as sub-adviser to the Fund. Accordingly, as
permitted under the 1940 Act, the Board approved the Interim Sub-Advisory
Agreement to ensure the continuation of investment advisory services to the Fund
upon the termination of the Original Sub-Advisory Agreement. The Interim
Sub-Advisory Agreement has been in effect since October 1, 2007 and, pursuant to
Rule 15a-4 under the 1940 Act, will be in effect no longer than through February
28, 2008 (i.e., 150 days after the termination of the Original Sub-Advisory
Agreement) (see "THE INTERIM SUB-ADVISORY AGREEMENT" below). In addition, at its
meeting on September 21, 2007, the Board approved, subject to shareholder
approval, the New Sub-Advisory Agreement among the Fund, the Adviser and
Gallatin. To permit Gallatin to continue to serve as the Fund's sub-adviser
after the expiration of the Interim Sub-Advisory Agreement, shareholders of the
Fund are being asked to approve the New Sub-Advisory Agreement. The terms of the
New Sub-Advisory Agreement are substantially identical to the terms of the
Original Sub-Advisory Agreement except for the effective date and the initial
term (as described below under "COMPARISON OF THE NEW SUB-ADVISORY AGREEMENT AND
ORIGINAL SUB-ADVISORY AGREEMENT -- Continuance").
THE SUB-ADVISER, A.G. EDWARDS, INC. AND WACHOVIA CORP.
General and Organizational Information
Gallatin, a Delaware corporation and registered investment adviser, was
organized in 2005. It provides asset management services to high net worth
individuals and institutional investors. As of August 31, 2007, Gallatin had
approximately $10.2 billion of assets under management. Of these, approximately
$_______ billion were managed in equity and investment grade fixed income
portfolios. Gallatin also manages approximately $_______ billion in portfolios
of selected exchange-traded funds ("ETFs") that are guided by proprietary asset
allocation models. These models are driven by the firm's analysis of cyclical
changes within the economy and financial markets combined with quantitative
modeling.
The names, addresses and principal occupations of the persons who are
currently directors and/or principal executive officers of Gallatin are set
forth below :
[TO COME]
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NAME ADDRESS POSITION(S) WITH GALLATIN AND
PRINCIPAL OCCUPATION
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----------------------- ------------------------ ------------------------------
----------------------- ------------------------ ------------------------------
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----------------------- ------------------------ ------------------------------
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-5-
As described above, prior to the consummation of the Transaction,
Gallatin was a wholly-owned subsidiary of A.G. Edwards. As a result of the
Transaction, the separate corporate existence of A.G. Edwards terminated by
merger into a wholly-owned subsidiary of Wachovia Corp. which was renamed A.G.
Edwards, Inc. ("New A.G. Edwards"). Gallatin is now a wholly-owned subsidiary of
New A.G. Edwards. The address of New A.G. Edwards and Wachovia Corp. is One
Wachovia Center, Charlotte, North Carolina 28288. Wachovia Corp. is one of the
nation's largest diversified financial services companies, with assets of $719.9
billion and market capitalization of $97.5 billion at June 30, 2007. Wachovia
Corp. provides a broad range of retail banking and brokerage, asset and wealth
management, and corporate and investment banking products and services. Wachovia
Corp. has 3,400 retail financial centers in 21 states and nationwide retail
brokerage, mortgage lending and auto finance businesses. Globally, clients are
served in selected corporate and institutional sectors and through more than 40
international offices. Wachovia Corp.'s retail brokerage operations manage more
than $1 trillion in client assets.
[There are currently no officers or trustees of the Fund who are also
officers, employees or directors of, or owners of an interest in, Gallatin or
its parents or subsidiaries. No officers or trustees of the Fund have had any
material interest, direct or indirect, in any material transactions since the
inception of the Fund, or in any material proposed transactions, to which
Gallatin or any of its parents or subsidiaries were or are to be a party. Since
the inception of the Fund, no officer or trustee of the Fund has purchased or
sold any interest in Gallatin or in any of its parents or subsidiaries.]
Portfolio Manager Information
Since the Fund's inception in May 2007, the portfolio managers
identified below have been responsible for the day-to-day management of the
Fund's portfolio. It is expected that they will continue to act as the Fund's
portfolio managers if shareholders approve the New Sub-Advisory Agreement.
Mark A. Keller. Mark Keller serves as Vice President and Chief
Investment Officer of Gallatin. Beginning in 1994, Mr. Keller led the Asset
Management program for A.G. Edwards and its affiliates and continues in this
capacity now as part of Gallatin. Prior to 1994, he served for 15 years in A.G.
Edwards' Securities Research Department ("Securities Research") as an analyst
covering a variety of industries. During his last five years in Securities
Research, Mr. Keller served as equity strategist and manager of the firm's Focus
List.
David B. Miyazaki. David Miyazaki, a Vice President of Gallatin, serves
as a portfolio manager for Gallatin where he manages equity portfolios with a
value discipline. Prior to joining A.G. Edwards in 1999, Mr. Miyazaki managed a
short-term interest rate arbitrage portfolio while at Koch Industries from 1996
to 1999. He worked as an analyst for Prudential Capital's private placement
group from 1993 to 1996 and traded mortgage-backed securities for a boutique
firm in Dallas, Texas, from 1991 to 1993.
Daniel T. Winter. Daniel Winter, a Vice President of Gallatin, serves
as a portfolio manager for Gallatin where he manages equity portfolios with a
value discipline. He previously served A.G. Edwards and its affiliates in an
equity portfolio manager capacity beginning in 1992, first for A.G. Edwards
Trust Co., then with A.G. Edwards Asset Management Department (the "Asset
Management Department"), and continues in this capacity now as part of Gallatin.
During his tenure with A.G. Edwards Trust Co., Mr. Winter specialized in the
management of a variety of portfolios, including charitable remainder trusts,
-6-
foundations, endowments, employee benefits, and rabbi and personal trusts; in
1996 he formally joined the Asset Management Department. He also directs the
daily trading for the equity portfolios.
Funds Currently Advised by Gallatin with a Similar Investment Objective
[To come if applicable]
THE ORIGINAL SUB-ADVISORY AGREEMENT
The Original Sub-Advisory Agreement dated May 24, 2007, was originally
approved by the Board of Trustees, including a majority of the Independent
Trustees, on April 16, 2007 and by the initial shareholder of the Fund on May
17, 2007. The Original Sub-Advisory Agreement provided for its automatic
termination in the event of an "assignment," as defined in the 1940 Act. A
change in ownership and control of the Sub-Adviser therefore terminated the
Original Sub-Advisory Agreement on October 1, 2007.
THE INTERIM SUB-ADVISORY AGREEMENT
The terms of the Interim Sub-Advisory Agreement are substantially
similar to those of the Original Sub-Advisory Agreement and the New Sub-Advisory
Agreement except with respect to effective date, termination and compensation.
The Interim Sub-Advisory Agreement is currently in effect and will
continue to be in effect through February 28, 2008 (i.e., 150 days after the
closing of the Transaction) or until shareholders of the Fund approve the New
Sub-Advisory Agreement, whichever occurs first (unless terminated sooner in
accordance with its terms). If shareholders of the Fund do not approve the New
Sub-Advisory Agreement by February 28, 2008, the Interim Sub-Advisory Agreement
will remain in effect until that date, and the Board will take such action as it
deems to be in the best interests of the Fund, which might include seeking
approval of a new sub-advisory agreement or taking any other steps deemed
appropriate by the Board. In addition, the Interim Sub-Advisory Agreement may be
terminated by the Fund by action of the Board or by a vote of the outstanding
voting securities of the Fund upon 10 calendar days' written notice.
The rate of compensation paid to Gallatin is the same under the
Original Sub-Advisory Agreement, the Interim Sub-Advisory Agreement and the New
Sub-Advisory Agreement. However, the compensation accrued under the Interim
Sub-Advisory Agreement is to be held in an interest-bearing escrow account with
the Fund's custodian or another bank mutually agreeable to the Adviser, the Fund
and Gallatin. If the New Sub-Advisory Agreement is approved by shareholders by
February 28, 2008, the amount in the escrow account (including the interest
earned) will be paid to Gallatin. However, if shareholders do not approve the
New Sub-Advisory Agreement by such date, Gallatin will be paid, out of the
escrow account, the lesser of (i) any costs incurred by Gallatin in performing
services under the Interim Sub-Advisory Agreement (plus interest earned on that
amount while in escrow); or (ii) the total amount in the escrow account (plus
interest earned).
-7-
COMPARISON OF THE NEW SUB-ADVISORY AGREEMENT AND ORIGINAL SUB-ADVISORY AGREEMENT
The terms of the Fund's New Sub-Advisory Agreement, including fees
payable to the Sub-Adviser by the Adviser thereunder, are substantially
identical to those of the Fund's Original Sub-Advisory Agreement, except for the
effective date and the differences noted below under "Continuance."
Below is a brief comparison of certain terms of the Original
Sub-Advisory Agreement to the corresponding terms of the New Sub-Advisory
Agreement. For a more complete understanding of the New Sub-Advisory Agreement,
please refer to the form of the New Sub-Advisory Agreement provided in Appendix
A hereto.
Advisory Services. The advisory services to be provided by the
Sub-Adviser to the Fund under the New Sub-Advisory Agreement will be identical
to those advisory services provided by the Sub-Adviser to the Fund under the
Original Sub-Advisory Agreement. Both the Original Sub-Advisory Agreement and
the New Sub-Advisory Agreement provide that the Sub-Adviser will 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 subject to the supervision of the
Fund's Board and the Adviser. As was the case under the Original Sub-Advisory
Agreement, under the New Sub-Advisory Agreement, the Sub-Adviser is required to
monitor the Fund's investments and to comply with the provisions of the Fund's
Declaration of Trust and By-Laws and the stated investment objectives, policies
and restrictions of the Fund. It is not anticipated that the Transaction will
have any adverse effect on the performance of the Sub-Adviser's obligations
under the New Sub-Advisory Agreement, but the Fund will be subject to
substantial restrictions with respect to its ability to engage in agency and
principal transactions with Wachovia Corp. and its affiliates.
Brokerage. As was the case under the Original Sub-Advisory Agreement,
the New Sub-Advisory Agreement authorizes the Sub-Adviser to select the brokers
or dealers that will execute the purchases and sales of portfolio investments
for the Fund, and directs the Sub-Adviser 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.
Fees. As was the case under the Original Sub-Advisory Agreement, under
the New Sub-Advisory Agreement, the Adviser pays the Sub-Adviser a portfolio
management fee on a monthly basis. Both the Original Sub-Advisory Agreement and
the New Sub-Advisory Agreement provide that for services provided and expenses
assumed, the Adviser will pay the Sub-Adviser a fee equal to the annual rate of
0.50% of the Fund's "Managed Assets." The term "Managed Assets" means the
average daily gross asset value of the Fund (including assets attributable to
the Fund's preferred shares, if any, and the principal amount of borrowings, if
any), minus the sum of the Fund's accrued and unpaid dividends on any
outstanding preferred shares and accrued liabilities (other than the principal
amount of any borrowings incurred, commercial paper or notes issued by the
Fund). For purposes of determining Managed Assets, the liquidation preference of
any outstanding preferred shares of the Fund is not treated as a liability. In
addition, under both the Original Sub-Advisory Agreement and the New
Sub-Advisory Agreement, the Sub-Adviser agrees to pay one-half of certain
organizational costs and offering costs.
The first fiscal year of the Fund ended on November 30, 2007. As of
September 30, 2007, the aggregate fees paid to Gallatin under the Original
Sub-Advisory Agreement were $424,765.
-8-
Payment of Expenses. As was the case under the Original Sub-Advisory
Agreement, under the New Sub-Advisory Agreement, the Sub-Adviser agrees to pay
all expenses it incurs in connection with its activities under such Agreement
other than the cost of securities and other assets (including brokerage
commissions, if any) purchased for the Fund.
Limitation on Liability. As was the case under the Original
Sub-Advisory Agreement, the New Sub-Advisory Agreement provides that the
Sub-Adviser will not be liable for, and the Fund and the Adviser 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
Adviser in connection with the performance of the Sub-Adviser's duties under the
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 such Agreement, or by reason of its reckless disregard of its obligations
and duties under such Agreement.
Continuance. The Original Sub-Advisory Agreement was originally in
effect for an initial term of two years and could be continued thereafter for
successive one-year periods if such continuance was specifically approved at
least annually in the manner required by the 1940 Act. If the shareholders of
the Fund approve the New Sub-Advisory Agreement, the New Sub-Advisory Agreement
will expire on June 30, 2009, unless continued. Thereafter, the New Sub-Advisory
Agreement may be continued for successive one-year periods if such continuance
is specifically approved at least annually in the manner required by the 1940
Act.
Termination. As was the case under the Original Sub-Advisory Agreement,
the New Sub-Advisory Agreement provides for termination at any time without the
payment of any penalty by the Adviser or the Sub-Adviser upon 60 days' written
notice to the other parties, and also provides for termination by the Fund by
action of the Board or by a vote of a majority of the outstanding voting
securities of the Fund upon 60 days' written notice to the Sub-Adviser without
the payment of any penalty.
In addition, the Original Sub-Advisory Agreement was, and the
New Sub-Advisory Agreement is, terminable at any time without the payment
of any penalty by the Adviser, by the Board or by vote of a majority of
the outstanding voting securities of the Fund in the event that it is
established by a court of competent jurisdiction that the Sub-Adviser or
any of its officers or directors has taken any action that results in a
breach of the material covenants of the Sub-Adviser set forth in the
Agreement.
BOARD CONSIDERATIONS
The Board, including a majority of the Independent Trustees,
approved the Interim Sub-Advisory Agreement and the New Sub-Advisory
Agreement (collectively, the "Agreements") at a meeting held on September
21, 2007. The Board determined that the terms of the Agreements are fair
and reasonable and in the best interests of the Fund. Based on
information provided by First Trust Advisors and Gallatin, the Board
concluded that it believes that the scope and quality of services to be
provided to the Fund under the Agreements will be at least equivalent to
the scope and quality of services provided under the Original
Sub-Advisory Agreement.
In late May 2007, shortly after the launch of the Fund, the Board was
informed that A.G. Edwards, Inc., the parent company of Gallatin, had entered
into the Transaction Agreement with Wachovia Corp. and that, if the Transaction
was consummated, the Original Sub-Advisory Agreement would terminate pursuant to
-9-
its terms and the requirements of the 1940 Act. On June 13, 2007, counsel to the
Independent Trustees forwarded to Gallatin a request for information regarding
the Transaction. In late August 2007, the Board was informed that the
Transaction was expected to close on October 1, 2007. In light of the expected
consummation of the Transaction, the Board held a special meeting on September
21, 2007, to consider the information provided by Gallatin in response to the
Independent Trustees' request for information and to consider the approval of
the Agreements. As part of its considerations, the Board reviewed information
regarding: the structure of the Transaction, the organizational structure of
Wachovia Corp., the strategic plan for Gallatin following the Transaction,
benefits to Wachovia Corp. from the Transaction, conflicts of interests arising
in connection with the Transaction and regulatory issues relating to Wachovia
Corp. and its affiliates. The Board also met on several occasions, prior to
September 21, 2007, with representatives of First Trust Advisors to discuss the
Transaction. Throughout the entire process, the Independent Trustees were
advised by their independent legal counsel.
To reach its determination, the Board considered its duties under the
1940 Act, as well as under the general principles of state law in reviewing and
approving advisory contracts; the requirements of the 1940 Act in such matters;
the fiduciary duty of investment advisers with respect to advisory agreements
and compensation; the standards used by courts in determining whether investment
company boards have fulfilled their duties; and the factors to be considered by
the Board in voting on such agreements. In connection with its deliberations
regarding the Agreements, the Board noted First Trust Advisors' representation
that apart from their effective and termination dates and any provisions of the
Interim Sub-Advisory Agreement required by Rule 15a-4 under the 1940 Act, the
Agreements were the same in all material respects as the Original Sub-Advisory
Agreement. The Board considered that it had recently considered Gallatin's
capabilities and the terms of the Original Sub-Advisory Agreement at a meeting
held on April 16, 2007. Because the Board determined that any differences
between the Original Sub-Advisory Agreement and the Agreements were immaterial,
the Board determined that much of its previous analysis in approving the
Original Sub-Advisory Agreement applied to its review and consideration of the
Agreements. Accordingly, the Board took note of such prior analysis and
supplemented it with the additional considerations noted below.
In reviewing the Agreements, the Board considered the nature, quality
and extent of services to be provided by Gallatin under the Agreements. The
Board noted the background and experience of Gallatin's portfolio managers and
Gallatin's investment style. The Board considered that the Fund's portfolio
managers were expected to remain the same following the Transaction and that no
changes to the services provided by Gallatin to the Fund were expected as a
result of the Transaction. Due to the limited operating history of the Fund and
the volatility of the markets since the Fund's launch, the Board did not give
extensive consideration to the investment performance of the Fund. In light of
the information presented and the considerations made, the Board concluded that
the nature, quality and extent of services to be provided to the Fund by
Gallatin under the Agreements are expected to be satisfactory.
The Board considered the sub-advisory fees to be paid under the
Agreements, noting that they would be the same as the fees paid under the
Original Sub-Advisory Agreement. The Board also considered how the sub-advisory
fee relates to the overall management fee structure of the Fund, noting that the
sub-advisory fee is paid by the Adviser from its advisory fee. The Board
reviewed its prior consideration of the fees that Gallatin charges to other
clients for a similar investment strategy, noting that such fees are higher than
the Fund's sub-advisory fee. The Board concluded that the sub-advisory fees were
-10-
reasonable and appropriate in light of the nature, quality and extent of
services expected to be provided by Gallatin under the Agreements.
The Board considered that Gallatin was unable to estimate the
profitability of the Agreements to Gallatin, but the Board noted that the
sub-advisory fee rate was negotiated at arm's length between the Adviser and
Gallatin, and that Gallatin would be paid by the Adviser. The Board noted its
previous determination that the overall management fee structure reflects an
appropriate level of sharing of any economies of scale. The Board also
considered the fall-out benefits expected to be realized by Gallatin and
Wachovia Corp. from Gallatin's relationship with the Fund. The Board considered
that Wachovia Corp. would benefit to the extent that the Fund executes portfolio
securities transactions with affiliates of Wachovia Corp., but that the Fund
will be subject to substantial restrictions with respect to its ability to
engage in investment transactions with Wachovia Corp. or its affiliates. The
Board noted that Gallatin does not utilize soft dollars in connection with its
management of the Fund's portfolio. The Board considered that the Fund would not
bear any costs associated with soliciting shareholder approval of the New
Sub-Advisory Agreement and that such costs would be borne by Wachovia Corp. or
its affiliates.
Based on all of the information considered and the conclusions reached,
the Board, including a majority of the Independent Trustees, determined that the
terms of the Agreements are fair and reasonable and that the approval of the
Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
SHAREHOLDER APPROVAL AND REQUIRED VOTE
To become effective, the New Sub-Advisory Agreement must be approved by
a vote of a majority of the outstanding voting securities of the Fund. The "vote
of a majority of the outstanding voting securities" is defined in the 1940 Act
as the vote of the lesser of (i) 67% or more of the Shares of the Fund present
at the Meeting if the holders of more than 50% of the outstanding Shares of the
Fund are present in person or represented by proxy; or (ii) more than 50% of the
outstanding Shares of the Fund. For purposes of determining the approval of the
New Sub-Advisory Agreement, abstentions and broker non-votes will have the
effect of a vote against the proposal.
THE BOARD OF TRUSTEES OF THE FUND RECOMMENDS THAT SHAREHOLDERS VOTE FOR
PROPOSAL 1. IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING PROPOSAL
1 OR HOW TO VOTE YOUR SHARES, CALL YOUR FUND'S PROXY SOLICITOR, THE ALTMAN
GROUP, AT (866) 406-2283 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
-11-
ADDITIONAL INFORMATION
INFORMATION ABOUT THE ADVISER
First Trust Advisors L.P., 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, serves as the Fund's investment adviser.
INFORMATION ABOUT THE ADMINISTRATOR
PFPC acts as the Fund's administrator and accounting agent and is
located at 4400 Computer Drive, Westborough, Massachusetts 01581. PFPC is a
leading provider of full service mutual fund shareholder and record keeping
services. In addition to its mutual fund transfer agent and record keeping
service, PFPC provides other services through its own subsidiary business units.
BENEFICIAL OWNERSHIP
As of November 1, 2007, the Trustees of the Fund beneficially owned the
following number of Shares of the Fund:
-------------------------------------- ----------------------------------------
TRUSTEE SHARES OWNED
-------------------------------------- ----------------------------------------
INTERESTED TRUSTEE
-------------------------------------- ----------------------------------------
James A. Bowen 0
-------------------------------------- ----------------------------------------
INDEPENDENT TRUSTEES
-------------------------------------- ----------------------------------------
Richard E. Erickson 0
-------------------------------------- ----------------------------------------
Thomas R. Kadlec 0
-------------------------------------- ----------------------------------------
Robert F. Keith 0
-------------------------------------- ----------------------------------------
Niel B. Nielson 0
-------------------------------------- ----------------------------------------
As of November 1, 2007, the Trustees and officers as a group
beneficially owned none of the Shares of the Fund.
To the knowledge of the Fund, as of November 1, 2007, no single
shareholder or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934 (the "1934 Act")) beneficially owned more than 5% of the
Fund's outstanding Shares. Information as to beneficial ownership is based
solely on reports filed with the Securities and Exchange Commission by holders.
SHAREHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Shareholders
of the Fund to be held in 2008, a shareholder proposal submitted pursuant to
Rule 14a-8 of the 1934 Act must be received at the offices of the Fund at 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532, a reasonable time before the
Fund begins to print and mail its proxy materials.
Under the Fund's By-Laws, any proposals by shareholders may only be
brought before an annual meeting of the Fund if timely written notice (the
"Shareholder Notice") is provided to the Secretary of the Fund. In accordance
-12-
with the advance notice provisions included in the Fund's By-Laws, unless a
greater or lesser period is required under applicable law, to be timely, the
Shareholder Notice must be delivered to or mailed and received at the Fund's
address, 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532, Attn: W. Scott
Jardine, not less than forty-five (45) days nor more than sixty (60) days prior
to the first anniversary date of the date of the proxy statement released to
shareholders for the preceding year's annual meeting. However, if and only if
the annual meeting is not scheduled to be held within a period that commences
thirty (30) days before the first anniversary date of the annual meeting for the
preceding year and ends thirty (30) days after such anniversary date (an annual
meeting date outside such period being referred to herein as an "Other Annual
Meeting Date"), such Shareholder Notice must be given as described above by the
later of the close of business on (i) the date forty-five (45) days prior to
such Other Annual Meeting Date or (ii) the tenth (10th) business day following
the date such Other Annual Meeting Date is first publicly announced or
disclosed.
The Fund has not yet held its first annual meeting of shareholders.
Timely submission of a proposal does not mean that such proposal will
be included in a proxy statement.
SHAREHOLDER COMMUNICATIONS
Shareholders of the Fund who want to communicate with the Board of
Trustees or any individual Trustee should write the Fund to the attention of the
Fund Secretary, W. Scott Jardine. The letter should indicate that you are a Fund
shareholder. If the communication is intended for a specific Trustee and so
indicates, it will be sent only to that Trustee. If a communication does not
indicate a specific Trustee it will be sent to the chair of the Nominating and
Governance Committee of the Board and the outside counsel to the Independent
Trustees for further distribution as deemed appropriate by such persons.
FISCAL YEAR
The fiscal year end for the Fund is November 30.
ANNUAL REPORT DELIVERY
Annual reports will be sent to shareholders of record of the Fund. The
Fund will furnish, without charge, a copy of its annual report and/or
semi-annual report as available upon request. Such written or oral requests
should be directed to the Fund at 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532 or by calling (800) 988-5891.
Please note that only one annual or semi-annual report or proxy
statement may be delivered to two or more shareholders of the Fund who share an
address, unless the Fund has received instructions to the contrary. To request a
separate copy of an annual or semi-annual report or proxy statement, or for
instructions as to how to request a separate copy of such documents or as to how
to request a single copy if multiple copies of such documents are received,
shareholders should contact the Fund at the address and phone number set forth
above. Pursuant to a request, a separate copy will be delivered promptly.
-13-
OTHER MATTERS TO COME BEFORE THE MEETING
No business other than the matters described above is expected
to come before the Meeting, but should any other matter requiring a vote
of shareholders arise, including any question as to an adjournment or
postponement of the Meeting, the persons named on the enclosed proxy card
will vote thereon according to their best judgment in the interests of
the Fund.
_______________, 2007
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
-------------------------------------------------------------------------------
IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE PROPOSAL
FOR THE FUND OR HOW TO VOTE YOUR SHARES, CALL YOUR FUND'S PROXY
SOLICITOR, THE ALTMAN GROUP, AT (866) 406-2283 WEEKDAYS FROM 9:00 A.M. TO
10:00 P.M. EASTERN TIME.
-------------------------------------------------------------------------------
-14-
APPENDIX A
FORM OF NEW INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this ____ day of ___________, 2008 by and among
First Trust/Gallatin Specialty Finance and Financial Opportunities Fund, a
Massachusetts business trust (the "Fund"), First Trust Advisors L.P., an
Illinois limited partnership (the "Manager") and a registered investment adviser
with the Securities and Exchange Commission ("SEC"), and Gallatin Asset
Management, Inc., a Delaware Corporation 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. 333-141457) as declared effective by the SEC, and as the same may
thereafter be amended from time to time. In the performance of its duties, the
Sub-Adviser will in all material respects (a) satisfy any applicable fiduciary
duties it may have to the Fund, (b) monitor the Fund's investments, 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
A-1
provided the Sub-Adviser with current copies of the Fund's Declaration of Trust,
By-laws, prospectus, statement of additional information and any amendments
thereto, and any objectives, policies or limitations not appearing therein as
they may be relevant to the Sub-Adviser's performance under this Agreement.
The Sub-Adviser is authorized to select the brokers or dealers that
will execute the purchases and sales of portfolio investments for the Fund, and
is directed to use its commercially reasonable efforts to obtain best execution,
which includes most favorable net results and execution of the Fund's orders,
taking into account all appropriate factors, including price, dealer spread or
commission, size and difficulty of the transaction and research or other
services provided. Subject to approval by the Fund's Board of Trustees and
compliance with the policies and procedures adopted by the Board of Trustees for
the Fund and to the extent permitted by and in conformance with applicable law
(including Rule 17e-1 of the 1940 Act), the Sub-Adviser may select brokers or
dealers affiliated with the Sub-Adviser. It is understood that the Sub-Adviser
will not be deemed to have acted unlawfully, or to have breached a fiduciary
duty to the Fund, or be in breach of any obligation owing to the Fund under this
Agreement, or otherwise, solely by reason of its having caused the Fund to pay a
member of a securities exchange, a broker or a dealer a commission for effecting
a securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Sub-Adviser determined in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Sub-Adviser's
overall responsibilities with respect to its accounts, including the Fund, as to
which it exercises investment discretion.
In addition, the Sub-Adviser may, to the extent permitted by applicable
law, aggregate purchase and sale orders of securities placed with respect to the
assets of the Fund with similar orders being made simultaneously for other
accounts managed by the Sub-Adviser or its affiliates, if in the Sub-Adviser's
reasonable judgment such aggregation shall result in an overall economic benefit
to the Fund, taking into consideration the selling or purchase price, brokerage
commissions and other expenses. In the event that a purchase or sale of an asset
of the Fund occurs as part of any aggregate sale or purchase orders, the
objective of the Sub-Adviser and any of its affiliates involved in such
transaction shall be to allocate the securities so purchased or sold, as well as
expenses incurred in the transaction, among the Fund and other accounts in a
fair and equitable manner. Nevertheless, the Fund and the Manager acknowledge
that under some circumstances, such allocation may adversely affect the Fund
with respect to the price or size of the securities positions obtainable or
salable, and neither the Fund nor the Manager shall object to any such fair and
equitable allocation. Whenever the Fund and one or more other investment
advisory clients of the Sub-Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in a manner
believed by the Sub-Adviser to be equitable to each, although such allocation
may result in a delay in one or more client accounts being fully invested that
would not occur if such an allocation were not made. Moreover, it is possible
that due to differing investment objectives or for other reasons, the
Sub-Adviser and its affiliates may purchase securities of an issuer for one
client and at approximately the same time recommend selling or sell the same or
similar types of securities for another client.
The Sub-Adviser will not arrange purchases or sales of securities
between the Fund and other accounts advised by the Sub-Adviser or its affiliates
unless (a) such purchases or sales are in accordance with applicable law
(including Rule 17a-7 of the 1940 Act) and the Fund's policies and procedures,
(b) the Sub-Adviser reasonably believes the purchase or sale is in the best
interests of the Fund, and (c) the Fund's Board of Trustees has approved these
types of transactions.
A-2
The Fund may adopt policies and procedures that modify or
restrict the Sub-Adviser's authority regarding the execution of the
Fund's portfolio transactions provided herein. However, no such policy or
procedure shall be binding on the Sub-Adviser unless it is communicated
to the Sub-Adviser in writing.
The Sub-Adviser will communicate to the officers and Trustees of the
Fund such information relating to transactions for the Fund as they may
reasonably request. In no instance will the Fund's portfolio securities be
knowingly purchased from or sold to the Manager, the Sub-Adviser or any
affiliated person of either the Fund, the Manager, or the Sub-Adviser, except as
may be permitted under the 1940 Act.
The Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in providing
such services as it uses in providing services to other accounts for
which it has investment responsibilities under the Investment Advisers
Act of 1940;
(b) will (i) conform in all material respects to all
applicable rules and regulations of the SEC, (ii) comply in all
material respects with all policies and procedures adopted by the Board
of Trustees for the Fund and communicated to the Sub-Adviser in writing
and (iii) conduct its activities under this Agreement in all material
respects in accordance with any applicable law and regulations of any
governmental authority pertaining to its investment advisory
activities;
(c) will report to the Manager and to the Board of Trustees
of the Fund on a quarterly basis and will make appropriate persons
available for the purpose of reviewing with representatives of the
Manager and the Board of Trustees on a regular basis at such times as
the Manager or the Board of Trustees may reasonably request in writing
regarding the management of the Fund, including, without limitation,
review of the general investment strategies of the Fund, the
performance of the Fund's investment portfolio in relation to relevant
standard industry indices and general conditions affecting the
marketplace and will provide various other reports from time to time as
reasonably requested by the Manager or the Board of Trustees of the
Fund; and
(d) will prepare and maintain such books and records with
respect to the Fund's securities and other transactions for the Fund's
investment portfolio as required for registered investment advisers
under applicable law or as otherwise reasonably agreed to by the
parties and will prepare and furnish the Manager and the Fund's Board
of Trustees such periodic and special reports as the Board or the
Manager may reasonably request. The Sub-Adviser further agrees that all
records that it maintains for the Fund are the property of the Fund and
the Sub-Adviser will surrender promptly to the Fund any such records
upon the request of the Manager or the Fund (provided, however, that
the Sub-Adviser shall be permitted to retain copies thereof); and shall
be permitted to retain originals (with copies to the Fund) to the
extent required under Rule 204-2 of the Investment Advisers Act of 1940
or other applicable law.
3. Expenses. During the term of this Agreement, the Sub-Adviser will
pay all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities and other assets (including
brokerage commissions, if any) purchased for the Fund.
A-3
4. Additional Sub-Advisers. Subject to obtaining the initial and
periodic approvals required under Section 15 of the 1940 Act and the approval of
the Manager, the Sub-Adviser may retain one or more additional sub-advisers at
the Sub-Adviser's own cost and expense for the purpose of furnishing one or more
of the services described in Section 2 hereof with respect to the Fund.
Retention of a sub-adviser hereunder shall in no way reduce the responsibilities
or obligations of the Sub-Adviser under this Agreement and the Sub-Adviser shall
be responsible to the Fund for all acts or omissions of any sub-adviser in
connection with the performance of the Sub-Adviser's duties hereunder.
5. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a portfolio
management fee (the "Management Fee") equal to the annual rate of 0.50% of the
Fund's Managed Assets (as defined below), subject to paragraph 6 below. For
purposes of calculating the Management Fee, Managed Assets means the average
daily gross asset value of the Fund (including assets attributable to the Fund's
Preferred Shares (as such term is defined in the Fund's prospectus), if any, and
the principal amount of borrowings, if any), minus the sum of the Fund's accrued
and unpaid dividends on any outstanding Preferred Shares and accrued liabilities
(other than the principal amount of any borrowings incurred, commercial paper or
notes issued by the Fund). For purposes of determining Managed Assets, the
liquidation preference of any outstanding Preferred Shares of the Fund is not
treated as a liability. 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.
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. 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.
A-4
9. Term; Termination; Amendment. This Agreement shall become effective
on ____________, 2008 (the "Effective Date") provided that it has been approved
in the manner required by the 1940 Act, and shall remain in full force until
June 30, 2009 unless sooner terminated as hereinafter provided. This Agreement
shall continue in force from year to year thereafter, but only as long as such
continuance is specifically approved for the Fund at least annually in the
manner required by the 1940 Act and the rules and regulations thereunder;
provided, however, that if the continuation of this Agreement is not approved
for the Fund, the Sub-Adviser may continue to serve in such capacity for the
Fund in the manner and to the extent permitted by the 1940 Act and the rules and
regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager or the Sub-Adviser upon sixty (60) days' written notice to the
other parties. This Agreement may also be terminated by the Fund by action of
the Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the 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. Compliance Certification. From time to time the Sub-Adviser shall
provide such certifications with respect to Rule 38a-1 under the 1940 Act, as
are reasonably requested by the Fund or the Manager. In addition, the
Sub-Adviser will, from time to time, provide a written assessment of its
compliance program in conformity with current industry standards that is
reasonably acceptable to the Fund to enable the Fund to fulfill its obligations
under Rule 38a-1 under the 1940 Act.
11. 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.
A-5
If to the Manager or the Fund: If to the Sub-Adviser:
First Trust/Gallatin Specialty Finance and Gallatin Asset Management, Inc.
Financial Opportunities Fund One North Jefferson Avenue
First Trust Advisors L.P. St. Louis, Missouri 63103
1001 Warrenville Road, Suite 300 Attention: President
Lisle, Illinois 60532
Attention: General Counsel
12. 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 is not binding
upon any of the Trustees, officers or shareholders of the Fund individually but
the obligations imposed upon the Fund by this Agreement are binding only upon
the assets and property of the Fund, and persons dealing with the Fund must look
solely to the assets of the Fund for the enforcement of any claims.
13. 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.
14. Applicable Law. This Agreement shall be construed in accordance
with applicable federal law and (except as to Section 12 hereof, which shall be
construed in accordance with the laws of Massachusetts) the laws of the State of
Illinois.
15. 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.
16. 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.
17. 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.
18. Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties hereto with respect to the subject matter expressly set
forth herein.
A-6
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. GALLATIN ASSET MANAGEMENT, INC.
By________________________________________ By_______________________________
Title:_______________________________ Title:_______________________
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
By_______________________________________
Title:______________________________
A-7
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PROXY CARD
PLEASE FOLD ALONG THE PERFORMATION, DETACH AND RETURN THE
BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Proxy - FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
--------------------------------------------------------------------------------
PROXY SOLICITED BY THE BOARD OF TRUSTEES
SPECIAL MEETING ON JANUARY 23, 2008
The undersigned holder of shares of the First Trust/Gallatin Specialty Finance
and Financial Opportunities Fund (the "Fund"), a Massachusetts business trust,
hereby appoints W. Scott Jardine, Mark R. Bradley and Kristi A. Maher as
attorneys and proxies for the undersigned, with full powers of substitution and
revocation, to represent the undersigned and to vote on behalf of the
undersigned all shares of the Fund that the undersigned is entitled to vote at
the Special Meeting of Shareholders of the Fund (the "Meeting") to be held at
the offices of First Trust Advisors L.P., 1001 Warrenville Road, Suite 300,
Lisle, IL 60532, at 4:00 p.m. Central time on the date indicated above, and any
adjournment or adjournments thereof. The undersigned hereby acknowledges receipt
of the Notice of Special Meeting of Shareholders and the Proxy Statement dated
[--], and hereby instructs said attorneys and proxies to vote said shares as
indicated hereon. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Meeting. A majority of the
proxies present and acting at the Meeting in person or by substitute (or, if
only one shall be so present, then that one) shall have and may exercise all of
the power and authority of said proxies hereunder. The undersigned hereby
revokes any proxy previously given.
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
FIRST TRUST/GALLATIN SPECIALTY FINANCE AND FINANCIAL OPPORTUNITIES FUND
MR. A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6
Using a BLACK INK pen, mark your
votes with an X as shown in this
example. Please do not write
outside the designated areas. [X]
-----------------------------------------------------------------------------
Special Meeting Proxy Card
-----------------------------------------------------------------------------
PLEASE FOLD ALONG THE PERFORMATION, DETACH AND RETURN THE
BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
-----------------------------------------------------------------------------
A Proposal -- The Board of Trustees recommends a vote FOR Proposal 1
For Against Abstain
1. Approval of New Sub-Advisory Agreement [ ] [ ] [ ]
This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1.
B Non-Voting Items
Change of Address -- Please print new address below.
Comments -- Please print your comments below.
C Authorized Signatures -- This section must be completed for your vote
to be counted. -- Date and Sign Below
Please sign exactly as your name appears on this Proxy. If joint owners, EITHER
may sign this proxy. When signing as attorney, executor, administrator, trustee,
guardian or corporate officer, please give full title.
Date (mm/dd/yyyy) -- Please print date below.
____/____/____
Signature 1 -- Please keep signature within the box.
_______________________________________
Signature 2 -- Please keep signature with the box.
________________________________________
STOCK#