STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 20, 2006

AMERICAN SKANDIA TRUST

Gateway Center Three
100 Mulberry Street
Newark, New Jersey 07102

American Skandia Trust (the Trust) is a diversified, open-end management investment company (commonly known as a mutual fund) made up of 43 separate investment portfolios. This Statement of Additional Information (SAI) discusses the following three investment portfolios of the Trust (each, a Portfolio and collectively, the Portfolios, each of which is, for investment purposes, in effect, a separate fund):

AST First Trust Balanced Target Portfolio

AST First Trust Capital Appreciation Target Portfolio

AST Advanced Strategies Portfolio

The Trust offers one class of shares of each Portfolio. Shares of the Trust are or may be sold to separate accounts of The Prudential Insurance Company of America, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey and American Skandia Life Assurance Company (collectively, Prudential Insurance) as investment options under variable life insurance and variable annuity contracts. In addition, shares of the Portfolios may be offered to separate accounts of non-Prudential insurance companies for the same types of contracts (collectively with the Prudential Insurance contracts, the Contracts). These separate accounts invest in shares of the Trust through subaccounts that correspond to the Portfolios. The separate accounts will redeem shares of the Trust to the extent necessary to provide benefits under the Contracts or for such other purposes as may be consistent with the Contracts.

Not every Portfolio is available under each Contract. The prospectus for each Contract lists the Portfolios currently available under that particular Contract.

In order to sell shares to both Prudential and non-Prudential insurance companies, the Trust has obtained an exemptive order (the Order) from the United States Securities and Exchange Commission (SEC). The Trust and its Portfolios are managed in compliance with the terms and conditions of that Order. This SAI is not a prospectus and should be read in conjunction with the Prospectus relating to the Portfolios, dated March 20, 2006 (the Prospectus).

The Prospectus is available without charge upon written request to American Skandia Trust, One Corporate Drive, Shelton, Connecticut 06484 or by telephoning (800) 752-6342.

TABLE OF CONTENTS

Caption				Page
GENERAL INFORMATION AND HISTORY:					3
INVESTMENT OBJECTIVES, POLICIES AND RISKS:					3
INVESTMENT RESTRICTIONS:					22
PORTFOLIO TURNOVER:					23
ORGANIZATION AND MANAGEMENT OF THE TRUST:					24
INVESTMENT ADVISORY AND OTHER SERVICES:					32
BROKERAGE ALLOCATION:					47
PROXY VOTING POLICY:					48
COMPUTATION OF NET ASSET VALUES:					48
SALE OF SHARES:					48
DESCRIPTION OF SHARES OF THE TRUST:					49
UNDERWRITER:					49
TAX MATTERS:					49
DISCLOSURE OF PORTFOLIO HOLDINGS:					50
CUSTODIAN:					51
OTHER INFORMATION:					51
FINANCIAL STATEMENTS:					52
MISCELLANEOUS					52
APPENDIX I: Description of Certain Debt Securities Ratings					I-1
APPENDIX II: Description of Proxy Voting Policies and Procedures of the Sub-Advisors					II-1

 

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GENERAL INFORMATION AND HISTORY:

The AST First Trust Balanced Target Portfolio, the AST First Trust Capital Appreciation Target Portfolio (each, a First Trust Target Portfolio and together, the First Trust Target Portfolios), and the AST Advanced Strategies Portfolio (the Advanced Strategies Portfolio and, together with the First Trust Target Portfolios, the Portfolios) were first offered on March 20, 2006. Each Portfolio allocates and invests its assets in accordance with different investment strategies as described herein.

American Skandia Investment Services, Inc. (ASISI) and Prudential Investments LLC (PI) serve as co-managers to the Trust (each, an Investment Manager and together, the Investment Managers). First Trust Advisors L.P. (First Trust) is the Sub-Advisor to each First Trust Target Portfolio. Marsico Capital Management, LLC (Marsico), T. Rowe Price Associates, Inc. (T. Rowe Price), William Blair & Company LLC (William Blair), LSV Asset Management (LSV), and Pacific Investment Management Company LLC (PIMCO) are the Sub-Advisors to the Advanced Strategies Portfolio. PI’s research arm, the Strategic Investment Research Group, will manage a portion of the assets of the Advanced Strategies Portfolio. First Trust, Marsico, T. Rowe Price, William Blair, LSV, and PIMCO are individually referred to herein as a “Sub-Advisor” and are collectively referred to herein as the “Sub-Advisors.”

INVESTMENT OBJECTIVES, POLICIES AND RISKS:

The following information supplements, and should be read in conjunction with, the discussion in the Prospectus of the investment objective and policies of each Portfolio. Because each Portfolio will have different amounts of exposure to certain investment strategies and different exposures to equity and fixed-income securities, the risks, opportunities and total return associated with an investment in each Portfolio may differ.

The investment objective and investment policies and restrictions of each Portfolio, unless otherwise specified, are not “fundamental” policies and may be changed by the Board of Trustees of the Trust without approval of the shareholders of the applicable Portfolio. Those investment policies specifically labeled as fundamental, including those described in this SAI under the caption “Investment Restrictions,” may not be changed without shareholder approval. Fundamental investment policies of a Portfolio may be changed only with the approval of at least the lesser of: (1) 67% or more of the total shares of the Portfolio represented at a meeting at which more than 50% of the outstanding shares of such Portfolio are represented, or (2) a majority of the outstanding shares of the Portfolio.

Other Investments and Investment Strategies

The Portfolios may also invest in futures, options, forward contracts, illiquid and restricted securities, delayed delivery securities, direct and indirect foreign investments, and temporary investments, as described below.

Delayed-Delivery Transactions.    A Portfolio 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. 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 Portfolio 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 Portfolio’s other assets. While securities purchased in delayed-delivery transactions may be sold prior to the settlement date, the Portfolios intend to purchase such securities with the purpose of actually acquiring them. At the time a Portfolio makes the commitment to purchase a security in a delayed-delivery transaction, it will record the transaction and reflect the value of

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the security in determining its net asset value. The Portfolios do not believe that net asset value will be adversely affected by purchases of securities in delayed-delivery transactions.

Each Portfolio will earmark or 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 earmarked or 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 Portfolio will meet its obligations from then-available cash flow, sale of the securities earmarked or 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 Portfolio’s payment obligation).

Illiquid and Restricted Securities.    Each Portfolio 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 1933 Act, as amended, but that are deemed to be illiquid; and repurchase agreements with maturities in excess of seven days. However, a Portfolio will not acquire illiquid securities if, as a result, such securities would comprise more than 15% of the value of the Portfolio’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 the Sub-Advisors 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 the Sub-Advisors to look to factors such 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 1933 Act. Where registration is required, a Portfolio 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 Portfolio may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Portfolio 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 under procedures adopted by the Board of Trustees. If, through the appreciation of illiquid securities or the depreciation of liquid securities, a Portfolio should be in a position where more than 15% of the value of its net assets are invested in illiquid securities, including restricted securities that are not readily marketable, the affected Portfolio will take such steps as is deemed advisable, if any, to protect liquidity.

A Portfolio’s investments in foreign securities, derivatives, or securities with substantial market and/or credit risk may be deemed to be illiquid.

Temporary Investments.    Each Portfolio 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 Services (S&P) or Moody’s Investors Service, Inc. (Moody’s) and having a maturity of one year or less.

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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) Fannie Mae, 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 Portfolio’s 15% restriction on investments in illiquid securities. Pursuant to the certificate of deposit, the issuer agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon. Under current FDIC regulations, the maximum insurance payable as to any one certificate of deposit is $100,000; therefore; certificates of deposit purchased by a Portfolio 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 Portfolio 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 Portfolio 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 Portfolio to invest temporarily available cash. A Portfolio 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 Portfolios may invest. In addition, the Portfolios 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 Portfolio 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 Portfolio 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 Portfolio could incur a loss of both principal and interest. The Portfolios, however, intend to enter into repurchase agreements only with financial institutions and dealers believed by the applicable Sub-Advisor to present minimal credit risks in accordance with

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criteria established by the Board of Trustees. Each Sub-Advisor will review and monitor the creditworthiness of such institutions. Each Sub-Advisor also will monitor the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. The Sub-Advisors do 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 Portfolio. If the seller were to be subject to a federal bankruptcy proceeding, the ability of a Portfolio to liquidate the collateral could be delayed or impaired because of certain provisions of the bankruptcy laws.

(5)           Bank time deposits , which are monies kept on deposit with banks or savings and loan associations for a stated period of time at a fixed rate of interest. There may be penalties for the early withdrawal of such time deposits, in which case the yields of these investments will be reduced.

(6)           Commercial paper, which are short-term unsecured promissory notes, including variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between a Portfolio and a corporation. There is no secondary market for the notes. However, they are redeemable by the Portfolio 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 Portfolio’s liquidity might be impaired if the corporation were unable to pay principal and interest on demand. A Portfolio may only invest in commercial paper rated A-1 or better by S&P or Prime-1 or higher by Moody’s.

General Description of Hedging Strategies.    Each Portfolio may engage in hedging activities. Each Sub-Advisor may cause a Portfolio to utilize a variety of financial instruments, including swaps, options, forward contracts, futures contracts (hereinafter referred to as “Futures” or “Futures Contracts), and options on Futures Contracts to attempt to hedge the Portfolio’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 Portfolio owns or intends to acquire. Such instruments may also be used to “lock-in” earned 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 Portfolio 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 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 Portfolio’s ability to use hedging instruments may be limited by tax considerations.

General Limitations on Futures and Options Transactions.    To comply with applicable rules of the CFTC under which the Trust and each Portfolio avoid being deemed a “commodity pool” or a “commodity pool operator,” each Portfolio intends generally to limit its use of futures contracts and futures options to “bona fide hedging” transactions, as such term is defined in applicable regulations, interpretations and practice. With respect to positions in futures and related options that do not constitute bona fide hedging positions, the Portfolio will not enter into a futures contract or futures option contract if, immediately thereafter, the aggregate initial margin deposits relating to such positions plus premiums paid by it for open futures option positions, less the amount by which any such options are “in-the-money,” would exceed 5% of the Portfolio’s total assets. A call option is “in-the-money” if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is “in-the-money” if the exercise price exceeds the value of the futures contract that is the subject of the option. In addition, a Portfolio will

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not enter into Futures Contracts and options transactions if more than 30% of its net assets would be committed to such instruments.

The foregoing limitations are not fundamental policies of a Portfolio 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 Portfolio 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 earmark on the Portfolio’s records or 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 earmarked or 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 Portfolio may purchase stock index options, sell stock index options in order to close out existing positions, and/or write covered options on stock indices for hedging purposes. Stock index options are put options and call options on various stock indices. 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 stocks 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 narrow market index, such as the Standard & Poor’s 100. Indices may also be based on an industry or market segment. Options on stock indices are currently traded on the following exchanges: the Chicago Board of Options Exchange, the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the Pacific Stock Exchange, and the Philadelphia Stock Exchange.

A Portfolio’s use of stock index options is subject to certain risks. Successful use by a Portfolio of options on stock indices will be subject to the ability of a Sub-Advisor 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 Portfolio’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 indices, depends on the degree to which price movements in the underlying index correlate with the price movements of the securities held by a Portfolio. Inasmuch as a Portfolio’s securities will not duplicate the components of an index, the correlation will not be perfect. Consequently, each Portfolio 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 indices. It is also possible that there may be a negative correlation between the index and a Portfolio’s securities, which would result in a loss on both such securities and the options on stock indices acquired by the Portfolio.

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,

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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 Portfolio 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 Portfolio is unable to close out a call option on securities that it has written before the option is exercised, the Portfolio may be required to purchase the optioned securities in order to satisfy its obligation under the option to deliver such securities. If a Portfolio 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 Portfolio.

Futures Contracts.    Each Portfolio may enter into 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 Portfolio or for other purposes permissible under the Commodity Exchange Act (“CEA”). Each Portfolio’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 Portfolio will not enter into Futures Contracts that are prohibited under the CEA and will, to the extent required by regulatory authorities, enter only into Futures Contracts that are traded on national futures exchanges and are standardized as to maturity date and underlying financial instrument. The principal interest rate Futures exchanges in the United States are the Board of Trade of the City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and trading are regulated under the CEA by the CFTC.

An interest rate futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., a debt security) or currency for a specified price at a designated date, time and place. An index Futures Contract is an agreement pursuant to which the parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index Futures Contract was originally written. Transaction costs are incurred when a Futures Contract is bought or sold and margin deposits must be maintained. A Futures Contract may be satisfied by delivery or purchase, as the case may be, of the instrument or by payment of the change in the cash value of the index. More commonly, Futures Contracts are closed out prior to delivery by entering into an offsetting transaction in a matching Futures Contract. Although the value of an index might be a function of the value of certain specified securities, no physical delivery of those securities is made. If the offsetting purchase price is less than the original sale price, a gain will be realized. Conversely, if the offsetting sale price is more than the original purchase price, a gain will be realized; if it is less, a loss will be realized. The transaction costs must also be included in these calculations. No assurance can be given, however, that a Portfolio will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If a Portfolio is not able to enter into an offsetting transaction, the Portfolio will continue to be required to maintain the margin deposits on the Futures Contract.

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Margin is the amount of funds that must be deposited by each Portfolio with a clearing organization in order to initiate Futures trading and to maintain the Portfolio’s open positions in Futures Contracts. A margin deposit is intended to ensure the Portfolio’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, an increase in the margin will be required. However, if the value of a position increases because of favorable price changes in the Futures Contract so that the margin deposit exceeds the required margin, the excess will be returned to the respective Portfolio. In computing daily net asset value, each Portfolio will mark to market the current value of its open Futures Contracts. Each Portfolio 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 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 Portfolio 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 Portfolio seeks to close out a Futures position. The Portfolio would continue to be required to meet margin requirements until the position is closed, possibly resulting in a decline in the Portfolio’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 indices, including, but not limited to, the S&P 500 Index, the S&P 100 Index, the NASDAQ® 100 Index, the Value Line Composite Index and the New York Stock Exchange Composite Index.

Options on Futures.    Each Portfolio 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 for 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

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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 Portfolio 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 Portfolio uses put and call options on securities or indices. The purchase of put options on Futures Contracts is analogous to the purchase of puts on securities or indices so as to hedge a Portfolio’s 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 securities which are deliverable upon exercise of the Futures Contract. If the price at expiration of a written call option is below the exercise price, a Portfolio will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Portfolio’s holdings of securities. If the price when the option is exercised is above the exercise price, however, the Portfolio 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 Portfolio 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 Portfolio intends to acquire.

As with investments in Futures Contracts, each Portfolio 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 Portfolio. Each Portfolio will earmark or set aside in a segregated account at the Portfolio’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 earmarked or placed in the segregated account whenever the total value of the earmarked or segregated assets 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 Portfolio 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 Portfolio’s successful use of options on Futures Contracts depends on the Sub-Advisor’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, 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.

Swap Agreements and Options on Swap Agreements.    Each Portfolio may engage in swap transactions, including, but not limited to, swap agreements on interest rates, security or commodity indexes, specific securities and commodities, and credit and event-linked swaps. Each Portfolio also may invest in currency exchange rate swap agreements, options on swap agreements (“swap options”), and total return swap agreements.

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A Portfolio may enter into swap transactions for any legal purpose consistent with its investment objective and policies, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets, to protect against currency fluctuations, as a duration management technique, to protect against any increase in the price of securities a Portfolio anticipates purchasing at a later date, or to gain exposure to certain markets in the most economical way possible. Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities or commodities representing a particular index. A “quanto” or “differential” swap combines both an interest rate and a currency transaction. Other forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. Consistent with a Portfolio’s investment objectives and general investment polices, certain of the Portfolios may invest in commodity swap agreements. For example, an investment in a commodity swap agreement may involve the exchange of floating-rate interest payments for the total return on a commodity index. In a total return commodity swap, a Portfolio will receive the price appreciation of a commodity index, a portion of the index, or a single commodity in exchange for paying an agreed-upon fee. If the commodity swap is for one period, a Portfolio may pay a fixed fee, established at the outset of the swap. However, if the term of the commodity swap is more than one period, with interim swap payments, a Portfolio may pay an adjustable or floating fee. With a “floating” rate, the fee may be pegged to a base rate, such as the London Interbank Offered Rate, and is adjusted each period. Therefore, if interest rates increase over the term of the swap contract, a Portfolio may be required to pay a higher fee at each swap reset date.

Each Portfolio may also enter into swap options. A swap option is a contract that gives a counterparty the right (but not the obligation) in return for payment of a premium, to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. Each Portfolio may write (sell) and purchase put and call swap options.

Depending on the terms of the particular option agreement, a Portfolio will generally incur a greater degree of risk when it writes a swap option than it will incur when it purchases a swap option. When a Portfolio purchases a swap option, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Portfolio writes a swap option, upon exercise of the option the Portfolio will become obligated according to the terms of the underlying agreement. Most other types of swap agreements entered into by the Portfolios would calculate the obligations of the parties to the agreement on a “net basis.” Consequently, a Portfolio’s current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”). A Portfolio’s current obligations under a swap agreement will be accrued daily (offset against any amounts owed to the Portfolio) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the segregation or “earmarking” of assets determined to be liquid by PIMCO in accordance with procedures established by the Board of Trustees, to avoid any potential leveraging of the Portfolio’s portfolio. Obligations under swap agreements so covered will not be construed to be “senior securities” for purposes of the Portfolio’s investment restriction concerning senior securities. Each Portfolio will not enter

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into a swap agreement with any single party if the net amount owed or to be received under existing contracts with that party would exceed 5% of the Portfolio’s total assets.

Each Portfolio may also enter into credit default swap agreements. The credit default swap agreement may have as reference obligations one or more securities that are not currently held by the Portfolio. The protection “buyer” in a credit default contract is generally obligated to pay the protection “seller” an upfront or a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. A Portfolio may be either the buyer or seller in the transaction. If the Portfolio is a buyer and no credit event occurs, the Portfolio may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As a seller, a Portfolio generally receives an upfront payment or a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Portfolio would effectively add leverage to its portfolio because, in addition to its total net assets, a Portfolio would be subject to investment exposure on the notional amount of the swap.

Credit default swap agreements involve greater risks than if a Portfolio had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. A Portfolio will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. The Portfolio’s obligations under a credit default swap agreement will be accrued daily (offset against any amounts owing to the Portfolio). In connection with credit default swaps in which a Portfolio is the buyer, the Portfolio will segregate or “earmark” cash or assets determined to be liquid by PIMCO in accordance with procedures established by the Board of Trustees, or enter into certain offsetting positions, with a value at least equal to the Portfolio’s exposure (any accrued but unpaid net amounts owed by the Portfolio to any counterparty), on a marked-to-market basis. In connection with credit default swaps in which a Portfolio is the seller, the Portfolio will segregate or “earmark” cash or assets determined to be liquid by PIMCO in accordance with procedures established by the Board of Trustees , or enter into offsetting positions, with a value at least equal to the full notional amount of the swap (minus any amounts owed to the Portfolio). Such segregation or “earmarking” will ensure that the Portfolio has assets available to satisfy its obligations with respect to the transaction and will limit any potential leveraging of the Portfolio’s portfolio. Such segregation or “earmarking” will not limit the Portfolio’s exposure to loss.

Whether a Portfolio’s use of swap agreements or swap options will be successful in furthering its investment objective of total return will depend on PIMCO’s ability to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, a Portfolio bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Portfolios will enter into swap agreements only with counterparties that meet certain standards of creditworthiness (generally, such counterparties would have to be eligible counterparties under the terms of the Portfolios’ repurchase agreement guidelines). Certain restrictions imposed on the Portfolios by the Internal Revenue Code may limit the Portfolios’ ability to use swap agreements. The swaps market is a

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relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect a Portfolio’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

Swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with traditional investments. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions. Swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. If a swap transaction is particularly large or if the relevant market is illiquid (as is the case with many OTC swaps), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. In addition, swap transaction may be subject to a fund’s limitation on investments in illiquid securities.

Like most other investments, swap agreements are subject to the risk that the market value of the instrument will change in a way detrimental to a Portfolio’s interest. A Portfolio bears the risk that PIMCO will not accurately forecast future market trends or the values of assets, reference rates, indexes, or other economic factors in establishing swap positions for the Portfolio. If PIMCO attempts to use a swap as a hedge against, or as a substitute for, a portfolio investment, the Portfolio will be exposed to the risk that the swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the Portfolio. While hedging strategies involving swap instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Portfolio investments.

Many swaps are complex and often valued subjectively. Certain swap agreements are exempt from most provisions of the CEA and, therefore, are not regulated as futures or commodity option transactions under the CEA, pursuant to regulations approved by the CFTC.

To qualify for this exemption, a swap agreement must be entered into by “eligible participants,” which includes the following, provided the participants’ total assets exceed established levels: a bank or trust company, savings association or credit union, insurance company, investment company subject to regulation under the 1940 Act, commodity pool, corporation, partnership, proprietorship, organization, trust or other entity, employee benefit plan, governmental entity, broker-dealer, futures commission merchant, natural person, or regulated foreign person. To be eligible, natural persons and most other entities must have total assets exceeding $10 million; commodity pools and employee benefit plans must have assets exceeding $5 million. In addition, an eligible swap transaction must meet three conditions. First, the swap agreement may not be part of a fungible class of agreements that are standardized as to their material economic terms. Second, the creditworthiness of parties with actual or potential obligations under the swap agreement must be a material consideration in entering into or determining the terms of the swap agreement, including pricing, cost or credit enhancement terms. Third, swap agreements may not be entered into and traded on or through a multilateral transaction execution facility.

This exemption is not exclusive, and participants may continue to rely on existing exclusions for swaps, such as the Policy Statement issued in July 1989 which recognized a safe harbor for swap transactions from regulation as futures or commodity option transactions under the CEA or its regulations. The Policy Statement applies to swap transactions settled in cash that (1) have individually tailored terms, (2) lack exchange-style offset and the use of a clearing organization or margin system, (3) are undertaken in conjunction with a line of business, and (4) are not marketed to the public.

Indirect Foreign Investments: Depositary Receipts.    The Portfolios 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

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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 a Portfolio’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 not 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 Portfolios may invest directly in the securities of foreign issuers. In consideration of whether to invest in the securities of a foreign company, the applicable Sub-Advisor will consider 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. The applicable Sub-Advisor also will consider factors relating to the general economic, government, 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 government 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 Portfolio’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.

Real Estate Investment Trusts.    Each Portfolio may invest in real estate investment trusts (“REITs”). REITs pool investors’ funds for investment primarily in income producing real estate or real estate related loans or interests. REITs can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs, which invest the majority of their assets directly in real property, derive their income primarily from rents. Equity REITs can also realize capital gains or losses by selling properties. Mortgage REITs, which invest the majority of their assets in real estate mortgages, derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both Equity REITs and Mortgage REITs.

While the Portfolios will not invest in real estate directly, investments in REITs may be subject to risks similar to those associated with the direct ownership of real estate. These include risks related to general and local economic conditions, dependence on management skill, heavy cash flow dependency, possible lack of available mortgage funds, overbuilding, extended vacancies of properties, increases in property taxes and operating expenses, changes in zoning laws, losses due to costs resulting from environmental problems, casualty or condemnation losses, limitations on rents, and changes in neighborhood values, the appeal of properties to tenants and interest rates. In general, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. In the event of a default by a borrower or lessee, a REIT may experience delays and may incur substantial costs in enforcing its rights as a mortgagee or lessor.

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Collateralized Debt Obligations.    The Portfolios may invest in collateralized debt obligations (“CDOs”), which includes collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”) and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust which is backed by a diversified pool of high risk, below investment grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans.

For both CBOs and CLOs, the cashflows from the trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche which bears the bulk of defaults from the bonds or loans in the trust and serves to protect the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults, a senior tranche from a CBO trust or CLO trust typically have higher ratings and lower yields than their underlying securities, and can be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults, as well as aversion to CBO or CLO securities as a class.

The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Portfolio invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus, are not registered under the securities laws. As a result, investments in CDOs may be characterized by the Portfolios as illiquid securities, however an active dealer market may exist for CDOs allowing a CDO to qualify for Rule 144A transactions. In addition to the normal risks associated with fixed income securities discussed elsewhere in this SAI and the Portfolios’ prospectuses ( e.g., interest rate risk and default risk), CDOs carry additional risks including, but are not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the Portfolios may invest in CDOs that are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

Investment Risks

Overview.    Investment in a Portfolio should be made with an understanding of the risks entailed by an investment in common stocks, 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 Portfolio may decline. A Portfolio 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 Portfolio 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 Portfolio 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. 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

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debt securities or preferred stock will create prior claims for payment of principal, interest and dividends which could adversely affect the ability and inclination of the issuer to declare or pay dividends on its common stock or the rights of holders of common stock with respect to assets of the issuer upon liquidation or bankruptcy. The value of common stocks is subject to market fluctuations for as long as the common stocks remain outstanding, and thus the value of the equity securities in a Portfolio will fluctuate over the life of the Portfolio and may be more or less than the price at which they were purchased by such Portfolio. The equity securities held in a Portfolio 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 Portfolio’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 that are senior to those of common stockholders.

The Investment Managers and the Sub-Advisors shall not be liable in any way for any default, failure or defect in any equity security held in a Portfolio’s portfolio.

Liquidity.    Whether or not the equity securities in a Portfolio 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. No assurance can be given 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 value of a Portfolio and the price at which the equity securities held in a Portfolio may be sold to meet transfers, partial withdrawals or surrenders, or to implement a strategy on or about each stock selection date will be adversely affected if trading markets for the equity securities are limited or absent. The Advanced Strategies Portfolio may be particularly subject to liquidity risk due to its investments in derivative instruments and foreign equity securities, including emerging markets securities.

Small Capitalization Companies.    Certain of the equity securities in the First Trust Target Portfolios may be small cap company stocks. The Advanced Strategies Portfolio will invest in small or medium-sized companies only to a limited extent. While small cap company stocks historically 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 that 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 Portfolio that contains 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.

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Risks and Special Considerations Regarding 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 Portfolio to losses. Market risk is the primary risk associated with derivative transactions. Derivative instruments may include elements of leverage and, accordingly, fluctuations in the value of the derivative instrument in relation to the underlying asset may be magnified. The successful use of derivative instruments depends upon a variety of factors, particularly the portfolio manager’s ability to predict movements of the securities, currencies, and commodities markets, which may require different skills than predicting changes in the prices of individual securities. No assurance can be given 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 Portfolio and its shareholders and is consistent with a Portfolio’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 Portfolio’s overall investments and investment objective.

(2)    Credit Risk .   Credit risk is the risk that a loss may 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 over-the-counter (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 Portfolio 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 Portfolio. The Portfolio will enter into transactions in derivative instruments only with 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 as a result of 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 Portfolio 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 Portfolio is unable to close out its positions in such instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expires, matures, or is closed out. These requirements might impair a Portfolio’s ability to sell a security or make an investment at a time

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when it would otherwise be favorable to do so, or require that the Portfolio sell a portfolio security at a disadvantageous time. A Portfolio’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 Portfolio.

(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.

As set forth in the Prospectus, PIMCO will emphasize investments in derivative instruments for the Commodities Real Return sub-category, the Real Return sub-category, and the Real Estate Real Return sub-category of the Advanced Strategies Portfolio. As a result, an investment in the Advanced Strategies Portfolio will be particularly subject to the risks associated with investing in derivative instruments.

Risks and Special Considerations Concerning Foreign Currencies.    Investment in securities denominated in foreign currencies involves certain general risks and considerations as described below.

(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, government intervention, speculation, and other economic and political conditions. Although each Portfolio values its assets daily in U.S. dollars, a Portfolio may not convert its holdings of foreign currencies to U.S. dollars daily. A Portfolio 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 Portfolio buys and sells currencies. Portfolios may engage in foreign currency exchange transactions in connection with its portfolio investments. A Portfolio will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or through forward contracts to purchase or sell foreign contracts.

(2)    Forward Foreign Currency Exchange Contracts.    The Portfolios 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. The Portfolios will not speculate in foreign currency exchange. The Portfolios will not enter into forward currency exchange contracts or maintain a net exposure in such contracts that they 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 the Sub-Advisors believe will tend to be closely correlated with that currency with regard to price movements. Generally, the Portfolios will not enter into forward foreign currency exchange contracts with a term longer than one year.

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(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 option 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 Portfolio 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 Portfolio 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 Portfolio would not have to exercise its put option. Likewise, if a Portfolio entered into a contract to purchase a security denominated in a 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 Portfolio would not have to exercise its call. Instead, the Portfolio 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 a Portfolio’s ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market. Although a Portfolio will not purchase or write such options unless and until, in the opinion of First Trust, the market for them has developed sufficiently to ensure that the risks in connection with such options are not greater than the risks in connection with the underlying currency, there can be no assurance that a liquid secondary market will exist for a particular option at any specific time. In addition, options on foreign currencies are affected by all of the same 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 Portfolio may be able to achieve many of the same objectives as it would through the use of forward foreign currency exchange contracts. The Portfolios 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.

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(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 Portfolio will not purchase or write options on foreign currency futures contracts unless and until, in the opinion of the Sub-Advisor, 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 Portfolio because the maximum amount at risk is the premium paid for the option (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss, such as when there is no movement in the price of the underlying currency or futures contract.

Foreign Issuer Risk.    Since certain of the portfolio securities included in the Portfolios may consist of common stocks of foreign issuers, an investment in such Portfolios involves certain investment risks that are different in some respects from an investment in a fund that invests entirely in common stocks of domestic issuers. These investment risks include the possible imposition of future political or government restrictions that might adversely affect the payment or receipt of dividends on the relevant portfolio securities, the possibility that the financial condition of the issuers of the portfolio securities may become impaired or that the general condition of the relevant stock market may deteriorate, the limited liquidity and relatively small market capitalization of the relevant securities market, the imposition of expropriation or confiscatory taxation, economic uncertainties, the lack of the quantity and quality of publicly available information concerning the foreign issuers as such issuers are generally not subject to the same reporting and accounting requirements as domestic issuers, and the effect of foreign currency devaluations and fluctuations in 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 the Sub-Advisors at the present time, none of the portfolio securities in such Portfolios are currently subject to exchange control restrictions under existing law that would materially interfere with payment to such Portfolios 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 a Portfolio 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 foreign portfolio securities may be made in foreign securities markets. Although the Sub-Advisors do not believe that the Portfolios will encounter obstacles in acquiring or disposing of 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 Portfolios 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 Portfolios may be in ADR or GDR form. ADSs and GDSs (collectively, the “Depositary Receipts”) may not necessarily be denominated in the same currency as the

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securities into which they may be converted. For purposes of the discussion herein, the terms ADR and GDR generally include ADSs and GDSs, 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 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 1933 Act 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 U.S. dollars. Most foreign currencies have fluctuated widely in value against the U.S. 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 U.S. dollar value will vary with fluctuations in the U.S. dollar foreign exchange rates for the relevant currencies.

Junk Bond Risk.    High yield bonds (also referred to as junk bonds) can deliver higher yields and total return than either investment grade corporate bonds or U.S. Treasury bonds. However, because these non-investment grade securities involve higher risks in return for higher income, they are best suited to long-term investors who are financially secure enough to withstand volatility and the risks associated with such investments.

For high yield, non-investment grade securities, as for most investments, there is a direct relationship between risk and return. Along with their potential to deliver higher yields and greater capital appreciation than most other types of fixed-income securities, high yield securities are subject to higher risk of loss, greater volatility and are considered speculative by traditional investment standards. The most significant risk associated with high yield securities is credit risk: the risk that the company issuing a high yield security may have difficulty in meeting its principal and/or interest payments on a timely basis. As a result, extensive credit research and diversification are essential factors in managing risk in the high yield arena.

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To a lesser extent, high yield bonds are also subject to interest rate risk: when interest rates increase, the value of fixed income securities tends to decline.

The First Trust Target Portfolios will limit their respective investments in debt obligations rated at least investment grade by Moody’s, S &P, or another major rating service, and unrated debt obligations that First Trust believes are comparable in quality. For the U.S. Fixed-Income investment category of the Advanced Strategies Portfolio, PIMCO will primarily invest in investment grade debt securities, but may invest in junk bonds rated B or higher by Moody’s or S&P, or, if unrated, determined by PIMCO to be of comparable quality. PIMCO may invest all of the assets attributable to the Hedged International Bond investment category in non-investment grade fixed-income securities, subject to a limit of investing no more than 15% of such assets in securities rated below B by Moody’s or S&P, or, if unrated, determined by PIMCO to be of comparable quality.

License Termination Risk.    The First Trust Target Portfolios rely on licenses from third parties to First Trust Advisors L. P. that permit the use of the intellectual property of such parties in connection with the investment strategies of the Portfolios. Such licenses may be terminated by the licensors, and as a result a First Trust Target Portfolio may lose its ability to use the licensed name or the licensed investment strategy. Accordingly, in the event a license is terminated it may have a significant effect on the operation of the affected First Trust Target Portfolio.

INVESTMENT RESTRICTIONS:

The investment restrictions set forth below are “fundamental” policies. Fundamental investment policies may not be changed without shareholder approval. As a result, fundamental investment policies of a Portfolio may be changed only with the approval of at least the lesser of: (1) 67% or more of the total shares of the Portfolio represented at a meeting at which more than 50% of the outstanding shares of such Portfolio are represented, or (2) a majority of the outstanding shares of the Portfolio.

Under its fundamental investment restrictions, each Portfolio may not:

1.                  Issue senior securities, except as permitted under the Investment Company Act of 1940 (the Investment Company Act).

2.                  Borrow money, except that a Portfolio may (i) borrow money for non-leveraging, temporary or emergency purposes, and (ii) engage in reverse repurchase agreements and make other investments or engage in other transactions, which may involve a borrowing, in a manner consistent with the Portfolio’s investment objective and policies; provided that the combination of (i) and (ii) shall not exceed 33 1 ¤ 3 % of the value of the Portfolio’s assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law. Any borrowings that come to exceed this amount will be reduced in accordance with applicable law. Subject to the above limitations, a Portfolio may borrow from persons to the extent permitted by applicable law, including the Investment Company Act, or to the extent permitted by any exemption from the Investment Company Act that may be granted by the SEC, or any SEC releases, no-action letters or similar relief or interpretive guidance.

3.                  Underwrite securities issued by other persons, except to the extent that a Portfolio may be deemed to be an underwriter (within the meaning of the Securities Act of 1933) in connection with the purchase and sale of portfolio securities.

4.                  Purchase or sell real estate unless acquired as a result of the ownership of securities or other instruments; provided that this restriction shall not prohibit a Portfolio from investing in securities or other instruments backed by real estate or in securities of companies engaged in the real estate business.

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5.                  Purchase or sell physical commodities unless acquired as a result of the ownership of securities or instruments; provided that this restriction shall not prohibit a Portfolio from (i) engaging in permissible options and futures transactions and forward foreign currency contracts in accordance with the Portfolio’s investment policies, or (ii) investing in securities of any kind.

6.                  Make loans, except that a Portfolio may (i) lend portfolio securities in accordance with the Portfolio’s investment policies in amounts up to 33 1 ¤ 3 % of the total assets of the Portfolio taken at market value, (ii) purchase money market securities and enter into repurchase agreements, (iii) acquire publicly distributed or privately placed debt securities, and (iv) make loans of money to other investment companies to the extent permitted by the Investment Company Act or any exemption therefrom that may be granted by the SEC or any SEC releases, no-action letters or similar relief or interpretive guidance.

7.                  Purchase any security if, as a result, more than 25% of the value of the Portfolio’s assets would be invested in the securities of issuers having their principal business activities in the same industry; provided that this restriction does not apply to investments in obligations issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or to municipal securities (or repurchase agreements with respect thereto). For purposes of this limitation, investments in other investment companies shall not be considered an investment in any particular industry.

8.                  With respect to 75% of the value of its total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities) if, as a result, (i) more than 5% of the value of the Portfolio’s total assets would be invested in the securities of such issuer, or (ii) more than 10% of the outstanding voting securities of such issuer would be held by the Portfolio.

If a restriction on a Portfolio’s investments is adhered to at the time an investment is made, a subsequent change in the percentage of the Portfolio assets invested in certain securities or other instruments, or change in average duration of the Portfolio’s investment portfolio, resulting from changes in the value of the Portfolio’s total assets, will not be considered a violation of the restriction; provided, however, that the asset coverage requirement applicable to borrowings shall be maintained in the manner contemplated by applicable law.

With respect to investment restriction (6), the restriction on making loans is not considered to limit Portfolio’s investments in loan participations and assignments.

With respect to investment restriction (7), a Portfolio will not consider a bank-issued guaranty or financial guaranty insurance as a separate security for purposes of determining the percentage of the Portfolio’s assets invested in the securities of issuers in a particular industry.

With respect to investment restrictions (2) and (6), a Portfolio will not borrow or lend to any other fund unless it applies for and receives an exemptive order from the SEC, if so required, or the SEC issues rules permitting such transactions.

Except as expressly specified immediately above, the investment objective and all other investment policies and restrictions of each Portfolio are not “fundamental” policies and may be changed by the Board of Trustees of the Trust without approval of the shareholders of the applicable Portfolio.

PORTFOLIO TURNOVER:

A Portfolio buys and sells portfolio securities in the normal course of its investment activities. Each Portfolio may sell its portfolio securities, regardless of the length of time that they have been held, if the applicable Sub-Advisor determines that it would be in the Portfolio’s best interest to do so. It may be

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appropriate to buy or sell portfolio securities due to economics market, or other factors that are not within the control of the Investment Managers.

The proportion of the Portfolio’s investment portfolio that is sold and replaced with new securities during a year is known as the Portfolio’s portfolio turnover rate. A turnover rate of 100% would occur, for example, if a Portfolio sold and replaced long-term securities valued at 100% of its net assets within one year. A high rate of portfolio turnover for a Portfolio involves correspondingly higher brokerage commission expenses and other transaction costs, which are directly borne by such Portfolio. Such higher brokerage commission expenses and other transaction costs will reduce the investment performance of the Portfolio.

ORGANIZATION AND MANAGEMENT OF THE TRUST:

The Trust is a managed, open-end investment company organized as a Massachusetts business trust, the separate investment portfolios of which are diversified, unless otherwise indicated.

As of the date of this SAI, 43 portfolios are available. The Trust may offer additional portfolios with a range of investment objectives that Participating Insurance Companies may consider appropriate for variable annuities and variable life insurance policies. The Trust’s current approach to achieving this goal is to seek to have multiple organizations unaffiliated with each other be responsible for conducting the investment programs for the portfolios. Each such organization would be responsible for the Portfolio or Portfolios to which such organization’s expertise is best suited. As set forth in the Prospectus, American Skandia Investment Services, Inc. and Prudential Investments LLC serve as co-managers to the Trust (each, an Investment Manager and together, the Investment Managers). Each Investment Manager is affiliated with Prudential Insurance.

Formerly, the Trust was known as the Henderson International Growth Portfolio, which consisted of only one Portfolio. The Investment Manager was Henderson International, Inc. Shareholders of what was, at the time, the Henderson International Growth Portfolio, approved certain changes in a meeting held April 17, 1992. These changes included engagement of a new Investment Manager, engagement of a Sub-Advisor and election of new Trustees. Subsequent to that meeting, the new Trustees adopted a number of resolutions, including, but not limited to, resolutions renaming the Trust. Since that time, the Trustees have adopted a number of resolutions, including, but not limited to, making new Portfolios available and adopting forms of Investment Management Agreements and Sub-Advisory Agreements between the Investment Managers and the Trust and the Investment Managers and each Sub-Advisor, respectively.

A discussion regarding the basis for the Board’s approval of the Trust’s investment advisory agreements is available in the Trust’s semi-annual report (for agreements approved during the six month period ended June 30) and in the Trust’s annual report (for agreements approved during the six month period ended December 31). To that end, a discussion regarding the basis for the Board’s approval of the investment advisory agreements for the Portfolios is available in the Trust’s most recent annual report.

American Skandia Life Assurance Corporation, a Participating Insurance Company, is also a wholly-owned subsidiary of ASI and an indirect subsidiary of Prudential Financial (Prudential). Certain officers of the Trust are officers and/or directors of one or more of the following companies: ASISI, American Skandia Life Assurance Corporation, American Skandia Marketing, Incorporated (the principal underwriter for various annuities deemed to be securities for American Skandia Life Assurance Corporation) and ASI. Founded in 1875, Prudential is a publicly held financial services company primarily engaged in providing life insurance, mutual funds, annuities, pension and retirement related services and administration, asset management, securities brokerage, banking and trust services, real estate brokerage franchises and relocation services through its wholly-owned subsidiaries.

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ASISI, a Maryland corporation, was incorporated in 1991 and is registered as an investment adviser with the SEC. Prior to April 7, 1995, ASISI was known as American Skandia Life Investment Management, Inc. PI is also registered as an investment adviser with the SEC. PI is a wholly-owned subsidiary of PIFM HoldCo, Inc., which is wholly-owned subsidiary of Prudential Asset Management Holding Company, which is a wholly-owned subsidiary of Prudential.

The Trustees and officers of the Trust and their principal occupations are listed below. Unless otherwise indicated, the address of each Trustee and executive officer is One Corporate Drive, Shelton, Connecticut 06484:

Independent Trustees

Name, Address** and Birth date		Position With Trust		Term of Office*** and Length of Time Served		Principal Occupations During Past 5 Years		Number of Portfolios in Fund Complex Overseen  by Trustee		Other Directorships Held by the Trustee****
Saul K. Fenster, Ph.D. 3/22/33		Trustee		Since 2003		President Emeritus of New Jersey Institute of Technology (since 2002); formerly President (1978-2002) of New Jersey Institute of Technology; Commissioner (1998-2002) of the Middle States Association Commission on Higher Education; Commissioner (1985-2002) of the New Jersey Commission on Science and Technology; Director (since 1998) Society of Manufacturing Engineering Education Foundation, Director (since 1995) of Prosperity New Jersey; formerly a director or trustee of Liberty Science Center, Research and Development Council of New Jersey, New Jersey State Chamber of Commerce, and National Action Council for Minorities in Engineering.				Member (since 2000), Board of Directors of IDT Corporation.
Delayne Dedrick Gold 7/15/38		Trustee		Since 2003		Marketing Consultant (1982-present); formerly Senior Vice President and Member of the Board of Directors, Prudential Bache Securities, Inc.				—
Julian A. Lerner 11/12/24		Trustee Emeritus		Since 2003		Senior Vice President and Portfolio Manager (1986-1995); AIM Charter Fund and AIM Summit Fund.				—
W. Scott McDonald, Jr. 4/19/37		Vice Chairman and Trustee		Since 2003		Management Consultant (since 1997) at Kaludis Consulting Group, Inc. (company serving higher education); Formerly, principal (1995-1997), Scott McDonald & Associates, Chief Operating Officer (1991-1995), Fairleigh Dickinson University, Executive Vice President and Chief Operating Officer (1975-1991), Drew University, interim President (1988-1990), Drew University and former Director of School, College and University Underwriters Ltd.				—
Thomas T. Mooney 11/11/41		Chairman and Trustee		Since 2003		Chief Executive Officer, the Rochester Business Alliance, formerly President of the Greater Rochester Metro Chamber of Commerce, Rochester City Manager; formerly Deputy Monroe County Executive; Director of Blue Cross of Rochester and Executive Service Corps of Rochester; Director of the Rochester Individual Practice Association; Director of Rural Metro Ambulance Rochester (since 2003); Vice President and Director of Hi-tech of Rochester.

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Thomas M. O’Brien 12/5/50		Trustee		Since 1992		President and Chief Executive Officer (since May 2000) of Atlantic Bank of New York; Vice Chairman (January 1997-April 2000) of North Fork Bank; President and Chief Executive Officer (December 1984-December 1996) of North Side Savings Bank.				Director (December 1996-May 2000) of North Fork Bancorporation, Inc.; Director (since May 2000) of Atlantic Bank of New York.
John A. Pileski 9/2/39		Trustee		Since 2001		Retired since June 2000; Tax Partner (July 1974-June 2000) of KPMG, LLP.				Director (since April 2001) of New York Community Bank.
F. Don Schwartz 8/14/35		Trustee		Since 2002		Management Consultant (since April 1985).				—

 

Interested Trustees

Name, Address** and Birth date		Position With Fund		Term of Office*** and Length of Time Served		Principal Occupations During Past 5 Years		Number of Portfolios in Fund Complex Overseen by Trustee		Other Directorships Held by the Trustee****
*David R. Odenath, Jr. 3/8/57		President and Trustee		Since 1999		President of Prudential Annuities (since August 2002); Senior Vice President (since June 1999) of Prudential; Executive Vice President (since May 2003) of Prudential Investment Management Services LLC; President, Chief Executive Officer, Chief Operating Officer, Officer in Charge and Director (since June 2005) of American Skandia Investment Services, Inc; Formerly President, Chief Executive Officer, Chief Operating Officer and Officer-In-Charge (September 1999-February 2003) of Prudential Investments LLC.				—
*Robert F. Gunia 12/15/46		Vice President and Director		Since 2001		Chief Administrative Officer (since September 1999) and Executive Vice President (since December 1996) of Prudential Investments LLC; President (since April 1999) of Prudential Investment Management Services LLC; Executive Vice President (since March 1999) and Treasurer (since May 2000) of Prudential Mutual Fund Services LLC.				Vice President and Director (since May 1989) and Treasurer (since 1999) of The Asia Pacific Fund, Inc. Vice President
										(since 2004) and Director (since August 2005) of The High Yield Plus Fund, Inc.

 

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Information pertaining to the Officers of the Trust who are not also Trustees is set forth below.

Officers

Name, Address** and Birth date		Position With Trust		Term of Office*** and Length of Time Served		Principal Occupations During Past 5 Years
Grace C. Torres (46)		Treasurer and Principal Financial and Accounting Officer		Since 1997		Assistant Treasurer (since March 1999) and Senior Vice President (since September 1999) of Prudential Investments LLC; Assistant Treasurer (since May 2003) and Vice President (since June 2005) of American Skandia Investment Services, Inc.; Senior Vice President and Assistant Treasurer (since May 2003) of American Skandia Advisory Services, Inc.; formerly Senior Vice President (May 2003-June 2005) of American Skandia Investment Services, Inc.
M. Sadiq Peshimam (42)		Assistant Treasurer		Since 2006		Vice President (since 2005) and Director (since 2000) within Prudential Mutual Fund Administration.
Jack Benintende (41)		Assistant Treasurer		Since 2006		Vice President (since June 2000) within Prudential Mutual Fund Administration; Assistant Treasurer (since September 2004) of The High Yield Plus Fund, Inc.; formerly Assistant Treasurer (2000-October 2004) of Aberdeen Asia-Pacific Income Fund, Inc. and Aberdeen Australia Equity Fund, Inc.; Senior manager within the investment management practice of PricewaterhouseCoopers LLP (May 1994 through June 2000).
Alan Fu (49)		Assistant Treasurer		Since 2006		Vice President—Tax. The Prudential Insurance Company of America (1999 to October 2003); Vice President and Corporate Counsel—Tax, Prudential Financial, Inc. (since October 2003).
Deborah A. Docs (48)		Secretary		Since 2005		Vice President and Corporate Counsel (since January 2001) of Prudential; Vice President (since December 1996) and Assistant Secretary (since March 1999) of Prudential Investments LLC; formerly Vice President and Assistant Secretary (May 2003-June 2005) of American Skandia Investment Services, Inc.
Jonathan D. Shain (47)		Assistant Secretary		Since 2001		Vice President and Corporate Counsel (since August 1998) of Prudential; Vice President and Assistant Secretary (since May 2001) of Prudential Investments LLC; Vice President and Assistant Secretary (since February 2001) of Prudential Mutual Fund Services LLC; formerly Vice President and Assistant Secretary (May 2003-June 2005) of American Skandia Investment Services, Inc.
Claudia DiGiacomo  (31)		Assistant Secretary		Since 2005		Vice President and Corporate Counsel (since January 2005) of Prudential; Vice President and Assistant Secretary of PI (since December 2005);Associate at Sidley Austin Brown & Wood LLP (1999-2004).
John P. Schwartz (34)		Assistant Secretary		Since 2006		Vice President and Corporate Counsel (since April 2005) of Prudential; Vice President and Assistant Secretary of PI (since December 2005);Associate at Sidley Austin Brown & Wood LLP (1997-2005).
Kathryn L. Quirk (52)		Chief Legal Officer		Since 2005		Vice President and Corporate Counsel (since September 2004) of Prudential; Executive Vice President, Chief Legal Officer and Secretary (since July 2005) of Prudential Investments LLC and Prudential Mutual Fund Services LLC; Chief Risk Officer and Corporate Secretary (1997-2002) of Zurich Scudder Investments, Inc.

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Lee D. Augsburger (46)		Chief Compliance Officer		Since 2004		Senior Vice President and Chief Compliance Officer (since April 2003) of PI; Vice President (since November 2000) and Chief Compliance Officer (since October 2000) of Prudential Investment Management, Inc.; Chief Compliance Officer and Senior Vice President (since May 2003) of American Skandia Investment Services, Inc
Helene Gurian  (51)		Acting Anti-Money Laundering Compliance Officer		Since 2006		Vice President, Prudential (since July 1997). Vice President, Compliance (July 1997-January 2001); Vice President, Compliance and Risk Officer, Retail Distribution (January 2001- May 2002); Vice President, Corporate Investigations (May 2002-date) responsible for supervision of Prudential’s fraud investigations, anti-money laundering program and high technology investigation unit.

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*        “Interested” Trustee, as defined in the Investment Company Act, by reason of employment with the Investment Managers (as defined below), the Distributor (as defined below), Prudential Mutual Fund Services LLC, and/or certain other affiliated entities.

*        Unless otherwise noted, the address of the Trustees and Officers is c/o: Prudential Investments LLC, Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102.

**      There is no set term of office for Trustees and Officers. The Independent Trustees have adopted a retirement policy, which currently calls for the retirement of Trustees on December 31 of the year in which they reach the age of 78. The table shows how long they have served as Trustee and/or Officer.

***    This column includes only directorships of companies required to register, or file reports with the SEC under the Securities Exchange Act of 1934 (i.e., “public companies) or other investment companies registered under the Investment Company Act.

The Trust has Trustees who oversee the actions of the Investment Managers, each Sub-Advisor and Distributor, and decide upon matters of general policy. The Trustees also review the actions of the Trust’s Officers, who conduct and supervise the daily business operations of the Trust.

Trustees and Officers of the Trust are also trustees, directors and officers of some or all of the other investment companies advised by the Investment Managers and distributed by PIMS.

The Independent Trustees have adopted a retirement policy, which currently calls for the retirement of Trustees on December 31 of the year in which they reach the age of 78.

Pursuant to the Management Agreement with the Trust, the Manager pays all compensation of officers and employees of the Trust as well as the fees and expenses of all Interested Trustees of the Trust.

Standing Board Committees

The Board has established three standing committees in connection with governance of the Trust—Audit, Governance and Valuation, as described below:

Audit Committee

The Audit Committee of the Board of Trustees consists of Mr. Pileski (Chair), Mr. O’Brien and Ms. Gold. The responsibilities of the Audit Committee are to assist the Board in overseeing the Trust’s independent registered public accounting firm, accounting policies and procedures, and other areas relating to the Trust’s auditing processes. The Audit Committee is responsible for pre-approving all audit services and any permitted non-audit services to be provided by the independent registered public accounting firm directly to the Trust. The Audit Committee is also responsible for pre-approving permitted non-audit services to be provided by the independent registered public accounting firm to (1) the Manager and (2) any entity in a control relationship with the Manager that provides ongoing services to the Trust,

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provided that the engagement of the independent registered public accounting firm relates directly to the operation and financial reporting of the Trust. The scope of the Audit Committee’s responsibility is oversight. It is management’s responsibility to maintain appropriate systems for accounting and internal control and the independent registered public accounting firm’s responsibility to plan and carry out a proper audit. The independent registered public accounting firm is responsible to the Board and the Audit Committee. The Audit Committee met 4 times during the fiscal year ended December 31, 2005.

Governance Committee

The Governance Committee of the Board of Trustees is responsible for nominating directors and making recommendations to the Board concerning Board composition, committee structure and governance, trustee education, and governance practices. The members of the Governance Committee are Mr. Fenster (Chair), Mr. McDonald, Mr. Schwartz, and Mr. Mooney (ex officio). The Board has determined that each member of the Governance Committee is not an “interested person” as defined in the Investment Company Act. The Governance Committee met 5 times during the fiscal year ended December 31, 2005. The Governance Committee Charter is available on the Trust’s website at www.americanskandia.prudential.com.

Selection of Trustee Nominees:    The Governance Committee is responsible for considering trustee nominees at such times as it considers electing new directors to the Board. The Governance Committee may consider recommendations by business and personal contacts of current Board members and by executive search firms that the Committee may engage from time to time and will also consider shareholder recommendations. The Governance Committee has not established specific, minimum qualifications that it believes must be met by a trustee nominee. In evaluating trustee nominees, the Governance Committee considers, among other things, an individual’s background, skills, and experience; whether the individual is an “interested person” as defined in the Investment Company Act; and whether the individual is or would be deemed an “audit committee financial expert” within the meaning of applicable SEC rules. The Governance Committee also considers whether the individual’s background, skills, and experience will complement the background, skills, and experience of other nominees and will contribute to the diversity of the Board. There are no differences in the manner in which the Governance Committee evaluates nominees for trustee based on whether the nominee is recommended by a shareholder.

A shareholder who wishes to recommend a trustee nominee should submit his or her recommendation in writing to the Chair of the Board (Mr. Mooney) or the Chair of the Governance Committee (Mr. Fenster), in either case c/o American Skandia Trust, P.O. Box 13964, Philadelphia, PA 19176. At a minimum, the recommendation should include:

·        the name, address, and business, educational, and/or other pertinent background of the person being recommended;

·        a statement concerning whether the person is an “interested person” as defined in the Investment Company Act;

·        any other information that the Trust would be required to include in a proxy statement concerning the person if he or she were nominated;

·        the name and address of the person submitting the recommendation, together with the number of Trust shares held by such person and the period for which the shares have been held.

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The recommendation also can include any additional information that the person submitting it believes would assist the Governance Committee in evaluating the recommendation.

Shareholders should note that a person who owns securities issued by Prudential Financial, Inc. (the parent company of the Trust’s investment adviser) would be deemed an “interested person” under the Investment Company Act. In addition, certain other relationships with Prudential Financial, Inc. or its subsidiaries, with registered broker-dealers, or with the Trust’s outside legal counsel may cause a person to be deemed an “interested person.”

Before the Governance Committee decides to nominate an individual as a trustee, Committee members and other trustees customarily interview the individual in person. In addition, the individual customarily is asked to complete a detailed questionnaire which is designed to elicit information which must be disclosed under SEC and stock exchange rules and to determine whether the individual is subject to any statutory disqualification from serving as a director of a registered investment company.

Shareholder Communications with Directors:    Shareholders of the Portfolio can communicate directly with the Board of Trustees by writing to the Chair of the Board, c/o American Skandia Trust, P.O. Box 13964, Philadelphia, PA 19176. Shareholders can communicate directly with an individual trustee by writing to that trustee at P.O. Box 13964, Philadelphia, PA 19176. Such communications to the Board or individual trustees are not screened before being delivered to the addressee.

Valuation Committee

The Valuation Committee consists of at least two Board members or an officer of the Trust and one Board member (in both instances the Valuation Committee may include employees of the Manager who may constitute a majority of the Valuation Committee). The Valuation Committee supervises the valuation of the Trust’s portfolio securities and other assets and meets on an as-needed basis. The Valuation Committee met 7 times during the fiscal year ended December 31, 2005.

Trustee Compensation

The Trust pays each of its Trustees who is not an affiliated person of the Manager or the Sub-Advisors annual compensation in addition to certain out-of-pocket expenses. Trustees who serve on the committees may receive additional compensation. The amount of compensation paid to each Independent Trustee may change as result of the creation of additional funds upon whose Boards the Trustees may be asked to serve.

Independent Trustees may defer receipt of their Trustees’ fees pursuant to a deferred fee agreement with the Trust. Under the terms of such agreement, the Trust accrues daily the amount of Trustee’s fees which, in turn, accrues interest at a rate equivalent to the prevailing rate of 90-day U.S. Treasury bills at the beginning of each calendar quarter or, at the daily rate of return of any Prudential mutual fund chosen by the Trustee. The Trust’s obligation to make payments of deferred Trustees’ fees, together with interest thereon, is a general obligation of the Trust.

The Trust has no retirement or pension plan for its Trustees.

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The following tables sets forth: (i) the aggregate compensation paid by the Trust for the fiscal year ended December 31, 2005 to the Independent Trustees and (ii) the aggregate compensation paid to those Trustees for service on the Trust’s Board and the Board of any other investment companies managed by PI (the Trust Complex), for the calendar year ended December 31, 2005.

Compensation Table

Name and Position

Aggregate Compensation From Trust($)

Aggregate Compensation from Trust and Portfolio Complex($)

Saul K. Fenster, Ph.D.—Trustee

$

$

(  /  )

*

Delayne Dedrick Gold—Trustee

$

$

(  /  )

*

Julian A. Lerner—Trustee Emeritus

$

$

(  /  )

*

W. Scott McDonald, Jr.—Trustee**

$

$

(  /  )

*

Thomas T. Mooney—Trustee**

$

$

(  /  )

*

Thomas M. O’Brien—Trustee**

$

$

(  /  )

*

John A. Pileski—Trustee

$

$

(  /  )

*

F. Don Schwartz—Trustee**

$

$

(  /  )

*

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*                  Indicates number of funds/portfolios in Portfolio Complex (including the Trust) to which aggregate compensation relates.

**              Although the last column shows the total amount paid to Trustees from the Portfolio Complex during the calendar year ended December 31, 2005, such compensation was deferred at the election of the Trustees, in total or in part, under the Trust’s deferred fee agreement. Including accrued interest and the selected Prudential Portfolio’s rate of return on amounts deferred through December 31, 2004, the total amount of compensation for the year amounted to $          , $          , $           and $           for Messrs. O’Brien, Schwartz, McDonald and Mooney, respectively.

The following tables set forth the dollar range of equity securities in the Trust beneficially owned by a Trustee, and, on aggregate basis, in all registered investment companies overseen by a Trustee in the Portfolio Complex as of December 31, 2005.

Trustee Share Ownership Table

Independent Trustees

Name of Trustee

Dollar Range of Securities in the Trust*

Aggregate Dollar Range of Securities in All Registered Investment Companies Overseen By Trustee in Portfolio Complex

Saul K. Fenster, Ph.D.

—

$

over $100,000

Delayne Dedrick Gold

—

over $100,000

Julian A. Lerner

—

None

W. Scott McDonald, Jr.

—

over $100,000

Thomas T. Mooney

—

over $100,000

Thomas M. O’Brien

—

over $100,000

John A. Pileski

—

10,001—50,000

F. Don Schwartz

—

$

over $100,000

 

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Interested Trustees

Name of Trustee				Dollar Range of Securities in the Trust*				Aggregate Dollar Range of Securities in All Registered Investment Companies Overseen By Trustee in Portfolio Complex
Robert F. Gunia					—				over $100,000
David R. Odenath, Jr.					—				over $100,000

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*                     Trust securities may only be sold to Participating Insurance Companies as a result of certain IRS rules and regulations. Consequently, the Trustees currently may not own Trust securities.

Under the terms of the Massachusetts General Corporation Law, the Trust may indemnify any person who was or is a Trustee, officer or employee of the Trust to the maximum extent permitted by the Massachusetts General Corporation Law; provided, however, that any such indemnification (unless ordered by a court) shall be made by the Trust only as authorized in the specific case upon a determination that indemnification of such persons is proper in the circumstances. Such determination shall be made (i) by the Board of Trustees, by a majority vote of a quorum which consists of Trustees who are neither “interested persons” of the Trust as defined in Section 2(a)(19) of the Investment Company Act, nor parties to the proceeding, or (ii) if the required quorum is not obtainable or if a quorum of such Trustees so directs by independent legal counsel in a written opinion. No indemnification will be provided by the Trust to any Trustee or officer of the Trust for any liability to the Trust or its shareholders to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duty.

Codes of Ethics.    The Trust, the Investment Managers, its Distributor and the Sub-Advisors for the Portfolios of the Trust have adopted codes of ethics under rule 17j-1 of the Investment Company Act. While these codes contain provisions reasonably necessary to prevent personnel subject to the codes from engaging in unlawful conduct, they do not prohibit investments in securities, including securities that may be purchased or held by the Portfolios, by such personnel.

INVESTMENT ADVISORY AND OTHER SERVICES:

Investment Advisory Services:    The Trust’s Investment Management Agreements, on behalf of each Portfolio, with ASISI and PI as co-managers provide that ASISI furnish each applicable Portfolio with investment advice and administrative services subject to the supervision of the Board of Trustees and in conformity with the stated policies of the applicable Portfolio. ASISI and PI jointly have engaged the Sub-Advisor to conduct the investment programs of the Portfolios, including the purchase, retention and sale of portfolio securities. ASISI and PI are responsible for monitoring the activities of the Sub-Advisors and reporting on such activities to the Trustees. ASISI and PI must also provide, or obtain and supervise, the executive, administrative, accounting, custody, transfer agent and shareholder servicing services that are deemed advisable by the Trustees. Subject to approval by the Board of Trustees, ASISI and PI generally select and employ one or more Sub-Advisors for each Portfolio, who have primary responsibility for determining what investments the Portfolio will purchase, retain and sell.

ASISI and PI have engaged First Trust to conduct the various investment programs of each First Trust Target Portfolio pursuant to separate subadvisory agreements with ASISI and PI. ASISI and PI also have engaged Marsico, T. Rowe Price, William Blair, LSV, and PIMCO to conduct the various investment programs of the Advanced Strategies Portfolio pursuant to separate subadvisory agreements with ASISI and PI. PI will directly manage a portion of the assets of the Advanced Strategies Portfolio pursuant to an Investment Management Agreement among the Trust, ASISI and PI.

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Under normal conditions, the Investment Managers will determine the division of the assets of the Advanced Strategies Portfolio among the applicable Sub-Advisors and PI. All daily cash inflows (that is, purchases and reinvested distributions) and outflows (that is, redemptions and expense items) will be divided among the Sub-Advisors and PI as the Investment Managers deem appropriate. There may be a periodic rebalancing of each segment’s assets to take account of market fluctuations in order to maintain the allocations set by the Investment Managers. As a consequence, the Investment Managers may allocate assets from the portfolio segment that has appreciated more to the other.

Reallocations among the Sub-Advisors and PI may result in additional costs since sales of securities may result in higher portfolio turnover. Also, because the Sub-Advisors and PI select portfolio securities independently, it is possible that a security held by a portfolio segment may also be held by another portfolio segment of the Advanced Strategies Portfolio or that certain Sub-Advisors or PI may simultaneously favor the same industry. The Investment Managers will monitor the overall portfolio to ensure that any such overlaps do not create an unintended industry concentration. In addition, if a Sub-Advisor or PI buys a security as another Sub-Advisor sells it, the net position of the Advanced Strategies Portfolio in the security may be approximately the same as it would have been with a single portfolio and no such sale and purchase, but the Advanced Strategies Portfolio will have incurred additional costs. The Investment Managers will consider these costs in determining the allocation of assets. The Investment Managers will consider the timing of reallocation based upon the best interests of the Advanced Strategies Portfolio and its shareholders.

Under the terms of the Management Agreements, an Investment Manager provides, at its expense, such personnel as is required by each Portfolio for the proper conduct of its affairs and engages the Sub-Advisors to conduct the investment programs pursuant to the Investment Manager’s obligations under the Management Agreements. An Investment Manager, not the Trust, is responsible for the expenses of conducting the investment programs. The Sub-Advisor is responsible for the expenses of conducting the investment programs in relation to the applicable Portfolio pursuant to agreements between an Investment Manager and each Sub-Advisor. Each Portfolio pays all of its other expenses, including but not limited to, brokerage commissions, legal, auditing, taxes or governmental fees, the cost of preparing share certificates, custodian, depositary, transfer and shareholder servicing agent costs, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, insurance premiums on property or personnel (including officers and Trustees if available) of the Trust which inure to its benefit, expenses relating to Trustee and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders, the fees and other expenses incurred by the Trust in connection with membership in investment company organizations and the cost of printing copies of prospectuses and statements of additional information distributed to shareholders. Expenses incurred by the Trust not directly attributable to any specific Portfolio or Portfolios are allocated on the basis of the net assets of the respective Portfolios.

Under the terms of the Management Agreements, an Investment Manager is permitted to render services to others. The Management Agreements provide that neither an Investment Manager nor its personnel shall be liable for any error of judgment or mistake of law or for any act or omission in the administration or management of the applicable Portfolios, except for willful misfeasance, bad faith or gross negligence in the performance of its or their duties or by reason of reckless disregard of its or their obligations and duties under the Management Agreements.

Each Management Agreement will continue in effect from year to year, provided it is approved, at least annually, in the manner stipulated in the Investment Company Act. This requires that each Management Agreement and any renewal be approved by a vote of the majority of the Trustees who are not parties thereto or interested persons of any such party, cast in person at a meeting specifically called for the purpose of voting on such approval. Each Management Agreement may be terminated without penalty on sixty days’ written notice by vote of a majority of the Board of Trustees or by an Investment

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Manager, or by holders of a majority of the applicable Portfolio’s outstanding shares, and will automatically terminate in the event of its “assignment” as that term is defined in the Investment Company Act.

Each Portfolio pays the Investment Managers a management fee at the annual rate of 0.85% of the average daily net assets of the Portfolio. The Investment Managers have voluntarily undertaken to waive 0.05% of the management fee on assets of each Portfolio in excess of $1 billion. Each waiver is voluntary and may be modified or terminated at any time without prior notice. All investment management fees are payable monthly and are accrued daily for purposes of determining the net asset values of the applicable Portfolio.

Subadvisory Agreements:    The Investment Manager pays each Sub-Advisor for the performance of subadvisory services out of its Investment Management fee and at no additional cost to any Portfolio. The fee paid to the Sub-Advisors differs from Portfolio-to-Portfolio, reflecting the objectives, policies and restrictions of each Portfolio and the nature of each subadvisory agreement. Each Sub-Advisor’s fee is accrued daily for purposes of determining the amount payable to the Sub-Advisor.

The subadvisory fee rate for the AST First Trust Balanced Target Portfolio is based on its assets as follows: 0.35% of assets up to $250 million, 0.30% of assets exceeding $250 million up to and including $500 million, and 0.25% of assets over $500 million.

The subadvisory fee rate for the AST First Trust Capital Appreciation Target Portfolio is based on its assets as follows: 0.35% of assets up to $250 million, 0.30% of assets exceeding $250 million up to and including $500 million, and 0.25% of assets over $500 million.

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The subadvisory fee rates for the Advanced Strategies Portfolio, shown as a separate rate for each investment category, sub-category, and Sub-Advisor, are shown in the table below:

Investment Category				Investment Sub-Category		Subadviser		Subadvisory Fee Rate
U.S. Large Cap Growth						Marsico(1)		0.40% of Advanced Strategies Portfolio’s pro rata share of aggregate average daily net assets with certain accounts subadvised by Marsico to $1.5 billion and 0.35% of Advanced Strategies Portfolio’s pro rata share of aggregate average daily net assets with certain accounts subadvised by Marsico over $1.5 billion(1)
U.S. Large Cap Value						T. Rowe Price		0.40% on average daily net assets to $250 million; 0.375% on average daily net assets from $250 million to $500 million; and 0.35% on average daily net assets over $500 million.
International Growth						William Blair(2)		0.30% of average daily net assets to $500 million; 0.25% of average daily net assets from $500 million to $1 billion; and 0.20% of average daily net assets over $1 billion
International Value						LSV(3)		0.45% of average daily net assets to $150 million; 0.425% of average daily net assets from $150 million to $300 million; 0.40% of average daily net assets from $300 million to $450 million; 0.375% of average daily net assets from $450 million to $750 million; and 0.35% of average daily net assets over $750 million
U.S. Fixed-Income						PIMCO		0.25% of average daily net assets
Hedged International Bond				Developed Markets		PIMCO		0.25% of average daily net assets
				Emerging Markets		PIMCO		0.25% of average daily net assets
Advanced Strategies I				Commodities Real Return		PIMCO		0.40% of average daily net assets
				Real Return		PIMCO		0.40% of average daily net assets
				Real Estate Real Return		PIMCO		0.40% of average daily net assets

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(1)           For purposes of calculating the fee payable to Marsico, the assets managed by Marsico in the Advanced Strategies Portfolio will be aggregated with: (i) the portion of the Global Portfolio of The Prudential Series Fund that is managed by Marsico, (ii) the AST Marsico Capital Growth Portfolio of AST, (iii) each series of Strategic Partners Mutual Funds, Inc. (formerly, American Skandia Advisor Funds, Inc.) that is managed by Marsico and identified by a Co-Manager and Marsico as being similar to the portion of the Advanced Strategies Portfolio managed by Marsico, and (iv) the portion of the Large Capitalization Growth Portfolio of the Target Portfolio Trust that is managed by Marsico.

(2)           For purposes of calculating the fee payable to William Blair, the assets managed by William Blair in the Advanced Strategies Portfolio will be aggregated with the assets managed by William Blair in the Global Portfolio of PSF, in the SP William Blair International Equity Portfolio, in the SP William

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Blair International Growth Portfolio of PSF, and in any other portfolio subadvised by William Blair on behalf of PI pursuant to substantially the same investment strategy.

(3)           For purposes of calculating the fee payable to LSV, the assets managed by LSV in the Advanced Strategies Portfolio will be aggregated with the assets managed by LSV in the Global Portfolio of PSF, in the SP LSV International Value Portfolio of PSF, in the AST LSV International Value Portfolio of AST, and in any other portfolio subadvised by LSV on behalf of PI.

Portfolio Managers:    The following tables set forth certain additional information with respect to the portfolio managers for the Advanced Strategies Portfolio and the members of the Investment Committee with respect to the First Trust Target Portfolios, since First Trust makes investment decisions under the direction of an Investment Committee. Unless noted otherwise, all information is provided as of December 31, 2005.

A. Other Accounts Managed by Portfolio Managers or Members of First Trust’s Investment Committee.   The table below identifies, for each portfolio manager, the number of accounts managed and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts whose fees are based on performance is indicated in italics typeface.

First Trust Target Portfolios Investment Committee Members				Registered Investment Companies		Other Pooled Investment Vehicles		Other Accounts
				No. accts. ($ assets)		No. accts. ($ assets)		No. accts. ($ assets)
Robert F. Carey
Roger Testin
Jon Erickson
David McGarel
Dan Lindquist
Walter Stubbings

 

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Portfolio Managers for Advanced Strategies Portfolio				Registered Investment Companies					Other Pooled Investment Vehicles				Other Accounts
				No. accts. ($ assets)					No. accts. ($ assets)				No. accts. ($ assets)
William Blair					7					15				1,434
William Greig (W. George Greig in Bio)					$	6,838,700,000				3,768,700,000				6,186,600,000
LSV
Josef Lakonishok
LSV
Robert Vishny
LSV
Menno Vermeulen
Marsico					39					12				203
Thomas F. Marsico					(29,433,196,000		)			(1,555,589,000	)			(23,951,935,000	)
T. Rowe Price					13					1				15
Brian C. Rogers					(29,246,700,000		)			(324,400,000	)			(1,196,000,000	)
T. Rowe Price					3					0				6
Stephen W. Boesel					(11,019,200,000		)			(0	)			(98,300,000	)
T. Rowe Price					5					3				14
John D. Linehan					(4,641,200,000		)			(466,900,000	)			(1,196,000,000	)
PIMCO					19					16				42
John B. Brynjolfsson					(36,939,340,000		)			(2,054,220,000	)			(9,459,030,000	)
PIMCO					9					41				87
Sudi Mariappa					(8,202,320,000		)			(4,289,100,000	)			(11,205,470,000	)
PIMCO					9					14				105
Chris P. Dialynas					(2,910,180,000		)			(6,723,190,000	)			(43,030,470,000	)

 

B. Portfolio Manager Compensation / Material Conflicts of Interest.    The table below identifies the structure of, and method(s) used to determine, portfolio manager compensation. The table below also identifies any material conflicts of interest that may arise between a portfolio manager’s management of a Portfolio’s investments and investments in other accounts.

Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
First Trust Target Portfolios				First Trust Compensation The compensation structure for each member of the Investment Committee is based on a fixed salary as well as a discretionary bonus determined by the management of the Sub-Advisor. Salaries are determined by management and are based on an individual’s position and overall value to the firm. Bonuses are also determined by management and are based on an individual’s overall contribution to the success of the firm and the profitability of the firm. Salaries and bonuses for members of the Investment Committee are not based on criteria such as a Portfolio’s performance or the value of assets included in the Portfolio. In addition, Mr. Carey, Mr. Erickson, and Mr. McGarel have an indirect ownership stake in the firm and will therefore receive their allocable share of ownership-related distributions.

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Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
First Trust Target Portfolios (cont’d)				First Trust Conflicts of Interest None of the accounts managed by the Investment Committee pay an advisory fee that is based on the performance of the account. In addition, the Sub-Advisor believes that there are no material conflicts of interest that may arise in connection with the Investment Committee’s management of the Portfolios’ investments and the investments of the other accounts managed by the Investment Committee. However, because the investment strategies of the Portfolios and other accounts managed by the Investment Committee are based on fairly mechanical processes, the Investment Committee may recommend that certain clients sell and other clients buy a given security at the same time. In addition, because the investment strategies of the Portfolios and other accounts managed by the Investment Committee result in the clients investing in readily available securities, the Sub-Advisor believes that there should not be material conflicts in the allocation of investment opportunities between the Portfolios and other accounts managed by the Investment Committee. None of the members of the Investment Committee own interests in the Portfolios.
AST Advanced Strategies				William Blair Compensation The compensation of William Blair portfolio managers is based on the firm’s mission: “to achieve success for its clients.” The Fund’s portfolio manager is a principal of William Blair, and as of December 31, 2004 his compensation consists of a base salary, a share of the firm’s profits and, in some instances, a discretionary bonus. The portfolio manager’s compensation is determined by the head of William Blair’s Investment Management Department, subject to the approval of the firm’s Executive Committee. The base salary is fixed and the portfolio manager’s ownership stake can vary over time based upon the portfolio manager’s sustained contribution to the firm’s revenue, profitability, long-term investment performance, intellectual capital and brand reputation. In addition, the discretionary bonus (if any) is based, in part, on the long-term investment performance, profitability and assets under management of all accounts managed by the portfolio manager, including the Fund.
				Conflicts of Interest Since the portfolio manager manages other accounts in addition to the Fund, conflicts of interest may arise in connection with the portfolio manager’s management of the Fund’s investments on the one hand and the investments of such other accounts on the other hand. However, William Blair has adopted policies and procedures designed to address such conflicts, including, among others, policies and procedures relating to allocation of investment opportunities, soft dollars and aggregation of trades.
AST Advanced Strategies				LSV Compensation Messrs. Lakonishok, Vishny, Vermeulen, and Mansharamani each receive a base salary and bonus which is a function of overall firm profitability. In addition, each portfolio manager is a partner and receives a portion of the firm’s net income.
				Potential Conflicts There are no material conflicts of interest.

 

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Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
AST Advanced Strategies				Marsico Portfolio Manager Compensation
				Marsico portfolio managers are generally subject to the compensation structure applicable to all Marsico employees. As such, Mr. Marsico’s compensation consists of a base salary (reevaluated at least annually), and periodic cash bonuses. Bonuses are typically based on two primary factors: (1) Marsico’s overall profitability for the period, and (2) individual achievement and contribution.
				Portfolio manager compensation takes into account, among other factors, the overall performance of all accounts for which the manager provides investment advisory services. Portfolio managers do not receive special consideration based on the performance of particular accounts. Exceptional individual efforts are rewarded through greater participation in the bonus pool. Portfolio manager compensation comes solely from Marsico.
				Although Marsico may compare account performance with relevant benchmark indices, portfolio manager compensation is not directly tied to achieving any pre-determined or specified level of performance. In order to encourage a long-term time horizon for managing portfolios, Marsico seeks to evaluate the portfolio manager’s individual performance over periods longer than the immediate compensation period. In addition, portfolio managers are compensated based on other criteria, including effectiveness of leadership within Marsico’s Investment Team, contributions to Marsico’s overall investment performance, discrete securities analysis, and other factors.
				In addition to his salary and bonus, Mr. Marsico may participate in other Marsico benefits to the same extent and on the same basis as other Marsico employees.
				Material Conflicts Portfolio managers at Marsico typically manage multiple accounts. These accounts may include, among others, mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, colleges and universities, foundations, and accounts managed on behalf of individuals), and commingled trust accounts. Portfolio managers make investment decisions for each portfolio, including the Advanced Strategies Portfolio, based on the investment objectives, policies, practices and other relevant investment considerations that the managers believe are applicable to that portfolio. Consequently, portfolio managers may purchase (or sell) securities for one portfolio and not another portfolio, or may take similar actions for different portfolios at different times. Therefore, the mix of securities purchased in one portfolio may perform better than the mix of securities purchased for another portfolio. Similarly, the sale of securities from one portfolio may cause that portfolio to perform better than others if the value of those securities decline.

 

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Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
				Potential conflicts of interest may also arise when allocating and/or aggregating trades. Marsico often aggregates into a single trade order several individual contemporaneous client trade orders in a single security. Under Marsico’s trade management policy and procedures, when trades are aggregated on behalf of more than one account, such transactions will be allocated to all participating client accounts in a fair and equitable manner. With respect to IPOs and other syndicated or limited offerings, it is Marsico’s policy to seek to assure that over the long term, accounts with the same or similar investment objectives will receive an equitable opportunity to participate meaningfully and will not be unfairly disadvantaged. To deal with such situations, Marsico has adopted policies and procedures for allocating such transactions across multiple accounts. Marsico’s policies also seek to ensure that portfolio managers do not systematically allocate other types of trades in a manner that would be more beneficial to one account than another. Marsico’s compliance department monitors transactions made on behalf of multiple clients to seek to assure adherence to its policies.
				As discussed above, Marsico has adopted and implemented policies and procedures that seek to minimize potential conflicts of interest that may arise as a result of a portfolio manager advising multiple accounts. In addition, Marsico monitors a variety of areas, including compliance with primary Fund guidelines, the allocation of securities, and compliance with its Code of Ethics.
AST Advanced Strategies				T. Rowe Price Portfolio Manager Compensation Structure Portfolio manager compensation consists primarily of a base salary, a cash bonus, and an equity incentive that usually comes in the form of a stock option grant. Occasionally, portfolio managers will also have the opportunity to participate in venture capital partnerships. Compensation is variable and is determined based on the following factors:
				Investment performance over one-, three-, five-, and 10 year periods is the most important input. We evaluate performance in absolute, relative, and risk-adjusted terms. Relative performance and risk-adjusted performance are determined with reference to a broad based index (e.g., S&P 500) and an applicable Lipper index (e.g., Large-Cap Growth), though other benchmarks may be used as well. Investment results are also compared to comparably managed funds of competitive investment management firms. Performance is primarily measured on a pre-tax basis, though tax-efficiency is considered and is especially important for tax efficient funds. It is important to note that compensation is viewed with a long term time horizon. The more consistent a manager’s performance over time, the higher the compensation opportunity. The increase or decrease in a fund’s assets due to the purchase or sale of fund shares is not considered a material factor.
				Contribution to our overall investment process is an important consideration as well. Sharing ideas with other portfolio managers, working effectively with and mentoring our younger analysts, and being good corporate citizens are important components of our long term success and are highly valued.

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Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
				All employees of T. Rowe Price, including portfolio managers, are eligible to participate in a 401(k) plan sponsored by T. Rowe Price Group. In addition, all employees are eligible to purchase T. Rowe Price common stock through an employee stock purchase plan that features a limited corporate matching contribution. Eligibility for and participation in these plans is on the same basis as for all employees. Finally, all vice presidents of T. Rowe Price Group, including all portfolio managers, receive supplemental medical/hospital reimbursement benefits.
				This compensation structure is used for all portfolios managed by the portfolio manager.
				Conflicts of Interest We are not aware of any material conflicts of interest that may arise in connection with the Portfolio Manager’s management of the Fund’s investments and the investments of the other account(s) included in response to this question.
				Portfolio managers at T. Rowe Price typically manage multiple accounts. These accounts may include, among others, mutual funds, separate accounts (assets managed on behalf of institutions such as pension funds, colleges and universities, foundations), and commingled trust accounts. Portfolio managers make investment decisions for each portfolio based on the investment objectives, policies, practices and other relevant investment considerations that the managers believe are applicable to that portfolio. Consequently, portfolio managers may purchase (or sell) securities for one portfolio and not another portfolio. T. Rowe Price has adopted brokerage and trade allocation policies and procedures that it believes are reasonably designed to address any potential conflicts associated with managing multiple accounts for multiple clients. Also, as disclosed under the “Portfolio Manager Compensation” above, our portfolio managers’ compensation is determined in the same manner with respect to all portfolios managed by the portfolio manager.
				T. Rowe Price has developed written trade allocation guidelines for its Trading Desks. Generally, when the amount of securities available in a public offering or the secondary markets is insufficient to satisfy the volume or price requirements for the participating client portfolios, the guidelines require a pro rata allocation based upon the relative sizes of the participating client portfolio or the relative sizes of the participating client orders depending upon the market involved. In allocating trades made on a combined basis, the trading desks seek to achieve the same net unit price of the securities for each participating client. Because a pro rata allocation may not always adequately accommodate all facts and circumstances, the guidelines provide for exceptions to allocate trades on an adjusted basis. For example, adjustments may be made: (i) to recognize the efforts of a portfolio manager in negotiating a transaction or a private placement; (ii) to eliminate de minimus positions; (iii) to give priority to accounts with specialized investment policies and objectives; and (iv) to reallocate in light of a participating portfolio’s characteristics (e.g., available cash, industry or issuer concentration, duration, credit exposure). Also, with respect to private placement transactions, conditions imposed by the issuer may limit availability of allocations to client accounts.

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Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
Advanced Strategies				PIMCO Portfolio Manager Compensation PIMCO has adopted a “Total Compensation Plan” for its professional level employees, including its portfolio managers, that is designed to pay competitive compensation and reward performance, integrity and teamwork consistent with the firm’s mission statement. The Total Compensation Plan includes a significant incentive component that rewards high performance standards, work ethic and consistent individual and team contributions to the firm. The compensation of portfolio managers consists of a base salary, a bonus, and may include a retention bonus. Portfolio managers who are Managing Directors of PIMCO also receive compensation from PIMCO’s profits. Certain employees of PIMCO, including portfolio managers, may elect to defer compensation through PIMCO’s deferred compensation plan. PIMCO also offers its employees a non-contributory defined contribution plan through which PIMCO makes a contribution based on the employee’s compensation. PIMCO’s contribution rate increases at a specified compensation level, which is a level that would include portfolio managers.
				Salary and Bonus .   Base salaries are determined by considering an individual portfolio manager’s experience and expertise and may be reviewed for adjustment annually. Portfolio managers are entitled to receive bonuses, which may be significantly more than their base salary, upon attaining certain performance objectives based on predetermined measures of group or department success. These goals are specific to individual portfolio managers and are mutually agreed upon annually by each portfolio manager and his or her manager. Achievement of these goals is an important, but not exclusive, element of the bonus decision process.
				In addition, the following non-exclusive list of qualitative criteria (collectively, the “Bonus Factors”) may be considered when determining the bonus for portfolio managers:
				·   3-year, 2-year and 1-year dollar-weighted and account-weighted investment performance as judged against the applicable benchmarks for each account managed by a portfolio manager (including the Funds) and relative to applicable industry peer groups;
				·   Appropriate risk positioning that is consistent with PIMCO’s investment philosophy and the Investment Committee/CIO approach to the generation of alpha;
				·   Amount and nature of assets managed by the portfolio manager;
				·   Consistency of investment performance across portfolios of similar mandate and guidelines (reward low dispersion);
				·   Generation and contribution of investment ideas in the context of PIMCO’s secular and cyclical forums, portfolio strategy meetings, Investment Committee meetings, and on a day-to-day basis;
				·   Absence of defaults and price defaults for issues in the portfolios managed by the portfolio manager;
				·   Contributions to asset retention, gathering and client satisfaction;
				·   Contributions to mentoring, coaching and/or supervising; and
				·   Personal growth and skills added.

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Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
				A portfolio manager’s compensation is not based directly on the performance of any portfolio or any other account managed by that portfolio manager. Final award amounts are determined by the PIMCO Compensation Committee.
				Retention Bonuses.    Certain portfolio managers may receive a discretionary, fixed amount retention bonus, based upon the Bonus Factors and continued employment with PIMCO. Each portfolio manager who is a Senior Vice President or Executive Vice President of PIMCO receives a variable amount retention bonus, based upon the Bonus Factors and continued employment with PIMCO.
				Investment professionals, including portfolio managers, are eligible to participate in a Long Term Cash Bonus Plan (“Cash Bonus Plan”), which provides cash awards that appreciate or depreciate based upon the performance of PIMCO’s parent company, Allianz Global Investors of America L.P. (“AGI”), and PIMCO over a three-year period. The aggregate amount available for distribution to participants is based upon AGI’s profit growth and PIMCO’s profit growth. Participation in the Cash Bonus Plan is based upon the Bonus Factors, and the payment of benefits from the Cash Bonus Plan, is contingent upon continued employment at PIMCO.
				Profit Sharing Plan.    Instead of a bonus, portfolio managers who are Managing Directors of PIMCO receive compensation from a non-qualified profit sharing plan consisting of a portion of PIMCO’s net profits. Portfolio managers who are Managing Directors receive an amount determined by the Managing Director Compensation Committee, based upon an individual’s overall contribution to the firm and the Bonus Factors. Under his employment agreement, William Gross receives a fixed percentage of the profit sharing plan.
				Allianz Transaction Related Compensation.    In May 2000, a majority interest in the predecessor holding company of PIMCO was acquired by a subsidiary of Allianz AG (“Allianz”). In connection with the transaction, Mr. Gross received a grant of restricted stock of Allianz, the last of which vested on May 5, 2005.
				From time to time, under the PIMCO Class B Unit Purchase Plan, Managing Directors and certain executive management (including Executive Vice Presidents) of PIMCO may become eligible to purchase Class B Units of PIMCO. Upon their purchase, the Class B Units are immediately exchanged for Class A Units of PIMCO Partners, LLC, a California limited liability company that holds a minority interest in PIMCO and is owned by the Managing Directors and certain executive management of PIMCO. The Class A Units of PIMCO Partners, LLC entitle their holders to distributions of a portion of the profits of PIMCO. The PIMCO Compensation Committee determines which Managing Directors and executive management may purchase Class B Units and the number of Class B Units that each may purchase. The Class B Units are purchased pursuant to full recourse notes issued to the holder. The base compensation of each Class B Unit holder is increased in an amount equal to the principal amortization applicable to the notes given by the Managing Director or member of executive management.

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Portfolio				Compensation Structure and Methods/Material Conflicts of Interest
				Portfolio managers who are Managing Directors also have long-term employment contracts, which guarantee severance payments in the event of involuntary termination of a Managing Director’s employment with PIMCO.
				Conflicts of Interest From time to time, potential conflicts of interest may arise between a portfolio manager’s management of the investments of a Fund, on the one hand, and the management of other accounts, on the other. The other accounts might have similar investment objectives or strategies as the Funds, track the same index a Fund tracks or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Funds. The other accounts might also have different investment objectives or strategies than the Funds.
				Knowledge and Timing of Fund Trades.    A potential conflict of interest may arise as a result of the portfolio manager’s day-to-day management of a Fund. Because of their positions with the Funds, the portfolio managers know the size, timing and possible market impact of a Fund’s trades. It is theoretically possible that the portfolio managers could use this information to the advantage of other accounts they manage and to the possible detriment of a Fund.
				Investment Opportunities.    A potential conflict of interest may arise as result of the portfolio manager’s management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for both a Fund and other accounts managed by the portfolio manager, but may not be available in sufficient quantities for both the Fund and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a Fund and another account. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.
				Under PIMCO’s allocation procedures, investment opportunities are allocated among various investment strategies based on individual account investment guidelines and PIMCO’s investment outlook. PIMCO has also adopted additional procedures to complement the general trade allocation policy that are designed to address potential conflicts of interest due to the side-by-side management of the Funds and certain pooled investment vehicles, including investment opportunity allocation issues.
				Performance Fees.    A portfolio manager may advise certain accounts with respect to which the advisory fee is based entirely or partially on performance. Performance fee arrangements may create a conflict of interest for the portfolio manager in that the portfolio manager may have an incentive to allocate the investment opportunities that he or she believes might be the most profitable to such other accounts instead of allocating them to a Fund. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities between such other accounts and the Funds on a fair and equitable basis over time.

 

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C. Portfolio Manager Securities Ownership.    The table below identifies, for each portfolio manager or First Trust Investment Committee Member, ownership of Trust securities by that individual.

Portfolio				Portfolio Managers/Investment Committee Member				Ownership of Trust Securities
AST First Trust Balanced Target					Robert F. Carey				None
					Roger Testin				None
					Jon Erickson				None
					David McGarel				None
					Dan Lindquist				None
					Walter Stubbings				None
AST First Trust Capital Appreciation Target					Robert F. Carey				None
					Roger Testin				None
					Jon Erickson				None
					David McGarel				None
					Dan Lindquist				None
					Walter Stubbings				None

 

Portfolio				Portfolio Manager(s)		Ownership of Trust Securities
AST Advanced Strategies				William Blair
				W. George Greig			None
AST Advanced Strategies				LSV
				Josef Lakonishok			None
				Robert Vishny			None
				Menno Vermeulen			None
AST Advanced Strategies				Marsico
				Thomas F. Marsico			None
AST Advanced Strategies				T. Rowe Price
				Brian C. Rogers			None
				Stephen W. Boesel			None
				John D. Linehan			None
AST Advanced Strategies				PIMCO
				John B. Brynjolfsson			None
				Sudi Mariappa			None
				Chris P. Dialynas			None

 

The Administrator and Transfer and Shareholder Servicing Agent:    PFPC Inc. (the “Administrator”), 103 Bellevue Parkway, Wilmington, Delaware 19809, a Delaware corporation that is an indirect wholly-owned subsidiary of PNC Financial Corp., serves as the Administrator and Transfer and Shareholder Servicing Agent for the Trust. Pursuant to a Trust Accounting and Administration Agreement between the Trust and the Administrator, dated May 1, 1992 (the “Administration Agreement), the Administrator has agreed to provide certain fund accounting and administrative services to the Trust, including, among other services, accounting relating to the Trust and investment transactions of the Trust; computation of daily net asset values; maintaining the Trust’s books of account; assisting in monitoring, in conjunction with the Investment Manager, compliance with the applicable Portfolios’ investment objectives, policies and restrictions; providing office space and equipment necessary for the proper administration and accounting functions of the Trust; monitoring investment activity and income of the Trust for compliance with applicable tax laws; preparing and filing Trust tax returns; preparing financial information in connection with the preparation of the Trust’s annual and semi-annual reports and making

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requisite filings thereof; preparing schedules of Trust share activity for footnotes to financial statements; furnishing financial information necessary for the completion of certain items to the Trust’s registration statement and necessary to prepare and file Rule 24f-2 notices; providing an administrative interface between the Investment Managers and the Trust’s custodian; creating and maintaining all necessary records in accordance with applicable laws, rules and regulations, including, but not limited to, those records required to be kept pursuant to the Investment Company Act; and performing such other duties related to the administration of the Trust as may be requested by the Board of Trustees of the Trust. The Administrator does not have any responsibility or authority for the management of the assets of the Trust, the determination of its investment policies, or for any matter pertaining to the distribution of securities issued by the Trust.

Under the terms of the Administration Agreement, the Administrator shall not be liable for any error of judgment or mistake of law or for any loss or expense suffered by the Trust, in connection with the matters to which the Administration Agreement relates, except for a loss or expense resulting from willful misfeasance, bad faith, or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under the Agreement. Any person, even though also an officer, director, partner, employee or agent of the Administrator, who may be or become an officer, Trustee, employee or agent of the Trust, shall be deemed when rendering services to the Trust or acting on any business of the Trust (other than services or business in connection with the Administrator’s duties under the Administration Agreement) to be rendering such services to or acting solely for the Trust and not as an officer, director, partner, employee or agent or one under the control or direction of the Administrator even though paid by them.

As compensation for the services and facilities provided by the Administrator under the Administration Agreement, the Trust has agreed to pay to the Administrator the greater of certain percentages of the average daily net assets of each Portfolio or certain specified minimum annual amounts calculated for each Portfolio. The percentages of the average daily net assets are: (a) 0.10% of the first $200 million; (b) 0.06% of the next $200 million; (c) 0.0275% of the next $200 million; (d) 0.02% of the next $400 million; and (e) 0.01% of average daily net assets over $1 billion.

The fees payable to the Administrator for any of the AST First Trust Target Portfolios is not subject to any freeze and each such Portfolio will pay the Administrator the greater of the asset based fee or a phased-in minimum amount equal to $                for the first twelve months of the respective Portfolio’s operations. [These fee arrangements will remain in effect until such time as the aggregate fee resulting from the application of revised fee schedules based on the combined average daily net assets of each Portfolio would result in a lower fee, at which point the revised fee schedules will take effect.]

Reimbursable “out-of-pocket” expenses of the Administrator include, but are not limited to, postage and mailing, forms, envelopes, checks, toll-free lines (if requested by the Trust), telephone, hardware and telephone lines for remote terminals (if required by the Trust), wire fees, certificate issuance fees, microfiche and microfilm, telex, federal express, outside independent pricing service charges, record retention/storage and proxy solicitation, mailing and tabulation expenses (if required by the Trust). Because the Asset Allocation Portfolios had not commenced operations as of the date of this SAI, no information concerning the administrative fees paid by the Asset Allocation Portfolios is included herein.

The Administration Agreement provides that it will continue in effect from year to year. The Administration Agreement is terminable, without penalty, by the Board of Trustees, by vote of a majority (as defined in the Investment Company Act) of the outstanding voting securities, or by the Administrator, on not less than sixty days’ notice. The Administration Agreement shall automatically terminate upon its assignment by the Administrator without the prior written consent of the Trust, provided, however, that no such assignment shall release Administrator from its obligations under the Agreement.

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