UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-22652
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First Trust Variable Insurance Trust
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2013
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2013
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TABLE OF CONTENTS
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2013
Shareholder Letter........................................................... 1
Market Overview.............................................................. 2
Performance Summary and Portfolio Components................................. 4
Understanding Your Fund Expenses............................................. 8
Portfolio of Investments..................................................... 9
Statement of Assets and Liabilities.......................................... 20
Statement of Operations...................................................... 21
Statements of Changes in Net Assets.......................................... 22
Financial Highlights......................................................... 23
Notes to Financial Statements................................................ 24
Report of Independent Registered Public Accounting Firm ..................... 31
Additional Information....................................................... 32
Board of Trustees and Officers .............................................. 34
Privacy Policy .............................................................. 36
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of the First Trust Variable Insurance Trust (the "Trust") to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the
information included in this report, you are cautioned not to place undue
reliance on these forward-looking statements, which reflect the judgment of the
Advisor and its representatives only as of the date hereof. We undertake no
obligation to publicly revise or update these forward-looking statements to
reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that the First Trust/Dow Jones Dividend & Income
Allocation Portfolio (the "Fund"), the sole series of the Trust, will achieve
its investment objective. The Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of Fund shares may therefore be less than what you paid for
them. Accordingly, you can lose money by investing in the Fund. See "Risk
Considerations" in the Additional Information section of this report for a
discussion of certain other risks of investing in the Fund.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns and net asset value will fluctuate and Fund shares, when sold, may be
worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the Fund and presents data and analysis that provide
insight into the Fund's performance and investment approach.
By reading the portfolio commentary by the portfolio management team of the
Fund, you may obtain an understanding of how the market environment affected the
Fund's performance. The statistical information that follows may help you
understand the Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
First Trust are just that: informed opinions. They should not be considered to
be promises or advice. The opinions, like the statistics, cover the period
through the date on the cover of this report. The risks of investing in the Fund
are spelled out in the prospectus, the statement of additional information, this
report and other Fund regulatory filings.
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SHAREHOLDER LETTER
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2013
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Variable Insurance Trust (the "Trust").
As a shareholder, twice a year you receive a detailed report about your
investment, including a market overview and a performance analysis.
Additionally, First Trust Advisors L.P. ("First Trust") compiles the Trust's
financial statements for you to review. These reports are intended to keep you
up-to-date on your investment, and I encourage you to read this document and
discuss it with your financial advisor.
As you are probably aware, the twelve months covered by this report saw both
challenging economic and political issues in the U.S. However, the period was
still positive for the markets. In fact, the S&P 500 Index, as measured on a
total return basis, rose 32.39% during the twelve months ended December 31,
2013. Of course, past performance can never be an indicator of future
performance, but First Trust believes that staying invested in quality products
through up and down markets and having a long-term horizon can help investors as
they work toward their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your financial advisor can tell you about the other investments First Trust
offers that might fit your financial goals. We encourage you to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track and help you choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 1
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MARKET OVERVIEW
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2013
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has over 23 years of experience as an
Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial
Analyst ("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC and WBBM Radio and has been quoted
by several publications, including The Wall Street Journal, The Wall Street
Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
Various surveys of leading economists have shown that expectations for U.S. GDP
growth in 2014 target a growth rate of around 2.8%, up from 2.1% over the past
four quarters through Q3'13. As of the close of 2013, the U.S. economic recovery
turned 54 months old, or 4.5 years. The U.S. economy is the largest worldwide,
with China and Japan a distant second and third. The U.S. economy, as measured
by real GDP, stood at an annualized $15.84 trillion in Q3'13, according to the
Bureau of Economic Analysis. The U.S. economy is still the most important
contributor to the global growth story, as we witnessed in 2008 during the
financial crisis. The recession that ensued clearly influenced economic activity
worldwide. It negatively impacted Europe and was particularly tough on emerging
market economies, which had been thriving prior to the subprime mortgage
meltdown. The U.S. was one of the bright spots worldwide in 2013, and is poised
to improve in 2014, in our opinion.
At the close of the bull market that ran from October 9, 2002 through October 9,
2007, the U.S. stock market represented 31.07% of total world market
capitalization, according to Bespoke Investment Group. It stood at 32.21% on
December 31, 2012. U.S. equities performed so well, on a relative basis, in 2013
that U.S. world market capitalization closed Q4 at approximately 36.00%.
Investors poured a combined $72.5 billion (net) into U.S. Equity and Sector
funds in 2013, compared to net outflows totaling $106.1 billion in 2012,
according to Morningstar.
EQUITIES
For the second year in a row, all of the major U.S. stock indices posted
double-digit returns in 2013. The Dow Jones U.S. Total Market Index posted a
total return of 33.47%, according to Bloomberg. Net cash inflows into the U.S.
Equity Income-Mixed Fund category, which includes open-end funds, closed-end
funds and ETFs, totaled $11.2 billion in 2013, up from $9.1 billion in 2012,
according to Strategic Insight.
The S&P Dow Jones Indices, which track approximately 10,000 U.S. traded stocks,
announced that total stock dividend distributions (excludes special and extra
one-time dividend payments) increased by a net $12.7 billion (year-over-year) in
Q4'13, up 51.2% from the $8.4 billion increase in Q4'12. Dividends increased
$56.7 billion in 2013, up more than 10% (year-over-year). In Q4'13, 885
companies increased their dividend payouts, down 30% from the tax-incentivized
(tax rates on top marginal tax bracket were set to rise beginning in 2013) 1,266
increases in Q4'12, but up 36.4% from the 649 increases in Q4'11. The number of
companies decreasing their dividend payouts fell from 154 in Q4'12 to 51 in
Q4'13. In 2013, there were 2,895 dividend increases, up from 2,887 in 2012, and
299 decreases/suspensions, up from 275. The dividend payout rate, which has
historically averaged 52%, stood at 36% in Q4'13.
BONDS
The 127 basis point rise in the yield on the 10-year Treasury note, which stood
at 3.03% on December 31, 2013, negatively impacted the returns on
investment-grade debt in 2013. The total return posted by the Barclays
Intermediate Corporate Index was 0.08%. The index began 2013 yielding 2.04%.
Despite the rise in interest rates and dip in performance, companies carrying
investment-grade ratings issued a record $1.11 trillion of debt in 2013,
according to The Wall Street Journal.
Page 2
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MARKET OVERVIEW (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2013
Demand remained strong, in part, because the economy is strengthening and
corporate debt is more attractive than Treasuries in the current climate, in our
opinion. The Barclays U.S. Treasury: Intermediate Index posted a total return of
-1.34% in 2013.
Fund cash flows, including open-end funds, closed-end funds and ETFs, were
vastly different based on the maturity ranges of investment-grade corporate bond
categories. Short maturity corporate bond funds reported net cash inflows
totaling $46.4 billion in 2013, according to Strategic Insight. Investors were
able to shorten their durations with the knowledge that the Fed was committed to
keeping short-term lending rates artificially low. Intermediate maturity
corporate bond funds, on the other hand, reported net outflows totaling $52.7
billion. Intermediate corporate bond funds shared the same part of the yield
curve as the 10-year Treasury note.
Page 3
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2013 (UNAUDITED)
For the year ended December 31, 2013, the First Trust/Dow Jones Dividend &
Income Allocation Portfolio (the "Fund") returned 12.75% versus 14.90% for the
combined benchmark: 50% Russell 3000(R) Index and 50% Barclays U.S. Corporate
Investment-Grade Index.
EQUITY INCOME COMMENTARY
In 2013, equity markets continued to soar on the strength of corporate profits
and improved economic data. Equity markets ended 2013 at all-time highs despite
Washington headwinds throughout the year that started with a payroll tax hike
and the effects of sequestration and ended with a near military strike in Syria,
a government shutdown and continued talk of tapering of the Federal Reserve's
quantitative easing program. For the 1st quarter, the S&P 500(R) Index was up
10.61%, while an uncertain economic outlook in China (5.3% return, as measured
by the Shanghai Composite Index) and continued Eurozone woes (5.9% return, as
measured by the Stoxx Europe 600 Index) limited many international equity market
returns. After a strong rally to start the 2nd quarter, U.S. equity markets
experienced a 5% correction after Federal Reserve Chairman Ben Bernanke said
that the central bank might "moderate" its pace of bond purchases later in the
year if the economy continued to improve. The 3rd quarter was rife with strong
corporate earnings and continued strength in employment/manufacturing data, all
of which pushed equity markets higher and pointed to a stronger U.S. economy.
The Federal Government started the 4th quarter with a shutdown that sent
equities lower until a debt deal was reached in mid-October. In November and
December, equity markets continued to rally on strong job reports and corporate
profits, a slower than expected taper plan from the Fed and the passing of the
first U.S. Federal Budget in a split legislature in over 20 years. All told, the
S&P 500(R) Index was up 32.39% for 2013, its strongest year since 1997.
The equity portion of the Fund has a quarterly rebalance in January, April, July
and October. The Fund's objective is to seek to provide total return by
allocating among dividend-paying stocks and investment-grade bonds. To
accomplish this objective for the equity portion of the portfolio, the selection
process is focused on dividend strength, capital strength and price stability.
This process resulted in over-weight positions in Financials, Consumer Staples,
Consumer Discretionary and Materials stocks, while Energy, Information
Technology and Telecommunication Services were underweight.
Of the ten Global Industry Classification Standard sectors, six had positive
total attribution effect (allocation effect combined with selection effect) and
four had negative total attribution effect. Three sectors had positive selection
effect: Information Technology, Materials and Utilities. Six sectors had
negative selection effect: Financials, Healthcare, Consumer Discretionary,
Industrials, Energy and Consumer Staples. The Fund had no allocation to the
Telecommunication Services sector, so that sector had no selection effect.
Overall, the equity portfolio benefited from a positive allocation effect;
however, it underperformed because of a negative selection effect.
The Information Technology sector was the largest overall contributor to
relative performance. The Fund was underweight this below-average performing
sector in the Russell 3000(R) Index, which led to a positive allocation effect.
The Fund's relative performance for the sector was helped by the selection of
CA, Inc., Jack Henry & Associates, Inc. and Broadridge Financial Solutions, Inc.
The Financials sector was the largest detractor from relative performance. The
Fund was overweight the fourth best-performing sector in the Russell 3000(R)
Index, which led to a positive allocation effect. However, a negative selection
effect led to negative overall relative performance for the sector. The Fund's
relative performance for the sector was most hindered by the selection of
American Capital Agency Corp., Annaly Capital Management, Inc. and CYS
Investments, Inc.
Relative to the benchmark, the Fund also lagged in the Healthcare and Consumer
Discretionary sectors, the two best performing sectors in the Russell 3000(R)
Index. In the Healthcare sector, the Fund was under-weight Johnson & Johnson and
Bristol-Myers Squibb Co. Both securities outperformed the benchmark and
detracted from the Fund's relative performance. In the Consumer Discretionary
sector, the Fund was underweight Home Depot (The), Inc., which outperformed the
benchmark and was overweight Garmin Ltd., PetSmart, Inc. and Family Dollar
Stores, Inc., which lagged the benchmark performance.
Paage 4
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2013 (UNAUDITED)
The Fund's top five overall equity contributors to performance were Cracker
Barrel Old Country Store, Inc., Northrop Grumman Corp., Wabtec Corp., V.F. Corp.
and AmerisourceBergen Corp. The top detractors from overall equity performance
were American Capital Agency Corp., Annaly Capital Management, Inc., CYS
Investments, Inc., Newmont Mining Corp. and Hatteras Financial Corp.
As we look forward to 2014, equity valuations remain attractive. We believe
corporate earnings and economic data announcements should drive headlines and
equity returns in the near term. However, taking a long-term view of equities
reveals attractive valuations and opportunities for patient investors. The Fund
will remain consistent in its pursuits of capital appreciation, below market
risk and above market dividend yield.
BOND PORTFOLIO COMMENTARY
Steady economic growth, strong investor demand, and support from a rallying
equity market propelled investment-grade corporate bond spreads to a solid 2013.
Following a Fed-induced, mid-year "risk flare", spreads quickly recovered, and
then continued rallying into year-end. This resulted in the option-adjusted
spread of the Barclays U.S. Corporate Investment-Grade Index closing 2013 at its
tightest for the year. Unfortunately, with improved growth came higher Treasury
rates, and while strong credit spread performance tempered the rate impact, the
total return of the corporate index nonetheless ended the year in negative
territory. As was the case in 2012, the Financials sector was the
outperformer--tightening versus, and ultimately through, the Industrials sector
over the course of the year.
The total return for the bond portion of the Fund was -2.56% (gross of fees)
compared to -1.53% for the Barclays U.S. Corporate Investment-Grade Index. The
portfolio's short duration posture, achieved primarily through the use of
interest rate futures, was the factor giving the greatest lift to relative
performance. Underweighting Industrials in favor of Financials was another
positive. On the negative side, the ETF allocation in iShares iBoxx Investment
Grade Corporate Bond ETF early in the year lowered relative performance, as did
the Fund's Treasury holdings. Selection effects subtracted from relative return
as the spread tightening experienced by bonds in the portfolio failed to keep
pace with the spread tightening of the index.
Key contributors to performance were overweighting Morgan Stanley and Comcast
Corp., while avoiding Time Warner Cable and several credits in the metals/mining
industry. Morgan Stanley benefited from success in shifting its focus toward its
wealth management business, while Comcast Corp. received a boost from its
addition of NBC Universal, as well as its continued strong operational
performance. Time Warner Cable came under pressure as concerns grew regarding a
bid for the company from lower-rated Charter Communications, while metals and
mining credits suffered from lower gold and base metals prices.
Key detractors from relative performance were overweight positions in Newmont
Mining Corp., AT&T, Inc. and Oracle Corp. Newmont Mining Corp. suffered from
lower gold prices, AT&T, Inc. came under pressure amidst headlines of possible
M&A transactions the company is considering, and Oracle Corp. was an example of
an overly-defensive name that performed poorly against the backdrop of a market
reaching for higher beta credits.
Looking forward into 2014, we expect rising Treasury yields to continue to be
the driver of total return in the bond portfolio. With Treasury rates
higher--and portions of the Treasury curve having steepened--we believe that
yield, curve roll down, and our expectation for modest additional spread
tightening will move the corporate bond market toward a positive total return.
However, the risk of significantly higher Treasury yields could once again prove
to be the swing factor. As such, our expectation is for corporate bond market
returns in the range of flat to modestly positive for 2014.
Page 5
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2013 (UNAUDITED)
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RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2013
SINCE INCEPTION
1 YEAR ANNUAL AVERAGE ANNUAL
INCEPTION DATE TOTAL RETURN TOTAL RETURN
First Trust/Dow Jones Dividend & Income Allocation Portfolio 5/1/12 12.75% 10.25%
Blended Benchmark (a) 14.90% 11.87%
Barclays U.S. Corporate Investment-Grade Index (b) -1.53% 2.81%
Russell 3000(R) Index (c) 33.55% 21.28%
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(a) The Blended Benchmark return is a 50/50 split between the Russell 3000(R)
Index and the Barclays U.S. Corporate Investment-Grade Index returns.
(b) Barclays U.S. Corporate Investment-Grade Index measures the performance of
investment grade U.S. corporate bonds. This index includes all publicly
issued, dollar-denominated corporate bonds with a minimum of $250 million
par outstanding that are investment grade-rated (Baa3/BBB- or higher). The
index excludes bonds having less than one year to final maturity as well
as floating rate bonds, non-registered private placements, structured
notes, hybrids, and convertible securities. (Bloomberg).
(c) The Russell 3000(R) Index is composed of 3,000 large U.S. companies, as
determined by market capitalization. This index represents approximately
98% of the investable U.S. equity market. (Bloomberg). (The index reflects
no deduction for fees, expenses or taxes).
The return for the Fund does not reflect the deduction of expenses associated
with variable products, such as mortality and expense risk charges, separate
account charges, and sales charges or the effect of taxes. These expenses would
reduce the overall returns shown.
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
May 1, 2012 - December 31, 2013
First Trust/Dow Jones Dividend & Blended Barclays U.S. Corporate Russell 3000(R)
Income Allocation Portfolio Benchmark Investment-Grade Index Index
5/1/2012 $10,000 $10,000 $10,000 $10,000
6/30/2012 10,020 9,925 10,035 10,392
12/31/2012 10,459 10,417 10,531 11,069
6/30/2013 10,904 11,027 10,172 12,625
12/31/13 11,770 12,057 10,472 13,800
Page 6
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2013 (UNAUDITED)
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% OF TOTAL
TOP EQUITY HOLDINGS INVESTMENTS
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CVS Caremark Corp. 0.4%
Heartland Payment Systems, Inc. 0.4
VF Corp. 0.4
Broadridge Financial Solutions, Inc. 0.4
Minerals Technologies, Inc. 0.4
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Total 2.0%
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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Common Stocks:
Financials 12.9%
Information Technology 9.4
Consumer Discretionary 7.7
Industrials 6.9
Consumer Staples 6.7
Health Care 5.5
Materials 3.7
Utilities 1.4
Energy 1.1
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Total Common Stocks 55.3
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Corporate Bonds & Notes:
Financials 19.4
Consumer Staples 3.9
Information Technology 3.4
Energy 3.3
Utilities 2.9
Consumer Discretionary 2.6
Telecommunication Services 2.3
Health Care 2.1
Materials 1.8
Industrials 1.7
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Total Corporate Bonds & Notes 43.4
U.S. Government Bonds & Notes 1.3
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Total 100.0%
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% OF TOTAL
TOP FIXED-INCOME HOLDINGS BY ISSUER INVESTMENTS
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Bank of America Corp. 1.9%
Citigroup, Inc. 1.9
Goldman Sachs Group (The), Inc. 1.5
American International Group, Inc. 1.4
Verizon Communications, Inc. 1.4
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Total 8.1%
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% OF TOTAL
CREDIT QUALITY(1) INVESTMENTS
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AAA 3.3%
AA+ 2.9
AA 4.9
AA- 9.8
A+ 12.7
A 26.3
A- 19.8
BBB+ 5.7
BBB 11.1
BBB- 3.5
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Total 100.0%
======
(1) The credit quality information presented reflects the ratings assigned by
one or more nationally recognized statistical rating organizations
(NRSROs), including Standard & Poor's Ratings Group, a division of the
McGraw Hill Companies, Inc., Moody's Investors Service, Inc., Fitch
Ratings or a comparably rated NRSRO. For situations in which a security is
rated by more than one NRSRO and ratings are not equivalent, the highest
ratings are used. Sub-investment grade ratings are those rated BB+/Ba1 or
lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The
credit ratings shown relate to the creditworthiness of the issuers of the
underlying securities in the Fund, and not to the Fund or its shares.
Credit ratings are subject to change.
Page 7
FIRST TRUST VARIABLE INSURANCE TRUST
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2013 (UNAUDITED)
As a shareholder of First Trust/Dow Jones Dividend & Income Allocation
Portfolio, you incur two types of costs: (1) transaction costs; and (2) ongoing
costs, including management fees; distribution and/or service (12b-1) fees; and
other Fund expenses. This Example is intended to help you understand your
ongoing costs (in U.S. dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2013.
ACTUAL EXPENSES
The first three columns of the table below provide information about actual
account values and actual expenses. You may use the information in these
columns, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the third column under the heading entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account during the
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The next three columns of the table below provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing cost of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the
hypothetical section of the table is useful in comparing ongoing costs only, and
will not help you determine the relative total costs of owning different funds.
In addition, if these transactional costs were included, your costs would have
been higher.
HYPOTHETICAL
ACTUAL EXPENSES (5% RETURN BEFORE EXPENSES)
------------------------------------------ ------------------------------------------------------
EXPENSES EXPENSES
BEGINNING ENDING PAID DURING BEGINNING ENDING PAID DURING ANNUAL-
ACCOUNT ACCOUNT PERIOD ACCOUNT ACCOUNT PERIOD IZED
VALUE VALUE 7/1/2013- VALUE VALUE 7/1/2013- EXPENSE
7/1/2013 12/31/2013 12/31/2013 (a) 7/1/2013 12/31/2013 12/31/2013 (a) RATIO (b)
-------------- ---------- -------------- -------------- ---------- -------------- ---------
First Trust/Dow Jones Dividend &
Income Allocation Portfolio $ 1,000.00 $ 1,079.40 $ 6.29 $ 1,000.00 $ 1,019.16 $ 6.11 1.20%
(a) Expenses are equal to the annualized expense ratio multiplied by the
average account value over the period (July 1, 2013 through December 31,
2013), multiplied by 184/365 (to reflect the six-month period).
Hypothetical expenses are assumed for the most recent fiscal half-year.
(b) The expense ratio reflects an expense cap.
Page 8
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS - 53.5%
AEROSPACE & DEFENSE - 1.9%
3,721 L-3 Communications Holdings, Inc.............................................. $ 397,626
2,756 Lockheed Martin Corp.......................................................... 409,707
3,691 Northrop Grumman Corp......................................................... 423,025
4,561 Raytheon Co................................................................... 413,683
5,181 Rockwell Collins, Inc......................................................... 382,980
-------------
2,027,021
-------------
AIR FREIGHT & LOGISTICS - 0.3%
5,899 CH Robinson Worldwide, Inc.................................................... 344,148
-------------
BEVERAGES - 1.1%
9,282 Coca-Cola (The) Co............................................................ 383,439
7,844 Dr. Pepper Snapple Group, Inc................................................. 382,160
4,422 PepsiCo, Inc.................................................................. 366,761
-------------
1,132,360
-------------
CAPITAL MARKETS - 1.1%
6,955 Franklin Resources, Inc....................................................... 401,512
11,374 SEI Investments Co............................................................ 395,019
4,888 T. Rowe Price Group, Inc...................................................... 409,468
-------------
1,205,999
-------------
CHEMICALS - 2.2%
4,902 FMC Corp...................................................................... 369,905
4,272 International Flavors & Fragrances, Inc....................................... 367,306
7,121 Minerals Technologies, Inc.................................................... 427,758
2,925 Praxair, Inc.................................................................. 380,338
6,389 Scotts Miracle-Gro (The) Co., Class A......................................... 397,524
4,121 Sigma-Aldrich Corp............................................................ 387,415
-------------
2,330,246
-------------
COMMERCIAL BANKS - 2.2%
6,457 Bank of Hawaii Corp........................................................... 381,867
11,004 East West Bancorp, Inc........................................................ 384,810
19,477 Fifth Third Bancorp........................................................... 409,601
42,563 Huntington Bancshares, Inc.................................................... 410,733
9,611 US Bancorp.................................................................... 388,285
8,508 Wells Fargo & Co.............................................................. 386,263
-------------
2,361,559
-------------
COMMUNICATIONS EQUIPMENT - 0.7%
7,634 Plantronics, Inc.............................................................. 354,599
5,222 QUALCOMM, Inc................................................................. 387,734
-------------
742,333
-------------
CONTAINERS & PACKAGING - 1.1%
5,847 Aptargroup, Inc............................................................... 396,485
7,833 Ball Corp..................................................................... 404,653
See Notes to Financial Statements Page 9
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
CONTAINERS & PACKAGING (CONTINUED)
6,159 Packaging Corp. of America.................................................... $ 389,741
-------------
1,190,879
-------------
DISTRIBUTORS - 0.3%
4,346 Genuine Parts Co.............................................................. 361,544
-------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS - 0.4%
4,543 Amphenol Corp., Class A....................................................... 405,145
-------------
FOOD & STAPLES RETAILING - 1.5%
6,195 CVS Caremark Corp............................................................. 443,376
8,715 Kroger (The) Co............................................................... 344,504
11,046 Sysco Corp.................................................................... 398,761
4,753 Wal-Mart Stores, Inc.......................................................... 374,013
-------------
1,560,654
-------------
FOOD PRODUCTS - 1.7%
7,337 General Mills, Inc............................................................ 366,190
3,801 Hershey (The) Co.............................................................. 369,571
8,347 Hormel Foods Corp............................................................. 377,034
3,347 JM Smucker (The) Co........................................................... 346,816
5,434 McCormick & Co., Inc.......................................................... 374,511
-------------
1,834,122
-------------
GAS UTILITIES - 0.7%
7,981 New Jersey Resources Corp..................................................... 369,041
15,632 Questar Corp.................................................................. 359,380
-------------
728,421
-------------
HEALTH CARE EQUIPMENT & SUPPLIES - 2.2%
5,352 Baxter International, Inc..................................................... 372,232
3,515 Becton, Dickinson & Co........................................................ 388,372
5,769 Covidien PLC.................................................................. 392,869
6,603 Medtronic, Inc................................................................ 378,946
8,184 STERIS Corp................................................................... 393,241
5,201 Stryker Corp.................................................................. 390,803
-------------
2,316,463
-------------
HEALTH CARE PROVIDERS & SERVICES - 2.1%
5,754 AmerisourceBergen Corp........................................................ 404,564
4,917 Chemed Corp................................................................... 376,740
10,164 Owens & Minor, Inc............................................................ 371,596
8,749 Patterson Cos., Inc........................................................... 360,459
5,690 Quest Diagnostics, Inc........................................................ 304,642
4,910 UnitedHealth Group, Inc....................................................... 369,723
-------------
2,187,724
-------------
HOTELS, RESTAURANTS & LEISURE - 1.0%
3,407 Cracker Barrel Old Country Store, Inc......................................... 375,008
3,654 McDonald's Corp............................................................... 354,548
4,925 Yum! Brands, Inc.............................................................. 372,379
-------------
1,101,935
-------------
Page 10 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD DURABLES - 0.3%
7,780 Garmin, Ltd................................................................... $ 359,592
-------------
HOUSEHOLD PRODUCTS - 1.5%
5,854 Church & Dwight Co., Inc...................................................... 388,003
4,302 Clorox (The) Co............................................................... 399,053
3,732 Kimberly-Clark Corp........................................................... 389,845
4,651 Procter & Gamble (The) Co..................................................... 378,638
-------------
1,555,539
-------------
INDUSTRIAL CONGLOMERATES - 0.4%
2,944 3M Co......................................................................... 412,896
-------------
INSURANCE - 6.1%
3,758 ACE, Ltd...................................................................... 389,066
3,537 Allied World Assurance Co. Holdings, AG....................................... 399,009
6,503 American Financial Group, Inc................................................. 375,353
9,013 Amtrust Financial Services, Inc............................................... 294,635
8,117 Axis Capital Holdings, Ltd.................................................... 386,126
3,939 Chubb Corp.................................................................... 380,625
2,418 Everest Re Group, Ltd......................................................... 376,894
14,439 First American Financial Corp................................................. 407,180
8,023 HCC Insurance Holdings, Inc................................................... 370,181
8,073 Marsh & McLennan Cos., Inc.................................................... 390,410
3,840 PartnerRe, Ltd................................................................ 404,851
5,886 Platinum Underwriters Holdings, Ltd........................................... 360,694
8,715 Primerica, Inc................................................................ 373,961
3,883 RenaissanceRe Holdings, Ltd................................................... 377,971
4,860 Torchmark Corp................................................................ 379,809
4,148 Travelers (The) Cos., Inc..................................................... 375,560
9,507 Validus Holdings, Ltd......................................................... 383,037
-------------
6,425,362
-------------
IT SERVICES - 3.8%
4,774 Accenture PLC, Class A........................................................ 392,518
4,858 Automatic Data Processing, Inc................................................ 392,575
11,074 Broadridge Financial Solutions, Inc........................................... 437,644
4,662 DST Systems, Inc.............................................................. 423,030
8,852 Heartland Payment Systems, Inc................................................ 441,184
1,899 International Business Machines Corp.......................................... 356,195
6,806 Jack Henry & Associates, Inc.................................................. 402,983
7,806 MAXIMUS, Inc.................................................................. 343,386
8,651 Paychex, Inc.................................................................. 393,880
1,839 Visa, Inc., Class A........................................................... 409,509
-------------
3,992,904
-------------
LEISURE EQUIPMENT & PRODUCTS - 0.8%
7,458 Hasbro, Inc................................................................... 410,265
8,395 Mattel, Inc................................................................... 399,434
-------------
809,699
-------------
See Notes to Financial Statements Page 11
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
MACHINERY - 2.2%
6,331 CLARCOR, Inc.................................................................. $ 407,400
2,646 Cummins, Inc.................................................................. 373,007
9,220 Donaldson Co., Inc............................................................ 400,701
6,469 Toro (The) Co................................................................. 411,428
2,531 Valmont Industries, Inc....................................................... 377,423
5,592 Wabtec Corp/De................................................................ 415,318
-------------
2,385,277
-------------
MEDIA - 0.8%
4,501 Scripps Networks Interactive, Inc., Class A................................... 388,932
5,451 Walt Disney (The) Co.......................................................... 416,456
-------------
805,388
-------------
MULTI-UTILITIES - 0.7%
13,358 CMS Energy Corp............................................................... 357,594
8,707 Wisconsin Energy Corp......................................................... 359,947
-------------
717,541
-------------
MULTILINE RETAIL - 0.6%
4,882 Family Dollar Stores, Inc..................................................... 317,183
5,495 Target Corp................................................................... 347,669
-------------
664,852
-------------
OIL, GAS & CONSUMABLE FUELS - 1.1%
2,894 Chevron Corp.................................................................. 361,489
5,058 ConocoPhillips................................................................ 357,348
4,086 Exxon Mobil Corp.............................................................. 413,503
-------------
1,132,340
-------------
PAPER & FOREST PRODUCTS - 0.3%
5,808 Schweitzer-Mauduit International, Inc......................................... 298,938
-------------
PHARMACEUTICALS - 1.0%
6,985 Eli Lilly & Co................................................................ 356,235
4,055 Johnson & Johnson............................................................. 371,397
12,239 Pfizer, Inc................................................................... 374,881
-------------
1,102,513
-------------
PROFESSIONAL SERVICES - 0.8%
5,874 Equifax, Inc.................................................................. 405,835
3,287 Towers Watson & Co., Class A.................................................. 419,454
-------------
825,289
-------------
REAL ESTATE INVESTMENT TRUSTS - 2.7%
15,570 American Capital Agency Corp.................................................. 300,345
30,360 Annaly Capital Management, Inc................................................ 302,689
29,870 Capstead Mortgage Corp........................................................ 360,830
18,790 Hatteras Financial Corp....................................................... 307,029
47,191 MFA Mortgage Investments, Inc................................................. 333,168
15,501 PennyMac Mortgage Investment Trust............................................ 355,903
2,190 Public Storage................................................................ 329,639
6,317 Rayonier, Inc................................................................. 265,946
Page 12 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
36,207 Two Harbors Investment Corp................................................... $ 336,001
-------------
2,891,550
-------------
ROAD & RAIL - 0.7%
2,263 Union Pacific Corp............................................................ 380,184
15,070 Werner Enterprises, Inc....................................................... 372,681
-------------
752,865
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.7%
9,461 Altera Corp................................................................... 307,766
7,472 Analog Devices, Inc........................................................... 380,549
15,339 Intel Corp.................................................................... 398,200
5,778 KLA-Tencor Corp............................................................... 372,450
8,865 Linear Technology Corp........................................................ 403,801
11,790 Maxim Integrated Products, Inc................................................ 329,059
8,726 Texas Instruments, Inc........................................................ 383,159
7,504 Xilinx, Inc................................................................... 344,584
-------------
2,919,568
-------------
SOFTWARE - 1.5%
11,849 CA, Inc....................................................................... 398,719
3,222 FactSet Research Systems, Inc................................................. 349,845
10,564 Microsoft Corp................................................................ 395,410
10,600 Oracle Corp................................................................... 405,556
-------------
1,549,530
-------------
SPECIALTY RETAIL - 2.5%
14,136 Finish Line (The), Inc., Class A.............................................. 398,211
4,635 Home Depot (The), Inc......................................................... 381,646
4,611 PetSmart, Inc................................................................. 335,450
4,830 Ross Stores, Inc.............................................................. 361,912
6,235 TJX (The) Cos., Inc........................................................... 397,356
5,234 Tractor Supply Co............................................................. 406,054
6,256 Williams-Sonoma, Inc.......................................................... 364,600
-------------
2,645,229
-------------
TEXTILES, APPAREL & LUXURY GOODS - 1.1%
6,447 Coach, Inc.................................................................... 361,870
2,135 Ralph Lauren Corp............................................................. 376,977
7,064 VF Corp....................................................................... 440,370
-------------
1,179,217
-------------
THRIFTS & MORTGAGE FINANCE - 0.4%
26,614 Northwest Bancshares, Inc..................................................... 393,355
-------------
TOBACCO - 0.7%
10,235 Altria Group, Inc............................................................. 392,922
7,207 Reynolds American, Inc........................................................ 360,278
-------------
753,200
-------------
TRADING COMPANIES & DISTRIBUTORS - 0.3%
1,343 W.W. Grainger, Inc............................................................ 343,029
-------------
TOTAL COMMON STOCKS .......................................................... 56,746,226
(Cost $49,357,293) -------------
See Notes to Financial Statements Page 13
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES - 42.0%
AEROSPACE & DEFENSE - 0.7%
$ 250,000 United Technologies Corp............................ 1.80% 06/01/17 $ 254,063
400,000 United Technologies Corp............................ 3.10% 06/01/22 391,830
100,000 United Technologies Corp............................ 4.50% 06/01/42 97,492
-------------
743,385
-------------
AUTOMOBILES - 0.6%
400,000 Ford Motor Credit Co., LLC ......................... 2.88% 10/01/18 409,891
200,000 Ford Motor Credit Co., LLC ......................... 4.38% 08/06/23 201,463
-------------
611,354
-------------
BEVERAGES - 1.3%
600,000 Anheuser-Busch Inbev Worldwide, Inc................. 2.50% 07/15/22 556,032
200,000 Coca-Cola (The) Co.................................. 3.20% 11/01/23 192,765
400,000 PepsiCo, Inc........................................ 0.70% 02/26/16 398,137
300,000 PepsiCo, Inc........................................ 2.75% 03/01/23 278,222
-------------
1,425,156
-------------
BIOTECHNOLOGY - 0.6%
450,000 Amgen, Inc.......................................... 2.30% 06/15/16 464,239
200,000 Amgen, Inc.......................................... 2.13% 05/15/17 202,695
-------------
666,934
-------------
CAPITAL MARKETS - 3.0%
300,000 Credit Suisse ...................................... 5.40% 01/14/20 333,833
600,000 Goldman Sachs Group (The), Inc...................... 6.15% 04/01/18 688,658
450,000 Goldman Sachs Group (The), Inc...................... 3.63% 01/22/23 436,590
400,000 Goldman Sachs Group (The), Inc...................... 6.25% 02/01/41 462,569
200,000 Morgan Stanley ..................................... 2.13% 04/25/18 198,478
500,000 Morgan Stanley ..................................... 5.50% 07/28/21 559,604
200,000 Morgan Stanley ..................................... 3.75% 02/25/23 194,985
300,000 Morgan Stanley ..................................... 6.38% 07/24/42 352,635
-------------
3,227,352
-------------
CHEMICALS - 0.8%
72,000 Dow Chemical (The) Co............................... 5.70% 05/15/18 82,399
400,000 Dow Chemical (The) Co............................... 8.55% 05/15/19 517,058
200,000 Dow Chemical (The) Co............................... 4.13% 11/15/21 206,930
-------------
806,387
-------------
COMMERCIAL BANKS - 2.1%
600,000 HSBC USA, Inc....................................... 1.63% 01/16/18 592,209
300,000 HSBC USA, Inc....................................... 4.88% 08/24/20 324,231
400,000 Wachovia Bank, N.A. (a) ............................ 0.57% 03/15/16 398,293
250,000 Wells Fargo & Co.................................... 1.50% 07/01/15 253,609
400,000 Wells Fargo & Co.................................... 1.50% 01/16/18 397,803
200,000 Wells Fargo & Co.................................... 5.95% 08/26/36 228,229
-------------
2,194,374
-------------
Page 14 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
COMMUNICATIONS EQUIPMENT - 0.3%
$ 250,000 Cisco Systems, Inc.................................. 3.15% 03/14/17 $ 264,749
-------------
COMPUTERS & PERIPHERALS - 1.0%
300,000 EMC Corp............................................ 1.88% 06/01/18 296,904
300,000 Hewlett-Packard Co.................................. 2.60% 09/15/17 305,081
500,000 Hewlett-Packard Co.................................. 3.75% 12/01/20 499,663
-------------
1,101,648
-------------
CONSUMER FINANCE - 2.6%
400,000 American Express Credit Corp........................ 2.80% 09/19/16 418,226
500,000 American Express Credit Corp........................ 2.13% 07/27/18 501,382
800,000 Capital One Financial Corp.......................... 1.00% 11/06/15 800,015
200,000 Capital One Financial Corp.......................... 4.75% 07/15/21 213,007
800,000 Caterpillar Financial Services Corp................. 1.63% 06/01/17 805,675
-------------
2,738,305
-------------
DIVERSIFIED FINANCIAL SERVICES - 7.4%
500,000 Bank of America Corp................................ 4.50% 04/01/15 523,248
400,000 Bank of America Corp................................ 2.00% 01/11/18 399,674
700,000 Bank of America Corp................................ 5.70% 01/24/22 793,598
200,000 Bank of America Corp................................ 5.88% 02/07/42 229,575
1,150,000 Berkshire Hathaway Finance Corp..................... 1.60% 05/15/17 1,162,041
200,000 Berkshire Hathaway Finance Corp..................... 4.30% 05/15/43 180,837
500,000 Citigroup, Inc...................................... 4.45% 01/10/17 542,284
200,000 Citigroup, Inc...................................... 2.50% 09/26/18 201,233
600,000 Citigroup, Inc...................................... 4.50% 01/14/22 636,901
200,000 Citigroup, Inc...................................... 6.13% 08/25/36 213,902
200,000 Citigroup, Inc...................................... 5.88% 01/30/42 225,591
100,000 Citigroup, Inc...................................... 6.68% 09/13/43 115,464
300,000 General Electric Capital Corp. (a) ................. 0.62% 07/10/15 301,160
250,000 General Electric Capital Corp....................... 2.30% 04/27/17 257,174
200,000 General Electric Capital Corp....................... 5.63% 09/15/17 227,712
450,000 General Electric Capital Corp....................... 6.75% 03/15/32 558,810
300,000 JPMorgan Chase & Co. (a) ........................... 0.90% 10/15/15 301,311
400,000 JPMorgan Chase & Co................................. 1.80% 01/25/18 396,875
200,000 JPMorgan Chase & Co................................. 3.20% 01/25/23 189,973
350,000 JPMorgan Chase & Co................................. 6.40% 05/15/38 419,119
-------------
7,876,482
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.2%
250,000 AT&T, Inc........................................... 0.88% 02/13/15 250,597
500,000 AT&T, Inc........................................... 1.70% 06/01/17 497,346
200,000 AT&T, Inc........................................... 3.88% 08/15/21 202,952
200,000 Verizon Communications, Inc. (a) ................... 1.77% 09/15/16 206,182
200,000 Verizon Communications, Inc......................... 2.50% 09/15/16 206,942
250,000 Verizon Communications, Inc......................... 5.15% 09/15/23 268,939
600,000 Verizon Communications, Inc......................... 6.55% 09/15/43 704,473
-------------
2,337,431
-------------
ELECTRIC UTILITIES - 2.3%
500,000 American Electric Power Co., Inc.................... 1.65% 12/15/17 490,372
300,000 Constellation Energy Group, Inc..................... 4.55% 06/15/15 315,030
See Notes to Financial Statements Page 15
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
$ 300,000 Constellation Energy Group, Inc..................... 5.15% 12/01/20 $ 319,695
200,000 Duke Energy Carolinas, LLC ......................... 6.00% 01/15/38 236,561
450,000 MidAmerican Energy Co............................... 5.30% 03/15/18 510,473
200,000 MidAmerican Energy Co............................... 2.40% 03/15/19 201,647
200,000 MidAmerican Energy Co............................... 4.80% 09/15/43 204,146
200,000 Virginia Electric and Power Co...................... 4.65% 08/15/43 199,994
-------------
2,477,918
-------------
FOOD & STAPLES RETAILING - 1.1%
200,000 Kroger (The) Co..................................... 3.30% 01/15/21 198,991
500,000 Kroger (The) Co..................................... 5.15% 08/01/43 489,577
350,000 Wal-Mart Stores, Inc................................ 5.63% 04/15/41 398,881
100,000 Wal-Mart Stores, Inc................................ 4.75% 10/02/43 100,785
-------------
1,188,234
-------------
FOOD PRODUCTS - 0.5%
200,000 Kraft Foods Group, Inc.............................. 6.13% 08/23/18 233,364
300,000 Kraft Foods Group, Inc.............................. 5.00% 06/04/42 296,849
-------------
530,213
-------------
HEALTH CARE PROVIDERS & SERVICES - 0.6%
400,000 UnitedHealth Group, Inc............................. 0.85% 10/15/15 401,779
200,000 UnitedHealth Group, Inc............................. 1.63% 03/15/19 192,833
-------------
594,612
-------------
INSURANCE - 2.6%
800,000 American International Group, Inc................... 5.85% 01/16/18 919,315
300,000 American International Group, Inc................... 3.38% 08/15/20 302,189
200,000 American International Group, Inc................... 6.25% 05/01/36 233,238
850,000 MetLife, Inc........................................ 6.75% 06/01/16 967,024
300,000 MetLife, Inc........................................ 4.88% 11/13/43 295,577
-------------
2,717,343
-------------
INTERNET & CATALOG RETAIL - 0.9%
700,000 Amazon.Com, Inc..................................... 0.65% 11/27/15 700,015
300,000 Amazon.Com, Inc..................................... 2.50% 11/29/22 270,958
-------------
970,973
-------------
IT SERVICES - 0.6%
600,000 International Business Machines Corp................ 1.63% 05/15/20 563,481
100,000 International Business Machines Corp................ 3.38% 08/01/23 97,628
-------------
661,109
-------------
MEDIA - 0.7%
850,000 Comcast Corp........................................ 4.25% 01/15/33 792,090
-------------
METALS & MINING - 1.0%
500,000 Freeport-McMoRan Copper & Gold, Inc................. 1.40% 02/13/15 502,929
500,000 Newmont Mining Corp................................. 5.13% 10/01/19 519,190
-------------
1,022,119
-------------
MULTI-UTILITIES - 0.5%
450,000 Pacific Gas & Electric Co........................... 6.05% 03/01/34 517,046
-------------
Page 16 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, GAS & CONSUMABLE FUELS - 3.2%
$ 350,000 ConocoPhillips Co................................... 2.40% 12/15/22 $ 319,346
100,000 ConocoPhillips Co................................... 6.50% 02/01/39 125,831
300,000 Devon Energy Corp................................... 2.25% 12/15/18 297,203
500,000 Energy Transfer Partners L.P........................ 3.60% 02/01/23 463,899
100,000 Energy Transfer Partners L.P........................ 6.50% 02/01/42 107,832
800,000 Kinder Morgan Energy Partners L.P................... 3.95% 09/01/22 780,982
100,000 Kinder Morgan Energy Partners L.P................... 5.00% 03/01/43 92,635
750,000 ONEOK Partners L.P.................................. 2.00% 10/01/17 747,004
200,000 Plains All American Pipeline L.P./PAA Finance Corp.. 3.85% 10/15/23 195,494
300,000 Spectra Energy Capital, LLC ........................ 3.30% 03/15/23 266,199
-------------
3,396,425
-------------
PHARMACEUTICALS - 0.8%
200,000 AbbVie, Inc......................................... 1.20% 11/06/15 202,125
300,000 AbbVie, Inc......................................... 1.75% 11/06/17 299,763
250,000 Merck & Co., Inc.................................... 2.25% 01/15/16 258,378
115,000 Wyeth, LLC ......................................... 5.95% 04/01/37 133,752
-------------
894,018
-------------
REAL ESTATE INVESTMENT TRUSTS - 1.1%
300,000 Boston Properties L.P............................... 3.85% 02/01/23 293,670
400,000 Simon Property Group L.P............................ 2.75% 02/01/23 366,241
100,000 Simon Property Group L.P............................ 4.75% 03/15/42 97,120
400,000 Weyerhaeuser Co..................................... 4.63% 09/15/23 406,681
-------------
1,163,712
-------------
ROAD & RAIL - 1.0%
800,000 Burlington Northern Santa Fe, LLC .................. 3.00% 03/15/23 746,483
300,000 Burlington Northern Santa Fe, LLC .................. 5.15% 09/01/43 305,921
-------------
1,052,404
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.2%
200,000 Intel Corp.......................................... 4.25% 12/15/42 177,459
-------------
SOFTWARE - 1.2%
200,000 Microsoft Corp...................................... 4.88% 12/15/43 205,222
600,000 Oracle Corp......................................... 2.50% 10/15/22 550,628
200,000 Oracle Corp......................................... 3.63% 07/15/23 198,790
300,000 Oracle Corp......................................... 5.38% 07/15/40 321,497
-------------
1,276,137
-------------
SPECIALTY RETAIL - 0.3%
300,000 Home Depot (The), Inc............................... 5.40% 09/15/40 325,961
-------------
TOBACCO - 0.8%
550,000 Altria Group, Inc................................... 2.85% 08/09/22 507,346
200,000 Altria Group, Inc................................... 10.20% 02/06/39 312,964
-------------
820,310
-------------
TOTAL CORPORATE BONDS AND NOTES .............................................. 44,571,640
(Cost $45,327,704) -------------
See Notes to Financial Statements Page 17
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
U.S. GOVERNMENT BONDS AND NOTES - 1.3%
$ 200,000 United States Treasury Bond ........................ 2.88% 05/15/43 $ 162,140
150,000 United States Treasury Note (b) .................... 0.25% 05/15/16 149,092
350,000 United States Treasury Note ........................ 1.38% 09/30/18 345,748
700,000 United States Treasury Note ........................ 2.50% 08/15/23 672,301
-------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES ........................................ 1,329,281
(Cost $1,352,818) -------------
TOTAL INVESTMENTS - 96.8% .................................................... 102,647,147
(Cost $96,037,815) (c)
NET OTHER ASSETS AND LIABILITIES - 3.2% ...................................... 3,431,735
-------------
NET ASSETS - 100.0% .......................................................... $ 106,078,882
=============
-----------------------------
(a) Floating rate security. The interest rate shown reflects the rate in
effect at December 31, 2013.
(b) All or a portion of this security is segregated as collateral for open
futures contracts.
(c) Aggregate cost for federal income tax purposes is $96,046,088. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$8,024,916 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,423,857.
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
ASSETS TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
12/31/2013 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Common Stocks*....................................... $ 56,746,226 $ 56,746,226 $ -- $ --
Corporate Bonds and Notes*........................... 44,571,640 -- 44,571,640 --
U.S. Government Bonds and Notes...................... 1,329,281 -- 1,329,281 --
------------ ------------ ------------ ------------
Total................................................ $102,647,147 $ 56,746,226 $ 45,900,921 $ --
============ ============ ============ ============
LIABILITIES TABLE
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
12/31/2013 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Futures Contracts.................................... $ 49,314 $ 49,314 $ -- $ --
============ ============ ============ ============
* See the Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between the Levels at December 31, 2013
Page 18 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
OPEN FUTURES CONTRACTS AT DECEMBER 31, 2013 (see Note 2D - Futures Contracts in
the Notes to Financial Statements):
UNREALIZED
NUMBER OF EXPIRATION NOTIONAL APPRECIATION/
SHORT FUTURES CONTRACTS CONTRACTS MONTH VALUE (DEPRECIATION)
------------------------------------------------ ------------ ------------ ------------ --------------
U.S. Treasury 10-Year Notes 17 March-2014 $ 2,091,797 $ 26,343
U.S. Treasury Long Bond Futures 2 March-2014 256,625 1,995
Ultra Long Term U.S. Treasury Bond Futures 10 March-2014 1,362,500 20,976
------------ ----------
Total Futures Contracts $ 3,710,922 $ 49,314
============ ==========
See Notes to Financial Statements Page 19
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2013
ASSETS:
Investments, at value
(Cost $96,037,815).......................................................................... $ 102,647,147
Cash........................................................................................... 2,900,020
Receivables:
Interest.................................................................................... 473,025
Fund shares sold............................................................................ 176,710
Dividends................................................................................... 131,128
Variation margin............................................................................ 11,984
Prepaid expenses............................................................................... 1,503
-------------
Total Assets.............................................................................. 106,341,517
-------------
LIABILITIES:
Payables:
Custodian fees.............................................................................. 53,363
Administrative service fees................................................................. 49,593
Investment advisory fees.................................................................... 29,156
Audit and tax fees.......................................................................... 29,000
Fund shares redeemed........................................................................ 27,872
Licensing fees.............................................................................. 22,095
12b-1 service fees.......................................................................... 22,013
Accounting and administration fees.......................................................... 16,186
Printing fees............................................................................... 5,180
Legal fees.................................................................................. 3,673
Transfer agent fees......................................................................... 3,529
Financial reporting fees.................................................................... 771
Other liabilities.............................................................................. 204
-------------
Total Liabilities......................................................................... 262,635
-------------
NET ASSETS..................................................................................... $ 106,078,882
=============
NET ASSETS CONSIST OF:
Paid-in capital................................................................................ $ 99,473,801
Accumulated net investment income (loss)....................................................... --
Accumulated net realized gain (loss) on investments and futures................................ (53,565)
Net unrealized appreciation (depreciation) on investments and futures.......................... 6,658,646
-------------
NET ASSETS..................................................................................... $106,078,882
=============
NET ASSET VALUE, per share ................................................................... $ 11.37
=============
Number of Shares outstanding (unlimited number of shares authorized, par value $0.01 per share) 9,328,439
=============
Page 20 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $158)............................................. $ 1,018,846
Interest....................................................................................... 810,949
Other.......................................................................................... 14,501
------------
Total investment income..................................................................... 1,844,296
------------
EXPENSES:
Investment advisory fees....................................................................... 447,949
12b-1 service fees............................................................................. 186,646
Administrative service fees.................................................................... 149,316
Custodian fees................................................................................. 141,049
Accounting and administration fees............................................................. 83,444
Legal fees..................................................................................... 56,247
Licensing fees................................................................................. 38,240
Transfer agent fees............................................................................ 34,040
Audit and tax fees............................................................................. 29,271
Printing fees.................................................................................. 27,025
Trustees' fees and expenses.................................................................... 18,111
Financial reporting fees....................................................................... 9,250
Commitment fees................................................................................ 5,878
Other.......................................................................................... 3,304
------------
Total expenses.............................................................................. 1,229,770
Fees waived and expenses reimbursed by the investment advisor............................... (333,872)
------------
Net expenses................................................................................ 895,898
------------
NET INVESTMENT INCOME (LOSS)................................................................... 948,398
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................. 1,339,463
Futures..................................................................................... (57,838)
------------
Net realized gain (loss)....................................................................... 1,281,625
------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................. 6,432,591
Futures..................................................................................... 49,314
------------
Net change in unrealized appreciation (depreciation)........................................ 6,481,905
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)........................................................ 7,763,530
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 8,711,928
============
See Notes to Financial Statements Page 21
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
YEAR PERIOD
ENDED ENDED
12/31/2013 12/31/2012 (a)
------------- -------------
OPERATIONS:
Net investment income (loss)............................................ $ 948,398 $ 188,708
Net realized gain (loss)................................................ 1,281,625 126,195
Net change in unrealized appreciation (depreciation).................... 6,481,905 176,741
------------- -------------
Net increase (decrease) in net assets resulting from operations......... 8,711,928 491,644
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................... (809,141) (188,708)
Net realized gain....................................................... (1,474,214) (126,428)
Return of capital....................................................... -- (49,832)
------------- -------------
Total distributions to shareholders..................................... (2,283,355) (364,968)
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................... 79,882,059 33,794,066
Proceeds from shares reinvested......................................... 2,283,355 364,968
Cost of Shares redeemed................................................. (14,691,475) (2,109,340)
------------- -------------
Net increase (decrease) in net assets resulting from capital transactions 67,473,939 32,049,694
------------- -------------
Total increase (decrease) in net assets................................. 73,902,512 32,176,370
NET ASSETS:
Beginning of period..................................................... 32,176,370 --
------------- -------------
End of period........................................................... $ 106,078,882 $ 32,176,370
============= =============
Accumulated net investment income (loss) at end of period............... $ -- $ --
============= =============
CAPITAL TRANSACTIONS WERE AS FOLLOWS:
Shares at beginning of period........................................... 3,120,254 --
Shares sold............................................................. 7,328,851 3,291,758
Shares issued as reinvestment........................................... 202,965 35,331
Shares redeemed......................................................... (1,323,631) (206,835)
------------- -------------
Shares at end of period................................................. 9,328,439 3,120,254
============= =============
-----------------------------
(a) The Fund was seeded on April 12, 2012, and commenced operations on May 1,
2012.
Page 22 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR PERIOD
ENDED ENDED
12/31/2013 12/31/2012(a)
-------------- --------------
Net asset value, beginning of period $ 10.31 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (b) 0.14 0.15
Net realized and unrealized gain (loss) 1.17 0.29
---------- ----------
Total from investment operations 1.31 0.44
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.09) (0.07)
Net realized gain (0.16) (0.04)
Return of capital -- (0.02)
---------- ----------
Total distributions (0.25) (0.13)
---------- ----------
Net asset value, end of period $ 11.37 $ 10.31
========== ==========
TOTAL RETURN (c) (d) 12.75% 4.38%
========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 106,079 $ 32,176
Ratio of expenses to average net assets
without fee waivers and expenses reimbursed 1.65% 2.69% (e)
Ratio of expenses to average net assets 1.20% 1.20% (e)
Ratio of net investment income (loss)
to average net assets 1.27% 2.25% (e)
Portfolio turnover rate 73% 34%
-------------------------
(a) The Fund was seeded on April 12, 2012, and commenced operations on May 1,
2012.
(b) Per Share values have been calculated using the average share method.
(c) Total return is based on the combination of reinvested dividends, capital
gain and return of capital distributions, if any. Total return is not
annualized for periods less than one year. The return for the Fund does
not reflect the deduction of expenses associated with variable products,
such as mortality and expense risk charges, separate account charges, and
sales charges or the effect of taxes. These expenses would reduce the
overall return above.
(d) Total returns would have been lower if certain fees had not been waived
and expenses reimbursed by the investment advisor.
(e) Annualized.
See Notes to Financial Statements Page 23
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013
1. ORGANIZATION
First Trust Variable Insurance Trust (the "Trust") is a diversified open-end
management investment company organized as a Massachusetts business trust on
December 14, 2011 and is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently offers shares of one series, First Trust/Dow Jones Dividend
& Income Allocation Portfolio (the "Fund"), which commenced investment
operations on May 1, 2012. Shares of the Fund are sold only to variable
insurance accounts (each an "Account") to fund the benefits of the variable
annuity and variable life insurance contracts (each a "Contract" and
collectively the "Contracts") issued by life insurance companies writing
variable annuity contracts and variable life insurance contracts (each a
"Participating Insurance Company").
The Fund's investment objective is to seek to provide total return by allocating
among dividend-paying stocks and investment-grade bonds. The Fund seeks to
achieve its investment objective by investing, under normal market conditions,
approximately 40-60% of its net assets in equity securities and approximately
40-60% of its net assets in fixed-income securities at the time of purchase. The
equity portion of the portfolio will be derived from a quantitative process that
seeks to provide total return through investing generally in dividend-paying
stocks included in the Dow Jones U.S. Total Stock Market Index(SM). First Trust
Advisors L.P. ("First Trust") reserves the right to over-weight, under-weight or
exclude certain securities from the Fund that would otherwise be selected
pursuant to the quantitative process in certain instances.
The fixed-income component seeks to provide income and preserve capital through
investing in a diversified investment-grade bond portfolio. Investment-grade
bonds are those bonds rated "BBB-" or higher by Standard & Poor's Ratings Group
or Fitch Ratings, Inc. or "Baa3" or higher by Moody's Investors Service, Inc. at
the time of purchase. Under normal market conditions, at the time of purchase
approximately 80% of the net assets of the Fund allocated to corporate bonds
will be invested in: investment-grade bonds included in the Dow Jones Equal
Weighted U.S. Issued Corporate Bond Index(SM) (the "Bond Index"(1)) and other
investment-grade bonds of issuers whose securities are included in the Bond
Index; and investment-grade bonds of issuers included in the Dow Jones
Industrial Index (the "Dow 30"). The Fund may also invest in U.S. government and
agency securities, including mortgage-backed securities. The Fund may, at
certain times, also hold exchange-traded funds ("ETFs") that invest in
investment-grade corporate bonds and U.S. government bonds in lieu of investing
directly in bonds.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. PORTFOLIO VALUATION:
The net asset value ("NAV") of each share is determined daily as of the close of
regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m.
Eastern time, on each day the NYSE is open for trading. If the NYSE closes early
on a valuation day, the NAV is determined as of that time. Domestic debt
securities and foreign securities are priced using data reflecting the earlier
closing of the principal markets for those securities. The NAV per share is
calculated by dividing the value of all assets of the Fund (including accrued
interest and dividends), less all liabilities (including accrued expenses,
dividends declared but unpaid, and any borrowings of the Fund) by the total
number of shares outstanding.
The Fund's investments are valued daily at market value or, in absence of market
value with respect to any portfolio securities, at fair value in accordance with
valuation procedures adopted by the Trust's Board of Trustees, and in accordance
with provisions of the 1940 Act. Market quotations and prices used to value the
Fund's investments are primarily obtained from third party pricing services. The
Fund's securities will be valued as follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding the NASDAQ(R) Stock Market LLC ("NASDAQ") and
the London Stock Exchange Alternative Investment Market ("AIM")) are
valued at the last sale price on the exchange on which they are
principally traded or, for NASDAQ and AIM securities, the official closing
price. Securities traded on more than one securities exchange are valued
at the last sale price or official closing price, as applicable, at the
close of the securities exchange representing the principal market for
such securities.
Securities traded in an over-the-counter market are valued at the mean of
the bid and asked prices, if available, and otherwise at the closing bid
price.
-------------------
(1) Prior to April 30, 2013, the Dow Jones Equal Weighted U.S. Issued
Corporate Bond Index(SM) was known as the Dow Jones Corporate Bond
Index(SM).
Page 24
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013
Corporate bonds, notes, U.S. government securities and other debt
securities are valued on the basis of valuations provided by dealers who
make markets in such securities or by an independent pricing service
approved by the Trust's Board of Trustees, which may use the following
valuation inputs when available:
1) benchmark yields;
2) reported trades;
3) broker/dealer quotes;
4) issuer spreads;
5) benchmark securities;
6) bids and offers; and
7) reference data including market research publications.
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts will be valued at the mean
between the last bid and asked price, if available, and otherwise at the
closing bid price.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate at fair value. These securities generally include, but are not limited
to, restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of the Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by the Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities.
Fair valuation of a debt security will be based on the consideration of all
available information, including, but not limited to, the following:
1) the fundamental business data relating to the issuer;
2) an evaluation of the forces which influence the market in
which these securities are purchased and sold;
3) the type, size and cost of security;
4) the financial statements of the issuer;
5) the credit quality and cash flow of the issuer, based on First
Trust's or external analysis;
6) the information as to any transactions in or offers for the
security;
7) the price and extent of public trading in similar securities
(or equity securities) of the issuer/borrower, or comparable
companies;
8) the coupon payments;
9) the quality, value and salability of collateral, if any,
securing the security;
10) the business prospects of the issuer, including any ability to
obtain money or resources from a parent or affiliate and an
assessment of the issuer's management (for corporate debt
only);
11) the prospects for the issuer's industry, and multiples (of
earnings and/or cash flows) being paid for similar businesses
in that industry (for corporate debt only); and
12) other relevant factors.
Fair valuation of an equity security will be based on the consideration of all
available information, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
Page 25
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013
7) information obtained by contacting the issuer, analysts, or
the appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might
affect the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other
foreign markets;
2) ADR trading of similar securities;
3) foreign currency exchange activity;
4) the trading prices of financial products that are tied to
baskets of foreign securities;
5) factors relating to the event that precipitated the pricing
problem;
6) whether the event is likely to recur; and
7) whether the effects of the event are isolated or whether they
affect entire markets, countries or regions.
The Fund is subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodology used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value the Fund's investments as of December 31, 2013, is
included with the Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME:
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Amortization of premiums and accretion of discounts are
recorded using the effective interest method.
The Fund may hold publicly-traded real estate investment trusts ("REITs").
Distributions from such investments may include a return of capital component
from the REIT to the extent of the cost basis of such REIT investments. The
actual character of amounts received during the year is not known until after
the fiscal year end. The Fund records the character of distributions received
from REITs during the year based on estimates available. The Fund's
characterization may be subsequently revised based on information received from
the REITs after their tax reporting periods conclude.
C. CASH AND CASH EQUIVALENTS:
Normally, the Fund invests substantially all of its assets to meet its
investment objective. The Fund may invest the remainder of its assets in
securities with maturities of less than one year or cash equivalents, or it may
hold cash. The investment in such instruments is not a principal investment
strategy of the Fund. The percentage of the Fund invested in such holdings
varies and depends on several factors, including market conditions. For
temporary defensive purposes and during periods of high cash inflows or
outflows, the Fund may depart from its principal investment strategies and
invest part or all of its assets in these securities or it may hold cash. At
December 31, 2013, approximately 2.7% of the Fund's net assets were held in
cash.
Page 26
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013
D. FUTURES CONTRACTS:
The Fund purchases or sells (i.e., is long or short) futures contracts to hedge
against changes in interest rates (interest rate risk). Futures contracts are
agreements between the Fund and a counterparty to buy or sell a specific
quantity of an underlying instrument at a specified price and at a specified
date. Depending on the terms of the contract, futures contracts are settled
either through physical delivery of the underlying instrument on the settlement
date or by payment of a cash settlement amount on the settlement date. Open
futures contracts can also be closed out prior to settlement by entering into an
offsetting transaction in a matching futures contract. If the Fund is not able
to enter into an offsetting transaction, the Fund will continue to be required
to maintain margin deposits on the futures contract. When the contract is closed
or expires, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed or expired. This gain or loss is included in "Net realized
gain (loss) on Futures" on the Statement of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures contacts
are marked to market daily with the change in value recognized as a component of
"Net change in unrealized appreciation (depreciation) on Futures" on the
Statement of Operations. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin
and are included in "Variation margin payable or receivable" on the Statement of
Assets and Liabilities. If market conditions change unexpectedly, the Fund may
not achieve the anticipated benefits of the futures contract and may realize a
loss. The use of futures contracts involves the risk of imperfect correlation in
movements in the price of the futures contracts, interest rates and the
underlying instruments.
The Fund entered into its first futures contract on June 21, 2013. The primary
risk exposure associated with the futures contracts held during the period was
interest rate risk. At December 31, 2013, the amount of "Variation margin
receivable" on the futures contracts was $11,984, which is included on the
Statement of Assets and Liabilities. For the year ended December 31, 2013, the
Fund recorded a change in unrealized gain of $49,314 on the futures contracts,
which is included in the "Net change in unrealized appreciation (depreciation)
on Futures" on the Statement of Operations. For the year ended December 31,
2013, the Fund recorded realized losses on futures of $57,838, which is included
in "Net realized gain (loss) on Futures" on the Statement of Operations.
During the year ended December 31, 2013, the notional values of futures
contracts opened and closed were $15,466,598 and $11,763,700, respectively.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income, if any, are declared and paid annually
by the Fund. The Fund distributes its net realized capital gains, if any, to
shareholders at least annually. All dividends payable by the Fund will be
reinvested in the Fund.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Fund and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some point in the future. Permanent differences
incurred during the tax year ended December 31, 2013, primarily as a result of a
redesignation of dividends paid, have been reclassified at year end to reflect a
decrease in accumulated net investment income (loss) of $139,257, and an
increase in accumulated net realized gain (loss) on investments of $139,257. Net
assets were not affected by this reclassification.
The tax character of distributions paid during the fiscal periods ended December
31, 2013 and 2012 was as follows:
DISTRIBUTIONS PAID FROM: 2013 2012
Ordinary income................................... $ 2,021,177 $ 313,025
Long-term capital gain............................ 262,178 2,111
Return of capital................................. -- 49,832
Page 27
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013
As of December 31, 2013, the distributable earnings and net assets on a tax
basis were as follows:
Undistributed ordinary income..................... $ --
Undistributed capital gains....................... 4,022
--------------
Total undistributed earnings...................... 4,022
Accumulated capital and other losses.............. --
Net unrealized appreciation (depreciation)........ 6,601,059
--------------
Total accumulated earnings (losses)............... 6,605,081
Other............................................. --
Paid-in capital................................... 99,473,801
--------------
Net assets........................................ $ 106,078,882
==============
F. INCOME TAXES:
The Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. The Fund intends to
comply with the provisions of Section 817(h) of the Internal Revenue Code, which
impose certain diversification requirements upon variable contracts that are
based on segregated asset accounts. Accordingly, no provision has been made for
federal or state income taxes.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry realized capital losses forward indefinitely following the
year of the loss and offset such loss against any future realized capital gains.
The Fund is subject to certain limitations under U.S. tax rules on the use of
capital loss carryforwards and net unrealized built-in losses. These limitations
apply when there has been a 50% change in ownership. At December 31, 2013, the
Fund had no capital loss carryforward for federal income tax purposes.
The Fund is subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ended 2012 and 2013
remain open to federal and state audit. As of December 31, 2013, management has
evaluated the application of these standards to the Fund and has determined that
no provision for income tax is required in the Fund's financial statements for
uncertain tax positions.
G. EXPENSES:
The Fund will pay all expenses directly related to its operations.
Each Participating Insurance Company performs certain administrative services
for the Fund, its Account and the variable annuity and variable life insurance
Contracts. The Fund pays an administrative services fee of 0.20% of average
daily net assets to cover expenses incurred by Participating Insurance Companies
in connection with these services.
First Trust has entered into various licensing agreements, which allow First
Trust to use certain trademarks and trade names of the applicable licensors (see
Licensing Information in the Additional Information section of this report). The
Trust on behalf of the Fund is a sub-licensee to these license agreements and is
required to pay licensing fees, which are shown on the Statement of Operations.
3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
First Trust, the investment advisor to the Fund, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust provides the Fund with discretionary investment services and certain
administrative services necessary for the management of the Fund. For its
investment advisory and management services, First Trust is entitled to a
monthly fee calculated at an annual rate of 0.60% of the Fund's average daily
net assets. First Trust also provides fund reporting services to the Fund for a
flat annual fee in the amount of $9,250.
First Trust has agreed to waive fees and/or pay the Fund's expenses to the
extent necessary to prevent the operating expenses of the Fund (excluding
interest expense, brokerage commissions and other trading expenses, taxes and
extraordinary expenses) from exceeding 1.20% (the "Expense Cap") of its average
daily net assets per year at least until May 1, 2014. Expenses borne and fees
waived by First Trust are subject to reimbursement by the Fund for up to three
years from the date the fee or expense was incurred by the Fund, but no
reimbursement payment will be made by the Fund at any time if it would result in
the Fund's expenses exceeding the Expense Cap. These
Page 28
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013
amounts would be included in "Expenses previously waived or reimbursed" on the
Statement of Operations. The advisory fee waivers and expense reimbursements, if
any, for the year ended December 31, 2013, and the expenses borne by First Trust
subject to recovery from the Fund at December 31, 2013, are as follows:
EXPENSES SUBJECT TO RECOVERY
-------------------------------------------------------------
ADVISORY FEE EXPENSE PERIOD ENDED YEAR ENDED
WAIVER REIMBURSEMENT DECEMBER 31, 2012 DECEMBER 31, 2013 TOTAL
------------ -------------- ----------------- ----------------- ---------------
$ 333,872 $ -- $ 125,220 $ 333,872 $ 459,092
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Fund's
administrator, fund accountant and transfer agent in accordance with certain fee
arrangements. As administrator and fund accountant, BNYM IS is responsible for
providing certain administrative and accounting services to the Fund, including
maintaining the Fund's books of account, records of the Fund's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Fund. The Bank of New
York Mellon ("BNYM") serves as the Fund's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Fund's
assets.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman served two-year terms until December 31, 2013, before rotating to serve
as Chairman of another Committee or as Lead Independent Trustee. After December
31, 2013, the Lead Independent Trustee and Committee Chairmen will rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the funds for acting in such capacities.
4. 12B-1 SERVICE PLAN
The Trust has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act, which provides that shares of the Fund will be subject to an annual service
fee.
First Trust Portfolios L.P. ("FTP"), an affiliate of First Trust, serves as the
selling agent and distributor of shares of the Fund. In this capacity, FTP
manages the offering of the Fund's shares and is responsible for all sales and
promotional activities. The Plan reimburses FTP for its costs in connection with
these activities. FTP also uses the service fee to compensate each Participating
Insurance Company for providing account services to policy owners. These
services include establishing and maintaining Contract owners' accounts,
supplying information to Contract owners, delivering Fund materials to Contract
owners, answering inquiries, and providing other personal services to Contract
owners. The Fund may spend up to 0.25% per year of the average daily net assets
of its shares as a service fee under the Plan. In addition, the Plan permits
First Trust to use a portion of its advisory fee to compensate FTP for expenses
incurred in connection with the sale of the Fund's shares including, without
limitation, compensation of its sales force, expenses of printing and
distributing the Prospectus to persons other than Contract owners, expenses of
preparing, printing and distributing advertising and sales literature and
reports to Contract owners used in connection with the sale of the Fund's
shares, certain other expenses associated with the servicing of shares of the
Fund, and any service-related expenses that may be authorized from time to time
by the Board of Trustees.
During the year ended December 31, 2013, all service fees received by FTP were
paid to the Participating Insurance Companies, with no portion of such fees
retained by FTP. The Plan may be renewed annually if approved by a vote of the
Trust's Board of Trustees and a vote of the Independent Trustees, who have no
direct or indirect financial interest in the Plan, cast in person at a meeting
called for the purpose of voting on the Plan.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the year ended December 31, 2013, were $116,510,698,
and $52,689,594, respectively.
Page 29
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013
6. BORROWINGS
Effective March 28, 2013, the Trust and First Trust Series Fund have entered
into a $20 million Committed Line of Credit ("Line of Credit") with The Bank of
Nova Scotia ("Scotia") to be a liquidity backstop during periods of high
redemption volume. On July 30, 2013, the Line of Credit was increased to $50
million and First Trust Exchange-Traded Fund III and First Trust Exchange-Traded
Fund IV were added to the Credit Agreement. A commitment fee of 0.125% of the
daily amount of the excess of the commitment amount over the outstanding
principal balance of the loans will be charged by Scotia, which First Trust will
allocate amongst the funds that have access to the Line of Credit. To the extent
that the Fund accesses the Line of Credit, there would also be an interest fee
charged.
7. INDEMNIFICATION
The Trust has a variety of indemnification obligations under contracts with its
service providers. The Trust's maximum exposure under these arrangements is
unknown. However, the Trust has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Fund through
the date the financial statements were issued, and has determined that there
were the following subsequent events:
At a Special Meeting of the Board of Trustees held on January 22, 2014, the
Board of Trustees approved the renaming of the existing shares of the Trust and
further approved a Designation of Classes of Shares, thereby establishing Class
I shares (which pay Rule 12b-1 service fees), which is the Fund's current share
class, and Class II shares (which do not pay Rule 12b-1 service fees) of the
Trust, a new share class. At this meeting the Board of Trustees authorized the
issuance of the new Class II shares, approved the adoption of a Multiple Class
Plan pursuant to Rule 18f-3 under the 1940 Act and adopted a new Rule 12b-1 Plan
to distinguish the share classes described herein.
Page 30
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST VARIABLE INSURANCE
TRUST:
We have audited the accompanying statement of assets and liabilities of First
Trust Variable Insurance Trust (the "Trust"), comprised of First Trust/Dow Jones
Dividend & Income Allocation Portfolio (the "Fund"), including the portfolio of
investments, as of December 31, 2013, and the related statement of operations
for the year then ended and the statements of changes in net assets and the
financial highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2013 by correspondence with the Fund's
custodian and brokers. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust/Dow Jones Dividend & Income Allocation Portfolio included in the First
Trust Variable Insurance Trust, as of December 31, 2013, and the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 13, 2014
Page 31
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies and information on how the Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Fund's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Fund's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
TAX INFORMATION
Of the ordinary income (including short-term capital gain) distributions made by
the Fund during the year ended December 31, 2013, 39.57% qualified for the
corporate dividends received deduction available to corporate shareholders.
None of the ordinary income distributions for the year ended December 31, 2013,
are designated as qualified dividend income.
For the year ended December 31, 2013, the amount of long-term capital gain
distributions designated by the Fund was $262,178 which is taxable at the
applicable capital gain tax rates for federal income tax purposes.
LICENSING INFORMATION
Standard & Poor's and S&P are registered trademarks of Standard & Poor's
Financial Services LLC ("S&P") and Dow Jones is a registered trademark of Dow
Jones Trademark Holdings LLC ("Dow Jones"). The trademarks have been licensed to
S&P Dow Jones Indices LLC and have been sublicensed for use for certain purposes
by First Trust Advisors L.P. ("First Trust"). THE DOW JONES EQUAL WEIGHT U.S.
ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND
DOW JONES INDUSTRIAL AVERAGE(SM) are products of S&P Dow Jones Indices LLC and
has been licensed for use by First Trust. The First Trust/Dow Jones Dividend &
Income Allocation Portfolio is not sponsored, endorsed, sold or promoted by S&P
Dow Jones Indices LLC, Dow Jones, S&P, or any of their respective affiliates
(collectively, "S&P Dow Jones Indices"). Neither S&P Dow Jones Indices nor its
affiliates make any representation or warranty, express or implied, to the
owners of the First Trust/Dow Jones Dividend & Income Allocation Portfolio or
any member of the public regarding the advisability of investing in securities
generally or in the First Trust/Dow Jones Dividend & Income Allocation Portfolio
particularly or the ability of the DOW JONES EQUAL WEIGHT U.S. ISSUED CORPORATE
BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND DOW JONES
INDUSTRIAL AVERAGE(SM) to track general market performance. S&P Dow Jones
Indices only relationship to First Trust with respect to the DOW JONES EQUAL
WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET
INDEX(SM) AND DOW JONES INDUSTRIAL AVERAGE(SM) is the licensing of the Index and
certain trademarks, service marks and/or trade names of S&P Dow Jones Indices.
The DOW JONES EQUAL WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S.
TOTAL STOCK MARKET INDEX(SM) AND DOW JONES INDUSTRIAL AVERAGE(SM) is determined,
composed and calculated by S&P Dow Jones Indices without regard to First Trust
or the First Trust/Dow Jones Dividend & Income Allocation Portfolio. S&P Dow
Jones Indices has no obligation to take the needs of First Trust or the owners
of the First Trust/Dow Jones Dividend & Income Allocation Portfolio into
consideration in determining, composing or calculating the DOW JONES EQUAL
WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET
INDEX(SM) AND DOW JONES INDUSTRIAL AVERAGE(SM). Neither S&P Dow Jones Indices
nor its affiliates are responsible for and have not participated in the
determination of the prices, and amount of the First Trust/Dow Jones Dividend &
Income Allocation Portfolio or the timing of the issuance or sale of the First
Trust/Dow Jones Dividend & Income Allocation Portfolio or in the determination
or calculation of the equation by which the First Trust/Dow Jones Dividend &
Income Allocation Portfolio is to be managed. S&P Dow Jones Indices has no
obligation or liability in connection with the administration, marketing or
trading of the First Trust/Dow Jones Dividend & Income Allocation Portfolio.
There is no assurance that investment products based on the DOW JONES EQUAL
WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET
INDEX(SM) AND DOW JONES INDUSTRIAL AVERAGE(SM) will accurately track index
performance or provide positive investment returns. S&P Dow Jones Indices LLC is
not an investment advisor. Inclusion of a security within an index is not a
recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor
is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR ITS AFFILIATES GUARANTEES THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE DOW JONES EQUAL WEIGHT U.S.
ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND
DOW JONES INDUSTRIAL AVERAGE(SM) OR ANY DATA RELATED THERETO OR ANY
COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION
Page 32
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013 (UNAUDITED)
(INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES
INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY FIRST
TRUST, OWNERS OF THE FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION
PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW JONES EQUAL
WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET
INDEX(SM) AND DOW JONES INDUSTRIAL AVERAGE(SM) OR WITH RESPECT TO ANY DATA
RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER
SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF
PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY,
OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR
ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND FIRST TRUST, OTHER THAN THE
LICENSORS OF S&P DOW JONES INDICES.
RISK CONSIDERATIONS
Risks are inherent in all investing. The following summarizes some of the risks
that should be considered for the Fund. For additional information about the
risks associated with investing in the Fund, please see the Fund's prospectus
and statement of additional information, as well as other regulatory filings.
EQUITY SECURITIES RISK: There is the risk that the value or price of a
particular stock or other equity or equity-related security owned by the Fund
could go down and you could lose money. In addition to an individual stock
losing value, the value of the equity markets or a sector of those markets in
which the Fund invests could go down.
SMALLER COMPANY RISK: The Fund invests in small and/or mid-capitalization
companies. Such companies may be more vulnerable to adverse general market or
economic developments, and their securities may be less liquid and may
experience greater price volatility than larger, more established companies as a
result of several factors, including limited trading volumes, products or
financial resources, management inexperience and less publicly available
information. Accordingly, such companies are generally subject to greater market
risk than larger, more established companies.
FIXED INCOME SECURITIES RISK: Investment in fixed income securities involves a
variety of risks, including the risk that an issuer or guarantor of a security
will be unable to pay some or all of the principal and interest when due (credit
risk); the risk that the Fund may not be able to sell some or all of the
securities its holds, either at the price at which it values the security or at
any price (liquidity risk); and the risk that the rates of interest income
generated by the fixed income investments of the Fund may decline due to a
decrease in market interest rates and that the market prices of the fixed income
investments of the Fund may decline due to an increase in market interest rates
(interest rate risk).
MARKET AND MANAGEMENT RISK: Markets in which the Fund invests may experience
volatility and go down in value, and possibly sharply and unpredictably. All
decisions by the Advisor require judgment and are based on imperfect
information. Additionally, the investment techniques, risk analysis and
investment strategies used by the Advisor in making investment decisions for the
Fund may not produce the desired results.
ETF RISK: ETFs in which the Fund may invest are index funds bought and sold on a
securities exchange. An ETF trades like a common stock and represents a
portfolio of securities designed to track a particular market index. The ETFs in
which the Fund may invest will generally track a corporate or government bond
index. The risks of owning an ETF generally reflect the risks of owning the
underlying securities they are designed to track, although lack of liquidity in
an ETF could result in it being more volatile and ETFs have management fees that
increase their costs.
MORTGAGE-BACKED SECURITIES AND PREPAYMENT RISK: Unscheduled or early payments of
principal and interest on the mortgages underlying mortgage-backed securities in
which the Fund may invest may make the securities' effective maturity shorter
than stated. Rising interest rates tend to extend the duration of
mortgage-backed securities, making them more sensitive to changes in interest
rates, and may reduce the market value of the securities. In addition,
mortgage-backed securities are subject to prepayment risk, the risk that
borrowers may pay off their mortgages sooner than expected, particularly when
interest rates decline.
Page 33
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST SERVICE DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 105 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportmed LLC
Suite 400
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 105 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Inception (May 2007 to March 2010), ADM Investor Inc. and ADM
Suite 400 Services, Inc. (Futures Commission Merchant) Investor Services
Wheaton, IL 60187 International
D.O.B.: 11/57
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 105 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 East Liberty Drive, o Since Inception Consulting) of Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer (June 105 Director of
c/o First Trust Advisors L.P. 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Inception (Educational Products and Services); President Transport Inc.
Suite 400 (June 2002 to June 2012), Covenant College
Wheaton, IL 60187
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee o Indefinite Term Chief Executive Officer (December 2010 105 None
and Chairman of the Board to Present), President (until December
120 East Liberty Drive, o Since Inception 2010), First Trust Advisors L.P. and First
Suite 400 Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
-------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 34
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS (2)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since Inception L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief Financial o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Officer and Chief President (April 2007 to January 2011), First Trust
Suite 400 Accounting Officer o Since Inception Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General
Suite 400 o Since Inception Counsel, BondWave LLC (Software Development
Wheaton, IL 60187 Company/Investment Advisor); Secretary of
D.O.B.: 05/60 Stonebridge Advisors LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present),
120 E. Liberty Drive, Senior Vice President (September 2005 to July
Suite 400 o Since Inception 2012), First Trust Advisors L.P.and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors
120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 12/66
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
-------------------
(2) Officers of the Trust have an indefinite term. The term "officer" means
the president, vice president, secretary, treasurer, controller or any
other officer who performs a policy making function.
Page 35
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2013 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at (800)
621-1675 (First Trust Portfolios) or (800) 222-6822 (First Trust Advisors).
Page 36
FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, and
that relates to any element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, that
relates to one or more of the items set forth in paragraph (b) of
this item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees -- The aggregate fees billed for the period from inception
(May 1, 2012) through the fiscal year ended 2013 for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements were $25,750.00
for the period ended December 31, 2012 and $25,750 for the fiscal year ended
December 31, 2013.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed for the
period from inception (May 1, 2012) through the fiscal year ended 2013 for
assurance and related services by the principal accountant that are reasonably
related to the performance of the audit of the registrant's financial statements
and are not reported under paragraph (a) of this Item were $0 for the period
ended December 31, 2012 and $0 for the fiscal year ended December 31, 2013.
Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed for the period from inception (May 1, 2012) through the fiscal year
ended 2012 for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this Item were
$10,500 for the Advisor and $0 for Distributor. Specifically, for the period
ended December 31, 2012, the Advisor paid $7,000 in fees relating to the seed
audit and $3,500 in fees relating to the required consent. The aggregate fees
billed for the fiscal year ended December 31, 2013 for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for the Advisor and $0 for the
Distributor.
(c) Tax Fees (Registrant) -- The aggregate fees billed for the period from
inception (May 1, 2012) through the fiscal year ended 2013 for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning to the registrant were $0 for the period ended December 31,
2012 and $0 for the fiscal year ended December 31, 2013.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
for the period from inception (May 1, 2012) through the fiscal year ended 2013
for professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning to the registrant's adviser and
distributor were $0 for the period ended December 31, 2012 and $0 for the fiscal
year ended December 31, 2013.
(d) All Other Fees (Registrant) -- The aggregate fees for the period from
inception (May 1, 2012) through the fiscal year ended 2013 for products and
services provided by the principal accountant to the registrant, other than the
services reported in paragraphs (a) through (c) of this Item were $0 for the
period ended December 31, 2012 and $0 for the fiscal year ended December 31,
2013.
All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed for the period from inception (May 1, 2012) through the fiscal year ended
2013 for products and services provided by the principal accountant to the
registrant's investment adviser and distributor, other than the services
reported in paragraphs (a) through (c) of this Item were $0 for the period ended
December 31, 2012 and $0 for the fiscal year ended December 31, 2013.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b) through
(d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the
pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for the period from
inception (May 1, 2012) through the fiscal year ended 2012 were $0 for the
registrant, $0 for the registrant's investment adviser and $6,250.00 for the
registrant's distributor, and for the fiscal year ended December 31, 2103 were
$0 for the registrant, $38,000.000 for the registrant's investment adviser and
$58,100.00 for the registrant's distributor. These fees pertain to sales tax and
related services in the states of Iowa and Missouri.
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of
the close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph, based on their evaluation
of these controls and procedures required by Rule 30a-3(b) under the
1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b)
under the Securities Exchange Act of 1934, as amended (17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Variable Insurance Trust
-------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: February 20, 2014
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: February 20, 2014
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: February 20, 2014
---------------------
* Print the name and title of each signing officer under his or her signature.