FIRST DEFINED SECTOR FUND, N-1A, 2000-09-19

FIRST DEFINED SECTOR FUND
N-1A, 2000-09-19

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As filed with the Securities and Exchange Commission on September 19, 2000

1933 Act Registration No. 333-______
1940 Act Registration No. 811-______

Securities and Exchange Commission
Washington, D.C. 20549

Form N-1A

Registration Statement under the Securities Act of 1933 [X]
Pre-Effective Amendment No. _____ [_]
Post-Effective Amendment No. _____ [_]

and/or

Registration Statement under the Investment Company Act of 1940 [ ]

Amendment No. _____

FIRST DEFINED SECTOR FUND

(Exact Name of Registrant as Specified in Charter)

1001 Warrenville Road, Suite 300, Lisle, Illinois 60532
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (630) 241-4141

W. Scott Jardine, Esq. with a copy to:
Nike Securities L.P. Eric F. Fess
1001 Warrenville Road, Suite 300 Chapman and Cutler
Lisle, Illinois 60532 111 West Monroe Street
(Name and Address of Agent for Service) Chicago, Illinois 60603

Approximate date of proposed public offering: (Upon the effective date
of this Registration Statement)

It is proposed that this filing will become effective (check appropriate
box)

[ ] 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)(2) 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.

Title of Securities Being Registered: Shares of Beneficial Interest

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.

Contents of the Registration Statement

This Registration Statement comprises the following papers and contents:

The Facing Sheet

Part A-Prospectus

Part B-Statement of Additional Information

Part C-Other Information

Signatures

Index to Exhibits

Exhibits

FIRST DEFINED SECTOR FUND

_______ ___, 2000

Prospectus

This prospectus is intended for use in connection with variable annuity
policies offered by insurance companies. This prospectus provides
important information to help you evaluate whether one of the funds
listed above may be right for you.

Total Target Portfolio

Value Line(registered trademark) Target Portfolio

First Trust Communications Portfolio

First Trust Energy Portfolio

First Trust Financial Services Portfolio

First Trust Internet Portfolio

First Trust Life Sciences Portfolio

First Trust Pharmaceutical Portfolio

First Trust Technology Portfolio

Table of Contents

Page
Total Target Portfolio 1
Fund Overview 1
Value Line(registered trademark) Target Portfolio 2
Fund Overview 1
First Trust Communications Portfolio 4
Fund Overview 4
First Trust Energy Portfolio 5
Fund Overview 5
First Trust Financial Services Portfolio 6
Fund Overview 6
First Trust Internet Portfolio 7
Fund Overview 7
First Trust Life Sciences Portfolio 8
Fund Overview 8
First Trust Pharmaceutical Portfolio 9
Fund Overview 9
First Trust Technology Portfolio 10
Fund Overview 10
Fund Organization 11
Fund Management 11
Management Fees and Expenses 12
Fund Investments 12
How Securities Are Selected 12
Total Target Portfolio Strategies 14
Risk Factors 16
Investment in Fund shares 17
Redemption of Shares 18
Distributions and Taxes 18
12b-1 Plan 18
Net Asset Value 19
Fund Service Providers 19
Shareholder Inquiries 19

TOTAL TARGET 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
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 companies
which are selected by applying three uniquely specialized strategies;
the Dow(SM) Dividend and Repurchase Target ("DART") 5 Strategy, the S&P
Target 10 Strategy and the Nasdaq Target 15 Strategy. Approximately 1/3
of the common stocks included in the initial portfolio will primarily
consist of the stocks selected by each of the strategies on or about
______________, 2000. Beginning December 31, 2001, the portfolio will
be adjusted annually on or about December 31 in accordance with the
investment strategy. See "Total Target Portfolio Strategies" on page
_____ for a description of each Strategy.

Each year, on or about the annual stock selection date (December 31),
the fund expects to invest approximately 1/3 of its assets in the
securities determined by each of the strategies in relatively equal
amounts. At that time, the percentage relationship among the numbers 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?

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 is newly created and does not have any performance history.(1)

_________________

(1) "Dow Jones Industrial Average(sm)," "Dow(sm)" and "DJIA(sm)" are service
marks of Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for
use for use for certain purposes by First Trust Advisors L.P., ("First
Trust"). Dow Jones does not endorse, sell or promote any of the funds, in
particular, The Total Target Portfolio. Dow Jones makes no representation
regarding the advisability of investing in such products.

The "Nasdaq 100(registered trademark)," "Nasdaq 100 Index(r)," and "Nasdaq
(registered trademark)" are trade or service marks of The Nasdaq Stock Market,
Inc. (which with its affiliates are the "Corporations") and are licensed for
use by First Trust. The Total Target Portfolio has not been passed on by the
Corporations as to its legality or suitability. The Total Target Portfolio
is not issued, endorsed, sold, or promoted by the Corporations. The
Corporations make no warranties and bear no liability with respect to The
Total Target Portfolio.

"S&P," "S&P 500," and "Standard & Poor's" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by First Trust. The Total
Target Portfolio is not sponsored, endorsed, sold or promoted by Standard
& Poor's and Standard & Poor's makes no representation regarding the
advisability of investing in such fund. Please see the Statement of
Additional Information which sets forth certain additional disclaimers and
limitations of liabilities on behalf of Standard & Poor's.

Page 1

VALUE LINE(registered trademark) TARGET 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 companies selected through the application of the Value
Line(registered trademark) Target Strategy as of the close of business
on or about the applicable stock selection date.

The fund primarily consists of a portfolio of 25 stocks selected by the
Value Line(registered trademark) Target Strategy selected each year
through the following multi-step process from a subset of the stocks
ranked by Value Line Index as of the close of business on or about the
applicable stock selection. The Value Line(registered trademark) Target
Strategy invests in 25 of the 100 stocks that Value Line(registered
trademark) gives a #1 ranking for Timeliness(tm) which have recently
exhibited certain positive financial attributes. Value Line(registered
trademark) ranks 1,700 stocks which represent approximately 94% of the
trading volume on all U.S. stock exchanges. Of these 1,700 stocks, only
100 are given their #1 ranking for Timeliness(tm), which measures Value
Line's view of their probable price performance during the next six to
12 months relative to the others. Value Line(registered trademark)
bases their rankings on a long-term trend of earnings, prices, recent
earnings, price momentum, and earnings surprise.

The Value Line(registered trademark) Target Strategy is determined as
follows:

Step 1: We start with the 100 stocks that Value Line(registered
trademark) gives, at the applicable stock selection date, their #1
ranking for Timeliness(tm), remove the stocks of companies considered to
be securities related issuers, and apply the following screens as of two
business days prior to the applicable stock selection date.

Step 2: We screen for consistent growth by ranking these remaining stocks
based on 12-month and 6-month price appreciation (best (1) to worst
(100)).

Step 3: We then screen for profitability by ranking the stocks by their
return on assets.

Step 4: Finally, we screen for value by ranking the stocks based on their
price to cash flow.

Step 5: We add up the numerical ranks achieved by each company in the
above steps and select the 25 stocks with the lowest sums for the Value
Line(registered trademark) Target Strategy.

The initial portfolio will primarily consist of the stocks selected by
the strategy on or about _________, 2000. Beginning December 31, 2000,
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 numbers 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.

Page 2

Fund Performance

The fund is newly created and does not have any performance history.(2)

_____________

(2) "Value Line(registered trademark)," "The Value Line Investment Survey,"
and "Value Line Timeliness(TM) Ranking System" are registered trademarks
of Value Line Securities, Inc. or Value Line Publishing, Inc. that have
been licensed to First Trust. The Value Line(registered trademark) Target
Portfolio is not sponsored, recommended, sold or promoted by Value Line
Publishing, Inc. Value Line, Inc. or Value Line Securities, Inc. ("Value
Line"). Value Line makes no representation regarding the advisability
of investing in the fund.

Page 3

FIRST TRUST COMMUNICATIONS 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 communications industry. The
companies selected for the fund are researched and evaluated using
database screening techniques, fundamental analysis and the judgment of
the investment adviser's research analysts. 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?

Fund Performance

The fund is newly created and does not have any performance history.

Page 4

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's
research analysts. 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?

Fund Performance

The fund is newly created and does not have any performance history.

Page 5

FIRST TRUST FINANCIAL SERVICES PORTFOLO

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's research analysts. 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?

Fund Performance

The fund is newly created and does not have any performance history.

Page 6

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's research analysts. 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?

Fund Performance

The fund is newly created and does not have any performance history.

Page 7

FIRST TRUST LIFE SCIENCES 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 healthcare industry. The
fund may hold securities of issuers in many healthcare sectors
including, among others, medical supplies, drugs, biotech, managed care
and services management. The companies selected for the fund are
researched and evaluated using database screening techniques,
fundamental analysis, and the judgment of the investment adviser's
research analysts. 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?

Fund Performance

The fund is newly created and does not have any performance history.

Page 8

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's research analysts. 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?

Page 9

FIRST TRUST TECHNOLOGY PORTFOLIO

Fund Performance

The fund is newly created and does not have any performance history.

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's research analysts. 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?

Fund Performance

The fund is newly created and does not have any performance history.

Page 10

Fund Organization

Each fund is a series of the First Defined Sector Fund ("First
Defined"), 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. First Defined is organized as a Massachusetts business trust.
Its Board of Trustees is responsible for its overall management and
direction. The Board elects First Defined'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 First Defined's shares of beneficial interest
(the "shares").

Each share of a fund represents an interest in the securities held in
the fund's portfolio. The funds are not offered directly to the public.
Shares of the funds are sold only to insurance company separate
accounts (the "Separate Accounts") to fund the benefits of variable
annuity policies (the "Policies") issued by certain insurance companies.
The Separate Accounts' variable annuity owners who have Policy values
allocated to any of the funds have indirect rights in First Defined's
shares. The funds may be divided into two general categories: Strategy
Funds and Sector Funds.

Strategy Funds

The Strategy funds are: Total Target Portfolio and the Value
Line(registered trademark) Target 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 Communications Portfolio, 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 subadvisor or advisor 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

Page 11

and distribution of unit investment trusts and other securities. Nike
Securities is the sponsor and principal underwriter of the funds' shares
and has sponsored or underwritten approximately $25 billion of
investment company shares.

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.

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 fund 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.

How Securities Are Selected

To select securities for the Strategy Funds, First Trust primarily
follows a disciplined investment strategy that invests in the common
stock determined by the strategy. Beginning December 31, 2000, the
portfolio of each Strategy Fund is adjusted annually on or about the
funds' annual stock selection date of December 31, in accordance with

Page 12

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
time. To the extent that a fund is not fully invested, the shares 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 Sector Funds invest primarily in the common stocks of companies that
represent each fund's specific sector or industry. 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 their 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 shareholder 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 and to hedge
against 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.

Each fund's investment objective may not be changed without shareholder
approval. The above investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this
prospectus or the Statement of Additional Information.

Page 13

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 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.

Total Target Portfolio Strategies

To select the stocks for the Total Target Portfolio, First Trust
utilizes three unique investment strategies; The Dow(SM) Dart 5 Strategy,
the S&P Target 10 Strategy and the Nasdaq Target 15 Strategy. Total
Target Portfolio invests approximately 1/3 of its assets in each of the
strategies as of the applicable stock selection date. The following is
a description of the strategies:

The Dow(SM) DART 5 Strategy

The Dow(SM) DART 5 Strategy selects a portfolio of five DJIA stocks with
high dividend yields and/or high buyback ratios and high return on
assets. By selecting stocks with the highest dividend yields, the
strategy is designed 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. Buyback ratio is the ratio of a
company's shares of common stock outstanding 12 months prior to the
applicable stock selection date, divided by a company's shares
outstanding as of seven business days prior to the applicable stock
selection date, minus "1." The Dow(SM) DART 5 Strategy stocks are
determined as follows:

Step 1: We rank all 30 stocks contained in the DJIA by the sum of
their dividend yield and buyback ratio as of seven business days prior
to the date of this prospectus.

Step 2: We then select the ten stocks with the highest combined
dividend yields and buyback ratios.

Step 3: From the ten stocks selected in Step 2, we select the five
stocks with the greatest increase in the percentage change in return on
assets in the most year as compared to the previous year for The Dow(SM)
DART 5 Strategy.

S&P Target 10 Strategy

The S&P Target 10 Strategy selects a portfolio of 10 of the largest S&P
500 Index stocks with the lowest price-to-sales ratios and greatest one-
year price appreciation as a means to achieving its investment
objective. The S&P Target 10 Strategy stocks are determined as follows:

Step 1: We select the 250 largest companies based on market
capitalization which are components of the S&P 500 Index as of eight
business days prior to the applicable stock selection date.

Step 2: From the above list, the 125 companies with the lowest
price to sales ratios are selected.

Step 3: The 10 companies which had the greatest 1-year stock price
appreciation are selected for The S&P Target 10 Strategy.

Page 14

Despite the investment strategy, the Fund will not invest more than 5%
of the assets invested in the S&P Target 10 Strategy in any one
securities-related issuer. The securities will be adjusted on a
proportionate basis to accommodate this restraint.

Nasdaq Target 15 Strategy

The Nasdaq Target 15 Strategy selects a portfolio of the 15 Nasdaq 100
Index stocks with the best overall ranking on both 12- and 6-month price
appreciation, return on assets and price to cash flow. The Nasdaq
Target 15 Strategy stocks are determined as follows:

Step 1: We select stocks which are components of the Nasdaq 100
Index as of eight business days prior to the applicable stock selection
date and numerically rank them by 12-month price appreciation (best (1)
to worst (100)).

Step 2: We then numerically rank the stocks by six-month price
appreciation.

Step 3: The stocks are then numerically ranked by the return on
assets ratio.

Step 4: We then numerically rank the stocks by the ratio of cash
flow per share to stock price.

Step 5: We add up the numerical ranks achieved by each company in
the above steps and select the 15 stocks with the lowest sums for The
Nasdaq Target 15 Strategy.

The stocks which comprise The Nasdaq Target 15 Strategy are weighted by
market capitalization subject to the restriction that only whole shares
are purchased and that no stock will comprise approximately less than 1%
or more than 25% of The Nasdaq Target 15 Strategy portion of the
portfolio on the applicable stock selection date. The Securities will
be adjusted on a proportionate basis to accommodate this constraint.

Companies which, based on publicly available information as of eight
business days prior to the applicable stock selection date, are the
subject of an announced business combination which we expect will happen
within six months of date of applicable stock selection date have been
excluded from The Nasdaq Target 15 Strategy.

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 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 Nasdaq-100 Index

The Nasdaq-100 Index represents the largest non-financial domestic and
international issues listed on the Nasdaq Stock 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 Standard & Poor's 500 Index

Page 15

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
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: The 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: The 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 than U.S. stocks.

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. The Sector Funds are considered to be
concentrated in the securities of their respective industries or
sectors. Because the Strategy Funds invest in accordance with an
investment strategy, if so determined by the strategy, a Strategy Fund
may be concentrated in a particular industry or sector. A concentration
makes the funds more susceptible to any single occurrence affecting the
industry or sector and may subject the funds to greater market risk than
more diversified funds. Particular risk factors for each sector 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

Page 16

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. 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.

Life Sciences Sector: Companies in the life sciences sector are
involved in medical supplies, drugs, biotech, managed care and services
management. They 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. Healthcare facility operators may
also be affected by the demand for services, rate limitations and
restriction of government financial assistance.

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, Communications and Internet Sectors: Companies involved in
the technology industry, including the communications and Internet
sectors, 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 have experienced extreme price and volume
fluctuations that often have been unrelated to their operating
performance.

Limited management 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.

Investment in Fund Shares

Shares of the funds are sold only to the Separate Accounts to fund the
benefits of the Policies issued by certain insurance companies. The
separate accounts purchase shares 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. A separate account as a shareholder, has an ownership in the
funds' investments.

The funds do not issue share certificates. Individual investors may not
purchase or redeem shares of the funds directly; shares may be purchased
or redeemed only through the Policies. There are no minimum investment
requirements. All investments in a fund are credited to the
shareholder's account in the form of full and fractional shares of the
designated fund (rounded to the nearest 1/1000 of a share). For a
discussion of how Policy owners may purchase fund shares, please refer
to the prospectus for the applicable Separate Account. Owners of the
Policies may direct purchase or redemption instructions to their
respective insurance companies.

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

Page 17

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 4:00 p.m. New
York time. See "Net Asset Value" for a discussion of how shares are
priced.

Redemption of Shares

Each fund offers to buy back (redeem) shares of the fund from the
applicable Separate Account at any time at net asset value. The
Separate Account will redeem shares 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 shares, please refer to the prospectus for the applicable
Separate Account.

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
shares once a year. All realized long- or short-term capital gains of
each Portfolio are declared once a year and reinvested in the fund.

Taxes and Tax Reporting

The Registrant intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code. For a discussion of
the tax status of the variable annuity Policy, please refer to the
prospectus for the applicable Separate Account.

Internal Revenue Service Diversification Requirements

The funds intend to comply with the diversification requirements
currently imposed by the Internal Revenue Service on regulated
investment companies as a condition of maintaining the tax deferred
status of the funds. 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' shares. In this capacity, Nike Securities manages the offering
of the funds' shares 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 average daily net assets as a
service fee. Nike Securities uses the service fee to compensate the
respective insurance companies 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

Page 18

out of the funds' 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 shareholders and Policy
owners used in connection with the sale of shares.

Net Asset Value

The price of fund shares is based on a fund's net asset value per share
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 shares outstanding. The result, rounded to the nearest
cent, is the net asset value per share. 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 shares may change on days
when share holders will not be able to purchase or redeem the fund's
shares.

Fund Service Providers

The custodian of the assets of the funds is PFPC Global Fund Services,
4400 Computer Drive, Westborough, Massachusetts 01581. PFPC also
provides certain accounting services to the funds. The funds' transfer,
shareholder services, fund accounting and dividend paying agent, The
Wadsworth Group, [Insert Address], performs bookkeeping, data
processing, accounting and administrative services for the operation of
the funds and the maintenance of shareholder accounts.

Each fund may pay an administrative fee of up to _____% of average daily
net assets to cover expenses incurred by an insurance company in
connection with the administration of the funds, the applicable Separate
Account 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.

Page 19

First Defined Sector Fund

Total Target Portfolio

Value Line(registered trademark) Target Portfolio

First Trust Communications Portfolio

First Trust Energy Portfolio

First Trust Financial Services Portfolio

First Trust Internet Portfolio

First Trust Life Sciences Portfolio

First Trust Pharmaceutical Portfolio

First Trust Technology Portfolio

__________________________________________________________________________

Several additional sources of information are available to you. 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 various
insurance companies. Call the fund at 1-800-621-1675 to request a free
copy of the SAI or for other fund information.

You may also obtain this and other fund information, including the code
of ethics adopted by First Trust, Nike Securities and the funds, in the
Commission's Public Reference Room. Information about the operation of
the Public Reference Room may be obtained by calling the Commission at 1-
202-942-8090. Fund information is also available on the Edgar Database
on the Commission's website at http://www.sec.gov, or may be obtained at
proscribed rates by sending an e-mail request to [email protected] or
by writing to the Commission's Public Reference Section at 450 Fifth
Street NW, Washington, D.C. 20549-0102.

__________________________________________________________________________

First Defined Sector Fund
1001 Warrenville Road, Suite 300
Lisle, Illinois 60532
(800) 621-1675
www.nikesec.com

File No. 811-____

Page 20

PART B

STATEMENT OF ADDITIONAL INFORMATION

________, 2000

FT Defined Portfolios LLC

First Defined Sector Fund

This Statement of Additional Information is not a prospectus. It
contains information in addition to and more detailed than set forth in
the Prospectus for the applicable funds and should be read in
conjunction with the prospectuses for the funds, dated ________, 2000. A
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 19
Investment Risks 23
Additional Strategy Fund Risks 26
Additional Fund Industry Risks 26
Additional Foreign Issuer Risks 34
Fund Management 37
Performance 40
Performance Data of Investment Strategies 42
Investment Advisory and Other Services 44
Purchases, Redemptions and Pricing of Interests 48
12b-1 Plan 50
Additional Information 51
Tax Status 52

Page 1

General Information and History

FT Defined Portfolios LLC (the "FT Fund") and First Defined Sector Fund
(the "First Defined Fund") are non-diversified, open-end management
series investment companies. The FT Fund was organized as a Delaware
limited liability company on April 27, 2000. Currently, the FT Fund has
two series authorized and outstanding. Each series of the FT Fund
represents membership interests (the "interests") in a separate
portfolio of securities and other assets, with its own objectives and
policies. The series of the FT Fund consists of the NASDAQ Target 15
Portfolio and First Trust 10 Uncommon Values Portfolio (the "FT Funds").
The First Defined Fund was organized as a Massachusetts business trust
on April 27, 2000. Currently, the First Defined Fund has nine series
authorized and outstanding. Each series of the First Defined Fund
represents shares of beneficial interest (the "shares"), in a separate
portfolio of securities and other assets, with its own objectives and
policies. (The "shares" and the "interests" are collectively referred
to as the "interests".) The series of the First Defined Fund consists
of the First Trust Communications Portfolio, First Trust Energy
Portfolio, First Trust Financial Services Portfolio, First Trust
Internet Portfolio, First Trust Life Sciences Portfolio, First Trust
Pharmaceutical Portfolio, and First Trust Technology Portfolio (the
"Sector Funds") and the Total Target Portfolio and Value Line(registered
trademark) Target Portfolio (collectively, the "First Defined Funds").
The NASDAQ Target 15 Portfolio, First Trust 10 Uncommon Values
Portfolio, Total Target Portfolio, and Value Line(registered trademark)
Target Portfolio are referred to herein as the "Strategy Funds". The
Strategy Funds and the Sector Funds are collectively referred to herein
as the "Funds" and individually referred to as a "Fund." Interests of
the Funds are sold only to insurance company separate accounts (the
"Separate Accounts") to fund the benefits of variable annuity policies
(the "Policies"). Such Policies are issued by Allmerica Financial Life
Insurance and Annuity Company ("Allmerica") for the FT Fund and possibly
by various insurance companies for the First Defined Fund.

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).

Page 2

(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 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 a 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

Page 3

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 4

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

Page 5

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.

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

Page 6

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
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.

Page 7

(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.

Page 8

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
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,

Page 9

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
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

Page 10

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
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

Page 11

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

Page 12

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.

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

Page 13

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
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

Page 14

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 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

Page 15

(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 Funds may
enter into forward foreign currency 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

Page 16

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.

(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

Page 17

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. The 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 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
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.

Page 18

Insurance Law Restrictions

In connection with the Registrant's agreement to sell shares to the
Separate Accounts, First Trust may enter into agreements with certain
insurance companies, required by certain state insurance departments,
under which First Trust may agree to use its best efforts to assure and
to permit those insurance companies 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, the insurance company 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 of each Strategy Fund is primarily
invested in accordance with an investment strategy. Each year, as
discussed in the Prospectus, the portfolio of each Strategy 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 equity securities contained in the Total Target
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 applicable Stock Selection Date
(as defined in the Prospectus).

Dow Jones, Standard & Poor's, The Nasdaq Stock Market, Inc. and Value
Line are not affiliated with First Trust and have not participated in
the creation of the Funds 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.
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.

Page 19

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 Nasdaq 100
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

Page 20

for any reason. Any changes in the components of the DJIA made after
the applicable Stock Selection Date will not necessarily cause a change
in the identity of the equity securities involved in the applicable
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, Total(sm) Target 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
advisability of purchasing a Fund. Dow Jones' only relationship to the
Funds 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, 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.

Nasdaq - 100 Index

The Nasdaq-100 Index represents the largest and most active non-
financial domestic and international issues listed on the Nasdaq Stock
Market(registered trademark). 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 Funds are not sponsored, endorsed, sold or promoted by The Nasdaq
Stock Market, Inc. (including its affiliates) (Nasdaq, with its

Page 21

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 Funds. The
Corporations make no representation or warranty, express or implied to
the owners of the Funds 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 Funds. Nasdaq has
no obligation to take the needs of the Licensee or the owners of the
Funds 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 Funds.

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 Funds are 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
Funds or any member of the public regarding the advisability or
investing in securities generally or in the Funds 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 Funds. S&P has no obligation to take the needs of First Trust or
the owners of the Funds into consideration in determining, composing or

Page 22

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 Funds
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 Funds.

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,
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

Page 23

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.

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

Page 24

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 Nasdaq Target 15 Portfolio may subject an investor to
additional risk due to the relative lack of diversity in its portfolio
since the portfolio contains only 15 stocks. Therefore, the Nasdaq
Target 15 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 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
tobacco industry, would significantly reduce uncertainties facing the

Page 25

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 its 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

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. 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 held in the Energy Portfolio may
include: production, generation, transmission, marketing, control, or
measurement of gas and oil; the provision of 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 were also considered.

Page 26

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
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 securities in the Energy Portfolio may be subject to
rapid price volatility. We are unable to predict what impact the
foregoing factors will have on the securities.

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 U.S. 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 the
Sponsor 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's 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

Page 27

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 the Energy Portfolio.

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

Page 28

("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 prospects of the
equity securities in the First Trust Financial Services Portfolio cannot
be predicted with certainty. 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 legislation 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.

Page 29

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
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

Page 30

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
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

Page 31

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 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.

Life Sciences and Pharmaceutical Sectors. An investment in the life
sciences and pharmaceutical sectors should be made with an understanding
of the characteristics of the healthcare industry and the risks which
such investment may entail.

Healthcare companies include companies involved in advanced medical
devices and instruments, drugs and biotech, healthcare/managed care,
hospital management/health services and medical supplies. These
companies have potential risks unique to their sector of the healthcare
field. These companies are subject to governmental 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 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 new products or services, generic drug

Page 32

sales, the termination of patent protection for drug or medical supply
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
governmental review processes with no guarantee that the product will
ever come to market. Many of these companies may have losses and may
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. In
addition, healthcare facility operators may be affected by events and
conditions including among other things, demand for services, the
ability of the facility to provide the services required, physicians'
confidence in the facility, management capabilities, competition with
other hospitals, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses,
government regulation, the cost and possible unavailability of
malpractice insurance and the termination or restriction of governmental
financial assistance, including that associated with Medicare, Medicaid
and other similar third party payor programs.

As the population of the United State ages, the companies involved in
the healthcare field will continue to search for and develop new drugs,
medical products and medical services through advanced technologies and
diagnostics. On a worldwide basis, such companies are involved in the
development and distributions of drugs, vaccines, medical products and
medical services. These activities may make the healthcare and medical
services sector very attractive for investors seeking the potential for
growth in their investment portfolio. However, there are no assurances
that a Fund's objectives will be met.

Legislative proposals concerning healthcare are proposed in Congress
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 provision of healthcare services, tax incentives and
penalties related to healthcare insurance premiums and promotion of pre-
paid healthcare plans.

Technology, Communications and Internet Sectors. An investment in the
technology industry, including the communications 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.

Page 33

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 securities.

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
securities 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 securities.

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
to protect their proprietary rights will be adequate to prevent
misappropriation of 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 securities.

Additional Foreign Issuer Risks

Since certain of the portfolio securities included in the 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

Page 34

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 the 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.
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

Page 35

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.

Exchange Rate. The 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

Page 36

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.

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 FT Fund and the First Defined Fund (collectively,
the "Registrants") manage their day to day operations and are
responsible to their Board of Trustees. The management of a Fund,
including general supervision of the duties performed for a 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 Registrants' officers. The following is a list of the
Trustees and officers of the Registrants 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 Registrants indicated by
an asterisk. The mailing address of the officers and Trustees, unless
otherwise noted, is 1001 Warrenville Road, Suite 300, Lisle, Illinois
60532.

Page 37

<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position and Offices with Registrant During Past 5 Years
_____________________ ____________________________________ _____________________
<S> <C> <C>
(1) Robert J. Bartel (67) Trustee Board Member (1996 to Present), First American
730 Windmill Circle Federal Savings Bank of Virginia; Tri-City
Bristol, VA 24201 Advisory Board (1999 to Present), 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 (44) President, Chairman of the Board, Chief President, Nike Securities; Managing Director,
Executive Officer and Trustee First Trust Advisors.

(1) Mark R. Bradley (42) Treasurer, Controller, Chief Financial Chief Financial Officer, Senior Vice President,
Officer and Chief Accounting Officer Nike Securities and First Trust Advisors.

Susan M. Brix (40) Assistant Vice President Representative, Nike Securities; Assistant
Portfolio Manager, First Trust Advisors.

Robert F. Carey (36) Vice President Senior Vice President, Nike Securities and First
Trust Advisors.

Richard E. Erickson (48) Trustee Physician, Sportsmed/Wheaton Orthopedics.
327 Gundersen Drive
Carol Stream, IL 60188

David B. Field (50) Vice President Senior Vice President, Nike Securities; 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 (46) Trustee President, Available Business Group Inc.
4141 S. Peoria Street (Printing products and distribution).
Chicago, IL 60609

Page 38

W. Scott Jardine (39) Secretary Senior Vice President and General Counsel (1995
to Present), Nike Securities and First Trust
Advisors; Partner (1985 to 1995), Chapman and
Cutler (Law firm).

Niel B. Nielson (45) Trustee Pastor (1997 to Present), College Church in
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 estimated to be paid by the
Registrants to each of the Trustee who are not designated "interested
persons" during the Registrants' fiscal year ending December 31, 2000.
The Registrants have no retirement or pension plans. The officers and
the Trustee who are "interested persons" as designated above serve
without any compensation from the Registrants.

<TABLE>
<CAPTION>
Estimated Aggregate
Estimated Compensation From Compensation
Compensation From First Defined From Fund
Name of Trustee FT Fund* Fund* Complex
_______________ ________________ ______________ _____________
<S> <C> <C> <C>
Robert J. Bartel $ $ $
Richard E. Erickson $ $ $
Patrick M. Fitzgerald $ $ $
Niel B. Nielson $ $ $
Total $ $ $

<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 applicable Registrant.
</FN>
</TABLE>

As of _______, 2000, _________ owned all of shares of the Funds. To the
extent required by applicable law, _________ will solicit voting
instructions from owners of variable annuity Policies. All interests in
each Fund will be voted by _________ in accordance with voting
instructions received from such variable Policy owners. Allmerica 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.

Page 39

As of ________, 2000, the Trustees and officers of the Funds, owned, in
the aggregate, less than 1% of the interests of any individual Fund.

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 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 40

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. A 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.

Page 41

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.

Performance Data of Investment Strategies

As of the date of this Statement of Additional Information, the Funds
had not yet commenced investment operations. However, certain aspects of
the investment strategies can be demonstrated using historical data.

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 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
underperformed 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 strategies of the Strategy Funds; and the performance of the
S&P 500 Index, Nasdaq 100 Index and the DJIA, 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

Page 42

any insurance fees or charges which are imposed by the insurance
companies that sponsor the Separate Accounts in connection with the sale
of variable annuity policies. Investors should refer to the prospectus
for the applicable Separate Account 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.

<TABLE>
<CAPTION>
COMPARISON OF TOTAL RETURN(2)

Hypothetical Strategy Total Returns (1) Index Total Returns

10 The
The Dow(sm) Uncommon Total Dow(sm) The S&P NASDAQ Nasdaq Cumulative
DART 10 Values Target DART 5 Target 10 Target 15 S&P 500 100 Index
Year Strategy Strategy Strategy Strategy Strategy Strategy Index DJIA Index Returns(3)
_____ ________ ________ _________ ________ ________ ________ _______ _____ ______ __________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 22.62% 41.95% 27.42% 45.16% 17.99% 22.94% 18.31% 27.00% 6.89% 17.40%
1987 19.35% 5.24% 7.26% 3.55% 6.65% 14.10% 5.33% 5.66% 10.49% 7.16%
1988 -5.77% 19.02% 10.18% 15.80% 17.73% -0.59% 16.64% 16.03% 13.54% 15.41%
1989 49.12% 28.49% 36.27% 37.37% 36.84% 37.33% 31.35% 32.09% 26.17% 29.87%
1990 5.87% 1.27% -4.15% 3.30% -8.01% -5.39% -3.30% -0.73% -10.41% -4.82%
1991 87.71% 43.84% 55.90% 39.78% 21.99% 109.27% 30.40% 24.19% 64.99% 39.85%
1992 -0.08% 8.53% 9.94% 10.36% 22.01% -0.15% 7.62% 7.39% 8.86% 7.96%
1993 27.92% 21.15% 27.51% 17.28% 39.35% 28.55% 9.95% 16.87% 11.67% 12.83%
1994 16.42% 0.17% 1.86% -8.10% 5.67% 10.50% 1.34% 5.03% 1.74% 2.71%
1995 55.53% 38.14% 39.09% 43.74% 22.60% 53.80% 37.22% 36.67% 43.01% 38.96%
1996 57.76% 34.93% 37.92% 32.70% 23.94% 60.03% 22.82% 28.71% 42.74% 31.42%
1997 37.18% 25.64% 36.66% 19.06% 58.50% 35.15% 33.21% 24.82% 20.76% 26.26%
1998 94.68% 19.96% 65.12% 24.75% 50.95% 123.10% 28.57% 18.03% 85.43% 44.01%
1999 109.80% 18.47% 38.50% 17.20% 1.03% 19.09% 12.34% 20.37% 102.08% 50.02%
2000 25.58% -7.48% 12.85% -0.85% 3.40% 18.62% 5.41%

<FN>
(1) The strategy stocks for each strategy for a given year consist
of the stocks selected by applying the respective strategy as of the
beginning of the period.

(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

Page 43

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 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 full years listed
above, the Total Target Strategy, the Uncommon Values Strategy, The S&P
Target 10 Strategy, The Nasdaq Target 15 Strategy, the Value
Line(registered trademark) Target Strategy, The Dow DART 5 Strategy and
The Dow DART 10 Strategy achieved an average annual total return of
____%, ____%, 25.20%, 36.76%, 37.11%, 21.59% and 18.92%, respectively.
In addition, over each stated period, each individual strategy achieved
a greater average annual total return than that of its corresponding
index, the DJIA; the combination of the S&P 500 Index, DJIA and Nasdaq
100 Index (the "Cumulative Index"); the S&P 500 Index; and the Nasdaq
100 Index which were 13.91%, 21.70%, 17.77% and 27.06%, respectively.

(3) Cumulative Index Returns represent the weighted average of the
annual returns of the stocks contained in the DJIA, S&P 500 Index and
Nasdaq 100 Index. The Cumulative Index is weighted in the same
proportions as the index components appear in the Trust. For instance,
the Cumulative Index is weighted as follows: DJIA, 33-1/3%; S&P 500
Index, 33-1/3%; Nasdaq 100 Index, 33-1/3%. Cumulative Index Returns do
not represent an actual index.
</FN>
</TABLE>

There can be no assurance that any Fund will outperform any 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 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 and/or regulated investment companies).

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

Page 44

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 is also advisor or subadviser to over 50 mutual funds and is
the portfolio supervisor of certain unit investment trusts sponsored by
Nike Securities L.P. ("Nike Securities") which are substantially similar
to the Funds in that they have the same investment objectives and
strategies as the various Funds but have a finite life. Nike Securities
specializes in the underwriting, trading and distribution of unit
investment trusts and other securities. Nike Securities, an Illinois
limited partnership formed in 1991, acts as sponsor for successive
series of The First Trust Combined Series, The First Trust Special
Situations Trust, the First Trust Insured Corporate Trust, The First
Trust of Insured Municipal Bonds and The First Trust GNMA. First Trust
introduced the first insured unit investment trust in 1974 and to date
more than $24 billion in First Trust unit investment trusts have been
deposited.

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.

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 Fund (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 the Separate Accounts. 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 also receives compensation
pursuant to a Rule 12b-1 plan adopted by the Fund and described herein
under "12b-1 Plan."

Page 45

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.
First Data Investor Services Group, 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 ____% of average daily net
assets to cover expenses incurred by the insurance companies in
connection with the administrator of the Funds, the Separate Accounts
and the Policies. The services provided by the insurance companies
shall include, among others, the following: (i) coordinating matters
relating to the operation of the Separate Account 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.

The insurance companies also makes its officers and employees available
to the Trustees and officers of the Fund for consultation and
discussions regarding the operations of the Separate Accounts and the
Policies in connection with the administration of the Funds and services
provided to the Funds.

Independent Accountants

The Funds' independent accountants, Ernst & Young LLP, 233 S. Wacker
Dr., Chicago, Illinois 60606-6301, 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
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

Page 46

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

Page 47

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.

Code of Ethics

To mitigate the possibility that a Fund will be adversely affected by
personal trading of employees, the Registrant and First Trust 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

The Separate Accounts will purchase interests of the Funds at their net
asset value. Interests are purchased using premiums received on
Policies issued by the insurance companies. The Separate Accounts are
funded by interests of the Registrants.

All investments in the Registrants 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 Registrants do
not issue interest certificates.

As stated in the applicable Prospectus, the net asset value ("NAV") of a
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 a 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.

Page 48

(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.

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.

Page 49

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 Registrants 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 Registrants have adopted plans (the "Plans") 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 the insurance companies
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
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

Page 50

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 of the
applicable Fund.

Under each Registrant's Plan, the Registrant will report quarterly to
the Board of Trustees for its review all amounts expended under the
Plan. A 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 a Plan or by vote of a majority of the
outstanding voting securities of such Fund. A 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 a Plan cast in person at a meeting called for the purpose of
voting on the Plan. A 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. A 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 a 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 a
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, the insurance companies will
solicit voting instructions from owners of variable annuity Policies.
All interests in each Fund will be voted by the insurance companies in
accordance with voting instructions received from such variable annuity
Policy owners. The insurance companies 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. The FT Funds can
only be owned by the Allmerica Separate Account. The First Defined
Funds may only be owned by the Allmerica Separate Account and other
separate accounts. Interests in a Fund do not have cumulative rights.

Page 51

This means that owners of more than half of either the FT Fund's or the
First Defined Fund's interests voting for election of Trustees of such
Fund 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 a Registrant should be directed to the
applicable Fund at 1-(800) 621-1675 or by writing the applicable Fund at
1001 Warrenville Road, Suite 300, Lisle, Illinois 60532.

Tax Status

Federal Income Tax Matters

The following discussion of federal income tax matters is based upon the
advice of Chapman and Cutler, counsel to the Funds.

First Defined Fund

Each First Defined Fund intends to qualify under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code") for tax treatment
as a regulated investment company. In order to qualify as a regulated
investment company, each Sector Fund (i) must elect to be treated as a
regulated investment company and (ii) for each taxable year thereafter
must satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to
shareholders.

First, each First Defined Fund must derive at least 90% of its annual
gross income (including tax-exempt interest) from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities, foreign currencies or other income
(including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "90% gross income test"). Second,
each First Defined Fund must diversify its holdings so that, at the
close of each quarter of its taxable year, (i) at least 50% of the value
of its total assets is comprised of cash, cash items, United States
Government securities, securities of other regulated investment
companies and other securities limited in respect of any one issuer to
an amount not greater in value that 5% of the value of the Fund's total
assets and to not more that 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of the Fund's total
assets is invested in the securities of any one issuer (other than
United States Government securities and securities of other regulated
investment companies) or two or more issuers controlled by the Fund and
engaged in the same, similar or related trades or businesses.

As a regulated investment company, each First Defined Fund will not be
subject to federal income tax in any taxable year for which it
distributes at least 90% of the sum of (i) its "investment company
taxable income" (without regard to its net capital gain, i.e., the
excess of its net long-term capital gain over its short-term capital

Page 52

loss) and (ii) its net tax-exempt interest (the excess of its gross tax-
exempt interest income over certain disallowed deductions). In
addition, to the extent a First Defined Fund timely distributes to
shareholders at least 98% of its taxable income (including any net
capital gain), it will not be subject to the 4% excise tax on certain
undistributed income of "regulated investment companies." Each First
Defined Fund intends to make timely distributions in compliance with
these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax. A First Defined
Fund may retain for investment its net capital gain. However, if a
First Defined Fund retains any net capital gain or any investment
company taxable income, it will be subject to federal income tax at
regular corporate rates on the amount retained. If a First Defined Fund
retains any net capital gain, the Fund may designate the retained amount
as undistributed capital gains in a notice to its shareholders who, if
subject to federal income tax on long-term capital gains, (i) will be
required to include in income for federal income tax purposes, as long-
term capital gain, their shares of such undistributed amount, and (ii)
will be entitled to credit their proportionate shares of the tax paid by
the Fund against their federal income tax liabilities if any, and to
claim refunds to the extent the credit exceeds such liabilities. For
federal income tax purposes, the tax basis of shares owned by a
shareholder of a First Defined Fund will be increased by an amount equal
to the difference between the amount of such includible gains and the
tax deemed paid by such shareholder in respect of such shares. Each
First Defined Fund intends to distribute at least annually to its
shareholders all or substantially all of its investment company taxable
income, net tax-exempt interest and net capital gain.

Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain,
to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if they had been incurred in the succeeding
year.

If a First Defined Fund engages in hedging transactions involving
financial futures and options, these transactions will be subject to
special tax rules, the effect of which may be to accelerate income to
the Fund, defer the First Defined Fund's losses, cause adjustments in
the holding periods of the Fund's securities, convert long term capital
gains into short-term capital losses and convert short-term capital
losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to shareholders.

Prior to purchasing shares in a First Defined Fund, the impact of
dividends or distributions which are expected to be or have been
declared, but not paid, should be carefully considered. Any dividend or
distribution declared shortly after a purchase of such shares prior to
the record date will have the effect of reducing the per share net asset
value by the per share amount of the dividend or distribution and will
be subject to federal income tax to the extent it is a distribution of
ordinary income or capital gain.

In any taxable year of a First Defined Fund, distributions from the
First Defined Fund, other than distributions which are designated as
capital gains dividends, will to the extent of the earnings and profits
on the First Defined Fund, constitute dividends for Federal income tax
purposes which are taxable as ordinary income to shareholders. To the
extent that distributions to a shareholder in any year exceed a First
Defined Fund's current and accumulated earnings and profits, they will
be treated as a return of capital and will reduce the shareholder's

Page 53

basis in his or her shares and, to the extent that they exceed his or
her basis, will be treated as gain from the sale of such shares as
discussed below. Distributions of a First Defined Fund's net capital
gain which are properly designated as capital gain dividends by the
First Defined Fund will be taxable to the shareholders as long-term
capital gain, regardless of the length of time the shares have been held
by a shareholder. Distributions will be taxed in the manner described
(i.e., as ordinary income, long-term capital gain, return of capital or
exempt-interest dividends) even if reinvested in additional shares of a
First Defined Fund.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to
shareholders of record on a specified date in one of those months and
paid during the following January, will be treated as having been
distributed by a First Defined Fund (and received by the shareholders)
on December 31 of the year such dividends are declared.

The redemption or exchange of the shares of a First Defined Fund
normally will result in capital gain or loss to the shareholders.
Generally, a shareholder's gain or loss will be long-term gain or loss
if the shares have been held for more than one year. Present law taxes
both long- and short-term capital gains of corporations at the rates
applicable to ordinary income. The Internal Revenue Service
Restructuring and Reform Act for 1998 (the "1998 Tax Act") provides that
for taxpayers other than corporations, net capital gain (which is
defined as net long-term capital gain over net short-term capital loss
for the taxable year) realized from property (with certain exclusions)
is generally subject to a maximum marginal stated tax rate of 20% (10%
in the case of certain taxpayers in the lowest tax bracket). Capital
gain or loss is long-term if the holding period for the asset is more
than one year, and is short-term if the holding period for the asset is
one year or less. The date on which a share is acquired (i.e., the
"trade date") is excluded for purposes for determining the holding
period of the share. Capital gains realized from assets held for one
year or less are taxed at the same rates as ordinary income. Note that
if a sale of shares held for less than six months results in loss, the
loss will be treated as a long-term capital loss to the extent of any
capital gain distribution made with respect to such shares during the
period those shares are held by the shareholder.

In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered
into after April 30, 1993. Shareholders and prospective investors
should consult with their tax advisers regarding the potential effect of
this provision on their investment in shares of a First Defined Fund.

Under the Code, certain miscellaneous itemized deductions, such as
investment expenses, tax return preparation fees and employee business
expenses, will be deductible by individuals only to the extent they
exceed 2% of adjusted gross income. Miscellaneous itemized deductions
subject to this limitation under present law do not include expenses
incurred by a First Defined Fund as long as the shares of the First
Defined Fund are held by or for 500 or more persons at all times during
the taxable year or another exception is met. In the event the shares
of a First Defined Fund are held by fewer than 500 persons, additional
taxable income may be realized by the individual (and other non-
corporate) shareholders in excess of the distributions received from the
First Defined Fund.

Page 54

All or a portion of a sales load paid in purchasing shares of a First
Defined Fund cannot be taken into account for purposes of determining
gain or loss on the redemption or exchange of such shares within 90 days
after their purchase to the extent shares of the First Defined Fund or
another fund are subsequently acquired without payment of a sales load
or with the payment of a reduced sales load pursuant to the reinvestment
or exchange privilege. Any disregarded portion of such load will result
in an increase in the shareholder's tax basis in the shares subsequently
acquired. Moreover, losses recognized by a shareholder on the
redemption or exchange of shares of a First Defined Fund held for six
months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if
not disallowed, such losses are treated as long-term capital losses to
the extent of any distributions of long-term capital gains made with
respect to such shares. In addition, no loss will be allowed on the
redemption or exchange of shares of a First Defined Fund if the
shareholder purchases other shares of the First Defined Fund (whether
through reinvestment of distributions or otherwise) or the shareholder
acquires or enters into a contract or option to acquire securities that
are substantially identical to shares of the First Defined Fund within a
period of 61 days beginning 30 days before and ending 30 days after such
redemption or exchange. If disallowed, the loss will be reflected in an
adjustment to the basis of the shares acquired.

If in any year a First Defined Fund should fail to qualify under
Subchapter M for tax treatment as a regulated investment company, the
First Defined Fund would incur a regular corporate federal income tax
upon its income for that year, and distributions to its shareholders
would be taxable to shareholders as ordinary dividend income for federal
income tax purposes to the extent of the First Defined Fund's available
earnings and profits.

Each First Defined Fund is required in certain circumstances to withhold
31% of taxable dividends and certain other payments paid to non-
corporate holders of shares who have not furnished to the First Defined
Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain certifications,
or who are otherwise subject to backup withholding.

A shareholder who is a foreign investor (i.e., an investor other than a
United States citizen or resident or a United States corporation,
partnership, estate or trust) should be aware that, generally, subject
to applicable tax treaties, distributions from a First Defined Fund
which constitute dividends for Federal income tax purposes (other than
dividends which a First Defined Fund designates as capital gain
dividends) will be subject to United States income taxes, including
withholding taxes. However, distributions received by a foreign
investor from a First Defined Fund that are designated by a First
Defined Fund as capital gain dividends should not be subject to United
States Federal income taxes, including withholding taxes, if all of the
following conditions are met: (i) the capital gain dividend is not
effectively connected with the conduct by the foreign investor of a
trade or business within the United States, (ii) the foreign investor
(if and individual) is not present in the United States for 183 days or
more during his or her taxable year, and (iii) the foreign investor
provides all certification which may be required of his status (foreign
investors may contact the Fund to obtain a Form W-8 which must be filed
with such First Defined Fund and refiled every three calendar years
thereafter). Foreign investors should consult their tax advisors with
respect to United States tax consequences of ownership of Shares. Units
in a First Defined Fund and First Defined Fund distribution may also be
subject to state and local taxation and Shareholders should consult
their tax advisors in this regard.

Page 55

A corporate shareholder may be entitled to a 70% dividends received
deduction with respect to any portion of such shareholder's ordinary
income dividends which are attributable to dividends received by a First
Defined Fund on certain Equity Securities (other than corporate
shareholders, such as "S" corporations, which are not eligible for the
deduction because of their special characteristics and other than for
purposes of special taxes such as the accumulated earnings tax and the
personal holding corporation tax). Each First Defined Fund will
designate the portion of any taxable dividend which is eligible for this
deduction. However, a corporate shareholder should be aware that
Sections 246 and 246A of the Code impose additional limitations on the
eligibility of dividends for the 70% dividends received deduction.
These limitations include a requirement that stock (and therefore Shares
of a First Defined Fund) must generally be held at least 46 days (as
determined under, and during the period specified in, Section 246(c) of
the Code). Regulations have been issued which address special rules
that must be considered in determining whether the 46 day holding
requirement is met. Moreover, the allowable percentage of the deduction
will generally be reduced from 70% if a corporate shareholder owns
Shares of a First Defined Fund the financing of which is directly
attributable to indebtedness incurred by such corporation. To the
extent dividends received by a First Defined Fund are attributable to
foreign corporations, a corporate shareholder will not be entitled to
the dividends received deduction with respect to its share of such
foreign dividends since the dividends received deduction is generally
available only with respect to dividends paid by domestic corporations.
It should be noted that payments to a First Defined Fund of dividends on
equity Securities that are attributable to foreign corporations may be
subject to foreign withholding taxes. Corporate shareholders should
consult with their tax advisers with respect to the limitations on, and
possible modifications to, the dividends received deduction.

A First Defined Fund may elect to pass through to the shareholders the
foreign income and similar taxes paid by the Fund in order to enable
such shareholders to take a credit (or deduction) for foreign income
taxes paid by a First Defined Fund. If such an election is made,
shareholders of a First Defined Fund, because they are deemed to own a
pro rata portion of the foreign securities held by the First Defined
Fund, much include in their gross income, for federal income tax
purposes, both their portion of dividends received by such First Defined
Fund and also their portion of the amount which the First Defined Fund
deems to be the shareholders' portion of foreign income taxes paid with
respect to, or withheld from, dividends, interest or other income of the
First Defined Fund from its foreign investments. Shareholders may then
subtract from their federal income tax the amount of such taxes
withheld, or else treat such foreign taxes as deductions from gross
income; however, as in the case of investors receiving income directly
from foreign sources, the above described tax credit or deduction is
subject to certain limitations. The 1997 Act imposes a required holding
period for such credits. Shareholders should consult their tax advisers
regarding this election and its consequences to them.

Foreign currency gains and losses realized by a Fund in connection with
certain transactions that involve foreign currency-denominated debt
securities, certain foreign currency options, foreign currency forward
contracts, foreign currencies, or payable or receivables denominated in
a foreign currency are subject to Section 988 of the Code, which
generally causes such gains and losses to be treated as ordinary income
and losses and may affect the amount, timing and character of

Page 56

distributions to shareholders. For example, if a Fund sold a foreign
stock or bond and part of the gain or loss on the sale was attributable
to an increase or decrease in the value of a foreign currency, then the
currency gain or loss may be treated as ordinary income or loss. If
such transactions result in higher net ordinary income, the dividends
paid by the Fund will be increased; if such transactions result in lower
net ordinary income, a portion of dividends paid could be classified as
a return of capital.

Each First Defined Fund may qualify for and make an election permitted
under the "pass through" provisions of Section 853 of the Internal
Revenue Code, which allows a regulated investment company to elect to
have its foreign tax credit taken by its shareholders instead of on its
own tax return. To be eligible for this credit, more than 50% of the
value of a Fund's total assets at the close of its taxable year must
consist of stock or other securities in foreign corporations, and the
Fund must meet certain other requirements.

If a First Defined Fund makes this election, it may not take any foreign
tax credit and may not take a deduction for foreign taxes paid.
However, each Fund is allowed to include the amount of foreign taxes
paid in a taxable year in its dividends paid deduction. Each
shareholder would then include in his gross income, and treat as paid by
him, his proportionate share of the foreign taxes paid by the Fund.

If the U.S. government were to impose any restrictions, through taxation
or other means, on foreign investments by U.S. investors such as those
to be made through a Fund, the Board of Trustees of each Fund will
promptly review the policies of the Fund to determine whether
significant changes in its investments are appropriate.

General

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly
govern the federal income taxation of a Sector Fund and its shareholders
and relates only to the federal income tax status of a First Defined
Fund and to the tax treatment of distributions by a First Defined Fund
to United States shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations.
The Code and Treasury Regulations are subject to change by legislative
or administrative action, and any such change may be retroactive with
respect to Fund transactions. Shareholders are advised to consult their
own tax advisers for more detailed information concerning the federal
taxation of a First Defined Fund and the income tax consequences to its
shareholders, as well as with respect to foreign, state and local tax
consequences of ownership of First Defined Fund shares.

FT Fund

The FT Fund is not a "regulated investment company" under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). The FT
Fund 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 the Separate Account, the FT Fund is
disregarded as an entity for purposes of federal income taxation.
Allmerica, through the Separate Account, is treated as owning the assets
of the FT Fund, which are the collective assets of the FT 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

Page 57

gains of the FT Fund are not taxable to the FT Fund, and are not
currently taxable to Allmerica or to Policy owners, when left to
accumulate within a variable annuity Policy. Tax disclosure relating to
the variable annuity Policies that offer the FT Fund 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 FT 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 FT Fund.

Page 58

First Defined Sector Fund

Part C
Other Information

Note: Items 23-30 have been answered with respect to all investment
portfolios (Funds) of the Registrant.

ITEM 23. EXHIBITS

Exhibit
Number Description
_______ ___________
(a) Form of Declaration of Trust of the Registrant.(1)
(b) Form of By-Laws of the Registrant.(2)
(c) Form of Establishment and Designation of Series of Shares of
Beneficial Interest.(2)
(d) Form of Investment Advisory and Management Agreement between
Registrant and First Trust Advisors L.P.(2)
(e) Form of Distribution Agreement between Registrant and Nike
Securities L.P.(2)
(f) Not Applicable
(g)(1) Form of Custodian Agreement between the Registrant and PFPC
Global Fund Services.(2)
(g)(2) Form of Foreign Custody Manager Agreement between the
Registrant and First Trust Advisors L.P.(2)
(h)(1) Form of Services Agreement between Registrant and The
Wadsworth Group.(2)
(h)(2) Form of Administrative Services Agreement between Registrant
and [Insert Insurance Company].(2)
(i)(1) Form of Opinion and Consent of Chapman and Cutler.(2)
(i)(2) Form of Opinion and Consent of Potter Anderson & Corroon.(2)
(j) Not Applicable.
(k) Not Applicable.
(l) Not Applicable.
(m) 12b-1 Service Plan.(2)
(n) Not Applicable.
(p) Code of Ethics of the Registrant, First Trust Advisors L.P.
and Nike Securities L.P.
(z) Original Powers of Attorney for Messrs. Bartel, Bowen,
Erickson, Fitzgerald, and Nielson, authorizing, among others,
James A. Bowen and W. Scott Jardine to execute the Registration
Statement.(2)

(1) Filed herewith.

(2) To be supplied by amendment.

Page 1

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not Applicable

ITEM 25. INDEMNIFICATION

Section ___ of the Registrant's Declaration of Trust provides as follows:

[To Come]

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 subadvisor to 23 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.

Page 2

<TABLE>
<CAPTION>
Other Business, Profession, Vocation or Employment
Name and Position with First Trust During Past Two Years
===================================== ================================================================
<C> <S>
Ronald Dean McAlister, President Managing Director, Nike Securities.

James A. Bowen, Managing Director President, 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 Senior Vice Chief Financial Officer and Senior Vice President, Nike
President Securities.

Robert W. Bredemeier, Senior Vice President Senior Vice President, 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 Chief Senior Vice President, Nike Securities; Of Counsel, Johnson,
Investment Officer Westra, Attorneys; Adjunct Professor of Finance, Kellstadt
Graduate School of Business, DePaul University.

Robert Scott Hall and Managing Director Managing Director, Nike Securities.

William Scott Jardine, Senior Vice President, General Counsel Senior Vice President, General Counsel, Nike Securities.

Edward Hayes Keiley III, Vice President Compliance Vice President Compliance, Nike Securities; Associate
Examiner, NASDR; Executive Vice President, Community
Brokerage, Inc.

Daniel Joel Lindquist, Vice President and Portfolio Manager Vice President, Nike Securities; Vice President, Shay Assets
Management; Registered Representative, Nike Securities.

David Gerard McGarel, Evaluations Supervisor Evaluations Supervisor, Nike Securities; Manager, Bansley &
Kiener, L.L.P.

Nike Securities Corporation, General Partner General Partner, Grace Partners of DuPage L.P.

Richard Allen Olson, Managing Director Managing Director, Nike Securities.

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 shares
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.

Page 3

(b)
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Offices Positions and Offices with Fund
with Underwriter
==================================== ========================= ==================================
<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,
1001 Warrenville Road Chief 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

Carlos E. Nardo Senior Vice President None
1001 Warrenville Road
Lisle, IL 60532

Robert W. Bredemeier Senior Vice President None
1001 Warrenville Road
Lisle, IL 60532

David B. Field Senior Vice President Vice President
1001 Warrenville Road
Lisle, IL 60532

Andrew S. Roggensack Senior Vice President None
1001 Warrenville Road
Lisle, IL 60532

William S. Jardine General Counsel Secretary
1001 Warrenville Road
Lisle, IL 60532
</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.

Page 4

PFPC Global Fund Services, [address], maintains all general and
subsidiary ledgers, journals, trial balances, records of all portfolio
purchase and sales, and all other required records not maintained by
First Trust Advisors L.P.

The Wadsworth Group, [address], maintains all the required records in
its capacity as transfer, accounting, dividend payment and interest
holder service agent for the Registrant.

Page 4

ITEM 29. MANAGEMENT SERVICES

Not Applicable

ITEM 30. UNDERTAKINGS

Not Applicable

Page 5

Signatures

Pursuant to the requirements of the Securities Act, the Registrant 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 19th day of September, 2000.

First Defined Sector Fund

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.

Signature Title Date

/s/ Mark R. Bradley Treasurer and Chief Financial September 19, 2000
___________________ and Accounting Officer
Mark R. Bradley

/s/ James A. Bowen President and Trustee September 19, 2000
___________________
James A. Bowen

Exhibit Index

(a) Form of Declaration of Trust of the Registrant.