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
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: June 30, 2015
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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
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED JUNE 30, 2015
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TABLE OF CONTENTS
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FIRST TRUST VARIABLE INSURANCE TRUST
SEMI-ANNUAL REPORT
JUNE 30, 2015
Shareholder Letter........................................................... 1
Portfolio Management......................................................... 2
Performance Summary and Portfolio Components
First Trust/Dow Jones Dividend & Income Allocation Portfolio.............. 4
First Trust Multi Income Allocation Portfolio............................. 6
Understanding Your Fund Expenses............................................. 8
Portfolio of Investments
First Trust/Dow Jones Dividend & Income Allocation Portfolio.............. 9
First Trust Multi Income Allocation Portfolio............................. 25
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
Additional Information....................................................... 50
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/or 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 objective.
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.
The Advisor may also periodically provide additional information on Fund
performance on each Fund's webpage at http://www.ftportfolios.com.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment in
each Fund. It includes details about each Fund and presents data and analysis
that provide insight into each Fund's performance.
The statistical information that follows may help you understand each Fund's
performance compared to that of relevant market benchmarks.
The material 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
SEMI-ANNUAL LETTER FROM THE CHAIRMAN AND CEO
JUNE 30, 2015
Dear Shareholders:
Thank you for your investment in First Trust Variable Insurance Trust (the
"Trust").
First Trust Advisors L.P. ("First Trust") is pleased to provide you with this
semi-annual report which contains detailed information about your investment for
the six months ended June 30, 2015. Additionally, First Trust has compiled each
Fund's financial statements for you to review. We encourage you to read this
report and discuss it with your financial advisor.
U.S. markets, fueled by accelerating growth and an accommodating Federal
Reserve, enjoyed a prosperous year in 2014. However, for the six months covered
by this report, some economic and global factors, including the continued
conflict in the Middle East and a sharp decline in oil prices, created
volatility in the U.S. and global markets. Another factor that has impacted
markets is the fact that many economists are predicting the Federal Reserve will
begin to raise interest rates over the next few months.
As I have written previously, First Trust believes investors should maintain
perspective about the markets and have realistic expectations about their
investments. Markets will always go up and down, but we believe that having a
long-term investment horizon and being invested in quality products can help you
reach your goals.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value the relationship and will continue to focus on our disciplined
investment approach and long-term perspective to help investors reach their
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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PORTFOLIO MANAGEMENT
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2015
INVESTMENT ADVISOR
First Trust Advisors L.P. ("First Trust") is a registered investment advisor
based in Wheaton, IL and is the investment advisor to First Trust/Dow Jones
Dividend & Income Allocation Portfolio (the "Fund"). In this capacity, First
Trust is responsible for the selection and ongoing monitoring of the securities
in the Fund's portfolio and certain other services necessary for the management
of the Fund.
PORTFOLIO MANAGEMENT TEAM
Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director,
First Trust
David G. McGarel, Chief Investment Officer and Managing Director, First Trust
Jon C. Erickson, Senior Vice President, First Trust
Roger F. Testin, Senior Vice President, First Trust
Todd Larson, Vice President, First Trust
Page 2
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PORTFOLIO MANAGEMENT (CONTINUED)
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FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2015
INVESTMENT ADVISOR
First Trust is a registered investment advisor based in Wheaton, IL and is the
investment advisor to First Trust Multi Income Allocation Portfolio (the
"Fund"). First Trust manages the Fund's fixed income investments, as well as a
portion of the Fund's equity investments.
SUB-ADVISORS
Stonebridge Advisors LLC ("Stonebridge" or a "Sub-Advisor") is a sub-advisor to
the Fund and is a registered investment advisor based in Wilton, CT. Stonebridge
specializes in the management of preferred securities and North American equity
income securities.
Energy Income Partners, LLC ("EIP" or a "Sub-Advisor"), is a sub-advisor to the
Fund and is a registered investment advisor based in Westport, CT. EIP was
founded in 2003 to provide professional asset management services in the area of
energy-related master limited partnerships ("MLPs") and other high-payout
securities such as pipeline companies, power utilities and Canadian income
equities.
PORTFOLIO MANAGEMENT TEAMS
FIRST TRUST
Daniel J. Lindquist, Chairman of the Investment Committee and Managing Director,
First Trust
David G. McGarel, Chief Investment Officer and Managing Director, First Trust
Jon C. Erickson, Senior Vice President, First Trust
Roger F. Testin, Senior Vice President, First Trust
William Housey, Senior Vice President, First Trust
Todd Larson, Vice President, First Trust
James Snyder, Vice President, First Trust
Jeremiah Charles, Vice President, First Trust
STONEBRIDGE
Scott Fleming, Portfolio Manager, President and Chief Investment Officer,
Stonebridge
Robert Wolf, Portfolio Manager, Vice President and Senior Credit Analyst,
Stonebridge
EIP
James J. Murchie, Portfolio Manager, Founder and CEO, EIP
Eva Pao, Co-Portfolio Manager, Principal, EIP
Page 3
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2015 (UNAUDITED)
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RETURN COMPARISON PERIOD ENDED JUNE 30, 2015
1 YEAR
SIX MONTH ANNUAL SINCE INCEPTION AVERAGE
INCEPTION DATE TOTAL RETURN TOTAL RETURN ANNUAL TOTAL RETURN
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION
PORTFOLIO - CLASS I 5/1/12 0.29% 5.45% 8.61%
Blended Index (a) 0.61% 4.11% 9.56%
Barclays U.S. Corporate Investment-Grade Index (b) -0.92% 0.75% 3.50%
Russell 3000(R) Index (c) 1.94% 7.29% 15.62%
Secondary Blended Index (d) 0.55% 4.40% 9.71%
Dow Jones Equal Weighted U.S. Issued Corporate Bond
Index(SM) (e) -1.07% 1.19% 3.69%
Dow Jones U.S. Total Stock Market Index(SM) (f) 1.92% 7.18% 15.53%
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1 YEAR
SIX MONTH ANNUAL SINCE INCEPTION AVERAGE
INCEPTION DATE TOTAL RETURN TOTAL RETURN ANNUAL TOTAL RETURN
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION
PORTFOLIO - CLASS II 5/1/14 0.41% 5.72% 7.04%
Blended Index (a) 0.61% 4.11% 6.09%
Barclays U.S. Corporate Investment-Grade Index (b) -0.92% 0.75% 1.60%
Russell 3000(R) Index (c) 1.94% 7.29% 10.51%
Secondary Blended Index (d) 0.55% 4.40% 6.33%
Dow Jones Equal Weighted U.S. Issued Corporate Bond
Index(SM) (e) -1.07% 1.19% 1.92%
Dow Jones U.S. Total Stock Market Index(SM) (f) 1.92% 7.18% 10.43%
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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. corporate bonds. 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).
(d) The Secondary Blended Index return is a 50/50 split between the Dow Jones
U.S. Total Stock Market Index and the Dow Jones Equal Weighted U.S. Issued
Corporate Bond Index returns.
(e) The Dow Jones Equal Weighted U.S. Issued Corporate Bond Index(SM) measures
the return of readily tradable, high-grade U.S. corporate bonds. The index
includes an equally weighted basket of 96 recently issued investment-grade
corporate bonds with laddered maturities. (The index reflects no deduction
for fees, expenses or taxes).
(f) The Dow Jones U.S. Total Stock Market Index(SM) measures all U.S. equity
securities that have readily available prices. (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 - CLASS I
May 1, 2012 - June 30, 2015
Dow Jones
First Trust/Dow Barclays U.S. Equal Weighted Dow Jones
Jones Dividend & Corporate Russell Secondary U.S. Issued U.S. Total
Income Allocation Blended Investment-Grade 3000(R) Blended Corporate Bond Stock Market
Portfolio - Class I Index Index Index Index Index(SM) Index(SM)
5/1/2012 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
6/30/2012 10,020 9,925 10,135 9,701 9,933 10,152 9,702
12/31/2012 10,438 10,495 10,636 10,331 10,519 10,677 10,322
6/30/2013 10,904 11,026 10,273 11,784 11,047 10,290 11,786
12/31/2013 11,770 12,055 10,472 13,798 12,088 10,523 13,777
6/30/2014 12,318 12,823 11,067 14,756 12,844 11,083 14,733
12/31/2014 12,951 13,269 11,254 15,531 13,336 11,336 15,493
6/30/2015 12,989 13,350 11,150 15,832 13,409 11,215 15,790
Page 4
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2015 (UNAUDITED)
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% OF TOTAL
TOP EQUITY HOLDINGS INVESTMENTS
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HCC Insurance Holdings, Inc. 0.5%
LyondellBasell Industries N.V., Class A 0.4
Rollins, Inc. 0.4
Eli Lilly & Co. 0.4
DST Systems, Inc. 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 6.0%
Bank of America Corp. 1.6
Goldman Sachs Group (The), Inc. 1.4
Morgan Stanley 1.3
JPMorgan Chase & Co. 1.3
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Total 11.6%
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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Common Stocks:
Financials 14.5%
Industrials 13.8
Information Technology 8.2
Consumer Staples 5.5
Consumer Discretionary 4.9
Materials 4.2
Health Care 3.4
Energy 1.8
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Total Common Stocks 56.3
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Corporate Bonds & Notes:
Financials 14.1
Utilities 4.3
Health Care 3.6
Energy 3.1
Industrials 2.8
Information Technology 2.4
Consumer Discretionary 2.4
Consumer Staples 1.9
Telecommunication Services 1.8
Materials 0.6
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Total Corporate Bonds & Notes 37.0
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U.S. Government Bonds & Notes 6.0
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Foreign Corporate Bonds & Notes:
Health Care 0.4
Energy 0.1
Financials 0.1
Materials 0.1
Total Foreign Corporate Bonds & Notes 0.7
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Total 100.0%
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% OF TOTAL
FIXED-INCOME
CREDIT QUALITY(1) INVESTMENTS
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AAA 15.5%
AA+ 3.9
AA 4.0
AA- 7.8
A+ 8.6
A 24.8
A- 15.5
BBB+ 8.7
BBB 5.9
BBB- 5.3
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Total 100.0%
======
(1) The credit quality information presented reflects the ratings assigned by
one or more nationally recognized statistical rating organizations
(NRSROs), including Standard & Poor's Ratings Group, a division of the
McGraw-Hill Companies, Inc., Moody's Investors Service, Inc., Fitch
Ratings or a comparably rated NRSRO. For situations in which a security is
rated by more than one NRSRO and ratings are not equivalent, the highest
ratings are used. Sub-investment grade ratings are those rated BB+/Ba1 or
lower. Investment grade ratings are those rated BBB-/Baa3 or higher. The
credit ratings shown relate to the creditworthiness of the issuers of the
underlying securities in the Fund, and not to the Fund or its shares.
Credit ratings are subject to change.
Page 5
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2015 (UNAUDITED)
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RETURN COMPARISON PERIOD ENDED JUNE 30, 2015
1 YEAR
SIX MONTH ANNUAL SINCE INCEPTION AVERAGE
INCEPTION DATE TOTAL RETURN TOTAL RETURN ANNUAL TOTAL RETURN
FIRST TRUST MULTI INCOME ALLOCATION
PORTFOLIO - CLASS I 5/1/14 -0.71% 0.60% 3.27%
FIRST TRUST MULTI INCOME ALLOCATION
PORTFOLIO - CLASS II -0.60% 0.88% 3.52%
Blended Index (a) 0.80% 4.11% 5.70%
Barclays U.S. Aggregate Index (b) -0.10% 1.86% 2.43%
Russell 3000(R) Index (c) 1.94% 7.29% 10.51%
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(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) 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 - CLASS I
May 1, 2014 - June 30, 2015
First Trust Multi Income Allocation Blended Barclays U.S. Russell 3000(R)
Portfolio -- Class I Index 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 10,295 11,020
6/30/2015 10,383 10,667 10,284 11,234
Page 6
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
SEMI-ANNUAL REPORT
JUNE 30, 2015 (UNAUDITED)
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% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
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First Trust Senior Loan Fund 15.3%
First Trust Preferred Securities and Income ETF 9.2
iShares iBoxx $ Investment Grade Corporate Bond ETF 9.0
First Trust Tactical High Yield ETF 7.1
iShares MBS ETF 3.6
Enterprise Products Partners, L.P. 0.9
Kinder Morgan, Inc. 0.8
U.S. Treasury Inflation Indexed Note 0.13%, 04/15/17 0.8
Plains All American Pipeline, L.P. 0.8
U.S. Treasury Inflation Indexed Bond 3.38%, 04/15/32 0.6
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Total 48.1%
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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Exchange-Traded Funds 45.0%
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Common Stocks:
Financials 4.2
Energy 3.6
Utilities 3.1
Consumer Discretionary 2.9
Information Technology 2.6
Industrials 2.6
Health Care 2.5
Consumer Staples 1.7
Telecommunication Services 0.7
Materials 0.7
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Total Common Stocks 24.6
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Real Estate Investment Trusts:
Financials 11.4
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Total Real Estate Investment Trusts 11.4
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Master Limited Partnerships:
Energy 7.5
Utilities 0.7
Materials 0.1
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Total Master Limited Partnerships 8.3
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U.S. Government Bonds & Notes 8.0
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U.S. Government Agency Mortgage-Backed
Securities 1.7
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Mortgage-Backed Securities 0.9
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Asset-Backed Securities 0.1
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Total 100.0%
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Page 7
FIRST TRUST VARIABLE INSURANCE TRUST
UNDERSTANDING YOUR FUND EXPENSES
JUNE 30, 2015 (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, if any; 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 June 30, 2015.
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 1/1/2015- VALUE VALUE 1/1/2015- EXPENSE
1/1/2015 6/30/2015 6/30/2015 (a) 1/1/2015 6/30/2015 6/30/2015 (a) RATIO (b)
-------------- ---------- -------------- -------------- ---------- -------------- ---------
First Trust/Dow Jones Dividend &
Income Allocation Portfolio
Class I $ 1,000.00 $ 1,002.90 $ 5.96 $ 1,000.00 $ 1,018.84 $ 6.01 1.20%
Class II $ 1,000.00 $ 1,004.10 $ 4.72 $ 1,000.00 $ 1,020.08 $ 4.76 0.95%
First Trust Multi Income
Allocation Portfolio
Class I $ 1,000.00 $ 992.90 $ 4.89 $ 1,000.00 $ 1,019.89 $ 4.96 0.99%
Class II $ 1,000.00 $ 994.00 $ 3.76 $ 1,000.00 $ 1,021.03 $ 3.81 0.76%
(a) Expenses are equal to the annualized expense ratio as indicated in the
table, multiplied by the average account value over the period (January 1,
2015 through June 30, 2015), multiplied by 181/365 (to reflect the
one-half year period).
(b) The expense ratios reflect an expense cap. First Trust Multi Income
Allocation Portfolio expense ratios reflect an additional waiver. See Note
3 in the Notes to Financial Statements.
Page 8
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS -- 55.3%
AEROSPACE & DEFENSE -- 2.5%
6,342 Boeing (The) Co. ............................................................ $ 879,762
7,014 General Dynamics Corp. ...................................................... 993,814
9,126 Honeywell International, Inc. ............................................... 930,578
4,690 Lockheed Martin Corp. ....................................................... 871,871
5,914 Northrop Grumman Corp. ...................................................... 938,138
8,713 Raytheon Co. ................................................................ 833,660
8,122 United Technologies Corp. ................................................... 900,973
-------------
6,348,796
-------------
AIR FREIGHT & LOGISTICS -- 0.4%
5,753 FedEx Corp. ................................................................. 980,311
-------------
BANKS -- 1.6%
13,779 Cullen/Frost Bankers, Inc. .................................................. 1,082,754
23,527 East West Bancorp, Inc. ..................................................... 1,054,480
21,799 U.S. BanCorp. ............................................................... 946,077
17,500 Wells Fargo & Co. ........................................................... 984,200
-------------
4,067,511
-------------
BEVERAGES -- 1.4%
23,475 Coca-Cola (The) Co. ......................................................... 920,924
21,537 Coca-Cola Enterprises, Inc. ................................................. 935,568
12,128 Dr. Pepper Snapple Group, Inc. .............................................. 884,131
9,955 PepsiCo, Inc. ............................................................... 929,200
-------------
3,669,823
-------------
BUILDING PRODUCTS -- 0.4%
14,497 A.O. Smith Corp. ............................................................ 1,043,494
-------------
CAPITAL MARKETS -- 1.1%
18,547 Franklin Resources, Inc. .................................................... 909,359
21,591 SEI Investments Co. ......................................................... 1,058,607
11,755 T. Rowe Price Group, Inc. ................................................... 913,716
-------------
2,881,682
-------------
CHEMICALS -- 3.3%
8,972 Airgas, Inc. ................................................................ 949,058
19,841 Dow Chemical (The) Co. ...................................................... 1,015,264
8,322 Ecolab, Inc. ................................................................ 940,969
16,627 FMC Corp. ................................................................... 873,749
8,108 International Flavors & Fragrances, Inc. .................................... 886,123
10,842 LyondellBasell Industries N.V., Class A...................................... 1,122,364
8,460 Monsanto Co. ................................................................ 901,751
7,885 Praxair, Inc. ............................................................... 942,652
3,345 Sherwin-Williams (The) Co. .................................................. 919,942
-------------
8,551,872
-------------
COMMERCIAL SERVICES & SUPPLIES -- 0.8%
11,661 Cintas Corp. ................................................................ 986,404
38,491 Rollins, Inc. ............................................................... 1,098,148
-------------
2,084,552
-------------
See Notes to Financial Statements Page 9
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT -- 0.7%
17,976 Plantronics, Inc. ........................................................... $ 1,012,228
13,728 QUALCOMM, Inc. .............................................................. 859,785
-------------
1,872,013
-------------
CONTAINERS & PACKAGING -- 0.4%
14,986 AptarGroup, Inc. ............................................................ 955,657
-------------
DISTRIBUTORS -- 0.4%
10,215 Genuine Parts Co. ........................................................... 914,549
-------------
ELECTRICAL EQUIPMENT -- 1.1%
18,119 AMETEK, Inc. ................................................................ 992,559
16,811 Emerson Electric Co. ........................................................ 931,834
8,207 Rockwell Automation, Inc. ................................................... 1,022,920
-------------
2,947,313
-------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.7%
16,153 Amphenol Corp., Class A...................................................... 936,389
13,290 TE Connectivity, Ltd. ....................................................... 854,547
-------------
1,790,936
-------------
ENERGY EQUIPMENT & SERVICES -- 0.7%
19,041 National Oilwell Varco, Inc. ................................................ 919,299
11,409 Schlumberger, Ltd. .......................................................... 983,342
-------------
1,902,641
-------------
FOOD & STAPLES RETAILING -- 0.7%
9,222 CVS Health Corp. ............................................................ 967,203
11,573 Wal-Mart Stores, Inc. ....................................................... 820,873
-------------
1,788,076
-------------
FOOD PRODUCTS -- 2.2%
16,816 General Mills, Inc. ......................................................... 936,987
9,431 Hershey (The) Co. ........................................................... 837,756
16,743 Hormel Foods Corp. .......................................................... 943,803
12,231 Ingredion, Inc. ............................................................. 976,156
8,922 J&J Snack Foods Corp. ....................................................... 987,398
12,345 McCormick & Co., Inc. ....................................................... 999,328
-------------
5,681,428
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.4%
13,896 Baxter International, Inc. .................................................. 971,747
-------------
HEALTH CARE PROVIDERS & SERVICES -- 1.4%
10,545 Cardinal Health, Inc. ....................................................... 882,089
19,510 Patterson Cos., Inc. ........................................................ 949,162
12,386 Quest Diagnostics, Inc. ..................................................... 898,233
8,046 UnitedHealth Group, Inc. .................................................... 981,612
-------------
3,711,096
-------------
HOTELS, RESTAURANTS & LEISURE -- 1.1%
6,256 Cracker Barrel Old Country Store, Inc. ...................................... 933,145
9,768 McDonald's Corp. ............................................................ 928,644
26,131 Texas Roadhouse, Inc. ....................................................... 978,083
-------------
2,839,872
-------------
Page 10 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD DURABLES -- 0.4%
24,363 Newell Rubbermaid, Inc. ..................................................... $ 1,001,563
-------------
HOUSEHOLD PRODUCTS -- 0.7%
11,144 Church & Dwight Co., Inc. ................................................... 904,113
11,617 Procter & Gamble (The) Co. .................................................. 908,914
-------------
1,813,027
-------------
INDUSTRIAL CONGLOMERATES -- 1.1%
5,770 3M Co. ...................................................................... 890,311
11,211 Danaher Corp. ............................................................... 959,549
5,536 Roper Industries, Inc. ...................................................... 954,739
-------------
2,804,599
-------------
INSURANCE - 9.4%
8,539 ACE, Ltd. ................................................................... 868,245
14,872 AFLAC, Inc. ................................................................. 925,038
23,562 Allied World Assurance Co. Holdings AG....................................... 1,018,350
13,374 Allstate Corp. .............................................................. 867,571
14,839 American Financial Group, Inc. .............................................. 965,128
9,904 Aon PLC...................................................................... 987,231
18,981 Argo Group International Holdings, Ltd. ..................................... 1,057,242
20,153 Aspen Insurance Holdings, Ltd. .............................................. 965,329
18,454 Axis Capital Holdings, Ltd. ................................................. 984,890
9,414 Chubb Corp. ................................................................. 895,648
17,866 Cincinnati Financial Corp. .................................................. 896,516
22,976 CNA Financial Corp. ......................................................... 877,913
15,569 Endurance Specialty Holdings, Ltd. .......................................... 1,022,883
5,471 Everest Re Group, Ltd. ...................................................... 995,777
26,679 First American Financial Corp. .............................................. 992,725
16,797 HCC Insurance Holdings, Inc. ................................................ 1,290,681
16,971 Marsh & McLennan Cos., Inc. ................................................. 962,256
18,701 Primerica, Inc. ............................................................. 854,449
20,733 ProAssurance Corp. .......................................................... 958,072
34,996 Progressive (The) Corp. ..................................................... 973,939
10,215 Reinsurance Group of America, Inc. .......................................... 969,097
9,546 RenaissanceRe Holdings, Ltd. ................................................ 969,014
17,331 Torchmark Corp. ............................................................. 1,009,011
8,804 Travelers (The) Cos., Inc. .................................................. 850,995
22,609 Validus Holdings, Ltd. ...................................................... 994,570
-------------
24,152,570
-------------
INTERNET & CATALOG RETAIL -- 0.4%
13,951 HSN, Inc. ................................................................... 979,221
-------------
IT SERVICES -- 3.3%
10,161 Accenture PLC, Class A....................................................... 983,381
11,116 Automatic Data Processing, Inc. ............................................. 891,837
17,303 Broadridge Financial Solutions, Inc. ........................................ 865,323
8,597 DST Systems, Inc. ........................................................... 1,083,050
5,931 International Business Machines Corp. ....................................... 964,736
13,621 Jack Henry & Associates, Inc. ............................................... 881,279
11,018 MasterCard, Inc., Class A.................................................... 1,029,963
See Notes to Financial Statements Page 11
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
IT SERVICES (CONTINUED)
19,185 Paychex, Inc. ............................................................... $ 899,393
14,552 Visa, Inc., Class A.......................................................... 977,167
-------------
8,576,129
-------------
MACHINERY -- 5.1%
14,408 CLARCOR, Inc. ............................................................... 896,754
6,865 Cummins, Inc. ............................................................... 900,619
25,243 Donaldson Co., Inc. ......................................................... 903,699
12,554 IDEX Corp. .................................................................. 986,493
9,798 Illinois Tool Works, Inc. ................................................... 899,358
13,982 Ingersoll-Rand PLC........................................................... 942,667
14,557 Lincoln Electric Holdings, Inc. ............................................. 886,376
26,346 Mueller Industries, Inc. .................................................... 914,733
12,150 Nordson Corp. ............................................................... 946,364
8,013 Parker Hannifin Corp. ....................................................... 932,152
6,473 Snap-On, Inc. ............................................................... 1,030,825
13,575 Toro (The) Co. .............................................................. 920,114
7,746 Valmont Industries, Inc. .................................................... 920,767
10,017 Wabtec Corp. ................................................................ 944,002
-------------
13,024,923
-------------
MEDIA -- 1.1%
16,856 Comcast Corp., Class A....................................................... 1,013,720
12,207 Omnicom Group, Inc. ......................................................... 848,264
9,076 Walt Disney (The) Co. ....................................................... 1,035,935
-------------
2,897,919
-------------
METALS & MINING -- 0.4%
12,379 Kaiser Aluminum Corp. ....................................................... 1,028,447
-------------
OIL, GAS & CONSUMABLE FUELS -- 1.1%
9,069 Chevron Corp. ............................................................... 874,886
15,289 ConocoPhillips............................................................... 938,898
11,199 Exxon Mobil Corp. ........................................................... 931,757
-------------
2,745,541
-------------
PHARMACEUTICALS -- 1.5%
13,103 Eli Lilly & Co. ............................................................. 1,093,969
9,462 Johnson & Johnson............................................................ 922,167
16,561 Merck & Co., Inc. ........................................................... 942,818
27,362 Pfizer, Inc. ................................................................ 917,448
-------------
3,876,402
-------------
PROFESSIONAL SERVICES -- 0.4%
10,237 Equifax, Inc. ............................................................... 993,910
-------------
REAL ESTATE INVESTMENT TRUSTS -- 1.4%
80,874 Capstead Mortgage Corp. ..................................................... 897,701
44,711 PennyMac Mortgage Investment Trust........................................... 779,313
16,720 Post Properties, Inc. ....................................................... 909,066
4,826 Public Storage............................................................... 889,770
-------------
3,475,850
-------------
Page 12 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.4%
5,588 Jones Lang LaSalle, Inc. .................................................... $ 955,548
-------------
ROAD & RAIL -- 1.1%
11,147 JB Hunt Transport Services, Inc. ............................................ 915,057
14,357 Landstar System, Inc. ....................................................... 960,053
8,788 Union Pacific Corp. ......................................................... 838,111
-------------
2,713,221
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.8%
15,108 Analog Devices, Inc. ........................................................ 969,707
30,441 Intel Corp. ................................................................. 925,863
20,340 Linear Technology Corp. ..................................................... 899,638
16,647 Texas Instruments, Inc. ..................................................... 857,487
22,503 Xilinx, Inc. ................................................................ 993,733
-------------
4,646,428
-------------
SOFTWARE -- 1.5%
5,977 FactSet Research Systems, Inc. .............................................. 971,323
9,817 Intuit, Inc. ................................................................ 989,259
23,414 Microsoft Corp. ............................................................. 1,033,728
22,060 Oracle Corp. ................................................................ 889,018
-------------
3,883,328
-------------
SPECIALTY RETAIL -- 0.7%
8,379 Home Depot (The), Inc. ...................................................... 931,158
13,589 TJX (The) Cos., Inc. ........................................................ 899,184
-------------
1,830,342
-------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.7%
7,240 Ralph Lauren Corp. .......................................................... 958,286
12,639 VF Corp. .................................................................... 881,444
-------------
1,839,730
-------------
THRIFTS & MORTGAGE FINANCE -- 0.4%
80,328 Northwest Bancshares, Inc. .................................................. 1,029,805
-------------
TOBACCO -- 0.4%
13,813 Reynolds American, Inc. ..................................................... 1,031,279
-------------
TRADING COMPANIES & DISTRIBUTORS -- 0.7%
13,184 MSC Industrial Direct Co., Inc., Class A..................................... 919,848
4,036 W.W. Grainger, Inc. ......................................................... 955,119
-------------
1,874,967
-------------
TOTAL COMMON STOCKS.......................................................... 142,178,118
(Cost $134,039,391) -------------
See Notes to Financial Statements Page 13
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES -- 36.3%
AEROSPACE & DEFENSE -- 0.9%
$ 250,000 Boeing (The) Co. ................................... 2.35% 10/30/21 $ 250,337
150,000 Boeing (The) Co. ................................... 2.50% 03/01/25 142,701
25,000 Boeing (The) Co. ................................... 6.63% 02/15/38 33,522
150,000 Boeing (The) Co. ................................... 3.50% 03/01/45 133,018
300,000 Boeing Capital Corp. ............................... 4.70% 10/27/19 332,789
200,000 Lockheed Martin Corp. .............................. 3.60% 03/01/35 185,604
200,000 Northrop Grumman Corp. ............................. 5.05% 11/15/40 210,345
250,000 United Technologies Corp. .......................... 1.80% 06/01/17 253,713
450,000 United Technologies Corp. .......................... 3.10% 06/01/22 453,998
100,000 United Technologies Corp. .......................... 6.05% 06/01/36 121,646
150,000 United Technologies Corp. .......................... 4.50% 06/01/42 152,742
-------------
2,270,415
-------------
AIR FREIGHT & LOGISTICS -- 0.2%
100,000 FedEx Corp. ........................................ 2.30% 02/01/20 99,497
425,000 FedEx Corp. ........................................ 3.20% 02/01/25 414,819
-------------
514,316
-------------
AIRLINES -- 0.1%
200,000 Southwest Airlines Co. ............................. 2.75% 11/06/19 203,123
-------------
BANKS -- 5.9%
550,000 Bank of America Corp. .............................. 5.30% 03/15/17 582,683
1,400,000 Bank of America Corp. .............................. 2.60% 01/15/19 1,416,433
775,000 Bank of America Corp. .............................. 5.70% 01/24/22 880,968
500,000 Bank of America Corp. .............................. 4.00% 04/01/24 509,721
100,000 Bank of America Corp. .............................. 4.00% 01/22/25 97,621
225,000 Bank of America Corp. .............................. 5.88% 02/07/42 260,414
225,000 Bank of America Corp. .............................. 4.88% 04/01/44 229,425
825,000 Citigroup, Inc. .................................... 4.45% 01/10/17 862,243
200,000 Citigroup, Inc. .................................... 2.50% 09/26/18 202,409
250,000 Citigroup, Inc. .................................... 2.40% 02/18/20 247,173
825,000 Citigroup, Inc. .................................... 4.50% 01/14/22 889,916
300,000 Citigroup, Inc. .................................... 4.30% 11/20/26 293,999
200,000 Citigroup, Inc. .................................... 6.13% 08/25/36 229,186
200,000 Citigroup, Inc. .................................... 5.88% 01/30/42 234,815
100,000 Citigroup, Inc. .................................... 6.68% 09/13/43 121,538
600,000 HSBC USA, Inc. ..................................... 1.63% 01/16/18 598,581
600,000 HSBC USA, Inc. ..................................... 4.88% 08/24/20 664,523
300,000 JPMorgan Chase & Co. ............................... 2.20% 10/22/19 297,538
650,000 JPMorgan Chase & Co. ............................... 4.63% 05/10/21 703,618
325,000 JPMorgan Chase & Co. ............................... 3.20% 01/25/23 319,072
600,000 JPMorgan Chase & Co. ............................... 3.88% 02/01/24 610,444
100,000 JPMorgan Chase & Co. ............................... 4.13% 12/15/26 98,550
400,000 JPMorgan Chase & Co. ............................... 6.40% 05/15/38 496,670
100,000 JPMorgan Chase & Co. ............................... 4.85% 02/01/44 103,570
100,000 JPMorgan Chase & Co. ............................... 4.95% 06/01/45 97,580
437,000 JPMorgan Chase Bank N.A. ........................... 6.00% 10/01/17 476,635
150,000 PNC Bank N.A. ...................................... 1.60% 06/01/18 149,826
375,000 PNC Financial Services Group (The), Inc. ........... 3.90% 04/29/24 379,524
Page 14 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 700,000 Wells Fargo & Co. .................................. 6.00% 11/15/17 $ 771,336
325,000 Wells Fargo & Co. .................................. 2.13% 04/22/19 326,454
200,000 Wells Fargo & Co. .................................. 2.15% 01/30/20 198,219
950,000 Wells Fargo & Co. .................................. 3.00% 01/22/21 966,218
475,000 Wells Fargo & Co. .................................. 3.30% 09/09/24 468,264
200,000 Wells Fargo & Co. .................................. 5.95% 08/26/36 239,938
200,000 Wells Fargo & Co. .................................. 3.90% 05/01/45 180,445
-------------
15,205,549
-------------
BEVERAGES -- 0.5%
125,000 Anheuser-Busch Inbev Finance, Inc. ................. 4.63% 02/01/44 126,119
200,000 Anheuser-Busch Inbev Worldwide, Inc. ............... 2.50% 07/15/22 192,519
875,000 Coca-Cola (The) Co. ................................ 3.20% 11/01/23 884,782
-------------
1,203,420
-------------
BIOTECHNOLOGY -- 0.8%
350,000 Amgen, Inc. ........................................ 2.70% 05/01/22 338,889
300,000 Amgen, Inc. ........................................ 3.63% 05/22/24 298,156
100,000 Amgen, Inc. ........................................ 3.13% 05/01/25 94,811
400,000 Amgen, Inc. ........................................ 5.38% 05/15/43 426,028
175,000 Gilead Sciences, Inc. .............................. 2.35% 02/01/20 175,741
525,000 Gilead Sciences, Inc. .............................. 3.50% 02/01/25 526,388
100,000 Gilead Sciences, Inc. .............................. 4.80% 04/01/44 103,163
125,000 Gilead Sciences, Inc. .............................. 4.50% 02/01/45 124,822
-------------
2,087,998
-------------
CAPITAL MARKETS -- 2.7%
400,000 Goldman Sachs Group (The), Inc. .................... 5.63% 01/15/17 423,723
625,000 Goldman Sachs Group (The), Inc. .................... 6.15% 04/01/18 695,191
400,000 Goldman Sachs Group (The), Inc. .................... 2.55% 10/23/19 401,181
300,000 Goldman Sachs Group (The), Inc. .................... 2.60% 04/23/20 298,697
600,000 Goldman Sachs Group (The), Inc. .................... 3.63% 01/22/23 596,801
600,000 Goldman Sachs Group (The), Inc. .................... 4.00% 03/03/24 611,136
150,000 Goldman Sachs Group (The), Inc. .................... 3.50% 01/23/25 145,644
400,000 Goldman Sachs Group (The), Inc. .................... 6.25% 02/01/41 474,395
450,000 Morgan Stanley...................................... 2.13% 04/25/18 453,226
695,000 Morgan Stanley...................................... 2.50% 01/24/19 701,802
400,000 Morgan Stanley...................................... 2.65% 01/27/20 399,542
550,000 Morgan Stanley...................................... 5.50% 07/28/21 620,934
300,000 Morgan Stanley...................................... 3.75% 02/25/23 303,643
450,000 Morgan Stanley...................................... 3.88% 04/29/24 455,301
350,000 Morgan Stanley...................................... 6.38% 07/24/42 430,642
-------------
7,011,858
-------------
CHEMICALS -- 0.3%
475,000 Dow Chemical (The) Co. ............................. 8.55% 05/15/19 579,625
200,000 Dow Chemical (The) Co. ............................. 3.00% 11/15/22 192,719
25,000 Dow Chemical (The) Co. ............................. 4.25% 10/01/34 23,559
25,000 Dow Chemical (The) Co. ............................. 4.63% 10/01/44 23,426
-------------
819,329
-------------
See Notes to Financial Statements Page 15
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
COMMUNICATIONS EQUIPMENT -- 0.4%
$ 100,000 Cisco Systems, Inc. ................................ 3.00% 06/15/22 $ 100,567
600,000 Cisco Systems, Inc. ................................ 3.63% 03/04/24 619,760
100,000 Cisco Systems, Inc. ................................ 3.50% 06/15/25 101,204
225,000 Cisco Systems, Inc. ................................ 5.90% 02/15/39 269,275
-------------
1,090,806
-------------
CONSUMER FINANCE -- 2.1%
50,000 American Express Co. ............................... 8.13% 05/20/19 60,702
450,000 American Express Co. ............................... 3.63% 12/05/24 438,706
550,000 American Express Credit Corp. ...................... 2.80% 09/19/16 561,604
700,000 American Express Credit Corp. ...................... 2.13% 07/27/18 708,389
175,000 Capital One Financial Corp. ........................ 2.45% 04/24/19 175,176
550,000 Capital One Financial Corp. ........................ 3.75% 04/24/24 548,487
200,000 Capital One N.A. ................................... 1.65% 02/05/18 198,591
200,000 Capital One N.A. ................................... 2.95% 07/23/21 197,412
800,000 Caterpillar Financial Services Corp. ............... 1.63% 06/01/17 808,430
150,000 Caterpillar Financial Services Corp. ............... 3.25% 12/01/24 148,718
400,000 Ford Motor Credit Co., LLC.......................... 2.88% 10/01/18 406,738
50,000 Ford Motor Credit Co., LLC.......................... 2.60% 11/04/19 49,686
200,000 Ford Motor Credit Co., LLC.......................... 2.46% 03/27/20 196,765
100,000 Ford Motor Credit Co., LLC.......................... 3.22% 01/09/22 99,023
825,000 Ford Motor Credit Co., LLC.......................... 4.38% 08/06/23 857,059
-------------
5,455,486
-------------
DIVERSIFIED FINANCIAL SERVICES -- 0.9%
700,000 General Electric Capital Corp. ..................... 5.63% 09/15/17 762,490
425,000 General Electric Capital Corp. ..................... 4.63% 01/07/21 468,270
200,000 General Electric Capital Corp. ..................... 3.45% 05/15/24 202,883
750,000 General Electric Capital Corp. ..................... 6.75% 03/15/32 975,277
-------------
2,408,920
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.8%
500,000 AT&T, Inc. ......................................... 1.70% 06/01/17 502,150
100,000 AT&T, Inc. ......................................... 2.45% 06/30/20 98,141
225,000 AT&T, Inc. ......................................... 3.88% 08/15/21 232,393
200,000 AT&T, Inc. ......................................... 3.00% 06/30/22 193,414
150,000 AT&T, Inc. ......................................... 3.90% 03/11/24 151,542
200,000 AT&T, Inc. ......................................... 3.40% 05/15/25 191,136
100,000 AT&T, Inc. ......................................... 4.50% 05/15/35 92,221
325,000 AT&T, Inc. ......................................... 4.80% 06/15/44 303,880
100,000 AT&T, Inc. ......................................... 4.75% 05/15/46 91,349
956,000 Verizon Communications, Inc. ....................... 2.63% 02/21/20 954,883
325,000 Verizon Communications, Inc. ....................... 5.15% 09/15/23 356,423
400,000 Verizon Communications, Inc. ....................... 3.50% 11/01/24 389,829
231,000 Verizon Communications, Inc. (a).................... 4.27% 01/15/36 209,064
49,000 Verizon Communications, Inc. ....................... 6.55% 09/15/43 57,517
349,000 Verizon Communications, Inc. ....................... 5.01% 08/21/54 321,540
472,000 Verizon Communications, Inc. (a).................... 4.67% 03/15/55 412,325
-------------
4,557,807
-------------
Page 16 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
ELECTRIC UTILITIES -- 3.6%
$ 500,000 Alabama Power Co. .................................. 4.15% 08/15/44 $ 479,701
100,000 Alabama Power Co. .................................. 3.75% 03/01/45 90,078
875,000 American Electric Power Co., Inc. .................. 1.65% 12/15/17 876,521
300,000 Appalachian Power Co. .............................. 4.40% 05/15/44 284,105
225,000 CenterPoint Energy Houston Electric LLC............. 2.25% 08/01/22 213,401
295,000 CenterPoint Energy Houston Electric LLC............. 4.50% 04/01/44 304,164
300,000 Commonwealth Edison Co. ............................ 3.40% 09/01/21 312,280
250,000 Commonwealth Edison Co. ............................ 3.70% 03/01/45 225,047
525,000 Constellation Energy Group, Inc. ................... 5.15% 12/01/20 581,611
350,000 Duke Energy Carolinas LLC........................... 6.00% 01/15/38 429,037
50,000 Duke Energy Carolinas LLC........................... 3.75% 06/01/45 45,715
200,000 Duke Energy Corp. .................................. 2.10% 06/15/18 202,106
300,000 Duke Energy Corp. .................................. 3.55% 09/15/21 311,709
325,000 Duke Energy Corp. .................................. 3.75% 04/15/24 331,748
50,000 Exelon Corp. ....................................... 3.95% 06/15/25 50,396
50,000 Exelon Corp. ....................................... 5.10% 06/15/45 50,391
350,000 Florida Power & Light Co. .......................... 3.25% 06/01/24 353,683
210,000 Florida Power & Light Co. .......................... 4.05% 06/01/42 204,997
310,000 Metropolitan Edison Co. (a)......................... 3.50% 03/15/23 305,739
200,000 MidAmerican Energy Co. ............................. 3.50% 10/15/24 204,095
200,000 MidAmerican Energy Co. ............................. 4.80% 09/15/43 212,775
250,000 MidAmerican Energy Co. ............................. 4.40% 10/15/44 250,864
125,000 Monongahela Power Co. (a)........................... 5.40% 12/15/43 138,563
625,000 NV Energy, Inc. .................................... 6.25% 11/15/20 724,771
150,000 Ohio Edison Co. .................................... 6.88% 07/15/36 185,917
100,000 Pacific Gas & Electric Co. ......................... 3.50% 06/15/25 100,028
200,000 Pacific Gas & Electric Co. ......................... 4.30% 03/15/45 192,887
195,000 Public Service Electric & Gas Co. .................. 2.38% 05/15/23 186,039
275,000 Public Service Electric & Gas Co. .................. 3.95% 05/01/42 261,504
200,000 Southern California Edison Co. ..................... 3.50% 10/01/23 205,385
200,000 Southern California Edison Co. ..................... 3.60% 02/01/45 178,741
100,000 Southwestern Electric Power Co. .................... 6.20% 03/15/40 121,132
200,000 Virginia Electric and Power Co. .................... 3.45% 02/15/24 202,813
475,000 Virginia Electric and Power Co. .................... 4.45% 02/15/44 478,146
-------------
9,296,089
-------------
FOOD & STAPLES RETAILING -- 0.9%
745,000 CVS Caremark Corp. ................................. 4.00% 12/05/23 770,913
250,000 Kroger (The) Co. ................................... 3.30% 01/15/21 255,489
300,000 Kroger (The) Co. ................................... 5.15% 08/01/43 317,449
325,000 Wal-Mart Stores, Inc. .............................. 3.30% 04/22/24 329,198
575,000 Wal-Mart Stores, Inc. .............................. 5.63% 04/15/41 680,085
-------------
2,353,134
-------------
FOOD PRODUCTS -- 0.2%
50,000 JM Smucker (The) Co. (a)............................ 1.75% 03/15/18 49,999
50,000 JM Smucker (The) Co. (a)............................ 2.50% 03/15/20 49,765
50,000 JM Smucker (The) Co. (a)............................ 3.50% 03/15/25 49,084
300,000 Kraft Foods Group, Inc. ............................ 5.00% 06/04/42 300,057
50,000 Kraft Heinz Foods Co. (a)........................... 2.80% 07/02/20 50,096
See Notes to Financial Statements Page 17
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
FOOD PRODUCTS (CONTINUED)
$ 50,000 Kraft Heinz Foods Co. (a)........................... 3.50% 07/15/22 $ 50,193
50,000 Kraft Heinz Foods Co. (a)........................... 5.20% 07/15/45 51,436
-------------
600,630
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.6%
210,000 Becton Dickinson and Co. ........................... 1.80% 12/15/17 210,151
225,000 Becton Dickinson and Co. ........................... 2.68% 12/15/19 225,404
100,000 Becton Dickinson and Co. ........................... 3.73% 12/15/24 99,860
50,000 Becton Dickinson and Co. ........................... 4.69% 12/15/44 48,572
150,000 Medtronic, Inc. (a)................................. 2.50% 03/15/20 150,350
200,000 Medtronic, Inc. (a)................................. 3.15% 03/15/22 201,077
300,000 Medtronic, Inc. (a)................................. 3.50% 03/15/25 299,342
250,000 Medtronic, Inc. (a)................................. 4.63% 03/15/45 253,701
-------------
1,488,457
-------------
HEALTH CARE PROVIDERS & SERVICES -- 0.7%
550,000 UnitedHealth Group, Inc. ........................... 1.63% 03/15/19 543,716
275,000 UnitedHealth Group, Inc. ........................... 4.70% 02/15/21 303,502
550,000 UnitedHealth Group, Inc. ........................... 2.88% 12/15/21 550,423
200,000 UnitedHealth Group, Inc. ........................... 2.88% 03/15/23 192,723
150,000 UnitedHealth Group, Inc. ........................... 6.88% 02/15/38 197,683
-------------
1,788,047
-------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY
PRODUCERS -- 0.2%
525,000 NextEra Energy Capital Holdings, Inc. .............. 2.40% 09/15/19 524,955
-------------
INDUSTRIAL CONGLOMERATES -- 0.1%
375,000 General Electric Co. ............................... 4.50% 03/11/44 381,769
-------------
INSURANCE -- 1.9%
600,000 American International Group, Inc. ................. 5.85% 01/16/18 661,885
400,000 American International Group, Inc. ................. 3.38% 08/15/20 414,513
200,000 American International Group, Inc. ................. 4.13% 02/15/24 207,910
50,000 American International Group, Inc. ................. 3.88% 01/15/35 45,311
200,000 American International Group, Inc. ................. 6.25% 05/01/36 237,942
150,000 Hartford Financial Services Group (The), Inc. ...... 5.13% 04/15/22 166,594
150,000 Hartford Financial Services Group (The), Inc. ...... 5.95% 10/15/36 171,227
550,000 MetLife, Inc. ...................................... 6.75% 06/01/16 578,682
425,000 MetLife, Inc. ...................................... 3.60% 04/10/24 429,080
100,000 MetLife, Inc. ...................................... 3.00% 03/01/25 95,801
300,000 MetLife, Inc. ...................................... 4.88% 11/13/43 312,083
575,000 Prudential Financial, Inc. ......................... 3.50% 05/15/24 569,515
225,000 Prudential Financial, Inc. ......................... 4.60% 05/15/44 218,394
300,000 Travelers (The) Cos., Inc. ......................... 5.75% 12/15/17 331,749
325,000 Travelers (The) Cos., Inc. ......................... 6.75% 06/20/36 436,104
-------------
4,876,790
-------------
IT SERVICES -- 0.3%
600,000 International Business Machines Corp. .............. 1.63% 05/15/20 583,865
100,000 International Business Machines Corp. .............. 3.63% 02/12/24 101,391
-------------
685,256
-------------
Page 18 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
MACHINERY -- 0.3%
$ 650,000 Caterpillar, Inc. .................................. 3.90% 05/27/21 $ 693,611
-------------
MEDIA -- 1.8%
300,000 21st Century Fox America, Inc. ..................... 3.00% 09/15/22 293,584
175,000 21st Century Fox America, Inc. ..................... 5.40% 10/01/43 187,496
75,000 21st Century Fox America, Inc. ..................... 4.75% 09/15/44 73,619
275,000 CBS Corp. .......................................... 2.30% 08/15/19 272,049
500,000 Comcast Corp. ...................................... 2.85% 01/15/23 486,367
100,000 Comcast Corp. ...................................... 3.38% 08/15/25 98,806
675,000 Comcast Corp. ...................................... 4.25% 01/15/33 660,420
275,000 DIRECTV Holdings LLC/DIRECTV Financing Co., Inc. ... 5.20% 03/15/20 303,620
175,000 NBCUniversal Media LLC.............................. 2.88% 01/15/23 170,119
150,000 Time Warner Cable, Inc. ............................ 6.75% 07/01/18 167,357
175,000 Time Warner Cable, Inc. ............................ 4.50% 09/15/42 143,259
350,000 Time Warner, Inc. .................................. 4.88% 03/15/20 382,327
100,000 Time Warner, Inc. .................................. 3.60% 07/15/25 97,471
200,000 Time Warner, Inc. .................................. 6.50% 11/15/36 235,626
50,000 Viacom, Inc. ....................................... 2.75% 12/15/19 50,048
125,000 Viacom, Inc. ....................................... 3.88% 04/01/24 122,618
50,000 Viacom, Inc. ....................................... 4.85% 12/15/34 46,381
50,000 Viacom, Inc. ....................................... 6.88% 04/30/36 55,804
100,000 Walt Disney (The) Co. .............................. 5.50% 03/15/19 113,101
250,000 Walt Disney (The) Co. .............................. 2.35% 12/01/22 242,090
375,000 Walt Disney (The) Co. .............................. 4.13% 06/01/44 369,786
-------------
4,571,948
-------------
METALS & MINING -- 0.3%
500,000 Freeport-McMoRan Copper & Gold, Inc. ............... 2.38% 03/15/18 496,493
275,000 Newmont Mining Corp. ............................... 5.13% 10/01/19 299,037
-------------
795,530
-------------
MULTI-UTILITIES -- 0.4%
230,000 Consolidated Edison Co. of New York, Inc. .......... 3.30% 12/01/24 230,338
385,000 Consolidated Edison Co. of New York, Inc. .......... 4.45% 03/15/44 380,766
50,000 Dominion Gas Holdings LLC........................... 2.50% 12/15/19 50,575
50,000 Dominion Gas Holdings LLC........................... 4.60% 12/15/44 47,239
200,000 Dominion Resources, Inc. ........................... 5.20% 08/15/19 221,490
-------------
930,408
-------------
MULTILINE RETAIL -- 0.1%
150,000 Macy's Retail Holdings, Inc. ....................... 3.63% 06/01/24 149,866
-------------
OIL, GAS & CONSUMABLE FUELS -- 3.1%
175,000 Chevron Corp. ...................................... 2.19% 11/15/19 176,078
200,000 Chevron Corp. ...................................... 1.96% 03/03/20 198,492
200,000 ConocoPhillips Co. ................................. 5.75% 02/01/19 226,197
350,000 ConocoPhillips Co. ................................. 2.40% 12/15/22 332,895
50,000 ConocoPhillips Co. ................................. 4.15% 11/15/34 48,454
225,000 ConocoPhillips Co. ................................. 6.50% 02/01/39 279,788
160,000 Continental Resources, Inc. ........................ 4.50% 04/15/23 154,523
100,000 Continental Resources, Inc. ........................ 4.90% 06/01/44 84,519
325,000 Devon Energy Corp. ................................. 2.25% 12/15/18 326,143
See Notes to Financial Statements Page 19
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
$ 325,000 Devon Energy Corp. ................................. 3.25% 05/15/22 $ 321,708
175,000 Devon Energy Corp. ................................. 5.60% 07/15/41 183,850
185,000 Enbridge Energy Partners L.P........................ 5.50% 09/15/40 176,307
50,000 Energy Transfer Partners L.P........................ 2.50% 06/15/18 50,112
50,000 Energy Transfer Partners L.P........................ 4.15% 10/01/20 51,447
300,000 Energy Transfer Partners L.P........................ 3.60% 02/01/23 284,563
50,000 Energy Transfer Partners L.P........................ 4.05% 03/15/25 47,242
50,000 Energy Transfer Partners L.P........................ 4.75% 01/15/26 49,583
175,000 Energy Transfer Partners L.P........................ 6.50% 02/01/42 180,849
50,000 Energy Transfer Partners L.P........................ 6.13% 12/15/45 50,250
200,000 Enterprise Products Operating LLC................... 1.65% 05/07/18 199,938
250,000 Enterprise Products Operating LLC................... 3.70% 02/15/26 242,590
100,000 Enterprise Products Operating LLC................... 4.90% 05/15/46 94,550
100,000 Exxon Mobil Corp. .................................. 1.31% 03/06/18 99,958
100,000 Exxon Mobil Corp. .................................. 1.91% 03/06/20 99,469
200,000 Exxon Mobil Corp. .................................. 2.40% 03/06/22 196,382
150,000 Exxon Mobil Corp. .................................. 2.71% 03/06/25 145,847
200,000 Exxon Mobil Corp. .................................. 3.57% 03/06/45 181,523
350,000 Kinder Morgan Energy Partners L.P................... 3.95% 09/01/22 342,796
150,000 Kinder Morgan Energy Partners L.P................... 4.25% 09/01/24 146,364
175,000 Kinder Morgan Energy Partners L.P................... 6.95% 01/15/38 188,621
300,000 Kinder Morgan, Inc. ................................ 3.05% 12/01/19 299,974
300,000 Kinder Morgan, Inc. ................................ 4.30% 06/01/25 290,194
50,000 Kinder Morgan, Inc. ................................ 5.05% 02/15/46 43,512
750,000 ONEOK Partners L.P.................................. 2.00% 10/01/17 751,971
100,000 ONEOK Partners L.P.................................. 3.80% 03/15/20 102,221
175,000 ONEOK Partners L.P.................................. 3.38% 10/01/22 161,247
50,000 ONEOK Partners L.P.................................. 4.90% 03/15/25 49,554
175,000 Phillips 66......................................... 4.30% 04/01/22 183,925
75,000 Phillips 66......................................... 5.88% 05/01/42 82,002
300,000 Pioneer Natural Resources Co. ...................... 3.95% 07/15/22 302,826
350,000 Spectra Energy Capital LLC.......................... 3.30% 03/15/23 321,505
125,000 Valero Energy Corp. ................................ 6.63% 06/15/37 141,605
50,000 Valero Energy Corp. ................................ 4.90% 03/15/45 47,032
-------------
7,938,606
-------------
PHARMACEUTICALS -- 1.4%
500,000 AbbVie, Inc. ....................................... 1.75% 11/06/17 501,596
250,000 AbbVie, Inc. ....................................... 2.50% 05/14/20 247,716
275,000 AbbVie, Inc. ....................................... 2.90% 11/06/22 266,718
150,000 AbbVie, Inc. ....................................... 3.60% 05/14/25 148,564
175,000 AbbVie, Inc. ....................................... 4.40% 11/06/42 166,224
100,000 Johnson & Johnson................................... 2.45% 12/05/21 100,998
375,000 Johnson & Johnson................................... 5.85% 07/15/38 477,042
75,000 Merck & Co, Inc. ................................... 1.85% 02/10/20 74,421
50,000 Merck & Co, Inc. ................................... 3.70% 02/10/45 44,784
1,000,000 Novartis Capital Corp. ............................. 3.40% 05/06/24 1,016,684
400,000 Pfizer, Inc. ....................................... 3.40% 05/15/24 403,608
250,000 Pfizer, Inc. ....................................... 4.40% 05/15/44 247,230
-------------
3,695,585
-------------
Page 20 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
$ 575,000 Boston Properties L.P............................... 3.85% 02/01/23 $ 589,718
-------------
ROAD & RAIL -- 1.2%
350,000 Burlington Northern Santa Fe LLC.................... 3.00% 03/15/23 342,524
475,000 Burlington Northern Santa Fe LLC.................... 5.15% 09/01/43 512,618
200,000 CSX Corp. .......................................... 6.25% 03/15/18 224,282
425,000 CSX Corp. .......................................... 3.40% 08/01/24 426,099
200,000 CSX Corp. .......................................... 4.50% 08/01/54 188,499
425,000 Ryder System, Inc. ................................. 2.45% 09/03/19 424,547
300,000 Ryder System, Inc. ................................. 2.65% 03/02/20 299,842
300,000 Union Pacific Corp. ................................ 3.75% 03/15/24 315,833
50,000 Union Pacific Corp. ................................ 3.38% 02/01/35 44,542
70,000 Union Pacific Corp. ................................ 4.85% 06/15/44 74,863
150,000 Union Pacific Corp. ................................ 4.15% 01/15/45 143,872
-------------
2,997,521
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.2%
475,000 Intel Corp. ........................................ 2.70% 12/15/22 464,887
160,000 Intel Corp. ........................................ 4.80% 10/01/41 160,860
-------------
625,747
-------------
SOFTWARE -- 0.8%
75,000 Microsoft Corp. .................................... 1.85% 02/12/20 75,092
200,000 Microsoft Corp. .................................... 2.38% 02/12/22 196,598
150,000 Microsoft Corp. .................................... 3.63% 12/15/23 156,251
50,000 Microsoft Corp. .................................... 3.50% 02/12/35 45,805
275,000 Microsoft Corp. .................................... 4.88% 12/15/43 295,492
100,000 Oracle Corp. ....................................... 2.38% 01/15/19 101,538
100,000 Oracle Corp. ....................................... 2.25% 10/08/19 100,640
100,000 Oracle Corp. ....................................... 2.50% 05/15/22 97,192
200,000 Oracle Corp. ....................................... 3.63% 07/15/23 205,880
300,000 Oracle Corp. ....................................... 3.40% 07/08/24 301,104
400,000 Oracle Corp. ....................................... 5.38% 07/15/40 443,352
-------------
2,018,944
-------------
SPECIALTY RETAIL -- 0.5%
600,000 Home Depot (The), Inc. ............................. 4.40% 04/01/21 662,375
250,000 Home Depot (The), Inc. ............................. 3.75% 02/15/24 260,454
300,000 Home Depot (The), Inc. ............................. 5.40% 09/15/40 342,474
-------------
1,265,303
-------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 0.6%
350,000 Apple, Inc. ........................................ 2.85% 05/06/21 355,430
375,000 Apple, Inc. ........................................ 2.40% 05/03/23 359,113
100,000 Apple, Inc. ........................................ 2.50% 02/09/25 93,888
50,000 Apple, Inc. ........................................ 3.85% 05/04/43 45,621
175,000 Apple, Inc. ........................................ 4.45% 05/06/44 175,177
50,000 Apple, Inc. ........................................ 3.45% 02/09/45 42,487
50,000 Apple, Inc. ........................................ 4.38% 05/13/45 49,394
150,000 EMC Corp. .......................................... 1.88% 06/01/18 150,354
See Notes to Financial Statements Page 21
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS (CONTINUED)
$ 300,000 Hewlett-Packard Co. ................................ 3.75% 12/01/20 $ 309,529
-------------
1,580,993
-------------
TOBACCO -- 0.3%
250,000 Altria Group, Inc. ................................. 2.85% 08/09/22 240,685
200,000 Altria Group, Inc. ................................. 10.20% 02/06/39 330,318
50,000 Reynolds American, Inc. ............................ 4.00% 06/12/22 51,150
50,000 Reynolds American, Inc. ............................ 4.45% 06/12/25 51,041
50,000 Reynolds American, Inc. ............................ 5.70% 08/15/35 51,998
50,000 Reynolds American, Inc. ............................ 5.85% 08/15/45 52,633
-------------
777,825
-------------
TOTAL CORPORATE BONDS AND NOTES.............................................. 93,455,759
(Cost $94,916,404) -------------
U.S. GOVERNMENT BONDS AND NOTES -- 5.9%
275,000 U.S. Treasury Bond.................................. 5.38% 02/15/31 369,767
1,690,000 U.S. Treasury Bond.................................. 4.50% 02/15/36 2,125,439
525,000 U.S. Treasury Bond.................................. 3.13% 08/15/44 525,943
650,000 U.S. Treasury Bond.................................. 3.00% 11/15/44 635,933
150,000 U.S. Treasury Note (b).............................. 0.25% 05/15/16 149,965
825,000 U.S. Treasury Note (b).............................. 0.88% 10/15/17 826,934
1,850,000 U.S. Treasury Note.................................. 1.38% 09/30/18 1,865,464
1,400,000 U.S. Treasury Note.................................. 1.50% 05/31/19 1,407,875
4,050,000 U.S. Treasury Note.................................. 1.38% 03/31/20 4,010,448
2,500,000 U.S. Treasury Note.................................. 2.13% 09/30/21 2,525,195
350,000 U.S. Treasury Note.................................. 1.75% 04/30/22 343,465
300,000 U.S. Treasury Note.................................. 2.13% 05/15/25 294,586
-------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES........................................ 15,081,014
(Cost $15,367,687) -------------
FOREIGN CORPORATE BONDS AND NOTES -- 0.7%
CAPITAL MARKETS -- 0.1%
200,000 Credit Suisse....................................... 5.40% 01/14/20 221,357
-------------
CHEMICALS -- 0.1%
125,000 LYB International Finance, B.V...................... 4.88% 03/15/44 121,909
100,000 LyondellBasell Industries N.V....................... 4.63% 02/26/55 88,436
-------------
210,345
-------------
OIL, GAS & CONSUMABLE FUELS -- 0.1%
125,000 Encana Corp. ....................................... 6.63% 08/15/37 134,994
100,000 Encana Corp. ....................................... 5.15% 11/15/41 92,558
-------------
227,552
-------------
PHARMACEUTICALS -- 0.4%
150,000 Actavis Funding SCS................................. 2.35% 03/12/18 150,890
375,000 Actavis Funding SCS................................. 3.00% 03/12/20 376,788
200,000 Actavis Funding SCS................................. 3.45% 03/15/22 198,399
250,000 Actavis Funding SCS................................. 3.80% 03/15/25 246,073
Page 22 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
FOREIGN CORPORATE BONDS AND NOTES (CONTINUED)
PHARMACEUTICALS (CONTINUED)
$ 200,000 Actavis Funding SCS................................. 4.55% 03/15/35 $ 190,760
100,000 Actavis Funding SCS................................. 4.75% 03/15/45 95,575
-------------
1,258,485
-------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................... 1,917,739
(Cost $1,986,380) -------------
TOTAL INVESTMENTS - 98.2%.................................................... 252,632,630
(Cost $246,309,862) (c)
NET OTHER ASSETS AND LIABILITIES - 1.8%...................................... 4,526,261
-------------
NET ASSETS - 100.0%.......................................................... $ 257,158,891
=============
-----------------------------
(a) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under 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 judgement. At June 30, 2015, securities noted as such amounted
to $2,270,734 or 0.88% of net assets.
(b) All or a portion of this security is segregated as collateral for open
futures contracts.
(c) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of June 30, 2015, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $11,588,817 and the aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $5,266,049.
See Notes to Financial Statements Page 23
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of June 30, 2015
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 6/30/2015 PRICES INPUTS INPUTS
-------------------------------------------------- ------------ ------------ ------------ ------------
Common Stocks*.................................... $142,178,118 $142,178,118 $ -- $ --
Corporate Bonds and Notes*........................ 93,455,759 -- 93,455,759 --
U.S. Government Bonds and Notes................... 15,081,014 -- 15,081,014 --
Foreign Corporate Bonds and Notes*................ 1,917,739 -- 1,917,739 --
------------ ------------ ------------ ------------
Total Investments................................. $252,632,630 $142,178,118 $110,454,512 $ --
------------ ------------ ------------ ------------
Other Financial Instruments:
Futures Contracts**............................... 173,219 173,219 -- --
------------ ------------ ------------ ------------
Total............................................. $252,805,849 142,351,337 $110,454,512 $ --
============ ============ ============ ============
* 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 June 30, 2015.
OPEN FUTURES CONTRACTS AT JUNE 30, 2015 (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 40 Sep-2015 $ 4,770,313 $ 3,438
U.S. Treasury 10-Year Notes 98 Sep-2015 12,364,844 105,656
Ultra Long Term U.S. Treasury Bond Futures 14 Sep-2015 2,156,875 64,125
------------ ----------
Total Futures Contracts $ 19,292,032 $ 173,219
============ ==========
Page 24 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
EXCHANGE-TRADED FUNDS -- 44.0%
54,780 First Trust Preferred Securities and Income ETF (a).......................... $ 1,038,081
35,430 First Trust Senior Loan Fund (a)............................................. 1,732,172
16,050 First Trust Tactical High Yield ETF (a)...................................... 802,018
280 iShares 20+ Year Treasury Bond ETF........................................... 32,889
585 iShares 7-10 Year Treasury Bond ETF.......................................... 61,431
8,790 iShares iBoxx $ Investment Grade Corporate Bond ETF.......................... 1,017,179
3,790 iShares MBS ETF.............................................................. 411,670
-------------
TOTAL EXCHANGE-TRADED FUNDS.................................................. 5,095,440
(Cost $5,159,681) -------------
COMMON STOCKS -- 24.0%
AEROSPACE & DEFENSE -- 0.8%
312 Boeing (The) Co. ............................................................ 43,281
437 Honeywell International, Inc. ............................................... 44,561
-------------
87,842
-------------
AUTO COMPONENTS -- 0.4%
857 Johnson Controls, Inc. ...................................................... 42,447
-------------
AUTOMOBILES -- 0.4%
343 Toyota Motor Corp., ADR...................................................... 45,876
-------------
BANKS -- 1.1%
659 JPMorgan Chase & Co. ........................................................ 44,654
970 U.S. BanCorp. ............................................................... 42,098
757 Wells Fargo & Co. ........................................................... 42,574
-------------
129,326
-------------
BEVERAGES -- 0.4%
363 Anheuser-Busch InBev N.V., ADR............................................... 43,803
-------------
CAPITAL MARKETS -- 1.0%
326 Ameriprise Financial, Inc. .................................................. 40,727
113 BlackRock, Inc. ............................................................. 39,096
994 Invesco Ltd. ................................................................ 37,265
-------------
117,088
-------------
CHEMICALS -- 0.7%
381 International Flavors & Fragrances, Inc. .................................... 41,639
384 LyondellBasell Industries N.V., Class A...................................... 39,752
-------------
81,391
-------------
COMMUNICATIONS EQUIPMENT -- 0.3%
1,491 Cisco Systems, Inc. ......................................................... 40,943
-------------
CONSUMER FINANCE -- 0.4%
495 Capital One Financial Corp. ................................................. 43,545
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3%
817 Verizon Communications, Inc. ................................................ 38,080
-------------
ELECTRIC UTILITIES -- 1.2%
605 American Electric Power Co., Inc. ........................................... 32,047
527 Eversource Energy............................................................ 23,931
978 ITC Holdings Corp. .......................................................... 31,472
See Notes to Financial Statements Page 25
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
325 NextEra Energy, Inc. ........................................................ $ 31,860
384 Southern (The) Co. .......................................................... 16,090
-------------
135,400
-------------
ELECTRICAL EQUIPMENT -- 0.4%
627 Eaton Corp. PLC.............................................................. 42,316
-------------
ENERGY EQUIPMENT & SERVICES -- 0.3%
408 Schlumberger Ltd. ........................................................... 35,166
-------------
FOOD & STAPLES RETAILING -- 0.9%
492 CVS Health Corp. ............................................................ 51,601
625 Walgreens Boots Alliance, Inc. .............................................. 52,775
-------------
104,376
-------------
GAS UTILITIES -- 0.7%
308 Atmos Energy Corp. .......................................................... 15,794
150 Chesapeake Utilities Corp. .................................................. 8,078
559 ONE Gas, Inc. ............................................................... 23,791
444 Piedmont Natural Gas Co., Inc. .............................................. 15,678
315 South Jersey Industries, Inc. ............................................... 7,790
456 UGI Corp. ................................................................... 15,709
-------------
86,840
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.4%
955 Abbott Laboratories.......................................................... 46,871
-------------
HEALTH CARE PROVIDERS & SERVICES -- 1.4%
493 Aetna, Inc. ................................................................. 62,838
513 AmerisourceBergen Corp. ..................................................... 54,552
503 Cardinal Health, Inc. ....................................................... 42,076
-------------
159,466
-------------
HOTELS, RESTAURANTS & LEISURE -- 0.5%
1,058 Starbucks Corp. ............................................................. 56,725
-------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.1%
173 NRG Yield, Inc., Class A..................................................... 3,804
173 NRG Yield, Inc., Class C..................................................... 3,787
-------------
7,591
-------------
INDUSTRIAL CONGLOMERATES -- 0.3%
345 Siemens AG, ADR.............................................................. 35,028
-------------
INSURANCE -- 1.6%
1,298 FNF Group.................................................................... 48,013
1,064 Hartford Financial Services Group (The), Inc. ............................... 44,230
1,357 Horace Mann Educators Corp. ................................................. 49,368
748 MetLife, Inc. ............................................................... 41,881
-------------
183,492
-------------
IT SERVICES -- 0.4%
495 Accenture PLC, Class A....................................................... 47,906
-------------
Page 26 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
MACHINERY -- 0.8%
297 Cummins, Inc. ............................................................... $ 38,963
336 Snap-on, Inc. ............................................................... 53,508
-------------
92,471
-------------
MEDIA -- 0.4%
452 Walt Disney (The) Co. ....................................................... 51,591
-------------
MULTI-UTILITIES -- 1.0%
139 Alliant Energy Corp. ........................................................ 8,023
1,013 CMS Energy Corp. ............................................................ 32,254
118 Dominion Resources, Inc. .................................................... 7,891
357 National Grid PLC, ADR....................................................... 23,051
169 NiSource, Inc. .............................................................. 7,705
202 Public Service Enterprise Group, Inc. ....................................... 7,935
159 Sempra Energy................................................................ 15,731
350 WEC Energy Group, Inc. ...................................................... 15,740
-------------
118,330
-------------
OIL, GAS & CONSUMABLE FUELS -- 3.2%
340 Chevron Corp. ............................................................... 32,800
532 ConocoPhillips............................................................... 32,670
1,147 Enbridge Income Fund Holdings, Inc. (CAD).................................... 31,710
677 Enbridge, Inc. .............................................................. 31,677
1,298 Inter Pipeline Ltd. (CAD).................................................... 29,826
2,436 Kinder Morgan, Inc. ......................................................... 93,518
723 Spectra Energy Corp. ........................................................ 23,570
738 TransCanada Corp. ........................................................... 29,978
759 Valero Energy Corp. ......................................................... 47,513
279 Williams (The) Cos., Inc. ................................................... 16,012
-------------
369,274
-------------
PHARMACEUTICALS -- 0.7%
722 Sanofi, ADR.................................................................. 35,761
736 Teva Pharmaceutical Industries Ltd., ADR..................................... 43,498
-------------
79,259
-------------
ROAD & RAIL -- 0.3%
354 Union Pacific Corp. ......................................................... 33,761
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.1%
1,028 Broadcom Corp., Class A...................................................... 52,932
1,174 Intel Corp. ................................................................. 35,707
774 Texas Instruments, Inc. ..................................................... 39,869
-------------
128,508
-------------
SOFTWARE -- 0.7%
847 Microsoft Corp. ............................................................. 37,395
1,027 Oracle Corp. ................................................................ 41,388
-------------
78,783
-------------
SPECIALTY RETAIL -- 0.8%
709 Foot Locker, Inc. ........................................................... 47,510
423 Home Depot (The), Inc. ...................................................... 47,008
-------------
94,518
-------------
See Notes to Financial Statements Page 27
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
TEXTILES, APPAREL & LUXURY GOODS -- 0.3%
594 VF Corp. .................................................................... $ 41,426
-------------
TOBACCO -- 0.3%
351 British American Tobacco PLC, ADR............................................ 37,996
-------------
WIRELESS TELECOMMUNICATION SERVICES -- 0.4%
688 China Mobile Ltd., ADR....................................................... 44,094
-------------
TOTAL COMMON STOCKS.......................................................... 2,781,529
(Cost $2,712,619) -------------
REAL ESTATE INVESTMENT TRUSTS -- 11.1%
DIVERSIFIED REITS -- 0.4%
5,203 Lexington Realty Trust....................................................... 44,121
-------------
HEALTH CARE REITS -- 1.3%
813 National Health Investors, Inc. ............................................. 50,650
1,439 Omega Healthcare Investors, Inc. ............................................ 49,401
1,836 Sabra Health Care REIT, Inc. ................................................ 47,259
-------------
147,310
-------------
HOTEL & RESORT REITS -- 1.7%
1,578 Chesapeake Lodging Trust..................................................... 48,097
2,470 Host Hotels & Resorts, Inc. ................................................. 48,980
1,420 LaSalle Hotel Properties..................................................... 50,353
1,716 RLJ Lodging Trust............................................................ 51,102
-------------
198,532
-------------
INDUSTRIAL REITS -- 0.8%
1,307 Prologis, Inc. .............................................................. 48,490
2,287 STAG Industrial, Inc. ....................................................... 45,740
-------------
94,230
-------------
OFFICE REITS -- 0.4%
2,547 BioMed Realty Trust, Inc. ................................................... 49,259
-------------
RESIDENTIAL REITS -- 1.9%
767 Camden Property Trust........................................................ 56,973
1,669 Education Realty Trust, Inc. ................................................ 52,340
1,078 Equity LifeStyle Properties, Inc. ........................................... 56,681
787 Mid-America Apartment Communities, Inc. ..................................... 57,301
-------------
223,295
-------------
RETAIL REITS -- 2.2%
2,222 Brixmor Property Group, Inc. ................................................ 51,395
2,162 Kimco Realty Corp. .......................................................... 48,731
1,435 National Retail Properties, Inc. ............................................ 50,239
3,385 Retail Properties of America, Inc., Class A.................................. 47,153
301 Simon Property Group, Inc. .................................................. 52,079
-------------
249,597
-------------
Page 28 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
SHARES/
UNITS DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
SPECIALIZED REITS -- 2.4%
1,493 Corrections Corp. of America................................................. $ 49,388
2,016 CyrusOne, Inc. .............................................................. 59,371
828 Digital Realty Trust, Inc. .................................................. 55,211
944 EPR Properties............................................................... 51,712
892 Extra Space Storage, Inc. ................................................... 58,176
261 InfraREIT, Inc. ............................................................. 7,402
-------------
281,260
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS.......................................... 1,287,604
(Cost $1,372,885) -------------
MASTER LIMITED PARTNERSHIPS -- 8.1%
CHEMICALS -- 0.1%
373 Westlake Chemical Partners, L.P.............................................. 8,113
-------------
GAS UTILITIES -- 0.5%
1,361 AmeriGas Partners, L.P....................................................... 62,211
-------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.2%
572 NextEra Energy Partners, L.P................................................. 22,663
-------------
OIL, GAS & CONSUMABLE FUELS -- 7.3%
796 Alliance Holdings GP, L.P.................................................... 31,163
1,929 Alliance Resource Partners, L.P.............................................. 48,148
307 Columbia Pipeline Partners, L.P.............................................. 7,736
1,770 Enbridge Energy Partners, L.P................................................ 58,994
826 Energy Transfer Partners, L.P................................................ 43,117
3,377 Enterprise Products Partners, L.P............................................ 100,939
569 EQT Midstream Partners, L.P.................................................. 46,396
369 Hoegh LNG Partners, L.P...................................................... 7,048
1,396 Holly Energy Partners, L.P................................................... 49,055
818 Magellan Midstream Partners, L.P............................................. 60,025
1,326 NGL Energy Partners, L.P..................................................... 40,218
436 ONEOK Partners, L.P.......................................................... 14,824
2,129 Plains All American Pipeline, L.P............................................ 92,761
166 Rose Rock Midstream, L.P..................................................... 7,760
994 Spectra Energy Partners, L.P................................................. 45,823
324 Tallgrass Energy Partners, L.P............................................... 15,578
980 Targa Resources Partners, L.P................................................ 37,828
555 TC PipeLines, L.P............................................................ 31,635
963 Teekay LNG Partners, L.P..................................................... 31,009
424 TransMontaigne Partners, L.P................................................. 16,112
1,281 Williams Partners, L.P....................................................... 62,039
-------------
848,208
-------------
TOTAL MASTER LIMITED PARTNERSHIPS............................................ 941,195
(Cost $1,030,378) -------------
See Notes to Financial Statements Page 29
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
U.S. GOVERNMENT BONDS AND NOTES -- 7.8%
$ 16,092 U.S. Treasury Inflation Indexed Bond................ 2.00% 01/15/26 $ 18,499
12,318 U.S. Treasury Inflation Indexed Bond................ 2.38% 01/15/27 14,759
21,457 U.S. Treasury Inflation Indexed Bond................ 1.75% 01/15/28 24,341
13,223 U.S. Treasury Inflation Indexed Bond................ 2.50% 01/15/29 16,329
49,449 U.S. Treasury Inflation Indexed Bond................ 3.38% 04/15/32 69,828
8,757 U.S. Treasury Inflation Indexed Bond................ 2.13% 02/15/40 10,805
11,668 U.S. Treasury Inflation Indexed Bond................ 2.13% 02/15/41 14,501
8,167 U.S. Treasury Inflation Indexed Bond................ 0.75% 02/15/42 7,525
61,330 U.S. Treasury Inflation Indexed Bond................ 0.63% 02/15/43 54,520
9,948 U.S. Treasury Inflation Indexed Bond................ 1.38% 02/15/44 10,644
301 U.S. Treasury Inflation Indexed Bond................ 0.75% 02/15/45 276
17,899 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/16 17,990
92,079 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/17 93,366
55,574 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/18 56,468
15,360 U.S. Treasury Inflation Indexed Note................ 1.38% 07/15/18 16,295
68,556 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/19 69,471
40,917 U.S. Treasury Inflation Indexed Note................ 1.38% 01/15/20 43,798
17,357 U.S. Treasury Inflation Indexed Note................ 1.25% 07/15/20 18,595
55,373 U.S. Treasury Inflation Indexed Note................ 1.13% 01/15/21 58,643
6,298 U.S. Treasury Inflation Indexed Note................ 0.63% 07/15/21 6,509
54,250 U.S. Treasury Inflation Indexed Note................ 0.13% 01/15/22 53,834
20,576 U.S. Treasury Inflation Indexed Note................ 0.13% 07/15/22 20,447
65,597 U.S. Treasury Inflation Indexed Note................ 0.13% 01/15/23 64,526
6,100 U.S. Treasury Inflation Indexed Note................ 0.38% 07/15/23 6,130
7,098 U.S. Treasury Inflation Indexed Note................ 0.63% 01/15/24 7,228
64,963 U.S. Treasury Inflation Indexed Note................ 0.13% 07/15/24 63,460
17,979 U.S. Treasury Inflation Indexed Note................ 0.25% 01/15/25 17,664
44,556 U.S. Treasury Inflation Indexed Note................ 2.38% 01/15/25 52,489
-------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES........................................ 908,940
(Cost $914,561) -------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 1.6%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.9%
Fannie Mae REMICS
410 Series 1988-16, Class B.......................... 9.50% 06/25/18 435
563 Series 1989-69, Class G.......................... 7.60% 10/25/19 608
4,517 Series 1990-109, Class J......................... 7.00% 09/25/20 4,851
2,233 Series 1992-24, Class Z.......................... 6.50% 04/25/22 2,464
4,492 Series 1993-1, Class KA.......................... 7.90% 01/25/23 5,130
3,145 Series 1993-62, Class E.......................... 7.00% 04/25/23 3,558
532 Series 2003-9, Class EB.......................... 5.00% 02/25/18 553
6,347 Series 2003-28, Class GA......................... 4.00% 10/25/32 6,398
461 Series 2003-131, Class CG........................ 5.50% 05/25/33 466
6,140 Series 2005-27, Class YC......................... 5.50% 02/25/35 6,503
5,335 Series 2005-46, Class LW......................... 5.00% 06/25/20 5,550
727 Series 2005-48, Class MD......................... 5.00% 04/25/34 759
3,512 Series 2005-70, Class KJ......................... 5.50% 09/25/34 3,691
2,878 Series 2005-120, Class NF (b).................... 0.29% 01/25/21 2,877
278 Series 2006-75, Class YD......................... 5.00% 12/25/34 278
Page 30 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Fannie Mae REMICS (Continued)
$ 9,985 Series 2009-36, Class AB......................... 4.00% 05/25/23 $ 10,012
5,105 Series 2009-81, Class AD......................... 4.50% 09/25/37 5,184
4,731 Series 2010-39, Class PG......................... 4.00% 06/25/38 4,836
452 Series 2010-69, Class EA......................... 4.00% 07/25/24 452
1,736 Series 2011-38, Class AH......................... 2.75% 05/25/20 1,775
7,370 Series 2013-31, Class NT......................... 3.00% 04/25/43 7,413
FHLMC - GNMA
856 Series 1993-5, Class HA.......................... 7.50% 02/25/23 946
1,865 Series 1994-27, Class D.......................... 7.00% 03/25/24 2,103
Freddie Mac REMICS
284 Series 1991-1074, Class I........................ 6.75% 05/15/21 304
1,538 Series 1992-1250, Class J........................ 7.00% 05/15/22 1,719
470 Series 2005-3081, Class CP....................... 5.50% 10/15/34 471
2,698 Series 2006-3116, Class PD....................... 5.00% 10/15/34 2,741
Government National Mortgage Association
2,153 Series 2008-85, Class HP......................... 4.00% 04/20/38 2,203
862 Series 2009-62, Class BA......................... 4.50% 05/20/34 864
2,100 Series 2010-117, Class MA........................ 2.50% 09/16/23 2,134
65,967 Series 2013-20, Class KI, IO..................... 5.00% 01/20/43 13,858
-------------
101,136
-------------
PASS-THROUGH SECURITIES -- 0.7%
Federal Home Loan Mortgage Corporation
24,696 Pool A47829................................... 4.00% 08/01/35 26,229
Federal National Mortgage Association
19,660 Pool AH1568................................... 4.50% 12/01/40 21,410
Government National Mortgage Association
17,389 Pool 3500..................................... 5.50% 01/20/34 19,846
16,618 Pool 3711..................................... 5.50% 05/20/35 18,997
-------------
86,482
-------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................... 187,618
(Cost $181,970) -------------
MORTGAGE-BACKED SECURITIES -- 0.9%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.7%
Credit Suisse First Boston Mortgage Securities Corp.
13,919 Series 2004-1, Class 1A1......................... 5.75% 02/25/34 14,107
JPMorgan ReRemic
23,406 Series 2009-7, Class 5A1 (b) (c)................. 6.00% 02/27/37 24,111
MASTR Alternative Loan Trust
9,604 Series 2004-10, Class 2A1........................ 5.50% 10/25/19 10,015
MASTR Asset Securitization Trust
11,406 Series 2003-5, Class 2A1......................... 5.00% 06/25/18 11,817
Prime Mortgage Trust
2,443 Series 2004-CL1, Class 2A1....................... 5.00% 02/25/19 2,465
RAAC Trust
5,489 Series 2005-SP1, Class 2A1....................... 5.25% 09/25/34 5,665
See Notes to Financial Statements Page 31
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Wells Fargo Alternative Loan Trust
$ 5,344 Series 2007-PA5, Class 2A1....................... 6.00% 11/25/22 $ 5,499
Wells Fargo Mortgage Backed Securities Trust
5,447 Series 2006-17, Class A4......................... 5.50% 11/25/21 5,531
-------------
79,210
-------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.2%
Banc of America Merrill Lynch Commercial Mortgage,
Inc.
22,027 Series 2005-5, Class A4 (b)...................... 5.12% 10/10/45 22,044
Credit Suisse First Boston Mortgage Securities Corp.
2,117 Series 2005-C5, Class A4 (b)..................... 5.10% 08/15/38 2,114
-------------
24,158
-------------
TOTAL MORTGAGE-BACKED SECURITIES............................................. 103,368
(Cost $101,473) -------------
ASSET-BACKED SECURITIES -- 0.1%
AFC Home Equity Loan Trust
2,350 Series 1997-4, Class 1A2 (b)..................... 0.90% 12/22/27 2,320
Countrywide Asset-Backed Certificates Trust
1,078 Series 2005-4, Class AF3 (b)..................... 4.46% 10/25/35 1,079
Salomon Brothers Mortgage Securities VII, Inc.
2,045 Series 1998-OPT1, Class M1 (b)................... 0.59% 07/25/28 2,034
-------------
TOTAL ASSET-BACKED SECURITIES................................................ 5,433
(Cost $5,238) -------------
TOTAL INVESTMENTS -- 97.6%................................................... 11,311,127
(Cost $11,478,805) (d)
NET OTHER ASSETS AND LIABILITIES -- 2.4%..................................... 283,612
-------------
NET ASSETS -- 100.0%......................................................... $ 11,594,739
=============
-----------------------------
(a) Investment in affiliated fund.
(b) Floating or variable rate security. The interest rate shown reflects the
rate in effect at June 30, 2015.
(c) This security, sold within the terms of a private placement memorandum, is
exempt from registration upon resale under Rule 144A under 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 June 30, 2015, securities noted as such amounted
to $24,111 or 0.21% of net assets.
(d) Aggregate cost for financial reporting purposes, which approximates the
aggregate cost for federal income tax purposes. As of June 30, 2015, the
aggregate gross unrealized appreciation for all securities in which there
was an excess of value over tax cost was $180,770 and the aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over value was $348,448.
ADR American Depositary Receipt
CAD Canadian Dollar - Security is denominated in Canadian Dollars and is
translated into U.S. Dollars based upon the current exchange rate.
IO Interest-Only Security - Principal amount shown represents par value on
which interest payments are based.
Page 32 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 2015 (UNAUDITED)
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of June 30, 2015
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 6/30/2015 PRICES INPUTS INPUTS
-------------------------------------------------- ------------ ------------ ------------ ------------
Exchange-Traded Funds............................. $ 5,095,440 $ 5,095,440 $ -- $ --
Common Stocks*.................................... 2,781,529 2,781,529 -- --
Real Estate Investment Trusts*.................... 1,287,604 1,287,604 -- --
Master Limited Partnerships*...................... 941,195 941,195 -- --
U.S. Government Bonds and Notes................... 908,940 -- 908,940 --
U.S. Government Agency Mortgage-Backed
Securities..................................... 187,618 -- 187,618 --
Mortgage-Backed Securities........................ 103,368 -- 103,368 --
Asset-Backed Securities........................... 5,433 -- 5,433 --
------------ ------------ ------------ ------------
Total Investments................................. $ 11,311,127 $ 10,105,768 $ 1,205,359 $ --
============ ============ ============ ============
* 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 June 30, 2015.
See Notes to Financial Statements Page 33
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2015 (UNAUDITED)
FIRST TRUST/DOW
JONES DIVIDEND FIRST TRUST
& INCOME MULTI INCOME
ALLOCATION ALLOCATION
PORTFOLIO PORTFOLIO
----------------- -------------
ASSETS:
Investments, at value..................................................... $ 252,632,630 $ 7,738,856
Investments in affiliated funds, at value................................. -- 3,572,271
Cash and cash equivalents................................................. 3,369,160 248,281
Cash segregated as collateral for open futures contracts.................. 193,938 --
Receivables:
Interest............................................................... 1,067,520 4,217
Dividends.............................................................. 238,306 11,196
Fund shares sold....................................................... 42,995 45,573
Variation margin....................................................... 5,500 --
Investment securities sold............................................. -- 65,712
From investment advisor................................................ -- 20,268
Reclaims............................................................... -- 315
Prepaid expenses.......................................................... 32,634 207
------------- -------------
Total Assets........................................................... 257,582,683 11,706,896
------------- -------------
LIABILITIES:
Due to custodian foreign currency......................................... -- 18
Payables:
Investment securities purchased........................................ 149,571 61,312
Investment advisory fees............................................... 82,343 --
12b-1 service fees (Class I)........................................... 53,585 2,294
Administrative service fees............................................ 42,868 1,853
Licensing fees......................................................... 21,602 --
Custodian fees......................................................... 17,575 562
Audit and tax fees..................................................... 17,377 22,834
Accounting and administration fees..................................... 16,603 2,261
Printing fees.......................................................... 9,914 3,373
Transfer agent fees.................................................... 8,000 4,025
Commitment fees........................................................ 1,765 868
Fund shares redeemed................................................... 1,273 8,713
Financial reporting fees............................................... 771 --
Trustees' fees and expenses............................................ -- 3,946
Other liabilities......................................................... 545 98
------------- -------------
Total Liabilities...................................................... 423,792 112,157
------------- -------------
NET ASSETS................................................................ $ 257,158,891 $ 11,594,739
------------- -------------
NET ASSETS CONSIST OF:
Paid-in capital........................................................... $ 243,033,971 $ 11,648,540
Accumulated net investment income (loss).................................. 1,710,866 96,051
Accumulated net realized gain (loss) on investments, futures and foreign
currency transactions................................................... 5,918,067 17,829
Net unrealized appreciation (depreciation) on investments, futures and
foreign currency translation............................................ 6,495,987 (167,681)
------------- -------------
NET ASSETS................................................................ $ 257,158,891 $ 11,594,739
============= =============
CLASS I SHARES:
NET ASSETS................................................................ $ 257,148,295 $ 11,487,833
============= =============
NET ASSET VALUE, PER SHARE................................................ $ 12.20 $ 10.31
============= =============
Number of Shares outstanding.............................................. 21,078,218 1,113,993
============= =============
CLASS II SHARES:
NET ASSETS................................................................ $ 10,596 $ 106,906
============= =============
NET ASSET VALUE, PER SHARE................................................ $ 12.22 $ 10.31
============= =============
Number of Shares outstanding.............................................. 867 10,367
============= =============
Investments, at cost...................................................... $ 246,309,862 $ 7,876,262
============= =============
Investments in affiliated funds, at cost.................................. $ -- $ 3,602,543
============= =============
Foreign currency, at cost................................................. $ -- $ (18)
============= =============
Page 34 See Notes to Financial Statements
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 (UNAUDITED)
FIRST TRUST/DOW
JONES DIVIDEND FIRST TRUST
& INCOME MULTI INCOME
ALLOCATION ALLOCATION
PORTFOLIO PORTFOLIO
----------------- -------------
INVESTMENT INCOME:
Dividends................................................................. $ 1,649,177 $ 70,424
Dividends from affiliated funds........................................... -- 67,342
Interest.................................................................. 1,559,709 4,138
Foreign withholding tax on dividend income................................ -- (849)
------------- -------------
Total investment income................................................ 3,208,886 141,055
------------- -------------
EXPENSES:
Investment advisory fees.................................................. 749,236 27,587
12b-1 service fees (Class I).............................................. 312,168 11,361
Administrative service fees............................................... 249,735 8,151
Custodian fees............................................................ 127,102 1,513
Accounting and administration fees........................................ 59,639 4,432
Licensing fees............................................................ 42,194 --
Transfer agent fees....................................................... 41,216 25,418
Printing fees............................................................. 23,986 8,612
Audit and tax fees........................................................ 14,380 17,088
Legal fees................................................................ 12,146 1,585
Commitment fees........................................................... 9,486 4,224
Trustees' fees and expenses............................................... 9,351 7,971
Financial reporting fees.................................................. 4,625 --
Excise tax................................................................ -- 29
Other..................................................................... 3,924 1,901
------------- -------------
Total expenses......................................................... 1,659,188 119,872
Fees waived or expenses reimbursed by the investment advisor........... (160,731) (74,486)
------------- -------------
Net expenses.............................................................. 1,498,457 45,386
------------- -------------
NET INVESTMENT INCOME (LOSS).............................................. 1,710,429 95,669
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................................ 6,097,370 18,488
Investments in affiliated funds........................................ -- (4,512)
Futures................................................................ (296,238) --
Foreign currency transactions.......................................... -- 20
------------- -------------
Net realized gain (loss).................................................. 5,801,132 13,996
------------- -------------
Net increase from payment by the advisor.................................. -- 5,456
------------- -------------
Net change in unrealized appreciation (depreciation) on:
Investments............................................................ (7,660,190) (265,027)
Investments in affiliated funds........................................ -- 7,396
Futures................................................................ 302,593 --
Foreign currency translation........................................... -- (3)
------------- -------------
Net change in unrealized appreciation (depreciation)...................... (7,357,597) (257,634)
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................... (1,556,465) (238,182)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................................ $ 153,964 $ (142,513)
============= =============
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
-------------------------------
FOR THE
SIX MONTHS FOR THE
ENDED YEAR
6/30/2015 ENDED
(UNAUDITED) 12/31/2014 (a)
------------ ---------------
OPERATIONS:
Net investment income (loss)......................................................... $ 1,710,429 $ 1,848,661
Net realized gain (loss)............................................................. 5,801,132 4,560,758
Net change in unrealized appreciation (depreciation)................................. (7,357,597) 7,194,938
------------ -------------
Net increase (decrease) in net assets resulting from operations...................... 153,964 13,604,357
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class I.............................................................................. (744,804) (1,105,002)
Class II............................................................................. (44) (90)
------------ -------------
(744,848) (1,105,092)
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class I.............................................................................. (4,388,357) --
Class II............................................................................. (185) --
------------ -------------
(4,388,542) --
------------ -------------
Total distributions to shareholders.................................................. (5,133,390) (1,105,092)
------------ -------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................................ 85,854,153 89,311,771
Proceeds from shares reinvested...................................................... 5,133,160 1,105,092
Cost of shares redeemed.............................................................. (23,987,754) (13,856,252)
------------ -------------
Net increase (decrease) in net assets resulting from capital transactions............ 66,999,559 76,560,611
------------ -------------
Total increase (decrease) in net assets.............................................. 62,020,133 89,059,876
NET ASSETS:
Beginning of period.................................................................. 195,138,758 106,078,882
------------ -------------
End of period........................................................................ $257,158,891 $ 195,138,758
============ =============
Accumulated net investment income (loss) at end of period............................ $ 1,710,866 $ 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
-------------------------------
FOR THE
SIX MONTHS FOR THE
ENDED PERIOD
6/30/2015 ENDED
(UNAUDITED) 12/31/2014 (b)
------------ ---------------
OPERATIONS:
Net investment income (loss)......................................................... $ 95,669 $ 45,188
Net realized gain (loss)............................................................. 13,996 3,487
Net increase from payment from the advisor........................................... 5,456 --
Net change in unrealized appreciation (depreciation)................................. (257,634) 89,953
------------ -------------
Net increase (decrease) in net assets resulting from operations...................... (142,513) 138,628
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class I.............................................................................. (6,357) (42,537)
Class II............................................................................. (187) (835)
------------ -------------
Total distributions to shareholders.................................................. (6,544) (43,372)
------------ -------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................................ 5,086,382 7,338,580
Proceeds from shares reinvested...................................................... 5,837 43,372
Cost of shares redeemed.............................................................. (347,289) (478,342)
------------ -------------
Net increase (decrease) in net assets resulting from capital transactions............ 4,744,930 6,903,610
------------ -------------
Total increase (decrease) in net assets.............................................. 4,595,873 6,998,866
NET ASSETS:
Beginning of period.................................................................. 6,998,866 --
------------ -------------
End of period........................................................................ $ 11,594,739 $ 6,998,866
============ =============
Accumulated net investment income (loss) at end of period............................ $ 96,051 $ 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
SIX MONTHS FOR THE
ENDED YEAR YEAR PERIOD
6/30/2015 ENDED ENDED ENDED
(UNAUDITED) 12/31/2014 12/31/2013 12/31/2012 (a)
--------------- -------------- -------------- --------------
Net asset value, beginning of period........ $ 12.41 $ 11.37 $ 10.31 $ 10.00
----------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.07 0.15 0.14 0.15
Net realized and unrealized gain (loss)..... (0.03) 0.99 1.17 0.29
----------- ---------- ---------- ----------
Total from investment operations............ 0.04 1.14 1.31 0.44
----------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.04) (0.10) (0.09) (0.07)
Net realized gain........................... (0.21) -- (0.16) (0.04)
Return of capital........................... -- -- -- (0.02)
----------- ---------- ---------- ----------
Total from distributions.................... (0.25) (0.10) (0.25) (0.13)
----------- ---------- ---------- ----------
Net asset value, end of period.............. $ 12.20 $ 12.41 $ 11.37 $ 10.31
=========== ========== ========== ==========
Total return (b) (c)........................ 0.29% 10.04% 12.75% 4.38%
=========== ========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 257,148 $ 195,128 $ 106,079 $ 32,176
Ratio of total expenses to average net
assets.................................... 1.33% (d) 1.43% 1.65% 2.69% (d)
Ratio of net expenses to average net
assets.................................... 1.20% (d) 1.20% 1.20% 1.20% (d)
Ratio of net investment income (loss)
to average net assets..................... 1.37% (d) 1.40% 1.27% 2.25% (d)
Portfolio turnover rate..................... 37% 65% 73% 34%
CLASS II SHARES
SIX MONTHS FOR THE
ENDED PERIOD
6/30/2015 ENDED
(UNAUDITED) 12/31/2014 (e)
--------------- --------------
Net asset value, beginning of period........ $ 12.43 $ 11.63
----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.10 0.14
Net realized and unrealized gain (loss)..... (0.05) 0.77
----------- ----------
Total from investment operations............ 0.05 0.91
----------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.05) (0.11)
Net realized gain........................... (0.21) --
----------- ----------
Total from distributions.................... (0.26) (0.11)
----------- ----------
Net asset value, end of period.............. $ 12.22 $ 12.43
=========== ==========
Total return (b) (c)........................ 0.41% 7.82%
=========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 11 $ 11
Ratio of total expenses to average net
assets.................................... 1.07% (d) 1.21% (d)
Ratio of net expenses to average net
assets.................................... 0.95% (d) 0.95% (d)
Ratio of net investment income (loss)
to average net assets..................... 1.63% (d) 1.69% (d)
Portfolio turnover rate..................... 37% 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 distributions,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 (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES
SIX MONTHS FOR THE
ENDED PERIOD
6/30/2015 ENDED
(UNAUDITED) 12/31/2014 (a)
--------------- --------------
Net asset value, beginning of period........ $ 10.39 $ 10.00
----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.08 0.07
Net realized and unrealized gain (loss)..... (0.15) (d) 0.39
----------- ----------
Total from investment operations............ (0.07) 0.46
----------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.01) (0.07)
----------- ----------
Total from distributions.................... (0.01) (0.07)
----------- ----------
Net asset value, end of period.............. $ 10.31 $ 10.39
=========== ==========
Total return (b) (c)........................ (0.71)% (d) 4.57%
=========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 11,488 $ 6,894
Ratio of total expenses to average net
assets.................................... 2.61% (e) 6.00% (e)
Ratio of net expenses to average net
assets.................................... 0.99% (e) 1.20% (e)
Ratio of net investment income (loss)
to average net assets..................... 2.08% (e) 2.35% (e)
Portfolio turnover rate..................... 57% 15%
CLASS II SHARES
SIX MONTHS FOR THE
ENDED PERIOD
6/30/2015 ENDED
(UNAUDITED) 12/31/2014 (a)
--------------- --------------
Net asset value, beginning of period........ $ 10.39 $ 10.00
----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.11 0.04
Net realized and unrealized gain (loss)..... (0.17) (d) 0.43
----------- ----------
Total from investment operations............ (0.06) 0.47
----------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income....................... (0.02) (0.08)
----------- ----------
Total from distributions.................... (0.02) (0.08)
----------- ----------
Net asset value, end of period.............. $ 10.31 $ 10.39
=========== ==========
Total return (b) (c)........................ (0.60)% (d) 4.74%
=========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........ $ 107 $ 105
Ratio of total expenses to average net
assets.................................... 2.29% (e) 14.44% (e)
Ratio of net expenses to average net
assets.................................... 0.76% (e) 0.95% (e)
Ratio of net investment income (loss)
to average net assets..................... 2.18% (e) 0.54% (e)
Portfolio turnover rate..................... 57% 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 distributions,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) First Trust Multi Income Allocation Portfolio received a reimbursement
from the Advisor in the amount of $5,456. The reimbursement from the
Advisor represents less than $0.01 per share and had no effect on the
total return.
(e) Annualized.
See Notes to Financial Statements Page 39
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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 with
which the Trust has a contract (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
JUNE 30, 2015 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES
The Funds, each of which is an investment company within the scope of Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2013-08, follow
accounting and reporting guidance under FASB Accounting Standards Codification
Topic 946, "Financial Services-Investment Companies."
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 each 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 the 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 Pricing Committee of the Funds'
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"),
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.
Page 41
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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;
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 or fair value 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 the
Advisor'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;
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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.
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 methodologies 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 June 30, 2015, 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 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 June 30, 2015, the percentage of net assets held in cash by First Trust Dow
Jones and First Trust Multi Income were approximately 1.4% and 2.1%,
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
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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. 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.
Restricted cash in the amount of $193,938, as shown on the Statements of Assets
and Liabilities, is associated with collateral at the broker as of June 30,
2015.
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.
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 --
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 their 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
contracts that are based on segregated asset accounts. Accordingly, no provision
has been made for federal and 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.
Page 44
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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 June 30, 2015, 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 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 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 First Trust Dow Jones, 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 Energy Income Partners,
LLC ("EIP") and Stonebridge Advisors LLC ("Stonebridge") (collectively 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 certain 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, an affiliate of the Advisor, 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 EIP. Stonebridge serves as a non-discretionary
sub-advisor. 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.
Page 45
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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.
During the period ended June 30, 2015, First Trust Multi Income received
reimbursements from the Advisor of $5,456 in connection with a trade error.
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 June 30, 2016. 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
was waived 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 June 30, 2015, and
the expenses borne by First Trust subject to recovery from the applicable Fund
at June 30, 2015, are included in the table below.
FEES WAIVED OR EXPENSES BORNE BY FIRST TRUST SUBJECT TO RECOVERY
----------------------------------------------------------------------------------------------------
SIX MONTHS
PERIOD ENDED YEAR ENDED YEAR ENDED ENDED
FEE EXPENSES DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
WAIVED REIMBURSED 2012 2013 2014 2015 TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ----------
First Trust Dow Jones $ 160,731 $ -- $ 90,586 $ 333,872 $ 308,178 $ 160,731 $ 893,367
First Trust Multi Income $ 27,587 $ 37,215 $ -- $ -- $ 101,172 $ 64,802 $ 165,974
During the six months ended June 30, 2015, First Trust did not recover any fees
that were previously waived or reimbursed.
Effective April 1, 2015, First Trust agreed to waive and/or reimburse the
acquired fund fees and expenses of the shares of investment companies held by
First Trust Multi Income up to 0.37% of the Fund's average daily net assets
through May 1, 2016. During the period ended June 30, 2015, First Trust Multi
Income waived $9,684 fees that are not subject to recovery.
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, on March 27, 2014, FTCP,
through a wholly-owned subsidiary, purchased a preferred interest in EIP. The
preferred interest was non-voting and did not share in the profits or losses of
EIP. EIP redeemed all of the preferred shares in March 2015. Stonebridge is a
majority-owned affiliate of First Trust.
BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as First Trust Dow
Jones' administrator, fund accountant and transfer agent in accordance with
certain fee arrangements. As administrator and fund accountant, BNYM IS is
responsible for providing certain administrative and accounting services to the
Fund, including maintaining the Fund's books of account, records of the Fund's
securities transactions, and certain other books and records. As transfer agent,
BNYM IS is responsible for maintaining shareholder records for the Fund. The
Bank of New York Mellon ("BNYM") serves as the Fund's custodian in accordance
with certain fee arrangements. As custodian, BNYM is responsible for custody of
the Fund's assets.
BNYM serves as First Trust Multi Income's administrator, fund accountant,
transfer agent and custodian in accordance with certain fee arrangements. As
administrator and fund accountant, BNYM is responsible for providing certain
administrative and accounting services to the Fund, including maintaining the
Fund's books of account, records of the Fund's securities transactions, and
certain other books and records. As transfer agent, BNYM is responsible for
maintaining shareholder records for the Fund. As custodian, BNYM is responsible
for custody of the Fund's assets.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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.
4. CAPITAL SHARE TRANSACTIONS
Capital transactions for First Trust Dow Jones were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2015 DECEMBER 31, 2014
SHARES VALUE SHARES VALUE
------------ ------------ ------------ ------------
Sales:
Class I 6,860,871 $ 85,854,153 7,492,797 $ 89,301,771
Class II -- -- 860 10,000
------------ ------------ ------------ ------------
Total Sales: 6,860,871 $ 85,854,153 7,493,657 $ 89,311,771
============ ============ ============ ============
Dividend Reinvestment:
Class I 416,991 $ 5,133,160 93,014 $ 1,105,002
Class II -- -- 7 90
------------ ------------ ------------ ------------
Total Dividend Reinvestment: 416,991 $ 5,133,160 93,021 $ 1,105,092
============ ============ ============ ============
Redemptions:
Class I (1,918,565) $(23,987,754) (1,195,329) $(13,856,252)
Class II -- -- -- --
------------ ------------ ------------ ------------
Total Redemptions: (1,918,565) $(23,987,754) (1,195,329) $(13,856,252)
============ ============ ============ ============
Capital transactions for First Trust Multi Income were as follows:
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 2015 DECEMBER 31, 2014
SHARES VALUE SHARES VALUE
------------ ------------ ------------ ------------
Sales:
Class I 483,003 $ 5,083,374 705,881 $ 7,238,580
Class II 286 3,008 10,000 100,000
------------ ------------ ------------ ------------
Total Sales: 483,289 $ 5,086,382 715,881 $ 7,338,580
============ ============ ============ ============
Dividend Reinvestment:
Class I 559 $ 5,832 4,086 $ 42,537
Class II 1 5 80 835
------------ ------------ ------------ ------------
Total Dividend Reinvestment: 560 $ 5,837 4,166 $ 43,372
============ ============ ============ ============
Redemptions:
Class I (32,971) $ (347,289) (46,565) $ (478,342)
Class II -- -- -- --
------------ ------------ ------------ ------------
Total Redemptions: (32,971) $ (347,289) (46,565) $ (478,342)
============ ============ ============ ============
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
5. DERIVATIVES TRANSACTIONS
The following table presents the types of derivatives held by First Trust Dow
Jones at June 30, 2015, 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 June 30,
2015.
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 $ 5,500 Variation Margin Payable $ --
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the six months
ended June 30, 2015, 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 $ (296,238)
Net change in unrealized gain (loss) on futures 302,593
During the six months ended June 30, 2015, the notional values of futures
contracts opened and closed were $47,181,422 and $40,994,062, respectively.
First Trust Dow Jones does not have the right to offset financial assets and
financial liabilities related to futures 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 in First Trust Multi Income at June 30,
2015, and for the period then ended are as follows:
SHARE ACTIVITY
--------------------------------------------
BALANCE AT BALANCE AT VALUE AT DIVIDEND REALIZED
SECURITY NAME 12/31/2014 PURCHASES SALES 6/30/2015 6/30/2015 INCOME GAIN (LOSS)
------------------------------------------------ ---------- --------- --------- ---------- ---------- ---------- -----------
First Trust Low Duration Mortgage
Opportunities ETF -- 3,000 (3,000) -- $ -- $ 25 $ 211
First Trust Preferred Securities and Income ETF 32,820 21,960 -- 54,780 1,038,081 21,817 --
First Trust Senior Loan Fund 22,060 13,370 -- 35,430 1,732,172 26,571 --
First Trust Tactical High Yield ETF 12,000 6,050 (2,000) 16,050 802,018 18,929 (4,723)
-----------------------------------
$3,572,271 $ 67,342 $ (4,512)
===================================
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
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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.
During the six months ended June 30, 2015, 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 six months ended June 30, 2015, were as follows:
PURCHASES SALES
--------------- ---------------
First Trust Dow Jones $ 156,782,612 $ 89,844,417
First Trust Multi Income 9,898,800 5,258,386
9. BORROWINGS
The Trust, on behalf of First Trust Dow Jones and First Trust Multi Income,
along with First Trust Series Fund and First Trust Exchange-Traded Fund IV, has
an $80 million Credit Agreement (the "BNYM Line of Credit") with BNYM to be a
liquidity backstop during periods of high redemption volume. 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. These fees are reflected on the Statements of Operations in the
Commitment fees line item. To the extent that either Fund accesses the BNYM Line
of Credit, there would also be an interest fee charged. Neither First Trust Dow
Jones or First Trust Multi Income drew on the BNYM Line of Credit during the six
months ended June 30, 2015.
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 that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (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 each Fund's 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.
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
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
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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
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.
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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.
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.
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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
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.
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
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.
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT MANAGEMENT
AGREEMENT FOR FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
The Board of Trustees of the First Trust Variable Insurance Trust (the "Trust"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Agreement") with First Trust Advisors L.P.
("First Trust" or the "Advisor") on behalf of the First Trust/Dow Jones Dividend
& Income Allocation Fund (the "Fund") for a one-year period ending March 31,
2016 at a meeting held on March 8-9, 2015. The Board of Trustees determined that
continuation of the Agreement is in the best interests of the Fund in light of
the extent and quality of services provided and such other matters as the Board
considered to be relevant in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. To assist the Board in its evaluation of the Agreement, the
Independent Trustees received a report from First Trust in advance of the Board
meeting responding to a request for information from counsel to the Independent
Trustees. The report, among other things, outlined the services provided by
First Trust to the Fund (including the relevant personnel responsible for these
services and their experience); the advisory fee for the Fund as compared to
fees charged to a peer group of funds compiled by Management Practice Inc.
("MPI"), an independent source (the "MPI Peer Group"), and as compared to fees
charged to other clients of First Trust; expenses of the Fund as compared to
expense ratios of funds in the MPI Peer Group; the nature of expenses incurred
in providing services to the Fund and the potential for economies of scale, if
any; financial data on First Trust; fall out benefits to First Trust and its
affiliate, First Trust Portfolios L.P. ("FTP"); and a summary of First Trust's
compliance program. Following receipt of this information, the Independent
Trustees and their counsel met separately to discuss the information provided by
the Advisor. The Board applied its business judgment to determine whether the
arrangement between the Trust and First Trust is a reasonable business
arrangement from the Fund's perspective as well as from the perspective of
shareholders. The Board considered that shareholders chose to invest or remain
invested in the Fund knowing that the Advisor manages the Fund and knowing the
Fund's investment advisory fee.
In reviewing the Agreement for the Fund, the Board considered the nature, extent
and quality of services provided by First Trust under the Agreement. The Board
considered that the Advisor is responsible for the overall management and
administration of the Trust and the Fund and reviewed all the services provided
by the Advisor to the Fund. The Board also considered the background and
experience of the persons responsible for the day-to-day management of the Fund.
The Board considered the compliance program that had been developed by First
Trust and the procedures in place to monitor the Fund's investment program. The
Board considered the significant asset growth of the First Trust Fund Complex
and the Advisor's concomitant investment in infrastructure and personnel
dedicated to the First Trust funds. In light of the information presented and
the considerations made, the Board concluded that the nature, extent and quality
of services provided to the Fund by First Trust under the Agreement have been
and are expected to remain satisfactory and that First Trust has managed the
Fund consistent with its investment objective and policies.
The Board considered the advisory fees payable to First Trust under the
Agreement, noting that First Trust is compensated at an annual rate of 0.60% of
the Fund's average daily net assets. The Board considered that First Trust
agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent
the annual operating expenses of the Fund (excluding interest expense, brokerage
commissions and other trading expenses, taxes and extraordinary expenses) from
exceeding 1.20% of average daily net assets for Class I and 0.95% of average
daily net assets for Class II through May 1, 2016. The Board noted that expenses
borne or fees waived by First Trust are subject to reimbursement by the Fund for
up to three years from the date the expense was incurred or fee was waived, but
no reimbursement payment would be made by the Fund if it would result in the
Fund exceeding an expense ratio equal to the expense cap in place at the time
the expenses were borne or fees were waived by First Trust. The Board considered
the advisory fees charged by First Trust to other funds and non-fund clients,
noting that the Advisor does not provide advisory services to other funds with
investment objectives and policies similar to the Fund's, but does provide
services to certain separately managed accounts with investment objectives and
policies similar to the Fund's. The Board noted that the Advisor charges a lower
advisory fee rate to the separately managed accounts, as well as the Advisor's
statement that the nature of the services provided to the separately managed
accounts is not comparable to those provided to the Fund. The Board also
reviewed data prepared by MPI showing the advisory fee and expense ratio of the
Class I shares of the Fund as compared to the advisory fees and expense ratios
of the peer funds in the MPI Peer Group. Based on the information provided, the
Board noted that the advisory fee was below the median and the total (net)
expense ratio of the Class I shares of the Fund was above the median of the peer
funds in the MPI Peer Group.
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
The Board also considered and discussed with the Advisor performance information
for the Fund, noting that the performance information included the Fund's
quarterly performance report, which is part of the process that the Board has
established for monitoring the Fund's performance on an ongoing basis. The Board
determined that this process continues to be effective for reviewing the Fund's
performance. In addition to the Board's ongoing review of performance, the Board
also reviewed data prepared by MPI comparing the Fund's performance to the MPI
Peer Group and to two benchmark indexes. The Board noted that for the one-year
period ended December 31, 2014, the Fund's performance was slightly below first
quartile in comparison to its MPI Peer Group, and slightly behind the blended
benchmark index. Based on the information provided and the Board's ongoing
review of the Fund's performance, the Board concluded that the Fund's
performance was consistent with its investment strategies.
On the basis of all the information provided on the fees, expenses and
performance of the Fund, the Board concluded that the advisory fee for the Fund
was reasonable and appropriate in light of the nature, extent and quality of
services provided by the Advisor to the Fund under the Agreement.
The Board noted that First Trust has made and continues to make significant
investments in personnel and infrastructure and considered whether fee levels
reflect any economies of scale for the benefit of shareholders. The Board
considered the costs borne by First Trust in connection with its services
performed under the Agreement and noted that First Trust estimated that it
incurred a loss in providing services to the Fund for the twelve months ended
December 31, 2014. The Board considered that First Trust had identified as a
fall out benefit to First Trust and FTP their exposure to investors and brokers
who, in the absence of the Fund, may have had no dealings with First Trust or
FTP. The Board noted that FTP is compensated for services provided to the Fund
through Rule 12b 1 service fees payable by Class I shares, and that First Trust
receives compensation from the Fund for providing fund reporting services
pursuant to a separate Fund Reporting Services Agreement. The Board also noted
that First Trust does not utilize soft dollars in connection with its management
of the Fund's portfolio.
Based upon all of the information considered and the conclusions reached, the
Board of Trustees, including the Independent Trustees, unanimously determined
that the terms of the Agreement continue to be fair and reasonable and that the
continuation of the Agreement is in the best interests of the Fund. No single
factor was determinative in the Board's analysis.
BOARD CONSIDERATIONS REGARDING APPROVAL OF CONTINUATION OF INVESTMENT
MANAGEMENT AND INVESTMENT SUB-ADVISORY AGREEMENTS
The Board of Trustees of the First Trust Variable Insurance Trust (the "Trust"),
including the Independent Trustees, unanimously approved the continuation of the
Investment Management Agreement (the "Advisory Agreement") with First Trust
Advisors L.P. ("First Trust" or the "Advisor") on behalf of each of First
Trust/Dow Jones Dividend & Income Allocation Fund and First Trust Multi Income
Allocation Portfolio (each a "Fund" and together the "Funds"); the Investment
Sub-Advisory Agreement (the "Stonebridge Sub-Advisory Agreement") among the
Trust, on behalf of the First Trust Multi Income Allocation Portfolio, the
Advisor and Stonebridge Advisors LLC ("Stonebridge"); and the Investment
Sub-Advisory Agreement (the "Energy Income Partners Sub-Advisory Agreement")
among the Trust, on behalf of the First Trust Multi Income Allocation Portfolio,
the Advisor and Energy Income Partners, LLC ("Energy Income Partners") for a
one-year period ending June 30, 2016 at a meeting held on June 16, 2015. The
Stonebridge Sub-Advisory Agreement and the Energy Income Partners Sub-Advisory
Agreement are collectively referred to as the "Sub-Advisory Agreements."
Stonebridge and Energy Income Partners are collectively referred to as the
"Sub-Advisors." The Sub-Advisory Agreements together with the Advisory Agreement
are referred to as the "Agreements." The Board determined that the continuation
of the Advisory Agreement is in the best interests of each Fund and the
continuation of the Sub-Advisory Agreements is in the best interests of First
Trust Multi Income Allocation Portfolio in light of the extent and quality of
services provided and such other matters as the Board considered to be relevant
in the exercise of its reasonable business judgment.
To reach this determination, the Board considered its duties under the
Investment Company Act of 1940, as amended (the "1940 Act"), as well as under
the general principles of state law in reviewing and approving advisory
contracts; the requirements of the 1940 Act in such matters; the fiduciary duty
of investment advisors with respect to advisory agreements and compensation; the
standards used by courts in determining whether investment company boards have
fulfilled their duties; and the factors to be considered by the Board in voting
on such agreements. At meetings held on March 8-9, 2015, April 20, 2015 and June
16, 2015, the Board, including the Independent Trustees, reviewed materials
provided by First Trust and each Sub-Advisor responding to requests for
information from counsel to the Independent Trustees that, among other things,
outlined the services provided by First Trust to the Funds and by the
Sub-Advisors to First Trust Multi Income Allocation Portfolio (including the
relevant personnel responsible for these services and their experience); the
advisory fees for each Fund as compared to fees charged to a peer group of funds
selected by Management Practice, Inc. ("MPI"), an independent source (the "MPI
Peer Group"), and as compared to fees charged to other clients of First Trust;
the sub-advisory fee paid by First Trust to each Sub-Advisor for First Trust
Multi Income Allocation Portfolio as compared to fees charged to other clients
of the Sub-Advisors; expenses of the Funds as compared to expense ratios of
funds in the MPI Peer Group; performance information for each Fund; the nature
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
of expenses incurred in providing services to the Funds and the potential for
economies of scale, if any; financial data on First Trust and each Sub-Advisor;
any fall out benefits to First Trust and its affiliates, First Trust Portfolios
L.P. ("FTP") and the Sub-Advisors; and a summary of First Trust's and each
Sub-Advisor's compliance program. The Board reviewed materials for First
Trust/Dow Jones Dividend & Income Allocation Fund with the Advisor at the
meeting held on March 8-9, 2015, and materials for both Funds at a special
meeting held on April 20, 2015, at each of which the Independent Trustees and
their counsel met separately to discuss the information provided by the Advisor
and, at the April meeting, the Sub-Advisors. Following the April meeting,
independent legal counsel on behalf of the Independent Trustees requested
certain clarifications and supplements to the materials provided, and those were
considered at an executive session of the Independent Trustees and independent
legal counsel held prior to the June 16, 2015 meeting, as well as at the
meeting. The Board applied its business judgment to determine whether the
arrangements between the Trust and First Trust from the Funds' perspective and
among the Trust, First Trust and each Sub-Advisor from First Trust Multi Income
Allocation Portfolio's perspective are reasonable business arrangements, as well
as from the perspective of shareholders. The Board considered that shareholders
chose to invest or remain invested in the Funds knowing that the Advisor manages
the Funds and knowing that the Sub-Advisors serve as such for First Trust Multi
Income Allocation Portfolio.
In reviewing the Agreements for the Funds, the Board considered the nature,
extent and quality of services provided by First Trust and each Sub-Advisor
under the Agreements. The Board considered that the Advisor is responsible for
the overall management and administration of the Trust and the Funds and
reviewed the services provided by the Advisor to the Funds. The Board also
considered the background and experience of the persons responsible for the
day-to-day management of the Funds, including for the oversight of the
Sub-Advisors for the First Trust Multi Income Allocation Portfolio. The Board
considered the compliance program that had been developed by First Trust and
considered that it includes a robust program for monitoring the Advisor's and
the Sub-Advisors' compliance with the 1940 Act and each Fund's investment
objective and policies. The Board considered the significant asset growth of the
First Trust Fund Complex and the Advisor's concomitant investment in
infrastructure and personnel dedicated to the First Trust funds. For the First
Trust Multi Income Allocation Portfolio, the Board noted the background and
experience of each Sub-Advisor's portfolio management team and its familiarity
with each Sub-Advisor due to the Board's oversight of other funds in the First
Trust Fund Complex all or a portion of which are sub-advised by the
Sub-Advisors. The Board also reviewed the materials provided by the Sub-Advisors
and considered the services that the Sub-Advisors provide to the First Trust
Multi Income Allocation Portfolio. In light of the information presented and the
considerations made, the Board concluded that the nature, extent and quality of
services provided to the Funds by First Trust and to First Trust Multi Income
Allocation Portfolio by the Sub-Advisors under the Agreements have been and are
expected to remain satisfactory and that First Trust and, for First Trust Multi
Income Allocation Portfolio, the Sub-Advisors, have managed the Funds consistent
with their investment objectives and policies (noting that Stonebridge serves in
a non-discretionary capacity).
The Board considered the advisory fees payable to First Trust under the Advisory
Agreement, noting that First Trust is compensated at an annual rate of 0.60% of
each Fund's average daily net assets. The Board also noted that the Advisor has
agreed to reduce the advisory fee payable by First Trust Multi Income Allocation
Portfolio in the amount of 0.37% of the Fund's average daily net assets from
April 1, 2015 through May 1, 2016. The Board noted that from the advisory fees
for First Trust Multi Income Allocation Portfolio, First Trust pays Stonebridge
an annual sub-advisory fee equal to 0.20% of the average daily net assets of its
allocated portion of the Fund's portfolio and pays Energy Income Partners a
sub-advisory fee equal to 40.0% of the advisory fee after any advisory fee
waivers for its allocated portion of the Fund's portfolio in a given month. The
Board considered that First Trust agreed to waive fees and/or pay the Funds'
expenses to the extent necessary to prevent the annual operating expenses of
each Fund (excluding interest expense, brokerage commissions and other trading
expenses, taxes and extraordinary expenses) from exceeding 1.20% of average
daily net assets for Class I and 0.95% of average daily net assets for Class II
through June 30, 2016. The Board noted that expenses borne or fees waived by
First Trust are subject to reimbursement by the applicable Fund for up to three
years from the date the expense was incurred or fee was waived, but no
reimbursement payment would be made by the Fund if it would result in the Fund
exceeding an expense ratio equal to the expense cap in place at the time the
expenses were borne or fees were waived by First Trust. The Board considered the
advisory fees charged by First Trust to other funds and non-fund clients, noting
that the Advisor does not provide advisory services to other funds with
investment objectives and policies similar to the Funds', but does provide
services to certain separately managed accounts with investment objectives and
policies similar to the Funds'. The Board noted that the Advisor charges a lower
advisory fee rate to the separately managed accounts, as well as the Advisor's
statement that the nature of the services provided to the separately managed
accounts is not comparable to those provided to the Funds. The Board also
reviewed data prepared by MPI showing the advisory fee and expense ratio (Class
I shares) of each Fund as compared to the advisory fees and expense ratios of
the peer funds in the MPI Peer Group. Based on the information provided, the
Board noted that the advisory fee of each Fund was below the median advisory
fees of the peer funds in each Fund's MPI Peer Group and the total (net) expense
ratio of the Class I shares of each Fund was above the median expense ratios of
the peer funds in the Fund's MPI Peer Group. The Board also considered data
provided by the Sub-Advisors on fees they charge to other clients, noting that
the Sub-Advisors would be paid by the First Trust and not by the First Trust
Multi Income Allocation Portfolio, and that their compensation would depend on
the amount of assets that First Trust allocates to them.
Page 56
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
JUNE 30, 2015 (UNAUDITED)
The Board also considered and discussed with the Advisor performance information
for the Funds, noting that the performance information included each Fund's
quarterly performance report, which is part of the process that the Board has
established for monitoring the Funds' performance and portfolio risk on an
ongoing basis. The Board determined that this process continues to be effective
for reviewing the Funds' performance. In addition to the Board's ongoing review
of performance, the Board also reviewed data prepared by MPI comparing each
Fund's performance to its MPI Peer Group and to three benchmark indexes, one of
which was a blended benchmark. The Board noted that for the one-year period
ended December 31, 2014, First Trust/Dow Jones Dividend & Income Allocation
Fund's performance (Class I shares) was slightly below first quartile in
comparison to its MPI Peer Group, and slightly behind the blended benchmark
index. The Board noted that for the since inception period ended December 31,
2014 (the First Trust Multi Income Allocation Portfolio commenced operations on
May 1, 2014), the First Trust Multi Income Allocation Portfolio's performance
(Class I shares) was first quartile in comparison to its MPI Peer Group and
behind the blended benchmark index. Based on the information provided and the
Board's ongoing review of each Fund's performance, the Board concluded that each
Fund's performance was consistent with its investment strategies.
On the basis of all the information provided on the fees, expenses and
performance of the Funds, the Board concluded that the advisory fee for each
Fund and the sub-advisory fees for First Trust Multi Income Allocation Portfolio
were reasonable and appropriate in light of the nature, extent and quality of
services provided by the Advisor to each Fund under the Advisory Agreement and
provided to First Trust Multi Income Allocation Portfolio by the Sub-Advisors
under the Sub-Advisory Agreements.
The Board noted that First Trust has made and continues to make significant
investments in personnel and infrastructure and considered whether fee levels
reflect any economies of scale for the benefit of shareholders. The Board
considered the costs borne by First Trust and the Sub-Advisors in connection
with their services performed under the Agreements and noted that First Trust
estimated that it incurred a loss in providing services to the Funds for the
twelve months ended December 31, 2014, and that Energy Income Partners estimated
that it incurred a loss and Stonebridge was unable to determine its
profitability in providing services to First Trust Multi Income Allocation
Portfolio for the eight-month period ended December 31, 2014. The Board
considered that First Trust had identified as a fall out benefit to First Trust
and FTP their exposure to investors and brokers who, in the absence of the
Funds, may have had no dealings with First Trust or FTP. The Board also
considered the ownership interest of an affiliate of the Advisor in Stonebridge
and the investment by an affiliate of the Advisor in Energy Income Partners and
potential fall-out benefits to First Trust and each Sub-Advisor from such
interests. The Board noted that FTP is compensated for services provided to the
Funds through Rule 12b 1 service fees payable by Class I shares, and that First
Trust receives compensation from the Funds for providing fund reporting services
pursuant to a separate Fund Reporting Services Agreement. The Board also noted
that First Trust does not utilize soft dollars in connection with its management
of the Funds' portfolios.
Based upon all of the information considered and the conclusions reached, the
Board of Trustees, including the Independent Trustees, unanimously determined
that the terms of the Agreements continue to be fair and reasonable and that the
continuation of the Agreements is in the best interests of the applicable Funds.
No single factor was determinative in the Board's analysis.
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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.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
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) Not applicable.
(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: August 14, 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: August 14, 2015
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: August 14, 2015
--------------------
* Print the name and title of each signing officer under his or her signature.