As filed with the Securities and Exchange Commission on July 10, 2013.
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1933 Act File No. 333-143792
1940 Act File No. 811-22080
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 the Commission 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 DIVIDEND AND INCOME FUND
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
FIRST TRUST ACTIVE DIVIDEND INCOME FUND
(TO BE RENAMED FIRST TRUST DIVIDEND AND INCOME FUND EFFECTIVE JULY 1, 2013)
120 EAST LIBERTY DRIVE, SUITE 400
WHEATON, ILLINOIS 60187
June 28, 2013
Dear Shareholders:
I am writing to inform you of an upcoming Special Meeting of
Shareholders (referred to as the "Meeting") of First Trust Active Dividend
Income Fund (to be renamed First Trust Dividend and Income Fund effective July
1, 2013) (the "Fund"). The Meeting will be held at the offices of First Trust
Advisors L.P. ("First Trust"), 120 East Liberty Drive, Suite 400, Wheaton,
Illinois 60187, on Monday, September 16, 2013, at 3:30 p.m. Central Time.
At the Meeting, you will be asked (1) to vote on a proposal to approve a
new investment sub-advisory agreement for the Fund with Chartwell Investment
Partners, L.P., a new sub-adviser (the "Proposal"), and (2) to transact such
other business as may properly come before the Meeting and any adjournments and
postponements thereof. The Board of Trustees of the Fund is recommending that
shareholders approve the Proposal, which is described in the enclosed materials.
In addition, at the recommendation of First Trust, which is the Fund's
investment adviser, the Board of Trustees also has approved a "repositioning" of
the Fund that contemplates, among other things, various changes to the Fund's
investment strategies. Although these changes do not require shareholder
approval to be implemented, certain of them require that shareholders be
provided with at least 60 days' advance notice. In addition to describing the
Proposal, the enclosed proxy materials describe these changes and, together with
the separate notice entitled "Important Notice Regarding Change in Investment
Policy" that accompanies the enclosed proxy materials, constitute such 60 days'
advance notice.
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 read the enclosed materials and
then cast your vote using one of the methods indicated on the enclosed proxy
card.
YOUR VOTE IS IMPORTANT. Please take a moment now to vote, either by
completing and returning your proxy card in the enclosed postage-paid return
envelope, by telephone or over the Internet. Your prompt response will be much
appreciated.
We appreciate your participation in this important Meeting.
Thank you.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board
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IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE PROPOSAL OR HOW
TO VOTE YOUR SHARES, PLEASE CALL THE FUND'S PROXY SOLICITOR, AST FUND SOLUTIONS,
LLC, AT (866) 751-6311 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
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QUESTIONS AND ANSWERS
While we encourage you to read the full text of the enclosed proxy statement, as
a quick reference, the following questions and answers provide a brief overview
of the proposal to approve a new investment sub-advisory agreement (the
"Proposal").
QUESTION 1: Why am I receiving these proxy materials?
ANSWER: You are receiving these proxy materials because, as of June 20, 2013,
you were a shareholder of First Trust Active Dividend Income Fund (to be renamed
First Trust Dividend and Income Fund effective July 1, 2013) (the "Fund") and,
therefore, you are entitled to vote on the important Proposal concerning the
Fund. More specifically, you are being asked to approve a new investment
sub-advisory agreement (the "New Sub-Advisory Agreement"), among the Fund, First
Trust Advisors L.P. (the "Advisor"), and Chartwell Investment Partners, L.P.
("Chartwell"). Moreover, as a shareholder of the Fund, you are entitled to 60
days' advance notice of certain of the changes contemplated by the Repositioning
described below and in the enclosed proxy statement, although, since they do not
require shareholder approval to be implemented, you are not being asked to
approve these changes. In addition to soliciting approval of the Proposal, these
proxy materials describe the Repositioning and, together with the separate
notice entitled "Important Notice Regarding Change in Investment Policy" that
accompanies these proxy materials, are being provided to satisfy the 60 days'
advance notice requirement.
QUESTION 2: Why is the New Sub-Advisory Agreement being proposed?
ANSWER: In connection with its ongoing oversight of the Fund, the Board of
Trustees of the Fund (the "Board") has, over the course of several meetings,
considered various alternatives presented by the Advisor to address the Fund's
underperformance (in terms of both share price and net asset value) relative to
its benchmarks and peer group average and to narrow its trading discount. As a
result, after careful review, based on the recommendation of the Advisor, the
Board determined that it was in the best interests of the Fund to replace the
Fund's current sub-adviser, Aviance Capital Management, LLC ("Aviance"), with
Chartwell. As a related matter, because it appears that certain of the Fund's
investment strategies may have contributed to its performance issues, at the
recommendation of the Advisor, the Board also approved certain changes,
including changes proposed by Chartwell, to the Fund's investment strategies to
effect a repositioning of its portfolio (the "Repositioning"). The Advisor and
the Board believe that by combining investments in debt and equity securities
(to generate both dividend and interest income) and applying a revised options
strategy to the equity portion of the portfolio (to manage risk and generate
income from options premiums), the Repositioning may help the Fund to generate
current income while potentially reducing volatility. If these results are
achieved, the Fund's performance may improve, which may contribute to increased
secondary market demand for the Fund's shares. Of course, no assurance can be
given that the Repositioning will be successful, that the desired results will
be achieved, that the Fund's performance will improve or that secondary market
demand for the Fund's shares will increase. The Repositioning is described in
more detail below and in the proxy statement. The Advisor and the Board believe
that Chartwell's experience and expertise in managing investment strategies
similar to certain of those contemplated by the Repositioning make it
well-qualified to serve as sub-adviser to the Fund both during the Repositioning
transition and once the Repositioning is completed. Chartwell currently serves
as the sub-adviser to the First Trust Enhanced Equity Income Fund, another
closed-end fund in the First Trust Fund Complex overseen by the Board, where it
has implemented investment strategies similar to the Options Strategy (defined
below) and the investment strategy contemplated for the Equity Component
(defined below) of the Fund, described in further detail below and in the proxy
statement.
QUESTION 3: How will the Fund's investments change as a result of the
Repositioning?
ANSWER: Set forth in the chart below are certain highlights of the Repositioning
which includes, in addition to an equity component, a debt component and a
revised options strategy. As indicated, the Fund's investment objectives will
stay the same, but its name and certain investment strategies will change. These
changes, which are outlined below, do not require shareholder approval. The
Fund's fundamental investment restrictions (which can only be changed with
shareholder approval) will not change.
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CURRENT FUND REPOSITIONED FUND
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FUND NAME First Trust Active Dividend Income Fund First Trust Dividend and Income Fund (effective
July 1, 2013)
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INVESTMENT The Fund's primary investment objective is to seek The Fund's primary investment objective is to
OBJECTIVES a high level of current income. It has a seek a high level of current income. It has a
secondary investment objective of capital secondary investment objective of capital
appreciation. appreciation.
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INVESTMENT o Under normal market conditions, the Fund o The Fund will seek to achieve its
STRATEGIES invests at least 80% of its Currently investment objectives by investing at least
Defined Managed Assets (as defined in the 80% of its Managed Assets (as defined in
proxy statement) in a diversified portfolio the proxy statement) in a diversified
of dividend-paying multi-cap equity portfolio of dividend-paying multi-cap
securities of both U.S. and non-U.S. equity securities, debt securities and
issuers that the Fund's sub-adviser senior, secured floating rate loans
believes offer the potential for attractive ("Senior Loans") that offer the potential
income and/or capital appreciation. for attractive income and/or capital
appreciation.
o The Fund's portfolio will consist of two
components: (1) the "Equity Component,"
which will consist primarily of equity
securities of both U.S. and non-U.S.
issuers of any market capitalization that
are readily traded on a registered U.S.
national securities exchange ("Equity
Securities"); and (2) the "Senior Loan/High
Yield Debt Component," which will primarily
consist of (i) Senior Loans and (ii) debt
securities that are rated below investment
grade (i.e., "junk bonds") or unrated at
the time of purchase and deemed to be of
comparable credit quality ("High Yield Debt
Securities").
o The Fund may invest up to 25% of its
Managed Assets in U.S. dollar-denominated
Equity Securities of non-U.S. issuers.
o The Fund may write call options on stock o On an ongoing and consistent basis, the
indices and single stocks on up to 50% of Fund expects to write (sell) covered call
the Fund's portfolio value. options on equity indices and/or Equity
Securities within the Equity Component. The
Fund will normally write (sell) covered
call options against equity indices and/or
Equity Securities with strike prices and
expiration dates that are collectively
intended to provide risk/reward
characteristics that are consistent with
the Fund's investment objectives (the
"Options Strategy").
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LEVERAGE The Fund is authorized to utilize leverage through The Fund initially intends to utilize leverage
the issuance of preferred shares and/or through through borrowings in an amount up to 25% of the
the issuance of commercial paper or notes and/or Fund's Managed Assets to seek to enhance its
other borrowings, but currently has no outstanding potential for current income. To the extent
leverage. leverage is used, the Fund currently intends to
invest the funds raised through leverage in
Senior Loans and High Yield Debt Securities.
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QUESTION 4: In addition to the change in sub-adviser, in what other ways will
the management of the Fund change as a result of the Repositioning?
ANSWER: Chartwell will be primarily responsible for the day-to-day management of
the Equity Component and the Options Strategy. As indicated above, part of the
Repositioning includes adding the Senior Loan/High Yield Debt Component to the
Fund. The Senior Loan/High Yield Debt Component will not be managed by
Chartwell, but rather, will be managed by the Advisor through its Leveraged
Finance Investment Team, which currently manages or supervises over $900 million
in senior secured bank loans and high yield bonds.
QUESTION 5: Will the Fund's advisory fee rate change as a result of the New
Sub-Advisory Agreement or the Repositioning?
ANSWER: No, the Fund's advisory fee rate will not change as a result of the New
Sub-Advisory Agreement and the Repositioning. However, in light of the
Repositioning, the sub-advisory fee payable by the Advisor to Chartwell will be
based only on the portion of managed assets allocated to Chartwell (i.e., the
Equity Component and Options Strategy) rather than total managed assets (which
would include the Senior Loan/High Yield Debt Component). In addition, to the
extent the Fund uses leverage, the amount of the Fund's advisory fees payable to
the Advisor will be, and the sub-advisory fees payable by the Advisor to
Chartwell may be, higher because such fees are calculated based on managed
assets, which include assets purchased with leverage.
QUESTION 6: Will the risk profile of the Fund change as a result of the
Repositioning?
ANSWER: Many of the principal risks of investing in the Fund currently will also
apply to the repositioned Fund. However, as a result of the Repositioning,
including, in particular, the addition of the Senior Loan/High Yield Debt
Component, the implementation of the Options Strategy and the anticipated use of
leverage, the Fund will be subject to certain additional and/or heightened
risks, as described in more detail in the proxy statement. Among others, these
include senior loan risk, debt securities risk, credit and below investment
grade securities risk, leverage risk and covered call options risk.
QUESTION 7: When will the Repositioning be implemented?
ANSWER: Effective July 1, 2013, the name of the Fund will change from First
Trust Active Dividend Income Fund to First Trust Dividend and Income Fund. In
addition, effective July 1, 2013, Chartwell will begin managing the Fund in
accordance with an interim investment sub-advisory agreement (described in the
proxy statement) and may employ certain investment practices and techniques that
differ from those that Aviance has used in managing the Fund, but that are
consistent with the strategies and policies that were set forth in the Fund's
most recent prospectus and statement of additional information or that were
subsequently disclosed and became effective. Otherwise, it is currently expected
that the process to effect the Repositioning will begin on or about September
17, 2013.
QUESTION 8: What happens if shareholders do not approve the New Sub-Advisory
Agreement?
ANSWER: If shareholders do not approve the New Sub-Advisory Agreement, the Board
will consider other alternatives for the Fund as it deems appropriate and in the
best interests of the Fund. The Repositioning is not subject to shareholder
approval and is not contingent upon approval of the New Sub-Advisory Agreement,
however, and is expected to be implemented (in whole or in part) even if
shareholders do not approve the New Sub-Advisory Agreement.
QUESTION 9: Will there be any trading costs associated with buying and selling
securities to effect the Repositioning?
ANSWER: The Fund will need to buy and sell securities to effect the
Repositioning. The Fund pays trading costs, such as commissions or dealer
mark-ups, when it buys and sells securities. It is anticipated that the
Repositioning will result in increased portfolio turnover, which will result in
higher explicit (i.e., trading commissions) and implicit (i.e., dealer mark-ups)
transaction costs than might otherwise be incurred. Any such costs incurred will
initially reduce the total return on net asset value to shareholders. The
Advisor and the Board believe that the potential benefits of the Repositioning
should outweigh the reduction in the Fund's net asset value due to the trading
costs associated with the Repositioning; however, no assurance can be given that
any potential benefits will be realized. In addition, it should be noted that
the Fund currently operates under strategies that have resulted in high
portfolio turnover and, although no assurance can be provided, the
implementation of the Repositioning is anticipated to reduce the Fund's annual
portfolio turnover rate going forward.
QUESTION 10: How does the Board recommend shareholders vote on the Proposal?
ANSWER: At a meeting held on June 9-10, 2013, the Board unanimously approved and
recommended that shareholders vote FOR the Proposal. If your proxy card is
returned without instructions, the representatives holding proxies will vote for
the Proposal in accordance with the recommendation of the Board.
QUESTION 11: Whom do I call if I have questions?
ANSWER: If you need any assistance, or have any questions regarding the Proposal
or how to vote your shares, please call the Fund's proxy solicitor, AST Fund
Solutions, LLC, at (866) 751-6311 from 9:00 a.m. to 10:00 p.m. Eastern Time.
Please have your proxy materials available when you call.
QUESTION 12: How do I vote?
ANSWER: You may vote by mail, by telephone or over the Internet:
o To vote by mail, please mark, sign, date and mail the enclosed proxy
card. No postage is required if mailed in the United States.
o To vote by telephone, please follow the instructions provided on your
proxy card.
o To vote over the Internet, please follow the instructions provided on
your proxy card.
QUESTION 13: Who is paying for the costs of the proxy statement and
solicitation?
ANSWER: The costs of the proxy statement and solicitation will be shared equally
by the Fund and the Advisor.
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
(TO BE RENAMED FIRST TRUST DIVIDEND AND INCOME FUND EFFECTIVE JULY 1, 2013)
120 EAST LIBERTY DRIVE, SUITE 400
WHEATON, ILLINOIS 60187
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 16, 2013
June 28, 2013
To the Shareholders of First Trust Active Dividend Income Fund:
Notice is hereby given that a Special Meeting of Shareholders (referred to
as the "Meeting") of First Trust Active Dividend Income Fund (to be renamed
First Trust Dividend and Income Fund effective July 1, 2013) (the "Fund"), a
Massachusetts business trust, will be held at the offices of First Trust
Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois 60187, on
Monday, September 16, 2013, at 3:30 p.m. Central Time, for the following
purposes:
1. To approve a new investment sub-advisory agreement among the
Fund, First Trust Advisors L.P., as investment adviser, and Chartwell
Investment Partners, L.P., as investment sub-adviser.
2. To transact such other business as may properly come before the
Meeting (including any adjournments or postponements).
The close of business on June 20, 2013 has been fixed 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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IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. IN ORDER TO
AVOID DELAY AND TO ENSURE THAT YOUR SHARES ARE REPRESENTED, PLEASE VOTE AS
PROMPTLY AS POSSIBLE. YOU MAY VOTE EASILY AND QUICKLY BY MAIL, TELEPHONE OR
THROUGH THE INTERNET. TO VOTE BY MAIL, PLEASE COMPLETE AND MAIL YOUR PROXY CARD
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. ALTERNATIVELY, SHAREHOLDERS MAY
VOTE BY TELEPHONE OR THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE
PROXY CARD. IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE
PROPOSAL OR HOW TO VOTE YOUR SHARES, PLEASE CALL THE FUND'S PROXY SOLICITOR, AST
FUND SOLUTIONS, LLC, AT (866) 751-6311 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M.
EASTERN TIME.
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FIRST TRUST ACTIVE DIVIDEND INCOME FUND
(TO BE RENAMED FIRST TRUST DIVIDEND AND INCOME FUND EFFECTIVE JULY 1, 2013)
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 16, 2013
120 EAST LIBERTY DRIVE, SUITE 400
WHEATON, ILLINOIS 60187
PROXY STATEMENT
June 28, 2013
THIS PROXY STATEMENT AND THE ENCLOSED PROXY CARD WILL FIRST BE MAILED TO
SHAREHOLDERS ON OR ABOUT JULY 11, 2013.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees (the "Board") of First Trust Active Dividend
Income Fund (to be renamed First Trust Dividend and Income Fund effective July
1, 2013) (the "Fund"), a Massachusetts business trust, for use at a Special
Meeting of Shareholders of the Fund to be held on Monday, September 16, 2013, at
3:30 p.m. Central Time, at the offices of First Trust Advisors L.P. ("First
Trust Advisors" or the "Advisor"), located at 120 East Liberty Drive, Suite 400,
Wheaton, Illinois 60187, and at any adjournments or postponements thereof
(referred to collectively as the "Meeting"). A Notice of Special Meeting of
Shareholders and a proxy card accompany this Proxy Statement.
The Board has fixed the close of business on June 20, 2013 as the record
date (the "Record Date") for the determination of shareholders of the Fund
entitled to notice of, and to vote at, the Meeting.
As discussed more fully below, shareholders of the Fund are being asked:
1. To vote to approve a new investment sub-advisory agreement among the
Fund, the Advisor and Chartwell Investment Partners, L.P. ("Chartwell"), as
investment sub-adviser.
2. To transact such other business as may properly come before the Meeting
(including any adjournments or postponements).
GENERAL INFORMATION
The Fund has one class of shares of beneficial interest, par value $0.01
per share, known as common shares ("Shares") outstanding. Although the Fund is
authorized to issue preferred shares of beneficial interest ("Preferred
Shares"), no Preferred Shares are currently outstanding. On the Record Date, the
Fund had 8,259,517 Shares outstanding. Shares of the Fund are listed on the New
York Stock Exchange under the ticker symbol "FAV." 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.
For shareholders voting by mail, if the enclosed proxy card is properly
executed and returned in time to be voted at the Meeting, the Shares represented
thereby will be voted in accordance with the instructions marked thereon or, if
no instructions are marked thereon, will be voted in the discretion of the
persons named on the proxy card. Accordingly, unless instructions to the
contrary are marked thereon, a properly executed and returned proxy will be
voted FOR the proposal to approve the new investment sub-advisory agreement and
at the discretion of the named proxies on any other matters that may properly
come before the Meeting, 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, 120
East Liberty Drive, Suite 400, Wheaton, Illinois 60187, for inspection by any
shareholder during regular business hours prior to 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.
Broker-dealer firms holding Shares in "street name" for the benefit of their
customers and clients may request voting instructions from such customers and
clients. Because broker-dealers may be subject to rules which will not permit
them to vote your Shares without instructions, you are encouraged to contact
your broker-dealer and record your voting instructions.
Proxy solicitations will be made largely by mail, but may include
telephonic, electronic or oral communication by officers and service providers
of the Fund, as well as affiliates of such service providers. A proxy
solicitation firm, AST Fund Solutions, LLC, has also been engaged to solicit
proxies at a cost which is expected to be approximately $40,000. This cost, as
well as the costs of preparing, printing and mailing the enclosed proxy,
accompanying notice and this Proxy Statement, and all other costs in connection
with the solicitation of proxies to be voted at the Meeting, will be shared
equally by the Fund and the Advisor. The Fund and the Advisor will also share
equally the costs incurred to reimburse brokerage firms for their expenses in
forwarding solicitation materials to the beneficial owners of Shares.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE SHAREHOLDER MEETING TO BE HELD ON SEPTEMBER 16, 2013. THIS PROXY STATEMENT
IS AVAILABLE ON THE INTERNET AT: HTTP://WWW.FTPORTFOLIOS.COM/LOADCONTENT/
GWHUYQJIGO. THE FUND'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS ARE ALSO
-2-
AVAILABLE ON THE INTERNET AT: HTTP://WWW.FTPORTFOLIOS.COM/RETAIL/CEF/
CEFFUNDNEWS.ASPX?TICKER=FAV. THE FUND WILL FURNISH, WITHOUT CHARGE, COPIES OF
ITS MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS TO ANY SHAREHOLDER UPON REQUEST.
TO REQUEST A COPY, PLEASE WRITE TO THE ADVISOR AT 120 EAST LIBERTY DRIVE, SUITE
400, WHEATON, ILLINOIS 60187, OR CALL (800) 988-5891.
YOU MAY CALL (800) 988-5891 FOR INFORMATION ON HOW TO OBTAIN DIRECTIONS TO
BE ABLE TO ATTEND THE MEETING AND VOTE IN PERSON.
In order that your Shares may be represented at the Meeting, please vote
your proxy as soon as possible either by mail, by telephone or through the
Internet, as indicated on the enclosed proxy card. If voting by mail, 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 3:30
P.M. CENTRAL TIME, on MONDAY, SEPTEMBER 16, 2013. (However, proxies
received after this date may still be voted in the event of an
adjournment or postponement to a later date.)
-3-
BACKGROUND AND REASON FOR VOTE
Aviance Capital Management, LLC ("Aviance") currently serves as the
investment sub-adviser to the Fund under an Investment Sub-Advisory Agreement
dated January 3, 2011 among the Fund, Aviance and the Advisor (the "Aviance
Sub-Advisory Agreement"), that will expire on June 30, 2013. At a meeting of the
Board of Trustees of the Fund (the "Board") held on June 9-10, 2013 (the "Board
Meeting"), the Board considered renewal of the Aviance Sub-Advisory Agreement
for another one-year period upon its expiration. Over the course of several
meetings prior to the Board Meeting, in connection with its ongoing oversight of
the Fund, the Board had considered information provided by the Advisor and held
discussions regarding various alternatives presented by the Advisor to address
the Fund's underperformance (in terms of both share price and net asset value)
relative to its benchmarks and peer group average and to narrow its trading
discount. Ultimately, the Advisor recommended that the Aviance Sub-Advisory
Agreement not be renewed and that Aviance be replaced by Chartwell. Accordingly,
after careful consideration, based on the Advisor's recommendation, the Board
determined that the appointment of Chartwell as the Fund's new investment
sub-adviser was in the best interests of the Fund and did not renew the Aviance
Sub-Advisory Agreement at the Board Meeting.
As a related matter, because it appears that certain of the Fund's
investment strategies may have contributed to its performance issues, the Board,
at the Board Meeting, approved a repositioning of the Fund's portfolio (the
"Repositioning") including, among other things, certain changes to the Fund's
investment strategies, including changes proposed by Chartwell, as described in
more detail below. In making its recommendation that Chartwell be appointed as
the Fund's sub-adviser, the Advisor indicated to the Board that it believed
Chartwell was well-qualified to serve as sub-adviser to the Fund both during the
Repositioning transition and once the Repositioning is completed, and noted
Chartwell's experience and expertise in managing investment strategies similar
to certain of those contemplated by the Repositioning (i.e., investment
strategies for the Equity Component and the Options Strategy, as defined below),
as well as its track record in serving as the investment sub-adviser to the
First Trust Enhanced Equity Income Fund, another closed-end fund in the First
Trust Fund Complex overseen by the Board. The Repositioning is not subject to
shareholder approval.
As permitted under the Investment Company Act of 1940, as amended (the
"1940 Act"), at the Board Meeting, to ensure the continuation of investment
sub-advisory services to the Fund after the expiration of the Aviance
Sub-Advisory Agreement on June 30, 2013 (the "Termination Date"), the Board,
including a majority of the Trustees who are not "interested persons," as that
term is defined in the 1940 Act, of the Fund (such Trustees, the "Independent
Trustees"), approved an interim sub-advisory agreement (the "Interim
Sub-Advisory Agreement") among the Advisor, the Fund and Chartwell. The Interim
Sub-Advisory Agreement will become effective on July 1, 2013. In addition, at
the Board Meeting, the Board, including a majority of the Independent Trustees,
approved, subject to shareholder approval, a new investment sub-advisory
agreement (the "New Sub-Advisory Agreement") among the Advisor, the Fund and
Chartwell.
Section 15(a) of the 1940 Act generally requires that investment advisory
agreements (including investment sub-advisory agreements) be approved by
shareholders; however, Rule 15a-4 promulgated under the 1940 Act ("Rule 15a-4")
provides a temporary exemption from the shareholder approval requirement if a
previous advisory contract was terminated due to certain events, including
failure to renew the contract. Pursuant to Rule 15a-4, the Interim Sub-Advisory
Agreement will be in effect no longer than through November 27, 2013 (i.e., 150
days after the Termination Date, referred to as the "Interim Termination Date").
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If shareholders of the Fund do not approve the New Sub-Advisory Agreement by the
Interim Termination Date, the Board will take such action as it deems to be in
the best interests of the Fund. The Interim Sub-Advisory Agreement will
automatically terminate upon the approval by shareholders of the New
Sub-Advisory Agreement. In addition, the Interim Sub-Advisory Agreement may be
terminated by action of the Board or by a vote of a majority of the outstanding
voting securities (as defined in the 1940 Act and rules and regulations
promulgated thereunder) of the Fund upon 60 days' written notice to Chartwell.
DESCRIPTION OF THE REPOSITIONING
PLEASE NOTE THAT THE REPOSITIONING DOES NOT REQUIRE SHAREHOLDER APPROVAL AND,
THEREFORE, YOU ARE NOT BEING ASKED TO VOTE TO APPROVE IT. A brief description of
the Repositioning is set forth below. The Advisor recommended and the Board
approved the changes to the investment strategies of the Fund contemplated by
the Repositioning. Although the Repositioning does not require shareholder
approval, implementation of certain of the investment strategy changes requires
60 days' advance notice to shareholders. The description of the Repositioning
set forth below and elsewhere in the proxy materials, together with the separate
notice entitled "Important Notice Regarding Change in Investment Policy" that
accompanies the proxy materials, constitute such 60 days' advance notice.
POTENTIAL BENEFITS OF THE REPOSITIONING
The Advisor and the Board believe that by combining investments in debt
and equity securities (to generate both dividend and interest income) and
applying a revised options strategy to the equity portion of the portfolio (to
manage risk and generate income from options premiums), the Repositioning may
help the Fund to generate current income while potentially reducing volatility.
If these results are achieved, the Fund's performance may improve, which may
contribute to increased secondary market demand for the Fund's shares. Of
course, no assurance can be given that the Repositioning will be successful,
that the desired results will be achieved, that the Fund's performance will
improve or that secondary market demand for the Fund's shares will increase.
INVESTMENT OBJECTIVES
The Fund's current primary investment objective is to seek a high level of
current income. It has a secondary objective of capital appreciation. The Fund's
investment objectives will not change as a result of the Repositioning.
INVESTMENT STRATEGIES
PRE-REPOSITIONING
Currently, under normal market conditions, the Fund invests at least 80%
of its Currently Defined Managed Assets (defined as the average daily gross
asset value of the Fund (which includes assets attributable to the Fund's
Preferred Shares, if any, and the principal amount of borrowings (i.e., issuance
by the Fund of commercial paper or notes and/or other borrowings)), minus the
sum of the Fund's accrued and unpaid dividends on any outstanding Preferred
Shares and accrued liabilities (other than the principal amount of any
borrowings incurred and the liquidation preference of any outstanding Preferred
Shares)) in a diversified portfolio of dividend-paying multi-cap equity
securities of both U.S. and non-U.S. issuers that the Fund's sub-adviser
believes offer the potential for attractive income and/or capital appreciation.
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Equity securities in which the Fund may invest include common stocks, preferred
stocks, convertible securities, American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and warrants,
all of which generally trade on a U.S. national securities exchange. The Fund
may, from time to time, also invest a portion of its Currently Defined Managed
Assets in real estate investment trusts ("REITs"), master limited partnerships
("MLPs"), exchange-traded funds ("ETFs") and U.S. government securities, and
does not invest more than 20% of its Currently Defined Managed Assets in MLPs.
The Fund currently combines four quantitative and fundamental research-driven
investment strategies -- value, growth, dividend capture rotation and special
dividends identification -- with the aim of providing a balanced approach to
income, capital gains and tax efficiency. The Fund currently also may write call
options on stock indices and single stocks on up to 50% of the Fund's portfolio
value.
The Fund may seek to enhance the level of dividend income it receives by
engaging in dividend capture trading. In a dividend capture trade, the Fund
sells a stock on or shortly after the stock's ex-dividend date and uses the sale
proceeds to purchase one or more other stocks that are expected to pay dividends
before the next dividend payment on the stock being sold.
In addition, the Fund may, but is not required to, use various strategic
transactions to seek to: (i) reduce interest rate risks arising from any use of
financial leverage; (ii) facilitate portfolio management; (iii) mitigate risks,
including interest rate, currency and credit risks; and/or (iv) earn income. The
Fund may purchase and sell derivative investments such as exchange-listed and
over-the-counter put and call options on currencies, securities, fixed-income,
currency and interest rate indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, and enter into various
interest rate and currency transactions such as swaps, caps, floors or collars
or credit transactions and credit derivative instruments. The Fund also may
purchase derivative instruments that combine features of these instruments.
REPOSITIONED FUND
GENERAL
Upon completion of the Repositioning, it is anticipated that the Fund
will seek to achieve its investment objectives by investing at least 80% of its
Managed Assets (as defined below) in a diversified portfolio of dividend-paying
multi-cap equity securities, debt securities and senior, secured floating rate
loans ("Senior Loans") that offer the potential for attractive income and/or
capital appreciation. The Fund's portfolio will consist of two components: (1)
the "Equity Component," which will consist primarily of equity securities of
both U.S. and non-U.S. issuers of any market capitalization that are readily
traded on a registered U.S. national securities exchange ("Equity Securities");
and (2) the "Senior Loan/High Yield Debt Component," which will primarily
consist of Senior Loans and debt securities that are rated below investment
grade (i.e., "junk bonds") or unrated at the time of purchase and deemed to be
of comparable credit quality ("High Yield Debt Securities"). "Managed Assets"
means the average daily gross asset value of the Fund (which includes assets
attributable to the Fund's Preferred Shares, if any, and the principal amount of
Borrowings (as defined below)), minus the sum of the Fund's accrued and unpaid
dividends on any outstanding Preferred Shares and accrued liabilities (other
than the principal amount of any Borrowings incurred, commercial paper or notes
issued by the Fund). For purposes of determining Managed Assets, the liquidation
preference of any outstanding Preferred Shares is not treated as a liability.
"Borrowings" means the issuance of notes or other borrowings. It is currently
anticipated that Chartwell will be primarily responsible for the day-to-day
management of the Equity Component as well as the Options Strategy (defined and
described below), and the Advisor, through its Leveraged Finance Investment Team
(which currently manages or supervises over $900 million in senior secured bank
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loans and high yield bonds), will be primarily responsible for the Senior
Loan/High Yield Debt Component.
EQUITY COMPONENT
The Equity Securities in which the Fund may invest include common stocks,
preferred securities, convertible securities, ADRs, including American
Depositary Shares ("ADSs"), EDRs, GDRs and warrants, all of which will
generally trade on a registered U.S. national securities exchange. In addition,
Equity Securities also include (including for purposes of the 80% test set
forth above) investments in REITs, MLPs and investment companies, including
ETFs and business development companies ("BDCs").
SENIOR LOAN/HIGH YIELD DEBT COMPONENT
The Senior Loans and High Yield Debt Securities in which the Fund intends
to invest are generally described below. The Fund does not currently intend to
apply a maturity strategy to the Senior Loan/High Yield Debt Component.
Senior Loans. Senior Loans in which the Fund may invest are made to
U.S. and non-U.S. corporations, partnerships and other business entities,
including entities from emerging market countries, which operate in various
industries and geographical regions (collectively, "Borrowers"). Senior Loans
generally hold one of the most senior positions in the capital structure of the
Borrower, are secured with specific collateral and have a claim on the assets
and/or stock of the Borrower that is senior to that held by unsecured creditors,
subordinated debt holders and stockholders of the Borrower. Senior Loans pay
interest at rates which are determined periodically on the basis of a floating
base lending rate, primarily the London-Interbank Offered Rate ("LIBOR"), plus a
risk premium.
Senior Loans generally are negotiated between a Borrower and several
financial institution lenders ("Lenders") represented by one or more Lenders
acting as agent of all the Lenders ("Agent"). The Agent is responsible for
negotiating the loan agreement (the "Loan Agreement") that establishes the terms
and conditions of the Senior Loan and the rights of the Borrower and the
Lenders. The Fund may act as one of the group of original Lenders originating a
Senior Loan, may purchase assignments of portions of Senior Loans from third
parties and may invest in participations in Senior Loans. The Fund's investments
in Senior Loans will primarily consist of assignments. Investments in
participations are expected to represent a minor portion of the Fund's
portfolio. Senior Loans may include certain senior debt that is in the form of
notes and not Loan Agreements.
Senior Loans are typically rated below investment grade. Below investment
grade securities are rated below "BBB-" by Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies ("S&P"), or Fitch Ratings, Inc. ("Fitch"),
below "Baa3" by Moody's Investors Service, Inc. ("Moody's") or comparably rated
by another nationally recognized statistical rating organization ("NRSRO") or,
if unrated, determined by the Advisor to be of comparable credit quality at the
time of purchase. Below investment grade securities are commonly referred to as
"junk" or "high yield" securities and are considered speculative with respect to
the issuer's capacity to pay interest and repay principal. All of the Fund's
Senior Loan investments will be secured by specific assets of the Borrower.
Senior Loans also have contractual terms designed to protect Lenders.
High Yield Debt Securities. High Yield Debt Securities in which the Fund
may invest include obligations typically issued by corporations to borrow money
from investors, such as corporate bonds, debentures, notes and other similar
types of corporate debt instruments. Issuers of High Yield Debt Securities
include small or relatively new companies lacking the history or capital to
merit investment grade status, former blue chip companies downgraded because of
financial problems, companies electing to borrow heavily to finance or avoid a
takeover or buyout and firms with heavy debt loads. High Yield Debt Securities
are rated below investment grade or unrated at the time of purchase and deemed
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to be of comparable credit quality. As indicated above, below investment grade
securities are commonly referred to as "junk" or "high yield" securities and are
considered speculative with respect to the issuer's capacity to pay interest and
repay principal.
ADDITIONAL INVESTMENT GUIDELINES
Further, under normal market conditions, the Fund also intends to apply
the following guidelines to its investments:
o the Fund will invest a majority of its Managed Assets in a
diversified portfolio of dividend-paying Equity Securities;
o the Fund may invest up to 25% of its Managed Assets in U.S.
dollar-denominated Equity Securities of non-U.S. issuers;
o the Fund will not invest more than 20% of its Managed Assets in MLPs;
o the Fund may invest up to 10% of its Managed Assets in Equity
Securities of other investment companies (including ETFs and BDCs) that
invest primarily in securities of the type in which the Fund may invest
directly; and
o up to 100% of the Senior Loan/High Yield Debt Component may
consist of below investment grade securities.
OPTIONS STRATEGY
Because the Fund's ability to write call options will no longer be
limited to 50% of its portfolio value, the Fund may increase its use of options.
On an ongoing and consistent basis, the Fund expects to write covered call
options (which is the sale of call options) on equity indices and/or Equity
Securities within the Equity Component. The Fund will receive current income (in
the form of premiums received for writing (selling) the call options) and, in
exchange for the premium paid, the buyer of a call option will have the right,
but not the obligation, to purchase the security underlying the option (or the
cash value of the index underlying the option) on or before one or more future
dates (each, an "expiration date") at a specified price (the "strike price"),
without regard to the market price. The price of an option is determined from
trading activity in the broad options market, and generally reflects the
relationship between the market price for the underlying securities (including
those comprising an index) and the strike price, as well as the time remaining
until the expiration date. The Fund will normally write (sell) covered call
options against equity indices and/or Equity Securities with strike prices and
expiration dates that are collectively intended to provide risk/reward
characteristics that are consistent with the Fund's investment objectives (the
"Options Strategy"). Of course, no assurance can be given that the Options
Strategy will be successful.
A securities index assigns relative values to the securities included
in the index (which change periodically), and the index fluctuates with changes
in the market values of those securities. An index option typically relates to
the securities included in that index. The exercise of an index option requires
a cash payment and does not involve the actual purchase or sale of securities.
The Fund may write options on "broad-based" market indices, as well as on
narrower indices, such as those in respect of select sectors. Upon exercise, the
writer of an option on an index is required to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option.
The Fund intends to write call options only if they are "covered." The
Fund will not write (sell) "naked" call options (e.g., options on more Equity
Securities than are held in the Fund's portfolio). As a result, the number of
call options the Fund can write (sell) on individual securities will normally be
limited by the number of securities in the Equity Component. In the case of a
call option on an individual security, the option will be "covered" if the Fund
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owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or other assets determined to be liquid by
the Fund's investment sub-adviser (in accordance with procedures approved by the
Board) in such amount are segregated by the Fund's custodian) upon conversion or
exchange of other securities held by the Fund. In the case of a call option on
an index, the option will be "covered" if the Fund owns a portfolio of stocks
substantially replicating the movement of the index. A call option on a security
or index also will be "covered" if the Fund holds a call on the same security or
index as the call written where the strike price of the call held is (i) equal
to or less than the strike price of the call written; or (ii) greater than the
strike price of the call written, provided the difference is maintained by the
Fund in earmarked or segregated cash or liquid securities.
It is anticipated that the Fund will primarily write (sell) options
that are "out-of-the-money" (i.e., that have a strike price that is generally
above the current market value of the underlying security or the current cash
value of the underlying index); however, the Fund may also write (sell) options
that are "in-the-money" (i.e., that have a strike price that is generally below
the current market value of the underlying security or the current cash value of
the underlying index) or "at-the-money" (i.e., that have a strike price that is
equal to the current market value of the underlying security or the current cash
value of the underlying index).
STRATEGIC TRANSACTIONS
In addition to writing (selling) covered call options, the Fund may
enter into certain other derivative transactions ("Strategic Transactions") to
seek to manage the risks of the Fund's portfolio securities or for other
purposes to the extent the Advisor or the sub-adviser determines that the use of
Strategic Transactions is consistent with the Fund's investment objectives and
policies and applicable regulatory requirements. For instance, the Fund may
purchase call options and purchase and sell put options on equity indices and/or
Equity Securities within the Equity Component. The market value of the Fund's
Strategic Transactions, if any, will be counted towards the Fund's investment,
under normal market conditions, of at least 80% of its Managed Assets in Equity
Securities, Senior Loans and High Yield Debt Securities, as discussed above, to
the extent the Strategic Transactions have economic characteristics similar to
such Equity Securities, Senior Loans and High Yield Debt Securities. Certain of
the Fund's Strategic Transactions, if any, may provide investment leverage to
the Fund's portfolio. Other than writing (selling) covered call options, the
Fund does not intend to enter into Strategic Transactions as a principal part of
its investment strategy.
LEVERAGE
Although it is authorized to utilize leverage, the Fund currently has no
outstanding leverage. As a result of the Repositioning, the Fund is initially
expected to utilize leverage through Borrowings in an amount up to 25% of the
Fund's Managed Assets to seek to enhance its potential for current income. To
the extent leverage is used, the Fund is expected to invest the funds raised
through leverage in Senior Loans and High Yield Debt Securities. The Fund
initially anticipates that, under normal market conditions, it will utilize
leverage through Borrowings under a revolving credit facility representing
approximately 25% of the Fund's Managed Assets. The use of leverage is a
speculative technique and there can be no assurance that a leveraging strategy
will be successful.
RISKS
Many of the principal risks of investing in the Fund currently will also
apply to the repositioned Fund. For example, the Fund will continue to be
subject to, among others, equity securities risk; investment and market risk;
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management risk; MLP risk; non-U.S. securities risk; emerging markets risk;
convertible securities risk; and portfolio turnover risk. However, as a result
of the Repositioning, including in particular the addition of the Senior
Loan/High Yield Debt Component, the implementation of the Options Strategy and
the anticipated use of leverage, the Fund will be exposed to certain new and/or
heightened risks that are associated with these strategies, including the
following:
Senior Loan Risk. An investment in Senior Loans involves risk that the
Borrowers under Senior Loans may default on their obligations to pay principal
or interest when due. Such payment defaults would result in a reduction of
income to the Fund, a reduction in the value of the investment and a potential
decrease in the net asset value of the Fund. An economic downturn would
generally lead to a higher non-payment rate, and a Senior Loan may lose
significant market value before a default occurs. Moreover, any specific
collateral used to secure a Senior Loan may decline in value or become illiquid,
which would adversely affect the Senior Loan's value. There can be no assurance
that any collateral could be readily liquidated or that the liquidation of such
collateral would satisfy the Borrower's obligation in the event of non-payment
of scheduled interest or principal. In the event of the bankruptcy or insolvency
of a Borrower, the Fund could experience delays and limitations on its ability
to realize the benefits of the collateral securing the Senior Loan.
Additionally, certain Senior Loans may have a lower than first lien priority on
collateral of the Borrower and, as such, these loans are subject to the
additional risk that the cash flow of the Borrower and property securing the
loan or debt, if any, may be insufficient to meet scheduled payments after
giving effect to those loans with a higher priority. If the Fund acquires a
Senior Loan from another Lender, for example, by acquiring a participation, the
Fund may also be subject to credit risks with respect to that Lender. Senior
Loans are typically structured as floating rate instruments in which the
interest rate payable on the obligation fluctuates with interest rate changes.
As a result, the yield on Senior Loans will generally decline in a falling
interest rate environment causing the Fund to experience a reduction in the
income it receives from a Senior Loan. Senior Loans are generally below
investment grade quality and may be unrated at the time of investment; are
generally not registered with the Securities and Exchange Commission ("SEC") or
state securities commissions; and are generally not listed on any securities
exchange. Illiquidity and adverse market conditions may mean that the Fund may
not be able to sell Senior Loans quickly or at a fair price. In addition, the
amount of public information available on Senior Loans is generally less
extensive than that available for other types of assets.
Debt Securities Risk. Debt securities are subject to certain risks,
including: (i) issuer risk (the risk that the value of debt securities may
decline for a number of reasons which directly relate to the issuer); (ii)
interest rate risk (the risk that debt securities will decline in value because
of changes in market interest rates); (iii) liquidity risk (the risk that the
securities will not be able to be sold at the time desired by the Fund or at
prices approximating the value at which the Fund is carrying the securities on
its books); (iv) prepayment risk (the risk that during periods of declining
interest rates, the issuer of a security may exercise its option to prepay
principal earlier than scheduled, forcing the Fund to reinvest the proceeds
from such prepayment in lower yielding securities); and (v) reinvestment risk
(the risk that income from the Fund's portfolio will decline if the Fund
invests the proceeds from matured, traded or called bonds at market interest
rates that are below the Fund portfolio's current earnings rate).
Credit and Below Investment Grade Securities Risk. Credit risk is the risk
that an issuer of a security may be unable or unwilling to make dividend,
interest and principal payments when due and the related risk that the value of
a security may decline because of concerns about the issuer's ability or
willingness to make such payments. Credit risk may be heightened for the Fund
because it may invest in below investment grade securities, such as certain of
the Senior Loans and High Yield Debt Securities in which it invests, which are
commonly referred to as "junk" or "high yield" securities; such securities,
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while generally offering higher yields than investment grade debt with similar
maturities, involve greater risks, including the possibility of dividend or
interest deferral, default or bankruptcy, and are regarded as predominantly
speculative with respect to the issuer's capacity to pay dividends or interest
and repay principal. Below investment grade securities are issued by companies
that may have limited operating history, narrowly focused operations and/or
other impediments to the timely payment of periodic interest and principal at
maturity. These securities are susceptible to default or decline in market value
due to adverse economic and business developments and are often unsecured and
subordinated to other creditors of the issuer. The market values for below
investment grade securities tend to be very volatile, and these securities are
generally less liquid than investment grade securities.
Credit Rating Agency Risk. Credit ratings are determined by credit rating
agencies such as S&P, Moody's and Fitch, and are only the opinions of such
entities. Ratings assigned by a rating agency are not absolute standards of
credit quality and do not evaluate market risk or the liquidity of securities.
Consequently, securities with the same maturity, duration, coupon and rating may
have different yields. Any shortcomings or inefficiencies in credit rating
agencies' processes for determining credit ratings may adversely affect the
credit ratings of securities held by the Fund and, as a result, may adversely
affect those securities' perceived or actual credit risk.
Valuation Risk. Unlike publicly traded common stock that trades on
national exchanges, there is no central place or exchange for trading of certain
other securities in which the Fund may invest, such as Senior Loans and High
Yield Debt Securities. High Yield Debt Securities generally trade on an
over-the-counter ("OTC") market which may be anywhere in the world where the
buyer and seller can settle on a price. Senior Loans are typically bought and
sold by institutional investors in individually negotiated private transactions
that function in many respects like an OTC secondary market. Due to the lack of
centralized information and trading, the valuation of Senior Loans and High
Yield Debt Securities may carry more risk than that of common stock. The Fund
may be subject to the risk that when a Senior Loan or High Yield Debt Security
is sold in the market, the amount received by the Fund is less than the value of
such Senior Loan or High Yield Debt Security carried on the Fund's books.
Credit Crisis Liquidity and Volatility Risk. The markets for credit
instruments, including Senior Loans and High Yield Debt Securities, have
experienced periods of extreme illiquidity and volatility since the latter half
of 2007. There can be no assurance that conditions such as those prevalent
during the recent credit crisis will not occur in the future. During this
period, liquidity in these markets was significantly reduced. General market
uncertainty and consequent repricing risk led to market imbalances of sellers
and buyers, which in turn resulted in significant valuation uncertainties in a
variety of debt securities, including Senior Loans and High Yield Debt
Securities. In addition, several major dealers of debt securities exited the
market via acquisition or bankruptcy during this period. These conditions
resulted in, and in certain cases continue to result in, greater volatility,
less liquidity, widening credit spreads and a lack of price transparency, with
certain debt securities remaining illiquid and of uncertain value.
Interest Rate Manipulation Risk. According to various reports, certain
financial institutions, commencing as early as 2005 and throughout the global
financial crisis, may have routinely made artificially low submissions in the
LIBOR rate setting process. Since June 2012, at least two such financial
institutions have been fined a significant amount by various financial
regulators in connection with allegations of manipulation of LIBOR rates.
Investigations of other financial institutions for similar actions in various
countries are ongoing. These developments may have adversely affected the
interest rates on securities whose interest payments were determined by
reference to LIBOR, including Senior Loans in which the Fund may invest. Any
future similar developments could, in turn, positively or negatively impact the
value of such securities owned by the Fund. In addition, regulatory actions
taken in response to these developments may result in changes to the manner in
which LIBOR is determined. Uncertainty as to the nature of such potential
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changes, including the use of alternative interest rate setting procedures, may
adversely affect the trading market for LIBOR-based instruments, including
Senior Loans.
Leverage Risk. The use of leverage by the Fund can magnify the effect of
any losses. If the income and gains from the securities and investments
purchased with leverage proceeds do not cover the cost of leverage, the return
to the common shares will be less than if leverage had not been used. Moreover,
leverage involves additional risks and special considerations for common
shareholders including: (i) the likelihood of greater volatility of net asset
value and market price of common shares than a comparable portfolio without
leverage; (ii) the risk that fluctuations in interest rates on Borrowings and
short-term debt or in the dividend rates on any Preferred Shares that the Fund
may pay will reduce the return to the common shareholders or will result in
fluctuations in the dividends paid on the common shares; and (iii) the effect
of leverage in a declining market, which is likely to cause a greater decline
in the net asset value of the common shares than if the Fund were not
leveraged, which may result in a greater decline in the market price of the
common shares. In addition, shareholders should be aware that the investment
advisory fee payable to the Advisor will be, and the sub-advisory fee payable
by the Advisor to the sub-adviser may be, higher than if the Fund did not use
leverage because "managed assets" for purposes of computing such fees includes
the proceeds of leverage. There is no assurance that a leveraging strategy will
be successful.
Covered Call Options Risk. There are various risks associated with the Fund
writing (or selling) covered call options. As the writer (seller) of a call
option, the Fund would receive cash (the premium) from the purchaser of the
option, and the purchaser would have the right to receive from the Fund any
appreciation in the underlying security (or the cash value of the index) over
the strike price upon exercise. In effect, the Fund would forgo, during the life
of the option, the opportunity to profit from increases in the market value of
the underlying security or securities held by the Fund with respect to which the
option was written above the sum of the premium and the strike price of the call
option (which, for index options, will depend in part on the extent of
correlation of the performance of the securities in the Equity Component with
the performance of the relevant index), but would retain the risk of loss should
the price of the underlying security or index decline. Therefore, the writing
(or selling) of covered call options may limit the Fund's ability to benefit
from the full upside potential of its investment strategies. In addition, the
value of call options written by the Fund is determined by trading activity in
the broad options market and will be affected by, among other factors, changes
in the value of the underlying security or securities (including those
comprising an index) in relation to the strike price, changes in dividend rates
of the underlying security or securities, changes in interest rates, changes in
actual or perceived volatility of the stock market and the underlying security
or securities and the time remaining until the expiration date. The value of a
call option written by the Fund may be adversely affected if the market for the
option is reduced or becomes illiquid. There is no assurance that the Options
Strategy will be successful.
BDC Risk. Because BDCs typically invest in small and medium-sized
companies, a BDC's portfolio is subject to the risks inherent in investing in
smaller companies, including that portfolio companies may be dependent on a
small number of products or services and may be more adversely affected by poor
economic or market conditions. Some BDCs invest substantially, or even
exclusively, in one sector or industry group. Accordingly, the BDC may be
susceptible to adverse conditions and economic or regulatory occurrences
affecting the sector or industry group, which tends to increase the BDC's
volatility and risk. Investments made by BDCs are generally subject to legal and
other restrictions on resale and are otherwise less liquid than publicly traded
securities. BDC shares are not redeemable at the option of the shareholder and
they may trade in the secondary market at a discount to their net asset value.
Like an investment in other investment companies, the Fund will indirectly bear
its proportionate share of any management and other expenses charged by the BDCs
-12-
in which it invests. The BDCs held by the Fund may employ the use of leverage
through borrowings or the issuance of preferred stock. While leverage often
serves to increase the yield of a BDC, this leverage also subjects a BDC to
increased risks, including the likelihood of increased volatility and the
possibility that a BDC's common share income will fall if the dividend rate of
the preferred shares or the interest rate on any borrowings rises.
Please note that the above discussion does not include all of the risks
associated with an investment in the Fund, but rather briefly summarizes certain
new and/or heightened risks that will be presented as a result of the
Repositioning.
PORTFOLIO MANAGEMENT
It is currently expected that Bernard P. Schaffer, Douglas W. Kugler and
Peter M. Schofield, all of whom are portfolio managers with Chartwell, will be
responsible for the management of the Fund's portfolio allocated to the Equity
Component, as well as the Options Strategy. Biographical information for these
portfolio managers is set forth under "Proposal: Approval of a New Investment
Sub-Advisory Agreement for the Fund -- Portfolio Management."
It is currently expected that the portfolio managers identified below,
both of whom are members of the Advisor's Leveraged Finance Investment Team,
which currently manages or supervises over $900 million in senior secured bank
loans and high yield bonds, will be responsible for the management of the Fund's
portfolio allocated to the Senior Loan/High Yield Debt Component.
WILLIAM HOUSEY, CFA
SENIOR VICE PRESIDENT, SENIOR PORTFOLIO MANAGER
William Housey, CFA, joined First Trust Advisors in June 2010 as Senior
Portfolio Manager for the Leveraged Finance Investment Team and has 16 years of
investment experience. Mr. Housey is a Senior Vice President of First Trust
Advisors. Prior to joining First Trust Advisors, Mr. Housey was at Morgan
Stanley/Van Kampen Funds, Inc. for 11 years and served as Executive Director and
Co-Portfolio Manager. Mr. Housey has extensive experience in portfolio
management of both leveraged and unleveraged credit products, including Senior
Loans, high-yield bonds, credit derivatives and corporate restructurings. Mr.
Housey received a B.S. in Finance from Eastern Illinois University and an M.B.A.
in Finance as well as Management and Strategy from Northwestern University's
Kellogg School of Business. He also holds the FINRA Series 7, Series 52 and
Series 63 licenses. Mr. Housey also holds the Chartered Financial Analyst
designation. He is a member of the CFA Institute and the CFA Society of Chicago.
SCOTT D. FRIES, CFA
VICE PRESIDENT, PORTFOLIO MANAGER
Scott Fries, CFA, joined First Trust Advisors in June 2010 as Co-Portfolio
Manager in the Leveraged Finance Investment Team and has 18 years of investment
industry experience. Mr. Fries is a Vice President of First Trust Advisors.
Prior to joining First Trust Advisors, Mr. Fries spent 15 years at Morgan
Stanley/Van Kampen Funds, Inc, where he most recently served as Executive
Director and Co-Portfolio Manager of Institutional Separately Managed Accounts.
Mr. Fries received a B.A. in International Business from Illinois Wesleyan
University and an M.B.A. in Finance from DePaul University. Mr. Fries holds the
Chartered Financial Analyst designation. He is a member of the CFA Institute and
the CFA Society of Chicago.
-13-
ASSOCIATED TRADING COSTS
The Fund will need to buy and sell securities to effect the Repositioning.
The Fund pays trading costs, such as commissions or dealer mark-ups, when it
buys and sells securities. It is anticipated that the Repositioning will result
in increased portfolio turnover, which will result in higher explicit (i.e.,
trading commissions) and implicit (i.e., dealer mark-ups) transaction costs than
might otherwise be incurred. Any such costs incurred will initially reduce the
total return on net asset value to shareholders. The Advisor and the Board
believe that the potential benefits of the Repositioning should outweigh the
reduction in the Fund's net asset value due to the trading costs associated with
the Repositioning; however, no assurance can be given that any potential
benefits will be realized. In addition, it should be noted that the Fund
currently operates under strategies that have resulted in high portfolio
turnover and, although no assurance can be provided, the implementation of the
Repositioning is anticipated to reduce the Fund's annual portfolio turnover rate
going forward.
NAME CHANGE
The Fund will change its name to First Trust Dividend and Income Fund on
July 1, 2013.
IMPLEMENTATION
When Chartwell begins managing the Fund under the Interim Sub-Advisory
Agreement effective July 1, 2013, it may employ certain investment practices and
techniques that differ from those that Aviance has used in managing the Fund,
but that are consistent with the strategies and policies that were set forth in
the Fund's most recent prospectus and statement of additional information or
that were subsequently disclosed and became effective. Otherwise, it is
currently expected that the process to effect the Repositioning will begin on or
about September 17, 2013. As indicated above, the Repositioning is not subject
to shareholder approval. Moreover, the Repositioning is not contingent upon
approval of the New Sub-Advisory Agreement and is expected to be implemented (in
whole or in part) even if shareholders do not approve the New Sub-Advisory
Agreement.
PROPOSAL: APPROVAL OF A NEW INVESTMENT SUB-ADVISORY AGREEMENT FOR THE FUND
INFORMATION ABOUT THE AVIANCE SUB-ADVISORY AGREEMENT
Aviance currently serves as investment sub-adviser to the Fund pursuant to
the Aviance Sub-Advisory Agreement. Aviance has served as the sub-adviser to the
Fund since the Fund's inception on September 20, 2007. The Aviance Sub-Advisory
Agreement was last approved by shareholders of the Fund at a special meeting
held on January 3, 2011 at which shareholder approval was sought because a prior
sub-advisory agreement, also among the Fund, the Advisor and Aviance, had
terminated as the result of an automatic assignment in connection with a change
in control of the Advisor. Since the beginning of the Fund's last fiscal year,
the continuation of the Aviance Sub-Advisory Agreement was approved by the Board
at a meeting held on June 10-11, 2012.
For the Fund's last fiscal year, (i) the aggregate amount of advisory fees
paid by the Fund to the Advisor was $749,278; and (ii) the aggregate amount of
fees paid by the Advisor to Aviance under the Aviance Sub-Advisory Agreement was
$374,639. In addition, the Fund paid $9,250 to the Advisor for certain services
pertaining to fund reporting.
-14-
INFORMATION ABOUT CHARTWELL
General Information
Chartwell, located at 1235 Westlakes Drive, Berwyn, Pennsylvania 19312, is
an SEC-registered investment adviser. Founded in 1997, Chartwell is an
employee-owned investment firm focusing on institutional, sub-advisory, and
private client relationships. The firm is a quality-based equity and
fixed-income manager with a disciplined, team-oriented investment process. As of
May 31, 2013, Chartwell had 48 employees and approximately $6.3 billion of
assets under management.
Organizational Information
Chartwell is a Pennsylvania limited partnership. The general partner of
Chartwell is Chartwell GP, Inc. ("Chartwell GP"), a Pennsylvania corporation
that has elected to be treated as an "S corporation" for federal income tax
purposes. The address of Chartwell GP is 1235 Westlakes Drive, Berwyn,
Pennsylvania 19312. Chartwell GP owns 1% of Chartwell and currently has nine
equal shareholders, six of whom are employees or retired employees of Chartwell,
and three of whom are limited partners of Maverick Partners, L.P. ("Maverick").
Maverick, a Pennsylvania limited partnership whose general partner is Bobcat
Partners, L.P., a Pennsylvania limited partnership, was formed in 1997 for the
sole purpose of investing seed capital to fund the start of Chartwell's
operations. Limited partnership interests in Maverick are currently held by
various individuals. Maverick currently holds a minority ownership interest in
Chartwell and is not actively involved in the operations of Chartwell. The
remainder of the ownership interests in Chartwell (approximately 75%) are held
by approximately 30 employees and retired employees of Chartwell.
The operations of Chartwell and Chartwell GP are governed by the board of
directors of Chartwell GP (the "Chartwell GP Board"). The names and principal
occupations of the persons who are principal executive officers of Chartwell
and/or Chartwell GP and/or members of the Chartwell GP Board are set forth
below:
------------------------------- ----------------------------------------------------------------------------------------
POSITION(S) WITH CHARTWELL AND CHARTWELL GP AND
NAME PRINCIPAL OCCUPATION
------------------------------- ----------------------------------------------------------------------------------------
Edward N. Antoian Board Member and Vice President (Chartwell GP); Managing Partner and
Senior Portfolio Manager (Chartwell)
------------------------------- ----------------------------------------------------------------------------------------
G. Gregory Hagar Treasurer and Secretary (Chartwell GP); Managing Partner, Chief Financial Officer and
Chief Compliance Officer (Chartwell)
------------------------------- ----------------------------------------------------------------------------------------
R. Radcliffe Hastings Board Member (Chartwell GP); Private Investor
------------------------------- ----------------------------------------------------------------------------------------
Michael J. McCloskey Vice President (Chartwell GP); Managing Partner, President and Director of
Client Services and Marketing (Chartwell)
------------------------------- ----------------------------------------------------------------------------------------
Timothy J. Riddle Board Member and President (Chartwell GP); Managing Partner and
Chief Executive Officer (Chartwell)
------------------------------- ----------------------------------------------------------------------------------------
Bernard P. Schaffer Board Member and Vice President (Chartwell GP); Managing Partner and
Senior Portfolio Manager (Chartwell)
------------------------------- ----------------------------------------------------------------------------------------
The business address for each is 1235 Westlakes Drive, Suite 400, Berwyn,
Pennsylvania 19312.
Similar Fund Sub-Advised by Chartwell
Chartwell currently serves as investment sub-adviser to the First Trust
Enhanced Equity Income Fund (the "Equity Income Fund"), which has an investment
objective similar to that of the Fund. In serving as investment sub-adviser to
the Equity Income Fund, Chartwell uses investment strategies similar to those
which it intends to use in serving the Fund. Information about the size of the
Equity Income Fund and the annual rate of compensation paid to Chartwell for its
services as investment sub-adviser to the Equity Income Fund is set forth below:
-15-
--------------------------------------- ------------------------------------ -------------------------------------
FUND NAME ASSETS UNDER MANAGEMENT AS OF ANNUAL RATE OF COMPENSATION
MAY 31, 2013
--------------------------------------- ------------------------------------ -------------------------------------
First Trust Enhanced Equity Income Approximately $288.2 million 0.50% of managed assets*
Fund
--------------------------------------- ------------------------------------ -------------------------------------
* Chartwell has not waived, reduced or otherwise agreed to reduce its compensation for sub-advisory services
provided to the Equity Income Fund.
THE INTERIM SUB-ADVISORY AGREEMENT
Many of the terms of the Interim Sub-Advisory Agreement are substantially
the same as those of the Aviance Sub-Advisory Agreement; however, in addition to
various updates, there are differences in provisions relating to the effective
date and the term. Unless terminated sooner in accordance with its terms, the
Interim Sub-Advisory Agreement will continue to be in effect until the Interim
Termination Date or until shareholders of the Fund approve the New Sub-Advisory
Agreement, whichever occurs first. In addition, the Interim Sub-Advisory
Agreement may be terminated by action of the Board or by a vote of a majority of
the outstanding voting securities (as defined in the 1940 Act and the rules and
regulations thereunder) of the Fund upon 60 calendar days' written notice to the
sub-adviser, without payment of any penalty.
PORTFOLIO MANAGEMENT
It is currently expected that the portfolio managers identified below will
be responsible for the day-to-day management of the Fund's portfolio under the
Interim Sub-Advisory Agreement and that they will continue to manage the portion
of the Fund's portfolio allocated to the Equity Component, as well as the
Options Strategy, if shareholders approve the New Sub-Advisory Agreement.
BERNARD P. SCHAFFER
MANAGING PARTNER, SENIOR PORTFOLIO MANAGER
Mr. Schaffer is a founding partner of Chartwell and has 42 years of
investment industry experience. He serves as senior portfolio manager for
Chartwell's closed-end fund and hedged large-cap equity strategies and focuses
on securities in the Energy and Financials sectors. He was employed as a Senior
Portfolio Manager at Delaware Investment Advisers from 1990 to 1997, managing
closed-end equity income funds that utilized option strategies to generate
portfolio gains. Mr. Schaffer earned a Bachelor's degree in Economics from
Villanova University and an MBA from the University of Pennsylvania's Wharton
School.
DOUGLAS W. KUGLER, CFA
PRINCIPAL, SENIOR PORTFOLIO MANAGER
Mr. Kugler is a portfolio manager on Chartwell's large-cap equity
portfolio management team and has 16 years of investment industry experience.
His areas of focus include the Consumer Discretionary, Energy, Industrials,
Materials and Technology sectors of the market. From 1993 to 2003, he held
several positions at Morgan Stanley Investment Management (Miller Anderson &
Sherrerd) including Head of Mutual Fund Administration and Vice President and
Treasurer of the MAS Funds, and Junior Associate in the Equity Department, and
his last position held prior to joining Chartwell was Senior Associate and
Analyst for the Large Cap Value team. Mr. Kugler holds the Chartered Financial
-16-
Analyst designation and is a member of the CFA (Chartered Financial Analysts)
Institute and the CFA Society of Philadelphia. Mr. Kugler earned a Bachelor's
degree in Accounting from the University of Delaware.
PETER M. SCHOFIELD, CFA
PRINCIPAL, SENIOR PORTFOLIO MANAGER
Mr. Schofield is a senior portfolio manager on Chartwell's large-cap
equity portfolio management team and has 29 years of investment industry
experience. His areas of focus include the Consumer Staples, Financials, Health
Care, Industrials and Materials sectors of the market. From 2005 to 2010, he was
a Co-Chief Investment Officer at Knott Capital. From 1996 to 2005, he was a
Portfolio Manager at Sovereign Asset Management. Prior to Sovereign Asset
Management, he was a portfolio manager at Geewax, Terker & Company. Mr.
Schofield holds the Chartered Financial Analyst designation and is a member of
the CFA (Chartered Financial Analysts) Institute and the CFA Society of
Philadelphia. Mr. Schofield earned a Bachelor's degree in History from the
University of Pennsylvania.
COMPARISON OF THE NEW SUB-ADVISORY AGREEMENT AND AVIANCE SUB-ADVISORY AGREEMENT
Below is a brief comparison of certain terms of the Aviance Sub-Advisory
Agreement to the corresponding terms of the New Sub-Advisory Agreement. The form
of the New Sub-Advisory Agreement is attached to this Proxy Statement as Exhibit
A and the description of the New Sub-Advisory Agreement is qualified in its
entirety by reference to such Exhibit.
Sub-Advisory Services. Under the Aviance Sub-Advisory Agreement, the
sub-adviser agreed to furnish an investment program in respect of, make
investment decisions for, and place all orders for the purchase and sale of
securities for the Fund's investment portfolio, all on behalf of the Fund and
subject to the supervision of the Fund's Board and the Advisor. Similarly, under
the New Sub-Advisory Agreement, the sub-adviser agrees to furnish an investment
program in respect of, make investment decisions for, and place all orders for
the purchase and sale of securities and other instruments for the Fund's
investment portfolio, all on behalf of the Fund and subject to the supervision
of the Fund's Board and the Advisor. In addition, as was the case under the
Aviance Sub-Advisory Agreement, under the New Sub-Advisory Agreement, the
sub-adviser is required to monitor the Fund's investments and to comply with the
provisions of the Fund's Declaration of Trust and By-Laws and the stated
investment objectives, policies and restrictions of the Fund.
Additional Sub-Advisers. The Aviance Sub-Advisory Agreement included a
provision that, subject to certain conditions, permitted the sub-adviser to
retain one or more additional sub-advisers at its own cost and expense. The New
Sub-Advisory Agreement does not include a corresponding provision.
Brokerage. As was the case under the Aviance Sub-Advisory Agreement, the
New Sub-Advisory Agreement authorizes the sub-adviser to select the brokers or
dealers that will execute the purchases and sales of portfolio investments for
the Fund, and directs the sub-adviser to use its commercially reasonable efforts
to obtain best execution, which includes most favorable net results and
execution of the Fund's orders, taking into account all appropriate factors,
including price, dealer spread or commission, size and difficulty of the
transaction and research or other services provided.
Fees. As was the case under the Aviance Sub-Advisory Agreement, under the
New Sub-Advisory Agreement, the Advisor will pay the sub-adviser a portfolio
management fee on a monthly basis. Under the Aviance Sub-Advisory Agreement, for
-17-
services provided and expenses assumed, the Advisor agreed to pay the
sub-adviser a fee equal to the annual rate of 0.50% of the Fund's "managed
assets." Under the New Sub-Advisory Agreement, in light of the Repositioning and
the addition of the Senior Loan/High Yield Debt Component, which will be
allocated to the Advisor's Leveraged Finance Investment Team, the Advisor agrees
to pay the sub-adviser a fee equal to the annual rate of 0.50% of the Fund's
"managed assets" allocated to the sub-adviser. For purposes of the compensation
provisions included in both the Aviance Sub-Advisory Agreement and the New
Sub-Advisory Agreement, the term "managed assets" is defined to mean the average
daily gross asset value of the Fund (including assets attributable to the Fund's
Preferred Shares, if any, and the principal amount of borrowings, if any), minus
the sum of the Fund's accrued and unpaid dividends on any outstanding Preferred
Shares and accrued liabilities (other than the principal amount of any
borrowings incurred, commercial paper or notes issued by the Fund). For purposes
of determining "managed assets," the liquidation preference of any outstanding
Preferred Shares of the Fund is not treated as a liability.
As indicated above, because it is expected that less than all of the
Fund's managed assets will be allocated to the sub-adviser, under the New
Sub-Advisory Agreement, the Advisor will retain a greater portion of its
advisory fee if the New Sub-Advisory Agreement is approved. James A. Bowen, a
Trustee of the Fund who is an "interested person" as defined in the 1940 Act
(the "Interested Trustee"), is the Chief Executive Officer of the Advisor and
controls its general partner. See "Additional Information -- Information about
the Advisor" below.
Payment of Expenses. Under the Aviance Sub-Advisory Agreement, the
sub-adviser agreed to pay all expenses incurred by it in connection with its
activities under the agreement other than the cost of securities and other
assets (including brokerage commissions, if any) purchased for the Fund.
Similarly, under the New Sub-Advisory Agreement, the sub-adviser will agree to
pay all expenses it incurs in connection with its activities under such
Agreement other than (i) the cost of securities and other assets purchased for
the Fund and (ii) the costs directly associated with purchasing and selling
securities and other assets for the Fund, if any, including, but not limited to,
brokerage commissions, stamps, duties, taxes and custody fees related to
transfers.
Limitation on Liability. As was the case under the Aviance Sub-Advisory
Agreement, the New Sub-Advisory Agreement provides that the sub-adviser will not
be liable for, and the Fund and the Advisor will not take any action against the
sub-adviser to hold the sub-adviser liable for, any error of judgment or mistake
of law or for any loss suffered by the Fund or the Advisor in connection with
the performance of the sub-adviser's duties under the Agreement, except for a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the sub-adviser in the performance of its duties under the Agreement, or
by reason of its reckless disregard of its obligations and duties under the
Agreement.
Continuance. Consistent with the terms of the Aviance Sub-Advisory
Agreement, if the New Sub-Advisory Agreement is approved by shareholders, if not
terminated earlier, it will expire on the two-year anniversary of the date of
its effectiveness unless continued. Thereafter, it may be continued for
successive one-year periods if such continuance is specifically approved, at
least annually, in the manner required by the 1940 Act and the rules and
regulations thereunder.
Termination. As was the case under the Aviance Sub-Advisory Agreement, the
New Sub-Advisory Agreement provides that it (a) will automatically terminate in
the event of its assignment (as defined in the 1940 Act and the rules and
-18-
regulations thereunder), (b) may be terminated at any time without the payment
of any penalty by the Advisor or the sub-adviser upon 60 days' written notice to
the other parties, and (c) may be terminated by the Fund by action of the Board
or by a vote of a majority of the outstanding voting securities (as defined in
the 1940 Act and the rules and regulations thereunder) of the Fund upon 60 days'
written notice to the sub-adviser by the Fund without the payment of any
penalty. In addition, the Aviance Sub-Advisory Agreement was, and the New
Sub-Advisory Agreement is, terminable at any time without the payment of any
penalty by the Advisor, the Board or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act and the rules and regulations
thereunder) of the Fund in the event that it is established by a court of
competent jurisdiction that the sub-adviser or any of its officers or directors
has taken any action that results in a breach of the material covenants of the
sub-adviser set forth in the Agreement.
RELATED AGREEMENT
On June 10, 2013, Chartwell and the Advisor entered into an agreement
separate from the Interim Sub-Advisory Agreement to address certain matters
pertaining to the Fund (such agreement, the "Related Agreement"). Among other
things, under the Related Agreement, Chartwell is obligated to reimburse the
Advisor for a portion of certain "services fee" payments payable by the Advisor
to the lead underwriter of the Fund's initial public offering ("Reimbursement
Payments"). If the Interim Sub-Advisory Agreement terminates and the New
Sub-Advisory Agreement does not become effective, Chartwell will have no
obligation to make Reimbursement Payments to the Advisor following the
termination of the Interim Sub-Advisory Agreement.
BOARD CONSIDERATIONS
The Board of the Fund, including the Independent Trustees, approved the
Interim Sub-Advisory Agreement and the New Sub-Advisory Agreement (collectively,
the "Agreements") among the Fund, First Trust Advisors and Chartwell at the
Board Meeting. The Board determined that the Agreements are in the best
interests of the Fund in light of the extent and quality of the services to be
provided and such other matters as the Board considered to be relevant in the
exercise of its reasonable business judgment.
At the Board Meeting, the Advisor recommended various actions to be taken
with respect to the Fund to address the Fund's underperformance (in terms of
both share price and net asset value) relative to its benchmarks and peer group
average and to narrow its trading discount, including replacing Aviance with
Chartwell and effecting the Repositioning. The Advisor proposed that Chartwell
manage the Fund's Equity Component and Options Strategy (the latter of which was
being managed by the Alternatives Group at First Trust Advisors), but also
proposed that the Fund use leverage to add the Senior Loan/High Yield Debt
Component to be managed by the Advisor's Leveraged Finance Investment Team. The
Advisor had previously discussed with the Board these proposed actions, along
with various other alternatives for addressing the Fund's underperformance and
trading discount, at meetings held in March and April 2013. At the Board Meeting
and at the April 2013 meeting, Chartwell made presentations to the Board
regarding its proposed investment strategy for the Fund and how it would
implement its proposed strategy. Prior to the Board Meeting, Chartwell also
provided to the Board written responses to questions posed by independent legal
counsel on behalf of the Independent Trustees. The Board considered all the
information provided and noted its familiarity with Chartwell as sub-adviser to
the Equity Income Fund. At the Board Meeting, the Independent Trustees met
separately with their independent legal counsel to discuss the information
provided by Chartwell and the Advisor. After reviewing the various alternatives
for the Fund, the Board determined to approve the Advisor's proposed course of
action for the Fund and, at the Board Meeting, did not renew the Aviance
-19-
Sub-Advisory Agreement and appointed Chartwell to serve as the interim
sub-adviser to the Fund pursuant to the Interim Sub-Advisory Agreement,
effective following the termination of the Aviance Sub-Advisory Agreement with
First Trust Advisors and the Fund on June 30, 2013. The Board also approved the
New Sub-Advisory Agreement and determined to recommend it to shareholders of the
Fund for their approval.
To reach its determinations as to the Agreements, the Board considered its
duties under the 1940 Act, as well as under the general principles of state law
in reviewing and approving advisory contracts; the requirements of the 1940 Act
in such matters; the fiduciary duty of investment advisors with respect to
advisory agreements and compensation; the standards used by courts in
determining whether investment company boards have fulfilled their duties; and
the factors to be considered by the Board in voting on such agreements. In its
evaluation of the Agreements, the Board considered a report from Chartwell
responding to a request for information from counsel to the Independent
Trustees. The report, among other things, outlined the services to be provided
by Chartwell to the Fund (including the relevant personnel responsible for these
services and their experience); the proposed sub-advisory fee for the Fund as
compared to fees charged to other clients of Chartwell; the potential for
economies of scale, if any; financial data on Chartwell; fall-out benefits to
Chartwell; and information regarding Chartwell's compliance program. The Board
applied its business judgment to determine whether the proposed arrangements
between the Fund, the Advisor and Chartwell are reasonable business arrangements
from the Fund's perspective as well as from the perspective of shareholders.
In reviewing the Agreements, the Board considered the nature, extent and
quality of services to be provided by Chartwell under the Agreements. The Board
considered Chartwell's investment style and the backgrounds of the investment
personnel who would be responsible for the day-to-day management of the Fund,
noting that they also serve as portfolio managers of the Equity Income Fund. The
Board considered that Chartwell intended to manage the Fund in a manner that
combined aspects of its Premium Yield Equity strategy and its Covered Call
strategy and the Board reviewed the returns of Chartwell's Premium Yield Equity
composite and also the returns of the Equity Income Fund, which is sub-advised
by Chartwell using its Covered Call strategy. The Board also discussed with the
prospective portfolio managers the approach Chartwell planned to take in
transitioning the Fund's portfolio. In light of the information presented and
the considerations made, the Board concluded that the nature, extent and quality
of services to be provided to the Fund by Chartwell under the Agreements are
expected to be satisfactory.
The Board considered the sub-advisory fees to be paid under the
Agreements. The Board considered that the sub-advisory fee rate under the
Agreements would be the same as the sub-advisory fee rate under the Aviance
Sub-Advisory Agreement, but noted that Chartwell will only receive a fee on the
portion of the Fund's assets allocated to it by the Advisor. The Board
considered that the sub-advisory fee was negotiated at arm's length between the
Advisor and Chartwell, an unaffiliated third party, and noted that the fees to
be paid to Chartwell would be paid by the Advisor from its advisory fee. The
Board considered the sub-advisory fee rate charged by Chartwell for sub-advising
the Equity Income Fund, noting that it was the same as the Fund's. The Board
also considered information provided by Chartwell as to the fees it charges to
other non-fund clients with investment objectives and policies similar to the
Fund's, noting that the sub-advisory fee rate is within the range of the fee
rates charged by Chartwell to these other clients, and that services provided to
registered investment companies are more extensive. On the basis of all the
information provided, the Board concluded that the sub-advisory fees to be paid
under the Agreements were reasonable and appropriate in light of the nature,
extent and quality of services expected to be provided by Chartwell under the
Agreements.
The Board considered Chartwell's statement that it had continually
reinvested its capital to build a large, experienced group of professionals to
serve its clients, including the Fund, and noted Chartwell's statements about
-20-
potential economies of scale in providing services to the Fund. The Board also
considered data provided by Chartwell as to the estimated profitability of the
Agreements to Chartwell, noting that it appeared to be not excessive in light of
the services expected to be provided to the Fund. The Board considered potential
fall-out benefits identified by Chartwell from its relationship with the Fund,
including soft-dollar arrangements, and considered a summary of such
arrangements.
Based on all of the information considered and the conclusions reached,
the Board, including the Independent Trustees, unanimously determined that the
terms of the Agreements are fair and reasonable and that the approval of the
Agreements is in the best interests of the Fund. No single factor was
determinative in the Board's analysis.
SHAREHOLDER APPROVAL AND REQUIRED VOTE
To become effective, the New Sub-Advisory Agreement must be approved by a
vote of a majority of the outstanding voting securities of the Fund. The "vote
of a majority of the outstanding voting securities" is defined in the 1940 Act
as the vote of the lesser of (i) 67% or more of the Shares of the Fund present
at the Meeting if the holders of more than 50% of the outstanding Shares of the
Fund are present in person or represented by proxy; or (ii) more than 50% of the
outstanding Shares of the Fund. For purposes of determining the approval of the
New Sub-Advisory Agreement, abstentions and broker non-votes will have the
effect of a vote against the Proposal.
THE BOARD OF TRUSTEES OF THE FUND RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE PROPOSAL. IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE
PROPOSAL OR HOW TO VOTE YOUR SHARES, PLEASE CALL THE FUND'S PROXY SOLICITOR, AST
FUND SOLUTIONS, LLC, AT (866) 751-6311 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M.
EASTERN TIME.
-21-
ADDITIONAL INFORMATION
INFORMATION ABOUT THE ADVISOR
First Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton,
Illinois 60187, serves as the Fund's investment adviser and will continue to
serve as such after the approval by shareholders of the New Sub-Advisory
Agreement. In addition, the Advisor is responsible for providing certain
clerical, bookkeeping and other administrative services to the Fund and also
provides fund reporting services to the Fund for a flat annual fee.
The Advisor, an Illinois limited partnership formed in 1991 and an
investment adviser registered with the SEC under the Investment Advisers Act of
1940, as amended, has one limited partner, Grace Partners of DuPage L.P. ("Grace
Partners"), and one general partner, The Charger Corporation. Grace Partners is
a limited partnership with one general partner, The Charger Corporation, and a
number of limited partners. Grace Partners' and The Charger Corporation's
primary business is investment advisory and broker-dealer services through their
ownership interests. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of the Advisor and the
sole Interested Trustee of the Fund. The Advisor is controlled by Grace Partners
and The Charger Corporation.
INFORMATION ABOUT THE ADMINISTRATOR, ACCOUNTING AGENT AND TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc., located at 301 Bellevue
Parkway, Wilmington, Delaware 19809, acts as the administrator, accounting agent
and transfer agent to the Fund.
BENEFICIAL OWNERSHIP OF SHARES
Control Persons and Principal Holders
To the knowledge of the Board, 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, as amended (the "1934 Act")) beneficially owned more than
5% of the Fund's outstanding Shares, except as noted in the following table.
Information as to beneficial ownership of Shares is based on a securities
position listing report as of the Record Date. The Fund does not have any
knowledge of the identity of the ultimate beneficiaries of the Shares listed
below. A control person is one who owns, either directly or indirectly, more
than 25% of the voting securities of a fund or acknowledges the existence of
control.
-22-
----------------------------------------- ---------------------------------------- ------------------------------
SHAREHOLDER NUMBER OF SHARES PERCENT
AND ADDRESS HELD OWNERSHIP
----------------------------------------- ---------------------------------------- ------------------------------
First Clearing, LLC
One North Jefferson Street
St. Louis, MO 63103 985,155 Shares 11.93%
----------------------------------------- ---------------------------------------- ------------------------------
Morgan Stanley Smith Barney LLC
2000 Westchester Avenue
Purchase, NY 10577 986,901 Shares 11.95%
----------------------------------------- ---------------------------------------- ------------------------------
National Financial Services LLC
200 Liberty Street
New York, NY 10281 447,659 Shares 5.42%
----------------------------------------- ---------------------------------------- ------------------------------
Raymond James & Associates, Inc.
880 Carillon Parkway
P.O. Box 12749
St. Petersburg, FL 33716 1,733,655 Shares 20.99%
----------------------------------------- ---------------------------------------- ------------------------------
TD Ameritrade Clearing, Inc.
1005 N. Ameritrade Place
Bellevue, NE 68005 612,047 Shares 7.41%
----------------------------------------- ---------------------------------------- ------------------------------
Trustees and Officers
As of December 31, 2012, the Trustees and officers of the Fund did not
beneficially own any Shares of the Fund.
SHAREHOLDER PROPOSALS
Shareholder Proposals for Inclusion in the Fund's Proxy Statement. To be
considered for presentation at the Annual Meeting of Shareholders of the Fund to
be held in 2014 and included in the Fund's proxy statement relating to such
meeting, a shareholder proposal submitted pursuant to Rule 14a-8 under the 1934
Act must be received at the offices of the Fund at 120 East Liberty Drive, Suite
400, Wheaton, Illinois 60187, not later than November 22, 2013. Such a proposal
will be included in the Fund's proxy statement if it meets the requirements of
Rule 14a-8. Timely submission of a proposal does not mean that such proposal
will be included in the Fund's proxy statement.
Other Shareholder Proposals. Under the Fund's By-Laws, 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, among other things, 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, 120 East Liberty
Drive, Suite 400, Wheaton, Illinois 60187, Attn: W. Scott Jardine, Secretary,
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
-23-
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. In addition, the By-Laws provide that, unless required by federal
law, no matters shall be considered at or brought before any annual or special
meeting unless such matter has been deemed a proper matter for shareholder
action by at least sixty-six and two-thirds percent (66-2/3%) of the Trustees.
Timely submission of a proposal does not mean that such proposal will be brought
before the meeting.
SHAREHOLDER COMMUNICATIONS
Shareholders of the Fund who want to communicate with the Board of
Trustees or any individual Trustee should write the Fund to the attention of the
Fund's 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 independent legal counsel to the
Independent Trustees for further distribution as deemed appropriate by such
persons.
FISCAL YEAR
The fiscal year end for the Fund is November 30.
DELIVERY OF CERTAIN DOCUMENTS
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 120 East Liberty
Drive, Suite 400, Wheaton, Illinois 60187 or by calling (800) 988-5891.
Please note that only one annual or semi-annual report, proxy statement or
Notice of Availability of Proxy Materials, as applicable, 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, proxy statement or Notice of Availability of Proxy
Materials, as applicable, 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 proposal to approve the New Sub-Advisory
Agreement 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.
June 28, 2013
-24-
--------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS ARE THEREFORE
URGED TO COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE IN
THE ENCLOSED POSTAGE-PAID ENVELOPE OR ALTERNATIVELY, TO VOTE BY TELEPHONE OR
THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD.
IF YOU NEED ANY ASSISTANCE, OR HAVE ANY QUESTIONS REGARDING THE PROPOSAL OR HOW
TO VOTE YOUR SHARES, PLEASE CALL THE FUND'S PROXY SOLICITOR, AST FUND SOLUTIONS,
LLC, AT (866) 751-6311 WEEKDAYS FROM 9:00 A.M. TO 10:00 P.M. EASTERN TIME.
--------------------------------------------------------------------------------
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EXHIBIT A
FORM OF NEW SUB-ADVISORY AGREEMENT
AGREEMENT made as of this ___ day of _______, 2013, by and among First
Trust Dividend and Income Fund, a Massachusetts business trust (the "Fund"),
First Trust Advisors L.P., an Illinois limited partnership (the "Manager") and a
registered investment adviser with the Securities and Exchange Commission
("SEC"), and Chartwell Investment Partners, L.P., a Pennsylvania limited
partnership and a registered investment adviser with the SEC (the
"Sub-Adviser").
WHEREAS, the Fund is a closed-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund has retained the Manager to serve as the investment
manager for the Fund pursuant to an Investment Management Agreement between the
Manager and the Fund (as such agreement may be modified from time to time, the
"Management Agreement");
WHEREAS, the Management Agreement provides that the Manager may, subject
to the initial and periodic approvals required under Section 15 of the 1940 Act,
appoint a sub-adviser at its own cost and expense for the purpose of furnishing
certain services required under the Management Agreement;
WHEREAS, the Fund and the Manager desire to retain the Sub-Adviser to
furnish investment advisory services for the Fund's investment portfolio, upon
the terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment. The Fund and the Manager hereby appoint the Sub-Adviser to
provide certain sub-investment advisory services to the Fund for the period and
on the terms set forth in this Agreement. The Sub-Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided. The Sub-Adviser shall, for all purposes herein
provided, be deemed an independent contractor and, unless otherwise expressly
provided or authorized, shall have no authority to act for nor represent the
Fund or the Manager in any way, nor otherwise be deemed an agent of the Fund or
the Manager.
2. Services to Be Performed. Subject always to the supervision of the
Fund's Board of Trustees (the "Board of Trustees" or the "Board") and the
Manager, the Sub-Adviser will act as sub-adviser for, and manage on a
discretionary basis the investment and reinvestment of the assets of the Fund,
furnish an investment program in respect of, make investment decisions for, and
place all orders for the purchase and sale of securities and other instruments
for the Fund's investment portfolio, all on behalf of the Fund and as described
in the Fund's most recent effective registration statement on Form N-2, as the
same may thereafter be amended from time to time. In the performance of its
duties, the Sub-Adviser will in all material respects (a) satisfy any applicable
fiduciary duties it may have to the Fund, (b) monitor the Fund's investments,
and (c) comply with the provisions of the Fund's Declaration of Trust and
By-laws, as amended from time to time and communicated by the Fund or the
Manager to the Sub-Adviser in writing, and the stated investment objectives,
policies and restrictions of the Fund as such objectives, policies and
restrictions may subsequently be changed by the Fund's Board of Trustees and
communicated by the Fund or the Manager to the Sub-Adviser in writing. The Fund
or the Manager has provided the Sub-Adviser with current copies of the Fund's
Declaration of Trust, By-laws, prospectus, statement of additional information
and any amendments thereto, and any objectives, policies or limitations not
appearing therein as they may be relevant to the Sub-Adviser's performance under
this Agreement.
The Sub-Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio investments for the Fund, and is
directed to use its commercially reasonable efforts to obtain best execution,
which includes most favorable net results and execution of the Fund's orders,
taking into account all appropriate factors, including price, dealer spread or
commission, size and difficulty of the transaction and research or other
services provided. Subject to approval by the Fund's Board of Trustees and
compliance with the policies and procedures adopted by the Board of Trustees for
the Fund and to the extent permitted by and in conformance with applicable law
(including Rule 17e-1 under the 1940 Act), the Sub-Adviser may select brokers or
dealers affiliated with the Sub-Adviser. It is understood that the Sub-Adviser
will not be deemed to have acted unlawfully, or to have breached a fiduciary
duty to the Fund, or be in breach of any obligation owing to the Fund under this
Agreement, or otherwise, solely by reason of its having caused the Fund to pay a
member of a securities exchange, a broker or a dealer a commission for effecting
a securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Sub-Adviser determined in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Sub-Adviser's
overall responsibilities with respect to its accounts, including the Fund, as to
which it exercises investment discretion.
In addition, the Sub-Adviser may, to the extent permitted by applicable
law, aggregate purchase and sale orders of securities placed with respect to the
assets of the Fund with similar orders being made simultaneously for other
accounts managed by the Sub-Adviser or its affiliates, if in the Sub-Adviser's
reasonable judgment such aggregation shall result in an overall economic benefit
to the Fund, taking into consideration the selling or purchase price, brokerage
commissions and other expenses. In the event that a purchase or sale of an asset
of the Fund occurs as part of any aggregate sale or purchase orders, the
objective of the Sub-Adviser and any of its affiliates involved in such
transaction shall be to allocate the securities so purchased or sold, as well as
expenses incurred in the transaction, among the Fund and other accounts in a
fair and equitable manner. Nevertheless, the Fund and Manager acknowledge that
under some circumstances, such allocation may adversely affect the Fund with
respect to the price or size of the securities positions obtainable or salable.
Whenever the Fund and one or more other investment advisory clients of the
Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in a manner believed by the Sub-Adviser
to be equitable to each, although such allocation may result in a delay in one
or more client accounts being fully invested that would not occur if such an
allocation were not made. Moreover, it is possible that due to differing
investment objectives or for other reasons, the Sub-Adviser and its affiliates
may purchase securities of an issuer for one client and at approximately the
same time recommend selling or sell the same or similar types of securities for
another client.
The Sub-Adviser will not arrange purchases or sales of securities between
the Fund and other accounts advised by the Sub-Adviser or its affiliates unless
(a) such purchases or sales are in accordance with applicable law (including
Rule 17a-7 of the 1940 Act) and the Fund's policies and procedures, (b) the
Sub-Adviser determines the purchase or sale is in the best interests of the
Fund, and (c) the Fund's Board of Trustees has approved these types of
transactions.
A-2
The Fund may adopt policies and procedures that modify or restrict the
Sub-Adviser's authority regarding the execution of the Fund's portfolio
transactions provided herein. Such policies and procedures and any amendment
thereto will be communicated by the Manager to the Sub-Adviser.
The Sub-Adviser will communicate to the officers and Trustees of the Fund
such information relating to transactions for the Fund as they may reasonably
request. In no instance will the Fund's portfolio securities be purchased from
or sold to the Manager, the Sub-Adviser or any affiliated person of either the
Fund, the Manager, or the Sub-Adviser, except as may be permitted under the 1940
Act.
The Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to other fiduciary accounts for
which it has investment responsibilities;
(b) will (i) conform in all material respects to all applicable
rules and regulations of the SEC, (ii) comply in all material respects
with all policies and procedures adopted by the Board of Trustees for the
Fund and communicated to the Sub-Adviser in writing and (iii) conduct its
activities under this Agreement in all material respects in accordance
with any applicable law and regulations of any governmental authority
pertaining to its investment advisory activities;
(c) will report to the Manager and to the Board of Trustees of the
Fund on a quarterly basis and will make appropriate persons available for
the purpose of reviewing with representatives of the Manager and the Board
of Trustees on a regular basis at such times as the Manager or the Board
of Trustees may reasonably request in writing regarding the management of
the Fund, including, without limitation, review of the general investment
strategies of the Fund, the performance of the Fund's investment portfolio
in relation to relevant standard industry indices and general conditions
affecting the marketplace and will provide various other reports from time
to time as reasonably requested by the Manager or the Board of Trustees of
the Fund; and
(d) will prepare and maintain such books and records with respect to
the Fund's securities and other transactions for the Fund's investment
portfolio as required for registered investment advisers under applicable
law or as otherwise requested by the Manager or the Board and will prepare
and furnish the Manager and the Fund's Board of Trustees such periodic and
special reports as the Board or the Manager may reasonably request. The
Sub-Adviser further agrees that all records that it maintains for the Fund
are the property of the Fund and the Sub-Adviser will surrender promptly
to the Fund any such records upon the request of the Manager or the Fund
(provided, however, that the Sub-Adviser shall be permitted to retain
copies thereof); and shall be permitted to retain originals (with copies
to the Fund) to the extent required under Rule 204-2 of the Investment
Advisers Act of 1940 or other applicable law.
3. Expenses. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than (i) the cost of securities and other assets purchased for
the Fund, and (ii) the costs directly associated with purchasing and selling
securities and other assets for the Fund, if any, including, but not limited to,
brokerage commissions, stamps, duties, taxes and custody fees related to
transfers.
A-3
4. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Manager will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a portfolio
management fee (the "Management Fee") equal to the annual rate of 0.50% of the
Fund's Managed Assets (as defined below) allocated to the Sub-Adviser. For
purposes of calculating the Management Fee, Managed Assets means the average
daily gross asset value of the Fund (including assets attributable to the Fund's
Preferred Shares (as such term is defined in the Fund's prospectus), if any, and
the principal amount of borrowings, if any), minus the sum of the Fund's accrued
and unpaid dividends on any outstanding Preferred Shares and accrued liabilities
(other than the principal amount of any borrowings incurred, commercial paper or
notes issued by the Fund). For purposes of determining Managed Assets, the
liquidation preference of any outstanding Preferred Shares of the Fund is not
treated as a liability. The Management Fee shall be payable in arrears on or
about the first day of each month during the term of this Agreement.
For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year, respectively.
5. Services to Others. The Fund and the Manager acknowledge that the
Sub-Adviser now acts, or may in the future act, as an investment adviser to
other managed accounts and as investment adviser or investment sub-adviser to
one or more other investment companies. In addition, the Fund and the Manager
acknowledge that the persons employed by the Sub-Adviser to assist in the
Sub-Adviser's duties under this Agreement will not devote their full time to
such efforts. It is also agreed that the Sub-Adviser may use any supplemental
research obtained for the benefit of the Fund in providing investment advice to
its other investment advisory accounts and for managing its own accounts.
6. Limitation of Liability. The Sub-Adviser shall not be liable for, and
the Fund and the Manager will not take any action against the Sub-Adviser to
hold the Sub-Adviser liable for, any error of judgment or mistake of law or for
any loss suffered by the Fund or the Manager (including, without limitation, by
reason of the purchase, sale or retention of any security) in connection with
the performance of the Sub-Adviser's duties under this Agreement, except for a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Sub-Adviser in the performance of its duties under this Agreement,
or by reason of its reckless disregard of its obligations and duties under this
Agreement.
7. Term; Termination. This Agreement shall become effective with respect
to the Fund on the date provided above (the "Effective Date"), provided that it
has been approved in the manner required by the 1940 Act, and shall remain in
full force until the two-year anniversary of the date of its effectiveness
unless sooner terminated as hereinafter provided. This Agreement, however, shall
continue in force from year to year thereafter, but only as long as such
continuance is specifically approved for the Fund at least annually in the
manner required by the 1940 Act and the rules and regulations thereunder;
provided, however, that if the continuation of this Agreement is not approved
for the Fund, the Sub-Adviser may continue to serve in such capacity for the
Fund in the manner and to the extent permitted by the 1940 Act and the rules and
regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager or the Sub-Adviser upon sixty (60) days' written notice to the
other parties. This Agreement may also be terminated by the Fund by action of
the Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund upon sixty (60) days' written notice to the
Sub-Adviser by the Fund without payment of any penalty.
This Agreement may be terminated at any time without the payment of any
penalty by the Manager, the Board of Trustees of the Fund or by vote of a
majority of the outstanding voting securities of the Fund in the event that it
A-4
shall have been established by a court of competent jurisdiction that the
Sub-Adviser or any officer or director of the Sub-Adviser has taken any action
that results in a breach of the material covenants of the Sub-Adviser set forth
herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations thereunder.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 4 earned prior to such termination and for any additional
period during which the Sub-Adviser serves as such for the Fund, subject to
applicable law.
8. Compliance Certification. From time to time the Sub-Adviser shall
provide such certifications with respect to Rule 38a-1 under the 1940 Act, as
are reasonably requested by the Fund or the Manager. In addition, the
Sub-Adviser will, from time to time, provide a written assessment of its
compliance program in conformity with current industry standards that is
reasonably acceptable to the Fund to enable the Fund to fulfill its obligations
under Rule 38a-1 under the 1940 Act.
9. Notice. Any notice under this Agreement shall be sufficient in all
respects if given in writing and delivered by commercial courier providing proof
of delivery and addressed as follows or addressed to such other person or
address as such party may designate for receipt of such notice.
If to the Manager or the Fund: If to the Sub-Adviser:
First Trust Dividend and Income Fund Chartwell Investment Partners, L.P.
First Trust Advisors L.P. 1235 Westlakes Drive, Suite 400
120 E. Liberty Drive, Suite 400 Berwyn, Pennsylvania 19312
Wheaton, Illinois 60187 Attention: Maria E. Pollack
Attention: Secretary
If by Facsimile: (630) 517-7437 If by Facsimile: (610) 722-5644
10. Limitations on Shareholder and Trustee Liability. All parties hereto
are expressly put on notice of the Fund's Declaration of Trust and all
amendments thereto, a copy of which is on file with the Secretary of the
Commonwealth of Massachusetts, and the limitation of shareholder and trustee
liability contained therein and a copy of which has been provided to the
Sub-Adviser prior to the date hereof. This Agreement is executed on behalf of
the Fund by an officer of the Fund in his or her capacity as an officer and not
individually and is not binding upon any of the Trustees, officers, or
shareholders of the Fund individually but the obligations imposed upon the Fund
by this Agreement are binding only upon the assets and property of the Fund, and
persons dealing with the Fund must look solely to the assets of the Fund for the
enforcement of any claims.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
A-5
Agreement will be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
12. Applicable Law. This Agreement shall be construed in accordance with
applicable federal law and (except as to Section 10 hereof which shall be
construed in accordance with the laws of Massachusetts) the laws of the State of
Illinois.
13. Amendment, Etc. This Agreement may only be amended, or its provisions
modified or waived, in a writing signed by the party against which such
amendment, modification or waiver is sought to be enforced.
14. Authority. Each party represents to the others that it is duly
authorized and fully empowered to execute, deliver and perform this Agreement.
The Fund represents that engagement of the Sub-Adviser has been duly authorized
by the Fund and is in accordance with the Fund's Declaration of Trust and other
governing documents of the Fund.
15. Severability. Each provision of this Agreement is intended to be
severable from the others so that if any provision or term hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remaining provisions and terms hereof; provided,
however, that the provisions governing payment of the Management Fee described
in Section 4 are not severable.
16. Entire Agreement. This Agreement constitutes the sole and entire
agreement of the parties hereto with respect to the subject matter expressly set
forth herein.
A-6
IN WITNESS WHEREOF, the Fund, the Manager and the Sub-Adviser have caused
this Agreement to be executed as of the day and year first above written.
FIRST TRUST ADVISORS L.P. FIRST TRUST DIVIDEND AND INCOME FUND
By: ______________________________ By: ______________________________
Title: ___________________________ Title: ___________________________
CHARTWELL INVESTMENT PARTNERS, L.P.
By: ______________________________
Title: ___________________________
A-7
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FORM OF PROXY CARD
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Proxy -- FIRST TRUST DIVIDEND AND INCOME FUND
--------------------------------------------------------------------------------
(FORMERLY KNOWN AS FIRST TRUST ACTIVE DIVIDEND INCOME FUND)
Proxy Card for the Special Meeting of Shareholders - September 16, 2013
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned holder of Common Shares of First Trust Dividend and Income Fund
(formerly known as First Trust Active Dividend Income Fund), a Massachusetts
business trust (the "Fund"), hereby appoints W. Scott Jardine, Mark R. Bradley,
Kristi A. Maher, James M. Dykas and Erin E. Klassman as attorneys and proxies
for the undersigned, with full powers of substitution and revocation, to
represent the undersigned and to vote on behalf of the undersigned all shares
of the Fund that the undersigned is entitled to vote at the Special Meeting of
Shareholders of the Fund (the "Meeting") to be held at the offices of First
Trust Advisors L.P., 120 East Liberty Drive, Suite 400, Wheaton, Illinois
60187, at 3:30 p.m. Central time on the date indicated above, and any
adjournments or postponements thereof. The undersigned hereby acknowledges
receipt of the Notice of Special Meeting of Shareholders and Proxy Statement
dated June 28, 2013, 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 and any adjournments or postponements thereof (including, but not
limited to, any questions as to adjournment or postponement of 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.
THE PROXY CARD MUST BE SIGNED AND DATED FOR YOUR INSTRUCTIONS TO BE COUNTED AND
WILL BE VOTED IN THE MANNER INDICATED. IF NO INSTRUCTIONS HAVE BEEN INDICATED
HEREON, A VOTE WILL BE CAST "FOR" THE PROPOSAL. PLEASE COMPLETE AND RETURN THIS
PROXY CARD PROMPTLY.
THIS PROXY, WHEN 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 PROPOSAL SET FORTH.
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
FIRST TRUST DIVIDEND AND
INCOME FUND
-------------------------------------
IMPORTANT SPECIAL MEETING INFORMATION
-------------------------------------
[ADDRESS LINES]
ELECTRONIC VOTING INSTRUCTIONS
AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK!
Instead of mailing your proxy, you may choose one of the voting methods outlined
below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
PROXIES SUBMITTED BY THE INTERNET OR TELEPHONE MUST BE RECEIVED BY 1:00 A.M.,
CENTRAL TIME, ON SEPTEMBER 16, 2013.
VOTE BY INTERNET
[QR code o Go to www.investorvote.com/FAV
graphic
omitted] o Or scan the QR code with your smartphone
o Follow the steps outlined on the secure website
VOTE BY TELEPHONE
o Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada
on a touch tone telephone
o Follow the instructions provided by the recorded message
YOU MAY VOTE BY MAIL, BY INTERNET OR BY TELEPHONE. IF YOU CHOOSE TO VOTE BY
INTERNET OR BY TELEPHONE, YOU SHOULD NOT MAIL YOUR PROXY CARD.
Using a BLACK INK pen, mark your votes with an
X as shown in this example. Please do not write
outside the designated areas. [X]
--------------------------------------------------------------------------------
SPECIAL MEETING PROXY CARD 1234 5678 9012 345
--------------------------------------------------------------------------------
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
A PROPOSAL -- THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE PROPOSAL TO
APPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT WITH CHARTWELL
INVESTMENT PARTNERS, L.P. FOR THE FUND.
FOR AGAINST ABSTAIN
1. Approval of New Investment Sub-Advisory
Agreement [ ] [ ] [ ]
B NON-VOTING ITEMS
------------------------------------------------------------------
CHANGE OF ADDRESS - Please print your new address below.
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COMMENTS - Please print your comments below.
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MEETING ATTENDANCE - Mark the box to the right if you plan to
attend the Special Meeting [ ]
C AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
Please be sure to sign and date this Proxy Card. Please sign exactly as your
name(s) appear(s) on this Proxy Card. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee,
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by an authorized officer. If a partnership, please sign in
partnership name by an authorized person.
Date (mm/dd/yyyy) -- Please print date below.
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Signature 1 -- Please keep signature within the box.
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Signature 2 -- Please keep signature within the box.
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