As filed with the Securities and Exchange Commission on May 9, 2008.
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1933 Act File No. 333-139549
1940 Act File No. 811-21994
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:
[ ] Preliminary proxy statement.
[ ] Confidential, for use of theCommission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
FIRST TRUST STRATEGIC HIGH INCOME FUND III
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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:
FIRST TRUST STRATEGIC HIGH INCOME FUND III
1001 WARRENVILLE ROAD
SUITE 300
LISLE, ILLINOIS 60532
May 9, 2008
Dear Shareholder:
The accompanying materials relate to the Annual Meeting of Shareholders
(the "Meeting") of First Trust Strategic High Income Fund III (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 Monday, June 9, 2008, at
4:00 p.m. Central Time.
At the Meeting, you will be asked to vote on a proposal to elect one of
the Trustees of the Fund (the "Proposal") 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 Annual 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 AND 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,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board
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 to the Fund 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 STRATEGIC HIGH INCOME FUND III
1001 WARRENVILLE ROAD
SUITE 300
LISLE, ILLINOIS 60532
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 9, 2008
May 9, 2008
To the Shareholders of the above Fund:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of First Trust Strategic High Income Fund III (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
Monday, June 9, 2008, at 4:00 p.m. Central Time, for the following purposes:
1. To elect one Trustee (the Class I Trustee) of the Fund.
2. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Trustees has fixed the close of business on March 31, 2008
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,
/s/ W. Scott Jardine
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 OF THIS PROXY STATEMENT.
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FIRST TRUST STRATEGIC HIGH INCOME FUND III
ANNUAL MEETING OF SHAREHOLDERS
JUNE 9, 2008
1001 WARRENVILLE ROAD
SUITE 300
LISLE, ILLINOIS 60532
PROXY STATEMENT
MAY 9, 2008
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Trustees of First Trust Strategic High Income Fund
III (the "Fund"), a Massachusetts business trust, for use at the Annual Meeting
of Shareholders of the Fund to be held on Monday, June 9, 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 (collectively, the "Meeting"). A Notice of Annual Meeting of
Shareholders and a proxy card accompany this Proxy Statement.
This Proxy Statement and a proxy card will first be mailed to
shareholders on or about May 9, 2008.
Proxy solicitations will be made, beginning on or about May 9, 2008,
primarily by mail. However, proxy solicitations may also be made by telephone or
personal interviews conducted by (i) officers of the Fund; (ii) First Trust
Advisors L.P. ("First Trust Advisors" or the "Adviser"), the investment adviser
of the Fund; (iii) Valhalla Capital Partners, LLC ("Valhalla" or the
"Sub-Adviser"), the investment sub-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.; and (v) any affiliates of
the foregoing entities.
The costs incurred in connection with the preparation of this Proxy
Statement and its enclosures will be paid by the Fund. The Fund will also
reimburse brokerage firms and others for their expenses in forwarding
solicitation material to the beneficial owners of Fund shares.
The close of business on March 31, 2008 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").
THE FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS ARE 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 LOCATED AT HTTP://WWW.FTPORTFOLIOS.COM.
-1-
In order that your Shares may be represented at the Meeting, you are
requested to:
o indicate your instructions on the proxy card;
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
4:00 P.M. CENTRAL TIME, on FRIDAY, JUNE 6, 2008. (However,
proxies received after this date may still be voted in the
event the Meeting is adjourned or postponed to a later date.)
-2-
VOTING
As described further in the proposal, the affirmative vote of a
plurality of the Shares present and entitled to vote at the Meeting will be
required to elect the Class I Trustee of the Fund provided a quorum is present.
Abstentions and broker non-votes will have no effect on the approval of the
proposal.
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 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
election of the nominee as a Class I Trustee and, at the discretion of the named
proxies, on any other matters that may properly come before the Meeting and any
adjournments or postponements 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 ten 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.
-3-
OUTSTANDING SHARES
On the Record Date, the Fund had 8,993,368 Shares outstanding. Shares
of the Fund are listed on the New York Stock Exchange under the ticker symbol
FHO. 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.
To the knowledge of the Board of Trustees, as of the Record Date, 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 of
Shares is based on reports filed with the Securities and Exchange Commission
("SEC") by shareholders.
-4-
PROPOSAL: ELECTION OF CLASS I TRUSTEE OF THE FUND
ONE (1) CLASS I TRUSTEE IS TO BE ELECTED BY HOLDERS OF SHARES OF THE
FUND. CURRENT TRUSTEE ROBERT F. KEITH IS THE NOMINEE FOR ELECTION AS A CLASS I
TRUSTEE BY ALL SHAREHOLDERS OF THE FUND FOR A THREE-YEAR TERM.
The Fund has established a staggered board consisting of five (5)
Trustees divided into three (3) classes. As indicated on the chart set forth
below under "Management of the Fund," the term of each Trustee is set in
accordance with the structure of the staggered Board of the Fund. This is the
first annual meeting of the Fund; in connection with the organization of the
Fund, each Trustee was elected to the Board for an initial term by the initial
shareholder of the Fund. Current Trustee Robert F. Keith was designated and
elected as a Class I Trustee with a term expiring at this year's Meeting and
will stand as the nominee for election as Trustee at this year's Meeting. If
elected, Mr. Keith will hold office for a three-year term expiring at the Fund's
annual meeting of shareholders in 2011 or until his successor is elected and
qualified, or until he resigns, retires or is otherwise removed. James A. Bowen,
Richard E. Erickson, Thomas R. Kadlec and Niel B. Nielson are current and
continuing Trustees. Messrs. Erickson and Kadlec were designated and elected as
Class II Trustees for a term expiring at the Fund's annual meeting of
shareholders in 2009 or until their successors are elected and qualified, or
until they resign, retire or are otherwise removed. Messrs. Bowen and Nielson
were designated and elected as Class III Trustees for a term expiring at the
Fund's annual meeting of shareholders in 2010 or until their successors are
elected and qualified, or until they resign, retire or are otherwise removed.
REQUIRED VOTE: The Class I Trustee, who is not an "interested person"
of the Fund as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act") (such Trustee, one of the "Independent Trustees"), must
be elected by the affirmative vote of the holders of a plurality of the Shares
of the Fund cast in person or by proxy at the Meeting and entitled to vote
thereon, provided a quorum is present. Abstentions and broker "non-votes" will
have no effect on the approval of the proposal. Proxies cannot be voted for a
greater number of persons than the number of nominees named.
Unless you give contrary instructions on your proxy card, your Shares
will be voted FOR the election of the nominee listed if your proxy card has been
properly executed and timely received by the Fund. If the nominee should
withdraw or otherwise become unavailable for election, your Shares will be voted
FOR such other nominee as management may recommend.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE PROPOSAL.
-5-
MANAGEMENT OF THE FUND
The management of the Fund, including general supervision of the duties
performed for the Fund under the investment management agreement between the
Fund and the Adviser, is the responsibility of the Board of Trustees. There are
five Trustees of the Fund, one of whom is an "interested person" (as that term
is defined in the 1940 Act) (such Trustee, the "Interested Trustee") and four of
whom are Independent Trustees. The Trustees of the Fund set broad policies for
the Fund, choose the Fund's officers, and hire the Fund's investment adviser and
sub-adviser. The officers of the Fund manage the day-to-day operations and are
responsible to the Fund's Board of Trustees.
The Board of Trustees of the Fund is divided into three classes: Class
I, Class II and Class III. As set forth below, the term of each Trustee is
established in accordance with such Trustee's designated class.
The following is a list of Trustees and officers of the Fund and a
statement of their present positions, principal occupations during the past five
years, the number of portfolios each Trustee oversees, and the other
directorships the Trustees hold, if applicable.
INTERESTED TRUSTEE
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NUMBER OF
TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FIRST OTHER
NAME, ADDRESS, AND POSITION(S) LENGTH OF TIME DURING PAST FIVE TRUST FUND COMPLEX DIRECTORSHIPS
DATE OF BIRTH HELD WITH FUND SERVED(2,3) YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
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James A. Bowen(1) President, Class III President, First Trust 58 Trustee of
1001 Warrenville Chairman of Advisors L.P. and Wheaton College
Road the Board, First Trust Portfolios
Suite 300 Chief Since inception L.P.; Chairman of the
Lisle, IL 60532 Executive Board of Directors,
DOB: 9/55 Officer and BondWave LLC (Software
Trustee Development
Company/Broker-Dealer)
and Stonebridge
Advisors LLC
(Investment Adviser)
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-6-
INDEPENDENT TRUSTEES
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NUMBER OF
TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) PORTFOLIOS IN FIRST OTHER
NAME, ADDRESS, AND POSITION(S) LENGTH OF TIME DURING PAST FIVE TRUST FUND COMPLEX DIRECTORSHIPS
DATE OF BIRTH HELD WITH FUND SERVED(2,3) YEARS OVERSEEN BY TRUSTEE HELD BY TRUSTEE
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Richard E. Erickson Trustee Class II Physician and President, 58 NONE
c/o First Trust Advisors Wheaton Orthopedics;
L.P. Co-owner and Co-Director
1001 Warrenville Road Since inception (January 1996 to May
Suite 300 2007), Sports Med Center
Lisle, IL 60532 for Fitness; Limited
DOB: 4/51 Partner, Gundersen Real
Estate Partnership;
Limited Partner,
Sportsmed LLC
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Thomas R. Kadlec Trustee Class II Senior Vice President and 58 NONE
c/o First Trust Advisors Chief Financial Officer
L.P. (May 2007 to Present),
1001 Warrenville Road Since inception Vice President and Chief
Suite 300 Financial Officer (1990
Lisle, IL 60532 to May 2007), ADM
DOB: 11/57 Investor Services, Inc.
(Futures Commission
Merchant); President
(May 2005 to Present),
ADM Derivatives, Inc.;
Registered Representative
(2000 to Present),
Segerdahl & Company,
Inc., a FINRA member
(Broker-Dealer)
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Robert F. Keith Trustee Class I President (2003 to 58 NONE
c/o First Trust Advisors Present),
L.P. Since inception Hibs Enterprises
1001 Warrenville Road (Financial and Management
Suite 300 Consulting); President
Lisle, IL 60532 (2001 to 2003), Aramark
DOB: 11/56 Service Master
Management; President and
Chief Operating Officer
(1998 to 2003), Service
Master Management Services
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Niel B. Nielson Trustee Director of
c/o First Trust Advisors Class III President (June 2002 58 Covenant
L.P. to Present), Covenant Transport Inc.
1001 Warrenville Road College
Suite 300 Since inception
Lisle, IL 60532
DOB: 3/54
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-7-
OFFICERS
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TERM OF OFFICE PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST FIVE
DATE OF BIRTH HELD WITH FUND TIME SERVED(2,3) YEARS
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Mark R. Bradley Treasurer, Indefinite Chief Financial Officer, First Trust Advisors
1001 Warrenville Road Controller, L.P. and First Trust Portfolios L.P.; Chief
Suite 300 Chief Financial Financial Officer, BondWave LLC (Software
Lisle, IL 60532 Officer and Since inception Development Company/Broker-Dealer) and
DOB: 11/57 Chief Accounting Stonebridge Advisors LLC (Investment Adviser)
Officer
and Chief
Accounting
Officer
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Kelley A. Christensen Vice President Indefinite Assistant Vice President, First Trust Advisors
1001 Warrenville Road L.P. and First Trust Portfolios L.P.
Suite 300
Lisle, IL 60532 Since inception
DOB: 9/70
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James M. Dykas Assistant Indefinite Senior Vice President (April 2007 to Present),
1001 Warrenville Road Treasurer Vice President (January 2005 to April 2007),
Suite 300 First Trust Advisors L.P. and First Trust
Lisle, IL 60532 Since inception Portfolios L.P.; Executive Director (December
DOB: 1/66 2002 to January 2005), Vice President
(December 2000 to December 2002), Van Kampen
Asset Management and Morgan Stanley Investment
Management
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Christopher R. Fallow Assistant Vice Indefinite Assistant Vice President (August 2006 to
1001 Warrenville Road President Present), Associate (January 2005 to August
Suite 300 2006), First Trust Advisors L.P. and First
Lisle, IL 60532 Since inception Trust Portfolios L.P.; Municipal Bond Trader
DOB: 4/79 (July 2001 to January 2005), BondWave LLC
(Software Development Company/Broker-Dealer)
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W. Scott Jardine Secretary and Indefinite General Counsel, First Trust Advisors L.P. and
1001 Warrenville Road Chief Compliance First Trust Portfolios L.P.; Secretary,
Suite 300 Officer BondWave LLC (Software Development
Lisle, IL 60532 Since inception Company/Broker-Dealer) and Stonebridge
DOB: 5/60 Advisors LLC (Investment Adviser)
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Daniel J. Lindquist Vice President Indefinite Senior Vice President (September 2005 to
1001 Warrenville Road Present), Vice President (April 2004 to
Suite 300 September 2005), First Trust Advisors L.P. and
Lisle, IL 60532 Since inception First Trust Portfolios L.P.; Chief Operating
DOB: 2/70 Officer (January 2004 to April 2004), Mina
Capital Management,LLC; Chief Operating Officer
(April 2000 to January 2004), Samaritan Asset
Management Services, Inc.
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Kristi A. Maher Assistant Indefinite Deputy General Counsel (May 2007 to Present),
1001 Warrenville Road Secretary Assistant General Counsel (March 2004 to May
Suite 300 2007), First Trust Advisors L.P. and First
Lisle, IL 60532 Since inception Trust Portfolios L.P.; Associate (December
DOB: 12/66 1995 to March 2004), Chapman and Cutler LLP
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(1) Mr. Bowen is deemed an "interested person" of the Fund due to his position
as President of First Trust Advisors L.P., investment adviser of the Fund.
(2) Currently, Robert F. Keith, as a Class I Trustee, is serving a term for the
Fund until the Meeting. Richard E. Erickson and Thomas R. Kadlec, as Class
II Trustees, are each serving a term for the Fund until the Fund's 2009
annual meeting. James A. Bowen and Niel B. Nielson, as Class III Trustees,
are each serving a term for the Fund until the Fund's 2010 annual meeting.
Officers of the Fund have an indefinite term.
(3) All Trustees and officers were elected at the Fund's organizational meeting.
The Fund's inception date was March 27, 2007.
-8-
In addition to the Fund, the First Trust Fund Complex includes: First
Defined Portfolio Fund, LLC, an open-end management investment company with 8
portfolios advised by First Trust Advisors; 13 closed-end funds advised by First
Trust Advisors; and First Trust Exchange-Traded Fund, First Trust
Exchange-Traded Fund II and First Trust Exchange-Traded AlphaDEX(TM) Fund, each
an exchange-traded index fund with 17, 3 and 16 operating portfolios,
respectively, advised by First Trust Advisors.
TRUSTEES. Messrs. Erickson, Kadlec, Keith and Nielson are Independent
Trustees, and Mr. Bowen is an Interested Trustee, of each of the funds in the
First Trust Fund Complex. During the past five years, none of the Independent
Trustees, nor any of their immediate family members, has ever been a director,
trustee, officer, general partner or employee of, or consultant to, First Trust
Advisors, First Trust Portfolios L.P. (an affiliate of First Trust Advisors),
Valhalla, any sub-adviser to any fund in the First Trust Fund Complex or any of
their affiliates.
OFFICERS. The officers of the Fund, including Mr. Bowen, Chief
Executive Officer of the Fund, hold the same positions with each fund in the
First Trust Fund Complex (representing 58 portfolios) as they hold with the
Fund, except for Christopher R. Fallow. Mr. Fallow is an officer of 14
closed-end funds in the First Trust Fund Complex, but is not an officer of First
Defined Portfolio Fund, LLC, First Trust Exchange-Traded Fund, First Trust
Exchange-Traded Fund II or First Trust Exchange-Traded AlphaDEX(TM) Fund.
BENEFICIAL OWNERSHIP OF SHARES HELD IN THE FUND BY TRUSTEES AND OFFICERS
The following table sets forth the dollar range and number of equity
securities beneficially owned by the Trustees in the Fund and all funds in the
First Trust Fund Complex, including the Fund, as of December 31, 2007:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND AND FIRST TRUST FUND COMPLEX (NUMBER OF SHARES HELD)
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED INDEPENDENT
TRUSTEE TRUSTEES
- -------------------------- ------------------- --------------------------------------------------------------------------------
James A. Bowen Richard E. Thomas R. Kadlec Robert F. Keith Niel B. Nielson
Erickson
- -------------------------- ------------------- ------------------- -------------------- ------------------- -------------------
THE FUND $0 $0 $0 $0 $0
(0 Shares) (0 Shares) (0 Shares) (0 Shares) (0 Shares)
- -------------------------- ------------------- ------------------- -------------------- ------------------- -------------------
AGGREGATE DOLLAR RANGE Over $100,000 Over $100,000 Over $100,000 Over $100,000 $50,001-$100,000
OF EQUITY SECURITIES IN
ALL REGISTERED (18,500 Shares) (6,160 Shares) (10,249 Shares) (6,579 Shares) (4,025 Shares)
INVESTMENT COMPANIES IN
FIRST TRUST FUND COMPLEX
OVERSEEN BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2007, the Independent Trustees and their immediate
family members did not own, beneficially or of record, any class of securities
of First Trust Advisors or any sub-adviser or principal underwriter of the Fund
or any person, other than a registered investment company, directly or
indirectly controlling, controlled by, or under common control with First Trust
Advisors or any sub-adviser or principal underwriter of the Fund, nor, since the
beginning of the most recently completed fiscal year of the Fund, did any
Independent Trustee purchase or sell securities of First Trust Advisors, or any
sub-adviser to any fund in the First Trust Fund Complex, their parents or any
subsidiaries of any of the foregoing.
-9-
As of December 31, 2007, the Trustees and Fund officers as a group
beneficially owned approximately 49,000 shares of the funds in the First Trust
Fund Complex (less than 1% of the shares outstanding). As of the Record Date,
the Trustees and Fund officers as a group did not own any Shares of the Fund.
COMPENSATION
Under the Trustees' compensation plan, each Independent Trustee is paid
an annual retainer of $10,000 per trust for the first 14 trusts in the First
Trust Fund Complex and an annual retainer of $7,500 per trust for each
subsequent trust added to the First Trust Fund Complex. The annual retainer is
allocated equally among each of the trusts. Trustees are also reimbursed by the
trusts in the First Trust Fund Complex for travel and out-of-pocket expenses in
connection with all meetings. No additional meeting fees are paid in connection
with board or committee meetings.
Additionally, for all the trusts in the First Trust Fund Complex,
effective January 1, 2008, Dr. Erickson is paid annual compensation of $10,000
to serve as the Lead Trustee, Mr. Keith is paid annual compensation of $5,000 to
serve as the chairman of the Audit Committee, Mr. Kadlec is paid annual
compensation of $2,500 to serve as chairman of the Valuation Committee and Mr.
Nielson is paid annual compensation of $2,500 to serve as the chairman of the
Nominating and Governance Committee. The chairmen and the Lead Trustee will
serve two years before rotating to serve as a chairman of another committee or
as Lead Trustee. The additional compensation is allocated equally among each of
the trusts in the First Trust Fund Complex.
During the calendar year ended December 31, 2007, for all the trusts in
the First Trust Fund Complex, Mr. Kadlec was paid $10,000 to serve as the Lead
Trustee, Mr. Nielson was paid $5,000 to serve as chairman of the Audit Committee
and no additional compensation was paid to Dr. Erickson for his service as
chairman of the Nominating and Governance Committee and the Valuation Committee.
The annual compensation was allocated equally among each of the trusts in the
First Trust Fund Complex.
The Board of the Fund held seven meetings during the Fund's last fiscal
year. Each of the Trustees attended all of the meetings of the Board of Trustees
of the Fund.
The aggregate actual fees and expenses paid to the Trustees by the Fund
for the fiscal year ended January 31, 2008 (including reimbursement for travel
and out-of-pocket expenses) amounted to $29,474. The Fund commenced operations
during its last fiscal year; for the current fiscal year, it is estimated that
aggregate fees and expenses (including reimbursement for travel and
out-of-pocket expenses) will be $39,031.
The following table sets forth certain information regarding the
compensation of the Fund's Trustees. The Fund has not completed its first full
fiscal year since its organization and, therefore, the following table includes
estimated amounts for the current fiscal year. The Fund has no retirement or
pension plans. The officers and the Interested Trustee of the Fund receive no
compensation from the Fund for serving in such capacities.
-10-
AGGREGATE COMPENSATION
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED INDEPENDENT
TRUSTEE TRUSTEES
- ------------------------------------------- --------------- -------------------------------------------------------------------
James A. Bowen Richard E. Thomas R. Kadlec Niel B. Robert F.
Erickson Nielson Keith
- ------------------------------------------- --------------- ------------------ ----------------- --------------- --------------
THE FUND(1) $0 $10,000 $9,583 $9,726 $9,722
- ------------------------------------------- --------------- ------------------ ----------------- --------------- --------------
TOTAL COMPENSATION FROM THE FIRST TRUST $0 $156,875 $166,875 $166,500 $154,375
FUND COMPLEX (2)
- ------------------------------------------- --------------- ------------------ ----------------- --------------- --------------
(1) The Fund commenced operations during its last fiscal year ended January 31,
2008. Aggregate fees and expenses paid to the Trustees reflect estimated
payments for the current fiscal year.
(2) For calendar year ended December 31, 2007.
ATTENDANCE AT ANNUAL MEETINGS OF SHAREHOLDERS
The policy of the Board is to have as many Trustees as possible in
attendance at annual meetings of shareholders. The policy of the Nominating and
Governance Committee relating to attendance by Trustees at annual meetings of
shareholders is contained in the Fund's Nominating and Governance Committee
Charter, which is available on the Fund's website located at
http://www.ftportfolios.com. This is the first Annual Meeting of Shareholders
for the Fund.
COMMITTEES
AUDIT COMMITTEE
The Board of Trustees has an Audit Committee, which consists of Messrs.
Erickson, Kadlec, Keith and Nielson, all of whom are "independent" as defined in
the listing standards of the American Stock Exchange and the New York Stock
Exchange. Messrs. Kadlec and Keith serve as Audit Committee Financial Experts.
The Audit Committee is responsible for overseeing the Fund's accounting and
financial reporting process, the system of internal controls, audit process and
evaluating and appointing the independent registered public accounting firm
(subject also to Board approval). The Audit Committee held six meetings during
the Fund's last fiscal year. Each of the Trustees attended all of the meetings
of the Audit Committee of the Board of Trustees of the Fund.
In carrying out its responsibilities, the Audit Committee pre-approves
all audit services and permitted non-audit services for the Fund (including the
fees and terms thereof) and non-audit services to be performed for the Adviser
by Deloitte & Touche LLP ("Deloitte & Touche"), the Fund's independent
registered public accounting firm ("independent auditors") if the engagement
relates directly to the operations and financial reporting of the Fund. The
chairman of the Audit Committee is authorized to give such pre-approvals on
behalf of the Audit Committee for engagements of less than $25,000. Any
decisions by the chairman to grant pre-approvals are reported to the full Audit
Committee at the next regularly scheduled meeting.
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board of Trustees in
its oversight of the Fund's accounting and financial reporting process. The
Audit Committee operates pursuant to a charter (the "Charter") that was most
recently reviewed and approved by the Board of Trustees on December 10, 2007, a
copy of which is attached as Exhibit A hereto, and is available on the Fund's
website located at HTTP://WWW.FTPORTFOLIOS.COM. As set forth in the Charter,
-11-
management of the Fund is responsible for maintaining appropriate systems for
accounting and internal controls and the audit process. The Fund's independent
auditors are responsible for planning and carrying out proper audits of the
Fund's financial statements and expressing an opinion as to their conformity
with accounting principles generally accepted in the United States of America.
In performing its oversight function, the Audit Committee reviewed and
discussed with management and the independent auditors, Deloitte & Touche, the
audited financial statements of the Fund for the fiscal year ended January 31,
2008 at a meeting held on March 19, 2008, and discussed the audit of such
financial statements with the independent auditors and management.
In addition, the Audit Committee discussed with the independent
auditors the accounting principles applied by the Fund and such other matters
brought to the attention of the Audit Committee by the independent auditors
required by Statement on Auditing Standards No. 114, The Auditor's Communication
With Those Charged With Governance, as currently modified or supplemented. The
Audit Committee also received from the independent auditors the written
disclosures and letter required by Independent Standards Board Standard No. 1,
Independence Discussions with Audit Committees, delineating relationships
between the independent auditors and the Fund and discussed the impact that any
such relationships may have on the objectivity and independence of the
independent auditors.
The members of the Fund's Audit Committee are not full-time employees
of the Fund and are not performing the functions of auditors or accountants. As
such, it is not the duty or responsibility of the Audit Committee or its members
to conduct "field work" or other types of auditing or accounting reviews or
procedures or to set auditor independence standards. Members of the Fund's Audit
Committee necessarily rely on the information provided to them by Fund
management and the independent auditors. Accordingly, the Audit Committee's
considerations and discussions referred to above do not assure that the audit of
the Fund's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
the independent auditors are in fact "independent."
Based on its consideration of the Fund's audited financial statements
and the discussions referred to above with Fund management and Deloitte &
Touche, and subject to the limitations on the responsibilities and role of the
Audit Committee as set forth in the Charter and discussed above, the Audit
Committee recommended to the Board the inclusion of the Fund's audited financial
statements for the year ended January 31, 2008.
Submitted by the Audit Committee of the Fund:
Richard E. Erickson
Thomas R. Kadlec
Robert F. Keith
Niel B. Nielson
-12-
INDEPENDENT AUDITORS' FEES
Deloitte & Touche has been selected to serve as the independent
auditors for the Fund for its current fiscal year, and acted as the independent
auditors for the Fund for its most recently completed fiscal year. Deloitte &
Touche has advised the Fund that, to the best of its knowledge and belief,
Deloitte & Touche professionals did not have any direct or material indirect
ownership interest in the Fund inconsistent with independent professional
standards pertaining to independent registered public accounting firms. It is
expected that representatives of Deloitte & Touche will be present at the
Meeting to answer any questions that may arise and will have the opportunity to
make a statement if they desire to do so. In reliance on Rule 32a-4 under the
1940 Act, the Fund is not seeking shareholder ratification of the selection of
Deloitte & Touche as independent auditors.
AUDIT FEES, AUDIT RELATED FEES, TAX FEES AND ALL OTHER FEES
Since the Fund's inception on March 27, 2007 through January 31, 2008,
Deloitte & Touche billed the Fund and the Adviser for the following fees:
- ------------------------------ ----------------------- ----------------------- ------------------------ -----------------------
FEES BILLED TO AUDIT FEES AUDIT RELATED FEES TAX FEES ALL OTHER FEES
- ------------------------------ ----------------------- ----------------------- ------------------------ -----------------------
Fund $58,000 $0 $0 $0
Adviser N/A $0 $0 $0
- ------------------------------ ----------------------- ----------------------- ------------------------ -----------------------
NON-AUDIT FEES
Since the Fund's inception on March 27, 2007 through January 31, 2008,
Deloitte & Touche billed $0 to the Fund and $7,000 to the Adviser for aggregate
non-audit fees. No entities controlling, controlled by, or under common control
with the Adviser provide ongoing services to the Fund.
PRE-APPROVAL
Pursuant to its charter and its Audit and Non-Audit Services
Pre-Approval Policy, amended as of September 21, 2007, the Audit Committee of
the Fund is responsible for the pre-approval of all audit services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Fund by its independent auditors. The chairman of the Audit Committee is
authorized to give such pre-approvals on behalf of the Audit Committee up to
$25,000 and report any such pre-approval to the full Audit Committee.
The Audit Committee is also responsible for the pre-approval of the
independent auditor's engagements for non-audit services for the Adviser, if the
engagement relates directly to the operations and financial reporting of the
Fund, subject to the de minimis exceptions for non-audit services described in
Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit
services to the Adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) that were not pre-approved pursuant to its policies, the
Audit Committee will consider whether the provision of such non-audit services
is compatible with the auditor's independence.
-13-
None of the Audit Fees, Audit Related Fees, Tax Fees, and All Other
Fees and aggregate non-audit fees for the Fund and the Adviser disclosed above
that were required to be pre-approved by the Audit Committee pursuant to its
pre-approval policies were pre-approved by the Audit Committee pursuant to the
pre-approval exceptions included in Regulation S-X.
The Audit Committee of the Fund has determined that the provision of
non-audit services that were rendered to the Adviser (not including any
sub-adviser whose role is primarily portfolio management and is sub-contracted
with or overseen by another investment adviser) that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
OTHER COMMITTEES
The Board of Trustees of the Fund has three other standing committees:
the Executive Committee (also serving as the Dividend and Pricing Committee),
the Nominating and Governance Committee and the Valuation Committee. The
Executive Committee, which meets between Board meetings, is authorized to
exercise all powers of and to act in the place of the Board of Trustees to the
extent permitted by the Fund's Declaration of Trust and By-Laws. The members of
the Executive Committee also serve as a special committee of the Board of
Trustees known as the Dividend and Pricing Committee which is authorized to
exercise all of the powers and authority of the Board in respect of the
declaration and setting of dividends and the issuance and sale, through an
underwritten public offering, of the Shares of the Fund and all other such
matters relating to such financing, including determining the price at which
such Shares are to be sold and approval of the final terms of the underwriting
agreement, including approval of the members of the underwriting syndicate.
Effective January 1, 2008, Mr. Bowen and Dr. Erickson are members of the
Executive Committee. Prior to January 1, 2008, Messrs. Bowen and Kadlec were
members of the Executive Committee. The Executive Committee held eleven meetings
during the Fund's last fiscal year. The Fund's Executive Committee met to
authorize the Fund's dividend declarations and to authorize the initial public
offering of the Fund.
The Fund's Nominating and Governance Committee (the "Committee") is
composed entirely of Independent Trustees who are also "independent directors"
within the meaning of the listing standards of the American and New York Stock
Exchanges. Messrs. Erickson, Kadlec, Keith and Nielson are members of the
Committee. The purpose of the Committee is to oversee matters related to the
nomination of trustees and, as necessary, the corporate governance of the Fund.
The Committee is responsible for, among other things, seeking, identifying and
nominating qualified candidates for election or appointment as trustees in the
event of a vacancy, consistent with criteria approved by the Board, for the next
annual meeting of shareholders; evaluating Board performance and processes;
reviewing Board committee assignments; and, to the extent necessary or
desirable, establishing corporate governance guidelines and procedures. The
Committee operates under a written charter adopted and approved by the Board, a
copy of which is available on the Fund's website at HTTP://WWW.FTPORTFOLIOS.COM.
Effective January 1, 2008, Mr. Nielson serves as chairman of the Committee.
Prior to January 1, 2008, Dr. Erickson served as chairman of the Committee. The
Committee held four meetings during the Fund's last fiscal year.
-14-
If there is no vacancy on the Board, the Board will not actively seek
recommendations from other parties, including shareholders of the Fund. When a
vacancy on the Board occurs, the Committee may seek recommendations for
candidates from those sources it deems appropriate in its discretion, including
shareholders of the Fund. The Committee may retain a search firm to identify
candidates.
If a recommendation is received with satisfactorily completed
information regarding a candidate during a time when a vacancy exists on the
Board or during such other time as the Committee is accepting recommendations,
the recommendation will be forwarded to the chairman of the Committee and
outside counsel to the Independent Trustees. Recommendations received at any
other time will be kept on file until such time as the Committee is accepting
recommendations at which point they may be considered for nomination.
In recruiting new trustees, the Committee seeks to recruit and retain
qualified independent trustees of high integrity, whose skills and experience
will enhance the Board's ability to effectively represent the interests of the
Fund's shareholders and oversee the wide range of regulatory and business issues
affecting the Fund. A candidate for trustee must meet certain basic
requirements, including relevant skills and experience, time availability and if
qualifying as a non-"interested person" candidate, independence from the Fund
and its investment adviser or other service providers. The qualifications of a
particular candidate, however, may vary depending on the current composition of
the Board and the mix of skills and backgrounds of the incumbent trustees since
the Committee seeks to establish an effective Board with an appropriate range of
skills and experience, in the aggregate. In addition to relevant skills and
experience, all candidates must possess high standards of personal integrity
that are assessed on the basis of personal interviews, recommendations, or
direct knowledge by Committee members. The review process may include, without
limitation, personal interviews, background checks, written submissions by the
candidates and third party references. Under no circumstances shall the
Committee evaluate persons recommended by a shareholder of the Fund on a basis
substantially different than that used for other persons recommended for the
same election or appointment of trustees. The Fund has a retirement policy in
place that prohibits consideration for election as a Trustee of persons age 72
or older. The Committee reserves the right to make the final selection regarding
the nomination of any trustees.
The Valuation Committee is responsible for the oversight of valuation
procedures of the Fund. Messrs. Erickson, Kadlec, Keith and Nielson are members
of the Valuation Committee. Effective January 1, 2008, Mr. Kadlec serves as
chairman of the Valuation Committee. Prior to January 1, 2008, Dr. Erickson
served as chairman of the Valuation Committee. The Valuation Committee held four
meetings during the Fund's last fiscal year.
ADDITIONAL INFORMATION
SHAREHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Shareholders
of the Fund to be held in 2009, 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, not later than January 12,
2009.
-15-
Any proposal to elect any person nominated by shareholders for election
as trustee and any other 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 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.
Any shareholder submitting a nomination of any person or persons (as
the case may be) for election as a trustee or trustees of the Fund is required
to deliver, as part of such Shareholder Notice: (i) a statement in writing
setting forth: (A) the name, age, date of birth, business address, residence
address and nationality of the person or persons to be nominated; (B) the class
or series and number of all Shares of the Fund owned of record or beneficially
by each such person or persons, as reported to such shareholder by such
nominee(s); (C) any other information regarding each such person required by
paragraphs (a), (d), (e) and (f) of Item 401 of Regulation S-K or paragraph (b)
of Item 22 of Rule 14a-101 (Schedule 14A) under the 1934 Act (or any successor
provision thereto); (D) any other information regarding the person or persons to
be nominated that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitation of proxies for
election of trustees or directors pursuant to Section 14 of the 1934 Act and the
rules and regulations promulgated thereunder; and (E) whether such shareholder
believes any nominee is or will be an "interested person" of the Fund (as
defined in the 1940 Act) and, if not an "interested person," information
regarding each nominee that will be sufficient for the Fund to make such
determination; and (ii) the written and signed consent of any person nominated
to be named as a nominee and to serve as a trustee if elected. In addition, the
Trustees may require any proposed nominee to furnish such other information as
they may reasonably require or deem necessary to determine the eligibility of
such proposed nominee to serve as a trustee.
Without limiting the foregoing, any shareholder who gives a Shareholder
Notice of any matter proposed to be brought before a shareholder meeting
(whether or not involving nominees for trustees) is required to deliver, as part
of such Shareholder Notice: (i) the description of and text of the proposal to
be presented; (ii) a brief written statement of the reasons why such shareholder
favors the proposal; (iii) such shareholder's name and address as they appear on
the Fund's books; (iv) any other information relating to the shareholder that
would be required to be disclosed in a proxy statement or other filings required
to be made in connection with the solicitation of proxies with respect to the
matter(s) proposed pursuant to Section 14 of the 1934 Act and the rules and
regulations promulgated thereunder; (v) the class or series and number of all
Shares of the Fund owned beneficially and of record by such shareholder; (vi)
any material interest of such shareholder in the matter proposed (other than as
a shareholder); (vii) a representation that the shareholder intends to appear in
person or by proxy at the shareholder meeting to act on the matter(s) proposed;
-16-
(viii) if the proposal involves nominee(s) for trustees, a description of all
arrangements or understandings between the shareholder and each proposed nominee
and any other person or persons (including their names) pursuant to which the
nomination(s) are to be made by the shareholder; and (ix) in the case of a
shareholder (a "Beneficial Owner") that holds Shares entitled to vote at the
meeting through a nominee or "street name" holder of record, evidence
establishing such Beneficial Owner's indirect ownership of, and entitlement to
vote, shares at the meeting of shareholders. Shares "beneficially owned" means
all Shares which such person is deemed to beneficially own pursuant to Rules
13d-3 and 13d-5 under the 1934 Act.
Timely submission of a proposal does not mean that such proposal will
be included in a proxy statement.
SHAREHOLDER COMMUNICATIONS
Shareholders 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 chairman 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.
INVESTMENT ADVISER, SUB-ADVISER, ADMINISTRATOR AND TRANSFER AGENT
First Trust Advisors L.P., 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, serves as the Fund's investment adviser. Valhalla Capital
Partners, LLC, 2527 Nelson Miller Parkway, Suite 207, Louisville, Kentucky
40223, serves as the investment sub-adviser to the Fund. First Trust Portfolios
L.P., an affiliate of First Trust Advisors, owns a minority interest in Valhalla
Capital Partners, LLC.
PFPC acts as the administrator, accounting agent and transfer agent to
the Fund 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.
SECTION 30(h) AND SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 30(h) of the 1940 Act and Section 16(a) of the 1934 Act require
the Fund's officers and Trustees, certain persons affiliated with First Trust
Advisors and the Sub-Adviser and persons who beneficially own more than 10% of
the Fund's Shares to file reports of ownership and changes of ownership with the
SEC, and the New York Stock Exchange, as applicable, and to furnish the Fund
with copies of all Section 16(a) forms they file. Based solely upon a review of
copies of such forms received by the Fund and certain written representations,
the Fund believes that during the fiscal year ended January 31, 2008, all such
filing requirements applicable to such persons were met.
FISCAL YEAR
The fiscal year end for the Fund is January 31.
-17-
ANNUAL REPORT DELIVERY
Annual reports will be sent to shareholders of record of the Fund
following the Fund's fiscal year end. 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.
OTHER MATTERS TO COME BEFORE THE MEETING
No business other than the matter 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.
May 9, 2008
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
-18-
EXHIBIT A
AUDIT COMMITTEE CHARTER
I. PURPOSE.
The Audit Committee (the "Committee") is appointed by the Boards of
Trustees (the "Boards") of investment companies (the "Funds") advised by First
Trust Advisors L.P. ("Fund Management") for the following purposes:
A. to oversee the accounting and financial reporting
processes of each Fund and its internal controls and, as the Audit
Committee deems appropriate, to inquire into the internal controls of
certain third-party service providers;
B. to oversee the quality and integrity of each Fund's
financial statements and the independent audit thereof;
C. to oversee, or, as appropriate, assist Board oversight
of, each Fund's compliance with legal and regulatory requirements that
relate to the Fund's accounting and financial reporting, internal
controls and independent audits; and
D. to approve, prior to the appointment, the engagement of
each Fund's independent auditor and, in connection therewith, to review
and evaluate the qualifications, independence and performance of the
Fund's independent auditor.
II. COMMITTEE ORGANIZATION AND COMPOSITION.
A. Size and Membership Requirements.
1. The Committee shall be composed of at least three
members, all of whom shall be trustees of the Funds. Each member of the
Committee, and a Committee chairperson, shall be appointed by the Board
on the recommendation of the Nominating and Governance Committee.
2. Each member of the Committee shall be independent of the
Fund and must be free of any relationship that, in the opinion of the
Board, would interfere with the exercise of independent judgment as a
Committee member. With respect to the Funds which are closed-end funds
or open-end exchange-traded funds ("ETFs"), each member must meet the
independence and experience requirements of the New York Stock
Exchange, NYSE Arca, or the American Stock Exchange or the NASDAQ Stock
Market (as applicable), and Section 10A of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and Rule 10A-3 thereunder,
and other applicable rules and regulations of the Securities and
Exchange Commission ("SEC"). Included in the foregoing is the
requirement that no member of the Committee be an "interested person"
of the Funds within the meaning of Section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act"), nor shall any
Committee member accept, directly or indirectly, any consulting,
advisory or other compensatory fee from the Funds (except in the
capacity as a Board or committee member).
3. At least one member of the Committee shall have been
determined by the Board, exercising its business judgment, to qualify
as an "audit committee financial expert" as defined by the SEC.
4. With respect to Funds whose shares are listed on NYSE
Arca or on the New York Stock Exchange, each member of the Committee
shall have been determined by the Board, exercising its business
judgment, to be "financially literate" as required by the New York
Stock Exchange or NYSE Arca (as applicable). In addition, at least one
member of the Committee shall have been determined by the Board,
exercising its business judgment, to have "accounting or financial
management expertise," as required by the New York Stock Exchange or
NYSE Arca (as applicable). Such member may, but need not be, the same
person as the Funds' "audit committee financial expert." With respect
to Funds that are closed-end funds or ETFs whose shares are listed on
the American Stock Exchange or the NASDAQ Stock Market, each member of
the Committee shall be able to read and understand fundamental
financial statements, including a Fund's balance sheet, income
statement and cash flow statement. In addition, at least one member of
the Committee shall have been determined by the Board, exercising its
business judgment, to be "financially sophisticated," as required by
the American Stock Exchange or the NASDAQ Stock Market (as applicable).
A member whom the Board determines to be the Fund's "audit committee
financial expert" shall be presumed to qualify as financially
sophisticated.
5. With respect to Funds that are closed-end funds,
Committee members shall not serve simultaneously on the audit committee
of more than two public companies, in addition to their service on the
Committee.
B. Frequency of Meetings.
The Committee will ordinarily meet once for every regular meeting of
the Board. The Committee may meet more or less frequently as appropriate, but no
less than twice per year.
C. Term of Office.
Committee members shall serve until they resign or are removed or
replaced by the Board.
III. RESPONSIBILITIES.
A. With respect to Independent Auditors:
1. The Committee shall be responsible for the appointment or
replacement (subject if applicable, to Board and/or shareholder
ratification), compensation, retention and oversight of the work of any
registered public accounting firm engaged (including resolution of
disagreements between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Funds
("External Auditors"). The External Auditors shall report directly to
the Committee.
A-2
2. The Committee shall meet with the External Auditors and
Fund Management to review the scope, fees, audit plans and staffing of
the proposed audits for each fiscal year. At the conclusion of the
audit, the Committee shall review such audit results, including the
External Auditor's evaluation of the Fund's financial and internal
controls, any comments or recommendations of the External Auditors, any
audit problems or difficulties and Fund Management's response,
including any restrictions on the scope of the External Auditor's
activities or on access to requested information, any significant
disagreements with Fund Management, any accounting adjustments noted or
proposed by the auditor but not made by the Fund, any communications
between the audit team and the audit firm's national office regarding
auditing or accounting issues presented by the engagement, any
significant changes required from the originally planned audit programs
and any adjustments to the financial statements recommended by the
External Auditors.
3. The Committee shall meet with the External Auditors in
the absence of Fund Management, as necessary.
4. The Committee shall pre-approve all audit services and
permitted non-audit services (including the fees and terms thereof) to
be performed for the Fund by its External Auditors. The Chairman of the
Committee is authorized to give such pre-approvals on behalf of the
Committee, and shall report any such pre-approval to the full
Committee.
5. The Committee shall pre-approve the External Auditor's
engagements for non-audit services to Fund Management and any entity
controlling, controlled by or under common control with Fund Management
that provides ongoing services to the Fund, if the engagement relates
directly to the operations and financial reporting of the Fund, subject
to the de minimis exceptions for non-audit services described in Rule
2-01 of Regulation S-X. The Chairman of the Committee is authorized to
give such pre-approvals on behalf of the Committee, and shall report
any such pre-approval to the full Committee.
6. If the External Auditors have provided non-audit services
to Fund Management and any entity controlling, controlled by or under
common control with Fund Management that provides ongoing services to
the Fund that were not pre-approved pursuant to the de minimis
exception, the Committee shall consider whether the provision of such
non-audit services is compatible with the External Auditor's
independence.
7. The Committee shall obtain and review a report from the
External Auditors at least annually (including a formal written
statement delineating all relationships between the auditors and the
Fund consistent with Independence Standards Board Standard No. 1 as may
be amended, restated, modified or replaced) regarding (a) the External
Auditor's internal quality-control procedures; (b) any material issues
raised by the most recent internal quality-control review, or peer
review, of the firm, or by an inquiry or investigation by governmental
or professional authorities within the preceding five years, respecting
one or more independent audits carried out by the firm; (c) any steps
taken to deal with any such issues; and (d) the External Auditor's
independence, including all relationships between the External Auditors
and the Fund and its affiliates; and evaluating the qualifications,
performance and independence of the External Auditors, including their
A-3
membership in the SEC practice section of the AICPA and their
compliance with all applicable requirements for independence and peer
review, and a review and evaluation of the lead partner, taking into
account the opinions of management and discussing such reports with the
External Auditors. The Committee shall present its conclusions with
respect to the External Auditors to the Board.
8. The Committee shall review reports and other information
provided to it by the External Auditors regarding any illegal acts that
the External Auditors should discover (whether or not perceived to have
a material effect on the Fund's financial statements), in accordance
with and as required by Section 10A(b) of the Exchange Act.
9. The Committee shall ensure the rotation of the lead (or
concurring) audit partner having primary responsibility for the audit
and the audit partner responsible for reviewing the audit as required
by law, and further considering the rotation of the independent auditor
firm itself.
10. The Committee shall establish and recommend to the Board
for ratification a policy of the Funds with respect to the hiring of
employees or former employees of the External Auditors who participated
in the audits of the Funds' financial statements.
11. The Committee shall take (and, where appropriate,
recommend that the Board take) appropriate action to oversee the
independence of the External Auditors.
12. The Committee shall report regularly to the Board on the
results of the activities of the Committee, including any issues that
arise with respect to the quality or integrity of the Funds' financial
statements, the Funds' compliance with legal or regulatory
requirements, the performance and independence of the Funds' External
Auditors, or the performance of the internal audit function, if any.
B. With respect to Fund Financial Statements:
1. The Committee shall meet to review and discuss with Fund
Management and the External Auditors the annual audited financial
statements of the Funds, major issues regarding accounting and auditing
principles and practices, and the Funds' disclosures under
"Management's Discussion and Analysis," and shall meet to review and
discuss with Fund Management the semi-annual financial statements of
the Funds and the Funds' disclosures under "Management's Discussion and
Analysis."
2. The Committee shall review and discuss reports, both
written and oral, from the External Auditors or Fund Management
regarding (a) all critical accounting policies and practices to be
used; (b) all alternative treatments of financial information within
generally accepted accounting principles ("GAAP") for policies and
practices that have been discussed with management, including the
ramifications of the use of such alternative treatments and disclosures
and the treatment preferred by the External Auditors; (c) other
material written communications between the External Auditors and
management, such as any management letter or schedule of unadjusted
differences; and (d) all non-audit services provided to any entity in
A-4
the investment company complex (as defined in Rule 2-01 of Regulation
S-X) that were not pre-approved by the Committee.
3. The Committee shall review disclosures made to the
Committee by the Funds' principal executive officer and principal
financial officer during their certification process for the Funds'
periodic reports about any significant deficiencies in the design or
operation of internal controls or material weaknesses therein and any
fraud involving management or other employees who have a significant
role in the Funds' internal controls.
4. The Committee shall discuss with the External Auditors
the matters required to be discussed by Statement of Auditing Standards
("SAS") No. 90, Audit Committee Communications (which amended SAS No.
61, Communication with Audit Committees), that arise during the
External Auditor's review of the Funds' financial statements.
5. The Committee shall review and discuss with management
and the External Auditors (a) significant financial reporting issues
and judgments made in connection with the preparation and presentation
of the Funds' financial statements, including any significant changes
in the Funds' selection or application of accounting principles and any
major issues as to the adequacy of the Funds' internal controls and any
special audit steps adopted in light of material control deficiencies,
and (b) analyses prepared by Fund Management or the External Auditors
setting forth significant financial reporting issues and judgments made
in connection with the preparation of the financial statements,
including analyses of the effects of alternative GAAP methods on the
financial statements.
6. The Committee shall review and discuss with management
and the External Auditors the effect of regulatory and accounting
initiatives on the Funds' financial statements.
7. The Committee shall discuss with Fund Management the
Funds' press releases regarding financial results and dividends, as
well as financial information and earnings guidance provided to
analysts and rating agencies. This discussion may be done generally,
consisting of discussing the types of information to be disclosed and
the types of presentations to be made. The Chairman of the Committee
shall be authorized to have these discussions with Fund Management on
behalf of the Committee, and shall report to the Committee regarding
any such discussions.
8. The Committee shall discuss with Fund Management the
Funds' major financial risk exposures and the steps Fund Management has
taken to monitor and control these exposures, including the Funds' risk
assessment and risk management policies and guidelines. In fulfilling
its obligations under this paragraph, the Committee may, as applicable,
review in a general manner the processes other Board committees have in
place with respect to risk assessment and risk management.
C. With respect to serving as a Qualified Legal Compliance Committee:
1. The Committee shall serve as the Funds' "qualified legal
compliance committee" ("QLCC") within the meaning of the rules of the
SEC and, in that regard, the following shall apply.
A-5
i. The Committee shall receive and retain, in
confidence, reports of evidence of (a) a material violation of
any federal or state securities laws, (b) a material breach of
a fiduciary duty arising under any federal or state laws or
(c) a similar material violation of any federal or state law
by a Fund or any of its officers, trustees, employees or
agents (a "Report of Material Violation"). Reports of Material
Violation may be addressed to the Funds, attention W. Scott
Jardine, at the address of the principal offices of the Funds,
which currently is 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, who shall forward the Report of Material
Violation to the Committee.
ii. Upon receipt of a Report of Material Violation,
the Committee shall (a) inform the Fund's chief legal officer
and chief executive officer (or the equivalents thereof) of
the report (unless the Committee determines it would be futile
to do so), and (b) determine whether an investigation is
necessary.
iii. After considering the Report of a Material
Violation, the Committee shall do the following if it deems an
investigation necessary:
o Notify the full Board;
o Initiate an investigation, which may be
conducted either by the chief legal officer (or the
equivalent thereof) of the Fund or by outside
attorneys; and
o Retain such additional expert personnel
as the Committee deems necessary.
iv. At the conclusion of any such investigation,
the Committee shall:
o Recommend, by majority vote, that the
Fund implement an appropriate response to evidence
of a material violation; and
o Inform the chief legal officer and the
chief executive officer (or the equivalents thereof)
and the Board of the results of any such
investigation and the appropriate remedial measures
to be adopted.
2. The Committee shall take all other action that it deems
appropriate in the event that the Fund fails in any material respect to
implement an appropriate response that the Committee, as the QLCC, has
recommended the Fund take.
D. Other Responsibilities:
1. The Committee shall receive, retain and handle complaints
received by the Funds regarding accounting, internal accounting
controls, or auditing matters from any person, whether or not an
employee of the Funds or Fund Management, and shall receive submissions
of concerns regarding questionable accounting or auditing matters by
employees of the Funds and Fund Management, administrator, principal
A-6
underwriter, or any other provider of accounting-related services for
the Funds. All such complaints and concerns shall be handled in
accordance with the Committee's procedures for operating as a QLCC,
outlined in III.C above.
2. The Committee shall review, with fund counsel and
independent legal counsel, any legal matters that could have
significant impact on the Fund's financial statements or compliance
policies and the findings of any examination by a regulatory agency as
they relate to financial statement matters.
3. The Committee shall review and reassess the adequacy of
this charter on an annual basis and provide a recommendation to the
Board for approval of any proposed changes deemed necessary or
advisable by the Committee.
4. The Committee shall evaluate on an annual basis the
performance of the Committee.
5. The Committee shall review with the External Auditors and
with Fund Management the adequacy and effectiveness of the Funds'
internal accounting and financial controls.
6. The Committee shall discuss with Fund Management and the
External Auditors any correspondence with regulators or governmental
agencies that raise material issues regarding the Funds' financial
statements or accounting policies.
7. The Committee shall obtain any reports from Fund
Management with respect to the Funds' policies and procedures regarding
compliance with applicable laws and regulations. The Committee shall
perform other special reviews, investigations or oversight functions as
requested by the Board and shall receive and review periodic or special
reports issued on exposure/controls, irregularities and control
failures related to the Funds.
8. The Committee shall prepare any report of the Committee
required to be included in a proxy statement for a Fund.
9. The Committee may request any officer or employee of a
Fund or Fund Management, independent legal counsel, fund counsel and
the External Auditors to attend a meeting of the Committee or to meet
with any members of, or consultants to, the Committee.
10. The Committee shall maintain minutes of its meetings.
11. The Committee shall perform such other functions and
have such powers as may be necessary or appropriate in the efficient
and lawful discharge of its responsibilities.
IV. AUTHORITY TO ENGAGE ADVISERS.
The Committee may engage independent counsel and other advisers, as it
determines necessary to carry out its duties. The Funds' External Auditors shall
have unrestricted accessibility at any time to Committee members.
A-7
V. FUNDING PROVISIONS.
A. The Committee shall determine the:
1. Compensation to any independent registered public
accounting firm engaged for the purpose of preparing or issuing an
audit report or performing other audit, review or attest services for a
Fund; and
2. Compensation to any advisers employed by the Committee.
B. The expenses enumerated in this Article V and all necessary and
appropriate administrative expenses of the Committee shall be paid by the
applicable Fund or Fund Management.
VI. MANAGEMENT AND EXTERNAL AUDITOR'S RESPONSIBILITIES.
A. Fund Management has the primary responsibility for establishing and
maintaining systems for accounting, reporting, disclosure and internal controls.
The External Auditors have the primary responsibility to plan and implement an
audit, with proper consideration given to the accounting, reporting and internal
controls. All External Auditors engaged for the purpose of preparing or issuing
an audit report or performing other audit, review or attest services for the
Funds shall report directly to the Committee. The External Auditors' ultimate
accountability is to the Board and the Committee, as representatives of
shareholders.
B. While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Funds' financial statements are complete and accurate and
are in accordance with GAAP, nor is it the duty of the Committee to assure
compliance with laws and regulations and/or the Funds' Code of Ethics.
C. In discharging its responsibilities, the Committee and its members
are entitled to rely on information, opinions, reports, or statements, including
financial statements and other financial data, if prepared or presented by: (1)
one or more officers of a Fund; (2) legal counsel, public accountants, or other
persons as to matters the Committee member reasonably believes are within the
person's professional or expert competence; or (3) a Board committee of which
the Committee member is not a member.
Amended: December 10, 2007
A-8
[BLANK PAGE]
[BLANK BACK COVER]
PROXY CARD
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE
BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------
PROXY -- FIRST TRUST STRATEGIC HIGH INCOME FUND III
- --------------------------------------------------------------------------
PROXY SOLICITED BY THE BOARD OF TRUSTEES
ANNUAL MEETING ON JUNE 9, 2008
The undersigned holder of Common Shares of the First Trust Strategic High
Income Fund III (the "Fund"), a Massachusetts business trust, hereby
appoints W. Scott Jardine, Mark R. Bradley, Kristi A. Maher, James M. Dykas
and Erin E. Chapman 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 Annual 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 adjournments or
postponenments thereof. The undersigned hereby acknowledges receipt of the
Notice of Annual Meeting of Shareholders and Proxy Statement dated May 9,
2008, 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.
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 THE ELECTION OF THE NOMINEE SET FORTH.
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
FIRST TRUST STRATEGIC
HIGH INCOME FUND III
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]
- --------------------------------------------------------------------------------
Annual Meeting Proxy Card
- --------------------------------------------------------------------------------
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE
BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
A. Election of Trustee -- The Board of Trustees recommends a vote FOR the
nominee listed.
1. Nominee: For Withhold
01 - Robert F. Keith* [ ] [ ]
Class I (Expiring 2011)
* To elect the Trustee for a three-year term, by holders of Common Shares,
voting as a single class.
B. Non-Voting Items
Change of Address -- Please print your new address below.
Comments -- Please print your comments below.
MEETING ATTENDANCE
Mark the box to the right
if you plan to attend the
Annual Meeting. [ ]
C. Authorized Signature(s) -- This section must be completed for your vote
to be counted. -- Date and Sign Below
NOTE: 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 within the box.
________________________________________