As filed with the Securities and Exchange Commission on April 28, 2000
1933 Act Registration No. 333-72447
1940 Act Registration No. 811-09235
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 1 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
(Check appropriate box or boxes)
FIRST DEFINED PORTFOLIO FUND, LLC
(Exact name of registrant as specified in charter)
1001 Warrenville Road, Suite 300 60532
Lisle, Illinois (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (630) 241-4141
W. Scott Jardine, Esq.
Secretary
First Defined Portfolio Fund, LLC
Nike Securities L.P.
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
(Name and Address of Agent for Service)
Copy to:
Eric F. Fess
Chapman & Cutler
111 West Monroe Street
Chicago, Illinois 60603
It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
FIRST DEFINED PORTFOLIO FUND, LLC
April 28, 2000
Prospectus
_________________________________________________________________________
This prospectus is intended for use in connection with variable annuity
policies offered by American Skandia Life Assurance Corporation ("American
Skandia"). This prospectus provides important information to help you evaluate
whether one of the funds listed below may be right for you.
The Dow (sm) Target 5 Portfolio
The Dow (sm) DART 10 Portfolio
Global Target 15 Portfolio
S&P Target 10 Portfolio
NASDAQ Target 15 Portfolio
First Trust 10 Uncommon Values Portfolio
First Trust Energy Portfolio
First Trust Financial Services Portfolio
First Trust Internet Portfolio First
Trust Pharmaceutical Portfolio First
Trust Technology Portfolio
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
Page 1
TABLE OF CONTENTS
PAGE
THE DOW(SM) TARGET 5 PORTFOLIO 3
Fund Overview 3
THE DOW(SM) DART 10 PORTFOLIO 4
Fund Overview 4
GLOBAL TARGET 15 PORTFOLIO 5
Fund Overview 5
S&P TARGET 10 PORTFOLIO 6
Fund Overview 6
NASDAQ TARGET 15 PORTFOLIO 7
Fund Overview 7
FIRST TRUST 10 UNCOMMON VALUES PORTFOLIO 8
Fund Overview 8
FIRST TRUST ENERGY PORTFOLIO 9
Fund Overview 9
FIRST TRUST FINANCIAL SERVICES PORTFOLIO 10
Fund Overview 10
FIRST TRUST INTERNET PORTFOLIO 11
Fund Overview 11
FIRST TRUST PHARMACEUTICAL PORTFOLIO 12
Fund Overview 12
FIRST TRUST TECHNOLOGY PORTFOLIO 13
Fund Overview 13
FUND ORGANIZATION 14
FUND MANAGEMENT 14
MANAGEMENT FEES AND EXPENSES 15
FUND INVESTMENTS 15
HOW SECURITIES ARE SELECTED 16
DESCRIPTION OF INDICES 17
RISK FACTORS 18
INVESTMENT IN FUND INTERESTS 20
INTEREST REDEMPTION 20
DISTRIBUTIONS AND TAXES 20
12B-1 PLAN 21
NET ASSET VALUE 21
FUND SERVICE PROVIDERS 22
SHAREHOLDER INQUIRIES 22
FINANCIAL HIGHLIGHTS 22
Page 2
The Dow (sm) Target 5 Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average total return.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing in common stocks
issued by companies that are expected to provide income and to have the
potential for capital appreciation. To select the stocks for the fund,
the investment adviser follows a disciplined investment strategy that
invests primarily in the common stocks of the five companies with the
lowest per share stock prices of the ten companies in the Dow Jones
Industrial Average (sm) ("DJIA") that have the highest dividend yields as
of the close of business on or about the applicable stock selection
date. The portfolio will be adjusted annually on or about December 31 in
accordance with the investment strategy. See "Description of Indices"
for a description of the DJIA.
Each year, on or about the annual stock selection date (December 31),
the fund expects to invest in the securities determined by the strategy
in relatively equal amounts. At that time, the percentage relationship
among the number of shares of each issuer held by the fund is
established. Through the next one-year period that percentage
relationship will be maintained as closely as practicable when the fund
makes subsequent purchases and sales of the securities.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. As with any mutual fund investment,
loss of money is a risk of investing. An investment in the fund is not a
deposit of a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation ("FDIC") or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of investing in accordance with an investment
strategy. As a result of this policy, securities held by the fund will
generally not be bought or sold in response to market fluctuations and
the securities may be issued by companies concentrated in a particular
industry, including technology. The fund's relative lack of diversity,
possible concentration in a particular industry and limited management
may subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
"Dow Jones Industrial Average (sm)", "DJIA(sm)", "Dow Industrials(sm)", "Dow
30(sm)," "The Dow(sm)" and "The Dow 10(sm)" are service marks of Dow Jones &
Company, Inc. ("Dow Jones") and have been licensed for use for certain
purposes by First Trust Advisors L.P. ("First Trust"). None of the
funds, including, and in particular, The Dow(sm) Target 5 Portfolio, and
The Dow (sm) DART 10 Portfolio, are endorsed, sold, or promoted by Dow
Jones, and Dow Jones makes no representation regarding the advisability
of investing in such products.
Page 3
The Dow (sm) DART 10 Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average total return.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing in common stocks
issued by companies that are expected to provide income and to have the
potential for capital appreciation. To select the stocks for the fund,
the investment adviser follows a disciplined investment strategy that
invests primarily in the common stocks of the ten companies in the DJIA
that have the highest combined dividend yields and buyback ratios as of
the close of business on or about the applicable stock selection date.
Buyback ratio is determined by subtracting one from the ratio of the
company's common shares outstanding 12 months prior to the applicable
stock selection date divided by the common shares outstanding on or
about the applicable stock selection date. The portfolio will be
adjusted annually on or about December 31 in accordance with the
investment strategy. See "Description of Indices" for a description of
the DJIA.
The fund invests in stocks with relatively high dividend yields and
relatively high buyback ratios. Investing in stocks with high dividend
yields and buyback ratios may be effective in achieving the fund's
investment objective. This is because regular dividends are common for
established companies and have typically accounted for a large portion
of the total return on stocks. Historically, companies rewarded
shareholders in the form of dividend payments. By selecting the DJIA
stocks with the highest dividend yields, the fund seeks to uncover
stocks that may be out of favor or undervalued. More recently, many
companies have turned to stock reduction programs as a tax efficient way
to bolster their stock prices and reward shareholders. Companies which
have reduced their shares through a share buyback program may provide a
strong cash flow position and, in turn, high quality earnings.
Each year, on or about the annual stock selection date (December 31),
the fund expects to invest in the securities determined by the strategy
in relatively equal amounts. At that time, the percentage relationship
among the number of shares of each issuer held by the fund is
established. Through the next one-year period that percentage
relationship will be maintained as closely as practicable when the fund
makes subsequent purchases and sales of the securities.
>
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. As with any mutual fund investment,
loss of money is a risk of investing. An investment in the fund is not a
deposit of a bank and is not insured or guaranteed by the FDIC or any
other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of investing in accordance with an investment
strategy. As a result of this policy, securities held by the fund will
generally not be bought or sold in response to market fluctuations and
the securities may be issued by companies concentrated in a particular
industry, including technology. The fund's relative lack of diversity,
possible concentration in a particular industry and limited management
may subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
Page 4
Global Target 15 Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average total return.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing in common stocks
issued by companies that are expected to provide income and to have the
potential for capital appreciation. To select the stocks for the fund,
the investment adviser follows a disciplined investment strategy that
invests primarily in the common stocks of the companies which are
components of the DJIA, the Financial Times Industrial Ordinary Share
Index ("FT Index") and the Hang Seng Index. The fund primarily consists
of common stocks of the five companies with the lowest per share stock
price of the ten companies in each of the DJIA, FT Index and Hang Seng
Index, respectively, that have the highest dividend yields in the
respective index as of the close of business on or about the applicable
stock selection date. The portfolio will be adjusted annually on or
about December 31 in accordance with the investment strategy. See
"Description of Indices" for a description of the DJIA, FT Index and
Hang Seng Index.
Each year, on or about the annual stock selection date (December 31),
the fund expects to invest in the securities determined by the strategy
in relatively equal amounts. At that time, the percentage relationship
among the number of shares of each issuer held by the fund is
established. Through the next one-year period that percentage
relationship will be maintained as closely as practicable when the fund
makes subsequent purchases and sales of the securities.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's investment in foreign
stock presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. The fund's
concentration in securities of United Kingdom and Hong Kong issuers also
exposes the fund to additional risk. As with any mutual fund investment,
loss of money is a risk of investing. An investment in the fund is not a
deposit of a bank and is not insured or guaranteed by the FDIC or any
other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of investing in accordance with an investment
strategy. As a result of this policy, securities held by the fund will
generally not be bought or sold in response to market fluctuations and
the securities may be issued by companies concentrated in a particular
industry, including technology. The fund's relative lack of diversity,
possible concentration in a particular industry and limited management
may subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar
year; therefore, no performance information is provided.
Page 5
S&P Target 10 Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average total return.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing in common stocks
issued by companies that have the potential for capital appreciation. To
select the stocks for the fund, the investment adviser follows a
disciplined investment strategy that invests primarily in the common
stocks of the ten companies selected from a subset of the stocks
included in the Standard & Poor's 500 Composite Stock Price Index ("S&P
500 Index") as of the close of business on or about the applicable stock
selection date. See "Description of Indices" for a description of the
S&P 500 Index.
The fund primarily consists of a portfolio of 10 common stocks selected
each year through the following three-step process from a subset of the
stocks listed on the S&P 500 Index as of close of business on or about
the applicable stock selection date. The first step begins by selecting
the 250 largest companies based on market capitalization in the S&P 500
Index. From the 250 companies identified in the first step, the second
step selects the 125 companies with the lowest price to sales ratios.
Finally, of the remaining companies, the 10 companies which had the
greatest 1-year stock price appreciation are selected for the fund. The
portfolio will be adjusted annually on or about December 31 in
accordance with the investment strategy.
Each year, on or about the annual stock selection date (December 31),
the fund expects to invest in the securities determined by the strategy
in relatively equal amounts. At that time, the percentage relationship
among the number of shares of each issuer held by the fund is
established. Through the next one-year period that percentage
relationship will be maintained as closely as practicable when the fund
makes subsequent purchases and sales of the securities.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. As with any mutual fund investment,
loss of money is a risk of investing. An investment in the fund is not a
deposit of a bank and is not insured or guaranteed by the FDIC or any
other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of investing in accordance with an investment
strategy. As a result of this policy, securities held by the fund will
generally not be bought or sold in response to market fluctuations and
the securities may be issued by companies concentrated in a particular
industry, including technology. The fund's relative lack of diversity,
possible concentration in a particular industry and limited management
may subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
"Standard & Poor's", "S&P" "S&P 500", "Standard & Poor's 500" and "500"
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by First Trust on behalf of the fund. The fund is not sponsored,
endorsed, managed, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing
in the fund. Please see the Statement of Additional Information which
sets forth certain additional disclaimers and limitations on behalf of
Standard & Poor's.
Page 6
NASDAQ Target 15 Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average total return.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing in common stocks
issued by companies that are expected to have the potential for capital
appreciation. To select the stocks for the fund, the investment adviser
follows a disciplined investment strategy that invests primarily in the
common stocks of fifteen companies selected from a subset of the stocks
included in the Nasdaq-100 Index as of the close of business on or about
the applicable stock selection date. See "Description of Indices" for a
description of the Nasdaq-100 Index.
The fund primarily consists of a portfolio of fifteen common stocks
selected each year through the following multi-step process from a
subset of the stocks listed on the Nasdaq-100 Index as of the close of
business on or about the applicable stock selection. The first step
begins by removing from the index all companies that are the subject of
an announced business combination which is expected to occur within six
months of the applicable stock selection date. The second step ranks
each remaining security by price appreciation over the prior twelve-
month period. The third step ranks the same securities by price
appreciation over the prior six-month period. The combined effect of the
second and third step is to select stocks which have shown consistent
growth over the past year. The fourth step numerically ranks the stocks
by return on assets ratio. The fifth step numerically ranks each
security by their ratio of cash flow per share to stock price. This is a
common indication of value. After ranking each of the securities in each
of the second through fifth criteria, the resulting four rankings are
added up for each security. Those fifteen securities with the lowest
sums are selected for the portfolio. The portfolio will be adjusted
annually on or about December 31 in accordance with the investment
strategy.
Each year, on or about the stock selection date (December 31), the fund
expects to invest in the securities determined by the strategy. These
securities will be weighted by market capitalization subject to the
restriction that no stock will comprise less than 1% or more than 25% of
the portfolio on or about the stock selection date. At that time, the
percentage relationship among the number of shares of each issuer held
by the fund is established. Through the next one-year period that
percentage relationship will be maintained as closely as practicable
when the fund makes subsequent purchases and sales of the securities.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's potential investment in
foreign stocks presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. As with any mutual
fund investment, loss of money is a risk of investing. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by
the FDIC or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of investing in accordance with an investment
strategy. As a result of this policy, securities held by the fund will
generally not be bought or sold in response to market fluctuations and
the securities may be issued by companies concentrated in a particular
industry, including technology. The fund's relative lack of diversity,
possible concentration in a particular industry and limited management
may subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
"The Nasdaq 100(registered trademark)", "Nasdaq-100 Index(registered trade
mark)", "Nasdaq Stock Market(registered trademark)" and "Nasdaq(registered
trademark)" are trade or service marks of The Nasdaq Stock Market, Inc. (which
with its affiliates are the "Corporations") and have been licensed for use by
First Trust. The fund has not been passed on by the Corporations as to its
legality or suitability. The fund is not issued, endorsed, sponsored,
managed, sold or promoted by the Corporations. THE CORPORATIONS MAKE NO
WARRANTIES AND BEAR NOT LIABILITY WITH RESPECT TO THE FUND.
Page 7
First Trust 10 Uncommon Values Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average capital appreciation.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing primarily in the
ten common stocks selected by the Investment Policy Committee of Lehman
Brothers Inc. ("Lehman Brothers") with the assistance of the Research
Department of Lehman Brothers which, in the opinion of Lehman Brothers,
have the greatest potential for capital appreciation during the next
year. The portfolio will be adjusted annually on or about July 1 in
accordance with the investment strategy.
Each year, on or about the annual stock selection date (July 1), the
fund expects to invest in the securities determined by Lehman Brothers
in relatively equal amounts. At that time, the percentage relationship
among the number of shares of each issuer held by the fund is
established. Through the next one-year period that percentage
relationship will be maintained as closely as practicable when the fund
makes subsequent purchases and sales of the securities.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's potential investment in
foreign stocks presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. As with any mutual
fund investment, loss of money is a risk of investing. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by
the FDIC or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of investing in accordance with an investment
strategy. As a result of this policy, securities held by the fund will
generally not be bought or sold in response to market fluctuations and
the securities may be issued by companies concentrated in a particular
industry, including technology. The fund's relative lack of diversity,
possible concentration in a particular industry and limited management
may subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
Page 8
First Trust Energy Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average capital appreciation.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing primarily in common
stocks issued by companies involved in the energy industry. The fund may
hold securities of issuers in many energy sectors including, among
others, integrated oil, oil field services and equipment, oil and gas
production, and natural gas. The companies selected for the fund are
researched and evaluated using database screening techniques,
fundamental analysis and the judgment of the investment adviser. The
investment adviser seeks companies that it believes have above-average
growth prospects.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's potential investment in
foreign stocks presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. As with any mutual
fund investment, loss of money is a risk of investing. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by
the FDIC or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of concentrating in securities of companies in the
energy industry. The fund's relative lack of diversity may subject
investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
Page 9
First Trust Financial Services Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average capital appreciation.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing primarily in common
stocks issued by companies involved in the financial services industry,
including, among others, money center banks, major regional banks,
financial and investment service providers and insurance companies. The
companies selected for the fund are researched and evaluated using
database screening techniques, fundamental analysis and the judgment of
the investment adviser. The investment adviser seeks companies that it
believes have above-average growth prospects.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's potential investment in
foreign stocks presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. As with any mutual
fund investment, loss of money is a risk of investing. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by
the FDIC or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of concentrating in securities of companies in the
financial services industry. The fund's relative lack of diversity may
subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
Page 10
First Trust Internet Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average capital appreciation.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing primarily in common
stocks issued by companies involved in the internet industry. The
companies selected for the fund are researched and evaluated using
database screening techniques, fundamental analysis and the judgment of
the investment adviser. The investment adviser seeks companies that it
believes have above-average growth prospects.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's potential investment in
foreign stocks presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. As with any mutual
fund investment, loss of money is a risk of investing. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by
the FDIC or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of concentrating in securities of companies in the
internet industry. The fund's relative lack of diversity may subject
investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
Page 11
First Trust Pharmaceutical Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average capital appreciation.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing primarily in common
stocks issued by companies involved in the pharmaceutical industry. The
fund may hold securities of issuers in many pharmaceutical sectors
including, among others, medical supplies, drugs and biotech. The
companies selected for the fund are researched and evaluated using
database screening techniques, fundamental analysis, and the judgment of
the investment adviser. The investment adviser seeks companies that it
believes have above-average growth prospects.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's potential investment in
foreign stocks presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. As with any mutual
fund investment, loss of money is a risk of investing. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by
the FDIC or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of concentrating in securities of companies in the
pharmaceutical industry. The fund's relative lack of diversity may
subject investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
Page 12
First Trust Technology Portfolio
Fund Overview
Investment Objective
The fund seeks to provide above-average capital appreciation.
How the Fund Pursues its Objective
The fund seeks to achieve its objective by investing primarily in common
stocks issued by companies involved in the technology industry
including, among others, companies that offer computers, computer
networking, software, semiconductor equipment and semiconductors. The
companies selected for the fund are researched and evaluated using
database screening techniques, fundamental analysis, and the judgment of
the investment adviser. The investment adviser seeks companies that it
considers to have above-average growth prospects.
The fund may also invest in futures, options, warrants, forward
contracts and repurchase agreements.
What are the Risks of Investing in the Fund?
The principal risk of investing in the fund is market risk. Market risk
is the risk that a particular stock in the fund, the fund itself or
stocks in general may fall in value. The fund's potential investment in
foreign stocks presents additional risk including currency risk. Foreign
companies may be affected by adverse political, diplomatic and economic
developments, changes in foreign currency exchange rates, taxes, less
publicly available information and other factors. As with any mutual
fund investment, loss of money is a risk of investing. An investment in
the fund is not a deposit of a bank and is not insured or guaranteed by
the FDIC or any other government agency.
Because the fund is non-diversified, the fund is exposed to additional
market risk. A non-diversified fund may invest a relatively high
percentage of its assets in a limited number of issuers. Non-diversified
funds are more susceptible to any single political, regulatory or
economic occurrence and to the financial condition of individual issuers
in which it invests. The fund is also exposed to additional market risk
due to its policy of concentrating in securities of companies in the
technology industry. The fund's relative lack of diversity may subject
investors to greater market risk than other mutual funds.
Fund Performance
The fund has not been in operation for a full calendar year; therefore,
no performance information is provided.
Page 13
Fund Organization
Each fund is a series of the First Defined Portfolio Fund, LLC (the
"Registrant"), a non-diversified open-end management investment company
registered under the Investment Company Act of 1940. Each fund
constitutes a separate mutual fund with its own investment objective and
policies. The Registrant is organized as a Delaware limited liability
company. Its Board of Trustees is responsible for its overall management
and direction. The Board elects the Registrant's officers and approves
all significant agreements including those with the investment adviser,
custodian and fund administrative and accounting agent. Board members
are elected by owners of the Registrant's membership interests (the
"interests").
Under Delaware law, a limited liability company does not issue shares of
stock. Instead, ownership rights are contained in "membership
interests". Each interest of a fund represents an undivided interest in
the securities held in the fund's portfolio. The funds are not offered
directly to the public. Interests of the funds are sold only to American
Skandia Life Assurance Corporation Variable Account B ("Account B") to
fund the benefits of variable annuity policies (the "Policies") issued
by American Skandia. Account B is the sole member of the Registrant.
Account B's variable annuity owners who have Policy values allocated to
any of the funds have indirect rights in the Registrant's interests. The
funds may be divided into two general categories: Strategy Funds and
Sector Funds.
Strategy Funds
The Strategy Funds are: The Dow (sm) Target 5 Portfolio, The Dow(sm) DART 10
Portfolio, Global Target 15 Portfolio, S&P Target 10 Portfolio, NASDAQ
Target 15 Portfolio and First Trust 10 Uncommon Values Portfolio. The
Strategy Funds seek their investment objectives by investing their
assets primarily in accordance with a particular investment strategy.
The Strategy Funds' portfolios are generally adjusted annually to
reflect the strategies most recent selections. (See "Fund Overview" for
each fund for a description of the investment strategies).
Sector Funds
The Sector Funds are: First Trust Energy Portfolio, First Trust
Financial Services Portfolio, First Trust Internet Portfolio, First
Trust Pharmaceutical Portfolio and First Trust Technology Portfolio. The
Sector Funds invest primarily in the common stocks of companies that
represent each funds' specific sector or industry.
Fund Management
The overall management of the business and affairs of the funds is the
responsibility of the Board of Trustees of the funds.
First Trust Advisors L.P. ("First Trust"), 1001 Warrenville Road, Lisle,
Illinois, 60532, is the investment adviser to the funds. In this
capacity, First Trust is responsible for the selection and ongoing
monitoring of the securities in the funds' portfolios, managing the
funds' business affairs and providing certain clerical, bookkeeping and
other administrative services.
First Trust is a limited partnership with one limited partner, Grace
Partners of DuPage L.P., and one general partner, Nike Securities
Corporation. Grace Partners of DuPage L.P. is a limited partnership with
one general partner, Nike Securities Corporation, and a number of
limited partners. Nike Securities Corporation is an Illinois corporation
controlled by the Robert Donald Van Kampen family. First Trust
discharges its responsibilities subject to the policies of the Board of
Trustees of the funds.
First Trust serves as adviser or subadviser for over 50 mutual funds and
is also the portfolio supervisor of unit investment trusts sponsored by
Nike Securities L.P. ("Nike Securities"), some of which are
substantially similar to the funds. Nike Securities, 1001 Warrenville
Road, Lisle, Illinois 60532, specializes in the underwriting, trading
and distribution of unit investment trusts and other securities. Nike
Securities is the sponsor and principal underwriter of the funds'
interests and has sponsored or underwritten over $25 billion of
investment company shares.
Page 14
There is no one individual primarily responsible for portfolio
management decisions for the funds. Investments are made under the
direction of a committee. For additional information concerning First
Trust, including a description of the services provided, see the
Statement of Additional Information.
Management Fees and Expenses
For providing management services, First Trust is paid an annual fund
management fee by each fund of 0.60% of average daily net assets.
Each fund pays for its own operating expenses such as custodial,
transfer agent, administrative, accounting and legal fees; brokerage
commissions; distribution and service fees; licensing fees (if
applicable); extraordinary expenses; and its portion of the Registrant's
operating expenses. First Trust has agreed to waive fees and
reimburse expenses through September 30, 2001 to prevent a fund's Total
Annual Fund Operating Expenses (excluding brokerage expenses and
extraordinary expenses) from exceeding 1.47% of the average daily net
asset value of such fund. However, with respect to the First Trust 10
Uncommon Values Portfolio, First Trust has agreed to waive fees and
reimburse expenses to prevent the fund's Total Annual Operating Expenses
(excluding brokerage expenses and extraordinary expenses) from exceeding
1.47% and 1.37% of the average daily net asset value of the fund through
July 1, 2000 and September 30, 2001, respectively.
Fund Investments
Equity Securities
Each fund invests primarily in equity securities. Eligible equity
securities include common stocks; warrants to purchase common stocks;
and securities convertible into common stocks, such as convertible bonds
and debentures. In addition, each of the Sector Funds, the First Trust
10 Uncommon Values Portfolio, the Global Target 15 Portfolio and the
NASDAQ Target 15 Portfolio may invest in equity securities of foreign
issuers, including depositary receipts that represent foreign common
stocks deposited with a custodian.
Short-Term Investments
Each fund may invest in cash equivalents or other short-term investments
including U.S. government securities, commercial paper, repurchase
agreements, money-market funds or similar fixed-income securities with
remaining maturities of one year or less. For more information on short-
term investments, see the Statement of Additional Information.
Futures and Options
Each fund may invest in various investment strategies designed to hedge
against changes in the values of securities the fund owns or expects to
purchase or to hedge against interest rate or currency exchange rate
changes. The securities used to implement these strategies include
financial futures contracts, options, forward contracts, options on
financial futures and stock index options.
Delayed Delivery Securities
Each fund may buy or sell securities on a when-issued or delayed-
delivery basis, paying for or taking delivery of the securities at a
later date, normally within 15 to 45 days of the trade. Such
transactions involve an element of risk because the value of the
securities to be purchased may decline before the settlement date.
Page 15
How Securities Are Selected
Strategy Funds
To select securities for the Strategy Funds, First Trust primarily
follows a disciplined investment strategy that invests in the common
stocks determined by the strategy. The portfolio of each Strategy Fund
is adjusted annually on or about the funds' annual stock selection date
of December 31 (other than the First Trust 10 Uncommon Values Portfolio
which is adjusted on or about each July 1), in accordance with the
applicable investment strategy. On or about the annual stock selection
date for a fund, a percentage relationship among the number of
securities in the fund will be established. When additional assets are
deposited into the fund, additional securities will be purchased in such
numbers that reflect as nearly as practicable the percentage
relationship of the number of securities established on or about the
annual stock selection date. First Trust will likewise attempt to
replicate the percentage relationship of securities when selling
securities for a fund. The percentage relationship among the number of
securities in a fund should therefore remain relatively stable. However,
given the fact that the market price of such securities will vary
throughout the year, the value of the securities of each of the
companies as compared to the total assets of a fund will fluctuate
during the year, above and below the proportion established on the
annual stock selection date. On or about the annual stock selection date
for a fund, new securities will be selected and a new percentage
relationship will be established among the number of securities for the
fund.
It is generally not possible for First Trust to purchase round lots
(usually 100 shares) of stocks in amounts that will precisely duplicate
the prescribed mix of securities. Also, it usually is impossible for a
fund to be 100% invested in the prescribed mix of securities at any. To
the extent that a fund is not fully invested, the interests of variable
annuity Policy owners may be diluted and total return may not directly
track the investment results of the prescribed mix of securities. To
minimize this effect, First Trust will generally try, as much as
practicable, to maintain a minimum cash position at all times. Normally,
the only cash items held by a fund are amounts expected to be deducted
as expenses, amounts too small to purchase additional round lots of the
securities and amounts held during the settlement of portfolio
transactions.
Sector Funds
The companies selected for the Sector Funds are researched and evaluated
by First Trust by using database screening techniques, fundamental
analysis, and the judgment of its research analysts. First Trust seeks
companies that it believes have above-average growth prospectus within
the respective industry or sector.
Investment Limitations
The funds have adopted certain investment limitations (based on total
assets) that cannot be changed without interest holder approval and are
designed to limit your investment risk. Such limitations are described
in the Statement of Additional Information.
Hedging and Other Defensive and Temporary Investment Strategies
Although the Strategy Funds have no present intentions to vary from
their investment strategies under any circumstances, all of the funds
may invest up to 100% of their assets in cash equivalents and short-term
investments as a temporary defensive measure in response to adverse
market conditions, or to keep cash on hand fully invested. During these
periods, a fund may not be able to achieve its investment objective.
First Trust may also use various investment strategies designated to
hedge against changes in the value of securities a fund owns or expects
to purchase or to hedge against interest rate changes or currency
fluctuations during the settlement of portfolio transactions. These
hedging strategies include using financial futures contracts, options,
options on financial futures, foreign currency forward contracts or
stock index options. The ability of a fund to benefit from options and
futures is largely dependent on First Trust's ability to use such
strategies successfully. A fund could lose money on futures transactions
or an option can expire worthless.
Page 16
Each fund's investment objective may not be changed without interest
holder approval. The above investment policies may be changed by the
Board of Trustees without interest holder approval unless otherwise
noted in this prospectus or the Statement of Additional Information.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio
that is sold and replaced with new securities during a year is known as
the fund's portfolio turnover rate. The Strategy and Sector Funds
anticipate that their annual portfolio turnover rates will generally be
between 20% and 100%. A turnover rate of 100% would occur, for example,
if a fund sold and replaced securities valued at 100% of its net assets
within one year. Active trading would result in the payment by the fund
of increased brokerage costs and expenses.
Description of Indices
The portfolios of certain of the Strategy Funds consist of the common
stocks of companies listed on various indices. A description of certain
of the indices is provided below.
The Dow Jones Industrial Average(sm)
The stocks included in the DJIA are chosen by the editors of The Wall
Street Journal as representative of the broad market and of American
industry. The companies are major factors in their industries and their
stocks are widely held by individuals and institutional investors.
The Financial Times Industrial Ordinary Share Index
The FT Index is comprised of 30 common stocks chosen by the editors of
The Financial Times as representative of British industry and commerce.
This index is an unweighted average of the share prices of selected
companies. These companies are highly capitalized and major factors in
their industries. In addition, their stocks are widely held by
individuals and institutional investors.
The Hang Seng Index
The Hang Seng Index presently consists of 33 stocks currently listed on
the Stock Exchange of Hong Kong Ltd. (the "Hong Kong Stock Exchange"),
and it includes companies intended to represent four major market
sectors: commerce and industry, finance, properties and utilities. The
Hang Seng Index is a recognized indicator of stock market performance in
Hong Kong. It is computed on an arithmetic basis, weighted by market
capitalization, and is therefore strongly influenced by stocks with
large market capitalizations.
The Nasdaq-100 Index
The Nasdaq-100 Index represents the largest non-financial domestic and
international issues listed on the Nasdaq Stock Market(R). The index is
calculated based on a modified capitalization weighted methodology. The
Nasdaq Stock Market lists approximately 5,400 companies and trades more
shares per day than any other major U.S. market.
The Standard & Poor's 500 Index
Widely regarded as the standard for measuring large-cap U.S. stock
market performance, the S&P 500 Index includes a representative sample
of leading U.S. companies in leading industries. The S&P 500 Index
consists of 500 stocks chosen for market size, liquidity and industry
group representation. It is a market-value weighted index with each
stocks' weight in the Index proportionate to its market value.
Except as described in the Prospectus or Statement of Additional
Information, the publishers of the indices have not granted the funds or
First Trust a license to use their respective index. The funds are not
Page 17
designed so that prices will parallel or correlate with the movements in
any particular index or a combination of indices and it is expected that
their prices will not parallel or correlate with such movements. The
publishers of the indices have not participated in any way in the
creation of the funds or in the selection of stocks in the funds.
Risk Factors
Risk is inherent in all investing. Investing in the funds involves risk,
including the risk that you may lose all or part of your investment.
There can be no assurance that a fund will meet its stated objective.
Before you invest, you should consider the following risks.
Market risk: Market risk is the risk that a particular stock, an
industry, a mutual fund or stocks in general may fall in value.
Small-cap company risk: Certain funds may invest in small capitalization
companies. Such companies may be more vulnerable to adverse general
market or economic developments, may be less liquid, and may experience
greater price volatility than larger capitalization companies as a
result of several factors, including limited trading volumes, products
or financial resources, management inexperience and less publicly
available information. Accordingly, such companies are generally subject
to greater market risk than larger capitalization companies.
Inflation risk: Inflation risk is the risk that the value of assets or
income from investments will be less in the future as inflation
decreases the value of money. As inflation increases, the value of the
funds' assets can decline as can the value of the funds' distributions.
Common stock prices may be particularly sensitive to rising interest
rates, as the cost of capital rises and borrowing costs increase.
Foreign investment risk: Certain funds may invest in foreign securities.
Securities issued by foreign companies or governments present risks
beyond those of securities of U.S. issuers. Risks of investing in
foreign securities include higher brokerage costs; different accounting
standards; expropriation, nationalization or other adverse political or
economic developments; currency devaluation, blockages or transfer
restrictions; changes in foreign currency exchange rates; taxes; restrictions
on foreign investments and exchange of securities; inadequate financial
information; lack of liquidity of certain foreign markets; and less
government supervision and regulation of exchanges, brokers, and issuers
in foreign countries. Prices of foreign securities also may be more
volatile.
Concentration risk: Each fund is classified as "non-diversified." As a
result, each fund is only limited as to the percentage of its assets
which may be invested in the securities of any one issuer by its own
investment restrictions and by the diversification requirements imposed
by the Internal Revenue Code of 1986, as amended. Since each fund may
invest a relatively high percentage of its assets in a limited number of
issuers, each fund may be more susceptible to any single economic,
political or regulatory occurrence and to the financial conditions of
the issuers in which it invests.
In addition, the Sector Funds are considered to be concentrated in the
securities of their respective industries and the Strategy Funds may be
concentrated in the securities of a given industry if the applicable
investment strategy selects such securities. A concentration makes a
fund more susceptible to any single occurrence affecting the industry
or sector and may subject the fund to greater market risk than more
diversified funds. Particular risk factors for certain sectors are
provided below.
Energy Sector: Companies involved in the energy industry are subject to
changes in value and dividend yields which depend to a large extent on
the price and supply of unpredictable energy fuels and consumer demand.
Also, international politics may cause cost and supply fluctuations, and
increasing sensitivity to environmental concerns will likely pose
serious challenges to the industry over the coming decade. Energy
conservation, taxes and regulatory policies of various governments may
also affect the industry.
Financial Services Sector: Companies involved in the financial services
industry are generally subject to the adverse effects of economic
recession, volatile interest rates, portfolio concentrations in
geographic markets, commercial and residential real estate loans and
competition. In addition, such companies are subject to extensive
regulation and tax law changes. Brokerage firms compete with banks and
thrifts to provide traditional financial service products in addition to
their traditional services, such as brokerage and investment advice.
Page 18
Insurance companies are also subject to the imposition of premium rate
caps, pressure to compete globally, weather catastrophes and other
disasters that require payouts and mortality rates.
Pharmaceutical Sector: Companies involved in the pharmaceutical industry
are subject to governmental regulation of their products and services,
increasing competition, termination of patent protections for drug
products, litigation, the high costs of research and development and the
risk that technological advances will render their products or services
obsolete.
Technology and Internet Sectors: Companies involved in the technology and
internet industries must contend with rapidly changing technology,
worldwide competition, including aggressive pricing and reduced profit
margins, rapid obsolescence of products and services, loss of patent
protections, cyclical market patterns, evolving industry standards and
frequent new product introductions. Technology companies may be smaller
and less experienced companies, with limited product lines, markets or
financial resources and fewer experienced management or marketing
personnel. Also, the stocks of many technology companies have
exceptionally high price-to-earning ratios with little or no earnings
histories. Many technology companies, particularly those involved with
the Internet, have experienced extreme price and volume fluctuations
that often have been unrelated to their operating performance. Because
of the components of the Nasdaq 100 Index, the Nasdaq Target 15
Portfolio is likely to be concentrated in the technology industry.
The Global Target 15 Portfolio is considered to be concentrated in the
securities of United Kingdom and Hong Kong issuers. Particular risk
factors follow.
United Kingdom: The United Kingdom is one of 15 members
of the European Union ("EU") which was formed by the Maastricht Treaty
on European Union. It is expected that the Treaty will have the effect
of eliminating most remaining trade barriers between the member nations
and make Europe one of the largest common markets in the world. However,
the uncertain implementation of the Treaty provisions and recent rapid
political and social change throughout Europe make the extent and nature
of future economic development in the United Kingdom and Europe and
their effect on securities issued by U.K. issuers impossible to predict.
Unlike a majority of EU members, the United Kingdom did not convert its
currency to the new common European currency, the euro, on January 1,
1999. All companies with significant markets or operations in Europe
face strategic challenges as these entities adapt to a single currency.
The euro conversion may materially impact revenues, expenses or income;
increase competition; affect issuers' currency exchange rate risk and
derivatives exposure; cause issuers to increase spending on information
technology updates; and result in potentially adverse tax consequences.
We cannot predict when or if the United Kingdom will convert to the euro
or what impact the implementation of the euro throughout a majority of
EU countries will have on U.K. or European issuers.
Hong Kong: Hong Kong issuers are subject to risks related to Hong Kong's
political and economic environment, the volatility of the Hong Kong
stock market, and the concentration of real estate companies in the Hang
Seng Index. Hong Kong reverted to Chinese control on July 1, 1997 and
any increase in uncertainty as to the future economic and political
status of Hong Kong, or a deterioration of the relationship between
China and the United States, could have negative implications on stocks
listed on the Hong Kong stock market. Securities prices on the Hong Kong
Stock Exchange, and specifically the Hang Seng Index, can be highly
volatile and are sensitive to developments in Hong Kong and China, as
well as other world markets.
Investment strategy risk: The Strategy Funds are exposed to additional
market risk due to their policy of investing in accordance with an
investment strategy. As a result of this policy, securities held by a
Strategy Fund will generally not be bought or sold in response to market
fluctuations. This policy may subject investors to greater market risk
than other mutual funds.
Page 19
Investment in Fund Interests
Interests of the funds are sold only to Account B to fund the benefits
of the Policies issued by American Skandia. Account B purchases
interests of the funds in accordance with variable account allocation
instructions received from owners of the Policies. First Trust then uses
the proceeds to buy securities for the funds. Account B, as an interest
holder, has an ownership in the funds' investments.
The funds do not issue interest certificates. Individual investors may
not purchase or redeem interests in the funds directly; interests may be
purchased or redeemed only through the Policies. There are no minimum
investment requirements. All investments in a fund are credited to the
interest holder's account in the form of full and fractional interests
of the designated fund (rounded to the nearest 1/1000 of a share). For a
discussion of how Policy owners may purchase fund interests, please
refer to the prospectus for Account B. Owners of the Policies may direct
purchase or redemption instructions to American Skandia at 1 Corporate
Drive, Shelton, CT 06484-0883, 1-(800) 752-6342.
The price received for purchase requests will depend on when the order
is received. Orders received before the close of trading on a business
day will receive that day's closing price, otherwise the next business
day's price will be received. A business day is any day the New York
Stock Exchange is open for business and normally ends at 4 p.m. New York
time. See "Net Asset Value" for a discussion of how interests are priced.
Interest Redemption
Each fund offers to buy back (redeem) interests of the fund from Account
B at any time at net asset value. Account B will redeem interests to
make benefit or surrender payments under the terms of the Policies or to
effect transfers among investment options. Redemptions are processed on
any day on which the funds are open for business and are effected at the
net asset value next determined after the redemption order, in proper
form, is received. Orders received before the close of trading on a
business day will receive that day's closing price, otherwise the next
business day's price will be received. For a discussion of how Policy
owners may redeem interests, please refer to the prospectus for Account B.
A fund may suspend the right of redemption only under the following
unusual circumstances:
- - when the New York Stock Exchange is closed (other than weekends and
holidays) or trading is restricted;
- - when trading in the markets utilized is restricted, or when an
emergency exists so that disposal of the Fund's investments or
determination of its net assets is not reasonably practicable; or
- - during any period when the SEC may permit.
Distributions and Taxes
Automatic Reinvestment
All dividends received by a fund will be reinvested into additional fund
interests.
Taxes and Tax Reporting
The Registrant is a limited liability company with all of its interests
owned by a single entity (Account B). Accordingly, the Registrant is
part of the operations of American Skandia and is not taxed separately.
The Registrant does not intend to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. Under current
tax law, interest, dividend income and capital gains of the Registrant
are not currently taxable when left to accumulate within a variable
annuity contract. For a discussion of the tax status of the variable
annuity Policy, please refer to the prospectus for Account B.
Internal Revenue Service Diversification Requirements
Page 20
The funds intend to comply with the diversification requirements
currently imposed by the Internal Revenue Service on separate accounts
of insurance companies as a condition of maintaining the tax deferred
status of the variable annuity Policies issued by Account B. First Trust
reserves the right to depart from the investment strategy of a fund in
order to meet these diversification requirements. See the Statement of
Additional Information for more specific information.
12b-1 Plan
Nike Securities serves as the selling agent and distributor of the
funds' interests. In this capacity, Nike Securities manages the offering
of the funds' interests and is responsible for all sales and promotional
activities. In order to reimburse Nike Securities for its costs in
connection with these activities, each fund has adopted a service plan
under Rule 12b-1 under the Investment Company Act of 1940. Each fund may
spend up to 0.25% per year of its daily net assets as a service fee.
Nike Securities uses the service fee to compensate American Skandia for
providing account services to Policy owners. These services include
establishing and maintaining Policy owners' accounts, supplying
information to Policy owners, delivering fund materials to Policy
owners, answering inquiries, and providing other personal services to
Policy owners. Because these fees are paid out of the fund's assets on
an on-going basis, over time these fees will increase the cost of your
investment any may cost you more than paying other types of sales
charges. In addition, the Plan allows First Trust to use a portion of
its advisory fee to compensate Nike Securities for other expenses,
including printing and distributing prospectuses to persons other than
interest holders or Policy owners, and the expenses of compensating its
sales force and preparing, printing and distributing advertising, sales
literature and reports to interest holders and Policy owners used in
connection with the sale of interests.
Net Asset Value
The price of fund interests is based on a fund's net asset value per
interest which is determined as of the close of trading (normally 4:00
p.m. eastern time) on each day the New York Stock Exchange is open for
business. Net asset value is calculated for each fund by taking the
market price of the fund's total assets, including interest or dividends
accrued but not yet collected, less all liabilities, and dividing by the
total number of interests outstanding. The result, rounded to the
nearest cent, is the net asset value per interest. All valuations are
subject to review by the funds' Board of Trustees or its delegate.
In determining net asset value, expenses are accrued and applied daily
and securities and other assets are generally valued as set forth below.
Common stocks and other equity securities listed on any national or
foreign exchange or on the Nasdaq will be valued at the closing sale
price on the exchange or system in which they are principally traded on
the valuation date. If there are no transactions on the valuation day,
securities traded principally on a national or foreign exchange or on
Nasdaq will be valued at the mean between the most recent bid and ask
prices. Equity securities traded in the over-the-counter market are
valued at their closing bid prices. Fixed income securities with a
remaining maturity of 60 days or more will be valued by the fund
accounting agent using a pricing service. When price quotes are not
available, fair market value is based on prices of comparable
securities. Fixed income securities maturing within 60 days are valued
by the fund accounting agent on an amortized cost basis. Foreign
securities, currencies and other assets denominated in foreign
currencies are translated into U.S. dollars at the exchange rate of such
currencies against the U.S. dollar as provided by a pricing service. All
assets denominated in foreign currencies will be converted into U.S.
dollars at the exchange rates in effect at the time of valuation. The
value of any portfolio security held by a fund for which market
quotations are not readily available will be determined in a manner that
most fairly reflects fair market value of the security on the valuation
date.
For funds that hold securities that trade primarily on foreign
exchanges, the net asset value of a fund's interests may change on days
when interest holders will not be able to purchase or redeem the fund's
interests.
Fund Service Providers
The custodian of the assets of the funds is The Chase Manhattan Bank, 4
New York Plaza, New York, NY 10004- 2413. Chase also provides certain
accounting services to the funds. The funds' transfer, shareholder
Page 21
services, fund accounting and dividend paying agent, PFPC Inc., 4400
Computer Drive, Westborough, Massachusetts 01581, performs bookkeeping,
data processing, accounting and administrative services for the
operation of the funds and the maintenance of shareholder accounts.
Each fund pays an administrative fee of 0.325% of average daily net
assets to cover expenses incurred by American Skandia in connection with
the administration of the funds, Account B and the Policies. See the
Statement of Additional Information for an additional discussion of fund
expenses.
Shareholder Inquiries
All inquiries regarding the funds should be directed to the applicable
fund at 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532, 1-(800)
621-1675. First Defined Portfolio Fund, LLC
Financial Highlights Information
The financial highlights table is intended to help you understand each
fund's financial performance from inception, October 6, 1999, until
December 31, 1999. Certain information reflects financial results for a
single fund share. The total returns in the table represent the rate
that you would have earned, or lost, on an investment in a fund
(assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young, LLP, whose report, along
with the Registrant's financial statements, is included in the Statement
of Additional Information and annual report, which is available upon
request.
Page 22
Financial Highlights
The Dow(sm) Target 5 Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period ..$10.00
Income from investment operations:
Net investment income .0.05
Net unrealized loss on investments (2.01)
Total from investment operations (1.96)
Net asset value, end of period $8.04
Total return + (19.60)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $80
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets 2.28%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets without
fee waivers and expenses reimbursed 215.88%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 23
Financial Highlights
The Dow(sm) DART 10 Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income 0.02
Net unrealized loss on investments (0.80)
Total from investment operations (0.78)
Net asset value, end of period $ 9.22
Total return + (7.80)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $101
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets 1.01%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets without
fee waivers and expenses reimbursed 182.94%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 24
Financial Highlights
Global Target 15 Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income *.0.06
Net unrealized loss on investments (0.35)
Total from investment operations (0.29)
Net asset value, end of period $9.71
Total return + (2.90)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $252
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets 2.77%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets without
fee waivers and expenses reimbursed 51.39%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 25
Financial Highlights
S&P Target 10 Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.02)
Net unrealized loss on investments 1.85
Total from investment operations 1.83
Net asset value, end of period $11.83
Total return 18.30%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $273
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets (1.04)%**
Portfolio turnover rate: 0
Ratio of operating expenses to average net assets without
fee waivers and expenses reimbursed 96.12%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 26
Financial Highlights
NASDAQ Target 15 Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.05)++
Net unrealized loss on investments 4.65
Total from investment operations 4.60
Net asset value, end of period $14.60
Total return + 46.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $410
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets (1.44)%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets
without fee waivers and expenses reimbursed 90.16%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
++ Per share values have been calculated using the average shares method.
Page 27
Financial Highlights
First Trust 10 Uncommon Values Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.02)
Net unrealized loss on investments 1.42
Total from investment operations 1.40
Net asset value, end of period $11.40
Total return + 14.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $125
Ratio of operating expenses to average net assets (0.65)%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets
without fee waivers and expenses reimbursed 144.82%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 28
Financial Highlights
First Trust Energy Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.01)
Net unrealized loss on investments 1.24
Total from investment operations 1.23
Net asset value, end of period $11.23
Total return + 12.30%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $114
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets (0.50)%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets
without fee waivers and expenses reimbursed 111.63%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 29
Financial Highlights
First Trust Financial Services Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.00)#
Net unrealized loss on investments 0.49
Total from investment operations 0.49
Net asset value, end of period $10.49
Total return + 4.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $130
Ratio of operating expenses to average net assets (0.19)%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets without
fee waivers and expenses reimbursed 115.6%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized. +Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
# Amount represents less than $0.01 per share.
Page 30
Financial Highlights First Trust
Internet Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.04)
Net unrealized loss on investments 6.37
Total from investment operations 6.33
Net asset value, end of period $16.33
Total return + 63.30%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $187
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets (1.37)%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets without
fee waivers and expenses reimbursed 136.02%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 31
Financial Highlights
First Trust Pharmaceutical Portfolio
Period Ended
12/31/99*
____________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.02)
Net unrealized loss on investments 0.39
Total from investment operations 0.37
Net asset value, end of period $10.37
Total return + 3.70%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $135
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets (0.79)%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets without
fee waivers and expenses reimbursed 147.68%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized. +Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 32
Financial Highlights
First Trust Technology Portfolio
Period Ended
12/31/99*
___________
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (0.03)
Net unrealized loss on investments 3.44
Total from investment operations 3.41
Net asset value, end of period $13.41
Total return + 34.10%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $162
Ratio of operating expenses to average net assets 1.47%**
Ratio of net investment income to average net assets (1.38)%**
Portfolio turnover rate 0
Ratio of operating expenses to average net assets without fee
waivers and expenses reimbursed 115.26%**
___________________________________________________
* The Fund commenced operations on October 6, 1999.
** Annualized.
+ Total return is not annualized for periods less than one
year. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
Page 33
FIRST DEFINED PORTFOLIO FUND, LLC
The Dow(sm) Target 5 Portfolio
The Dow(sm) DART 10 Portfolio
Global Target 15 Portfolio
S&P Target 10 Portfolio
NASDAQ Target 15 Portfolio
First Trust 10 Uncommon Values Portfolio
First Trust Energy Portfolio
First Trust Financial Services Portfolio
First Trust Internet Portfolio
First Trust Pharmaceutical Portfolio
First Trust Technology Portfolio
______________________________________________________________________________
Several additional sources of information are available to you. The
most recent annual report contains performance data and information on
portfolio holdings and operating results for the most recently completed
fiscal year. Also, the Statement of Additional Information (SAI),
incorporated by reference into this prospectus, contains detailed
information on the funds' policies and operation. The SAI and the
prospectus are intended for use in connection with variable annuity
policies offered by American Skandia Life Assurance Corporation. Call
the fund at 1-(800) 621-1675 for shareholder inquiries or to request a
free copy of the SAI, the annual report or for other fund information.
You may obtain this and other fund information directly from the
Securities and Exchange Commission (SEC). The SEC may charge a copying
fee for this information. Visit the SEC on-line at http://www.sec.gov or
in person at the SEC's Public Reference Room in Washington, D.C., or
call the SEC at 1-202-942-8090 for room hours and operation. You may
also request fund information by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102 or by sending an electronic
request, along with a duplication fee to [email protected].
______________________________________________________________________________
First Defined Portfolio Fund, LLC
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
(800) 621-1675
www.nikesec.com
SEC file #: 811-09235
Page 34
STATEMENT OF ADDITIONAL INFORMATION
April 28, 2000
First Defined Portfolio Fund, LLC
This Statement of Additional Information is not a prospectus. It
contains information in addition to and more detailed than set forth in
the Prospectus and should be read in conjunction with the First Defined
Portfolio Fund, LLC Prospectus, dated April 28, 2000, which is incorporated
by reference herein. The Prospectus may be obtained by calling (800) 621-
1675, or writing 1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.
Table of Contents
PAGE
General Information and History 2
Investment Policies 2
Description of Strategy Funds 14
Description of Indices 15
Investment Risks 18
Additional Strategy Fund Risks 20
Additional Fund Industry Risks 20
Additional Foreign Issuer Risks 26
Fund Management 30
Performance 33
Performance Data of Investment Strategies 35
Investment Advisory and Other Services 37
Purchases, Redemptions and Pricing of Interests 40
12b-1 Plan 42
Additional Information 42
Tax Status 43
Financial Statements 44
The audited financial statements for the Registrant for the fiscal year
ended December 31, 1999, included in the Annual Report to Shareholders,
are incorporated into this SAI by reference. The Annual Report
accompanies this SAI.
Page 1
General Information and History
First Defined Portfolio Fund, LLC (the "Registrant") is a non-
diversified, open-end management series investment company organized as
a Delaware limited liability company on January 8, 1999. Currently, the
Registrant has eleven series authorized and outstanding (each a "Fund").
Each series of the Registrant represents membership interests (the
"interests") in a separate portfolio of securities and other assets,
with its own objectives and policies. The series of the Fund comprise
two categories-Strategy Funds and Sector Funds. The Strategy Funds are:
The Dow (sm) Target 5 Portfolio (the "Target 5 Portfolio"), The Dow (sm) DART
10 Portfolio (the "DART 10 Portfolio"), Global Target 15 Portfolio, S&P
Target 10 Portfolio, NASDAQ Target 15 Portfolio and First Trust
10 Uncommon Values Portfolio. The Sector Funds are: First Trust Energy
Portfolio, First Trust Financial Services Portfolio, First Trust
Internet Portfolio, First Trust Pharmaceutical Portfolio, and First
Trust Technology Portfolio. Interests of the Funds are sold only to
American Skandia Life Assurance Corporation Variable Account B ("Account
B") to fund the benefits of variable annuity policies (the "Policies")
issued by American Skandia Life Assurance Corporation ("American
Skandia").
Investment Policies
The Prospectus describes the investment objectives and strategies of
each of the Funds. Each Fund is also subject to the following
fundamental policies which may not be changed without approval of the
holders of a majority of the outstanding voting interests of the Fund:
1) A Fund may not issue senior securities, except as permitted under the
Investment Company Act of 1940.
2) A Fund may not borrow money, except that a Fund may (i) borrow money
from banks for temporary or emergency purposes (but not for leverage or
the purchase of investments) and (ii) engage in other transactions
permissible under the Investment Company Act of 1940 that may involve a
borrowing (such as, obtaining short-term credits as are necessary for
the clearance of transactions, engaging in delayed- delivery
transactions, or purchasing certain futures, forward contracts and
options), provided that the combination of (i) and (ii) shall not exceed
33-1/3% of the value of the Fund's total assets (including the amount
borrowed), less the Fund's liabilities (other than borrowings).
3) A Fund will not underwrite the securities of other issuers except to the
extent the Fund may be considered an underwriter under the Securities
Act of 1933 in connection with the purchase and sale of portfolio
securities.
4) A Fund will not purchase or sell real estate or interests therein,
unless acquired as a result of ownership of securities or other
instruments (but this shall not prohibit a Fund from purchasing or
selling securities or other instruments backed by real estate or of
issuers engaged in real estate activities).
5) A Fund may not make loans to other persons, except through (i) the
purchase of debt securities permissible under the Fund's investment
policies, (ii) repurchase agreements, or (iii) the lending of portfolio
securities, provided that no such loan of portfolio securities may be
made by a Fund if, as a result, the aggregate of such loans would exceed
33-1/3% of the value of the Fund's total assets.
6) A Fund may not purchase or sell physical commodities unless acquired as
a result of ownership of securities or other instruments (but this shall
not prevent a Fund from purchasing or selling options, futures
contracts, forward contracts or other derivative instruments, or from
investing in securities or other instruments backed by physical
commodities).
7) A Fund may not pledge, mortgage or hypothecate any of its assets except
as may be necessary in connection with permissible borrowings or
investments and then such pledging, mortgaging, or hypothecating may not
exceed 33-1/3% of the Fund's total assets at the time of the borrowing
or investment.
8) A Strategy Fund may invest more than 25% of its assets in the securities
of issuers in any single industry if the applicable investment strategy
for the Fund selects securities in a manner that results in such a
Page 2
concentration. A Sector Fund may invest more than 25% of its assets in
the securities of issuers in the industry represented by the Fund.
Notwithstanding the foregoing, there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. (See "Risk Factors" in the Prospectus and
"Additional Fund Industry Risks" herein for a discussion of the
risks associated with the concentration of a Fund's holdings in a given
industry.)
Except for restriction (2), if a percentage restriction is adhered to at
the time of investment, a later increase in percentage resulting from a
change in market value of the investment or the total assets will not
constitute a violation of that restriction.
The foregoing fundamental policies and the investment objective of a
Fund may not be changed without the affirmative vote of the majority of
the outstanding voting interests of the Registrant (or of a particular
Fund, if appropriate). The Investment Company Act of 1940 ("1940 Act")
defines a majority vote as the vote of the lesser of (i) 67% of the
voting interests represented at a meeting at which more than 50% of the
outstanding interests are represented or (ii) more than 50% of the
outstanding voting interests. With respect to the submission of a change
in an investment policy to the holders of outstanding voting interests
of a particular Fund, such matter shall be deemed to have been
effectively acted upon with respect to such Fund if a majority of the
outstanding voting interests of such Fund vote for the approval of such
matter, notwithstanding that (1) such matter has not been approved by
the holders of a majority of the outstanding voting interests of any
other Fund affected by such matter, and (2) such matter has not been
approved by the vote of a majority of the outstanding voting Registrant
interests.
In addition to the foregoing fundamental policies, the Funds are also
subject to strategies and policies discussed herein which, unless
otherwise noted, are non-fundamental restrictions and policies which may
be changed by the Board of Trustees.
Warrants
Each Fund may invest in warrants. Warrants acquired by a Fund entitle it
to buy common stock from the issuer at a specified price and time. They
do not represent ownership of the securities but only the right to buy
them. Warrants are subject to the same market risks as stocks, but may
be more volatile in price. A Fund's investment in warrants will not
entitle it to receive dividends or exercise voting rights and will
become worthless if the warrants cannot be profitably exercised before
their expiration date.
Securities Lending
Each Fund may also lend portfolio securities to broker-dealers and
financial institutions to realize additional income. A Fund will not
lend its portfolio securities or other assets, if as a result, more than
33 1/3% of the Fund's total assets, including collateral received, would
be lent to broker-dealers or other parties. Such loans will be secured
continuously by collateral at least equal to the value of the securities
lent by "marking-to-market" daily. The Fund will continue to receive the
equivalent of the interest or dividends paid by the issuer of the
securities lent and will retain the right to call, upon notice, the lent
securities. The Fund may also receive interest on the investment of the
collateral or a fee from the borrower as compensation for the loan.
Securities loaned by a Fund remain subject to fluctuations in market
value. A Fund may pay reasonable finders, custodian and administrative
fees in connection with a loan. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially.
However, loans will be made only to firms deemed by First Trust to be of
good standing.
During the period that a Fund seeks to enforce its rights against the
borrower, the collateral and the securities loaned remain subject to
fluctuations in market value. A Fund may also incur expenses in
enforcing its rights. If a Fund has sold a loaned security, it may not
be able to settle the sale of the security and may incur potential
liability to the buyer of the security on loan for its costs to cover
the purchase.
Delayed-Delivery Transactions
A Fund may from time to time purchase securities on a "when-issued" or
other delayed-delivery basis. The price of securities purchased in such
transactions is fixed at the time the commitment to purchase is made,
but delivery and payment for the securities take place at a later date.
Page 3
Normally, the settlement date occurs within 45 days of the purchase.
During the period between the purchase and settlement, no payment is
made by a Fund to the issuer and no interest is accrued on debt
securities or dividend income is earned on equity securities. Delayed-
delivery commitments involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of a Fund's other assets. While
securities purchased in delayed-delivery transactions may be sold prior
to the settlement date, the Funds intend to purchase such securities
with the purpose of actually acquiring them. At the time a Fund makes
the commitment to purchase a security in a delayed-delivery transaction,
it will record the transaction and reflect the value of the security in
determining its net asset value. The Funds do not believe that net asset
value will be adversely affected by purchases of securities in delayed-
delivery transactions.
Each Fund will maintain in a segregated account cash, U.S. government
securities, and high grade liquid debt securities equal in value to
commitments for delayed-delivery securities. Such segregated securities
will mature or, if necessary, be sold on or before the settlement date.
When the time comes to pay for delayed-delivery securities, a Fund will
meet its obligations from then-available cash flow, sale of the
securities held in the segregated account described above, sale of other
securities, or, although it would not normally expect to do so, from the
sale of the delayed-delivery securities themselves (which may have a
market value greater or less than the Fund's payment obligation).
Illiquid Securities
Each Fund may invest in illiquid securities (i.e., securities that are
not readily marketable). For purposes of this restriction, illiquid
securities include, but are not limited to, restricted securities
(securities the disposition of which is restricted under the federal
securities laws), securities that may only be resold pursuant to Rule
144A under the Securities Act of 1933, as amended (the "Securities
Act"), but that are deemed to be illiquid; and repurchase agreements
with maturities in excess of seven days. However, a Fund will not
acquire illiquid securities if, as a result, such securities would
comprise more than 15% of the value of the Fund's net assets. The Board
of Trustees or its delegates has the ultimate authority to determine, to
the extent permissible under the federal securities laws, which
securities are liquid or illiquid for purposes of this 15% limitation.
The Board of Trustees has delegated to First Trust the day-to-day
determination of the illiquidity of any equity or fixed-income security,
although it has retained oversight and ultimate responsibility for such
determinations. Although no definitive liquidity criteria are used, the
Board of Trustees has directed First Trust to look to such factors as
(i) the nature of the market for a security (including the institutional
private resale market; the frequency of trades and quotes for the
security; the number of dealers willing to purchase or sell the
security; and the amount of time normally needed to dispose of the
security, the method of soliciting offers and the mechanics of
transfer), (ii) the terms of certain securities or other instruments
allowing for the disposition to a third party or the issuer thereof
(e.g., certain repurchase obligations and demand instruments), and (iii)
other permissible relevant factors.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act. Where
registration is required, a Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time a Fund may be permitted to
sell a security under an effective registration statement. If, during
such a period, adverse market conditions were to develop, a Fund might
obtain a less favorable price than that which prevailed when it decided
to sell. Illiquid securities will be priced at fair value as determined
in good faith by the Board of Trustees or its delegate. If, through the
appreciation of illiquid securities or the depreciation of liquid
securities, a Fund should be in a position where more than 15% of the
value of its net assets are invested in illiquid securities, including
restricted securities which are not readily marketable, the affected
Fund will take such steps as is deemed advisable, if any, to protect
liquidity.
Security-related Issuers
The S&P Target 10 Portfolio may seek exemptive relief from the
Securities and Exchange Commission to allow the Fund to invest more than
5% of its assets in the securities of any issuer that derives more than
15 percent of its gross revenue from "securities related activities" (as
defined in Rule 12d3-1 under the Investment Company Act of 1940). Until
such relief is received, despite any investment strategy, the Fund will
not be able to invest more than 5% of its assets in such issuers.
Page 4
Money Market Funds
Each Fund may invest in shares of money market funds to the extent
permitted by the Investment Company Act of 1940.
Temporary Investments
Each Fund may, without limit as to percentage of assets, purchase U.S.
government securities or short-term debt securities to keep cash on hand
fully invested or for temporary defensive purposes. Short-term debt
securities are securities from issuers having a long-term debt rating of
at least A or higher by Standard & Poor's Ratings Group ("S&P"), Moody's
Investors Service, Inc. ("Moody's") or Fitch IBCA, Inc. ("Fitch"), or A-
or higher by Duff & Phelps, Inc. ("D&P") and having a maturity of one
year or less.
Short-term debt securities are defined to include, without limitation,
the following:
(1) U.S. government securities, including bills, notes and bonds differing
as to maturity and rates of interest, which are either issued or
guaranteed by the U.S. Treasury or by U.S. government agencies or
instrumentalities. U.S. government agency securities include securities
issued by (a) the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of United States, Small Business
Administration, and the Government National Mortgage Association, whose
securities are supported by the full faith and credit of the United
States; (b) the Federal Home Loan Banks, Federal Intermediate Credit
Banks, and the Tennessee Valley Authority, whose securities are
supported by the right of the agency to borrow from the U.S. Treasury;
(c) the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and (d)
the Student Loan Marketing Association, whose securities are supported
only by its credit. While the U.S. government provides financial support
to such U.S. government-sponsored agencies or instrumentalities, no
assurance can be given that it always will do so since it is not so
obligated by law. The U.S. government, its agencies, and
instrumentalities do not guarantee the market value of their securities,
and consequently, the value of such securities may fluctuate.
(2) Certificates of deposit issued against funds deposited in a bank or
savings and loan association. Such certificates are for a definite
period of time, earn a specified rate of return, and are normally
negotiable. If such certificates of deposit are non-negotiable, they
will be considered illiquid securities and be subject to a Fund's 15%
restriction on investments in illiquid securities. Pursuant to the
certificate of deposit, the issuer agrees to pay the amount deposited
plus interest to the bearer of the certificate on the date specified
thereon. Under current FDIC regulations, the maximum insurance payable
as to any one certificate of deposit is $100,000; therefore;
certificates of deposit purchased by a Fund may not be fully insured.
(3) Bankers' acceptances which are short-term credit instruments used to
finance commercial transactions. Generally, an acceptance is a time
draft drawn on a bank by an exporter or an importer to obtain a stated
amount of funds to pay for specific merchandise. The draft is then
"accepted" by a bank that, in effect, unconditionally guarantees to pay
the face value of the instrument on its maturity date. The acceptance
may then be held by the accepting bank as an asset or it may be sold in
the secondary market at the going rate of interest for a specific
maturity.
(4) Repurchase agreements which involve purchases of debt securities. In
such an action, at the time the Fund purchases the security, it
simultaneously agrees to resell and redeliver the security to the
seller, who also simultaneously agrees to buy back the security at a
fixed price and time. This assures a predetermined yield for a Fund
during its holding period since the resale price is always greater than
the purchase price and reflects an agreed-upon market rate. The period
of these repurchase agreements will usually be short, from overnight to
one week. Such actions afford an opportunity for a Fund to invest
temporarily available cash. A Fund may enter into repurchase agreements
only with respect to obligations of the U.S. government, its agencies or
instrumentalities; certificates of deposit; or bankers acceptances in
which the Funds may invest. In addition, the Funds may only enter into
repurchase agreements where the market value of the purchased
securities/collateral equals at least 100% of principal including
accrued interest and is marked-to-market daily. The risk to a Fund is
Page 5
limited to the ability of the seller to pay the agreed-upon sum on the
repurchase date; in the event of default, the repurchase agreement
provides that the affected Fund is entitled to sell the underlying
collateral. If the value of the collateral declines after the agreement
is entered into, however, and if the seller defaults under a repurchase
agreement when the value of the underlying collateral is less than the
repurchase price, a Fund could incur a loss of both principal and
interest. The Funds, however, intend to enter into repurchase agreements
only with financial institutions and dealers believed by First Trust to
present minimal credit risks in accordance with criteria established by
the Fund's Board of Trustees. First Trust will review and monitor the
creditworthiness of such institutions. First Trust monitors the value of
the collateral at the time the action is entered into and at all times
during the term of the repurchase agreement. First Trust does so in an
effort to determine that the value of the collateral always equals or
exceeds the agreed-upon repurchase price to be paid to a Fund. If the
seller were to be subject to a federal bankruptcy proceeding, the
ability of a Fund to liquidate the collateral could be delayed or
impaired because of certain provisions of the bankruptcy laws.
(5) Bank time deposits, which are monies kept on deposit with banks or
savings and loan associations for a stated period of time at a fixed
rate of interest. There may be penalties for the early withdrawal of
such time deposits, in which case the yields of these investments will
be reduced.
(6) Commercial paper, which are short-term unsecured promissory notes,
including variable rate master demand notes issued by corporations to
finance their current operations. Master demand notes are direct lending
arrangements between a Fund and a corporation. There is no secondary
market for the notes. However, they are redeemable by the Fund at any
time. The portfolio manager will consider the financial condition of the
corporation (e.g., earning power, cash flow, and other liquidity ratios)
and will continuously monitor the corporation's ability to meet all of
its financial obligations, because a Fund's liquidity might be impaired
if the corporation were unable to pay principal and interest on demand.
A Fund may only invest in commercial paper rated A-1 or better by S&P,
Prime-1 or higher by Moody's, Duff 2 or higher by D&P or Fitch 2 or
higher by Fitch.
Hedging Strategies
General Description of Hedging Strategies
A Fund may engage in hedging activities. First Trust may cause a Fund to
utilize a variety of financial instruments, including options, forward
contracts, futures contracts (sometimes referred to as "futures"), and
options on future contracts to attempt to hedge the Fund's holdings.
Hedging or derivative instruments on securities generally are used to
hedge against price movements in one or more particular securities
positions that a Fund owns or intends to acquire. Such instruments may
also be used to "lock-in" realized but unrecognized gains in the value
of portfolio securities. Hedging instruments on stock indices, in
contrast, generally are used to hedge against price movements in broad
equity market sectors in which a Fund has invested or expects to invest.
Hedging strategies, if successful, can reduce the risk of loss by wholly
or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies
can also reduce the opportunity for gain by offsetting the positive
effect of favorable price movements in the hedged investments. The use
of hedging instruments is subject to applicable regulations of the
Securities and Exchange Commission (the "SEC"), the several options and
futures exchanges upon which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state regulatory
authorities. In addition, a Fund's ability to use hedging instruments
may be limited by tax considerations.
General Limitations on Futures and Options Transactions
The Registrant has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the CFTC and the
National Futures Association, which regulate trading in the futures
markets. Pursuant to Section 4.5 of the regulations under the Commodity
Exchange Act (the "CEA"), the notice of eligibility for a Fund includes
the representation that the Fund will use futures contracts and related
options solely for bona fide hedging purposes within the meaning of CFTC
regulations. A Fund will not enter into futures and options transactions
if the sum of the initial margin deposits and premiums paid for
unexpired options exceeds 5% of a Fund's total assets. In addition, a
Fund will not enter into futures contracts and options transactions if
more than 30% of its net assets would be committed to such instruments.
The foregoing limitations are not fundamental policies of a Fund and may
be changed without shareholder approval as regulatory agencies permit.
Various exchanges and regulatory authorities have undertaken reviews of
options and futures trading in light of market volatility. Among the
Page 6
possible actions that have been presented are proposals to adopt new or
more stringent daily price fluctuation limits for futures and options
transactions and proposals to increase the margin requirements for
various types of futures transactions.
Asset Coverage for Futures and Options Positions
Each Fund will comply with the regulatory requirements of the SEC and
the CFTC with respect to coverage of options and futures positions by
registered investment companies and, if the guidelines so require, will
set aside cash, U.S. government securities, high grade liquid debt
securities and/or other liquid assets permitted by the SEC and CFTC in a
segregated custodial account in the amount prescribed. Securities held
in a segregated account cannot be sold while the futures or options
position is outstanding, unless replaced with other permissible assets,
and will be marked-to-market daily.
Stock Index Options
A Fund may purchase stock index options, sell stock index options in
order to close out existing positions, and/or write covered options on
stock indexes for hedging purposes. Stock index options are put options
and call options on various stock indexes. In most respects, they are
identical to listed options on common stocks. The primary difference
between stock options and index options occurs when index options are
exercised. In the case of stock options, the underlying security, common
stock, is delivered. However, upon the exercise of an index option,
settlement does not occur by delivery of the securities comprising the
index. The option holder who exercises the index option receives an
amount of cash if the closing level of the stock index upon which the
option is based is greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option. This amount of cash
is equal to the difference between the closing price of the stock index
and the exercise price of the option expressed in dollars times a
specified multiple.
A stock index fluctuates with changes in the market values of the stock
included in the index. For example, some stock index options are based
on a broad market index, such as the Standard & Poor's 500 or the Value
Line Composite Indices or a more narrower market index, such as the
Standard & Poor's 100. Indexes may also be based on an industry or
market segment. Options on stock indexes are currently traded on the
following exchanges: the Chicago Board of Options Exchange, the New York
Stock Exchange, the American Stock Exchange, the Pacific Stock Exchange,
and the Philadelphia Stock Exchange.
A Fund's use of stock index options is subject to certain risks.
Successful use by a Fund of options on stock indexes will be subject to
the ability of First Trust to correctly predict movements in the
directions of the stock market. This requires different skills and
techniques than predicting changes in the prices of individual
securities. In addition, a Fund's ability to effectively hedge all or a
portion of the securities in its portfolio, in anticipation of or during
a market decline through transactions in put options on stock indexes,
depends on the degree to which price movements in the underlying index
correlate with the price movements of the securities held by a Fund.
Inasmuch as a Fund's securities will not duplicate the components of an
index, the correlation will not be perfect. Consequently, each Fund will
bear the risk that the prices of its securities being hedged will not
move in the same amount as the prices of its put options on the stock
indexes. It is also possible that there may be a negative correlation
between the index and a Fund's securities which would result in a loss
on both such securities and the options on stock indexes acquired by the
Fund.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
markets that cannot be reflected in the options markets. The purchase of
options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary
portfolio securities transactions. The purchase of stock index options
involves the risk that the premium and transaction costs paid by a Fund
in purchasing an option will be lost as a result of unanticipated
movements in prices of the securities comprising the stock index on
which the option is based.
Certain Considerations Regarding Options
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular
time, and for some options no secondary market on an exchange or
elsewhere may exist. If a Fund is unable to close out a call option on
securities that it has written before the option is exercised, the Fund
Page 7
may be required to purchase the optioned securities in order to satisfy
its obligation under the option to deliver such securities. If a Fund is
unable to effect a closing sale transaction with respect to options on
securities that it has purchased, it would have to exercise the option
in order to realize any profit and would incur transaction costs upon
the purchase and sale of the underlying securities.
The writing and purchasing of options is a highly specialized activity
which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. Imperfect
correlation between the options and securities markets may detract from
the effectiveness of attempted hedging. Options transactions may result
in significantly higher transaction costs and portfolio turnover for the
Fund.
Futures Contracts
Each Fund may enter into futures contracts (hereinafter referred to as
"Futures" or "Futures Contracts"), including index Futures as a hedge
against movements in the equity markets, in order to hedge against
changes on securities held or intended to be acquired by a Fund or for
other purposes permissible under the CEA. Each Fund's hedging may
include sales of Futures as an offset against the effect of expected
declines in stock prices and purchases of Futures as an offset against
the effect of expected increases in stock prices. The Fund will not
enter into Futures Contracts which are prohibited under the CEA and
will, to the extent required by regulatory authorities, enter only into
Futures Contracts that are traded on national futures exchanges and are
standardized as to maturity date and underlying financial instrument.
The principal interest rate Futures exchanges in the United States are
the Board of Trade of the City of Chicago and the Chicago Mercantile
Exchange. Futures exchanges and trading are regulated under the CEA by
the CFTC.
An interest rate futures contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (e.g., a debt security) or currency for a specified
price at a designated date, time and place. An index Futures Contract is
an agreement pursuant to which the parties agree to take or make
delivery of an amount of cash equal to the difference between the value
of the index at the close of the last trading day of the contract and
the price at which the index Futures Contract was originally written.
Transaction costs are incurred when a Futures Contract is bought or sold
and margin deposits must be maintained. A Futures Contract may be
satisfied by delivery or purchase, as the case may be, of the instrument
or by payment of the change in the cash value of the index. More
commonly, Futures Contracts are closed out prior to delivery by entering
into an offsetting transaction in a matching Futures Contract. Although
the value of an index might be a function of the value of certain
specified securities, no physical delivery of those securities is made.
If the offsetting purchase price is less than the original sale price, a
gain will be realized. Conversely, if the offsetting sale price is more
than the original purchase price, a gain will be realized; if it is
less, a loss will be realized. The transaction costs must also be
included in these calculations. There can be no assurance, however, that
a Fund will be able to enter into an offsetting transaction with respect
to a particular Futures Contract at a particular time. If a Fund is not
able to enter into an offsetting transaction, the Fund will continue to
be required to maintain the margin deposits on the Futures Contract.
Margin is the amount of funds that must be deposited by each Fund with
its custodian in a segregated account in the name of the futures
commission merchant in order to initiate Futures trading and to maintain
the Fund's open positions in Futures Contracts. A margin deposit is
intended to ensure the Fund's performance of the Futures Contract. The
margin required for a particular Futures Contract is set by the exchange
on which the Futures Contract is traded and may be significantly
modified from time to time by the exchange during the term of the
Futures Contract. Futures Contracts are customarily purchased and sold
on margins that may range upward from less than 5% of the value of the
Futures Contract being traded.
If the price of an open Futures Contract changes (by increase in the
case of a sale or by decrease in the case of a purchase) so that the
loss on the Futures Contract reaches a point at which the margin on
deposit does not satisfy margin requirements, the broker will require an
increase in the margin. However, if the value of a position increases
because of favorable price changes in the Future Contract so that the
margin deposit exceeds the required margin, the broker will pay the
excess to the respective Fund. In computing daily net asset value, each
Fund will mark to market the current value of its open Futures
Contracts. Each Fund expects to earn interest income on their margin
deposits.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of
Page 8
purchase, 10% of the value of the Futures Contract is deposited as
margin, a subsequent 10% decrease in the value of the Futures Contract
would result in a total loss of the margin deposit, before any deduction
for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin
deposit, if the Future Contracts were closed out. Thus, a purchase or
sale of a Futures Contract may result in losses in excess of the amount
initially invested in the Futures Contract. However, a Fund would
presumably have sustained comparable losses if, instead of the Futures
Contract, it had invested in the underlying financial instrument and
sold it after the decline.
Most United States Futures exchanges limit the amount of fluctuation
permitted in Futures Contract prices during a single trading day. The
day limit establishes the maximum amount that the price of a Futures
Contract may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been
reached in a particular type of Futures Contract, no trades may be made
on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices have occasionally moved
to the daily limit for several consecutive trading days with little or
no trading, thereby preventing prompt liquidation of Futures positions
and subjecting some Futures traders to substantial losses.
There can be no assurance that a liquid market will exist at a time when
a Fund seeks to close out a Futures position. The Fund would continue to
be required to meet margin requirements until the position is closed,
possibly resulting in a decline in the Fund's net asset value. In
addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there
can be no assurance that an active secondary market will develop or
continue to exist.
A public market exists in Futures Contracts covering a number of
indexes, including, but not limited to, the Standard & Poor's 500 Index,
the Standard & Poor's 100 Index, the Nasdaq 100 Index, the Value Line
Composite Index and the New York Stock Exchange Composite Index.
Options on Futures
Each Fund may also purchase or write put and call options on Futures
Contracts and enter into closing transactions with respect to such
options to terminate an existing position. A futures option gives the
holder the right, in return of the premium paid, to assume a long
position (call) or short position (put) in a Futures Contract at a
specified exercise price prior to the expiration of the option. Upon
exercise of a call option, the holder acquires a long position in the
Futures Contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. Prior to exercise or
expiration, a futures option may be closed out by an offsetting purchase
or sale of a futures option of the same series.
A Fund may use options on Futures Contracts in connection with hedging
strategies. Generally, these strategies would be applied under the same
market and market sector conditions in which the Fund use put and call
options on securities or indexes. The purchase of put options on Futures
Contracts is analogous to the purchase of puts on securities or indexes
so as to hedge a Funds' securities holdings against the risk of
declining market prices. The writing of a call option or the purchasing
of a put option on a Futures Contract constitutes a partial hedge
against declining prices of a securities which are deliverable upon
exercise of the Futures Contract. If the futures price at expiration of
a written call option is below the exercise price, a Fund will retain
the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's holdings of
securities. If the futures price when the option is exercised is above
the exercise price, however, the Fund will incur a loss, which may be
offset, in whole or in part, by the increase in the value of the
securities held by the Fund that were being hedged. Writing a put option
or purchasing a call option on a Futures Contract serves as a partial
hedge against an increase in the value of the securities the Fund
intends to acquires.
As with investments in Futures Contracts, each Fund is required to
deposit and maintain margin with respect to put and call options on
Futures Contracts written by it. Such margin deposits will vary
depending on the nature of the underlying Futures Contract (and the
related initial margin requirements), the current market value of the
option, and other futures positions held by the Fund. Each Fund will set
aside in a segregated account at the Fund's custodian liquid assets,
such as cash, U.S. government securities or other high grade liquid debt
obligations equal in value to the amount due on the underlying
obligation. Such segregated assets will be marked-to-market daily, and
additional assets will be placed in the segregated account whenever the
total value of the segregated account falls below the amount due on the
underlying obligation.
Page 9
The risks associated with the use of options on Futures Contracts
include the risk that a Fund may close out its position as a writer of
an option only if a liquid secondary market exists for such options,
which cannot be assured. A Fund's successful use of options on Futures
Contracts depends on First Trust's ability to correctly predict the
movement in prices of Futures Contracts and the underlying instruments,
which may prove to be incorrect. In addition, there may be imperfect
correlation between the instruments being hedged and the Futures
Contract subject to the option. For additional information, see "Futures
Contracts." Certain characteristics of the futures market might increase
the risk that movements in the prices of futures contracts or options on
futures contracts might not correlate perfectly with movements in the
prices of the investments being hedged. For example, all participants in
the futures and options on futures contracts markets are subject to
daily variation margin calls and might be compelled to liquidate futures
or options on futures contracts positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations
could increase the price volatility of the instruments and distort the
normal price relationship between the futures or options and the
investments being hedged. Also, because of initial margin deposit
requirements in markets, there might be increased participation by
speculators in the futures markets. This participation also might cause
temporary price distortions. In addition, activities of large traders in
both the futures and securities markets involving arbitrage, "program
trading," and other investment strategies might result in temporary
price distortions.
Risks and Special Considerations Concerning Derivatives
In addition to the foregoing, the use of derivative instruments involves
certain general risks and considerations as described below.
(1) Market Risk. Market risk is the risk that the value of the underlying
assets may go up or down. Adverse movements in the value of an
underlying asset can expose a Fund to losses. Market risk is the primary
risk associated with derivative transactions. Derivative instruments may
include elements of leverage and, accordingly, fluctuations in the value
of the derivative instrument in relation to the underlying asset may be
magnified. The successful use of derivative instruments depends upon a
variety of factors, particularly the
portfolio manager's ability to predict movements of the securities,
currencies, and commodities markets, which may require different skills
than predicting changes in the prices of individual securities. There
can be no assurance that any particular strategy adopted will succeed. A
decision to engage in a derivative transaction will reflect the
portfolio manager's judgment that the derivative transaction will
provide value to a Fund and its shareholders and is consistent with a
Fund's objectives, investment limitations, and operating policies. In
making such a judgment, the portfolio manager will analyze the benefits
and risks of the derivative transactions and weigh them in the context
of a Fund's overall investments and investment objective.
(2) Credit Risk. Credit risk is the risk that a loss be sustained as a
result of the failure of a counterparty to comply with the terms of a
derivative instrument. The counterparty risk for exchange-traded
derivatives is generally less than for privately-negotiated or OTC
derivatives, since generally a clearing agency, which is the issuer or
counterparty to each exchange-traded instrument, provides a guarantee of
performance. For privately-negotiated instruments, there is no similar
clearing agency guarantee. In all transactions, a Fund will bear the
risk that the counterparty will default, and this could result in a loss
of the expected benefit of the derivative transactions and possibly
other losses to the Fund. The Fund will enter into transactions in
derivative instruments only within counterparties that First Trust
reasonably believes are capable of performing under the contract.
(3) Correlation Risk. Correlation risk is the risk that there might be an
imperfect correlation, or even no correlation, between price movements
of a derivative instrument and price movements of investments being
hedged. When a derivative transaction is used to completely hedge
another position, changes in the market value of the combined position
(the derivative instrument plus the position being hedged) result from
an imperfect correlation between the price movements of the two
instruments. With a perfect hedge, the value of the combined position
remains unchanged with any change in the price of the underlying asset.
With an imperfect hedge, the value of the derivative instrument and its
hedge are not perfectly correlated. For example, if the value of a
derivative instrument used in a short hedge (such as writing a call
option, buying a put option or selling a futures contract) increased by
less than the decline in value of the hedged investments, the hedge
would not be perfectly correlated. This might occur due to factors
unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which these instruments
Page 10
are traded. The effectiveness of hedges using instruments on indices
will depend, in part, on the degree of correlation between price
movements in the index and the price movements in the investments being
hedged.
(4) Liquidity Risk. Liquidity risk is the risk that a derivative instrument
cannot be sold, closed out, or replaced quickly at or very close to its
fundamental value. Generally, exchange contracts are very liquid because
the exchange clearinghouse is the counterparty of every contract. OTC
transactions are less liquid than exchange-traded derivatives since they
often can only be closed out with the other party to the transaction. A
Fund might be required by applicable regulatory requirements to maintain
assets as "cover," maintain segregated accounts, and/or make margin
payments when it takes positions in derivative instruments involving
obligations to third parties (i.e., instruments other than purchase
options). If a Fund is unable to close out its positions in such
instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expires, matures, or
is closed out. These requirements might impair a Fund's ability to sell
a security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security
at a disadvantageous time. A Fund's ability to sell or close out a
position in an instrument prior to expiration or maturity depends upon
the existence of a liquid secondary market or, in the absence of such a
market, the ability and willingness of the counterparty to enter into a
transaction closing out the position. Due to liquidity risk, there is no
assurance that any derivatives position can be sold or closed out at a
time and price that is favorable to a Fund.
(5) Legal Risk. Legal risk is the risk of loss caused by the
unenforceability of a party's obligations under the derivative. While a
party seeking price certainty agrees to surrender the potential upside
in exchange for downside protection, the party taking the risk is
looking for a positive payoff. Despite this voluntary assumption of
risk, a counterparty that has lost money in a derivative transaction may
try to avoid payment by exploiting various legal uncertainties about
certain derivative products.
(6) Systemic or "Interconnection" Risk. Systemic or interconnection risk is
the risk that a disruption in the financial markets will cause
difficulties for all market participants. In other words, a disruption
in one market will spill over into other markets, perhaps creating a
chain reaction. Much of the OTC derivatives market takes place among the
OTC dealers themselves, thus creating a large interconnected web of
financial obligations. This interconnectedness raises the possibility
that a default by one large dealer could create losses for other dealers
and destabilize the entire market for OTC derivative instruments.
Foreign Currency Transactions. The Global Target 15 Portfolio, NASDAQ
Target 15 Portfolio, First Trust 10 Uncommon Values Portfolio and the
Sector Funds may engage in foreign currency forward contracts, options,
and futures transactions. Such Funds may enter into foreign currency
transactions for hedging and other permissible risk management purposes
only. Foreign currency futures and options contracts are traded in the
U.S. on regulated exchanges such as the Chicago Mercantile Exchange, the
Mid-America Commodities Exchange, and the Philadelphia Stock Exchange.
If the Funds invest in a currency futures or options contract, they must
make a margin deposit to secure performance of such contract. With
respect to investments in currency futures contracts, the Funds may also
be required to make a variation margin deposit because the value of
futures contracts fluctuates from purchase to maturity. In addition, the
Funds may segregate assets to cover its futures contracts obligations.
Risks and Special Considerations Concerning Foreign Currencies
(1) Currency Risks. The exchange rates between the U.S. dollar and foreign
currencies depend upon such factors as supply and demand in the currency
exchange markets, international balances of payments, governmental
intervention, speculation, and other economic and political conditions.
Although each Fund values its assets daily in U.S. dollars, a Fund may
not convert its holdings of foreign currencies to U.S. dollars daily. A
Fund may incur conversion costs when it converts its holdings to another
currency. Foreign exchange dealers may realize a profit on the
difference between the price at which a Fund buys and sells currencies.
Funds may engage in foreign currency exchange transactions in connection
with its portfolio investments. A Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through
forward contracts to purchase or sell foreign contracts.
(2) Forward Foreign Currency Exchange Contracts. The Global Target 15
Portfolio, NASDAQ Target 15 Portfolio, First Trust 10 Uncommon Values
Portfolio and the Sector Funds may enter into forward foreign currency
Page 11
exchange contracts. Forward foreign currency exchange contracts may
limit potential gains that could result from a positive change in such
currency relationships. First Trust believes that it is important to
have the flexibility to enter into forward foreign currency exchange
contracts whenever it determines that it is in a Fund's best interest to
do so. The Funds will not speculate in foreign currency exchange.
The Funds will not enter into forward currency exchange contracts or
maintain a net exposure in such contracts that it would be obligated to
deliver an amount of foreign currency in excess of the value of their
portfolio securities or other assets denominated in that currency or, in
the case of a "cross-hedge," denominated in a currency or currencies
that First Trust believes will tend to be closely correlated with that
currency with regard to price movements. Generally, the Funds will not
enter into a forward foreign currency exchange contract with a term
longer than one year.
(3) Foreign Currency Options. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency
at the exercise price on a specified date or during the option period.
The owner of a call option has the right, but not the obligation, to buy
the currency. Conversely, the owner of a put options has the right, but
not the obligation, to sell the currency. When the option is exercised,
the seller (i.e., writer) of the option is obligated to fulfill the
terms of the sold option. However, either the seller or the buyer may,
in the secondary market, close its position during the option period at
any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on a foreign
currency generally rises in value if the underlying currency depreciates
in value. Although purchasing a foreign currency option can protect the
Fund against an adverse movement in the value of a foreign currency, the
option will not limit the movement in the value of such currency. For
example, if a Fund held securities denominated in a foreign currency
that was appreciating and had purchased a foreign currency put to hedge
against a decline in the value of the currency, the Fund would not have
to exercise its put option. Likewise, if a Fund entered into a contract
to purchase a security denominated in foreign currency and, in
conjunction with that purchase, purchased a foreign currency call option
to hedge against a rise in value of the currency, and if the value of
the currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead,
the Fund could acquire in the spot market the amount of foreign currency
needed for settlement.
(4) Special Risks Associated with Foreign Currency Options. Buyers and
sellers of foreign currency options are subject to the same risks that
apply to options generally. In addition, there are certain risks
associated with foreign currency options. The markets in foreign
currency options are relatively new, and the Fund's ability to establish
and close out positions on such options is subject to the maintenance of
a liquid secondary market. Although a Fund will not purchase or write
such options unless and until, in the opinion of the First Trust, the
market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance that
a liquid secondary market will exist for a particular option at any
specific time.
In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or
both currencies and may have no relationship to the investment merits of
a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those
that may be involved in the use of foreign currency options, investors
may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying
foreign currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available
through dealers or other market sources be firm or revised on a timely
basis. Available quotation information is generally representative of
very large transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e., less than $1 million) where rates
may be less favorable. The interbank market in foreign currencies is a
global, around-the-clock market. To the extent that the U.S. options
markets are closed while the markets for the underlying currencies
remain open, significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options markets until
they reopen.
Page 12
(5) Foreign Currency Futures Transactions. By using foreign currency futures
contracts and options on such contracts, a Fund may be able to achieve
many of the same objectives as it would through the use of forward
foreign currency exchange contracts. The Funds may be able to achieve
these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange
contracts.
(6) Special Risks Associated with Foreign Currency Futures Contracts and
Related Options. Buyers and sellers of foreign currency futures
contracts are subject to the same risks that apply to the use of futures
generally. In addition, there are risks associated with foreign currency
futures contracts and their use as a hedging device similar to those
associated with options on currencies, as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts
is relatively new. The ability to establish and close out positions on
such options is subject to the maintenance of a liquid secondary market.
To reduce this risk, a Fund will not purchase or write options on
foreign currency futures contracts unless and until, in the opinion of
First Trust, the market for such options has developed sufficiently that
the risks in connection with such options are not greater than the risks
in connection with transactions in the underlying foreign currency
futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to a Fund because the maximum
amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call
or put option on a futures contract would result in a loss, such as when
there is no movement in the price of the underlying currency or futures
contract.
Foreign Investments
Indirect Foreign Investment-Depositary Receipts. Global Target 15
Portfolio, NASDAQ Target 15 Portfolio, First Trust 10 Uncommon Values
Portfolio and the Sector Funds may invest in foreign securities by
purchasing depositary receipts, including American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), or Global Depositary
Receipts ("GDRs"), or other securities representing indirect ownership
interests in the securities of foreign issuers. Generally, ADRs, in
registered form, are denominated in U.S. dollars and are designed for
use in the U.S. securities markets, while EDRs and GDRs, in bearer form,
may be denominated in other currencies and are designed for use in
European and other markets. For purposes of such Fund's investment
policies, ADRs, EDRs, and GDRs are deemed to have the same
classification as the underlying securities they represent, except that
ADRs, EDRs, and GDRs shall be treated as indirect foreign investments.
Thus, an ADR, EDR, or GDR representing ownership of common stock will be
treated as common stock. ADRs, EDRs, and GDRs do no eliminate all of the
risks associated with directly investing in the securities of foreign
issuers.
Other types of depositary receipts include American Depositary Shares
("ADSs"), Global Depositary Certificates ("GDCs"), and International
Depositary Receipts ("IDRs"). ADSs are shares issued under a deposit
agreement representing the underlying ordinary shares that trade in the
issuer's home market. An ADR, described above, is a certificate that
represents a number of ADSs. GDCs and IDRs are typically issued by a
foreign bank or trust company, although they may sometimes also be
issued by a U.S. bank or trust company. GDCs and IDRs are depositary
receipts that evidence ownership of underlying securities issued by
either a foreign or a U.S. corporation.
Direct Foreign Investments. The Global Target 15 Portfolio, NASDAQ
Target 15 Portfolio, First Trust 10 Uncommon Values Portfolio and the
Sector Funds may invest directly in the securities of foreign issuers.
In consideration of whether to invest in the securities of a foreign
company, First Trust considers such factors as the characteristics of
the particular company, differences between economic trends, and the
performance of securities markets within the U.S. and those within other
countries. First Trust also considers factors relating to the general
economic, governmental, and social conditions of the country or
countries where the company is located.
Securities transactions conducted outside the U.S. may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be
adversely affected by (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on
which to make trading decisions, (iii) delays in a Fund's ability to act
upon economic events occurring in foreign markets during non-business
Page 13
hours in the U.S., (iv) the imposition of different exercise and
settlement terms and procedures and the margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Insurance Law Restrictions
In connection with the Registrant's agreement to sell shares to Account
B, American Skandia and First Trust may enter into agreements, required
by certain state insurance departments, under which First Trust may
agree to use its best efforts to assure and to permit American Skandia
to monitor each Fund for compliance with the investment restrictions and
limitations prescribed by state insurance laws and regulations
applicable to the investment of separate account assets in shares of
mutual funds. If a Fund failed to comply with such restrictions or
limitations, American Skandia would take appropriate action which might
include ceasing to make investments in the Fund or withdrawing from the
state imposing the limitation. Such restrictions and limitations are not
expected to have a significant impact on the Registrant's operations.
Description of Strategy Funds
As described in the Funds' Prospectus, the portfolio of the Dow (sm) Target
5 Portfolio consists primarily of common stocks of the five companies
with the lowest per share stock price of the ten companies in the Dow
Jones Industrial Average (sm) ("DJIA") that have the highest dividend
yields as of the date specified in the prospectus (the "Stock Selection
Date"). The portfolio of the Dow (sm) DART 10 Portfolio consists
primarily of the common stocks of the ten companies in the DJIA that
have the highest combined dividend yields and buyback ratios on or about
the Stock Selection Date. The portfolio of the Global Target 15
Portfolio consists primarily of common stocks of the five companies with
the lowest per share stock price of the ten companies in each of the
DJIA, the Financial Times Industrial Ordinary Share Index ("FT Index")
and the Hang Seng Index, respectively, that have the highest dividend
yield in the respective index on or about the Stock Selection Date. The
portfolio of the S&P Target 10 Portfolio consists primarily of the
common stocks of the ten companies selected from a pre-screened subset
of the stocks included in the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500 Index") on or about the Stock Selection Date. The
portfolio of the First Trust 10 Uncommon Values Portfolio is primarily
the ten common stocks selected annually by the Investment Policy
Committee of Lehman Brothers, Inc. with the assistance of the Research
Department of Lehman Brothers which, in the opinion of Lehman Brothers,
have the greatest potential for capital appreciation during the next
year. Finally, the Nasdaq Target 15 Portfolio consists primarily of
the common stocks of fifteen companies selected from a pre-screened
subset of the stocks included in the Nasdaq-100 Index on or about the
Stock Selection Date. Each year, as discussed in the Prospectus, the
portfolio of each Fund is adjusted in accordance with its investment
strategy. See "Fund Overview" in the Prospectus for the relevant Fund
for a more detailed description of its investment strategy.
The dividend yield for each equity security contained in the Dow Target
5 Portfolio, Dow DART 10 Portfolio and the securities based on the DJIA
in the Global Target 15 Portfolio is calculated by annualizing the last
quarterly or semi-annual ordinary dividend declared and dividing the
result by the market value of such equity security on or about the Stock
Selection Date. The yield for each equity security listed on the FT
Index or the Hang Seng Index in the Global Target 15 Portfolio is
calculated by adding together the most recent interim and final dividend
declared and dividing the result by the market value of such equity
security on or about the Stock Selection Date.
The publishers of the S&P 500 Index, FT Index and the Hang Seng Index
are not affiliated with First Trust and have not participated in the
creation of the Fund or the selection of the equity securities included
therein. There is, of course, no guarantee that the objective of any
Fund will be achieved.
Any changes in the components of any of the respective indices or in the
composition of the stocks listed on the New York Stock Exchange,
American Stock Exchange or Nasdaq Stock Market made after the respective
Stock Selection Date will not cause a change in the identity of the
common stocks included in the applicable Fund, including any additional
equity securities deposited thereafter until the next Stock Selection
Date when the portfolio of the each Fund will be adjusted in accordance
with its investment strategy.
Investors should note that each Fund's investment criteria is applied
and will in the future be applied to the equity securities selected for
inclusion in the Fund as of the applicable Stock Selection Date.
Page 14
Additional equity securities which were originally selected through this
process may be purchased throughout the year, as investors may continue
to invest in the Fund, even though the yields on these equity securities
may have changed subsequent to the previous Stock Selection Date. These
equity securities may no longer be included in the index, or may not
meet a Fund's selection criteria at that time, and therefore, such
equity securities would no longer be chosen for inclusion in the Fund if
the selection process were to be performed again at that time.
Accordingly, the equity securities selected and the percentage
relationship among the number of shares will not change for purchases or
sales by a Fund until the next annual Stock Selection Date.
Licensing Arrangements with Lehman Brothers, Inc.
As noted in the Prospectus, the objective of the First Trust 10 Uncommon
Value Portfolio is to provide the potential for above-average capital
appreciation by investing the Fund's portfolio in the ten common stocks
selected by the Investment Policy Committee of Lehman Brothers Inc. with
the assistance of the Research Department of Lehman Brothers Inc. which,
in the opinion of Lehman Brothers Inc., have the greatest potential for
capital appreciation during the next year. The selection was based upon
a determination by Lehman Brothers Inc. that the selected stocks are
deemed to have an above-average appreciation potential against the S&P
500 Index over the 12 months following the selection of the portfolio.
The stocks included in this Fund are adjusted annually in accordance
with the new selections of Lehman Brothers for subsequent years. Lehman
Brothers Inc. is one of the leading global investment banks serving
institutional, corporate, government and high net worth individual
clients and customers. Lehman Brothers' business includes capital
raising for clients through securities underwriting and direct
placements; corporate finance and strategic advisory services; merchant
banking; securities sales and trading; research; and the trading of
foreign exchange, derivative products and certain commodities. The Fund
is not sponsored, advised, or created by Lehman Brothers Inc. Lehman
Brothers Inc.'s only relationship to First Trust is the licensing of
certain trademarks and tradenames of Lehman Brothers Inc. and of the "10
Uncommon Values" and the sale to First Trust of research which is
determined, composed and calculated by Lehman Brothers Inc. without
regard to First Trust or the Fund. In addition, Lehman Brothers Inc. may
also receive fees for brokerage services provided to this Fund as well
as unit investment trusts sponsored by Nike Securities L.P. Lehman
Brothers Inc., in its general securities business acts, as agent or
principal in connection with the purchase and sale of equity securities,
including the equity securities held in the Fund and may act as a market
maker in certain of the equity securities.
Description of Indices
Certain Funds invest in stocks included in the DJIA, the FT Index, the
Hang Seng Index, the Nasdaq Index, and the S&P 500 Index. The following
is a description of these indices.
The Dow Jones Industrial Average(SM)
The DJIA was first published in The Wall Street Journal in 1896.
Initially consisting of just 12 stocks, the DJIA expanded to 20 stocks
in 1916 and to its present size of 30 stocks on October 1, 1928. The
stocks are chosen by the editors of The Wall Street Journal as
representative of the broad market and of American industry. The
companies are major factors in their industries and their stocks are
widely held by individuals and institutional investors. Changes in the
components of the DJIA are made entirely by the editors of The Wall
Street Journal without consultation with the companies, the stock
exchange or any official agency. For the sake of continuity, changes are
made rarely. Most substitutions have been the result of mergers, but
from time to time, changes may be made to achieve a better
representation. The components of the DJIA may be changed at any time
for any reason. Any changes in the components of the DJIA made after the
Stock Selection Date will not cause a change in the identity of the
equity securities involved in the applicable Fund, including any equity
securities deposited in a Fund, except when the Fund is periodically
adjusted.
"Dow Jones Industrial Average (sm)", "DJIA (sm)", "Dow Industrials (sm)", "Dow
30 (sm)," "The Dow (sm)" and "The Dow 10(sm)" are service marks of Dow Jones &
Company, Inc. ("Dow Jones") and have been licensed for use for certain
purposes by First Trust. None of the Funds, including, and in
particular, The Dow (sm) Target 5 Portfolio, and The Dow (sm) DART 10
Portfolio, are endorsed, sold, or promoted by Dow Jones, and Dow Jones
makes no representation regarding the advisability of investing in such
products.
The Funds are not sponsored, endorsed, sold or promoted by Dow Jones.
Dow Jones makes no representation or warranty, express or implied, to a
Fund's interest holders or any member of the public regarding the
Page 15
advisability of purchasing a Fund. Dow Jones' only relationship to the
Funds, American Skandia, or First Trust is the licensing of certain
copyrights, trademarks, servicemarks and service names of Dow Jones. Dow
Jones has no obligation to take the needs of American Skandia, First
Trust or variable annuity owners into consideration in determining,
composing or calculating the DJIA. Dow Jones is not responsible for and
has not participated in the determination of the terms and conditions of
the Funds, including the pricing of the Funds' interests or the amount
payable under variable annuity contracts. Dow Jones has no obligation or
liability in connection with the administration or marketing of the Fund
or any variable annuity contracts.
DOW JONES DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
DOW JONES INDUSTRIAL AVERAGE (SM) OR ANY DATA INCLUDED THEREIN AND DOW
JONES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSION, OR INTERRUPTIONS
THEREIN. DOW JONES MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY A FUND, AMERICAN SKANDIA, FIRST TRUST OR VARIABLE
ANNUITY OWNERS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW
JONES INDUSTRIAL AVERAGE (SM) OR ANY DATA INCLUDED THEREIN. DOW JONES MAKES
NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE DOW JONES INDUSTRIAL AVERAGE (SM) OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW
JONES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Financial Times Industrial Ordinary Share Index
The FT Index began as the Financial News Industrial Ordinary Share Index
in London in 1935 and became the Financial Times Industrial Ordinary
Share Index in 1947. The Financial Times Ordinary Index is calculated by
FTSE International Ltd. ("FTSE"). All copyright in the Index constituent
list vests in FTSE. The FT Index is comprised of 30 common stocks chosen
by the editors of The Financial Times as representative of the British
industry and commerce. This index is an unweighted average of the share
prices of selected companies, which are highly capitalized, major
factors in their industries and their stocks are widely held by
individuals and institutional investors. Changes in the components of
the FT Index are made entirely by the editors of The Financial Times
without consultation with the companies, the stock exchange or any
official agency. For the sake of continuity, changes are made rarely.
However, on December 16, 1997, Diageo PLC and Scottish Power PLC
replaced Guinness PLC and Grand Metropolitan PLC. Most substitutions
have been the result of mergers or because of poor share performance,
but from time to time, changes may be made to achieve a better
representation. The components of the FT Index may be changed at any
time for any reason.
The Hang Seng Index
The Hang Seng Index was first published in 1969 and presently consists
of 33 of the stocks currently listed on the Stock Exchange of Hong Kong
Ltd. (the "Hong Kong Stock Exchange"), and it includes companies
intended to represent four major market sectors: commerce and industry,
finance, properties and utilities. The Hang Seng Index is a recognized
indicator of stock market performance in Hong Kong. It is computed on an
arithmetic basis, weighted by market capitalization, and is therefore
strongly influenced by stocks with large market capitalizations.
Except as described herein or in the Prospectus, neither the publishers
of the S&P 500 Index, DJIA, FT Index nor the Hang Seng Index have
granted the Funds, American Skandia, or First Trust a license to use
their respective Index. The Funds are not designed so that prices will
parallel or correlate with the movements in any particular index or a
combination thereof and it is expected that their prices will not
parallel or correlate with such movements. The publishers of the S&P 500
Index, DJIA, FT Index and the Hang Seng Index have not participated in
any way in the creation of the Funds or in the selection of stocks in
the Funds and have not approved any information related thereto.
The Nasdaq - 100 Index
The Nasdaq - 100 Index represents the largest and most active non-
financial domestic and international issues listed on the Nasdaq Stock
Page 16
Market(registered trademark). The index is calculated based on a
modified capitalization weighted methodology. The Nasdaq Stock Market
lists nearly 5,400 companies and trades more shares per day than any
other major U.S. market.
The Nasdaq Target 15 Portfolio is not sponsored, endorsed, sold or
promoted by The Nasdaq Stock Market, Inc. (including its affiliates)
(Nasdaq, with its affiliates are referred to as the "Corporations"). The
Corporations have not passed on the legality or suitability of, or the
accuracy or adequacy of descriptions and disclosures relating to, the
Nasdaq Target 15 Portfolio. The Corporations make no representation or
warranty, express or implied to the owners of the Nasdaq Target 15
Portfolio or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly, or the
ability of the Nasdaq 100 Index(registered trademark) to track general
stock market performance. The Corporations' only relationship to First
Trust (the "Licensee") is in the licensing of the Nasdaq 100(registered
trademark), Nasdaq 100 Index(registered trademark) and Nasdaq(registered
trademark) trademarks or service marks, and certain trade names of the
corporations and the use of the Nasdaq 100 Index(registered trademark)
which is determined, composed and calculated by Nasdaq without regard to
Licensee or the Fund. Nasdaq has no obligation to take the needs of the
Licensee or the owners of the Nasdaq Target 15 Portfolio into
consideration in determining, composing or calculating the Nasdaq 100
Index(registered trademark). The Corporations are not responsible for
and have not participated in the determination of the timing of, prices
at, or quantities of the Fund to be issued or in the determination or
calculation of the equation by which the Fund is to be converted into
cash. The corporations have not liability in connection with the
administration, marketing or trading of the Fund.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED
CALCULATION OF THE NASDAQ 100 INDEX(registered trademark) OR ANY DATA
INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT(S) OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ 100
INDEX(registered trademark) OR ANY DATA INCLUDED THEREIN. THE
CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY
DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE WITH RESPECT TO THE NASDAQ 100 INDEX(registered
trademark) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY
LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Standard & Poor's 500 Index
Widely regarded as the standard for measuring large-cap U.S. stock
market performance, the S&P 500 Index includes a representative sample
of leading U.S. companies in leading industries. The S&P 500 Index
consists of 500 stocks chosen for market size, liquidity and industry
group representation. It is a market-value weighted index with each
stocks' weight in the Index proportionate to its market value.
The S&P Target 10 Portfolio is not sponsored, endorsed, sold or promoted
by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"). S&P makes no representation or warranty, express or implied, to
the owners of the S&P Target 10 Portfolio or any member of the public
regarding the advisability or investing in securities generally or in
the S&P Target 10 Portfolio particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only relationship
to First Trust is the licensing of certain trademarks and trade names of
S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to First Trust or the S&P Target 10
Portfolio. S&P has no obligation to take the needs of First Trust or the
owners of the S&P Target 10 Portfolio into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for
and has not participated in the determination for the prices and amount
of the S&P Target 10 Portfolio or the timing of the issuance or sale of
the Fund or in the determination or calculation of the equation by which
the Fund is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of
the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSION OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
Page 17
OWNERS OF THE PRODUCT OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT
TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Investment Risks
Generally
An investment in a Fund should be made with an understanding of the
risks which an investment in common stocks entails, including the risk
that the financial condition of the issuers of the equity securities or
the general condition of the common stock market may worsen and the
value of the equity securities and therefore the value of a Fund may
decline. A Fund may not be an appropriate investment for those who are
unable or unwilling to assume the risks involved generally with an
equity investment. The past market and earnings performance of any of
the equity securities included in a Fund is not predictive of their
future performance. Common stocks are especially susceptible to general
stock market movements and to volatile increases and decreases of value
as market confidence in and perceptions of the issuers change. These
perceptions are based on unpredictable factors including expectations
regarding government, economic, monetary and fiscal policies, inflation
and interest rates, economic expansion or contraction, and global or
regional political economic or banking crises. First Trust cannot
predict the direction or scope of any of these factors. Shareholders of
common stocks have rights to receive payments from the issuers of those
common stocks that are generally subordinate to those of creditors of,
or holders of debt obligations or preferred stocks of, such issuers.
Shareholders of common stocks of the type held by a Fund have a right to
receive dividends only when and if, and in the amounts, declared by the
issuer's board of directors and have a right to participate in amounts
available for distribution by the issuer only after all other claims on
the issuer have been paid or provided for. Common stocks do not
represent an obligation of the issuer and, therefore, do not offer any
assurance of income or provide the same degree of protection of capital
as do debt securities. The issuance of additional debt securities or
preferred stock will create prior claims for payment of principal,
interest and dividends which could adversely affect the ability and
inclination of the issuer to declare or pay dividends on its common
stock or the rights of holders of common stock with respect to assets of
the issuer upon liquidation or bankruptcy. The value of common stocks is
subject to market fluctuations for as long as the common stocks remain
outstanding, and thus the value of the equity securities in a Fund will
fluctuate over the life of the Fund and may be more or less than the
price at which they were purchased by such Fund. The equity securities
held in a Fund may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting
these securities, including the impact of the Fund's purchase and sale
of the equity securities and other factors.
Holders of common stocks incur more risk than holders of preferred
stocks and debt obligations because common stockholders, as owners of
the entity, have generally inferior rights to receive payments from the
issuer in comparison with the rights of creditors of, or holders of debt
obligations or preferred stocks issued by, the issuer. Cumulative
preferred stock dividends must be paid before common stock dividends and
any cumulative preferred stock dividend omitted is added to future
dividends payable to the holders of cumulative preferred stock.
Preferred stockholders are also generally entitled to rights on
liquidation which are senior to those of common stockholders.
First Trust shall not be liable in any way for any default, failure or
defect in any equity security held in a Fund's portfolio.
Legislation
At any time after the date of the Prospectus, legislation may be enacted
that could negatively affect the equity securities in a Fund or the
issuers of the equity securities. Changing approaches to regulation,
particularly with respect to the environment or with respect to the
petroleum industry, may have a negative impact on certain companies
represented in a Fund. There can be no assurance that future
legislation, regulation or deregulation will not have a material adverse
effect on a Fund or will not impair the ability of the issuers of the
equity securities held in a Fund to achieve their business goals.
Page 18
Liquidity
Whether or not the equity securities in a Fund are listed on a
securities exchange, the principal trading market for the equity
securities may be in the over-the-counter market. As a result, the
existence of a liquid trading market for the equity securities may
depend on whether dealers will make a market in the equity securities.
There can be no assurance that a market will be made for any of the
equity securities, that any market for the equity securities will be
maintained or that there will be sufficient liquidity of the equity
securities in any markets made. The price at which the equity securities
held in a Fund may be sold to meet transfers, partial withdrawals or
surrenders and the value of a Fund will be adversely affected if trading
markets for the equity securities are limited or absent.
Lack of Diversification
Each Fund is classified as "non-diversified" and therefore a Fund is
only limited as to the percentage of its assets which may be invested in
securities of any one issuer by its own investment restrictions and by
diversification requirements imposed by the Internal Revenue Code of
1986, as amended. A Fund may therefore invest a relatively high
percentage of its assets in a limited number of issuers. This can expose
each Fund to potentially greater market fluctuations than might be
experienced by a diversified fund. Each Fund may be more susceptible to
any single economic, political or regulatory occurrence and to the
financial conditions of the issuer in which it invests. For example, an
investment in the Dow Target 5 Portfolio may subject an investor to
additional risk due to the relative lack of diversity in its portfolio
since the portfolio contains only five stocks. Therefore, the Dow Target
5 Portfolio may be subject to greater market risk than other Funds which
may contain a more diversified portfolio of securities. A Fund is not
designed to be a complete investment program for an investor. Variable
annuity Policy owners, in light of their own financial situations and
goals, should consider other additional funding options in order to
diversify the allocations of their Policy assets.
Small Capitalization Companies
Certain or all of the equity securities in the First Trust 10 Uncommon
Values Portfolio and certain securities in the Sector Funds, may be
small cap company stocks. While, historically, small cap company stocks
have outperformed the stocks of large companies, the former have
customarily involved more investment risk as well. Small cap companies
may have limited product lines, markets or financial resources; may lack
management depth or experience; and may be more vulnerable to adverse
general market or economic developments than large companies. Some of
these companies may distribute, sell or produce products which have
recently been brought to market and may be dependent on key personnel.
The prices of small company securities are often more volatile than
prices associated with large company issues, and can display abrupt or
erratic movements at times, due to limited trading volumes and less
publicly available information. Also, because small cap companies
normally have fewer shares outstanding and these shares trade less
frequently than large companies, it may be more difficult for a Fund
which contain these equity securities to buy and sell significant
amounts of such shares without an unfavorable impact on prevailing
market prices. The securities of small companies are often traded over-
the-counter and may not be traded in the volumes typical of a national
securities exchange.
Litigation
Certain of the issuers of equity securities in certain Funds may be
involved in the manufacture, distribution and sale of tobacco products.
Pending litigation proceedings against such issuers in the United States
and abroad cover a wide range of matters including product liability and
consumer protection. Damages claimed in such litigation alleging
personal injury (both individual and class actions), and in health cost
recovery cases brought by governments, labor unions and similar entities
seeking reimbursement for health care expenditures, aggregate many
billions of dollars.
In November 1998, certain companies in the U.S. tobacco industry,
including Philip Morris, entered into a negotiated settlement with
several states which would result in the resolution of significant
litigation and regulatory issues affecting the tobacco industry
generally. The proposed settlement, while extremely costly to the
Page 19
tobacco industry, would significantly reduce uncertainties facing the
industry and increase stability in business and capital markets. Future
litigation and/or legislation could adversely affect the value,
operating revenues and financial position of tobacco companies.
Microsoft Corporation is currently engaged in litigation with Sun
Microsystems, Inc., the U.S. Department of Justice and several state
Attorneys General. The complaints against Microsoft include copyright
infringement, unfair competition and anti-trust violations. The claims
seek injunctive relief and monetary damages. In the action brought
against Microsoft by the U.S. Department of Justice, the United States
District Court for the District of Columbia issued findings of fact that
included a finding that Microsoft possesses and exercised monopoly
power. The court also recently entered an order finding that Microsoft
exercised this power in violation of the Sherman Antitrust Act and
various state antitrust laws. The next step in the litigation will be
for the court to determine the penalties against Microsoft. The
possible remedies that could potentially be considered by the court,
according to industry experts, range from a possible breakup of Microsoft
to remedies such as ordering the company to surrender its blueprint or
"source code" for it Windows operating software. Microsoft has stated
that it will appeal this ruling following the penalties phase and final
decree. It is possible that any remedy could have a material adverse impact on
Microsoft; however, it is impossible to predict the impact that any penalty
may have on Microsoft's business in the future.
Additional Strategy Fund Risks
The equity securities selected for The Dow (sm) Target 5 Portfolio, The
Dow (sm) DART 10 Portfolio and Global Target 15 Portfolio generally share
attributes that have caused them to have lower prices or higher yields
relative to other stocks in their respective index or Exchange. The
equity securities may, for example, be experiencing financial
difficulty, or be out of favor in the market because of weak
performance, poor earnings forecasts or negative publicity; or they may
be reacting to general market cycles. There can be no assurance that the
market factors that caused the relatively low prices and high dividend
yields of the equity securities will change, that any negative
conditions adversely affecting the stock prices will not deteriorate,
that the dividend rates on the equity securities will be maintained or
that share prices will not decline further during the life of the Funds,
or that the equity securities will continue to be included in the
respective indices or Exchanges. Investing in stocks with the highest
dividend yields amounts to a contrarian strategy because these shares
are often out of favor. Such strategy may be effective in achieving the
respective Strategy Fund's investment objective because regular
dividends are common for established companies and dividends have often
accounted for a substantial portion of the total return on stocks of the
index as a group. However, there is no guarantee that either a Fund's
objective will be achieved or that a Fund will provide for capital
appreciation in excess of such Fund's expenses. Because of the
contrarian nature of such Funds and the attributes of the common stocks
which caused inclusion in the portfolio, such Funds may not be
appropriate for investors seeking either preservation of capital or high
current income. In addition, each of the strategies have underperformed
their respective index or indices in certain years.
Equity securities in a Strategy Fund from time to time may be sold under
certain circumstances described in the Prospectus or herein. Each
Strategy Fund, however, is not actively managed and equity securities in
a Fund will not be sold to take advantage of market fluctuations or
changes in anticipated rates of appreciation or depreciation or if the
equity securities no longer meet the criteria by which they were
selected for a Fund. However, equity securities will be sold on or about
each annual Stock Selection Date in accordance with its stock selection
strategy.
Additional Fund Industry Risks
The following is a discussion of additional risks affecting particular
industry sectors represented in the Funds.
Energy Sector. An investment in the energy sector should be made with an
understanding of the problems and risks such an investment may entail.
The business activities of companies in the energy sector may include:
production, generation, transmission, marketing, control, or measurement
of energy or energy fuels; providing component parts or services to
companies engaged in the above activities; energy research or
experimentation; and environmental activities related to the solution of
energy problems, such as energy conservation and pollution control.
Companies participating in new activities resulting from technological
advances or research discoveries in the energy field are also considered
for the First Trust Energy Portfolio.
The securities of companies in the energy field are subject to changes
in value and dividend yield which depend, to a large extent, on the
Page 20
price and supply of energy fuels. Swift price and supply fluctuations
may be caused by events relating to international politics, energy
conservation, the success of exploration projects, and tax and other
regulatory policies of various governments. As a result of the
foregoing, the equity securities held in the First Trust Energy
Portfolio Fund may be subject to rapid price volatility. First Trust is
unable to predict what impact the foregoing factors will have during the
life of the First Trust Energy Portfolio Fund on the equity securities
held in its portfolio.
According to the U.S. Department of Commerce, the factors which will
most likely shape the energy industry include the price and availability
of oil from the Middle East, changes in United States environmental
policies and the continued decline in U.S. production of crude oil.
Possible effects of these factors may be increased U.S. and world
dependence on oil from the Organization of Petroleum Exporting Countries
("OPEC") and highly uncertain and potentially more volatile oil prices.
Factors which First Trust believes may increase the profitability of oil
and petroleum operations include increasing demand for oil and petroleum
products as a result of the continued increases in annual miles driven
and the improvement in refinery operating margins caused by increases in
average domestic refinery utilization rates. The existence of surplus
crude oil production capacity and the willingness to adjust production
levels are the two principal requirements for stable crude oil markets.
Without excess capacity, supply disruptions in some countries cannot be
compensated for by others. Surplus capacity in Saudi Arabia and a few
other countries and the utilization of that capacity prevented, during
the Persian Gulf crisis, and continues to prevent, severe market
disruption. Although unused capacity contributed to market stability in
1990 and 1991, it ordinarily creates pressure to overproduce and
contributes to market uncertainty. The restoration of a large portion of
Kuwait and Iraq's production and export capacity could lead to such a
development in the absence of substantial growth in world oil demand.
Formerly, OPEC members attempted to exercise control over production
levels in each country through a system of mandatory production quotas.
Because of the 1990-1991 crisis in the Middle East, the mandatory system
has since been replaced with a voluntary system. Production under the
new system has had to be curtailed on at least one occasion as a result
of weak prices, even in the absence of supplies from Kuwait and Iraq.
The pressure to deviate from mandatory quotas, if they are reimposed, is
likely to be substantial and could lead to a weakening of prices. In the
longer term, additional capacity and production will be required to
accommodate the expected large increases in world oil demand and to
compensate for expected sharp drops in U.S. crude oil production and
exports from the Soviet Union. Only a few OPEC countries, particularly
Saudi Arabia, have the petroleum reserves that will allow the required
increase in production capacity to be attained. Given the large-scale
financing that is required, the prospect that such expansion will occur
soon enough to meet the increased demand is uncertain.
Declining U.S. crude oil production will likely lead to increased
dependence on OPEC oil, putting refiners at risk of continued and
unpredictable supply disruptions. Increasing sensitivity to
environmental concerns will also pose serious challenges to the industry
over the coming decade. Refiners are likely to be required to make heavy
capital investments and make major production adjustments in order to
comply with increasingly stringent environmental legislation, such as
the 1990 amendments to the Clean Air Act. If the cost of these changes
is substantial enough to cut deeply into profits, smaller refiners may
be forced out of the industry entirely. Moreover, lower consumer demand
due to increases in energy efficiency and conservation, gasoline
reformulations that call for less crude oil, warmer winters or a general
slowdown in economic growth in this country and abroad could negatively
affect the price of oil and the profitability of oil companies. No
assurance can be given that the demand for or prices of oil will
increase or that any increases will not be marked by great volatility.
Some oil companies may incur large cleanup and litigation costs relating
to oil spills and other environmental damage. Oil production and
refining operations are subject to extensive federal, state and local
environmental laws and regulations governing air emissions and the
disposal of hazardous materials. Increasingly stringent environmental
laws and regulations are expected to require companies with oil
production and refining operations to devote significant financial and
managerial resources to pollution control. General problems of the oil
and petroleum products industry include the ability of a few influential
producers to significantly affect production, the concomitant volatility
of crude oil prices, increasing public and governmental concern over air
emissions, waste product disposal, fuel quality and the environmental
effects of fossil-fuel use in general. In addition, any future
scientific advances concerning new sources of energy and fuels or
legislative changes relating to the energy industry or the environment
could have a negative impact on the petroleum products industry. While
legislation has been enacted to deregulate certain aspects of the oil
industry, no assurances can be given that new or additional regulations
will not be adopted. Each of the problems referred to could adversely
affect the financial stability of the issuers of any petroleum industry
stocks in this Fund.
Page 21
Financial Sector. An investment in the financial services sector should
be made with an understanding of the problems and risks inherent in the
bank and financial services sector in general.
Banks, thrifts and their holding companies are especially subject to the
adverse effects of economic recession, volatile interest rates,
portfolio concentrations in geographic markets and in commercial and
residential real estate loans, and competition from new entrants in
their fields of business. Banks and thrifts are highly dependent on net
interest margin. Recently, bank profits have come under pressure as net
interest margins have contracted, but volume gains have been strong in
both commercial and consumer products. There is no certainty that such
conditions will continue. Bank and thrift institutions had received
significant consumer mortgage fee income as a result of activity in
mortgage and refinance markets. As initial home purchasing and
refinancing activity subsided, this income diminished. Economic
conditions in the real estate markets, which have been weak in the past,
can have a substantial effect upon banks and thrifts because they
generally have a portion of their assets invested in loans secured by
real estate. Banks, thrifts and their holding companies are subject to
extensive federal regulation and, when such institutions are state-
chartered, to state regulation as well. Such regulations impose strict
capital requirements and limitations on the nature and extent of
business activities that banks and thrifts may pursue. Furthermore, bank
regulators have a wide range of discretion in connection with their
supervisory and enforcement authority and may substantially restrict the
permissible activities of a particular institution if deemed to pose
significant risks to the soundness of such institution or the safety of
the federal deposit insurance fund. Regulatory actions, such as
increases in the minimum capital requirements applicable to banks and
thrifts and increases in deposit insurance premiums required to be paid
by banks and thrifts to the Federal Deposit Insurance Corporation
("FDIC"), can negatively impact earnings and the ability of a company to
pay dividends. Neither federal insurance of deposits nor governmental
regulations, however, insures the solvency or profitability of banks or
their holding companies, or insures against any risk of investment in
the securities issued by such institutions.
The statutory requirements applicable to and regulatory supervision of
banks, thrifts and their holding companies have increased significantly
and have undergone substantial change in recent years. To a great extent,
these changes are embodied in the Financial Institutions Reform, Recovery
and Enforcement Act enacted in August 1989, the Federal Deposit Insurance
Corporation Improvement Act of 1991, the Resolution Trust Corporation
Refinancing, Restructuring, and Improvement Act of 1991 and the regulations
promulgated under these laws. Many of the regulations promulgated pursuant
to these laws have only recently been finalized and their impact on the
business, financial condition and prospectus of the equity securities in
the First Trust Financial Services Portfolio cannot be predicted with cer-
tainty.
The recently enacted Gramm-Leach-Bliley Act repealed most of the barriers set
up by the 1933 Glass-Steagall Act which separated the banking, insurance and
securities industries. Now banks, insurance companies and securities firms
can merge to form one-stop financial conglomerates marketing a wide range of
financial service products to investors. This litigation will likely result in
increased merger activity and heightened competition among existing and new
participants in the field.
Efforts to expand the ability of federal thrifts to branch on an interstate
basis have been initially successful through promulgation of regulations, and
legislation to liberalize interstate banking has recently been signed into
law. Under the legislation, banks will be able to purchase or establish
subsidiary banks in any state, one year after the legislation's enactment.
Since mid-1997, banks have been allowed to turn existing banks into branches.
Consolidation is likely to continue. The Securities and Exchange
Commission and the Financial Accounting Standards Board require the
expanded use of market value accounting by banks and have imposed rules
requiring market accounting for investment securities held in trading
accounts or available for sale. Adoption of additional such rules may
result in increased volatility in the reported health of the industry,
and mandated regulatory intervention to correct such problems.
Additional legislative and regulatory changes may be forthcoming. For
example, the bank regulatory authorities have proposed substantial
changes to the Community Reinvestment Act and fair lending laws, rules
and regulations, and there can be no certainty as to the effect, if any,
that such changes would have on the equity securities in the First Trust
Financial Services Portfolio. In addition, from time to time the deposit
insurance system is reviewed by Congress and federal regulators, and
proposed reforms of that system could, among other things, further
restrict the ways in which deposited moneys can be used by banks or
reduce the dollar amount or number of deposits insured for any
depositor. Such reforms could reduce profitability such as investment
opportunities available to bank institutions become more limited and as
consumers look for savings vehicles other than bank deposits. Banks and
thrifts face significant competition from other financial institutions
such as mutual funds, credit unions, mortgage banking companies and
insurance companies, and increased competition may result from
legislative broadening of regional and national interstate banking
powers as has been recently enacted. Among other benefits, the
legislation allows banks and bank holding companies to acquire across
previously prohibited state lines and to consolidate their various bank
subsidiaries into one unit. First Trust makes no prediction as to what,
if any, manner of bank and thrift regulatory actions might ultimately be
adopted or what ultimate effect such actions might have on the First
Trust Financial Services Portfolio.
The Federal Bank Holding Company Act of 1956 generally prohibits a bank
holding company from (1) acquiring, directly or indirectly, more than
25% of the outstanding shares of any class of voting securities of a
bank or bank holding company, (2) acquiring control of a bank or another
bank holding company, (3) acquiring all or substantially all the assets
of a bank, or (4) merging or consolidating with another bank holding
company, without first obtaining Federal Reserve Board ("FRB") approval.
In considering an application with respect to any such transaction, the
FRB is required to consider a variety of factors, including the
potential anti-competitive effects of the transaction, the financial
condition and future prospects of the combining and resulting
institutions, the managerial resources of the resulting institution, the
convenience and needs of the communities the combined organization would
serve, the record of performance of each combining organization under
the Community Reinvestment Act and the Equal Credit Opportunity Act, and
Page 22
the prospective availability to the FRB of information appropriate to
determine ongoing regulatory compliance with applicable banking laws. In
addition, the federal Change In Bank Control Act and various state laws
impose limitations on the ability of one or more individuals or other
entities to acquire control of banks or bank holding companies.
The FRB has issued a policy statement on the payment of cash dividends
by bank holding companies. In the policy statement, the FRB expressed
its view that a bank holding company experiencing earnings weaknesses
should not pay cash dividends which exceed its net income or which could
only be funded in ways that would weaken its financial health, such as
by borrowing. The FRB also may impose limitations on the payment of
dividends as a condition to its approval of certain applications,
including applications for approval of mergers and acquisitions. First
Trust makes no prediction as to the effect, if any, such laws will have
on the equity securities in this sector or whether such approvals, if
necessary, will be obtained.
Companies involved in the insurance industry are engaged in
underwriting, reinsuring, selling, distributing or placing of property
and casualty, life or health insurance. Other growth areas within the
insurance industry include brokerage, reciprocals, claims processors and
multiline insurance companies. Insurance company profits are affected by
interest rate levels, general economic conditions, and price and
marketing competition. Property and casualty insurance profits may also
be affected by weather catastrophes and other disasters. Life and health
insurance profits may be affected by mortality and morbidity rates.
Individual companies may be exposed to material risks including reserve
inadequacy and the inability to collect from reinsurance carriers.
Insurance companies are subject to extensive governmental regulation,
including the imposition of maximum rate levels, which may not be
adequate for some lines of business. Proposed or potential tax law
changes may also adversely affect insurance companies' policy sales, tax
obligations, and profitability. In addition to the foregoing, profit
margins of these companies continue to shrink due to the commoditization
of traditional businesses, new competitors, capital expenditures on new
technology and the pressures to compete globally.
In addition to the normal risks of business, companies involved in the
insurance industry are subject to significant risk factors, including
those applicable to regulated insurance companies, such as: (i) the
inherent uncertainty in the process of establishing property-liability
loss reserves, particularly reserves for the cost of environmental,
asbestos and mass tort claims, and the fact that ultimate losses could
materially exceed established loss reserves which could have a material
adverse effect on results of operations and financial condition; (ii)
the fact that insurance companies have experienced, and can be expected
in the future to experience, catastrophe losses which could have a
material adverse impact on their financial condition, results of
operations and cash flow; (iii) the inherent uncertainty in the process
of establishing property-liability loss reserves due to changes in loss
payment patterns caused by new claims settlement practices; (iv) the
need for insurance companies and their subsidiaries to maintain
appropriate levels of statutory capital and surplus, particularly in
light of continuing scrutiny by rating organizations and state insurance
regulatory authorities, and in order to maintain acceptable financial
strength or claims-paying ability rating; (v) the extensive regulation
and supervision to which insurance companies' subsidiaries are subject,
various regulatory initiatives that may affect insurance companies, and
regulatory and other legal actions; (vi) the adverse impact that
increases in interest rates could have on the value of an insurance
company's investment portfolio and on the attractiveness of certain of
its products; (vii) the need to adjust the effective duration of the
assets and liabilities of life insurance operations in order to meet the
anticipated cash flow requirements of its policyholder obligations, and
(vii) the uncertainty involved in estimating the availability of
reinsurance and the collectibility of reinsurance recoverables.
The state insurance regulatory framework has, during recent years, come
under increased federal scrutiny, and certain state legislatures have
considered or enacted laws that alter and, in many cases, increase state
authority to regulate insurance companies and insurance holding company
systems. Further, the National Association of Insurance Commissioners
("NAIC") and state insurance regulators are re-examining existing laws
and regulations, specifically focusing on insurance companies,
interpretations of existing laws and the development of new laws. In
addition, Congress and certain federal agencies have investigated the
condition of the insurance industry in the United States to determine
whether to promulgate additional federal regulations. First Trust is
unable to predict whether any state or federal legislation will be
enacted to change the nature or scope of regulation of the insurance
industry, or what effect, if any, such legislation would have on the
industry.
All insurance companies are subject to state laws and regulations that
require diversification of their investment portfolios and limit the
amount of investments in certain investment categories. Failure to
Page 23
comply with these laws and regulations could cause non-conforming
investments to be treated as non-admitted assets for purposes of
measuring statutory surplus and, in some instances, would require
divestiture.
Environmental pollution clean-up is the subject of both federal and
state regulation. By some estimates, there are thousands of potential
waste sites subject to clean up. The insurance industry is involved in
extensive litigation regarding coverage issues. The Comprehensive
Environmental Response Compensation and Liability Act of 1980
("Superfund") and comparable state statutes ("mini-Superfund") govern
the clean-up and restoration by "Potentially Responsible Parties"
("PRP's"). Superfund and the mini-Superfunds ("Environmental Clean-up
Laws" or "ECLs") establish a mechanism to pay for clean-up of waste
sites if PRPs fail to do so, and to assign liability to PRPs. The extent
of liability to be allocated to a PRP is dependent on a variety of
factors. Further, the number of waste sites subject to clean-up is
unknown. Very few sites have been subject to clean-up to date. The
extent of clean-up necessary and the assignment of liability has not
been established. The insurance industry is disputing many such claims.
Key coverage issues include whether Superfund response costs are
considered damages under the policies, when and how coverage is
triggered, applicability of pollution exclusions, the potential for
joint and several liability and definition of an occurrence. Similar
coverage issues exist for clean up and waste sites not covered under
Superfund. To date, courts have been inconsistent in their rulings on
these issues. An insurer's exposure to liability with regard to its
insureds which have been, or may be, named as PRPs is uncertain.
Superfund reform proposals have been introduced in Congress, but none
have been enacted. There can be no assurance that any Superfund reform
legislation will be enacted or that any such legislation will provide
for a fair, effective and cost-efficient system for settlement of
Superfund related claims.
While current federal income tax law permits the tax-deferred
accumulation of earnings on the premiums paid by an annuity owner and
holders of certain savings-oriented life insurance products, no
assurance can be given that future tax law will continue to allow such
tax deferrals. If such deferrals were not allowed, consumer demand for
the affected products would be substantially reduced. In addition,
proposals to lower the federal income tax rates through a form of flat
tax or otherwise could have, if enacted, a negative impact on the demand
for such products.
Companies engaged in investment banking/brokerage and investment
management include brokerage firms, broker/dealers, investment banks,
finance companies and mutual fund companies. Earnings and share prices
of companies in this industry are quite volatile, and often exceed the
volatility levels of the market as a whole. Recently, ongoing
consolidation in the industry and the strong stock market has benefited
stocks which investors believe will benefit from greater investor and
issuer activity. Major determinants of future earnings of these
companies are the direction of the stock market, investor confidence,
equity transaction volume, the level and direction of long-term and
short-term interest rates, and the outlook for emerging markets.
Negative trends in any of these earnings determinants could have a
serious adverse effect on the financial stability, as well as on the
stock prices, of these companies. Furthermore, there can be no assurance
that the issuers of the equity securities included in the First Trust
Financial Services Portfolio will be able to respond in a timely manner
to compete in the rapidly developing marketplace. In addition to the
foregoing, profit margins of these companies continue to shrink due to
the commoditization of traditional businesses, new competitors, capital
expenditures on new technology and the pressures to compete globally.
Pharmaceutical Sector. An investment in the pharmaceutical sector should
be made with an understanding of the characteristics of the
pharmaceutical industry and the risks which such investment may entail.
Pharmaceutical companies are companies involved in drug development and
production services, biotech, and advanced medical devices and instruments.
In addition, they are well known for the vast amounts of money they spend
on world-class research and development. In short, such companies work to
improve the quality of life for millions of people and are vital to the
nation's health and well-being. Such companies have potential risks unique to
their sector of the healthcare field. Such companies are subject to govern-
mental regulation of their products and services, a factor which could have
a significant and possibly unfavorable effect on the price and availability of
such products or services. Furthermore, such companies face the risk of
increasing competition from generic drug sales, the termination of their
patent protection for drug products and the risk that technological
advances will render their products or services obsolete. The research
and development costs of bringing a drug to market are substantial and
include lengthy government review processes, with no guarantee that the
product will ever come to market. Many of these companies may have
losses and not offer certain products for several years. Such companies
may also have persistent losses during a new product's transition from
development to production, and revenue patterns may be erratic.
Page 24
As the population of the United States ages, the companies involved in
the pharmaceutical field will continue to search for and develop new
drugs through advanced technologies and diagnostics. On a worldwide
basis, such companies are involved in the development and distribution
of drugs and vaccines. These activities may make the pharmaceutical
sector very attractive for investors seeking the potential for growth in
their investment portfolio. However, there are no assurances that the
Fund's objectives will be met.
Legislative proposals concerning healthcare are considered from time to
time. These proposals span a wide range of topics, including cost and
price controls (which might include a freeze on the prices of
prescription drugs), national health insurance, incentives for
competition in the provisions of healthcare services, tax incentives and
penalties related to healthcare insurance premiums and promotion of
prepaid healthcare plans. First Trust is unable to predict the effect of
any of these proposals, if enacted, on the issuers of equity securities
in the First Trust Pharmaceutical Portfolio.
Technology/Internet Sectors. An investment in Nasdaq Target 15 Portfolio
which may be concentrated in the technology industry and the First Trust
Internet and Technology Portfolios, which will be concentrated in the
Internet and technology industries, respectively, the technology and
Internet sectors should be made with an understanding of the
characteristics of the technology industry and the risks which such an
investment may entail.
Technology companies generally include companies involved in the
development, design, manufacture and sale of computers, computer-related
equipment, computer networks, communications systems, telecommunications
products, electronic products and other related products, systems and
services. The market for these products, especially those specifically
related to the Internet, is characterized by rapidly changing
technology, rapid product obsolescence, cyclical market patterns,
evolving industry standards and frequent new product introductions. The
success of the issuers of the equity securities included in this sector
depends in substantial part on the timely and successful introduction of
new products. An unexpected change in one or more of the technologies
affecting an issuer's products or in the market for products based on a
particular technology could have a material adverse affect on an
issuer's operating results. Furthermore, there can be no assurance that
the issuers of the equity securities included in this sector will be
able to respond in a timely manner to compete in the rapidly developing
marketplace.
Based on trading history of common stock, factors such as announcements
of new products or development of new technologies and general
conditions of the industry have caused and are likely to cause the
market price of high- technology common stocks to fluctuate
substantially. In addition, technology company stocks have experienced
extreme price and volume fluctuations that often have been unrelated to
the operating performance of such companies. This market volatility may
adversely affect the market price of the equity securities held in the
First Trust Internet and Technology Portfolios.
Some key components of certain products of technology issuers are
currently available only from single sources. There can be no assurance
that in the future suppliers will be able to meet the demand for
components in a timely and cost effective manner. Accordingly, an
issuer's operating results and customer relationships could be adversely
affected by either an increase in price for, or an interruption or
reduction in supply of, any key components. Additionally, many
technology issuers are characterized by a highly concentrated customer
base consisting of a limited number of large customers who may require
product vendors to comply with rigorous industry standards. Any failure
to comply with such standards may result in a significant loss or
reduction of sales. Because many products and technologies of technology
companies are incorporated into other related products, such companies
are often highly dependent on the performance of the personal computer,
electronics and telecommunications industries. There can be no assurance
that these customers will place additional orders, or that an issuer of
equity securities held by the First Trust Internet and Technology
Portfolios will obtain orders of similar magnitude such as past orders
from other customers. Similarly, the success of certain technology
companies is tied to a relatively small concentration of products or
technologies. Accordingly, a decline in demand of such products,
technologies or from such customers could have a material adverse impact
on issuers of equity securities held in the First Trust Internet and
Technology Portfolios.
Many technology companies rely on a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect their
proprietary rights in their products and technologies. There can be no
assurance that the steps taken by the issuers of the equity securities
held by the First Trust Internet and Technology Portfolios to protect
their proprietary rights will be adequate to prevent misappropriation of
Page 25
their technology or that competitors will not independently develop
technologies that are substantially equivalent or superior to such
issuers' technology. In addition, due to the increasing public use of
the Internet, it is possible that other laws and regulations may be
adopted to address issues such as privacy, pricing, characteristics, and
quality of Internet products and services. For example, recent proposals
would prohibit the distribution of obscene, lascivious or indecent
communications on the Internet. The adoption of any such laws could have
a material adverse impact on the equity securities in the First Trust
Internet and Technology Portfolios.
Additional Foreign Issuer Risks
Since certain of the portfolio securities included in the Global Target
15 Portfolio, NASDAQ Target 15 Portfolio, First Trust 10 Uncommon Values
Portfolio and the Sector Funds may consist of common stocks of foreign
issuers, an investment in such Funds involves certain investment risks
that are different in some respects from an investment in a fund which
invests entirely in common stocks of domestic issuers. These investment
risks include the possible imposition of future political or
governmental restrictions which might adversely affect the payment or
receipt of dividends on the relevant portfolio securities, the
possibility that the financial condition of the issuers of the portfolio
securities may become impaired or that the general condition of the
relevant stock market may deteriorate, the limited liquidity and
relatively small market capitalization of the relevant securities
market, the imposition of expropriation or confiscatory taxation,
economic uncertainties, the lack of the quantity and quality of publicly
available information concerning the foreign issuers as such issuers are
generally not subject to the same reporting and accounting requirements
as domestic issuers, and the effect of foreign currency devaluations,
and fluctuations on the value of the common stocks and dividends of foreign
issuers in terms of U.S. dollars. In addition, fixed brokerage commissions
and other transaction costs on foreign securities exchanges are generally
higher than in the United States and there is generally less government
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the United States.
On the basis of the best information available to First Trust at the
present time, none of the portfolio securities in such Funds are
currently subject to exchange control restrictions under existing law
which would materially interfere with payment to such Funds of dividends
due on, or proceeds from the sale of, the foreign portfolio securities.
The adoption of such restrictions or other legal restrictions could
adversely impact the marketability of the foreign portfolio securities
and may impair the ability of such Funds to satisfy its obligation to
redeem shares or could cause delays or increase the costs associated
with the purchase and sale of the foreign portfolio securities and
correspondingly affect the price of its shares.
The purchase and sale of the foreign portfolio securities will generally
be made in foreign securities markets. Although First Trust does not
believe that the Funds will encounter obstacles in acquiring or
disposing of the foreign portfolio securities, investors should be aware
that in certain situations it may not be possible to purchase or sell a
foreign portfolio security in a timely manner for any number of reasons,
including lack of liquidity in the relevant market, the unavailability
of a seller or purchaser of the foreign portfolio securities, and
restrictions on such purchases or sales by reason of federal securities
laws or otherwise. An investment in such Funds will also be subject to
the risks of currency fluctuations associated with investments in
foreign equity securities trading in non-U.S. currencies.
Certain of the equity securities in Global Target 15 Portfolio, NASDAQ
Target 15 Portfolio, First Trust 10 Uncommon Values Portfolio and the
Sector Funds may be in ADR or GDR form. ADRs, which evidence American
Depositary Receipts and GDRs, which evidence Global Depositary Receipts,
represent common stock deposited with a custodian in a depositary.
American Depositary Shares and Global Depositary Shares (collectively,
the "Depositary Receipts") are issued by a bank or trust company to
evidence ownership of underlying securities issued by a foreign
corporation. These instruments may not necessarily be denominated in the
same currency as the securities into which they may be converted. For
purposes of the discussion herein, the terms ADR and GDR generally
include American Depositary Shares and Global Depositary Shares,
respectively.
Depositary Receipts may be sponsored or unsponsored. In an unsponsored
facility, the depositary initiates and arranges the facility at the
request of market makers and acts as agent for the Depositary Receipts
holder, while the company itself is not involved in the transaction. In
a sponsored facility, the issuing company initiates the facility and
agrees to pay certain administrative and shareholder-related expenses.
Page 26
Sponsored facilities use a single depositary and entail a contractual
relationship between the issuer, the shareholder and the depositary;
unsponsored facilities involve several depositaries with no contractual
relationship to the company. The depositary bank that issues Depositary
Receipts generally charges a fee, based on the price of the Depositary
Receipts, upon issuance and cancellation of the Depositary Receipts.
This fee would be in addition to the brokerage commissions paid upon the
acquisition or surrender of the security. In addition, the depositary
bank incurs expenses in connection with the conversion of dividends or
other cash distributions paid in local currency into U.S. dollars and
such expenses are deducted from the amount of the dividend or
distribution paid to holders, resulting in a lower payout per underlying
share represented by the Depositary Receipts than would be the case if
the underlying share were held directly. Certain tax considerations,
including tax rate differentials and withholding requirements, arising
from the application of the tax laws of one nation to nationals of
another and from certain practices in the Depositary Receipts market may
also exist with respect to certain Depositary Receipts. In varying
degrees, any or all of these factors may affect the value of the
Depositary Receipts compared with the value of the underlying shares in
the local market. In addition, the rights of holders of Depositary
Receipts may be different than those of holders of the underlying
shares, and the market for Depositary Receipts may be less liquid than
that for the underlying shares. Depositary Receipts are registered
securities pursuant to the Securities Act of 1933 and may be subject to
the reporting requirements of the Securities Exchange Act of 1934.
For the equity securities that are Depositary Receipts, currency
fluctuations will affect the U.S. dollar equivalent of the local
currency price of the underlying domestic shares and, as a result, are
likely to affect the value of the Depositary Receipts and consequently
the value of the equity securities. The foreign issuers of securities
that are Depositary Receipts may pay dividends in foreign currencies
which must be converted into dollars. Most foreign currencies have
fluctuated widely in value against the United States dollar for many
reasons, including supply and demand of the respective currency, the
soundness of the world economy and the strength of the respective
economy as compared to the economies of the United States and other
countries. Therefore, for any securities of issuers (whether or not they
are in Depositary Receipt form) whose earnings are stated in foreign
currencies, or which pay dividends in foreign currencies or which are
traded in foreign currencies, there is a risk that their United States
dollar value will vary with fluctuations in the United States dollar
foreign exchange rates for the relevant currencies.
The information provided below details certain important factors which
impact the economies of both the United Kingdom and Hong Kong. This
information has been extracted from various governmental and private
publications, but no representation can be made as to its accuracy.
Furthermore, no representation is made that any correlation exists
between the economies of the United Kingdom and Hong Kong and the value
of the equity securities held by the Global Target 15 Portfolio.
United Kingdom. The emphasis of the United Kingdom's economy is in the
private services sector, which includes the wholesale and retail sector,
banking, finance, insurance and tourism. Services as a whole account for
a majority of the United Kingdom's gross national product and make a
significant contribution to the country's balance of payments. The
portfolio of the Global Target 15 Portfolio may contain common stocks of
British companies engaged in such industries as banking, chemicals,
building and construction, transportation, telecommunications and
insurance. Many of these industries may be subject to government
regulation, which may have a materially adverse effect on the
performance of their stock. The United Kingdom is a
member of the European Union (the "EU"), which was created through the
formation of the Maastricht Treaty on European Union in late 1993. It is
expected that the Treaty will have the effect of eliminating most
remaining trade barriers between the 15 member nations and make Europe
one of the largest common markets in the world. However, the effective
implementation of the treaty provisions and the rate at which trade
barriers are eliminated is uncertain at this time. Furthermore, the
recent rapid political and social change throughout Europe make the
extent and nature of future economic development in the United Kingdom
and Europe and the impact of such development upon the value of the
portfolio securities issued by United Kingdom companies held in the
Global Target 15 Portfolio impossible to predict.
A majority of the EU members converted their existing sovereign
currencies to a common currency (the "euro") on January 1, 1999. The
United Kingdom did not participate in the conversion on January 1, 1999
and First Trust is unable to predict if or when the United Kingdom will
convert to the euro. Moreover, it is not possible to accurately predict
the effect of the current political and economic situation upon long-
term inflation and balance of trade cycles and how these changes, as
well as the implementation of a common currency throughout a majority of
EU countries, would affect the currency exchange rate between the U.S.
Page 27
dollar and the British pound sterling. In addition, United Kingdom
companies with significant markets or operations in other European
countries (whether or not such countries are participating) face
strategic challenges as these entities adapt to a single trans-national
currency. The euro conversion may have a material impact on revenues,
expenses or income from operations; increase competition due to the
increased price transparency of EU markets; affect issuers' currency
exchange rate risk and derivatives exposure; disrupt currency contracts;
cause issuers to increase spending on information technology updates
required for the conversion; and result in potential adverse tax
consequences. First Trust is unable to predict what impact, if any, the
euro conversion will have on any of the portfolio securities issued by
United Kingdom companies in the Global Target 15 Portfolio.
Hong Kong. Hong Kong, established as a British colony in the 1840's,
reverted to Chinese sovereignty effective July 1, 1997. On such date,
Hong Kong became a Special Administrative Region ("SAR") of China. Hong
Kong's new constitution is the Basic Law (promulgated by China in 1990).
Prior to July 1, 1997, the Hong Kong government followed a laissez-faire
policy toward industry. However, Hong Kong's recent economic data has
not been encouraging. The full impact of the Asian financial crisis, as
well as current international economic instability, is likely to
continue to have a negative impact on the Hong Kong economy in the near
future.
Although China has committed by treaty to preserve for 50 years the
economic and social freedoms enjoyed in Hong Kong prior to the
reversion, the continuation of the economic system in Hong Kong after
the reversion will be dependent on the Chinese government, and there can
be no assurances that the commitment made by China regarding Hong Kong
will be maintained. Prior to the reversion, legislation was enacted in
Hong Kong designed to extend democratic voting procedures for Hong
Kong's legislature. China has expressed disagreement with this
legislation, which it states is in contravention of the principles
evidenced in the Basic Law of the Hong Kong SAR. The National Peoples'
Congress of China has passed a resolution to the effect that the
Legislative Council and certain other councils and boards of the Hong
Kong Government were to be terminated on June 30, 1997. Such bodies have
subsequently been reconstituted in accordance with China's
interpretation of the Basic Law. Any increase in uncertainty as to the
future economic and political status of Hong Kong could have a
materially adverse effect on the value of the Global Target 15
Portfolio. First Trust is unable to predict the level of market
liquidity or volatility which may occur as a result of the reversion to
sovereignty, both of which may negatively impact such Fund and the value
of its shares.
China currently enjoys a most favored nation status ("MFN Status") with
the United States. MFN Status is subject to annual review by the
President of the United States and approval by Congress. As a result of
Hong Kong's reversion to Chinese control, U.S. lawmakers have suggested
that they may review China's MFN status on a more frequent basis.
Revocation of the MFN status would have a severe effect on China's trade
and thus could have a materially adverse effect on the value of the
Global Target 15 Portfolio. The performance of certain companies listed
on the Hong Kong Stock Exchange is linked to the economic climate of
China. The renewal of China's MFN Status in May of 1996 has helped to
reduce the uncertainty for Hong Kong in conducting Sino-U.S. trade, and
the signing of the agreement on copyright protection between the U.S.
and Chinese governments in June of 1996 averted a trade war that would
have affected Hong Kong's re-export trade. In 1997, China and the United
States reached a four-year bilateral agreement on textiles, again
avoiding a Sino-U.S. trade war. More recently, the currency crisis which
has affected a majority of Asian markets since mid-1997 has forced Hong
Kong leaders to address whether to devalue the Hong Kong dollar or
maintain its peg to the U.S. dollar. During the volatile markets of
1998, the Hong Kong Monetary Authority (the "HKMA") acquired the common
stock of certain Hong Kong issuers listed on the Hong Kong Stock
Exchange in a an effort to stabilize the Hong King dollar and thwart
currency speculators. Government intervention may hurt Hong Kong's
reputation as a free market and increases concerns that authorities are
not willing to let Hong Kong's currency system function autonomously.
This may undermine confidence in the Hong Kong dollar's peg to the U.S.
Dollar. Any downturn in economic growth or increase in the rate of
inflation in China or Hong Kong could have a materially adverse effect
on the value of the Global Target 15 Portfolio.
Securities prices on the Hong Kong Stock Exchange, and specifically the
Hang Seng Index, can be highly volatile and are sensitive to
developments in Hong Kong and China, as well as other world markets. For
example, the Hang Seng Index declined by approximately 31% in October,
1997 as a result of speculation that the Hong Kong dollar would become
the next victim of the Asian currency crisis, and in 1989, the Hang Seng
Index dropped 1,216 points (approximately 58%) in early June following
the events at Tiananmen Square. The Hang Seng Index gradually climbed
subsequent to the events at Tiananmen Square but fell by 181 points on
October 13, 1989 (approximately 6.5%) following a substantial fall in
the U.S. stock markets. During 1994, the Hang Seng Index lost
approximately 31% of its value. From January through August of 1998,
Page 28
during a period marked by international economic instability and a
global currency crisis, the Hang Seng Index declined by nearly 27%. The
Hang Seng Index is subject to change, and delisting of any issuers may
have an adverse impact on the performance of the Global Target 15
Portfolio, although delisting would not necessarily result in the
disposal of the stock of these companies, nor would it prevent such Fund
from purchasing additional equity securities of these companies. In
recent years, a number of companies, comprising approximately 10% of the
total capitalization of the Hang Seng Index, have delisted. In addition,
as a result of Hong Kong's reversion to Chinese sovereignty, an
increased number of Chinese companies could become listed on the Hong
Kong Stock Exchange, thereby changing the composition of the stock
market and, potentially, the composition of the Hang Seng Index.
Exchange Rate. The Global Target 15 Portfolio, NASDAQ Target 15
Portfolio, First Trust 10 Uncommon Values Portfolio and the Sector Funds
may be comprised substantially of equity securities that are principally
traded in foreign currencies and as such, involve investment risks that
are substantially different from an investment in a fund which invests
in securities that are principally traded in United States dollars. The
United States dollar value of each Fund's portfolios and of the
distributions from the portfolios will vary with fluctuations in the
United States dollar foreign exchange rates for the relevant currencies.
Most foreign currencies have fluctuated widely in value against the
United States dollar for many reasons, including supply and demand of
the respective currency, the rate of inflation in the respective
economies compared to the United States, the impact of interest rate
differentials between different currencies on the movement of foreign
currency rates, the balance of imports and exports of goods and
services, the soundness of the world economy and the strength of the
respective economy as compared to the economies of the United States and
other countries.
Exchange rate fluctuations are partly dependent on a number of economic
factors including economic conditions within countries, the impact of
actual and proposed government policies on the value of currencies,
interest rate differentials between the currencies and the balance of
imports and exports of goods and services and transfers of income and
capital from one country to another. These economic factors are
influenced primarily by a particular country's monetary and fiscal
policies (although the perceived political situation in a particular
country may have an influence as well--particularly with respect to
transfers of capital). Investor psychology may also be an important
determinant of currency fluctuations in the short run. Moreover,
institutional investors trying to anticipate the future relative
strength or weakness of a particular currency may sometimes exercise
considerable speculative influence on currency exchange rates by
purchasing or selling large amounts of the same currency or currencies.
However, over the long term, the currency of a country with a low rate
of inflation and a favorable balance of trade should increase in value
relative to the currency of a country with a high rate of inflation and
deficits in the balance of trade.
The following table sets forth, for the periods indicated, the range of
fluctuation concerning the equivalent U.S. dollar rates of exchange and
end of month equivalent U.S. dollar rates of exchange for the United
Kingdom pound sterling and the Hong Kong dollar:
<TABLE>
<CAPTION>
Foreign Exchange Rates
Range of Fluctuations in Foreign Currencies
United Kingdom Pound
Annual Period Sterling/U.S. Dollar Hong Kong/U.S. Dollar
_____________ ____________________ _____________________
<S> <C> <C>
1983 0.616-0.707 6.480-8.700
1984 0.671-0.864 7.774-8.050
1985 0.672-0.951 7.729-7.990
1986 0.643-0.726 7.768-7.819
1987 0.530-0.680 7.751-7.822
1988 0.525-0.601 7.764-7.912
1989 0.548-0.661 7.775-7.817
1990 0.504-0.627 7.740-7.817
1991 0.499-0.624 7.716-7.803
1992 0.498-0.667 7.697-7.781
1993 0.630-0.705 7.722-7.766
1994 0.610-0.684 7.723-7.750
1995 0.610-0.653 7.726-7.763
1996 0.583-0.670 7.732-7.742
1997 0.584-0.633 7.708-7.751
Page 29
1998 0.584-0.620 7.735-7.749
1999 0.597-0.646 7.746-7.775
<FN>
Source: Bloomberg L.P.
</FN>
</TABLE>
First Trust will estimate current exchange rates for the relevant
currencies based on activity in the various currency exchange markets.
However, since these markets are volatile and are constantly changing,
depending on the activity at any particular time of the large
international commercial banks, various central banks, large multi-
national corporations, speculators and other buyers and sellers of
foreign currencies, and since actual foreign currency transactions may
not be instantly reported, the exchange rates estimated by First Trust
may not be indicative of the amount in United States dollars a Fund
would receive had the Fund sold any particular currency in the market.
The foreign exchange transactions of a Fund will be conducted by the
Fund with foreign exchange dealers acting as principals on a spot (i.e.,
cash) buying basis. Although foreign exchange dealers trade on a net
basis, they do realize a profit based upon the difference between the
price at which they are willing to buy a particular currency (bid price)
and the price at which they are willing to sell the currency (offer
price).
Fund Management
The officers of the Registrant manage its day to day operations and are
responsible to the Registrant's Board of Trustees. The management of the
Fund, including general supervision of the duties performed for the Fund
under the Investment Advisory and Management Agreement, is the
responsibility of its Board of Trustees. The Trustees set broad policies
for each Fund and choose the Registrant's officers. The following is a
list of the Trustees and officers of the Registrant and a statement of
their present positions and principal occupations during the past five
years, with the Trustee who is an "interested person" (as such term is
defined in the Investment Company Act of 1940) of the Registrant
indicated by an asterisk. The mailing address of the officers and
Trustees, unless otherwise noted, is 1001 Warrenville Road, Suite 300,
Lisle, Illinois 60532.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position and Offices with Registrant During Past 5 Years
_____________________ ____________________________________ _____________________________
<S> <C> <C>
(1) Robert J. Bartel Trustee Board Member (1996 to Present), First
730 Windmill Circle American Federal Savings Bank of Virginia;
Bristol, VA 24201 Tri-City Advisory Board (1999 to Present),
D.O.B: 11/31 First American Bank; Senior Financial
Advisor (1997 to Present), United
Management Company, LLC; Trustee (1997 to
Present), United Investment Trust; Chairman
of the Board (1989 to 1996), Charter
Federal Savings Bank.
*James A. Bowen President, Chairman of the Board, President, Nike Securities and First Trust
D.O.B: 09/55 Chief Executive Officer and Trustee Advisors.
Mark R. Bradley Treasurer, Controller, Chief Financial Chief Financial Officer, Senior Vice
D.O.B: 11/57 Officer and Chief Accounting Officer President, Managing Director, Nike
Securities and First Trust Advisors.
Susan M. Brix Assistant Vice President Representative, Nike Securities; Assistant
D.O.B: 01/60 Portfolio Manager, First Trust Advisors.
Page 30
Robert F. Carey Vice President Senior Vice President, Nike Securities and
D.O.B: 07/63 First Trust Advisors.
Richard E. Erickson Trustee Physician, Sportsmed/Wheaton Orthopedics
327 Gundersen Drive
Carol Stream, IL 60188
D.O.B: 04/51
David B. Field Vice President Senior Vice President, Nike Securities;
D.O.B: 02/49 Senior Vice President, Chief Investment
Officer, First Trust Advisors; Of Counsel
(1998 to Present), Johnson Westra,
Attorneys; Adjunct
Professor of Finance (1999 to Present),
Kellstadt Graduate School of Business,
DePaul University.
Patrick M. Fitzgerald Trustee President, Available Business Group Inc.
4141 S. Peoria Street (Printing products and distribution).
Chicago, IL 60609
D.O.B: 03/53
W. Scott Jardine Secretary Senior Vice President and General Counsel,
D.O.B: 05/60 Nike Securities and First Trust Advisors.
Niel B. Nielson Trustee Pastor (1997 to Present), College Church in
D.O.B: 3/54 330 East Union Wheaton; Partner (1996 to
1997), Ritchie Capital Wheaton, IL 60187
Markets (Options Trading); Vice President
(1995 to 1996), The Service-Master Company;
Senior Vice President (1984 to 1995),
Chicago Research and Trading-NationsBank.
<FN>
(1) Mr. Bartel is Mr. Bradley's father-in-law.
</FN>
</TABLE>
The following table sets forth compensation paid by the Registrant to
each of the Trustees who are not designated "interested persons" during
the period since inception, October 6, 1999, to December 31, 1999 and
the compensation estimated to be paid to the Trustees for the fiscal
year ending December 31, 2000. . The Registrant has no retirement or
pension plans. The officers and Trustees who are "interested persons" as
designated above serve without any compensation from the Registrant.
<TABLE>
<CAPTION>
Actual Aggregate Compensation
Name of Trustee From Registrant and Fund Complex* Estimated Compensation*
________________ _________________________________ _______________________
<S> <C> <C>
Robert J. Bartel $14,750 $21,500
Richard E. Erickson $14,250 $20,500
Patrick M. Fitzgerald $14,750 $21,500
Niel B. Nielson $14,750 $21,500
_______ _______
Total $58,500 $85,000
Page 31
<FN>
*Based on the estimated compensation to be paid to the independent
Trustees for the fiscal year ending December 31, 2000 for services to
the Registrant.
</FN>
</TABLE>
As of April 25, 2000, Account B owned all shares of the Registrant and,
as a result, is considered to control the Funds. To the extent
required by applicable law, American Skandia will solicit voting
instructions from owners of variable annuity Policies. All interests in
each Fund will be voted by American Skandia in accordance with voting
instructions received from such variable Policy owners. American Skandia
will vote all of the interests which it is entitled to vote in the same
proportion as the voting instructions given by variable Policy owners,
on the issues presented.
As of April 25, 2000, the Trustees and officers of the Funds, owned, in
the aggregate, less than 1% of the interests of any individual Fund.
As of April 25, 2000 the following persons owned of record or
beneficially more than 5% of the outstanding voting shares of the
Portfolios:
<TABLE>
<CAPTION>
PORTFOLIO NAME INTEREST HOLDER ADDRESS PERCENTAGE
______________ _______________ _______ __________
<S> <C> <C> <C>
The Dow Target 5 Nike Securities L.P. 1001 Warrenville Road 87.8%
Lisle, IL 60532-4310
DLJ as Custodian FBO Darrell Murray 1 Pershing Plaza 7.4%
Pershing, NJ 07399
The Dow DART 10 Nike Securities L.P. Same 21.3%
Mr. James Leckie 314 Lilac Drive 9.9%
El Cajon, CA 92021
Mr. Richard Lancrain 9032 N. Maple Street 13.72%
Hayden, ID 83835
Mr. Philip Dreisbach 1219 Mountain Avenue 8.5%
Coeur D Alene, ID 83814
Ms. Norma Jean Beckman 1525 Chatsworth Blvd 7.5%
San Diego, CA 92107
Svirsky Family Trust 10611 Noakes Road 7.4%
La Mesa, CA 91941
Global Target 15 Nike Securities L.P. Same 55.2%
Mr. Philip Dreisbach Same 9.5%
Mr. William Applebee 2809 Klamath Drive 7.1%
Anchorage, AK 99517
Mr. Richard Lancrain Same 6.9%
S&P Target 10 Nike Securities L.P. Same 14.4%
Mr. Philip Dreisbach Same 8.7%
Mr. Richard Lancrain Same 7.2%
Mr. James Leckie Same 6.3%
Ruth P. Dingwall POA Trust U/A 10-6-92 4784 Mt. Helix Drive 10.2%
La Mesa, CA 91941
NASDAQ Target 15 Nike Securities L.P. Same 9.0%
Ruth P. Dingwall POA Trust U/A 10-6-92 Same 8.6%
Svirsky Family Trust Same 6.3%
Ms. Marie Duncan 1085 Tasman Drive No. 413 6.0%
Sunnyvale, CA 94089
First Trust 10 Uncommon Values Nike Securities L.P. Same 65.7%
Mr. Richards Mowles 1862 Sweetwater Road 5.1%
Gypsum, CO 81637
First Trust Energy Nike Securities L.P. Same 98.3%
First Trust Financial Services Nike Securities L.P. Same 24.9%
Ms. Sue Hecker 1221 Cresendo Drive 10.1%
Roseville, CA 95678
Ruth P. Dingwall POA Trust U/A 10-6-92 Same 5.9%
Mr. James Leckie Same 9.4%
Svirsky Family Trust Same 8.2%
First Trust Internet Nike Securities L.P. Same 29.0%
Mr. M. Robert Burman 10001 Apple Hill Court 15.5%
Potomac, MD 20854
Ms. Sue Hecker Same 10.3%
Ms. Charlotte Chavin 4740 Laurel Grove 10.0%
Valley Village, CA 91607
</TABLE>
Performance
A Fund may quote its total return and yield in reports to shareholders,
sales literature, and advertisements. These performance measures are
described below. Performance advertised for a Fund may or may not
reflect the effect of any charges that are imposed under a variable
annuity Policy that is funded by the Registrant. Such charges, described
in the variable annuity prospectus, will have the effect of reducing a
Fund's performance.
Standardized average annual total return and non-standardized total
return measure both the net investment income generated by, and the
effect of any realized and unrealized appreciation or depreciation of,
the underlying investments of a Fund. Yield is a measure of the net
investment income per interest earned over a specific one month or 30-
day period expressed as a percentage of the net asset value.
A Fund's standardized average annual total return quotation is computed
in accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission. The standardized average annual
total return for a Fund for a specific period is found by first taking a
hypothetical $1,000 investment ("initial investment") in the Fund's
interests on the first day of the period, adjusting to deduct the
applicable charges, if any, and computing the "redeemable value" of that
investment at the end of the period. The redeemable value is then
divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is
subtracted from the result, which is then expressed as a percentage. The
calculation assumes that all income and capital gains dividends paid by
a Fund have been reinvested at net asset value on the reinvestment dates
during the period. The total returns for the period from October 6,
1999 (commencement of operations) to December 31, 1999 (not annualized)
for the following Portfolios were: The Dow (sm) Target 5 Portfolio
(19.60%), The Dow sm DART 10 Portfolio (7.80%), Global Target 15
Portfolio (2..90%), S&P Target 10 Portfolio 18.30% , NASDAQ Target 15
Portfolio 46.00%, First Trust 10 Uncommon Values Portfolio 14.00%, First
Trust Energy Portfolio 12.30%, First Trust Financial Services Portfolio
4.90%, First Trust Internet Portfolio 63.30%, First Trust Pharmaceutical
Portfolio 3.70% and First Trust Technology Portfolio 34.10%.
The standardized average annual total return quotations will be current
to the last day of the calendar quarter preceding the date on which an
advertisement is submitted for publication. The standardized average
annual total return will be based on rolling calendar quarters and will
cover at least periods of one, five and ten years, or a period covering
the time the Fund has been in existence, if it has not been in existence
for one of the prescribed periods.
Non-standardized total return may also be advertised. The non-
standardized total return is not subject to a prescribed formula. Non-
standardized total return may be for periods other than those required
to be presented or may otherwise differ from standardized average annual
total return. Non-standardized total return for a specific period is
calculated by first taking an investment ("initial investment") in the
Fund's interests on the first day of the period and computing the "end
value" of that investment at the end of the period. The total return
percentage is then determined by subtracting the initial investment from
the ending value and dividing the remainder by the initial investment
and expressing the result as a percentage. The calculation assumes that
all income and capital gains dividends paid by a Fund have been
reinvested at net asset value on the reinvestment dates during the
period. Non-standardized total return may also be shown as the increased
dollar value of the hypothetical investment over the period.
Page 32
Quotations of standardized average annual total return and non-
standardized total return are based upon historical earnings and is not
intended to indicate future performance.
The yield for a Fund is computed in accordance with a standardized
method prescribed by the rules of the SEC. Under that method, yield is
computed by dividing the net investment income per interest earned
during the specified one month or 30-day period by the offering price
per interest on the last day of the period, according to the following
formula:
Yield = 2[((a - b/cd) + 1) 6 - 1]
Where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of interests outstanding during the period
that were entitled to receive dividends; and
d = the offering price (net asset value) per interest on the last day of
the period.
In computing the yield, a Fund follows certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that a Fund uses to prepare annual and interim
financial statements in accordance with generally accepted accounting
principles.
A Fund's performance quotations are based upon historical results and
are not necessarily representative of future performance. A Fund's
interests are sold at net asset value. Returns and net asset value will
fluctuate. Factors affecting a Fund's performance include general market
conditions, operating expenses and investment management. Interests of a
Fund are redeemable at the then current net asset value, which may be
more or less than original cost.
The performance of the Funds may be compared to the performance of other
mutual funds, mutual fund indices or annuity indices with similar
objectives and policies as reported by various sources, including Lipper
Analytical Services, Inc. ("Lipper") and CDA Investment Technologies,
Inc. ("CDA"). Lipper and CDA performance calculations are based upon
changes in net asset value with all dividends reinvested and do not
include the effect of any sales charges. The Fund's performance may also
be compared to that of the Consumer Price Index or various unmanaged
stock and bond indices including, but not limited to, Salomon Brothers
Broad Investment Grade Index, Lehman Brothers High Yield Index, Lehman
Brothers Aggregate Bond Index, Lehman Brothers Intermediate
Government/Corporate Bond Index, Salomon Brothers Treasury Index, S&P
MidCap 400 Index, Morgan Stanley Capital International World Index,
Morgan Stanley Capital International Europe and Australia, Far East
Equity Index, Russell 2000 Index, Russell MidCap Index, Dow Jones
Industrial Average, Hang Seng Index, Ibbotson Small Cap Index, Financial
Times and S&P 500 Index. There are differences and similarities between
the investments which a Fund may purchase and the investments by the
market indicators.
From time to time, a Fund also may quote information from publications
including, but not limited to, the following: Morningstar, Inc., The
Wall Street Journal, Money Magazine, Forbes, Barron's, The New York
Times, USA Today, Institutional Investor and Registered Representative.
Also, investors may want to compare the historical returns of various
investments, performance indices of those investments or economic
indicators, including but not limited to stocks, bonds, certificates of
deposit and other bank products, money market funds and U.S. Treasury
obligations. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal, and may be insured. Economic
indicators may include, without limitation, indicators of market rate
trends and cost of funds, such as Federal Home Loan Bank Board 11th
District Cost of Funds Index (COFI). A Fund may also advertise its
portfolio or its significant holdings at any given time. A Fund may also
periodically advertise tax-deferred compounding charts and other
hypothetical illustrations.
Page 33
Performance Data of Investment Strategies
The following table shows hypothetical performance and information for
the strategies employed by the Funds noted below, but not any actual
Fund, and the actual performance of the S&P 500 Index, the FT Index, the
Hang Seng Index, the DJIA, the Ibbotson Small Cap Index and a
combination of the FT Index, Hang Seng Index and the DJIA (the
"Cumulative Index Returns"). The information for each investment
strategy assumed that the strategy was fully invested as of the
beginning of each year and that each Stock Selection Date was the last
day of the preceding year. In addition, the performance information does
not take into consideration any sales charges, commissions, insurance
fees or charges imposed on the sale of the variable annuity policies,
expenses or taxes. Any of such charges will lower the returns shown. All
of the figures set forth below have been adjusted to take into account
the effect of currency exchange rate fluctuations of the U.S. dollar,
where applicable (i.e., returns are stated in U.S. dollar terms). The
Cumulative Index Returns are calculated by adding one-third of the total
returns of each of the FT Index, the Hang Seng Index and the DJIA. The
returns shown in the following tables and graphs are not guarantees of
future performance and should not be used as a predictor of returns to
be expected in connection with a Fund's portfolio. Both stock prices
(which may appreciate or depreciate) and dividends (which may be
increased, reduced or eliminated) will affect the returns. Each
investment strategy has under performed its respective index or indices
in certain years. Accordingly, there can be no assurance that a Fund's
portfolio will outperform its respective index (or combination thereof,
where applicable).
The following table compares the hypothetical performance of the
investment strategy of the DART 10 Portfolio (the "DART 10 Strategy");
the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding
Stocks of the DJIA (the "Dow Target 5 Strategy"); a combination of the
Five Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks
Strategies in the FT Index, Hang Seng Index and the DJIA (the "Global
Target 15 Strategy"); the investment strategy of the S&P Target 10
Portfolio (the "S&P Target 10 Strategy") and the investment strategy of
the NASDAQ Target 15 Portfolio (the "NASDAQ Target 15 Strategy"); and
the performance of the S&P 500 Index, the FT Index, the Hang Seng Index,
the DJIA, the Ibbotson Small-Cap Index and the Cumulative Index Returns
in each of the 20 years listed below, as of December 31 in each of those
years (and as of the most recent quarter).
An investor in a Fund would not necessarily realize as high a total
return on an investment in the stocks upon which the hypothetical
returns are based for the following reasons: the total return figures
shown do not reflect brokerage commissions, expenses or taxes; the Funds
are established at different times of the year; and the Funds may not be
fully invested at all times or equally weighted in all stocks comprising
a strategy. Further, the returns also do not reflect the deduction of
any insurance fees or charges which are imposed by American Skandia in
connection with the sale of variable annuity policies. Investors should
refer to the prospectus for Account B for a description of those fees
and charges which have a detrimental effect on the performance of the
Funds. If the above-mentioned charges were reflected in the hypothetical
returns, the returns would be lower than those presented here.
The returns shown below for the strategies do not represent the results
of actual trading using client assets but were achieved by means of the
retroactive application of a strategy that was designed with the benefit
of hindsight. These returns should not be considered indicative of the
skill of First Trust. The returns may not reflect the impact that any
material market or economic factors might have had if the strategies had
been used during the periods shown to actually manage client assets.
During most of the period shown in the table below, First Trust did not
manage or supervise accounts which employed strategies similar to the
hypothetical strategies shown below. The returns shown below for the
strategies are not a guarantee of future performance and should not be
used to predict the expected returns of a Fund. Each strategy has the
potential for loss.
These figures are for calendar years; the Funds may use different 12-
month periods.
Page 34
<TABLE>
<CAPTION>
COMPARISON OF TOTAL RETURN (2)
Strategy Total Returns Index Total Returns
S&P NASDAQ Ibbotson
DART Dow Combined Target Target 15 Small Cumulative
10 Target 5 15 10 Large Cap S&P 500 FT Hang Cap Index
YEAR Strategy Strategy Strategy Strategy Strategy Index Index Seng DJIA Index Returns(3)
____ ________ ________ ________ _______ ___________ ________ ________ _________ _________ ________ _________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1979 13.01% 9.84% 44.70% 43.17% - 18.22% 3.59% 77.99% 10.60% 43.46% 30.73%
1980 24.80% 41.69% 52.51% 54.15% - 32.11% 31.77% 65.48% 21.90% 38.88% 39.72%
1981 2.02% 3.19% 0.03% -10.59% - -4.92% -5.30% -12.34% -3.61% 13.88% -7.08%
1982 27.46% 43.37% -2.77% 38.21% - 21.14% 0.42% -48.01% 26.85% 28.01% -6.91%
1983 40.44% 36.38% 15.61% 20.01% - 22.28% 21.94% -2.04% 25.82% 39.67% 15.24%
1984 6.22% 11.12% 29.88% 16.34% - 6.22% 2.15% 42.61% 1.29% -6.67% 15.35%
1985 39.31% 38.34% 54.06% 43.49% - 31.77% 54.74% 50.95% 33.28% 24.66% 46.32%
1986 41.95% 30.89% 38.11% 21.81% 22.94% 18.31% 24.36% 51.16% 27.00% 6.85% 34.18%
1987 5.24% 10.69% 17.52% 9.16% 14.10% 5.33% 37.13% -6.84% 5.66% -9.30% 11.99%
1988 19.02% 21.47% 24.26% 20.35% -0.59% 16.64% 9.00% 21.04% 16.03% 22.87% 15.36%
1989 28.49% 10.55% 15.98% 39.62% 37.33% 31.35% 20.07% 10.59% 32.09% 10.18% 20.92%
1990 1.27% -15.74% 3.19% -5.64% -5.39% -3.30% 11.03% 11.71% -0.73% -21.56% 7.34%
1991 43.84% 62.03% 40.40% 24.64% 109.27% 30.40% 8.77% 50.68% 24.19% 44.63% 27.88%
1992 8.53% 22.90% 26.64% 24.66% -0.15% 7.62% -3.13% 34.73% 7.39% 23.35% 12.99%
1993 21.15% 34.01% 65.65% 42.16% 28.55% 9.95% 19.22% 124.95% 16.87% 20.98% 53.68%
1994 0.17% 8.27% -7.26% 8.17% 10.50% 1.34% 1.97% -29.34% 5.03% 3.11% -7.45%
1995 38.14% 30.50% 13.45% 25.26% 53.80% 37.22% 16.21% 27.52% 36.67% 34.66% 26.80%
1996 34.93% 26.20% 21.00% 26.61% 60.03% 22.82% 18.35% 37.86% 28.71% 17.62% 28.31%
1997 25.64% 19.97% -6.38% 61.46% 35.15% 33.21% 14.78% -17.69% 24.82% 22.78% 7.30%
1998 19.96% 12.36% 13.50% 53.85% 123.10% 28.57% 12.32% -2.60% 18.03% -7.38% 9.25%
1999 18.47% -7.28% 8.88% 3.49% 100.35% 20.94% 15.25% 71.34% 27.06% 28.96% 37.88%
<FN>
(1) The Strategy Stocks for each Strategy for a given year consist of
stock selected by applying the respective strategy as of the beginning
of the period. The Global Target 15 Strategy merely averages the Total
Return of the stocks which comprise the Five Lowest Priced Stocks of the
Ten Highest Dividend Yielding Stocks in the FT Index, Hang Seng Index
and the DJIA, respectively.
(2) Total Return represents the sum of the change in market value of
each group of stocks between the first and last trading day of a period
plus the total dividends paid on each group of stocks during the period
divided by the opening market value of each group of stocks as of the
first trading day of a period. Total Return does not take into
consideration any sales charges, commissions, expenses or taxes. Total
Return assumes that all dividends are reinvested semi-annually (with the
exception of the FT Index and the Hang Seng Index from 12/31/78 through
12/31/86, during which time annual reinvestment was assumed), and all
returns are stated in terms of the United States dollar. Based on the
year-by-year returns contained in the table, over the 14 years listed
for the NASDAQ Target 15 Strategy the average annual total return is
36.76%; in addition, over the 20 full years listed above, the DART 10
Strategy achieved an average annual total return of 21.51%, the S&P
Target 10 Strategy achieved an average annual total return of 24.37%,
and the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding
Stocks in the DJIA and Global Target 15 Strategy achieved an average
annual total return of 20.67% and 19.61%, respectively. In addition,
over this period, each individual strategy achieved a greater average
annual total return than that of its corresponding index, the S&P 500
Index, Ibbotson Small-Cap Index, the DJIA or a combination of the FT
Index, Hang Seng Index and DJIA, which were 17.75%, 15.39%, 18.10% and
18.25%, respectively. For the seven year period between January 1, 1972
and December 31, 1978, the DART 10 Strategy achieved an annual total
return of 23.76% in 1972, -2.26% in 1973, -7.11% in 1974, 57.78% in
1975, 35.18% in 1976, -1.95% in 1977 and -1.95% in 1978; the Five Lowest
Priced Stocks of the Ten Highest Dividend Yielding Stocks in the DJIA
achieved an annual total return of 22.92% in 1972, 20.01% in 1973, -
5.40% in 1974, 65.77% in 1975, 40.96% in 1976, 5.49% in 1977 and 1.23%
in 1978; the DJIA achieved an annual total return of 18.38% in 1972, -
13.20% in 1973, -23.64% in 1974, 44.46% in 1975, 22.80% in 1976, -12.91%
in 1977 and 2.66% in 1978; the S&P 500 Index achieved an annual total
return of 18.89% in 1972, -14.57% in 1973, -26.33% in 1974, 36.84% in
1975, 23.64% in 1976 and -7.25% in 1977 and 6.49% in 1978; and the
Ibbotson Small-Cap Index achieved an annual total return of 4.43% in
1972, -30.90% in 1973, -19.95% in 1974, 52.82% in 1975, 57.38% in 1976,
25.38% in 1977 and 23.46% in 1978. Although each Fund seeks to achieve a
better performance than its respective index as a whole, there can be no
assurance that a Fund will achieve a better performance.
(3) Cumulative Index Returns represent the average of the annual returns
of the stocks contained in the FT Index, Hang Seng Index and DJIA.
Cumulative Index Returns do not represent an actual index.
</FN>
</TABLE>
Page 35
There can be no assurance that any Fund will outperform the DJIA or any
other index shown. Investors should not rely on the preceding financial
information as an indication of the past or future performance of a
Fund. This information may be used in advertisements.
Investment Advisory and Other Services
Investment Adviser
First Trust Advisors L.P., 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, is the investment adviser to the Funds. As investment
adviser, First Trust provides the Funds with professional investment
supervision and management and permits any of its officers or employees
to serve without compensation as Trustees or officers of the Registrant
if elected to such positions. First Trust provides each Fund with
discretionary investment services and certain administrative services
necessary with the management of the portfolios. Specifically, First
Trust is responsible for supervising and directing the investments of
each Fund in accordance with each Fund's investment objective, program,
and restrictions as provided in the Prospectus and this Statement of
Additional Information. First Trust is responsible for effecting all
security transactions on behalf of each Fund. First Trust is also
responsible for compliance with the provisions of Section 817(h) of the
Internal Revenue Code of 1986, as amended ("Code"), applicable to each
Fund (relating to the diversification requirements applicable to
investments in underlying variable annuity contracts).
First Trust Advisors L.P. ("First Trust") is an Illinois limited
partnership formed in 1991 and an investment adviser registered with the
SEC under the Investment Advisers Act of 1940. First Trust is a limited
partnership with one limited partner, Grace Partners of DuPage L.P.
("Grace Partners"), and one general partner, Nike Securities
Corporation. Grace Partners is a limited partnership with one general
partner, Nike Securities Corporation, and a number of limited partners.
Grace Partners' and Nike Securities Corporation's primary business is
investment advisory and broker/dealer services through their interests.
Nike Securities Corporation is an Illinois corporation controlled by
Robert Donald Van Kampen. First Trust is controlled by Grace Partners
and Nike Securities Corporation.
First Trust acts as investment adviser to the Funds pursuant to an
Investment Advisory and Management Agreement. The Investment Advisory
and Management Agreement continues in effect for each Fund from year to
year after its initial two-year term so long as its continuation is
approved at least annually by the Trustees including a majority of the
Trustees who are not parties to such agreement or interested persons of
any such party except in their capacity as Trustees of the Registrant,
or the interest holders of each Fund. It may be terminated at any time
upon 60 days notice by either party, or by a majority vote of the
outstanding interests of a Fund with respect to that Fund, and will
terminate automatically upon assignment. Additional Funds may be subject
to a different agreement. The Investment Advisory and Management
Agreement provides that First Trust, its partners, directors, officers,
employees, and certain other persons performing specific functions for a
Fund will only be liable to a Fund for losses resulting from willful
misfeasance, bad faith, gross negligence, or reckless disregard of their
obligations and duties under the agreement. As compensation for its
services, each Fund pays First Trust a fee as described in the
Prospectus. Provisions regarding expense limitations are described in
the Prospectus. For the period October 6, 1999 (commencement of
operations) to December 31, 1999 each Portfolio accrued the following
advisory fees:
<TABLE>
<CAPTION>
Amount of
Expenses Reimbursed Advisory Fee
Portfolio of Advisory Fee Paid Accrued
_________ _________________ _____________
<S> <C> <C>
The Dow (sm) Target 5 $123 $43,828
The Dow (sm) DART 10 $146 $44,284
Global Target 15 $344 $28,662
S&P Target 10 $240 $38,374
NASDAQ Target 15 $248 $37,086
First Trust 10 Uncommon Value $159 $38,288
First Trust Energy $150 $27,648
First Trust Financial Services $157 $30,037
First Trust Internet $185 $41,997
First Trust Pharmaceutical $157 $38,421
First Trust Technology $170 $32,426
</TABLE>
Page 36
Nike Securities, 1001 Warrenville Road, Lisle, Illinois 60532, serves as
the principal underwriter of the interests of the Fund pursuant to a
"best efforts" arrangement as provided by a distribution agreement with
the Funds (the "Distribution Agreement"). The officers of the Registrant
described as being associated with Nike Securities are affiliated
persons of both the Registrant and Nike Securities. Pursuant to the
Distribution Agreement, the Fund appointed Nike Securities to be its
agent for the distribution of the Funds' shares on a continuous offering
basis. Nike Securities sells shares to Account B. Pursuant to the
Distribution Agreement, Nike Securities, at its own expense, finances
certain activities incident to the sale and distribution of the
interests of the Funds, including printing and distribution of
prospectuses and statements of additional information to other than
existing shareholders and the printing and distributing of sales
literature and advertising. Nike Securities does not receive
underwriting commissions for its sale of interests of the Funds. Nike
Securities also receives compensation pursuant to a Rule 12b-1 plan
adopted by the Fund and described herein under "12b-1 Plan."
Custodian and Transfer Agent
The custodian has custody of all securities and cash of the Registrant
maintained in the United States and attends to the collection of
principal and income and payment for and collection of proceeds of
securities bought and sold by the Funds. The Chase Manhattan Bank, 4 New
York Plaza, New York, NY 10004-2413, acts as custodian for each Fund.
PFPC Inc, 4400 Computer Drive, Westborough, Massachusetts 01581, is the
transfer, shareholder services, accounting and dividend-paying agent for
each Fund and also provides certain clerical, bookkeeping, accounting
and administrative services necessary for the operation of the
Registrant and maintenance of shareholder accounts.
Administrator
Each Fund pays an administration fee of 0.325% of average daily net
assets to cover expenses incurred by American Skandia in connection with
the administrator of the Funds, Account B and the Policies. The services
provided by American Skandia shall include, among others, the following:
(i) coordinating matters relating to the operation of Account B with the
Funds, including any necessary coordination with the custodian, transfer
agent, dividend disbursing agent, recordkeeping agent, accountants,
attorneys, and other parties performing services or operational
functions for the Funds; (ii) coordinating the preparation of the
necessary documents with the SEC and other federal and state regulatory
authorities as may be required; (iii) taking such other action as may be
required by applicable law, with respect to the foregoing, including
without limitation the rules and regulations of the SEC and of state
insurance authorities and other regulatory agencies; and (iv)
coordinating with First Trust regarding investment limitations and
parameters imposed on funding vehicles for variable annuities by the
insurance laws of the various states and by the Internal Revenue Code.
For the period October 6, 1999 (commencement of operations) to December
31, 1999 each Portfolio paid the following amount: The Dow (sm) Target 5
Portfolio $66, The Dow (sm) DART 10 Portfolio $79, Global Target 15
Portfolio $187, S&P Target 10 Portfolio $132, NASDAQ Target 15 Portfolio
$136, First Trust 10 Uncommon Values Portfolio $87, First Trust Energy
Portfolio $82, First Trust Financial Services Portfolio $86, First Trust
Internet Portfolio $101, First Trust Pharmaceutical Portfolio $85 and
First Trust Technology Portfolio $93.
American Skandia also makes its officers and employees available to the
Trustees and officers of the Fund for consultation and discussions
regarding the operations of Account B and the Policies in connection
with the administration of the Funds and services provided to the Funds.
Independent Auditor
The Funds' independent auditors, Ernst & Young LLP, 200 Clarendon Street,
Boston, MA 02116, audit and report on the Funds' annual financial
statements, and perform other professional accounting, auditing and
advisory services when engaged to do so by the Funds.
Fund Transactions and Brokerage
First Trust is responsible for decisions to buy and sell securities for
each Fund and for the placement of a Fund's securities business, the
negotiation of the commissions to be paid on brokered transactions, the
prices for principal trades in securities, and the allocation of
Page 37
portfolio brokerage and principal business. It is the policy of First
Trust to seek the best execution at the best security price available
with respect to each transaction, and with respect to brokered
transactions in light of the overall quality of brokerage and research
services provided to First Trust and its advisees. The best price to the
Fund means the best net price without regard to the mix between purchase
or sale price and commission, if any. Purchases may be made from
underwriters, dealers, and, on occasion, the issuers. Commissions will
be paid on a Fund's futures and options transactions, if any. The
purchase price of portfolio securities purchased from an underwriter or
dealer may include underwriting commissions and dealer spreads. A Fund
may pay mark-ups on principal transactions. In selecting broker/dealers
and in negotiating commissions, First Trust considers, among other
things, the firm's reliability, the quality of its execution services on
a continuing basis and its financial condition. Fund portfolio
transactions may be effected with broker/dealers who have assisted
investors in the purchase of policies. The selection of a broker-dealer
may take into account the sale of products sponsored or advised by First
Trust and/or its affiliates.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an
account to pay a broker or dealer who supplies brokerage and research
services a commission for effecting a transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting the transaction. Brokerage and research services include (a)
furnishing advice as to the value of securities, the advisability of
investing, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, (b) furnishing
analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (c) effecting securities transactions and performing
functions incidental thereto (such as clearance, settlement, and custody).
In light of the above, in selecting brokers, First Trust considers
investment and market information and other research, such as economic,
securities and performance measurement research, provided by such
brokers, and the quality and reliability of brokerage services,
including execution capability, performance, and financial
responsibility. Accordingly, the commissions charged by any such broker
may be greater than the amount another firm might charge if First Trust
determines in good faith that the amount of such commissions is
reasonable in relation to the value of the research information and
brokerage services provided by such broker to First Trust or the
Registrant. First Trust believes that the research information received
in this manner provides the Funds with benefits by supplementing the
research otherwise available to the Funds. The Investment Advisory and
Management Agreement provides that such higher commissions will not be
paid by the Funds unless the adviser determines in good faith that the
amount is reasonable in relation to the services provided. The
investment advisory fees paid by the Funds to First Trust under the
Investment Advisory and Management Agreement are not reduced as a result
of receipt by First Trust of research services.
First Trust places portfolio transactions for other advisory accounts
advised by it, and research services furnished by firms through which
the Funds effects their securities transactions may be used by First
Trust in servicing all of its accounts; not all of such services may be
used by First Trust in connection with a Fund. First Trust believes it
is not possible to measure separately the benefits from research
services to each of the accounts (including the Funds) advised by it.
Because the volume and nature of the trading activities of the accounts
are not uniform, the amount of commissions in excess of those charged by
another broker paid by each account for brokerage and research services
will vary. However, First Trust believes such costs to the Funds will
not be disproportionate to the benefits received by the Funds on a
continuing basis. First Trust seeks to allocate portfolio transactions
equitably whenever concurrent decisions are made to purchase or sell
securities by the Funds and another advisory account. In some cases,
this procedure could have an adverse effect on the price or the amount
of securities available to the Funds. In making such allocations between
the Funds and other advisory accounts, the main factors considered by
First Trust are the respective investment objectives, the relative size
of portfolio holding of the same or comparable securities, the
availability of cash for investment and the size of investment
commitments generally held.
Brokerage Commissions
For the fiscal year ended December 31, 1999, the Fund paid the following
amounts in aggregate brokerage commissions: The Dow (sm) Target 5
Portfolio, $68.73, The Dow (sm) DART 10 Portfolio $53.52, Global Target 15
Portfolio U.S. $58.83, H.K. $1,892.90, L 113.93, S&P Target 10 Portfolio
$86.34, NASDAQ Target 15 Portfolio $107.85, First Trust 10 Uncommon
Values Portfolio $50.10, First Trust Energy Portfolio $103.08,
First Trust Financial Services Portfolio $70.89, First Trust Internet
Portfolio $49.65, First Trust Pharmaceutical Portfolio $63.36 and
First Trust Technology Portfolio $51.75.
Page 38
Code of Ethics
To mitigate the possibility that a Fund will be adversely affected by
personal trading of employees, the Registrant, First Trust (the
"Adviser"), and Nike Securities (the "Distributor") have adopted Codes
of Ethics under Rule 17j-1 of the Investment Company Act of 1940. These
Codes contain policies restricting securities trading in personal
accounts of the portfolio Trustees and others who normally come into
possession of information on portfolio transactions.
Purchases, Redemptions and Pricing of Interests
Account B will purchase interests of the Funds at their net asset value.
Interests are purchased using premiums received on Policies issued by
Account B. Account B is funded by interests of the Registrant.
All investments in the Registrant are credited to the interest holder's
account in the form of full and fractional interests of the designated
Fund (rounded to the nearest 1/1000 of an interest). The Registrant does
not issue interest certificates.
As stated in the Prospectus, the net asset value ("NAV") of Fund's
interests is determined once each day on which the New York Stock
Exchange (the "NYSE") is open ("Business Day") at the close of the
regular trading session of the Exchange (normally 4:00 p.m., Eastern
Time, Monday through Friday). The NAV of Fund's interests is not
determined on the days the NYSE is closed, which days generally are New
Year's Day, Martin Luther King Jr. holiday, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The per interest NAV of a Fund is determined by dividing the total value
of the securities and other assets, less liabilities, by the total
number of interests outstanding. A Fund's net assets value may not be
calculated on days during which the Fund receives no orders to purchase
shares and no shares are tendered for redemption. In determining NAV,
portfolio securities for each Fund for which accurate market quotations
are readily available will be valued by the fund accounting agent as
follows:
(1) Common stocks and other equity securities listed on any national or
foreign exchange or on the Nasdaq will be valued at the closing sale
price on the exchange or system in which they are principally traded on
the valuation date. If there are no transactions on the valuation day,
securities traded principally on a national or foreign exchange or on
Nasdaq will be valued at the mean between the most recent bid and ask
prices.
(2) Securities traded in the over-the-counter market are valued at their
closing bid prices.
(3) Exchange traded options and futures contracts will be valued at the
closing price in the market where such contracts are principally traded.
(4) Forward foreign currency exchange contracts which are traded in the
United States on regulated exchanges, will be valued by calculating the
mean between the last bid and asked quotations supplied to a pricing
service by certain independent dealers in such contracts.
In addition, the following types of securities will be valued as follows:
(1) Fixed income securities with a remaining maturity of 60 days or more
will be valued by the fund accounting agent using a pricing service.
When price quotes are not available, fair market value is based on
prices of comparable securities.
(2) Fixed income securities maturing within 60 days are valued by the
fund accounting agent on an amortized cost basis.
(3) Repurchase agreements will be valued as follows. Overnight
repurchase agreements will be valued at cost. Term purchase agreements
(i.e., those whose maturity exceeds seven days) will be valued by First
Trust at the average of the bid quotations obtained daily from at least
two recognized dealers.
Page 39
The value of any portfolio security held by a Fund for which market
quotations are not readily available will be determined by the Adviser
in a manner that most fairly reflects fair market value of the security
on the valuation date, based on a consideration of all available
information.
Foreign securities, currencies and other assets denominated in foreign
currencies are translated into U.S. dollars at the exchange rate of such
currencies against the U.S. dollar as provided by a pricing service. All
assets denominated in foreign currencies will be converted into U.S.
dollars at the exchange rates in effect at the time of valuation.
All foreign equity securities are valued at their closing sale price on
the exchange on which the security is primarily traded. Where a foreign
securities market remains open at the time that a Fund values its
portfolio securities, or closing prices of securities from that market
may not be retrieved because of local time differences or other
difficulties in obtaining such prices at that time, the most recent
prices in such market at a point in time most practicable to timely
valuation of the Fund may be used.
Foreign securities not traded on a particular day or on an exchange are
valued at one of the following prices: (a) at the most recent bid price
or (b) a valuation within the range considered best to represent value
in the circumstances. Otherwise, the fund accounting agent will contact
a pricing service and/or broker/dealers to provide a price for the
securities at "fair value."
Foreign debt securities are valued by the fund accounting agent on the
basis of prices provided by a pricing service, or at the mean between
the bid and asked price, as long as such prices, in the opinion of the
fund accounting agent continue to reflect the value of the security. If
no quotations are available, the fund accounting agent will contact a
pricing service and/or broker/dealers to provide a price for the
securities at "fair value."
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close
of business on each Business Day. In addition, European and Far Eastern
securities trading generally or in a particular country or countries may
not take place on all Business Days. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on
days which are not Business Days and on which a Fund's net asset value
is not calculated. A Fund calculates net asset value per interest, and
therefore effects sales, redemptions and repurchases of its interests,
as of the close of the NYSE once on each day on which the NYSE is open.
Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the foreign portfolio
securities used in such calculation.
The Registrant may suspend the right of redemption for any Fund only
under the following unusual circumstances: (a) when the New York Stock
Exchange is closed (other than weekends and holidays) or trading is
restricted; (b) when trading in the markets normally utilized is
restricted, or when an emergency exists as determined by the Securities
and Exchange Commission so that disposal of the Company's investments or
determination of its net assets is not reasonably practicable; or (c)
during any period when the Securities and Exchange Commission may permit.
12b-1 Plan
The Registrant has adopted a plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, which provides that interests
of the Funds will be subject to an annual service fee.
Nike Securities serves as selling agent and distributor of the interests
of the Funds. In this capacity, Nike Securities manages the offering of
the Funds' interests and is responsible for all sales and promotional
activities. In order to reimburse Nike Securities for its costs in
connection with these activities, each Fund has adopted a service plan
under Rule 12b-1 under the Investment Company Act of 1940. Nike
Securities uses the service fee to compensate American Skandia for
providing account services to Policy owners. These services include
establishing and maintaining Policy owners' accounts, supplying
information to Policy owners, delivering fund materials to Policy
owners, answering inquiries, and providing other personal services to
Policy owners. Each Fund may spend up to .25 of 1% per year of the
average daily net assets of its interests as a service fee under the
Plan. In addition, the Plan permits First Trust to use a portion of its
Page 40
advisory fee to compensate Nike Securities for expenses incurred in
connection with the sale and distribution of a Fund's interests
including, without limitation, compensation of its sales force, expenses
of printing and distributing prospectuses to persons other than interest
holders or policy owners, expenses of preparing, printing and
distributing advertising and sales literature and reports to interests
holders and Policy owners used in connection with the sale of a Fund's
interests, certain other expenses associated with the distribution of
interests of the Funds, and any distribution-related expenses that may
be authorized from time to time by the Board of Trustees. For the period
October 6, 1999 (commencement of operations) to December 31, 1999 each
Portfolio paid the following amount: The Dow (sm) Target 5 Portfolio $51,
The Dow sm DART 10 Portfolio $61, Global Target 15 Portfolio $143, S&P
Target 10 Portfolio $100, NASDAQ Target 15 Portfolio $103, First Trust
10 Uncommon Values Portfolio $66, First Trust Energy Portfolio $63,
First Trust Financial Services Portfolio $65, First Trust Internet
Portfolio $ 77, First Trust Pharmaceutical Portfolio $65, and First
Trust Technology Portfolio $71.
Under the Registrant's Plan, the Registrant will report quarterly to the
Board of Trustees for its review all amounts expended under the Plan.
The Plan may be terminated at any time with respect to any Fund, without
the payment of any penalty, by a vote of a majority of the Trustees who
are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the
outstanding voting securities of such Fund. The Plan may be renewed from
year to year if approved by a vote of the Board of Trustees and a vote
of the non-interested Trustees who have no direct or indirect financial
interest in the Plan cast in person at a meeting called for the purpose
of voting on the Plan. The Plan may be continued only if the Trustees
who vote to approve such continuance conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties
under the applicable law, that there is a reasonable likelihood that the
Plan will benefit a Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a Fund may bear under the
Plan without the approval of the interest holders of the affected Fund,
and any other material amendments of the Plan must be approved by the
non-interested Trustees by a vote cast in person at a meeting called for
the purpose of considering such amendments. During the continuance of
the Plan, the selection and nomination of the non-interested Trustees of
the Registrant will be committed to the discretion of the non-interested
Trustees then in office.
Additional Information
Voting Rights
Interest holders are entitled to one vote for each interest held.
Interest holders may vote on the election of Trustees and on other
matters submitted to meetings of interest holders. In regard to certain
matters including termination, merger, or a change of investment
restrictions, the right to vote is limited to the holders of interests
of the particular Fund affected by the proposal. When a majority is
required, it means the lesser of 67% or more of the interests present at
a meeting when the holders of more than 50% of the outstanding interests
are present or represented by proxy, or more than 50% of the outstanding
interests.
To the extent required by applicable law, American Skandia will solicit
voting instructions from owners of variable annuity Policies. All
interests in each Fund will be voted by American Skandia in accordance
with voting instructions received from such variable annuity Policy
owners. American Skandia will vote all of the interests which it is
entitled to vote in the same proportion as the voting instructions given
by variable annuity Policy owners, on the issues presented.
Each issued and outstanding interest in a Fund is entitled to
participate equally in dividends and distributions, if any, declared by
its corresponding Fund, and in the net assets of the Fund remaining upon
liquidation or dissolution after outstanding liabilities are satisfied.
The interests of each Fund, when issued, are fully paid and non-
assessable. They have no preemptive, conversion, cumulative dividend or
similar rights. They are not freely transferable. A Fund can only be
owned by Account B. Interests in a Fund do not have cumulative rights.
This means that owners of more than half of the Registrant's interests
voting for election of Trustees can elect all the Trustees if they so
choose. Then, the remaining interest owners would not be able to elect
any Trustees.
Shareholder Inquiries
All inquiries regarding the Registrant should be directed to the
Registrant at 1-(800) 621-1675 or by writing the Registrant at 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532.
Page 41
Tax Status
The Registrant is not a "regulated investment company" under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code"). The
Registrant nonetheless does not pay federal income tax on its interest,
dividend income or capital gains. As a limited liability company whose
interests are sold only to Account B, the Registrant is disregarded as
an entity for purposes of federal income taxation. American Skandia,
through Account B, is treated as owning the assets of the Registrant,
which are the collective assets of the Funds, directly and its tax
obligations thereon are computed pursuant to Subchapter L of the Code
(which governs the taxation of insurance companies). Under current tax
law, interest, dividend income and capital gains of the Registrant are
not taxable to the Registrant, and are not currently taxable to American
Skandia or to Policy owners, when left to accumulate within a variable
annuity Policy. Tax disclosure relating to the variable annuity Policies
that offer the Registrant as an investment alternative is contained in
the prospectuses for those Policies.
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of segregated asset accounts that hold assets
purchased under contracts such as the variable annuity Policies (that
is, the assets of the Funds). Failure to satisfy those standards would
result in imposition of Federal income tax on a variable annuity Policy
owner with respect to the increase in the value of the variable annuity
Policy. Section 817(h)(2) provides that a segregated asset account that
funds contracts such as the variable annuity Policies is treated as
meeting the diversification standards if, as of the close of each
calendar quarter, the assets in the account meet the diversification
requirements for a regulated investment company and no more than 55% of
those assets consist of cash, cash items, U.S. Government securities and
securities of other regulated investment companies.
The Treasury Regulations amplify the diversification standards set forth
in Section 817(h) and provide an alternative to the provision described
above. Under the regulations, an investment portfolio will be deemed
adequately diversified if (i) no more than 55% of the value of the total
assets of the portfolio is represented by any one investment; (ii) no
more than 70% of such value is represented by any two investments; (iii)
no more than 80% of such value is represented by any three investments;
and (iv) no more than 90% of such value is represented by any four
investments. For purposes of these Regulations, all securities of the
same issuer are treated as a single investment, but each United States
government agency or instrumentality shall be treated as a separate
issuer.
Each Fund will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply
with these requirements, less desirable investment decisions may be made
which could affect the investment performance of a Fund.
Financial Statements
The audited financial statements and notes thereto for the First Defined
Fund, contained in the Annual Report to Shareholders dated February 29,
2000, are incorporated by reference into this Statement of Additional
Information and have been audited by Ernst & Young LLP, whose report
also appears in the Annual Report and is also incorporated by reference
herein. No other parts of the Annual Report are incorporated by
reference herein.
Page 42
FIRST DEFINED PORTFOLIO FUND, LLC
PART C - OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
___________ ___________
<S> <C>
(a) (i) Certificate of Formation of the Registrant. (1)
(ii) Amendment and Restated Certificate of Formation of the Registrant filed
herewith.
(iii) Limited Liability Company Agreement of the Registrant filed herewith.
(b) Operating By-Laws of the Registrant filed herewith.
(c) (i) Establishment and Designation of Series of Membership Interests filed
herewith
(ii) Amended and Restated Establishment and Designation of Series of
Membership Interests filed herewith.
(d) Investment Advisory and Management Agreement between Registrant and First
Trust Advisors L.P. filed herewith.
(e) Distribution Agreement between Registrant and Nike Securities L.P. filed
herewith.
(f) Not Applicable.
(g) (i) Custodian Agreement between the Registrant and The Chase Manhattan Bank
filed herewith.
(ii) Foreign Custody Manager Agreement between the Registrant and First Trust
Advisors L.P. filed herewith.
(h) (i) Services Agreement between Registrant and First Data Investor Services
Group, Inc. filed herewith.
(ii) Administrative Services Agreement between Registrant and American Skandia
Life Assurance Corporation filed herewith.
(i) (i) Opinion and Consent of Chapman and Cutler, dated September 30, 1999,
filed herewith.
(ii) Opinion and Consent of Potter Anderson & Corroon filed herewith.
(iii) Opinion and Consent of Chapman and Cutler, dated April 28, 2000, filed
herewith.
(j) Consent of Ernst & Young LLP filed herewith.
(k) Not Applicable.
(l) Not Applicable.
(m) 12b-1 Service Plan 2.
(n) Not Applicable.
(o) Not Applicable.
(p) (i) Code of Ethics of First Trust Advisors L.P., filed herewith.
(ii) Code of Ethics of Nike Securities L.P. filed herewith.
(iii) Code of Ethics of First Defined Portfolio Fund, LLC filed herewith.
Original Powers of Attorney for Messrs. Bartel, Bowen, Erickson,
(z) Fitzgerald, and Nielson, authorizing, among others, James A. Bowen and W.
Scott Jardine to execute the Registration Statement. (2)
<FN>
1 Incorporated by reference to the Registrant's initial registration
statement on Form N-1A filed on February 16, 1999.
2 Incorporated by reference to the Registrant's registration statement
on Form N-1A filed on September 30, 1999.
</FN>
</TABLE>
Item 24. Persons controlled by or under Common Control with
Registrant.
Not Applicable.
Item 25. Indemnification
Section 12.4 of the Registrant's Limited Liability Company Agreement
provides as follows:
Subject to the exceptions and limitations contained in this Section
12.4, every person who is, or has been, a Trustee, director, officer,
employee, authorized person or agent of the Company, including persons
who serve at the request of the Company as Trustees, officers,
employees, or agents, of another organization in which the Company has
an interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person"), shall be indemnified by the Company
to the fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been such a Trustee,
director, officer, employee, authorized person or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(i) against any liability to the Company or the Member by reason of a final
adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Company; or
(iii) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office by the court or other body
approving the settlement or other disposition, or a reasonable
determination, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that he did not engage in such conduct:
A. by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
B. by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Company, shall be severable, shall not
affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be such a
Covered Person and shall inure to the benefit of the heirs, executors
and administrators of such a person. Nothing contained herein shall
affect any rights to indemnification to which Company personnel other
than Covered Persons may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding subject to a claim for indemnification under
this Section 12.4 shall be advanced by the Company prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 12.4, provided
that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security or the Company shall be insured against losses arising
out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter) or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as
opposed to a full trial-type inquiry), that there is reason to believe
that the recipient ultimately will be found entitled to indemnification.
As used in this Section 12.4, a "Disinterested Trustee" is one (x) who
is not an Interested Person of the Company (including anyone, as such
Disinterested Trustee, who has been exempted from being an Interested
Person by any rule, regulation or order of the Commission), and (y)
against whom none of such actions, suits or other proceedings or another
action, suit or other proceeding on the same or similar grounds is then
or has been pending.
As used in this Section 12.4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings
(civil, criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall include
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
The trustees and officers of the Registrant are covered by Investment
Trust Errors and Omission policies in the aggregate amount of $500,000
(with a maximum deductible of $50,000) against liability and expenses of
claims of wrongful acts arising out of their position with the
Registrant, except for matters which involved willful acts, bad faith,
gross negligence and willful disregard of duty (i.e., where the insured
did not act in good faith for a purpose he or she reasonably believed to
be in the best interest of Registrant or where he or she shall have had
reasonable cause to believe this conduct was unlawful).
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the officers, trustees or controlling
persons of the Registrant pursuant to the Limited Liability Company
Agreement of the Registrant or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the even that a claim for
indemnification is against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by an officer or trustee or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such officer, trustee or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser
First Trust Advisors L.P. ("First Trust") serves as investment adviser
to the funds and also serves as adviser or subadviser to over 50 mutual
funds and is the portfolio supervisor of certain unit investment trusts.
Its principal address is 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532.
The principal business of certain of First Trust's principal executive
officers involves various activities in connection with the family of
unit investment trusts sponsored by Nike Securities L.P. ("Nike
Securities"). Nike Securities principal address is 1001 Warrenville
Road, Suite 300, Lisle, Illinois 60532.
<TABLE>
<CAPTION>
Other Business, Profession, Vocation or
Name and Position with First Trust Employment During Past Two Years
________________________________________ ________________________________
<S> <C>
James A. Bowen, President President, Nike Securities
Ronald Dean McAlister, Managing Director Managing Director, Nike Securities
Charles Henry Bradley, Jr., Senior Vice President Senior Vice President, Nike Securities; Chief Investment
Officer, CornerStone Investment Advisors
Mark R. Bradley, Chief Financial Officer and Managing Director Chief Financial Officer and Managing Director, Nike Securities
Robert W. Bredemeier, Managing Director Managing Director, Nike Securities
Susan Marie Brix, Ass't Portfolio Manager Representative, Nike Securities
Robert Franklin Carey, Senior Vice President Senior Vice President, Nike Securities
Jon Carl Erickson, Vice President Vice President, Nike Securities
Frank Leonard Fichera, Managing Director Managing Director, Nike Securities
David Brooks Field, Senior Vice President and Senior Vice President, Nike Securities; Chief Investment
Chief Investment Officer Officer of Counsel, Johnson, Westra, Attorneys; Adjunct
Professor of Finance, Kellstadt Graduate School of Business,
DePaul University
William Scott Jardine, General Counsel Senior Vice President, General Counsel, Nike Securities
David Gerard McGarel, Evaluations Supervisor Evaluations Supervisor, Nike Securities; Manager, Bansley &
Kiener, L.L.P. Nike Securities Corporation, General Partner,
Grace Partners of DuPage L.P.
John Griffin Phillips, Vice President Vice President, Nike Securities
Robert Steven Swiatek, Vice President Vice President of Nike Securities; Analyst, Griffin, Kubic,
Stephens & Thompson
</TABLE>
Item 27. Principal Underwriters
(a) Nike Securities L.P. serves as principal underwriter of the interests of
the Fund. Nike Securities serves as principal underwriter and depositor
of the following investment companies registered as unit investment
trusts: the First Trust Combined Series, FT Series (formerly known as
the First Trust Special Situations Trust), the First Trust Insured
Corporate Trust, the First Trust of Insured Municipal Bonds, and the
First Trust GNMA.
(b)
<TABLE>
<CAPTION>
Name and Principal Business Address and Positions and Offices
Offices with Fund with Underwriter Positions
_______________________________________ _____________________ __________
<S> <C> <C>
Nike Securities Corporation General Partner None
1001 Warrenville Road
Lisle, IL 60532
Grace Partners of DuPage L.P. Limited Partner None
James A. Bowen President President, Chairman of the Board, Chief
1001 Warrenville Road Financial Officer, Trustee
Lisle, IL 60532
Ronald D. McAlister Managing Director None
1001 Warrenville Road
Lisle, IL 60532
Scott R. Hall Managing Director None
1001 Warrenville Road
Lisle, IL 60532
Frank L. Fichera Managing Director None
1001 Warrenville Road
Lisle, IL 60532
Richard A. Olson Managing Director None
1001 Warrenville Road
Lisle, IL 60532
Mark R. Bradley Chief Financial Officer Treasurer, Chief Financial Officer and
1001 Warrenville Road Chief Accounting Officer
Lisle, IL 60532
Robert W. Bredemeier Managing Director None
1001 Warrenville Road
Lisle, IL 60532
David B. Field Senior Vice President Vice President
1001 Warrenville Road
Lisle, IL 60532
Andrew S. Roggensack Managing Director None
1001 Warrenville Road
Lisle, IL 60532
William S. Jardine General Counsel Secretary
1001 Warrenville Road
Lisle, IL 60532
Russell Graham Managing Director None
(c) Not Applicable.
</TABLE>
Item 28. Location of Accounts and Records
First Trust Advisors L.P., 1001 Warrenville Road, Suite 300, Lisle,
Illinois 60532, maintains the Registrant's organizational documents,
minutes of meetings, contracts of the Registrant and all advisory
material of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004-
2413, maintains all general and subsidiary ledgers, journals, trial
balances, records of all portfolio purchase and sales, and all other
requirement records not maintained by First Trust Advisors L.P., or PFPC
Inc.
PFPC Inc., 4400 Computer Drive, Westborough, Massachusetts 01581,
maintains all the required records in its capacity as transfer,
accounting, dividend payment and interest holder service agent for the
Registrant.
Item 29. Management Services
Not Applicable
Item 30. Undertakings
Not Applicable
SIGNATURES
__________
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it meets all of the
requirement for effectiveness of this registration statement under Rule
485 (b) under the Securities Act and has duly caused this registration
statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Lisle and the State of Illinois on the 28th
day of April, 2000.
FIRST DEFINED PORTFOLIO FUND, LLC
By: /s/ James A. Bowen
________________________
James A. Bowen
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following person in
the capacity and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
_________ _____ _____
<S> <C> <C>
/s/ Mark R. Bradley Treasurer Controller and Chief Financial April 28, 2000
____________________________ and Accounting Officer
Mark R. Bradley
James A. Bowen President, Chief Executive Officer,
Chairman and Trustee
Robert J. Bartel Trustee By /s/ James A. Bowen
_________________
James A. Bowen
Attorney-in-Fact
Richard E. Erickson Trustee
Patrick M. Fitzgerald Trustee
Niel B. Nielson Trustee
Original powers of attorney authorizing, among others, W. Scott Jardine and James A. Bowen to execute this
Registration Statement, and Amendments thereto, for each of the Trustees of Registrant on whose behalf this
Registration Statement is filed, have been executed and filed with the Securities and Exchange Commission.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
_____________
Exhibit No. Exhibit Name
___________ ____________
<S> <C>
Item 23 (a)(ii) Amended and Restated Certificate of
Formation of the Registrant.
Item 23 (a)(iii) Limited Liability Company Agreement of the
Registrant.
Item 23 (b) Operating By-Laws of the Registrant
Item 23 (c)(i) Establishment and Designation of Series of
Membership Interests.
Item 23 (c)(ii) Amended and Restated Establishment and
Designation of Series of Membership Interests.
Item 23 (d)(i) Investment Advisory and Management
Agreement between Registrant and First Trust Advisors L.P.
Item 23 (e) Distribution Agreement between Registrant
and Nike Securities.
Item 23 (g)(i) Custodian Agreement between the Registrant
and The Chase Manhattan Bank.
Item 23 (g)(ii) Foreign Custody Manager Agreement between
the Registrant and First Trust Advisors L.P.
Item 23 (h)(i) Services Agreement between the Registrant
and First Data Investor Services Group, Inc.
Item 23 (h)(ii) Administrative Services Agreement between
Registrant and American Skandia Life Assurance Corporation.
Item 23 (i)(i) Opinion and Consent of Chapman and Cutler.
Item 23 (i)(ii) Opinion and Consent of Potter Anderson &
Coroon.
Item 23 (i) (iii) Opinion and Consent of Chapman and Cutler Dated
April 28, 2000.
Item 23 (p)(i) Code of Ethics of First Trust Advisors.
Item 23 (p)(ii) Code of Ethics of Nike Securities L.P.
Item 23 (p)(iii) Code of Ethics of First Defined Portfolio
Fund LLC.
</TABLE>
AMENDED AND RESTATED CERTIFICATE OF FORMATION
OF
FIRST DEFINED PORTFOLIO FUND, LLC
This Amended and Restated Certificate of Formation of FIRST
DEFINED PORTFOLIO FUND, LLC (the "LLC"), dated September __, 1999, has
been duly executed and is being filed by W. Scott Jardine, as an
authorized person, in accordance with the provisions of 6 Del. C.
Section 18-208, for purposes of amending and otherwise
restating the original Certificate of Formation of the LLC, which was
filed on January 8, 1999 with the Secretary of State of the State of
Delaware (the "Original Certificate") under the name of First Defined
Portfolio Management Fund LLC to form a limited liability company under
the Delaware Limited Liability Company Act (6 Del. C. Section 18-101,
et seq.). On June 8, 1999, the Original Certificate was amended by the
filing of a Certificate of Amendment to the Original Certificate (as so
amended, the "Certificate").
The Certificate is hereby amended and restated in its entirety
to read as follows:
FIRST: The name of the LLC formed hereby is:
First Defined Portfolio Fund, LLC
SECOND: The address of the registered office of the LLC in the State
of Delaware is:
1013 Centre Road, Wilmington, Delaware 19805
THIRD: The name and address of the registered agent for service of
process on the LLC in the State of Delaware are:
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805
FOURTH: Pursuant to Section 18-215 of the Act, notice is hereby given
that the LLC has
series and that to the extent set forth in the Limited Liability Company
Agreement of the LLC, as amended and restated from time to time, the
debts, liabilities and obligations incurred, contracted for or otherwise
existing with respect to a particular series shall be enforceable only
against the assets of such series.
IN WITNESS WHEREOF, the undersigned has executed this Amended
and Restated Certificate of Formation as of the date first above written.
/s/ W. Scott Jardine
____________________
W. Scott Jardine
Authorized Person
Exhibit A
Limited Liability Company Agreement
of
First Defined Portfolio Fund, LLC
a Delaware Limited Liability Company
as of
January 8, 1999
Limited Liability Company Agreement
of
First Defined Portfolio Fund, LLC
James A. Bowen (the "Member") hereby forms a limited liability company
pursuant to and in accordance with the Delaware Limited Liability
Company Act, 6 Del. C. Section 18-101, et seq. (the "Act")
and hereby declares the following to be the Limited Liability Company
Agreement (the "Agreement") of such limited liability company:
Recitals:
Whereas, the parties have agreed to organize and operate a limited
liability company in accordance with the terms and subject to the
conditions set forth in this Agreement.
Now, Therefore, for good and valuable consideration, the parties,
intending legally to be bound, agree as follows:
Article I
Definitions
Section 1.1. Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) "Act" means the Delaware Limited Liability Company Act,
as amended from time to time.
(b) "Agreement" means this limited liability company
agreement, as amended from time to time.
(c) "Board of Trustees" refers initially to James A. Bowen
and, thereafter, to any other individuals who at the time in question
have been duly elected or appointed and qualified in accordance with
Article V hereof and are then in office; no member of the Board of
Trustees shall be deemed to be a "Manager" as defined in the Act,
although the Board of Trustees, collectively, shall be deemed to be the
sole "Manager" under the Act whose rights and duties are limited as set
forth herein.
(d) "Bylaws" shall mean the Operating Bylaws of the Company
included herewith as Exhibit A as amended from time to time.
(e) "Certificate" means the Certificate of Formation of the
Company provided for in the Act, as originally filed in the office of
Secretary of State of Delaware and as amended from time to time, as the
context may require.
(f) "Member" means a record owner of a Membership Interest.
Page 1
(g) "Membership Interests" shall mean a limited liability
company interest issued and authorized pursuant to Article IV hereof and
having the rights, preferences, and designations set forth therein, in
this Agreement, in the Bylaws, and, to the extent not inconsistent with
this Agreement, the Act.
(h) "Variable Annuity Owners" means the parties who have
variable annuity policies (the "Policies") with American Skandia Life
Assurance Corporation ("American Skandia") that utilize American Skandia
Life Assurance Corporation Variable Account B to fund the benefits of
the Policies and who have indirect rights in the Membership Interests
pursuant to the Policies into which such parties have entered.
(i) The "1940 Act" refers to the Investment Company Act of
1940 (and any successor statute) and the Rules and Regulations
thereunder, all as amended from time to time; and
(j) The terms "Commission," "Interested Person," "Principal
Underwriter" and "Vote of a Majority of the Outstanding Voting
Securities" shall have the meanings ascribed to them in the 1940 Act.
Article II
Formation
Section 2.1. Organization. Pursuant to the Act, an authorized
person of the Company, W. Scott Jardine, filed the Certificate on
January 8, 1999 establishing the Company as a Delaware limited liability
company on that date. Except as set forth in Section 2.3 hereof, in
accordance with Section 18-201(d) of the Act, this Agreement
is effective as of formation of the Company on January 8, 1999. Mr.
Jardine and any other person appointed by the Board of Trustees or the
President of the Company shall serve as an authorized person of the
Company for purposes of executing and filing with the Delaware Secretary
of State any amendments to the Certificate. Such an authorized person
shall from time to time hereafter, as may be required by law or as may
be determined by the Board of Trustees or the President of the Company,
do all filings, recordings and other acts as may be appropriate to
enable the Company to comply with the provisions of the Act.
Section 2.2. Intent. It is the intent of the Member that the
Company shall always be operated in a manner consistent with its
treatment as a "disregarded entity" for federal and state income tax
purposes. The Member shall not take any action inconsistent with the
express intent of the parties hereto.
Section 2.3. Name of the Company. The name under which the
Certificate of the Company was filed was "First Defined Portfolio
Management Fund LLC." Effective from and after June 8, 1999, the date
the Certificate was amended to reflect a change in name of the Company,
the name of the Company has been and continues to be "First Defined
Portfolio Fund, LLC." The Board of Trustees may change, and pursuant to
Section 8.2 hereof shall change, the name of the Company from time to
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time, and the Company may do business under any other name or names
determined by the Board of Trustees.
Section 2.4. Purpose. The purpose of the Company is to transact
any and all lawful business to which the Member agrees and for which
limited liability companies may be organized under the Act. The Company
shall have any and all powers necessary or desirable to carry out the
purposes and business of the Company, to the extent that the same is
lawfully exercised by limited liability companies ("LLCs") under the Act.
Section 2.5. Waiver of Compliance. No provision of this
Agreement shall be effective to require a waiver of compliance with any
provisions of the Securities Act of 1933, as amended, or the 1940 Act,
or of any valid rule, regulation or order of the Commission thereunder.
Section 2.6. Term. The Company shall have perpetual existence,
unless sooner terminated as provided in this Agreement or the Act.
Section 2.7. Member. (a) There shall be a single Member. The
Member shall be entitled to vote on all Company matters in which a
Member is entitled to vote or consent pursuant to this Agreement, the By-
laws, and, to the extent not inconsistent with this Agreement or the By-
laws, the Act. As of the date of this Agreement, the Member shall
initially be James A. Bowen. Mr. Bowen shall transfer his Membership
Interests and his status as a Member to American Skandia Life Assurance
Corporation Variable Account B ("Variable Account B"), or any successor
thereof pursuant to a merger or other reorganization. In connection
with such transfer, Variable Account B shall be deemed admitted to the
Company as a substitute Member in respect of Mr. Bowen's Membership
Interests. Upon the transfer, Mr. Bowen shall be deemed withdrawn as
the Member of the Company in respect of such Membership Interests. At
no point may the Company have more than one Member. The address,
capital contribution and the Membership Interests of the sole Member are
set forth on Exhibit B hereto, as it may be amended from time to time.
(b) The Member shall have the power to exercise any and all rights
or powers granted to the Member pursuant to the express terms of this
Agreement or as otherwise required by the Act. Except as otherwise
specifically provided by this Agreement or required by the Act, the
Member shall not have the power to act for or on behalf of, or to bind,
the Company.
Section 2.8. Variable Annuity Owners and Voting Rights. At such
time as Variable Account B is admitted as the Member of the Company, to
the extent required by applicable laws, regulations and Commission
positions, the Member is obligated to vote each Membership Interest in a
manner consistent with the instructions of the Variable Annuity Owner,
if any, who has an indirect right in the Membership Interest pursuant to
a Policy issued by American Skandia.
Accordingly, to the extent so required by applicable laws, regulations
and Commission positions, any reference in this Agreement, the By-laws,
or the Act to the voting rights of the Member or of the Membership
Interests, quorum requirements or other matters requiring the vote or
consent of the Member or of the Membership Interests, shall be construed
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to require the Member to vote, consent or otherwise act in a manner that
is consistent with the instructions of the Variable Annuity Owners.
Article III
Registered Agent; Principal Place of Business
Section 3.1. Registered Office; Principal Place of Business. The
registered office of the Company in the State of Delaware shall be
located at 1013 Centre Road, in the City of Wilmington, County of New
Castle, or at any other place within the State of Delaware upon which
the Board of Trustees agree. The principal office and place of business
of the Company in the State of Illinois shall be located at 1001
Warrenville Road, Suite 300, Lisle, Illinois 60532, or at any other
place which the Board of Trustees shall determine.
Section 3.2. Registered Agent. The name and address of the
Company's resident agent in the State of Delaware shall be The
Corporation Service Company, 1013 Centre Road, Wilmington, Delaware
19805. At any time, the Board of Trustees may designate another
registered agent and/or registered office.
Article IV
Membership Interests
Section 4.1. Membership Interests. The Membership Interests in
the Company shall be divided into such transferable Membership
Interests, of such series or classes, and of such designations and with
such rights, preferences, privileges and restrictions as shall be
determined by the Board of Trustees in its sole discretion, without
Member approval, from time to time and shall initially consist of one
class of transferable Membership Interests. The number of Membership
Interests is unlimited and each Membership Interest shall be fully paid
and nonassessable. The Board of Trustees shall have full power and
authority, in its sole discretion and without obtaining any prior
authorization or vote of the Member of the Company (including in its
capacity as the Member of any series or class of Membership Interests),
to create and establish (and to change in any manner) Membership
Interests or any series or classes thereof with such preferences, voting
powers, rights and privileges as the Board of Trustees may from time to
time determine; to divide or combine the Membership Interests or the
Membership Interests of any series or classes thereof into a greater or
lesser number; to classify or reclassify any issued Membership Interests
into one or more series or classes of Membership Interests; to abolish
any one or more series or classes of Membership Interests; to create
Membership Interests that may be senior to outstanding Membership
Interests; and to take such other action with respect to the Membership
Interests as the Board of Trustees may deem desirable. Except as may be
specifically set forth in Section 4.2 of this Article IV or in an
instrument establishing and designating classes or series of Membership
Interests, the Membership Interests shall have the powers, preferences,
rights, qualifications, limitations and restrictions described below:
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(i) In the event of the termination of the Company the Member
shall be entitled to receive pro rata the net distributable assets of
the Company;
(ii) The Member shall be entitled to one vote for each
Membership Interest held on each matter submitted to a vote of the
Member as a single class. However, where separate class or series
voting is specifically provided for herein or pursuant to applicable
law, only Membership Interests of such class or series are entitled to
vote.
(iii)Distributions to the Member, when made by the Board of
Trustees, which shall be paid in cash or reinvested in full and
fractional Membership Interests of the Company as the Board of Trustees
shall direct;
(iv) Any Membership Interests purchased or redeemed by the
Company shall be retired automatically;
(v) Membership Interests may be issued from time to time,
without the vote of the Member (or, if the Board of Trustees in its sole
discretion deem advisable, with a vote of the Member), either for cash
or for such other consideration (which may be in any one or more
instances a certain specified consideration or certain specified
considerations) and on such terms as the Board of Trustees, from time to
time, may deem advisable, and the Company may in such manner acquire
other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities); and
(vi) The Company may issue Membership Interests in fractional
denominations to the same extent as its whole Membership Interests, and
Membership Interests in fractional denominations shall be Membership
Interests having proportionately to the respective fractions represented
thereby all the rights of whole Membership Interests, including, without
limitation, the right to vote, the right to receive dividends and
distributions and the right to participate upon termination of the
Company. The Board of Trustees may from time to time, without the vote
of the Member, divide or combine Membership Interests into a greater or
lesser number without thereby changing the Member's proportionate
Membership Interests in the Company.
Section 4.2. Establishment of Series and Classes of Membership
Interests.
(a) Series. The Board of Trustees, in its sole discretion, without
obtaining any prior authorization or vote of the Member of the Company
or of the Member of any series or class of Membership Interests, from
time to time may authorize the division of Membership Interests into two
or more series, the number and relative rights, privileges and
preferences of which shall be established and designated by the Board of
Trustees, in its discretion, upon and subject to the following provisions:
(i) All Membership Interests shall be identical except that
there may be such variations as shall be fixed and determined by the
Board of Trustees between different series as to purchase price, right
of redemption, and the price, terms and manner of redemption, and
special and relative rights as to dividends and on liquidation.
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(ii) The number of Membership Interests of each series that
may be issued shall be unlimited. The Board of Trustees may classify or
reclassify any unissued Membership Interests or any Membership Interests
previously issued and reacquired of any series into one or more series
that may be established and designated from time to time.
(iii)The power of the Board of Trustees to invest and reinvest
the assets of the Company allocated or belonging to any particular
series shall be governed by Section 6.1 of Article VI hereof unless
otherwise provided in the instrument of the Board of Trustees
establishing such series which is hereinafter described.
(iv) Each Membership Interest of a series shall represent an
interest in the net assets allocated or belonging to such series only,
and such interest shall not extend to the assets of the Company
generally. Dividends and distributions on Membership Interests of a
particular series may be paid with such frequency as the Board of
Trustees may determine, which may be monthly or otherwise, pursuant to a
standing vote or votes adopted only once or with such frequency as the
Board of Trustees may determine, to the Member, as the sole holder of
Membership Interests of such series, from such of the income and capital
gains, accrued or realized, from the assets belonging to that series.
All dividends and distributions on Membership Interests of a particular
series shall be distributed pro rata to the Member, as the sole holder
of Membership Interests of that series, in proportion to the number of
Membership Interests of that series held by the Member at the date and
time of record established for the payment of such dividends or
distributions. Membership Interests of any particular series of the
Company may be redeemed solely out of the assets of the Company
allocated or belonging to that series. Upon liquidation or termination
of a series of the Company, the Member, as the sole holder of Membership
Interests of such Series, shall be entitled to receive a pro rata share
of the net assets of such series only.
(v) Notwithstanding any provision hereof or in an instrument
establishing and designating classes or series of Membership Interests
to the contrary, on any matter submitted to a vote of the Member of the
Company, all Membership Interests then entitled to vote shall be voted
by individual series, except that (i) when required by the 1940 Act to
be voted in the aggregate, Membership Interests shall not be voted by
individual series, (ii) when the Board of Trustees has determined that
the matter affects only the interests of the Member in its capacity as
holder of one or more series, only the Member in its capacity as a
holder of such series shall be entitled to vote thereon, and (iii) all
series shall vote together on the election of Trustees.
(vi) The establishment and designation of any series of
Membership Interests shall be effective upon the execution by a majority
of the Board of Trustees of an instrument setting forth such
establishment and designation and the relative rights and preferences of
such series or as otherwise provided in such instrument.
(b) Classes. Notwithstanding anything in this Agreement to the
contrary, the Board of Trustees may, in its discretion, without
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obtaining any prior authorization or vote of the Member of the Company
(including in its capacity as holder of any series or class of
Membership Interests), from time to time authorize the division of
Membership Interests of the Company or any series thereof into
Membership Interests of one or more classes upon the execution by a
majority of the Board of Trustees of an instrument setting forth such
establishment and designation and the relative rights and preferences of
such class or classes. The Board of Trustees may create new classes
that may be senior to existing classes. All Membership Interests of a
class shall be identical with each other and with the Membership
Interests of each other classes of the same series except for such
variations between classes as may be approved by the Board of Trustees
and set forth in such instrument of establishment and designation and be
permitted under the 1940 Act or pursuant to any exemptive order issued
by the Commission.
Section 4.3. Ownership of Membership Interests. The ownership
and transfer of Membership Interests shall be recorded on the books of
the Company or its transfer or similar agent. The Board of Trustees may
make such rules as they consider appropriate for the transfer of
Membership Interests and similar matters. The record books of the
Company, as kept by the Company or any transfer or similar agent of the
Company, shall be conclusive as to who is the Member.
Section 4.4. No Preemptive Rights, Etc. The Member shall not
have any right to acquire, purchase or subscribe for any Membership
Interests or securities of the Company which it may hereafter issue or
sell, other than such right, if any, as the Board of Trustees in its
discretion may determine. The Member shall have no appraisal rights
with respect to its Membership Interests and, except as otherwise
determined by resolution of the Board of Trustees in its sole
discretion, shall have no exchange or conversion rights with respect to
its Membership Interests.
Section 4.5. Assets and Liabilities of Series. In the event that
the Company, pursuant to Section 4.2 of this Article IV, shall authorize
the division of Membership Interests into two or more series, the
following provisions shall apply:
(a) All consideration received by the Company for the issue
or sale of Membership Interests of a particular series, together with
all assets in which such consideration is invested or reinvested, all
income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that series
for all purposes and shall be segregated from the assets of any other
series, and shall be so recorded upon the books of the Company as set
forth in the instrument of establishment and designation for such
Membership Interests. Such consideration, assets, income, earnings,
profits and proceeds, including any proceeds derived from the sale,
exchange or liquidation of such assets and any funds or payments derived
from any reinvestment of such proceeds, in whatever form the same may
be, together with any General Asset Items (as hereinafter defined)
allocated to that series as provided in the following sentence, are
herein referred to as "assets belonging to" that series. In the event
that there are any assets, income, earnings, profits or proceeds
thereof, funds or payments which are not readily identifiable as
belonging to any particular series (collectively "General Asset Items"),
the Board of Trustees shall allocate such General Asset Items to and
among any one or more of the series created from time to time in such
manner and on such basis as it, in its sole discretion, deem fair and
Page 7
equitable; and any General Asset Items allocated to a particular series
shall thereafter constitute "assets belonging to" that series. Each
such allocation by the Board of Trustees shall be conclusive and binding
upon the Member in its capacity as a holder of any and all series for
all purposes.
(b) The assets belonging to a particular series shall be
charged with the liabilities of the Company in respect of that series
and with all expenses, costs, charges and reserves attributable to that
series and shall be so recorded upon the books of the Company.
Liabilities, expenses, costs, charges and reserves charged to a
particular series, together with any General Liability Items (as
hereinafter defined) allocated to that series as provided in the
following sentence, are herein referred to as "liabilities belonging to"
that series and shall be segregated from the liabilities of any other
series. In the event there are any general liabilities, expenses,
costs, charges or reserves of the Company which are not readily
identifiable as belonging to any particular series (collectively
"General Liability Items"), the Board of Trustees shall allocate and
charge such General Liability Items to and among any one or more of the
series created from time to time in such manner and on such basis as the
Board of Trustees in its sole discretion deem fair and equitable; and
any General Liability Items so allocated and charges to a particular
series shall thereafter constitute "liabilities belonging to" that
series. Each such allocation by the Board of Trustees shall be
conclusive and binding upon the Member in its capacity as a holder of
any and all series for all purposes.
Section 4.6. Status of Membership Interests and Limitation of
Personal Liability. Membership Interests shall be deemed to be personal
property giving only the rights provided in this instrument. The Member
by virtue of having become the Member shall be held to have expressly
assented and agreed to the terms of this Agreement and to have become a
party thereto. Ownership of Membership Interests shall not entitle the
Member to any title in or to the whole or any part of the Company
property or right to call for a partition or division of the same or for
an accounting. Except for explicitly set forth herein, neither the
Trustees, nor any officer, employee or agent of the Company shall have
any power to bind the Member personally or to call upon the Member for
the payment of any sum of money or assessment whatsoever other than such
as the Member may at any time personally agree to pay by way of
subscription for any Membership Interests or otherwise.
Article V
The Trustees
Section 5.1 Management of the Company. The business and affairs
of the Company shall be managed by the Board of Trustees, and they shall
have all powers necessary and desirable to carry out that responsibility.
Page 8
Section 5.2. Qualification and Number. Each Trustee shall be a
natural person. A Trustee need not be the Member, a citizen of the
United States, or a resident of the State of Delaware. By the vote or
consent of a majority of the Trustees then in office, the Board of
Trustees may fix the number of Trustees at a number not less than one
(1) nor more than twelve (12) and may fill the vacancies created by any
such increase in the number of Trustees. Except as determined from time
to time by resolution of the Board of Trustees, no decrease in the
number of Trustees shall have the effect of removing any Trustee from
office prior to the expiration of his term, but the number of Trustees
may be decreased in conjunction with the removal of a Trustee pursuant
to Section 5.4 of this Article V.
Section 5.3. Term and Election. Each Trustee shall hold office
until the next meeting of the Member is called, in accordance with this
Agreement and the By-Laws, for the purpose of considering the election
or re-election of such Trustee or of a successor to such Trustee, and
until his successor is elected and qualified, and any Trustee who is
appointed by the Board of Trustees in the interim to fill a vacancy as
provided hereunder shall have the same remaining term as that of his
predecessor, if any, or such term as the Board of Trustees may
determine. Any vacancy resulting from a newly created Trusteeship or
the death, resignation, retirement, removal, or incapacity of a Trustee
may be filled by the affirmative vote or consent of a majority of the
Trustees then in office.
Section 5.4. Resignation and Removal. Any Trustee may resign his
position or retire as a Trustee (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered or
mailed to the Chairman, if any, the President or the Secretary and such
resignation or retirement shall be effective upon such delivery, or at a
later date according to the terms of the instrument. Any Trustee who
has become incapacitated by illness or injury as determined by a
majority of the other Trustees, may be retired by written instrument
signed by a majority of the other Trustees. Except as aforesaid, any
Trustee may be removed from office only for "Cause" (as hereinafter
defined) and only (i) by action of at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding Membership Interests, or (ii) by
written instrument, signed by at least sixty-six and two-thirds percent
(66-2/3%) of the remaining Trustees, specifying the date when such
removal shall become effective. "Cause" shall require willful
misconduct, dishonesty, fraud or a felony conviction as determined by at
least sixty-six and two-thirds percent (66-2/3%) of the remaining
Trustees.
Section 5.5. Vacancies. The death, declination, resignation,
retirement, removal, or incapacity, of the Trustees, or any one of them,
shall not operate to annul the Company or to revoke any existing agency
created pursuant to the terms of this Agreement. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as
provided herein, or the number of Trustees as fixed is reduced, the
Trustees in office, regardless of their number, shall have all the
powers granted to the Board of Trustees, and during the period during
which any such vacancy shall occur, only the Trustees then in office
shall be counted for the purposes of the existence of a quorum or any
action to be taken by such Board of Trustees.
Section 5.6. Voting Requirements. In addition to the voting
requirements imposed by law or by any other provision of this Agreement,
the provisions set forth in this Article V may not be amended, altered
Page 9
or repealed in any respect, nor may any provision inconsistent with this
Article V be adopted, without the affirmative vote of at least sixty-six
and two-thirds percent (66-2/3%) of the outstanding Membership
Interests. In the event the outstanding Membership Interests of any
series or class are required by law or any other provision of this
Agreement to approve such an action by a class vote of such Membership
Interests, such action must be approved by at least sixty-six and two-
thirds percent (66-2/3%) of the outstanding Membership Interests of such
series or class or such other percentage as may be required by law or
any other provision of this Agreement.
Article VI
Powers of Trustees
Section 6.1. Powers. The Board of Trustees in all instances
shall have full, absolute and exclusive power, control and authority
over the Company assets and the business and affairs of the Company.
The Board of Trustees shall have full power and authority to do any and
all acts and to make and execute any and all contracts and instruments
that they may consider necessary or appropriate in connection with the
management of the Company. The enumeration of any specific power herein
shall not be construed as limiting the aforesaid powers. In construing
the provisions of this Agreement, there shall be a presumption in favor
of the grant of powers and authority to the Board of Trustees. The
Member, in its capacity as the Member, shall not have any power to act
for, sign for or do any act, that would bind the Company except as set
forth herein or as determined by the Board of Trustees. Subject to any
applicable limitation in this Agreement, the Board of Trustees shall
have power and authority:
(a) To invest and reinvest in, to buy or otherwise acquire,
to hold, for investment or otherwise, to sell or otherwise dispose of,
to lend or to pledge, to trade in or deal in securities or interests of
all kinds, however evidenced, or obligations of all kinds, however
evidenced, or rights, warrants, or contracts to acquire such securities,
interests, or obligations, of any private or public company,
corporation, association, general or limited partnership, trust or other
enterprise or organization foreign or domestic, or issued or guaranteed
by any national or state government, foreign or domestic, or their
agencies, instrumentalities or subdivisions (including but not limited
to, bonds, debentures, bills, time notes and all other evidences or
indebtedness); negotiable or nonnegotiable instruments; any and all
options and futures contracts, derivatives or structured securities;
government securities and money market instruments (including but not
limited to, bank certificates of deposit, finance paper, commercial
paper, bankers acceptances, and all kinds of repurchase agreements) and,
without limitation, all other kinds and types of financial instruments;
(b) To adopt Bylaws not inconsistent with this Agreement
providing for the conduct of the business of the Company and to amend
and repeal them to the extent that they do not reserve that right to the
Member. Such Bylaws are attached hereto as Exhibit A and may be amended
from time to time;
Page 10
(c) To elect and remove such officers and appoint and
terminate such agents and authorized persons as they consider appropriate;
(d) To set record dates for any purpose;
(e) To delegate such authority as they consider desirable to
any officers of the Company and to any investment adviser, investment
subadviser, transfer agent, custodian, underwriter, administrator or
other independent contractor or agent;
(f) Subject to Section 9.1 hereof, to merge or consolidate
the Company with any other corporation, association, trust or other
organization; or to sell, convey, transfer, or lease all or
substantially all of the assets of the Company;
(g) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property; and to
execute and deliver proxies or powers of attorney to such person or
persons as the Board of Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to securities
or property as the Board of Trustees shall deem proper;
(h) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities;
(i) To hold any security or property, whether in bearer,
unregistered or other negotiable form; or either in their or the
Company's name or in the name of a custodian or a nominee or nominees;
(j) To issue, sell, repurchase, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer and otherwise deal in a
Membership Interest and in any options, warrants or other rights to
purchase a Membership Interest;
(k) To set apart, from time to time, out of any funds of the
Company a reserve or reserves for any proper purpose, and to abolish any
such reserve;
(l) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer,
any security or property of which is held in the Company; to consent to
any contract, lease, mortgage, purchase, or sale of property by such
corporation or issuer, and to pay calls or subscriptions with respect to
any security held in the Company;
(m) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Company or any matter in controversy including,
but not limited to, claims for taxes;
(n) To make distributions to the Member;
(o) To borrow money and to pledge, mortgage, or hypothecate
the assets of the Company;
Page 11
(p) To establish, from time to time, a minimum total
investment for the Member, and to require the redemption of the
Membership Interests of the Member if the investment is less than such
minimum upon such terms as shall be established by the Board of Trustees;
(q) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depositary or trustee, and to delegate to them such
power and authority with relation to any security (whether or not so
deposited or transferred) as the Board of Trustees shall deem proper,
and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Board of
Trustees shall deem proper;
(r) To purchase and pay for out of Company property such
insurance as they may deem necessary or appropriate for the conduct of
the business of the Company, including, without limitation, insurance
policies insuring the assets of the Company and payment of distributions
and principal on its portfolio investments, and insurance policies
insuring the Member, Trustees, officers, employees, agents, investment
advisers, investment subadvisers or managers, principal underwriters, or
independent contractors of the Company individually against all claims
and liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as Member,
Trustee, officer, employee, agent, investment adviser, subadviser or
manager, principal underwriter, or independent contractor, whether or
not any such action may be determined to constitute negligence, and
whether or not the Company would have the power to indemnify such person
against such liability; and
(s) To pay pensions for faithful service, as deemed
appropriate by the Board of Trustees, and to adopt, establish and carry
out pension, profit-sharing, share bonus, Membership Interest purchase,
savings, thrift and other retirement, incentive and benefit plans,
trusts and provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents
of the Company.
Any determination made by or pursuant to the direction of the Board of
Trustees in good faith and consistent with the provisions of this
Agreement shall be final and conclusive and shall be binding upon the
Company and the Member, including, but not limited to the following
matters: the amount of the assets, obligations, liabilities and expenses
of the Company; the amount of the net income of the Company from
dividends, capital gains, interest or other sources for any period and
the amount of assets at any time legally available for the payment of
dividends or distributions; the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or
liability for which such reserves or charges were created shall have
been paid or discharged); the market value, or any quoted price to be
applied in determining the market value, of any security or other asset
owned or held by the Company; the fair value of any security for which
Page 12
quoted prices are not readily available, or of any other asset owned or
held by the Company; the number of Membership Interests of the Company
issued; the net asset value per Membership Interest; any matter relating
to the acquisition, holding and depositing of securities and other
assets by the Company; any question as to whether any transaction
constitutes a purchase of securities on margin, a short sale of
securities, a borrowing, or an underwriting of the sale of, or
participation in any underwriting or selling group in connection with
the public distribution of, any securities, and any matter relating to
the issue, sale, redemption, repurchase, and/or other acquisition or
disposition of Membership Interests of the Company. No provision of
this Agreement shall be effective to protect or purport to protect any
Trustee or officer of the Company against any liability to the Company
or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Section 6.2. Manner of Acting; Operating Bylaws. The Bylaws
shall make provision from time to time for the manner in which the Board
of Trustees may take action, including, without limitation, at meetings
within or without Delaware, including meetings held by means of a
conference telephone or other communications equipment, or by written
consents, the quorum and notice, if any, that shall be required for any
meeting or other action, and the delegation of some or all of the power
and authority of the Board of Trustees to any one or more committees
which they may appoint from its own number, and terminate, from time to
time.
Article VII
Expenses of the Company
The Trustees shall have the power to reimburse themselves from the
Company property for its expenses and disbursements, to pay reasonable
compensation to themselves from the Company property, and to incur and
pay out of the Company property any other expenses which in the opinion
of the Board of Trustees are necessary or incidental to carry out any of
the purposes of this Agreement, or to exercise any of the powers of the
Trustees hereunder.
Article VIII
Investment Adviser, Underwriter
and Transfer Agent
Section 8.1. Investment Adviser. The Company may enter into
written contracts with one or more persons (which term shall include any
firm, corporation, trust or association), to act as investment adviser
or investment subadviser to the Company, and as such to perform such
functions as the Board of Trustees may deem reasonable and proper,
including, without limitation, investment advisory, management,
research, valuation of assets, clerical and administrative functions,
under such terms and conditions, and for such compensation, as the Board
of Trustees may in its discretion deem advisable. However, the Board of
Trustees is responsible for the general supervision of the duties
performed for the Company by any such party.
Page 13
Section 8.2. Change of Name. Upon the termination of any contract with
First Trust Advisors L.P., or any corporation affiliated with Nike
Securities L.P., acting as investment adviser or manager, the Board of
Trustees is hereby required to promptly change the name of the Company
to a name which does not include "First Defined Portfolio", "First
Trust" or "Nike" or any approximation or abbreviation thereof.
Section 8.3. Underwriter; Transfer Agent. The Company may enter
into a written contract or contracts with an underwriter or underwriters
or distributor or distributors whereby the Company may either agree to
sell Membership Interests to the other party or parties to the contract
or appoint such other party or parties its sales agent or agents for
such Membership Interests and with such other provisions as the Board of
Trustees may deem reasonable and proper, and the Board of Trustees may
in its discretion from time to time enter into transfer agency,
administrative services and/or Member service contract(s), in each case
with such terms and conditions, and providing for such compensation, as
the Board of Trustees may in its discretion deem advisable.
Section 8.4. Parties to Contract. Any contract of the character
described in Sections 8.1 and 8.3 of this Article VIII or in Article X
hereof may be entered into with any corporation, firm, partnership,
trust or association, including, without limitation, the investment
adviser, any investment subadviser or an affiliate of the investment
adviser or investment subadviser, although one or more of the Board of
Trustees or officers of the Company may be an officer, director,
trustee, shareholder, or member of such other party to the contract, or
otherwise interested in such contract and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable
merely by reason of such relationship for any loss or expense to the
Company under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the
contract when entered into was not inconsistent with the provisions of
this Article VIII, Article X, or the Bylaws, the parties hereto hereby
agreeing that no such inconsistency exists between the terms hereof and
any provision of that certain Distribution Agreement, Services
Agreement, Fund Participation Agreement, Administrative Services
Agreement, Custody Agreement, License and Sub-License Agreements,
Investment Advisory and Management Agreement, Name Agreement, Foreign
Custody Management Agreement, Share Purchase Agreement and Fund
Participation Agreement each of which having been approved by the Board
of Directors involving the Company and various service providers. The
same person (including a firm, corporation, partnership, trust or
association) may be the other party to contracts entered into pursuant
to Sections 8.1 and 8.3 above or Article X, and any individual may be
financially interested or otherwise affiliated with persons who are
parties to any or all of the contracts mentioned in this Section 8.4.
Article IX
Member's Voting Powers and Meetings
Section 9.1. Voting Powers. The Member shall have power to vote
only: (a) for the election or removal of Trustees as provided in Article
Page 14
V, (b) with respect to any investment advisory or management contract to
the extent required by the 1940 Act, (c) with respect to any termination
of the Company or a series thereof to the extent and as provided in this
Section 9.1, (d) with respect to any amendment of this Agreement to the
extent and as provided in Section 13.4, (e) with respect to a merger or
consolidation of the Company or any series thereof with any corporation,
association, trust or other organization or a reorganization or
recapitalization of the Company or series thereof, or a sale, lease or
transfer of all or substantially all of the assets of the Company or any
series thereof (other than in the regular course of the Company's
investment activities) to the extent and as provided in this Section
9.1, and (f) with respect to such additional matters relating to the
Company as may be required by law, the 1940 Act, this Agreement, the
Bylaws of the Company, or any registration of the Company with the
Commission or any State, or as the Board of Trustees may consider
necessary or desirable. As provided in Section 2.8 of this Agreement,
to the extent required by applicable laws, regulations and Commission
positions, the Member is required to submit matters requiring a vote to
the Variable Annuity Owners and to vote each Membership Interest in
accordance with the instructions of the Variable Annuity Owner who has
an indirect right in the Membership Interest pursuant to a Policy issued
by American Skandia.
An affirmative vote of at least sixty-six and two-thirds percent (66-
2/3%) of the outstanding Membership Interests of the Company (or, in the
event of any action set forth below affecting only one or more series or
classes of the Company, an affirmative vote of at least sixty-six and
two-thirds percent of the outstanding Membership Interests of such
affected series or class) shall be required to approve, adopt or
authorize (i) a merger or consolidation of the Company or a series of
the Company with any corporation, association, trust or other
organization or a reorganization or recapitalization of the Company or a
series of the Company, (ii) a sale, lease or transfer of all or
substantially all of the assets of the Company or series of the Company
(other than in the regular course of the Company's investment
activities), or (iii) a termination of the Company or a series of the
Company (other than a termination by the Board of Trustees as provided
for in Section 13.1 hereof), unless in any case such action is
recommended by the Board of Trustees, in which case the affirmative Vote
of a Majority of the Outstanding Voting Securities of the Company or the
affected series or class shall be required.
Section 9.2. Meetings. Meetings of the Member of the
Company ( in its capacity as such or in the particular capacity as
holder of the Membership Interests of one or more series thereof) may be
called and held from time to time, for the purpose of taking action upon
any matter requiring the vote or authority of the Member as herein
provided or upon any other matter deemed by the Board of Trustees to be
necessary or desirable. Such meetings are not required except as set
forth herein or in the Bylaws. Meetings of the Member shall be held at
such place within the United States as shall be fixed by the Board of
Trustees, and stated in the notice of the meeting. Meetings of the
Member may be called by the Board of Trustees and shall be called by the
Board of Trustees if the Board of Trustees receives written requests
representing at least one-tenth of the outstanding Membership Interests
entitled to vote. The Member shall be entitled to at least ten days'
written notice of any meeting, except where the meeting is an adjourned
meeting and the date, time and place of the meeting were announced at
the time of the adjournment.
Page 15
Section 9.3. Quorum and Action. (a) The Trustees shall set in
the Bylaws the quorum required for the transaction of business by the
Member at a meeting, which quorum shall in no event be less than thirty
percent (30%) of the Membership Interests entitled to vote at such
meeting. If a quorum is present when a duly called or held meeting is
convened, the Membership Interests present may continue to transact
business until adjournment, even though the withdrawal of a number of
Membership Interests originally present leaves less than the proportion
or number otherwise required for a quorum.
(b) The Member shall take action by the affirmative vote of a
majority, except in the case of the election of the Board of Trustees
which shall only require a plurality, of the Membership Interests
present in person or by proxy and entitled to vote at a meeting of the
Member at which a quorum is present, except as may be otherwise required
by the 1940 Act or any provision of this Agreement or the Bylaws. As
provided in Section 2.8 of this Agreement, to the extent required by
applicable laws, regulations and Commission positions, the Member is
required to submit matters requiring a vote to the Variable Annuity
Owners and to vote each Membership Interest in accordance with the
instructions of the Variable Annuity Owner who has an indirect right in
the Membership Interest pursuant to a Policy issued by American Skandia.
Section 9.4. Voting. Each whole Membership Interest shall be
entitled to one vote as to any matter on which it is entitled to vote
and each fractional Membership Interest shall be entitled to a
proportionate fractional vote, except that Membership Interests held in
the treasury of the Company shall not be voted. In the event that there
is more than one series of the Membership Interests, Membership
Interests shall be voted by individual series on any matter submitted to
a vote of the Member of the Company except as provided in Sections
4.2(a)(v) and 4.2(b). There shall be no cumulative voting in the
election of Board of Trustees or on any other matter submitted to a vote
of the Member. Membership Interests may be voted in person or by proxy.
Until Membership Interests are issued, the Board of Trustees may
exercise all rights of the Member and may take any action required or
permitted by law, this Agreement or the Bylaws of the Company to be
taken by the Member.
Section 9.5. Action by Written Consent in Lieu of Meeting of the
Member. Any action required or permitted to be taken at a meeting of
the Member may be taken without a meeting by written action signed by
the Member in the respective capacity as holder of whichever Membership
Interests are otherwise required hereunder to be entitled to vote with
respect to such action. The written action is effective when it has
been signed by all of those parties, unless a different effective time
is provided in the written action.
Article X
Custodian
All securities and cash of the Company shall be held by one or more
custodians and subcustodians, each meeting the requirements for a
custodian contained in the 1940 Act, or shall otherwise be held in
accordance with the 1940 Act.
Page 16
Article XI
Distributions and Redemptions
Section 11.1. Distributions. The Board of Trustees may in
its sole discretion from time to time declare and pay, or may prescribe
and set forth in a duly adopted vote or votes of the Board of Trustees,
the bases and time for the declaration and payment of, such dividends
and distributions to the Member as they may deem necessary or desirable,
after providing for actual and accrued expenses and liabilities
(including such reserves as the Board of Trustees may establish)
determined in accordance with good accounting practices.
Section 11.2. Redemption of Membership Interests. All
Membership Interests of the Company shall be redeemable as directed by
the Member in accordance with this Agreement, at the redemption price
determined in the manner set out in this Agreement. The Company shall
redeem the Membership Interests of the Company or any series or class
thereof at the price determined as hereinafter set forth, upon the
appropriately verified application of the Member (or upon such other
form of request as the Board of Trustees may determine) at such office
or agency as may be designated from time to time for that purpose by the
Board of Trustees. The Board of Trustees may from time to time specify
additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Membership Interests in the Company's then effective
prospectus under the Securities Act of 1933.
Section 11.3. Redemption Price. Membership Interests shall
be redeemed at their net asset value (less any applicable redemption fee
or sales charge) determined as set forth in Section 11.7 of this Article
XI as of such time as the Board of Trustees shall have theretofore
prescribed by resolution. In the absence of such resolution, the
redemption price of Membership Interests submitted for redemption shall
be the net asset value of such Membership Interests next determined as
set forth in such Section hereof after receipt of such application.
Section 11.4. Payment. Payment of the redemption price of
Membership Interests of the Company or any series or class thereof shall
be made in cash or in property or partly in cash and partly in property
to the Member at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time
in the Company's then effective prospectus under the Securities Act of
1933.
Section 11.5. Redemption of Member's Interest. The Board of
Trustees, in its sole discretion, may cause the Company to redeem all of
the Membership Interests of the Company or one or more series of the
Company held by the Member if the value of such Membership Interests
held by the Member is less than the minimum amount established from time
to time by the Board of Trustees.
Section 11.6. Suspension of Right of Redemption.
Notwithstanding the foregoing, the Company may postpone payment of the
redemption price and may suspend the right of the Member to require the
Company to redeem Membership Interests (a) during any period when the
New York Stock Exchange (the "Exchange") is closed (other than customary
weekend and holiday closings), (b) when trading in the markets the
Page 17
Company normally utilizes is restricted, or an emergency exists as
determined by the Commission so that disposal of the Company's
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Commission may by
order, rule or otherwise permit.
Section 11.7. Determination of Net Asset Value and Valuation
of Portfolio Assets. The Board of Trustees may in its sole discretion
from time to time prescribe and shall set forth in the Bylaws or in a
duly adopted vote or votes of the Board of Trustees such bases and times
for determining the per Membership Interest net asset value of the
Membership Interests and the valuation of portfolio assets as they may
deem necessary or desirable.
The Company may suspend the determination of net asset value during any
period when it may suspend the right of the Member to require the
Company to redeem Membership Interests.
Article XII
Limitation of Liability and Indemnification
Section 12.1. Limitation of Liability. No personal liability
for any debt or obligation of the Company or any Series shall attach to
any Trustee, Member, officer, employee or authorized person of the
Company. Without limiting the foregoing, a Trustee shall not be
responsible for or liable in any event for any neglect or wrongdoing of
any officer, agent, employee, investment adviser, subadviser, authorized
person, principal underwriter or custodian of the Company or any Series,
nor shall any Trustee be responsible or liable for the act or omission
of any other Trustee. In addition, a Trustee is not obligated to
supervise those persons. Nothing contained herein shall protect any
Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, Membership Interest
or undertaking and every other act or thing whatsoever executed or done
by or on behalf of the Company or the Trustees or any of them in
connection with the Company shall be conclusively deemed to have been
executed or done only in or with respect to their or his capacity as
Trustees or Trustee and neither such Trustees or Trustee nor the Member
shall be personally liable thereon.
All persons extending credit to, contracting with or having any claim
against the Company or any applicable series of the Company shall look
only to the assets of the Company or the applicable series of the
Company, as the case may be, for payment under such credit, contract or
claim; and neither the Member nor the Trustees, nor any of the Company's
officers, employees, authorized persons or agents, whether past, present
or future, shall be personally liable therefor.
Section 12.2. Board of Trustees' Good Faith Action, Expert Advice,
No Bond or Surety. To the extent that, at law or in equity, the Member
or a Trustee has duties (including fiduciary duties) and liabilities
relating thereto to the Company or to the Member or a Trustee:
Page 18
(i) The Member or any Trustee acting under the Agreement
shall not be liable to the Company, to the Member or to a Trustee, as
the case may be, for the Member's or Trustee's good faith reliance on
the provisions of the Agreement; and
(ii) The Member's or a Trustee's duties and liabilities may be
expanded or restricted by provisions in the Agreement.
Without limiting the generality of the foregoing, the exercise by the
Board of Trustees of its powers and discretions thereunder shall be
binding upon everyone interested. A Trustee shall be liable only for
his own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of
Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the meaning and operation of
this Agreement and their duties as Trustees hereunder, and shall be
under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. In discharging their
duties, the Trustees, when acting in good faith, shall be entitled to
rely upon the books of account of the Company and upon written reports
made to the Trustees by any officer appointed by them, any independent
public accountant and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee of any
other party to any contract entered into hereunder. The Trustees shall
not be required to give any bond as such, nor any surety if a bond is
required.
Section 12.3. Liability of Third Persons Dealing with Board
of Trustees. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be
made by the Board of Trustees or to see to the application of any
payments made or property transferred to the Company or upon its order.
Section 12.4. Indemnification. (a) Subject to the exceptions
and limitations contained in this Section 12.4, every person who is, or
has been, a Trustee, director, officer, employee, authorized person or
agent of the Company, including persons who serve at the request of the
Company as Trustees, officers, employees, authorized persons or agents,
of another organization in which the Company has an interest as a
shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Company to the fullest
extent permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action,
suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been such a Trustee, director, officer,
employee, authorized person or agent and against amounts paid or
incurred by him in settlement thereof.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) against any liability to the Company or the Member by
reason of a final adjudication by the court or other body before which
the proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office;
Page 19
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Company; or
(iii)in the event of a settlement or other disposition not
involving a final adjudication (as provided in paragraph (a) or (b)) and
resulting in a payment by a Covered Person, unless there has been either
a determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office by the court or other body
approving the settlement or other disposition, or a reasonable
determination, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that he did not engage in such conduct:
(A) by a vote of a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter); or
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Company, shall be severable, shall
not affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to
be such a Covered Person and shall inure to the benefit of the heirs,
executors and administrators of such a person. Nothing contained herein
shall affect any rights to indemnification to which Company personnel
other than Covered Persons may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under
this Section 12.4 shall be advanced by the Company prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
the recipient to repay such amount if it is ultimately determined that
he is not entitled to indemnification under this Section 12.4, provided
that either:
(i) such undertaking is secured by a surety bond or some
other appropriate security or the Company shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter) or independent legal counsel in a written
opinion shall determine, based upon a review of the readily available
facts (as opposed to a full trial-type inquiry), that there is reason to
believe that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 12.4, a "Disinterested Trustee" is one (x) who
is not an Interested Person of the Company (including anyone, as such
Disinterested Trustee, who has been exempted from being an Interested
Person by any rule, regulation or order of the Commission), and (y)
Page 20
against whom none of such actions, suits or other proceedings or another
action, suit or other proceeding on the same or similar grounds is then
or has been pending.
As used in this Section 12.4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings
(civil, criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall include
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
Section 12.5. Member. No personal liability for any debt or
obligation of the Company shall attach to the Member or any former
Member of the Company. In case the Member or former Member of the
Company shall be held to be personally liable solely by reason of his
being or having been the Member and not because of his acts or omissions
or for some other reason, the Member or former Member (or his heirs,
executors, administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets of the Company to be held
harmless from and indemnified against all loss and expenses arising from
such liability; provided, however, there shall be no liability or
obligation of the Company arising hereunder to reimburse the Member for
taxes paid by reason of such Member's ownership of any Membership
Interest or for losses suffered by reason of any changes in value of any
Company assets. The Company shall, upon request by the Member or former
Member, assume the defense of any claim made against the Member for any
act or obligation of the Company and satisfy any judgment thereon.
Article XIII
Miscellaneous
Section 13.1. Termination of Company. Unless terminated as
provided herein, the Company shall continue without limitation of time.
The Company or any series of the Company may be terminated in accordance
with Section 9.1 hereof.
Upon termination of the Company or any series thereof, after paying or
otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated, as may be determined by the Board
of Trustees, the Company shall, in accordance with such procedures as
the Board of Trustees consider appropriate, reduce the remaining assets
of the Company or of the particular series thereof to distributable form
in cash or other securities, or any combination thereof, and distribute
the proceeds to the Member of the Company or such series in the manner
set forth by resolution of the Board of Trustees.
Section 13.2. References, Headings. The original or a copy
of this instrument and of each amendment hereto shall be kept in the
office of the Company where it may be inspected by the Member. Anyone
dealing with the Company may rely on a certificate by an officer or
Trustee of the Company as to whether or not any such amendments have
been made and as to any matters in connection with the Company
hereunder, and with the same effect as if it were the original, may rely
on a copy certified by an officer or Trustee of the Company to be a copy
Page 21
of this instrument or of any such amendments. In this instrument or in
any such amendment, references to this instrument, and all expressions
like "herein," "hereof" and "hereunder," shall be deemed to refer to
this instrument as a whole and as amended or affected by any such
amendment, and masculine pronouns shall be deemed to include the
feminine and the neuter, as the context shall require. Headings are
placed herein for convenience of reference only, and in case of any
conflict, the text of this instrument, rather than the headings, shall
control. This instrument may be executed in any number of counterparts,
each of which shall be deemed an original.
Section 13.3. Board of Trustees May Resolve Ambiguities. The
Board of Trustees may construe any of the provisions of this Agreement
and the Bylaws insofar as the same may appear to be ambiguous or
inconsistent with any other provisions hereof or in the Bylaws, and any
such construction by the Board of Trustees in good faith shall be
conclusive as to the meaning to be given to such provisions.
Section 13.4. Amendments. Except as otherwise specifically
provided in this Agreement, this Agreement may be amended at any time by
an instrument in writing signed by a majority of the then Board of
Trustees with the consent of the Member holding more than fifty percent
(50%) of Membership Interests entitled to vote except that an amendment
which in the determination of the Board of Trustees shall affect one or
more series or classes of Membership Interests but not all outstanding
series or classes shall be authorized by vote of a majority of the
Membership Interests entitled to vote of each series and class affected
and no vote of the Membership Interests of a series or class not
affected shall be required. In addition, notwithstanding any other
provision to the contrary contained in this Agreement, the Board of
Trustees may amend this Agreement without the vote or consent of the
Member (i) at any time if the Board of Trustees deem it necessary in
order for the Company or any series or class thereby to meet the
requirements of applicable Federal or State laws or regulations, or the
requirements of the Internal Revenue Code, (ii) to designate series or
classes or exercise other powers with respect thereto in accordance with
Section 4.1 and 4.2 of Article IV hereof, (iii) change the name of the
Company or to supply any omission, cure any ambiguity or cure, correct
or supplement any defective or inconsistent provision contained herein,
or (iv) for any reason at any time before a registration statement under
the Securities Act of 1933, as amended, covering the initial public
offering of Membership Interests has become effective and Membership
Interests have been issued.
Section 13.5. Filing of Certificate of Cancellation. Upon
the dissolution and completion of winding up of the Company, the Board
of Trustees shall promptly file or cause to be filed a Certificate of
Cancellation with the Secretary of State of the State of Delaware. If
there is no Board of Trustees, then the Certificate of Cancellation
shall be filed by the remaining Member; if there are no remaining
Member, the Certificate shall be filed by the last Person to be the
Member; if there is neither a Board of Trustees, remaining Member, or a
Person who last was the Member, the Certificate shall be filed by the
legal or personal representatives of the Person who last was the Member.
Section 13.6. Applicable Law. All questions concerning the
construction, validity, and interpretation of this Agreement and the
Page 22
performance of the obligations imposed by this Agreement shall be
governed by the internal law, not the law of conflicts, of the State of
Delaware.
Section 13.7. Jurisdiction and Venue. Any suit involving any
dispute or matter arising under this Agreement may be brought in the
federal or state court located in the States of Illinois or Delaware
having jurisdiction over the subject matter of the dispute or matter.
The Member hereby consents to the exercise of personal jurisdiction by
any such court with respect to any such proceeding. The Member and the
other parties hereto hereby consent to (i) the non-exclusive
jurisdiction of the courts of the States of Illinois of Delaware and any
Federal court sitting in Chicago, Illinois or Wilmington, Delaware, and
(ii) service of process by first-class mail.
Page 23
In Witness Whereof, the undersigned, being the Company, the Sole Member
of the Company and Sole Trustee, respectively, have executed this
Agreement as of the date first written above.
Sole Member:
By /s/ James A. Bowen
_________________________
Its Sole Trustee and Member
James A. Bowen
1001 Warrenville Road
Lisle, Illinois 60532
Board of Trustees by the Sole Trustee
By /s/ James A. Bowen
___________________________
Its Sole Trustee and Member
James A. Bowen
1001 Warrenville Road
Lisle, Illinois 60532
Page 24
Exhibit A
Operating Bylaws
of
First Defined Portfolio Fund, LLC
Article I
Limited Liability Company Agreement
and
Offices
Section 1.1. Agreement of Company. Pursuant to Section 6.1
of the Limited Liability Company Agreement, as from time to time in
effect (the "Agreement"), of First Defined Portfolio Fund, LLC, the
Delaware limited liability company referenced in the Agreement (the
"Company"), the Board of Trustees of the Company is authorized to adopt
these Bylaws provided that such Bylaws are not inconsistent with the
Agreement. Accordingly, with regards to any provision of these Bylaws
that is inconsistent with the Agreement, the terms of the Agreement
shall control.
Section 1.2. Other Offices. The Company may have such other
offices and places of business within or without the State of Delaware
as the Board of Trustees shall determine.
Article II
Members
Section 2.1. Place of Meetings. Meetings of the Member may
be held at such place or places within or without the State of Delaware
as shall be fixed by the Board of Trustees and stated in the notice of
the meeting.
Section 2.2. Regular Meeting. No regular meetings of the
Member for the election of the Board of Trustees and the transaction of
such other business as may properly come before the meeting shall be
held unless the Board of Trustees by resolution shall designate such
date and time of such meeting or except as otherwise required by
applicable law.
Section 2.3. Special Meeting. Special meetings of the
Member for any purpose or purposes may be called by the Chairman of the
Board, the President or two or more members of the Board of Trustees,
and must be called at the written request stating the purpose or
purposes of the meeting, of at least 10 percent of the Membership
Interests entitled to vote at the meeting.
Section 2.4. Notice of Meetings. Notice stating the time
and place of the meeting and in the case of a special meeting the
purpose or purposes thereof and by whom called, shall be delivered to
the Member not less than ten nor more than sixty days prior to the
meeting, except where the meeting is an adjourned meeting and the date,
time and place of the meeting were announced at the time of the
adjournment.
Page 1
Section 2.5. Quorum and Action. (a) Thirty percent (30%) of
the voting power of the Membership Interests of the Company entitled to
vote at a meeting is a quorum for the transaction of business. If a
quorum is present when a duly called or held meeting is convened, the
Membership Interests present may continue to transact business until
adjournment, even though the withdrawal of a number of Membership
Interests originally present leaves less than the proportion or number
otherwise required for a quorum.
(b) The Company shall take action by the affirmative vote of a
majority, except in the case of the election of Trustees which shall
only require a plurality, of the voting power of the Membership
Interests present and entitled to vote at a meeting of the Member at
which a quorum is present, except as may be otherwise required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or the
Agreement.
Section 2.6. Voting. At each meeting of the Member, each
Membership Interests then entitled to vote may be voted by the Member in
person or by proxy and shall be entitled to one vote for each Membership
Interest. As provided in Section 2.8 of this Agreement, to the extent
required by applicable laws, regulations and Commission positions, the
Member is required to submit matters requiring a vote to the Variable
Annuity Owners and to vote each Membership Interest in accordance with
the instructions of the Variable Annuity Owner who has an indirect right
in the Membership Interest pursuant to a Policy issued by American
Skandia.
Section 2.7. Proxy Representation. The Member may cast or
authorize the casting of a vote through the filing of a written
appointment of a proxy with an officer of the Company at or before the
meeting at which the appointment is to be effective. The appointment of
a proxy is valid for eleven months, unless a longer period is expressly
provided in the appointment. No appointment is irrevocable unless the
appointment is coupled with an interest in the Membership Interests.
Section 2.8. Adjourned Meetings. Any meeting of the Member
may be adjourned to a designated time and place by the vote of a
majority of the Membership Interests present and entitled to vote
thereat even though less than a quorum is so present without any further
notice except by announcement at the meeting. An adjourned meeting may
reconvene as designated, and when a quorum is present any business may
be transacted which might have been transacted at the meeting as
originally called.
Article III
Board of Trustees
Section 3.1. Qualifications and Number: Vacancies. Each
Trustee shall be a natural person. A Trustee need not be the Member, a
citizen of the United States, or a resident of the State of Delaware.
The number of Trustees of the Company, their term and election and the
filling of vacancies, shall be as provided in the Agreement.
Page 2
Section 3.2. Powers. The business and affairs of the
Company shall be managed under the direction of the Board of Trustees.
All powers of the Company may be exercised by or under the authority of
the Board of Trustees, except those conferred on or reserved to the
Member by law, the Agreement or these Bylaws.
Section 3.3. Investment Polices. It shall be the duty of
the Board of Trustees to ensure that the purchase, sale, retention and
disposal of portfolio securities and the other investment practices of
the Company are at all times consistent with the investment objectives,
policies and restrictions with respect to securities investments and
otherwise of the Company filed from time to time with the Securities and
Exchange Commission and as required by the 1940 Act, unless such duty is
delegated to an investment adviser pursuant to a written contract, as
provided in the Agreement. The Board of Trustees may delegate the duty
of management of the assets of the Company to an individual or corporate
investment adviser or subadviser to act as investment adviser or
subadviser pursuant to a written contract. However, the Board of
Trustees is responsible for the general supervision of the duties
performed for the Company by any such party.
Section 3.4. Meetings. Regular meetings of the Board of
Trustees may be held without notice at such times as the Board of
Trustees shall fix. Special meetings of the Board of Trustees may be
called by the Chairman of the Board or the President, and shall be
called at the written request of two or more Trustees. Unless waived by
each Trustee, three days' notice of special meetings shall be given to
each Trustee in person, by mail, by telephone, or by telegram or cable,
or by any other means that reasonably may be expected to provide similar
notice. Notice of special meetings need not state the purpose or
purposes thereof. Meetings of the Board of Trustees may be held at any
place within or outside the United States. A conference among Trustees
by any means of communication through which the Trustees may
simultaneously hear each other during the conference constitutes a
meeting of the Board of Trustees or of a committee of the Board of
Trustees, if the notice requirements have been met (or waived) and if
the number of Trustees participating in the conference would be
sufficient to constitute a quorum at such meeting. Participation in
such meeting by that means constitutes presence in person at the meeting.
Section 3.5. Quorum and Action. A majority of the members
of the Board of Trustees currently holding office, or in the case of a
meeting of a committee of the Board of Trustees, a majority of the
members of such committee, shall constitute a quorum for the transaction
of business at any meeting. If a quorum is present when a duly called
or held meeting is convened, the Trustees present may continue to
transact business until adjournment, even though the withdrawal of a
number of Trustees originally present leaves less than the proportion or
number otherwise required for a quorum. At any duly held meeting at
which a quorum is present, the affirmative vote of the majority of the
Trustees present shall be the act of the Board of Trustees or the
committee, as the case may be, on any question, except where the act of
a greater number is required by these Bylaws or by the Agreement. No
individual Trustee shall have the power to act for or on behalf of, or
to bind, the Company except as provided by the Agreement, Bylaws or by a
resolution of the Board of Trustees.
Page 3
Section 3.6. Action by Written Consent in Lieu of Meetings
of Board of Trustees. An action which is required or permitted to be
taken at a meeting of the Board of Trustees or a committee of the Board
of Trustees may be taken by written action signed by the number of
Trustees that would be required to take the same action at a meeting of
the Board of Trustees or committee, as the case may be, at which all
Trustees were present and voted. The written action is effective when
signed by the required number of Trustees, unless a different effective
time is provided in the written action. When written action is taken by
less than all Trustees, all Trustees shall be notified immediately of
its text and effective date.
Section 3.7. Committees. The Board of Trustees, by
resolution adopted by the affirmative vote of a majority of the Board of
Trustees, may designate from its members an Executive Committee, an
Audit Committee and any other committee or committees, each such
committee to consist of two or more Trustees and to have such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Any such committee may be terminated at any time by the
affirmative vote of a majority of the Trustees.
Article IV
Officers
Section 4.1. Number and Qualifications. The officers of the
Company shall include a Chairman of the Board, a President, a
Controller, one or more Vice Presidents (one of whom may be designated
an Executive Vice President), a Treasurer, and a Secretary. Any two or
more offices may be held by the same person. Unless otherwise
determined by the Board of Trustees, each officer shall be appointed by
the Board of Trustees for a term which shall continue until the meeting
of the Board of Trustees following the next regular meeting of the
Member and until his successor shall have been duly elected and
qualified, or until his death, or until he shall have resigned or have
been removed, as hereinafter provided in these Bylaws. The Board of
Trustees may from time to time elect, or delegate to the Chairman of the
Board or the President, or both, the power to appoint, such officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and such agents as may
be necessary or desirable for the business of the Company. Such other
officers shall hold office for such terms as may be prescribed by the
Board of Trustees or by the appointing authority.
Section 4.2. Resignations. Any officer of the Company may
resign at any time by giving written notice of his resignation to the
Board of Trustees, the Chairman of the Board, the President or the
Secretary. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt, and, unless otherwise
specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4.3. Removal. An officer may be removed at any
time, with or without cause, by a resolution approved by the affirmative
vote of a majority of the Board of Trustees present at a duly convened
meeting of the Board of Trustees.
Page 4
Section 4.4. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause may be
filled for the unexpired portion of the term by the Board of Trustees,
or in the manner determined by the Board of Trustees.
Section 4.5. The Chairman of the Board. The Chairman of the
Board shall be elected from among the Board of Trustees. He shall be
the chief executive officer of the Company and shall:
(a) have general active management of the business of the
Company;
(b) when present, preside at all meetings of the Board of
Trustees and of the Member;
(c) see that all orders and resolutions of the Board of
Trustees are carried into effect; and
(d) sign and deliver in the name of the Company any deeds,
mortgages, bonds, contracts or other instruments pertaining to the
business of the Company, except in cases in which the authority to sign
and deliver is required by law to be exercised by another person or is
expressly delegated by the Agreement or Bylaws or by the Board of
Trustees to some other officer or agent of the Company.
The Chairman of the Board shall be authorized to do or cause to be done
all things necessary or appropriate, including preparation, execution
and filing of any documents, to effectuate the registration from time to
time of the Membership Interests of the Company with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended.
He shall perform all duties incident to the office of Chairman of the
Board and such other duties as from time to time may be assigned to him
by the Board of Trustees or by these Bylaws.
Section 4.6. The President. The President shall be the
chief operating officer of the Company and, subject to the Chairman of
the Board, he shall have general authority over and general management
and control of the business and affairs of the Company. In general, he
shall discharge all duties incident to the office of the chief operating
officer of the Company and such other duties as may be prescribed by the
Board of Trustees and the Chairman of the Board from time to time. The
President shall also have the power to appoint and terminate authorized
persons and agents of the Company. In the absence of the Chairman of
the Board or in the event of his disability or inability to act or to
continue to act, the President shall perform the duties of the Chairman
of the Board and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board.
Section 4.7. Executive Vice-President. In the case of the
absence or inability to act of the President and the Chairman of the
Board, any Executive Vice-President shall perform the duties of the
President and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. Any Executive Vice-
President shall perform all duties incident to the office of Executive
Vice-President and such other duties as from time to time may be
assigned to him by the Board of Trustees, the President or these Bylaws.
Page 5
Section 4.8. Vice Presidents. Each Vice-President shall
perform all such duties as from time to time may be assigned to him by
the Board of Trustees, the Chairman of the Board or the President.
Section 4.9. Controller. The Controller shall:
(a) keep accurate financial records for the Company;
(b) render to the Chairman of the Board, the President and
the Board of Trustees, whenever requested, an account of all
transactions by and of the financial condition of the Company; and
(c) in general, perform all the duties incident to the office
of Controller and such other duties as from time to time may be assigned
to him by the Board of Trustees, the Chairman of the Board or the
President.
Unless the Board of Trustees determines otherwise, the Treasurer of the
Company shall also serve as Controller.
Section 4.10. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Company, except those which the Company
has placed in the custody of a bank or trust company pursuant to a
written agreement designating such bank or trust company as custodian of
the property of the Company, as required by Article X of the Agreement;
(b) deposit all money, drafts, and checks in the name of and
to the credit of the Company in the banks and depositories designated by
the Board of Trustees;
(c) endorse for deposit all notes, checks, and drafts
received by the Company making proper vouchers therefor;
(d) disburse corporate funds and issue checks and drafts in
the name of the Company, as ordered by the Board of Trustees; and
(e) in general, perform all the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned
to him by the Board of Trustees, the Chairman of the Board or the
President.
Section 4.11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board of Trustees,
the committees of the Board of Trustees and the Member;
Page 6
(b) see that all notices are duly given in accordance with
the provisions of these Bylaws and as required by statute;
(c) maintain records and serve as custodian of the records of
the Company;
(d) see that the books, reports, statements, certificates and
other documents and records required by statute to be kept and filed are
properly kept and filed;
(e) Whenever necessary, certify all proceedings of the Board
of Trustees and the Member; and
(f) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned
to him by the Board of Trustees, the Chairman of the Board or the
President.
Section 4.12. Salaries. The salaries of all officers shall
be fixed by the Board of Trustees.
Article V
Membership Interests
Section 5.1. Membership Interest Certificates. No
Membership Interest certificates shall be issued.
Section 5.2. Books and Records; Inspection. The Company shall
keep at its principal executive office, or at another place or places
within the United States determined by the Board of Trustees, a
Membership Interest register not more than one year old, containing the
name and address of the Member and the number of Membership Interests
held by the Member. The Company shall also keep, at its principal
executive office, or at another place or places within the United States
determined by the Board of Trustees, a record of the dates on which
certificates representing Membership Interests were issued.
Section 5.3. Membership Interest Transfers. Upon compliance
with any provisions restricting the transferability of the Membership
Interest that may be set forth in the Agreement, these Bylaws, or any
resolution or written agreement in respect thereof, transfers of
Membership Interests of the Company shall be made only on the books of
the Company by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with
an officer of the Company, or with a transfer agent or a registrar and
on surrender of any certificate or certificates for such Membership
Interests properly endorsed and the payment of all taxes thereon.
Except as may be otherwise provided by law or these Bylaws, the person
in whose name Membership Interests stand on the books of the Company
shall be deemed the owner thereof for all purposes as regards the Company.
Section 5.4. Regulations. The Board of Trustees may make
such additional rules and regulations, not inconsistent with these
Page 7
Bylaws, as they may deem expedient concerning the issue, certification,
transfer and registration of Membership Interests of the Company. They
may appoint, or authorize any officer or officers to appoint, one or
more transfer agents or one or more transfer clerks and one or more
registrars.
Section 5.5. Record Date: Certification of Membership
Interests. (a) The Board of Trustees may fix a date not more than
ninety (90) days before the date of a meeting of the Member as the date
for the determination of the Membership Interests entitled to notice of
and entitled to vote at the meeting or any adjournment thereof.
(b) The Board of Trustees may fix a date for determining the
Member entitled to receive payment of any dividend or distribution or
allotment of any rights or entitled to exercise any rights in respect of
any change, conversion or exchange of Membership Interests.
(c) In the absence of such fixed record date, (i) the date for
determination of the Member entitled to notice of and entitled to vote
at a meeting of the Member shall be the later of the close of business
on the day on which notice of the meeting is mailed or the thirtieth day
before the meeting, and (ii) the date for determining the Member
entitled to receive payment of any dividend or distribution or an
allotment of any rights or entitled to exercise any rights in respect of
any change, conversion or exchange of Membership Interests shall be the
close of business on the day on which the resolution of the Board of
Trustees is adopted.
Article VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the Company
shall be as fixed by the Board of Trustees of the Company.
Section 6.2. Notice and Waiver of Notice. (a) Any notice of
a meeting required to be given under these Bylaws to the Member or the
Board of Trustees, or both, may be waived by any such person (i) orally
or in writing signed by such person before, at or after the meeting or
(ii) by attendance at the meeting in person or, in the case of the
Member, by proxy.
(b) Except as otherwise specifically provided herein, all notices
required by these Bylaws shall be printed or written, and shall be
delivered either personally, by telecopy, telegraph or cable, or by mail
or courier or delivery service, and, if mailed, shall be deemed to be
delivered when deposited in the United States mail, postage prepaid,
addressed to the Member or Trustee at his address as it appears on the
records of the Company.
Page 8
Article VII
Amendments
Section 7.1. These Bylaws may be amended or repealed, or new
Bylaws may be adopted, by the Board of Trustees at any meeting thereof
or by action of the Board of Trustees by written consent in lieu of a
meeting.
Dated as of January 8, 1999
Page 9
<TABLE>
<CAPTION>
Exhibit B
The Dow (sm) Target 5 Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
<S> <C> <C> <C>
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
The Dow (sm) Dart 10 Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
Global Target 15 Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
Page 1
S&P Target 10 Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
NASDAQ Target 15 Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
First Trust 10 Uncommon Values Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
First Trust Energy Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
Page 2
First Trust Financial Services Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
First Trust Pharmaceutical Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
First Trust Technology Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
First Trust Internet Portfolio
Capital Percentage of Membership
Member Address Contribution Interests
American Skandia Life Assurance One Corporate Drive, Shelton, $0 100%
Corporation Variable Account B Connecticut 06484-0883
Amended October, 1999
</TABLE>
Page 3
Operating Bylaws
of
First Defined Portfolio Fund, LLC
Article I
Limited Liability Company Agreement
and
Offices
Section 1.1. Agreement of Company. Pursuant to Section 6.1 of the
Limited Liability Company Agreement, as from time to time in effect (the
"Agreement"), of First Defined Portfolio Fund, LLC, the Delaware limited
liability company referenced in the Agreement (the "Company"), the Board
of Trustees of the Company is authorized to adopt these Bylaws provided
that such Bylaws are not inconsistent with the Agreement. Accordingly,
with regards to any provision of these Bylaws that is inconsistent with
the Agreement, the terms of the Agreement shall control.
Section 1.2. Other Offices. The Company may have such other offices
and places of business within or without the State of Delaware as the
Board of Trustees shall determine.
Article II
Members
Section 2.1. Place of Meetings. Meetings of the Member may be held at
such place or places within or without the State of Delaware as shall be
fixed by the Board of Trustees and stated in the notice of the meeting.
Section 2.2. Regular Meeting. No regular meetings of the Member for
the election of the Board of Trustees and the transaction of such other
business as may properly come before the meeting shall be held unless
the Board of Trustees by resolution shall designate such date and time
of such meeting or except as otherwise required by applicable law.
Section 2.3. Special Meeting. Special meetings of the Member for any
purpose or purposes may be called by the Chairman of the Board, the
President or two or more members of the Board of Trustees, and must be
called at the written request stating the purpose or purposes of the
meeting, of at least 10 percent of the Membership Interests entitled to
vote at the meeting.
Section 2.4. Notice of Meetings. Notice stating the time and place of
the meeting and in the case of a special meeting the purpose or purposes
thereof and by whom called, shall be delivered to the Member not less
than ten nor more than sixty days prior to the meeting, except where the
meeting is an adjourned meeting and the date, time and place of the
meeting were announced at the time of the adjournment.
Section 2.5. Quorum and Action. (a) Thirty percent (30%) of the voting
power of the Membership Interests of the Company entitled to vote at a
meeting is a quorum for the transaction of business. If a quorum is
present when a duly called or held meeting is convened, the Membership
Interests present may continue to transact business until adjournment,
even though the withdrawal of a number of Membership Interests
originally present leaves less than the proportion or number otherwise
required for a quorum.
(b) The Company shall take action by the affirmative vote of a
majority, except in the case of the election of Trustees which shall
only require a plurality, of the voting power of the Membership
Interests present and entitled to vote at a meeting of the Member at
which a quorum is present, except as may be otherwise required by the
Investment Company Act of 1940, as amended (the "1940 Act"), or the
Agreement.
Section 2.6. Voting. At each meeting of the Member, each Membership
Interests then entitled to vote may be voted by the Member in person or
by proxy and shall be entitled to one vote for each Membership Interest.
As provided in Section 2.8 of this Agreement, to the extent required by
applicable laws, regulations and Commission positions, the Member is
required to submit matters requiring a vote to the Variable Annuity
Owners and to vote each Membership Interest in accordance with the
instructions of the Variable Annuity Owner who has an indirect right in
the Membership Interest pursuant to a Policy issued by American Skandia.
Section 2.7. Proxy Representation. The Member may cast or authorize
the casting of a vote through the filing of a written appointment of a
proxy with an officer of the Company at or before the meeting at which
the appointment is to be effective. The appointment of a proxy is valid
for eleven months, unless a longer period is expressly provided in the
appointment. No appointment is irrevocable unless the appointment is
coupled with an interest in the Membership Interests.
Section 2.8. Adjourned Meetings. Any meeting of the Member may be
adjourned to a designated time and place by the vote of a majority of
the Membership Interests present and entitled to vote thereat even
though less than a quorum is so present without any further notice
except by announcement at the meeting. An adjourned meeting may
reconvene as designated, and when a quorum is present any business may
be transacted which might have been transacted at the meeting as
originally called.
Article III
Board of Trustees
Section 3.1. Qualifications and Number: Vacancies. Each Trustee shall
be a natural person. A Trustee need not be the Member, a citizen of the
United States, or a resident of the State of Delaware. The number of
Trustees of the Company, their term and election and the filling of
vacancies, shall be as provided in the Agreement.
Section 3.2. Powers. The business and affairs of the Company shall be
managed under the direction of the Board of Trustees. All powers of the
Company may be exercised by or under the authority of the Board of
Trustees, except those conferred on or reserved to the Member by law,
the Agreement or these Bylaws.
Section 3.3. Investment Polices. It shall be the duty of the Board of
Trustees to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Company
are at all times consistent with the investment objectives, policies and
restrictions with respect to securities investments and otherwise of the
Company filed from time to time with the Securities and Exchange
Commission and as required by the 1940 Act, unless such duty is
delegated to an investment adviser pursuant to a written contract, as
provided in the Agreement. The Board of Trustees may delegate the duty
of management of the assets of the Company to an individual or corporate
investment adviser or subadviser to act as investment adviser or
subadviser pursuant to a written contract. However, the Board of
Trustees is responsible for the general supervision of the duties
performed for the Company by any such party.
Section 3.4. Meetings. Regular meetings of the Board of Trustees may
be held without notice at such times as the Board of Trustees shall fix.
Special meetings of the Board of Trustees may be called by the Chairman
of the Board or the President, and shall be called at the written
request of two or more Trustees. Unless waived by each Trustee, three
days' notice of special meetings shall be given to each Trustee in
person, by mail, by telephone, or by telegram or cable, or by any other
means that reasonably may be expected to provide similar notice. Notice
of special meetings need not state the purpose or purposes thereof.
Meetings of the Board of Trustees may be held at any place within or
outside the United States. A conference among Trustees by any means of
communication through which the Trustees may simultaneously hear each
other during the conference constitutes a meeting of the Board of
Trustees or of a committee of the Board of Trustees, if the notice
requirements have been met (or waived) and if the number of Trustees
participating in the conference would be sufficient to constitute a
quorum at such meeting. Participation in such meeting by that means
constitutes presence in person at the meeting.
Section 3.5. Quorum and Action. A majority of the members of the Board
of Trustees currently holding office, or in the case of a meeting of a
committee of the Board of Trustees, a majority of the members of such
committee, shall constitute a quorum for the transaction of business at
any meeting. If a quorum is present when a duly called or held meeting
is convened, the Trustees present may continue to transact business
until adjournment, even though the withdrawal of a number of Trustees
originally present leaves less than the proportion or number otherwise
required for a quorum. At any duly held meeting at which a quorum is
present, the affirmative vote of the majority of the Trustees present
shall be the act of the Board of Trustees or the committee, as the case
may be, on any question, except where the act of a greater number is
required by these Bylaws or by the Agreement. No individual Trustee
shall have the power to act for or on behalf of, or to bind, the Company
except as provided by the Agreement, Bylaws or by a resolution of the
Board of Trustees.
Section 3.6. Action by Written Consent in Lieu of Meetings of Board of
Trustees. An action which is required or permitted to be taken at a
meeting of the Board of Trustees or a committee of the Board of Trustees
may be taken by written action signed by the number of Trustees that
would be required to take the same action at a meeting of the Board of
Trustees or committee, as the case may be, at which all Trustees were
present and voted. The written action is effective when signed by the
required number of Trustees, unless a different effective time is
provided in the written action. When written action is taken by less
than all Trustees, all Trustees shall be notified immediately of its
text and effective date.
Section 3.7. Committees. The Board of Trustees, by resolution adopted
by the affirmative vote of a majority of the Board of Trustees, may
designate from its members an Executive Committee, an Audit Committee
and any other committee or committees, each such committee to consist of
two or more Trustees and to have such powers and authority (to the
extent permitted by law) as may be provided in such resolution. Any
such committee may be terminated at any time by the affirmative vote of
a majority of the Trustees.
Article IV
Officers
Section 4.1. Number and Qualifications. The officers of the Company
shall include a Chairman of the Board, a President, a Controller, one or
more Vice Presidents (one of whom may be designated an Executive Vice
President), a Treasurer, and a Secretary. Any two or more offices may
be held by the same person. Unless otherwise determined by the Board of
Trustees, each officer shall be appointed by the Board of Trustees for a
term which shall continue until the meeting of the Board of Trustees
following the next regular meeting of the Member and until his successor
shall have been duly elected and qualified, or until his death, or until
he shall have resigned or have been removed, as hereinafter provided in
these Bylaws. The Board of Trustees may from time to time elect, or
delegate to the Chairman of the Board or the President, or both, the
power to appoint, such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents as may be necessary or desirable for the
business of the Company. Such other officers shall hold office for such
terms as may be prescribed by the Board of Trustees or by the appointing
authority.
Section 4.2. Resignations. Any officer of the Company may resign at
any time by giving written notice of his resignation to the Board of
Trustees, the Chairman of the Board, the President or the Secretary.
Any such resignation shall take effect at the time specified therein or,
if the time when it shall become effective shall not be specified
therein, immediately upon its receipt, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.3. Removal. An officer may be removed at any time, with or
without cause, by a resolution approved by the affirmative vote of a
majority of the Board of Trustees present at a duly convened meeting of
the Board of Trustees.
Section 4.4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause may be filled
for the unexpired portion of the term by the Board of Trustees, or in
the manner determined by the Board of Trustees.
Section 4.5. The Chairman of the Board. The Chairman of the Board
shall be elected from among the Board of Trustees. He shall be the
chief executive officer of the Company and shall:
(a) have general active management of the business of the
Company;
(b) when present, preside at all meetings of the Board of
Trustees and of the Member;
(c) see that all orders and resolutions of the Board of
Trustees are carried into effect; and
(d) sign and deliver in the name of the Company any deeds,
mortgages, bonds, contracts or other instruments pertaining to the
business of the Company, except in cases in which the authority to sign
and deliver is required by law to be exercised by another person or is
expressly delegated by the Agreement or Bylaws or by the Board of
Trustees to some other officer or agent of the Company.
The Chairman of the Board shall be authorized to do or cause to be done
all things necessary or appropriate, including preparation, execution
and filing of any documents, to effectuate the registration from time to
time of the Membership Interests of the Company with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended.
He shall perform all duties incident to the office of Chairman of the
Board and such other duties as from time to time may be assigned to him
by the Board of Trustees or by these Bylaws.
Section 4.6. The President. The President shall be the chief operating
officer of the Company and, subject to the Chairman of the Board, he
shall have general authority over and general management and control of
the business and affairs of the Company. In general, he shall discharge
all duties incident to the office of the chief operating officer of the
Company and such other duties as may be prescribed by the Board of
Trustees and the Chairman of the Board from time to time. The President
shall also have the power to appoint and terminate authorized persons
and agents of the Company. In the absence of the Chairman of the Board
or in the event of his disability or inability to act or to continue to
act, the President shall perform the duties of the Chairman of the Board
and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the Chairman of the Board.
Section 4.7. Executive Vice-President. In the case of the absence or
inability to act of the President and the Chairman of the Board, any
Executive Vice-President shall perform the duties of the President and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the President. Any Executive Vice-President shall
perform all duties incident to the office of Executive Vice-President
and such other duties as from time to time may be assigned to him by the
Board of Trustees, the President or these Bylaws.
Section 4.8. Vice Presidents. Each Vice-President shall perform all
such duties as from time to time may be assigned to him by the Board of
Trustees, the Chairman of the Board or the President.
Section 4.9. Controller. The Controller shall:
(a) keep accurate financial records for the Company;
(b) render to the Chairman of the Board, the President and
the Board of Trustees, whenever requested, an account of all
transactions by and of the financial condition of the Company; and
(c) in general, perform all the duties incident to the office
of Controller and such other duties as from time to time may be assigned
to him by the Board of Trustees, the Chairman of the Board or the
President.
Unless the Board of Trustees determines otherwise, the Treasurer of the
Company shall also serve as Controller.
Section 4.10. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Company, except those which the Company
has placed in the custody of a bank or trust company pursuant to a
written agreement designating such bank or trust company as custodian of
the property of the Company, as required by Article X of the Agreement;
(b) deposit all money, drafts, and checks in the name of and
to the credit of the Company in the banks and depositories designated by
the Board of Trustees;
(c) endorse for deposit all notes, checks, and drafts
received by the Company making proper vouchers therefor;
(d) disburse corporate funds and issue checks and drafts in
the name of the Company, as ordered by the Board of Trustees; and
(e) in general, perform all the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned
to him by the Board of Trustees, the Chairman of the Board or the
President.
Section 4.11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided
for the purpose, the minutes of all meetings of the Board of Trustees,
the committees of the Board of Trustees and the Member;
(b) see that all notices are duly given in accordance with
the provisions of these Bylaws and as required by statute;
(c) maintain records and serve as custodian of the records of
the Company;
(d) see that the books, reports, statements, certificates and
other documents and records required by statute to be kept and filed are
properly kept and filed;
(e) Whenever necessary, certify all proceedings of the Board
of Trustees and the Member; and
(f) in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned
to him by the Board of Trustees, the Chairman of the Board or the
President.
Section 4.12. Salaries. The salaries of all officers shall be fixed by
the Board of Trustees.
Article V
Membership Interests
Section 5.1. Membership Interest Certificates. No Membership Interest
certificates shall be issued.
Section 5.2. Books and Records; Inspection. The Company shall keep at
its principal executive office, or at another place or places within the
United States determined by the Board of Trustees, a Membership Interest
register not more than one year old, containing the name and address of
the Member and the number of Membership Interests held by the Member.
The Company shall also keep, at its principal executive office, or at
another place or places within the United States determined by the Board
of Trustees, a record of the dates on which certificates representing
Membership Interests were issued.
Section 5.3. Membership Interest Transfers. Upon compliance with any
provisions restricting the transferability of the Membership Interest
that may be set forth in the Agreement, these Bylaws, or any resolution
or written agreement in respect thereof, transfers of Membership
Interests of the Company shall be made only on the books of the Company
by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with an officer
of the Company, or with a transfer agent or a registrar and on surrender
of any certificate or certificates for such Membership Interests
properly endorsed and the payment of all taxes thereon. Except as may
be otherwise provided by law or these Bylaws, the person in whose name
Membership Interests stand on the books of the Company shall be deemed
the owner thereof for all purposes as regards the Company.
Section 5.4. Regulations. The Board of Trustees may make such
additional rules and regulations, not inconsistent with these Bylaws, as
they may deem expedient concerning the issue, certification, transfer
and registration of Membership Interests of the Company. They may
appoint, or authorize any officer or officers to appoint, one or more
transfer agents or one or more transfer clerks and one or more registrars.
Section 5.5. Record Date: Certification of Membership Interests. (a)
The Board of Trustees may fix a date not more than ninety (90) days
before the date of a meeting of the Member as the date for the
determination of the Membership Interests entitled to notice of and
entitled to vote at the meeting or any adjournment thereof.
(b) The Board of Trustees may fix a date for determining the Member
entitled to receive payment of any dividend or distribution or allotment
of any rights or entitled to exercise any rights in respect of any
change, conversion or exchange of Membership Interests.
(c) In the absence of such fixed record date, (i) the date for
determination of the Member entitled to notice of and entitled to vote
at a meeting of the Member shall be the later of the close of business
on the day on which notice of the meeting is mailed or the thirtieth day
before the meeting, and (ii) the date for determining the Member
entitled to receive payment of any dividend or distribution or an
allotment of any rights or entitled to exercise any rights in respect of
any change, conversion or exchange of Membership Interests shall be the
close of business on the day on which the resolution of the Board of
Trustees is adopted.
Article VI
Miscellaneous
Section 6.1. Fiscal Year. The fiscal year of the Company shall be as
fixed by the Board of Trustees of the Company.
Section 6.2. Notice and Waiver of Notice. (a) Any notice of a meeting
required to be given under these Bylaws to the Member or the Board of
Trustees, or both, may be waived by any such person (i) orally or in
writing signed by such person before, at or after the meeting or (ii) by
attendance at the meeting in person or, in the case of the Member, by
proxy.
(b) Except as otherwise specifically provided herein, all notices
required by these Bylaws shall be printed or written, and shall be
delivered either personally, by telecopy, telegraph or cable, or by mail
or courier or delivery service, and, if mailed, shall be deemed to be
delivered when deposited in the United States mail, postage prepaid,
addressed to the Member or Trustee at his address as it appears on the
records of the Company.
Page 8
Article VII
Amendments
Section 7.1. These Bylaws may be amended or repealed, or new Bylaws may
be adopted, by the Board of Trustees at any meeting thereof or by action
of the Board of Trustees by written consent in lieu of a meeting.
Dated as of January 8, 1999
First Defined Portfolio Fund, LLC
Establishment and Designation of Series of
Membership Interests
Pursuant to Section 4.2 of the Limited Liability Company Agreement dated
as of January 8, 1999 (the "Agreement"), of First Defined Portfolio
Fund, LLC, a Delaware limited liability company (the "Company"), the
Sole Trustee and Member of the Company, this 18th day of June, 1999,
hereby establishes and designates twelve series of Membership Interests
(as defined in the Agreement) (the "Funds") to have the special and
relative rights described below.
1. The following Funds are established and designated:
The Dow (sm) Target 5 Portfolio
The Dow (sm) Target 10 Portfolio
Global Target 15 Portfolio
S&P Target 10 Portfolio
NASDAQ Target 15 Portfolio
Target Small Cap Portfolio
10 Uncommon Values Portfolio
First Trust Energy Sector Portfolio
First Trust Financial Services Sector Portfolio
First Trust Pharmaceutical/Healthcare Sector Portfolio
First Trust Technology Sector Portfolio
First Trust Internet Sector Portfolio
2. Each Fund shall be authorized to hold cash, invest in
securities, instruments and other property and use investment techniques
as from time to time described in the Company's then currently effective
registration statement under the Securities Act of 1933 to the extent
pertaining to the offering of Membership Interests of such Funds. Each
Membership Interest of the Funds shall be redeemable, shall be entitled
to one vote (or fraction thereof in respect of a fractional share) on
matters on which Members of that Fund may vote in accordance with the
Agreement, shall represent a pro rata beneficial interest in the assets
allocated or belonging to such Fund, and shall be entitled to receive
its pro rata share of the net assets of such Fund upon liquidation of
such Fund, all as provided in Article IV, Sections 4.2 and 4.5 of the
Agreement. The proceeds of the sale of Membership Interests of each
Fund, together with any income and gain thereon, less any diminution or
expenses thereof, shall irrevocably belong to such Fund, unless
otherwise required by law.
3. Members of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have
been effectively acted upon with respect to that Fund as provided in,
Rule 18f-2, as from time to time in effect, under the Investment Company
Act of 1940, as amended, or any successor rules, and by the Agreement.
Page 1
4. The assets and liabilities of the Company shall be allocated
among each Fund and any other series of Membership Interests that may be
established from time to time as set forth in Article IV, Section 4.5 of
the Agreement.
5. The designation of the Funds hereby shall not impair the power
of the Board of Trustees from time to time to designate additional
series of Membership Interests of the Company.
6. Subject to the applicable provisions of the 1940 Act and the
provisions of Article IV, Sections 4.2 and 4.5 of the Agreement, the
Board of Trustees shall have the right at any time and from time to time
to reallocate assets and expenses or to change the designation of each
Fund now or hereafter created, or to otherwise change the special
relative rights of a Fund designated hereby without any action or
consent of the Members.
Page 2
In Witness Whereof, the undersigned, being the Sole Trustee and Member
of the Company, has executed this instrument as of this 18th day of
June, 1999.
/s/ James A. Bowen
___________________
James A. Bowen
Sole Trustee and Member
Page 3
First Defined Portfolio Fund, LLC
Amended and Restated
Establishment and Designation of Series of
Membership Interests
Whereas, pursuant to Section 4.2 of the Limited Liability Company
Agreement dated as of January 8, 1999 (the "Agreement"), of First
Defined Portfolio Fund, LLC, a Delaware limited liability company (the
"Company"), the Sole Trustee of the Company, on the 18th day of June,
1999, established and designated twelve series of Membership Interests
(as defined in the Agreement) each a "Fund" to have the special and
relative rights described in such Establishment and Designation of Series;
Whereas, the Trustees of the Company now desire to amend and restate
such Establishment and Designation of Series in order to eliminate two
series that were established and designated and with respect to which no
Membership Interests are issued and outstanding. The Funds eliminated
are The Dow (sm) Target 10 Portfolio and the Target Small Cap Portfolio;
Whereas, the Trustees of the Company further desire to amend and restate
such Establishment and Designation of Series in order to establish and
designate an additional series to be named The Dow (sm) DART 10 Portfolio
and to modify the names of certain Funds; and
Now therefore, the Trustees of the Company, this 20th day of September
1999, hereby amend and restate the Establishment and Designation of
Series as follows:
1. The Dow (sm) Target 10 Portfolio and the Target Small Cap
Portfolio, of which no Membership Interests have been issued, are no
longer established and designated as series of the Company;
2. The Dow (sm) DART 10 Portfolio is established and designated
as a series of the Company; and
3. The Company consists of the following eleven series of
Membership Interests that have been established and designated by the
Board of Trustees:
Page 1
The Dow (sm) Target 5 Portfolio
The Dow (sm) DART 10 Portfolio
Global Target 15 Portfolio
S&P Target 10 Portfolio
NASDAQ Target 15 Portfolio
First Trust 10 Uncommon Values Portfolio
First Trust Energy Portfolio
First Trust Financial Services Portfolio
First Trust Pharmaceutical Portfolio
First Trust Technology Portfolio
First Trust Internet Portfolio
2. Each Fund shall be authorized to hold cash, invest in
securities, instruments and other property and use investment techniques
as from time to time approved by the Trustees and thereafter described
in the Company's then currently effective registration statement under
the Securities Act of 1933 to the extent pertaining to the offering of
Membership Interests of such Funds. Each Membership Interest of each
Fund shall be redeemable, shall be entitled to one vote (or fraction
thereof in respect of a fractional share) on matters on which the
Member, in its capacity as the holder of the Membership Interests of
that Fund, may vote in accordance with the Agreement, shall represent a
pro rata beneficial interest in the assets allocated or belonging to
such Fund, and shall be entitled to receive its pro rata share of the
net assets of such Fund upon liquidation of such Fund, all as provided
in the Agreement, including, without limitation, Article IV, Sections
4.2 and 4.5 thereof. The proceeds of the sale of Membership Interests
of each Fund, together with any income and gain thereon, less any
diminution or expenses thereof, shall irrevocably belong to such Fund,
unless otherwise required by law.
3. The Member, in its capacity as the holder of the Membership
Interests of each Fund, shall vote Membership Interests of each Fund
separately as a class on any matter to the extent required by, and any
matter shall be deemed to have been effectively acted upon with respect
to such Fund as provided in, Rule 18f-2, as from time to time in effect,
under the Investment Company Act of 1940, as amended (the "1940 Act"),
or any successor rules, and by the Agreement.
4. The assets and liabilities of the Company shall be allocated
among each Fund and any other series of Membership Interests that may be
established from time to time as set forth in Article IV, Section 4.5 of
the Agreement.
5. The designation of each Fund hereby shall not impair the power
of the Board of Trustees from time to time to designate additional
series of Membership Interests of the Company, including those that may
be senior to existing series.
Page 2
6. Subject to the applicable provisions of the 1940 Act and the
provisions of Article IV, Sections 4.2 and 4.5 of the Agreement, the
Board of Trustees shall have the right at any time and from time to time
to reallocate assets and expenses or to change the designation of each
Fund now or hereafter created, or to otherwise change the special
relative rights of each Fund designated hereby without any action or
consent of the Member.
Page 3
In Witness Whereof, the undersigned, being the Trustees of the Company,
has executed this instrument as of this 20th day of September, 1999.
/s/ Robert J. Bartel /s/ James A. Bowen
______________________ ____________________
Robert J. Bartel James A. Bowen
Trustee Trustee
/s/ Richard E. Erickson /s/ Patrick M. Fitzgerald
______________________ __________________________
Richard E. Erickson Patrick M. Fitzgerald
Trustee Trustee
/s/ Niel B. Nielson
__________________________
Niel B. Nielson
Trustee
Page 4
First Defined Portfolio Fund, LLC
Investment Advisory and Management Agreement
This Investment Advisory and Management Agreement (the "Agreement") made
this 16th day of November, 1999, by and between First Defined Portfolio
Fund, LLC, a Delaware limited liability company (the "Company"), on
behalf of each series (each a "fund" and collectively, the "funds") of
the Company, and First Trust Advisors L.P. (the "Adviser"), an Illinois
limited partnership.
Whereas, the Company and the Adviser wish to enter into this Agreement
setting forth the terms and conditions under which the Adviser will
perform certain investment advisory and management services for the
funds listed in Schedule A attached hereto, and be compensated for such
services by the funds.
Now, Therefore, in consideration of the premises and mutual agreements
hereinafter contained, the Company and the Adviser hereby agree as
follows:
Section 1. Investment Advisory Services.
Section 1.1. During the Term (as such term is defined in Section
5 hereof) of this Agreement, the Adviser shall serve as the investment
adviser (within the meaning of the Investment Advisers Act of 1940, as
amended) of the funds. In such capacity, the Adviser shall render the
following services and perform the following functions for and on behalf
of the funds:
(a) Furnish continuous advice and recommendations to the
funds with respect to the acquisition, holding or disposition of any or
all of the securities or other assets which the funds may own or
contemplate acquiring from time to time;
(b) Cause its officers to attend meetings and furnish oral or
written reports, as the Company reasonably may request, in order to keep
the Trustees and appropriate officers of the Company fully informed
regarding the investment portfolios of the funds, the investment
recommendations of the Adviser, and the considerations which form the
basis for such recommendations; and
(c) Supervise the management of the fund's investments,
including the purchase, sale, retention or lending of securities and
other investments in accordance with the direction of the appropriate
officers of the Company.
Section 1.2. The services of the Adviser to the funds are not
exclusive, and nothing contained herein shall be deemed or construed to
prohibit, limit, or otherwise restrict the Adviser from rendering
investment or other advisory services to any third person, whether
similar to those to be provided to the funds hereunder or otherwise.
Page 1
Section 2. Compensation of Adviser.
Section 2.1. For its services hereunder, each fund shall pay the
Adviser an annual fee (the "Fee") as set forth in Schedule B. The Fee
will be computed daily and payable monthly in arrears.
Section 2.2. Notwithstanding the provisions of Section 2.1
hereof, the amount of the Fee to be paid with respect to the first and
last months of this Agreement shall be pro rated based on the number of
calendar days in such quarter.
Section 2.3. The Adviser may voluntarily waive Fees or reimburse
expenses at any time. Any amounts waived or reimbursed by the Adviser
are subject to reimbursement by the fund within the following three
years, to the extent such reimbursement by the fund would not cause the
fund to exceed any current expense limitation.
Section 3. Expenses Paid by the Adviser.
Section 3.1. Subject to the provisions of Section 3.2 hereof, the
Adviser shall pay the following expenses relating to the management and
operation of the funds:
(a) All reasonable fees, charges, costs and expenses and all
reasonable compensation of all officers and Trustees of the funds
relating to the performance of their duties to the funds; provided,
however, that the Adviser shall not pay any such amounts to any Outside
Trustees (for purposes of this Agreement, an "Outside Trustee" is any
Trustee of the Company who is not an "Interested Person," within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940, as
amended (the "1940 Act")); and provided, further, that in the event that
any person serving as an officer of the Company has both executive
duties attendant to such office and administrative duties to the Company
apart from such office, the Adviser shall not pay any amounts relating
to the performance of such duties;
(b) All costs of office equipment and personnel necessary for
and allocable to the performance of the obligations of the Adviser
hereunder.
Section 3.2. Except as provided in this Section, nothing
contained in this Agreement shall be deemed or construed to impose upon
the Adviser any obligation to incur, pay, or reimburse the funds for any
other costs of or relating to the funds.
Section 4. Expenses Paid by the Funds.
Section 4.1. Except as provided in Section 3 hereof, the funds
hereby assume and shall pay all fees, costs and expenses incurred by, or
on behalf, or for the benefit of the funds, including without limitation:
(a) All costs of any custodian or depository;
Page 2
(b) All costs for bookkeeping, accounting, pricing and
auditors' services;
(c) All costs of leased office space of or allocable to the
funds within the offices of the Adviser or in such other place as may be
mutually agreed upon between the parties from time to time;
(d) All costs of any transfer agent and registrar of
interests of the funds ("Interests");
(e) All costs incurred by any Outside Trustee of the Company
in connection with the performance of his duties relating to the affairs
of the Company in such capacity as an Outside Trustee of the Company,
and costs relating to the performance by any officer of the Company,
performing duties on behalf of the funds apart from such office, all in
accordance with Section 3.1 (a) hereof;
(f) All brokers' commissions and other costs incurred in
connection with the execution of the funds' portfolio transactions;
(g) All taxes and other costs payable by or on behalf of the
funds to federal, state or other governmental agencies;
(h) All costs of printing, recording and transferring
certificates representing Interests;
(i) All costs in connection with the registration of the
funds and the Interests with the Securities and Exchange Commission
("SEC"), and the continuous maintenance of the effectiveness of such
registrations, and the registration and qualification of Interests of
the funds under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses and statements of additional information for filing with
the SEC and other authorities;
(j) All costs of preparing, printing and mailing
prospectuses, statements of additional information and reports to
holders of Interests;
(k) All costs of Interest holders' and Trustees' meetings and
of preparing, printing and mailing all information and documents,
including without limitation all notices, financial reports and proxy
materials, to holders of Interests;
(l) All costs of legal counsel for the Company and for
Trustees of the Company in connection with the rendering of legal advice
to or on behalf of the funds, including, without limitation, legal
services rendered in connection with the funds' existence, corporate and
financial structure and relations with its Interest holders,
registrations and qualifications of securities under federal, state and
other laws, issues of securities, expenses which the funds have herein
assumed whether customary or not, and extraordinary matters, including,
Page 3
without limitation, any litigation involving the Company, Trustees, or
officers of the Company relating to the affairs of the funds, employees
or agents of the funds;
(m) All costs of licenses to utilize trademarks, trade
names, service marks or other proprietary interests;
(n) All costs associated with membership in trade
associations; and
(o) All costs of filing annual and other reports with the SEC
and other regulatory authorities.
In the event that the Adviser provides any of the foregoing services or
pays any of these expenses, the funds promptly shall reimburse the
Adviser therefor.
Section 5. Term; Termination.
Section 5.1. This Agreement shall continue in effect, unless
sooner terminated in accordance with the provisions of Section 5.2, for
a period of two years beginning the date hereof, and shall continue in
effect from year to year thereafter (collectively, the "Term");
provided, however, that any such continuation shall be expressly
approved at least annually either by the Trustees, including a majority
of the Trustees who are not parties hereto or Interested Persons of any
such party, cast at a meeting called for the purpose of voting on such
renewal, or the affirmative vote of a majority of the Outstanding Voting
Securities (as such term is defined in Section 2(a)(42) of the 1940 Act)
of the funds.
(a) Any continuation of this Agreement pursuant to Section
5.1 hereof shall be deemed to be specifically approved if such approval
occurs:
(i) with respect to the first continuation hereof, during the 60
days prior to and including the earlier of (A) the date specified herein
for the termination of this Agreement in the absence of such approval,
or (B) the second anniversary of the execution of this Agreement; and
(ii) with respect to any subsequent continuation hereof, during the
60 days prior to and including the first anniversary of the date upon
which the most recent previous annual continuance of this Agreement
became effective; or
(iii)at such other date or time provided in or permitted by Rule
15a-2 under the 1940 Act.
Section 5.2. This Agreement may be terminated at any time,
without penalty, as follows:
(a) By a majority of the Trustees of the Company who are not
parties hereto or Interested Persons of any such party, or by the
affirmative vote of a majority of the Outstanding Voting Securities of
the Company, upon at least 60 days' prior written notice to the Adviser
at its principal place of business; and
Page 4
(b) By the Adviser, upon at least 60 days' prior written
notice to the Company at its principal place of business.
Section 6. Retention of Control by Funds.
The Company acknowledges that the investment advice and recommendations
to be provided by the Adviser hereunder are advisory in nature only.
The Company further acknowledges that, at all times during the Term
hereof, the funds (and not the Adviser) shall retain full control over
the investment policies of the funds. Nothing contained herein shall be
deemed or construed to limit, prohibit or restrict the right or ability
of the Trustees of the Company to delegate to the appropriate officers
of the Company, or to a committee of Trustees of the Company, the power
to authorize purchases, sales or other actions affecting the portfolios
of the funds between meetings of the Trustees of the Company; provided,
however, that all such purchases, sales or other actions so taken during
such time shall be consistent with the investment policies of the funds
and shall be reported to the Board of Trustees of the Company at its
next regularly scheduled meeting.
Section 7. Brokers and Brokerage Commissions.
Section 7.1. For purposes of this Agreement, brokerage
commissions paid by the funds upon the purchase or sale of the funds'
portfolio securities shall be considered a cost of securities of the
funds and shall be paid by the funds in accordance with Section 4.1(e)
hereof.
Section 7.2. The Adviser shall place funds portfolio transactions
with brokers and dealers who render satisfactory service in the
execution of orders at the most favorable prices and at reasonable
commission rates; provided, however, that the Adviser may pay a broker
or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another broker or dealer would
have charged for effecting such transaction, if the Adviser determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer, in terms of either that particular transaction or the
overall responsibilities of the Adviser.
Section 7.3. In placing portfolio business with broker-dealers
for or on behalf of the funds, the Adviser shall seek the best execution
of each such transaction, and all such brokerage placements shall be
consistent with the Rules of Conduct of NASD Regulation, Inc.
Notwithstanding the foregoing, the funds shall retain the right to
direct the placement of all portfolio transactions for or on behalf of
the funds, and, in furtherance thereof, the funds may establish policies
or guidelines to be followed by the Adviser in its placement of the
funds' portfolio transactions pursuant to the foregoing provisions. The
Adviser shall report to the Trustees of the Company at least on a
quarterly basis regarding the placement of the funds' portfolio
transactions.
Section 7.4. The Adviser shall not deal with any affiliate in any
transaction hereunder in which such affiliate acts as a principal, nor
shall the Adviser, in rendering services to the funds hereunder, execute
any negotiated trade with any affiliate if execution thereof involves
such affiliate's acting as a principal with respect to any part of an
order for or on behalf of the funds.
Page 5
Section 8. Assignment.
This Agreement may not be assigned by either party hereto. This
Agreement shall terminate automatically in the event of any assignment
(as such term is defined in Section 2(a)(4) of the 1940 Act). Any
attempted assignment of this Agreement shall be of no force and effect.
Section 9. Amendments.
This Agreement may be amended in writing signed by both parties hereto;
provided, however, that no such amendment shall be effective unless
approved by a majority of the Trustees of the Company who are not
parties hereto or Interested Persons of any such party cast at a meeting
called for the purpose of voting on such amendment and by the
affirmative vote of a majority of the Outstanding Voting Securities of
the funds.
Section 10. Liability.
The Adviser, its partners, directors, officers, employees, and certain
other persons performing specific functions for a fund will only be
liable to the fund for losses resulting from willful misfeasance, bad
faith, gross negligence, or reckless disregard of their obligations and
duties under the Agreement.
Section 11. Section 817(H) Diversification.
The Adviser is responsible for compliance with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended ("Code"),
applicable to each fund (relating to the diversification requirements
applicable to investments in underlying variable annuity contracts).
Section 12. Governing Law.
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois, without reference to
the conflict of laws provisions thereof. In the event of any
inconsistency between this Agreement and the 1940 Act, the 1940 Act
shall govern, and the inconsistent provisions of this Agreement shall be
construed so as to eliminate such inconsistency.
Section 13. Non-Liability of Certain Persons.
Any obligation of the Company hereunder shall be binding only upon the
assets of the Company (or the applicable fund thereof) and shall not be
binding upon any Trustee, officer, employee, agent, member or interest-
holder of the Company. Neither the authorization of any action by any
Trustee, officer, employee, agent, member or interest-holder of the
Company nor the execution of this agreement on behalf of the Fund shall
impose any liability upon any Trustee, officer, employee, agent, member
or interest-holder of the Company.
Page 6
Section 14. Use of Adviser's Name.
The Company may use the name "First Defined Portfolio Fund, LLC" and the
Portfolio names listed in Schedule A or any other name derived from the
name "First Trust" or "Nike Securities" only for so long as this
Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which
shall have succeeded to the business of Adviser as investment adviser.
At such time as this Agreement or any extension, renewal or amendment
hereof, or such other similar agreement shall no longer be in effect,
the Company will cease to use any name derived from the name "First
Trust" or "Nike Securities" or otherwise connected with Adviser, or with
any organization which shall have succeeded to Adviser's business as
investment adviser.
In Witness Whereof, the parties hereto have executed this Agreement as
of the date first above written.
First Defined Portfolio Fund, LLC
By /s/ James A. Bowen
_______________________________
Name: ____________________________
Title: President
__________________________
First Trust Advisors L.P.
By /s/ Ronald McAlister
_______________________________
Name: ____________________________
Title: President
__________________________
Page 7
Schedule A
1. The Dow (sm) Target 5 Portfolio
2. The Dow (sm) DART 10 Portfolio
3. Global Target 15 Portfolio
4. S&P Target 10 Portfolio
5. NASDAQ Target 15 Portfolio
6. First Trust 10 Uncommon Values Portfolio
7. First Trust Energy Portfolio
8. First Trust Financial Services Portfolio
9. First Trust Pharmaceutical Portfolio
10. First Trust Technology Portfolio
11. First Trust Internet Portfolio
Page 8
Schedule B
Fee Rate
1. The Dow (sm) Target 5 Portfolio 0.60%
2. The Dow (sm) DART 10 Portfolio 0.60%
3. Global Target 15 Portfolio 0.60%
4. S&P Target 10 Portfolio 0.60%
5. NASDAQ Target 15 Portfolio 0.60%
6. First Trust 10 Uncommon Values Portfolio 0.60%
7. First Trust Energy Portfolio 0.60%
8. First Trust Financial Services Portfolio 0.60%
9. First Trust Pharmaceutical Portfolio 0.60%
10. First Trust Technology Portfolio 0.60%
11. First Trust Internet Portfolio 0.60%
Page 9
FIRST DEFINED PORTFOLIO FUND, LLC
___________________________________________________________________________
Distribution Agreement
This Distribution Agreement (the "Agreement") is made as of this 1st day
of October, 1999, by and between First Defined Portfolio Fund, LLC (the
"Company"), a Delaware limited liability company, on behalf of each
series (each a "fund" and, collectively, the "funds") of the Company
listed in Appendix A attached hereto, as may be amended from time to
time and Nike Securities L.P., an Illinois limited partnership (the
"Distributor").
Section 1. GENERAL DUTIES AS DISTRIBUTOR OF FUND INTERESTS.
Distributor shall act as principal distributor for each fund. Each fund
may be authorized to issue multiple series. Distributor has the
exclusive right to purchase, as agent, from each fund, interests of each
series authorized and issued by a fund. Distributor agrees, as agent
for each fund, to accept for redemption, the interests of each series
authorized and issued by the fund; whenever the officers of the Company
deem it advisable for the protection of interest holders, they may
suspend or cancel such authority with respect to one or more of the
funds. In the performance of these duties, Distributor shall be guided
by the requirements of this Agreement, the applicable provisions of the
Company's Limited Liability Company Agreement and applicable federal and
state law, all as amended and/or supplemented from time to time, and
each fund's Prospectus and Statement of Additional Information, then in
effect under the Company's current Registration Statement filed with the
U.S. Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act").
Section 2. SALES LITERATURE AND ADVERTISEMENTS.
All sales literature and advertisements used by Distributor in
connection with the sale of the Company's interests must be approved in
advance by a Company officer. In connection with the sale or arranging
for the sale of the Company's interests, Distributor is authorized to
give only such information and to make only such statements or
representations as are contained in each fund's Prospectus then
currently in effect under the Company's Registration Statement, or in
sales literature or advertisements approved by the Company.
Section 3. LIMITATION UPON INVESTMENT IN THE COMPANY.
Distributor shall not accept any initial or subsequent investment in
interests of a fund, except as described in the fund's then-current
Prospectus and Statement of Additional Information.
Section 4. OFFERING PRICE & NET ASSET VALUE PER INTEREST.
Interests of each fund sold under this Agreement shall be sold only at
the offering price in effect at the time of such sale, as described in
the fund's then-current Prospectus and Statement of Additional
Information, and the fund shall receive not less than the full net asset
value therefor.
Page 1
Any reference to "net asset value per interest" shall refer to each
fund's net asset value per interest computed in accordance with the
Company's Limited Liability Company Agreement, the fund's then-current
Prospectus and Statement of Additional Information and the instructions
of the Trustees, all as amended from time to time. The Company or its
agent will advise Distributor as promptly as practicable of each fund's
net asset value per interest on each day on which it is determined.
Section 5. DUTIES UPON SALE OR REDEMPTION OF INTERESTS.
Distributor shall remit or cause to be remitted to the Company's
custodian or transfer agent, as applicable, the net asset value per
interest of all interests of each fund sold by Distributor. Each fund
will, as promptly as practicable, cause the account of the purchaser to
be credited with the number of interests purchased. The Company will
not issue interest certificates.
Distributor shall process or cause to be processed requests received
from each fund's interest holders for redemption of its interests, in
the manner prescribed in the fund's then-current Prospectus and
Statement of Additional Information. Interests shall be redeemed at
their net asset value per interest next computed after receipt of the
redemption request, subject to any applicable redemption fee as set
forth in the fund's then-current Prospectus. Distributor shall arrange
for payment to such interest holders from each fund's account with the
custodian or transfer agent, as applicable.
Section 6. INFORMATION RELATING TO THE COMPANY.
The Company or its agent will furnish Distributor with a certified copy
of all financial statements and a signed copy of each report prepared by
its independent public accountants, and will cooperate fully with
Distributor in its efforts to sell the funds' interests, and in the
performance by Distributor of all of its duties under this Agreement.
Section 7. FILING OF REGISTRATION STATEMENTS.
The Company or its agent will from time to time file (and furnish
Distributor with copies of) such registration statements, amendments and
supplements thereto, and reports or other documents as may be required
under the 1933 Act, the 1940 Act, or the laws of the states in which
Distributor desires to sell interests of the funds.
Section 8. MULTIPLE CAPACITIES.
Distributor shall give the Company equitable treatment under the
circumstances in supplying services in any capacity, but the Company
recognizes that it is not entitled to receive preferential treatment
from Distributor as compared with the treatment given to any other
investment company or customer. Whenever Distributor shall act in
multiple capacities on behalf of the Company, Distributor shall maintain
the appropriate separate account and records for each such capacity.
Page 2
Section 9. PAYMENT OF FEES AND EXPENSES.
Distributor shall, at its own expense, finances certain activities
incident to the sale and distribution of the interests of the funds,
including printing and distribution of prospectuses and statements of
additional information to other than existing interest holders and the
printing and distributing of sales literature and advertising.
Distributor shall be entitled to receive for its services as distributor
the fees payable in accordance with any plans adopted by the funds (or
class of interests of the respective funds) pursuant to Rule 12b-1 under
the 1940 Act, and may remit such fees to, among others, American Skandia
Life Assurance Corporation in accordance with the terms of any such plan.
Section 10. LIABILITY OF THE DISTRIBUTOR.
Distributor shall be liable for its own acts and omissions caused by
Distributor's willful misfeasance, bad faith, or gross negligence in the
performance of Distributor's duties, or by Distributor's reckless
disregard of its obligations under this Agreement, and nothing herein
shall protect Distributor against any such liability to the Company or
its interest holders. Subject to the first sentence of this Section,
Distributor shall not be liable for any action taken or omitted on
advice, obtained in good faith, of counsel, provided such counsel is
satisfactory to the Company.
Section 11. TERMINATION OF AGREEMENT; ASSIGNMENT.
This Agreement may be terminated at any time, without the payment of any
penalty, on 60 days' written notice (i) by Distributor; (ii) by the
Company, acting pursuant to a resolution adopted by the non-interested
Trustees; or (iii) by the vote of the holders of the lesser of (1) 67%
of the Company's interests present at a meeting if the holders of more
than 50% of the outstanding interests are present in person or
represented by proxy, or (2) more than 50% of the outstanding interests
of the Company. This Agreement shall automatically terminate in the
event of its assignment. Termination shall not affect the rights of the
parties which have accrued prior thereto.
Section 12. DURATION.
Unless sooner terminated, this Agreement shall continue in effect for
one year from the date herein above first written, and from year to year
thereafter until terminated, provided that the continuation of this
Agreement and the terms hereof are specifically approved annually in
accordance with the requirements of the 1940 Act as modified or
superseded by any rule, regulation, order or interpretive position of
the Commission.
Section 13. NON-LIABILITY OF CERTAIN PERSONS.
Any obligation of the Company hereunder shall be binding only upon the
assets of the Company (or the applicable fund thereof) and shall not be
binding upon any Trustee, officer, employee, agent, member or interest-
holder of the Company. Neither the authorization of any action by any
Trustee, officer, employee, agent, member or interest-holder of the
Company nor the execution of this agreement on behalf of the Fund shall
impose any liability upon any Trustee, officer, employee, agent, member
or interest-holder of the Company.
Page 3
Section 14. DEFINITIONS.
The terms "assignment" and "interested person" when used in this
Agreement shall have the meanings given such terms in the 1940 Act.
Section 15. CONCERNING APPLICABLE PROVISIONS OF LAW, ETC.
This Agreement shall be subject to all applicable provisions of law,
including, without being limited to, the applicable provisions of the
1940 Act, the 1933 Act, and the Securities Exchange Act of 1934, as
amended; and to the extent that any provisions of this Agreement are in
conflict with such laws, the latter shall control.
The laws of the State of Illinois shall govern the construction,
validity and effect of this Agreement.
Section 16. MISCELLANEOUS.
The obligations of the Company and each fund are not personally binding
upon, nor shall resort be had to the private property of, any of the
Trustees, interest holders, officers, employees or agents of the Company
or any fund, but only the relevant fund's property shall be bound. No
fund shall be liable for the obligations of any other fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
above written.
FIRST DEFINED PORTFOLIO FUND, LLC
By: /s/ James A. Bowen
_______________________________
Name:_______________________________
Title: President
______________________________
NIKE SECURITIES L.P.
By: /s/ James A. Bowen
_______________________________
Name:_______________________________
Title: President
______________________________
Page 4
APPENDIX A
1. The Dow (sm) Target 5 Portfolio
2. The Dow (sm) DART 10 Portfolio
3. Global Target 15 Portfolio
4. S&P Target 10 Portfolio
5. NASDAQ Target 15 Portfolio
6. First Trust 10 Uncommon Values Portfolio
7. First Trust Energy Portfolio
8. First Trust Financial Services Portfolio
9. First Trust Pharmaceutical Portfolio
10. First Trust Technology Portfolio
11. First Trust Internet Portfolio
Page 5
Chase
_______________________________________________________
DOMESTIC CUSTODY AGREEMENT
BETWEEN
_________________________________________________
AND
THE CHASE MANHATTAN BANK
October 1, 1999
________________
<TABLE>
<CAPTION>
DOMESTIC CUSTODY AGREEMENT
TABLE OF CONTENTS
<C> <S> <C>
1. INTENTION OF THE PARTIES; DEFINITIONS 1
1.1 Intention of the Parties. 1
1.2 Definitions 1
2. WHAT BANK IS REQUIRED TO DO 3
2.1 Set Up Accounts 3
2.2 Cash Account 3
2.3 Segregation of Assets; Nominee 4
2.4 Settlement of Trades 4
2.5 Contractual Settlement Date 4
2.6 Actual Settlement Date 5
2.7 Income Collection; Autocredit 5
2.8 Fractions/ Redemptions by Lot 6
2.9 Presentation of Coupons; Certain Other Ministerial Acts 6
2.10 Corporate Actions 6
2.11 Proxy Voting 6
2.12 Statements and Information Available On-Line 7
2.13 Access to Bank's Records 8
3. INSTRUCTIONS 8
3.1 Acting on Instructions; Unclear Instructions 8
3.2 Confirmation of Oral Instructions/ Security Devices 8
3.3 Instructions; Contrary to Law/Market Practice 9
3.4 Cut-off Times 10
4. FEES EXPENSES AND OTHER AMOUNTS OWING TO BANK 10
4.1 Fees and Expenses 10
4.2 Overdrafts 10
4.3 Bank's Right Over Securities; Set-off 10
5. SECURITIES DEPOSITORIES AND AGENTS
5.1 Use of Depositories 11
5.2 Use of Agents 11
Page i
6. ADDITIONAL PROVISIONS RELATING TO CUSTOMER 11
6.1 Representations of Customer
6.2 Customer to Provide Certain Information to Bank 12
6.3 Customer is Liable to Bank Even if it is Acting for Another Person. 12
7. WHEN BANK IS LIABLE TO CUSTOMER 12
7.1 Standard of Care; Liability 12
7.2 Force Majeure 13
7.3 Bank May Consult With Counsel 13
7.4 Bank Provides Diverse Financial Services and May Generate Profits as a Result 13
8. TAXATION 14
8.1 Tax Obligations 14
8.2 Tax Reclaims 14
9. TERMINATION 16
10 MISCELLANEOUS 16
10.1 Notices 16
10.2 Successors and Assigns 16
10.3 Interpretation 16
10.4 Entire Agreement 16
10.5 Confidentiality 17
10.6 Insurance 17
10.7 Governing Law and Jurisdiction 17
10.8 Severability and Waiver 17
10.9 Counterparts 18
</TABLE>
Page ii
DOMESTIC CUSTODY AGREEMENT
This Agreement, dated October 1, 1999, is between THE CHASE
MANHATTAN BANK ("Bank"), with a place of business at
4 New York Plaza, New York, NY 10004; and First Defined Portfolio Fund, LLC
("Customer") a company registered under the
Investment Company Act of 1940, as amended, with a place of business at
1001 Warrenville Road
Lisle, IL 60532
1. Intention of the Parties; DEFINITIONS
1.1 Intention of the Parties.
(a) This Agreement sets out the terms governing custodial,
settlement and certain other associated services offered by Bank to
Customer. Bank will be responsible for the performance of only those
duties that are set forth in this Agreement or expressly contained in
Instructions that are consistent with the provisions of this Agreement
and with Bank's operations and procedures. Customer acknowledges that
Bank is not providing any legal, tax or investment advice in providing
the services hereunder.
(b) It is the intention of the parties that the services offered
by Bank under this Agreement with respect to the custody of Securities
and related settlement services will be limited to Securities that are
issued in the United States ("U.S.") by an issuer that is organized
under the laws of the U.S. or any state thereof, or that are both traded
in the U.S. and that are eligible for deposit at a U.S. Securities
Depository.
1.2 Definitions.
(a) As used herein, the following terms have the meaning
hereinafter stated.
"Account" has the meaning set forth in Section 2.1 of this Agreement.
"Affiliate" means an entity controlling, controlled by, or under common
control with, Bank.
"Applicable Law" means any statute, whether national, state or local,
applicable in the United States or any other country, the rules of the
treaty establishing the European Community, any other law, rule,
regulation or interpretation of any governmental entity, any applicable
common law, and any decree, injunction, judgment, order, ruling, or writ
of any governmental entity.
"Authorized Person" means any person (including an investment manager or
other agent) who has been designated by written notice from Customer or
its designated agent to act on behalf of Customer hereunder. Such
Page 1
persons will continue to be Authorized Persons until such time as Bank
receives Instructions from Customer or its designated agent that any
such person is no longer an Authorized Person.
"Bank Indemnitees" means Bank, and its nominees, directors, officers,
employees and agents.
"Cash Account" has the meaning set forth in Section 2.1(a)(ii).
"Corporate Action" means any subscription right, bonus issue, stock
repurchase plan, redemption, exchange, tender offer, or similar matter
with respect to a Financial Asset in the Securities Account that require
discretionary action by the holder, but does not include proxy voting.
"Entitlement Holder" means the person named on the records of a
Securities Intermediary as the person having a Securities Entitlement
against the Securities Intermediary.
"Financial Asset" means, as the context requires, either the asset
itself or the means by which a person's claim to it is evidenced,
including a Security, a security certificate, or a Securities
Entitlement. "Financial Asset" does not include cash.
"Instructions" has the meaning set forth in Section 3.1 of this Agreement.
"Liabilities" means any liabilities, losses, claims, costs, damages,
penalties, fines, obligations, or expenses of any kind whatsoever
(including, without limitation, reasonable attorneys', accountants',
consultants' or experts' fees and disbursements).
"Securities" means stocks, bonds, rights, warrants and other negotiable
and non-negotiable instruments, whether issued in certificated or
uncertificated form, that are commonly traded or dealt in on securities
exchanges or financial markets. "Securities" also means other
obligations of an issuer, or shares, participations and interests in an
issuer recognized in the country in which it is issued or dealt in as a
medium for investment and any other property as may be acceptable to
Bank for the Securities Account.
"Securities Account" means each Securities custody account on Bank's
records to which Financial Assets are or may be credited pursuant hereto.
"Securities Depository" has the meaning set forth in Section 5.1 of this
Agreement.
"Securities Entitlement" means the rights and property interest of an
Entitlement Holder with respect to a Financial Asset as set forth in
Part 5 of Article 8 of the Uniform Commercial Code of the State of New
York, as the same may be amended from time to time.
"Securities Intermediary" means Bank, a Securities Depository, and any
other financial institution which in the ordinary course of business
maintains custody accounts for others and acts in that capacity.
Page 2
(b) All terms in the singular will have the same meaning in the
plural unless the context otherwise provides and visa versa.
2. WHAT BANK IS REQUIRED TO DO
2.1 Set Up Accounts.
(a) Bank will establish and maintain the following accounts
("Accounts"):
(i) a Securities Account in the name of Customer for Financial Assets,
which may be received by Bank for the account of Customer, including as
an Entitlement Holder; and
(ii) an account in the name of Customer ("Cash Account") for any and all
cash received by Bank for the account of Customer.
(b) At the request of Customer, additional Accounts may be opened
in the future, which will be subject to the terms of this Agreement,
including a segregated Account or Accounts:
in accordance with the provisions of an agreement among Customer and a
broker-dealer (registered under the Securities and Exchange Act of 1934
("Exchange Act") and a member of the National Association of Securities
Dealer, Inc. ("NASD"), or any futures commission merchant registered
under the Commodity Exchange Act, relating to compliance with the rules
of the Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization, regarding
escrow or other arrangements in connection with transactions by us;
for the purpose of segregating cash or Financial Assets with options
purchased or sold by Customer; and
for any other corporate purposes as per the Instruction of an Authorized
Person.
2.2 Cash Account.
Except as otherwise provided in Instructions acceptable to Bank,
all cash held in a Cash Account established or maintained by Bank will
be held during the period it is credited to the Accounts in one or more
deposit accounts at Bank in which cash shall not be subject to
withdrawal by check or draft. Funds credited to the Cash Account will
be transferred by Bank by means of Instruction ("payment order") to a
Bank administrator assigned to Customer. Payment orders and
Page 3
Instructions seeking to cancel payment orders or to amend payment orders
which are issued by telephone, telecopier or in writing shall be subject
to a mutually agreed security procedure and Bank may execute or pay
payment orders issued in Customer's name when verified by and Authorized
Person in accordance with such procedure.
2.3 Segregation of Assets; Nominee Name.
(a) Bank will identify in its records that Financial Assets
credited to Customer's Securities Account belong to Customer (except as
otherwise may be agreed by Bank and Customer).
(b) Bank is authorized, in its discretion, to hold in bearer form,
such Financial Assets as are customarily held in bearer form and to
register in the name of the Customer, Bank, a Securities Depository, or
their respective nominees, such Financial Assets as are customarily held
in registered form. Customer authorizes Bank to hold Financial Assets in
omnibus accounts and will accept delivery of Financial Assets of the
same class and denomination as those deposited with Bank.
2.4 Settlement of Trades.
When Bank receives an Instruction directing settlement of a trade
in Financial Assets that includes all information required by Bank, Bank
will use reasonable care to effect such settlement as instructed.
Settlement of purchases and sales of Financial Assets will be conducted
in accordance with prevailing standards of the market in which the
transaction occurs. The risk of loss will be Customer's whenever Bank
delivers Financial Assets or payment in accordance with applicable
market practice in advance of receipt or settlement of the expected
consideration. In the case of the failure of Customer's counterparty to
deliver the expected consideration as agreed, Bank will contact the
counterparty to seek settlement, but Bank will not be obligated to
institute legal proceedings, file proof of claim in any insolvency
proceeding, or take any similar action.
2.5 Contractual Settlement Date Accounting.
(a) Should Customer request to have Bank's Contractual Settlement
Date Accounting Service, Bank will effect book entries on a "contractual
settlement date accounting" basis as described below with respect to the
settlement of trades in those markets where Bank generally offers
contractual settlement day accounting and will notify Customer of these
markets from time to time.
(i) Sales: On the settlement date for a sale, Bank will credit the Cash
Account with the sale proceeds of the sale and transfer the relevant
Financial Assets to an account pending settlement of the trade if not
already delivered.
(ii) Purchases: On the settlement date for the purchase (or earlier, if
market practice requires delivery of the purchase price before the
settlement date), Bank will debit the Cash Account with the settlement
monies and credit a separate account. Bank then will post the Securities
Account as awaiting receipt of the expected Financial Assets. Customer
Page 4
will not be entitled to the delivery of Financial Assets that are
awaiting receipt until Bank or its Securities Intermediary actually
receives them.
Bank reserves the right to restrict in good faith the availability of
contractual day settlement accounting for credit reasons.
(b) Bank may (in its absolute discretion) upon oral or written
notification to Customer reverse any debit or credit made pursuant to
Section 2.5(a) prior to a transaction's actual settlement, and Customer
will be responsible for any costs or liabilities resulting from such
reversal. Customer acknowledges that the procedures described in this
sub-section are of an administrative nature, and Bank does not undertake
to make loans and/or Financial Assets available to Customer.
2.6 Actual Settlement Date Accounting.
With respect to any sale or purchase transaction that is not posted
to the Account on the contractual settlement date as referred to in
Section 2.5, Bank will post the transaction on the date on which the
cash or Financial Assets received as consideration for the transaction
is actually received by Bank.
2.7 Income Collection; Autocredit.
(a) Bank will credit the Cash Account with income and redemption
proceeds on Financial Assets in accordance with the times notified by
Bank from time to time on or after the anticipated payment date, net of
any taxes that are withheld by Bank or any third party. Where no time
is specified for a particular market, income and redemption proceeds
from Financial Assets will be credited only after actual receipt and
reconciliation. Bank may reverse such credits upon oral or written
notification to Customer that Bank believes that the corresponding
payment will not be received by Bank within a reasonable period or such
credit was incorrect.
(b) Bank will make reasonable endeavors in its discretion to
contact appropriate parties to collect unpaid interest, dividends or
redemption proceeds, but Bank will not be obliged to file any formal
notice of default, institute legal proceedings, file proof of claim in
any insolvency proceeding, or take any similar action.
2.8 Fractions/ Redemptions by Lot.
Bank may sell fractional interests in Financial Assets and credit
the Cash Account with the proceeds of the sale. If some, but not all,
of an outstanding class of Financial Asset is called for redemption,
Bank may allot the amount redeemed among the respective beneficial
holders of such class of Financial Asset in any manner Bank deems to be
fair and equitable.
Page 5
2.9 Presentation of Coupons; Certain Other Ministerial Acts.
Until Bank receives Instructions to the contrary, Bank will:
(i) present all Financial Assets for which Bank has received notice of
a call for redemption or that have otherwise matured, and all income and
interest coupons and other income items that call for payment upon
presentation;
(ii) execute in the name of Customer such certificates as may be
required to obtain payment in respect of Financial Assets; and
(iii)exchange interim or temporary documents of title held in the
Securities Account for definitive documents of title.
2.10 Corporate Actions.
(a) Bank will follow Corporate Actions and advise the Customer of
those Corporate Actions of which Bank's central corporate actions
department receives notice from the issuer or from the Securities
Depository in which such Financial Assets are maintained or notice
published in publications and reported in reporting services routinely
used by Bank for this purpose.
(b) If an Authorized Person fails to provide Bank with timely
Instructions with respect to any Corporate Action, neither Bank nor its
nominees will take any action in relation to that Corporate Action,
except as otherwise agreed in writing by Bank and Customer or as may be
set forth by Bank as a default action in the advice it provides under
Section 2.10 (a) with respect to that Corporate Action.
2.11 Proxy Voting.
(a) Subject to and upon the terms of this sub-section, Bank will
provide Customer with information which it receives on matters to be
voted upon at meetings of holders of Financial Assets ("Notifications"),
and Bank will act in accordance with Customer's Instructions in relation
to such Notifications. If information is received by Bank at its proxy
voting department too late to permit timely voting by Customer, Bank's
only obligation is to provide, so far as reasonably practicable, a
Notification (or summary information concerning a Notification) on an
"information only" basis.
(b) Bank will act upon Instructions to vote on matters referred to
in a Notification, provided Instructions are received by Bank at its
proxy voting department by the deadline referred to in the relevant
Notification. If Instructions are not received in a timely manner, Bank
will not be obligated to provide further notice to Customer.
(c) Customer acknowledges that the provision of proxy voting
services may be precluded or restricted under a variety of
circumstances. These circumstances include, but are not limited to: (i)
the Financial Assets being on loan or out for registration ; (ii) the
Page 6
pendency of conversion or another corporate action; or (iii) Financial
Assets being held at Customer's request in a name not subject to the
control of Bank, in a margin or collateral account at Bank or another
bank or broker, or otherwise in a manner which affects voting, local
market regulations or practices, or restrictions by the issuer.
(d) Notwithstanding the fact that Bank may act in a fiduciary
capacity with respect to Customer under other agreements or otherwise
hereunder, in performing voting proxy services Bank will be acting
solely as the agent of Customer, and will not exercise any discretion
with regard to such proxy services or vote any proxy except when
directed by an Authorized Person.
2.12 Statements and Information Available On-Line.
(a) Bank will issue statements to Customer at times mutually
agreed identifying the Financial Assets and cash in the Accounts. Bank
also will provide additional statements containing this information upon
Customer's request. Additionally, Bank will send (or make available on-
line to) Customer an advice or notification of any transfers of cash or
Financial Assets with respect to the Accounts. Bank will be not be
liable with respect to any matter set forth in those portions of any
such statement (or reasonably implied therefrom) to which Customer has
not given Bank a written exception or objection within sixty (60) days
of receipt of the statement.
(b) Prices and other information obtained from third parties which
may be contained in any statement sent to Customer have been obtained
from sources Bank believes to be reliable. Bank does not, however, make
any representation as to the accuracy of such information or that the
prices specified necessarily reflect the proceeds that would be received
on a disposal of the relevant Financial Assets. References in this
Agreement to statements include any statements in electronic form.
(c) Customer acknowledges that records and unaudited reports
available to it on-line will be unaudited and may not be accurate due to
inaccurate pricing, delays in updating Account records, and other
causes. Bank will not be liable for any loss or damage arising out of
the inaccuracy of any such records or unaudited reports accessed on-line.
2.13 Access to Bank's Records.
Bank will allow Customer's independent public accountants such
reasonable access to the records of Bank relating to Financial Assets as
is required in connection with their examination of books and records
pertaining to Customer's affairs.
3. Instructions
3.1 Acting on Instructions; Unclear Instructions.
(a) Bank is authorized to act under this Agreement (or to refrain
from taking action) in accordance with the instructions received by
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Bank, via telephone, telex, facsimile transmission, or other teleprocess
or electronic instruction or trade information system acceptable to Bank
("Instructions"). Bank will have no responsibility for the authenticity
or propriety of any Instructions that Bank believes in good faith to
have been given by Authorized Persons or which are transmitted with
proper testing or authentication pursuant to terms and conditions that
Bank may specify. Customer authorizes Bank to accept and act upon any
Instructions received by it without inquiry. Customer will indemnify
Bank Indemnitees against, and hold each of them harmless from, any
Liabilities that may be imposed on, incurred by, or asserted against
Bank Indemnitees as a result of any action or omission taken in
accordance with any Instructions or other directions upon which Bank is
authorized to rely under the terms of this Agreement.
(b) Unless otherwise expressly provided, all Instructions will continue
in full force and effect until canceled or superseded.
(c) Bank may (in its sole discretion and without affecting any part of
this Section 3.1) seek clarification or confirmation of an Instruction
from an Authorized Person and may decline to act upon an Instruction if
it does not receive clarification or confirmation satisfactory to it.
Bank will not be liable for any loss arising from any delay while it
seeks such clarification or confirmation.
(d) In executing or paying a payment order Bank may rely upon the
identifying number (e.g. Fedwire routing number or account) of any party
as instructed in the payment order. Customer assumes full
responsibility for any inconsistency between the name and identifying
number of any party in payment orders issued to Bank in Customer's name.
3.2 Confirmation of Oral Instructions/ Security Devices.
Any Instructions delivered to Bank by telephone will promptly
thereafter be confirmed in writing by an Authorized Person. Each
confirmation is to be clearly marked "Confirmation." Bank will not be
liable for having followed such Instructions notwithstanding the failure
of an Authorized Person to send such confirmation in writing or the
failure of such confirmation to conform to the telephone received.
Either party may record any of their telephonic communications.
Customer will comply with any security procedures reasonably required by
Bank from time to time with respect to verification of Instructions.
Customer will be responsible for safeguarding any test keys,
identification codes or other security devices that Bank will make
available to Customer or any Authorized Person.
3.3 Instructions; Contrary to Law/Market Practice.
Bank need not act upon Instructions which it reasonably believes to
be contrary to law, regulation or market practice but will be under no
duty to investigate whether any Instructions comply with Applicable Law
or market practice.
Page 8
Cut-off Times.
Bank has established cut-off times for receipt of some categories of
Instruction, which will be made available to Customer. If Bank receives
an Instruction after its established cut-off time, it will attempt to
act upon the Instruction on the day requested if Bank deems it
practicable to do so or otherwise as soon as practicable after that day.
4. Fees, Expenses and Other Amounts Owing to Bank
4.1 Fees and Expenses.
Customer will pay Bank for its services hereunder the fees set
forth in Schedule A hereto or such other amounts as may be agreed upon
in writing from time to time, together with Bank's reasonable out-of-
pocket or incidental expenses, including, but not limited to, legal
fees. Customer authorizes Bank to charge any Cash Accounts, for any such
fees or expenses.
4.2 Overdrafts.
Customer will have sufficient immediately available funds each day
in the Cash Account (without regard to any Cash Account investments) to
pay for the settlement of all Financial Assets delivered against payment
to Customer and credited to the Securities Account. If a debit to the
Cash Account results (or will result) in a debit balance, then Bank may,
in its discretion, (i) advance an amount equal to the overdraft, (ii) or
reject the settlement in whole or in any part, or (iii) if posted to the
Securities Account, reverse the posting of the Financial Assets credited
to the Securities Account. If Bank elects to make such an advance, the
advance will be deemed a loan to Customer, payable on demand, bearing
interest at the rate charged by Bank from time to time, for overdrafts
incurred by customers similar to Customer, from the date of such advance
to the date of payment (both after as well as before judgment) and
otherwise on the terms on which Bank makes similar overdrafts available
from time to time. No prior action or course of dealing on Bank's part
with respect to the settlement of transactions on Customer's behalf will
be asserted by Customer against Bank for Bank's refusal to make advances
to the Cash Account or to settle any transaction for which Customer does
not have sufficient available funds in the Account.
4.3 Bank's Right Over Securities; Set-off.
(a) Customer grants Bank a security interest in and a lien on the
Financial Assets held in the Securities Account as security for any and
all amounts which are now or become owing to Bank under any provision of
this Agreement, whether or not matured or contingent ("Indebtedness").
(b) Bank will be further entitled to set any such Indebtedness off
against any cash or deposit account with Bank or any of its Affiliates
of which Customer is the beneficial owner. Bank will notify Customer in
advance of any such charge unless Bank reasonably believes that it might
prejudice its interests to do so and, in such event, Bank will notify
Customer promptly afterwards.
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5. SECURITIES DEPOSITORIES AND OTHER AGENTS
5.1 Use of Depositories.
Bank may deposit Financial Assets with, and hold Financial Assets
in, any securities depository, settlement system, dematerialized book
entry system or similar system (together a "Securities Depository") on
such terms as such systems customarily operate and Customer will provide
Bank with such documentation or acknowledgements that Bank may require
to hold the Financial Assets in such systems. Bank will have no
responsibility for any act or omission by (or the insolvency of) any
Securities Depository. In the event Customer incurs a loss due to the
negligence, willful misconduct, or insolvency of a Securities
Depository, Bank will make reasonable endeavors, in its discretion, to
seek recovery from the Securities Depository.
5.2 Use of Agents.
(a) Bank may provide certain services under this Agreement through
third parties. These third parties may be Affiliates. Bank will not be
responsible for any loss as a result of a failure by any broker or any
other third party that it selects and retains using reasonable care to
provide ancillary services, such as pricing, that it does not
customarily provide itself. Nevertheless, Bank will be liable for the
performance of any such service provider selected by Bank that is an
Affiliate to the same extent as Bank would have been liable if it
performed such services itself.
(b) Bank will execute transactions involving Financial Assets
through a broker which is an Affiliate (i) in the case of the sale under
Section 2.8 of a fractional interest or (ii) if an Authorized Person
directs Bank to use the affiliated broker or otherwise requests that
Bank select a broker for that transaction. The affiliated broker may
charge its customary commission (or retain its customary spread) with
respect to either such transaction.
6. ADDITIONAL PROVISIONS RELATING TO CUSTOMER
6.1 Representations of Customer.
Customer represents and warrants that (i) it has full authority and
power, and has obtained all necessary authorizations and consents, to
deposit and control the Financial Assets and cash in the Accounts, to
use Bank as its custodian in accordance with the terms of this
Agreement, to incur indebtedness and to pledge Financial Assets as
contemplated by Section 4.3; and (ii) this Agreement is Customer's
legal, valid and binding obligation, enforceable in accordance with its
terms and it has full power and authority to enter into and has taken
all necessary corporate action to authorize the execution of this
Agreement. Bank may rely upon the above or the certification of such
other facts as may be required to administer Bank's obligations
hereunder Bank may rely upon the above or the certification of such
other facts as may be required to administer Bank's obligations hereunder.
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6.2 Customer to Provide Certain Information to Bank.
Upon request, Customer will promptly provide to Bank such
information about itself and its financial status as Bank may reasonably
request, including Customer's organizational documents and its current
audited and unaudited financial statements.
6.3 Customer is Liable to Bank Even if it is Acting for Another Person.
If Customer is acting as an agent for a disclosed or undisclosed
principal in respect of any transaction, cash, or Financial Asset, Bank
nevertheless will treat Customer as its principal for all purposes under
this Agreement. In this regard, Customer will be liable to Bank as a
principal in respect of any transactions relating to the Account. The
foregoing will not affect any rights Bank might have against Customer's
principal.
7. When Bank is liable to Customer
7.1 Standard of Care; Liability.
(a) Bank will use reasonable care in performing its obligations
under this Agreement. Bank will not be in violation of this Agreement
with respect to any matter as to which it has satisfied its obligation
of reasonable care.
(b) Bank will be liable for Customer's direct damages to the
extent they result from Bank's negligence or willful misconduct in
performing its duties as set out in this Agreement. Nevertheless, under
no circumstances will Bank be liable for any indirect, consequential or
special damages (including, without limitation, lost profits) of any
form, whether or not foreseeable and regardless of the type of action in
which such a claim may be brought, with respect to the Accounts or
Bank's performance hereunder or its role as custodian.
(c) Customer will indemnify Bank Indemnitees against, and hold
them harmless from, any Liabilities that may be imposed on, incurred by
or asserted against any of Bank Indemnitees in connection with or
arising out of Bank's performance under this Agreement, provided Bank
Indemnitees have not acted with negligence or engaged in fraud or
willful misconduct in connection with the Liabilities in question.
(d) Without limiting Subsections 7.1 (a), (b) or (c), Bank will have
no duty or responsibility to: (i) question Instructions or make any sug-
gestions to Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or the
retention of Financial Assets; (iii) advise Customer or an Authorized
Person regarding any default in the payment of principal or income of
any security other than as provided in Section 2.7(b) of this Agreement;
(iv) evaluate or report to Customer or an Authorized Person regarding
the financial condition of any broker, agent or other party to which
Bank is instructed to deliver Financial Assets or cash; or (v) review or
Page 11
reconcile trade confirmations received from brokers (and Customer or its
Authorized Persons issuing Instructions will bear any responsibility to
review such confirmations against Instructions issued to and statements
issued by Bank).
7.2 Force Majeure.
Bank will maintain and update from time to time business continuation
and disaster recovery procedures with respect to its custody business
that it determines from time to time meet reasonable commercial
standards. Bank will have no liability, however, for any damage, loss,
expense or liability of any nature that Customer may suffer or incur,
caused by an act of God, fire, flood, civil or labor disturbance, war,
act of any governmental authority or other act or threat of any
authority (de jure or de facto), legal constraint, fraud or forgery,
malfunction of equipment or software (except to the extent such
malfunction is primarily attributable to Bank's negligence in
maintaining the equipment or software), failure of or the effect of
rules or operations of any external funds transfer system, inability to
obtain or interruption of external communications facilities, or any
cause beyond the reasonable control of Bank (including without
limitation, the non-availability of appropriate foreign exchange).
7.3 Bank May Consult With Counsel.
Bank will be entitled to rely on, and may act upon the advice of
professional advisers in relation to matters of law, regulation or
market practice (which may be the professional advisers of Customer),
and will not be liable to Customer for any action reasonably taken or
omitted pursuant to such advice.
7.4 Bank Provides Diverse Financial Services and May Generate Profits
as a Result.
Customer acknowledges that Bank or its Affiliates may have a
material interest in the transaction or that circumstances are such that
Bank may have a potential conflict of duty or interest. For example,
Bank or its Affiliates may act as a market maker in the Financial Assets
to which Instructions relate, provide brokerage services to other
customers, act as financial adviser to the issuer of such Financial
Assets, act in the same transaction as agent for more than one customer,
have a material interest in the issue of the Financial Assets; or earn
profits from any of these activities. Customer acknowledges that Bank
or its Affiliates may be in possession of information tending to show
that the Instructions received may not be in the best interests of
Customer. Bank is not under any duty to disclose any such information.
8. TAXATION
8.1 Tax Obligations.
(a) Customer confirms that Bank is authorized to deduct from any
cash received or credited to the Cash Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of Customer's Accounts.
Page 12
(b) Customer will provide to Bank such certifications,
documentation, and information as it may require in connection with
taxation, and warrants that, when given, this information is true and
correct in every respect, not misleading in any way, and contains all
material information. Customer undertakes to notify Bank immediately if
any information requires updating or correcting.
(c) Customer will be responsible for the payment of all taxes
relating to the Financial Assets in the Securities Account, and Customer
will pay, indemnify and hold Bank harmless from and against any and all
liabilities, penalties, interest or additions to tax with respect to or
resulting from, any delay in, or failure by, Bank (1) to pay, withhold
or report any U.S. federal, state or local taxes or foreign taxes
imposed on, or (2) to report interest, dividend or other income paid or
credited to the Cash Account, whether such failure or delay by Bank to
pay, withhold or report tax or income is the result of (x) Customer's
failure to comply with the terms of this paragraph, or (y) Bank's own
acts or omissions; provided however, Customer will not be liable to Bank
for any penalty or additions to tax due as a result of Bank's failure to
pay or withhold tax or to report interest, dividend or other income paid
or credited to the Cash Account solely as a result of Bank's negligent
acts or omissions.
8.2 Tax Reclaims.
(a) Subject to the provisions of this Section, Bank will apply for
a reduction of withholding tax and any refund of any tax paid or tax
credits in respect of income payments on Financial Assets comprising
American Depository Receipts credited to the Securities Account that
Bank believes may be available.
(b) The provision of a tax reclamation service by Bank is
conditional upon Bank receiving from Customer (i) a declaration of its
identity and place of residence and (ii) certain other documentation
(pro forma copies of which are available from Bank). If Financial
Assets comprising American Depository Receipts credited to the Account
are beneficially owned by someone other than Customer, this information
will be necessary with respect to the beneficial owner. Customer
acknowledges that Bank will be unable to perform tax reclamation
services unless it receives this information.
(c) Bank will perform tax reclamation services only with respect
to taxation levied by the revenue authorities of the countries advised
to Customer from time to time and Bank may, by notification in writing,
in its absolute discretion, supplement or amend the countries in which
the tax reclamation services are offered. Other than as expressly
provided in this Section 8.2 Bank will have no responsibility with
regard to Customer's tax position or status in any jurisdiction.
(d) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to the processing of any tax reclaim.
Page 13
9. Termination
Either party may terminate this Agreement on sixty days' notice in
writing to the other party. If Customer gives notice of termination, it
must provide full details of the persons to whom Bank must deliver
Financial Assets and cash. If Bank gives notice of termination, then
Customer must, within sixty days, notify Bank of details of its new
custodian, failing which Bank may elect (at any time after the sixty day
notice period) either to retain the Financial Assets and cash until such
details are given, continuing to charge fees due (in which case Bank's
sole obligation will be for the safekeeping of the Financial Assets and
cash), or deliver the Financial Assets and cash to Customer. Bank will
in any event be entitled to deduct any amounts owing to it prior to
delivery of the Financial Assets and cash (and, accordingly, Bank will
be entitled to sell Financial Assets and apply the sale proceeds in
satisfaction of amounts owing to it). Customer will reimburse Bank
promptly for all out-of-pocket expenses it incurs in delivering
Financial Assets upon termination. Termination will not affect any of
the liabilities either party owes to the other arising under this
Agreement prior to such termination.
10. Miscellaneous
10.1 Notices.
Notices (other than Instructions) will be served by registered mail
or hand delivery to the address of the respective parties as set out on
the first page of this Agreement, unless notice of a new address is
given to the other party in writing. Notice will not be deemed to be
given unless it has been received.
10.2 Successors and Assigns.
This Agreement will be binding on each of the parties' successors
and assigns, but the parties agree that neither party can assign its
rights and obligations under this Agreement without the prior written
consent of the other party, which consent will not be unreasonably
withheld.
10.3 Interpretation.
Headings are for convenience only and are not intended to affect
interpretation. References to sections are to sections of this
Agreement and references to sub-sections and paragraphs are to sub-
sections of the sections and paragraphs of the sub-sections in which
they appear.
10.4 Entire Agreement.
This Agreement, including the Schedules, Exhibits, and any riders (and
any separate agreement which Bank and Customer may enter into with
respect to any Cash Account), sets out the entire Agreement between the
parties in connection with the subject matter, and this Agreement
Page 14
supersedes any other agreement, statement, or representation relating to
custody, whether oral or written. Amendments must be in writing and
signed by both parties.
10.5 Confidentiality.
Bank will not disclose any confidential information concerning the
Financial Assets and/or cash held for Customer except as is reasonably
necessary to provide services to Customer, as required by law or
regulation or the organizational documents of the issuer of any
Financial Asset, or with the consent of Customer. Customer agrees to
keep this Agreement confidential and, except where disclosure is
required by law or regulation, will only disclose it (or any part of it)
with the prior written consent of Bank.
10.6 Insurance.
Bank will not be required to maintain any insurance coverage for
the benefit of Customer.
10.7 Governing Law and Jurisdiction.
This Agreement will be construed, regulated, and administered under
the laws of the United States or State of New York, as applicable,
without regard to New York's principles regarding conflicts of law. The
United States District Court for the Southern District of New York will
have the sole and exclusive jurisdiction over any lawsuit or other
judicial proceeding relating to or arising from this Agreement. If that
court lacks federal subject matter jurisdiction, the Supreme Court of
the State of New York, New York County will have sole and exclusive
jurisdiction. Either of these courts will have proper venue for any
such lawsuit or judicial proceeding, and the parties waive any objection
to venue or their convenience as a forum. The parties agree to submit
to the jurisdiction of any of the courts specified and to accept service
of process to vest personal jurisdiction over them in any of these
courts. The parties further hereby knowingly, voluntarily and
intentionally waive, to the fullest extent permitted by applicable law,
any right to a trial by jury with respect to any such lawsuit or
judicial proceeding arising or relating to this Agreement or the
transactions contemplated hereby.
10.8 Severability and Waiver.
(a) If one or more provisions of this Agreement are held invalid,
illegal or unenforceable in any respect on the basis of any particular
circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances
or in other jurisdictions and of the remaining provisions will not in
any way be affected or impaired.
(b) Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder
operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise
of any other power or right. No waiver by a party of any provision of
this Agreement, or waiver of any breach or default, is effective unless
in writing and signed by the party against whom the waiver is to be
enforced.
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10.09 Counterparts.
This Agreement may be executed in several counterparts each of
which will be deemed to be an original and together will constitute one
and the same agreement.
_________________________________________
By: /s/ James A. Bowen
_______________________________________
Title: President
_______________________________________
Date: 10/1/99
_______________________________________
THE CHASE MANHATTAN BANK
By: /s/ Rosalia Raviele
_______________________________________
Title: Vice President
Date: 10/1/99
_______________________________________
Page 16
GLOBAL CUSTODY RIDER
TO
DOMESTIC CUSTODY AGREEMENT
BETWEEN
THE CHASE MANHATTAN BANK
AND
GLOBAL CUSTODY RIDER
TO
DOMESTIC CUSTODY AGREEMENT
1. INTENTION OF THE PARTIES; DEFINITIONS
Intention of the Parties.
(a) This Rider together with the Domestic Custody Agreement sets
out the terms governing the custody, settlement and certain associated
services offered by Bank with respect to Global Securities (i.e.
Securities other than U.S. Securities, which are governed exclusively by
the terms of the Domestic Custody Agreement). To the extent there are
any inconsistencies between the terms of the Domestic Custody Agreement
and the terms of this Rider, the terms of this Rider shall govern.
(b) Investing in foreign markets may be a risky enterprise. The
holding of Financial Assets and cash in foreign jurisdictions may
involve risks of loss or other special features. Bank will not be
liable for any loss that results from the general risks of investing or
Country Risk.
1.2 Definitions.
All capitalized terms used in this Rider unless defined herein shall
have the meanings given to such terms as set forth in the Domestic
Custody Agreement.
"Affiliated Subcustodian" means a Subcustodian that is an Affiliate.
"Bank" means The Chase Manhattan Bank.
"Bank's London Branch" means the London branch office of The Chase
Manhattan Bank.
"Country Risk" means the risk of investing or holding assets in a
particular country or market, including, but not limited to, risks
arising from; nationalization, expropriation or other governmental
actions; the country's financial infrastructure including prevailing
custody and settlement practices, laws applicable to the safekeeping and
recovery of Financial Assets and cash held in custody; regulation of
banking and securities industries, including changes in market rules;
currency restrictions, devaluations or fluctuations; and market
conditions affecting the orderly execution of securities transactions or
the value of assets.
"Customer" means _______________________________________________________.
"Domestic Custody Agreement" or "DCA" means the Domestic Custody
Agreement between Bank and Customer.
Page 17
"Eligible Foreign Custodian" means: (i) a banking institution or trust
company, incorporated or organized under the laws of a country other
than the United States, that is regulated as such by that country's
government or an agency thereof; (ii) a majority-owned direct or
indirect subsidiary of a U.S. bank or bank holding company which
subsidiary is incorporated or organized under the laws of a country
other than the United States; and (iii) any other entity (other than an
Eligible Securities Depository) that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC.
"Eligible Securities Depository" has the meaning as set forth in
paragraph (a) of Section 2.10 of this Rider.
"Financial Assets" as used in this Rider shall relate exclusively to
Global Securities.
"Foreign Custody Manager" has the meaning as set forth in paragraph (a)
of Section 2.10 of this Rider.
"Global Securities" has the meaning as set forth in paragraph (a) of
Section 1.1 of this Rider.
"Subcustodian" has the meaning set forth in paragraph (a) of Section 5.1
of this Rider and includes Affiliated Subcustodians. Subcustodians are
Securities Intermediaries. Bank Indemnitees shall include Subcustodians
and their nominees, directors, officers, employees and agents.
"U.S. Bank" means a U.S. bank as defined in SEC rule 17f-5(a) (7) of the
1940 Act.
"1940 Act" means Investment Company Act of 1940, as amended.
2. WHAT THE BANK IS REQUIRED TO DO
2.1 Cash Accounts.
For the purpose of this Rider, Cash Accounts mean one or more deposits
accounts in the name of Customer at Bank's London Branch. Any cash so
deposited with Bank's London Branch shall be payable exclusively by
Bank's London Branch in the applicable currency, subject to compliance
with any applicable laws, regulations, governmental decrees or similar
orders.
(b) Notwithstanding paragraph (a) hereof, cash held in respect of
those markets where Customer is required to have a cash account in its
own name held directly with the relevant Subcustodian will be held in
that manner and will not be part of the Cash Account.
2.2 Segregation of Assets; Nominee Name.
Bank will require each Subcustodian to identify in its own records that
Financial Assets credited to Customer's Securities Account belong to
customers of Bank (to the extent permitted by Applicable Law or market
practice), such that it is readily apparent that the Financial Assets do
not belong to Bank or Subcustodian.
(b) Bank and Subcustodian are authorized to register in the name of
Subcustodian such Financial Assets as are customarily held in registered
form. Customer authorizes Bank or its Subcustodian to hold Financial
Assets in omnibus accounts and will accept delivery of Financial Assets
of the same class and denomination as those deposited with Bank or its
Subcustodian.
2.3 Income Collection; Autocredit.
Bank shall provide income collection and autocredit service for Global
Securities as set for in Section 2.7 of the DCA, but neither Bank nor
Page 18
its Subcustodians shall be obligated to file any formal notice of
default, institute legal proceedings, file proof of claim in any
insolvency proceeding, or take any similar action in respect of any
Global Securities.
Contractual Settlement Date Accounting.
If Customer has elected to have contractual settlement date accounting
service for the Global Securities credited to its Securities Accounts,
Bank will provides such service with respect to settlement of trades in
those global markets where the service is offered as provided in Section
2.5 of the DCA.
2.5 Proxy Voting with respect to Global Securities.
(a) Subject to and upon the terms of this sub-section, Bank will
provide Customer with information which it receives on matters to be
voted upon at meetings of holders of Financial Assets ("Notifications"),
and Bank will act in accordance with Customer's Instructions in relation
to such Notifications ("the active proxy voting service"). If
information is received by Bank at its proxy voting department too late
to permit timely voting by Customer, Bank's only obligation is to
provide, so far as reasonably practicable, a Notification (or summary
information concerning a Notification) on an "information only" basis.
(b) The active proxy voting service is available only in certain
markets, details of which are available from Bank on request. Provision
of the active proxy voting service is conditional upon receipt by Bank
of a duly completed enrollment form as well as additional documentation
that may be required for certain markets.
(c) Bank will act upon Instructions to vote on matters referred to in a
Notification, provided Instructions are received by Bank at its proxy
voting department by the deadline referred to in the relevant
Notification. If Instructions are not received in a timely manner, Bank
will not be obligated to provide further notice to Customer.
(d) Bank reserves the right to provide Notifications or parts thereof
in the language received. Bank will attempt in good faith to provide
accurate and complete Notifications, whether or not translated.
(e) Customer acknowledges that Notifications and other information
furnished pursuant to the active proxy voting service ("information")
are proprietary to Bank and that Bank owns all intellectual property
rights, including copyrights and patents, embodied therein.
Accordingly, Customer will not make any use of such information except
in connection with the active proxy voting service.
(f) In markets where the active proxy voting service is not available
or where Bank has not received a duly completed enrollment form or other
relevant documentation, Bank will not provide Notifications to Customer
but will endeavor to act upon Instructions to vote on matters before
meetings of holders of Financial Assets where it is reasonably
practicable for Bank (or its Subcustodians or nominees as the case may
be) to do so and where such Instructions are received in time for Bank
to take timely action (the "passive proxy voting service").
Page 19
(g) Customer acknowledges that the provision of proxy voting services
(whether active or passive) may be precluded or restricted under a
variety of circumstances. These circumstances include, but are not
limited to: (i) the Financial Assets being on loan or out for
registration, (ii) the pendency of conversion or another corporate
action, or (iii) Financial Assets being held at Customer's request in a
name not subject to the control of Bank or its Subcustodian, in a margin
or collateral account at Bank or another bank or broker, or otherwise in
a manner which affects voting, local market regulations or practices, or
restrictions by the issuer. Additionally, in some cases Bank may be
required to vote all shares held for a particular issue for all of
Bank's customers in the same way. Bank will inform Customer where this
is the case.
(h) Notwithstanding the fact that Bank may act in a fiduciary capacity
with respect to Customer under other agreements or otherwise hereunder,
in performing active or passive voting proxy services Bank will be
acting solely as the agent of Customer, and will not exercise any
discretion with regard to such proxy services or vote any proxy except
when directed by an Authorized Person.
2.6 Access to Subcustodian's Records.
Subject to restrictions under Applicable Law, Bank will obtain an
undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian in respect of any
Financial Assets credited to the Securities Account as may be required
in connection with such examination.
2.7 Maintenance of Financial Assets at Subcustodian Locations.
(a) Unless Instructions require another location acceptable to Bank,
Financial Assets will be held in the country or jurisdiction in which
their principal trading market is located, where such Financial Assets
may be presented for payment, where such Financial Assets were acquired,
or where such Financial Assets are held. Bank reserves the right to
refuse to accept delivery of Financial Assets or cash in countries and
jurisdictions other than those referred to in Schedule 1 to this
Agreement, as in effect from time to time.
(b) Bank will not be obliged to follow an Instruction to hold Financial
Assets with, or have them registered or recorded in the name of, any
person not chosen by Bank. However, if Customer does instruct Bank to
hold Global Securities with or register or record Global Securities in
the name of a person not chosen by Bank, the consequences of doing so
are at Customer's own risk and Bank will not be liable therefor.
2.8 Tax Reclaims.
Bank will provide for Global Securities as set forth in Section 8.2
of the DCA, the same tax reclamation services that Bank provides for
American Depository Receipts.
2.9 Foreign Exchange Transactions.
Page 20
To facilitate the administration of Customer's trading and investment
activity, Bank may, but will not be obliged to, enter into spot or
forward foreign exchange contracts with Customer, or an Authorized
Person, and may also provide foreign exchange contracts and facilities
through its Affiliates or Subcustodians. Instructions, including
standing instructions, may be issued with respect to such contracts, but
Bank may establish rules or limitations concerning any foreign exchange
facility made available. In all cases where Bank, its Affiliates or
Subcustodians enter into a master foreign exchange contract that covers
foreign exchange transactions for the Accounts, the terms and conditions
of that foreign exchange contract and, to the extent not inconsistent,
this Agreement, will apply to such transactions.
2.10 Compliance with SEC rule 17f-5.
(a) Customer's board of directors (or equivalent body) (hereinafter
`Board') hereby delegates to Bank, and, except as to the country or
countries as to which Bank may, from time to time, advise Customer that
it does not accept such delegation, Bank hereby accepts the delegation
to it, of the obligation to perform as Customer's "Foreign Custody
Manager" (as that term is defined in SEC rule 17f-5(a)(2) as promulgated
under the 1940 Act, both for the purpose of selecting Eligible Foreign
Custodians (as that term is defined in SEC rule 17f-5(a)(1), and as the
same may be amended from time to time, or that have otherwise been made
exempt pursuant to an SEC exemptive order) to hold Financial Assets and
Cash and of evaluating the contractual arrangements with such Eligible
Foreign Custodians (as set forth in SEC rule 17f-5(c)(2)); provided
that, the term Eligible Foreign Custodian shall not include any
"Eligible Securities Depository." An Eligible Securities Depository for
purposes hereof shall have the same meaning as in SEC rule 17f-7 as
proposed on April 29, 1999. (Eligible Securities Depositories used by
Bank as of the date hereof are set forth in Appendix 1-A hereto, and as
the same may be amended on notice to Customer from time to time.)
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the placement
of Financial Assets and Cash with particular Eligible Foreign Custodians
and of any material change in the arrangements with such Eligible
Foreign Custodians, with such reports to be provided to Customer's Board
at such times as the Board deems reasonable and appropriate based on the
circumstances of Customer's foreign custody arrangements (and until
further notice from Customer such reports shall be provided not less
than quarterly with respect to the placement of Financial Assets and
Cash with particular Eligible Foreign Custodians and with reasonable
promptness upon the occurrence of any material change in the
arrangements with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in performing
as Customer's Foreign Custody Manager as a person having responsibility
for the safekeeping of Financial Assets and cash would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Financial Assets and cash placed and maintained in the safekeeping
of such Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant market,
after having considered all factors relevant to the safekeeping of such
Financial Assets and cash, including, without limitation, those factors
set forth in SEC rule 17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with an Eligible Foreign
Custodian requires that the Eligible Foreign Custodian will provide
reasonable care for Financial Assets and Cash based on the standards
applicable to custodians in the relevant market.
(v) have established a system to monitor the continued appropriateness
of maintaining Financial Assets and cash with particular Eligible
Foreign Custodians and of the governing contractual arrangements; it
being understood, however, that in the event that Bank shall have
Page 21
determined that the existing Eligible Foreign Custodian in a given
country would no longer afford Financial Assets and cash reasonable care
and that no other Eligible Foreign Custodian in that country would
afford reasonable care, Bank shall promptly so advise Customer and shall
then act in accordance with the Instructions of Customer with respect to
the disposition of the affected Financial Assets and cash.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and
maintain Financial Assets and cash on behalf of Customer with Eligible
Foreign Custodians pursuant to a written contract deemed appropriate by
Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Financial Assets and cash
hereunder complies with the rules, regulations, interpretations and
exemptive orders promulgated by or under the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined
in Rule 17f-5(a)(7). Customer represents to Bank that: (1) the
Financial Assets and cash being placed and maintained in Bank's custody
are subject to the 1940 Act, as the same may be amended from time to
time; (2) its Board: (i) has determined that it is reasonable to rely on
Bank to perform as Customer's Foreign Custody Manager (ii) or its
investment adviser shall have determined that Customer may maintain
Financial Assets and cash in each country in which Customer's Financial
Assets and cash shall be held hereunder and determined to accept the
Country Risks arising therefrom. Nothing contained herein shall require
Bank to make any selection or to engage in any monitoring on behalf of
Customer that would entail consideration of Country Risk.
(e) Bank shall provide to Customer such information relating to
Country Risk as is specified in Appendix 1-B hereto. Customer hereby
acknowledges that: (i) such information is solely designed to inform
Customer of market conditions and procedures and is not intended as a
recommendation to invest or not invest in particular markets; and (ii)
Bank has gathered the information from sources it considers reliable,
but that Bank shall have no responsibility for inaccuracies or
incomplete information.
3. INSTRUCTIONS
Bank will act upon all Instructions received from Customer with
respect to the Financial Assets and cash held for the Accounts in
accordance with Article 3 of the DCA and this Rider.
FEES EXPENSES AND OTHER AMOUNTS OWING TO BANK
4.1 Fees and Expenses.
Customer will pay Bank for its services hereunder the fees set forth in
Schedule B hereto or such other amounts as may be agreed upon in writing
from time to time, together with Bank's reasonable out-of-pocket or
incidental expenses, including, but not limited to, legal fees. Customer
authorizes Bank to charge any Cash Accounts, for any such fees or
expenses.
4.2 Overdrafts.
If a debit to any currency in the Cash Account results (or will result)
in a debit balance in that currency, then Bank may, in its discretion,
(i) advance an amount equal to the overdraft, (ii) or reject the
settlement in whole or in any part, or (iii) if posted to the Securities
Account, reverse the posting of the Financial Assets credited to the
Securities Account. If Bank elects to make such an advance, the advance
will be deemed a loan to Customer, payable on demand, bearing interest
Page 22
at the rate charged by Bank from time to time, for overdrafts incurred
by customers similar to Customer, from the date of such advance to the
date of payment (both after as well as before judgment) and otherwise on
the terms on which Bank makes similar overdrafts available from time to
time. No prior action or course of dealing on Bank's part with respect
to the settlement of transactions on Customer's behalf will be asserted
by Customer against Bank for Bank's refusal to make advances to the Cash
Account or to settle any transaction for which Customer does not have
sufficient available funds in the Account.
5. SUBCUSTODIANS
5.1 Appointment of Subcustodians.
(a) Bank is authorized under this Rider to act through and hold
Customer's Financial Assets with subcustodians, being at the date of
this Rider the entities listed in Schedule 1 and/or such other entities
as Bank may appoint as subcustodians ("Subcustodians"). Bank will use
reasonable care in the selection and continued appointment of such
Subcustodians. In addition, Bank and each Subcustodian may deposit
Financial Assets with, and hold Financial Assets in, any Securities
Depository on such terms as such systems customarily operate and
Customer will provide Bank with such documentation or acknowledgements
that Bank may require to hold the Financial Assets in such systems. At
the request of Customer, Bank may, but need not, add to Schedule 1-A an
Eligible Foreign Custodian where Bank has not acted as Foreign Custody
Manager with respect to the selection thereof. Bank shall notify
Customer in the event that it elects to add any such entity.
(b) Any agreement Bank enters into with a Subcustodian for holding
Bank's customers' assets will provide that such assets will not be
subject to any right, charge, security interest, lien or claim of any
kind in favor of such Subcustodian except for safe custody or
administration, and, in the case of Financial Assets, that beneficial
ownership will be freely transferable without the payment of money or
value other than for safe custody or administration. Where a
Subcustodian deposits Securities with a Securities Depository, Bank will
cause the Subcustodian to identify on its records as belonging to Bank,
as agent, the Securities shown on the Subcustodian's account at such
Securities Depository. The foregoing will not apply to the extent of
any special agreement or arrangement made by Customer with any
particular Subcustodian.
5.2 Liability of Subcustodians.
(a) Subject to the limitations of liability of Bank set forth in
paragraph (b) of Section 7.1 of the DCA, but exclusive of the
limitations of liability in respect of Agents as set forth in Section
5.2 of the DCA, Bank will be liable for direct losses incurred by
Customer that result from:
(i) the failure by the Subcustodian to use reasonable care in the
provision of custodial services by it in accordance with the standards
Page 23
prevailing in the relevant market or from the fraud or willful default
of such Subcustodian in the provision of custodial services by it; or
(ii) the insolvency of any Affiliated Subcustodian.
(b) Subject to paragraph (a)(i) of Section 5.2 of this Rider, Bank's
duty to use reasonable care in the monitoring of a Subcustodian's
financial condition as reflected in its published financial statements
and other publicly available financial information concerning it, Bank
will not be responsible for the insolvency of any Subcustodian which is
not a branch or an Affiliated Subcustodian.
(c) Bank reserves the right to add, replace or remove Subcustodians.
Bank will give prompt notice of any such action, which will be advance
notice if practicable. Upon request by Customer, Bank will identify the
name, address and principal place of business of any Subcustodian and
the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.
WHEN BANK IS LIABLE TO CUSTOMER
Bank shall be entitled to all the protective provisions of Article
7 of the DCA in the performance of its duties and obligations under this
Rider. Subcustodians shall be entitled to indemnification under
paragraph (c) of Section 7.1 as Bank Indemnitees. Nevertheless Customer
shall not be obligated to indemnify any Subcustodian under Section
7.1(c) as Bank's agent with respect to any Liability for which Bank is
liable under Section 5.2 of this Rider. For purposes of clarity, it is
agreed that as used in paragraph (a) of Section 5.2 of this Rider, the
term Subcustodian shall not include any Eligible Foreign Custodian as to
which Bank has not acted as Foreign Custody Manager.
7. ADDITIONAL TAX OBLIGATIONS
In addition to Customer's obligations under Section 8.1 of the DCA,
if Bank does not receive appropriate declarations, documentation and
information then additional United Kingdom taxation will be deducted
from all income received in respect of Global Securities issued outside
the United Kingdom and United States non-resident alien tax will be
deducted from United States source income. Customer will provide to
Bank such certifications, documentation, and information as it may
require in connection with taxation, and warrants that, when given, this
information is true and correct in every respect, not misleading in any
way, and contains all material information. Customer undertakes to
notify Bank immediately if any information requires updating or
correcting.
8. MISCELLANEOUS
8.1 Information Concerning Deposits at Bank's London Branch.
Page 24
Bank's London Branch is a member of the United Kingdom Deposit
Protection Scheme (the "Scheme") established under Banking Act 1987 (as
amended). The Scheme provides that in the event of Bank's insolvency
payments may be made to certain customers of Bank's London Branch.
Payments under the Scheme are limited to 90% of a depositor's total cash
deposits subject to a maximum payment to any one depositor of
18,000 Pounds (or ECU 20,000 if greater). Most deposits denominated
in sterling and other European Economic Area Currencies and ECU made
with Bank within the United Kingdom are covered. Further details of the
Scheme are available on request.
Page 25
8.2 Severability and Waiver.
(a) If one or more provisions of this Rider are held invalid, illegal
or unenforceable in any respect on the basis of any particular
circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances
or in other jurisdictions and of the remaining provisions will not in
any way be affected or impaired.
(b) Except as otherwise provided herein, no failure or delay on the
part of either party in exercising any power or right hereunder operates
as a waiver, nor does any single or partial exercise of any power or
right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this
Rider, or waiver of any breach or default, is effective unless in
writing and signed by the party against whom the waiver is to be enforced.
8.3 Sections Incorporated by Reference.
For the avoidance of doubt, the entire Article 10 of the DCA is
incorporated by reference into this Rider. All references to
"Agreement" therein shall be read to include "Rider".
Termination.
This Rider may be terminated by either party on 60 days written notice
to the other party. This Rider shall automatically terminate with the
termination of the DCA. Article 9 of the DCA, to the extent applicable,
shall apply to any such termination of this Rider.
____________________________________(Customer)
By: /s/ James A. Bowen
________________________________
Title: President
_____________________________
Date: 10/1/99
______________________________
THE CHASE MANHATTAN BANK (Bank)
By: /s/ Rosalia Raviele
_________________________________
Title: Vice President
______________________________
Date: 10/1/99
_______________________________
Page 26
Appendix 1-A
ELIGIBLE SECURITIES DEPOSITORIES
Page 27
Appendix 1-B
Information Regarding Country Risk
1. To aid Customer in its determinations regarding Country Risk,
Bank shall furnish annually and upon the initial placing of Financial
Assets and cash into a country the following information (check items
applicable):
A Opinions of local counsel concerning:
___ i. Whether applicable foreign law would restrict the access
afforded Customer's independent public accountants to books and records
kept by an eligible foreign custodian located in that country.
___ ii. Whether applicable foreign law would restrict the Customer's
ability to recover its Financial Assets and cash in the event of the
bankruptcy of an Eligible Foreign Custodian located in that country.
___ iii. Whether applicable foreign law would restrict the Customer's
ability to recover Financial Assets that are lost while under the
control of an Eligible Foreign Custodian located in the country.
B. Written information concerning:
___ i. The foreseeability of expropriation, nationalization, freezes,
or confiscation of Customer's Financial Assets.
___ ii. Whether difficulties in converting Customer's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.]
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) depositories (including depository
evaluation), if any.
2. To aid Customer in monitoring Country Risk, Bank shall furnish
board the following additional information:
Market flashes, including with respect to changes in the
information in market reports
Page 28
Foreign Custody Manager Agreement
Between
First Defined Portfolio Fund, LLC
And
First Trust Advisors L.P.
AGREEMENT made the 1st day of October, 1999 by and between First
Defined Portfolio Fund, LLC (the "Company"), a Delaware limited
liability company and First Trust Advisors L.P. ("First Trust"), an
Illinois limited partnership.
WHEREAS, the Company is registered under the Investment Company Act
of 1940 (the "1940 Act") as an open-end diversified management series
investment company;
WHEREAS, certain series of the Company have investments the primary
market of which is outside the United States and seek to maintain such
assets (including foreign currencies) and such cash and cash equivalents
as are reasonably necessary to effect the series' transactions in such
foreign investments with an Eligible Foreign Custodian (as such term is
defined in Rule 17f-5 of the 1940 Act);
WHEREAS, the Trust desires to appoint First Trust as the Foreign Custody
Manager (as such term is defined in Rule 17f-5 of the 1940 Act) for the
purpose of selecting Eligible Foreign Custodians which are Compulsory
Depositories (as defined below) to place and maintain the assets of the
series of the Company listed in Schedule A attached hereto, as such
schedule may be amended from time to time (each such series shall
hereinafter be referred to as a "Series"), evaluating the custodial
arrangements with such Compulsory Depositories, and monitoring the
foreign custody arrangements with such Compulsory Depositories and First
Trust desires to serve as Foreign Custody Manager with respect to the
foregoing;
WHEREAS, the Board of Trustees has determined that it is reasonable to
rely on First Trust to perform the respective duties of Foreign Custody
Manager described herein and has selected First Trust to serve as
Foreign Custody Manager to perform such duties;
Now, Therefore, in consideration of the mutual agreements made
herein, the Company and First Trust agree as follows:
1. Definitions:
a. "Compulsory Depositories" shall mean a Securities Depository in
a foreign country the use of which is for practical purposes compulsory
because its use is required by law or regulation, because securities
Page 1
cannot be withdrawn from it, or because maintaining securities outside
the depository is not consistent with the prevailing custodial practices
in the country which the depository serves.
b. "Eligible Foreign Custodian," "Foreign Custody Manager," and
"Securities Depository" shall have the same meanings as set forth in
Rule 17f-5 of the 1940 Act.
c. "Foreign Assets" shall mean the Series' investments (including
foreign currencies) for which the primary market is outside the United
States, and such cash and cash equivalents as are reasonably necessary
to effect the Series' transactions in such investments.
2. Duties of Foreign Custody Manager:
First Trust agrees that it will perform the following services:
a. provide written reports notifying the Company's Board of
Trustees of the placement of a Series' Foreign Assets with a particular
Compulsory Depository on no less than a quarterly basis (or at such
other times as the Board of Trustees may determine) and of any material
change in the Series' arrangements with reasonable promptness upon the
occurrence of such changes (or at such other times as the Board of
Trustees may determine);
b. exercise reasonable care, prudence and diligence in performing
as the Series' Foreign Custody Manager as a person having responsibility
for the safekeeping of the Series' assets would exercise;
c. in selecting a Compulsory Depository, First Trust shall first
determine that the Series' Foreign Assets placed and maintained in the
safekeeping of such Compulsory Depository shall be subject to reasonable
care, based on the standards applicable to custodians in the relevant
market, after having considered all factors relevant to the safekeeping
of such Assets, including, without limitation, those factors set forth
in Rule 17f-5(c)(1)(i)-(iv);
d. determine that the written contract, the rules or established
practices or procedures of the Compulsory Depository, or any combination
of the foregoing which governs the foreign custody arrangements with
such Compulsory Depository will provide reasonable care for the Series'
Foreign Assets based on the standards applicable to custodians in the
relevant market and that such arrangements include the provisions
required by Rule 17f-5(c)(2)(i)-(ii);
e. have established a system to monitor the continued
appropriateness of maintaining the Series' Foreign Assets with a
particular Compulsory Depository and of the governing custodial
arrangements and if First Trust determines that the existing Compulsory
Depository in a given country would no longer afford the Series' Foreign
Assets reasonable care, First Trust shall promptly withdraw the affected
Foreign Assets from such Compulsory Depository as soon as reasonably
practicable.
Subject to 2(a)-(e) above, First Trust is hereby authorized to
place and maintain the Series' Foreign Assets with Eligible Foreign
Page 2
Custodians that are Compulsory Depositories.
3. Fees of Foreign Custody Manager:
First Trust is currently the investment adviser to the Series and
receives a management fee described in the Series' registration
statement. First Trust has agreed to provide the services under this
Agreement at no additional fee. The Series is responsible for all
charges of a Compulsory Depository for the safekeeping and servicing of
such Series' Foreign Assets and any other expenses incidental thereto.
4. Effective Date and Termination:
This Agreement shall become effective as to any Series as of the
effective date for that Series specified in Schedule A hereto. This
Agreement shall continue in effect until terminated. This Agreement may
be terminated at any time, without payment of any penalty, by mutual
consent of First Trust and the Board of Trustees of the Company and may
be terminated by either First Trust or the Board of Trustees of the
Company upon 30 days' written notice to the other party to the
Agreement.
5. Non-Liability of certain Persons:
Any obligation of the Company hereunder shall be binding only upon the
assets of the Company (or the applicable Series thereof) and shall not
be binding upon any Trustee, officer, employee, agent, member or
shareholder of the Company. Neither the authorization of any action by
any Trustee, officer, employee, agent, member or shareholder of the
Company nor the execution of this Agreement on behalf of the Company
shall impose any liability upon any Trustee, officer, employee, agent,
member or shareholder of the Company.
6. References and Headings:
In this Agreement and in any such amendment, references to this
Agreement and all expressions such as "herein," "hereof," and
"hereunder" shall be deemed to refer to this Agreement as amended or
affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or
control or affect the meaning, construction, or effect of this
Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
Page 3
Dated:
First Defined Portfolio Fund, LLC
Attest By /s/ James A. Bowen
__________________________
/s/ W. Scott Jardine
____________________
First Trust Advisors L.P.
Attest By /s/ Ronald McAlister
___________________________
/s/ W. Scott Jardine
___________________
Page 4
Schedule A
Series Effective Date
The Dow (sm) Target 5 Portfolio October 1, 1999
The Dow (sm) Dart 10 Portfolio October 1, 1999
Global Target 15 Portfolio October 1, 1999
S&P Target 10 Portfolio October 1, 1999
NASDAQ Target 15 Portfolio October 1, 1999
First Trust 10 Uncommon Values Portfolio October 1, 1999
First Trust Energy Portfolio October 1, 1999
First Trust Financial Services Portfolio October 1, 1999
First Trust Internet Portfolio October 1, 1999
First Trust Pharmaceutical Portfolio October 1, 1999
First Trust Technology Portfolio October 1, 1999
Page 5
SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 30th day of September, 1999 (the
"Effective Date") between First Defined Portfolio Fund, LLC (the
"Fund"), a Delaware Limited Liability Company having its principal place
of business at 1001 Warrenville Road, Lisle, IL, 60532 and FIRST DATA
INVESTOR SERVICES GROUP, INC. ("Investor Services Group"), a
Massachusetts corporation with principal offices at 4400 Computer Drive,
Westboro, MA 01581.
WITNESSETH
WHEREAS, the Fund is authorized to issue Membership Interests in
separate series, with each such series representing interests in a
separate portfolio of securities or other assets.
WHEREAS, the Fund initially intends to offer Membership Interests in
those Portfolios identified in the attached Schedule A, each such
Portfolio, together with all other Portfolios subsequently established
by the Fund shall be subject to this Agreement in accordance with
Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint
Investor Services Group as its administrator, fund accounting agent,
transfer agent, dividend disbursing agent and agent in connection with
certain other activities and Investor Services Group desires to accept
such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as
follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Limited Liability Company Agreement, Operating By-Laws,
Declaration of Trust, Certificate of Formation or other similar
organizational document as the case may be, of the Fund as the same may
be amended from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to Investor Services Group from time to time.
(c) "Board Members" shall mean the Directors or Trustees of the governing
body of the Fund, as the case may be.
Page 1
(d) "Board of Trustees" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(e) "Commencement Date" shall mean the date on which Investor
Services Group commences providing services to the Fund pursuant to this
Agreement.
(f) "Commission" shall mean the Securities and Exchange
Commission.
(g) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(h) "Member" shall mean a record owner of Membership
Interests of each respective Portfolio of the Fund.
(i) "Membership Interests" refers collectively to such shares
of capital stock or beneficial interest, as the case may be, or class
thereof, of each respective Portfolio of the Fund as may be issued from
time to time.
(j) "1934 Act" shall mean the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder, all as
amended from time to time.
(k) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(l) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(m) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets;
(n) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(o) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Page 2
Article 2 Appointment of Investor Services Group.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
Investor Services Group as its sole and exclusive transfer agent and
dividend disbursing agent for Membership Interests of each respective
Portfolio of the Fund and as administrator, fund accounting agent,
shareholder servicing agent for the Fund and Investor Services Group
hereby accepts such appointments and agrees to perform the duties
hereinafter set forth. This Agreement shall be effective as of the
Effective Date.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing member account and
administrative agent functions in connection with the issuance, transfer
and redemption or repurchase (including coordination with the Custodian)
of Membership Interests of each Portfolio, as more fully described in
the written schedule of Duties of Investor Services Group annexed hereto
as Schedule B and incorporated herein, and in accordance with the terms
of the Prospectus of the Fund on behalf of the applicable Portfolio,
applicable law and the procedures established from time to time between
Investor Services Group and the Fund.
(b) Recording the issuance of Membership Interests and
maintaining pursuant to Rule 17Ad-10(e) of the 1934 Act a record of the
total number of Membership Interests of each Portfolio which are
authorized, based upon data provided to it by the Fund, and issued and
outstanding. Investor Services Group shall provide the Fund on request
with the total number of Membership Interests of each Portfolio which
are authorized and issued and outstanding and shall have no obligation,
when recording the issuance of Membership Interests, to monitor the
issuance of such Membership Interests or to take cognizance of any laws
relating to the issue or sale of such Membership Interests, which
functions shall be the sole responsibility of the Fund.
(c) Investor Services Group shall be responsible for the
following: performing the customary services of an administrator,
including corporate secretarial and treasury services, and fund
accounting agent for the Fund, as more fully described in the written
schedule of Duties of Investor Services Group annexed hereto as Schedule
B and incorporated herein, and subject to the supervision and direction
of the Board of Trustees of the Fund.
(d) In addition to the foregoing services, the Fund hereby engages
Investor Services Group as its agent for the limited purpose of (i)
accepting invoices charged to the Fund for custody services performed by
the Custodian on the Fund's behalf; (ii) remitting payment to the
Custodian for such services; and (iii) as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein.
Page 3
(e) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Membership Interests or the sufficiency of the
amount to be received therefor; (ii) the legality of the redemption of
any Membership Interests, or the propriety of the amount to be paid
therefor; (iii) the legality of the declaration of any dividend by the
Board of Trustees, or the legality of the issuance of any
Membership Interests in payment of any dividend; or (iv) the legality of
any recapitalization or readjustment of the Membership Interests.
3.2 In addition, the Fund shall identify to Investor Services
Group in writing those transactions and assets to be treated as exempt
from blue sky reporting for each State.
3.3 In performing its duties under this Agreement, Investor
Services Group: (a) will act in accordance with the Certificate of
Formation, Limited Liability Company Agreement, Operating By-Laws,
Prospectuses and with the Oral Instructions and Written Instructions of
the Fund and will conform to and comply with the requirements of the
1940 Act and all other applicable federal or state laws and regulations;
and (b) will consult with legal counsel to the Fund, as necessary and
appropriate. Furthermore, Investor Services Group shall not have or be
required to have any authority to supervise the investment or
reinvestment of the securities or other properties which comprise the
assets of the Fund or any of its Portfolios and shall not provide any
investment advisory services to the Fund or any of its Portfolios.
3.4 In addition to the duties set forth herein, Investor Services
Group shall perform such other duties and functions, and shall be paid
such amounts therefor, as may from time to time be agreed upon in
writing between the Fund and Investor Services Group.
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in
Schedule B in accordance with all applicable laws, rules and
regulations, including records required by Section 31(a) of the 1940
Act. Where applicable, such records shall be maintained by Investor
Services Group for the periods and in the places required by Rule 31a-1
and Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by
Investor Services Group relating to the services to be performed by
Investor Services Group hereunder are the property of the Fund and will
be preserved, maintained and made available in accordance with such
section, and will be surrendered promptly to the Fund on and in
accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Member records of the Fund, Investor Services Group will endeavor to
notify the Fund of such request and secure Written Instructions as to
the handling of such request. Investor Services Group reserves the
right, however, to exhibit the Member records to any person whenever it
is advised by its counsel that it may be held liable for the failure to
comply with such request.
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Article 5 Fund Instructions.
5.1 Investor Services Group will have no liability when acting
upon Written or Oral Instructions believed to have been executed or
orally communicated by an Authorized Person and will not be held to have
any notice of any change of authority of any person until receipt of a
Written Instruction thereof from the Fund.
5.2 At any time, Investor Services Group may request Written
Instructions from the Fund and may seek advice from legal counsel for
the Fund with respect to any matter arising in connection with this
Agreement, and it shall not be liable for any action taken or not taken
or suffered by it in good faith in accordance with such Written
Instructions or in accordance with the opinion of counsel for the Fund.
Written Instructions requested by Investor Services Group will be
provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees,
shall accept Oral Instructions or Written Instructions given to them by
any person representing or acting on behalf of the Fund only if said
representative is an Authorized Person. The Fund agrees that all Oral
Instructions shall be followed within one business day by confirming
Written Instructions, and that the Fund's failure to so confirm shall
not impair in any respect Investor Services Group's right to rely on
Oral Instructions.
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate
Investor Services Group for the performance of its obligations hereunder
in accordance with the fees and other charges set forth in the written
Fee Schedule annexed hereto as Schedule C and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the
Fund on behalf of each of the Portfolios agrees to pay, and will be
billed separately for, out-of-pocket expenses incurred by Investor
Services Group in the performance of its duties hereunder. Out-of-
pocket expenses shall include, but shall not be limited to, the items
specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule D and incorporated herein. Schedule D may be
modified by written agreement between the parties. Unspecified out-of-
pocket expenses shall be limited to those out-of-pocket expenses
reasonably incurred by Investor Services Group in the performance of its
obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios hereby authorizes
Investor Services Group to collect its fees, charges and reasonable out-
of-pocket expenses by debiting the Fund's or Portfolio's custody account
for invoices which are rendered for the services performed for the
applicable function. Invoices for the services performed will be sent
to the Fund after such debiting with an indication that payment has been
made.
Page 5
6.4 Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule C, a revised Fee Schedule executed and
dated by the parties hereto.
6.5 The Fund acknowledges that the fees and charges that Investor
Services Group charges the Fund under this Agreement reflect the
allocation of risk between the parties, including the disclaimer of
warranties in Section 9.3 and the limitations on liability and exclusion
of remedies in Section 11.2 and Article 12. Modifying the allocation of
risk from what is stated here would affect the fees that Investor
Services Group charges, and in consideration of those fees, the Fund
agrees to the stated allocation of risk.
6.6 Investor Services Group will from time to time employ or
associate with itself such person or persons as Investor Services Group
may believe to be particularly suited to assist it in performing
services under this Agreement. Such person or persons may be officers
and employees who are employed by both Investor Services Group and the
Fund. The compensation of such person or persons shall be paid by
Investor Services Group and no obligation shall be incurred on behalf of
the Fund in such respect.
6.7 Investor Services Group shall not be required to pay from its
own assets any of the following expenses incurred by the Fund:
membership dues in the Investment Company Institute or any similar
organization; investment advisory expenses; costs of printing
prospectuses, reports and notices; interest on borrowed money; brokerage
commissions; stock exchange listing fees; taxes and fees payable to
Federal, state and other governmental agencies; fees of Board Members of
the Fund who are not affiliated with Investor Services Group; outside
auditing expenses; outside legal expenses; Blue Sky registration or
filing fees; or other expenses not specified in this Section 6.7 which
may be properly payable by the Fund. Investor Services Group shall not
be required to pay any Blue Sky registration or filing fees unless and
until it has received the amount of such fees from the Fund.
Article 7 Documents.
In connection with the appointment of Investor Services Group, the Fund
shall, on or before the date this Agreement goes into effect, but in any
case within a reasonable period of time for Investor Services Group to
prepare to perform its duties hereunder, deliver or caused to be
delivered to Investor Services Group the documents set forth in the
written schedule of Fund Documents annexed hereto as Schedule E.
Article 8 Investor Services Group System.
8.1 Investor Services Group shall retain title to and ownership of
any and all data bases, computer programs, screen formats, report
formats, interactive design techniques, derivative works, inventions,
discoveries, patentable or copyrightable matters, concepts, expertise,
patents, copyrights, trade secrets, and other related legal rights
utilized by Investor Services Group in connection with the services
provided by Investor Services Group to the Fund herein (the "Investor
Services Group System").
Page 6
8.2 Investor Services Group hereby grants to the Fund a limited
license to the Investor Services Group System for the sole and limited
purpose of having Investor Services Group provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately
terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent
of the Fund or any third party acting on behalf of the Fund is provided
with direct access to the Investor Services Group System for either
account inquiry or to transmit transaction information, including but
not limited to maintenance, exchanges, purchases and redemptions, such
direct access capability shall be limited to direct entry to the
Investor Services Group System by means of on-line mainframe terminal
entry or PC emulation of such mainframe terminal entry and any other non-
conforming method of transmission of information to the Investor
Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 9 Representations and Warranties.
9.1 Investor Services Group represents and warrants to the Fund
that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement;
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement; and
(f) all equipment and software provided or used by Investor
Services Group or any of its subsidiaries or divisions in connection
with rendering services to the Company under the terms of this
Agreement, include or shall include design and performance capabilities
so that prior to, during, and after December 31, 1999 (the "Millennium
Date Change") they will not malfunction, produce invalid or incorrect
results, cause an interruption in or diminish the quality of the
services provided to the Company, or abnormally cease to function due to
the Millennium Date Change. Such design and performance capabilities
shall include without limitation the ability to recognize and process
the Year 2000 and thereafter and to manage and manipulate data involving
dates, including without limitation, (i) single century and multi-
Page 7
century formulas and date values without resulting in the generation of
incorrect values involving such dates or causing an abnormal ending,
(ii) date data interfaces with functionalities and data fields that
indicate the century, and (iii) date-related functions that indicate the
century.
9.2 The Fund represents and warrants to Investor Services Group
that:
(a) it is duly organized, existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its
Certificate of Formation and Limited Liability Company Agreement to
enter into this Agreement;
(c) all organizational proceedings required by said
Certificate of Formation, Limited Liability Company Agreement and
applicable laws have been taken to authorize it to enter into this
Agreement;
(d) a registration statement under the Securities Act of
1933, as amended, and the 1940 Act on behalf of each of the Portfolios
is currently effective and will remain effective, and all appropriate
state securities law filings have been made and will continue to be
made, with respect to all Membership Interests of the Fund being offered
for sale;
(e) all outstanding Membership Interests are validly issued,
fully paid and non-assessable and when Membership Interests are
hereafter issued in accordance with the terms of the Fund's Certificate
of Formation, Limited Liability Company Agreement and its Prospectus and
Statement of Additional Information with respect to each Portfolio, such
Membership Interests shall be validly issued, fully paid and non-
assessable; and
(f) as of the date hereof, each Portfolio is duly registered
and lawfully eligible for sale in each jurisdiction indicated for such
Portfolio on the list furnished to Investor Services Group pursuant to
Article 7 of this Agreement and that it will notify Investor Services
Group immediately of any changes to the aforementioned list.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN
THIS AGREEMENT, INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR
ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES
REGARDING QUALITY, SUITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING,
CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED
INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. INVESTOR SERVICES
GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS
OTHERWISE SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
Page 8
10.1 Investor Services Group shall not be responsible for and the
Fund on behalf of each Portfolio shall indemnify and hold Investor
Services Group harmless from and against any and all claims, costs,
expenses (including reasonable attorneys' fees), losses, damages,
charges, payments and liabilities of any sort or kind which may be
asserted against Investor Services Group or for which Investor Services
Group may be held to be liable (a "Claim") arising out of or
attributable to any of the following:
(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act, willful misfeasance or bad faith by
Investor Services Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Fund, or
any authorized third party acting on behalf of the Fund, including but
not limited to the prior transfer agent for the Fund, in the performance
of Investor Services Group's duties and obligations hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sales of Membership Interests in violation
of any requirement under the securities laws or regulations of any state
that such Membership Interests be registered in such state or in
violation of any stop order or other determination or ruling by any
state with respect to the offer or sale of such Membership Interests in
such state; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 The Fund, Nike Securities L.P. and First Trust Advisors L.P.,
their officers, employees, directors, partners, trustees, Members and
agents shall not be liable for, and Investor Services Group shall
indemnify and hold the Fund harmless from and against any and all
claims, made by third parties, including costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and
liabilities of any sort or kind (a "Claim"), which result from a
negligent act or omission to act, willful misfeasance or bad faith by
Investor Services Group in the performance of its duties hereunder.
10.3 In any case in which one party (the "Indemnifying Party") may
be asked to indemnify or hold the other party (the "Indemnified Party")
harmless, the Indemnified Party will notify the Indemnifying Party
promptly after identifying any situation which it believes presents or
appears likely to present a claim for indemnification against the
Indemnifying Party although the failure to do so shall not prevent
recovery by the Indemnified Party and shall keep the Indemnifying Party
Page 9
advised with respect to all developments concerning such situation. The
Indemnifying Party shall have the option to defend the Indemnified Party
against any Claim which may be the subject of this indemnification, and,
in the event that the Indemnifying Party so elects, such defense shall
be conducted by counsel chosen by the Indemnifying Party and
satisfactory to the Indemnified Party, and thereupon the Indemnifying
Party shall take over complete defense of the Claim and the Indemnified
Party shall sustain no further legal or other expenses in respect of
such Claim. The Indemnified Party will not confess any Claim or make
any compromise in any case in which the Indemnifying Party will be asked
to provide indemnification, except with the Indemnifying Party's prior
written consent. The obligations of the parties hereto under this
Article 10 shall survive the termination of this Agreement.
10.4 Any claim for indemnification under this Agreement must be
made prior to one year after the Indemnified Party becomes aware of the
event for which indemnification is claimed.
10.5 Except for remedies that cannot be waived as a matter of law
(and injunctive or provisional relief), the provisions of this Article
10 shall be each party's sole and exclusive remedy for claims or other
actions or proceedings to which the other party's indemnification
obligations pursuant to this Article 10 may apply.
Article 11 Standard of Care.
11.1 Investor Services Group shall at all times act in good faith
and agrees to use its best efforts within commercially reasonable limits
to ensure the accuracy of all services performed under this Agreement,
but assumes no responsibility for loss or damage to the Fund unless said
errors are caused by Investor Services Group's own negligence, bad faith
or willful misconduct or that of its employees or agents.
11.2 Each party shall have the duty to mitigate damages for which
the other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL INVESTOR SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER
ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY FOR SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES
REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER
PARTY OR ANY ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
Page 10
13.1 This Agreement shall be effective on the date first written
above and shall continue for a period of five (5) years (the "Initial
Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal
Terms") each, unless the Fund or Investor Services Group provides
written notice to the other of its intent not to renew. Such notice
must be received not less than ninety (90) days prior to the expiration
of the Initial Term or the then current Renewal Term. After the
Initial Term, this Agreement may be terminated by either party upon
ninety days prior written notice.
13.3 In the event a termination notice is given by the Fund, all
reasonable expenses associated with movement of records and materials
and conversion thereof to a successor transfer agent will be borne by
the Fund.
13.4 If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party") the other
party (the "Non-Defaulting Party") may give written notice thereof to
the Defaulting Party, and if such material breach shall not have been
remedied within thirty (30) days after such written notice is given,
then the Non-Defaulting Party may terminate this Agreement by giving
thirty (30) days written notice of such termination to the Defaulting
Party. If Investor Services Group is the Non-Defaulting Party, its
termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services
performed prior to such termination of rights of Investor Services Group
to be reimbursed for reasonable out-of-pocket expenses. In all cases,
termination by the Non-Defaulting Party shall not constitute a waiver by
the Non-Defaulting Party of any other rights it might have under this
Agreement or otherwise against the Defaulting Party.
13.5 Notwithstanding anything contained in this Agreement to the
contrary, should the Fund desire to move any of the services provided by
Investor Services Group hereunder to a successor service provider prior
to the expiration of the then current Initial or Renewal Term, or should
the Fund or any of its affiliates take any action which would result in
Investor Services Group ceasing to provide transfer agency,
administration or fund accounting services to the Fund prior to the
expiration of the Initial or any Renewal Term, Investor Services Group
shall make a good faith effort to facilitate the conversion on such
prior date, however, there can be no guarantee that Investor Services
Group will be able to facilitate a conversion of services on such prior
date. In connection with the foregoing, should services be converted to
a successor service provider or should the Fund or any of its affiliates
take any action which would result in Investor Services Group ceasing to
provide transfer agency, administration or fund accounting services to
the Fund prior to the expiration of the Initial or any Renewal Term
other than by reason of a default by Investor Services Group of any
material provision of this Agreement, the payment of fees to Investor
Services Group as set forth herein shall be calculated and paid as if
the services had remained with Investor Services Group until the
expiration of the then current Initial or Renewal Term and calculated at
the asset and/or Member account levels, as the case may be, until such
expiration.
Page 11
Article 14 Additional Portfolios
14.1 In the event that the Fund establishes one or more Portfolios
in addition to those identified in Schedule A, with respect to which the
Fund desires to have Investor Services Group render services as transfer
agent under the terms hereof, the Fund shall so notify Investor Services
Group in writing, and Exhibit 1 shall be amended to include such
additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined
below) (collectively "Confidential Information") are confidential
information of the parties and their respective licensors. The Fund and
Investor Services Group shall exercise at least the same degree of care,
but not less than reasonable care, to safeguard the confidentiality of
the Confidential Information of the other as it would exercise to
protect its own confidential information of a similar nature. The Fund
and Investor Services Group shall not duplicate, sell or disclose to
others the Confidential Information of the other, in whole or in part,
without the prior written permission of the other party. The Fund and
Investor Services Group may, however, disclose Confidential Information
to their respective parent corporation, their respective affiliates,
their subsidiaries and affiliated companies and employees, provided that
each shall use reasonable efforts to ensure that the Confidential
Information is not duplicated or disclosed in breach of this Agreement
and such Confidential Information may be disclosed if required by
applicable law, court order or regulation. The Fund and Investor
Services Group may also disclose the Confidential Information to
independent contractors, auditors, and professional advisors, provided
they first agree in writing to be bound by the confidentiality
obligations substantially similar to this Section 15.1. Notwithstanding
the previous sentence, in no event shall either the Fund or Investor
Services Group disclose the Confidential Information to any competitor
of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Fund or Investor
Services Group, their respective subsidiaries and affiliated companies
and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or
Investor Services Group a competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
Page 12
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment,
prototypes and models, and any other tangible manifestation of the
foregoing of either party which now exist or come into the control or
possession of the other.
15.4 The obligations of confidentiality and restriction on use
herein shall not apply to any Confidential Information that a party
proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party
free of any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(f) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the Confidential
Information disclosed under this Agreement.
Article 16 Force Majeure; Excused Non-Performance.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default
or delay is caused, directly or indirectly, by (i) fire, flood, elements
of nature or other acts of God; (ii) any outbreak or escalation of
hostilities, war, riots or civil disorders in any country, (iii) any act
or omission of the other party or any governmental authority; (iv) any
labor disputes (whether or not the employees' demands are reasonable or
within the party's power to satisfy); or (v) nonperformance by a third
party or any similar cause beyond the reasonable control of such party,
including without limitation, failures or fluctuations in
telecommunications or other equipment. In addition, no party shall be
liable for any default or delay in the performance of its obligations
under this Agreement if and to the extent that such default or delay is
caused, directly or indirectly, by the actions or inactions of the other
party. In any such event, the non-performing party shall be excused
from any further performance and observance of the obligations so
affected only for as long as such circumstances prevail and such party
Page 13
continues to use commercially reasonable efforts to recommence
performance or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned or
otherwise transferred by either party hereto, without the prior written
consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that the Agreement may be assigned to PFPC
Worldwide, Inc. or one of its affiliates, if such assignment occurs
within 360 days of the Commencement Date. Investor Services Group may,
with the prior written consent of the Fund which consent may not be
unreasonably withheld, engage subcontractors to perform any of the
obligations contained in this Agreement to be performed by Investor
Services Group.
Article 18 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to
time designate in writing.
To the Fund:
First Defined Portfolio Fund, LLC
1001 Warrenville Road
Lisle IL 60532
Attention: James A. Bowen
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 19 Governing Law/Venue.
The laws of the State of Illinois, excluding the laws on conflicts of
laws, shall govern the interpretation, validity, and enforcement of this
agreement. All actions arising from or related to this Agreement shall
be brought in the state and federal courts sitting in the City of
Boston, and Investor Services Group and the Fund hereby submit
themselves to the exclusive jurisdiction of those courts.
Page 14
Article 20 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
Article 21 Captions.
The captions of this Agreement are included for convenience of reference
only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 22 Publicity.
Neither Investor Services Group nor the Fund shall release or publish
news releases, public announcements, advertising or other publicity
relating to this Agreement or to the transactions contemplated by it
without the prior review and written approval of the other party;
provided, however, that either party may make such disclosures as are
required by legal, accounting or regulatory requirements after making
reasonable efforts in the circumstances to consult in advance with the
other party.
Article 23 Relationship of Parties/Non-Solicitation.
23.1 The parties agree that they are independent contractors and
not partners or co-venturers and nothing contained herein shall be
interpreted or construed otherwise.
23.2 During the term of this Agreement and for one (1) year
afterward, the Fund shall not recruit, solicit, employ or engage, for
the Fund or others, Investor Services Group's employees.
Article 24 Entire Agreement; Severability.
24.1 This Agreement, including Schedules, Addenda, and Exhibits
hereto, constitutes the entire Agreement between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous proposals, agreements, contracts, representations, and
understandings, whether written or oral, between the parties with
respect to the subject matter hereof. No change, termination,
modification, or waiver of any term or condition of the Agreement shall
be valid unless in writing signed by each party. No such writing shall
be effective as against Investor Services Group unless said writing is
executed by a Senior Vice President, Executive Vice President, or
President of Investor Services Group. A party's waiver of a breach of
any term or condition in the Agreement shall not be deemed a waiver of
any subsequent breach of the same or another term or condition.
24.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any
term or provision is illegal or invalid for any reason, the illegality
or invalidity shall not affect the validity of the remainder of this
Page 15
Agreement. In such case, the parties shall in good faith modify or
substitute such provision consistent with the original intent of the
parties. Without limiting the generality of this paragraph, if a court
determines that any remedy stated in this Agreement has failed of its
essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall
remain fully effective.
Article 25 Miscellaneous.
The Fund and Investor Services Group agree that the obligations of
the Fund under the Agreement shall not be binding upon any of the Board
Members, Members, nominees, officers, employees or agents, whether past,
present or future, of the Fund individually, but are binding only upon
the assets and property of the Fund (or applicable series thereof), as
provided in the Certificate of Formation and Limited Liability Company
Agreement. The execution and delivery of this Agreement have been
authorized by the Board Members of the Fund, and signed by an authorized
officer of the Fund, acting as such, and neither such authorization by
such Board Members nor such execution and delivery by such officer shall
be deemed to have been made by any of them or any Member of the Fund
individually or to impose any liability on any of them or any Member of
the Fund personally, but shall bind only the assets and property of the
Fund (or applicable series thereof), as provided in the Articles of
Incorporation, Certificate of Formation and or Operating Limited
Liability Company Agreement.
Page 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first
above written.
First Defined Portfolio Fund, LLC
By: /S/ James A. Bowen
__________________________________
James A. Bowen
Title: President
_________
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /S/ Kenneth J. Kempf
__________________________________
Kenneth J. Kempf
__________________________________
Title: Senior Vice President
Page 17
SCHEDULE A
__________
LIST OF PORTFOLIOS
The Dow(sm) Target 5 Portfolio
The Dow(sm) Target DART 10 Portfolio
Global Target 15 Portfolio
S&P Target 10 Portfolio
NASDAQ Target 15 Portfolio
Target Small Cap Portfolio
First Trust 10 Uncommon Values Portfolio
First Trust Energy Sector Portfolio
First Trust Financial Services Sector Portfolio
First Trust Pharmaceutical/Healthcare Sector Portfolio
First Trust Technology Sector Portfolio
First Trust Internet Sector Portfolio
Page 18
SCHEDULE B
__________
DUTIES OF INVESTOR SERVICES GROUP
I. TRANSFER AGENCY SERVICES
(a) Member Information. Investor Services Group shall maintain a
record of the number of Membership Interests held by each Member of
record which shall include name, address, taxpayer identification and
which shall indicate whether such Membership Interests are held in
certificates or uncertificated form.
(b) Member Services. Investor Services Group shall respond as
appropriate to all inquiries and communications from Members relating to
Member accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and
the Fund.
(c) Membership Interest Certificates.
At the expense of the Fund, the Fund shall supply Investor
Services Group with an adequate supply of blank share certificates to
meet Investor Services Group requirements therefor. Such Membership
Interest certificates shall be properly signed by facsimile. The Fund
agrees that, notwithstanding the death, resignation, or removal of any
officer of the Fund whose signature appears on such certificates,
Investor Services Group or its agent may continue to countersign
certificates which bear such signatures until otherwise directed by
Written Instructions.
Investor Services Group shall issue replacement Membership
Interest certificates in lieu of certificates which have been lost,
stolen or destroyed, upon receipt by Investor Services Group of properly
executed affidavits and lost certificate bonds, in form satisfactory to
Investor Services Group, with the Fund and Investor Services Group as
obligees under the bond.
Investor Services Group shall also maintain a record of each
certificate issued, the number of Membership Interests represented
thereby and the Member of record. With respect to Membership Interests
held in open accounts or uncertificated form (i.e., no certificate being
issued with respect thereto) Investor Services Group shall maintain
comparable records of the Members thereof, including their names,
addresses and taxpayer identification. Investor Services Group shall
further maintain a stop transfer record on lost and/or replaced
certificates.
(d) Mailing Communications to Members; Proxy Materials. Investor
Services Group will address and mail to Members of the Fund, all reports
to Members, dividend and distribution notices and proxy material for the
Fund's meetings of Members. In connection with meetings of Members,
Investor Services Group will prepare Member lists, mail and certify as
to the mailing of proxy materials, process and tabulate returned proxy
cards, report on proxies voted prior to meetings, act as inspector of
election at meetings and certify Membership Interests voted at meetings.
(e) Sales of Membership Interests.
Investor Services Group shall not be required to issue any
Membership Interests of the Fund where it has received a Written
Instruction from the Fund or official notice from any appropriate
authority that the sale of the Membership Interests of the Fund has been
suspended or discontinued. The existence of such Written Instructions
or such official notice shall be conclusive evidence of the right of
Investor Services Group to rely on such Written Instructions or official
notice.
In the event that any check or other order for the payment of money
is returned unpaid for any reason, Investor Services Group will endeavor
Page 19
to: (i) give prompt notice of such return to the Fund or its designee;
(ii) place a stop transfer order against all Membership Interests issued
as a result of such check or order; and (iii) take such actions as
Investor Services Group may from time to time deem appropriate.
(f) Transfer and Repurchase.
Investor Services Group shall process all requests to transfer or
redeem Membership Interests in accordance with the transfer or
repurchase procedures set forth in the Fund's Prospectus.
Investor Services Group will transfer or repurchase Membership
Interests upon receipt of Oral or Written Instructions or otherwise
pursuant to the Prospectus and Membership Interest certificates, if any,
properly endorsed for transfer or redemption, accompanied by such
documents as Investor Services Group reasonably may deem necessary.
Investor Services Group reserves the right to refuse to transfer or
repurchase Membership Interests until it is satisfied that the
endorsement on the instructions is valid and genuine. Investor Services
Group also reserves the right to refuse to transfer or repurchase
Membership Interests until it is satisfied that the requested transfer
or repurchase is legally authorized, and it shall incur no liability for
the refusal, in good faith, to make transfers or repurchases which
Investor Services Group, in its good judgement, deems improper or
unauthorized, or until it is reasonably satisfied that there is no basis
to any claims adverse to such transfer or repurchase.
When Membership Interests are redeemed, Investor Services Group
shall, upon receipt of the instructions and documents in proper form,
deliver to the Custodian and the Fund or its designee a notification
setting forth the number of Membership Interests to be repurchased.
Such repurchased Membership Interests shall be reflected on appropriate
accounts maintained by Investor Services Group reflecting outstanding
Membership Interests of the Fund and Membership Interests attributed to
individual accounts.
Investor Services Group shall upon receipt of the monies provided
to it by the Custodian for the repurchase of Membership Interests, pay
such monies as are received from the Custodian, all in accordance with
the procedures described in the written instruction received by Investor
Services Group from the Fund.
Investor Services Group shall not process or effect any repurchase
with respect to Membership Interests of the Fund after receipt by
Investor Services Group or its agent of notification of the suspension
of the determination of the net asset value of the Fund.
(g) Dividends.
Upon the declaration of each dividend and each capital gains
distribution by the Board of Trustees of the Fund with respect to
Membership Interests of the Fund, the Fund shall furnish or cause to be
furnished to Investor Services Group Written Instructions setting forth
the date of the declaration of such dividend or distribution, the ex-
dividend date, the date of payment thereof, the record date as of which
Members entitled to payment shall be determined, the amount payable per
Membership Interest to the Members of record as of that date, the total
amount payable on the payment date and whether such dividend or
distribution is to be paid in Membership Interests at net asset value.
On or before the payment date specified in such resolution of the
Board of Trustees, the Fund will provide Investor Services Group with
sufficient cash to make payment to the Members of record as of such
payment date.
If Investor Services Group does not receive sufficient cash from
the Fund to make total dividend and/or distribution payments to all
Members of the Fund as of the record date, Investor Services Group will,
upon notifying the Fund, withhold payment to all Members of record as of
the record date until sufficient cash is provided to Investor Services
Group.
Cash Management Services.
________________________
Page 20
(a) Investor Services Group shall establish demand deposit
accounts (DDA's) with a cash management provider to facilitate the
receipt of purchase payments and the processing of other Member-related
transactions. Investor Services Group shall retain any excess balance
credits earned with respect to the amounts in such DDA's ("Balance
Credits") after such Balance Credits are first used to offset any
banking service fees charged in connection with banking services
provided on behalf of the Fund. Balance Credits will be calculated and
applied toward the Fund's banking service charges regardless of the
withdrawal of DDA balances described in Section (b) below.
(b) DDA balances which cannot be forwarded on the day of receipt
may be withdrawn on a daily basis and invested in U.S. Treasury and
Federal Agency obligations, money market mutual funds, repurchase
agreements, money market preferred securities (rated A or better),
commercial paper (rated A1 or P1), corporate notes/bonds (rated A or
better) and/or Eurodollar time deposits (issued by banks rated A or
better). Investor Services Group bears the risk of loss on any such
investment and shall retain any earnings generated thereby. Other
similarly rated investment vehicles may be used, provided however,
Investor Services Group shall first notify the Fund of any such change.
(c) Investor Services Group may facilitate the payment of
distributions from the Fund which are made by check ("Distributions")
through the "IPS Official Check" program. "IPS Official Check" is a
product and service provided by Investor Services Group's affiliate,
Integrated Payment Systems ("IPS"). IPS is licensed and regulated as an
"issuer of payment instruments". In the event the IPS Official Check
program is utilized, funds used to cover such Distributions shall be
forwarded to and held by IPS. IPS may invest such funds while awaiting
presentment of items for payment. In return the services provided by
IPS, IPS imposes a per item charge which is identified in the Schedule
of Out-of-Pocket Expenses attached hereto and shall retain, and share
with Investor Services Group, the benefit of the revenue generated from
its investment practices.
(j) Lost Members. Investor Services Group shall perform such
services as are required in order to comply with Rules 17a-24 and 17Ad-
17 of the 34 Act (the Lost Member Rules"), including, but not limited to
those set forth below. Investor Services Group may, in its sole
discretion, use the services of a third party to perform the some or all
such services.
- documentation of electronic search policies and procedures;
- execution of required searches;
- creation and mailing of confirmation letters;
- taking receipt of returned verification forms;
- providing confirmed address corrections in batch via electronic
media;;
- tracking results and maintaining data sufficient to comply with
the Lost Member Rules; and
- preparation and submission of data required under the Lost
Member Rules.
II. ADMINISTRATION SERVICES
Regulatory Compliance
A. Compliance - Federal Investment Company Act of 1940
1. Review, report and renew
a. investment advisory contracts
b. fidelity bond
c. underwriting contracts
d. administration contracts
e. accounting contracts
f. custody administration contracts
g. transfer agent and shareholder services
h. 12b-1 plan
2. Filings
Page 21
a. N-SAR (semi-annual report)
b. N-1A (prospectus), post-effective amendments and
supplements ("stickers")
c. filing fidelity bond under 17g-1
d. filing Member reports under Rule 30b2-1
3. Annual up-dates of biographical information
and questionnaires for Trustees and Officers
Corporate Business and Member/Public Information
________________________________________________
A. Trustees/Management
1. Preparation of meetings
a. agendas - all necessary items of compliance
b. arrange and conduct meetings
c. prepare minutes of meetings
d. keep attendance records
e. maintain corporate records/minute book
B. Coordinate Proposals
1. Auditors
2. Insurance
C. Maintain Corporate Calendars and Files
D. Release Corporate Information
1. To Members
2. To financial and general press
3. To industry publications upon approval of the Fund
a. distributions (dividends and capital gains)
b. tax information
c. changes to prospectus
d. letters from management
e. Fund performance
4. Respond to:
a. financial press
b. miscellaneous Members inquiries
c. industry questionnaires
E. Communications to Members
1. Coordinate printing and distribution of annual, semi-
annual reports
Financial and Management Reporting
A. Income and Expenses
1. Monitoring of expense accruals, budgets, expense
payments and expense caps
2. Approve and coordinate payment of expenses
3. Establish Funds' operating expense checking account
and perform monthly reconciliation of checking account
4. Calculation of advisory fee and reimbursements to
Fund, (if applicable)
5. Authorize the recording and amortization of
organizational costs and pre-paid expenses (supplied by Advisor), for
start-up funds and reorganizations
6. Calculation of average net assets
Page 22
7. Expense ratios calculated
B. Distributions to Members
1. Calculations of dividends and capital gain
distributions (in conjunction with the Fund and their auditors)
a. compliance with income tax provisions
b. compliance with excise tax provisions
c. compliance with Investment Company Act of 1940
2. Book/Tax identification and adjustments at required
distribution periods (in conjunction with the Funds' auditors)
C. Financial Reporting
1. Liaison between Fund management, independent auditors
and printers for semi-annual and annual Member reports
2. Preparation of semi-annual and annual reports to Members
3. Preparation of semi-annual and annual NSAR's
(Financial Data)
4. Preparation of Financial Statements for required SEC
Post Effective filings (if applicable)
5. Preparation of required performance graph (annually)
(based on Advisor supplied indices)
D. Other Financial Analyses
1. Upon request from Fund management, other budgeting and
analyses can be constructed to meet a Fund's specific needs (additional
fees may apply)
2. Sales information, portfolio turnover (monthly)
3. Work closely with independent auditors on tax
reporting schedules prepared by Investor Services Group on return of
capital presentation, excise tax calculation
4. Performance (total return) calculation (monthly)
5. 1099 Miscellaneous - prepared and filed for
Directors/Trustees (annual)
6. Analysis of interest derived from various Government
obligations (annual) (if interest income was distributed in a calendar
year)
7. Analysis of interest derived, by state, for municipal
bonds
8. Review and characterize 1099-Dividend Forms
9. Prepare and coordinate with printer the printing and
mailing of 1099-Dividend Insert Cards
E. Review and Monitoring Functions (monthly)
1. Review expense and reclassification entries to ensure
proper update
2. Perform various reviews to ensure accuracy of
Accounting (the monthly expense analysis) and Custody (review of daily
bank statements to ensure accurate expense money movement for expense
payments)
3. Review accruals, budgets and expenditures (where
applicable)
4. 817(h) compliance
G. Preparation and distribution of monthly operational reports
to management by 10th business day
Page 23
1. Management Statistics (Recap)
a. portfolio summary
b. book gains/losses/per Membership Interest
c. net income, book income/per Membership Interest
d. capital stock activity
e. distributions
2. Performance Analysis (faxed to Fund 1st workday of
month)
a. total return
b. monthly, quarterly, year to date, average annual
3. Expense Analysis
a. schedule
b. summary of due to/from advisor
c. expenses paid
d. expense cap
e. accrual monitoring
f. advisory fee
4. Portfolio Turnover
a. market value
b. cost of purchases
c. net proceeds of sales
d. average market value
5. Activity Summary
a. Membership Interests sold, redeemed and reinvested
b. change in investment
H. Provide rating agencies statistical data as requested
(monthly/quarterly)
I. Standard schedules for Board Package (Quarterly)
1. Activity Summary (III-G-7 from above)
2. Expense analysis
3. Other schedules can be provided (additional fees may
apply)
Special Issues Related to Foreign Securities
____________________________________________
A. Financial Reporting
1. Review and provide reports on the treatment of
currency gain/loss and capital gain/loss in conjunction with the Funds'
Independent Auditors
a. Section 988 transactions
b. Section 1256 contracts
c. Section 1092 deferrals
2. Tax Reporting (depending on the level of assistance
required by the Funds' independent auditors, additional fees may apply)
a. Analyze tax treatment of foreign investments
based on the Fund's elections and their impact on:
1. 817(h)
2. Taxable income and capital gains
3. Prepare excise tax worksheets
b. Calculate distributions to Members
1. Monitor character and impact of realized
currency gain/loss on distribution amount
3. Assist the Advisor and work with the Independent
Auditors in identification of PFIC's (by providing a list of potential
PFIC's that the fund may be holding).
Page 24
III. FUND ACCOUNTING SERVICES
Daily Accounting Services
_________________________
1) Calculate Net Asset Value ("NAV"):
- - Update the daily market value of securities held by the Fund using
Investor Services Group's standard agents for pricing equity, bond and
foreign securities as approved by the Board of Trustees.
- - Enter limited number of manual prices supplied by First Trust
Advisors and/or broker.
- - Prepare NAV proof sheet. Review components of change in NAV for
reasonableness.
- - Review variance reporting on-line and in hard copy for price changes
in individual securities using variance levels established by First
Trust Advisors. Verify U.S. dollar security prices exceeding variance
levels by notifying First Trust Advisors and pricing sources of noted
variances.
- - Complete daily variance analysis on foreign exchange rates and local
foreign prices. Notification of changes exceeding established levels
for First Trust Advisors verification. (First Trust Advisors should
establish tolerance levels for each country/currency so that local price
changes and foreign exchange rate changes exceeding this tolerance are
identified and NAV problems minimized).
- - Review for ex-dividend items indicated by pricing sources; trace to
Fund's general ledger for agreement.
- - Communicate pricing information (NAV) to First Trust Advisors,
Fund's Transfer Agent and, electronically, to NASDAQ.
2) Determine and Report Cash Availability to First Trust Advisors by
approximately 9:30 a.m. Eastern Time:
- - Receive daily cash and transaction statements from the Custodian by
8:30 a.m. Eastern time.
- - Receive previous day Member activity reports from the Transfer Agent
by 8:30 a.m. Eastern time.
- - Fax hard copy cash availability calculations with all details to
First Trust Advisors.
- - Supply First Trust Advisors with 3-day cash projection report.
- - Prepare daily bank cash reconciliations. Notify the Custodian and
First Trust Advisors of any reconciling items.
- - For Money Market Funds, the Fund's Transfer Agent will also supply
First Trust Advisors with receipt of timely cash information.
3) Reconcile and Record All Daily Expense Accruals:
- - Accrue expenses based on budget supplied by First Trust Advisors
either as percentage of net assets or specific dollar amounts.
- - If applicable, monitor expense limitations established by First
Trust Advisors.
- - If applicable, accrue daily amortization of organizational expense.
- - If applicable, complete daily accrual of 12b-1 expenses.
4) Verify and Record All Daily Income Accruals for Debt Issues:
Page 25
- - Review and verify all system generated Interest and Amortization
reports.
- - Establish unique security codes for bond issues to permit segregated
trial balance income reporting.
5) Monitor Securities Held for Cash Dividends, Corporate Actions and
Capital Changes such as splits, mergers, spinoffs, etc. and process
appropriately.
- - Monitor electronically received information from pricing vendors for
securities held in the Fund.
- - Review current daily security trades for dividend activity.
- - Monitor collection and postings of corporate actions, dividends and
interest.
- - Process international dividend and capital change information
received from the Custodian and Advisor.
- - Provide mark-to-market analysis for currency exchange rate
fluctuations on unsettled dividends and interest.
6) Enter All Security Trades on Accounting System based on written
instructions from the Fund's Advisor.
- - Review system verification of trade and interest calculations.
- - Verify settlement through statements supplied by the Custodian.
- - Maintain security ledger transaction reporting.
- - Maintain tax lot holdings.
- - Determine realized gains or losses on security trades.
- - Provide broker commission reporting.
- - Provide foreign currency exchange rate realized and unrealized
gains/losses detail.
7) Enter All Fund Membership Interest Transactions on Accounting System:
- - Process activity identified on reports supplied by the Transfer Agent.
- - Verify settlement through statements supplied by the Custodian.
- - Reconcile to the Investor Services Group's Transfer Agent report
balances.
8) Prepare and Reconcile/Prove Accuracy of the Daily Trial Balance
(listing all asset, liability, equity, income and expense accounts).
- - Post manual entries to the general ledger.
- - Post Custodian activity.
- - Post security transactions.
- - Post and verify system generated activity, i.e. income and expense
accruals.
- - Segregate foreign tax expense.
- - Prepare general ledger net cash proof used in NAV calculation.
- - Prepare daily mark-to-market analysis for all unrealized foreign
currency exchange rate gains/losses by asset/liability category.
9) Review and Reconcile with Custodian Statements:
- - Verify all posted interest, dividends, expenses and Member and
security payments/receipts, etc. (Discrepancies will be reported to the
Custodian).
- - Post all cash settlement activity to the trial balance.
- - Reconcile to ending cash balance accounts.
- - Clear subsidiary reports with settled amounts.
Page 26
- - Track status of past due items and failed trades as reported by the
Custodian.
10) Submission of Daily Accounting Reports to First Trust Advisors:
(Additional reports readily available)
- - Trial Balance.
- - Portfolio Valuation (listing inclusive of holdings, costs, market
values, unrealized appreciation/depreciation and percentage of portfolio
comprised of each security).
- - NAV Calculation Report.
- - Cash Availability.
- 3-day Cash Projection Report.
Monthly Accounting Services
1) Full Financial Statement Preparation (automated Statements of
Assets and Liabilities, of Operations and of Changes in Net Assets) and
submission to First Trust Advisors by 10th business day.
2) Submission of Monthly Automated Accounting Reports to First Trust
Advisors:
- - Security Purchase/Sales Journal.
- - Interest and Maturity Report.
- - Brokers Ledger (Commission Report).
- - Security Ledger Transaction Report with Realized Gains/Losses.
- - Security Ledger Tax Lot Holdings Report.
- - Additional reports available upon request.
3) Submit Reconciliation of Accounting Asset Listing to Custodian
Asset Listing:
- - Report any security balance discrepancies to the Custodian/First
Trust Advisors.
4) Provide Monthly Analysis and Reconciliation of Additional Trial
Balance Accounts,
such as:
- - Security cost and realized gains/losses.
- - Interest/dividend receivable and income.
- - Payable/receivable for securities purchased and sold.
- - Payable/receivable for fund Membership Interests; issued and
redeemed.
- - Expense payments and accruals analysis.
- - Unrealized and realized currency gains/losses.
5) If Appropriate, Prepare and Submit to First Trust Advisors
(additional fees may apply):
- - Income by state reporting.
- - Standard Industry Code Valuation Report.
- - Alternative Minimum Tax Income segregation schedule.
- - SEC yield reporting (non-money market funds with domestic and ADR
securities only).
Annual (and Semi-Annual) Accounting Services
____________________________________________
1) Annually assist and supply Fund's auditors with schedules
supporting securities and Member transactions, income and expense
accruals, etc. during the year in accordance with standard audit
assistance requirements.
Page 27
2) Provide N-SAR Reporting (Accounting Questions) on a Semi-Annual
Basis:
If applicable, answer the following items:
2, 12B, 20, 21, 22, 23, 28, 30A, 31, 32, 35, 36, 37, 43, 53, 55, 62, 63,
64B, 71, 72, 73, 74, 75 and 76
NOTE: All N-SAR questions are completed by Investor Services Group
when Investor Services Group's Administration Group is retained.
Performing fund accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Fund as may be
required by Section 31(a) of the 1940 Act) as follows:
IV. CUSTODY ADMINISTRATION SERVICES
Custody services to be provided include:
- - Assign a Custody Administrator to accept, control and process daily
portfolio transactions through on-line real time link with Custodian
Banks and provide centralized point of contact for inquiries on
portfolio related items.
- - Provide clients with established procedures, controls and a
communication network already in place with the Custodian Banks and
other operational areas, both internal and external.
- - Custody Administration provides a comprehensive program that audits
transactions, monitors and evaluates the Custodian performance and
recommends changes that strengthen a service or improve controls on Fund
cash and asset movements.
- - Generate various Domestic and Global reports daily, i.e. Cash
Reports, Pending/Fail Reports, Account Transaction Detail from Custodian
Banks and distribute to Fund Accounting Unit and client by 8:30 AM.
- - Monitor and review prior day Custodian cash balances daily. Identify
any overdrafts and their reason by 9:30 AM and document.
- - Communicate and coordinate portfolio trades from client to Fund
Accounting for booking within proper time frames. Provide trade
authorization to Fund Accounting on all security trades placed by the
Funds no later than 12:30 PM Eastern time on settlement\value date for
Short Term Money Market securities issues (assuming that trade date
equals settlement date) and by 11:00 AM Eastern time on trade date plus
one for non-Money Market securities.
- - Maintain client specific trade-control cover sheets to ensure all
trades received.
- - Input and affirm Domestic and Global trades into the Custodian Bank
system within the proper guidelines and time limits.
- - Review clients authorizations and match with DTC ID's for correctness
and affirmation and resolve differences with client. All trade
revisions must be communicated to Fund Accounting ASAP.
Page 28
- - Communicate and process Global trades and FCC's from client with
Custodian Bank and communicate to Fund Accounting by stated deadlines.
Provide FX price. Follow-up with Fund Accounting and Custodian on tax
reclaims. Match Global confirmations with client authorizations and
review for correctness.
- - Maintain and review all trades for client specific authorized
signatures.
- - Communicate Corporate Actions, capital changes and interest rate
changes received from Custodian Bank to Fund Accounting and client.
Follow-up with client, Fund Accounting and Custodian to make sure all
necessary actions and/or paperwork are completed.
- - Handle the differences and inquiries between Custodian Bank, Broker,
Fund Accounting and client (delivery problems, fails, dividend and
interest differences, etc.). Turnaround time required same day to 48
hours.
- - Work with Fund Accounting and Custodian on asset reconciliations to
ensure any discrepancies are resolved in a timely manner. Provide Fund
Accounting with monthly (and on request) Asset List Holdings by the 1st
or 2nd business day of the month.
- - Assist client in offering cash management trades through Custodian,
such as Commercial Paper, Repurchase Agreements, Sweep vehicles.
- - Special attention and care given to times sensitive trades, i.e. Tri-
Party Agreements, Money Market trades, Global FX trades and Corporate
Actions.
- - Arrange for special services offered by Custodian Banks, such as
securities lending, line of credit and or letter of credit, DDA
relationships, etc.
- - Supply and support Fund's auditors with all trade related and broker
confirmations to expedite Fund's annual audit.
- - Maintain monthly statement activity and asset holding reports from
Custodian Bank for use by auditors and for research.
- - Investor Services Group shall be entitled to retain any excess
balance credits or fee reductions or other concessions or benefits
earned or generated by or associated with the Fund's custodial accounts
or made available by the institution at which such accounts are
maintained after such benefits are first applied towards banking service
fees charged to the Fund by such institution.
Page 29
SCHEDULE C
__________
FEE SCHEDULE
____________
1. FUND ADMINISTRATION, FUND ACCOUNTING, CUSTODY ADMINISTRATION AND
TRANSFER AGENCY (1/12th payable monthly)
.0010 On the First $ 1 Billion of Average Net Assets
.0008 On the Next $ 1 Billion of Average Net Assets
.0006 Over $ 2 Billion of Average Net Assets
The above fee schedule is applicable to Total Net Assets of all
portfolios within the group. The Annual minimum fee is $600,000 for the
first 12 portfolios as described above. Additional portfolios will be
serviced for a minimum of $50,000 per portfolio.
NOTE: As the Fund will start with 12 portfolios initially, the minimum
will be reduced to $600,000 and when other portfolios are added the
minimum of $50,000 per additional portfolio will apply.
CUSTODY ADMINISTRATION FEE
__________________________
$6,000 per portfolio per year
PRICING SERVICES QUOTATION FEE
______________________________
Specific costs will be identified based upon options selected by the
Fund and will be billed monthly.
<TABLE>
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Interactive Data J.J. Kenny Co.,
Security Types Muller Data Corp.* Corp.* Inc.*
______________ _________________ _________________ ______________
<S> <C> <C> <C>
Government Bonds $ .50 $ .50 $ .25 (a)
Mortgage-Backed (evaluated, seasoned, closing) .50 .50 .25 (a)
Corporate Bonds (short and long term) .50 .50 .25 (a)
U.S. Municipal Bonds (short and long term) .55 .80 .50 (b)
CMO's/ARM's/ABS 1.00 .80 1.00 (a)
Convertible Bonds .50 .50 1.00 (a)
High Yield Bonds .50 .50 1.00 (a)
Mortgage-Backed Factors (per Issue per Month) 1.00 n/a n/a
U.S. Equities .15 .15 n/a
U.S. Options .15 .15 n/a
Domestic Dividends & Capital Changes
(per Issue per Month) (d) 3.50 n/a
Foreign Securities .50 .50 n/a
Foreign Securities Dividends & Capital Changes
(per Issue per Month) 2.00 4.00 n/a
Set-up Fees n/a n/a (e) .25 (c)
All Added Items n/a n/a .25 (c)
Page 30
<FN>
* Based on current Vendor costs, subject to change. Costs are
quoted based on individual security CUSIP/identifiers and are per issue
per day.
(a) $35.00 per day minimum
(b) $25.00 per day minimum
(c) $ 1.00, if no cusip
(d) Interactive Data also charges monthly transmission costs
and disk storage charges.
</FN>
</TABLE>
A) Futures and Currency Forward Contracts $2.00 per Issue per Day
B) Dow Jones Markets (formerly Telerate Systems, Inc.)* (if
applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected by the
client and will be billed monthly.
C) Reuters, Inc.*
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected by the
client and will be billed monthly.
D) Municipal Market Data* (if applicable)
*Based on current vendor costs, subject to change.
Specific costs will be identified based upon options selected by the
client and will be billed monthly.
2. Lost Member Search/Reporting: $2.75 per account search*
* The per account search fee shall be waived until June 2000 so long as
the Fund retains Keane Tracers, Inc. ("KTI") to provide the Fund with
KTI's "In-Depth Research Program" services.
3. Print/Mail Fees.(If needed)
(a) Standard Pricing:
Implementation Fee: $ 5000.00
Testing Application or Data Requirements: $3.00/fax
Work Order: $15.00 per workorder
Daily Work (Confirms):
Hand: $71/K with $20.00 minimum (includes BRE or CRE)
$0.07/each additional insert
Machine: $42/K with $15.00 minimum (includes BRE or CRE)
$0.01/each additional insert
Daily Checks*:
Hand: $91/K with $30.00 minimum daily (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $20.00 minimum (includes 1 insert)
$0.01/each additional insert
* There is a $3.00 charge for each 3606 Form sent.
Page 31
Statements:
Hand: $78/K with $20.00 minimum (includes BRE or CRE)
$0.08/each additional insert
$125/K for intelligent inserting
Machine: $52/K with $20.00 minimum (includes BRE or CRE)
$0.01 each additional insert
$58/K for intelligent inserting
Periodic Checks:
Hand: $91/K with $30.00 minimum (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $30.00 minimum (includes 1 insert)
$0.01/each additional insert
12B1/Dealer Commission Checks/Statements: $0.78/each envelope with $30.00
minimum
Spac Reports/Group Statements: $78/K with $20.00 minimum
Listbills: $0.78 per envelope with $20.00 minimum
Printing Charges: (price ranges dependent on volumes)
$0.08/per confirm/statement/page
$0.10/per check
Folding (Machine): $18/K
Folding (Hand): $.12 each
Presort Charge: postage rate
$0.035 per piece
Courier Charge: $15.00 for each on call courier trip/or actual cost
for on demand
Overnight Charge: $3.50 per package service charge plus Federal
Express/Airborne charge
Inventory Storage: $20.00 for each inventory location as of the 15th of
the month
Inventory Receipt: $20.00 for each SKU / Shipment
Hourly work; special projects, opening envelopes, etc...: $24.00 per hour
Special Pulls: $2.50 per account pull
Boxes/Envelopes: Shipping boxes $0.85 each
Oversized Envelopes $0.45 each
Forms Development/Programming Fee: $100/hr
Systems Testing: $85/hr
Cutting Charges: $10.00/K
Page 32
(b) Special Mailings:
Special mailing pricing is based on appropriate notification (standard
of 30 day notification) and scheduling for special mailings. Scheduling
requirements include having collateral arrive at agreed upon times in
advance of deadlines. Mailings which arise with shorter time frames and
turns will be billed at a premium based on turn around requirements.
Work Order: $30.00 per Workorder
Daily Work (Confirms):
____________________
Hand: $135.00 to create an admark tape
$10.00/K to zip + 4 data enhance/$125.00 minimum
$80.00/hr for any data manipulation
$10.00/K combo charge
Admark & Machine Insert
_______________________
#10, #11, 6x9: $62/K to admark envelope and machine insert 1
piece/$125.00 min
$2.50/K for each additional insert
$38/K to admark only with $75.00 minimum
$25.00/K hand sort
9x12: $135/K to admark envelope and machine insert 1
piece/$125.00 min
$5.00/K for each additional insert
$38/K to admark only/$75.00 minimum
$0.08 for each hand insert
Admark & Hand Insert:
____________________
#10, #11, 6x9: $0.08 for each hand insert
$25.00/K hand sort
9x12 $0.09 for each hand insert
$35.00/K hand sort
Pressure/Sensitive Labels:
$0.32 each to create, affix and hand insert
1 piece/$75.00 minimum
$0.08 for each hand insert
$0.10 to affix labels only
$0.10 to create labels only
Legal Drop: $150.00 / compliant legal drop per job and processing fees
Create Mailing List:$0.40 per entry with $75.00 minimum
Presort Fee: $0.035 per piece
4. Investor Services Group shall be entitled to the following fee for
the performance of any Special Legal Services as described in Schedule B
in accordance with the Written Instructions of the Fund: $185 per hour
subject to certain project caps as may be agreed to by Investor Services
Group and the Fund. Services and charges may vary based on volume.
5. Miscellaneous Charges. The Fund shall be charged for the
following products and services as applicable:
- - Ad hoc reports
- - Ad hoc SQL time
Page 33
- - COLD Storage
- - Digital Recording
- - Banking Services, including incoming and outgoing wire charges
- - Microfiche/microfilm production
- - Magnetic media tapes and freight
- - Manual Pricing
- - Materials for Rule 15c-3 Presentations
- - Pre-Printed Stock, including business forms, certificates,
envelopes, checks and stationary
6. Fee Adjustments. After the one year anniversary of the effective
date of this Agreement, Investor Services Group may adjust the fees
described in the above sections once per calendar year, upon thirty (30)
days prior written notice in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers
(CPI-U) U.S. City Average, All items (unadjusted) - (1982-84=100),
published by the U.S. Department of Labor since the last such adjustment
in the Client's monthly fees (or the Effective Date absent a prior such
adjustment).
7. Programming Costs. The following programming rates are subject to an
annual 5% increase after the one year anniversary of the effective date
of this Agreement.
(a) Dedicated Team: Programmer: $100,000 per annum
BSA: $ 85,000 per annum
Tester: $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team):$150.00 per/hr per
programmer
Page 34
SCHEDULE D
__________
OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- - Postage - direct pass through to the Fund
- - Telephone and telecommunication costs, including all lease,
maintenance and line costs
- - Proxy solicitations, mailings and tabulations
- - Shipping, Certified and Overnight mail and insurance
- - Terminals, communication lines, printers and other equipment and
any expenses incurred in connection with such terminals and lines
- - Duplicating services
- - Distribution and Redemption Check Issuance
- - Courier services
- - Federal Reserve charges for check clearance
- - Overtime, as approved by the Fund
- - Temporary staff, as approved by the Fund
- - Travel and entertainment, as approved by the Fund
- - Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record keeping
vendors
- - Third party audit reviews
- - Insurance
- - Pricing services (or services used to determine Fund NAV)
- - Vendor set-up charges for Blue Sky and other services
- - Blue Sky filing or registration fees
- - EDGAR filing fees
- - Vendor pricing comparison
- - Such other expenses as are agreed to by Investor Services Group
and the Fund
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with Investor Services Group. In
addition, the Fund will promptly reimburse Investor Services Group for
any other unscheduled expenses incurred by Investor Services Group
whenever the Fund and Investor Services Group mutually agree that such
expenses are not otherwise properly borne by Investor Services Group as
part of its duties and obligations under the Agreement.
Page 35
SCHEDULE E
__________
FUND DOCUMENTS
- - Certified copy of the Certificate of Formation of the Fund, as
amended
- - Certified copy of the Limited Liability Company Agreement and
Operating By-Laws of the Fund, as amended
- - Copy of the resolution of the Board of Trustees authorizing
the execution and delivery of this Agreement
- - Copies of all agreements between the Fund and its service
providers
- - Specimens of the certificates for Membership Interests of the
Fund, if applicable, in the form approved by the Board of Managers
Trustees of the Fund, with a certificate of the Secretary of the Fund as
to such approval
- - All account application forms and other documents relating to
Member accounts or to any plan, program or service offered by the Fund
- - Certified list of Members of the Fund with the name, address
and taxpayer identification number of each Member, and the number of
Membership Interests of the Fund held by each, certificate numbers and
denominations (if any certificates have been issued), lists of any
accounts against which stop transfer orders have been placed, together
with the reasons therefore, and the number of Membership Interests
redeemed by the Fund
- - All notices issued by the Fund with respect to the Membership
Interests in accordance with and pursuant to the Certificate of
Formation, Limited Liability Company Agreement or Operating By-Laws of
the Fund or as required by law and shall perform such other specific
duties as are set forth in the Certificate of Formation, Limited
Liability Company Agreement and Operating By-Laws including the giving
of notice of any special or annual meetings of Members and any other
notices required thereby.
- - A listing of all jurisdictions in which each Portfolio is
registered and lawfully available for sale as of the date of this
Agreement and all information relative to the monitoring of sales and
registrations of Fund Membership Interests in such jurisdictions
- - Each Fund's most recent post-effective amendment to its
Registration Statement
- - Each Fund's most recent prospectus and statement of additional
information, if applicable, and all amendments and supplements thereto
Page 36
Administrative Services Agreement
This Agreement is made this 1st day of October, 1999 by and between
First Trust Defined Portfolio Fund, LLC (the "Fund"), a Delaware limited
liability company, and American Skandia Life Assurance Corporation
("American Skandia"), a stock life insurance company domiciled in
Connecticut.
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund is authorized to issue interests ("Shares") in
separate portfolios with each such portfolios representing interests in
a separate portfolio of securities and other assets; and
WHEREAS, the Fund initially established a number of portfolios, and may
establish other portfolios in the future (each a "Portfolio" and
collectively the "Portfolios"); and
WHEREAS, the Fund is currently available to offer shares of one or more
of its Portfolios to a separate account of American Skandia that fund
variable annuity contracts ("Variable Contracts") and, therefore, to
serve as an underlying investment medium for Variable Contracts offered
by American Skandia; and
WHEREAS, pursuant to an Investment Advisory and Management Agreement
between the Fund and First Trust Advisors L.P. ("First Trust") dated
October 1, 1999 ("Management Agreement"), the Fund has retained First
Trust to furnish investment advisory and management services and certain
administrative services (collectively, "management services") with
respect to the Portfolios in the manner and on the terms thereinafter
set forth; and
WHEREAS, the Fund wishes to retain American Skandia to provide certain
administrative services to the Fund with respect to the Portfolios in
the manner and on the terms hereinafter set forth, and
WHEREAS, American Skandia is willing to furnish such services in the
manner and on the terms hereinafter set forth;
NOW, THEREFORE in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. Appointment. The Fund hereby appoints American Skandia as the
administrator (the "Administrator") to provide certain administrative
and other services with respect to the Portfolios for the period and on
the terms set forth in this agreement. The Administrator accepts such
appointment and agrees during such period to render the services herein
set forth for the compensation herein provided.
Page 1
In the event the Fund establishes and designates additional portfolios
with respect to which it desires to retain the Administrator to render
the administrative and other services hereunder, it shall notify the
Administrator in writing. If the Administrator is willing to render such
services it shall notify the Fund in writing, whereupon such additional
portfolios shall become a Portfolio hereunder.
2. Duties. Subject to the general supervision of the Trustees, the
Administrator shall provide those administrative services reasonably
necessary for the operation of the Portfolios other than the management
services provided by First Trust pursuant to the Management Agreement.
(a) The services hereunder shall also include the following: (i)
coordinating matters relating to the operation of the Separate Account
with the Portfolios, including any necessary coordination with the
custodian, transfer agent, dividend disbursing agent, recordkeeping
agent, accountants, attorneys, and other parties performing services or
operational functions for the Portfolios; (ii) coordinating the
preparation of the necessary documents with the SEC and other federal
and state regulatory authorities as may be required; (iii) taking such
other action as may be required by applicable law, with respect to the
foregoing, including without limitation the rules and regulations of the
SEC and of state insurance authorities and other regulatory agencies;
and (iv) coordinating with First Trust regarding investment limitations
and parameters imposed on funding vehicles for variable annuities by the
insurance laws of the various states and by the Internal Revenue Code.
(b) The Administrator shall also make its officers and employees
available to the Trustees and officers of the Fund for consultation and
discussions regarding the operations of the Separate Account and the
Variable Contracts in connection with the administration of the
Portfolios and services provided to the Portfolios under this agreement.
(c) In performing these services, the Administrator:
(i) Shall conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's
Trustees, and with the provisions of the Fund's Registration Statement
filed on Form N-1A as supplemented or amended from time to time.
(ii) Will make available to the Fund, promptly upon request,
appropriate books and records as are maintained under this agreement,
and will furnish to regulatory authorities having the requisite
authority any such books and records and any information or reports in
connection with the Administrator's services under this agreement that
may be requested.
(iii) Will regularly report to the Fund's Trustees on the
services provided under this agreement and will furnish the Fund's Board
of Trustees with respect to the Portfolios such periodic and special
reports with respect to such services as the Trustees may reasonably
request.
Page 2
3. Documentation. The Fund has delivered copies of each of the
following documents to the Administrator and will deliver to it all
future amendments and supplements thereto, if any:
(a) the Fund's Registration Statement as filed with the SEC
and any amendments thereto; and
(b) exhibits, powers of attorneys, certificates and any and
all other documents relating to or filed in connection with the
Registration Statement described above.
4. Independent Contractor. The Administrator shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Board of
Trustees of the Fund from time to time, have no authority to act for or
represent the Fund in any way or otherwise be deemed its agent.
5. Administrative Fee. As compensation for the services rendered
under this agreement, the Fund shall pay to the Administrator a fee at
an annual rate of 0.325% of the average daily net assets of each
Portfolio that were invested in such Portfolio through the Separate
Account. The fee payable to the Administrator for all of the Portfolios
shall be computed and accrued daily and paid [quarterly]. If the
Administrator shall serve for less than any whole month, the foregoing
compensation shall be prorated.
6. Non-Exclusivity. It is understood that the services of the
Administrator hereunder are not exclusive, and the Administrator shall
be free to render similar services to other investment companies and
other clients.
7. Expenses. During the term of this agreement, the Administrator
will pay all ordinary expenses incurred by it in connection with its
obligations under this agreement.
8. Standard of Care. The Administrator shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund
in connection with matters to which this agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or the reckless disregard
by it of its obligations and duties under this agreement.
9. Terms and Continuation. This agreement shall take effect as of
the date indicated above, and shall remain in effect, unless sooner
terminated as provided herein, for two years from such date, and shall
continue thereafter on an annual basis with respect to the Portfolios
provided that such continuance is specifically approved at least
annually (a) by the vote of a majority of the Board of Trustees of the
Fund, or (b) by vote of a majority of the outstanding voting shares of
the Portfolios, and provided continuance is also approved by the vote of
the majority of the Board of Trustees of the Fund who are not parties to
this agreement or "interested persons" (as defined in the 1940 Act) of
the Fund, or the Administrator, cast in person at a meeting called for
the purpose of voting on such approval.
This agreement may be terminated:
Page 3
(a) by the Fund at any time with respect to the services provided
by the Administrator, by vote of a majority of the entire Board of
Trustees of the Fund or by a vote of a majority of the outstanding
voting shares of the Fund or, with respect to a particular" Portfolio,
by vote of a majority of the outstanding voting shares of such
Portfolio, on sixty (60) days' written notice to the Administrator;
(b) by the Administrator at any time, without the payment of any
penalty, upon sixty (60) days' written notice to the Fund.
10. Notice. Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address of such
party set forth below or at such other address as such party may from
time to time specify in writing to the other party.
If to the Administrator:
American Skandia Life Assurance Company
One Corporate Drive
P.O. Box 883
Shelton, Connecticut 06484-0883
Attention: Scott Richardson
If to the Fund:
First Trust Defined Portfolio Fund, LLC
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
Attention: General Counsel
11. Fund Obligations. The Certificate of Formation of the Fund on
file with the Secretary of State of the State of Delaware was executed
on behalf of the Fund by its authorized person, and any obligation of
the Fund shall be binding only upon the assets of the Fund (or
applicable series thereof) and shall not be binding upon any trustee,
officer, employee, agent, member or shareholder of the Fund. Neither the
authorization of any action by any trustee, officer, employee, agent,
member or shareholder of the Fund nor the execution of this agreement on
behalf of the Fund shall impose any liability upon any trustee, officer,
employee, agent, member or shareholder of the Fund.
12. Counterparts. This agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
13. Miscellaneous. (a) This agreement shall be governed by
Illinois law (without regard to principles of conflicts of law) except
for Section 11, which shall be governed by Delaware law; provided that
nothing herein shall be construed in a manner inconsistent with the 1940
Act or any rule or regulation of the Securities and Exchange Commission
thereunder.
Page 4
(b) If any provision of this agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this agreement shall not be affected thereby.
(c) The captions in this agreement are included for convenience
only and in no way define any of the provisions hereof or otherwise
affect their construction or effect.
(d) This agreement may not be assigned (as defined under the 1940
Act) by the Fund or the Administrator without the consent of the other
party.
(e) This agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
Page 5
In Witness Whereof, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first
above written.
First Trust Defined Portfolio Fund, LLC,
a Delaware limited liability company
By /s/ James A. Bowen, President
________________________________
American Skandia Life Assurance Corporation,
a Connecticut stock life insurance company
By /s/ Gordon C. Boronow, Deputy Chief
Executive Officer and President
________________________________
Page 6
September 30, 1999
First Defined Portfolio Fund, LLC
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
Re: First Defined Portfolio Fund, LLC
_________________________________
Gentlemen:
We have served as counsel for the First Defined Portfolio Fund, LLC (the
"Fund"), which proposes to offer and sell membership interests of eleven
series (collectively, the "Interests") in the manner and on the terms
set forth in Pre-Effective Amendment No. 2 to its registration statement
on Form N-1A to be filed on or about September 30, 1999 (the
"Amendment") with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended. The Fund consists of the following series: The Dow (sm)
Target 5 Portfolio, The Dow (sm) DART 10 Portfolio, Global Target 15
Portfolio, S&P Target 10 Portfolio, NASDAQ Target 15 Portfolio, First
Trust 10 Uncommon Values Portfolio, First Trust Energy Portfolio, First
Trust Financial Services Portfolio, First Trust Pharmaceutical
Portfolio, First Trust Technology Portfolio, and First Trust Internet
Portfolio.
In connection therewith, we have examined such pertinent records and
documents and matters of law, including the opinions of Potter Anderson
& Corroon LLP upon which we have relied as they relate to the laws of
the State of Delaware, as we have deemed necessary in order to enable us
to express the opinion hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
The Interests of the Fund, which are currently being registered by the
Amendment referred to above, may be legally and validly issued from time
to time in accordance with the Fund's Limited Liability Company
Agreement dated as of January 8, 1999, the Fund's Operating By-Laws, the
Fund's Amended and Restated Establishment and Designation of Series of
Membership Interests, and the Amendment, and subject to compliance with
the Securities Act of 1933, as amended, the Investment Company Act of
1940, as amended, and applicable state laws regulating the sale of
securities and the receipt by the Fund of a purchase price of not less
than the net asset value per Interest and such Interests, when so issued
and sold, will be legally issued, fully paid and non-assessable.
Page 1
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-72447) relating to the Interests
referred to above, to the use of our name and to the reference to our
firm in said Registration Statement.
Respectfully submitted,
Chapman and Cutler
Page 2
September 30, 1999
First Defined Portfolio Fund, LLC
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
Chapman and Cutler
111 West Monroe Street
Chicago, IL 60603
Re: First Defined Portfolio Fund, LLC
Ladies and Gentlemen:
We have acted as special Delaware counsel for First Defined
Portfolio Fund, LLC, a Delaware limited liability company (the
"Company"). You have requested this opinion in connection with the
matters set forth below. Terms used herein and not otherwise defined
herein shall have the meanings set forth in that certain Limited
Liability Company Agreement (the "LLC Agreement") dated as of January 8,
1999 by James A. Bowen (the "Member").
For purposes of giving the opinions hereinafter set forth, we
have examined:
1. A certified copy of the Certificate of Formation of the Company dated as
of January 8, 1999 as filed with the office of the Secretary of State of
the State of Delaware (the "Secretary of State") on January 8, 1999;
2. A certified copy of the Certificate of Amendment to the Company's
Certificate of Formation dated April 27, 1999 as filed with the
Secretary of State on June 8, 1999;
3. A certified copy of the Company's Amended and Restated Certificate of
Formation dated as of September 20, 1999 as filed with the Secretary of
State on September 27, 1999 (the "Company's Certificate");
4. The LLC Agreement;
5. The Establishment and Designation of Series adopted by the Company's
sole Trustee on June 18, 1999;
6. The Amended and Restated Establishment and Designation of Series (the
"Designation") adopted y the Company's Board of Trustees on September
20, 1999 (the Membership Interests so designated therein being the
"Designated Membership Interests");
Page 1
7. The membership Interest Transfer Agreement by and between James A. Bowen
and American Skandia Life Assurance Corporation Variable Account B (the
"Transfer Agreement");
8. A Long Form Certificate of Good Standing for the Company dated as of
September 30, 1999, obtained from the Secretary of State;
9. Certified Resolutions of the Sole Trustee dated June 21, 1999,
increasing the size of the Board of Trustees; and
10. Certified Resolutions of the Board of Trustees dated September 20, 1999,
approving the issuance of certain Designated Membership Interests and an
Amended Exhibit B to the LLC Agreement.
As to certain facts material to the opinions expressed herein,
we have relied upon the representations and warranties continued in the
documents examined by us.
Based upon the foregoing, and upon an examination of such
questions of law of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions,
qualifications, limitations and exceptions set forth herein, we are of
the opinion that;
1. The Company has been duly formed and is validly existing and in good
standing as a limited liability company under the laws of the State of
Delaware.
2. The Designated Membership Interests have been duly authorized by the LLC
Agreement and the Designation.
3. Assuming (i) the payment of such consideration, if any, as the Board of
Trustees shall require, and (ii) reflection on an amended Exhibit B to
the LLC Agreement, such Exhibit B having been duly adopted by the Board
of Trustees, the Designated Membership Interests are legally issued,
fully paid, and non-assessable Membership Interests of the Company.
In addition to the assumptions and qualifications set forth
above, all of the foregoing opinions contained herein are subject tot he
following assumptions, qualifications, limitations and exceptions;
a. The foregoing opinions are limited to the laws of the State of Delaware
presently in effect, excluding the securities laws thereof. We have not
considered and express no opinion on the laws of any other jurisdiction,
including, without limitation, federal laws and rules and regulations
relating thereto.
Page 2
b. We have assumed the due execution, authorization and delivery by each
party thereto of each document examined by us. We have assumed the
legal capacity of any individual party to any document examined by us.
c. We have assumed that all signatures on documents examined by us are
genuine, that all documents submitted to us as originals are authentic
and that all documents submitted to us as copies conform with the
originals.
d. We have assumed that (i) no event of dissolution, termination or
liquidation under the LLC Agreement has occurred (ii) there has been no
transfer by the Member of its Membership Interests (except with respect
to any transfer of Membership Interests to American Skandia Life
Assurance Corporation Variable Account B in accordance with Section
2.7(a) of the LLC Agreement and the Transfer Agreement (if so reflected
on Exhibit B to the LLC Agreement)), (iii) there has been no decree of
dissolution under Section 18-802 of the Act with respect to the Company,
and (iv) the Member has made all required capital contributions under
the LLC Agreement.
e. We have assumed that LLC Agreement constitutes the legal, valid, binding
and enforceable obligations of each of the parties thereto enforceable
against such parties in accordance with its terms.
f. We have assumed that the Company's Certificate, the LLC Agreement, and
the Designation constitute the entire agreement of the parties to the
LLC Agreement with respect to the creation, operation, dissolution and
winding-up of, and admission of members to, the Company.
g. We have assumed that all Membership Interests are and will be issued in
accordance with the LLC Agreement and the Designation.
This opinion is rendered solely for your benefit and for the
benefit of any Assignee in connection with the matters set forth herein.
In particular, you may rely on this opinion with respect to the matters
set forth herein in connection with your opinion being delivered on even
date herewith. This opinion may not be furnished (except that it may be
furnished to any federal, state of local regulatory agencies or
regulators having appropriate jurisdiction and entitled to such
disclosure) or quoted to, or relied upon by, any other person or entity
for any purpose without our prior written consent. However, we consent
to the filing of this opinion as an exhibit to that certain
Page 3
Pre-effective Amendment No. 2 to the Company's Registration Statement
filed on Form N-1A with the Securities and Exchange Commission.
Very truly yours,
Potter Anderson & Corroon LLP
Page 4
April 28, 2000
First Defined Portfolio Fund, LLC
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
Re: First Defined Portfolio Fund, LLC
Gentlemen:
We have served as counsel for the First Defined Portfolio Fund, LLC (the
"Fund"), which proposes to offer and sell membership interests of eleven
series (collectively, the "Interests") in the manner and on the terms
set forth in Post-Effective Amendment No. 1 to its registration
statement on Form N-1A to be filed on or about April 28, 2000 (the
"Amendment") with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended. The Fund consists of the following series: The Dow (sm)
Target 5 Portfolio, The Dow (sm) DART 10 Portfolio, Global Target 15
Portfolio, S&P Target 10 Portfolio, NASDAQ Target 15 Portfolio, First
Trust 10 Uncommon Values Portfolio, First Trust Energy Portfolio, First
Trust Financial Services Portfolio, First Trust Pharmaceutical
Portfolio, First Trust Technology Portfolio, and First Trust Internet
Portfolio.
In connection therewith, we have examined such pertinent records and
documents and matters of law, including the opinions of Potter Anderson
& Corroon LLP upon which we have relied as they relate to the laws of
the State of Delaware, as we have deemed necessary in order to enable us
to express the opinion hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
The Interests of the Fund may be legally and validly issued from time to
time in accordance with the Fund's Limited Liability Company Agreement
dated as of January 8, 1999, the Fund's Operating By-Laws, the Fund's
Amended and Restated Establishment and Designation of Series of
Membership Interests, and the Amendment, and subject to compliance with
the Securities Act of 1933, as amended, the Investment Company Act of
1940, as amended, and applicable state laws regulating the sale of
securities and the receipt by the Fund of a purchase price of not less
than the net asset value per Interest and such Interests, when so issued
and sold, will be legally issued and outstanding, fully paid and non-
assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-72447) relating to the Interests
referred to above, to the use of our name and to the reference to our
firm in said Registration Statement.
Respectfully submitted,
Chapman and Cutler
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights Information" in the Prospectus and "Independent Auditors" and
"Financial Statements" in the Statement of Additional Information included
in Post-Effective Amendment Number 3 to the Registration Statement (Form
N-1A No. 333-72447) of First Defined Portfolio Fund, LLC.
We also consent to the incorporation by reference of our report dated
February 2, 2000, with respect to the financial statements included in the
Annual Report of the Dow Target 5, Dow DART 10, Global Target 15, S&P Target
10, NASDAQ Target 15, First Trust 10 Uncommon Values, First Trust Energy,
First Trust Financial Services, First Trust Internet, First Trust
Pharmaceutical, and First Trust Technology Portfolios comprising the
First Defined Portfolio Fund, LLC for the period ended December 31, 1999
ERNST & YOUNG LLP
Boston, Massachusetts
April 28, 2000
First Trust Advisors L.P.
Investment Company Code of Ethics
I. STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics is being adopted by First Trust Advisors L.P. (the
"Company"), in recognition of the fact that the Company owes a duty at
all times to place the interests of investors in investment companies
for which the Company provides investment advisory services first. In
recognition of such duty it is the Company's policy that the personal
securities transactions and other activities of Company personnel be
conducted consistent with this Code of Ethics and in such a manner as to
avoid any actual or potential conflict of interest or any abuse of an
individual's position of trust and responsibility that could occur
through such activities as "insider trading" or "frontrunning"
investment company securities trades. It is also the Company's policy
that Company personnel should not take inappropriate advantage of their
position with respect to investment companies for which the Company
provides investment advisory services and that such personnel should
avoid any situation that might compromise, or call into question, their
exercise of fully independent judgment in the interest of investors in
investment companies for which the Company provides investment advisory
services.
II. DEFINITIONS
For Purposes of this Code of Ethics:
A. "Company" shall mean First Trust Advisors L.P.
B. "Investment Company" shall mean any investment company for which the
Company provides investment advisory services.
C. "Investor" shall mean any investor of any Investment Company.
D. "Access Person" shall mean any partner, officer or employee of the
Company who makes, participates in or obtains information regarding the
purchase or sale of securities for an Investment Company's portfolio or
whose functions or duties as part of the ordinary course of his business
relate to the making of any recommendation regarding the purchase or
sale of securities for an Investment Company and includes all personnel
listed in the Company's form ADV.
"Investment Person" shall mean any officer or employee of the Company
who makes, participates in or executes decisions regarding the purchase
or sale of securities for an Investment Company's portfolio.
III. PROHIBITED PRACTICES
In furtherance of the policies set forth in paragraph I above, the
following practices shall be prohibited:
A. No Investment Person shall purchase any security during the initial
public offering of such security.
B. No Investment Person shall purchase any security in a private
placement transaction unless the purchase has been approved in writing
and in advance by the Compliance Department. In considering whether to
approve any such transaction, the Compliance Department shall take into
account, among other factors, whether the investment opportunity should
be reserved for any existing or proposed Investment Company and its
Investors and whether the opportunity is being offered to an individual
by virtue of his position. Any Investment Person who has been
authorized to acquire securities in a private placement shall disclose
that investment to the Compliance Department before he takes part in a
subsequent consideration of any Investment Company's investment in that
issuer, and the decision to include securities of such issuer in an
Investment Company shall be subject to independent review by General
Counsel of the Company.
C. No Access Person shall purchase or sell any security on a day
during which there is "buy" or a "sell" order from an Investment Company
for that security until such order is executed or withdrawn. No
Investment Person shall purchase or sell a security within seven days
before or after that security is bought or sold by an Investment
Company.
D. No Investment Person shall profit from the purchase and sale, or
sale and purchase, of the same (or equivalent) securities within 30
days.
E. No Investment Person shall serve on the Board of Directors of a
publicly traded company absent prior authorization of the Compliance
Department upon a determination that board service would be consistent
with the interests of Investment Companies and their investors and the
establishment of appropriate "Chinese wall" procedures by the Compliance
Department.
F. Any provision of this Code of Ethics prohibiting any transaction by
an Access Person or Investment Person shall prohibit any transaction in
which such person has, obtains or disposes of any beneficial ownership
interest.
IV. COMPLIANCE PROCEDURES
In order to effectuate and monitor the foregoing policies and
prohibitions, all Access Persons and Investment Persons shall be
required to comply with the following procedures:
A. The securities trading personnel of the Company shall
provide the Compliance Department with a daily summary of buy and sell
orders entered by, on behalf of, or with respect to Investment Companies.
B. Each Access Person shall direct any firms at which he
maintains brokerage accounts to provide on a timely basis duplicate
copies of confirmations of all personal securities transactions and
periodic statements for all securities accounts to the Compliance
Department. The Compliance Department shall date stamp all duplicate
copies of personal securities transactions and account statements upon
receipt.
C. Each Access Person shall disclose all personal securities
holdings to the Compliance Department both upon commencement of
employment with the Company and within 15 days of the end of each
calendar year by submitting the form attached to this Code of Ethics as
Exhibit A.
D. Within 15 days following the end of each calendar year,
each Access Person shall certify to the Company that he has read and
understands this Code of Ethics and recognizes that he is subject to it
and that he has complied with the requirements of this Code of Ethics by
submitting the form attached hereto as Exhibit B.
E. Within 10 days following the end of each calendar
quarter, each Access Person shall report to the Compliance Department
all personal securities transactions effected during such quarter by
submitting the form attached hereto as Exhibit C.
F. Any provision of this Code of Ethics requiring an Access
Person or Investment Person to report securities transactions or
securities positions to the Company shall require the reporting of any
transaction or position in which such person has, acquires or disposes
of any beneficial ownership interest.
G. The requirements of Section IV(B), IV(C), IV(D) and IV(E)
shall be deemed to be complied with by any Access Person who complies
with substantially similar requirements contained in the Nike Securities
L.P. Unit Investment Trust Code of Ethics.
V. EXEMPTIONS
The following transactions shall be exempted from the provisions of
Article III and, in the case of paragraph A and C, Article IV of this
Code of Ethics:
A. The purchase or sale of U.S. government securities, money market
instruments or mutual funds.
B. The purchase or sale of shares of issuers whose shares are traded
on a national or foreign securities exchange and which have a market
capitalization of at least $1 billion.
C. Purchases which are part of an automatic dividend reinvestment plan
or which involve no investment decision by the purchaser.
VI. SANCTIONS
Upon discovery of a violation of this Code of Ethics, including either
violations of the enumerated provisions or the general principles
provided, the Company may impose such sanctions as it deems appropriate,
including, inter alia, a fine, letter of censure or suspension or
termination of the employment of the violator.
EXHIBIT A
FIRST TRUST ADVISORS L.P.
ACCESS/INVESTMENT PERSON
SECURITIES HOLDINGS REPORT
Name of Access/Investment Person: ______________________________________
Date: ______________________________________________________
___I hereby certify that as of _________________, I had a beneficial ownership
interest in no securities other than those set forth below.
Issuer # of shares/principal amount Market Value
______ ____________________________ ____________
OR
___I hereby certify that as of __________________, I had a beneficial ownership
interest in no securities other than those set forth on the attached brokerage
account statements.
OR
___I hereby certify that as of __________________, I had a beneficial interest
in no securities.
______________________________________
Signature
EXHIBIT B
FIRST TRUST ADVISORS L.P.
ACCESS/INVESTMENT PERSON
CODE OF ETHICS CERTIFICATION
I, ___________________________, hereby certify that I have read, and
understand the FIRST TRUST ADVISORS L.P. Code of Ethics. Furthermore, I
certify that I have complied with its provisions during the preceding
year.
___________________________________ __________________
Signature Date
EXHIBIT C
FIRST TRUST ADVISORS L.P.
ACCESS/INVESTMENT PERSON
QUARTERLY TRANSACTION REPORT
Name of Access/Investment Person:________________________________________
Date: _____________________
___I hereby certify that during the calendar quarter ended _____________,
I had a beneficial ownership interest in the following securities transactions:
# of shares/
Type of Transaction Type of Security Issuer principal amount $ amount
___________________ ________________ ______ ________________ ________
OR
___I hereby certify that during the calendar quarter ended __________, I had
a beneficial ownership interest in no securities transactions other that those
set forth on the attached brokerage account confirmations.
OR
___I hereby certify that during the calendar quarter ended ___________, I had
a beneficial ownership interest in no securities transactions.
_________________________________________
Signature
CODE OF ETHICS DISTRIBUTION LIST
________________________________
ACCESS PERSONS
______________
MARK BRADLEY
W. SCOTT JARDINE
WILLIAM WEBB
RICHARD OLSON
CODE OF ETHICS DISTRIBUTION LIST
________________________________
INVESTMENT PERSONS
__________________
JAMES BOWEN
MIKE BOYLE
CHARLES BRADLEY
ROBERT BREDEMEIER
SUSAN BRIX
ROBERT CAREY
STEVE CLAIBORNE
CHUCK CRAIG
JON ERICKSON
FRANK FICHERA
DAVID FIELD
JENNIFER FRIEBELE
ALEX GARBER
JOHN HAGERSON
SCOTT HALL
RON MCALISTER
DAVE MCGAREL
CARLOS NARDO
CHRIS PETERSON
JOHN PHILLIPS
OMAR SEPULVEDA
JOHN SHERREN
STEVE STARKOVICH
RICHARD SWIATEK
Page 7
Nike Securities L.P.
Code of Ethics
I. STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics is being adopted by Nike Securities L.P. (the
"Company"), The First Trust Special Situations Trust, The First Trust
Combined Series, The First Trust of Insured Municipal Bonds, The First
Trust GNMA, and The First Trust of Insured Municipal Bonds - Multi-State
(the "Trusts") in recognition of the fact that the Company owes a duty
at all times to place the interests of holders of Units of the Trusts
and Shareholders of the Funds first. In recognition of such duty it is
the Company's policy that the personal securities transactions and other
activities of Company personnel be conducted consistent with this Code
of Ethics and in such a manner as to avoid any actual or potential
conflict of interest or any abuse of an individual's position of trust
and responsibility that could occur through such activities as "insider
trading" or "frontrunning" Trust or Fund securities trades. It is also
the Company's policy that Company personnel should not take
inappropriate advantage of their position with respect to Trusts or
Funds sponsored by the Company and that such personnel should avoid any
situation that might compromise, or call into question, their exercise
of fully independent judgment in the interest of Unit holders or
Shareholders.
II. DEFINITIONS
For Purposes of this Code of Ethics:
A. "Company" shall mean Nike Securities L.P.
B. "Trust" shall mean any unit investment trust sponsored by the Company.
"Unit holder" shall mean the holder of any unit of any Trust.
"Fund" shall mean any open-end management investment company for
which the Company acts as distributor or principal underwriter.
E. "Shareholder" shall mean the holder of any share of any Fund.
F. "Access Person" shall mean any partner, officer or employee of the
Company who makes, participates in or obtains information regarding the
purchase or sale of securities for a Trust's or Fund's portfolio or
whose functions or duties as part of the ordinary course of his business
relate to the making of any recommendation regarding the purchase or
sale of securities for a Trust or Fund and includes, but is not limited
to, all personnel in the Company's research, new products, securities
trading, unit investment trust trading, wholesaling, evaluation,
marketing, trust administration, compliance, legal, corporate publishing
and investment advisory departments and any and all supervisors thereof.
G. "Investment Person" shall mean any officer or employee of the
Company who makes, participates in or executes decisions regarding the
purchase or sale of securities for a Trust's or Fund's portfolio and
includes, but is not limited to, all personnel in the Company's
research, new products, securities trading, trust administration and
investment advisory departments and any and all supervisors thereof ;
provided, however, that any person shall be deemed to be an Investment
Person for purposes of this Code of Ethics only with respect to the type
of security for which such person makes, participates in or executes
purchase or sale decisions and provided further that any person who is
an Investment Person with respect to any type of security under the Code
shall be an Access person for purposes of all provisions of the Code.
III. PROHIBITED PRACTICES
In furtherance of the policies set forth in paragraph I above, the
following practices shall be prohibited:
A. No Investment Person shall purchase any security during the
initial public offering of such security.
B. No Investment Person shall purchase any security in a private
placement transaction unless the purchase has been approved in writing
and in advance by the Compliance Department. In considering whether to
approve any such transaction, the Compliance Department shall take into
account, among other factors, whether the investment opportunity should
be reserved for any existing or proposed Trust and its Unit holders or
any Fund and its Shareholders and whether the opportunity is being
offered to an individual by virtue of his position. Any Investment
Person who has been authorized to acquire securities in a private
placement shall disclose that investment to the Compliance Department
before he takes part in a subsequent consideration of any Trust's or
Funds investment in that issuer, and the decision to include securities
of such issuer in a Trust or Fund shall be subject to independent review
by General Counsel of the Company.
C. No Access Person shall purchase or sell any security prior to
the initial public offering period of a Trust which it is proposed may
contain that security in its portfolio. No Access Person shall
purchase or sell any security on a day during which there is "buy" or a
"sell" order from a Trust or Fund for that security until such order is
executed or withdrawn. No Investment Person shall purchase or sell a
security within seven days before or after that security is bought or
sold by a Trust or Fund. Any profits realized on transactions
prohibited by this Section shall be disgorged.
D. No Investment Person shall profit from the purchase and sale,
or sale and purchase, of the same (or equivalent) securities within 30
days. Any profits realized on transactions prohibited by this Section
shall be disgorged.
E. No Investment Person shall serve on the Board of Directors of
a publicly traded company absent prior authorization of the Compliance
Department upon a determination that board service would be consistent
with the interests of Trusts and their Unit holders and the Funds and
their Shareholders and the establishment of appropriate "Chinese wall"
procedures by the Compliance Department.
F. Any provision of this Code of Ethics prohibiting any
transaction by an Access Person or Investment Person shall prohibit any
transaction in which such person has, obtains or disposes of any
beneficial ownership interest.
IV. COMPLIANCE PROCEDURES
In order to effectuate and monitor the foregoing policies and
prohibitions, all Access Persons and Investment Persons shall be
required to comply with the following procedures:
A. The securities trading personnel of the Company shall provide
the Compliance Department with a daily summary of buy and sell orders
entered by, on behalf of, or with respect to both Trusts, Funds and the
Company's unit investment trust accumulation account or accounts. The
Research Department shall notify the Compliance Department, in writing,
of the composition of the proposed portfolio of any proposed Trust on
the day that portfolio is determined. The Trust Administration
Department shall provide the Compliance Department with a daily written
summary of the Trusts, if any, for which a public offering has either
commenced or been terminated.
B. Each Access Person shall direct any firms at which he
maintains brokerage accounts to provide on a timely basis duplicate
copies of confirmations of all personal securities transactions and
periodic statements for all securities accounts to the Compliance
Department. The Compliance Department shall date stamp all duplicate
copies of personal securities transactions and account statements upon
receipt.
C. Each Access Person shall disclose all personal securities
holdings to the Compliance Department both upon commencement of
employment with the Company and within 15 days of the end of each
calendar year by submitting the form attached to this Code of Ethics as
Exhibit A.
D. Within 15 days following the end of each calendar year, each
Access Person shall certify to the Company that he has read and
understands this Code of Ethics and recognizes that he is subject to it
and that he has complied with the requirements of this Code of Ethics by
submitting the form attached hereto as Exhibit B.
E. Within 10 days following the end of each calendar quarter,
each Access Person shall report to the Compliance Department all
personal securities transactions effected during such quarter by
submitting the form attached hereto as Exhibit C.
F. Any provision of this Code of Ethics requiring an Access
Person or Investment Person to report securities transactions or
securities positions to the Company shall require the reporting of any
transaction or position in which such person has, acquires or disposes
of any beneficial ownership interest.
V. EXEMPTIONS
The following transactions shall be exempted from the provisions of
Article III and, in the case of paragraph A and C, Article IV of this
Code of Ethics:
A. The purchase or sale of U.S. government securities, money
market instruments, mutual funds or unit investment trusts.
B. The purchase or sale of shares of issuers whose shares are
traded on a national or foreign securities exchange and which have a
market capitalization of at least $1 billion.
C. Purchases which are part of an automatic dividend reinvestment
plan or which involve no investment decision by the purchaser.
VI. SANCTIONS
Upon discovery of a violation of this Code of Ethics, including either
violations of the enumerated provisions or the general principles
provided, the Company may impose such sanctions as it deems appropriate,
including, inter alia, a fine, letter of censure or suspension or
termination of the employment of the violator.
EXHIBIT A
NIKE SECURITIES L.P.
ACCESS/INVESTMENT PERSON
SECURITIES HOLDINGS REPORT
Name of Access/Investment Person: ______________________________________
Date: ______________________________________________________
____ I hereby certify that as of _________________, I had a
beneficial ownership interest in no securities other than those set
forth below.
Issuer # of shares/principal amount Market Value
______ ____________________________ ____________
OR
____ I hereby certify that as of __________________, I had a beneficial
ownership interest in no securities other than those set forth on the
attached brokerage account statements.
OR
____ I hereby certify that as of __________________, I had a
beneficial interest in no securities.
______________________________________
Signature
EXHIBIT B
NIKE SECURITIES L.P.
ACCESS/INVESTMENT PERSON
CODE OF ETHICS CERTIFICATION
I, ___________________________, hereby certify that I have read, and
understand the NIKE SECURITIES L.P. Code of Ethics. Furthermore, I
certify that I have complied with its provisions during the preceding
year.
___________________________________ __________________
Signature Date
EXHIBIT C
NIKE SECURITIES L.P.
ACCESS/INVESTMENT PERSON
QUARTERLY TRANSACTION REPORT
Name of Access/Investment Person: ________________________________________
Date: _____________________
_____ I hereby certify that during the calendar quarter ended
_____________, I had a beneficial ownership interest in the following
securities transactions:
<TABLE>
<CAPTION>
Type of Transaction Type of Security Issuer # of shares/principal amount $ amount
___________________ ________________ ______ ____________________________ ________
<S> <C> <C> <C> <C>
</TABLE>
OR
__ I hereby certify that during the calendar quarter ended __________, I
had a beneficial ownership interest in no securities transactions other
than those set forth on the attached brokerage account confirmations.
OR
___ I hereby certify that during the calendar quarter ended ___________, I
had a beneficial ownership interest in no securities transactions.
_________________________________________
Signature
Page 6
First Defined Portfolio Fund LLC
Code of Ethics
I. STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics is being adopted by First Defined Portfolio Fund LLC
(the "Company"), in recognition of the fact that the Company owes a
duty at all times to place the interests of its investors first. In
recognition of such duty it is the Company's policy that the personal
securities transactions and other activities of Company personnel be
conducted consistent with this Code of Ethics and in such a manner as to
avoid any actual or potential conflict of interest or any abuse of an
individual's position of trust and responsibility that could occur
through such activities as "insider trading" or "frontrunning"
investment company securities trades. It is also the Company's policy
that Company personnel should not take inappropriate advantage of their
position with respect to the Company and that such personnel should
avoid any situation that might compromise, or call into question, their
exercise of fully independent judgment in the interest of investors in
the Company.
II. DEFINITIONS
For Purposes of this Code of Ethics:
A. "Company" shall mean First Defined Portfolio Fund LLC.
B. "Investor" shall mean any investor in the Company, whether directly
or indirectly through a separate account of an insurance company.
C. "Access Person" shall mean any trustee, officer or employee of the
Company who makes, participates in or obtains information regarding the
purchase or sale of securities for the Company's portfolio or whose
functions or duties as part of the ordinary course of his business
relate to the making of any recommendation regarding the purchase or
sale of securities for the Company.
D. "Investment Person" shall mean any officer or employee of the Company
who makes, participates in or executes decisions regarding the purchase
or sale of securities for the Company's portfolios.
III. PROHIBITED PRACTICES
In furtherance of the policies set forth in paragraph I above, the
following practices shall be prohibited:
A. No Investment Person shall purchase any security during the initial
public offering of such security.
B. No Investment Person shall purchase any security in a private
placement transaction unless the purchase has been approved in writing
and in advance by the Compliance Coordinator. In considering whether to
approve any such transaction, the Compliance Coordinator shall take into
account, among other factors, whether the investment opportunity should
be reserved for the Company and its Investors and whether the
opportunity is being offered to an individual by virtue of his
position. Any Investment Person who has been authorized to acquire
securities in a private placement shall disclose that investment to the
Compliance Coordinator before he takes part in a subsequent
consideration of the Company's investment in that issuer, and the
decision to include securities of such issuer in the Company shall be
subject to independent review by Counsel to the Company.
C. No Access Person shall purchase or sell a security within seven
days before or after that security is bought or sold by the Company if
such Access Person knows or should know that such security is being
bought or sold by the Company.
D. No Investment Person shall profit from the purchase and sale, or
sale and purchase, of the same (or equivalent) securities within 30
days.
E. No Investment Person shall serve on the Board of Directors of a
publicly traded company absent prior authorization of the Compliance
Coordinator upon a determination that board service would be consistent
with the interests of the Company and its investors and the
establishment of appropriate "Chinese wall" procedures by the Compliance
Coordinator.
F. Any provision of this Code of Ethics prohibiting any transaction by
an Access Person or Investment Person shall prohibit any transaction in
which such person has, obtains or disposes of any beneficial ownership
interest.
IV. COMPLIANCE PROCEDURES
In order to effectuate and monitor the foregoing policies and
prohibitions, all Access Persons and Investment Persons shall be
required to comply with the following procedures:
A. The securities trading personnel of the Company shall provide the
Compliance Coordinator with a daily summary of buy and sell orders
entered by, on behalf of, or with respect to the Company.
B. Each Access Person shall direct any firms at which he
maintains brokerage accounts to provide on a timely basis duplicate
copies of confirmations of all personal securities transactions and
periodic statements for all securities accounts to the Compliance
Coordinator. The Compliance Coordinator shall date stamp all duplicate
copies of personal securities transactions and account statements upon
receipt.
C. Each Access Person shall disclose all personal securities
holdings to the Compliance Coordinator both upon commencement of
employment with the Company and within 15 days of the end of each
calendar year by submitting the form attached to this Code of Ethics as
Exhibit A.
D. Within 15 days following the end of each calendar year,
each Access Person shall certify to the Company that he has read and
understands this Code of Ethics and recognizes that he is subject to it
and that he has complied with the requirements of this Code of Ethics by
submitting the form attached hereto as Exhibit B.
E. Within 10 days following the end of each calendar
quarter, each Access Person shall report to the Compliance Coordinator
all personal securities transactions effected during such quarter by
submitting the form attached hereto as Exhibit C.
F. Any provision of this Code of Ethics requiring an Access
Person or Investment Person to report securities transactions or
securities positions to the Company shall require the reporting of any
transaction or position in which such person has, acquires or disposes
of any beneficial ownership interest.
G. The requirements of Section IV(B), IV(C) and IV(E) shall
be deemed to be complied with by any Access Person who complies with
substantially similar requirements contained in the Nike Securities L.P.
Unit Investment Trust Code of Ethics or First Trust Advisors L.P.
Investment Company Code of Ethics.
H. The requirements of Section IV(B), IV(C) and IV(E) shall
not apply to any member of the Board of Trustees of the Company unless
such member knows or, in the ordinary course of fulfilling his official
duties as a Trustee of the Company, should have known that during the
seven day period immediately preceding or after the date of any
transaction in a security by the member such security was purchased or
sold by the Company or such purchase or sale was considered by the
Company or its investment adviser.
V. EXEMPTIONS
The following transactions shall be exempted from the provisions of
Article III and, in the case of paragraph A and C, Article IV of this
Code of Ethics:
A. The purchase or sale of U.S. government securities, money market
instruments, mutual funds or unit investment trusts.
B. The purchase or sale of shares of issuers whose shares are traded
on a national or foreign securities exchange and which have a market
capitalization of at least $1 billion.
C. Purchases which are part of an automatic dividend reinvestment plan
or which involve no investment decision by the purchaser.
VI. SANCTIONS
Upon discovery of a violation of this Code of Ethics, including either
violations of the enumerated provisions or the general principles
provided, the Company may impose such sanctions as it deems appropriate,
including, inter alia, a fine, letter of censure or suspension or
termination of the employment of the violator.
EXHIBIT A
FIRST DEFINED PORTFOLIO FUND LLC
ACCESS/INVESTMENT PERSON
SECURITIES HOLDINGS REPORT
Name of Access/Investment Person: ______________________________________
Date: ______________________________________________________
___I hereby certify that as of _________________, I had a beneficial ownership
interest in no securities other than those set forth below.
Issuer # of shares/principal amount Market Value
______ ____________________________ ____________
OR
___I hereby certify that as of __________________, I had a beneficial ownership
interest in no securities other than those set forth on the attached brokerage
account statements.
OR
__I hereby certify that as of __________________, I had a beneficial interest
in no securities.
______________________________________
Signature
EXHIBIT B
FIRST DEFINED PORTFOLIO FUND LLC
ACCESS/INVESTMENT PERSON
CODE OF ETHICS CERTIFICATION
I, ___________________________, hereby certify that I have read, and
understand the FIRST DEFINED PORTFOLIO FUND LLC Code of Ethics.
Furthermore, I certify that I have complied with its provisions during
the preceding year.
___________________________________ __________________
Signature Date
EXHIBIT C
FIRST DEFINED PORTFOLIO FUND LLC
ACCESS/INVESTMENT PERSON
QUARTERLY TRANSACTION REPORT
Name of Access/Investment Person:________________________________________
Date: _____________________
____I hereby certify that during the calendar quarter ended _____________,
I had a beneficial ownership interest in the following securities transactions:
# of shares/
Type of Transaction Type of Security Issuer principal amount $ amount
___________________ ________________ ______ _______________ ________
OR
___ I hereby certify that during the calendar quarter ended __________, I had a
beneficial ownership interest in no securities transactions other that those
set forth on the attached brokerage account confirmations.
OR
___ I hereby certify that during the calendar quarter ended ___________, I had a
beneficial ownership interest in no securities transactions.
_________________________________________
Signature
CODE OF ETHICS DISTRIBUTION LIST
________________________________
ACCESS PERSONS
______________
Patrick M. Fitzgerald
Niel Nielson
Robert J. Bartel
Richard Erickson
W. Scott Jardine
Mark Bradley
CODE OF ETHICS DISTRIBUTION LIST
________________________________
INVESTMENT PERSONS
__________________
James A. Bowen
David Field
Robert Carey
Sue Brix
Robert W. Bredemeier
