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Exhibit 99.CODE ETH
N-CSR EXHIBIT FOR ITEM 11(a): CODE OF ETHICS
LEHMAN BROTHERS/FIRST TRUST INCOME OPPORTUNITY FUND
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND
SENIOR FINANCIAL OFFICERS
I. COVERED OFFICERS/PURPOSE OF THE CODE
The code of ethics (this "Code") for Lehman Brothers/First Trust
Income Opportunity Fund (the "Fund") applies to the Fund's principal executive
officer and principal financial and accounting officer (the "Covered Officers,"
each of whom is set forth in Exhibit A) for the purpose of promoting:
- honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- full, fair, accurate, timely and understandable disclosure in reports and
documents that the Fund files with, or submits to, the Securities and
Exchange Commission ("SEC") and in other public communications made by the
Fund;
- compliance with applicable laws and governmental rules and regulations;
- the prompt internal reporting of violations of the Code to an appropriate
person or persons identified in the Code; and
- accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business ethics
and should be sensitive to situations that may give rise to actual as well as
apparent conflicts of interest.
II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts
of Interest
OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interests interfere with the interests of, or his service to, the Fund.
For example, a conflict of interest would arise if a Covered Officer, or a
member of his family, receives improper personal benefits as a result of his
position with the Fund.
Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the Investment Company Act of 1940, as amended ("Investment
Company Act") and the Investment Advisers Act of 1940, as amended ("Investment
Advisers Act"). For example, Covered Officers may not individually engage in
certain transactions (such as the purchase or sale of securities or other
property) with the Fund because of their status as "affiliated persons" of the
Fund. The compliance programs and procedures of the Fund or the Fund's
investment adviser or sub-adviser (the "investment adviser") are designed to
prevent, or identify and correct, violations of these provisions. This Code does
not, and is not intended to, repeat or replace these programs and procedures,
and such conflicts fall outside of the parameters of this Code. Although
typically not presenting an opportunity for improper personal benefit, conflicts
may arise from, or as a result of, the contractual relationship between the Fund
and the investment adviser or a third party service provider of which a
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Covered Officer is also an officer or employee. As a result, this Code
recognizes that the Covered Officers will, in the normal course of their duties
(whether formally for the Fund and/or for the investment adviser or a third
party service provider) be involved in establishing policies and implementing
decisions that will have different effects on the investment adviser or a third
party service provider and the Fund. The participation of the Covered Officers
in such activities is inherent in the contractual relationship between the Fund
and the investment adviser or a third party service provider and is consistent
with the performance by the Covered Officers of their duties as officers of the
Fund. The foregoing activities, if performed in conformity with the provisions
of the Investment Company Act and the Investment Advisers Act, will be deemed to
have been handled ethically.
Other conflicts of interest are covered by the Code, even if such
conflicts of interest are not subject to provisions in the Investment Company
Act and the Investment Advisers Act. The overarching principle with respect to
all conflicts of interest covered by this Code is that the personal interest of
a Covered Officer should not be placed improperly before the interest of the
Fund.
Each Covered Officer must:
- not use personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Fund
whereby the Covered Officer would benefit personally to the detriment of
the Fund;
- not cause the Fund to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Fund;
- report at least annually any affiliations or other relationships that
could potentially present a conflict of interest with the Fund.
III. DISCLOSURE AND COMPLIANCE
- Each Covered Officer shall become familiar with the disclosure
requirements generally applicable to the Fund;
- each Covered Officer shall not knowingly misrepresent, or cause others
to misrepresent, facts about the Fund to others, whether within or
outside the Fund, including to the Fund's management, and auditors, and
to governmental regulators and self-regulatory organizations;
- each Covered Officer may, to the extent appropriate within the Covered
Officer's area of responsibility and to the extent deemed necessary in
the sole discretion of the Covered Officer, consult with other officers
and employees of the Fund and the investment adviser with the goal of
promoting full, fair, accurate, timely and understandable disclosure in
the reports and documents the Fund files with, or submits to, the SEC
and in other public communications made by the Fund; and
- each Covered Officer should seek to promote the Fund's compliance with
the standards and restrictions imposed by applicable laws, rules and
regulations.
IV. REPORTING AND ACCOUNTABILITY
Each Covered Officer must:
- - upon adoption of the Code (or thereafter as applicable, upon becoming a
Covered Officer), affirm in writing to Chamaine Williams or such other
person designated by the Secretary of the Fund (the "Compliance Officer")
that the Covered Officer has received, read and understands this Code;
- - annually thereafter affirm to the Compliance Officer that the Covered
Officer has complied with the requirements of this Code;
- - not retaliate against any other Covered Officer or any employee of the
Fund or its affiliated persons for reports of potential violations of this
Code that are made in good faith; and
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- - notify the Compliance Officer promptly if the Covered Officer knows of
any violation of this Code. Failure to do so is itself a violation of this
Code.
The Compliance Officer is responsible for applying this Code to
specific situations in which questions are presented under it and has the
authority to interpret this Code in any particular situation. The Compliance
Officer is authorized to consult, as appropriate, with counsel to the Fund, and
is encouraged to do so. However, any approvals or waivers(1) must be considered
by the trustees of the Fund who are not "interested persons," as defined by
Section 2(a)(19) of the Investment Company Act, of the Fund (the "Independent
Trustees").
The Fund will follow these procedures in investigating and enforcing
this Code:
- The Compliance Officer will endeavor to take all appropriate action to
investigate any reported potential violations reported to him;
- if, after such investigation, the Compliance Officer believes that no
violation has occurred, the Compliance Officer is not required to take
any further action;
- any matter that the Compliance Officer believes is a violation will be
reported to the Independent Trustees;
- if the Independent Trustees concur that a violation has occurred, the
Compliance Officer will inform and make a recommendation to the Fund's
board of trustees (the "Board"), which will consider appropriate
action, which may include a review of, and appropriate modifications
to, applicable Fund policies and procedures; notification to
appropriate personnel of the investment adviser or other relevant
service provider; or a recommendation to dismiss the Covered Officer;
and
- any changes to or waivers of this Code will, to the extent required,
be disclosed as provided by SEC rules.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Fund for purposes
of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms
applicable to registered investment companies there under. Insofar as other
policies or procedures of the Fund, investment adviser, principal underwriter or
service providers govern or purport to govern the behavior or activities of the
Covered Officers who are subject to this Code, they are superseded by this Code
to the extent that they overlap or conflict with the provisions of this Code.
The Fund's and the investment adviser's and the principal underwriter's codes of
ethics under Rule 17j-1 under the Investment Company Act are separate
requirements applying to the Covered Officers and others, and are not part of
this Code.
VI. AMENDMENTS
Amendments to this Code may be made from time to time, as deemed
appropriate by the Compliance Officer. The Board shall be informed of any such
amendment to the extent deemed material by the Compliance Officer.
VII. CONFIDENTIALITY
All reports and records relating to the Fund prepared or maintained
pursuant to this Code will be considered confidential and shall be maintained
and protected accordingly. Except as otherwise required by law or this Code,
such matters shall not be disclosed to anyone other than the investment adviser,
Board, and counsel to the Fund.
VIII. INTERNAL USE
The Code is intended solely for the internal use by the Fund and does not
constitute an admission, by or on behalf of the Fund, as to any fact,
circumstance, or legal conclusion.
- ----------
(1) For this purpose, the term "waiver" includes the approval by the Fund of a
material departure from a provision of this Code or the Fund's failure to take
action within a reasonable period of time regarding a material departure from a
provision of this Code that has been made known to the Fund's management.
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Date: November 18, 2003
EXHIBIT A
PERSONS COVERED BY THIS CODE OF ETHICS
Bradley Tank, President
Edward S. Grieb, Treasurer
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N-CSR EXHIBIT FOR ITEM 11(b): REGISTRANT'S PROXY VOTING PROCEDURES AND
GUIDELINES
LINCOLN CAPITAL FIXED INCOME MANAGEMENT COMPANY, LLC
PROXY VOTING POLICIES
Lincoln Capital Fixed Income Management Company, LLC (Lincoln Capital) is aware
and compliant with SEC Rule 206(4)-6 regarding proxy voting and disclosure and
Rule 204-2 pertaining to books and records. Therefore, Lincoln Capital shall
vote corporate governance proposals in a manner that promotes clear
responsibility of management and boards to the long run interests of
shareholders. Lincoln Capital shall be diligent, independent and consider the
best interest of our clients in arriving at proxy voting decisions.
Upon a client's request, Lincoln Capital will disclose how the client's proxies
were voted. Clients can send their requests via e-mail to Csedlak@Lincap.Com.
PROXY VOTING PROCEDURES
Ann Benjamin, a Managing Director, or a designee, is responsible for Lincoln
Capital's proxy votes and guidelines for high yield products. The Security
Control unit within the Portfolio Management Information Department has
administrative responsibility.
Guidelines have been established to apply to the most frequently appearing proxy
proposals. Proxy proposals for shares in closed-end funds are excepted from the
guidelines, and voting decisions relating to such proposals will be determined
on a case-by-case basis. Where specific guidelines don't apply, the general
principles of the Proxy Voting Policies are used. Specific fact situations might
warrant departure from the guidelines. Proxies are voted after review of
relevant materials (annual report, SEC filings -10K, and votes registered from
the prior year) in accordance with these guidelines. The voting rights of
securities that are on loan are determined at the time of signing the loan
agreement between our clients and their custodian banks; usually the securities
on loan do not allow Lincoln Capital the voting rights.
Administratively, Lincoln Capital utilizes paper ballots. Paper ballots are
received via the United States Postal System and holdings for all clients as of
record date are obtained from the accounting system (Portia). The ballots'
shares and Lincoln Capital's holdings are verified. If there are discrepancies
between the ballot shares and Lincoln Capital's holdings, the custodian is
contacted for resolution. Proxies are voted by choosing the appropriate vote
selection and the signing of the paper ballots. The signed proxies are mailed in
the provided pre-addressed envelope.
In rare instances where ballot shares have not been received from all custodians
within two weeks of the meeting date, Lincoln Capital contacts the custodian.
The custodian will follow up with a faxed copy of the paper ballot. If a copy of
the ballot is faxed, Lincoln Capital returns (via fax or by mail) the proxy with
voting instructions to the custodian.
After all proxies are voted, the Portfolio Management Information Department of
Lincoln Capital keeps a copy of the signed ballot as record of the security,
meeting date, proposals, and how we voted for each client. Records are
maintained in the Portfolio Management Information Department of Lincoln Capital
office for five years; after that time the records can be moved to an off-site
facility.
The guidelines are designed to eliminate the influence of any conflicts of
interest on Lincoln Capital's proxy voting decisions. Although Lincoln Capital
does not foresee any material conflicts of interest arising, in the event a
material conflict of interest does arise, the facts and circumstances of the
conflict would be discussed with Lori Loftus, the Compliance Manager, prior to
voting. Lori Loftus and Ann Benjamin will decide if the conflict can be resolved
or avoided by applying the guidelines. If the conflict cannot be resolved or
avoided by applying the guidelines, Lincoln Capital may rely on the advice of an
independent third party to determine how to vote the proxy.
Original Date: January 31, 2003
Revised Date: June 30, 2003
Revised Date: July 23, 2003
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LINCOLN CAPITAL FIXED INCOME MANAGEMENT PROXY GUIDELINES
BOARD RELATED ISSUES June 23, 2003
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SUBJECT VOTE JUSTIFICATION
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Election of directors For, w/ caveat Ownership of the stock typically means support of
Directors, unless there is an issue of independence or
performance.
Classification of directors Against The idea, in theory, is to provide stability.
However, in practice boards have demonstrated
considerable continuity because the majority of votes
are for management's slate.
Declassification of Board For
Annual Election of directors For Directors should be held accountable to shareholders
on an annual basis.
Director removal only for cause Against Shareholders should not need cause to remove a
director. As owners of the corporation, shareholders
should have the right to remove directors as they see
fit.
Require a majority of independent directors For The presence of independent directors allows the board
to be more objective in its decisions regarding
business operations and top management.
Increase in size of the board Against The greater number of directors, the less the
w/caveat accountability. However, it may be a good idea if
management can show a compelling need (e.g. needed
expertise) for additional members.
Indemnification and liability protection for For Such protection is necessary to attract and retain
directors w/caveat competent individuals to sit on boards for normal
remuneration. Companies need to protect their
directors as long as they act in the best interest of
their shareholders. However, if directors seriously
breech their fiduciary duty, they should not be
protected.
Advisory committees Against The board already has a fiduciary duty to represent
all shareholders and is accountable to them by law.
It often is not necessary for a corporation to bear
the additional expense of an advisory committee.
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SUBJECT VOTE JUSTIFICATION
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Grant Stock to Non-Employee Directors Against, w/ We would vote against a management proposal to grant
(added 1996 proxy season) caveat stock to non-employee directors except in cases where
grant would replace a fee.
Separation of CEO and Chairman For Although not required this is generally a good
governance model.
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EMPLOYEE COMPENSATION
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SUBJECT VOTE JUSTIFICATION
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Employee Stock Ownership Plan Case by In general, it is a good idea to support option plans
Case which provide incentive to directors, managers and
other employees by aligning their economic interest
with those of the shareholders while limiting the
transfer of wealth out of the company. However, a
vote for a specific plan should be decided by
weighing a number of factors:
- the number and structure of other plans
the company currently has in place
- the potential dilution percentage of the
proposed plan, (in conjunction with
other plans in place)
- the degree of power the board has to
choose a plan among several options,
(those proposals allowing the board to
chose between five or more options
should rarely be approved)
- who will administer the plan, (it should
be administered by a committee of
outside directors who are ineligible to
receive benefits from the plan)
- the percentage of the company already
owned by insiders
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SUBJECT VOTE JUSTIFICATION
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Compensation caps or restraints For Consideration should be given to withholding votes from,
(by situation) or voting against, directors who support excessive
compensation or compensation arrangements that are not
in the interest of shareholders.
Minimum share ownership to be a director Against
Stock Options & Incentive Comp
- pricing at fair market value and expire For
with 5 years
- repricing options to a lower price Against
- option plan dilution greater than 5% Against
- restricted stock should vest over a For
specified time (greater than 1 year)
- interest free or low interest loans Against
- reload options Against
- options for directors Against
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MANAGEMENT ENTRENCHMENT
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SUBJECT VOTE JUSTIFICATION
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Increase in authorized shares of common stock For Vote for an increase in authorized shares of common
w/caveat stock if:
- management has already issued most of the
authorized shares
- the increase is reasonable
- past history suggests a prudent issuance
- shares are needed for a stock split or
dividend
- management presents a specific and acceptable
reason for the increase.
Otherwise, vote no.
Targeted share placement Against Targeted share placements dilute ownership and voting
rights, entrench current management, and are
anti-takeover in nature.
Dual Class Stock Against The new class of stock may dilute our ownership, make
the company less attractive as a takeover target,
entrench incumbent directors or management, and
discourage both merger proposals and proxy contests.
Authorize or increase a class of preferred Against Available academic evidence indicates that shareholder
stock value is decreased when blank-check preferred stock is
authorized.
Share repurchase For The share repurchase process increases our ownership
percentage and raises the equilibrium price by
decreasing the supply.
Appointment of auditors For Vote for the recommended auditor unless the auditor
w/caveat has become complacent or has questionable
independence.
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SHAREHOLDER RIGHTS
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SUBJECT VOTE JUSTIFICATION
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Elimination of preemptive rights For These rights give current shareholders the right to
maintain their current ownership percentage through
any subsequent equity offerings. These provisions are
no longer common in the U.S., and can restrict
management's ability to raise new capital.
Eliminate shareholders right to call a special Against These proposals limit shareholder rights, and are
meeting. anti-takeover in nature.
Prohibit shareholder action outside Against These proposals limit shareholders rights.
meetings
Voting confidentiality For These proposals are often introduced by shareholders
w/caveat as a means of reducing management pressure on
shareholders regarding their vote on proxy issues. We
support the suspension of confidential voting during
proxy contest since dissidents have access to the
information and we do not wish to put management at
an unfair disadvantage.
Cumulative voting Against Cumulative voting permits access to the board by
special interest groups.
Company submission of poison pill and For Management rarely submits its defense mechanisms to
defense mechanisms for shareholder shareholders voluntarily so shareholders should vote
ratification for authority to ratify such plans when proposed by
other shareholders.
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ANTI-TAKEOVER
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SUBJECT VOTE JUSTIFICATION
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Anti-Greenmail provisions For The only one who reaps any benefit from greenmail is
the greenmailer. Shareholders are always harmed.
Reincorporation For Vote in favor of reincorporation proposals if there
w/caveat are legitimate business reasons for the move. If a
corporation is simply attempting to move in order to
subject itself to more stringent anti-takeover laws,
then vote against it.
Require more than simple majority vote to Against These proposals limit shareholder rights.
amend or repeal by-laws or remove directors
Blank check preferred Against These proposals are for the authorization of shares
for which voting rights are not established in
advance. Instead, voting rights are established at
the discretion of the board of directors when the
shares are issued. This gives the board the ability
to place a block of stock with an investor
sympathetic to management, thereby foiling a takeover
bid without a shareholder vote. This proposal is a
transfer of authority from shareholders to the board,
and a possible entrenchment device.
Stockholder provision Against These proposals introduce the concept that the board
may consider the interest of constituents other than
shareholders in the evaluation of takeover offers.
This concept is inconsistent with public ownership of
corporations.
Poison pill plans Against Poison pill plans are the most effective
anti-takeover weapon available to management.
Shareholder value declines upon the adoption of these
plans.
Supermajority vote Against Requiring a high majority vote (i.e. 80%) for
corporate charter and by-law amendments relating to
term of office, election or removal of directors.
Requiring a supermajority vote to convene meetings is
an anti-takeover measure.
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SOCIAL ISSUES
Most social issues are handled on a case-by-case basis. Unique social,
environmental, and political issues are decided on the merits of the specific
proposal. Therefore, it has not been Lincoln's policy to recommend, general
guidelines to cover such issues.