UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-22652
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First Trust Variable Insurance Trust
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 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
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2015
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TABLE OF CONTENTS
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FIRST TRUST VARIABLE INSURANCE TRUST
ANNUAL REPORT
DECEMBER 31, 2015
Shareholder Letter........................................................... 1
Performance Summary and Portfolio Components
First Trust/Dow Jones Dividend & Income Allocation Portfolio............ 2
First Trust Multi Income Allocation Portfolio........................... 6
First Trust Dorsey Wright Tactical Core Portfolio....................... 11
Understanding Your Fund Expenses............................................. 14
Portfolio of Investments
First Trust/Dow Jones Dividend & Income Allocation Portfolio............ 15
First Trust Multi Income Allocation Portfolio........................... 31
First Trust Dorsey Wright Tactical Core Portfolio....................... 40
Statements of Assets and Liabilities......................................... 41
Statements of Operations..................................................... 42
Statements of Changes in Net Assets.......................................... 43
Financial Highlights......................................................... 46
Notes to Financial Statements................................................ 49
Report of Independent Registered Public Accounting Firm...................... 61
Additional Information....................................................... 62
Board of Trustees and Officers............................................... 70
Privacy Policy............................................................... 72
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor"), Energy Income Partners, LLC ("EIP" or a "Sub-Advisor")
and Stonebridge Advisors, LLC ("Stonebridge" or a "Sub-Advisor") and their
representatives, taking into account the information currently available to
them. Forward-looking statements include all statements that do not relate
solely to current or historical fact. For example, forward-looking statements
include the use of words such as "anticipate," "estimate," "intend," "expect,"
"believe," "plan," "may," "should," "would" or other words that convey
uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of the First Trust Variable Insurance Trust (the "Trust") to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. When evaluating the
information included in this report, you are cautioned not to place undue
reliance on these forward-looking statements, which reflect the judgment of the
Advisor and/or Sub-Advisors and their representatives only as of the date
hereof. We undertake no obligation to publicly revise or update these
forward-looking statements to reflect events and circumstances that arise after
the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any series (individually called a "Fund" and
collectively the "Funds") of the Trust will achieve its investment 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.
By reading the portfolio commentary by each Fund's portfolio management team,
you may obtain an understanding of how the market environment affected each
Fund's performance. The statistical information that follows may help you
understand each Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of
First Trust and the Sub-Advisors are just that: informed opinions. They should
not be considered to be promises or advice. The opinions, like the statistics,
cover the period through the date on the cover of this report. The 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
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 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
annual report which contains detailed information about your investment for the
12 months ended December 31, 2015, including a performance analysis and a market
outlook. Additionally, First Trust has compiled the Trust's financial statements
for you to review. We encourage you to read this report and discuss it with your
financial advisor.
While markets were up and down during 2015, we believe there are three important
things to remember: first, the U.S. grew, in spite of the massive decline in oil
prices, and second, the tapering that began in 2014 by the Federal Reserve (the
"Fed") did not stop growth in the country either. Finally, the long-anticipated
rate hike by the Fed in December had little effect on the money supply, and the
stock market was not shocked by the hike. We remain positive on U.S. markets,
although we know that markets will always move up and down.
First Trust believes that having a long-term investment horizon and being
invested in quality products can help you reach your goals, despite how the
market behaves. We have always maintained perspective about the markets and
believe investors should as well. We will continue to strive to provide quality
investments each and every day, which has been one of the hallmarks of our firm
since its inception nearly 25 years ago.
Thank you for giving First Trust the opportunity to be a part of your investment
plan. We value the relationship with you and will continue to focus on helping
investors like you 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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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
For the year ended December 31, 2015, the First Trust/Dow Jones Dividend &
Income Allocation Portfolio (the "Fund") Class I Shares returned 0.09% versus
0.13% for the blended index: 50% Russell 3000(R) Index and 50% Barclays U.S.
Corporate Investment-Grade Index. As of December 31, 2015, the total investments
for the Fund were allocated as follows: Equities, 56.6% and Fixed Income, 43.4%.
EQUITIES COMMENTARY
Equity markets eked out a gain in 2015 as the Russell 3000(R) Index increased
0.48%, the lowest annual return since 2008. Economic growth slowed in the first
quarter of 2015, as the West Coast port strike and a harsh winter held back
economic activity. Corporate earnings and guidance were also muted, as U.S.
multinational firms were dealing with a strong U.S. dollar, which caused
earnings to be translated at lower rates and U.S. exports to be less competitive
globally. Lower economic activity forced the Federal Reserve (the "Fed") to push
off an interest rate hike. During the second quarter, equity markets inched
higher. Corporate earnings were expected to decline by 5% going into the
quarter, due to economic and currency headwinds, and a 50% drop in profitability
from the energy sector, as oil and gas prices fell. Despite the tough operating
environment, U.S. employment continued to improve as more than 700,000 jobs were
added and housing data surprised to the upside. For the third quarter, the
Russell 3000(R) Index had a -7.25% return. This was the largest quarterly
decline since the third quarter in 2011, mainly because of slowing global GDP
growth and the anticipation of a Fed rate hike. Investors were nervous, as China
reported the slowest pace of GDP growth in six years. The slowdown in China, the
world's largest importer of raw materials, sent commodity prices falling and
dampened demand for global trade, especially in other emerging nations. The
bright spot continued to be U.S. employment markets as unemployment fell to 5.1%
during the quarter. After the third quarter pullback, the Russell 3000(R) Index
was up 6.27% in the fourth quarter. The Fed finally hiked near-term interest
rates on December 16 by 0.25% to a targeted rate of 0.25%-0.50%. This was the
first hike in the Fed funds rate since June 2006. Consumer confidence remained
high and unemployment fell to 5%. However, the U.S. ISM Manufacturing Index
posted a level below 50 for the first time since 2009, signaling a contraction
in manufacturing. Slowing global demand, a strong dollar and a decline in energy
prices crimped demand for manufactured goods.
The equity portion of the Fund has a quarterly rebalance in early January,
April, July and October. The equity portion of the Fund seeks capital
appreciation, below-market risk and above-market dividend yield. To accomplish
this, the selection process is focused on dividend strength, capital strength
and price stability. This process resulted in overweight positions in
Industrials, Financials, Materials and Consumer Staples stocks, while Health
Care, Information Technology, Energy and Consumer Discretionary were
underweight.
The equity portion of the Fund outperformed the Russell 3000(R) Index. Of the 10
GICS sectors, five had a positive total attribution effect (allocation effect
combined with selection effect) and five had a negative total attribution
effect. Four sectors had a positive selection effect: Financials, Materials,
Consumer Staples and Information Technology. Three sectors had a negative
selection effect: Consumer Discretionary, Industrials and Health Care. The
Energy, Utilities and Telecommunication Services sector had flat selection
effects. Though the equity portion of the Fund had a negative allocation effect,
overall, the equity portfolio benefited from a positive selection effect which
led to the outperformance of the Russell 3000(R) Index.
The Financials sector was the largest overall contributor to relative
performance. The equity portion of the Fund was overweight the slightly
underperforming sector in the Russell 3000(R) Index, which led to a small
negative allocation effect. The Fund had a positive selection effect for the
sector which led to positive overall relative performance for the sector. The
Fund's relative performance for the sector was helped by the selection of HCC
Insurance Holdings Inc., Public Storage, SEI Investments Co. and American
Financial Group, Inc. Avoiding poor performing selections in the Russell 3000(R)
Index such as American Express Co., Morgan Stanley and Berkshire Hathaway, Inc.
also helped.
The Consumer Discretionary sector was the biggest detractor from relative
performance. The equity portion of the Fund was underweight the second best
performing sector in the Russell 3000(R) Index. The Fund had negative selection
and allocation effects, which led to overall relative underperformance for the
sector. The Fund's relative performance for the sector was most hindered by the
selection of Nordstrom, Inc., Ralph Lauren Corp., Mattel, Inc., Genuine Parts
Co. and V.F. Corp.
Page 2
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
Relative to the Russell 3000(R) Index, the equity portion of the Fund also
outperformed in the Energy sector and lagged in the Industrials sector. The Fund
was underweight the Energy sector and avoided poor performing selections in the
Russell 3000(R) Index such as Kinder Morgan, Inc., Devon Energy Corp., Anadarko
Petroleum Corp. and Williams Cos. Inc. In the Industrials sector, the Fund was
overweight poor performing selections in the Russell 3000(R) Index such as
Cummins Inc., Union Pacific Corp., MSC Industrial Direct Co., Inc. and CLARCOR
Inc.
The Fund's top five equity contributors to performance were Hormel Foods Corp.,
HCC Insurance Holdings Inc., Public Storage, Equifax Inc. and Dr Pepper Snapple
Group Inc. The top five detractors from performance were Cummins Inc., Union
Pacific Corp., MSC Industrial Direct Co. Inc., Franklin Resources Inc. and
Wal-Mart Inc.
As we look forward to 2016, we remain positive on U.S. equities. Despite an
unclear picture over global GDP growth, the U.S. plow horse economy continues to
plod along at acceptable GDP growth rates. We believe cheaper oil and low
unemployment rates should keep consumer confidence high. Factoring in the recent
hike in the fed funds rate, the Fed continues to remain accommodative. The
equity portion of the Fund will remain consistent in its aim to provide capital
appreciation, below market risk and above market dividend yield.
FIXED INCOME COMMENTARY
The investment-grade corporate bond market had a difficult 2015. Increased
mergers and acquisitions ("M&A") activity, along with a surge in debt-financed
share repurchase activity, resulted in a flood of new issue supply which the
market struggled to digest. Additionally, concerns about slowing global growth
and falling commodity prices pushed credit spreads wider, most notably in the
Energy and Metals & Mining sectors. On the positive side, the Fed held off on
raising short-term interest rates for longer than had been expected, which
helped U.S. Treasury yields to increase much less than many market participants
had feared.
For the year ended December 31, 2015, Treasuries outperformed corporate bonds
due to strong foreign demand, a dovish Fed, continuing U.S. dollar strength,
and, perhaps most significantly, a benign inflation outlook. Although the
employment picture has continued to improve, the anticipated uptick in wage
inflation has yet to materialize. Lower energy and import prices, while seen as
more temporary, have also kept inflation from accelerating.
Corporate spreads began the year with an impressive tightening, reaching tight
levels for the year toward the end of March, before heavy new issue supply and
renewed concerns about the economy caused credit spreads to widen. Treasuries
sold off going into May, which should have helped support spreads as
all-in-yields became more attractive, but unfortunately, new corporate supply
prevented a spread rally. Spread widening was then exacerbated by fund outflows
resulting primarily from expectations that the Fed would commence tightening at
the September meeting. As it turned out, the late summer selloff in China caused
the Fed to hold off on raising interest rates until mid-December. However, the
associated further declines in commodity prices, lower Treasury yields, and
ongoing dollar strength (which has hurt U.S. export sectors) - along with a
large forward new issuance calendar - continued to pressure corporate bond
spreads going into year end. As measured by the Barclays U.S. Corporate
Investment Grade Index, spreads widened 34 basis points to 165 at year end.
The total return for the bond portion of the Fund outperformed the Barclays U.S.
Corporate Investment-Grade Index. The Fund's relative outperformance was the
result of its underweighting the Energy and Basic Industry sectors, as well as
security selection within the Technology & Electronics category. An additional
positive contributor to performance was the Fund's underweighting duration,
particularly at the long end of the curve.
Looking into 2016, we have a positive, though measured, outlook for
investment-grade credit. Investment-grade credit spreads have now widened for
two years in a row, providing more attractive valuations. Moreover, now that the
Fed has begun to tighten monetary policy, we anticipate an orderly increase in
interest rates and a flattening of the yield curve. Higher interest rates, more
attractive credit spreads, and a significant yield advantage relative to
overseas markets should help support the investment-grade market. We further
anticipate some stability in energy prices to emerge in the back-half of the
year. Nonetheless, we believe that M&A-induced supply will continue to come to
market, global growth concerns are unlikely to abate, and corporate earnings
should continue to be under pressure. As such, our base case is for flat to
slightly wider credit spreads and moderately higher Treasury yields, which
should result in modestly positive total and excess returns for the
investment-grade corporate bond market. Accordingly, our focus for the portfolio
will be on more defensive issuers, having strong cash flow, good debt coverage
ratios, and less exposure to potentially debt-funded shareholder friendly
activity.
Page 3
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
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RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2015
1 YEAR
ANNUAL SINCE INCEPTION AVERAGE
INCEPTION DATE TOTAL RETURN ANNUAL TOTAL RETURN
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION
PORTFOLIO - CLASS I 5/1/12 0.09% 7.33%
Blended Index (a) 0.13% 8.05%
Barclays U.S. Corporate Investment-Grade Index (b) -0.68% 3.08%
Russell 3000(R) Index (c) 0.48% 12.90%
Secondary Blended Index (d) 0.50% 8.31%
Dow Jones Equal Weighted U.S. Issued Corporate Bond
Index(SM) (e) -0.19% 3.42%
Dow Jones U.S. Total Stock Market Index(SM) (f) 0.43% 12.81%
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1 YEAR
ANNUAL SINCE INCEPTION AVERAGE
INCEPTION DATE TOTAL RETURN ANNUAL TOTAL RETURN
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION
PORTFOLIO - CLASS II 5/1/14 0.25% 4.72%
Blended Index (a) 0.13% 3.91%
Barclays U.S. Corporate Investment-Grade Index (b) -0.68% 1.26%
Russell 3000(R) Index (c) 0.48% 6.30%
Secondary Blended Index (d) 0.50% 4.34%
Dow Jones Equal Weighted U.S. Issued Corporate Bond
Index(SM) (e) -0.19% 1.88%
Dow Jones U.S. Total Stock Market Index(SM) (f) 0.43% 6.23%
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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(SM) and the Dow Jones Equal Weighted U.S.
Issued Corporate Bond Index(SM) 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
May 1, 2012 - December 31, 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
12/31/2015 12,962 13,286 11,177 15,606 13,402 11,315 15,559
Page 4
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
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FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
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% OF TOTAL
TOP EQUITY HOLDINGS INVESTMENTS
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Airgas, Inc. 0.6%
Hormel Foods Corp. 0.5
Dow Chemical (The) Co. 0.4
Roper Industries, Inc. 0.4
Dr. Pepper Snapple Group, Inc. 0.4
Littelfuse, Inc. 0.4
Public Storage 0.4
Sherwin-Williams (The) Co. 0.4
Cardinal Health, Inc. 0.4
International Flavors & Fragrances, Inc. 0.4
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Total 4.3%
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% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
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Common Stocks:
Financials 16.1%
Industrials 14.2
Information Technology 7.2
Consumer Staples 5.8
Consumer Discretionary 5.7
Materials 4.1
Health Care 2.3
Energy 1.2
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Total Common Stocks 56.6
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Corporate Bonds & Notes:
Financials 12.5
Utilities 4.0
Industrials 3.0
Health Care 2.9
Energy 2.9
Information Technology 2.8
Consumer Discretionary 2.5
Consumer Staples 2.3
Telecommunication Services 2.0
Materials 0.7
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Total Corporate Bonds & Notes 35.6
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U.S. Government Bonds & Notes 6.7
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Foreign Corporate Bonds & Notes:
Financials 0.6
Health Care 0.4
Energy 0.1
Materials 0.0*
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Total Foreign Corporate Bonds & Notes 1.1
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Total 100.0%
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* Amount is less than 0.1%.
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% OF TOTAL
TOP FIXED-INCOME HOLDINGS BY ISSUER INVESTMENTS
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U.S. Government 6.7%
Bank of America Corp. 1.6
Goldman Sachs Group (The), Inc. 1.5
Morgan Stanley 1.3
Wells Fargo & Co. 1.3
Citigroup, Inc. 1.2
JPMorgan Chase & Co. 1.2
Verizon Communications, Inc. 1.1
AT&T, Inc. 1.0
UnitedHealth Group, Inc. 0.7
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Total 17.6%
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% OF TOTAL
FIXED-INCOME
CREDIT QUALITY(1) INVESTMENTS
------------------------------------------------------
AAA 17.0%
AA+ 2.9
AA 3.5
AA- 7.4
A+ 8.1
A 24.1
A- 15.4
BBB+ 10.0
BBB 5.4
BBB- 6.2
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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
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
For the year ended December 31, 2015, the First Trust Multi Income Allocation
Portfolio (the "Fund") Class I Shares returned -3.24% versus 0.75% for the Broad
Blended Index (60% Barclays U.S. Aggregate Index and 40% Russell 3000(R) Index)
and -4.75% for the Multi Asset Class Blended Index (15% Russell 3000(R) Index;
8% BofA Merrill Lynch Fixed Rate Preferred Securities Index; 15% Alerian MLP
Index; 15% S&P U.S. REIT Index; 8% BofA Merrill Lynch U.S. High Yield Index; 15%
S&P/LSTA Leveraged Loan Index; 8% Barclays U.S. Corporate Investment-Grade
Index; 8% BofA Merrill Lynch U.S. MBS Index; and 8% BofA Merrill Lynch U.S.
Inflation-Linked Treasury Index).
The Fund invests in nine asset classes which are: dividend-paying stocks,
preferred stocks, energy infrastructure companies and master limited
partnerships ("MLPs"), real estate investment trusts ("REITs"), high yield or
"junk" bonds, floating-rate loans, corporate bonds, mortgage-backed securities
("MBS") and Treasury Inflation Protected Securities ("TIPS"). The weight
assigned to each asset class is determined on a quarterly basis. As of December
31, 2015, the dividend-paying securities were the highest-weighted asset class,
while the MBS asset class was the lowest-weighted asset class. As of December
31, 2015, the Fund held approximately 1.9% in cash. The following asset classes
had the most positive impact on the overall Fund performance: preferred stocks,
dividend-paying stocks, and MBS, while the following asset classes had the most
negative impact on the overall Fund performance: MLPs, REITs, and TIPS.
Dividend-paying stocks returned 3.03% (Gross of Fees) and represented 19.6% of
the Fund as of December 31, 2015. Throughout the year, there was a benefit from
holdings in more growth-oriented dividend-paying stocks as opposed to
traditional deep value dividend names. This was especially true in the Consumer
Discretionary space. Holdings in Disney, Foot Locker, Home Depot and Starbucks
led to a strong selection effect in the sector. Energy was the top sector by
relative contribution to return, due largely to strong gains by Valero. As a
refiner, Valero is not as directly impacted by falling oil prices as the
companies that pump the oil out of the ground. Also contributing positively were
the Materials names. Both International Flavors & Fragrances and LyondellBassell
outperformed the Materials sector. Having no holdings in the Utilities sector
also boosted relative results, as the sector underperformed amid the prospect of
higher interest rates in the future. Stock selection in the Financials and
Industrials sectors were notable drags on relative performance. Within
Financials, asset managers and brokers hurt the returns while Industrial
holdings with Energy sector exposure weighed on performance.
The preferred stocks and hybrid capital securities returned 5.73% (Gross of
Fees) and represented 6.9% of the Fund as of December 31, 2015. The Fund
benefited from security selection and an overweight to retail $25 par preferred
securities that outperformed institutional hybrid capital securities due to the
positive technicals of exchange-traded fund ("ETF") inflows and net negative
redemptions in the retail market. This was partially offset by limited exposure
to longer-duration fixed-rate securities, which generally performed the best
during the year as interest rates remained low.
The energy infrastructure companies and MLPs returned -22.30% (Gross of Fees)
and represented 13.5% of the Fund as of December 31, 2015. Despite increased
dividend growth among individual companies with stable cash flows, overall
sentiment in the Energy sector and the MLP asset class drove negative price
performance that weighed on performance.
REITs returned -2.00% (Gross of Fees) and represented 13.4% of the Fund as of
December 31, 2015. REITs underperformed the broader equity market for the year.
The underperformance of the asset class came as investors rotated away from more
capital-dependent sectors including REITs in anticipation of higher interest
rates. On a relative basis, performance suffered from allocation among property
types and security selection. The biggest negative impact came from Hotel &
Resort REITs, due to both an overweight allocation and poor selection. A
positive contribution to relative performance came from superior selection in
Office REITs. The top-performing REITs for the year in terms of contribution
were Extra Space Storage Inc., Equity LifeStyle Properties, Inc. and CyrusOne,
Inc. The bottom-performing REITs were LaSalle Hotel Properties, Host Hotels &
Resorts, Inc. and Sabra Health Care REIT, Inc.
High-yield bonds returned 0.22% (Gross of Fees) and represented 6.7% of the Fund
as of December 31, 2015. The second half of 2015 was the most challenging credit
market we have experienced since the global financial crisis driven by what we
viewed as a decoupling of market price volatility from fundamentals. We found
that with any hint of negative news for a given company or industry, high-yield
bonds or senior loans would experience significant volatility. We believe that
this price action was warranted in some specific instances, but generally
speaking, was in excess of what we would have expected. At year-end, high-yield
bond prices and spreads were at what we believe to be attractive levels, and we
Page 6
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
would expect high-yield bonds to perform well excluding energy and other
commodity sectors. Our significant underweight position in energy has proven
beneficial in the wake of this decline. Importantly, energy-induced volatility
is likely to continue to weigh on the BofA Merrill Lynch U.S. High Yield Index,
which we believe further supports the rationale for active decision making,
rather than passive, within the high-yield credit market.
Floating-rate loans returned 0.32% (Gross of Fees) and represented 14.2% of the
Fund as of December 31, 2015. Our underweight position in the lowest credit
quality issues (those rated CCC+ and below) was a benefit to performance as
higher credit quality issues outperformed lower rated issues for the period. We
believe that with the potential for continued rate hike increases on the
horizon, demand for senior loans may increase in the coming year. Based on
current valuations we believe senior loans, given their senior secured position
in the capital structure, floating interest rate, high-income and limited
commodity exposure, are well positioned as we move through 2016.
Corporate bonds returned -1.36% (Gross of Fees) and represented 8.6% of the Fund
as of December 31, 2015. The investment-grade corporate bond market had a
difficult 2015. Increased mergers and acquisitions ("M&A") activity, along with
a surge in debt-financed share repurchase activity, resulted in a flood of new
issue supply which the market struggled to digest. Additionally, concerns about
slowing global growth and falling commodity prices pushed credit spreads wider,
most notably in the Energy and Metals & Mining sectors. On the positive side,
the Fed held off on raising short-term interest rates for longer than had been
expected - which helped U.S. Treasury yields to increase much less than many
market participants had feared. For the year ended December 31, 2015, Treasuries
outperformed corporate bonds due to strong foreign demand, a dovish Fed,
continuing U.S. dollar strength, and, perhaps most significantly, a benign
inflation outlook. Although the employment picture has continued to improve, the
anticipated uptick in wage inflation has yet to materialize. Lower energy and
import prices, while seen as more temporary, have also kept inflation from
accelerating. Corporate spreads began the year with an impressive tightening,
reaching tight levels for the year toward the end of March, before heavy new
issue supply and renewed concerns about the economy caused credit spreads to
widen. Treasuries sold off going into May, which should have helped support
spreads as all-in-yields became more attractive, but unfortunately new corporate
supply prevented a spread rally. Spread widening was then exacerbated by fund
outflows resulting primarily from expectations that the Fed would commence
tightening at the September meeting. As it turned out, the late summer selloff
in China caused the Fed to hold off on raising interest rates until
mid-December. However, the associated further declines in commodity prices,
lower Treasury yields, and ongoing dollar strength (which has hurt U.S. export
sectors) - along with a large forward new issuance calendar - continued to
pressure corporate bond spreads going into year end.
The MBS asset class returned 2.41% (Gross of Fees) and represented 6.5% of the
Fund as of December 31, 2015. Although a defensive duration was maintained
during 2015, the sleeve improved performance by reducing MBS basis exposure,
rotating some MBS exposure out of index and into higher coupon, lower durations
pools, maintaining higher cash balances, and increasing its allocation to
shorter, high yielding and high credit quality Non-Agency Residential MBS &
Commercial MBS.
TIPS returned -1.66% (Gross of Fees) and represented 8.7% of the Fund as of
December 31, 2015. Several factors contributed to the performance, including the
declining rate of inflation, higher nominal Treasury yields, and lower
expectations for long-term future inflation. U.S. inflation, as measured by the
consumer price index ("CPI"), was 0.1% on an average annual basis during 2015,
down from 1.6% during 2014. Slow global growth and sharply declining commodities
prices weighed on the overall inflation rate. Falling CPI inflation lowers the
income earned by TIPS. TIPS yields rose during the period with longer-term
yields climbing more than short-term yields. Rising interest rates lower bond
prices, including prices on TIPS. TIPS with maturities 10 years and greater were
the most adversely impacted by higher rates. By comparison, the steepness of the
intermediate part of the yield curve helped TIPS maturing in the three to seven
year range to post a positive return for the period. Investor expectations for
future inflation influence the prices for TIPS. Rising inflation expectations
tend to increase the value of TIPS, while falling expectations tend to decrease
their value. Inflation expectations, as measured by the 10-year breakeven rate
relative to nominal Treasuries, declined to approximately 1.6% during the
period.
Heading into 2015, our message to income-oriented investors was that any
meaningful increase in economic growth in the U.S. could be accompanied by a
rise in interest rates. Fortunately for income-oriented investors, there was no
acceleration in economic activity in 2015. Over the first three quarters of
2015, real U.S. GDP growth came in at an annualized 0.6% (Q1'15), 3.9% (Q2'15)
Page 7
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PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
and 2.0% (Q3'15), according to the Bureau of Economic Analysis. U.S. real GDP
growth exceeded 4.0% (annualized) in two of the four quarters in 2014. The yield
on the 10-Year Treasury Note rose from 2.17% on 12/31/14 to 2.27% on 12/31/15,
or an increase of just 10 basis points. The one thing the U.S. economy does have
in its favor is consistent job growth. Nonfarm payrolls have been positive for
63 consecutive months, according to data from the Bureau of Labor Statistics
("BLS"). From 10/31/10 through 12/31/15, the U.S. created an average of 206,000
new jobs per month. Job growth is an important indicator for the U.S. economy
because consumer spending accounts for nearly 70% of annual economic output. The
strength in job creation was likely a major factor in the Fed's decision to
raise the federal funds target rate on December 16, in our opinion. At a
minimum, it bumped the rate up from the 0-0.25% level it had maintained since
December 2008. The last time the Fed increased short-term lending rates was June
30, 2006. The Fed did state that there is the potential for additional rate
hikes in 2016.
Inflation continues to be relatively subdued. Data from the BLS shows that the
CPI headline rate in the U.S. stood at 0.7%, on a year-over-year basis, in
December 2015. The CPI core rate, which excludes the more volatile food and
energy categories, stood at 2.1% in December. The Fed tends to track this
inflation rate more closely than the headline rate. The Fed has stated that its
goal is to keep the CPI core rate at or below 2.0%, so it has reached the upper
end of its target. The International Monetary Fund ("IMF") updates its forecasts
for U.S. and global economic growth throughout the year. In its most recent
report, the IMF set its global growth rate estimates for 2016 and 2017 at 3.4%
and 3.6%, respectively, both up from 3.0% in 2015, according to its own release.
Its 2016 and 2017 estimates for U.S. real GDP growth rates were 2.7% and 2.5%,
respectively, both up from 2.1% in 2015. While economic growth rate targets
remain modest overall, the key takeaway is that current indicators do not
suggest that a recession is looming, in our opinion.
Page 8
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------
RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2015
1 YEAR
ANNUAL SINCE INCEPTION AVERAGE
INCEPTION DATE TOTAL RETURN ANNUAL TOTAL RETURN
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO - CLASS I 5/1/14 -3.24% 0.71%
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO - CLASS II 5/1/14 -3.01% 0.95%
Broad Blended Index (a) 0.75% 3.91%
Barclays U.S. Aggregate Index (b) 0.57% 2.10%
Russell 3000(R) Index (c) 0.48% 6.30%
Multi Asset Class Blended Index (d) -4.75% -0.40%
----------------------------------------------------------------------------------------------------------------------
(a) The Broad Blended Index return is split between the Barclays U.S.
Aggregate Index (60%) and the Russell 3000(R) Index (40%).
(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).
(d) The Multi Asset Class Blended Index is weighted to include nine indexes:
Russell 3000(R) Index (15%), BofA Merrill Lynch Fixed Rate Preferred
Securities Index (8%), Alerian MLP Index (15%), S&P U.S. REIT Index (15%),
BofA Merrill Lynch U.S. High Yield Index (8%), S&P/LSTA Leveraged Loan
Index (15%), Barclays U.S. Corporate Investment-Grade Index (8%), BofA
Merrill Lynch U.S. MBS Index (8%), and BofA Merrill Lynch U.S.
Inflation-Linked Treasury Index (8%).
The returns for the Fund do not reflect the deduction of expenses associated
with variable products, such as mortality and expense risk charges, separate
account charges, and sales charges or the effect of taxes. These expenses would
reduce the overall returns shown.
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
May 1, 2014 - December 31, 2015
First Trust Multi Broad
Income Allocation Blended Barclays U.S. Russell 3000(R) Multi Asset Class
Portfolio -- Class I Index Aggregate Index Index Blended Index
5/1/2014 $10,000 $10,000 $10,000 $10,000 $10,000
6/30/2014 10,320 10,245 10,096 10,470 10,334
12/31/2014 10,457 10,582 10,295 11,020 10,428
6/30/2015 10,383 10,667 10,284 11,234 10,278
12/31/2015 10,119 10,662 10,354 11,073 9,933
Page 9
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
------------------------------------------------------
% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
------------------------------------------------------
First Trust Senior Loan Fund 14.5%
iShares iBoxx $ Investment Grade Corporate
Bond ETF 8.8
First Trust Preferred Securities and
Income ETF 7.1
First Trust Tactical High Yield ETF 6.8
iShares MBS ETF 3.5
Enterprise Products Partners, L.P. 1.2
Magellan Midstream Partners, L.P. 0.8
Spectra Energy Partners, L.P. 0.8
U.S. Treasury Inflation Indexed Note
0.13%, 04/15/19 0.7
U.S. Treasury Inflation Indexed Note
0.13%, 04/15/17 0.7
------------------------------------------------------
Total 44.9%
======
------------------------------------------------------
% OF TOTAL
SECTOR ALLOCATION INVESTMENTS
------------------------------------------------------
Exchange-Traded Funds: Capital Markets 41.6%
Common Stocks:
Financials 4.6
Information Technology 3.4
Utilities 3.4
Consumer Discretionary 2.9
Industrials 2.7
Energy 2.6
Health Care 2.6
Consumer Staples 1.7
Materials 0.7
Telecommunication Services 0.3
------------------------------------------------------
Total Common Stocks 24.9
------------------------------------------------------
Real Estate Investment Trusts:
Financials 13.7
------------------------------------------------------
Total Real Estate Investment Trusts 13.7
------------------------------------------------------
U.S. Government Bonds & Notes 8.8
------------------------------------------------------
Master Limited Partnerships:
Energy 7.5
Utilities 0.8
Materials 0.4
------------------------------------------------------
Total Master Limited Partnerships 8.7
------------------------------------------------------
U.S. Government Agency Mortgage-Backed
Securities 1.3
------------------------------------------------------
Mortgage-Backed Securities 1.0
------------------------------------------------------
Asset-Backed Securities 0.0*
------------------------------------------------------
Total 100.0%
======
* Amount is less than 0.1%.
Page 10
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO
The First Trust Dorsey Wright Tactical Core Portfolio (the "Fund") Class I
Shares, from inception (October 30, 2015) to December 31, 2015 returned -0.60%
versus -1.00% for the Blended Index: 60% S&P 500(R) Index and 40% Barclays U.S.
Aggregate Bond Index.
The Fund seeks to provide total return. The Fund seeks to achieve its investment
objective by investing, under normal market conditions, at least 80% of its net
assets (plus any investment borrowings) in exchange-traded funds ("ETFs") and
cash and cash equivalents that comprise the Dorsey Wright Tactical Tilt Moderate
Core Index (the "Index"). It is expected that a majority of the ETFs in which
the Fund invests will be advised by First Trust.
The Index is owned and was developed by Dorsey, Wright & Associates (the "Index
Provider"). The Index is constructed pursuant to the Index Provider's
proprietary methodology, which takes into account the performance of four
distinct assets classes relative to one another. The Index is designed to
strategically allocate its investments among (i) domestic equity securities;
(ii) international equity securities; (iii) fixed income securities; and (iv)
cash and cash equivalents. The Index will gain exposure to the first three asset
classes by investing in ETFs that invest in such assets. The Index Provider has
retained Nasdaq, Inc. ("Nasdaq"), to calculate and maintain the Index.
The Index will utilize the Dynamic Asset Level Investing ("DALI") asset
allocation process developed by the Index Provider in order to allocate assets
over the four asset classes. The asset class allocations are determined using a
relative strength methodology that is based upon each asset class's market
performance and characteristics that offer the greatest potential to outperform
the other asset classes at a given time. Relative strength is a momentum
technique that relies on unbiased, unemotional and objective data, rather than
biased forecasting and subjective research. Relative strength is a way of
recording historic performance patterns, and the Index Provider uses relative
strength signals as a trend indicator for current momentum trends of each asset
class against the others.
PERFORMANCE OVERVIEW
The Fund's largest contributing holding was the First Trust NYSE Arca
Biotechnology Index Fund with a return of 8.3% over the period. The other
significant contributing holdings were: First Trust Consumer Staples AlphaDEX(R)
Fund and SPDR Nuveen Barclays Municipal Bond ETF. The Fund's largest detracting
holding was the First Trust Mid Cap Core AlphaDEX(R) Fund with a return of -4.3%
over the period. Other significant detracting holdings were: First Trust
Consumer Discretionary AlphaDEX(R) Fund and First Trust Small Cap Growth
AlphaDEX(R) Fund.
Page 11
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------
RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2015
SINCE INCEPTION
INCEPTION DATE CUMULATIVE TOTAL RETURN
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO - CLASS I 10/30/15 -0.60%
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO - CLASS II 10/30/15 -0.50%
Broad Blended Index (a) -1.00%
Barclays U.S. Aggregate Index (b) -0.59%
S&P 500(R) Index (c) -1.28%
----------------------------------------------------------------------------------------------------------------------
(a) The Broad Blended Index return is split between Barclays U.S. Aggregate
Index (40%) and the S&P 500(R) 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 S&P 500(R) Index is an unmanaged index of 500 stocks used to measure
large-cap U.S. stock market performance. (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
October 30, 2015 - December 31, 2015
First Trust Dorsey Wright
Tactical Core Portfolio - Barclays U.S.
Class I Broad Blended Index Aggregate Index S&P 500(R) Index
10/30/15 $10,000 $10,000 $10,000 $10,000
12/31/15 9,940 9,900 9,941 9,872
Page 12
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AND PORTFOLIO COMPONENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO
ANNUAL REPORT
DECEMBER 31, 2015 (UNAUDITED)
------------------------------------------------------
% OF TOTAL
TOP 10 HOLDINGS INVESTMENTS
------------------------------------------------------
First Trust NYSE Arca Biotechnology
Index Fund 11.6%
First Trust Small Cap Growth AlphaDEX(R)
Fund 10.4
First Trust Mid Cap Growth AlphaDEX(R)
Fund 9.9
First Trust Dow Jones Internet Index Fund 9.6
First Trust Mid Cap Core AlphaDEX(R) Fund 9.0
First Trust Health Care AlphaDEX(R) Fund 8.9
First Trust Consumer Staples AlphaDEX(R)
Fund 8.4
First Trust Consumer Discretionary
AlphaDEX(R) Fund 7.4
iShares Core U.S. Aggregate Bond ETF 6.1
SPDR Nuveen Barclays Municipal Bond ETF 3.8
------------------------------------------------------
Total 85.1%
======
Page 13
FIRST TRUST VARIABLE INSURANCE TRUST
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2015 (UNAUDITED)
As a shareholder of First Trust/Dow Jones Dividend & Income Allocation
Portfolio, First Trust Multi Income Allocation Portfolio or First Trust Dorsey
Wright Tactical Core 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 (or shorter) period ended December 31,
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 7/1/2015- VALUE VALUE 7/1/2015- EXPENSE
7/1/2015 12/31/2015 12/31/2015 (a) 7/1/2015 12/31/2015 12/31/2015 (a) RATIO (b)
-------------- ---------- -------------- -------------- ---------- -------------- ---------
First Trust/Dow Jones Dividend &
Income Allocation Portfolio
Class I $ 1,000.00 $ 997.90 $ 6.04 $ 1,000.00 $ 1,019.16 $ 6.11 1.20%
Class II $ 1,000.00 $ 998.40 $ 4.79 $ 1,000.00 $ 1,020.42 $ 4.84 0.95%
First Trust Multi Income Allocation
Portfolio
Class I $ 1,000.00 $ 974.60 $ 4.13 $ 1,000.00 $ 1,021.02 $ 4.23 0.83%
Class II $ 1,000.00 $ 975.80 $ 2.89 $ 1,000.00 $ 1,022.28 $ 2.96 0.58%
(a) Expenses are equal to the annualized expense ratio as indicated in the
table, multiplied by the average account value over the period (July 1,
2015 through December 31, 2015), multiplied by 184/365 (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.
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 10/30/2015- VALUE VALUE 10/30/2015- EXPENSE
10/30/2015 12/31/2015 12/31/2015 (a) 10/30/2015 12/31/2015 12/31/2015 (a) RATIO (b)
-------------- ---------- -------------- -------------- ---------- -------------- ---------
First Trust Dorsey Wright Tactical
Core Portfolio
Class I $ 1,000.00 $ 994.00 $ 1.36 $ 1,000.00 $ 1,021.22 $ 4.02 0.79%
Class II $ 1,000.00 $ 995.00 $ 0.88 $ 1,000.00 $ 1,022.63 $ 2.60 0.51%
(c) Actual expenses are equal to the annualized expense ratio as indicated in
the table, multiplied by the average account value over the period
(October 30, 2015 through December 31, 2015), multiplied by 63/365.
Hypothetical expenses are assumed for the most recent half-year period.
Page 14
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS -- 55.5%
AEROSPACE & DEFENSE -- 2.7%
6,587 Boeing (The) Co.............................................................. $ 952,414
6,253 General Dynamics Corp........................................................ 858,912
9,110 Honeywell International, Inc................................................. 943,523
4,161 Lockheed Martin Corp......................................................... 903,561
5,198 Northrop Grumman Corp........................................................ 981,435
7,895 Raytheon Co.................................................................. 983,164
9,694 United Technologies Corp..................................................... 931,303
-------------
6,554,312
-------------
AUTO COMPONENTS -- 0.4%
7,930 Lear Corp.................................................................... 974,042
-------------
BANKS -- 2.6%
22,453 East West Bancorp, Inc....................................................... 933,147
20,152 PacWest Bancorp.............................................................. 868,551
95,745 Regions Financial Corp....................................................... 919,152
22,560 SunTrust Banks, Inc.......................................................... 966,470
21,035 U.S. Bancorp................................................................. 897,563
16,799 Wells Fargo & Co............................................................. 913,194
16,146 Wintrust Financial Corp...................................................... 783,404
-------------
6,281,481
-------------
BEVERAGES -- 1.2%
21,503 Coca-Cola (The) Co........................................................... 923,769
10,912 Dr. Pepper Snapple Group, Inc................................................ 1,016,998
9,148 PepsiCo, Inc................................................................. 914,068
-------------
2,854,835
-------------
CAPITAL MARKETS -- 1.8%
7,905 Ameriprise Financial, Inc.................................................... 841,250
2,900 BlackRock, Inc............................................................... 987,508
23,153 Franklin Resources, Inc...................................................... 852,494
17,886 SEI Investments Co........................................................... 937,226
12,413 T. Rowe Price Group, Inc..................................................... 887,405
-------------
4,505,883
-------------
CHEMICALS -- 2.9%
9,657 Airgas, Inc.................................................................. 1,335,756
20,345 Dow Chemical (The) Co........................................................ 1,047,361
7,862 Ecolab, Inc.................................................................. 899,256
8,354 International Flavors & Fragrances, Inc...................................... 999,472
10,108 Monsanto Co.................................................................. 995,840
8,469 Praxair, Inc................................................................. 867,226
3,873 Sherwin-Williams (The) Co.................................................... 1,005,431
-------------
7,150,342
-------------
COMMERCIAL SERVICES & SUPPLIES -- 0.7%
10,060 Cintas Corp.................................................................. 915,963
32,105 Rollins, Inc................................................................. 831,520
-------------
1,747,483
-------------
See Notes to Financial Statements Page 15
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT -- 0.7%
32,863 Cisco Systems, Inc........................................................... $ 892,395
16,056 QUALCOMM, Inc................................................................ 802,559
-------------
1,694,954
-------------
CONTAINERS & PACKAGING -- 0.8%
15,250 Avery Dennison Corp.......................................................... 955,565
22,859 Sonoco Products Co........................................................... 934,247
-------------
1,889,812
-------------
DISTRIBUTORS -- 0.4%
10,408 Genuine Parts Co............................................................. 893,943
-------------
DIVERSIFIED FINANCIAL SERVICES -- 1.1%
9,303 CME Group, Inc............................................................... 842,852
5,398 FactSet Research Systems, Inc................................................ 877,553
10,748 Morningstar, Inc............................................................. 864,246
-------------
2,584,651
-------------
ELECTRICAL EQUIPMENT -- 1.1%
16,488 AMETEK, Inc.................................................................. 883,592
19,530 Emerson Electric Co.......................................................... 934,120
8,502 Rockwell Automation, Inc..................................................... 872,390
-------------
2,690,102
-------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.2%
16,929 Amphenol Corp., Class A...................................................... 884,202
9,465 Littelfuse, Inc.............................................................. 1,012,849
14,405 TE Connectivity, Ltd......................................................... 930,707
-------------
2,827,758
-------------
FOOD & STAPLES RETAILING -- 0.7%
8,942 CVS Health Corp.............................................................. 874,260
13,304 Wal-Mart Stores, Inc......................................................... 815,535
-------------
1,689,795
-------------
FOOD PRODUCTS -- 2.6%
20,811 Archer-Daniels-Midland Co.................................................... 763,348
9,389 Hershey (The) Co............................................................. 838,156
13,627 Hormel Foods Corp............................................................ 1,077,623
9,881 Ingredion, Inc............................................................... 946,995
7,590 J&J Snack Foods Corp......................................................... 885,525
10,497 McCormick & Co., Inc......................................................... 898,123
12,581 Sanderson Farms, Inc......................................................... 975,279
-------------
6,385,049
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.4%
16,929 ResMed, Inc.................................................................. 908,918
-------------
HEALTH CARE PROVIDERS & SERVICES -- 1.1%
7,885 Aetna, Inc................................................................... 852,526
11,230 Cardinal Health, Inc......................................................... 1,002,502
7,437 UnitedHealth Group, Inc...................................................... 874,889
-------------
2,729,917
-------------
Page 16 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
HOTELS, RESTAURANTS & LEISURE -- 1.0%
15,986 Cheesecake Factory (The), Inc................................................ $ 737,115
5,857 Cracker Barrel Old Country Store, Inc........................................ 742,843
15,176 Starbucks Corp............................................................... 911,015
-------------
2,390,973
-------------
HOUSEHOLD DURABLES -- 0.4%
21,724 Newell Rubbermaid, Inc....................................................... 957,594
-------------
HOUSEHOLD PRODUCTS -- 0.7%
10,283 Church & Dwight Co., Inc..................................................... 872,821
11,991 Procter & Gamble (The) Co.................................................... 952,205
-------------
1,825,026
-------------
INDUSTRIAL CONGLOMERATES -- 1.5%
6,086 3M Co........................................................................ 916,795
9,873 Carlisle Cos., Inc........................................................... 875,636
10,125 Danaher Corp................................................................. 940,410
5,505 Roper Industries, Inc........................................................ 1,044,794
-------------
3,777,635
-------------
INSURANCE -- 9.2%
8,343 ACE, Ltd..................................................................... 974,880
14,841 AFLAC, Inc................................................................... 888,976
22,602 Allied World Assurance Co. Holdings AG....................................... 840,568
14,813 Allstate (The) Corp.......................................................... 919,739
12,519 American Financial Group, Inc................................................ 902,369
9,736 Aon PLC...................................................................... 897,757
15,245 Argo Group International Holdings, Ltd....................................... 912,261
10,919 Assurant, Inc................................................................ 879,416
16,059 Axis Capital Holdings, Ltd................................................... 902,837
16,034 Cincinnati Financial Corp.................................................... 948,732
14,136 Endurance Specialty Holdings, Ltd............................................ 904,563
4,977 Everest Re Group, Ltd........................................................ 911,239
22,080 First American Financial Corp................................................ 792,672
18,844 Hartford Financial Services Group, Inc....................................... 818,960
16,519 Marsh & McLennan Cos., Inc................................................... 915,979
19,140 Primerica, Inc............................................................... 903,982
18,223 Principal Financial Group, Inc............................................... 819,671
17,580 ProAssurance Corp............................................................ 853,157
28,155 Progressive (The) Corp....................................................... 895,329
9,522 Reinsurance Group of America, Inc............................................ 814,607
8,114 RenaissanceRe Holdings, Ltd.................................................. 918,424
15,296 Torchmark Corp............................................................... 874,319
8,668 Travelers (The) Cos., Inc.................................................... 978,270
19,140 Validus Holdings, Ltd........................................................ 885,991
23,751 XL Group PLC................................................................. 930,564
-------------
22,285,262
-------------
IT SERVICES -- 3.7%
8,780 Accenture PLC, Class A....................................................... 917,510
15,166 Amdocs Ltd................................................................... 827,609
10,735 Automatic Data Processing, Inc............................................... 909,469
See Notes to Financial Statements Page 17
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
IT SERVICES (CONTINUED)
15,585 Broadridge Financial Solutions, Inc.......................................... $ 837,382
8,205 DST Systems, Inc............................................................. 935,862
5,950 International Business Machines Corp......................................... 818,839
12,392 Jack Henry & Associates, Inc................................................. 967,319
9,573 MasterCard, Inc., Class A.................................................... 932,027
18,111 Paychex, Inc................................................................. 957,891
12,383 Visa, Inc., Class A.......................................................... 960,302
-------------
9,064,210
-------------
MACHINERY -- 5.4%
18,092 CLARCOR, Inc................................................................. 898,811
7,945 Cummins, Inc................................................................. 699,239
30,721 Donaldson Co., Inc........................................................... 880,464
12,870 Graco, Inc................................................................... 927,541
12,099 IDEX Corp.................................................................... 926,904
10,480 Illinois Tool Works, Inc..................................................... 971,286
25,806 ITT Corp..................................................................... 937,274
16,454 Lincoln Electric Holdings, Inc............................................... 853,798
29,163 Mueller Industries, Inc...................................................... 790,317
13,706 Nordson Corp................................................................. 879,240
8,866 Parker-Hannifin Corp......................................................... 859,825
5,715 Snap-On, Inc................................................................. 979,722
12,229 Toro (The) Co................................................................ 893,573
9,091 Valmont Industries, Inc...................................................... 963,828
9,797 Wabtec Corp.................................................................. 696,763
-------------
13,158,585
-------------
MEDIA -- 1.1%
15,166 Comcast Corp., Class A....................................................... 855,818
13,091 Omnicom Group, Inc........................................................... 990,465
8,441 Walt Disney (The) Co......................................................... 886,980
-------------
2,733,263
-------------
METALS & MINING -- 0.3%
11,007 Compass Minerals International, Inc.......................................... 828,497
-------------
MULTILINE RETAIL -- 0.2%
12,030 Nordstrom, Inc............................................................... 599,214
-------------
OIL, GAS & CONSUMABLE FUELS -- 1.2%
10,937 Chevron Corp................................................................. 983,892
11,603 Exxon Mobil Corp............................................................. 904,454
11,227 Phillips 66.................................................................. 918,369
-------------
2,806,715
-------------
PERSONAL PRODUCTS -- 0.4%
10,693 Estee Lauder (The) Cos., Inc., Class A....................................... 941,626
-------------
PHARMACEUTICALS -- 0.8%
9,241 Johnson & Johnson............................................................ 949,236
27,465 Pfizer, Inc.................................................................. 886,570
-------------
1,835,806
-------------
Page 18 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
PROFESSIONAL SERVICES -- 0.4%
8,877 Equifax, Inc................................................................. $ 988,632
-------------
REAL ESTATE INVESTMENT TRUSTS -- 1.2%
14,800 Post Properties, Inc......................................................... 875,568
10,867 PS Business Parks, Inc....................................................... 950,102
4,076 Public Storage............................................................... 1,009,625
-------------
2,835,295
-------------
ROAD & RAIL -- 1.0%
12,082 JB Hunt Transport Services, Inc.............................................. 886,335
13,591 Landstar System, Inc......................................................... 797,112
9,758 Union Pacific Corp........................................................... 763,076
-------------
2,446,523
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.8%
21,379 Linear Technology Corp....................................................... 907,966
17,421 Texas Instruments, Inc....................................................... 954,845
-------------
1,862,811
-------------
SOFTWARE -- 0.7%
9,720 Intuit, Inc.................................................................. 937,980
23,884 Oracle Corp.................................................................. 872,483
-------------
1,810,463
-------------
SPECIALTY RETAIL -- 1.4%
30,269 Gap (The), Inc............................................................... 747,645
7,469 Home Depot (The), Inc........................................................ 987,775
12,078 TJX (The) Cos., Inc.......................................................... 856,451
10,230 Tractor Supply Co............................................................ 874,665
-------------
3,466,536
-------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.7%
14,030 NIKE, Inc., Class B.......................................................... 876,875
12,647 VF Corp...................................................................... 787,276
-------------
1,664,151
-------------
TRADING COMPANIES & DISTRIBUTORS -- 0.7%
14,136 MSC Industrial Direct Co., Inc., Class A..................................... 795,433
4,012 W.W. Grainger, Inc........................................................... 812,791
-------------
1,608,224
-------------
TRANSPORTATION INFRASTRUCTURE -- 0.3%
11,554 Macquarie Infrastructure Corp................................................ 838,820
-------------
TOTAL COMMON STOCKS.......................................................... 135,089,138
(Cost $131,382,101) -------------
See Notes to Financial Statements Page 19
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES -- 35.0%
AEROSPACE & DEFENSE -- 1.0%
$ 50,000 BAE Systems Holdings, Inc. (a)...................... 4.75% 10/07/44 $ 48,847
100,000 Boeing (The) Co..................................... 1.65% 10/30/20 97,929
250,000 Boeing (The) Co..................................... 2.35% 10/30/21 247,987
100,000 Boeing (The) Co..................................... 2.20% 10/30/22 96,614
150,000 Boeing (The) Co..................................... 2.50% 03/01/25 144,717
100,000 Boeing (The) Co..................................... 2.60% 10/30/25 96,917
25,000 Boeing (The) Co..................................... 6.63% 02/15/38 33,279
150,000 Boeing (The) Co..................................... 3.50% 03/01/45 138,673
300,000 Boeing Capital Corp................................. 4.70% 10/27/19 329,316
50,000 Lockheed Martin Corp................................ 2.50% 11/23/20 49,760
50,000 Lockheed Martin Corp................................ 4.70% 05/15/46 51,426
200,000 Northrop Grumman Corp............................... 5.05% 11/15/40 211,625
250,000 United Technologies Corp............................ 1.80% 06/01/17 251,464
450,000 United Technologies Corp............................ 3.10% 06/01/22 458,386
100,000 United Technologies Corp............................ 6.05% 06/01/36 120,138
150,000 United Technologies Corp............................ 4.50% 06/01/42 151,405
-------------
2,528,483
-------------
AIR FREIGHT & LOGISTICS -- 0.2%
100,000 FedEx Corp.......................................... 2.30% 02/01/20 100,484
300,000 FedEx Corp.......................................... 3.20% 02/01/25 292,360
50,000 FedEx Corp.......................................... 4.75% 11/15/45 49,734
-------------
442,578
-------------
AIRLINES -- 0.2%
200,000 Southwest Airlines Co............................... 2.75% 11/06/19 201,729
250,000 Southwest Airlines Co............................... 2.65% 11/05/20 249,010
-------------
450,739
-------------
BANKS -- 5.8%
1,400,000 Bank of America Corp................................ 2.60% 01/15/19 1,405,579
725,000 Bank of America Corp................................ 5.70% 01/24/22 818,637
450,000 Bank of America Corp................................ 4.00% 04/01/24 461,026
100,000 Bank of America Corp................................ 4.00% 01/22/25 98,077
225,000 Bank of America Corp................................ 5.88% 02/07/42 263,529
225,000 Bank of America Corp................................ 4.88% 04/01/44 233,882
550,000 Bank of America N.A................................. 5.30% 03/15/17 572,318
700,000 Citigroup, Inc. (c)................................. 1.20% 07/30/18 700,113
200,000 Citigroup, Inc...................................... 2.50% 09/26/18 201,869
250,000 Citigroup, Inc...................................... 2.40% 02/18/20 247,315
775,000 Citigroup, Inc...................................... 4.50% 01/14/22 831,173
300,000 Citigroup, Inc...................................... 4.30% 11/20/26 299,162
200,000 Citigroup, Inc...................................... 6.13% 08/25/36 228,081
200,000 Citigroup, Inc...................................... 5.88% 01/30/42 230,296
100,000 Citigroup, Inc...................................... 6.68% 09/13/43 123,045
50,000 Citigroup, Inc...................................... 4.65% 07/30/45 50,945
600,000 HSBC Bank USA N.A................................... 4.88% 08/24/20 655,459
600,000 HSBC USA, Inc....................................... 1.63% 01/16/18 597,206
300,000 JPMorgan Chase & Co................................. 2.20% 10/22/19 297,732
550,000 JPMorgan Chase & Co................................. 4.63% 05/10/21 594,508
325,000 JPMorgan Chase & Co................................. 3.20% 01/25/23 324,244
Page 20 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
BANKS (CONTINUED)
$ 400,000 JPMorgan Chase & Co................................. 3.88% 02/01/24 $ 411,656
100,000 JPMorgan Chase & Co................................. 4.13% 12/15/26 99,942
400,000 JPMorgan Chase & Co................................. 6.40% 05/15/38 510,826
100,000 JPMorgan Chase & Co................................. 4.85% 02/01/44 106,869
100,000 JPMorgan Chase & Co................................. 4.95% 06/01/45 100,367
337,000 JPMorgan Chase Bank N.A............................. 6.00% 10/01/17 360,397
175,000 PNC Financial Services Group (The), Inc............. 3.90% 04/29/24 179,500
600,000 Wells Fargo & Co.................................... 6.00% 11/15/17 647,288
325,000 Wells Fargo & Co.................................... 2.13% 04/22/19 325,548
200,000 Wells Fargo & Co.................................... 2.15% 01/30/20 198,363
100,000 Wells Fargo & Co.................................... 2.55% 12/07/20 99,577
900,000 Wells Fargo & Co.................................... 3.00% 01/22/21 910,498
425,000 Wells Fargo & Co.................................... 3.30% 09/09/24 423,274
200,000 Wells Fargo & Co.................................... 3.90% 05/01/45 184,887
100,000 Wells Fargo & Co.................................... 4.90% 11/17/45 101,129
200,000 Wells Fargo Bank N.A................................ 5.95% 08/26/36 240,691
-------------
14,135,008
-------------
BEVERAGES -- 0.6%
200,000 Anheuser-Busch Inbev Worldwide, Inc................. 2.50% 07/15/22 192,589
150,000 Coca-Cola (The) Co.................................. 1.88% 10/27/20 148,565
875,000 Coca-Cola (The) Co.................................. 3.20% 11/01/23 906,283
100,000 Coca-Cola (The) Co.................................. 2.88% 10/27/25 98,711
-------------
1,346,148
-------------
BIOTECHNOLOGY -- 1.2%
400,000 AbbVie, Inc......................................... 1.75% 11/06/17 399,403
250,000 AbbVie, Inc......................................... 2.50% 05/14/20 247,740
275,000 AbbVie, Inc......................................... 2.90% 11/06/22 266,454
150,000 AbbVie, Inc......................................... 3.60% 05/14/25 148,332
175,000 AbbVie, Inc......................................... 4.40% 11/06/42 164,061
100,000 AbbVie, Inc......................................... 4.70% 05/14/45 98,131
350,000 Amgen, Inc.......................................... 2.70% 05/01/22 340,128
200,000 Amgen, Inc.......................................... 3.63% 05/22/24 200,284
50,000 Amgen, Inc.......................................... 3.13% 05/01/25 47,593
200,000 Amgen, Inc.......................................... 5.38% 05/15/43 213,255
175,000 Gilead Sciences, Inc................................ 2.35% 02/01/20 175,219
475,000 Gilead Sciences, Inc................................ 3.50% 02/01/25 479,504
50,000 Gilead Sciences, Inc................................ 4.80% 04/01/44 50,312
125,000 Gilead Sciences, Inc................................ 4.50% 02/01/45 122,564
-------------
2,952,980
-------------
CAPITAL MARKETS -- 2.8%
300,000 Goldman Sachs Group (The), Inc...................... 5.63% 01/15/17 311,681
625,000 Goldman Sachs Group (The), Inc...................... 6.15% 04/01/18 679,056
400,000 Goldman Sachs Group (The), Inc...................... 2.55% 10/23/19 400,204
300,000 Goldman Sachs Group (The), Inc...................... 2.60% 04/23/20 298,022
600,000 Goldman Sachs Group (The), Inc...................... 3.63% 01/22/23 607,751
600,000 Goldman Sachs Group (The), Inc...................... 4.00% 03/03/24 616,897
150,000 Goldman Sachs Group (The), Inc...................... 3.50% 01/23/25 147,705
See Notes to Financial Statements Page 21
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
CAPITAL MARKETS (CONTINUED)
$ 400,000 Goldman Sachs Group (The), Inc...................... 6.25% 02/01/41 $ 478,752
50,000 Goldman Sachs Group (The), Inc...................... 4.75% 10/21/45 49,866
350,000 Morgan Stanley...................................... 2.13% 04/25/18 350,663
695,000 Morgan Stanley...................................... 2.50% 01/24/19 699,305
400,000 Morgan Stanley...................................... 2.65% 01/27/20 399,294
500,000 Morgan Stanley...................................... 5.50% 07/28/21 560,864
300,000 Morgan Stanley...................................... 3.75% 02/25/23 307,759
450,000 Morgan Stanley...................................... 3.88% 04/29/24 459,532
350,000 Morgan Stanley...................................... 6.38% 07/24/42 434,322
100,000 State Street Corp................................... 3.55% 08/18/25 103,268
-------------
6,904,941
-------------
CHEMICALS -- 0.4%
525,000 Dow Chemical (The) Co............................... 8.55% 05/15/19 619,252
200,000 Dow Chemical (The) Co............................... 3.00% 11/15/22 191,756
25,000 Dow Chemical (The) Co............................... 4.25% 10/01/34 22,633
75,000 Dow Chemical (The) Co............................... 4.63% 10/01/44 68,053
-------------
901,694
-------------
COMMUNICATIONS EQUIPMENT -- 0.4%
100,000 Cisco Systems, Inc.................................. 2.45% 06/15/20 101,013
100,000 Cisco Systems, Inc.................................. 3.00% 06/15/22 101,793
500,000 Cisco Systems, Inc.................................. 3.63% 03/04/24 522,189
225,000 Cisco Systems, Inc.................................. 5.90% 02/15/39 275,009
25,000 QUALCOMM, Inc....................................... 3.45% 05/20/25 24,008
25,000 QUALCOMM, Inc....................................... 4.80% 05/20/45 22,262
-------------
1,046,274
-------------
CONSUMER FINANCE -- 1.9%
50,000 American Express Co................................. 8.13% 05/20/19 58,999
450,000 American Express Co................................. 3.63% 12/05/24 441,237
800,000 American Express Credit Corp........................ 2.13% 07/27/18 807,085
200,000 American Express Credit Corp........................ 1.88% 11/05/18 199,553
150,000 American Express Credit Corp........................ 2.60% 09/14/20 150,444
175,000 Capital One Financial Corp.......................... 2.45% 04/24/19 175,455
550,000 Capital One Financial Corp.......................... 3.75% 04/24/24 554,533
100,000 Capital One Financial Corp.......................... 4.20% 10/29/25 98,932
150,000 Caterpillar Financial Services Corp................. 3.25% 12/01/24 148,900
400,000 Ford Motor Credit Co., LLC.......................... 2.88% 10/01/18 400,833
200,000 Ford Motor Credit Co., LLC.......................... 2.46% 03/27/20 194,090
100,000 Ford Motor Credit Co., LLC.......................... 3.22% 01/09/22 98,008
725,000 Ford Motor Credit Co., LLC.......................... 4.38% 08/06/23 746,195
200,000 Ford Motor Credit Co., LLC.......................... 4.13% 08/04/25 199,674
400,000 Toyota Motor Credit Corp............................ 2.80% 07/13/22 398,500
-------------
4,672,438
-------------
DIVERSIFIED FINANCIAL SERVICES -- 0.2%
129,000 General Electric Capital Corp....................... 6.75% 03/15/32 168,823
100,000 Intercontinental Exchange, Inc...................... 2.75% 12/01/20 100,043
100,000 Intercontinental Exchange, Inc...................... 3.75% 12/01/25 100,396
-------------
369,262
-------------
Page 22 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.0%
$ 500,000 AT&T, Inc........................................... 1.70% 06/01/17 $ 501,552
50,000 AT&T, Inc........................................... 2.30% 03/11/19 50,014
250,000 AT&T, Inc........................................... 2.45% 06/30/20 246,465
225,000 AT&T, Inc........................................... 3.88% 08/15/21 232,418
300,000 AT&T, Inc........................................... 3.00% 06/30/22 293,233
150,000 AT&T, Inc........................................... 3.90% 03/11/24 153,423
300,000 AT&T, Inc........................................... 3.40% 05/15/25 288,898
100,000 AT&T, Inc........................................... 4.50% 05/15/35 92,776
325,000 AT&T, Inc........................................... 4.80% 06/15/44 298,851
150,000 AT&T, Inc........................................... 4.75% 05/15/46 137,868
956,000 Verizon Communications, Inc......................... 2.63% 02/21/20 960,257
325,000 Verizon Communications, Inc......................... 5.15% 09/15/23 357,853
400,000 Verizon Communications, Inc......................... 3.50% 11/01/24 395,824
231,000 Verizon Communications, Inc......................... 4.27% 01/15/36 209,223
249,000 Verizon Communications, Inc......................... 5.01% 08/21/54 228,905
522,000 Verizon Communications, Inc......................... 4.67% 03/15/55 455,075
-------------
4,902,635
-------------
ELECTRIC UTILITIES -- 3.4%
100,000 Alabama Power Co.................................... 3.75% 03/01/45 90,073
675,000 American Electric Power Co., Inc.................... 1.65% 12/15/17 670,323
300,000 Appalachian Power Co................................ 4.40% 05/15/44 283,530
225,000 CenterPoint Energy Houston Electric LLC............. 2.25% 08/01/22 216,337
295,000 CenterPoint Energy Houston Electric LLC............. 4.50% 04/01/44 305,064
300,000 Commonwealth Edison Co.............................. 3.40% 09/01/21 311,629
250,000 Commonwealth Edison Co.............................. 3.70% 03/01/45 225,439
575,000 Constellation Energy Group, Inc..................... 5.15% 12/01/20 624,952
350,000 Duke Energy Carolinas LLC........................... 6.00% 01/15/38 432,648
50,000 Duke Energy Carolinas LLC........................... 3.75% 06/01/45 46,427
200,000 Duke Energy Corp.................................... 2.10% 06/15/18 200,388
300,000 Duke Energy Corp.................................... 3.55% 09/15/21 306,753
50,000 Exelon Corp. (a).................................... 3.95% 06/15/25 50,031
50,000 Exelon Corp. (a).................................... 5.10% 06/15/45 50,555
350,000 Florida Power & Light Co............................ 3.25% 06/01/24 357,735
210,000 Florida Power & Light Co............................ 4.05% 06/01/42 207,324
410,000 Metropolitan Edison Co. (a)......................... 3.50% 03/15/23 403,267
200,000 MidAmerican Energy Co............................... 3.50% 10/15/24 204,617
250,000 MidAmerican Energy Co............................... 4.40% 10/15/44 253,407
125,000 Monongahela Power Co. (a)........................... 5.40% 12/15/43 139,673
625,000 NV Energy, Inc...................................... 6.25% 11/15/20 710,736
150,000 Ohio Edison Co...................................... 6.88% 07/15/36 176,484
250,000 Pacific Gas & Electric Co........................... 3.50% 06/15/25 253,269
250,000 Pacific Gas & Electric Co........................... 4.30% 03/15/45 247,641
195,000 Public Service Electric & Gas Co.................... 2.38% 05/15/23 186,875
275,000 Public Service Electric & Gas Co.................... 3.95% 05/01/42 266,108
200,000 Southern California Edison Co....................... 3.50% 10/01/23 206,545
200,000 Southern California Edison Co....................... 3.60% 02/01/45 181,602
100,000 Southwestern Electric Power Co...................... 6.20% 03/15/40 118,825
200,000 Virginia Electric & Power Co........................ 3.45% 02/15/24 204,391
375,000 Virginia Electric & Power Co........................ 4.45% 02/15/44 386,626
-------------
8,319,274
-------------
See Notes to Financial Statements Page 23
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
ENERGY EQUIPMENT & SERVICES -- 0.1%
$ 100,000 Halliburton Co...................................... 3.80% 11/15/25 $ 97,491
100,000 Halliburton Co...................................... 5.00% 11/15/45 99,082
-------------
196,573
-------------
FOOD & STAPLES RETAILING -- 0.9%
100,000 CVS Health Corp..................................... 1.90% 07/20/18 100,002
100,000 CVS Health Corp..................................... 2.80% 07/20/20 100,554
600,000 CVS Health Corp..................................... 4.00% 12/05/23 624,559
100,000 CVS Health Corp..................................... 3.88% 07/20/25 102,256
200,000 CVS Health Corp..................................... 5.13% 07/20/45 211,499
250,000 Kroger (The) Co..................................... 3.30% 01/15/21 254,089
300,000 Kroger (The) Co..................................... 5.15% 08/01/43 315,453
325,000 Wal-Mart Stores, Inc................................ 3.30% 04/22/24 335,730
100,000 Wal-Mart Stores, Inc................................ 4.30% 04/22/44 102,195
-------------
2,146,337
-------------
FOOD PRODUCTS -- 0.5%
50,000 JM Smucker (The) Co................................. 1.75% 03/15/18 49,791
200,000 JM Smucker (The) Co................................. 3.50% 03/15/25 199,305
50,000 JM Smucker (The) Co................................. 4.38% 03/15/45 48,876
200,000 Kraft Foods Group, Inc.............................. 5.00% 06/04/42 202,116
150,000 Kraft Heinz Foods Co. (a)........................... 2.80% 07/02/20 149,769
150,000 Kraft Heinz Foods Co. (a)........................... 3.50% 07/15/22 151,248
200,000 Kraft Heinz Foods Co. (a)........................... 3.95% 07/15/25 202,252
100,000 Kraft Heinz Foods Co. (a)........................... 5.20% 07/15/45 104,889
-------------
1,108,246
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7%
210,000 Becton Dickinson and Co............................. 1.80% 12/15/17 209,794
225,000 Becton Dickinson and Co............................. 2.68% 12/15/19 226,436
100,000 Becton Dickinson and Co............................. 3.73% 12/15/24 101,039
50,000 Becton Dickinson and Co............................. 4.69% 12/15/44 50,644
150,000 Medtronic, Inc...................................... 2.50% 03/15/20 151,154
200,000 Medtronic, Inc...................................... 3.15% 03/15/22 202,353
400,000 Medtronic, Inc...................................... 3.50% 03/15/25 403,741
300,000 Medtronic, Inc...................................... 4.63% 03/15/45 310,187
-------------
1,655,348
-------------
HEALTH CARE PROVIDERS & SERVICES -- 0.7%
550,000 UnitedHealth Group, Inc............................. 1.63% 03/15/19 544,174
275,000 UnitedHealth Group, Inc............................. 4.70% 02/15/21 301,151
550,000 UnitedHealth Group, Inc............................. 2.88% 12/15/21 558,084
50,000 UnitedHealth Group, Inc............................. 3.75% 07/15/25 51,606
150,000 UnitedHealth Group, Inc............................. 6.88% 02/15/38 196,556
100,000 UnitedHealth Group, Inc............................. 4.75% 07/15/45 105,585
-------------
1,757,156
-------------
HOTELS, RESTAURANTS & LEISURE -- 0.1%
100,000 McDonald's Corp..................................... 3.70% 01/30/26 100,127
100,000 McDonald's Corp..................................... 4.88% 12/09/45 101,002
-------------
201,129
-------------
Page 24 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
INDEPENDENT POWER AND RENEWABLE ELECTRICITY
PRODUCERS -- 0.2%
$ 525,000 NextEra Energy Capital Holdings, Inc................ 2.40% 09/15/19 $ 517,708
-------------
INDUSTRIAL CONGLOMERATES -- 0.2%
425,000 General Electric Co................................. 4.50% 03/11/44 438,437
-------------
INSURANCE -- 1.4%
400,000 American International Group, Inc................... 3.38% 08/15/20 411,701
200,000 American International Group, Inc................... 4.13% 02/15/24 205,735
50,000 American International Group, Inc................... 3.88% 01/15/35 44,244
200,000 American International Group, Inc................... 6.25% 05/01/36 231,672
200,000 Hartford Financial Services Group (The), Inc........ 5.13% 04/15/22 219,940
150,000 Hartford Financial Services Group (The), Inc........ 5.95% 10/15/36 173,101
425,000 MetLife, Inc........................................ 3.60% 04/10/24 436,516
100,000 MetLife, Inc........................................ 3.00% 03/01/25 96,200
50,000 MetLife, Inc........................................ 3.60% 11/13/25 50,412
300,000 MetLife, Inc........................................ 4.88% 11/13/43 315,463
20,000 MetLife, Inc........................................ 4.60% 05/13/46 20,181
575,000 Prudential Financial, Inc........................... 3.50% 05/15/24 578,429
275,000 Prudential Financial, Inc........................... 4.60% 05/15/44 274,719
325,000 Travelers (The) Cos., Inc........................... 6.75% 06/20/36 427,183
-------------
3,485,496
-------------
IT SERVICES -- 0.4%
500,000 International Business Machines Corp................ 1.63% 05/15/20 487,880
100,000 International Business Machines Corp................ 3.63% 02/12/24 103,050
100,000 Visa, Inc........................................... 2.20% 12/14/20 99,884
100,000 Visa, Inc........................................... 2.80% 12/14/22 100,506
100,000 Visa, Inc........................................... 3.15% 12/14/25 100,248
100,000 Visa, Inc........................................... 4.15% 12/14/35 101,159
100,000 Visa, Inc........................................... 4.30% 12/14/45 101,711
-------------
1,094,438
-------------
MACHINERY -- 0.3%
650,000 Caterpillar, Inc.................................... 3.90% 05/27/21 690,597
-------------
MEDIA -- 2.0%
300,000 21st Century Fox America, Inc....................... 3.00% 09/15/22 296,071
175,000 21st Century Fox America, Inc....................... 5.40% 10/01/43 182,821
50,000 21st Century Fox America, Inc. (a).................. 4.95% 10/15/45 49,431
275,000 CBS Corp............................................ 2.30% 08/15/19 272,182
485,000 CCO Safari II LLC (a)............................... 4.91% 07/23/25 485,260
100,000 CCO Safari II LLC (a)............................... 6.48% 10/23/45 100,426
500,000 Comcast Corp........................................ 2.85% 01/15/23 497,237
200,000 Comcast Corp........................................ 3.38% 08/15/25 202,717
675,000 Comcast Corp........................................ 4.25% 01/15/33 664,465
100,000 Comcast Corp........................................ 4.60% 08/15/45 101,496
175,000 NBCUniversal Media LLC.............................. 2.88% 01/15/23 173,930
150,000 Time Warner Cable, Inc.............................. 6.75% 07/01/18 163,752
100,000 Time Warner Cable, Inc.............................. 4.50% 09/15/42 78,752
350,000 Time Warner, Inc.................................... 4.88% 03/15/20 378,774
150,000 Time Warner, Inc.................................... 3.60% 07/15/25 146,313
200,000 Time Warner, Inc.................................... 6.50% 11/15/36 226,546
See Notes to Financial Statements Page 25
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
MEDIA (CONTINUED)
$ 50,000 Time Warner, Inc.................................... 4.85% 07/15/45 $ 47,795
50,000 Viacom, Inc......................................... 2.75% 12/15/19 49,370
125,000 Viacom, Inc......................................... 3.88% 04/01/24 117,333
50,000 Viacom, Inc......................................... 4.85% 12/15/34 40,952
50,000 Viacom, Inc......................................... 6.88% 04/30/36 49,664
100,000 Walt Disney (The) Co................................ 2.15% 09/17/20 100,008
375,000 Walt Disney (The) Co................................ 4.13% 06/01/44 383,410
-------------
4,808,705
-------------
METALS & MINING -- 0.3%
500,000 Freeport-McMoRan, Inc............................... 2.38% 03/15/18 392,500
275,000 Newmont Mining Corp................................. 5.13% 10/01/19 286,290
-------------
678,790
-------------
MULTI-UTILITIES -- 0.3%
230,000 Consolidated Edison Co. of New York, Inc............ 3.30% 12/01/24 229,960
335,000 Consolidated Edison Co. of New York, Inc............ 4.45% 03/15/44 335,529
50,000 Dominion Gas Holdings LLC........................... 2.50% 12/15/19 49,974
200,000 Dominion Resources, Inc............................. 5.20% 08/15/19 217,883
-------------
833,346
-------------
OIL, GAS & CONSUMABLE FUELS -- 2.7%
175,000 Chevron Corp........................................ 2.19% 11/15/19 175,019
200,000 Chevron Corp........................................ 1.96% 03/03/20 197,205
150,000 Chevron Corp........................................ 3.33% 11/17/25 151,217
200,000 ConocoPhillips...................................... 5.75% 02/01/19 216,564
225,000 ConocoPhillips...................................... 6.50% 02/01/39 237,540
350,000 ConocoPhillips Co................................... 2.40% 12/15/22 318,239
50,000 ConocoPhillips Co................................... 4.15% 11/15/34 43,428
160,000 Continental Resources, Inc.......................... 4.50% 04/15/23 115,120
100,000 Continental Resources, Inc.......................... 4.90% 06/01/44 60,472
325,000 Devon Energy Corp................................... 3.25% 05/15/22 276,647
100,000 Devon Energy Corp................................... 5.85% 12/15/25 97,435
175,000 Devon Energy Corp................................... 5.60% 07/15/41 132,658
50,000 Enbridge Energy Partners L.P........................ 4.38% 10/15/20 48,828
185,000 Enbridge Energy Partners L.P........................ 5.50% 09/15/40 141,840
50,000 Enbridge Energy Partners L.P........................ 7.38% 10/15/45 48,044
50,000 Energy Transfer Partners L.P........................ 4.15% 10/01/20 46,173
300,000 Energy Transfer Partners L.P........................ 3.60% 02/01/23 247,320
50,000 Energy Transfer Partners L.P........................ 4.05% 03/15/25 41,138
50,000 Energy Transfer Partners L.P........................ 4.75% 01/15/26 42,134
175,000 Energy Transfer Partners L.P........................ 6.50% 02/01/42 142,723
50,000 Energy Transfer Partners L.P........................ 6.13% 12/15/45 40,803
200,000 Enterprise Products Operating LLC................... 1.65% 05/07/18 195,221
400,000 Enterprise Products Operating LLC................... 3.70% 02/15/26 359,538
250,000 Enterprise Products Operating LLC................... 4.90% 05/15/46 205,023
150,000 Exxon Mobil Corp.................................... 2.71% 03/06/25 146,853
200,000 Exxon Mobil Corp.................................... 3.57% 03/06/45 188,468
175,000 Kinder Morgan Energy Partners L.P................... 6.95% 01/15/38 150,699
300,000 Kinder Morgan, Inc.................................. 3.05% 12/01/19 277,904
300,000 Kinder Morgan, Inc.................................. 4.30% 06/01/25 259,686
Page 26 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
$ 50,000 Kinder Morgan, Inc.................................. 5.05% 02/15/46 $ 37,202
750,000 ONEOK Partners L.P.................................. 2.00% 10/01/17 716,696
175,000 ONEOK Partners L.P.................................. 3.38% 10/01/22 142,153
50,000 ONEOK Partners L.P.................................. 4.90% 03/15/25 42,186
75,000 Phillips 66......................................... 4.30% 04/01/22 77,265
75,000 Phillips 66......................................... 5.88% 05/01/42 75,428
50,000 Pioneer Natural Resources Co........................ 3.45% 01/15/21 46,220
400,000 Pioneer Natural Resources Co........................ 3.95% 07/15/22 365,672
50,000 Pioneer Natural Resources Co........................ 4.45% 01/15/26 45,109
350,000 Spectra Energy Capital LLC.......................... 3.30% 03/15/23 299,905
125,000 Valero Energy Corp.................................. 6.63% 06/15/37 126,036
50,000 Valero Energy Corp.................................. 4.90% 03/15/45 41,842
-------------
6,619,653
-------------
PHARMACEUTICALS -- 0.2%
75,000 Merck & Co, Inc..................................... 1.85% 02/10/20 74,694
50,000 Merck & Co, Inc..................................... 3.70% 02/10/45 46,292
250,000 Pfizer, Inc......................................... 3.40% 05/15/24 256,761
150,000 Pfizer, Inc......................................... 4.40% 05/15/44 152,704
-------------
530,451
-------------
REAL ESTATE INVESTMENT TRUSTS -- 0.1%
275,000 Boston Properties L.P............................... 3.85% 02/01/23 281,049
-------------
ROAD & RAIL -- 1.1%
350,000 Burlington Northern Santa Fe LLC.................... 3.00% 03/15/23 345,469
200,000 Burlington Northern Santa Fe LLC.................... 5.15% 09/01/43 211,722
200,000 CSX Corp............................................ 6.25% 03/15/18 217,756
425,000 CSX Corp............................................ 3.40% 08/01/24 423,319
200,000 CSX Corp............................................ 4.50% 08/01/54 182,235
425,000 Ryder System, Inc................................... 2.45% 09/03/19 419,048
300,000 Ryder System, Inc................................... 2.65% 03/02/20 295,411
300,000 Union Pacific Corp.................................. 3.75% 03/15/24 315,059
70,000 Union Pacific Corp.................................. 4.85% 06/15/44 76,147
150,000 Union Pacific Corp.................................. 4.15% 01/15/45 149,206
-------------
2,635,372
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.4%
100,000 Intel Corp.......................................... 3.10% 07/29/22 102,062
375,000 Intel Corp.......................................... 2.70% 12/15/22 371,348
100,000 Intel Corp.......................................... 3.70% 07/29/25 103,558
160,000 Intel Corp.......................................... 4.80% 10/01/41 167,170
150,000 Intel Corp.......................................... 4.90% 07/29/45 158,921
-------------
903,059
-------------
SOFTWARE -- 1.0%
150,000 Microsoft Corp...................................... 1.30% 11/03/18 149,795
75,000 Microsoft Corp...................................... 1.85% 02/12/20 75,188
150,000 Microsoft Corp...................................... 2.00% 11/03/20 150,145
200,000 Microsoft Corp...................................... 2.38% 02/12/22 197,578
150,000 Microsoft Corp...................................... 2.65% 11/03/22 149,988
150,000 Microsoft Corp...................................... 3.63% 12/15/23 157,789
See Notes to Financial Statements Page 27
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
CORPORATE BONDS AND NOTES (CONTINUED)
SOFTWARE (CONTINUED)
$ 200,000 Microsoft Corp...................................... 3.13% 11/03/25 $ 201,309
75,000 Microsoft Corp...................................... 4.88% 12/15/43 81,504
200,000 Microsoft Corp...................................... 4.45% 11/03/45 206,756
100,000 Oracle Corp......................................... 2.50% 05/15/22 98,237
200,000 Oracle Corp......................................... 3.63% 07/15/23 207,080
250,000 Oracle Corp......................................... 3.40% 07/08/24 254,136
400,000 Oracle Corp......................................... 5.38% 07/15/40 445,925
-------------
2,375,430
-------------
SPECIALTY RETAIL -- 0.4%
600,000 Home Depot (The), Inc............................... 4.40% 04/01/21 661,199
50,000 Home Depot (The), Inc............................... 3.35% 09/15/25 51,155
200,000 Home Depot (The), Inc............................... 5.40% 09/15/40 233,563
-------------
945,917
-------------
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 0.5%
250,000 Apple, Inc.......................................... 2.85% 05/06/21 256,214
375,000 Apple, Inc.......................................... 2.40% 05/03/23 365,753
50,000 Apple, Inc.......................................... 3.85% 05/04/43 46,179
100,000 Apple, Inc.......................................... 4.45% 05/06/44 101,100
50,000 Apple, Inc.......................................... 3.45% 02/09/45 43,160
50,000 Hewlett Packard Enterprise Co. (a).................. 2.45% 10/05/17 49,979
50,000 Hewlett Packard Enterprise Co. (a).................. 2.85% 10/05/18 50,005
100,000 Hewlett Packard Enterprise Co. (a).................. 3.60% 10/15/20 100,337
50,000 Hewlett Packard Enterprise Co. (a).................. 4.40% 10/15/22 49,880
100,000 Hewlett Packard Enterprise Co. (a).................. 4.90% 10/15/25 98,249
50,000 Hewlett Packard Enterprise Co. (a).................. 6.35% 10/15/45 47,621
-------------
1,208,477
-------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.0%
100,000 NIKE, Inc........................................... 3.88% 11/01/45 96,752
-------------
TOBACCO -- 0.4%
200,000 Altria Group, Inc................................... 10.20% 02/06/39 328,928
100,000 Reynolds American, Inc.............................. 4.00% 06/12/22 104,105
200,000 Reynolds American, Inc.............................. 4.45% 06/12/25 209,561
250,000 Reynolds American, Inc.............................. 5.85% 08/15/45 278,957
-------------
921,551
-------------
TOTAL CORPORATE BONDS AND NOTES.............................................. 85,102,471
(Cost $86,897,751) -------------
U.S. GOVERNMENT BONDS AND NOTES -- 6.5%
275,000 U.S. Treasury Bond.................................. 5.38% 02/15/31 373,028
1,630,000 U.S. Treasury Bond.................................. 4.50% 02/15/36 2,089,616
1,425,000 U.S. Treasury Bond.................................. 2.88% 08/15/45 1,384,309
300,000 U.S. Treasury Note.................................. 0.63% 09/30/17 297,961
1,125,000 U.S. Treasury Note (b).............................. 0.88% 10/15/17 1,121,770
3,000,000 U.S. Treasury Note.................................. 1.38% 09/30/18 3,010,020
3,150,000 U.S. Treasury Note.................................. 1.63% 11/30/20 3,131,604
3,225,000 U.S. Treasury Note.................................. 2.00% 11/30/22 3,207,740
Page 28 See Notes to Financial Statements
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
U.S. GOVERNMENT BONDS AND NOTES (CONTINUED)
$ 1,285,000 U.S. Treasury Note.................................. 2.25% 11/15/25 $ 1,282,264
-------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES........................................ 15,898,312
(Cost $16,077,180) -------------
FOREIGN CORPORATE BONDS AND NOTES -- 1.1%
CAPITAL MARKETS -- 0.1%
200,000 Credit Suisse....................................... 5.40% 01/14/20 219,182
-------------
CHEMICALS -- 0.1%
175,000 LYB International Finance, B.V...................... 4.88% 03/15/44 160,395
100,000 LyondellBasell Industries N.V....................... 4.63% 02/26/55 81,421
-------------
241,816
-------------
CONSUMER FINANCE -- 0.4%
583,000 GE Capital International Funding Co. (a)............ 0.96% 04/15/16 583,287
444,000 GE Capital International Funding Co. (a)............ 4.42% 11/15/35 453,994
-------------
1,037,281
-------------
OIL, GAS & CONSUMABLE FUELS -- 0.1%
125,000 Encana Corp......................................... 6.63% 08/15/37 101,386
100,000 Encana Corp......................................... 5.15% 11/15/41 67,077
-------------
168,463
-------------
PHARMACEUTICALS -- 0.4%
150,000 Actavis Funding SCS................................. 2.35% 03/12/18 150,236
375,000 Actavis Funding SCS................................. 3.00% 03/12/20 375,639
200,000 Actavis Funding SCS................................. 3.45% 03/15/22 200,489
150,000 Actavis Funding SCS................................. 3.80% 03/15/25 149,521
50,000 Actavis Funding SCS................................. 4.75% 03/15/45 48,942
-------------
924,827
-------------
TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................... 2,591,569
(Cost $2,713,523) -------------
TOTAL INVESTMENTS - 98.1%.................................................... 238,681,490
(Cost $237,070,555) (d)
NET OTHER ASSETS AND LIABILITIES - 1.9%...................................... 4,578,646
-------------
NET ASSETS - 100.0%.......................................................... $ 243,260,136
=============
-----------------------------
(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 December 31, 2015, securities noted as such
amounted to $3,369,000 or 1.38% of net assets.
(b) All or a portion of this security is segregated as collateral for open
futures contracts.
(c) Floating rate security. The interest rate shown reflects the rate in
effect at December 31, 2015.
(d) Aggregate cost for federal income tax purposes is $237,308,850. As of
December 31, 2015, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$10,369,707 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$8,997,067.
See Notes to Financial Statements Page 29
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
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 12/31/2015 PRICES INPUTS INPUTS
-------------------------------------------------- ------------ ------------ ------------ ------------
Common Stocks*.................................... $135,089,138 $135,089,138 $ -- $ --
Corporate Bonds and Notes*........................ 85,102,471 -- 85,102,471 --
U.S. Government Bonds and Notes................... 15,898,312 -- 15,898,312 --
Foreign Corporate Bonds and Notes*................ 2,591,569 -- 2,591,569 --
------------ ------------ ------------ ------------
Total Investments................................. $238,681,490 $135,089,138 $103,592,352 $ --
------------ ------------ ------------ ------------
Other Financial Instruments:
Futures Contracts**............................... 22,805 22,805 -- --
------------ ------------ ------------ ------------
Total............................................. $238,704,295 $135,111,943 $103,592,352 $ --
============ ============ ============ ============
* See Portfolio of Investments for industry breakout.
** Includes cumulative appreciation/depreciation on futures contracts as
presented on the Statements of Operations. Only the current day's
variation margin is presented on the Statements of Assets and Liabilities.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2015.
OPEN FUTURES CONTRACTS AT DECEMBER 31, 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 16 Mar-2016 $ 1,893,125 $ 4,180
U.S. Treasury 10-Year Notes 71 Mar-2016 8,939,344 19,969
U.S. Treasury Ultra Long Term Bond Futures 2 Mar-2016 317,375 (1,344)
------------ ------------
Total Futures Contracts $ 11,149,844 $ 22,805
============ ============
Page 30 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
EXCHANGE-TRADED FUNDS -- 41.0%
CAPITAL MARKETS -- 41.0%
45,430 First Trust Preferred Securities and Income ETF (a).......................... $ 860,898
37,730 First Trust Senior Loan Fund (a)............................................. 1,771,046
17,680 First Trust Tactical High Yield ETF (a)...................................... 830,430
240 iShares 20+ Year Treasury Bond ETF........................................... 28,949
710 iShares 7-10 Year Treasury Bond ETF.......................................... 74,969
9,390 iShares iBoxx $ Investment Grade Corporate Bond ETF.......................... 1,070,554
3,980 iShares MBS ETF.............................................................. 428,646
-------------
TOTAL EXCHANGE-TRADED FUNDS.................................................. 5,065,492
(Cost $5,252,556) -------------
COMMON STOCKS -- 24.5%
AEROSPACE & DEFENSE -- 1.2%
342 Boeing (The) Co.............................................................. 49,450
332 General Dynamics Corp........................................................ 45,604
478 Honeywell International, Inc................................................. 49,506
-------------
144,560
-------------
AUTO COMPONENTS -- 0.3%
933 Johnson Controls, Inc........................................................ 36,844
-------------
AUTOMOBILES -- 0.4%
373 Toyota Motor Corp., ADR...................................................... 45,894
-------------
BANKS -- 1.6%
824 JPMorgan Chase & Co.......................................................... 54,409
1,127 U.S. Bancorp................................................................. 48,089
1,233 Webster Financial Corp....................................................... 45,855
991 Wells Fargo & Co............................................................. 53,871
-------------
202,224
-------------
BEVERAGES -- 0.4%
397 Anheuser-Busch InBev N.V., ADR............................................... 49,625
-------------
CAPITAL MARKETS -- 1.0%
358 Ameriprise Financial, Inc.................................................... 38,098
124 BlackRock, Inc............................................................... 42,224
1,300 Invesco Ltd.................................................................. 43,524
-------------
123,846
-------------
CHEMICALS -- 0.7%
418 International Flavors & Fragrances, Inc...................................... 50,010
418 LyondellBasell Industries N.V., Class A...................................... 36,324
-------------
86,334
-------------
COMMUNICATIONS EQUIPMENT -- 0.8%
1,762 Cisco Systems, Inc........................................................... 47,847
626 Harris Corp.................................................................. 54,399
-------------
102,246
-------------
CONSUMER FINANCE -- 0.3%
543 Capital One Financial Corp................................................... 39,194
-------------
DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.3%
900 Verizon Communications, Inc.................................................. 41,598
-------------
See Notes to Financial Statements Page 31
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
ELECTRIC UTILITIES -- 1.0%
295 American Electric Power Co., Inc............................................. $ 17,190
578 Eversource Energy............................................................ 29,518
512 ITC Holdings Corp............................................................ 20,096
503 NextEra Energy, Inc.......................................................... 52,257
-------------
119,061
-------------
ELECTRICAL EQUIPMENT -- 0.3%
685 Eaton Corp. PLC.............................................................. 35,647
-------------
ENERGY EQUIPMENT & SERVICES -- 0.2%
447 Schlumberger Ltd............................................................. 31,178
-------------
FOOD & STAPLES RETAILING -- 0.9%
543 CVS Health Corp.............................................................. 53,089
687 Walgreens Boots Alliance, Inc................................................ 58,502
-------------
111,591
-------------
GAS UTILITIES -- 1.0%
720 Atmos Energy Corp............................................................ 45,389
324 Chesapeake Utilities Corp.................................................... 18,387
843 New Jersey Resources Corp.................................................... 27,785
360 ONE Gas, Inc................................................................. 18,061
483 UGI Corp..................................................................... 16,306
-------------
125,928
-------------
HEALTH CARE EQUIPMENT & SUPPLIES -- 0.4%
1,046 Abbott Laboratories.......................................................... 46,976
-------------
HEALTH CARE PROVIDERS & SERVICES -- 1.4%
534 Aetna, Inc................................................................... 57,736
564 AmerisourceBergen Corp....................................................... 58,492
621 Cardinal Health, Inc......................................................... 55,437
-------------
171,665
-------------
HOTELS, RESTAURANTS & LEISURE -- 0.6%
1,157 Starbucks Corp............................................................... 69,455
-------------
INDUSTRIAL CONGLOMERATES -- 0.4%
473 Siemens AG, ADR.............................................................. 45,491
-------------
INSURANCE -- 1.5%
1,447 FNF Group.................................................................... 50,168
1,178 Hartford Financial Services Group (The), Inc................................. 51,196
1,493 Horace Mann Educators Corp................................................... 49,538
820 MetLife, Inc................................................................. 39,532
-------------
190,434
-------------
IT SERVICES -- 0.5%
543 Accenture PLC, Class A....................................................... 56,744
-------------
MACHINERY -- 0.5%
367 Snap-on, Inc................................................................. 62,915
-------------
MEDIA -- 0.4%
491 Walt Disney (The) Co......................................................... 51,594
-------------
Page 32 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
COMMON STOCKS (CONTINUED)
MULTI-UTILITIES -- 1.4%
142 Alliant Energy Corp.......................................................... $ 8,868
238 CMS Energy Corp.............................................................. 8,587
497 Dominion Resources, Inc...................................................... 33,617
361 National Grid PLC, ADR....................................................... 25,104
444 NiSource, Inc................................................................ 8,662
643 Public Service Enterprise Group, Inc......................................... 24,878
341 Sempra Energy................................................................ 32,057
511 WEC Energy Group, Inc........................................................ 26,219
-------------
167,992
-------------
OIL, GAS & CONSUMABLE FUELS -- 2.3%
444 Chevron Corp................................................................. 39,942
1,384 Enbridge Income Fund Holdings, Inc. (CAD).................................... 28,036
231 Enbridge, Inc................................................................ 7,667
892 Inter Pipeline Ltd. (CAD).................................................... 14,318
4,405 Kinder Morgan, Inc........................................................... 65,723
2,340 TransCanada Corp............................................................. 76,261
830 Valero Energy Corp........................................................... 58,689
-------------
290,636
-------------
PHARMACEUTICALS -- 0.8%
793 Sanofi, ADR.................................................................. 33,821
921 Teva Pharmaceutical Industries Ltd., ADR..................................... 60,454
-------------
94,275
-------------
ROAD & RAIL -- 0.3%
465 Union Pacific Corp........................................................... 36,363
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.3%
1,126 Broadcom Corp., Class A...................................................... 65,105
1,279 Intel Corp................................................................... 44,062
844 Texas Instruments, Inc....................................................... 46,260
-------------
155,427
-------------
SOFTWARE -- 0.8%
1,104 Microsoft Corp............................................................... 61,250
1,126 Oracle Corp.................................................................. 41,133
-------------
102,383
-------------
SPECIALTY RETAIL -- 0.9%
777 Foot Locker, Inc............................................................. 50,575
461 Home Depot (The), Inc........................................................ 60,967
-------------
111,542
-------------
TEXTILES, APPAREL & LUXURY GOODS -- 0.3%
649 VF Corp...................................................................... 40,400
-------------
TOBACCO -- 0.3%
387 British American Tobacco PLC, ADR............................................ 42,744
-------------
TOTAL COMMON STOCKS.......................................................... 3,032,806
(Cost $3,105,020) -------------
See Notes to Financial Statements Page 33
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
REAL ESTATE INVESTMENT TRUSTS -- 13.5%
DIVERSIFIED REITS -- 0.5%
7,799 Lexington Realty Trust ...................................................... $ 62,392
-------------
HEALTH CARE REITS -- 1.5%
1,125 National Health Investors, Inc............................................... 68,479
1,899 Omega Healthcare Investors, Inc.............................................. 66,427
2,720 Sabra Health Care REIT, Inc.................................................. 55,026
-------------
189,932
-------------
HOTEL & RESORT REITS -- 1.7%
2,116 Chesapeake Lodging Trust..................................................... 53,239
3,508 Host Hotels & Resorts, Inc................................................... 53,813
1,972 LaSalle Hotel Properties..................................................... 49,615
2,200 RLJ Lodging Trust............................................................ 47,586
-------------
204,253
-------------
INDUSTRIAL REITS -- 1.1%
1,654 Prologis, Inc................................................................ 70,990
3,060 Terreno Realty Corp.......................................................... 69,217
-------------
140,207
-------------
OFFICE REITS -- 0.7%
3,360 BioMed Realty Trust, Inc..................................................... 79,598
-------------
RESIDENTIAL REITS -- 1.7%
872 Camden Property Trust........................................................ 66,935
1,120 Equity LifeStyle Properties, Inc............................................. 74,670
807 Mid-America Apartment Communities, Inc....................................... 73,284
-------------
214,889
-------------
RETAIL REITS -- 2.3%
2,739 Brixmor Property Group, Inc.................................................. 70,721
2,726 Kimco Realty Corp............................................................ 72,130
1,789 National Retail Properties, Inc.............................................. 71,649
348 Simon Property Group, Inc.................................................... 67,665
-------------
282,165
-------------
SPECIALIZED REITS -- 4.0%
2,102 Corrections Corp. of America................................................. 55,682
1,892 CyrusOne, Inc................................................................ 70,855
974 Digital Realty Trust, Inc.................................................... 73,654
1,228 EPR Properties............................................................... 71,777
844 Extra Space Storage, Inc..................................................... 74,449
409 InfraREIT, Inc............................................................... 7,566
1,517 QTS Realty Trust, Inc., Class A.............................................. 68,432
690 Sovran Self Storage, Inc..................................................... 74,044
-------------
496,459
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS.......................................... 1,669,895
(Cost $1,689,100) -------------
Page 34 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
U.S. GOVERNMENT BONDS AND NOTES -- 8.7%
$ 23,367 U.S. Treasury Inflation Indexed Bond................ 2.00% 01/15/26 $ 25,991
18,281 U.S. Treasury Inflation Indexed Bond................ 2.38% 01/15/27 21,158
30,653 U.S. Treasury Inflation Indexed Bond................ 1.75% 01/15/28 33,537
23,264 U.S. Treasury Inflation Indexed Bond................ 2.50% 01/15/29 27,602
36,313 U.S. Treasury Inflation Indexed Bond................ 3.38% 04/15/32 49,213
14,305 U.S. Treasury Inflation Indexed Bond................ 2.13% 02/15/40 16,879
20,418 U.S. Treasury Inflation Indexed Bond................ 2.13% 02/15/41 24,228
14,526 U.S. Treasury Inflation Indexed Bond................ 0.75% 02/15/42 12,796
50,276 U.S. Treasury Inflation Indexed Bond................ 0.63% 02/15/43 42,669
20,206 U.S. Treasury Inflation Indexed Bond................ 1.38% 02/15/44 20,611
17,473 U.S. Treasury Inflation Indexed Bond................ 0.75% 02/15/45 15,278
84,192 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/17 84,051
64,100 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/18 64,001
23,162 U.S. Treasury Inflation Indexed Note................ 1.38% 07/15/18 23,991
86,176 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/19 85,704
36,735 U.S. Treasury Inflation Indexed Note................ 1.38% 01/15/20 38,221
19,297 U.S. Treasury Inflation Indexed Note................ 0.13% 04/15/20 19,065
33,808 U.S. Treasury Inflation Indexed Note................ 1.25% 07/15/20 35,189
42,621 U.S. Treasury Inflation Indexed Note................ 1.13% 01/15/21 43,980
36,934 U.S. Treasury Inflation Indexed Note................ 0.63% 07/15/21 37,212
42,979 U.S. Treasury Inflation Indexed Note................ 0.13% 01/15/22 41,695
42,405 U.S. Treasury Inflation Indexed Note................ 0.13% 07/15/22 41,161
55,642 U.S. Treasury Inflation Indexed Note................ 0.13% 01/15/23 53,410
29,639 U.S. Treasury Inflation Indexed Note................ 0.38% 07/15/23 28,987
31,599 U.S. Treasury Inflation Indexed Note................ 0.63% 01/15/24 31,276
52,287 U.S. Treasury Inflation Indexed Note................ 0.13% 07/15/24 49,717
42,175 U.S. Treasury Inflation Indexed Note................ 0.25% 01/15/25 40,295
34,699 U.S. Treasury Inflation Indexed Note................ 2.38% 01/15/25 39,488
29,085 U.S. Treasury Inflation Indexed Note................ 0.38% 07/15/25 28,181
-------------
TOTAL U.S. GOVERNMENT BONDS AND NOTES........................................ 1,075,586
(Cost $1,105,551) -------------
UNITS DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
MASTER LIMITED PARTNERSHIPS -- 8.6%
CHEMICALS -- 0.4%
2,148 Westlake Chemical Partners, L.P.............................................. 47,643
-------------
GAS UTILITIES -- 0.4%
1,486 AmeriGas Partners, L.P....................................................... 50,925
-------------
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.4%
1,760 NextEra Energy Partners, L.P................................................. 52,536
-------------
OIL, GAS & CONSUMABLE FUELS -- 7.4%
1,064 Alliance Holdings GP, L.P.................................................... 21,471
2,439 Alliance Resource Partners, L.P.............................................. 32,902
2,502 Columbia Pipeline Partners, L.P.............................................. 43,735
3,354 Enbridge Energy Partners, L.P................................................ 77,377
5,917 Enterprise Products Partners, L.P............................................ 151,357
857 EQT Midstream Partners, L.P.................................................. 64,669
2,594 Holly Energy Partners, L.P................................................... 80,777
See Notes to Financial Statements Page 35
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
UNITS DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
MASTER LIMITED PARTNERSHIPS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS (CONTINUED)
1,472 Magellan Midstream Partners, L.P............................................. $ 99,978
2,435 Plains All American Pipeline, L.P............................................ 56,248
1,975 Spectra Energy Partners, L.P................................................. 94,207
1,179 Tallgrass Energy Partners, L.P............................................... 48,587
2,198 Targa Resources Partners, L.P................................................ 36,333
1,004 TC PipeLines, L.P............................................................ 49,909
2,064 TransMontaigne Partners, L.P................................................. 55,233
-------------
912,783
-------------
TOTAL MASTER LIMITED PARTNERSHIPS............................................ 1,063,887
(Cost $1,233,206) -------------
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 1.3%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.7%
Fannie Mae REMICS
$ 248 Series 1988-16, Class B.......................... 9.50% 06/25/18 258
480 Series 1989-69, Class G.......................... 7.60% 10/25/19 511
3,976 Series 1990-109, Class J......................... 7.00% 09/25/20 4,213
1,926 Series 1992-24, Class Z.......................... 6.50% 04/25/22 2,099
408 Series 1992-44, Class ZQ......................... 8.00% 07/25/22 423
3,931 Series 1993-1, Class KA.......................... 7.90% 01/25/23 4,431
2,777 Series 1993-62, Class E.......................... 7.00% 04/25/23 3,079
964 Series 1993-119, Class H......................... 6.50% 07/25/23 1,065
375 Series 2003-9, Class EB.......................... 5.00% 02/25/18 386
1,297 Series 2003-28, Class GA......................... 4.00% 10/25/32 1,297
9,450 Series 2004-92, Class S, IO (b).................. 6.28% 08/25/34 777
2,586 Series 2005-27, Class YC......................... 5.50% 02/25/35 2,610
3,901 Series 2005-46, Class LW......................... 5.00% 06/25/20 4,025
560 Series 2005-48, Class MD......................... 5.00% 04/25/34 578
6,532 Series 2005-70, Class KJ......................... 5.50% 09/25/34 6,752
1,499 Series 2005-120, Class NF (b).................... 0.52% 01/25/21 1,499
2,396 Series 2009-81, Class AD......................... 4.50% 09/25/37 2,412
2,929 Series 2010-39, Class PG......................... 4.00% 06/25/38 2,966
1,317 Series 2011-38, Class AH......................... 2.75% 05/25/20 1,338
7,268 Series 2013-31, Class NT......................... 3.00% 04/25/43 7,196
FHLMC - GNMA
761 Series 1993-5, Class HA.......................... 7.50% 02/25/23 831
1,655 Series 1994-27, Class D.......................... 7.00% 03/25/24 1,844
Freddie Mac REMICS
246 Series 1991-1074, Class I........................ 6.75% 05/15/21 260
1,365 Series 1992-1250, Class J........................ 7.00% 05/15/22 1,504
127 Series 1996-1847, Class LL....................... 7.50% 04/15/26 143
23,377 Series 1998-2033, Class IA, IO................... 7.00% 02/15/28 3,320
1,939 Series 1999-2174, Class PN....................... 6.00% 07/15/29 2,169
3,024 Series 2006-3116, Class PD....................... 5.00% 10/15/34 3,062
Page 36 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
Government National Mortgage Association
$ 18,028 Series 1999-30, Class S, IO (b).................. 8.26% 08/16/29 $ 4,540
1,401 Series 2008-85, Class HP......................... 4.00% 04/20/38 1,427
1,512 Series 2010-117, Class MA........................ 2.50% 09/16/23 1,532
56,323 Series 2013-20, Class KI, IO..................... 5.00% 01/20/43 10,631
-------------
79,178
-------------
PASS-THROUGH SECURITIES -- 0.6%
Federal Home Loan Mortgage Corporation
23,252 Pool A47829...................................... 4.00% 08/01/35 24,662
Federal National Mortgage Association
18,109 Pool AH1568...................................... 4.50% 12/01/40 19,701
Government National Mortgage Association
15,603 Pool 3500........................................ 5.50% 01/20/34 17,418
14,743 Pool 3711........................................ 5.50% 05/20/35 16,440
-------------
78,221
-------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................... 157,399
(Cost $155,315) -------------
MORTGAGE-BACKED SECURITIES -- 1.0%
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.6%
Banc of America Mortgage Securities Trust
1,944 Series 2003-8, Class 3A7......................... 5.25% 11/25/33 1,953
Credit Suisse First Boston Mortgage Securities Corp.
9,381 Series 2004-1, Class 1A1......................... 5.75% 02/25/34 9,469
4,288 Series 2004-4, Class 1A3......................... 5.75% 08/25/34 4,421
JP Morgan Resecuritization Trust
20,504 Series 2009-7, Class 5A1 (b) (c)................. 6.00% 02/27/37 21,067
MASTR Alternative Loan Trust
8,115 Series 2004-10, Class 2A1........................ 5.50% 10/25/19 8,430
MASTR Asset Securitization Trust
8,680 Series 2003-5, Class 2A1......................... 5.00% 06/25/18 8,965
Prime Mortgage Trust
1,249 Series 2004-CL1, Class 2A1....................... 5.00% 02/25/19 1,255
RAAC Trust
4,639 Series 2005-SP1, Class 2A1....................... 5.25% 09/25/34 4,771
WAMU Mortgage Pass-Through Certificates
819 Series 2002-S8, Class 2A7........................ 5.25% 01/25/18 831
Wells Fargo Alternative Loan Trust
2,731 Series 2007-PA5, Class 2A1....................... 6.00% 11/25/22 2,786
Wells Fargo Mortgage Backed Securities Trust
4,285 Series 2006-17, Class A4......................... 5.50% 11/25/21 4,326
-------------
68,274
-------------
See Notes to Financial Statements Page 37
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
PRINCIPAL STATED STATED
VALUE DESCRIPTION COUPON MATURITY VALUE
----------- ---------------------------------------------------- --------- ------------ -------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.4%
Bear Stearns Commercial Mortgage Securities Trust
$ 14,564 Series 2006-PW12, Class A4 (b)................... 5.91% 09/11/38 $ 14,660
11,261 Series 2006-T22, Class A4 (b).................... 5.82% 04/12/38 11,266
Wachovia Bank Commercial Mortgage Trust
9,235 Series 2006-C26, Class APB....................... 6.00% 06/15/45 9,098
17,561 Series 2006-C27, Class A3 (b).................... 5.77% 07/15/45 17,549
-------------
52,573
-------------
TOTAL MORTGAGE-BACKED SECURITIES............................................. 120,847
(Cost $120,043) -------------
ASSET-BACKED SECURITIES -- 0.0%
AFC Home Equity Loan Trust
2,195 Series 1997-4, Class 1A2 (b)..................... 1.13% 12/22/27 2,171
-------------
TOTAL ASSET-BACKED SECURITIES................................................ 2,171
(Cost $2,076) -------------
TOTAL INVESTMENTS -- 98.6%................................................... 12,188,083
(Cost $12,662,867) (d)
NET OTHER ASSETS AND LIABILITIES -- 1.4%..................................... 168,600
-------------
NET ASSETS -- 100.0%......................................................... $ 12,356,683
=============
-----------------------------
(a) Investment in an affiliated fund.
(b) Floating or variable rate security. The interest rate shown reflects the
rate in effect at December 31, 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 December 31, 2015, securities noted as
such amounted to $21,067 or 0.17% of net assets.
(d) Aggregate cost for federal income tax purposes is $12,763,641. As of
December 31, 2015, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$288,737 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$864,295.
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 38 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2015
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
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 12/31/2015 PRICES INPUTS INPUTS
-------------------------------------------------- ------------ ------------ ------------ ------------
Exchange-Traded Funds*............................ $ 5,065,492 $ 5,065,492 $ -- $ --
Common Stocks*.................................... 3,032,806 3,032,806 -- --
Real Estate Investment Trusts*.................... 1,669,895 1,669,895 -- --
U.S. Government Bonds and Notes................... 1,075,586 -- 1,075,586 --
Master Limited Partnerships*...................... 1,063,887 1,063,887 -- --
U.S. Government Agency Mortgage-Backed
Securities..................................... 157,399 -- 157,399 --
Mortgage-Backed Securities........................ 120,847 -- 120,847 --
Asset-Backed Securities........................... 2,171 -- 2,171 --
------------ ------------ ------------ ------------
Total Investments................................. $ 12,188,083 $ 10,832,080 $ 1,356,003 $ --
============ ============ ============ ============
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2015.
See Notes to Financial Statements Page 39
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2015
SHARES DESCRIPTION VALUE
----------- ----------------------------------------------------------------------------- -------------
EXCHANGE-TRADED FUNDS - 99.1%
CAPITAL MARKETS - 99.1%
11,835 First Trust Consumer Discretionary AlphaDEX(R) Fund (a)...................... $ 403,810
10,272 First Trust Consumer Staples AlphaDEX(R) Fund (a)............................ 456,590
1,405 First Trust Developed Markets ex-US AlphaDEX(R) Fund (a)..................... 65,571
7,025 First Trust Dow Jones Internet Index Fund (a) (b)............................ 524,135
3,196 First Trust Emerging Markets AlphaDEX(R) Fund (a)............................ 57,688
760 First Trust Germany AlphaDEX(R) Fund (a)..................................... 27,520
7,993 First Trust Health Care AlphaDEX(R) Fund (a) (b)............................. 483,097
707 First Trust Hong Kong AlphaDEX(R) Fund (a)................................... 23,745
870 First Trust ISE Chindia Index Fund (a)....................................... 24,673
10,218 First Trust Mid Cap Core AlphaDEX(R) Fund (a)................................ 490,771
18,758 First Trust Mid Cap Growth AlphaDEX(R) Fund (a).............................. 540,981
5,574 First Trust NYSE Arca Biotechnology Index Fund (a)........................... 629,973
18,576 First Trust Small Cap Growth AlphaDEX(R) Fund (a)............................ 566,754
692 First Trust Switzerland AlphaDEX(R) Fund (a)................................. 27,687
698 First Trust United Kingdom AlphaDEX(R) Fund (a).............................. 28,053
3,069 iShares Core U.S. Aggregate Bond ETF......................................... 331,483
3,108 SPDR Barclays Intermediate Term Treasury ETF................................. 186,511
5,471 SPDR Barclays Intermediate Term Corporate Bond ETF........................... 182,895
6,088 SPDR Barclays Short Term Corporate Bond ETF.................................. 185,075
8,409 SPDR Nuveen Barclays Municipal Bond ETF...................................... 205,011
-------------
TOTAL INVESTMENTS - 99.1%.................................................... 5,442,023
(Cost $5,493,874) (c)
NET OTHER ASSETS AND LIABILITIES - 0.9%...................................... 48,391
-------------
NET ASSETS - 100.0%.......................................................... $ 5,490,414
=============
-----------------------------
(a) Investment in an affiliated fund.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $5,493,773. As of
December 31, 2015, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $18,526
and the aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over value was $70,276.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
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 12/31/2015 PRICES INPUTS INPUTS
-------------------------------------------------- ------------ ------------ ------------ ------------
Exchange-Traded Funds*............................ $ 5,442,023 $ 5,442,023 $ -- $ --
============ ============ ============ ============
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2015.
Page 40 See Notes to Financial Statements
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2015
FIRST TRUST/DOW
JONES DIVIDEND FIRST TRUST FIRST TRUST
& INCOME MULTI INCOME DORSEY WRIGHT
ALLOCATION ALLOCATION TACTICAL CORE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- ---------------
ASSETS:
Investments, at value................................................... $ 238,681,490 $ 8,725,709 $ 1,090,975
Investments in affiliated funds, at value............................... -- 3,462,374 4,351,048
Cash and cash equivalents............................................... 3,786,006 217,384 284,196
Receivables:
Interest............................................................. 971,550 5,013 --
Dividends............................................................ 213,440 15,060 1,384
Fund shares sold..................................................... 55,450 278 6,008
From investment advisor.............................................. -- 14,505 23,561
Investment securities sold........................................... -- 12,852 --
Reclaim.............................................................. -- 269 --
Prepaid expenses........................................................ 2,359 123 --
Other assets............................................................ -- -- 84
--------------- --------------- ---------------
Total Assets......................................................... 243,710,295 12,453,567 5,757,256
--------------- --------------- ---------------
LIABILITIES:
Payables:
Investment securities purchased...................................... -- 14,493 221,816
Investment advisory fees............................................. 141,095 -- --
12b-1 service fees (Class I)......................................... 51,927 2,592 857
Administrative service fees.......................................... 41,544 2,091 694
Licensing fees....................................................... 39,346 -- 421
Fund shares redeemed................................................. 33,125 3,761 177
Audit and tax fees................................................... 29,000 51,000 22,925
Variation margin..................................................... 25,328 -- --
Accounting and administration fees................................... 22,698 4,434 1,732
Custodian fees....................................................... 22,590 1,275 1,250
Printing fees........................................................ 21,900 6,079 3,000
Transfer agent fees.................................................. 14,596 8,821 5,618
Legal fees........................................................... 3,053 731 4,142
Commitment fees...................................................... 2,694 1,310 --
Financial reporting fees............................................. 771 -- 3,729
Trustees' fees and expenses.......................................... 46 -- 19
Other liabilities....................................................... 446 297 462
--------------- --------------- ---------------
Total Liabilities.................................................... 450,159 96,884 266,842
--------------- --------------- ---------------
NET ASSETS.............................................................. $ 243,260,136 $ 12,356,683 $ 5,490,414
=============== =============== ===============
NET ASSETS CONSIST OF:
Paid-in capital......................................................... $ 234,779,426 $ 13,015,518 $ 5,535,834
Accumulated net investment income (loss)................................ -- 24,736 6,431
Accumulated net realized gain (loss) on investments, futures and
foreign currency transactions........................................ 6,846,970 (208,787) --
Net unrealized appreciation (depreciation) on investments and futures... 1,633,740 (474,784) (51,851)
--------------- --------------- ---------------
NET ASSETS.............................................................. $ 243,260,136 $ 12,356,683 $ 5,490,414
=============== =============== ===============
Investments, at cost.................................................... $ 237,070,555 $ 9,057,854 $ 1,093,188
=============== =============== ===============
Investments in affiliated funds, at cost................................ $ -- $ 3,605,013 $ 4,400,686
=============== =============== ===============
CLASS I SHARES:
NET ASSETS.............................................................. $ 243,243,853 $ 12,257,268 $ 5,440,674
=============== =============== ===============
NET ASSET VALUE, per share.............................................. $ 11.94 $ 9.86 $ 9.94
=============== =============== ===============
Number of Shares outstanding............................................ 20,379,555 1,242,606 547,134
=============== =============== ===============
CLASS II SHARES:
NET ASSETS.............................................................. $ 16,283 $ 99,415 $ 49,740
=============== =============== ===============
NET ASSET VALUE, per share.............................................. $ 11.95 $ 9.86 $ 9.95
=============== =============== ===============
Number of Shares outstanding............................................ 1,363 10,080 5,000
=============== =============== ===============
See Notes to Financial Statements Page 41
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
FIRST TRUST/DOW
JONES DIVIDEND FIRST TRUST FIRST TRUST
& INCOME MULTI INCOME DORSEY WRIGHT
ALLOCATION ALLOCATION TACTICAL CORE
PORTFOLIO PORTFOLIO PORTFOLIO (a)
--------------- --------------- ---------------
INVESTMENT INCOME:
Dividends............................................................... $ 3,167,127 $ 161,175 $ 3,324
Dividends from affiliated funds......................................... -- 158,015 6,359
Interest................................................................ 3,156,531 16,352 50
Foreign withholding tax on dividend income.............................. -- (1,688) --
--------------- --------------- ---------------
Total investment income.............................................. 6,323,658 333,854 9,733
--------------- --------------- ---------------
EXPENSES:
Investment advisory fees................................................ 1,490,585 65,244 1,474
12b-1 distribution and service fees (Class I)........................... 621,044 26,921 1,031
Administrative service fees............................................. 496,842 19,936 830
Custodian fees.......................................................... 178,636 3,432 1,250
Accounting and administration fees...................................... 151,589 9,904 1,732
Transfer agent fees..................................................... 87,725 51,924 5,618
Licensing fees.......................................................... 81,049 -- 421
Printing fees........................................................... 72,285 15,973 3,000
Legal fees.............................................................. 58,816 3,922 4,143
Audit and tax fees...................................................... 32,254 51,254 22,925
Commitment fees......................................................... 20,876 10,383 --
Trustees' fees and expenses............................................. 18,890 16,120 4,027
Financial reporting fees................................................ 9,250 -- 4,500
Excise Tax.............................................................. -- 39 --
Other................................................................... 8,586 7,177 531
--------------- --------------- ---------------
Total expenses....................................................... 3,328,427 282,229 51,482
Fees waived or expenses reimbursed by the investment advisor......... (347,277) (184,872) (48,180)
--------------- --------------- ---------------
Net expenses............................................................ 2,981,150 97,357 3,302
--------------- --------------- ---------------
NET INVESTMENT INCOME (LOSS)............................................ 3,342,508 236,497 6,431
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.......................................................... 8,402,404 (167,798) --
Investments in affiliated funds...................................... -- (26,892) --
Capital gains distributions received from investment companies....... -- 1,923 --
Foreign currency transactions........................................ -- (10) --
Futures.............................................................. (317,721) -- --
--------------- --------------- ---------------
Net realized gain (loss)................................................ 8,084,683 (192,777) --
--------------- --------------- ---------------
Net increase from payment by the advisor................................ -- 5,471 --
--------------- --------------- ---------------
Net change in unrealized appreciation (depreciation) on:
Investments.......................................................... (12,372,023) (459,766) (2,213)
Investments in affiliated funds...................................... -- (104,971) (49,638)
Futures.............................................................. 152,179 -- --
--------------- --------------- ---------------
Net change in unrealized appreciation (depreciation).................... (12,219,844) (564,737) (51,851)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................. (4,135,161) (752,043) (51,851)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS...................................................... $ (792,653) $ (515,546) $ (45,420)
=============== =============== ===============
-----------------------------
(a) The Fund's Class I and Class II shares were seeded October 29, 2015 and
commenced operations on October 30, 2015.
Page 42 See Notes to Financial Statements
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST/DOW JONES DIVIDEND
& INCOME ALLOCATION PORTFOLIO
--------------------------------
FOR THE FOR THE
YEAR YEAR
ENDED ENDED
12/31/2015 12/31/2014 (a)
-------------- --------------
OPERATIONS:
Net investment income (loss)......................................................... $ 3,342,508 $ 1,848,661
Net realized gain (loss)............................................................. 8,084,683 4,560,758
Net change in unrealized appreciation (depreciation)................................. (12,219,844) 7,194,938
------------ ------------
Net increase (decrease) in net assets resulting from operations...................... (792,653) 13,604,357
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class I.............................................................................. (5,442,059) (1,105,002)
Class II............................................................................. (382) (90)
------------ ------------
(5,442,441) (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.................................................. (9,830,983) (1,105,092)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................................ 112,078,962 89,311,771
Proceeds from shares reinvested...................................................... 9,830,537 1,105,092
Cost of shares redeemed.............................................................. (63,164,485) (13,856,252)
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions............ 58,745,014 76,560,611
------------ ------------
Total increase (decrease) in net assets.............................................. 48,121,378 89,059,876
NET ASSETS:
Beginning of period.................................................................. 195,138,758 106,078,882
------------ ------------
End of period........................................................................ $243,260,136 195,138,758
============ ============
Accumulated net investment income (loss) at end of period............................ $ -- 745,285
============ ============
-----------------------
(a) The Fund's Class II shares were seeded on April 30, 2014, and commenced
operations on May 1, 2014.
See Notes to Financial Statements Page 43
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST MULTI INCOME
ALLOCATION PORTFOLIO
--------------------------------
FOR THE FOR THE
YEAR PERIOD
ENDED ENDED
12/31/2015 12/31/2014 (a)
-------------- --------------
OPERATIONS:
Net investment income (loss)......................................................... $ 236,497 $ 45,188
Net realized gain (loss)............................................................. (192,777) 3,487
Net increase from payment by the advisor............................................. 5,471 --
Net change in unrealized appreciation (depreciation)................................. (564,737) 89,953
------------ ------------
Net increase (decrease) in net assets resulting from operations...................... (515,546) 138,628
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class I.............................................................................. (234,799) (42,537)
Class II............................................................................. (2,203) (835)
------------ ------------
Total distributions to shareholders.................................................. (237,002) (43,372)
------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................................ 9,660,473 7,338,580
Proceeds from shares reinvested...................................................... 234,279 43,372
Cost of shares redeemed.............................................................. (3,784,387) (478,342)
------------ ------------
Net increase (decrease) in net assets resulting from capital transactions............ 6,110,365 6,903,610
------------ ------------
Total increase (decrease) in net assets.............................................. 5,357,817 6,998,866
NET ASSETS:
Beginning of period.................................................................. 6,998,866 --
------------ ------------
End of period........................................................................ $ 12,356,683 $ 6,998,866
============ ============
Accumulated net investment income (loss) at end of period............................ $ 24,736 $ 6,926
============ ============
-----------------------------
(a) The Fund's Class I and Class II shares were seeded on April 30, 2014, and
commenced operations on May 1, 2014.
Page 44 See Notes to Financial Statements
FIRST TRUST VARIABLE INSURANCE TRUST
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST DORSEY WRIGHT
TACTICAL CORE PORTFOLIO
-------------------------
FOR THE
PERIOD
ENDED
12/31/2015 (a)
--------------
OPERATIONS:
Net investment income (loss)......................................................... $ 6,431
Net realized gain (loss)............................................................. --
Net change in unrealized appreciation (depreciation)................................. (51,851)
------------
Net increase (decrease) in net assets resulting from operations...................... (45,420)
------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold............................................................ 5,538,309
Proceeds from shares reinvested...................................................... --
Cost of shares redeemed.............................................................. (2,475)
------------
Net increase (decrease) in net assets resulting from capital transactions............ 5,535,834
------------
Total increase (decrease) in net assets.............................................. 5,490,414
NET ASSETS:
Beginning of period.................................................................. --
------------
End of period........................................................................ $ 5,490,414
============
Accumulated net investment income (loss) at end of period............................ $ 6,431
============
-----------------------------
(a) The Fund's Class I and Class II shares were seeded on October 29, 2015,
and commenced operations on October 30, 2015.
See Notes to Financial Statements Page 45
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES
FOR THE
YEAR ENDED DECEMBER 31, PERIOD
------------------------------------------------ ENDED
2015 2014 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)................... 0.16 0.15 0.14 0.15
Net realized and unrealized gain (loss)........ (0.15) 0.99 1.17 0.29
---------- ---------- ---------- ----------
Total from investment operations............... 0.01 1.14 1.31 0.44
---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.......................... (0.27) (0.10) (0.09) (0.07)
Net realized gain.............................. (0.21) -- (0.16) (0.04)
Return of capital.............................. -- -- -- (0.02)
---------- ---------- ---------- ----------
Total from distributions....................... (0.48) (0.10) (0.25) (0.13)
---------- ---------- ---------- ----------
Net asset value, end of period................. $ 11.94 $ 12.41 $ 11.37 $ 10.31
========== ========== ========== ==========
TOTAL RETURN (b) (c)........................... 0.09% 10.04% 12.75% 4.38%
========== ========== ========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........... $ 243,244 $ 195,128 $ 106,079 $ 32,176
Ratio of total expenses to average net assets.. 1.34% 1.43% 1.65% 2.69% (d)
Ratio of net expenses to average net assets.... 1.20% 1.20% 1.20% 1.20% (d)
Ratio of net investment income (loss) .........
to average net assets........................ 1.35% 1.40% 1.27% 2.25% (d)
Portfolio turnover rate........................ 81% 65% 73% 34%
CLASS II SHARES
FOR THE
YEAR PERIOD
ENDED ENDED
12/31/2015 12/31/2014 (e)
------------ ------------
Net asset value, beginning of period........... $ 12.43 $ 11.63
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................... 0.17 0.14
Net realized and unrealized gain (loss)........ (0.14) 0.77
---------- ----------
Total from investment operations............... 0.03 0.91
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.......................... (0.30) (0.11)
Net realized gain.............................. (0.21) --
---------- ----------
Total from distributions....................... (0.51) (0.11)
---------- ----------
Net asset value, end of period................. $ 11.95 $ 12.43
========== ==========
TOTAL RETURN (b) (c)........................... 0.25% 7.82%
========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........... $ 16 $ 11
Ratio of total expenses to average net assets.. 1.09% 1.21% (d)
Ratio of net expenses to average net assets.... 0.95% 0.95% (d)
Ratio of net investment income (loss) .........
to average net assets........................ 1.64% 1.69% (d)
Portfolio turnover rate........................ 81% 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 returns above.
(c) Total returns 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 46 See Notes to Financial Statements
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES
FOR THE
YEAR PERIOD
ENDED ENDED
12/31/2015 12/31/2014 (a)
------------ ------------
Net asset value, beginning of period........... $ 10.39 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................... 0.19 0.07
Net realized and unrealized gain (loss)........ (0.53) (b) 0.39
---------- ----------
Total from investment operations............... (0.34) 0.46
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.......................... (0.19) (0.07)
---------- ----------
Total from distributions....................... (0.19) (0.07)
---------- ----------
Net asset value, end of period................. $ 9.86 $ 10.39
========== ==========
TOTAL RETURN (c) (d)........................... (3.24)% (b) 4.57%
========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........... $ 12,257 $ 6,894
Ratio of total expenses to average net assets.. 2.60% 6.00% (e)
Ratio of net expenses to average net assets.... 0.90% 1.20% (e)
Ratio of net investment income (loss) .........
to average net assets........................ 2.17% 2.35% (e)
Portfolio turnover rate........................ 93% 15%
CLASS II SHARES
FOR THE
YEAR PERIOD
ENDED ENDED
12/31/2015 12/31/2014 (a)
------------ ------------
Net asset value, beginning of period........... $ 10.39 $ 10.00
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................... 0.24 0.04
Net realized and unrealized gain (loss)........ (0.55) (b) 0.43
---------- ----------
Total from investment operations............... (0.31) 0.47
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income.......................... (0.22) (0.08)
---------- ----------
Total from distributions....................... (0.22) (0.08)
---------- ----------
Net asset value, end of period................. $ 9.86 $ 10.39
========== ==========
TOTAL RETURN (c) (d)........................... (3.01)% (b) 4.74%
========== ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........... $ 100 $ 105
Ratio of total expenses to average net assets.. 2.31% 14.44% (e)
Ratio of net expenses to average net assets.... 0.67% 0.95% (e)
Ratio of net investment income (loss) .........
to average net assets........................ 2.32% 0.54% (e)
Portfolio turnover rate........................ 93% 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) First Trust Multi Income Allocation Portfolio received a reimbursement
from the Advisor in the amount of $5,471. The reimbursement from the
Advisor represents less than $0.01 per share and had no effect on the
total return.
(c) Total return is based on the combination of reinvested dividends, capital
gain and return of capital distributions, if any. Total return is not
annualized for periods 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 returns above.
(d) Total returns would have been lower if certain fees had not been waived
and expenses reimbursed by the investment advisor.
(e) Annualized.
See Notes to Financial Statements Page 47
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
CLASS I SHARES
PERIOD
ENDED
12/31/2015 (a)
------------
Net asset value, beginning of period........... $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................... 0.01
Net realized and unrealized gain (loss)........ (0.07)
----------
Total from investment operations............... (0.06)
----------
Net asset value, end of period................. $ 9.94
==========
TOTAL RETURN (b) (c)........................... (0.60)%
==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........... $ 5,440
Ratio of total expenses to average net assets.. 11.71% (d)
Ratio of net expenses to average net assets.... 0.79% (d)
Ratio of net investment income (loss) .........
to average net assets........................ 1.54% (d)
Portfolio turnover rate........................ --%
CLASS II SHARES
PERIOD
ENDED
12/31/2015 (a)
------------
Net asset value, beginning of period........... $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................... 0.01
Net realized and unrealized gain (loss)........ (0.06)
----------
Total from investment operations............... (0.05)
----------
Net asset value, end of period................. $ 9.95
==========
TOTAL RETURN (b) (c)........................... (0.50)%
==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)........... $ 50
Ratio of total expenses to average net assets.. 37.40% (d)
Ratio of net expenses to average net assets.... 0.51% (d)
Ratio of net investment income (loss) .........
to average net assets........................ 0.86% (d)
Portfolio turnover rate........................ --%
-----------------------------
(a) The Fund's Class I and Class II shares were seeded on October 29, 2015,
and commenced operations on October 30, 2015.
(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.
Page 48 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
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 three 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, First
Trust Multi Income Allocation Portfolio ("First Trust Multi Income"), which
commenced investment operations on May 1, 2014, and First Trust Dorsey Wright
Tactical Core Portfolio ("First Trust Dorsey Wright"), which commenced
investment operations on October 30, 2015. 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 is 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 are 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 is actively managed by First Trust and
implementing the strategy involves multiple portfolio managers.
The Advisor tactically adjusts 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, is 20%. The minimum weight of any asset
class, at the time of adjustment, is 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.
-----------------------------
(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 49
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
First Trust Dorsey Wright's investment objective is to provide total return.
First Trust Dorsey Wright seeks to achieve its investment objective by
investing, under normal market conditions, at least 80% of its net assets (plus
any investment borrowings) in ETFs and cash and cash equivalents that comprise
the Dorsey Wright Tactical Tilt Moderate Core Index. It is expected that a
majority of the ETFs in which the Fund invests will be advised by First Trust.
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.
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 Advisor's Pricing Committee in
accordance with valuation procedures adopted by the Trust's Board of Trustees
(the "Board"), 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, 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
Exchange-traded futures contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded futures contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price.
Fixed income and other debt securities having a remaining maturity of 60
days or less when purchased are fair valued at cost adjusted for
amortization of premiums and accretion of discounts (amortized cost),
provided the Advisor's Pricing Committee has determined that the use of
amortized cost is an appropriate reflection of fair value given market and
issuer specific conditions existing at the time of the determination.
Factors that may be considered in determining the appropriateness of the
use of amortized cost include, but are not limited to, the following:
1) the credit conditions in the relevant market and changes thereto;
2) the liquidity conditions in the relevant market and changes thereto;
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 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;
Page 51
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
If the securities in question are foreign securities, the following additional
information may be considered:
1) the value of similar foreign securities traded on other foreign
markets;
2) ADR trading of similar securities;
3) closed-end fund trading of similar securities;
4) foreign currency exchange activity;
5) the trading prices of financial products that are tied to baskets of
foreign securities;
6) factors relating to the event that precipitated the pricing problem;
7) whether the event is likely to recur; and
8) whether the effects of the event are isolated or whether they affect
entire markets, countries or regions.
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 December 31, 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 master limited partnerships
("MLPs") generally are comprised of return of capital and investment income. A
Fund records estimated return of capital and investment income based on
historical information available from each MLP. These estimates may subsequently
be revised based on information received from the MLPs after their tax reporting
periods are concluded.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
investment income. The actual character of the amounts received during the year
is not known until after the REITs' fiscal year end. A Fund records the
character of distributions received from REITs during the year based on
estimates available. The characterization of distributions received by a Fund
may subsequently be revised based on information received from the REITs after
their tax reporting periods are concluded.
Page 52
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
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 First Trust Dow Jones or First Trust Multi Income. 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.
D. FUTURES CONTRACTS
First Trust Dow Jones purchases or sells (i.e., is long or short) futures
contracts to hedge against changes in interest rates (interest rate risk).
Futures contracts are agreements between the Fund and a counterparty to buy or
sell a specific quantity of an underlying instrument at a specified price and at
a specified date. Depending on the terms of the contract, futures contracts are
settled either through physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement amount on the settlement
date. Open futures contracts can also be closed out prior to settlement by
entering into an offsetting transaction in a matching futures contract. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain margin deposits on the futures contract. When the
contract is closed or expires, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed or expired. This gain or loss is included in
"Net realized gain (loss) on Futures" on the Statements of Operations.
Upon entering into a futures contract, the Fund must deposit funds, called
margin, with its custodian in the name of the clearing broker equal to a
specified percentage of the current value of the contract. Open futures contacts
are marked-to-market daily with the change in value recognized as a component
of, "Net change in unrealized appreciation (depreciation) on Futures" on the
Statements of Operations. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as variation margin
and are included in "Variation margin payable or receivable" on the Statements
of Assets and Liabilities. If market conditions change unexpectedly, the Fund
may not achieve the anticipated benefits of the futures contract and may realize
a loss. The use of futures contracts involves the risk of imperfect correlation
in movements in the price of the futures contracts, interest rates and the
underlying instruments.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income of each Fund, if any, are declared and
paid annually. Each Fund distributes its net realized capital gains, if any, to
shareholders at least annually. All dividends payable by each Fund will be
reinvested in the Fund.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some point in the future. Permanent differences
incurred during the tax year ended December 31, 2015, have been reclassified at
year end to reflect the following:
Accumulated
Accumulated Net Net Realized
Investment Gain (Loss) on
Income (Loss) Investments Paid-in Capital
------------------ ------------------ ------------------
First Trust Dow Jones $ 1,354,648 $ (1,354,648) $ --
First Trust Multi Income 18,315 (19,858) 1,543
First Trust Dorsey Wright -- -- --
The tax character of distributions paid by each applicable Fund during the
period ended December 31, 2015, was as follows:
Distributions paid Distributions paid Distributions paid
from Ordinary from Capital from Return
Income Gains of Capital
------------------ ------------------ ------------------
First Trust Dow Jones $ 7,639,768 $ 2,191,215 $ --
First Trust Multi Income 237,002 -- --
First Trust Dorsey Wright -- -- --
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
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, 2015, 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 $ -- $ 7,108,070 $ 1,372,640
First Trust Multi Income 24,736 (108,013) (575,558)
First Trust Dorsey Wright 6,330 -- (51,750)
F. INCOME TAXES
First Trust Dow Jones and First Trust Multi Income intend to continue to
qualify, and First Trust Dorsey Wright 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.
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,
2014 and 2015 remain open to federal and state audit for First Trust Dow Jones.
Taxable years ended 2014 and 2015 remain open to federal and state audit for
First Trust Multi Income. Also the taxable year ended 2015 remains open for
First Trust Dorsey Wright Tactical Core Portfolio. As of December 31, 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, 2015, for
federal income tax purposes, the Funds had capital loss carryforward available,
to the extent provided by regulations, to offset capital gains as follows:
Non-Expiring
Capital Loss
Carryforwards
---------------
First Trust Dow Jones Dividend & Income Allocation Fund $ --
First Trust Multi Income Allocation Portfolio $ 108,013
First Trust Dorsey Wright Tactical Core Portfolio $ --
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.
Page 54
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
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 and First Trust Dorsey Wright, 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 and are shown in "Net realized
gain (loss) on foreign currency transactions" on the Statement of Operations.
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.
I. INTEREST-ONLY SECURITIES
An interest-only security ("IO Security") is the interest-only portion of a
mortgage-backed security that receives some or all of the interest portion of
the underlying mortgage-backed security and little or no principal. A reference
principal value called a notional value is used to calculate the amount of
interest due to the IO Security. IO Securities are sold at a deep discount to
their notional principal amount. Generally speaking, when interest rates are
falling and prepayment rates are increasing, the value of an IO Security will
fall. Conversely, when interest rates are rising and prepayment rates are
decreasing, generally the value of an IO Security will rise. These securities,
if any, are identified on the Portfolio of Investments.
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 the average daily net
assets for both First Trust Dow Jones and First Trust Multi Income, and 0.35% of
the average daily net assets for First Trust Dorsey Wright. First Trust also
provides fund reporting services to First Trust Dow Jones and First Trust Dorsey
Wright 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.
For the services provided and the expenses assumed pursuant to the investment
sub-advisory 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 sub-advisory 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 year ended December 31, 2015, First Trust Multi Income received
reimbursements from the Advisor of $5,471 in connection with trade errors.
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FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
First Trust has agreed to waive fees and/or pay First Trust Dow Jones' and First
Trust Multi Income'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, acquired fund fees and
expenses, and 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. First Trust has agreed to waive fees and/or
pay First Trust Dorsey Wright'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 1.30% and 1.05%, respectively, of each
Fund's average daily net assets per year at least until October 31, 2017. In
First Trust Dorsey Wright, because acquired fund fees and expenses are
estimated, First Trust will periodically adjust the amount of the fee waiver and
expense reimbursement in order to attempt to meet the Expense Cap. However,
total net annual fund expense may be higher or lower than the Expense Cap.
Expenses borne and fees waived by First Trust are subject to reimbursement by
each Fund for up to three years from the date the fee or expense was incurred by
the Fund, but no reimbursement payment will be made by the Fund at any time if
it would result in the Fund's expenses exceeding the Expense Cap. These amounts,
if any, are included in "Expenses previously waived or reimbursed" on the
Statements of Operations.
The advisory fee waivers and expense reimbursements for the period ended
December 31, 2015, and the expenses borne by First Trust subject to recovery
from the applicable Fund at December 31, 2015, are included in the table below.
FEES WAIVED OR EXPENSES BORNE BY FIRST TRUST SUBJECT TO RECOVERY
-------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED
FEE EXPENSES DECEMBER 31, DECEMBER 31, DECEMBER 31,
WAIVED REIMBURSED 2013 2014 2015 TOTAL
------------ ------------ ------------ ------------ ------------ ----------
First Trust Dow Jones $ 347,277 $ -- $ 333,872 $ 308,178 $ 347,277 $ 989,327
First Trust Multi Income $ 65,244 $ 86,723 $ -- $ 101,172 $ 151,967 $ 253,139
First Trust Dorsey Wright $ 1,474 $ 46,706 $ -- $ -- $ 48,180 $ 48,180
During the year ended December 31, 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 December 31, 2015, First Trust
reimbursed First Trust Multi Income $32,905 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, as of 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 FTCP.
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 IS and BNYM are subsidiaries of The Bank of New York
Mellon Corporation, a financial holding company.
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.
Brown Brothers Harriman & Co. ("BBH") serves as First Trust Dorsey Wright's
administrator, fund accountant and custodian. As custodian, BBH is responsible
for custody of the Fund's assets. As administrator and fund accountant, BBH 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. BNYM serves as the
Fund's transfer agent in accordance with certain fee arrangements. As transfer
agent, BNYM is responsible for maintaining shareholder records for the Fund.
Page 56
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
At a meeting on December 7, 2015, the Board accepted Mr. Bradley's resignation
from his position as the President and Chief Executive Officer of the Funds,
effective December 31, 2015. At the same meeting, the Board elected Mr. Dykas,
formerly Chief Financial Officer and Treasurer of the Funds, to serve as the
President and Chief Executive Officer and Mr. Swade, formerly an Assistant
Treasurer of the Funds, to serve as the Treasurer, Chief Financial Officer and
Chief Accounting Officer of the Funds.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund, or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. CAPITAL SHARE TRANSACTIONS
Capital transactions for First Trust Dow Jones were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2015 DECEMBER 31, 2014
SHARES VALUE SHARES VALUE
------------ ------------ ------------ ------------
Sales:
Class I 9,010,497 $112,072,958 7,492,797 $ 89,301,771
Class II 485 6,004 860 10,000
------------ ------------ ------------ ------------
Total Sales: 9,010,982 $112,078,962 7,493,657 $ 89,311,771
============ ============ ============ ============
Dividend Reinvestment:
Class I 810,396 $ 9,830,416 93,014 $ 1,105,002
Class II 11 121 7 90
------------ ------------ ------------ ------------
Total Dividend Reinvestment: 810,407 $ 9,830,537 93,021 $ 1,105,092
============ ============ ============ ============
Redemptions:
Class I (5,160,259) $(63,164,485) (1,195,329) $(13,856,252)
Class II -- -- -- --
------------ ------------ ------------ ------------
Total Redemptions: (5,160,259) $(63,164,485) (1,195,329) $(13,856,252)
============ ============ ============ ============
Capital transactions for First Trust Multi Income were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2015 DECEMBER 31, 2014
SHARES VALUE SHARES VALUE
------------ ------------ ------------ ------------
Sales:
Class I 929,411 $ 9,657,422 705,881 $ 7,238,580
Class II 290 3,051 10,000 100,000
------------ ------------ ------------ ------------
Total Sales: 929,701 $ 9,660,473 715,881 7,338,580
============ ============ ============ ============
Dividend Reinvestment:
Class I 23,869 $ 234,274 4,086 $ 42,537
Class II -- 5 80 835
------------ ------------ ------------ ------------
Total Dividend Reinvestment: 23,869 $ 234,279 4,166 $ 43,372
============ ============ ============ ============
Redemptions:
Class I (374,076) $ (3,781,375) (46,565) $ (478,342)
Class II (290) (3,012) -- --
------------ ------------ ------------ ------------
Total Redemptions: (374,366) $ (3,784,387) (46,565) $ (478,342)
============ ============ ============ ============
Page 57
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
Capital transactions for First Trust Dorsey Wright were as follows:
YEAR ENDED
DECEMBER 31, 2015
SHARES VALUE
------------ ------------
Sales:
Class I 547,381 $ 5,488,309
Class II 5,000 50,000
------------ ------------
Total Sales: 552,381 $ 5,538,309
============ ============
Dividend Reinvestment:
Class I -- --
Class II -- --
------------ ------------
Total Dividend Reinvestment: -- --
============ ============
Redemptions:
Class I (247) $ (2,475)
Class II -- --
------------ ------------
Total Redemptions: (247) $ (2,475)
============ ============
5. DERIVATIVE TRANSACTIONS
The following table presents the types of derivatives held by First Trust Dow
Jones at December 31, 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 and First Trust Dorsey Wright did not hold
any derivative instruments as of December 31, 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 $ -- Variation Margin Payable $ 25,328
The following table presents the amount of net realized gain (loss) and change
in net unrealized appreciation (depreciation) recognized for the year ended
December 31, 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 $ (317,721)
Net change in unrealized gain (loss) on futures 152,179
During the year ended December 31, 2015, the notional values of futures
contracts opened and closed were $81,927,430 and $67,427,117, 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.
Page 58
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
6. AFFILIATED TRANSACTIONS
First Trust Multi Income and First Trust Dorsey Wright invest 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 December
31, 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 12/31/2015 12/31/2015 INCOME GAIN (LOSS)
------------------------------------------------ ---------- --------- --------- ---------- ---------- ---------- -----------
First Trust Low Duration Mortgage
Opportunities ETF -- 7,998 (7,998) -- $ -- $ 53 $ 1,021
First Trust Preferred Securities and
Income ETF 32,820 36,370 (23,760) 45,430 860,898 51,384 (6,683)
First Trust Senior Loan Fund 22,060 22,910 (7,240) 37,730 1,771,046 62,580 (7,857)
First Trust Tactical High Yield ETF 12,000 10,670 (4,990) 17,680 830,430 43,998 (13,373)
-----------------------------------
$3,462,374 $ 158,015 $ (26,892)
===================================
Amounts relating to these investments in First Trust Dorsey Wright at December
31, 2015, and for the period then ended are as follows:
SHARE ACTIVITY
--------------------------------------------
BALANCE AT BALANCE AT VALUE AT DIVIDEND REALIZED
SECURITY NAME 10/30/2015 PURCHASES SALES 12/31/2015 12/31/2015 INCOME GAIN (LOSS)
------------------------------------------------ ---------- --------- --------- ---------- ---------- ---------- -----------
First Trust Consumer Discretionary
AlphaDEX(R) Fund -- 11,835 -- 11,835 $ 403,810 896 $ --
First Trust Consumer Staples AlphaDEX(R)
Fund -- 10,272 -- 10,272 456,590 1,475 --
First Trust Developed Markets ex-US
AlphaDEX(R) Fund -- 1,405 -- 1,405 65,571 461 --
First Trust Dow Jones Internet Index Fund -- 7,025 -- 7,025 524,135 -- --
First Trust Emerging Markets AlphaDEX(R)
Fund -- 3,196 -- 3,196 57,688 116 --
First Trust Germany AlphaDEX(R) Fund -- 760 -- 760 27,520 -- --
First Trust Health Care AlphaDEX(R) Fund -- 7,993 -- 7,993 483,097 -- --
First Trust Hong Kong AlphaDEX(R) Fund -- 707 -- 707 23,745 109 --
First Trust ISE Chindia Index Fund -- 870 -- 870 24,673 32 --
First Trust Mid Cap Core AlphaDEX(R) Fund -- 10,218 -- 10,218 490,771 1,577 --
First Trust Mid Cap Growth AlphaDEX(R)
Fund -- 18,758 -- 18,758 540,981 656 --
First Trust NYSE Arca Biotechnology
Index Fund -- 5,574 -- 5,574 629,973 -- --
First Trust Small Cap Growth AlphaDEX(R)
Fund -- 18,576 -- 18,576 566,754 835 --
First Trust Switzerland AlphaDEX(R) Fund -- 692 -- 692 27,687 29 --
First Trust United Kingdom AlphaDEX(R)
Fund -- 698 -- 698 28,053 173 --
-----------------------------------
$4,351,048 $ 6,359 $ --
===================================
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.
Page 59
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015
First Trust Portfolios L.P. ("FTP"), an affiliate of First Trust, serves as the
distributor of shares of the Funds. FTP uses the service fee to compensate each
Participating Insurance Company for providing account services to policy owners.
These services include establishing and maintaining Contract owners' accounts,
supplying information to Contract owners, delivering Fund materials to Contract
owners, answering inquiries, and providing other personal services to Contract
owners. Each Fund may spend up to 0.25% per year of the average daily net assets
of its Class I shares as a service fee under the Plan. In addition, the Plan
permits First Trust to use a portion of its advisory fee to compensate FTP for
expenses incurred in connection with the sale of a Fund's Class I shares
including, without limitation, compensation of its sales force, expenses of
printing and distributing the Prospectus to persons other than Contract owners,
expenses of preparing, printing and distributing advertising and sales
literature and reports to Contract owners used in connection with the sale of a
Fund's Class I Shares, certain other expenses associated with the servicing of
Class I shares of a Fund, and any service-related expenses that may be
authorized from time to time by the Board.
During the year ended December 31, 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 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
U.S. Government securities and short-term investments, for the period ended
December 31, 2015, were as follows:
PURCHASES SALES
--------------- ---------------
First Trust Dow Jones $ 211,689,706 $ 162,077,686
First Trust Multi Income 11,684,145 6,315,536
First Trust Dorsey Wright 5,493,874 --
Cost of purchases and proceeds from sales of U.S. Government investment
securities, excluding short-term investments, for the period ended December 31,
2015, were as follows:
PURCHASES SALES
--------------- ---------------
First Trust Dow Jones $ 38,990,737 $ 33,677,197
First Trust Multi Income 4,263,392 3,543,467
First Trust Dorsey Wright -- --
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
a $135 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
year ended December 31, 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 was the following subsequent event:
Effective January 1, 2016, the fixed annual retainer paid to the Independent
Trustees will be allocated equally among each fund in the First Trust Fund
Complex and will no longer be allocated pro rata based on each fund's net
assets.
Page 60
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST TRUST VARIABLE INSURANCE
TRUST:
We have audited the accompanying statements of assets and liabilities of First
Trust/Dow Jones Dividend & Income Allocation Portfolio, First Trust Multi Income
Allocation Portfolio, and First Trust Dorsey Wright Tactical Core Portfolio,
each a series of the First Trust Variable Insurance Trust (the "Funds"),
including the portfolios of investments, as of December 31, 2015, and the
related statements of operations and changes in net assets and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Funds
are not required to have, nor were we engaged to perform, an audit of their
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Funds' internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2015 by correspondence with the Funds'
custodian and brokers; when replies were not received from brokers, we performed
other auditing procedures. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds listed above included in the First Trust Variable Insurance Trust,
as of December 31, 2015, and the results of their operations and changes in
their net assets and the financial highlights for each of the periods presented,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 12, 2016
Page 61
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 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 portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Trust's Form N-Qs
are available (1) by calling (800) 988-5891; (2) on the Trust's website located
at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov;
and (4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2015, the following percentages of
income dividend paid by the Funds qualify for the dividends received deduction
available to corporations:
DIVIDENDS RECEIVED DEDUCTION
-------------------------------------
First Trust Dow Jones Dividend & Income Allocation Portfolio 50.62%
First Trust Multi Income Allocation Portfolio 21.07%
First Trust Dorsey Wright Tactical Core Portfolio 0.00%
For the taxable year ended December 31, 2015, the following percentages of
income dividend paid by the Funds were designated as qualified dividend income:
QUALIFIED DIVIDEND INCOME
-------------------------------------
First Trust Dow Jones Dividend & Income Allocation Portfolio 0.00%
First Trust Multi Income Allocation Portfolio 0.00%
First Trust Dorsey Wright Tactical Core Portfolio 0.00%
For the year ended December 31, 2015, the amount of long-term capital gain
distributions designated by the Funds which are taxable at the applicable
taxable gains rates for federal income tax purposes were:
LONG-TERM CAPITAL GAINS DISTRIBUTIONS
-------------------------------------
First Trust Dow Jones Dividend & Income Allocation Portfolio $2,191,215
First Trust Multi Income Allocation Portfolio --
First Trust Dorsey Wright Tactical Core Portfolio --
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
Page 62
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015 (UNAUDITED)
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
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.
The First Trust Dorsey Wright Tactical Core Portfolio (the "Portfolio") is not
sponsored, endorsed, sold or promoted by Dorsey Wright & Associates, LLC
("Licensor"). Licensor makes no representation or warranty, express or implied,
to the owners of the Portfolio or any member of the public regarding the
advisability of trading in the Portfolio. Licensor's only relationship to First
Trust Advisors L.P. ("First Trust") is the licensing of certain trademarks and
trade names of Licensor and of the Dorsey Wright Tactical Tilt Moderate Core
Index which is determined, composed and calculated by Licensor without regard to
First Trust or the Portfolio, Licensor has no obligation to take the needs of
First Trust or the owners of the Portfolio into consideration in determining,
composing or calculating Dorsey Wright Tactical Tilt Moderate Core Index.
Licensor is not responsible for and has not participated in the determination of
the timing of, prices at, or quantities of the Portfolio to be listed or in the
determination or calculation of the equation by which the Portfolio are to be
converted into cash. Licensor has no obligation or liability in connection with
the administration, marketing or trading of the Portfolio.
LICENSOR DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE DORSEY
WRIGHT TACTICAL TILT MODERATE CORE OR ANY DATA INCLUDED THEREIN AND LICENSOR
SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.
LICENSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
FIRST TRUST, OWNERS OF THE FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DORSEY WRIGHT TACTICAL TILT
MODERATE CORE INDEX OR ANY DATA INCLUDED THEREIN. LICENSOR MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DORSEY WRIGHT
TACTICAL TILT MODERATE CORE INDEX OR ANY DATA INCLUDED THEREIN, WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT SHALL LICENSOR HAVE ANY LIABILITY FOR ANY LOST
PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO
THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN LICENSOR AND
FIRST TRUST.
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.
Page 63
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015 (UNAUDITED)
AFFILIATED FUND RISK. The First Trust Multi Income Allocation Portfolio and the
First Trust Dorsey Wright Tactical Core Portfolio invest in securities of
affiliated ETFs, which involves additional expenses that would not be present in
a direct investment in such affiliated ETFs. Furthermore, the Funds' investment
performance and risks are directly related to the investment performance and
risks of the affiliated ETFs.
CONVERTIBLE SECURITIES RISK. The ETFs in which the First Trust Multi Income
Allocation Portfolio and the First Trust Dorsey Wright Tactical Core Portfolio
invest may invest in convertible securities. Convertible securities have
characteristics of both equity and debt securities and, as a result, are exposed
to certain additional risks. The market values of convertible securities tend to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, a convertible security's market value also tends to
reflect the market price of the common stock of the issuing company,
particularly when the stock price is greater than the convertible security's
conversion price (i.e., the predetermined price or exchange ratio at which the
convertible security can be converted or exchanged for the underlying common
stock). Convertible securities are also exposed to the risk that an issuer is
unable to meet its obligation to make dividend or principal payments when due as
a result of changing financial or market conditions. Convertible securities
generally offer lower interest or dividend yields than non-convertible debt
securities of similar credit quality because of their potential for capital
appreciation.
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.
CURRENCY RISK. The ETFs in which the First Trust Multi Income Allocation
Portfolio and the First Trust Dorsey Wright Tactical Core Portfolio invest may
hold investments that are denominated in non-U.S. currencies, or in securities
that provide exposure to such currencies, currency exchange rates or interest
rates denominated in such currencies. Changes in currency exchange rates and the
relative value of non-U.S. currencies will affect the value of the Funds'
investment and the value of your Fund shares. Currency exchange rates can be
very volatile and can change quickly and unpredictably. As a result, the value
of an investment in the Funds may change quickly and without warning and you may
lose money.
DEPOSITORY RECEIPTS RISK The First Trust Multi Income Allocation Portfolio and
the First Trust Dorsey Wright Tactical Core Portfolio invest 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.
EQUITY SECURITIES RISK. Because the Funds and the ETFs in which the First Trust
Multi Income Allocation Portfolio and the First Trust Dorsey Wright Tactical
Core Portfolio invest hold equity securities, the value of the Funds' shares
will fluctuate with changes in the value of these equity securities. Equity
securities prices fluctuate for several reasons, including changes in investors'
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perceptions of the financial condition of an issuer or the general condition of
the relevant stock market, such as 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 capital
rises and borrowing costs increase. The equity markets have experienced recent
volatility that may lead to sharp declines in the value of the underlying ETFs
and the Funds.
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 Funds bear their ratable share of the underlying fund's expenses,
and are 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.
FIXED INCOME SECURITIES RISK. An investment in the Funds involves risk
associated with an investment in fixed income securities including the risk that
certain of the securities in the Funds may not have the benefit of covenants
that would prevent the issuer from engaging in capital restructurings or
borrowing transactions in connection with corporate acquisitions, leveraged
buyouts or restructurings. This limitation could reduce the ability of the
issuer to meet its payment obligations and might result in increased credit
risk. In addition, certain of the securities may be redeemed or prepaid by the
issuer, resulting in lower interest payments by the Funds and reduced
distributions to shareholders.
FLOATING RATE LOAN RISK. The Funds and the ETFs in which the First Trust Multi
Income Allocation Portfolio and the First Trust Dorsey Wright Tactical Core
Portfolio invest may invest in floating rate loans, which may include high yield
securities, or "junk" loans. An investment in floating rate loans subjects the
Funds to credit risk, which is heightened for loans in which the Funds invest
because companies that issue such loans tend to be highly leveraged and thus are
more susceptible to the risks of interest deferral and/or bankruptcy. The loans
are usually rated below investment grade but may also be unrated. An economic
downturn would generally lead to a 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. Loans are subject to a number of risks
described elsewhere in this annual report, including liquidity risk and the risk
of investing in below investment grade debt instruments. Floating rate loans 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. Floating rate loans may also not
be considered "securities" under the 1940 Act and therefore prevent the Funds
from relying on the anti-fraud provisions of the Act.
HIGH YIELD SECURITIES RISK. The First Trust Multi Income Allocation Portfolio
and the First Trust Dorsey Wright Tactical Core Portfolio invest 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.
INDEX CONSTITUENT RISK. The Fund may be a constituent of one or more indices. As
a result, the Fund may be included in one or more index-tracking ETFs or mutual
funds. Being a component security of such a vehicle could greatly affect the
trading activity involving the Fund, the size of the Fund and the market
volatility of the Fund. Inclusion in an index could significantly increase
demand for the Fund and removal from an index could result in outsized selling
activity in a relatively short period of time. As a result, the Fund's NAV could
be negatively impacted and the Fund's market price may be significantly below
the Fund's net asset value during certain periods In addition, index rebalances
may potentially result in increased trading activity. To the extent buying or
selling activity increases, the Fund can be exposed to increased brokerage costs
and adverse tax consequences and the market price of the Fund can be negatively
affected.
INDEX REBALANCE RISK. Pursuant to the methodology that the Fund's index provider
uses to calculate and maintain the Fund's underlying index, the Fund may own a
significant portion of the First Trust ETF's included in the Fund. Such ETFs may
be removed from the underlying Index in the event that it does not comply with
the eligibility requirements of the underlying index. As a result, the Fund may
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be forced to sell shares of certain First Trust ETFs at inopportune times or for
prices other than at current market values or may elect not to sell such shares
on the day that they are removed from the underlying index, due to market
conditions or otherwise. Due to these factors, the variation between the Fund's
annual return and the return of the underlying index may increase significantly.
Apart from scheduled rebalances, the index provider may carry out additional ad
hoc rebalances to the underlying index to, for example, correct an error in the
selection of constituents. When the Fund in turn rebalances its portfolio, any
transaction costs and market exposure arising from such portfolio rebalancing
will be borne by the Fund and its shareholders. Unscheduled rebalances may also
expose the Fund to additional tracking error risk. Therefore, errors and
additional ad hoc rebalances carried out by the index provider may increase the
Fund's costs and market exposure.
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. Mortgage-related securities
are particularly subject to the risk that interest rate volatility may adversely
impact the valuation and price of such securities. Additionally, the return on
the floating rate loans in which the Funds may invest will decline during a
period of falling interest rates.
INVESTMENT COMPANIES RISK. The Funds may invest in the shares of other
investment companies, and therefore, the Funds' investment performance and risks
may be related to the investment performance and risks of the underlying funds.
In general, as a shareholder in other investment companies, the Funds bear their
ratable share of the underlying Fund's expenses, and would be subject to
duplicative expenses to the extent the Funds invest in other investment
companies.
LIQUIDITY RISK. The First Trust Multi Income Allocation Portfolio and the First
Trust Dorsey Wright Tactical Core Portfolio invest a portion of their assets in
other funds which invest in lower-quality debt issued by companies that are
highly leveraged. Lower-quality debt tends to be less liquid than higher-quality
debt. Moreover, smaller debt issues tend to be less liquid than larger debt
issues. If the economy experiences a sudden downturn, or if the debt markets for
such companies become distressed, the Funds may have particular difficulty
selling their assets in sufficient amounts, at reasonable prices and in a
sufficiently timely manner to raise the cash necessary to meet any potentially
heavy redemption requests by shareholders.
As of the fourth quarter of 2015, the market for high yield debt has experienced
decreased liquidity, and investor perception of increased risk has caused yield
spreads to widen. Decreased liquidity may negatively affect the First Trust
Multi Income Allocation Portfolio's and the First Trust Dorsey Wright Tactical
Core Portfolio's ability to mitigate risk and to meet redemptions.
LOAN PREPAYMENT RISK. Loans 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 the
Funds derive interest income will be reduced. The Funds may not be able to
reinvest the proceeds received on terms as favorable as the prepaid loan.
LOAN RISK. An investment in loans subjects the Funds to credit risk, which is
heightened for loans in which the Funds 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 a 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 annual report, including liquidity risk and
the risk of investing in below investment grade debt instruments.
MANAGEMENT RISK. The Funds are subject to management risk because they have
actively managed portfolios. The Advisor will apply investment techniques and
risk analyses in making investment decisions for the Funds, but there can be no
guarantee that the Funds will achieve their investment objectives.
MARKET RISK. Market risk is the risk that a particular security owned by a Fund
or shares of the Funds in general may fall in value. Shares are subject to
market fluctuations caused by such factors as economic, political, regulatory or
market developments, changes in interest rates and perceived trends in
securities prices. Overall Fund share values could decline generally or could
underperform other investments.
MLP RISK. The First Trust Multi Income Allocation Portfolio's investment in MLP
units involves risks which differ from an investment in common stock of a
corporation. Holders of MLP units have limited control and voting rights on
matters affecting the partnership. In addition, there are certain tax risks
associated with an investment in MLP units and conflicts of interest may exist
between common unit holders and the general partner, including those arising
from incentive distribution payments. In addition, there is the risk that an MLP
could be, contrary to its intention, taxed as a corporation, resulting in
decreased returns from such MLP.
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MORTGAGE SECURITIES RISK. The ETFs in which the First Trust Multi Income
Allocation Portfolio and the First Trust Dorsey Wright Tactical Core Portfolio
invest in mortgage-related securities, including mortgage-backed securities,
which may make the Funds 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.
MUNICIPAL BONDS RISK. Certain of the ETFs in which the First Trust Dorsey Wright
Tactical Core Portfolio invests may invest in municipal bonds. In addition to
being subject to credit, income and interest rate risk (as described in the
prospectus), municipal bonds are subject to tax risk. Interest income from
municipal bonds is normally not subject to regular federal income tax, but
income from municipal bonds held by the underlying ETFs could be declared
taxable because of, among other things, unfavorable changes in tax laws, adverse
interpretations by the Internal Revenue Service or state tax authorities or
noncompliant conduct of a bond issuer. Consequently, the attractiveness of
municipal bonds in relation to other investment alternatives is affected by
changes in federal income tax rates or changes in the tax-exempt status of
interest income from municipal bonds.
NEW FUND RISK. The First Trust Multi Income Allocation Portfolio and the First
Trust Dorsey Wright Tactical Core Portfolio currently have fewer assets than
larger funds, and like other relatively new funds, large inflows and outflows
may impact the Funds' 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-CORRELATION RISK. The Funds' returns may not match the return of an Index
for a number of reasons. For example, the Funds incur operating expenses not
applicable to the Indexes, and may incur costs in buying and selling securities,
especially when rebalancing the Funds' portfolio holdings to reflect changes in
the composition of the Indexes. In addition, the Funds' portfolio holdings may
not exactly replicate the securities included in the Indexes or the ratios
between the securities included in the Indexes.
NON-DIVERSIFICATION RISK. The First Trust Dorsey Wright Tactical Core Portfolio
is classified as "non-diversified" under the 1940 Act. As a result, the First
Trust Dorsey Wright Tactical Core Portfolio is only limited as to the percentage
of its assets that may be invested in the securities of any one issuer by the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"). The First Trust Dorsey Wright Tactical Core Portfolio may
invest a relatively high percentage of its assets in a limited number of
issuers. As a result, the First Trust Dorsey Wright Tactical Core Portfolio may
be more susceptible to a single adverse economic or regulatory occurrence
affecting one or more of these issuers, experience increased volatility and be
highly invested in certain issuers.
NON-U.S. SECURITIES AND EMERGING MARKETS RISK. The First Trust Multi Income
Allocation Portfolio and the First Trust Dorsey Wright Tactical Core Portfolio
invest 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 Funds and certain of the ETFs in which the First
Trust Multi Income Allocation Portfolio and the First Trust Dorsey Wright
Tactical Core Portfolio invest 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,
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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.
SMALL FUND RISK. The Funds currently have fewer assets than larger funds, and
like other relatively smaller funds, large inflows and outflows may impact the
Funds' 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.
SMALLER COMPANY RISK. The Funds and certain of the ETFs in which the First Trust
Multi Income Allocation Portfolio and the First Trust Dorsey Wright Tactical
Core Portfolio invest in small- and mid-capitalization companies. Such companies
may be more vulnerable to adverse general market or economic developments, and
their securities may be less liquid and may experience greater price volatility
than larger, more established companies as a result of several factors,
including limited trading volumes, products or financial resources, management
inexperience and less publicly available information. Accordingly, such
companies are generally subject to greater market risk than larger, more
established companies.
TIPS RISK. The First Trust Multi Income Allocation Portfolio invests in TIPs.
TIPS are inflation-indexed fixed-income securities issued by the U.S. Department
of Treasury and are subject to the same risks as other fixed income investments.
In a falling inflationary environment, both interest payments and the value of
the TIPS will decline.
BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT FOR
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO
The Board of Trustees of the First Trust Variable Insurance Trust (the "Trust"),
including the Independent Trustees, unanimously approved the Investment
Management Agreement (the "Agreement") with First Trust Advisors L.P. ("First
Trust" or the "Advisor") on behalf of First Trust Dorsey Wright Tactical Core
Portfolio (the "Fund") for an initial two-year term at a meeting held on
September 14, 2015. The Board of Trustees determined that the Agreement is in
the best interests of the Fund in light of the extent and quality of services
expected to be 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 provided on behalf of the
Independent Trustees that, among other things, outlined the services to be
provided by First Trust to the Fund (including the relevant personnel
responsible for these services and their experience); the proposed advisory fee
for the Fund as compared to fees charged by investment advisors to comparable
funds and as compared to fees charged to other clients of First Trust; estimated
expenses to be incurred in providing services to the Fund as compared to expense
ratios of comparable funds and the potential for economies of scale, if any;
financial data on First Trust; any fall out benefits to First Trust and its
affiliate, First Trust Portfolios L.P. ("FTP"); and a summary of First Trust's
compliance program. The Independent Trustees also met separately with their
independent legal counsel to discuss the information provided by First Trust.
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.
In evaluating whether to approve the Agreement for the Fund, the Board
considered the nature, extent and quality of services to be provided by First
Trust under the Agreement. The Board noted that the Fund is the third series of
the Trust and considered the efforts expended by First Trust in making
arrangements for other services to be provided to the Fund. The Board considered
that First Trust employees provide management services to the two other series
of the Trust as well as other funds in the First Trust fund complex with
diligence and care. With respect to the Agreement, the Board considered that
First Trust will be responsible for the overall management and administration of
the Fund and reviewed the services to be provided by First Trust to the Fund.
Since the Fund had yet to commence investment operations, the Board could not
consider the historical investment performance of the Fund; however, the Board
reviewed the performance of hypothetical back-tested return information which
the Advisor presented at the meeting in order to show the operation of the
Dorsey Wright Dynamic Asset Level Investing (DALI) asset allocation process. The
Board noted that the DALI asset allocation to be used for the Fund included
investment by the Fund to a significant extent in exchange-traded funds ("ETFs")
for which First Trust is the investment advisor. In light of the information
presented and the considerations made, the Board concluded that the nature,
extent and quality of services to be provided to the Fund by First Trust under
the Agreement are expected to be satisfactory.
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The Board considered the advisory fees to be paid to First Trust under the
Agreement, noting that First Trust would be compensated at an annual rate of
0.35% of the Fund's average daily net assets. The Board considered that,
pursuant to an Expense Reimbursement, Fee Waiver and Recovery Agreement, First
Trust contractually agreed to waive fees and/or reimburse Fund expenses to the
extent necessary to prevent the annual operating expenses of the Fund (excluding
taxes, interest, all brokerage commissions, other normal charges incident to the
purchase and sale of portfolio securities, acquired fund fees and expenses and
extraordinary expenses) from exceeding 0.95% of average daily net assets for
Class I and 0.70% of average daily net assets for Class II until October 31,
2017. The Board noted that fees waived or expenses borne by First Trust pursuant
to the Expense Reimbursement, Fee Waiver and Recovery Agreement are proposed to
be subject to reimbursement by the Fund for up to three years from the date the
fee was waived or expense was borne, 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 fees were waived or the expenses were
borne by First Trust. The Board also noted that, pursuant to a separate Fee
Waiver Agreement, the Advisor proposed an advisory fee waiver equal to 0.22% of
the Fund's net assets until October 31, 2017, and First Trust would not have any
right to reimbursement of these amounts waived. The Board noted that the net
result of the Expense Reimbursement, Fee Waiver and Recovery Agreement and the
Fee Waiver Agreement was an estimated net expense ratio of 1.30% for Class I and
1.05% for Class II (each of which included acquired fund fees and expenses). (At
a special meeting held on October 5, 2015, the Board approved a revised Expense
Reimbursement, Fee Waiver and Recovery Agreement (the "Revised Expense Cap")
proposed by First Trust to replace the originally proposed Expense
Reimbursement, Fee Waiver and Recovery Agreement and Fee Waiver Agreement
(collectively, the "Original Expense Cap"). The Board considered that, pursuant
to the Revised Expense Cap, First Trust would waive fees and/or reimburse Fund
expenses to the extent necessary to prevent annual operating expenses of the
Fund (excluding interest expense, brokerage commissions and other trading
expenses, taxes and extraordinary expenses, but including acquired fund fees and
expenses) from exceeding 1.30% of average daily net assets for Class I and 1.05%
of average daily net assets for Class II until October 31, 2017. The Board
considered First Trust's statement that the Revised Expense Cap would ensure at
all Fund asset levels that annual Fund operating expenses (including acquired
fund fees and expenses) would not exceed 1.30% and 1.05% for Class I and Class
II, respectively, whereas, under the Original Expense Cap, annual Fund operating
expenses (including acquired fund fees and expenses) could exceed 1.30% and
1.05% for Class I and Class II, respectively, depending on Fund asset levels and
the level of acquired fund fees and expenses. The Board noted that all fees
waived or expenses borne by the Advisor under the Revised Expense Cap are
subject to reimbursement by the Fund for up to three years from the date the fee
was waived or expense was borne by the Advisor, 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 fees were waived or the
expenses were borne by First Trust.) The Board noted that First Trust provides
advisory services to two other funds in the First Trust fund complex that have
investment objectives and policies similar to the Fund's. The Board considered
the fees charged by First Trust for providing advisory services to these other
two funds, noting that First Trust charges an annual unitary fee of 0.30% of
average daily net assets to the other two funds. The Board also reviewed fee
data prepared by Management Practice, Inc. ("MPI"), an independent source, as
well as by First Trust on the advisory fees and expense ratios of comparable
funds, noted that there was no overlap between the two peer groups and noted
First Trust's statement that it believes its peer group is more relevant and
representative of competitive funds. The Board noted that the proposed advisory
fee was below the median advisory fee of the MPI peer group and the estimated
expense ratio (Class I) was above the median expense ratio of the MPI peer
group. The Board also noted that the advisory fee and expense ratio (Class I) of
the Fund were within the range of most funds included in First Trust's peer
group. In light of the information considered and the nature, extent and quality
of services expected to be provided under the Agreement, the Board determined
that the proposed advisory fee for the Fund was fair and reasonable and the
proposed advisory fee would be for services provided that are in addition to,
rather than duplicative of, services provided under the advisory contracts of
the underlying ETFs in which the Fund may invest.
The Board noted that the proposed advisory fee for the Fund was not structured
to pass the benefits of any economies of scale on to shareholders as the Fund's
assets grow. The Board noted that First Trust has continued to invest in
personnel and infrastructure for the First Trust fund complex. The Board took
the costs to be borne by First Trust in connection with its services to be
performed under the Agreement into consideration and noted that First Trust was
unable to estimate the profitability of the Agreement to First Trust. 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 would
be compensated for services provided to the Class I shares of the Fund through
12b-1 service fees and that First Trust will receive compensation from the Trust
for providing fund reporting services to the Fund pursuant to a separate Fund
Reporting Services Agreement. The Board also noted that First Trust would not
utilize soft dollars in connection with its management of the Fund's portfolio.
In addition, the Board considered that First Trust, as the investment advisor to
many of the underlying ETFs in which the Fund would invest, will recognize
additional revenue from such underlying ETFs if the Fund's investment causes
their assets to grow.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, unanimously determined that the terms
of the Agreement are fair and reasonable and that the approval of the Agreement
is in the best interests of the Fund. No single factor was determinative in the
Board's analysis.
Page 69
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND LENGTH OF PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST SERVICE DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 120 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Trust Inception Limited Partnership; Member, Sportmed LLC
Suite 400
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 120 Director of ADM
c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services,
120 East Liberty Drive, o Since Trust Inception Inc., ADM
Suite 400 Investor Services
Wheaton, IL 60187 International and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 120 Director of
c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company
120 East Liberty Drive, o Since Trust Inception Consulting) of Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 120 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant
120 East Liberty Drive, o Since Trust Inception Harapan Educational Foundation Transport, Inc.
Suite 400 (Educational Products and Services); (May 2003
Wheaton, IL 60187 President and Chief Executive Officer to May 2014)
D.O.B.: 03/54 (June 2012 to September 2014), Servant
Interactive LLC (Educational Products and
Services); President and Chief Executive
Officer (June 2012 to September 2014), Dew
Learning LLC (Educational Products and
Services); President (June 2002 to June
2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee o Indefinite Term Chief Executive Officer, First Trust 120 None
and Chairman of the Board Advisors L.P. and First Trust Portfolios
120 East Liberty Drive, o Since Trust Inception L.P.; Chairman of the Board of Directors,
Suite 400 BondWave LLC (Software Development
Wheaton, IL 60187 Company/Investment Advisor) and
D.O.B.: 09/55 Stonebridge Advisors LLC (Investment
Advisor)
-----------------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 70
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015 (UNAUDITED)
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Officer
120 E. Liberty Drive, Executive Officer (January 2016 to Present), Senior Vice President
Suite 400 o Since January 2016 (April 2007 to January 2016), First Trust
Wheaton, IL 60187 Advisors L.P. and First Trust Portfolios L.P.
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and
120 E. Liberty Drive, Legal Officer First Trust Portfolios L.P.; Secretary and General
Suite 400 o Since Trust Inception Counsel, BondWave LLC (Software Development
Wheaton, IL 60187 Company/Investment Advisor); Secretary of
D.O.B.: 05/60 Stonebridge Advisors LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present),
120 E. Liberty Drive, Senior Vice President (September 2005 to July
Suite 400 o Since Trust Inception 2012), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors
120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P.
Suite 400 o Since Trust Inception
Wheaton, IL 60187
D.O.B.: 12/66
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Trust Inception
Wheaton, IL 60187
D.O.B.: 06/66
Donald P. Swade Treasurer, Chief o Indefinite Term Vice President (April 2012 to Present),
120 E. Liberty Drive, Financial Officer and First Trust Advisors L.P. and First Trust
Suite 400 Chief Accounting Officer o Since January 2016 Portfolios L.P., Vice President (September
Wheaton, IL 60187 2006 to April 2012), Guggenheim Funds
D.O.B.: 08/72 Investment Advisors, LLC/Claymore
Securities, Inc.
-----------------------------
(2) Officers of the Trust have an indefinite term. The term "officer" means
the president, vice president, secretary, treasurer, controller or any
other officer who performs a policy making function.
Page 71
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST VARIABLE INSURANCE TRUST
DECEMBER 31, 2015 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information within First Trust.
PRIVACY ONLINE
We allow third-party companies, including AddThis (a social media sharing
service), to collect certain anonymous information when you visit our website.
These companies may use non-personally identifiable information during your
visits to this and other websites in order to provide advertisements about goods
and services likely to be of greater interest to you. These companies typically
use a cookie, third party web beacon or pixel tags, to collect this information.
To learn more about this behavioral advertising practice, you can visit
www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, First Trust restricts access to
your nonpublic personal information to those First Trust employees who need to
know that information to provide products or services to you. We maintain
physical, electronic and procedural safeguards to protect your nonpublic
personal information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 72
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 Stonebridge Advisors, LLC
49 Riverside Avenue 10 Westport Road, Suite C101
Westport, CT 06880 Wilton, CT 06897
ADMINISTRATOR & FUND ACCOUNTANT
FIRST TRUST/DOW JONES DIVIDEND & INCOME FIRST TRUST MULTI INCOME
ALLOCATION PORTFOLIO ALLOCATION PORTFOLIO
BNY Mellon Investment Servicing (US) Inc. The Bank of New York Mellon
301 Bellevue Parkway 101 Barclay Street, 20th Floor
Wilmington, DE 19809 New York, NY 10286
FIRST TRUST DORSEY WRIGHT TACTICAL
CORE PORTFOLIO
Brown Brothers Harriman & Co.
50 Post Office Square
Boston, MA 02110
CUSTODIAN
FIRST TRUST/DOW JONES DIVIDEND & INCOME FIRST TRUST DORSEY WRIGHT
ALLOCATION PORTFOLIO TACTICAL CORE PORTFOLIO
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO Brown Brothers Harriman & Co.
The Bank of New York Mellon 50 Post Office Square
101 Barclay Street, 20th Floor Boston, MA 02110
New York, NY 10286
TRANSFER AGENT
FIRST TRUST/DOW JONES DIVIDEND & INCOME FIRST TRUST MULTI INCOME
ALLOCATION PORTFOLIO ALLOCATION PORTFOLIO
BNY Mellon Investment Servicing (US) Inc. FIRST TRUST DORSEY WRIGHT
301 Bellevue Parkway TACTICAL CORE PORTFOLIO
Wilmington, DE 19809 The Bank of New York Mellon
101 Barclay Street, 20th Floor
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, and that relates to any element of the code of ethics
description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party, that relates to one or more of the items set forth in
paragraph (b) of this item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the Registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees -- The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements were $70,750 for the fiscal year ended December 31, 2014
and $90,750 for the fiscal year ended December 31, 2015.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed for each
of the last two fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of the
registrant's financial statements and are not reported under paragraph (a) of
this Item were $0 for the fiscal year ended December 31, 2013 and $0 for the
fiscal year ended December 31, 2014.
Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed for each of the last two fiscal years for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for the Advisor and $0 for
Distributor for the fiscal year ended December 31, 2013 and $0 for the Advisor
and $0 for the Distributor for the fiscal year ended December 31, 2014.
(c) Tax Fees (Registrant) -- The aggregate fees billed for each of the
last two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning to the registrant
were $3,250 for the fiscal year ended December 31, 2013 and $3,250 for the
fiscal year ended December 31, 2014.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
for each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning to the
registrant's adviser and distributor were $0 for the fiscal year ended December
31, 2013 and $0 for the fiscal year ended December 31, 2014.
(d) All Other Fees (Registrant) -- The aggregate fees for each of the last
two fiscal years for products and services provided by the principal accountant
to the registrant, other than the services reported in paragraphs (a) through
(c) of this Item were $0 for the fiscal year ended December 31, 2013 and $0 for
the fiscal year ended December 31, 2014.
All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed for each of the last two fiscal years for products and services provided
by the principal accountant to the registrant's investment adviser and
distributor, other than the services reported in paragraphs (a) through (c) of
this Item were $0 for the fiscal year ended December 31, 2013 and $0 for the
fiscal year ended December 31, 2014.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for the fiscal year
ended December 31, 2013 were $3,250 for the registrant, $38,000 for the
registrant's investment adviser and $58,100 for the registrant's distributor,
and for the fiscal year ended December 31, 2104 were $3,250 for the registrant,
$8,500 for the registrant's investment adviser and $43,500 for the registrant's
distributor.
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3(c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's second fiscal quarter
of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section
302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes- Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Variable Insurance Trust
-------------------------------------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: February 22, 2016
-------------------
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/ James M. Dykas
----------------------------------------
James M. Dykas, President and
Chief Executive Officer
(principal executive officer)
Date: February 22, 2016
-------------------
By (Signature and Title)* /s/ Donald P. Swade
----------------------------------------
Donald P. Swade, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: February 22, 2016
-------------------
* Print the name and title of each signing officer under his or her signature.