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, 2014
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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, 2014
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TABLE OF CONTENTS
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2014
Shareholder Letter.......................................................... 1
Market Overview............................................................. 2
Performance Summary and Portfolio Components
First Trust/Dow Jones Dividend & Income Allocation Portfolio............. 4
First Trust Multi Income Allocation Portfolio............................ 8
Understanding Your Fund Expenses............................................ 12
Portfolio of Investments
First Trust/Dow Jones Dividend & Income Allocation Portfolio............. 13
First Trust Multi Income Allocation Portfolio............................ 27
Statements of Assets and Liabilities........................................ 34
Statements of Operations.................................................... 35
Statements of Changes in Net Assets......................................... 36
Financial Highlights........................................................ 38
Notes to Financial Statements............................................... 40
Report of Independent Registered Public Accounting Firm..................... 50
Additional Information...................................................... 51
Board of Trustees and Officers.............................................. 56
Privacy Policy.............................................................. 58
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"), Energy Income Partners, LLC ("EIP" or a "Sub-Advisor")
and Stonebridge Advisors, LLC ("Stonebridge" or a "Sub-Advisor") and their
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/or Sub-Advisors and their 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 any series (individually called a "Fund" and
collectively the "Funds") of the Trust will achieve its investment objectives.
Each 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 the
Fund shares may therefore be less than what you paid for them. Accordingly, you
can lose money by investing in a Fund. See "Risk Considerations" in the
Additional Information section of this report for a discussion of certain other
risks of investing in the Funds.
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 each Fund and presents data and analysis that provide
insight into each Fund's performance.
By reading the portfolio commentary by each Fund's portfolio management team,
you may obtain an understanding of how the market environment affected each
Fund's performance. The statistical information that follows may help you
understand each 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 and the Sub-Advisors 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 each 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, 2014
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Variable Insurance Trust (the "Trust"). This report provides detailed
information about the two series of the Trust, the First Trust/Dow Jones
Dividend & Income Allocation Portfolio and the First Trust Multi Income
Allocation Portfolio, including a performance review and the financial
statements for the 12 months ended December 31, 2014. I encourage you to read
this document and discuss it with your financial advisor.
Although markets have seemed choppy over the past 12 months, the U.S. has shown
sustained growth over the period. In fact, the S&P 500(R) Index, as measured on
a total return basis, rose 13.69% in the time covered by this report. First
Trust Advisors L.P. ("First Trust") believes that staying invested in quality
products through different types of markets can benefit investors over the long
term.
First Trust is pleased to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success. We
invite you to look at our investment products with your financial advisor to
determine if any of them might fit your financial goals. We believe that
regularly discussing your financial objectives and investment options with your
financial advisor can help keep you on track.
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, 2014
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 24 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
In 2014, the combination of a pickup in job growth (nonfarm payrolls) and GDP
growth in the U.S. failed to ignite any meaningful inflationary pressures.
Nonfarm payrolls grew by an average of 233,540 per month in 2014, up from an
average of 195,770 in 2013 and 187,080 in 2012, according to data from the
Bureau of Labor Statistics. At the beginning of the recovery in 2009, many
economists stated that the U.S. would need to create roughly 250,000 new jobs
per month to make a serious dent in unemployment. While the 233,540 average
posted in 2014 falls a bit short of that demarcation line, the number of jobs
created in each the last four months of the year did eclipse that mark.
The current U.S. economic recovery is 66 months old (June 2009 - December 2014).
From June 2009 - September 2014, GDP growth averaged 2.2%, according to the
Bureau of Economic Analysis. Following what had been characterized as a
weather-induced slowdown in the first quarter of 2014 (GDP was -2.1%
annualized), the rate of GDP growth bounced back markedly in the second quarter
(GDP was +4.6% annualized) and in the third quarter (GDP was +5.0% annualized).
The U.S. GDP forecast for 2015 from the International Monetary Fund (IMF) calls
for a 3.1% growth rate, which is stronger than the 2.2% growth rate posted so
far in the current economic recovery. The last time U.S. GDP growth was 3.0% or
higher was in 2005 (3.3%). The IMF sees the global economy growing by 3.8% in
2015.
The Consumer Price Index (CPI) headline rate in the U.S. stood at 0.8% in
December, down from 1.5% a year ago and down from 1.7% in December 2012,
according to the Bureau of Labor Statistics. After closing June 2014 at 2.1%,
the CPI rate plunged over the next six months, due largely to a significant
decline in the price of crude oil, in our opinion.
EQUITIES
The Dow Jones U.S. Total Market Index posted a double-digit gain for the third
consecutive year in 2014, with a total return of 12.44%, according to Bloomberg.
Investors funneled a net $68.3 billion into U.S. Equity mutual funds and
exchange-traded funds (ETFs) in 2014, according to data from Morningstar.
Bloomberg's consensus 2015 and 2016 earnings growth estimates on the Dow Jones
U.S. Total Market Index are 14.13% and 13.67%, respectively.
The amount of stock dividends distributed by the companies in the Dow Jones U.S.
Total Market Index has increased steadily since 2009, the year in which the last
recession ended (June 30, 2009). The following breaks it down by calendar year:
$225.54 billion (2009); $228.74 billion (2010); $260.32 billion (2011); $327.12
billion (2012); $345.78 billion (2013); and $393.38 billion (2014), according to
Bloomberg. Estimates for 2015 and 2016 stood at $411.01 billion and $434.89
billion, respectively, as of January 23, 2015, according to Bloomberg. There can
be no assurance that these projections will occur.
The S&P Dow Jones Indices, which track approximately 10,000 U.S.-traded stocks,
announced that total stock dividend distributions increased by a net $12.0
billion in the fourth quarter of 2014, down 5.5% from the $12.7 billion increase
in the fourth quarter of 2013, according to its own release. In the fourth
quarter of 2014, there were 971 dividend increases, up 9.7% from the 885
dividend increases in the fourth quarter of 2013. The number of dividends cut or
suspended in the fourth quarter of 2014 totaled 67, up 31.4% from the 51 cut or
suspended in the fourth quarter of 2013. In 2014, dividend increases were up
14.3% compared to 2013, while dividend decreases declined by 2.7%.
Page 2
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MARKET OVERVIEW (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2014
BONDS
The yield on the benchmark 10-Year Treasury note stood at 2.17% on December 31,
2014, down 86 basis points from 3.03% on December 31, 2013. The drop in the
yield on the 10-Year Treasury note was a boon for investors holding
investment-grade bonds. While the Federal Reserve (Fed) did end its quantitative
easing-related bond purchases in December 2014, it has yet to tighten monetary
policy. Many economists believe that the Fed will begin to do so at some point
in 2015. Low interest rates abroad, particularly in Europe, a strengthening U.S.
dollar and the lack of any significant inflationary pressures have enabled
interest rates to stay low, in our opinion. As of December, Moody's expected the
default rate on speculative-grade bonds to remain below 3% in 2015, which we
interpret as another vote of confidence for the U.S. economy. Income-oriented
securities that can potentially benefit from a rising interest rate climate
include dividend-paying stocks, senior loans, master limited partnerships
("MLPs"), and equity REITs.
Net inflows to taxable bond mutual funds and ETFs net inflows totaled $87.6
billion in 2014, according to data from Morningstar. Corporate bond funds and
ETFs reported net inflows totaling $9.6 billion. Companies took advantage of the
low interest rate climate by issuing enough investment-grade debt ($1.15
trillion) to establish a new record high in the last week of November 2014.
Page 3
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
For the year ended December 31, 2014, the First Trust/Dow Jones Dividend &
Income Allocation Portfolio (the "Fund") Class I Shares returned 10.04% versus
10.15% for the blended index: 50% Russell 3000(R) Index and 50% Barclays U.S.
Corporate Investment-Grade Index. As of December 31, 2014, the total investments
for the Fund were allocated as follows: Equities, 56.6% and Fixed Income, 43.4%.
EQUITIES COMMENTARY
The equity markets continued to rise in 2014 as the Russell 3000(R) Index
increased 12.56%. This followed the stellar 33.55% return in 2013, the best
calendar year performance since 1995, as the current six year bull market
continued. In January, equity markets hit their lows for the year as soft
economic data from emerging markets and uncertainty about the Federal Reserve's
("Fed") plan to unwind their bond purchases elevated the risk of holding
equities. Equity markets quickly recovered with positive employment growth and
growing corporate profits. In May it was reported that first quarter GDP growth
was negative, the first negative GDP number since the first quarter of 2011.
Investors seemed to brush off the news and blame the harsh winter for the
disappointing GDP growth as equities continued to grind higher. Despite
geopolitical fears in Russia and Iraq, unemployment dropped to 6.3%,
manufacturing improved and growing corporate profits spurred merger and
acquisition activity. In the third quarter, it appeared that investors feared
that the Fed could raise rates sooner than expected as labor markets continued
to improve and the U.S. recovery accelerated. Equities sold off sharply to begin
the fourth quarter amid continued fears of a rate increase and weak global
economic growth. Oil prices fell from $90 to below $54 a barrel due to a global
supply surplus and a strong U.S. dollar. However, U.S. GDP growth continued to
accelerate to 5%, which quickly spurred a large equity rally to end the year.
The equity portion of the Fund has a quarterly rebalance in early January,
April, July and October. The equity portion of the Fund seeks capital
appreciation, below-market risk and above-market dividend yield. To accomplish
this, the selection process is focused on dividend strength, capital strength
and price stability. This process resulted in overweight positions in
Financials, Industrials, Consumer Staples and Consumer Discretionary stocks,
while Energy, Health Care, Information Technology and Utilities were
underweight.
The total return for the equity portion of the Fund was 14.47% (Gross of Fees)
compared to 12.56% for the Russell 3000(R) Index. Of the 10 GICS sectors, seven
had a positive total attribution effect (allocation effect combined with
selection effect) and three had a negative total attribution effect. Six sectors
had a positive selection effect: Industrials, Consumer Discretionary, Materials,
Health Care, Energy and Utilities. Three sectors had a negative selection
effect: Financials, Information Technology and Consumer Staples. The
Telecommunication Services sector had a flat selection effect. Overall, the
equity portfolio benefited from both a positive selection effect and a positive
allocation effect, which led to the outperformance of the Russell 3000(R) Index.
The Energy sector was the largest overall contributor to relative performance.
The Fund was underweight the worst performing sector in the Russell 3000(R)
Index, which led to a large positive allocation effect. The Energy sector was
the only sector to have negative performance in the Russell 3000(R) Index in
2014. The Fund's relative performance for the sector was helped by the
underweight and by avoiding poor performing selections in the benchmark such as
Seadrill Ltd., Halliburton Co., Apache Corp. and Noble Energy Inc.
The Health Care sector was the biggest detractor from relative performance. The
Fund was underweight the second best performing sector in the Russell 3000(R)
Index. The Fund had a positive selection effect for the sector, but not enough
to overcome the negative allocation effect and led to negative overall relative
performance for the sector. Some Health Care selections that helped the Fund's
performance were Eli Lilly & Co., Covidien Plc, Chemed Corp., UnitedHealth Group
Inc., Medtronic Inc. and Quest Diagnostics Inc.
Relative to the blended index, the Fund also outperformed in the Industrials
sector and lagged in the Information Technology sector. In the Industrials
sector, the Fund was overweight Union Pacific Corp., Lockheed Martin Corp.,
Cintas Corp. and Northrop Grumman Corp. These securities outperformed the
blended index and added to the Fund's relative performance. In the Information
Technology sector, the Fund was underweight Microsoft Corp. and Intel Corp.,
both of which outperformed the blended index. The Fund did not hold
outperforming stocks in the blended index such as Apple Inc., Facebook Inc.,
Hewlett-Packard Co. and Micron Technology Inc.
Page 4
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
The Fund's top five contributors to performance were Dr Pepper Snapple Group,
Inc., Sigma-Aldrich Corp., Union Pacific Corp., Eli Lilly & Co. and Garmin Ltd.
The top detractors from performance were Coach Inc., Mattel Inc., FMC Corp.,
Heartland Payment Systems Inc. and Scripps Networks Interactive Inc.
As we look forward to 2015, U.S. equities remain attractive. Cheaper oil
boosting real wages and consumer confidence, coupled with an accommodative Fed,
should continue to drive U.S. demand. Increasing corporate earnings and positive
U.S. GDP growth should help drive equity returns in 2015. Despite global equity
risks, U.S. markets appear to have reasonable risks with a higher return
potential than many international equity markets. The equity portion of the Fund
will remain consistent in seeking capital appreciation, below-market risk and
above-market dividend yield.
FIXED INCOME COMMENTARY
The investment-grade corporate bond market posted excellent returns for 2014.
Return was driven entirely by declining long-term interest rates, an outcome
that confounded consensus expectations for yields to rise. In fact, falling
interest rates was a reversal of what happened the previous year. In 2013, bond
returns were negative owing to rising interest rates which offset favorable
(tighter) credit spread changes.
For 2014, Treasuries outperformed corporate bonds owing in part to heavy demand
from foreign investors seeking safety and relatively higher yield compared to
other developed market government bonds. Corporate credit spreads improved
steadily during the first half of the year, even in the face of unusually frigid
winter weather that temporarily slowed economic activity, and Russia's conflict
with neighboring Ukraine. Investor appetite for investment-grade credit
continued well into the second quarter and pushed spreads to multi-year lows. By
late June, however, investors seemed to collectively conclude the valuations
were no longer attractive and credit spreads began to widen. Contributing to the
concerning outlook were economic weakness in Europe, falling oil prices, and
record debt issuance. Spreads reversed all of the tightening in the first half
of the year and closed the year wider. As measured by the Barclays U.S.
Corporate Investment-Grade Index, spreads widened 17 basis points to 131 at year
end.
The total return for the bond portion of the Fund was 6.91% (Gross of Fees)
compared to 7.46% for the Barclays U.S. Corporate Investment-Grade Index.
Interest rate changes had a neutral impact on relative performance but the
allocation to Treasury securities was a clear positive. Among the 18 corporate
bond industry categories, the Fund had positive attribution effects in seven
(return above benchmark from allocation and security selection). Leading
contributors include underweighting the Energy and Healthcare sectors and
overweighting Technology. Selections in Energy, Basic Materials and Automotive
were also additive. Overall corporate sector allocation added to relative
return; however, the Fund underperformed owing to security selections and
overweighting corporate bonds with 20-30 years to maturity. We anticipated
credit curves would flatten but as long-term Treasury yields fell, corporate
credit spread curves steepened which unfavorably impacted the return for 20-30
year corporate bonds compared to those with a shorter maturity.
Looking into 2015, we have a constructive outlook for investment-grade credit.
This view is supported by a favorable growth outlook in the U.S. and positive
technical factors such as strong demand from both domestic as well as foreign
investors. Through the year we expect the yield curve to rise gradually and
flatten, given low inflation globally and the Fed's bias to remove accommodation
slowly. In such an environment, rising interest rates would likely be met with
an increase in demand from yield-driven investors such as insurance companies
and pension funds. At this time, credit valuation on the whole looks fair
compared with the long-term average. However, low all-in yields and pressure to
reward shareholders will likely entice some corporations to increase leverage
and thus, lower expected returns to existing bondholders. Our focus will be on
companies that are competitively well-positioned in their industry, demonstrate
strong earnings growth, and the discipline to de-lever with those earnings.
2015 also appears likely to offer attractive investment opportunities in the
Energy space. The sharp drop in the price of oil is forcing energy companies to
face difficult decisions surrounding cost cutting and production volumes. These
factors and the uncertainty of how low oil will fall and for how long has caused
bonds to cheapen across the sector. Eventually the market will find a
supply/demand equilibrium and the fear discount will come out of bond
valuations. We are focusing on falling land rig count as a leading equilibrium
indicator while also tracking capital expenditure budgets. Because we believe
the U.S. is in the midst of an energy renaissance, bonds for some of the
best-positioned energy companies should offer an attractive buying opportunity
later in 2015.
Page 5
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
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RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2014
1 YEAR ANNUAL SINCE INCEPTION AVERAGE
INCEPTION DATE TOTAL RETURN ANNUAL TOTAL RETURN
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION
PORTFOLIO - CLASS I 5/1/12 10.04% 10.17%
Blended Index (a) 10.15% 11.18%
Barclays U.S. Corporate Investment-Grade Index (b) 7.46% 4.53%
Russell 3000(R) Index (c) 12.56% 17.93%
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SINCE INCEPTION
CUMULATIVE
INCEPTION DATE TOTAL RETURN
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION
PORTFOLIO - CLASS II 5/1/14 7.82%
Blended Index (a) 6.48%
Barclays U.S. Corporate Investment-Grade Index (b) 2.82%
Russell 3000(R) Index (c) 10.20%
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(a) The Blended Index returns are 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. corporbonds. The 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). (The index
reflects no deduction for fees, expenses or taxes.)
(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 returns for the Fund do 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, 2014
First Trust/Dow Jones Dividend & Blended Barclays U.S. Corporate Russell 3000(R)
Income Allocation Portfolio - Class I Index Investment-Grade Index Index (a)
5/1/2012 $10,000 $10,000 $10,000 $10,000
6/30/2012 10,020 9,925 10,135 9,701
12/31/2012 10,438 10,495 10,636 10,331
6/30/2013 10,904 11,026 10,273 11,784
12/31/2013 11,770 12,055 10,472 13,798
6/30/2014 12,318 12,823 11,067 14,756
12/31/2014 12,951 13,269 11,254 15,531
Page 6
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
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% OF TOTAL
TOP EQUITY HOLDINGS INVESTMENTS
------------------------------------------------------
Cracker Barrel Old Country Store, Inc. 0.5%
Tractor Supply Co. 0.4
Southwest Airlines Co. 0.4
Ross Stores, Inc. 0.4
Visa, Inc., Class A 0.4
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Total 2.1%
=====
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% OF TOTAL
TOP FIXED-INCOME HOLDINGS BY ISSUER INVESTMENTS
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U.S. Government 5.8%
Bank of America Corp. 1.4
Citigroup, Inc. 1.3
Goldman Sachs Group (The), Inc. 1.3
Morgan Stanley 1.3
------------------------------------------------------
Total 11.1%
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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Common Stocks:
Financials 14.9%
Industrials 10.2
Consumer Discretionary 7.8
Information Technology 7.7
Consumer Staples 6.3
Health Care 5.0
Materials 3.0
Energy 1.0
Utilities 0.4
Telecommunication Services 0.3
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Total Common Stocks 56.6
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Corporate Bonds & Notes:
Financials 13.7
Utilities 3.9
Consumer Discretionary 3.6
Energy 3.5
Consumer Staples 2.6
Health Care 2.6
Information Technology 2.6
Industrials 2.2
Telecommunication Services 1.6
Materials 0.8
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Total Corporate Bonds & Notes 37.1
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U.S. Government Bonds & Notes 5.8
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Foreign Corporate Bonds & Notes:
Materials 0.3
Energy 0.1
Financials 0.1
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Total Foreign Corporate Bonds & Notes 0.5
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Total 100.0%
======
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% OF TOTAL
CREDIT QUALITY(1) INVESTMENTS
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AAA 14.5%
AA+ 3.7
AA 4.2
AA- 5.5
A+ 10.3
A 25.0
A- 14.4
BBB+ 8.6
BBB 9.0
BBB- 4.8
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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 of the underlying securities in the
Fund, and not to the Fund or its shares. Credit ratings are subject to
change of the underlying securities in the Fund, and not to the Fund or
its shares. Credit ratings are subject to change.
Page 7
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
The First Trust Multi Income Allocation Portfolio (the "Fund") Class I Shares,
from inception (May 1, 2014) to December 31, 2014 returned 4.57% versus 5.82%
for the blended index: 60% Barclays U.S. Aggregate Index and 40% Russell 3000(R)
Index. From May 1, 2014 to December 31, 2014, the Barclays U.S. Aggregate Index
returned 2.95% and the Russell 3000(R) Index returned 10.20%.
The Fund invests in nine asset classes which are: dividend-paying stocks,
preferred stocks, energy infrastructure companies and master limited
partnerships ("MLPs"), real estate investment trusts ("REITs"), high yield or
"junk" bonds, floating-rate loans, corporate bonds, mortgage-backed securities
("MBS") and Treasury Inflation Protected Securities ("TIPS"). The weight
assigned to each asset class is determined on a quarterly basis. As of December
31, 2014, the dividend-paying securities were the highest-weighted asset class,
while the MBS asset class was the lowest-weighted asset class. The following
asset classes had the most positive impact on the overall Fund performance:
REITs, dividend-paying stocks, and MLPs, while the following asset classes had
the most negative impact on the overall Fund performance: high yield corporate
bonds, TIPS, and floating-rate bank loans.
Dividend-paying stocks returned 8.91% (Gross of Fees) since inception and
represented 18.2% of the portfolio as of December 31, 2014. Dividend-paying
stocks posted strong returns over the period as they remained attractive given
the low interest rate environment and the accelerating economic growth in the
U.S. during the second half of the year. Within the portfolio, holdings in the
Health Care sector posted the highest returns over the period as three of the
top five performing stocks were from the sector. Covidien Plc was the top
performer in the sector, as it agreed to be acquired by Medtronic Inc. in June.
AmerisourceBergen Corp. and CVS Health Corp. were also top performers. Despite
being the top sector on an absolute basis in the Fund, Health Care stocks
weighed on performance relative to the Russell 3000(R) Index due to modestly
negative stock selection. Consumer Discretionary stocks performed well as the
employment picture continued to improve over the period and with it consumer
confidence. Home Depot Inc., Nordstrom Inc. and The Walt Disney Co. were top
performers for the portfolio within the sector. Energy shares were the biggest
drag on the portfolio over the period as oil prices dropped 46% since inception
of the Fund.
The preferred stocks returned 3.53% (Gross of Fees) since inception and
represented 8.9% of the portfolio as of December 31, 2014. The portfolio
benefited from a significant position in fixed-to-float securities, legacy tier
1 capital securities and high coupon securities that performed well during the
period. This was partially offset by limited exposure to longer duration fixed
rate securities which generally performed the best during the period as interest
rates remained low.
The energy infrastructure companies and MLPs returned 8.05% (Gross of Fees)
since inception and represented 13.2% of the portfolio as of December 31, 2014.
Performance benefited from positions in pipeline-related MLPs and regulated
electric utilities whose earnings are supported by fee-based cash flows. The
largest contributors to this positive performance included companies that
announced corporate restructurings and acquisitions that improved the overall
outlook for growth despite the challenging commodity price environment. This was
partially offset by holdings that own and operate crude oil and natural gas
liquids ("NGL") pipelines as liquids-directed drilling activity has slowed.
REITs returned 11.88% (Gross of Fees) since inception and represented 13.5% of
the portfolio as of December 31, 2014. A strong fourth quarter more than fully
accounted for the gains since inception. While REIT performance was negatively
impacted in the third quarter by a market rotation out of small-capitalization
equities, improving property market fundamentals including better than expected
U.S. GDP and declining market interest rates returned the REIT sector to favor
in the fourth quarter. Top performers for the period were hotel and resort REITs
Chesapeake Lodging Trust and RLJ Lodging Trust, and residential REIT Education
Realty Trust. Relatively weak performance came from Sabra Health Care REIT,
Lexington Realty Trust, and Hospitality Properties Trust.
High-yield bonds returned -0.94% (Gross of Fees) since inception and represented
8.7% of the portfolio as of December 31, 2014. While high-yield bond yields fell
below 5% in the summer of 2014, the volatility in the second half of the year
has left high-yield bonds at much more attractive levels. Towards the end of
2014, we believe the energy-driven selling pressure within the high-yield market
caused indiscriminate selling of the debt of companies completely unrelated to
energy, in essence throwing the baby out with the bathwater. Our significant
underweight position in energy has proven beneficial in the wake of this
decline. Importantly, energy-induced volatility is likely to weigh on the
high-yield benchmark, which we believe further supports the rationale for active
decision making, rather than passive, within the high-yield credit market.
Page 8
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
Floating-rate loans returned 0.48% (Gross of Fees) since inception and
represented 15.6% of the portfolio as of December 31, 2014. Our underweight
position in the lowest credit quality issues (those rated CCC+ and below) was a
benefit to performance as higher credit quality issues outperformed lower rated
issues for the period. We believe that with a potential increase in the Federal
Funds rate on the horizon, demand for senior loans may increase in the coming
months. Based on current valuations, we believe senior loans, given their senior
secured position in the capital structure and floating interest rate, are well
positioned as we move through 2015.
Corporate bonds returned 3.08% (Gross of Fees) since inception and represented
8.9% of the portfolio as of December 31, 2014. The investment-grade corporate
bond market posted solid returns since inception. Return was driven entirely by
declining long-term interest rates, an outcome that confounded consensus
expectations for yields to rise. In fact, falling interest rates was a reversal
of what happened the previous year. In 2013, bond returns were negative owing to
rising interest rates which offset favorable (tighter) credit spread changes.
Since inception, Treasuries outperformed corporate bonds owing in part to heavy
demand from foreign investors seeking safety and relatively higher yield
compared to other developed market government bonds. Corporate credit spreads
improved steadily during the first half even in the face of unusually frigid
winter weather that temporarily slowed economic activity and Russia's conflict
with neighboring Ukraine. Investor appetite for investment-grade credit
continued well into the second quarter and pushed spreads to multi-year lows. By
late June however, investors seemed to collectively conclude the valuations were
no longer attractive and credit spreads began to widen. Contributing to the
concerning outlook were economic weakness in Europe, falling oil prices, and
record debt issuance. Spreads reversed all of the tightening in the first half
of the year and closed the year wider.
The MBS asset class returned 3.40% (Gross of Fees) since inception and
represented 5.7% of the portfolio as of December 31, 2014. The U.S. rates market
experienced a bull flattening during 2014 that saw the spread between 2-year and
30-year yields tighten from 300 basis points (bps) on May 1, 2014 (inception) to
208 bps on December 31, 2014. This flattening theme accelerated during the
fourth quarter, which helped the MBS asset class post strong positive return.
Mortgage spreads tightened approximately 16 bps from inception through year end,
so the overall mortgage market outperformed Treasury securities with similar
duration. The asset class strategy has been and will remain defensive as we
expect increased volatility as the market debates deflation risks versus
sustainable U.S. growth and improved labor market conditions. However, we
believe that the latter will eventually prevail.
TIPS returned -0.30% (Gross of Fees) since inception and represented 7.3% of the
portfolio as of December 31, 2014. Intermediate and long-term yields on TIPS
fell during the period while yields in the middle and front-end of the yield
curve rose. As a result, the 10-year and over maturity bucket was the only one
with a positive total return for the period. The Fund was overweight 2-year to
7-year securities where yields rose and underweight 10-year to 30-year
securities where yields fell. The return from front end TIPS was particularly
hurt by the drop in CPI (Consumer Price Index). The year-over-year measure of
CPI inflation fell from 2.1% in May to 0.8% in December.
In 2015, we believe that income-oriented investors should pay close attention to
the relationship between low interest rates and accelerating economic growth in
the U.S. Until the second half of 2014, the U.S. economic climate was defined by
low interest rates and low-to-modest growth. In the second and third quarters of
2014, however, U.S. GDP growth was up 4.6% and 5.0%, respectively, on an
annualized basis, according to the Bureau of Economic Analysis. The results for
the fourth quarter of 2014 are scheduled to be announced on January 30, 2015.
Bloomberg's consensus estimate was 3.0% annualized growth, as of January 26,
2015. With the exception of TIPs, most income-oriented categories posted
positive total returns in 2014. One of the primary reasons why TIPs were off in
2014 was the absence of any significant inflationary pressures. The CPI level
was essentially cut in half in 2014, falling from 1.5% in December 2013 to 0.8%
in December 2014. The second half plunge in the price of crude oil was a big
contributor. Economic weakness in Europe and the tempering of growth in China
were also contributing factors, in our opinion. We expect interest rates to
trend higher in the U.S. in 2015 on the back of stronger economic output, job
growth and the potential for a decision by the Fed to begin tightening its
monetary policy. The Fund is currently overweight income-oriented securities
that are well suited to weather a rising interest rate climate, and in some
instances, have the ability to increase dividend payouts, in our opinion.
Page 9
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------
RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2014
SINCE INCEPTION
INCEPTION DATE CUMULATIVE TOTAL RETURN
FIRST TRUST MULTI INCOME ALLOCATION
PORTFOLIO - CLASS I 5/1/14 4.57%
FIRST TRUST MULTI INCOME ALLOCATION
PORTFOLIO - CLASS II 4.74%
Blended Index (a) 5.82%
Barclays U.S. Aggregate Index (b) 2.95%
Russell 3000(R) Index (c) 10.20%
--------------------------------------------------------------------------------------------------------------------------
(a) The Blended Index return is split between the Russell 3000(R) Index (40%)
and the Barclays U.S. Aggregate Index (60%).
(b) The Barclays U.S. Aggregate Index represents the U.S. investment grade
fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities.
Bonds included in the index are U.S. dollar denominated; have a fixed rate
coupon; carry an investment-grade rating; have at least one year to final
maturity; and meet certain criteria for minimum amount of outstanding par
value. (The index reflects no deduction for fees, expenses or taxes.)
(c) The Russell 3000(R) is composed of 3,000 large U.S. companies, as
determined by market capitalization. This represents approximately 98% of
the investable U.S. equity market. (Bloomberg). (The index reflects no
deduction for fees, expenses or taxes.)
The returns for the Fund do 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, 2014 - December 31, 2014
First Trust Multi Income Allocation Blended Barclays U.S. Russell 3000(R)
Portfolio -- Class I Index (a) Aggregate Index Index
5/1/2014 $10,000 $10,000 $10,000 $10,000
6/30/2014 10,320 10,245 10,096 10,470
12/31/2014 10,457 10,582 10,294 11,020
Page 10
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2014 (UNAUDITED)
----------------------------------------------------------------------
% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
----------------------------------------------------------------------
First Trust Senior Loan Fund 15.4%
iShares iBoxx $ Investment Grade Corporate Bond ETF 9.0
First Trust Preferred Securities and Income ETF 8.9
First Trust Tactical High Yield ETF 8.6
iShares MBS ETF 4.8
Kinder Morgan, Inc. 1.3
U.S. Treasury Inflation Indexed Bond 3.38%, 04/15/32 1.0
U.S. Treasury Inflation Indexed Bond 0.63%, 02/15/43 0.8
Plains All American Pipeline, L.P. 0.8
ONEOK Partners, L.P. 0.8
----------------------------------------------------------------------
Total 51.4%
=====
-------------------------------------------------------
% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
-------------------------------------------------------
Exchange-Traded Funds 46.9%
-------------------------------------------------------
Common Stocks:
Energy 4.0
Financials 3.7
Utilities 3.6
Consumer Discretionary 3.0
Industrials 2.6
Health Care 2.5
Information Technology 2.2
Consumer Staples 1.5
Telecommunication Services 0.7
Materials 0.3
-------------------------------------------------------
Total Common Stocks 24.1
-------------------------------------------------------
Real Estate Investment Trusts:
Financials 13.6
-------------------------------------------------------
Total Real Estate Investment Trusts 13.6
-------------------------------------------------------
Master Limited Partnerships:
Energy 6.9
Utilities 0.5
-------------------------------------------------------
Total Master Limited Partnerships 7.4
-------------------------------------------------------
U.S. Government Bond & Notes 7.3
-------------------------------------------------------
U.S. Government Agency Mortgage Backed
Securities 0.7
-------------------------------------------------------
Mortgage-Backed Securities 0.0*
-------------------------------------------------------
Total 100.0%
======
* Amount is less than 0.1%.
Page 11
FIRST TRUST VARIABLE INSURANCE TRUST
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2014 (UNAUDITED)
As a shareholder of First Trust/Dow Jones Dividend & Income Allocation Portfolio
or First Trust Multi Income Allocation Portfolio (each a "Fund" and
collectively, the "Funds"), 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 Funds 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, 2014.
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 each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each 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 Funds 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 7/1/2014- VALUE VALUE 7/1/2014- EXPENSE
7/1/2014 12/31/2014 12/31/2014 (a) 7/1/2014 12/31/2014 12/31/2014 (a) RATIO (b)
-------------- ---------- -------------- -------------- ---------- -------------- ---------
First Trust/Dow Jones Dividend &
Income Allocation Portfolio
Class I $ 1,000.00 $ 1,051.40 $ 6.20 $ 1,000.00 $ 1,019.16 $ 6.11 1.20%
Class II $ 1,000.00 $ 1,052.90 $ 4.92 $ 1,000.00 $ 1,020.42 $ 4.84 0.95%
First Trust Multi Income
Allocation Portfolio
Class I $ 1,000.00 $ 1,013.30 $ 6.09 $ 1,000.00 $ 1,019.16 $ 6.11 1.20%
Class II $ 1,000.00 $ 1,014.90 $ 4.82 $ 1,000.00 $ 1,020.42 $ 4.84 0.95%
(a) Expenses are equal to the annualized expense ratio as indicated in the
table, multiplied by the average account value over the period (July 1,
2014, through December 31, 2014), multiplied by 184/365 (to reflect the
one-half year period).
(b) The expense ratios reflect an expense cap.
Page 12
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS - 54.4%
AEROSPACE & DEFENSE - 3.2%
5,136 Boeing (The) Co............................................................... $ 667,577
5,148 General Dynamics Corp......................................................... 708,468
7,034 Honeywell International, Inc.................................................. 702,837
5,505 L-3 Communications Holdings, Inc.............................................. 694,786
3,586 Lockheed Martin Corp.......................................................... 690,556
4,977 Northrop Grumman Corp......................................................... 733,560
6,449 Raytheon Co................................................................... 697,588
8,345 Rockwell Collins, Inc......................................................... 704,986
6,205 United Technologies Corp...................................................... 713,575
-------------
6,313,933
-------------
AIRLINES - 0.4%
19,400 Southwest Airlines Co......................................................... 821,008
-------------
BANKS - 2.5%
9,854 BOK Financial Corp............................................................ 591,634
8,565 Cullen/Frost Bankers, Inc..................................................... 605,032
19,266 East West Bancorp, Inc........................................................ 745,787
23,666 MB Financial, Inc............................................................. 777,665
67,467 National Penn Bancshares, Inc................................................. 710,090
15,660 U.S. Bancorp.................................................................. 703,917
12,630 Wells Fargo & Co.............................................................. 692,376
-------------
4,826,501
-------------
BEVERAGES - 1.4%
15,355 Coca-Cola (The) Co............................................................ 648,288
14,769 Coca-Cola Enterprises, Inc.................................................... 653,086
10,187 Dr Pepper Snapple Group, Inc.................................................. 730,204
7,036 PepsiCo, Inc.................................................................. 665,324
-------------
2,696,902
-------------
BIOTECHNOLOGY - 0.7%
4,660 Amgen, Inc.................................................................... 742,292
87,696 PDL BioPharma, Inc............................................................ 676,136
-------------
1,418,428
-------------
CAPITAL MARKETS - 1.1%
18,118 SEI Investments Co............................................................ 725,445
8,357 T. Rowe Price Group, Inc...................................................... 717,532
19,630 TD Ameritrade Holding Corp.................................................... 702,361
-------------
2,145,338
-------------
CHEMICALS - 2.2%
5,915 Airgas, Inc................................................................... 681,290
11,456 FMC Corp...................................................................... 653,336
11,894 Innophos Holdings, Inc........................................................ 695,204
6,830 International Flavors & Fragrances, Inc....................................... 692,289
5,826 Monsanto Co................................................................... 696,032
2,992 Sherwin-Williams (The) Co..................................................... 787,015
-------------
4,205,166
-------------
COMMERCIAL SERVICES & SUPPLIES - 0.4%
9,282 Cintas Corp................................................................... 728,080
-------------
See Notes to Financial Statements Page 13
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT - 1.1%
10,353 Motorola Solutions, Inc....................................................... $ 694,480
13,711 Plantronics, Inc.............................................................. 726,957
8,761 QUALCOMM, Inc................................................................. 651,205
-------------
2,072,642
-------------
CONSUMER FINANCE - 0.3%
10,176 Discover Financial Services................................................... 666,426
-------------
CONTAINERS & PACKAGING - 0.4%
10,792 AptarGroup, Inc............................................................... 721,337
-------------
DISTRIBUTORS - 0.4%
7,468 Genuine Parts Co.............................................................. 795,865
-------------
DIVERSIFIED FINANCIAL SERVICES - 0.4%
12,239 CBOE Holdings, Inc............................................................ 776,197
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3%
18,588 AT&T, Inc..................................................................... 624,371
-------------
ELECTRICAL EQUIPMENT - 0.4%
13,049 AMETEK, Inc................................................................... 686,769
-------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS - 0.8%
13,119 Amphenol Corp., Class A....................................................... 705,933
11,851 TE Connectivity, Ltd.......................................................... 749,576
-------------
1,455,509
-------------
FOOD & STAPLES RETAILING - 1.1%
8,230 CVS Caremark Corp............................................................. 792,631
17,266 Sysco Corp.................................................................... 685,287
8,570 Wal-Mart Stores, Inc.......................................................... 735,992
-------------
2,213,910
-------------
FOOD PRODUCTS - 2.4%
14,665 Cal-Maine Foods, Inc.......................................................... 572,375
12,985 General Mills, Inc............................................................ 692,490
6,870 Hershey (The) Co.............................................................. 713,999
12,748 Hormel Foods Corp............................................................. 664,171
6,619 JM Smucker (The) Co........................................................... 668,387
7,684 Lancaster Colony Corp......................................................... 719,530
9,792 McCormick & Co., Inc.......................................................... 727,545
-------------
4,758,497
-------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.2%
9,125 Baxter International, Inc..................................................... 668,771
5,756 Becton, Dickinson & Co........................................................ 801,005
10,577 Medtronic, Inc................................................................ 763,660
-------------
2,233,436
-------------
HEALTH CARE PROVIDERS & SERVICES - 1.9%
8,742 Cardinal Health, Inc.......................................................... 705,742
20,009 Owens & Minor, Inc............................................................ 702,516
15,811 Patterson Cos., Inc........................................................... 760,509
10,795 Quest Diagnostics, Inc........................................................ 723,913
Page 14 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
HEALTH CARE PROVIDERS & SERVICES (CONTINUED)
7,595 UnitedHealth Group, Inc....................................................... $ 767,778
-------------
3,660,458
-------------
HOTELS, RESTAURANTS & LEISURE - 1.2%
6,346 Cracker Barrel Old Country Store, Inc......................................... 893,263
6,912 McDonald's Corp............................................................... 647,655
23,532 Texas Roadhouse, Inc.......................................................... 794,440
-------------
2,335,358
-------------
HOUSEHOLD PRODUCTS - 0.7%
9,335 Church & Dwight Co., Inc...................................................... 735,691
7,821 Procter & Gamble (The) Co..................................................... 712,415
-------------
1,448,106
-------------
INDUSTRIAL CONGLOMERATES - 1.1%
4,623 3M Co......................................................................... 759,651
8,618 Danaher Corp.................................................................. 738,649
4,484 Roper Industries, Inc......................................................... 701,074
-------------
2,199,374
-------------
INSURANCE - 8.6%
6,250 ACE, Ltd...................................................................... 718,000
11,242 AFLAC, Inc.................................................................... 686,774
17,777 Allied World Assurance Co. Holdings, AG....................................... 674,104
10,679 Allstate Corp................................................................. 750,200
11,316 American Financial Group, Inc................................................. 687,107
7,471 Aon PLC....................................................................... 708,475
13,023 Argo Group International Holdings, Ltd........................................ 722,386
15,319 Aspen Insurance Holdings, Ltd................................................. 670,513
10,188 Assurant, Inc................................................................. 697,165
13,839 Axis Capital Holdings, Ltd.................................................... 707,034
7,191 Chubb Corp.................................................................... 744,053
4,044 Everest Re Group, Ltd......................................................... 688,693
13,568 HCC Insurance Holdings, Inc................................................... 726,159
12,516 Marsh & McLennan Cos., Inc.................................................... 716,416
21,072 Montpelier Re Holdings, Ltd................................................... 754,799
5,958 PartnerRe, Ltd................................................................ 679,987
13,585 Primerica, Inc................................................................ 737,122
12,484 Principal Financial Group, Inc................................................ 648,419
14,863 ProAssurance Corp............................................................. 671,064
8,176 Reinsurance Group of America, Inc............................................. 716,381
6,552 RenaissanceRe Holdings, Ltd................................................... 636,985
12,509 Torchmark Corp................................................................ 677,612
6,974 Travelers (The) Cos., Inc..................................................... 738,198
16,735 Validus Holdings, Ltd......................................................... 695,507
-------------
16,853,153
-------------
IT SERVICES - 3.3%
8,054 Accenture PLC, Class A........................................................ 719,303
8,989 Automatic Data Processing, Inc................................................ 749,413
15,738 Broadridge Financial Solutions, Inc........................................... 726,781
7,807 DST Systems, Inc.............................................................. 735,029
See Notes to Financial Statements Page 15
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
IT SERVICES (CONTINUED)
3,445 International Business Machines Corp.......................................... $ 552,716
11,769 Jack Henry & Associates, Inc.................................................. 731,325
8,864 MasterCard, Inc., Class A..................................................... 763,722
14,822 Paychex, Inc.................................................................. 684,332
3,069 Visa, Inc., Class A........................................................... 804,692
-------------
6,467,313
-------------
LEISURE PRODUCTS - 0.3%
21,375 Mattel, Inc................................................................... 661,449
-------------
MACHINERY - 2.8%
10,384 CLARCOR, Inc.................................................................. 691,990
4,970 Cummins, Inc.................................................................. 716,525
16,120 Donaldson Co., Inc............................................................ 622,715
9,050 IDEX Corp..................................................................... 704,452
22,948 Mueller Industries, Inc....................................................... 783,445
11,061 Toro (The) Co................................................................. 705,802
4,858 Valmont Industries, Inc....................................................... 616,966
8,085 Wabtec Corp................................................................... 702,506
-------------
5,544,401
-------------
MEDIA - 1.7%
12,182 Comcast Corp., Class A........................................................ 706,678
9,649 Morningstar, Inc.............................................................. 624,387
9,514 Omnicom Group, Inc............................................................ 737,050
8,390 Scripps Networks Interactive, Inc., Class A................................... 631,515
7,359 Walt Disney (The) Co.......................................................... 693,144
-------------
3,392,774
-------------
METALS & MINING - 0.3%
8,594 Kaiser Aluminum Corp.......................................................... 613,869
-------------
MULTI-UTILITIES - 0.4%
15,235 Wisconsin Energy Corp......................................................... 803,494
-------------
MULTILINE RETAIL - 0.4%
11,254 Macy's, Inc................................................................... 739,951
-------------
OIL, GAS & CONSUMABLE FUELS - 1.0%
5,487 Chevron Corp.................................................................. 615,531
8,563 ConocoPhillips................................................................ 591,361
6,966 Exxon Mobil Corp.............................................................. 644,007
-------------
1,850,899
-------------
PHARMACEUTICALS - 1.0%
10,100 Eli Lilly & Co................................................................ 696,799
6,148 Johnson & Johnson............................................................. 642,896
22,154 Pfizer, Inc................................................................... 690,097
-------------
2,029,792
-------------
PROFESSIONAL SERVICES - 0.4%
8,765 Equifax, Inc.................................................................. 708,826
-------------
Page 16 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS - 1.0%
53,517 Capstead Mortgage Corp........................................................ $ 657,189
30,573 PennyMac Mortgage Investment Trust............................................ 644,784
3,949 Public Storage................................................................ 729,973
-------------
2,031,946
-------------
ROAD & RAIL - 0.7%
9,075 Landstar System, Inc.......................................................... 658,210
6,044 Union Pacific Corp............................................................ 720,021
-------------
1,378,231
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.8%
13,236 Analog Devices, Inc........................................................... 734,863
13,735 Texas Instruments, Inc........................................................ 734,342
-------------
1,469,205
-------------
SOFTWARE - 1.5%
23,449 CA, Inc....................................................................... 714,022
7 CDK Global, Inc............................................................... 285
5,396 FactSet Research Systems, Inc................................................. 759,487
14,130 Microsoft Corp................................................................ 656,339
17,112 Oracle Corp................................................................... 769,527
-------------
2,899,660
-------------
SPECIALTY RETAIL - 2.7%
26,173 Finish Line (The), Inc., Class A.............................................. 636,265
7,140 Home Depot (The), Inc......................................................... 749,486
9,347 PetSmart, Inc................................................................. 759,864
8,668 Ross Stores, Inc.............................................................. 817,046
11,076 TJX (The) Cos., Inc........................................................... 759,592
10,650 Tractor Supply Co............................................................. 839,433
9,841 Williams-Sonoma, Inc.......................................................... 744,767
-------------
5,306,453
-------------
TEXTILES, APPAREL & LUXURY GOODS - 0.8%
3,976 Ralph Lauren Corp............................................................. 736,196
9,924 VF Corp....................................................................... 743,308
-------------
1,479,504
-------------
THRIFTS & MORTGAGE FINANCE - 0.4%
55,422 Capitol Federal Financial, Inc................................................ 708,293
-------------
TOBACCO - 0.4%
11,105 Reynolds American, Inc........................................................ 713,718
-------------
TRADING COMPANIES & DISTRIBUTORS - 0.3%
2,602 W.W. Grainger, Inc............................................................ 663,224
-------------
TOTAL COMMON STOCKS 106,119,766
(Cost $93,829,059) -------------
See Notes to Financial Statements Page 17
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES - 35.7%
AEROSPACE & DEFENSE - 0.9%
$ 200,000 Boeing (The) Co..................................... 2.35% 10/30/21 $ 198,990
25,000 Boeing (The) Co..................................... 6.63% 02/15/38 35,261
300,000 Boeing Capital Corp................................. 4.70% 10/27/19 334,309
200,000 Northrop Grumman Corp............................... 5.05% 11/15/40 226,699
250,000 United Technologies Corp............................ 1.80% 06/01/17 253,417
450,000 United Technologies Corp............................ 3.10% 06/01/22 459,905
100,000 United Technologies Corp............................ 6.05% 06/01/36 132,390
100,000 United Technologies Corp............................ 4.50% 06/01/42 109,321
-------------
1,750,292
-------------
AUTOMOBILES - 0.6%
500,000 Ford Motor Credit Co., LLC.......................... 2.88% 10/01/18 509,222
650,000 Ford Motor Credit Co., LLC.......................... 4.38% 08/06/23 696,127
-------------
1,205,349
-------------
BANKS - 5.3%
1,200,000 Bank of America Corp................................ 2.60% 01/15/19 1,210,021
775,000 Bank of America Corp................................ 5.70% 01/24/22 899,115
150,000 Bank of America Corp................................ 4.00% 04/01/24 156,365
225,000 Bank of America Corp................................ 5.88% 02/07/42 282,610
100,000 Bank of America Corp................................ 4.88% 04/01/44 110,927
150,000 Citigroup, Inc...................................... 4.30% 11/20/26 150,009
625,000 Citigroup, Inc...................................... 4.45% 01/10/17 660,996
200,000 Citigroup, Inc...................................... 2.50% 09/26/18 202,516
725,000 Citigroup, Inc...................................... 4.50% 01/14/22 793,449
200,000 Citigroup, Inc...................................... 6.13% 08/25/36 239,177
200,000 Citigroup, Inc...................................... 5.88% 01/30/42 252,511
100,000 Citigroup, Inc...................................... 6.68% 09/13/43 129,776
600,000 HSBC USA, Inc....................................... 1.63% 01/16/18 598,129
500,000 HSBC USA, Inc....................................... 4.88% 08/24/20 552,579
150,000 JPMorgan Chase & Co................................. 2.20% 10/22/19 148,875
650,000 JPMorgan Chase & Co................................. 4.63% 05/10/21 716,379
225,000 JPMorgan Chase & Co................................. 3.20% 01/25/23 225,492
400,000 JPMorgan Chase & Co................................. 3.88% 02/01/24 417,452
100,000 JPMorgan Chase & Co................................. 4.13% 12/15/26 100,336
400,000 JPMorgan Chase & Co................................. 6.40% 05/15/38 524,384
100,000 JPMorgan Chase & Co................................. 4.85% 02/01/44 111,381
325,000 PNC Financial Services Group (The), Inc............. 3.90% 04/29/24 330,958
125,000 Wells Fargo & Co.................................... 2.13% 04/22/19 125,095
850,000 Wells Fargo & Co.................................... 3.00% 01/22/21 867,165
225,000 Wells Fargo & Co.................................... 3.30% 09/09/24 226,688
200,000 Wells Fargo & Co.................................... 5.95% 08/26/36 253,889
-------------
10,286,274
-------------
BEVERAGES - 0.8%
325,000 Anheuser-Busch Inbev Finance, Inc................... 4.63% 02/01/44 354,953
650,000 Anheuser-Busch Inbev Worldwide, Inc................. 2.50% 07/15/22 632,798
525,000 Coca-Cola (The) Co.................................. 3.20% 11/01/23 541,138
-------------
1,528,889
-------------
Page 18 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
BIOTECHNOLOGY - 0.5%
$ 150,000 Amgen, Inc.......................................... 3.63% 05/22/24 $ 152,761
300,000 Amgen, Inc.......................................... 5.38% 05/15/43 349,865
75,000 Gilead Sciences, Inc................................ 2.35% 02/01/20 75,493
150,000 Gilead Sciences, Inc................................ 3.50% 02/01/25 154,280
100,000 Gilead Sciences, Inc................................ 4.80% 04/01/44 111,376
75,000 Gilead Sciences, Inc................................ 4.50% 02/01/45 80,496
-------------
924,271
-------------
CAPITAL MARKETS - 2.4%
575,000 Goldman Sachs Group (The), Inc...................... 6.15% 04/01/18 645,678
100,000 Goldman Sachs Group (The), Inc...................... 2.55% 10/23/19 99,747
500,000 Goldman Sachs Group (The), Inc...................... 3.63% 01/22/23 507,190
600,000 Goldman Sachs Group (The), Inc...................... 4.00% 03/03/24 623,605
400,000 Goldman Sachs Group (The), Inc...................... 6.25% 02/01/41 507,465
200,000 Morgan Stanley...................................... 2.13% 04/25/18 200,275
495,000 Morgan Stanley...................................... 2.50% 01/24/19 495,924
550,000 Morgan Stanley...................................... 5.50% 07/28/21 625,055
300,000 Morgan Stanley...................................... 3.75% 02/25/23 308,284
250,000 Morgan Stanley...................................... 3.88% 04/29/24 257,009
350,000 Morgan Stanley...................................... 6.38% 07/24/42 466,537
-------------
4,736,769
-------------
CHEMICALS - 0.4%
375,000 Dow Chemical (The) Co............................... 8.55% 05/15/19 466,655
150,000 Dow Chemical (The) Co............................... 3.00% 11/15/22 146,814
25,000 Dow Chemical (The) Co............................... 4.25% 10/01/34 24,635
25,000 Dow Chemical (The) Co............................... 4.63% 10/01/44 25,419
50,000 Eastman Chemical Co................................. 4.65% 10/15/44 51,371
-------------
714,894
-------------
COMMERCIAL SERVICES & SUPPLIES - 0.1%
180,000 Waste Management, Inc............................... 3.50% 05/15/24 182,616
-------------
COMMUNICATIONS EQUIPMENT - 0.2%
225,000 Cisco Systems, Inc.................................. 3.63% 03/04/24 234,738
150,000 Cisco Systems, Inc.................................. 5.90% 02/15/39 189,466
-------------
424,204
-------------
CONSUMER FINANCE - 1.6%
50,000 American Express Co................................. 8.13% 05/20/19 61,910
350,000 American Express Co................................. 3.63% 12/05/24 353,643
550,000 American Express Credit Corp........................ 2.80% 09/19/16 566,412
600,000 American Express Credit Corp........................ 2.13% 07/27/18 605,841
175,000 Capital One Financial Corp.......................... 2.45% 04/24/19 174,776
475,000 Capital One Financial Corp.......................... 3.75% 04/24/24 486,202
800,000 Caterpillar Financial Services Corp................. 1.63% 06/01/17 805,448
100,000 Caterpillar Financial Services Corp................. 3.25% 12/01/24 101,535
-------------
3,155,767
-------------
See Notes to Financial Statements Page 19
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES - 0.9%
$ 500,000 General Electric Capital Corp....................... 5.63% 09/15/17 $ 555,237
275,000 General Electric Capital Corp....................... 4.63% 01/07/21 306,918
100,000 General Electric Capital Corp....................... 3.45% 05/15/24 103,450
575,000 General Electric Capital Corp....................... 6.75% 03/15/32 787,594
-------------
1,753,199
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.6%
500,000 AT&T, Inc........................................... 1.70% 06/01/17 502,279
225,000 AT&T, Inc........................................... 3.88% 08/15/21 235,762
100,000 AT&T, Inc........................................... 3.90% 03/11/24 102,964
325,000 AT&T, Inc........................................... 4.80% 06/15/44 332,474
200,000 Verizon Communications, Inc. (a).................... 1.77% 09/15/16 203,711
406,000 Verizon Communications, Inc. (b).................... 2.63% 02/21/20 401,836
375,000 Verizon Communications, Inc......................... 5.15% 09/15/23 414,380
400,000 Verizon Communications, Inc......................... 6.55% 09/15/43 513,210
349,000 Verizon Communications, Inc. (b).................... 5.01% 08/21/54 362,642
-------------
3,069,258
-------------
ELECTRIC UTILITIES - 3.2%
225,000 Alabama Power Co.................................... 4.15% 08/15/44 237,245
575,000 American Electric Power Co., Inc.................... 1.65% 12/15/17 575,559
150,000 Appalachian Power Co................................ 4.40% 05/15/44 158,282
225,000 CenterPoint Energy Houston Electric LLC............. 2.25% 08/01/22 215,882
245,000 CenterPoint Energy Houston Electric LLC............. 4.50% 04/01/44 274,612
100,000 Commonwealth Edison Co.............................. 3.40% 09/01/21 104,413
375,000 Constellation Energy Group, Inc..................... 5.15% 12/01/20 415,733
300,000 Duke Energy Carolinas LLC........................... 6.00% 01/15/38 396,220
200,000 Duke Energy Corp.................................... 3.55% 09/15/21 209,106
175,000 Duke Energy Corp.................................... 3.75% 04/15/24 182,396
200,000 Florida Power & Light Co............................ 3.25% 06/01/24 205,242
160,000 Florida Power & Light Co............................ 4.05% 06/01/42 170,144
260,000 Metropolitan Edison Co. (b)......................... 3.50% 03/15/23 259,095
100,000 MidAmerican Energy Co............................... 3.50% 10/15/24 103,700
200,000 MidAmerican Energy Co............................... 4.80% 09/15/43 233,179
100,000 MidAmerican Energy Co............................... 4.40% 10/15/44 110,436
125,000 Monongahela Power Co. (b)........................... 5.40% 12/15/43 150,687
625,000 NV Energy, Inc...................................... 6.25% 11/15/20 735,216
150,000 Ohio Edison Co...................................... 6.88% 07/15/36 203,654
345,000 Public Service Electric & Gas Co.................... 2.38% 05/15/23 332,412
175,000 Public Service Electric & Gas Co.................... 3.95% 05/01/42 181,843
200,000 Southern California Edison Co....................... 3.50% 10/01/23 210,637
100,000 Southwestern Electric Power Co...................... 6.20% 03/15/40 130,144
150,000 Virginia Electric and Power Co...................... 3.45% 02/15/24 154,751
325,000 Virginia Electric and Power Co...................... 4.45% 02/15/44 356,498
-------------
6,307,086
-------------
FOOD & STAPLES RETAILING - 1.0%
620,000 CVS Caremark Corp................................... 4.00% 12/05/23 657,333
150,000 Kroger (The) Co..................................... 3.30% 01/15/21 152,423
50,000 Kroger (The) Co..................................... 2.95% 11/01/21 49,666
250,000 Kroger (The) Co..................................... 5.15% 08/01/43 285,752
Page 20 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
FOOD & STAPLES RETAILING (CONTINUED)
$ 200,000 Wal-Mart Stores, Inc................................ 3.30% 04/22/24 $ 206,906
475,000 Wal-Mart Stores, Inc................................ 5.63% 04/15/41 608,864
-------------
1,960,944
-------------
FOOD PRODUCTS - 0.2%
150,000 General Mills, Inc.................................. 2.20% 10/21/19 148,908
300,000 Kraft Foods Group, Inc.............................. 5.00% 06/04/42 331,520
-------------
480,428
-------------
GAS UTILITIES - 0.1%
200,000 Southern California Gas Co.......................... 3.15% 09/15/24 202,520
-------------
HEALTH CARE EQUIPMENT & SUPPLIES - 0.1%
100,000 Medtronic, Inc. (b)................................. 3.15% 03/15/22 101,430
50,000 Medtronic, Inc. (b)................................. 3.50% 03/15/25 51,258
50,000 Medtronic, Inc. (b)................................. 4.63% 03/15/45 54,427
-------------
207,115
-------------
HEALTH CARE PROVIDERS & SERVICES - 0.9%
175,000 Aetna, Inc.......................................... 3.50% 11/15/24 178,239
250,000 Cigna Corp.......................................... 5.13% 06/15/20 278,939
550,000 UnitedHealth Group, Inc............................. 1.63% 03/15/19 542,694
275,000 UnitedHealth Group, Inc............................. 4.70% 02/15/21 309,918
50,000 UnitedHealth Group, Inc............................. 2.88% 12/15/21 50,648
100,000 UnitedHealth Group, Inc............................. 2.88% 03/15/23 99,536
150,000 UnitedHealth Group, Inc............................. 6.88% 02/15/38 211,191
-------------
1,671,165
-------------
HOUSEHOLD DURABLES - 0.1%
150,000 Whirlpool Corp...................................... 3.70% 05/01/25 152,134
-------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY
PRODUCERS - 0.1%
175,000 NextEra Energy Capital Holdings, Inc................ 2.40% 09/15/19 175,027
-------------
INDUSTRIAL CONGLOMERATES - 0.1%
275,000 General Electric Co................................. 4.50% 03/11/44 303,559
-------------
INSURANCE - 2.3%
600,000 American International Group, Inc................... 5.85% 01/16/18 671,331
300,000 American International Group, Inc................... 3.38% 08/15/20 312,038
200,000 American International Group, Inc................... 4.13% 02/15/24 213,308
200,000 American International Group, Inc................... 6.25% 05/01/36 260,022
250,000 CNA Financial Corp.................................. 3.95% 05/15/24 253,270
150,000 Hartford Financial Services Group (The), Inc........ 5.13% 04/15/22 168,872
150,000 Hartford Financial Services Group (The), Inc........ 5.95% 10/15/36 185,594
850,000 MetLife, Inc........................................ 6.75% 06/01/16 916,693
175,000 MetLife, Inc........................................ 3.60% 04/10/24 179,945
300,000 MetLife, Inc........................................ 4.88% 11/13/43 340,183
225,000 Prudential Financial, Inc........................... 3.50% 05/15/24 229,158
125,000 Prudential Financial, Inc........................... 4.60% 05/15/44 132,281
300,000 Travelers (The) Cos., Inc........................... 5.75% 12/15/17 335,028
225,000 Travelers (The) Cos., Inc........................... 6.75% 06/20/36 317,812
-------------
4,515,535
-------------
IT SERVICES - 0.3%
600,000 International Business Machines Corp................ 1.63% 05/15/20 579,053
-------------
See Notes to Financial Statements Page 21
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
MACHINERY - 0.1%
$ 225,000 Caterpillar, Inc.................................... 3.90% 05/27/21 $ 243,997
-------------
MEDIA - 2.2%
150,000 21st Century Fox America, Inc....................... 3.00% 09/15/22 149,242
150,000 21st Century Fox America, Inc....................... 5.40% 10/01/43 179,285
75,000 21st Century Fox America, Inc. (b).................. 4.75% 09/15/44 82,293
275,000 CBS Corp............................................ 2.30% 08/15/19 272,010
250,000 Comcast Corp........................................ 2.85% 01/15/23 248,775
525,000 Comcast Corp........................................ 4.25% 01/15/33 557,705
325,000 DIRECTV Holdings LLC/DIRECTV Financing Co., Inc..... 5.20% 03/15/20 359,781
300,000 DIRECTV Holdings LLC/DIRECTV Financing Co., Inc..... 4.45% 04/01/24 314,486
175,000 NBCUniversal Media LLC.............................. 2.88% 01/15/23 175,138
50,000 Time Warner Cable, Inc.............................. 6.75% 07/01/18 57,389
225,000 Time Warner Cable, Inc.............................. 4.50% 09/15/42 232,210
100,000 Time Warner, Inc.................................... 2.10% 06/01/19 98,623
250,000 Time Warner, Inc.................................... 4.88% 03/15/20 275,400
100,000 Time Warner, Inc.................................... 3.55% 06/01/24 99,809
200,000 Time Warner, Inc.................................... 6.50% 11/15/36 255,252
50,000 Viacom, Inc......................................... 2.75% 12/15/19 50,156
225,000 Viacom, Inc......................................... 3.88% 04/01/24 226,291
50,000 Viacom, Inc......................................... 4.85% 12/15/34 51,330
50,000 Viacom, Inc......................................... 6.88% 04/30/36 63,663
100,000 Walt Disney (The) Co................................ 5.50% 03/15/19 114,245
250,000 Walt Disney (The) Co................................ 2.35% 12/01/22 245,579
275,000 Walt Disney (The) Co................................ 4.13% 06/01/44 289,704
-------------
4,398,366
-------------
METALS & MINING - 0.4%
500,000 Freeport-McMoRan Copper & Gold, Inc................. 2.38% 03/15/18 494,880
275,000 Newmont Mining Corp................................. 5.13% 10/01/19 295,012
-------------
789,892
-------------
MULTI-UTILITIES - 0.4%
100,000 Consolidated Edison Co. of New York, Inc............ 3.30% 12/01/24 102,044
285,000 Consolidated Edison Co. of New York, Inc............ 4.45% 03/15/44 309,516
50,000 Dominion Gas Holdings LLC........................... 2.50% 12/15/19 50,182
50,000 Dominion Gas Holdings LLC........................... 4.60% 12/15/44 52,593
223,000 San Diego Gas & Electric Co......................... 3.60% 09/01/23 234,884
-------------
749,219
-------------
MULTILINE RETAIL - 0.1%
250,000 Macy's Retail Holdings, Inc......................... 3.63% 06/01/24 253,432
-------------
OIL, GAS & CONSUMABLE FUELS - 3.3%
175,000 Chevron Corp........................................ 2.19% 11/15/19 175,846
50,000 ConocoPhillips Co................................... 2.88% 11/15/21 50,575
350,000 ConocoPhillips Co................................... 2.40% 12/15/22 335,523
50,000 ConocoPhillips Co................................... 4.15% 11/15/34 51,475
275,000 ConocoPhillips Co................................... 6.50% 02/01/39 366,633
160,000 Continental Resources, Inc.......................... 4.50% 04/15/23 152,443
100,000 Continental Resources, Inc.......................... 4.90% 06/01/44 86,980
300,000 DCP Midstream Operating L.P......................... 4.95% 04/01/22 318,917
Page 22 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
$ 225,000 Devon Energy Corp................................... 2.25% 12/15/18 $ 224,399
325,000 Devon Energy Corp................................... 3.25% 05/15/22 319,784
125,000 Devon Energy Corp................................... 5.60% 07/15/41 139,359
100,000 Enbridge Energy Partners L.P........................ 5.50% 09/15/40 98,362
500,000 Energy Transfer Partners L.P........................ 3.60% 02/01/23 484,671
225,000 Energy Transfer Partners L.P........................ 6.50% 02/01/42 259,501
200,000 Kinder Morgan Energy Partners L.P................... 3.95% 09/01/22 198,637
50,000 Kinder Morgan Energy Partners L.P................... 4.25% 09/01/24 50,197
175,000 Kinder Morgan Energy Partners L.P................... 6.95% 01/15/38 202,590
50,000 Kinder Morgan, Inc.................................. 3.05% 12/01/19 49,659
50,000 Kinder Morgan, Inc.................................. 4.30% 06/01/25 50,127
25,000 Marathon Petroleum Corp............................. 3.63% 09/15/24 24,550
750,000 ONEOK Partners L.P.................................. 2.00% 10/01/17 746,307
175,000 ONEOK Partners L.P.................................. 3.38% 10/01/22 162,262
425,000 Phillips 66......................................... 4.30% 04/01/22 449,367
75,000 Phillips 66......................................... 5.88% 05/01/42 86,683
350,000 Pioneer Natural Resources Co........................ 3.95% 07/15/22 346,988
50,000 Plains All American Pipeline L.P./PAA Finance Corp.. 2.60% 12/15/19 49,710
200,000 Plains All American Pipeline L.P./PAA Finance Corp.. 3.85% 10/15/23 203,216
350,000 Spectra Energy Capital LLC.......................... 3.30% 03/15/23 333,044
411,000 Spectra Energy Partners L.P......................... 4.75% 03/15/24 441,365
75,000 Valero Energy Corp.................................. 6.63% 06/15/37 88,826
-------------
6,547,996
-------------
PHARMACEUTICALS - 1.1%
425,000 AbbVie, Inc......................................... 1.75% 11/06/17 426,217
100,000 AbbVie, Inc......................................... 2.90% 11/06/22 98,624
100,000 AbbVie, Inc......................................... 4.40% 11/06/42 103,585
100,000 Johnson & Johnson................................... 2.45% 12/05/21 100,420
175,000 Johnson & Johnson................................... 5.85% 07/15/38 239,843
700,000 Novartis Capital Corp............................... 3.40% 05/06/24 729,653
250,000 Pfizer, Inc......................................... 3.40% 05/15/24 260,616
100,000 Pfizer, Inc......................................... 4.40% 05/15/44 109,236
-------------
2,068,194
-------------
REAL ESTATE INVESTMENT TRUSTS - 0.6%
300,000 Boston Properties L.P............................... 3.85% 02/01/23 311,948
375,000 Simon Property Group L.P............................ 3.38% 10/01/24 382,209
450,000 Weyerhaeuser Co..................................... 4.63% 09/15/23 485,576
-------------
1,179,733
-------------
ROAD & RAIL - 0.8%
450,000 Burlington Northern Santa Fe LLC.................... 3.00% 03/15/23 449,377
325,000 Burlington Northern Santa Fe LLC.................... 5.15% 09/01/43 376,242
125,000 CSX Corp............................................ 3.40% 08/01/24 126,862
200,000 CSX Corp............................................ 4.50% 08/01/54 210,448
325,000 Ryder System, Inc................................... 2.45% 09/03/19 323,063
-------------
1,485,992
-------------
See Notes to Financial Statements Page 23
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
CORPORATE BONDS AND NOTES (CONTINUED)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.3%
$ 375,000 Intel Corp.......................................... 2.70% 12/15/22 $ 373,432
160,000 Intel Corp.......................................... 4.80% 10/01/41 176,403
-------------
549,835
-------------
SOFTWARE - 0.7%
150,000 Microsoft Corp...................................... 3.63% 12/15/23 160,821
275,000 Microsoft Corp...................................... 4.88% 12/15/43 325,024
100,000 Oracle Corp......................................... 2.38% 01/15/19 101,828
50,000 Oracle Corp......................................... 2.25% 10/08/19 50,391
200,000 Oracle Corp......................................... 2.50% 10/15/22 195,160
200,000 Oracle Corp......................................... 3.63% 07/15/23 210,127
300,000 Oracle Corp......................................... 5.38% 07/15/40 361,225
-------------
1,404,576
-------------
SPECIALTY RETAIL - 0.4%
450,000 Home Depot (The), Inc............................... 4.40% 04/01/21 501,305
225,000 Home Depot (The), Inc............................... 5.40% 09/15/40 277,531
-------------
778,836
-------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS - 1.0%
300,000 Apple, Inc.......................................... 2.85% 05/06/21 307,154
275,000 Apple, Inc.......................................... 2.40% 05/03/23 267,599
50,000 Apple, Inc.......................................... 3.85% 05/04/43 50,165
175,000 Apple, Inc.......................................... 4.45% 05/06/44 193,335
475,000 Hewlett-Packard Co.................................. 2.60% 09/15/17 484,232
550,000 Hewlett-Packard Co.................................. 3.75% 12/01/20 569,405
-------------
1,871,890
-------------
TOBACCO - 0.5%
575,000 Altria Group, Inc................................... 2.85% 08/09/22 559,670
200,000 Altria Group, Inc................................... 10.20% 02/06/39 349,294
-------------
908,964
-------------
TRADING COMPANIES & DISTRIBUTORS - 0.1%
100,000 GATX Corp........................................... 2.60% 03/30/20 98,617
-------------
TOTAL CORPORATE BONDS AND NOTES............................................... 69,615,887
(Cost $68,040,867) -------------
U.S. GOVERNMENT BONDS AND NOTES - 5.6%
475,000 U.S. Treasury Bond.................................. 5.38% 02/15/31 662,217
790,000 U.S. Treasury Bond.................................. 4.50% 02/15/36 1,053,971
880,000 U.S. Treasury Bond.................................. 3.63% 02/15/44 1,035,719
150,000 U.S. Treasury Note (c).............................. 0.25% 05/15/16 149,695
2,150,000 U.S. Treasury Note.................................. 1.38% 09/30/18 2,148,153
980,000 U.S. Treasury Note.................................. 2.50% 05/15/24 1,009,629
425,000 U.S. Treasury Note.................................. 0.88% 10/15/17 423,406
2,525,000 U.S. Treasury Note.................................. 1.50% 10/31/19 2,509,810
1,925,000 U.S. Treasury Note.................................. 2.13% 09/30/21 1,946,807
-------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES......................................... 10,939,407
(Cost $10,810,775) -------------
Page 24 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
FOREIGN CORPORATE BONDS AND NOTES - 0.4%
CAPITAL MARKETS - 0.1%
$ 150,000 Credit Suisse....................................... 5.40% 01/14/20 $ 167,929
-------------
CHEMICALS - 0.2%
275,000 LYB International Finance, B.V...................... 4.00% 07/15/23 281,815
175,000 LYB International Finance, B.V...................... 4.88% 03/15/44 180,742
-------------
462,557
-------------
OIL, GAS & CONSUMABLE FUELS - 0.1%
125,000 Encana Corp......................................... 6.63% 08/15/37 136,546
100,000 Encana Corp......................................... 5.15% 11/15/41 91,955
-------------
228,501
-------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES....................................... 858,987
(Cost $870,388) -------------
TOTAL INVESTMENTS - 96.1%..................................................... 187,534,047
(Cost $173,551,089) (d)
NET OTHER ASSETS AND LIABILITIES - 3.9%....................................... 7,604,711
-------------
NET ASSETS - 100.0%........................................................... $ 195,138,758
=============
-----------------------------
(a) Floating rate security. The interest rate shown reflects the rate in
effect at December 31, 2014.
(b) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the 1933 Act, as
amended, and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. Pursuant to procedures adopted
by the Trust's Board of Trustees, this security has been determined to be
liquid by First Trust Advisors L.P., the Fund's advisor. Although market
instability can result in periods of increased overall market illiquidity,
liquidity for each security is determined based on security-specific
factors and assumptions, which require subjective judgement. At December
31, 2014, securities noted as such amounted to $1,463,668 or 0.75% of net
assets.
(c) All or a portion of this security is segregated as collateral for open
futures contracts.
(d) Aggregate cost for federal income tax purposes is $173,557,209. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$15,015,029 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,038,191.
See Notes to Financial Statements Page 25
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 12/31/2014 PRICES INPUTS INPUTS
------------ ------------ ------------ ------------
Common Stocks*.................................... $106,119,766 $106,119,766 $ -- $ --
Corporate Bonds and Notes*........................ 69,615,887 -- 69,615,887 --
U.S. Government Bonds and Notes................... 10,939,407 -- 10,939,407 --
Foreign Corporate Bonds and Notes*................ 858,987 -- 858,987 --
------------ ------------ ------------ ------------
Total Investments................................. $187,534,047 $106,119,766 $ 81,414,281 $ --
------------ ------------ ------------ ------------
Other Financial Instruments:
Futures Contracts**............................... (129,374) (129,374) -- --
------------ ------------ ------------ ------------
Total............................................. $187,404,673 $105,990,392 $ 81,414,281 $ --
============ ============ ============ ============
* See Portfolio of Investments for industry breakout.
** Includes appreciation/depreciation on futures contracts as presented on
the Statements of Operations. Only the current day's variation margin is
presented on the Statements of Assets and Liabilities.
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 Levels at December 31, 2014.
OPEN FUTURES CONTRACTS AT DECEMBER 31, 2014 (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 5-Year Notes 21 Mar-2015 $ 2,497,523 $ (3,683)
U.S. Treasury 10-Year Notes 68 Mar-2015 8,622,187 (49,012)
Ultra Long Term U.S. Treasury Bond Futures 13 Mar-2015 2,147,438 (76,679)
------------ ----------
Total Futures Contracts $ 13,267,148 $ (129,374)
============ ==========
Page 26 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
EXCHANGE-TRADED FUNDS -- 46.5%
32,820 First Trust Preferred Securities and Income ETF (a)........................... $ 618,985
22,060 First Trust Senior Loan Fund (a).............................................. 1,069,469
12,000 First Trust Tactical High Yield ETF (a)....................................... 596,280
45 iShares 20+ Year Treasury Bond ETF............................................ 5,666
40 iShares 3-7 Year Treasury Bond ETF............................................ 4,892
5,240 iShares iBoxx $ Investment Grade Corporate Bond ETF........................... 625,708
3,014 iShares MBS ETF............................................................... 329,491
180 ProShares UltraShort Lehman 7-10 Year Treasury (b)............................ 4,459
-------------
TOTAL EXCHANGE-TRADED FUNDS .................................................. 3,254,950
(Cost $3,286,855) -------------
COMMON STOCKS -- 23.9%
AEROSPACE & DEFENSE -- 0.7%
191 Boeing (The) Co............................................................... 24,826
261 Honeywell International, Inc.................................................. 26,079
-------------
50,905
-------------
AUTO COMPONENTS -- 0.4%
532 Johnson Controls, Inc......................................................... 25,717
-------------
AUTOMOBILES -- 0.4%
208 Toyota Motor Corp., ADR....................................................... 26,100
-------------
BANKS -- 0.7%
402 JPMorgan Chase & Co........................................................... 25,157
463 Wells Fargo & Co.............................................................. 25,382
-------------
50,539
-------------
BEVERAGES -- 0.4%
220 Anheuser-Busch InBev N.V., ADR................................................ 24,710
-------------
CAPITAL MARKETS -- 1.1%
199 Ameriprise Financial, Inc..................................................... 26,318
71 BlackRock, Inc................................................................ 25,387
609 Invesco Ltd................................................................... 24,067
-------------
75,772
-------------
CHEMICALS -- 0.3%
227 LyondellBasell Industries N.V., Class A....................................... 18,022
-------------
COMMUNICATIONS EQUIPMENT -- 0.3%
322 QUALCOMM, Inc................................................................. 23,934
-------------
CONSUMER FINANCE -- 0.3%
293 Capital One Financial Corp.................................................... 24,187
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3%
483 Verizon Communications, Inc................................................... 22,595
-------------
ELECTRIC UTILITIES -- 1.2%
302 American Electric Power Co., Inc.............................................. 18,337
225 ITC Holdings Corp............................................................. 9,097
170 NextEra Energy, Inc........................................................... 18,069
337 Northeast Utilities........................................................... 18,036
See Notes to Financial Statements Page 27
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
100 NRG Yield, Inc., Class A...................................................... $ 4,714
369 Southern (The) Co............................................................. 18,122
-------------
86,375
-------------
ELECTRICAL EQUIPMENT -- 0.4%
383 Eaton Corp. PLC............................................................... 26,029
-------------
ENERGY EQUIPMENT & SERVICES -- 0.5%
261 Helmerich & Payne, Inc........................................................ 17,597
242 Schlumberger Ltd.............................................................. 20,669
-------------
38,266
-------------
FOOD & STAPLES RETAILING -- 0.8%
295 CVS Health Corp............................................................... 28,412
397 Walgreens Boots Alliance, Inc................................................. 30,251
-------------
58,663
-------------
GAS UTILITIES -- 0.8%
166 Atmos Energy Corp............................................................. 9,253
91 Chesapeake Utilities Corp..................................................... 4,519
434 ONE Gas, Inc.................................................................. 17,889
117 Piedmont Natural Gas Co., Inc................................................. 4,611
235 South Jersey Industries, Inc.................................................. 13,849
241 UGI Corp...................................................................... 9,153
-------------
59,274
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.8%
576 Abbott Laboratories........................................................... 25,932
266 Covidien PLC.................................................................. 27,206
-------------
53,138
-------------
HEALTH CARE PROVIDERS & SERVICES -- 0.8%
300 Aetna, Inc.................................................................... 26,649
310 AmerisourceBergen Corp........................................................ 27,950
-------------
54,599
-------------
HOTELS, RESTAURANTS & LEISURE -- 0.4%
320 Starbucks Corp................................................................ 26,256
-------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.1%
188 Pattern Energy Group, Inc..................................................... 4,636
-------------
INDUSTRIAL CONGLOMERATES -- 0.3%
205 Siemens AG, ADR............................................................... 22,960
-------------
INSURANCE -- 1.5%
786 FNF Group..................................................................... 27,078
648 Hartford Financial Services Group (The), Inc.................................. 27,015
825 Horace Mann Educators Corp.................................................... 27,373
452 MetLife, Inc.................................................................. 24,449
-------------
105,915
-------------
IT SERVICES -- 0.4%
300 Accenture PLC, Class A........................................................ 26,793
-------------
Page 28 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
MACHINERY -- 0.8%
179 Cummins, Inc.................................................................. $ 25,806
201 Snap-on, Inc.................................................................. 27,485
-------------
53,291
-------------
MEDIA -- 0.4%
272 Walt Disney (The) Co.......................................................... 25,620
-------------
MULTILINE RETAIL -- 0.4%
345 Nordstrom, Inc................................................................ 27,390
-------------
MULTI-UTILITIES -- 1.4%
493 Alliant Energy Corp........................................................... 32,745
520 CMS Energy Corp............................................................... 18,070
59 Dominion Resources, Inc....................................................... 4,537
261 National Grid PLC, ADR........................................................ 18,442
108 NiSource, Inc................................................................. 4,581
82 Sempra Energy................................................................. 9,132
173 Wisconsin Energy Corp......................................................... 9,124
-------------
96,631
-------------
OIL, GAS & CONSUMABLE FUELS -- 3.4%
204 Chevron Corp.................................................................. 22,885
319 ConocoPhillips................................................................ 22,030
574 Enbridge Income Fund Holdings, Inc............................................ 19,935
365 Enbridge, Inc................................................................. 18,765
643 Inter Pipeline Ltd............................................................ 19,891
2,067 Kinder Morgan, Inc............................................................ 87,455
381 TransCanada Corp.............................................................. 18,707
615 Williams (The) Cos., Inc...................................................... 27,638
-------------
237,306
-------------
PHARMACEUTICALS -- 1.0%
226 Johnson & Johnson............................................................. 23,633
431 Sanofi, ADR................................................................... 19,658
437 Teva Pharmaceutical Industries Ltd., ADR...................................... 25,132
-------------
68,423
-------------
ROAD & RAIL -- 0.4%
221 Union Pacific Corp............................................................ 26,328
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.7%
611 Broadcom Corp., Class A....................................................... 26,475
708 Intel Corp.................................................................... 25,693
-------------
52,168
-------------
SOFTWARE -- 0.7%
518 Microsoft Corp................................................................ 24,061
620 Oracle Corp................................................................... 27,881
-------------
51,942
-------------
SPECIALTY RETAIL -- 0.7%
431 Foot Locker, Inc.............................................................. 24,214
259 Home Depot (The), Inc......................................................... 27,187
-------------
51,401
-------------
See Notes to Financial Statements Page 29
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
COMMON STOCKS (CONTINUED)
TEXTILES, APPAREL & LUXURY GOODS -- 0.4%
356 VF Corp....................................................................... $ 26,664
-------------
TOBACCO -- 0.3%
212 British American Tobacco PLC, ADR............................................. 22,858
-------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.4%
414 China Mobile Ltd., ADR........................................................ 24,351
-------------
TOTAL COMMON STOCKS .......................................................... 1,669,758
(Cost $1,595,739) -------------
REAL ESTATE INVESTMENT TRUSTS -- 13.5%
DIVERSIFIED REITS -- 1.1%
3,307 Lexington Realty Trust........................................................ 36,311
335 Vornado Realty Trust.......................................................... 39,433
-------------
75,744
-------------
HEALTH CARE REITS -- 2.2%
549 National Health Investors, Inc................................................ 38,408
962 OMEGA Healthcare Investors, Inc............................................... 37,585
1,328 Sabra Health Care REIT, Inc................................................... 40,331
528 Ventas, Inc................................................................... 37,858
-------------
154,182
-------------
HOTEL & RESORT REITS -- 1.6%
1,084 Chesapeake Lodging Trust...................................................... 40,336
1,209 Hospitality Properties Trust.................................................. 37,479
1,133 RLJ Lodging Trust............................................................. 37,990
-------------
115,805
-------------
INDUSTRIAL REITS -- 1.1%
884 Prologis, Inc................................................................. 38,039
1,539 STAG Industrial, Inc.......................................................... 37,705
-------------
75,744
-------------
OFFICE REITS -- 2.1%
1,700 BioMed Realty Trust, Inc...................................................... 36,618
2,383 Brandywine Realty Trust....................................................... 38,080
524 Digital Realty Trust, Inc..................................................... 34,741
873 Highwoods Properties, Inc..................................................... 38,657
-------------
148,096
-------------
RESIDENTIAL REITS -- 2.2%
482 Camden Property Trust......................................................... 35,591
1,064 Education Realty Trust, Inc................................................... 38,932
753 Equity LifeStyle Properties, Inc.............................................. 38,817
508 Mid-America Apartment Communities, Inc........................................ 37,937
-------------
151,277
-------------
Page 30 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES/
UNITS DESCRIPTION VALUE
----------- ------------------------------------------------------------------------------ -------------
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
RETAIL REITS -- 1.6%
966 National Retail Properties, Inc............................................... $ 38,031
2,331 Retail Properties of America, Inc., Class A................................... 38,904
203 Simon Property Group, Inc..................................................... 36,968
-------------
113,903
-------------
SPECIALIZED REITS -- 1.6%
1,015 Corrections Corp. of America.................................................. 36,885
649 EPR Properties................................................................ 37,402
629 Extra Space Storage, Inc...................................................... 36,885
-------------
111,172
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS .......................................... 945,923
(Cost $877,113) -------------
MASTER LIMITED PARTNERSHIPS -- 7.4%
GAS UTILITIES -- 0.5%
683 AmeriGas Partners, L.P........................................................ 32,729
-------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.1%
144 NextEra Energy Partners, L.P.................................................. 4,860
-------------
OIL, GAS & CONSUMABLE FUELS -- 6.8%
311 Alliance Holdings GP, L.P..................................................... 18,968
660 Alliance Resource Partners, L.P............................................... 28,413
936 Enbridge Energy Partners, L.P................................................. 37,346
435 Energy Transfer Partners, L.P................................................. 28,275
1,288 Enterprise Products Partners, L.P............................................. 46,523
208 EQT Midstream Partners, L.P................................................... 18,304
246 Hoegh LNG Partners, L.P....................................................... 5,077
949 Holly Energy Partners, L.P.................................................... 28,385
329 Magellan Midstream Partners, L.P.............................................. 27,195
654 NGL Energy Partners, L.P...................................................... 18,306
1,398 ONEOK Partners, L.P........................................................... 55,403
1,083 Plains All American Pipeline, L.P............................................. 55,580
485 Spectra Energy Partners, L.P.................................................. 27,630
258 TC Pipelines, L.P............................................................. 18,375
441 Teekay LNG Partners, L.P...................................................... 18,963
289 TransMontaigne Partners, L.P.................................................. 9,106
814 Williams Partners, L.P........................................................ 36,426
-------------
478,275
-------------
TOTAL MASTER LIMITED PARTNERSHIPS ............................................ 515,864
(Cost $535,383) -------------
See Notes to Financial Statements Page 31
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------- -------------
U.S. GOVERNMENT BONDS AND NOTES -- 7.2%
$ 59,489 U.S. Treasury Inflation Indexed Bond................ 0.63% 02/15/43 $ 56,064
48,026 U.S. Treasury Inflation Indexed Bond................ 3.38% 04/15/32 68,221
40,556 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/16 40,442
52,690 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/17 52,744
28,865 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/18 28,763
53,506 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/19 52,979
43,119 U.S. Treasury Inflation Indexed Note................ 0.13% 01/15/22 41,990
50,304 U.S. Treasury Inflation Indexed Note................ 0.13% 01/15/23 48,701
36,301 U.S. Treasury Inflation Indexed Note................ 0.13% 07/15/24 35,014
46,676 U.S. Treasury Inflation Indexed Note................ 1.13% 01/15/21 48,543
30,197 U.S. Treasury Inflation Indexed Note................ 1.38% 01/15/20 31,730
-------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES ........................................ 505,191
(Cost $508,098) -------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 0.6%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.6%
Fannie Mae REMICS
898 Series 2005-48, Class MD......................... 5.00% 04/25/34 931
2,278 Series 2005-70, Class KJ......................... 5.50% 09/25/34 2,348
4,867 Series 2005-120, Class NF (c) ................... 0.27% 01/25/21 4,865
7,253 Series 2009-81, Class AD......................... 4.50% 09/25/37 7,381
2,201 Series 2011-38, Class AH......................... 2.75% 05/25/20 2,254
7,471 Series 2013-31, Class NT......................... 3.00% 04/25/43 7,567
Freddie Mac REMICS
1,779 Series 1992-1250, Class J........................ 7.00% 05/15/22 1,985
3,747 Series 2005-3081, Class CP....................... 5.50% 10/15/34 3,799
2,089 Series 2006-3116, Class PD....................... 5.00% 10/15/34 2,132
2,470 Series 2006-3161, Class PD....................... 5.50% 10/15/34 2,488
Government National Mortgage Association
2,852 Series 2008-85, Class HP......................... 4.00% 04/20/38 2,923
3,069 Series 2009-62, Class BA......................... 4.50% 05/20/34 3,117
1,427 Series 2009-65, Class MA......................... 5.00% 09/16/33 1,429
2,549 Series 2010-117, Class MA........................ 2.50% 09/16/23 2,598
-------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ...................... 45,817
(Cost $44,365) -------------
MORTGAGE-BACKED SECURITIES -- 0.0%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.0%
Credit Suisse Mortgage Trust
234 Series 2011-4R, Class 4A1 (d) .................. 4.00% 08/27/37 234
-------------
TOTAL MORTGAGE-BACKED SECURITIES ............................................. 234
(Cost $231) -------------
TOTAL INVESTMENTS -- 99.1% ................................................... 6,937,737
(Cost $6,847,784) (e)
NET OTHER ASSETS AND LIABILITIES -- 0.9% ..................................... 61,129
-------------
NET ASSETS -- 100.0% ......................................................... $ 6,998,866
=============
Page 32 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
(a) Investment in affiliated funds.
(b) Non-income producing security.
(c) Floating rate security. The interest rate shown reflects the rate in
effect at December 31, 2014.
(d) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A of the Securities Act
of 1933, as amended, and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Pursuant to
procedures adopted by the Trust's Board of Trustees, this security has
been determined to be liquid by First Trust Advisors L.P., the Fund's
advisor. Although market instability can result in periods of increased
overall market illiquidity, liquidity for each security is determined
based on security-specific factors and assumptions, which require
subjective judgment. At December 31, 2014, securities noted as such
amounted to $234 or 0.0% of net assets.
(e) Aggregate cost for federal income tax purposes is $6,849,407. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$198,535 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$110,205.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
LEVEL 2 LEVEL 3
TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT
VALUE AT QUOTED OBSERVABLE UNOBSERVABLE
INVESTMENTS 12/31/2014 PRICES INPUTS INPUTS
-------------------------------------------------- ------------ ------------ ------------ ------------
Exchange-Traded Funds............................. $ 3,254,950 $ 3,254,950 $ -- $ --
Common Stocks*.................................... 1,669,758 1,669,758 -- --
Real Estate Investment Trusts*.................... 945,923 945,923 -- --
Master Limited Partnerships*...................... 515,864 515,864 -- --
U.S. Government Bonds and Notes................... 505,191 -- 505,191 --
U.S. Government Agency Mortgage-Backed
Securities..................................... 45,817 -- 45,817 --
Mortgage-Backed Securities........................ 234 -- 234 --
------------ ------------ ------------ ------------
Total Investments................................. $ 6,937,737 $ 6,386,495 $ 551,242 $ --
============ ============ ============ ============
* See 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 Levels at December 31, 2014.
See Notes to Financial Statements Page 33
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2014
FIRST TRUST/DOW
JONES DIVIDEND FIRST TRUST
& INCOME MULTI INCOME
ALLOCATION ALLOCATION
PORTFOLIO PORTFOLIO
----------------- -------------
ASSETS:
Investments, at value..................................................... $ 187,534,047 $ 4,653,003
Investments in affiliated funds, at value................................. -- 2,284,734
Cash and cash equivalents................................................. 6,441,493 214,755
Receivables:
Fund shares sold....................................................... 2,872,224 4,881
Interest............................................................... 787,719 1,190
Dividends.............................................................. 206,893 5,627
Investment securities sold............................................. -- 3,770
Currency............................................................... -- 780
Prepaid expenses.......................................................... 1,519 397
------------- -------------
Total Assets........................................................... 197,843,895 7,169,137
------------- -------------
LIABILITIES:
Due to custodian foreign currency......................................... -- 782
Payables:
Investment securities purchased........................................ 2,436,916 65,410
Due to advisor......................................................... 39,141 42,888
12b-1 service fees (Class I)........................................... 38,738 1,308
Accounting and administration fees..................................... 38,668 2,450
Administrative service fees............................................ 30,992 1,064
Custodian fees......................................................... 30,389 318
Audit and tax fees..................................................... 29,000 51,000
Variation margin....................................................... 22,625 --
Licensing fees......................................................... 13,329 --
Printing fees.......................................................... 10,132 936
Transfer agent fees.................................................... 7,553 4,068
Fund shares redeemed................................................... 4,146 47
Legal fees............................................................. 1,346 --
Commitment fees........................................................ 936 --
Financial reporting fees............................................... 771 --
Trustees' fees and expenses............................................ 4 --
Other liabilities......................................................... 451 --
------------- -------------
Total Liabilities...................................................... 2,705,137 170,271
------------- -------------
NET ASSETS................................................................ $ 195,138,758 $ 6,998,866
============= =============
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $ 176,034,412 $ 6,903,610
Accumulated net investment income (loss).................................. 745,285 6,926
Accumulated net realized gain (loss) on investments, futures and foreign
currency transactions................................................... 4,505,477 (1,623)
Net unrealized appreciation (depreciation) on investments, futures and
foreign currency translation............................................ 13,853,584 89,953
------------- -------------
NET ASSETS................................................................ $ 195,138,758 $ 6,998,866
============= =============
CLASS I SHARES:
NET ASSETS................................................................ $ 195,127,977 $ 6,894,116
============= =============
NET ASSET VALUE, PER SHARE................................................ $ 12.41 $ 10.39
============= =============
Number of Shares outstanding.............................................. 15,718,921 663,402
============= =============
CLASS II SHARES:
NET ASSETS................................................................ $ 10,781 $ 104,750
============= =============
NET ASSET VALUE, PER SHARE................................................ $ 12.43 $ 10.39
============= =============
Number of Shares outstanding.............................................. 867 10,080
============= =============
Investments, at cost...................................................... $ 173,551,089 $ 4,525,382
============= =============
Investments in affiliated funds, at cost.................................. $ -- $ 2,322,402
============= =============
Foreign currency, at cost................................................. $ -- $ (782)
============= =============
Page 34 See Notes to Financial Statements'
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
FIRST TRUST/DOW
JONES DIVIDEND FIRST TRUST
& INCOME MULTI INCOME
ALLOCATION ALLOCATION
PORTFOLIO (a) PORTFOLIO (b)
----------------- -------------
INVESTMENT INCOME:
Interest.................................................................. $ 1,747,386 $ 250
Dividends................................................................. 1,688,654 30,669
Dividends from affiliated funds........................................... -- 38,033
Foreign withholding tax on dividend income................................ 264 (274)
------------- -------------
Total investment income................................................ 3,436,304 68,678
------------- -------------
EXPENSES:
Investment advisory fees.................................................. 793,816 11,831
12b-1 service fees (Class I).............................................. 330,740 4,758
Administrative service fees............................................... 264,593 2,793
Accounting and administration fees........................................ 124,332 2,985
Custodian fees............................................................ 113,113 365
Transfer agent fees....................................................... 67,401 33,296
Printing fees............................................................. 49,762 3,292
Legal fees................................................................ 46,635 34
Audit and tax fees........................................................ 29,183 51,000
Licensing fees............................................................ 28,320 --
Trustees' fees and expenses............................................... 18,145 12,030
Commitment fees........................................................... 12,068 --
Financial reporting fees.................................................. 9,250 --
Other..................................................................... 8,463 2,278
------------- -------------
Total expenses......................................................... 1,895,821 124,662
Fees waived or expenses reimbursed by the investment advisor........... (308,178) (101,172)
------------- -------------
Net expenses.............................................................. 1,587,643 23,490
------------- -------------
NET INVESTMENT INCOME (LOSS).............................................. 1,848,661 45,188
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................ 5,082,636 4,056
Investments in affiliated funds........................................ -- (558)
Futures................................................................ (521,878) --
Foreign currency transactions.......................................... -- (11)
------------- -------------
Net realized gain (loss).................................................. 4,560,758 3,487
------------- -------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ 7,373,626 127,621
Investments in affiliated funds........................................ -- (37,668)
Futures................................................................ (178,688) --
Foreign currency translation........................................... -- --
------------- -------------
Net change in unrealized appreciation (depreciation)...................... 7,194,938 89,953
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... 11,755,696 93,440
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 13,604,357 $ 138,628
============= =============
-----------------------------
(a) The Fund's Class II Shares were seeded on April 30, 2014, and commenced
operations on May 1, 2014.
(b) The Fund's Class I and Class II shares were seeded on April 30, 2014, and
commenced operations on May 1, 2014.
See Notes to Financial Statements Page 35
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST/DOW JONES DIVIDEND
& INCOME ALLOCATION PORTFOLIO
-------------------------------
YEAR YEAR
ENDED ENDED
12/31/2014 (a) 12/31/2013
--------------- ------------
OPERATIONS:
Net investment income (loss)......................................................... $ 1,848,661 $ 948,398
Net realized gain (loss)............................................................. 4,560,758 1,281,625
Net change in unrealized appreciation (depreciation)................................. 7,194,938 6,481,905
------------ ------------
Net increase (decrease) in net assets resulting from operations...................... 13,604,357 8,711,928
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class I.............................................................................. (1,105,002) (809,141)
Class II............................................................................. (90) --
------------ ------------
(1,105,092) (809,141)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class I.............................................................................. -- (1,474,214)
Class II............................................................................. -- --
------------ ------------
-- (1,474,214)
------------ ------------
Total distributions to shareholders.................................................. (1,105,092) (2,283,355)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................................ 89,311,771 79,882,059
Proceeds from shares reinvested...................................................... 1,105,092 2,283,355
Cost of shares redeemed.............................................................. (13,856,252) (14,691,475)
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions............ 76,560,611 67,473,939
------------ ------------
Total increase (decrease) in net assets.............................................. 89,059,876 73,902,512
NET ASSETS:
Beginning of period.................................................................. 106,078,882 32,176,370
------------ ------------
End of period........................................................................ $195,138,758 $106,078,882
============ ============
Accumulated net investment income (loss) at end of period............................ $ 745,285 $ --
============ ============
-----------------------------
(a) The Fund's Class II Shares were seeded on April 30, 2014, and commenced
operations on May 1, 2014.
(b) The Fund's Class I and Class II Shares were seeded on April 30, 2014, and
commenced operations on May 1, 2014.
Page 36 See Notes to Financial Statements
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST MULTI INCOME
ALLOCATION PORTFOLIO
-------------------------
PERIOD
ENDED
12/31/2014 (b)
---------------
OPERATIONS:
Net investment income (loss)......................................................... $ 45,188
Net realized gain (loss)............................................................. 3,487
Net change in unrealized appreciation (depreciation)................................. 89,953
-------------
Net increase (decrease) in net assets resulting from operations...................... 138,628
-------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class I.............................................................................. (42,537)
Class II............................................................................. (835)
-------------
Total distributions to shareholders.................................................. (43,372)
-------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................................ 7,338,580
Proceeds from shares reinvested...................................................... 43,372
Cost of shares redeemed.............................................................. (478,342)
-------------
Net increase (decrease) in net assets resulting from capital transactions............ 6,903,610
-------------
Total increase (decrease) in net assets.............................................. 6,998,866
NET ASSETS:
Beginning of period.................................................................. --
-------------
End of period........................................................................ $ 6,998,866
=============
Accumulated net investment income (loss) at end of period............................ $ 6,926
=============
See Notes to Financial Statements Page 37
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/2014 12/31/2013 12/31/2012 (a)
--------------- -------------- --------------
Net asset value, beginning of period........ $ 11.37 $ 10.31 $ 10.00
----------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.15 0.14 0.15
Net realized and unrealized gain (loss)..... 0.99 1.17 0.29
----------- ---------- ----------
Total from investment operations............ 1.14 1.31 0.44
----------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.10) (0.09) (0.07)
Net realized gain........................... -- (0.16) (0.04)
Return of capital........................... -- -- (0.02)
----------- ---------- ----------
Total from distributions.................... (0.10) (0.25) (0.13)
----------- ---------- ----------
Net asset value, end of period.............. $ 12.41 $ 11.37 $ 10.31
=========== ========== ==========
Total return (b) (c)........................ 10.04% 12.75% 4.38%
=========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 195,128 $ 106,079 $ 32,176
Ratio of total expenses to average net
assets................................... 1.43% 1.65% 2.69% (d)
Ratio of net expenses to average net
assets................................... 1.20% 1.20% 1.20% (d)
Ratio of net investment income (loss)
to average net assets..................... 1.40% 1.27% 2.25% (d)
Portfolio turnover rate..................... 65% 73% 34%
CLASS II SHARES
PERIOD
ENDED
12/31/2014 (e)
---------------
Net asset value, beginning of period........ $ 11.63
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.14
Net realized and unrealized gain (loss)..... 0.77
-----------
Total from investment operations............ 0.91
-----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.11)
-----------
Total from distributions.................... (0.11)
-----------
Net asset value, end of period.............. $ 12.43
===========
Total return (b) (c)........................ 7.82%
===========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 11
Ratio of total expenses to average net
assets................................... 1.21% (d)
Ratio of net expenses to average net
assets................................... 0.95% (d)
Ratio of net investment income (loss)
to average net assets..................... 1.69% (d)
Portfolio turnover rate..................... 65%
-----------------------------
(a) The Fund's Class I shares were seeded on April 12, 2012, and commenced
operations on May 1, 2012.
(b) Total return is based on the combination of reinvested dividends, capital
gain and return of capital distribution if any. Total return is not
annualized for periods of less than one year. The returns for the Fund do
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.
(c) Total return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) The Fund's Class II shares were seeded on April 30, 2014, and commenced
operations on May 1, 2014.
Page 38 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES
PERIOD
ENDED
12/31/2014 (a)
---------------
Net asset value, beginning of period........ $ 10.00
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.07
Net realized and unrealized gain (loss)..... 0.39
-----------
Total from investment operations............ 0.46
-----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.07)
-----------
Total from distributions.................... (0.07)
-----------
Net asset value, end of period.............. $ 10.39
===========
Total return (b) (c)........................ 4.57%
===========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 6,894
Ratio of total expenses to average net
assets................................... 6.00% (d)
Ratio of net expenses to average net
assets................................... 1.20% (d)
Ratio of net investment income (loss)
to average net assets.................... 2.35% (d)
Portfolio turnover rate..................... 15%
CLASS II SHARES
PERIOD
ENDED
12/31/2014 (a)
---------------
Net asset value, beginning of period........ $ 10.00
-----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.04
Net realized and unrealized gain (loss)..... 0.43
-----------
Total from investment operations............ 0.47
-----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.08)
-----------
Total from distributions.................... (0.08)
-----------
Net asset value, end of period.............. $ 10.39
===========
Total return (b) (c)........................ 4.74%
===========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 105
Ratio of total expenses to average net
assets................................... 14.44% (d)
Ratio of net expenses to average net
assets................................... 0.95% (d)
Ratio of net investment income (loss)
to average net assets.................... 0.54% (d)
Portfolio turnover rate..................... 15%
-----------------------------
(a) The Fund's Class I and Class II shares were seeded on April 30, 2014, and
commenced operations on May 1, 2014.
(b) Total return is based on the combination of reinvested dividends, capital
gain and return of capital distribution if any. Total return is not
annualized for periods of less than one year. The returns for the Fund do
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.
(c) Total return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
See Notes to Financial Statements Page 39
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
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
under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust
currently offers shares of two series (each a "Fund" and collectively, the
"Funds"), First Trust/Dow Jones Dividend & Income Allocation Portfolio ("First
Trust Dow Jones"), which commenced investment operations on May 1, 2012, and
First Trust Multi Income Allocation Portfolio ("First Trust Multi Income"),
which commenced investment operations on May 1, 2014. Each Fund's shares 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").
First Trust Dow Jones' investment objective is to seek to provide total return
by allocating among dividend-paying stocks and investment grade bonds. First
Trust Dow Jones 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" or the "Advisor")
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.
First Trust Dow Jones' 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.
First Trust Multi Income's investment objective is to maximize current income,
with a secondary objective of capital appreciation. First Trust Multi Income
seeks to achieve its objectives through diversified exposure to nine income
generating asset classes: dividend-paying stocks, preferred stocks, energy
infrastructure companies and master limited partnerships ("MLPs"), real estate
investment trusts ("REITs"), high yield or "junk" bonds, floating rate loans,
corporate bonds, mortgage-backed securities and Treasury Inflation Protected
Securities ("TIPS"). The Fund will be actively managed by First Trust and
implementing the strategy involves multiple portfolio managers.
The Advisor will tactically adjust allocation weights in a manner deemed to
offer attractive levels of total return relative to the level of expected risk.
The Advisor intends to adjust asset allocation weights quarterly but may do so
more or less frequently depending upon market conditions. The maximum weight of
any asset class, at the time of adjustment, will be 20%. The minimum weight of
any asset class, at the time of adjustment, will be 5%.
First Trust Multi Income may, at certain times, invest in ETFs that generally
provide exposure to the nine asset classes in lieu of investing directly in such
asset classes. Certain of the ETFs may be advised by First Trust. As a result,
First Trust will also earn advisory fees on the underlying ETFs.
In general, the U.S. dollar-denominated fixed-income securities in which First
Trust Multi Income invests may be issued by U.S. and non-U.S. issuers, of any
credit quality, including high yield securities. The high yield securities in
which the Fund invests are rated below investment grade at the time of purchase
or unrated and deemed by the Advisor to be of comparable quality, commonly
referred to as "junk" bonds. The Fund also invests in the equity securities of
domestic and foreign issuers listed on a U.S. or foreign securities exchange and
non-U.S. securities that are listed on a U.S. securities exchange in the form of
American Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs").
The Fund may invest in equity securities issued by small, mid or large
capitalization companies.
Each Fund offers two classes of shares: Class I and Class II. Each class
represents an interest in the same portfolio of investments but with a different
combination of service (12b-1) fees, eligibility requirements and other
features.
-------------------
(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 40
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the 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") for each class of shares in each Fund 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 for each class is calculated by dividing the value of each
Fund's total assets attributable to such class (including accrued interest and
dividends), less all liabilities attributable to such class (including accrued
expenses, dividends declared but unpaid, and any borrowings of such Fund) by the
total number of shares of the class outstanding. Differences in the NAV of each
class of each Fund's shares are generally expected to be due to the daily
expense accruals of the specified service (12b-1) fees, if any, and transfer
agency costs applicable to such class of shares and the resulting differential
in the dividends that may be paid on each class of shares.
Each Fund's investments are valued daily at market value or, in absence of
market value with respect to any portfolio securities, at fair value. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third party
pricing service or are determined by the Advisor's Pricing Committee, in
accordance with valuation procedures adopted by the Trust's Board of Trustees,
and in accordance with provisions of the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. Each Fund's investments are valued as follows:
Common stocks, preferred stocks, MLPs, ETFs, REITs 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 fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Corporate bonds, corporate notes, U.S. government securities and other
debt securities are fair 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 are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Fixed income and other debt securities having a remaining maturity of 60
days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes
thereto;
2) the liquidity conditions in the relevant market and changes
thereto;
Page 41
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
3) the interest rate conditions in the relevant market and
changes thereto (such as significant changes in interest
rates);
4) issuer-specific conditions (such as significant credit
deterioration); and
5) any other market-based data the Advisor's Pricing Committee
considers relevant. In this regard, the Advisor's Pricing
Committee may use last-obtained market-based data to assist it
when valuing portfolio securities using 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, the Advisor's Pricing Committee, 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 or
fair value 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 a 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. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. 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;
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) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to
baskets of foreign securities;
6) factors relating to the event that precipitated the pricing
problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they
affect entire markets, countries or regions.
Page 42
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
The Funds are 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 each Fund's investments as of December 31, 2014, is
included with each 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.
Distributions received from a Fund's investments in REITs and MLPs may be
comprised of return of capital, capital gains and income. The actual character
of the amounts received during the year is not known until after the REIT's and
MLP's fiscal year end. A Fund records the character of distributions received
from the REITs and MLPs during the year based on estimates and historical
information available. The characterization of distributions received by a Fund
may be subsequently revised based on information received from the REITs and
MLPs after their tax reporting periods conclude.
C. CASH AND CASH EQUIVALENTS:
Normally, the Funds invest substantially all of their assets to meet their
investment objectives. The Funds may invest the remainder of their assets in
securities with maturities of less than one year or cash equivalents, or they
may hold cash. The investment in such instruments is not a principal investment
strategy of the Funds. The percentage of each Fund's net assets 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 Funds may depart from their principal investment strategies and
invest part or all of their assets in these securities, or they may hold cash.
At December 31, 2014, the percentage of net assets held in cash by First Trust
Dow Jones and First Trust Multi Income were approximately 3.3% and 3.1%,
respectively.
D. FUTURES CONTRACTS:
First Trust Dow Jones 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 Statements 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
Statements of Operations.
Page 43
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
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 Statements 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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income of each Fund, if any, are declared and
paid annually. Each Fund distributes its net realized capital gains, if any, to
shareholders at least annually. All dividends payable by each 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 Funds 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, 2014, primarily as a result of a
redesignation of dividends paid, have been reclassified at year end to reflect
the following:
Accumulated
Accumulated Net Net Realized
Investment Gains (Loss) on
Income (Loss) Investments Paid-in-Capital
------------------ ------------------ ------------------
First Trust Dow Jones $ 1,716 $ (1,716) $ --
First Trust Multi Income 5,110 (5,110) --
The tax character of distributions paid by each applicable Fund during the
period ended December 31, 2014 was as follows:
Distributions paid Distributions paid Distributions paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ------------------ ------------------
First Trust Dow Jones $ 1,105,092 $ -- $ --
First Trust Multi Income 42,305 1,067 --
The tax character of distributions paid by each applicable Fund during the
period ended December 31, 2013 was as follows:
Distributions paid Distributions paid Distributions paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ------------------ ------------------
First Trust Dow Jones - Class I $ 2,021,177 $ 262,178 $ --
As of December 31, 2014, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated Net
Undistributed Capital and Unrealized
Ordinary Other Appreciation
Income Gains (Loss) (Depreciation)
------------------ ------------------ ------------------
First Trust Dow Jones $ 3,317,388 $1,810,120 $ 13,976,838
First Trust Multi Income 6,926 -- 88,330
F. INCOME TAXES:
First Trust Dow Jones intends to continue to qualify, and First Trust Multi
Income intends to qualify, as a regulated investment company by complying with
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), which includes distributing substantially
all of its net investment income and net realized gains to shareholders. Each
Fund intends to comply with the provisions of Section 817(h) of the Internal
Revenue Code, which impose certain diversification requirements upon variable
Page 44
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
contracts that are based on segregated asset accounts. Accordingly, no provision
has been made for federal or state income taxes. However, due to the timing and
amount of distributions, each Fund may be subject to an excise tax of 4% of the
amount by which approximately 98% of the Fund's taxable income exceeds the
distributions from such taxable income for the calendar year.
The Funds are 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, 2013
and 2014 remain open to federal and state audit for First Trust Dow Jones.
Taxable year ended 2014 remains open to federal and state audit for First Trust
Multi Income. As of December 31, 2014, management has evaluated the application
of these standards to the Funds and has determined that no provision for income
tax is required in the Funds' financial statements for uncertain tax positions.
Each 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.
Each 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, 2014, for
federal income tax purposes, neither Fund had any capital loss carryforward
available, to the extent provided by regulations, to offset future capital
gains.
G. EXPENSES:
Each Fund will pay all expenses directly related to its operations.
Each Participating Insurance Company performs certain administrative services
for the Funds, their Accounts and the variable annuity and variable life
insurance Contracts. Each 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 Funds, is a sub-licensee to these license agreements and
is required to pay licensing fees, which are shown on the Statements of
Operations.
H. FOREIGN CURRENCY:
The books and records of the Funds are maintained in U.S. dollars. Foreign
currencies, investments and other assets and liabilities are translated into
U.S. dollars at the exchange rates prevailing at the end of the period.
Purchases and sales of investments and items of income and expense are
translated on the respective dates of such transactions. Unrealized gains and
losses on assets and liabilities, other than investments in securities, which
result from changes in foreign currency exchange rates have been included in
"Net change in unrealized appreciation (depreciation) on foreign currency
translation" on the Statements of Operations. Unrealized gains and losses on
investments in securities which result from changes in foreign exchange rates
are included with fluctuations arising from changes in market price and are
shown in "Net change in unrealized appreciation (depreciation) on investments"
on the Statements of Operations. Net realized foreign currency gains and losses
include the effect of changes in exchange rates between trade date and
settlement date on investment security transactions, foreign currency
transactions and interest and dividends received. The portion of foreign
currency gains and losses related to fluctuation in exchange rates between the
initial purchase settlement date and subsequent sale trade date is included in
"Net realized gain (loss) on investments" on the Statements of Operations.
3. INVESTMENT ADVISORY FEE AND OTHER AFFILIATED TRANSACTIONS
First Trust, the investment advisor to the Funds, 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 each Fund with discretionary investment services and certain
administrative services necessary for the management of the Funds. For its
investment advisory and management services, First Trust is entitled to a
monthly fee calculated at an annual rate of 0.60% of each Fund's average daily
net assets. First Trust also provides fund reporting services to the Funds for a
flat annual fee in the amount of $9,250 per Fund.
First Trust Multi Income and First Trust have retained EIP and Stonebridge (the
"Sub-Advisors"), affiliates of First Trust, to serve as investment sub-advisors.
In this capacity, the Sub-Advisors provide recommendations to the Advisor
regarding the selection and on-going monitoring of the securities in First Trust
Multi Income's investment portfolio. EIP acts as sub-advisor for, and manages on
a discretionary basis the investment and reinvestment, of only the assets of
First Trust Multi Income allocated to EIP by the Advisor and furnishes an
investment program in respect of and makes investment decisions only with
respect to the portion of First Trust Multi Income's investment portfolio
allocated to it by the Advisor. EIP has been retained by First Trust Multi
Income and the Advisor to provide recommendations regarding the selection and
ongoing monitoring of the MLP, MLP affiliate and energy infrastructure
securities in First Trust Multi Income's investment portfolio and to exercise
discretion only with respect to assets of First Trust Multi Income allocated to
Page 45
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
EIP. Stonebridge serves as a non-discretionary sub-adviser. Stonebridge has been
retained by First Trust Multi Income and the Advisor to provide recommendations
regarding the selection and ongoing monitoring of the preferred and hybrid
securities in First Trust Multi Income's investment portfolio.
For the services provided and the expenses assumed pursuant to the investment
management agreement, First Trust will pay EIP a sub-advisory fee equal to 40%
monthly in arrears of any remaining monthly investment management fee paid to
the Advisor for the average daily net assets allocated to EIP after First
Trust's waiver of any of its investment management fee to comply with the
then-current expense cap, as defined below. For the services provided and the
expenses assumed pursuant to the investment management agreement, First Trust
will pay Stonebridge a portfolio management fee equal to an annual rate of 0.20%
of the Fund's average daily net assets allocated to Stonebridge.
First Trust has agreed to waive fees and/or pay each Fund's expenses to the
extent necessary to prevent the operating expenses of Class I shares and Class
II shares (excluding interest expense, brokerage commissions and other trading
expenses, taxes and extraordinary expenses) from exceeding 1.20% and 0.95% (the
"Expense Cap"), respectively, of each Fund's average daily net assets per year
at least until May 1, 2015, for First Trust Dow Jones and until May 1, 2016, for
First Trust Multi Income. 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 amounts would be included in "Expenses previously waived or
reimbursed" on the Statements of Operations. The advisory fee waivers and
expense reimbursements for the period ended December 31, 2014, and the expenses
borne by First Trust subject to recovery from the applicable Fund at December
31, 2014, are included in the table below.
Fees Waived or Expenses Borne by Advisor Subject to Recovery
---------------------------------------------------------------------------------------
Period Ended Year Ended Year Ended
Fee Expenses December 31, December 31, December 31,
Waived Reimbursed 2012 2013 2014 Total
------------ ------------ ------------ ------------ ------------ ------------
First Trust Dow Jones $ 308,178 $ -- $ 125,220 $ 333,872 $ 308,178 $ 767,270
First Trust Multi Income 11,831 89,341 -- -- 101,172 101,172
During the year ended December 31, 2014, First Trust did not recover any fees
that were previously waived or expenses that were reimbursed.
First Trust Capital Partners, LLC ("FTCP"), an affiliate of First Trust, owns,
through a wholly-owned subsidiary, a 15% ownership interest in each of EIP and
EIP Partners, LLC, an affiliate of EIP. In addition, as of March 27, 2014, FTCP,
through a wholly-owned subsidiary, purchased a preferred interest in EIP. The
preferred interest is non-voting and does not share in the profits or losses of
EIP. EIP may buy back any or all of FTCP's preferred interest at any time and
FTCP may sell back to EIP up to 50% of its preferred interest on or after
September 25, 2015, and any or all of its preferred interest after March 27,
2017. Stonebridge is a majority-owned affiliate of First Trust.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as the Funds'
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 Trust, including
maintaining the Trust's books of account, records of the Trust's securities
transactions, and certain other books and records. As transfer agent, BNYM IS is
responsible for maintaining shareholder records for the Trust. The Bank of New
York Mellon ("BNYM") serves as the Trust's custodian in accordance with certain
fee arrangements. As custodian, BNYM is responsible for custody of the Trust'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 that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees 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 Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
Page 46
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
4. CAPITAL SHARE TRANSACTIONS
Capital transactions for First Trust Dow Jones were as follows:
PERIOD ENDED YEAR ENDED
DECEMBER 31, 2014 DECEMBER 31, 2013
SHARES VALUE SHARES VALUE
------------ ------------ ------------ ------------
Sales:
Class I 7,492,797 $ 89,301,771 7,328,851 $ 79,882,059
Class II 860 10,000 -- --
------------ ------------ ------------ ------------
Total Sales: 7,493,657 $ 89,311,771 7,328,851 $ 79,882,059
============ ============ ============ ============
Dividend Reinvestment:
Class I 93,014 $ 1,105,002 202,965 $ 2,283,355
Class II 7 90 -- --
------------ ------------ ------------ ------------
Total Dividend Reinvestment: 93,021 $ 1,105,092 202,965 $ 2,283,355
============ ============ ============ ============
Redemptions:
Class I (1,195,329) $(13,856,252) (1,323,631) $(14,691,475)
Class II -- -- -- --
------------ ------------ ------------ ------------
Total Redemptions: (1,195,329) $(13,856,252) (1,323,631) $(14,691,475)
============ ============ ============ ============
Capital transactions for First Trust Multi Income were as follows:
PERIOD ENDED
DECEMBER 31, 2014
SHARES VALUE
------------ ------------
Sales:
Class I 705,881 $ 7,238,580
Class II 10,000 100,000
------------ ------------
Total Sales: 715,881 $ 7,338,580
============ ============
Dividend Reinvestment:
Class I 4,086 $ 42,537
Class II 80 835
------------ ------------
Total Dividend Reinvestment: 4,166 $ 43,372
============ ============
Redemptions:
Class I (46,565) $ (478,342)
Class II -- --
------------ ------------
Total Redemptions: (46,565) $ (478,342)
============ ============
Page 47
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
5. DERIVATIVES TRANSACTIONS
The following table presents the types of derivatives held by First Trust Dow
Jones at December 31, 2014, the primary underlying risk exposure and the
location of these instruments as presented on the Statements of Assets and
Liabilities. First Trust Multi Income did not hold any derivative instruments as
of December 31, 2014.
ASSET DERIVATIVES LIABILITY DERIVATIVES
--------------------------------------- ---------------------------------------
DERIVATIVE STATEMENTS OF ASSETS STATEMENTS OF ASSETS
INSTRUMENT RISK EXPOSURE AND LIABILITIES LOCATION VALUE AND LIABILITIES LOCATION VALUE
---------- ------------------ -------------------------- ---------- -------------------------- ----------
Futures Interest Rate Risk Variation Margin Receivable $ -- Variation Margin Payable $ 22,625
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the year ended
December 31, 2014, on derivatives instruments, as well as the primary underlying
risk exposure associated with each instrument.
STATEMENTS OF OPERATIONS LOCATION INTEREST RATE RISK
-------------------------------------------------------------------
Net realized gain (loss) on futures $ (521,878)
Net change in unrealized gain (loss) on futures (178,688)
During the year ended December 31, 2014, the notional values of futures
contracts opened and closed were $50,597,297 and $41,739,992, respectively.
First Trust Dow Jones does not have the right to offset financial assets and
financial liabilities related to future contracts on the Statements of Assets
and Liabilities.
6. AFFILIATED TRANSACTIONS
First Trust Multi Income invests in securities of affiliated funds. Dividend
income and realized gains and losses from affiliated funds are presented on the
Statements of Operations. The Fund's investment performance and risks are
directly related to the investment performance and risks of the affiliated
funds.
Amounts relating to these investments of First Trust Multi Income at December
31, 2014, and for the period then ended, are as follows:
SHARE ACTIVITY
--------------------------------------------
BALANCE AT BALANCE AT VALUE AT DIVIDEND REALIZED
SECURITY NAME 5/1/2014 PURCHASES SALES 12/31/2014 12/31/2014 INCOME GAIN (LOSS)
------------------------------------------------- ---------- --------- --------- ---------- ---------- ---------- ----------
First Trust Preferred Securities and Income ETF -- 33,460 (640) 32,820 $ 618,985 $ 13,837 $ (12)
First Trust Senior Loan Fund -- 22,510 (450) 22,060 1,069,469 12,381 (286)
First Trust Tactical High Yield ETF -- 12,240 (240) 12,000 596,280 11,815 (260)
--------------------------------
$2,284,734 $ 38,033 $ (558)
================================
7. 12B-1 SERVICE PLAN
The Trust has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the 1940
Act, which provides that Class I shares of each of the Funds will be subject to
an annual service fee.
First Trust Portfolios L.P. ("FTP"), an affiliate of First Trust, serves as the
distributor of shares of the Funds. FTP 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. Each Fund may spend up to 0.25% per year of the average daily net assets
of its Class I 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 a Fund's Class I 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 a
Fund's Class I Shares, certain other expenses associated with the servicing of
Class I shares of a Fund, and any service-related expenses that may be
authorized from time to time by the Board of Trustees.
Page 48
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014
During the year ended December 31, 2014, 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 from year to year 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.
8. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the period ended December 31, 2014, were as follows:
PURCHASES SALES
--------------- ---------------
First Trust Dow Jones $ 157,347,193 $ 84,592,734
First Trust Multi Income 7,360,649 503,204
9. BORROWINGS
Effective March 28, 2013, the Trust and First Trust Series Fund 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 was charged by Scotia, which First Trust allocated amongst
the funds that had access to the Line of Credit. To the extent that First Trust
Dow Jones accessed the Line of Credit, there would also be an interest fee
charged.
The Line of Credit terminated on March 27, 2014. Effective March 27, 2014, the
Trust, on behalf of First Trust Dow Jones, along with First Trust Series Fund
and First Trust Exchange-Traded Fund IV, entered into a $30 million Credit
Agreement (the "BNYM Line of Credit") with BNYM to be a liquidity backstop
during periods of high redemption volume. On October 28, 2014, the Board of
Trustees approved an increase of the BNYM Line of Credit to $80 million. A
commitment fee of 0.15% of the daily amount of the excess of the commitment
amount over the outstanding principal balance of the loans will be charged by
BNYM, which First Trust will allocate amongst the funds that have access to the
BNYM Line of Credit. To the extent that First Trust Dow Jones accesses the BNYM
Line of Credit, there would also be an interest fee charged. First Trust Dow
Jones did not draw on the Line of Credit or the BNYM Line of Credit during the
year ended December 31, 2014.
10. 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.
11. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined there
was the following subsequent event:
On February 6, 2015, the Trust executed an amendment to the BNYM Line of Credit
(the "Amendment"). Pursuant to the Amendment, three funds were added to the BNYM
Line of Credit, including First Trust Multi Income, and the credit line was
increased to $80 million (as previously approved by the Board of Trustees).
Page 49
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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 statements of assets and liabilities of First
Trust/Dow Jones Dividend & Income Allocation Portfolio and First Trust Multi
Income Allocation Portfolio (collectively, the "Funds"), each a series of the
First Trust Variable Insurance Trust (the "Trust"), including the portfolios of
investments, as of December 31, 2014, and the related statements of operations
and changes in net assets and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust'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, 2014 by correspondence with the Trust's
custodian and brokers; where replies were not received, we performed other
auditing procedures. 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 the
funds comprising the First Trust Variable Insurance Trust, as of December 31,
2014, and the results of their operations and changes in their 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, 2015
Page 50
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how the Trust 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 Trust's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust 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 Trust's Forms N-Q
are available (1) by calling (800) 988-5891; (2) on the Trust'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.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2014, the following percentages of
income dividend paid by the Funds qualify for the dividends received deduction
available to corporations:
DIVIDENDS RECEIVED DEDUCTION
------------------------------------
First Trust/Dow Jones Dividend & Income Allocation Portfolio 33.18%
First Trust Multi Income Income Allocation Portfolio 46.55%
For the year ended December 31, 2014, the amount of long-term capital gain
distributions designated by the Funds which are taxable at a maximum rate of 20%
for federal income tax purposes were:
LONG-TERM CAPITAL GAINS DISTRIBUTIONS
-------------------------------------
First Trust/Dow Jones Dividend & Income Allocation Portfolio $ --
First Trust Multi Income Income Allocation Portfolio 1,067
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 COMPOSITE AVERAGE 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
COMPOSITE AVERAGE 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 COMPOSITE AVERAGE 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 COMPOSITE AVERAGE 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 COMPOSITE AVERAGE. 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
Page 51
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (UNAUDITED)
JONES COMPOSITE AVERAGE 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 COMPOSITE AVERAGE OR ANY DATA RELATED THERETO OR ANY COMMUNICATION,
INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (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 COMPOSITE AVERAGE 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 Funds. For additional information about the
risks associated with investing in the Funds, please see the Funds' prospectus
and statement of additional information, as well as other regulatory filings.
AFFILIATED FUND RISK. The First Trust Multi Income Allocation Portfolio invests
in securities of affiliated ETFs, which involves additional expenses that would
not be present in a direct investment in such affiliated ETFs. Furthermore, the
Fund's investment performance and risks are directly related to the investment
performance and risks of the affiliated ETFs.
CREDIT RISK. The Funds are subject to credit risk. Credit risk is the risk that
an issuer of a security will be unable or unwilling to make dividend, interest
and/or principal payments when due and the related risk that the value of a
security may decline because of concerns about the issuer's ability to make such
payments.
DEPOSITORY RECEIPTS RISK The First Trust Multi Income Allocation Portfolio
invests in equity securities in the form of Depositary Receipts, which may be
less liquid than the underlying securities in their primary trading market. Any
distributions paid to the holders of Depositary Receipts are usually subject to
a fee charged by the depositary. Holders of Depositary Receipts may have limited
voting rights, and investment restrictions in certain countries may adversely
impact the value of Depositary Receipts because such restrictions may limit the
ability to convert the securities into Depositary Receipts and vice versa. Such
restrictions may cause the securities of the underlying issuer to trade at a
discount or premium to the market price of the Depositary Receipts.
DIVIDEND RISK. The Funds are subject to dividend risk. There is no guarantee
that the issuers of the Funds' equity securities will declare dividends in the
future or that, if declared, they will either remain at current levels or
increase over time.
ENERGY INFRASTRUCTURE COMPANIES RISK. The First Trust Multi Income Allocation
Portfolio invests in energy infrastructure companies. These companies
principally include publicly-traded MLPs and limited liability companies taxed
as partnerships, MLP affiliates, Canadian income trusts and their successor
companies, pipeline companies, utilities, and other companies that derive at
least 50% of their revenues from operating or providing services in support of
infrastructure assets such as pipeline, power transmission and petroleum and
natural gas storage in the petroleum, natural gas and power generation
industries. The Fund invests in energy infrastructure companies and is subject
to certain risks inherent in investing in these types of securities. Energy
infrastructure companies may be directly affected by energy commodity prices,
especially those companies that own the underlying energy commodity. A decrease
in the production or availability of natural gas, natural gas liquids, crude
oil, coal or other energy commodities or a decrease in the volume of such
commodities available for transportation, processing, storage or distribution
may adversely impact the financial performance of energy infrastructure
companies. Energy infrastructure companies are subject to significant federal,
state and local government regulation in virtually every aspect of their
operations, including how facilities are constructed, maintained and operated,
environmental and safety controls, and the prices they may charge for products
and services. Various governmental authorities have the power to enforce
compliance with these regulations and the permits issued under them and
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (UNAUDITED)
violators are subject to administrative, civil and criminal penalties, including
civil fines, injunctions or both. Stricter laws, regulations or enforcement
policies could be enacted in the future which would likely increase compliance
costs and may adversely affect the financial performance of energy
infrastructure companies. Natural disasters, such as hurricanes in the Gulf of
Mexico, also may impact energy infrastructure companies.
Certain energy infrastructure companies in the utilities industry are subject to
imposition of rate caps, increased competition due to deregulation, difficulty
in obtaining an adequate return on invested capital or in financing large
construction projects, limitations on operations and increased costs and delays
attributable to environmental considerations, and the capital market's ability
to absorb utility debt. In addition, taxes, government regulation, international
politics, price and supply fluctuations, volatile interest rates and energy
conservation may cause difficulties for these companies. Such issuers have been
experiencing certain of these problems to varying degrees.
EQUITY SECURITIES RISK. The Funds invest in equity securities. The value of the
shares will fluctuate with changes in the value of these equity securities.
Equity securities prices fluctuate for several reasons, including changes in
investors' perceptions of the financial condition of an issuer or the general
condition of the relevant stock market, such as the current market volatility,
or when political or economic events affecting the issuers occur. In addition,
common stock prices may be particularly sensitive to rising interest rates, as
the cost of the capital rises and borrowing costs increase.
ETF RISK. An ETF trades like common stock and represents a portfolio of
securities. The risks of owning an ETF generally reflect the risks of owning the
underlying securities, although lack of liquidity in an ETF could result in it
being more volatile. ETFs have management fees and other operating expenses that
increase their costs. In general, as a shareholder in other investment
companies, the Fund bears its ratable share of the underlying fund's expenses,
and is subject to duplicative expenses to the extent a Fund invests in other
ETFs.
FINANCIAL COMPANIES RISK. Financial companies are especially subject to the
adverse effects of economic recession, currency exchange rates, government
regulation, decreases in the availability of capital, volatile interest rates,
portfolio concentrations in geographic markets and in commercial and residential
real estate loans, and competition from new entrants in their fields of
business.
FLOATING RATE LOAN RISK. The Funds may invest in floating rate loans. An
investment in floating rate loans subjects the Funds to credit risk, which is
heightened for loans in which the Funds may invest because companies that issue
such loans tend to be highly leveraged and thus are more susceptible to the
risks of interest deferral, default and/or bankruptcy. The loans are usually
rated below investment grade but may also be unrated. An economic downturn would
generally lead to higher non-payment rate, and a loan may lose significant
market value before a default occurs. Moreover, any specific collateral used to
secure a loan may decline in value or become illiquid, which would adversely
affect the loan's value. Unlike the securities markets, there is no central
clearinghouse for loan trades, and the loan market has not established
enforceable settlement standards or remedies for failure to settle. Therefore,
portfolio transactions in loans may have uncertain settlement time periods.
Loans are subject to a number of risks described elsewhere in this prospectus,
including liquidity risk and the risk of investing in below investment grade
debt instruments.
HIGH YIELD SECURITIES RISK. The First Trust Multi Income Allocation Portfolio
invests in high yield securities, or "junk" bonds, which are subject to greater
market fluctuations and risk of loss than securities with higher ratings, and
therefore, may be highly speculative. These securities are issued by companies
that may have limited operating history, narrowly focused operations, and/or
other impediments to the timely payment of periodic interest and principal at
maturity. If the economy slows down or dips into recession, the issuers of high
yield securities may not have sufficient resources to continue making timely
payment of periodic interest and principal at maturity. The market for high
yield securities is generally smaller and less liquid than that for investment
grade securities. High yield securities are generally not listed on a national
securities exchange but trade in the over-the-counter markets. Due to the
smaller, less liquid market for high yield securities, the bid-offer spread on
such securities is generally greater than it is for investment grade securities
and the purchase or sale of such securities may take longer to complete.
ILLIQUID SECURITIES RISK. Some of the securities held by the First Trust Multi
Income Allocation Portfolio may be illiquid. Illiquid securities involve the
risk that the securities will not be able to be sold at the time desired by the
Fund or at prices approximately the value at which the Fund is carrying the
securities on its books.
INCOME RISK. Income from the Funds' fixed income investments could decline
during periods of falling interest rates.
INTEREST RATE RISK. Interest rate risk is the risk that the value of the
fixed-income securities in the Funds will decline because of rising market
interest rates. Interest rate risk is generally lower for shorter term
investments and higher for longer term investments.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (UNAUDITED)
PREPAYMENT RISK. The loans that the Funds may invest in are subject to
prepayment risk. The degree to which borrowers prepay loans, whether as a
contractual requirement or at their election, may be affected by general
business conditions, the financial condition of the borrower and competitive
conditions among loan investors, among others. As such, prepayments cannot be
predicted with accuracy. Upon a prepayment, either in part or in full, the
actual outstanding debt on which a Fund derives interest income will be reduced.
The Funds may not be able to reinvest the proceeds received on terms as
favorable as the prepaid loan.
MARKET RISK. Market risk is the risk that a particular security owned by a Fund
or shares of the Funds in general may fall in value. Shares are subject to
market fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in
securities prices. Overall Fund share values could decline generally or could
underperform other investments.
MLP RISK. The First Trust Multi Income Allocation Portfolio's investment in MLP
units involves risks which differ from an investment in common stock of a
corporation. Holders of MLP units have limited control and voting rights on
matters affecting the partnership. In addition, there are certain tax risks
associated with an investment in MLP units and conflicts of interest may exist
between common unit holders and the general partner, including those arising
from incentive distribution payments. In addition, there is the risk that an MLP
could be, contrary to its intention, taxed as a corporation, resulting in
decreased returns from such MLP.
MORTGAGE SECURITIES RISK. The First Trust Multi Income Allocation Portfolio
invests in mortgage-related securities, including mortgage-backed securities,
which may make the Fund more susceptible to adverse economic, political or
regulatory events that affect the value of real estate. The First Trust/Dow
Jones Dividend & Income Allocation Portfolio may invest in such securities.
Changes in local, state and federal policies could negatively impact the
mortgage-related securities market, which include various government initiated
and sponsored homeowner assistance programs and eminent domain issues. Mortgage
related securities may also face liquidity issues when a Fund seeks to sell such
securities, but is unable to find buyers at a bid-ask spread to make the
transaction feasible. These securities are also subject to the risk that the
underlying borrowers may default on their mortgages, resulting in a non-payment
of principal and interest. Finally, the mortgage-related securities market may
be negatively impacted by regulatory changes including those that are related to
the mandate or existence of the government-sponsored enterprises, Fannie Mae,
Freddie Mac and Ginnie Mae. Mortgage-related securities are subject to
prepayment risk. The degree to which borrowers prepay loans, whether as a
contractual requirement or at their election, may be affected by general
business conditions, the financial condition of the borrower and competitive
conditions among loan investors, among others. As such, prepayments cannot be
predicted with accuracy. Upon a prepayment, either in part or in full, the
actual outstanding debt on which a Fund derives interest income will be reduced.
In declining interest rate environments, the extent to which borrowers prepay a
mortgage generally increases, which increase reinvestment risk, or the risk that
the proceeds received are not reinvested on terms as favorable as the prepaid
loan. Conversely, mortgage-related securities are subject to the risk that the
rate of mortgage prepayments decreases, which extends the average life of a
security and increases the interest rate risk exposure.
NEW FUND RISK. The First Trust Multi Income Allocation Portfolio currently has
fewer assets than larger funds, and like other relatively new funds, large
inflows and outflows may impact the Fund's market exposure for limited periods
of time. This impact may be positive or negative, depending on the direction of
market movement during the period affected.
NON-U.S. SECURITIES RISK. The First Trust Multi Income Allocation Portfolio
invests in securities of non-U.S. issuers. Non-U.S. securities are subject to
higher volatility than securities of domestic issuers due to possible adverse
political, social or economic developments; restrictions on foreign investment
or exchange of securities; lack of liquidity; currency exchange rates; excessive
taxation; government seizure of assets; different legal or accounting standards
and less government supervision and regulation of exchanges in foreign
countries. These risks may be heightened for securities of companies located in,
or with significant operations in, emerging market countries.
PREFERRED SECURITIES RISK. The First Trust Multi Income Allocation Portfolio
invests in preferred securities. Preferred securities combine some of the
characteristics of both common stocks and bonds. Preferred securities are
typically subordinated to bonds and other debt instruments in a company's
capital structure in terms of priority to corporate income, and therefore will
be subject to greater credit risk than those debt instruments. Preferred
securities are also subject to credit risk, interest rate risk and income risk.
REIT RISK. The First Trust Multi Income Allocation Portfolio invests in REITs,
and as a result, the Fund is subject to the risks associated with investing in
real estate, which may include, but are not limited to, fluctuations in the
value of underlying properties; defaults by borrowers or tenants; market
saturation; changes in general and local operating expenses; and other economic,
political or regulatory occurrences affecting companies in the real estate
industry. In addition to risks related to investments in real estate generally,
investing in REITs involves certain other risks related to their structure and
focus, which include, but are not limited to, dependency upon management skills,
limited diversification, the risks of locating and managing financing for
projects, heavy cash flow dependency, possible default by borrowers, the costs
and potential losses of self-liquidation of one or more holdings, the risk of a
possible lack of mortgage funds and associated interest rate risks,
overbuilding, property vacancies, increases in property taxes and operating
expenses, changes in zoning laws, losses due to environmental damages, changes
in neighborhood values and appeal to purchases, the possibility of failing to
Page 54
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (UNAUDITED)
maintain exemptions from registration under the 1940 Act and, in many cases,
relatively small market capitalization, which may result in less market
liquidity and greater price volatility. REITs are also subject to the risk that
the real estate market may experience an economic downturn generally, which may
have a material effect on the real estate in which the REITs invest and their
underlying portfolio securities.
SMALLER COMPANY RISK. The Funds invest in small- and 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.
TIPS RISK. The First Trust Multi Income Allocation Portfolio invests in TIPs.
TIPS are inflation-indexed fixed-income securities issued by the U.S. Department
of Treasury and are subject to the same risks as other fixed income investments.
In a falling inflationary environment, both interest payments and the value of
the TIPS will decline.
Page 55
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (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; 114 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Trust 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 114 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor
120 East Liberty Drive, o Since Trust Inception (May 2007 to March 2010), ADM Investor Services, Inc.,
Suite 400 Services, Inc. (Futures Commission ADM Investor
Wheaton, IL 60187 Merchant) Services
D.O.B.: 11/57 International
and Futures
Industry
Association
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 114 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 East Liberty Drive, o Since Trust Inception Consulting) of Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating Officer 114 Director of
c/o First Trust Advisors L.P. (January 2015 to Present), Pelita Harapan Covenant
120 East Liberty Drive, o Since Trust Inception Educational Foundation (Educational Products Transport, Inc.
Suite 400 and Services); President and Chief Executive (May 2003 to
Wheaton, IL 60187 Officer (June 2012 to September 2014), Servant May 2014)
D.O.B.: 03/54 Interactive LLC (Educational Products and
Services); President and Chief Executive
Officer (June 2012 to September 2014), Dew
Learning LLC (Educational Products and
Services); President (June 2002 to June 2012),
Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee and o Indefinite Term Chief Executive Officer (December 2010 114 None
Chairman of the Board to Present), President, (until December
120 East Liberty Drive, o Since Trust 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.
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (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 Trust 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 Accounting President (April 2007 to Present), First Trust
Suite 400 Officer o Since Trust 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 Trust 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 Trust 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 Trust 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 Trust 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.
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2014 (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
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
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FIRST TRUST
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 E. Liberty Drive, Suite 400
Wheaton, IL 60187
INVESTMENT SUB-ADVISORS
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
Energy Income Partners, LLC
49 Riverside Avenue
Westport, CT 06880
Stonebridge Advisors, LLC
187 Danbury Road
Wilton, CT 06897
ADMINISTRATOR,
FUND ACCOUNTANT &
TRANSFER AGENT
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
BNY Mellon Investment Servicing (US) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
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 each of the last two
fiscal years 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 for the fiscal year ended December 31, 2013
and $70,750 for the fiscal year ended December 31, 2014.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed for each
of the last two fiscal years 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 fiscal year ended December 31, 2013 and $0 for the
fiscal year ended December 31, 2014.
Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed for each of the last two fiscal years 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
Distributor for the fiscal year ended December 31, 2013 and $0 for the Advisor
and $0 for the Distributor for the fiscal year ended December 31, 2014.
(c) Tax Fees (Registrant) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant
were $3,250 for the fiscal year ended December 31, 2013 and $3,250 for the
fiscal year ended December 31, 2014.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
for each of the last two fiscal years 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 fiscal year ended December
31, 2013 and $0 for the fiscal year ended December 31, 2014.
(d) All Other Fees (Registrant) -- The aggregate fees for each of the last
two fiscal years 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 fiscal year ended December 31, 2013 and $0 for
the fiscal year ended December 31, 2014.
All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed for each of the last two fiscal years 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 fiscal year ended December 31, 2013 and $0 for the
fiscal year ended December 31, 2014.
(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 fiscal year
ended December 31, 2013 were $3,250 for the registrant, $38,000 for the
registrant's investment adviser and $58,100 for the registrant's distributor,
and for the fiscal year ended December 31, 2104 were $3,250 for the registrant,
$8,500 for the registrant's investment adviser and $43,500 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 13, 2015
---------------------
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 13, 2015
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: February 13, 2015
---------------------
* Print the name and title of each signing officer under his or her signature.