N-CSR 1 vit_ncsr.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-22652 ----------- First Trust Variable Insurance Trust ---------------------------------------------------------- (Exact name of registrant as specified in charter) 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ---------------------------------------------------------- (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 ---------------------------------------------------------- (Name and address of agent for service) registrant's telephone number, including area code: 630-765-8000 -------------- Date of fiscal year end: December 31 ------------- Date of reporting period: December 31, 2017 ------------------- 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, 2017 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST ANNUAL REPORT DECEMBER 31, 2017 Shareholder Letter.......................................................... 1 Portfolio Commentary and Performance Summary First Trust/Dow Jones Dividend & Income Allocation Portfolio........... 2 First Trust Multi Income Allocation Portfolio.......................... 7 First Trust Dorsey Wright Tactical Core Portfolio...................... 12 Understanding Your Fund Expenses............................................ 15 Portfolio of Investments First Trust/Dow Jones Dividend & Income Allocation Portfolio........... 16 First Trust Multi Income Allocation Portfolio.......................... 42 First Trust Dorsey Wright Tactical Core Portfolio...................... 53 Statements of Assets and Liabilities........................................ 54 Statements of Operations.................................................... 55 Statements of Changes in Net Assets......................................... 56 Financial Highlights........................................................ 59 Notes to Financial Statements............................................... 62 Report of Independent Registered Public Accounting Firm..................... 75 Additional Information...................................................... 76 Board of Trustees and Officers.............................................. 83 Privacy Policy.............................................................. 85 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"), Stonebridge Advisors LLC ("Stonebridge" or a "Sub-Advisor") and their representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of the First Trust Variable Insurance Trust (the "Trust") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and/or Sub-Advisors and their representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. PERFORMANCE AND RISK DISCLOSURE There is no assurance that any series (individually called a "Fund" and collectively, the "Funds") of the Trust will achieve its investment objectives. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money by investing in a Fund. See "Risk Considerations" in the Additional Information section of this report for a discussion of certain other risks of investing in the Funds. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit https://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 https://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. -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST ANNUAL LETTER FROM THE CHAIRMAN AND CEO DECEMBER 31, 2017 Dear Shareholders: First Trust is pleased to provide you with the annual report for the First Trust Variable Insurance Trust, which contains detailed information about your investment for the 12 months ended December 31, 2017, including a market overview and a performance analysis for the period. We encourage you to read this report carefully and discuss it with your financial advisor. This was a very strong year for U.S. markets. The three major indices--the S&P 500(R) Index, the Dow Jones Industrial Average and the Nasdaq posted their best performance since 2013. And there was more good news for Wall Street: o The S&P 500(R) achieved something it had not previously finishing 2017 with 12 months of gains; o The Dow Jones realized a milestone as well closing above 24,000 for the first time ever on November 30; and o The Nasdaq set a record by having 11 months of gains in 2017 (June was the only down month, and by just 0.86%). In 2017, stocks benefitted from increased global demand, growth in corporate profits (especially technology stocks) and an accommodative Federal Reserve. The housing market in the United States continued to grow due to a strong job market, low interest rates and tight inventory. As the year came to a close, President Trump signed the tax reform package, called the "Tax Cuts and Jobs Act," which was seen as a promise kept by then-candidate Trump to accomplish sweeping reform. It is hoped this tax reform will boost economic activity to greater highs. At First Trust, we are optimistic about the U.S. economy. We also continue to believe that you should invest for the long term and be prepared for market volatility, which can happen at any time. This can be achieved by keeping current on your portfolio and investing goals by speaking regularly with your investment professional. It's important to keep in mind that past performance of the U.S. and global stock markets or investment products can never guarantee future results. As we've said before, markets go up and they also go down, but savvy investors are prepared for either through careful attention to their portfolios and investment goals. Thank you for giving First Trust the opportunity to be a part of your investment plan. We value our relationship with you and will report on your investment again in six months. 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 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY -------------------------------------------------------------------------------- FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO For the year ended December 31, 2017, the First Trust/Dow Jones Dividend & Income Allocation Portfolio (the "Fund") Class I Shares returned 13.47% versus 13.58% for the Blended Benchmark: 50% Russell 3000(R) Index and 50% Bloomberg Barclays U.S. Corporate Investment-Grade Index. As of December 31, 2017, the total investments for the Fund were allocated as follows: Equities, 57.27% and Fixed Income, 42.73%. EQUITIES COMMENTARY U.S. equities continued their steady ascent during the first quarter of 2017, with the Russell 3000(R) Index gaining 5.7% for the quarter, as U.S. investors retained their optimism despite macroeconomic data that was less uniformly positive than expected. U.S. macroeconomic growth accelerated during the second quarter after the weak start to the year. Investors were also encouraged by strong earnings reports as over 75% of S&P 500(R) companies beat profit estimates for the first quarter of 2017. The second quarter of 2017 showed the Russell 3000(R) Index gaining 3.0% as domestic macroeconomic reports pointed to healthy growth overall. However, not all data released during the second quarter was uniformly positive, as lower than expected core inflation provided some cause for concern during the quarter. Rolling into the third quarter, U.S. equities experienced some volatility during the month of August as North Korean ballistic missile testing sparked bellicose rhetoric between the United States and the Communist nation. The market eventually returned its focus to the robust macroeconomic backdrop and stocks gained significantly during the third quarter of 2017 and the Russell 3000(R) Index gained 4.6%. Labor market data remained consistent with strong economic growth. U.S. equity markets surged higher during the fourth quarter as the much-anticipated GOP tax reform package, which included a drastic cut in corporate tax rates, was finally signed into law by President Trump in December. Beyond the impact of the legislation on bullish sentiment, robust economic data and another strong earnings season also propelled stocks upward as the Russell 3000(R) climbed 6.34% during the fourth quarter. Growth outperformed value for the fourth consecutive quarter. In total, the Russell 3000(R) Growth Index returned 29.6% while the Russell 3000(R) Value Index returned 13.2% over the course of 2017. The Russell 3000(R) Index was up 21.13% for 2017 which was the best return for the index since 2013. During 2017, the Russell 3000(R) Index was led by Technology, Consumer Discretionary and Health Care in returns; while Energy, Utilities and Consumer Staples were laggards. The equity portion of the Fund has a quarterly rebalance in early January, April, July and October. The equity portion of the Fund seeks capital appreciation, below market risk and above market dividend yield. To accomplish this, the selection process is focused on dividend strength, capital strength and price stability. This process resulted in overweight positions in Financials, Industrials, Consumer Discretionary and Consumer Staples stocks, while Information Technology, Health Care, Energy, Real Estate and Utilities were underweight. The Telecommunication Services sector was also underweight as the Fund had no stocks allocated in this sector. Of the 11 GICS sectors, seven had a positive total attribution effect (allocation effect combined with selection effect), three had a negative total attribution effect and one was flat. Five sectors had a positive selection effect: Industrials, Consumer Staples, Materials, Energy and Health Care. Four sectors had a negative selection effect: Financials, Information Technology, Consumer Discretionary and Real Estate. The Utilities and Telecommunication Services sectors had a flat selection effect. The equity portion of the Fund benefited from both a positive selection effect and positive allocation effect. The Energy sector was the largest overall contributor to relative performance. The equity portion of the Fund was underweight this underperforming sector which led to a positive allocation effect. The Fund also had a positive selection effect for the sector which led to positive overall relative performance for the sector. The Fund had positions in Phillips 66 and Exxon Mobil Corporation. The Information Technology sector was the biggest detractor from relative performance. The equity portion of the Fund was underweight the 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. Page 2 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) Relative to the Russell 3000(R) Index, the equity portion of the Fund also outperformed in the Industrials and Consumer Staples sectors. The Fund was overweight the market-performing Industrials sector resulting in a flat allocation effect, but the relative performance for the sector was helped by positive stock selection. In the Consumer Staples sector, the Fund was overweight this underperforming sector resulting in a negative allocation effect, however the Fund's positions in the sector outperformed the Russell 3000(R) Index's positions resulting in a positive selection effect. The equity portion of the Fund's top five contributors to performance were Estee Lauder Companies Inc., Sanderson Farms, Inc., The Progressive Corporation, First American Financial Corporation and D.R. Horton. The top five detractors from performance were Foot Locker Retail, Inc., Xperi Corporation, Aspen Insurance Holdings Limited, Axis Capital Holdings Limited and W.W. Grainger, Inc. Heading into 2018, the overall state of the economy remains strong from employment and wage markets, to corporate earnings, gross domestic product ("GDP") growth and industrial production. We believe lower taxes and growing corporate earnings along with GDP growth should continue to drive U.S. demand. The equity portion of the Fund will remain consistent in its objectives of capital appreciation, below market risk and above market dividend yield. FIXED-INCOME COMMENTARY The investment-grade corporate bond market had another strong year in 2017. Spreads tightened for the second year in a row, helped by the combination of synchronized global growth and ongoing central bank stimulus, along with solid earnings, a lack of inflationary pressures, and muted volatility in the Treasury market. For the 12-month period ended December 31, 2017, corporate bonds outperformed Treasuries. As measured by the Bloomberg Barclays U.S. Corporate Investment-Grade Index, spreads tightened 20 basis points to 93 basis points at year end. Investment-grade corporate bonds had a positive total return for the year as the rally in credit spreads, along with the better carry provided by corporate bonds, added to the move lower in interest rates. Spread performance was generally steady, the exception being during August when issuers began to front-load debt offerings due to fear of higher interest rates later in the year. As a result, the investment-grade market struggled to absorb the rapid increase in supply. The resultant spread weakness was exacerbated by a sharp drop in Treasury yields resulting from escalating tension between the U.S. and North Korea, increased doubts as to the ultimate success of the Trump agenda; as well as by uncertainty as to the impact of hurricanes Harvey and Irma. Credit spreads widened, bringing new issue supply to a halt. Then, as geopolitical fears died down, the strong demand dynamic which has characterized the investment-grade market this year once again became evident, and the spread widening was more than retraced. A less dramatic period of spread weakness occurred during November 2017 when a second sharp pickup in new issue supply, along with another bout of Treasury volatility, caused spreads to widen before once again quickly reversing. The fixed-income portion of the Fund seeks to provide income along with preservation of capital. To accomplish this, the selection process is primarily value oriented, strongly emphasizes downside protection and focuses on free cash flow, leverage, interest coverage and revenue growth rates. This process resulted in overweight positions in Banking, Electric, and Transportation bonds, while Consumer Non-Cyclical, Real Estate Investment Trusts ("REITs"), and Communications were the largest underweights. Yield curve changes had a positive effect on relative performance. Treasury yields were mixed during the year with short-term yields rising while longer-term yields fell. The result was a dramatically flatter curve. The portfolio maintained a moderate duration underweight throughout the period, with the underweight primarily at the front-end of the curve. Among credit quality and maturity cohorts, lower credit quality and long credit duration had the best returns. The top performing credit rating category was BBB's and the best maturity bucket was 25+ years. Page 3 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) Among the 18 fixed-income industry groups, eight had positive contributions to relative performance from allocation decisions. The allocations to Treasury securities and to Government Owned, No Guarantee were the ninth and tenth positive contributors. Allocations to Banking, Electric, and Energy had the greatest positive impacts. Allocations to Consumer Non-Cyclical, Basic Industry and REITs had the greatest negative impacts. Overall, the allocation effect had a net positive impact on relative performance. As weighted by percent of market value, 22 of the top 25 issuers held in the fixed-income portion of the Fund had positive contributions to relative performance. Within this cohort, Citibank, Bank of America, and Morgan Stanley were the three largest contributors. Overall, security selection subtracted from relative performance. With the strategy's higher quality bias, we believe it is not surprising to see this result in an environment where riskier, lower quality segments of the market perform best. As we begin 2018, we have a positive outlook for credit spreads as we believe steady global growth should continue to support earnings and cashflow. We anticipate continued recovery in the Energy sector, as well as strength in financials which should benefit from rising interest rates and less onerous regulation. That said, a second straight year of spread tightening has left valuation in the investment-grade market less attractive in our view. Moreover, the dual impact of further Federal Reserve ("the Fed") rate increases and the drawdown of the Fed's balance sheet as quantitative easing is unwound are difficult to gauge with a high degree of certainty since the Fed, and by extension, the market, is entering uncharted territory, in our view. As a result, our outlook becomes more cautious as we look further into 2018 and beyond. Accordingly, our focus for the portfolio will continue to be on issuers and sectors with credit profiles that we believe are well suited to weather the likely headwinds of higher interest rates and the gradual removal of global monetary stimulus. Page 4 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------- RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2017 1 YEAR 5 YEAR SINCE INCEPTION INCEPTION ANNUAL ANNUAL AVERAGE ANNUAL DATE TOTAL RETURN TOTAL RETURN TOTAL RETURN FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO - CLASS I 5/1/12 13.47% 9.50% 9.15% Blended Benchmark (a) 13.58% 9.51% 9.27% Bloomberg Barclays U.S. Corporate Investment-Grade Index (b) 6.42% 3.48% 4.19% Russell 3000(R) Index (c) 21.13% 15.58% 14.28% Secondary Blended Benchmark (d) 13.43% 9.61% 9.39% Dow Jones Equal Weight U.S. Issued Corporate Bond Index(SM) (e) 5.98% 3.52% 4.29% Dow Jones U.S. Total Stock Market Index(SM) (f) 21.16% 15.51% 14.19% ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- 1 YEAR SINCE INCEPTION INCEPTION ANNUAL AVERAGE TOTAL DATE TOTAL RETURN TOTAL RETURN FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO - CLASS II 5/1/14 13.75% 9.12% Blended Benchmark (a) 13.58% 8.01% Bloomberg Barclays U.S. Corporate Investment-Grade Index (b) 6.42% 3.96% Russell 3000(R) Index (c) 21.13% 11.93% Secondary Blended Benchmark (d) 13.43% 8.15% Dow Jones Equal Weight U.S. Issued Corporate Bond Index(SM) (e) 5.98% 4.05% Dow Jones U.S. Total Stock Market Index(SM) (f) 21.16% 11.86% -------------------------------------------------------------------------------------------------------------------------
(a) The Blended Benchmark returns are a 50/50 split between the Russell 3000(R) Index and the Bloomberg Barclays U.S. Corporate Investment-Grade Index returns. (b) Bloomberg 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 Benchmark return is a 50/50 split between the Dow Jones U.S. Total Stock Market Index(SM) and the Dow Jones Equal Weight U.S. Issued Corporate Bond Index(SM) returns. (e) The Dow Jones Equal Weight 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, 2017 Bloomberg Dow Jones First Trust/Dow Barclays U.S. Equal Weight 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 Benchmark Index Index Benchmark 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 6/30/2016 13,806 14,046 12,035 16,171 14,214 12,239 16,110 12/31/2017 14,484 14,554 11,859 17,592 14,672 11,975 17,521 6/30/2017 15,285 15,478 12,310 19,163 15,592 12,395 19,093 12/31/2017 16,436 16,531 12,621 21,309 16,643 12,691 21,228
Page 5 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) ------------------------------------------------------ % OF TOTAL TOP EQUITY HOLDINGS INVESTMENTS ------------------------------------------------------ Foot Locker, Inc. 0.5% DR Horton, Inc. 0.5 Wal-Mart Stores, Inc. 0.5 Ross Stores, Inc. 0.4 Intel Corp. 0.4 NIKE, Inc., Class B 0.4 Best Buy Co., Inc. 0.4 Fastenal Co. 0.4 Pool Corp. 0.4 FLIR Systems, Inc. 0.4 ------------------------------------------------------ Total 4.3% ====== ------------------------------------------------------ % OF TOTAL TOP FIXED-INCOME HOLDINGS BY ISSUER INVESTMENTS ------------------------------------------------------ Citigroup, Inc. 2.0% Goldman Sachs Group (The), Inc. 1.8 Bank of America Corp. 1.7 JPMorgan Chase & Co. 1.5 Wells Fargo & Co. 1.5 Morgan Stanley 1.5 AT&T, Inc. 1.0 Apple, Inc. 0.9 UnitedHealth Group, Inc. 0.8 Ford Motor Credit Co., LLC 0.7 ------------------------------------------------------ Total 13.4% ====== ------------------------------------------------------ % OF TOTAL FIXED-INCOME CREDIT QUALITY(1) INVESTMENTS ------------------------------------------------------ AAA 3.5% AA+ 2.1 AA 4.0 AA- 5.0 A+ 15.7 A 27.4 A- 14.1 BBB+ 8.7 BBB 12.5 BBB- 6.6 A-2 (short-term) 0.2 A-3 (short-term) 0.2 ------------------------------------------------------ Total 100.0% ====== ------------------------------------------------------ % OF TOTAL SECTOR ALLOCATION INVESTMENTS ------------------------------------------------------ Common Stocks: Financials 16.1% Industrials 12.6 Consumer Discretionary 9.2 Information Technology 7.5 Consumer Staples 5.4 Health Care 3.1 Materials 1.9 Real Estate 0.7 Energy 0.4 Utilities 0.4 ------------------------------------------------------ Total Common Stocks 57.3 ------------------------------------------------------ Corporate Bonds & Notes: Financials 14.0 Utilities 5.6 Energy 3.8 Information Technology 3.8 Industrials 3.3 Health Care 2.9 Consumer Discretionary 2.2 Consumer Staples 1.8 Telecommunication Services 1.7 Materials 1.2 ------------------------------------------------------ Total Corporate Bonds & Notes 40.3 ------------------------------------------------------ Foreign Corporate Bonds & Notes: Financials 0.7 Energy 0.5 Materials 0.2 Utilities 0.2 Health Care 0.1 Information Technology 0.0* Industrials 0.0* ------------------------------------------------------ Total Foreign Corporate Bonds & Notes 1.7 ------------------------------------------------------ U.S. Government Bonds & Notes 0.5 ------------------------------------------------------ Commercial Paper: Energy 0.2 ------------------------------------------------------ Total Commercial Paper 0.2 ------------------------------------------------------ Total 100.0% ====== * Amount is less than 0.1%. (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 6 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO For the year ended December 31, 2017, the First Trust Multi Income Allocation Portfolio (the "Fund") Class I Shares returned 6.04% versus 10.30% for the Broad Blended Benchmark (60% Bloomberg Barclays U.S. Aggregate Bond Index and 40% Russell 3000(R) Index) and 5.72% for the Multi Asset Class Blended Benchmark (15% Russell 3000(R) Index; 8% ICE BofAML Fixed Rate Preferred Securities Index; 15% Alerian MLP Index; 15%; S&P U.S. REIT Index; 8% ICE BofAML U.S. High Yield Index; 15% S&P/LSTA Leveraged Loan Index; 8% Bloomberg Barclays U.S. Corporate Investment-Grade Index; 8% ICE BofAML U.S. MBS Index; and 8% ICE BofAML 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, 2017, the Fund held approximately 2.9% in cash. The following asset classes had the most positive impact on the overall Fund performance: preferred stocks and dividend-paying stocks, while the following asset classes had the most negative impact on the overall Fund performance: MLPs and floating-rate loans. Dividend-paying stocks returned 18.83% (Gross of Fees) for the year ended December 31, 2017 and represented 18.7% of the portfolio as of that date. Dividend paying stocks faced headwinds throughout 2017 as investors showed a clear preference for growth names amid a strengthening economy and rising interest rates. Dividend yield was the second worst performing factor among the six tracked, with only value performing worse for the year. Growth stocks outperformed value by over 1,600 basis points ("bps") as measured by the Russell 3000(R) Growth and Value Indices, respectively. The portfolio experienced underperformance due to both allocation and selection effects. The industrial sector was the biggest drag on relative performance due to stock selection. General Electric was the worst performing stock in the portfolio over the period as its restructuring plan was not well received by the market. The information technology sector was the second biggest detractor due to both allocation and selection. The portfolio was underweight this top performing sector. As mentioned earlier, growth stocks (tech stocks in particular) drove the market in 2017, many of which do not pay a dividend. The utilities sector was also a drag on relative performance as Edison International fell sharply in the fourth quarter amid potential liability for some of the California wildfires. Additionally, an overweight to energy, the worst performing sector for the year, weighed on relative performance though strong stock selection helped mitigate some of the underperformance. The second half of the year saw the tides change as energy stocks outperformed as oil prices rose 31% amid a strengthening global outlook and demand for oil. Good stock selection in the consumer staples and materials sectors also contributed positively to relative performance. Preferred securities returned 11.11% (Gross of Fees) for the year ended December 31, 2017 and represented 6.0% of the portfolio as of that date. The positive performance in preferred and hybrid securities during the period was supported by stable interest rates, strong investor appetite for yield, moderate net new issuance activity and solid credit quality. Strong performance was a result of individual security selection within institutional ($1,000 par) securities and exposure to floating rate securities that benefited from the increase in short term interest rates. The energy infrastructure companies and MLPs returned 1.93% (Gross of Fees) for the year ended December 31, 2017 and represented 15.8% of the portfolio as of that date. The performance of the equity securities of energy infrastructure companies underperformed the overall performance of the Fund. Negative sentiment across the entire energy sector weighed on the pipeline-related MLPs that more than offset the positive contribution from the regulated utilities in the portfolio. REITs returned 5.76% (Gross of Fees) for the year ended December 31, 2017 and represented 12.8% of the portfolio as of that date. REITs did not keep pace with the broader U.S. equity market during 2017. Sentiment toward the asset class was generally muted largely due to the market's anticipation of tax reform, the passage of which would not immediately benefit their already tax-advantaged status. Interest rate concerns at times also weighed on sentiment, although higher long-term rates ultimately did not materialize. Regardless, the Fund's REIT allocation outperformed its asset class benchmark, due to superior allocation among property types. Specialized REITs contributed the most to relative performance, both from the decision to overweight the property type and from selection within the type. Significant positive contribution came also from Page 7 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) the Retail property type; primarily from the decision to underweight this property type. The Hotel & Resort property type was the single biggest detractor from relative performance due to a negative selection effect. The top-performing REITs for the year in terms of contribution were CyrusOne, Prologis and Equity LifeStyle Properties. The bottom-performing REITs were Kimco Realty Corporation., Retail Properties of America, Inc. and Corporate Office Properties Trust. The high-yield bond asset class performed well in 2017 with a return of 6.49% (Gross of Fees) for the year ended December 31, 2017. High-yield bonds represented 5.9% of the portfolio as of December 31, 2017. We believe this strong performance was attributable to the positive tone from equities, low volatility in interest rates over the course of the year and healthy fundamentals for issuers of high-yield bonds. Spreads over U.S. Treasuries tightened by 59 bps during the year to end the period at T+363 bps. While spreads are in fact tight to the historic average (the long-term average spread over U.S. Treasuries is T+582, December 1997 - December 2017), we believe there is room for further tightening throughout the remaining cycle given that spreads remain wide of the pre-crisis tights reached at the top of the last cycle in May 2007 of T+245. Moreover, the high-yield bond default rate has fallen from 3.32% a year ago to 1.27% within the JP Morgan High-Yield Bond Universe. This is well below the long-term average default rate of 3.23% (March 1999 - December 2017). Floating-rate loans returned 2.52% (Gross of Fees) for the year ended December 31, 2017 and represented 13.9% of the portfolio as of that date. The performance of floating-rate loans was attributable to the positive tone from equities, low volatility in interest rates over the course of the year and healthy fundamentals for issuers of senior loans. Moreover, investors have continued to find favor with the senior loan asset class as evidenced by two consecutive years of inflows. According to JP Morgan, the senior loan asset class experienced inflows from retail investors into mutual funds totaling $13.5 billion in 2017, which followed $9.2 billion of inflows in 2016. Retail loan inflows were accompanied by strong institutional demand, largely from collateralized loan obligations ("CLOs"), where issuance (which excludes refi's/resets) totaled $117.1 billion in 2017, the second strongest year for CLO issuance on record (JP Morgan). Given the strong demand for the asset class, spreads over 3-month London Interbank Offered Rate ("LIBOR") declined 60 bps during the year to end the period at L+405 bps. This compares favorably to the pre-credit crisis average spread of L+372 (December 1997 - June 2007) but is inside the long-term average spread of L+521 (December 1997 - December 2017). Importantly, the default rate for senior loans remains low, at 2.05% and we believe it is likely to remain low given the overall health of the U.S. economy. This is below the long-term average default rate of 3.03% (March 1999 - December 2017). Corporate bonds returned 6.23% (Gross of Fees) for the year ended December 31, 2017 and represented 9.0% of the portfolio as of that date. Investment-grade corporate bonds had another solid year of performance. Credit spreads improved and were supported by an accelerating global economic expansion, profit growth, modest inflation, low volatility and ample liquidity provided by global central banks. As of December 31, 2017, the asset class has logged nine consecutive quarters of excess returns; a stretch seen only once before in the last 20 years (ICE BofAML US Corporate Index 4Q 2002-4Q 2004). The MBS asset class returned 3.13% (Gross of Fees) for the year ended December 31, 2017 and represented 8.9% of the portfolio as of that date. The MBS sleeve improved performance by positioning some of its overall defensive duration in longer maturity securities and benefited from a flatter yield curve. Overall, the Fund continues to manage its duration defensively with a focus on high coupon, lower duration pools with elevated cash and exposure to higher yielding Non-Agency residential MBS and commercial mortgage-backed securities ("CMBS"). TIPS returned 3.26% (Gross of Fees) for the year ended December 31, 2017 and represented 9.0% of the portfolio as of that date. Inflation ran hot coming into the year but cooled off materially in the second and third quarters. Soft measures of inflation were a market theme during 2017 and contributed to lower long-term Treasury yields and a flatter yield curve. The year-over-year rate of inflation according to the Consumer Price Index was 2.5% in January 2017 and reached a low of 1.6% in June before ending the year at 2.1%. TIPS outperformed nominal Treasury bonds as inflation break-evens on TIPS in the belly of the curve (4-7 years) increased slightly although it declined on bonds in the short and long end of the maturity curve. Within the portfolio, returns were greatest in maturities over 10 years as yields fell in that part of the yield curve. Page 8 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) INVESTMENT CLIMATE In our opinion, the top story in 2017 was the passage of the Tax Cuts and Jobs Act in December. One of the goals of the new tax law is to hopefully boost economic activity in the U.S. moving forward. The biggest boost to the U.S. economy and markets could come from the reduction in the federal corporate tax rate from 35% to 21%. In addition to the cut in the corporate tax rate, multinational companies are now going to be able to repatriate their cash holdings stored overseas. When companies bring that cash back to the U.S., they will be taxed at 15.5% on income held as cash and cash equivalents and 8% for illiquid assets. Those rates apply to an estimated $3.1 trillion in earnings stockpiled overseas since 1986, according to Fortune. We expect a good chunk of that capital to be returned to shareholders in the form of stock buybacks and increased stock dividend payments. S&P Dow Jones Indices announced that total dividend distributions for U.S. common stocks increased by a net (increases less decreases) 56.9% to $37.1 billion in 2017. There were 2,642 dividend increases throughout the year, up slightly from the 2,634 dividend increases in 2016. The number of dividends cut or suspended totaled 445, down from the 659 cut or suspended in 2016. The Federal Reserve (the "Fed") is poised to raise the federal funds target rate (upper bound) three times in 2018, according to CNBC. The Fed has already raised this rate five times during the current tightening cycle, dating back to its first hike on December 16, 2015. Each hike totaled 25 bps. The rate increased from 0.25% to 1.50%, where it stood at the end of 2017. The year-over-year rate of inflation, as measured by the Consumer Price Index, increased from 0.7% on December 31, 2015 to 2.1% on December 31, 2017, according to data from the Bureau of Labor Statistics. Despite the 125 bps increase in the federal funds target rate, the yield on the 10-year T-note rose just 11 bps, from 2.30% as of December 16, 2015 to 2.41%, as of December 29, 2017, according to Bloomberg. Brian Wesbury, Chief Economist at First Trust Advisors L.P., anticipates the yield on the 10-year T-note rising to 3.00% by the end of 2018. Page 9 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------- RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2017 ------------------------------------------------------------------------------------------------------------------------- 1 YEAR SINCE INCEPTION INCEPTION ANNUAL AVERAGE ANNUAL DATE TOTAL RETURN TOTAL RETURN FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO - CLASS I 5/1/14 6.04% 4.43% FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO - CLASS II 5/1/14 6.22% 4.66% Broad Blended Benchmark (a) 10.30% 6.40% Bloomberg Barclays U.S. Aggregate Bond Index (b) 3.54% 2.64% Russell 3000(R) Index (c) 21.13% 11.93% Multi Asset Class Blended Benchmark (d) 5.72% 4.09% -------------------------------------------------------------------------------------------------------------------------
(a) The Broad Blended Benchmark return is split between the Bloomberg Barclays U.S. Aggregate Bond Index (60%) and the Russell 3000(R) Index (40%). (b) The Bloomberg Barclays U.S. Aggregate Bond 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 Benchmark is weighted to include nine indexes: Russell 3000(R) Index (15%), ICE BofAML Fixed Rate Preferred Securities Index (8%), Alerian MLP Index (15%), S&P U.S. REIT Index (15%), ICE BofAML U.S. High Yield Index (8%), S&P/LSTA Leveraged Loan Index (15%), Bloomberg Barclays U.S. Corporate Investment-Grade Index (8%), ICE BofAML U.S. MBS Index (8%), and ICE BofAML 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, 2017 First Trust Multi Broad Bloomberg Barclays Income Allocation Blended Barclays U.S. Russell 3000(R) Multi Asset Class Portfolio -- Class I Benchmark Aggregate Bond Index Index Blended Benchmark 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 6/30/2016 10,900 11,168 10,904 11,474 10,744 12/31/2016 11,057 11,384 10,628 12,483 10,958 6/30/2017 11,437 11,942 10,869 13,598 11,299 12/31/2017 11,725 12,556 11,004 15,121 11,585
Page 10 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) ------------------------------------------------------ % OF TOTAL TOP 10 HOLDINGS INVESTMENTS ------------------------------------------------------ First Trust Senior Loan Fund 14.0% iShares iBoxx $ Investment Grade Corporate Bond ETF 7.6 First Trust Preferred Securities and Income ETF 6.0 First Trust Tactical High Yield ETF 6.0 Enterprise Products Partners, L.P. 1.6 iShares Floating Rate Bond ETF 1.5 TransCanada Corp. 1.0 TC Pipelines, L.P. 1.0 Magellan Midstream Partners, L.P. 0.9 Spectra Energy Partners, L.P. 0.9 ------------------------------------------------------ Total 40.5% ====== ------------------------------------------------------ % OF TOTAL SECTOR ALLOCATION INVESTMENTS ------------------------------------------------------ Exchange-Traded Funds 35.7% ------------------------------------------------------ Common Stocks: Information Technology 3.9 Energy 3.9 Financials 3.7 Industrials 2.9 Health Care 2.8 Utilities 2.5 Consumer Discretionary 1.5 Consumer Staples 1.1 Materials 1.0 Telecommunication Services 0.3 ------------------------------------------------------ Total Common Stocks 23.6 ------------------------------------------------------ Real Estate Investment Trusts: Financials 12.9 ------------------------------------------------------ Total Real Estate Investment Trusts 12.9 ------------------------------------------------------ Master Limited Partnerships: Energy 9.7 Utilities 1.0 Materials 0.3 ------------------------------------------------------ Total Master Limited Partnerships 11.0 ------------------------------------------------------ U.S. Government Bonds & Notes 9.2 ------------------------------------------------------ U.S. Government Agency Mortgage-Backed Securities 7.4 ------------------------------------------------------ Mortgage-Backed Securities 0.2 ------------------------------------------------------ Asset-Backed Securities 0.0* ------------------------------------------------------ Total 100.0% ====== * Amount is less than 0.1%. Page 11 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO For the year ended December 31, 2017, the First Trust Dorsey Wright Tactical Core Portfolio (the "Fund") Class I Shares returned 17.50% versus 14.21% for the Broad Blended Benchmark: 60% S&P 500(R) Index and 40% Bloomberg 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 REVIEW The Fund began 2017 with the following allocations to the four asset classes: domestic equity securities (73.1%), international equity securities (4.6%), fixed income securities (18.4%), cash and cash equivalents (3.9%). Throughout 2017, the DALI asset allocation to the four asset classes remained largely the same. At the end of 2017, the Fund had the following allocations: domestic equity securities (74.3%), international equity securities (4.9%), fixed income securities (18.8%), and cash and cash equivalents (2.0%). The Fund's largest contributing holdings in 2017 were the First Trust NASDAQ-100-Technology Sector Index Fund and First Trust Dow Jones Internet Index Fund. The Fund's largest detracting holdings were the First Trust Technology AlphaDEX(R) Fund and First Trust Energy AlphaDEX(R) Fund. Page 12 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------- RETURN COMPARISON PERIOD ENDED DECEMBER 31, 2017 1 YEAR SINCE INCEPTION INCEPTION ANNUAL AVERAGE ANNUAL DATE TOTAL RETURN TOTAL RETURN FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO - CLASS I 10/30/15 17.50% 7.89% FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO - CLASS II 10/30/15 17.94% 8.09% Broad Blended Benchmark (a) 14.21% 9.79% Bloomberg Barclays U.S. Aggregate Bond Index (b) 3.54% 2.57% S&P 500(R) Index (c) 21.83% 14.70% -------------------------------------------------------------------------------------------------------------------------
(a) The Broad Blended Benchmark return is split between Bloomberg Barclays U.S. Aggregate Bond Index (40%) and the S&P 500(R) Index (60%). (b) The Bloomberg Barclays U.S. Aggregate Bond 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, 2017 First Trust Dorsey Wright Broad Bloomberg Barclays Tactical Core Portfolio - Blended U.S. Aggregate S&P 500(R) Class I Benchmark Bond Index Index 10/30/15 $10,000 $10,000 $10,000 $10,000 12/31/15 9,940 9,900 9,941 9,872 6/30/16 9,807 10,347 10,469 10,251 12/31/16 10,035 10,722 10,204 11,053 6/30/17 10,773 11,417 10,436 12,085 12/31/17 11,791 12,246 10,565 13,465
Page 13 -------------------------------------------------------------------------------- PORTFOLIO COMMENTARY AND PERFORMANCE SUMMARY (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO ANNUAL REPORT DECEMBER 31, 2017 (UNAUDITED) ------------------------------------------------------ % OF TOTAL TOP 10 HOLDINGS INVESTMENTS ------------------------------------------------------ First Trust Large Cap Growth AlphaDEX(R) Fund 10.2% First Trust Mid Cap Core AlphaDEX(R) Fund 10.2 First Trust Small Cap Growth AlphaDEX(R) Fund 9.9 First Trust Industrials/Producer Durables AlphaDEX(R) Fund 9.3 First Trust Dow Jones Internet Index Fund 9.2 First Trust Nasdaq Bank ETF 9.2 First Trust NASDAQ-100-Technology Sector Index Fund 9.1 First Trust Technology AlphaDEX(R) Fund 8.7 iShares Core U.S. Aggregate Bond ETF 5.8 SPDR Barclays Emerging Markets Local Bond ETF 3.4 ------------------------------------------------------ Total 85.0% ====== Page 14 FIRST TRUST VARIABLE INSURANCE TRUST UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2017 (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 period ended December 31, 2017. 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 7/1/2017- VALUE VALUE 7/1/2017- EXPENSE 7/1/2017 12/31/2017 12/31/2017 (a) 7/1/2017 12/31/2017 12/31/2017 (a) RATIO (b) -------------- ---------- -------------- -------------- ---------- -------------- ---------- First Trust/Dow Jones Dividend & Income Allocation Portfolio Class I $1,000.00 $1,075.30 $ 6.28 $1,000.00 $1,019.16 $ 6.11 1.20% Class II $1,000.00 $1,075.80 $ 4.97 $1,000.00 $1,020.42 $ 4.84 0.95% First Trust Multi Income Allocation Portfolio Class I $1,000.00 $1,025.20 $ 4.24 $1,000.00 $1,021.02 $ 4.23 0.83% Class II $1,000.00 $1,025.60 $ 2.96 $1,000.00 $1,022.28 $ 2.96 0.58% First Trust Dorsey Wright Tactical Core Portfolio Class I $1,000.00 $1,094.50 $ 3.96 $1,000.00 $1,021.42 $ 3.82 0.75% Class II $1,000.00 $1,098.10 $ 2.64 $1,000.00 $1,022.68 $ 2.55 0.50%
(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, 2017 through December 31, 2017), 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. Page 15 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- COMMON STOCKS - 56.5% AEROSPACE & DEFENSE - 2.5% 12,593 General Dynamics Corp........................................................ $ 2,562,046 28,822 HEICO Corp................................................................... 2,719,356 11,431 Huntington Ingalls Industries, Inc........................................... 2,694,287 8,343 Lockheed Martin Corp......................................................... 2,678,520 8,996 Northrop Grumman Corp........................................................ 2,760,962 13,874 Raytheon Co.................................................................. 2,606,231 22,301 United Technologies Corp..................................................... 2,844,938 ------------- 18,866,340 ------------- AIR FREIGHT & LOGISTICS - 0.8% 34,017 CH Robinson Worldwide, Inc................................................... 3,030,574 43,246 Expeditors International of Washington, Inc.................................. 2,797,584 ------------- 5,828,158 ------------- AUTO COMPONENTS - 0.4% 14,957 Lear Corp.................................................................... 2,642,304 ------------- BANKS - 2.8% 31,055 Bank of Hawaii Corp.......................................................... 2,661,414 64,394 Cathay General Bancorp....................................................... 2,715,495 96,592 CenterState Bank Corp........................................................ 2,485,312 47,049 Commerce Bancshares, Inc..................................................... 2,627,216 135,179 First Horizon National Corp.................................................. 2,702,228 60,299 First Merchants Corp......................................................... 2,536,176 28,747 South State Corp............................................................. 2,505,301 48,304 U.S. Bancorp................................................................. 2,588,128 ------------- 20,821,270 ------------- BEVERAGES - 0.8% 29,259 Dr. Pepper Snapple Group, Inc................................................ 2,839,879 23,231 PepsiCo, Inc................................................................. 2,785,861 ------------- 5,625,740 ------------- BUILDING PRODUCTS - 1.4% 43,559 A.O. Smith Corp.............................................................. 2,669,295 29,937 Allegion PLC................................................................. 2,381,788 38,504 Fortune Brands Home & Security, Inc.......................................... 2,635,214 52,788 Simpson Manufacturing Co., Inc............................................... 3,030,559 ------------- 10,716,856 ------------- CAPITAL MARKETS - 2.6% 5,790 BlackRock, Inc............................................................... 2,974,381 19,079 CME Group, Inc............................................................... 2,786,488 14,372 FactSet Research Systems, Inc................................................ 2,770,346 58,160 Franklin Resources, Inc...................................................... 2,520,073 37,680 Intercontinental Exchange, Inc............................................... 2,658,701 14,029 MarketAxess Holdings, Inc.................................................... 2,830,351 28,557 T. Rowe Price Group, Inc..................................................... 2,996,486 ------------- 19,536,826 ------------- CHEMICALS - 1.1% 17,119 Air Products & Chemicals, Inc................................................ 2,808,886 20,127 Ecolab, Inc.................................................................. 2,700,641 6,078 NewMarket Corp............................................................... 2,415,336 ------------- 7,924,863 -------------
Page 16 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- COMMON STOCKS (CONTINUED) COMMERCIAL SERVICES & SUPPLIES - 0.7% 17,942 Cintas Corp.................................................................. $ 2,795,902 56,106 Rollins, Inc................................................................. 2,610,612 ------------- 5,406,514 ------------- COMMUNICATIONS EQUIPMENT - 0.8% 76,974 Cisco Systems, Inc........................................................... 2,948,104 35,100 InterDigital, Inc............................................................ 2,672,865 ------------- 5,620,969 ------------- CONTAINERS & PACKAGING - 0.4% 51,310 Sonoco Products Co........................................................... 2,726,613 ------------- DISTRIBUTORS - 0.8% 27,064 Genuine Parts Co............................................................. 2,571,351 23,931 Pool Corp.................................................................... 3,102,654 ------------- 5,674,005 ------------- DIVERSIFIED CONSUMER SERVICES - 0.4% 75,034 Service Corp. International.................................................. 2,800,269 ------------- ELECTRIC UTILITIES - 0.4% 17,663 NextEra Energy, Inc.......................................................... 2,758,784 ------------- ELECTRICAL EQUIPMENT - 0.8% 22,313 Hubbell, Inc................................................................. 3,019,841 14,526 Rockwell Automation, Inc..................................................... 2,852,180 ------------- 5,872,021 ------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS - 1.9% 30,584 Amphenol Corp., Class A...................................................... 2,685,275 86,519 Corning, Inc................................................................. 2,767,743 66,528 FLIR Systems, Inc............................................................ 3,101,535 13,215 Littelfuse, Inc.............................................................. 2,614,191 31,167 TE Connectivity, Ltd......................................................... 2,962,112 ------------- 14,130,856 ------------- EQUITY REAL ESTATE INVESTMENT TRUSTS - 0.7% 19,391 PS Business Parks, Inc....................................................... 2,425,620 12,098 Public Storage............................................................... 2,528,482 ------------- 4,954,102 ------------- FOOD & STAPLES RETAILING - 0.7% 31,833 CVS Health Corp.............................................................. 2,307,892 33,129 Wal-Mart Stores, Inc......................................................... 3,271,489 ------------- 5,579,381 ------------- FOOD PRODUCTS - 2.3% 50,013 General Mills, Inc........................................................... 2,965,271 80,543 Hormel Foods Corp............................................................ 2,930,960 21,458 Ingredion, Inc............................................................... 2,999,828 19,715 J&J Snack Foods Corp......................................................... 2,993,328 21,551 Lancaster Colony Corp........................................................ 2,784,605 16,027 Sanderson Farms, Inc......................................................... 2,224,227 ------------- 16,898,219 -------------
See Notes to Financial Statements Page 17 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- COMMON STOCKS (CONTINUED) HEALTH CARE EQUIPMENT & SUPPLIES - 0.8% 30,178 Danaher Corp................................................................. $ 2,801,122 18,227 Stryker Corp................................................................. 2,822,269 ------------- 5,623,391 ------------- HEALTH CARE PROVIDERS & SERVICES - 1.6% 16,280 Aetna, Inc................................................................... 2,936,749 13,632 Anthem, Inc.................................................................. 3,067,336 27,644 Quest Diagnostics, Inc....................................................... 2,722,658 13,217 UnitedHealth Group, Inc...................................................... 2,913,820 ------------- 11,640,563 ------------- HOTELS, RESTAURANTS & LEISURE - 1.9% 61,460 Cheesecake Factory (The), Inc................................................ 2,961,143 17,074 Cracker Barrel Old Country Store, Inc........................................ 2,712,888 71,906 International Speedway Corp., Class A........................................ 2,865,454 48,199 Starbucks Corp............................................................... 2,768,068 11,349 Vail Resorts, Inc............................................................ 2,411,322 ------------- 13,718,875 ------------- HOUSEHOLD DURABLES - 0.4% 64,830 DR Horton, Inc............................................................... 3,310,868 ------------- HOUSEHOLD PRODUCTS - 0.7% 53,429 Church & Dwight Co., Inc..................................................... 2,680,533 28,452 Procter & Gamble (The), Co................................................... 2,614,170 ------------- 5,294,703 ------------- INDUSTRIAL CONGLOMERATES - 1.2% 12,332 3M Co........................................................................ 2,902,583 25,812 Carlisle Cos., Inc........................................................... 2,933,534 18,263 Honeywell International, Inc................................................. 2,800,813 ------------- 8,636,930 ------------- INSURANCE - 9.7% 31,805 AFLAC, Inc................................................................... 2,791,843 28,166 Allstate (The) Corp.......................................................... 2,949,262 25,024 American Financial Group, Inc................................................ 2,716,105 17,719 Aon PLC...................................................................... 2,374,346 42,091 Argo Group International Holdings, Ltd....................................... 2,594,910 64,075 Aspen Insurance Holdings Ltd................................................. 2,601,445 27,100 Assurant, Inc................................................................ 2,732,764 68,573 Assured Guaranty Ltd......................................................... 2,322,567 45,169 Axis Capital Holdings Ltd.................................................... 2,270,194 53,717 Brown & Brown, Inc........................................................... 2,764,277 18,160 Chubb, Ltd................................................................... 2,653,721 51,516 CNA Financial Corp........................................................... 2,732,924 11,335 Everest Re Group, Ltd........................................................ 2,507,982 51,804 First American Financial Corp................................................ 2,903,096 55,700 FNF Group.................................................................... 2,185,668 26,707 Hanover Insurance Group (The), Inc........................................... 2,886,493 30,886 Marsh & McLennan Cos., Inc................................................... 2,513,811 131,470 Old Republic International Corp.............................................. 2,810,829 40,235 Principal Financial Group, Inc............................................... 2,838,982
Page 18 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- COMMON STOCKS (CONTINUED) INSURANCE (CONTINUED) 47,370 ProAssurance Corp............................................................ $ 2,707,195 53,462 Progressive (The) Corp....................................................... 3,010,980 18,553 Reinsurance Group of America, Inc............................................ 2,892,969 19,155 RenaissanceRe Holdings Ltd................................................... 2,405,676 32,323 Torchmark Corp............................................................... 2,932,019 21,129 Travelers (The) Cos., Inc.................................................... 2,865,938 52,604 Validus Holdings Ltd......................................................... 2,468,180 65,619 XL Group, Ltd................................................................ 2,307,164 ------------- 71,741,340 ------------- IT SERVICES - 2.8% 19,165 Accenture PLC, Class A....................................................... 2,933,970 17,080 Black Knight, Inc............................................................ 754,082 32,030 Broadridge Financial Solutions, Inc.......................................... 2,901,277 17,843 International Business Machines Corp......................................... 2,737,473 25,184 Jack Henry & Associates, Inc................................................. 2,945,521 18,333 MasterCard, Inc., Class A.................................................... 2,774,883 43,174 Paychex, Inc................................................................. 2,939,286 24,598 Visa, Inc., Class A.......................................................... 2,804,664 ------------- 20,791,156 ------------- MACHINERY - 2.7% 15,407 Cummins, Inc................................................................. 2,721,492 21,311 IDEX Corp.................................................................... 2,812,413 17,497 Illinois Tool Works, Inc..................................................... 2,919,374 29,032 Ingersoll-Rand PLC........................................................... 2,589,364 17,372 Snap-on, Inc................................................................. 3,027,940 17,148 Stanley Black & Decker, Inc.................................................. 2,909,844 41,711 Toro (The) Co................................................................ 2,720,809 ------------- 19,701,236 ------------- MEDIA - 0.7% 124,515 Interpublic Group of (The) Cos., Inc......................................... 2,510,223 26,263 Walt Disney (The) Co......................................................... 2,823,535 ------------- 5,333,758 ------------- MORTGAGE REAL ESTATE INVESTMENT TRUSTS - 0.7% 212,360 Annaly Capital Management, Inc............................................... 2,524,961 295,509 MFA Financial, Inc........................................................... 2,340,431 ------------- 4,865,392 ------------- MULTILINE RETAIL - 0.4% 48,322 Big Lots, Inc................................................................ 2,713,280 ------------- OIL, GAS & CONSUMABLE FUELS - 0.4% 28,257 Phillips 66.................................................................. 2,858,196 ------------- PAPER & FOREST PRODUCTS - 0.4% 30,260 Neenah Paper, Inc............................................................ 2,743,069 ------------- PERSONAL PRODUCTS - 0.4% 24,006 Estee Lauder (The) Cos., Inc., Class A....................................... 3,054,523 -------------
See Notes to Financial Statements Page 19 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- COMMON STOCKS (CONTINUED) PHARMACEUTICALS - 0.7% 19,911 Johnson & Johnson............................................................ $ 2,781,965 72,512 Pfizer, Inc.................................................................. 2,626,385 ------------- 5,408,350 ------------- PROFESSIONAL SERVICES - 1.1% 24,425 Equifax, Inc................................................................. 2,880,196 35,028 Exponent, Inc................................................................ 2,490,491 21,972 ManpowerGroup, Inc........................................................... 2,770,889 ------------- 8,141,576 ------------- ROAD & RAIL - 0.4% 25,977 Landstar System, Inc......................................................... 2,704,206 ------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.2% 67,980 Intel Corp................................................................... 3,137,957 13,990 Lam Research Corp............................................................ 2,575,139 28,878 Texas Instruments, Inc....................................................... 3,016,018 ------------- 8,729,114 ------------- SOFTWARE - 0.7% 18,211 Intuit, Inc.................................................................. 2,873,332 53,541 Oracle Corp.................................................................. 2,531,418 ------------- 5,404,750 ------------- SPECIALTY RETAIL - 2.9% 45,446 Best Buy Co., Inc............................................................ 3,111,688 73,499 Foot Locker, Inc............................................................. 3,445,633 15,828 Home Depot (The), Inc........................................................ 2,999,881 32,384 Lowe's Cos., Inc............................................................. 3,009,769 40,090 Ross Stores, Inc............................................................. 3,217,222 35,110 TJX (The) Cos., Inc.......................................................... 2,684,510 40,901 Tractor Supply Co............................................................ 3,057,350 ------------- 21,526,053 ------------- TEXTILES, APPAREL & LUXURY GOODS - 1.2% 26,214 Carter's, Inc................................................................ 3,079,883 49,927 NIKE, Inc., Class B.......................................................... 3,122,934 40,723 VF Corp...................................................................... 3,013,502 ------------- 9,216,319 ------------- TOBACCO - 0.4% 40,816 Altria Group, Inc............................................................ 2,914,671 ------------- TRADING COMPANIES & DISTRIBUTORS - 0.8% 56,794 Fastenal Co.................................................................. 3,106,064 16,072 Watsco, Inc.................................................................. 2,732,883 ------------- 5,838,947 ------------- TOTAL COMMON STOCKS.......................................................... 416,295,356 (Cost $347,625,152) -------------
Page 20 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES - 39.8% AEROSPACE & DEFENSE - 0.8% $ 250,000 Boeing (The) Co..................................... 2.35% 10/30/21 $ 251,142 553,000 Boeing (The) Co..................................... 2.13% 03/01/22 548,633 175,000 Boeing (The) Co..................................... 1.88% 06/15/23 168,705 100,000 Boeing (The) Co..................................... 2.60% 10/30/25 98,745 175,000 Boeing (The) Co..................................... 2.25% 06/15/26 166,472 250,000 Boeing (The) Co..................................... 2.80% 03/01/27 247,868 308,000 Boeing (The) Co..................................... 3.38% 06/15/46 300,122 250,000 Boeing (The) Co..................................... 3.65% 03/01/47 253,708 300,000 Boeing Capital Corp................................. 4.70% 10/27/19 313,502 250,000 Lockheed Martin Corp................................ 3.55% 01/15/26 260,035 248,000 Lockheed Martin Corp................................ 4.09% 09/15/52 260,826 250,000 Northrop Grumman Corp............................... 2.08% 10/15/20 248,129 500,000 Northrop Grumman Corp............................... 2.55% 10/15/22 496,993 250,000 Northrop Grumman Corp............................... 2.93% 01/15/25 248,907 500,000 Northrop Grumman Corp............................... 3.25% 01/15/28 501,797 200,000 Northrop Grumman Corp............................... 5.05% 11/15/40 235,414 500,000 Northrop Grumman Corp............................... 4.03% 10/15/47 524,831 250,000 Rockwell Collins, Inc............................... 3.20% 03/15/24 252,261 250,000 Rockwell Collins, Inc............................... 3.50% 03/15/27 255,031 250,000 Rockwell Collins, Inc............................... 4.35% 04/15/47 272,666 ------------- 5,905,787 ------------- AIR FREIGHT & LOGISTICS - 1.0% 250,000 FedEx Corp.......................................... 2.30% 02/01/20 250,097 300,000 FedEx Corp.......................................... 3.20% 02/01/25 304,302 850,000 FedEx Corp.......................................... 3.30% 03/15/27 857,350 250,000 FedEx Corp.......................................... 4.75% 11/15/45 281,064 648,000 FedEx Corp.......................................... 4.55% 04/01/46 714,543 550,000 FedEx Corp.......................................... 4.40% 01/15/47 589,305 1,000,000 United Parcel Service, Inc.......................... 2.05% 04/01/21 995,176 500,000 United Parcel Service, Inc., 3 Mo. LIBOR + 0.38% (a).......................... 1.80% 05/16/22 501,167 500,000 United Parcel Service, Inc.......................... 2.35% 05/16/22 498,061 545,000 United Parcel Service, Inc.......................... 2.45% 10/01/22 544,051 500,000 United Parcel Service, Inc.......................... 2.50% 04/01/23 497,583 250,000 United Parcel Service, Inc.......................... 2.80% 11/15/24 251,340 500,000 United Parcel Service, Inc.......................... 2.40% 11/15/26 476,927 250,000 United Parcel Service, Inc.......................... 3.05% 11/15/27 250,336 500,000 United Parcel Service, Inc.......................... 3.40% 11/15/46 484,913 ------------- 7,496,215 ------------- AIRLINES - 0.1% 385,000 Southwest Airlines Co............................... 2.75% 11/06/19 387,924 420,000 Southwest Airlines Co............................... 2.65% 11/05/20 421,986 250,000 Southwest Airlines Co............................... 3.00% 11/15/26 243,160 ------------- 1,053,070 ------------- AUTOMOBILES - 0.0% 250,000 Ford Motor Co....................................... 5.29% 12/08/46 273,089 -------------
See Notes to Financial Statements Page 21 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) BANKS - 6.8% $ 202,000 Bank of America Corp................................ 2.60% 01/15/19 $ 202,722 400,000 Bank of America Corp., 3 Mo. LIBOR + 0.87% (a)...... 2.56% 04/01/19 403,268 100,000 Bank of America Corp................................ 2.63% 10/19/20 100,880 600,000 Bank of America Corp................................ 2.63% 04/19/21 603,345 500,000 Bank of America Corp. (b)........................... 2.37% 07/21/21 499,308 250,000 Bank of America Corp. (b)........................... 2.33% 10/01/21 249,394 250,000 Bank of America Corp................................ 2.50% 10/21/22 247,507 250,000 Bank of America Corp., 3 Mo. LIBOR + 1.18% (a)...... 2.54% 10/21/22 255,075 1,000,000 Bank of America Corp., 3 Mo. LIBOR + 1.16% (a)...... 2.52% 01/20/23 1,021,370 500,000 Bank of America Corp. (b)........................... 2.88% 04/24/23 501,038 500,000 Bank of America Corp. (b)........................... 2.82% 07/21/23 499,341 1,207,000 Bank of America Corp. (b) (c)....................... 3.00% 12/20/23 1,210,931 450,000 Bank of America Corp................................ 4.00% 04/01/24 476,101 500,000 Bank of America Corp. (b)........................... 3.09% 10/01/25 499,306 400,000 Bank of America Corp................................ 4.45% 03/03/26 427,695 950,000 Bank of America Corp................................ 3.50% 04/19/26 972,328 150,000 Bank of America Corp................................ 3.25% 10/21/27 149,034 250,000 Bank of America Corp................................ 4.18% 11/25/27 261,551 500,000 Bank of America Corp. (b)........................... 3.82% 01/20/28 517,778 500,000 Bank of America Corp. (b)........................... 3.71% 04/24/28 513,802 500,000 Bank of America Corp. (b)........................... 3.59% 07/21/28 508,841 1,091,000 Bank of America Corp. (b) (c)....................... 3.42% 12/20/28 1,092,608 250,000 Bank of America Corp. (b)........................... 4.24% 04/24/38 271,678 225,000 Bank of America Corp................................ 5.88% 02/07/42 298,579 250,000 Bank of America Corp. (b)........................... 4.44% 01/20/48 282,460 500,000 Citibank N.A., 3 Mo. LIBOR + 0.34% (a).............. 1.97% 03/20/19 500,522 500,000 Citibank N.A........................................ 1.85% 09/18/19 497,044 300,000 Citigroup, Inc...................................... 2.05% 06/07/19 299,234 1,000,000 Citigroup, Inc., 3 Mo. LIBOR + 0.93% (a)............ 2.45% 06/07/19 1,008,091 1,000,000 Citigroup, Inc., 3 Mo. LIBOR + 0.79% (a)............ 2.50% 01/10/20 1,006,230 500,000 Citigroup, Inc...................................... 2.45% 01/10/20 500,466 250,000 Citigroup, Inc...................................... 2.40% 02/18/20 249,836 600,000 Citigroup, Inc...................................... 2.70% 03/30/21 602,101 350,000 Citigroup, Inc...................................... 2.35% 08/02/21 346,480 1,000,000 Citigroup, Inc., 3 Mo. LIBOR + 1.07% (a)............ 2.59% 12/08/21 1,016,661 250,000 Citigroup, Inc...................................... 2.90% 12/08/21 251,873 775,000 Citigroup, Inc...................................... 4.50% 01/14/22 825,177 500,000 Citigroup, Inc...................................... 2.75% 04/25/22 499,492 500,000 Citigroup, Inc...................................... 2.70% 10/27/22 495,213 500,000 Citigroup, Inc. (b)................................. 2.88% 07/24/23 498,022 500,000 Citigroup, Inc., 3 Mo. LIBOR + 1.10% (a)............ 2.52% 05/17/24 508,071 450,000 Citigroup, Inc...................................... 4.60% 03/09/26 479,719 300,000 Citigroup, Inc...................................... 3.40% 05/01/26 302,336 250,000 Citigroup, Inc...................................... 3.20% 10/21/26 248,330 300,000 Citigroup, Inc...................................... 4.30% 11/20/26 314,295 100,000 Citigroup, Inc...................................... 4.45% 09/29/27 105,996 500,000 Citigroup, Inc. (b)................................. 3.89% 01/10/28 518,131 1,000,000 Citigroup, Inc. (b)................................. 3.67% 07/24/28 1,015,771 500,000 Citigroup, Inc...................................... 4.13% 07/25/28 516,429
Page 22 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) BANKS (CONTINUED) $ 500,000 Citigroup, Inc. (b)................................. 3.52% 10/27/28 $ 503,396 200,000 Citigroup, Inc...................................... 5.88% 01/30/42 263,989 100,000 Citigroup, Inc...................................... 6.68% 09/13/43 138,890 750,000 Citigroup, Inc...................................... 4.75% 05/18/46 830,108 500,000 Citigroup, Inc. (b)................................. 4.28% 04/24/48 545,187 600,000 HSBC Bank USA N.A................................... 4.88% 08/24/20 634,760 400,000 JPMorgan Chase & Co................................. 1.85% 03/22/19 398,607 400,000 JPMorgan Chase & Co................................. 2.20% 10/22/19 399,728 150,000 JPMorgan Chase & Co................................. 2.55% 03/01/21 150,146 1,000,000 JPMorgan Chase & Co., 3 Mo. LIBOR + 0.55% (a)....... 2.09% 03/09/21 1,002,777 550,000 JPMorgan Chase & Co................................. 4.63% 05/10/21 587,494 450,000 JPMorgan Chase & Co................................. 2.40% 06/07/21 447,804 1,000,000 JPMorgan Chase & Co., 3 Mo. LIBOR + 1.00% (a)....... 2.71% 01/15/23 1,014,159 325,000 JPMorgan Chase & Co................................. 3.20% 01/25/23 331,732 250,000 JPMorgan Chase & Co. (b)............................ 2.78% 04/25/23 250,394 500,000 JPMorgan Chase & Co................................. 2.70% 05/18/23 497,092 250,000 JPMorgan Chase & Co., 3 Mo. LIBOR + 1.23% (a)....... 2.59% 10/24/23 256,673 400,000 JPMorgan Chase & Co................................. 3.88% 02/01/24 420,719 500,000 JPMorgan Chase & Co., 3 Mo. LIBOR + 0.85% (a)....... 2.56% 01/10/25 502,409 850,000 JPMorgan Chase & Co................................. 3.30% 04/01/26 857,599 300,000 JPMorgan Chase & Co................................. 4.13% 12/15/26 317,067 250,000 JPMorgan Chase & Co................................. 3.63% 12/01/27 253,206 500,000 JPMorgan Chase & Co. (b)............................ 3.78% 02/01/28 518,722 500,000 JPMorgan Chase & Co. (b)............................ 3.54% 05/01/28 509,277 400,000 JPMorgan Chase & Co................................. 6.40% 05/15/38 551,430 250,000 JPMorgan Chase & Co. (b)............................ 3.88% 07/24/38 257,521 100,000 JPMorgan Chase & Co................................. 4.85% 02/01/44 118,407 150,000 JPMorgan Chase & Co................................. 4.95% 06/01/45 174,754 500,000 JPMorgan Chase & Co. (b)............................ 4.26% 02/22/48 542,583 500,000 JPMorgan Chase & Co. (b)............................ 4.03% 07/24/48 522,812 250,000 JPMorgan Chase & Co. (b)............................ 3.96% 11/15/48 258,816 250,000 Santander Holdings USA, Inc. (c).................... 3.70% 03/28/22 253,251 250,000 Santander Holdings USA, Inc. (c).................... 3.40% 01/18/23 249,312 250,000 Santander Holdings USA, Inc. (c).................... 4.40% 07/13/27 256,159 575,000 Wells Fargo & Co.................................... 2.13% 04/22/19 575,020 200,000 Wells Fargo & Co.................................... 2.15% 01/30/20 199,622 100,000 Wells Fargo & Co.................................... 2.55% 12/07/20 100,447 900,000 Wells Fargo & Co.................................... 3.00% 01/22/21 913,219 550,000 Wells Fargo & Co.................................... 2.50% 03/04/21 549,998 300,000 Wells Fargo & Co.................................... 2.10% 07/26/21 295,128 1,000,000 Wells Fargo & Co., 3 Mo. LIBOR + 0.93% (a).......... 2.34% 02/11/22 1,012,925 500,000 Wells Fargo & Co.................................... 2.63% 07/22/22 497,629 1,000,000 Wells Fargo & Co., 3 Mo. LIBOR + 1.11% (a).......... 2.47% 01/24/23 1,020,454 250,000 Wells Fargo & Co., 3 Mo. LIBOR + 1.23% (a).......... 2.61% 10/31/23 256,820 425,000 Wells Fargo & Co.................................... 3.30% 09/09/24 431,979 550,000 Wells Fargo & Co.................................... 3.00% 04/22/26 540,194 100,000 Wells Fargo & Co.................................... 4.10% 06/03/26 104,974 250,000 Wells Fargo & Co.................................... 3.00% 10/23/26 245,321 200,000 Wells Fargo & Co.................................... 4.30% 07/22/27 213,212
See Notes to Financial Statements Page 23 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) BANKS (CONTINUED) $ 500,000 Wells Fargo & Co. (b)............................... 3.58% 05/22/28 $ 510,336 100,000 Wells Fargo & Co.................................... 4.90% 11/17/45 113,449 275,000 Wells Fargo & Co.................................... 4.40% 06/14/46 290,745 750,000 Wells Fargo & Co.................................... 4.75% 12/07/46 840,294 1,000,000 Wells Fargo Bank N.A., 3 Mo. LIBOR + 0.50% (a)...... 1.97% 11/28/18 1,003,345 250,000 Wells Fargo Bank N.A................................ 1.75% 05/24/19 248,662 500,000 Wells Fargo Bank N.A., 3 Mo. LIBOR + 0.65% (a)...... 2.16% 12/06/19 504,806 200,000 Wells Fargo Bank N.A................................ 5.95% 08/26/36 256,790 ------------- 50,213,809 ------------- BEVERAGES - 0.8% 690,000 Anheuser-Busch Inbev Worldwide, Inc................. 2.65% 02/01/21 693,959 200,000 Anheuser-Busch Inbev Worldwide, Inc................. 2.50% 07/15/22 198,694 625,000 Anheuser-Busch Inbev Worldwide, Inc................. 3.30% 02/01/23 640,281 600,000 Anheuser-Busch Inbev Worldwide, Inc................. 3.65% 02/01/26 620,238 875,000 Anheuser-Busch Inbev Worldwide, Inc................. 4.70% 02/01/36 981,384 1,100,000 Anheuser-Busch Inbev Worldwide, Inc................. 4.90% 02/01/46 1,279,996 150,000 Coca-Cola (The) Co.................................. 1.88% 10/27/20 149,286 975,000 Coca-Cola (The) Co.................................. 3.20% 11/01/23 1,013,214 ------------- 5,577,052 ------------- BIOTECHNOLOGY - 0.7% 350,000 AbbVie, Inc......................................... 2.50% 05/14/20 351,272 375,000 AbbVie, Inc......................................... 2.90% 11/06/22 376,513 250,000 AbbVie, Inc......................................... 3.60% 05/14/25 257,421 275,000 AbbVie, Inc......................................... 4.40% 11/06/42 295,978 300,000 AbbVie, Inc......................................... 4.70% 05/14/45 337,721 500,000 Amgen, Inc.......................................... 1.90% 05/10/19 498,554 500,000 Amgen, Inc.......................................... 2.20% 05/11/20 497,520 450,000 Amgen, Inc.......................................... 2.70% 05/01/22 449,978 500,000 Amgen, Inc.......................................... 2.65% 05/11/22 499,164 200,000 Amgen, Inc.......................................... 3.63% 05/22/24 208,083 100,000 Amgen, Inc.......................................... 2.60% 08/19/26 95,936 500,000 Amgen, Inc.......................................... 3.20% 11/02/27 500,428 200,000 Amgen, Inc.......................................... 5.38% 05/15/43 236,042 350,000 Amgen, Inc.......................................... 4.40% 05/01/45 382,357 ------------- 4,986,967 ------------- BUILDING PRODUCTS - 0.2% 450,000 Masco Corp.......................................... 3.50% 04/01/21 459,292 250,000 Masco Corp.......................................... 3.50% 11/15/27 246,967 250,000 Masco Corp.......................................... 4.50% 05/15/47 255,408 500,000 Owens Corning....................................... 4.30% 07/15/47 494,363 ------------- 1,456,030 ------------- CAPITAL MARKETS - 3.3% 300,000 Goldman Sachs Group (The), Inc...................... 2.00% 04/25/19 299,192 500,000 Goldman Sachs Group (The), Inc...................... 1.95% 07/23/19 497,273 600,000 Goldman Sachs Group (The), Inc...................... 2.55% 10/23/19 601,393 500,000 Goldman Sachs Group (The), Inc...................... 2.30% 12/13/19 499,915 700,000 Goldman Sachs Group (The), Inc., 3 Mo. LIBOR + 0.80% (a).......................... 2.36% 12/13/19 705,074 500,000 Goldman Sachs Group (The), Inc...................... 2.60% 04/23/20 500,950
Page 24 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) CAPITAL MARKETS (CONTINUED) $ 500,000 Goldman Sachs Group (The), Inc., 3 Mo. LIBOR + 0.73% (a).......................... 2.40% 12/27/20 $ 501,985 700,000 Goldman Sachs Group (The), Inc...................... 2.63% 04/25/21 700,065 500,000 Goldman Sachs Group (The), Inc...................... 2.35% 11/15/21 492,871 497,000 Goldman Sachs Group (The), Inc., 3 Mo. LIBOR + 1.11% (a).......................... 2.48% 04/26/22 503,019 500,000 Goldman Sachs Group (The), Inc...................... 3.00% 04/26/22 502,196 500,000 Goldman Sachs Group (The), Inc. (b)................. 2.88% 10/31/22 498,836 700,000 Goldman Sachs Group (The), Inc...................... 3.63% 01/22/23 723,955 250,000 Goldman Sachs Group (The), Inc., 3 Mo. LIBOR + 1.05% (a).......................... 2.54% 06/05/23 252,387 250,000 Goldman Sachs Group (The), Inc. (b)................. 2.91% 06/05/23 248,593 500,000 Goldman Sachs Group (The), Inc. (b)................. 2.91% 07/24/23 497,035 600,000 Goldman Sachs Group (The), Inc...................... 4.00% 03/03/24 629,998 150,000 Goldman Sachs Group (The), Inc...................... 3.50% 01/23/25 152,513 500,000 Goldman Sachs Group (The), Inc. (b)................. 3.27% 09/29/25 498,434 600,000 Goldman Sachs Group (The), Inc...................... 4.25% 10/21/25 627,702 550,000 Goldman Sachs Group (The), Inc...................... 3.75% 02/25/26 565,311 500,000 Goldman Sachs Group (The), Inc...................... 3.50% 11/16/26 503,443 750,000 Goldman Sachs Group (The), Inc...................... 3.85% 01/26/27 770,791 250,000 Goldman Sachs Group (The), Inc. (b)................. 3.69% 06/05/28 253,916 500,000 Goldman Sachs Group (The), Inc. (b)................. 4.02% 10/31/38 515,253 400,000 Goldman Sachs Group (The), Inc...................... 6.25% 02/01/41 540,151 800,000 Morgan Stanley, 3 Mo. LIBOR + 0.85% (a)............. 2.21% 01/24/19 804,295 695,000 Morgan Stanley...................................... 2.50% 01/24/19 696,952 400,000 Morgan Stanley...................................... 2.65% 01/27/20 402,007 100,000 Morgan Stanley, 3 Mo. LIBOR + 0.80% (a)............. 2.21% 02/14/20 100,415 1,000,000 Morgan Stanley...................................... 2.50% 04/21/21 998,798 550,000 Morgan Stanley...................................... 5.50% 07/28/21 602,102 500,000 Morgan Stanley...................................... 2.63% 11/17/21 497,995 875,000 Morgan Stanley, 3 Mo. LIBOR + 1.18% (a)............. 2.54% 01/20/22 889,864 500,000 Morgan Stanley...................................... 2.75% 05/19/22 498,471 300,000 Morgan Stanley...................................... 3.75% 02/25/23 311,126 500,000 Morgan Stanley, 3 Mo. LIBOR + 1.40% (a)............. 2.76% 10/24/23 514,568 450,000 Morgan Stanley...................................... 3.88% 04/29/24 470,229 500,000 Morgan Stanley, 3 Mo. LIBOR + 1.22% (a)............. 2.62% 05/08/24 510,893 800,000 Morgan Stanley...................................... 3.88% 01/27/26 834,759 250,000 Morgan Stanley...................................... 4.35% 09/08/26 262,438 250,000 Morgan Stanley...................................... 3.63% 01/20/27 256,159 500,000 Morgan Stanley (b).................................. 3.59% 07/22/28 505,211 500,000 Morgan Stanley (b).................................. 3.97% 07/22/38 519,516 350,000 Morgan Stanley...................................... 6.38% 07/24/42 488,357 100,000 Morgan Stanley...................................... 4.30% 01/27/45 108,123 250,000 Morgan Stanley...................................... 4.38% 01/22/47 274,744 300,000 Nasdaq, Inc......................................... 3.85% 06/30/26 308,583 ------------- 23,937,856 ------------- CHEMICALS - 0.4% 250,000 CF Industries, Inc. (c)............................. 3.40% 12/01/21 252,795 525,000 Dow Chemical (The) Co............................... 8.55% 05/15/19 568,855 200,000 Dow Chemical (The) Co............................... 3.00% 11/15/22 201,276 75,000 Dow Chemical (The) Co............................... 4.63% 10/01/44 82,311 140,000 EI du Pont de Nemours & Co., 3 Mo. LIBOR + 0.53% (a).......................... 1.91% 05/01/20 140,927
See Notes to Financial Statements Page 25 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) CHEMICALS (CONTINUED) $ 250,000 EI du Pont de Nemours & Co.......................... 2.20% 05/01/20 $ 249,864 500,000 Sherwin-Williams (The) Co........................... 3.13% 06/01/24 503,466 250,000 Sherwin-Williams (The) Co........................... 3.45% 06/01/27 254,496 100,000 Westlake Chemical Corp.............................. 3.60% 08/15/26 100,758 250,000 Westlake Chemical Corp.............................. 5.00% 08/15/46 281,943 500,000 Westlake Chemical Corp.............................. 4.38% 11/15/47 521,437 ------------- 3,158,128 ------------- COMMERCIAL SERVICES & SUPPLIES - 0.1% 500,000 Waste Management, Inc............................... 3.15% 11/15/27 500,770 ------------- COMMUNICATIONS EQUIPMENT - 0.3% 100,000 Cisco Systems, Inc.................................. 2.45% 06/15/20 100,690 800,000 Cisco Systems, Inc.................................. 2.20% 09/20/23 784,622 500,000 Cisco Systems, Inc.................................. 3.63% 03/04/24 527,177 100,000 Cisco Systems, Inc.................................. 2.95% 02/28/26 100,581 200,000 Cisco Systems, Inc.................................. 2.50% 09/20/26 193,686 225,000 Cisco Systems, Inc.................................. 5.90% 02/15/39 308,240 ------------- 2,014,996 ------------- CONSTRUCTION MATERIALS - 0.3% 250,000 CRH America Finance, Inc. (c)....................... 3.40% 05/09/27 250,441 250,000 CRH America Finance, Inc. (c)....................... 4.40% 05/09/47 264,101 500,000 Martin Marietta Materials, Inc...................... 3.50% 12/15/27 497,303 500,000 Martin Marietta Materials, Inc...................... 4.25% 12/15/47 496,816 250,000 Vulcan Materials Co................................. 3.90% 04/01/27 255,957 250,000 Vulcan Materials Co................................. 4.50% 06/15/47 256,291 ------------- 2,020,909 ------------- CONSUMER FINANCE - 2.7% 250,000 American Express Co................................. 2.20% 10/30/20 248,118 250,000 American Express Co................................. 2.50% 08/01/22 247,248 500,000 American Express Co................................. 3.00% 10/30/24 499,936 450,000 American Express Co................................. 3.63% 12/05/24 463,725 297,000 American Express Credit Corp., 3 Mo. LIBOR + 0.55% (a).......................... 2.15% 03/18/19 298,223 500,000 American Express Credit Corp........................ 1.70% 10/30/19 494,972 250,000 American Express Credit Corp........................ 2.20% 03/03/20 249,322 150,000 American Express Credit Corp........................ 2.60% 09/14/20 150,816 575,000 American Express Credit Corp........................ 2.25% 05/05/21 570,736 250,000 American Express Credit Corp., 3 Mo. LIBOR + 0.70% (a).......................... 2.19% 03/03/22 251,510 250,000 American Express Credit Corp........................ 2.70% 03/03/22 250,955 500,000 American Express Credit Corp........................ 3.30% 05/03/27 507,990 500,000 Capital One Financial Corp., 3 Mo. LIBOR + 0.95% (a).......................... 2.49% 03/09/22 501,742 550,000 Capital One Financial Corp.......................... 3.75% 04/24/24 565,804 500,000 Capital One Financial Corp.......................... 3.30% 10/30/24 498,131 350,000 Capital One Financial Corp.......................... 3.75% 07/28/26 349,163 250,000 Capital One N.A..................................... 2.25% 09/13/21 245,452 500,000 Capital One N.A..................................... 2.65% 08/08/22 495,297 1,000,000 Capital One N.A., 3 Mo. LIBOR + 1.15% (a)........... 2.53% 01/30/23 1,006,296 500,000 Caterpillar Financial Services Corp., 3 Mo. LIBOR + 0.13% (a).......................... 1.61% 11/29/19 499,994 500,000 Caterpillar Financial Services Corp................. 2.00% 11/29/19 499,064
Page 26 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) CONSUMER FINANCE (CONTINUED) $ 300,000 Caterpillar Financial Services Corp., 3 Mo. LIBOR + 0.51% (a).......................... 2.22% 01/10/20 $ 302,357 500,000 Caterpillar Financial Services Corp................. 2.10% 01/10/20 499,111 250,000 Caterpillar Financial Services Corp................. 1.85% 09/04/20 247,177 1,039,000 Caterpillar Financial Services Corp................. 1.70% 08/09/21 1,013,818 250,000 Caterpillar Financial Services Corp................. 2.40% 06/06/22 248,631 1,000,000 Caterpillar Financial Services Corp................. 2.55% 11/29/22 997,486 150,000 Caterpillar Financial Services Corp................. 3.25% 12/01/24 154,031 250,000 Ford Motor Credit Co., LLC.......................... 2.26% 03/28/19 249,700 386,000 Ford Motor Credit Co., LLC.......................... 1.90% 08/12/19 383,245 200,000 Ford Motor Credit Co., LLC.......................... 2.68% 01/09/20 200,580 200,000 Ford Motor Credit Co., LLC.......................... 2.46% 03/27/20 199,465 500,000 Ford Motor Credit Co., LLC.......................... 2.43% 06/12/20 497,330 100,000 Ford Motor Credit Co., LLC.......................... 3.22% 01/09/22 100,710 250,000 Ford Motor Credit Co., LLC.......................... 3.34% 03/28/22 253,139 500,000 Ford Motor Credit Co., LLC.......................... 2.98% 08/03/22 498,765 450,000 Ford Motor Credit Co., LLC.......................... 3.10% 05/04/23 447,969 725,000 Ford Motor Credit Co., LLC.......................... 4.38% 08/06/23 764,374 200,000 Ford Motor Credit Co., LLC.......................... 3.81% 01/09/24 204,439 350,000 Ford Motor Credit Co., LLC.......................... 4.13% 08/04/25 362,564 1,000,000 Ford Motor Credit Co., LLC.......................... 3.82% 11/02/27 1,002,298 250,000 General Motors Financial Co., Inc................... 2.65% 04/13/20 250,190 250,000 General Motors Financial Co., Inc................... 2.45% 11/06/20 248,289 250,000 General Motors Financial Co., Inc................... 3.20% 07/06/21 252,644 250,000 General Motors Financial Co., Inc., 3 Mo. LIBOR + 1.55% (a).......................... 3.27% 01/14/22 256,216 250,000 General Motors Financial Co., Inc................... 3.50% 11/07/24 249,866 200,000 General Motors Financial Co., Inc................... 5.25% 03/01/26 220,281 100,000 General Motors Financial Co., Inc................... 4.00% 10/06/26 101,886 250,000 General Motors Financial Co., Inc................... 4.35% 01/17/27 260,486 500,000 Synchrony Financial................................. 3.95% 12/01/27 498,910 ------------- 19,860,451 ------------- CONTAINERS & PACKAGING - 0.3% 200,000 International Paper Co.............................. 3.00% 02/15/27 194,293 150,000 International Paper Co.............................. 4.40% 08/15/47 157,397 250,000 International Paper Co.............................. 4.35% 08/15/48 262,122 250,000 Packaging Corp. of America.......................... 2.45% 12/15/20 250,513 500,000 Packaging Corp. of America.......................... 3.40% 12/15/27 502,275 250,000 WestRock Co. (c).................................... 3.00% 09/15/24 248,156 250,000 WestRock Co. (c).................................... 3.38% 09/15/27 248,755 ------------- 1,863,511 ------------- DIVERSIFIED FINANCIAL SERVICES - 0.3% 250,000 Berkshire Hathaway Finance Corp., 3 Mo. LIBOR + 0.32% (a).......................... 2.03% 01/10/20 251,174 175,000 Berkshire Hathaway, Inc............................. 2.20% 03/15/21 174,532 125,000 Berkshire Hathaway, Inc............................. 2.75% 03/15/23 125,905 425,000 Berkshire Hathaway, Inc............................. 3.13% 03/15/26 430,260 350,000 Dell International LLC/EMC Corp. (c)................ 3.48% 06/01/19 354,506 250,000 Dell International LLC/EMC Corp. (c)................ 4.42% 06/15/21 260,708
See Notes to Financial Statements Page 27 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) DIVERSIFIED FINANCIAL SERVICES (CONTINUED) $ 250,000 Voya Financial, Inc................................. 3.13% 07/15/24 $ 248,114 ------------- 1,845,199 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 1.7% 500,000 AT&T, Inc........................................... 2.30% 03/11/19 500,681 300,000 AT&T, Inc........................................... 2.45% 06/30/20 299,852 250,000 AT&T, Inc........................................... 3.20% 03/01/22 252,938 250,000 AT&T, Inc........................................... 2.85% 02/14/23 251,284 250,000 AT&T, Inc........................................... 3.80% 03/01/24 256,369 150,000 AT&T, Inc........................................... 3.90% 03/11/24 154,146 250,000 AT&T, Inc........................................... 3.40% 08/14/24 251,645 350,000 AT&T, Inc........................................... 3.40% 05/15/25 344,658 650,000 AT&T, Inc........................................... 4.13% 02/17/26 665,969 250,000 AT&T, Inc........................................... 3.90% 08/14/27 252,161 545,000 AT&T, Inc. (c)...................................... 4.10% 02/15/28 547,905 462,000 AT&T, Inc. (c)...................................... 4.30% 02/15/30 461,356 250,000 AT&T, Inc........................................... 5.25% 03/01/37 265,203 500,000 AT&T, Inc........................................... 4.90% 08/14/37 507,866 425,000 AT&T, Inc........................................... 4.80% 06/15/44 421,922 250,000 AT&T, Inc........................................... 4.35% 06/15/45 231,542 250,000 AT&T, Inc........................................... 4.75% 05/15/46 245,453 550,000 AT&T, Inc........................................... 5.65% 02/15/47 604,153 250,000 AT&T, Inc........................................... 5.15% 02/14/50 254,108 250,000 AT&T, Inc........................................... 5.70% 03/01/57 275,708 250,000 AT&T, Inc........................................... 5.30% 08/14/58 251,864 1,277,000 Verizon Communications, Inc......................... 2.95% 03/15/22 1,286,041 100,000 Verizon Communications, Inc., 3 Mo. LIBOR + 1.00% (a).......................... 2.60% 03/16/22 102,029 650,000 Verizon Communications, Inc......................... 3.50% 11/01/24 662,621 522,000 Verizon Communications, Inc. (c).................... 3.38% 02/15/25 524,795 100,000 Verizon Communications, Inc......................... 2.63% 08/15/26 94,368 250,000 Verizon Communications, Inc......................... 4.13% 03/16/27 261,177 231,000 Verizon Communications, Inc......................... 4.27% 01/15/36 230,517 298,000 Verizon Communications, Inc......................... 4.13% 08/15/46 276,411 500,000 Verizon Communications, Inc......................... 4.86% 08/21/46 522,855 250,000 Verizon Communications, Inc......................... 4.52% 09/15/48 247,174 249,000 Verizon Communications, Inc......................... 5.01% 08/21/54 256,490 522,000 Verizon Communications, Inc......................... 4.67% 03/15/55 506,141 ------------- 12,267,402 ------------- ELECTRIC UTILITIES - 3.9% 500,000 AEP Texas, Inc. (c)................................. 2.40% 10/01/22 493,115 500,000 AEP Texas, Inc. (c)................................. 3.80% 10/01/47 516,367 250,000 AEP Transmission Co., LLC........................... 3.10% 12/01/26 250,780 500,000 AEP Transmission Co., LLC (c)....................... 3.10% 12/01/26 501,561 250,000 AEP Transmission Co., LLC........................... 4.00% 12/01/46 265,470 500,000 AEP Transmission Co., LLC (c)....................... 3.75% 12/01/47 515,599 250,000 Alabama Power Co.................................... 2.45% 03/30/22 248,581 250,000 Alabama Power Co.................................... 3.70% 12/01/47 255,903 250,000 American Electric Power Co., Inc.................... 2.95% 12/15/22 253,835 500,000 American Electric Power Co., Inc.................... 3.20% 11/13/27 497,489 300,000 Appalachian Power Co................................ 4.40% 05/15/44 332,021
Page 28 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) ELECTRIC UTILITIES (CONTINUED) $ 250,000 Baltimore Gas & Electric Co......................... 2.40% 08/15/26 $ 236,363 250,000 Baltimore Gas & Electric Co......................... 3.50% 08/15/46 245,602 250,000 Baltimore Gas & Electric Co......................... 3.75% 08/15/47 256,820 240,000 CenterPoint Energy Houston Electric LLC............. 2.25% 08/01/22 236,686 250,000 CenterPoint Energy Houston Electric LLC............. 2.40% 09/01/26 237,992 500,000 CenterPoint Energy Houston Electric LLC............. 3.00% 02/01/27 498,169 295,000 CenterPoint Energy Houston Electric LLC............. 4.50% 04/01/44 343,541 500,000 Cleveland Electric Illuminating (The) Co. (c)....... 3.50% 04/01/28 501,617 200,000 Commonwealth Edison Co.............................. 2.55% 06/15/26 193,629 300,000 Commonwealth Edison Co.............................. 3.40% 09/01/21 308,884 250,000 Commonwealth Edison Co.............................. 2.95% 08/15/27 247,476 300,000 Commonwealth Edison Co.............................. 3.70% 03/01/45 306,207 400,000 Commonwealth Edison Co.............................. 3.65% 06/15/46 405,088 500,000 Commonwealth Edison Co.............................. 3.75% 08/15/47 520,967 100,000 Duke Energy Carolinas LLC........................... 2.50% 03/15/23 99,179 350,000 Duke Energy Carolinas LLC........................... 6.00% 01/15/38 471,811 250,000 Duke Energy Corp.................................... 1.80% 09/01/21 243,377 300,000 Duke Energy Corp.................................... 3.55% 09/15/21 309,860 500,000 Duke Energy Corp.................................... 2.40% 08/15/22 491,779 250,000 Duke Energy Corp.................................... 3.15% 08/15/27 248,704 450,000 Duke Energy Corp.................................... 3.75% 09/01/46 446,952 500,000 Duke Energy Corp.................................... 3.95% 08/15/47 516,060 350,000 Duke Energy Florida LLC............................. 2.10% 12/15/19 349,772 500,000 Duke Energy Florida LLC............................. 3.20% 01/15/27 506,777 250,000 Duke Energy Florida LLC............................. 3.40% 10/01/46 242,886 250,000 Duke Energy Progress LLC............................ 3.70% 10/15/46 256,015 250,000 Duke Energy Progress LLC............................ 3.60% 09/15/47 251,308 500,000 Eversource Energy................................... 2.75% 03/15/22 501,390 500,000 Eversource Energy................................... 2.90% 10/01/24 496,951 500,000 Exelon Corp......................................... 3.50% 06/01/22 510,059 575,000 Exelon Corp......................................... 5.15% 12/01/20 612,660 200,000 Exelon Corp......................................... 2.45% 04/15/21 199,249 250,000 Exelon Corp......................................... 4.45% 04/15/46 272,797 250,000 FirstEnergy Corp.................................... 2.85% 07/15/22 247,989 350,000 Florida Power & Light Co............................ 3.25% 06/01/24 360,099 210,000 Florida Power & Light Co............................ 4.05% 06/01/42 230,799 100,000 Indiana Michigan Power Co........................... 4.55% 03/15/46 114,527 500,000 Indiana Michigan Power Co........................... 3.75% 07/01/47 510,497 410,000 Metropolitan Edison Co. (c)......................... 3.50% 03/15/23 418,136 125,000 Monongahela Power Co. (c)........................... 5.40% 12/15/43 156,208 150,000 Ohio Edison Co...................................... 6.88% 07/15/36 207,060 250,000 Pacific Gas & Electric Co........................... 3.50% 06/15/25 255,823 100,000 Pacific Gas & Electric Co........................... 2.95% 03/01/26 97,464 600,000 Pacific Gas & Electric Co........................... 4.30% 03/15/45 628,458 250,000 Pacific Gas & Electric Co........................... 4.25% 03/15/46 263,038 750,000 Pacific Gas & Electric Co........................... 4.00% 12/01/46 752,680 250,000 PECO Energy Co...................................... 3.70% 09/15/47 257,325 100,000 Public Service Electric & Gas Co.................... 1.90% 03/15/21 98,524 195,000 Public Service Electric & Gas Co.................... 2.38% 05/15/23 191,837 550,000 Public Service Electric & Gas Co.................... 2.25% 09/15/26 517,960
See Notes to Financial Statements Page 29 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) ELECTRIC UTILITIES (CONTINUED) $ 250,000 Public Service Electric & Gas Co.................... 3.00% 05/15/27 $ 248,856 275,000 Public Service Electric & Gas Co.................... 3.95% 05/01/42 294,832 100,000 Public Service Electric & Gas Co.................... 3.80% 03/01/46 105,466 500,000 Public Service Electric & Gas Co.................... 3.60% 12/01/47 513,368 550,000 Southern (The) Co................................... 1.85% 07/01/19 546,873 815,000 Southern (The) Co................................... 2.35% 07/01/21 810,840 250,000 Southern (The) Co................................... 3.25% 07/01/26 245,632 425,000 Southern (The) Co................................... 4.40% 07/01/46 454,475 200,000 Southern California Edison Co....................... 3.50% 10/01/23 207,278 200,000 Southern California Edison Co....................... 3.60% 02/01/45 202,157 500,000 Southern California Edison Co....................... 4.00% 04/01/47 538,442 500,000 Southern Co. Gas Capital Corp....................... 4.40% 05/30/47 537,926 250,000 Southern Power Co................................... 4.95% 12/15/46 275,309 500,000 Southwestern Electric Power Co...................... 2.75% 10/01/26 482,469 100,000 Southwestern Electric Power Co...................... 6.20% 03/15/40 133,971 500,000 Virginia Electric & Power Co........................ 2.75% 03/15/23 498,273 200,000 Virginia Electric & Power Co........................ 3.45% 02/15/24 206,785 450,000 Virginia Electric & Power Co........................ 2.95% 11/15/26 446,541 250,000 Virginia Electric & Power Co........................ 3.50% 03/15/27 258,970 475,000 Virginia Electric & Power Co........................ 4.45% 02/15/44 538,037 250,000 Virginia Electric & Power Co........................ 4.00% 11/15/46 268,725 250,000 Virginia Electric & Power Co........................ 3.80% 09/15/47 259,960 ------------- 29,080,957 ------------- ENERGY EQUIPMENT & SERVICES - 0.0% 250,000 Halliburton Co...................................... 5.00% 11/15/45 288,220 ------------- EQUITY REAL ESTATE INVESTMENT TRUSTS - 0.2% 500,000 American Tower Corp................................. 3.00% 06/15/23 499,313 500,000 American Tower Corp................................. 3.60% 01/15/28 498,100 250,000 Duke Realty L.P..................................... 3.38% 12/15/27 250,931 ------------- 1,248,344 ------------- FOOD & STAPLES RETAILING - 0.6% 150,000 CVS Health Corp..................................... 2.80% 07/20/20 150,714 600,000 CVS Health Corp..................................... 2.13% 06/01/21 586,023 700,000 CVS Health Corp..................................... 4.00% 12/05/23 728,722 178,000 CVS Health Corp..................................... 3.88% 07/20/25 183,607 150,000 CVS Health Corp..................................... 2.88% 06/01/26 144,080 1,000,000 Wal-Mart Stores, Inc................................ 2.35% 12/15/22 997,183 325,000 Wal-Mart Stores, Inc................................ 3.30% 04/22/24 337,929 500,000 Wal-Mart Stores, Inc................................ 2.65% 12/15/24 498,494 1,000,000 Wal-Mart Stores, Inc................................ 3.63% 12/15/47 1,050,530 ------------- 4,677,282 ------------- FOOD PRODUCTS - 0.2% 500,000 Tyson Foods, Inc.................................... 3.55% 06/02/27 512,979 500,000 Tyson Foods, Inc.................................... 4.55% 06/02/47 546,819 ------------- 1,059,798 -------------
Page 30 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) HEALTH CARE EQUIPMENT & SUPPLIES - 1.0% $ 250,000 Abbott Laboratories................................. 2.90% 11/30/21 $ 253,122 500,000 Abbott Laboratories................................. 3.40% 11/30/23 509,311 500,000 Abbott Laboratories................................. 3.75% 11/30/26 514,380 1,100,000 Abbott Laboratories................................. 4.90% 11/30/46 1,266,256 550,000 Becton Dickinson and Co............................. 3.36% 06/06/24 552,310 800,000 Becton Dickinson and Co............................. 3.70% 06/06/27 807,728 600,000 Becton Dickinson and Co............................. 4.67% 06/06/47 652,283 300,000 Medtronic, Inc...................................... 2.50% 03/15/20 301,872 750,000 Medtronic, Inc...................................... 3.15% 03/15/22 768,636 600,000 Medtronic, Inc...................................... 3.50% 03/15/25 623,002 1,150,000 Medtronic, Inc...................................... 4.63% 03/15/45 1,343,096 ------------- 7,591,996 ------------- HEALTH CARE PROVIDERS & SERVICES - 1.0% 500,000 Express Scripts Holding Co.......................... 3.05% 11/30/22 499,716 500,000 Humana, Inc......................................... 2.50% 12/15/20 499,970 500,000 Humana, Inc......................................... 2.90% 12/15/22 499,743 500,000 UnitedHealth Group, Inc............................. 1.95% 10/15/20 495,630 275,000 UnitedHealth Group, Inc............................. 4.70% 02/15/21 292,539 100,000 UnitedHealth Group, Inc............................. 2.13% 03/15/21 99,310 550,000 UnitedHealth Group, Inc............................. 2.88% 12/15/21 557,313 500,000 UnitedHealth Group, Inc............................. 2.38% 10/15/22 495,499 100,000 UnitedHealth Group, Inc............................. 3.75% 07/15/25 105,506 250,000 UnitedHealth Group, Inc............................. 3.10% 03/15/26 252,120 500,000 UnitedHealth Group, Inc............................. 3.45% 01/15/27 517,833 500,000 UnitedHealth Group, Inc............................. 3.38% 04/15/27 514,413 500,000 UnitedHealth Group, Inc............................. 2.95% 10/15/27 499,173 150,000 UnitedHealth Group, Inc............................. 6.88% 02/15/38 217,972 573,000 UnitedHealth Group, Inc............................. 4.75% 07/15/45 678,489 500,000 UnitedHealth Group, Inc............................. 4.20% 01/15/47 540,155 500,000 UnitedHealth Group, Inc............................. 4.25% 04/15/47 551,711 250,000 UnitedHealth Group, Inc............................. 3.75% 10/15/47 255,750 ------------- 7,572,842 ------------- HOTELS, RESTAURANTS & LEISURE - 0.0% 150,000 McDonald's Corp..................................... 3.70% 01/30/26 156,623 100,000 McDonald's Corp..................................... 4.88% 12/09/45 116,309 ------------- 272,932 ------------- HOUSEHOLD DURABLES - 0.3% 250,000 DR Horton, Inc...................................... 2.55% 12/01/20 249,800 250,000 DR Horton, Inc...................................... 4.38% 09/15/22 263,564 250,000 Newell Brands, Inc.................................. 3.15% 04/01/21 252,986 100,000 Newell Brands, Inc.................................. 4.00% 12/01/24 103,997 350,000 Newell Brands, Inc.................................. 4.20% 04/01/26 365,915 525,000 Newell Brands, Inc.................................. 5.50% 04/01/46 627,386 ------------- 1,863,648 ------------- HOUSEHOLD PRODUCTS - 0.2% 250,000 Procter & Gamble (The) Co........................... 1.70% 11/03/21 244,073 500,000 Procter & Gamble (The) Co........................... 2.15% 08/11/22 494,768 100,000 Procter & Gamble (The) Co........................... 2.70% 02/02/26 98,957
See Notes to Financial Statements Page 31 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) HOUSEHOLD PRODUCTS (CONTINUED) $ 250,000 Procter & Gamble (The) Co........................... 2.45% 11/03/26 $ 241,358 500,000 Procter & Gamble (The) Co........................... 2.85% 08/11/27 496,515 250,000 Procter & Gamble (The) Co........................... 3.50% 10/25/47 253,139 ------------- 1,828,810 ------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.2% 250,000 NextEra Energy Capital Holdings, Inc................ 2.30% 04/01/19 249,941 525,000 NextEra Energy Capital Holdings, Inc................ 2.40% 09/15/19 526,557 500,000 NextEra Energy Capital Holdings, Inc................ 2.80% 01/15/23 500,398 500,000 NextEra Energy Capital Holdings, Inc................ 3.55% 05/01/27 510,307 ------------- 1,787,203 ------------- INDUSTRIAL CONGLOMERATES - 0.4% 250,000 3M Co............................................... 1.63% 09/19/21 244,040 250,000 3M Co............................................... 3.13% 09/19/46 235,389 500,000 Baker Hughes a GE Co., LLC/Baker Hughes Co-Obligor, Inc. (c)......................................... 2.77% 12/15/22 499,717 500,000 Baker Hughes a GE Co., LLC/Baker Hughes Co-Obligor, Inc. (c)......................................... 3.34% 12/15/27 499,791 500,000 Baker Hughes a GE Co., LLC/Baker Hughes Co-Obligor, Inc. (c)......................................... 4.08% 12/15/47 509,844 129,000 General Electric Co................................. 6.75% 03/15/32 176,978 425,000 General Electric Co................................. 4.50% 03/11/44 471,926 250,000 Honeywell International, Inc., 3 Mo. LIBOR + 0.04% (a).......................... 1.42% 10/30/19 249,580 250,000 Honeywell International, Inc........................ 1.80% 10/30/19 248,745 ------------- 3,136,010 ------------- INSURANCE - 0.9% 300,000 AIG Global Funding (c).............................. 2.15% 07/02/20 297,451 400,000 American International Group, Inc................... 3.38% 08/15/20 408,999 200,000 American International Group, Inc................... 4.13% 02/15/24 211,606 100,000 American International Group, Inc................... 3.90% 04/01/26 103,879 300,000 American International Group, Inc................... 6.25% 05/01/36 388,374 490,000 Chubb INA Holdings, Inc............................. 2.30% 11/03/20 489,420 200,000 Chubb INA Holdings, Inc............................. 2.88% 11/03/22 202,856 350,000 Chubb INA Holdings, Inc............................. 3.35% 05/03/26 357,573 600,000 Chubb INA Holdings, Inc............................. 4.35% 11/03/45 679,151 100,000 MetLife, Inc........................................ 3.00% 03/01/25 100,187 150,000 MetLife, Inc........................................ 3.60% 11/13/25 156,195 300,000 MetLife, Inc........................................ 4.88% 11/13/43 352,865 170,000 MetLife, Inc........................................ 4.60% 05/13/46 194,392 325,000 Metropolitan Life Global Funding I, 3 Mo. LIBOR + 0.43% (a) (c)...................... 2.04% 12/19/18 326,033 500,000 Metropolitan Life Global Funding I (c).............. 1.75% 09/19/19 496,529 500,000 Metropolitan Life Global Funding I (c).............. 2.65% 04/08/22 500,213 250,000 Metropolitan Life Global Funding I (c).............. 3.00% 09/19/27 247,963 275,000 Prudential Financial, Inc........................... 4.60% 05/15/44 313,493 500,000 Travelers (The) Cos., Inc........................... 4.00% 05/30/47 533,817 ------------- 6,360,996 -------------
Page 32 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) IT SERVICES - 0.8% $ 250,000 IBM Credit LLC...................................... 1.63% 09/06/19 $ 248,374 250,000 IBM Credit LLC...................................... 1.80% 01/20/21 246,218 250,000 IBM Credit LLC...................................... 2.20% 09/08/22 244,983 500,000 International Business Machines Corp................ 1.63% 05/15/20 494,041 100,000 International Business Machines Corp................ 3.63% 02/12/24 104,799 600,000 Visa, Inc........................................... 2.20% 12/14/20 599,783 500,000 Visa, Inc........................................... 2.15% 09/15/22 493,376 950,000 Visa, Inc........................................... 2.80% 12/14/22 964,562 550,000 Visa, Inc........................................... 3.15% 12/14/25 562,838 250,000 Visa, Inc........................................... 2.75% 09/15/27 246,978 303,000 Visa, Inc........................................... 4.15% 12/14/35 337,048 450,000 Visa, Inc........................................... 4.30% 12/14/45 513,362 500,000 Visa, Inc........................................... 3.65% 09/15/47 514,380 ------------- 5,570,742 ------------- MACHINERY - 0.1% 490,000 Parker-Hannifin Corp................................ 3.25% 03/01/27 494,893 245,000 Parker-Hannifin Corp................................ 4.10% 03/01/47 264,493 ------------- 759,386 ------------- MEDIA - 1.0% 250,000 CBS Corp. (c)....................................... 2.90% 06/01/23 246,096 500,000 CBS Corp............................................ 3.38% 02/15/28 482,530 610,000 Charter Communications Operating LLC/Charter Communications Operating Capital................. 4.91% 07/23/25 649,540 250,000 Charter Communications Operating LLC/Charter Communications Operating Capital................. 4.20% 03/15/28 248,653 750,000 Charter Communications Operating LLC/Charter Communications Operating Capital................. 6.48% 10/23/45 877,464 250,000 Charter Communications Operating LLC/Charter Communications Operating Capital................. 5.38% 05/01/47 257,285 100,000 Comcast Corp........................................ 4.60% 08/15/45 112,438 250,000 Comcast Corp........................................ 3.40% 07/15/46 237,173 500,000 Comcast Corp........................................ 4.00% 08/15/47 523,118 250,000 Cox Communications, Inc. (c)........................ 3.50% 08/15/27 247,087 250,000 Discovery Communications LLC........................ 2.95% 03/20/23 247,716 250,000 Discovery Communications LLC........................ 3.95% 03/20/28 249,183 250,000 Discovery Communications LLC........................ 5.00% 09/20/37 259,828 275,000 Discovery Communications LLC........................ 5.20% 09/20/47 288,120 100,000 Time Warner, Inc.................................... 2.95% 07/15/26 94,757 200,000 Time Warner, Inc.................................... 6.50% 11/15/36 251,406 50,000 Time Warner, Inc.................................... 4.85% 07/15/45 52,713 500,000 Walt Disney (The) Co................................ 0.88% 07/12/19 491,015 150,000 Walt Disney (The) Co................................ 3.00% 02/13/26 150,699 350,000 Walt Disney (The) Co................................ 1.85% 07/30/26 320,902 500,000 Walt Disney (The) Co................................ 2.95% 06/15/27 498,159 475,000 Walt Disney (The) Co................................ 4.13% 06/01/44 514,256 250,000 Walt Disney (The) Co................................ 3.00% 07/30/46 222,899 ------------- 7,523,037 -------------
See Notes to Financial Statements Page 33 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) METALS & MINING - 0.1% $ 500,000 Glencore Funding LLC (c)............................ 3.00% 10/27/22 $ 496,038 500,000 Glencore Funding LLC (c)............................ 3.88% 10/27/27 495,150 ------------- 991,188 ------------- MULTI-UTILITIES - 1.3% 250,000 Ameren Illinois Co.................................. 3.70% 12/01/47 256,496 500,000 CenterPoint Energy, Inc............................. 2.50% 09/01/22 493,014 95,000 Consolidated Edison Co. of New York, Inc............ 4.50% 12/01/45 109,530 335,000 Consolidated Edison Co. of New York, Inc............ 4.45% 03/15/44 382,579 185,000 Consolidated Edison Co. of New York, Inc............ 3.85% 06/15/46 193,172 500,000 Consolidated Edison Co. of New York, Inc............ 3.88% 06/15/47 524,294 250,000 Consolidated Edison Co. of New York, Inc............ 4.30% 12/01/56 273,595 250,000 Consolidated Edison, Inc............................ 2.00% 03/15/20 248,770 100,000 Consolidated Edison, Inc............................ 2.00% 05/15/21 98,552 1,000,000 Dominion Energy, Inc................................ 2.58% 07/01/20 1,001,019 250,000 Dominion Resources, Inc............................. 1.88% 01/15/19 249,314 250,000 Dominion Resources, Inc............................. 1.60% 08/15/19 247,347 200,000 Dominion Resources, Inc............................. 5.20% 08/15/19 208,867 250,000 Dominion Resources, Inc............................. 2.75% 01/15/22 249,844 495,000 Dominion Resources, Inc............................. 4.70% 12/01/44 563,574 330,000 NiSource Finance Corp............................... 2.65% 11/17/22 327,882 500,000 NiSource Finance Corp............................... 3.49% 05/15/27 509,911 750,000 NiSource Finance Corp............................... 4.38% 05/15/47 825,542 500,000 NiSource Finance Corp............................... 3.95% 03/30/48 514,457 250,000 Public Service Enterprise Group, Inc................ 1.60% 11/15/19 245,994 250,000 Public Service Enterprise Group, Inc................ 2.00% 11/15/21 244,286 500,000 Public Service Enterprise Group, Inc................ 2.65% 11/15/22 496,164 500,000 Southern Co. Gas Capital Corp....................... 2.45% 10/01/23 484,530 500,000 Southern Co. Gas Capital Corp....................... 3.95% 10/01/46 498,566 ------------- 9,247,299 ------------- OIL, GAS & CONSUMABLE FUELS - 3.6% 150,000 Anadarko Petroleum Corp............................. 5.55% 03/15/26 168,572 450,000 Andeavor............................................ 3.80% 04/01/28 452,007 500,000 Andeavor............................................ 4.50% 04/01/48 507,743 250,000 Andeavor Logistics L.P./Tesoro Logistics Finance Corp............................................. 5.25% 01/15/25 263,238 250,000 Andeavor Logistics L.P./Tesoro Logistics Finance Corp............................................. 4.25% 12/01/27 252,642 250,000 Boardwalk Pipelines L.P............................. 5.95% 06/01/26 279,330 750,000 Boardwalk Pipelines L.P............................. 4.45% 07/15/27 764,480 550,000 Chevron Corp........................................ 1.56% 05/16/19 546,968 250,000 Chevron Corp., 3 Mo. LIBOR + 0.21% (a).............. 1.70% 03/03/20 250,936 750,000 Chevron Corp........................................ 2.10% 05/16/21 744,221 182,000 Chevron Corp., 3 Mo. LIBOR + 0.53% (a).............. 2.02% 03/03/22 184,025 550,000 Chevron Corp........................................ 2.57% 05/16/23 549,183 500,000 Chevron Corp........................................ 2.90% 03/03/24 504,857 150,000 Chevron Corp........................................ 3.33% 11/17/25 154,493 1,360,000 Chevron Corp........................................ 2.95% 05/16/26 1,361,063 500,000 Cimarex Energy Co................................... 3.90% 05/15/27 512,237 225,000 ConocoPhillips...................................... 6.50% 02/01/39 315,897 250,000 ConocoPhillips Co................................... 5.95% 03/15/46 338,059 325,000 Devon Energy Corp................................... 3.25% 05/15/22 330,905
Page 34 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) OIL, GAS & CONSUMABLE FUELS (CONTINUED) $ 500,000 Enable Midstream Partners L.P....................... 4.40% 03/15/27 $ 509,369 185,000 Enbridge Energy Partners L.P........................ 5.50% 09/15/40 203,209 400,000 Enbridge Energy Partners L.P........................ 7.38% 10/15/45 533,319 400,000 Energy Transfer Partners L.P........................ 3.60% 02/01/23 400,862 250,000 Energy Transfer Partners L.P........................ 4.20% 04/15/27 249,175 175,000 Energy Transfer Partners L.P........................ 6.50% 02/01/42 198,785 250,000 Energy Transfer Partners L.P........................ 5.30% 04/15/47 248,982 250,000 EnLink Midstream Partners L.P....................... 5.45% 06/01/47 265,157 500,000 Exxon Mobil Corp.................................... 2.22% 03/01/21 499,108 150,000 Exxon Mobil Corp.................................... 2.71% 03/06/25 149,636 200,000 Exxon Mobil Corp.................................... 3.04% 03/01/26 203,302 825,000 Exxon Mobil Corp.................................... 4.11% 03/01/46 925,744 65,000 Hess Corp........................................... 5.80% 04/01/47 72,597 220,000 Kinder Morgan Energy Partners L.P................... 3.50% 03/01/21 223,929 100,000 Kinder Morgan Energy Partners L.P................... 4.15% 02/01/24 103,845 175,000 Kinder Morgan Energy Partners L.P................... 6.95% 01/15/38 218,226 800,000 Kinder Morgan, Inc.................................. 3.05% 12/01/19 807,365 500,000 Kinder Morgan, Inc.................................. 3.15% 01/15/23 497,529 715,000 Kinder Morgan, Inc.................................. 4.30% 06/01/25 745,912 300,000 Kinder Morgan, Inc.................................. 5.55% 06/01/45 329,509 650,000 Kinder Morgan, Inc.................................. 5.05% 02/15/46 677,205 250,000 Marathon Oil Corp................................... 3.85% 06/01/25 254,893 500,000 Marathon Oil Corp................................... 4.40% 07/15/27 523,529 259,000 Marathon Oil Corp................................... 5.20% 06/01/45 288,156 600,000 MPLX L.P............................................ 4.13% 03/01/27 615,685 705,000 MPLX L.P............................................ 5.20% 03/01/47 776,684 250,000 Noble Energy, Inc................................... 3.85% 01/15/28 251,272 250,000 Noble Energy, Inc................................... 4.95% 08/15/47 268,600 400,000 ONEOK Partners L.P.................................. 3.38% 10/01/22 403,220 500,000 ONEOK Partners L.P.................................. 4.90% 03/15/25 536,904 250,000 ONEOK, Inc.......................................... 4.00% 07/13/27 253,871 250,000 ONEOK, Inc.......................................... 4.95% 07/13/47 261,113 300,000 Plains All American Pipeline L.P./PAA Finance Corp............................................. 4.65% 10/15/25 309,637 250,000 Plains All American Pipeline L.P./PAA Finance Corp............................................. 4.50% 12/15/26 253,879 500,000 Sabine Pass Liquefaction LLC........................ 5.00% 03/15/27 536,918 250,000 Sabine Pass Liquefaction LLC........................ 4.20% 03/15/28 253,446 350,000 Spectra Energy Capital LLC.......................... 3.30% 03/15/23 349,633 100,000 Sunoco Logistics Partners Operations L.P............ 4.40% 04/01/21 104,069 350,000 Sunoco Logistics Partners Operations L.P............ 3.90% 07/15/26 343,114 500,000 Sunoco Logistics Partners Operations L.P............ 4.00% 10/01/27 491,254 500,000 Sunoco Logistics Partners Operations L.P............ 5.40% 10/01/47 505,228 500,000 TC PipeLines L.P.................................... 3.90% 05/25/27 503,459 300,000 Williams Partners L.P............................... 3.60% 03/15/22 307,160 250,000 Williams Partners L.P............................... 3.90% 01/15/25 255,173 95,000 Williams Partners L.P............................... 4.00% 09/15/25 97,361 250,000 Williams Partners L.P............................... 3.75% 06/15/27 251,004 625,000 Williams Partners L.P............................... 4.90% 01/15/45 665,559 270,000 Williams Partners L.P............................... 5.10% 09/15/45 298,072 ------------- 26,502,514 -------------
See Notes to Financial Statements Page 35 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) PHARMACEUTICALS - 0.2% $ 250,000 Johnson & Johnson................................... 3.63% 03/03/37 $ 264,662 250,000 Johnson & Johnson................................... 3.75% 03/03/47 267,670 125,000 Merck & Co., Inc.................................... 1.85% 02/10/20 124,342 300,000 Merck & Co., Inc.................................... 2.75% 02/10/25 299,073 450,000 Merck & Co., Inc.................................... 3.70% 02/10/45 470,979 ------------- 1,426,726 ------------- ROAD & RAIL - 0.5% 425,000 CSX Corp............................................ 3.40% 08/01/24 437,416 350,000 CSX Corp............................................ 2.60% 11/01/26 334,646 250,000 CSX Corp............................................ 3.80% 11/01/46 249,655 200,000 CSX Corp............................................ 4.50% 08/01/54 211,525 250,000 CSX Corp............................................ 4.25% 11/01/66 251,082 250,000 Norfolk Southern Corp............................... 2.90% 06/15/26 246,373 250,000 Ryder System, Inc................................... 2.25% 09/01/21 246,345 500,000 Ryder System, Inc................................... 2.80% 03/01/22 499,308 300,000 Union Pacific Corp.................................. 3.75% 03/15/24 317,327 250,000 Union Pacific Corp.................................. 3.00% 04/15/27 251,540 183,000 Union Pacific Corp.................................. 4.15% 01/15/45 198,331 225,000 Union Pacific Corp.................................. 4.05% 03/01/46 243,929 250,000 Union Pacific Corp.................................. 4.10% 09/15/67 261,673 ------------- 3,749,150 ------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.7% 250,000 Applied Materials, Inc.............................. 3.30% 04/01/27 254,570 350,000 Applied Materials, Inc.............................. 4.35% 04/01/47 393,633 500,000 Broadcom Corp./Broadcom Cayman Finance, Ltd. (c).... 2.65% 01/15/23 482,566 250,000 Broadcom Corp./Broadcom Cayman Finance, Ltd. (c).... 3.13% 01/15/25 239,364 250,000 Broadcom Corp./Broadcom Cayman Finance, Ltd. (c).... 3.50% 01/15/28 238,825 250,000 Intel Corp., 3 Mo. LIBOR + 0.08% (a)................ 1.49% 05/11/20 249,465 250,000 Intel Corp.......................................... 1.85% 05/11/20 248,937 100,000 Intel Corp.......................................... 1.70% 05/19/21 98,257 250,000 Intel Corp., 3 Mo. LIBOR + 0.35% (a)................ 1.76% 05/11/22 251,451 250,000 Intel Corp.......................................... 2.35% 05/11/22 249,353 100,000 Intel Corp.......................................... 3.10% 07/29/22 102,931 375,000 Intel Corp.......................................... 2.70% 12/15/22 379,433 500,000 Intel Corp.......................................... 2.88% 05/11/24 505,013 100,000 Intel Corp.......................................... 2.60% 05/19/26 97,575 250,000 Intel Corp.......................................... 3.15% 05/11/27 255,256 300,000 Intel Corp.......................................... 4.10% 05/19/46 331,668 500,000 Intel Corp.......................................... 4.10% 05/11/47 552,343 163,000 Intel Corp. (c)..................................... 3.73% 12/08/47 169,724 ------------- 5,100,364 ------------- SOFTWARE - 1.0% 250,000 Microsoft Corp...................................... 1.10% 08/08/19 246,715 250,000 Microsoft Corp...................................... 1.85% 02/06/20 249,337 150,000 Microsoft Corp...................................... 2.00% 11/03/20 149,477 250,000 Microsoft Corp...................................... 1.55% 08/08/21 243,545 800,000 Microsoft Corp...................................... 2.40% 02/06/22 800,749 150,000 Microsoft Corp...................................... 3.63% 12/15/23 158,156
Page 36 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) SOFTWARE (CONTINUED) $ 250,000 Microsoft Corp...................................... 2.88% 02/06/24 $ 253,826 200,000 Microsoft Corp...................................... 3.13% 11/03/25 204,395 100,000 Microsoft Corp...................................... 2.40% 08/08/26 96,548 500,000 Microsoft Corp...................................... 3.30% 02/06/27 516,343 100,000 Microsoft Corp...................................... 3.45% 08/08/36 103,308 250,000 Microsoft Corp...................................... 4.10% 02/06/37 279,684 275,000 Microsoft Corp...................................... 4.45% 11/03/45 323,135 350,000 Microsoft Corp...................................... 3.70% 08/08/46 365,846 950,000 Microsoft Corp...................................... 4.25% 02/06/47 1,088,933 200,000 Oracle Corp......................................... 1.90% 09/15/21 196,948 100,000 Oracle Corp......................................... 2.50% 05/15/22 100,217 500,000 Oracle Corp......................................... 2.40% 09/15/23 494,139 250,000 Oracle Corp......................................... 3.40% 07/08/24 259,450 350,000 Oracle Corp......................................... 2.65% 07/15/26 341,619 400,000 Oracle Corp......................................... 5.38% 07/15/40 506,805 350,000 Oracle Corp......................................... 4.00% 07/15/46 373,363 250,000 VMware, Inc......................................... 2.95% 08/21/22 249,570 ------------- 7,602,108 ------------- SPECIALTY RETAIL - 0.6% 500,000 Home Depot (The), Inc............................... 2.00% 04/01/21 495,303 770,000 Home Depot (The), Inc............................... 4.40% 04/01/21 818,108 100,000 Home Depot (The), Inc............................... 3.35% 09/15/25 103,449 550,000 Home Depot (The), Inc............................... 3.00% 04/01/26 551,302 250,000 Home Depot (The), Inc............................... 2.13% 09/15/26 234,340 1,000,000 Home Depot (The), Inc............................... 2.80% 09/14/27 985,013 100,000 Home Depot (The), Inc............................... 4.40% 03/15/45 113,525 500,000 Home Depot (The), Inc............................... 4.25% 04/01/46 559,815 500,000 Home Depot (The), Inc............................... 3.90% 06/15/47 528,696 250,000 Home Depot (The), Inc............................... 3.50% 09/15/56 241,247 ------------- 4,630,798 ------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS - 1.0% 250,000 Apple, Inc., 3 Mo. LIBOR + 0.08% (a)................ 1.48% 02/08/19 250,136 250,000 Apple, Inc., 3 Mo. LIBOR + 0.20% (a)................ 1.59% 02/07/20 250,563 450,000 Apple, Inc.......................................... 2.85% 05/06/21 457,437 250,000 Apple, Inc.......................................... 1.55% 08/04/21 243,006 110,000 Apple, Inc., 3 Mo. LIBOR + 0.50% (a)................ 1.90% 02/09/22 111,580 250,000 Apple, Inc.......................................... 2.10% 09/12/22 245,468 250,000 Apple, Inc.......................................... 2.40% 01/13/23 248,027 375,000 Apple, Inc.......................................... 2.40% 05/03/23 371,418 250,000 Apple, Inc.......................................... 3.00% 02/09/24 253,379 500,000 Apple, Inc.......................................... 2.85% 05/11/24 502,665 500,000 Apple, Inc.......................................... 2.75% 01/13/25 496,123 100,000 Apple, Inc.......................................... 2.45% 08/04/26 95,955 250,000 Apple, Inc.......................................... 3.35% 02/09/27 256,387 500,000 Apple, Inc.......................................... 3.20% 05/11/27 506,948 250,000 Apple, Inc.......................................... 2.90% 09/12/27 247,350 500,000 Apple, Inc.......................................... 3.00% 11/13/27 497,601 100,000 Apple, Inc.......................................... 4.45% 05/06/44 114,505 100,000 Apple, Inc.......................................... 4.65% 02/23/46 117,393
See Notes to Financial Statements Page 37 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- CORPORATE BONDS AND NOTES (CONTINUED) TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS (CONTINUED) $ 600,000 Apple, Inc.......................................... 4.25% 02/09/47 $ 668,455 250,000 Apple, Inc.......................................... 3.75% 09/12/47 256,885 250,000 Apple, Inc.......................................... 3.75% 11/13/47 257,817 500,000 Hewlett Packard Enterprise Co. (c).................. 2.10% 10/04/19 496,790 100,000 Hewlett Packard Enterprise Co....................... 3.60% 10/15/20 102,165 150,000 Hewlett Packard Enterprise Co....................... 4.40% 10/15/22 157,800 125,000 Hewlett Packard Enterprise Co....................... 4.90% 10/15/25 132,175 50,000 Hewlett Packard Enterprise Co....................... 6.35% 10/15/45 53,109 ------------- 7,391,137 ------------- TOBACCO - 0.1% 250,000 BAT Capital Corp. (c)............................... 3.22% 08/15/24 250,360 250,000 BAT Capital Corp. (c)............................... 3.56% 08/15/27 250,820 250,000 BAT Capital Corp. (c)............................... 4.39% 08/15/37 263,383 250,000 BAT Capital Corp. (c)............................... 4.54% 08/15/47 264,310 ------------- 1,028,873 ------------- TRADING COMPANIES & DISTRIBUTORS - 0.0% 250,000 Air Lease Corp...................................... 2.75% 01/15/23 246,637 ------------- WATER UTILITIES - 0.1% 155,000 American Water Capital Corp......................... 2.95% 09/01/27 153,589 250,000 American Water Capital Corp......................... 3.75% 09/01/47 258,660 ------------- 412,249 ------------- TOTAL CORPORATE BONDS AND NOTES.............................................. 293,382,487 (Cost $288,696,125) ------------- FOREIGN CORPORATE BONDS AND NOTES - 1.6% BANKS - 0.5% 500,000 HSBC Holdings PLC, 3 Mo. LIBOR + 2.24% (a).......... 3.76% 03/08/21 526,893 700,000 HSBC Holdings PLC, 3 Mo. LIBOR + 1.66% (a).......... 3.12% 05/25/21 726,773 475,000 HSBC Holdings PLC................................... 2.65% 01/05/22 472,114 200,000 HSBC Holdings PLC (b)............................... 3.26% 03/13/23 202,903 625,000 HSBC Holdings PLC................................... 3.90% 05/25/26 648,907 350,000 HSBC Holdings PLC................................... 4.38% 11/23/26 366,079 200,000 HSBC Holdings PLC (b)............................... 4.04% 03/13/28 208,668 250,000 Royal Bank of Scotland Group PLC (b)................ 3.50% 05/15/23 250,797 ------------- 3,403,134 ------------- CAPITAL MARKETS - 0.1% 500,000 Credit Suisse Group AG (c).......................... 3.57% 01/09/23 508,829 250,000 UBS Group Funding Switzerland AG, 3 Mo. LIBOR + 1.22% (a) (c)...................... 2.68% 05/23/23 254,199 ------------- 763,028 ------------- DIVERSIFIED FINANCIAL SERVICES - 0.1% 444,000 GE Capital International Funding Co. Unlimited Co... 4.42% 11/15/35 481,427 250,000 Shell International Finance, B.V.................... 4.00% 05/10/46 266,953 250,000 Shell International Finance, B.V.................... 3.75% 09/12/46 255,655 ------------- 1,004,035 -------------
Page 38 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- FOREIGN CORPORATE BONDS AND NOTES (CONTINUED) ELECTRIC UTILITIES - 0.1% $ 250,000 Enel Finance International, N.V. (c)................ 2.75% 04/06/23 $ 246,638 250,000 Enel Finance International, N.V. (c)................ 3.50% 04/06/28 245,054 500,000 Enel Finance International, N.V. (c)................ 4.75% 05/25/47 543,600 ------------- 1,035,292 ------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.1% 250,000 Medtronic Global Holdings SCA....................... 1.70% 03/28/19 249,008 250,000 Medtronic Global Holdings SCA....................... 3.35% 04/01/27 256,815 ------------- 505,823 ------------- INTERNET SOFTWARE & SERVICES - 0.0% 250,000 Alibaba Group Holding, Ltd.......................... 3.40% 12/06/27 250,251 ------------- METALS & MINING - 0.2% 250,000 Anglo American Capital PLC (c)...................... 3.63% 09/11/24 249,096 250,000 Anglo American Capital PLC (c)...................... 4.00% 09/11/27 248,725 330,000 BHP Billiton Finance USA, Ltd....................... 5.00% 09/30/43 405,542 186,000 Rio Tinto Finance USA, Ltd.......................... 3.75% 06/15/25 195,156 350,000 Vale Overseas, Ltd.................................. 6.25% 08/10/26 406,350 ------------- 1,504,869 ------------- OIL, GAS & CONSUMABLE FUELS - 0.5% 100,000 BP Capital Markets PLC.............................. 3.12% 05/04/26 101,180 500,000 Canadian Natural Resources, Ltd..................... 2.95% 01/15/23 498,339 100,000 Canadian Natural Resources, Ltd..................... 3.80% 04/15/24 103,122 500,000 Canadian Natural Resources, Ltd..................... 3.85% 06/01/27 511,316 500,000 Canadian Natural Resources, Ltd..................... 4.95% 06/01/47 561,822 100,000 Cenovus Energy, Inc................................. 5.40% 06/15/47 105,627 250,000 Enbridge, Inc....................................... 2.90% 07/15/22 248,749 250,000 Enbridge, Inc....................................... 4.25% 12/01/26 261,882 250,000 Enbridge, Inc....................................... 3.70% 07/15/27 251,544 250,000 Enbridge, Inc....................................... 5.50% 12/01/46 301,787 200,000 Petroleos Mexicanos (c)............................. 5.38% 03/13/22 212,500 250,000 Suncor Energy, Inc.................................. 4.00% 11/15/47 256,982 ------------- 3,414,850 ------------- TRADING COMPANIES & DISTRIBUTORS - 0.0% 250,000 AerCap Ireland Capital DAC/AerCap Global Aviation Trust............................................ 3.50% 01/15/25 248,194 ------------- TOTAL FOREIGN CORPORATE BONDS AND NOTES...................................... 12,129,476 (Cost $11,738,589) ------------- U.S. GOVERNMENT BONDS AND NOTES - 0.5% 270,000 U.S. Treasury Bond.................................. 2.75% 08/15/47 270,396 400,000 U.S. Treasury Note (d).............................. 1.38% 09/30/19 396,594 850,000 U.S. Treasury Note.................................. 1.50% 10/31/19 844,256 400,000 U.S. Treasury Note.................................. 1.75% 11/15/20 397,750 200,000 U.S. Treasury Note.................................. 2.00% 11/30/22 198,203 1,225,000 U.S. Treasury Note.................................. 2.13% 11/30/24 1,209,089 240,000 U.S. Treasury Note.................................. 2.25% 11/15/27 236,653 ------------- TOTAL U.S. GOVERNMENT BONDS AND NOTES........................................ 3,552,941 (Cost $3,561,451) -------------
See Notes to Financial Statements Page 39 FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
ANNUALIZED PRINCIPAL YIELD ON DATE STATED VALUE DESCRIPTION OF PURCHASE MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- COMMERCIAL PAPER - 0.2% OIL, GAS & CONSUMABLE FUELS - 0.2% $ 750,000 Enbridge Energy Partners L.P........................ 2.20% 01/02/18 $ 749,861 750,000 Energy Transfer L.P................................. 2.10% 01/02/18 749,832 ------------- TOTAL COMMERCIAL PAPER....................................................... 1,499,693 (Cost $1,499,911) ------------- TOTAL INVESTMENTS - 98.6%.................................................... 726,859,953 (Cost $653,121,228) (e) NET OTHER ASSETS AND LIABILITIES - 1.4%...................................... 10,662,588 ------------- NET ASSETS - 100.0%.......................................................... $ 737,522,541 =============
FUTURES CONTRACTS (see Note 2D - Futures Contracts in the Notes to Financial Statements):
UNREALIZED APPRECIATION NUMBER OF EXPIRATION NOTIONAL (DEPRECIATION)/ FUTURES CONTRACTS POSITION CONTRACTS MONTH VALUE VALUE --------------------------------------- ------------ ------------ ------------ ------------- --------------- U.S. Treasury 5-Year Notes Short 52 Mar-2018 $ 6,040,531 $ 27,633 U.S. Treasury 10-Year Notes Short 20 Mar-2018 2,480,938 16,719 U.S. Treasury CME Ultra Long Term Bonds Short 15 Mar-2018 2,514,844 (13,125) U.S. Treasury Ultra 10-Year Notes Short 102 Mar-2018 13,623,375 62,953 ------------- --------------- Total Futures Contracts $ 24,659,688 $ 94,180 ============= ===============
----------------------------- (a) Floating or variable rate security. (b) Fixed-to-floating or fixed-to-variable rate security. The interest rate shown reflects the fixed rate in effect at December 31, 2017. At a predetermined date, the fixed rate will change to a floating rate or a variable rate. (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 judgement. At December 31, 2017, securities noted as such amounted to $19,605,077 or 2.66% of net assets. (d) All or a portion of this security is segregated as collateral for open futures contracts. (e) Aggregate cost for federal income tax purposes was $653,487,217. As of December 31, 2017, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $77,751,397 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $4,284,481. The net unrealized appreciation was $73,466,916. The amounts presented are inclusive of derivative contracts. LIBOR London Interbank Offered Rate Page 40 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2017 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements):
ASSETS TABLE LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE 12/31/2017 PRICES INPUTS INPUTS ------------ ------------ ------------ ------------ Common Stocks*.................................... $416,295,356 $416,295,356 $ -- $ -- Corporate Bonds and Notes*........................ 293,382,487 -- 293,382,487 -- Foreign Corporate Bonds and Notes*................ 12,129,476 -- 12,129,476 -- U.S. Government Bonds and Notes................... 3,552,941 -- 3,552,941 -- Commercial Paper*................................. 1,499,693 -- 1,499,693 -- ------------ ------------ ------------ ------------ Total Investments................................. 726,859,953 416,295,356 310,564,597 -- Futures Contracts**............................... 107,305 107,305 -- -- ------------ ------------ ------------ ------------ Total............................................. $726,967,258 $416,402,661 $310,564,597 $ -- ============ ============ ============ ============ LIABILITIES TABLE LEVEL 2 LEVEL 3 TOTAL LEVEL 1 SIGNIFICANT SIGNIFICANT VALUE AT QUOTED OBSERVABLE UNOBSERVABLE 12/31/2017 PRICES INPUTS INPUTS ------------ ------------ ------------ ------------ Futures Contracts**............................... $ (13,125) $ (13,125) $ -- $ -- ============ ============ ============ ============
* See Portfolio of Investments for industry breakout. ** Includes cumulative appreciation (depreciation) on futures contracts as reported in the Futures Contracts table. 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 occur on the last day of the period at their current value. There were no transfers between Levels at December 31, 2017. See Notes to Financial Statements Page 41 FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- EXCHANGE-TRADED FUNDS -- 34.7% CAPITAL MARKETS - 34.7% 71 First Trust Low Duration Opportunities ETF (a)............................... $ 3,668 59,280 First Trust Preferred Securities and Income ETF (a).......................... 1,186,193 57,460 First Trust Senior Loan Fund (a)............................................. 2,763,251 24,290 First Trust Tactical High Yield ETF (a)...................................... 1,179,765 250 iShares 20+ Year Treasury Bond ETF........................................... 31,715 330 iShares 7-10 Year Treasury Bond ETF.......................................... 34,838 5,745 iShares Floating Rate Bond ETF............................................... 291,961 12,395 iShares iBoxx $ Investment Grade Corporate Bond ETF.......................... 1,506,736 300 iShares MBS ETF.............................................................. 31,977 1 Vanguard Mortgage-Backed Securities ETF...................................... 53 ------------- TOTAL EXCHANGE-TRADED FUNDS.................................................. 7,030,157 (Cost $6,984,067) ------------- COMMON STOCKS - 23.0% AEROSPACE & DEFENSE - 0.8% 374 General Dynamics Corp........................................................ 76,090 403 Raytheon Co.................................................................. 75,704 ------------- 151,794 ------------- BANKS - 2.1% 1,073 JPMorgan Chase & Co.......................................................... 114,747 457 M&T Bank Corp................................................................ 78,142 1,408 U.S. Bancorp................................................................. 75,441 1,474 Webster Financial Corp....................................................... 82,780 1,242 Wells Fargo & Co............................................................. 75,352 ------------- 426,462 ------------- CAPITAL MARKETS - 0.4% 158 BlackRock, Inc............................................................... 81,166 ------------- CHEMICALS - 0.9% 410 Ecolab, Inc.................................................................. 55,014 461 International Flavors & Fragrances, Inc...................................... 70,353 570 LyondellBasell Industries N.V., Class A...................................... 62,882 ------------- 188,249 ------------- COMMUNICATIONS EQUIPMENT - 0.4% 2,206 Cisco Systems, Inc........................................................... 84,490 ------------- CONSUMER FINANCE - 0.4% 899 Capital One Financial Corp................................................... 89,522 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3% 1,293 Verizon Communications, Inc.................................................. 68,438 ------------- ELECTRIC UTILITIES - 1.3% 541 Alliant Energy Corp.......................................................... 23,052 424 American Electric Power Co., Inc............................................. 31,194 285 Duke Energy Corp............................................................. 23,971 849 Emera, Inc. (CAD)............................................................ 31,731 494 Eversource Energy............................................................ 31,211 450 Fortis, Inc. (CAD)........................................................... 16,507 882 Hydro One Ltd. (CAD) (b)..................................................... 15,717 413 NextEra Energy, Inc.......................................................... 64,506
Page 42 See Notes to Financial Statements FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- COMMON STOCKS (CONTINUED) ELECTRIC UTILITIES (CONTINUED) 616 Southern (The) Co............................................................ $ 29,623 ------------- 267,512 ------------- ELECTRICAL EQUIPMENT - 0.3% 857 Eaton Corp. PLC.............................................................. 67,712 ------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS - 0.4% 808 TE Connectivity Ltd.......................................................... 76,792 ------------- ENERGY EQUIPMENT & SERVICES - 0.2% 544 Schlumberger Ltd............................................................. 36,660 ------------- FOOD & STAPLES RETAILING - 0.8% 938 CVS Health Corp.............................................................. 68,005 878 Wal-Mart Stores, Inc......................................................... 86,703 ------------- 154,708 ------------- GAS UTILITIES - 0.3% 190 Atmos Energy Corp............................................................ 16,319 364 New Jersey Resources Corp.................................................... 14,633 650 UGI Corp..................................................................... 30,518 ------------- 61,470 ------------- HEALTH CARE EQUIPMENT & SUPPLIES - 0.8% 1,411 Abbott Laboratories.......................................................... 80,526 904 STERIS PLC................................................................... 79,073 ------------- 159,599 ------------- HEALTH CARE PROVIDERS & SERVICES - 0.4% 476 Aetna, Inc................................................................... 85,866 ------------- HOTELS, RESTAURANTS & LEISURE - 0.7% 1,335 Carnival Corp................................................................ 88,604 959 Starbucks Corp............................................................... 55,075 ------------- 143,679 ------------- INDUSTRIAL CONGLOMERATES - 1.1% 2,810 General Electric Co.......................................................... 49,035 565 Honeywell International, Inc................................................. 86,648 1,203 Siemens AG, ADR.............................................................. 83,332 ------------- 219,015 ------------- INSURANCE - 0.7% 1,830 FNF Group.................................................................... 71,809 1,391 MetLife, Inc................................................................. 70,329 ------------- 142,138 ------------- IT SERVICES - 0.9% 694 Accenture PLC, Class A....................................................... 106,244 858 Fidelity National Information Services, Inc.................................. 80,729 ------------- 186,973 ------------- MACHINERY - 0.3% 354 Snap-on, Inc................................................................. 61,702 -------------
See Notes to Financial Statements Page 43 FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- COMMON STOCKS (CONTINUED) MULTI-UTILITIES - 0.8% 997 National Grid PLC, ADR....................................................... $ 58,634 984 Public Service Enterprise Group, Inc......................................... 50,676 392 Sempra Energy................................................................ 41,913 236 WEC Energy Group, Inc........................................................ 15,678 ------------- 166,901 ------------- OIL, GAS & CONSUMABLE FUELS - 3.6% 551 Chevron Corp................................................................. 68,980 2,618 Enbridge Income Fund Holdings, Inc. (CAD).................................... 62,086 1,671 Enbridge, Inc................................................................ 65,353 848 Exxon Mobil Corp............................................................. 70,927 1,627 Inter Pipeline Ltd. (CAD).................................................... 33,692 4,391 Kinder Morgan, Inc........................................................... 79,345 1,621 ONEOK, Inc................................................................... 86,642 1,215 TOTAL S.A., ADR.............................................................. 67,165 3,913 TransCanada Corp............................................................. 190,328 ------------- 724,518 ------------- PHARMACEUTICALS - 1.5% 801 Eli Lilly & Co............................................................... 67,652 641 Johnson & Johnson............................................................ 89,561 1,258 Merck & Co., Inc............................................................. 70,788 836 Novartis AG, ADR............................................................. 70,191 ------------- 298,192 ------------- ROAD & RAIL - 0.4% 594 Union Pacific Corp........................................................... 79,655 ------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.8% 327 Broadcom Ltd................................................................. 84,006 1,785 Intel Corp................................................................... 82,396 ------------- 166,402 ------------- SOFTWARE - 0.8% 1,026 Microsoft Corp............................................................... 87,764 1,458 Oracle Corp.................................................................. 68,934 ------------- 156,698 ------------- SPECIALTY RETAIL - 0.5% 477 Home Depot (The), Inc........................................................ 90,406 ------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS - 0.5% 551 Apple, Inc................................................................... 93,246 ------------- TEXTILES, APPAREL & LUXURY GOODS - 0.3% 1,047 NIKE, Inc., Class B.......................................................... 65,490 ------------- TOBACCO - 0.3% 948 British American Tobacco PLC, ADR............................................ 63,507 ------------- TOTAL COMMON STOCKS.......................................................... 4,658,962 (Cost $4,024,350) -------------
Page 44 See Notes to Financial Statements FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- REAL ESTATE INVESTMENT TRUSTS - 12.6% DIVERSIFIED REITS - 1.5% 10,035 Lexington Realty Trust....................................................... $ 96,838 782 PS Business Parks, Inc....................................................... 97,820 3,204 Washington Real Estate Investment Trust...................................... 99,709 ------------- 294,367 ------------- HEALTH CARE REITS - 1.5% 1,361 National Health Investors, Inc............................................... 102,592 3,743 Omega Healthcare Investors, Inc.............................................. 103,082 5,805 Physicians Realty Trust...................................................... 104,432 ------------- 310,106 ------------- HOTEL & RESORT REITS - 1.6% 3,574 Hospitality Properties Trust................................................. 106,684 5,265 Host Hotels & Resorts, Inc................................................... 104,510 4,862 Xenia Hotels & Resorts, Inc.................................................. 104,971 ------------- 316,165 ------------- INDUSTRIAL REITS - 1.5% 3,623 Duke Realty Corp............................................................. 98,582 1,573 Prologis, Inc................................................................ 101,474 3,719 STAG Industrial, Inc......................................................... 101,640 ------------- 301,696 ------------- OFFICE REITS - 1.0% 3,254 Corporate Office Properties Trust............................................ 95,017 2,040 Highwoods Properties, Inc.................................................... 103,856 ------------- 198,873 ------------- RESIDENTIAL REITS - 1.5% 2,319 Apartment Investment & Management Co., Class A............................... 101,364 561 AvalonBay Communities, Inc................................................... 100,088 995 Mid-America Apartment Communities, Inc....................................... 100,057 ------------- 301,509 ------------- RETAIL REITS - 1.1% 2,479 National Retail Properties, Inc.............................................. 106,919 658 Simon Property Group, Inc.................................................... 113,005 ------------- 219,924 ------------- SPECIALIZED REITS - 2.9% 703 American Tower Corp.......................................................... 100,297 1,644 CyrusOne, Inc................................................................ 97,867 860 Digital Realty Trust, Inc.................................................... 97,954 1,525 EPR Properties............................................................... 99,827 1,214 Extra Space Storage, Inc..................................................... 106,164 1,727 QTS Realty Trust, Inc., Class A.............................................. 93,534 ------------- 595,643 ------------- TOTAL REAL ESTATE INVESTMENT TRUSTS.......................................... 2,538,283 (Cost $2,398,306) -------------
See Notes to Financial Statements Page 45 FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
UNITS DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- MASTER LIMITED PARTNERSHIPS - 10.7% CHEMICALS - 0.2% 2,065 Westlake Chemical Partners, L.P.............................................. $ 51,522 ------------- GAS UTILITIES - 0.4% 1,763 AmeriGas Partners, L.P....................................................... 81,504 ------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS - 0.6% 2,715 NextEra Energy Partners, L.P................................................. 117,044 ------------- OIL, GAS & CONSUMABLE FUELS - 9.5% 738 Alliance Resource Partners, L.P.............................................. 14,538 1,659 BP Midstream Partners, L.P. (c).............................................. 34,126 511 Buckeye Partners, L.P........................................................ 25,320 11,233 Enbridge Energy Partners, L.P................................................ 155,128 12,186 Enterprise Products Partners, L.P............................................ 323,051 1,975 EQT Midstream Partners, L.P.................................................. 144,372 4,678 Holly Energy Partners, L.P................................................... 151,988 2,536 Magellan Midstream Partners, L.P............................................. 179,904 2,532 Phillips 66 Partners, L.P.................................................... 132,550 5,220 Plains All American Pipeline, L.P............................................ 107,741 3,998 Shell Midstream Partners, L.P................................................ 119,220 4,423 Spectra Energy Partners, L.P................................................. 174,885 227 Tallgrass Energy Partners, L.P............................................... 10,408 3,538 TC PipeLines, L.P............................................................ 187,868 375 TransMontaigne Partners, L.P................................................. 14,794 358 Valero Energy Partners, L.P.................................................. 15,930 3,379 Williams Partners, L.P....................................................... 131,038 ------------- 1,922,861 ------------- TOTAL MASTER LIMITED PARTNERSHIPS............................................ 2,172,931 (Cost $2,074,274) -------------
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- U.S. GOVERNMENT BONDS AND NOTES - 8.9% $ 67,114 U.S. Treasury Inflation Indexed Bond (d)............ 1.75% 01/15/28 75,477 42,509 U.S. Treasury Inflation Indexed Bond (d)............ 2.50% 01/15/29 51,595 22,507 U.S. Treasury Inflation Indexed Bond (d)............ 3.88% 04/15/29 30,642 9,867 U.S. Treasury Inflation Indexed Bond (d)............ 3.38% 04/15/32 13,661 23,966 U.S. Treasury Inflation Indexed Bond (d)............ 2.13% 02/15/40 31,215 38,072 U.S. Treasury Inflation Indexed Bond (d)............ 2.13% 02/15/41 49,937 34,714 U.S. Treasury Inflation Indexed Bond (d)............ 0.75% 02/15/42 35,094 33,903 U.S. Treasury Inflation Indexed Bond (d)............ 0.63% 02/15/43 33,215 33,657 U.S. Treasury Inflation Indexed Bond (d)............ 1.38% 02/15/44 38,898 33,834 U.S. Treasury Inflation Indexed Bond (d)............ 0.75% 02/15/45 34,038 29,149 U.S. Treasury Inflation Indexed Bond (d)............ 1.00% 02/15/46 31,170 26,568 U.S. Treasury Inflation Indexed Bond (d)............ 0.88% 02/15/47 27,633 16,085 U.S. Treasury Inflation Indexed Note (d)............ 2.13% 01/15/19 16,421 76,742 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 04/15/19 76,584 28,882 U.S. Treasury Inflation Indexed Note (d)............ 1.88% 07/15/19 29,785 30,114 U.S. Treasury Inflation Indexed Note (d)............ 1.38% 01/15/20 30,910 74,786 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 04/15/20 74,647
Page 46 See Notes to Financial Statements FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- U.S. GOVERNMENT BONDS AND NOTES (CONTINUED) $ 52,029 U.S. Treasury Inflation Indexed Note (d)............ 1.25% 07/15/20 $ 53,731 57,734 U.S. Treasury Inflation Indexed Note (d)............ 1.13% 01/15/21 59,466 66,609 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 04/15/21 66,354 55,816 U.S. Treasury Inflation Indexed Note (d)............ 0.63% 07/15/21 56,899 63,102 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 01/15/22 62,859 43,614 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 04/15/22 43,316 62,213 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 07/15/22 62,145 61,982 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 01/15/23 61,517 61,477 U.S. Treasury Inflation Indexed Note (d)............ 0.38% 07/15/23 61,955 61,315 U.S. Treasury Inflation Indexed Note (d)............ 0.63% 01/15/24 62,406 60,460 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 07/15/24 59,768 62,486 U.S. Treasury Inflation Indexed Note (d)............ 0.25% 01/15/25 61,951 50,381 U.S. Treasury Inflation Indexed Note (d)............ 2.38% 01/15/25 57,428 60,329 U.S. Treasury Inflation Indexed Note (d)............ 0.38% 07/15/25 60,445 63,325 U.S. Treasury Inflation Indexed Note (d)............ 0.63% 01/15/26 64,362 34,177 U.S. Treasury Inflation Indexed Note (d)............ 2.00% 01/15/26 38,454 53,511 U.S. Treasury Inflation Indexed Note (d)............ 0.13% 07/15/26 52,305 55,142 U.S. Treasury Inflation Indexed Note (d)............ 0.38% 01/15/27 54,810 27,521 U.S. Treasury Inflation Indexed Note (d)............ 2.38% 01/15/27 32,209 53,444 U.S. Treasury Inflation Indexed Note (d)............ 0.38% 07/15/27 53,176 ------------- TOTAL U.S. GOVERNMENT BONDS AND NOTES........................................ 1,806,478 (Cost $1,798,889) ------------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 7.2% COLLATERALIZED MORTGAGE OBLIGATIONS - 3.9% Fannie Mae REMICS................................... 1 Series 1988-16, Class B.......................... 9.50% 06/25/18 1 236 Series 1988-30, Class D.......................... 9.50% 12/25/18 240 133 Series 1989-69, Class G.......................... 7.60% 10/25/19 136 480 Series 1989-82, Class G.......................... 8.40% 11/25/19 500 4,505 Series 1990-37, Class K.......................... 9.50% 04/25/20 4,589 2,019 Series 1990-109, Class J......................... 7.00% 09/25/20 2,096 876 Series 1992-24, Class Z.......................... 6.50% 04/25/22 923 11 Series 1992-44, Class ZQ......................... 8.00% 07/25/22 11 2,188 Series 1993-1, Class KA.......................... 7.90% 01/25/23 2,393 1,509 Series 1993-62, Class E.......................... 7.00% 04/25/23 1,618 530 Series 1993-119, Class H......................... 6.50% 07/25/23 567 3,466 Series 1993-178, Class PK........................ 6.50% 09/25/23 3,736 3,378 Series 1995-24, Class G.......................... 6.50% 04/25/23 3,591 2,085 Series 1999-56, Class Z.......................... 7.00% 12/18/29 2,312 38,850 Series 2002-9, Class MS, IO, 1 Mo. LIBOR x -1 + 8.10% (e).................. 6.55% 03/25/32 7,172 1,712 Series 2002-67, Class PE......................... 5.50% 11/25/32 1,888 4,990 Series 2002-90, Class A1......................... 6.50% 06/25/42 5,708 3 Series 2003-9, Class EB.......................... 5.00% 02/25/18 3 4,204 Series 2003-14, Class AQ......................... 3.50% 03/25/33 4,340 6,131 Series 2003-41, Class OA......................... 4.00% 05/25/33 6,301 59 Series 2003-92, Class HP......................... 4.50% 09/25/18 60 11,156 Series 2004-10, Class ZB......................... 6.00% 02/25/34 12,891 2,111 Series 2004-76, Class CL......................... 4.00% 10/25/19 2,118
See Notes to Financial Statements Page 47 FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED) COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) Fannie Mae REMICS (Continued) $ 3,282 Series 2004-92, Class S, IO, 1 Mo. LIBOR x -1 + 6.70% (e).................. 5.15% 08/25/34 $ 124 248 Series 2005-46, Class LW......................... 5.00% 06/25/20 250 5 Series 2005-48, Class MD......................... 5.00% 04/25/34 5 7,348 Series 2005-68, Class BC......................... 5.25% 06/25/35 7,539 2,346 Series 2007-70, Class KJ......................... 5.50% 09/25/34 2,363 19,338 Series 2005-79, Class NF, 1 Mo. LIBOR + 0.41% (f)....................... 1.96% 09/25/35 19,413 17 Series 2005-120, Class NF, 1 Mo. LIBOR + 0.10% (f)....................... 1.65% 01/25/21 17 78,506 Series 2007-10, Class Z.......................... 6.00% 02/25/37 87,262 74,771 Series 2009-86, Class IP, IO..................... 5.50% 10/25/39 13,628 427 Series 2011-38, Class AH......................... 2.75% 05/25/20 427 3,020 Series 2012-35, Class PL......................... 2.00% 11/25/41 2,945 1,076 Series 2013-14, Class QE......................... 1.75% 03/25/43 1,014 52,636 Series 2013-31, Class NT......................... 3.00% 04/25/43 52,924 Fannie Mae REMIC Trust 17,646 Series 2007-W8, Class 1A5 (g).................... 6.39% 09/25/37 18,470 Fannie Mae Trust 5,905 Series 2004-W8, Class 3A......................... 7.50% 06/25/44 6,841 FHLMC - GNMA 420 Series 1993-5, Class HA.......................... 7.50% 02/25/23 452 986 Series 1994-27, Class D.......................... 7.00% 03/25/24 1,076 Freddie Mac REMICS 611 Series 1988-23, Class F.......................... 9.60% 04/15/20 624 549 Series 1989-84, Class F.......................... 9.20% 10/15/20 572 2,125 Series 1991-1074, Class I........................ 6.75% 05/15/21 2,171 1,893 Series 1991-1078, Class GZ....................... 6.50% 05/15/21 1,952 630 Series 1992-1250, Class J........................ 7.00% 05/15/22 639 20,984 Series 1992-1401, Class Q, 1 Mo. LIBOR + 0.60% (f)....................... 2.08% 10/15/22 21,193 34,113 Series 1993-1487, Class P, IO, 1 Mo. LIBOR x -1 + 9.50% (e).................. 8.02% 03/15/23 4,345 5,780 Series 1994-1673, Class FB, 10 Yr. U.S. Treasury Yield Curve - 0.50% (f)............................. 1.85% 02/15/24 5,781 767 Series 1996-1807, Class G........................ 9.00% 10/15/20 811 77 Series 1996-1847, Class LL....................... 7.50% 04/15/26 85 16,264 Series 1998-2033, Class IA, IO................... 7.00% 02/15/28 2,104 44 Series 1998-2056, Class TD....................... 6.50% 05/15/18 44 4,080 Series 1999-2130, Class KB....................... 6.38% 03/15/29 4,527 59,250 Series 1999-2174, Class PN....................... 6.00% 07/15/29 64,669 10,285 Series 2001-2277, Class B........................ 7.50% 01/15/31 12,056 379 Series 2003-2559, Class PB....................... 5.50% 08/15/30 387 564 Series 2003-2590, Class NV....................... 5.00% 03/15/18 564 663 Series 2003-2649, Class KA....................... 4.50% 07/15/18 665 43,000 Series 2003-2676, Class LL....................... 5.50% 09/15/33 47,348 23,340 Series 2004-2768, Class PW....................... 4.25% 03/15/34 25,019 9,000 Series 2004-2778, Class MM....................... 5.25% 04/15/34 9,846 1,235 Series 2004-2780, Class JA....................... 4.50% 04/15/19 1,249 560 Series 2005-2922, Class QE....................... 5.00% 05/15/34 569 21,449 Series 2005-2953, Class LZ....................... 6.00% 03/15/35 26,404
Page 48 See Notes to Financial Statements FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED) COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) Freddie Mac REMICS (Continued) $ 28,906 Series 2005-2958, Class QJ....................... 4.00% 04/15/20 $ 29,208 37,525 Series 2006-3114, Class GI, IO, 1 Mo. LIBOR x -1 + 6.60% (e).................. 5.12% 02/15/36 7,878 49,406 Series 2006-3199, Class DS, IO, 1 Mo. LIBOR x -1 + 7.15% (e).................. 5.67% 08/15/36 9,039 3,433 Series 2006-3237, Class CB....................... 5.50% 07/15/36 3,586 18,782 Series 2010-3758, Class M........................ 4.50% 10/15/38 19,409 6,613 Series 2010-3775, Class KZ....................... 4.00% 08/15/25 6,786 3,902 Series 2011-3824, Class FA, 1 Mo. LIBOR + 0.15% (f)....................... 1.63% 03/15/26 3,901 2,542 Series 2012-3994, Class AE....................... 1.63% 02/15/22 2,514 20,070 Series 2013-4178, Class ZN....................... 3.50% 03/15/43 19,857 2,985 Series 2013-4253, Class TD....................... 2.00% 07/15/40 2,977 Freddie Mac Strips 22,100 Series 1994-169, Class IO, IO.................... 8.50% 03/01/23 3,636 Government National Mortgage Association 14,014 Series 1999-30, Class S, IO, 1 Mo. LIBOR x -1 + 8.60% (e).................. 7.11% 08/16/29 141 39,869 Series 2002-92, Class PB......................... 5.50% 12/20/32 43,904 9,831 Series 2006-16, Class OP, PO..................... (h) 03/20/36 8,974 55,000 Series 2007-35, Class NE......................... 6.00% 06/16/37 64,368 7,991 Series 2009-29, Class TA......................... 4.50% 03/16/39 8,287 880 Series 2009-81, Class PA......................... 5.50% 02/16/38 905 6,741 Series 2009-102, Class MA........................ 4.00% 06/16/39 6,876 824 Series 2010-44, Class NK......................... 4.00% 10/20/37 824 2,794 Series 2010-121, Class PQ........................ 3.00% 02/20/39 2,802 34,371 Series 2011-136, Class GB........................ 2.50% 05/20/40 34,161 32,011 Series 2013-20, Class KI, IO..................... 5.00% 01/20/43 6,043 ------------- 797,644 ------------- PASS-THROUGH SECURITIES -- 3.3% Federal Home Loan Mortgage Corporation 18,102 Pool A47829......................................... 4.00% 08/01/35 19,006 9,244 Pool C01252......................................... 6.50% 11/01/31 10,338 67,256 Pool G01731......................................... 6.50% 12/01/29 75,442 37,950 Pool G06358......................................... 4.00% 04/01/41 40,145 4,040 Pool O20138......................................... 5.00% 11/01/30 4,369 23,739 Pool U90316......................................... 4.00% 10/01/42 25,045 Federal National Mortgage Association 2,075 Pool 745121......................................... 5.50% 12/01/18 2,083 6,961 Pool 888366......................................... 7.00% 04/01/37 8,149 19,721 Pool 890383......................................... 4.00% 01/01/42 20,826 27,367 Pool AA9393......................................... 4.50% 07/01/39 29,538 39,160 Pool AD0659......................................... 6.00% 02/01/23 41,240 20,748 Pool AE0050......................................... 5.50% 12/01/22 21,685 12,542 Pool AH1568......................................... 4.50% 12/01/40 13,514 31,313 Pool AL0791......................................... 4.00% 02/01/41 33,143 31,135 Pool AS9194......................................... 4.50% 12/01/44 33,361 55,613 Pool AU4289......................................... 4.00% 09/01/43 58,656 8,261 Pool MA0561......................................... 4.00% 11/01/40 8,683 40,413 Pool MA1028......................................... 4.00% 04/01/42 42,462
See Notes to Financial Statements Page 49 FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED) PASS-THROUGH SECURITIES (CONTINUED) Government National Mortgage Association $ 12,632 Pool 3428........................................... 5.00% 08/20/33 $ 13,869 19,320 Pool 3500........................................... 5.50% 01/20/34 21,426 9,620 Pool 3711........................................... 5.50% 05/20/35 10,672 29,239 Pool 667422......................................... 5.00% 10/15/39 32,231 14,514 Pool 706201......................................... 5.50% 04/20/39 16,086 17,173 Pool 736558......................................... 5.00% 02/15/40 18,632 30,513 Pool 759248......................................... 4.00% 02/15/41 32,026 24,788 Pool MA3525......................................... 5.50% 03/20/46 27,697 ------------- 660,324 ------------- TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES...................... 1,457,968 (Cost $1,458,877) ------------- MORTGAGE-BACKED SECURITIES - 0.2% COLLATERALIZED MORTGAGE OBLIGATIONS - 0.2% Credit Suisse First Boston Mortgage Securities Corp. 604 Series 2004-4, Class 1A3......................... 5.75% 08/25/34 607 5,876 Series 2004-6, Class 2A1......................... 4.75% 09/25/19 5,887 JP Morgan Resecuritization Trust 194 Series 2009-7, Class 5A1 (i)..................... 6.00% 02/27/37 194 MASTR Alternative Loan Trust 3,016 Series 2004-10, Class 2A1........................ 5.50% 10/25/19 3,075 989 Series 2005-1, Class 5A1......................... 5.50% 01/25/20 1,010 MASTR Asset Securitization Trust 7,201 Series 2004-1, Class 5A4......................... 5.50% 02/25/34 7,387 RAAC Trust 1,624 Series 2005-SP1, Class 2A1....................... 5.25% 09/25/34 1,646 Structured Asset Mortgage Investments Trust 9,381 Series 1999-1, Class 2A (j)...................... 8.91% 06/25/29 9,367 Structured Asset Securities Corp. Mortgage Pass-Through Certificates 551 Series 2004-21XS, Class 2A6A..................... 5.24% 12/25/34 548 WAMU Mortgage Pass-Through Certificates 151 Series 2002-S8, Class 2A7........................ 5.25% 01/25/18 151 Wells Fargo Alternative Loan Trust 108 Series 2007-PA5, Class 2A1....................... 6.00% 11/25/22 108 Wells Fargo Mortgage Backed-Securities Trust 1,450 Series 2006-17, Class A4......................... 5.50% 11/25/21 1,423 ------------- TOTAL MORTGAGE-BACKED SECURITIES............................................. 31,403 (Cost $31,163) -------------
Page 50 See Notes to Financial Statements FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017
PRINCIPAL STATED STATED VALUE DESCRIPTION COUPON MATURITY VALUE ----------- ---------------------------------------------------- --------- ------------ ------------- ASSET-BACKED SECURITIES - 0.0% AFC Home Equity Loan Trust $ 557 Series 1997-4, Class 1A2, 1 Mo. LIBOR + 0.71% (f)....................... 2.04% 12/22/27 $ 540 Bear Stearns Asset Backed Securities Trust 12 Series 2005-SD1, Class 1A3, 1 Mo. LIBOR + 0.80% (f)....................... 2.35% 08/25/43 13 ------------- TOTAL ASSET-BACKED SECURITIES................................................ 553 (Cost $543) ------------- TOTAL INVESTMENTS - 97.3%.................................................... 19,696,735 (Cost $18,770,469) (k) NET OTHER ASSETS AND LIABILITIES - 2.7%...................................... 545,602 ------------- NET ASSETS - 100.0%.......................................................... $ 20,242,337 =============
----------------------------- (a) Investment in an affiliated fund. (b) This security is restricted in the U.S. and cannot be offered for public sale without first being registered under the Securities Act of 1933, as amended (the "1933 Act"). This security is not restricted on the foreign exchange where it trades freely without any additional registration. As such, it does not require the additional disclosure required of restricted securities. (c) Non-income producing security. (d) Security whose principal value is adjusted in accordance with changes to the country's Consumer Price Index. Interest is calculated on the basis of the current adjusted principal value. (e) Inverse floating rate security. (f) Floating or variable rate security. (g) Weighted Average Coupon security. Coupon is based on the blended interest rate of the underlying holdings, which may have different coupons. The coupon may change in any period. (h) Zero coupon security. (i) This security, sold within the terms of a private placement memorandum, is exempt from registration upon resale under Rule 144A under the 1933 Act, 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, 2017, securities noted as such amounted to $194 or 0.00% of net assets. (j) Collateral Strip Rate security. Coupon is based on the weighted net interest rate of the investment's underlying collateral. The interest rate resets periodically. (k) Aggregate cost for federal income tax purposes was $18,910,633. As of December 31, 2017, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $1,133,777 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $347,675. The net unrealized appreciation was $786,102. 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. LIBOR London Interbank Offered Rate PO Principal-Only Security See Notes to Financial Statements Page 51 FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2017 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2017 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 12/31/2017 PRICES INPUTS INPUTS ------------ ------------ ------------ ------------ Exchange-Traded Funds*............................ $ 7,030,157 $ 7,030,157 $ -- $ -- Common Stocks*.................................... 4,658,962 4,658,962 -- -- Real Estate Investment Trusts*.................... 2,538,283 2,538,283 -- -- Master Limited Partnerships*...................... 2,172,931 2,172,931 -- -- U.S. Government Bonds and Notes................... 1,806,478 -- 1,806,478 -- U.S. Government Agency Mortgage-Backed Securities..................................... 1,457,968 -- 1,457,968 -- Mortgage-Backed Securities........................ 31,403 -- 31,403 -- Asset-Backed Securities........................... 553 -- 553 -- ------------ ------------ ------------ ------------ Total Investments................................. $ 19,696,735 $ 16,400,333 $ 3,296,402 $ -- ============ ============ ============ ============
* See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to occur on the last day of the period at their current value. There were no transfers between Levels at December 31, 2017. Page 52 See Notes to Financial Statements FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO PORTFOLIO OF INVESTMENTS DECEMBER 31, 2017
SHARES DESCRIPTION VALUE ----------- ----------------------------------------------------------------------------- ------------- EXCHANGE-TRADED FUNDS - 97.5% CAPITAL MARKETS - 97.5% 3,582 First Trust BICK Index Fund (a).............................................. $ 108,141 2,735 First Trust Chindia ETF (a).................................................. 108,306 6,245 First Trust Developed Markets ex-US AlphaDEX(R) Fund (a)..................... 389,688 18,466 First Trust Dow Jones Internet Index Fund (a) (b)............................ 2,029,044 9,521 First Trust Emerging Markets AlphaDEX(R) Fund (a)............................ 265,731 2,220 First Trust Germany AlphaDEX(R) Fund (a)..................................... 113,686 50,529 First Trust Industrials/Producer Durables AlphaDEX(R) Fund (a)............... 2,050,972 36,638 First Trust Large Cap Growth AlphaDEX(R) Fund (a)............................ 2,242,246 33,948 First Trust Mid Cap Core AlphaDEX(R) Fund (a)................................ 2,231,742 68,921 First Trust Nasdaq Bank ETF (a).............................................. 2,026,277 27,895 First Trust NASDAQ-100-Technology Sector Index Fund (a)...................... 2,006,766 50,699 First Trust Small Cap Growth AlphaDEX(R) Fund (a)............................ 2,165,861 2,061 First Trust Switzerland AlphaDEX(R) Fund (a)................................. 108,841 37,157 First Trust Technology AlphaDEX(R) Fund (a).................................. 1,906,897 11,630 iShares Core U.S. Aggregate Bond ETF......................................... 1,271,508 25,008 SPDR Barclays Emerging Markets Local Bond ETF................................ 742,238 14,460 SPDR Bloomberg Barclays Convertible Securities ETF........................... 731,676 19,951 SPDR Bloomberg Barclays High Yield Bond ETF.................................. 732,601 16,651 SPDR Wells Fargo Preferred Stock ETF......................................... 733,310 ------------- TOTAL INVESTMENTS - 97.5%.................................................... 21,965,531 (Cost $19,578,032) (c) NET OTHER ASSETS AND LIABILITIES - 2.5%...................................... 570,410 ------------- NET ASSETS - 100.0%.......................................................... $ 22,535,941 =============
----------------------------- (a) Investment in an affiliated fund. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes was $19,593,848. As of December 31, 2017, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over tax cost was $2,432,004 and the aggregate gross unrealized depreciation for all investments in which there was an excess of tax cost over value was $60,321. The net unrealized appreciation was $2,371,683. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2017 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 12/31/2017 PRICES INPUTS INPUTS ------------ ------------ ------------ ------------ Exchange-Traded Funds*............................ $ 21,965,531 $ 21,965,531 $ -- -- ============ ============ ============ ============
* See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to occur on the last day of the period at their current value. There were no transfers between Levels at December 31, 2017. See Notes to Financial Statements Page 53 FIRST TRUST VARIABLE INSURANCE TRUST STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2017
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 - Unaffiliated.................................... $ 726,859,953 $ 14,563,858 $ 4,211,333 Investments, at value - Affiliated...................................... -- 5,132,877 17,754,198 Cash and cash equivalents............................................... 6,943,636 586,992 450,018 Foreign currency, at value.............................................. -- 131 -- Receivables: Interest............................................................. 2,469,912 12,588 -- Investment securities sold........................................... 1,056,342 -- -- Dividends............................................................ 780,775 19,728 -- Fund shares sold..................................................... 356,166 997 170,139 From investment advisor.............................................. -- 13,471 15,455 Reclaim.............................................................. -- 1,365 -- Prepaid expenses........................................................ 6,120 174 165 --------------- --------------- --------------- Total Assets......................................................... 738,472,904 20,332,181 22,601,308 --------------- --------------- --------------- LIABILITIES: Payables: Investment advisory fees............................................. 330,255 -- -- 12b-1 service fees (Class I)......................................... 154,524 4,196 4,647 Administrative service fees.......................................... 123,645 3,384 3,747 Accounting and administration fees................................... 65,577 7,042 4,678 Licensing fees....................................................... 62,427 -- 5,245 Printing fees........................................................ 60,591 4,314 1,260 Custodian fees....................................................... 44,278 3,271 1,927 Variation margin..................................................... 44,188 -- -- Audit and tax fees................................................... 29,323 50,908 23,249 Transfer agent fees.................................................. 18,473 12,260 12,200 Legal fees........................................................... 7,573 170 1,970 Commitment fees...................................................... 4,658 3,266 -- Fund shares redeemed................................................. 3,072 796 4,381 Financial reporting fees............................................. 771 -- 956 Trustees' fees and expenses.......................................... 511 223 633 Other liabilities....................................................... 497 14 474 --------------- --------------- --------------- Total Liabilities.................................................... 950,363 89,844 65,367 --------------- --------------- --------------- NET ASSETS.............................................................. $ 737,522,541 $ 20,242,337 $ 22,535,941 =============== =============== =============== NET ASSETS CONSIST OF: Paid-in capital......................................................... $ 662,461,510 $ 19,411,692 $ 20,120,380 Accumulated net investment income (loss)................................ 160,172 -- 12,014 Accumulated net realized gain (loss) on investments, futures and foreign currency transactions........................................ 1,067,954 (95,623) 16,048 Net unrealized appreciation (depreciation) on investments, futures and foreign currency translation......................................... 73,832,905 926,268 2,387,499 --------------- --------------- --------------- NET ASSETS.............................................................. $ 737,522,541 $ 20,242,337 $ 22,535,941 =============== =============== =============== Investments, at cost - Unaffiliated..................................... $ 653,121,228 $ 13,646,109 $ 4,201,950 =============== =============== =============== Investments, at cost - Affiliated....................................... $ -- $ 5,124,360 $ 15,376,082 =============== =============== =============== Foreign currency, at cost............................................... $ -- $ 129 $ -- =============== =============== =============== CLASS I SHARES: NET ASSETS.............................................................. $ 737,320,130 $ 20,083,541 $ 22,476,768 =============== =============== =============== NET ASSET VALUE, per share.............................................. $ 13.73 $ 10.89 $ 11.41 =============== =============== =============== Number of Shares outstanding............................................ 53,711,100 1,844,797 1,969,611 =============== =============== =============== CLASS II SHARES: NET ASSETS.............................................................. $ 202,411 $ 158,796 $ 59,173 =============== =============== =============== NET ASSET VALUE, per share.............................................. $ 13.75 $ 10.88 $ 11.40 =============== =============== =============== Number of Shares outstanding............................................ 14,720 14,589 5,192 =============== =============== ===============
Page 54 See Notes to Financial Statements FIRST TRUST VARIABLE INSURANCE TRUST STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017
FIRST TRUST/DOW JONES DIVIDEND FIRST TRUST FIRST TRUST & INCOME MULTI INCOME DORSEY WRIGHT ALLOCATION ALLOCATION TACTICAL CORE PORTFOLIO PORTFOLIO PORTFOLIO --------------- --------------- --------------- INVESTMENT INCOME: Interest................................................................ $ 8,518,251 $ 87,132 $ 2,566 Dividends - Unaffiliated................................................ 7,923,207 266,316 121,012 Dividends - Affiliated.................................................. -- 247,174 114,308 Foreign withholding tax on dividend income.............................. -- (3,426) -- --------------- --------------- --------------- Total investment income.............................................. 16,441,458 597,196 237,886 --------------- --------------- --------------- EXPENSES: Investment advisory fees................................................ 3,872,078 116,567 55,418 12b-1 distribution and service fees (Class I)........................... 1,613,278 48,170 39,448 Administrative service fees............................................. 1,290,672 38,620 31,561 Accounting and administration fees...................................... 408,393 39,636 52,498 Licensing fees.......................................................... 219,714 -- 15,833 Custodian fees.......................................................... 186,709 12,425 8,847 Printing fees........................................................... 90,627 7,089 7,702 Transfer agent fees..................................................... 89,894 51,423 49,510 Legal fees.............................................................. 57,782 1,548 1,233 Commitment fees......................................................... 41,197 28,162 -- Audit and tax fees...................................................... 29,739 51,323 23,779 Trustees' fees and expenses............................................. 17,960 16,631 16,621 Financial reporting fees................................................ 9,250 -- 9,250 Other................................................................... 20,603 10,398 5,406 --------------- --------------- --------------- Total expenses....................................................... 7,947,896 421,992 317,106 Fees waived and expenses reimbursed by the investment advisor........ (203,355) (261,140) (199,184) --------------- --------------- --------------- Net expenses............................................................ 7,744,541 160,852 117,922 --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS)............................................ 8,696,917 436,344 119,964 --------------- --------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments - Unaffiliated........................................... 30,318,262 343,059 7,606 Investments - Affiliated............................................. -- 17,745 229,681 Futures.............................................................. (307,925) -- -- Foreign currency transactions........................................ -- 42 -- --------------- --------------- --------------- Net realized gain (loss)................................................ 30,010,337 360,846 237,287 --------------- --------------- --------------- Net change in unrealized appreciation (depreciation) on: Investments - Unaffiliated........................................... 44,134,488 287,315 56,096 Investments - Affiliated............................................. -- 49,347 2,140,504 Futures.............................................................. 88,305 -- -- Foreign currency translation......................................... -- 1 -- --------------- --------------- --------------- Net change in unrealized appreciation (depreciation).................... 44,222,793 336,663 2,196,600 --------------- --------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS)................................. 74,233,130 697,509 2,433,887 --------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................................................... $ 82,930,047 $ 1,133,853 $ 2,553,851 =============== =============== ===============
See Notes to Financial Statements Page 55 FIRST TRUST VARIABLE INSURANCE TRUST STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO -------------------------------- YEAR YEAR ENDED ENDED 12/31/2017 12/31/2016 -------------- -------------- OPERATIONS: Net investment income (loss)......................................................... $ 8,696,917 $ 4,865,769 Net realized gain (loss)............................................................. 30,010,337 8,387,278 Net increase from payment by the advisor............................................. -- 1,000 Net change in unrealized appreciation (depreciation)................................. 44,222,793 27,976,372 -------------- -------------- Net increase (decrease) in net assets resulting from operations...................... 82,930,047 41,230,419 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class I.............................................................................. (8,735,680) (4,438,978) Class II............................................................................. (1,899) (208) -------------- -------------- (8,737,579) (4,439,186) -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN: Class I.............................................................................. (33,516,612) (10,878,302) Class II............................................................................. (8,008) (458) -------------- -------------- (33,524,620) (10,878,760) -------------- -------------- Total distributions to shareholders.................................................. (42,262,199) (15,317,946) -------------- -------------- CAPITAL TRANSACTIONS: Proceeds from shares sold............................................................ 163,541,447 269,075,333 Proceeds from shares reinvested...................................................... 42,261,441 15,317,510 Cost of shares redeemed.............................................................. (52,916,753) (9,596,894) -------------- -------------- Net increase (decrease) in net assets resulting from capital transactions............ 152,886,135 274,795,949 -------------- -------------- Total increase (decrease) in net assets.............................................. 193,553,983 300,708,422 NET ASSETS: Beginning of period.................................................................. 543,968,558 243,260,136 -------------- -------------- End of period........................................................................ $ 737,522,541 $ 543,968,558 ============== ============== Accumulated net investment income (loss) at end of period............................ $ 160,172 $ 200,834 ============== ==============
Page 56 See Notes to Financial Statements FIRST TRUST VARIABLE INSURANCE TRUST STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO -------------------------------- YEAR YEAR ENDED ENDED 12/31/2017 12/31/2016 -------------- -------------- OPERATIONS: Net investment income (loss)......................................................... $ 436,344 $ 314,186 Net realized gain (loss)............................................................. 360,846 (117,782) Net change in unrealized appreciation (depreciation)................................. 336,663 1,064,389 -------------- -------------- Net increase (decrease) in net assets resulting from operations...................... 1,133,853 1,260,793 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class I.............................................................................. (458,181) (363,323) Class II............................................................................. (4,071) (3,315) -------------- -------------- (462,252) (366,638) -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN: Class I.............................................................................. (53,156) -- Class II............................................................................. (472) -- -------------- -------------- (53,628) -- -------------- -------------- Total distributions to shareholders.................................................. (515,880) (366,638) -------------- -------------- CAPITAL TRANSACTIONS: Proceeds from shares sold............................................................ 5,744,312 6,360,314 Proceeds from shares reinvested...................................................... 512,743 364,038 Cost of shares redeemed.............................................................. (4,753,751) (1,854,130) -------------- -------------- Net increase (decrease) in net assets resulting from capital transactions............ 1,503,304 4,870,222 -------------- -------------- Total increase (decrease) in net assets.............................................. 2,121,277 5,764,377 NET ASSETS: Beginning of period.................................................................. 18,121,060 12,356,683 -------------- -------------- End of period........................................................................ $ 20,242,337 $ 18,121,060 ============== ============== Accumulated net investment income (loss) at end of period............................ $ -- $ -- ============== ==============
See Notes to Financial Statements Page 57 FIRST TRUST VARIABLE INSURANCE TRUST STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO -------------------------------- YEAR YEAR ENDED ENDED 12/31/2017 12/31/2016 -------------- -------------- OPERATIONS: Net investment income (loss)......................................................... $ 119,964 $ 98,407 Net realized gain (loss)............................................................. 237,287 72,877 Net change in unrealized appreciation (depreciation)................................. 2,196,600 242,750 -------------- -------------- Net increase (decrease) in net assets resulting from operations...................... 2,553,851 414,034 -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class I.............................................................................. (107,556) (96,102) Class II............................................................................. (444) (572) -------------- -------------- (108,000) (96,674) -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN: Class I.............................................................................. (204,003) (97,931) Class II............................................................................. (535) (477) -------------- -------------- (204,538) (98,408) -------------- -------------- Total distributions to shareholders.................................................. (312,538) (195,082) -------------- -------------- CAPITAL TRANSACTIONS: Proceeds from shares sold............................................................ 11,844,556 13,236,943 Proceeds from shares reinvested...................................................... 312,538 195,082 Cost of shares redeemed.............................................................. (2,272,459) (8,731,398) -------------- -------------- Net increase (decrease) in net assets resulting from capital transactions............ 9,884,635 4,700,627 -------------- -------------- Total increase (decrease) in net assets.............................................. 12,125,948 4,919,579 NET ASSETS: Beginning of period.................................................................. 10,409,993 5,490,414 -------------- -------------- End of period........................................................................ $ 22,535,941 $ 10,409,993 ============== ============== Accumulated net investment income (loss) at end of period............................ $ 12,014 $ 71 ============== ==============
Page 58 See Notes to Financial Statements FIRST TRUST/DOW JONES DIVIDEND & INCOME ALLOCATION PORTFOLIO FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------ 2017 2016 2015 2014 2013 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period....... $ 12.85 $ 11.94 $ 12.41 $ 11.37 $ 10.31 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............... 0.18 0.14 0.16 0.15 0.14 Net realized and unrealized gain (loss).... 1.54 1.25 (a) (0.15) 0.99 1.17 ---------- ---------- ---------- ---------- ---------- Total from investment operations........... 1.72 1.39 0.01 1.14 1.31 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income...................... (0.18) (0.13) (0.27) (0.10) (0.09) Net realized gain.......................... (0.66) (0.35) (0.21) -- (0.16) ---------- ---------- ---------- ---------- ---------- Total from distributions................... (0.84) (0.48) (0.48) (0.10) (0.25) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period............. $ 13.73 $ 12.85 $ 11.94 $ 12.41 $ 11.37 ========== ========== ========== ========== ========== TOTAL RETURN (b) (c)....................... 13.47% 11.74% (a) 0.09% 10.04% 12.75% ========== ========== ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's)....... $ 737,320 $ 543,951 $ 243,244 $ 195,128 $ 106,079 Ratio of total expenses to average net assets.................................. 1.23% 1.29% 1.34% 1.43% 1.65% Ratio of net expenses to average net assets.................................. 1.20% 1.20% 1.20% 1.20% 1.20% Ratio of net investment income (loss) to average net assets................... 1.35% 1.29% 1.35% 1.40% 1.27% Portfolio turnover rate.................... 71% 96% 81% 65% 73%
CLASS II SHARES YEAR ENDED DECEMBER 31, PERIOD ------------------------------------------------ ENDED 2017 2016 2015 12/31/2014 (d) ------------ ------------ ------------ ------------ Net asset value, beginning of period....... $ 12.87 $ 11.95 $ 12.43 $ 11.63 ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............... 0.14 0.19 0.17 0.14 Net realized and unrealized gain (loss).... 1.61 1.24 (a) (0.14) 0.77 ---------- ---------- ---------- ---------- Total from investment operations........... 1.75 1.43 0.03 0.91 ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income...................... (0.21) (0.16) (0.30) (0.11) Net realized gain.......................... (0.66) (0.35) (0.21) -- ---------- ---------- ---------- ---------- Total from distributions................... (0.87) (0.51) (0.51) (0.11) ---------- ---------- ---------- ---------- Net asset value, end of period............. $ 13.75 $ 12.87 $ 11.95 $ 12.43 ========== ========== ========== ========== TOTAL RETURN (b) (c)....................... 13.75% 12.07% (a) 0.25% 7.82% ========== ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's)....... $ 202 $ 17 $ 16 $ 11 Ratio of total expenses to average net assets.................................. 1.00% 1.04% 1.09% 1.21% (e) Ratio of net expenses to average net assets.................................. 0.95% 0.95% 0.95% 0.95% (e) Ratio of net investment income (loss) to average net assets.................... 1.88% 1.53% 1.64% 1.69% (e) Portfolio turnover rate.................... 71% 96% 81% 65%
----------------------------- (a) First Trust/Dow Jones Dividend & Income Allocation Portfolio received a reimbursement from the Advisor in the amount of $1,000 in connection with a trade error, which represents less than $0.01 per share. Since the Advisor reimbursed the Fund, there was no effect on the total return. (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) The Fund's Class II shares were seeded on April 30, 2014, and commenced operations on May 1, 2014. (e) Annualized. See Notes to Financial Statements Page 59 FIRST TRUST MULTI INCOME ALLOCATION PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES YEAR ENDED DECEMBER 31, PERIOD ------------------------------------------------ ENDED 2017 2016 2015 12/31/2014 (a) ------------ ------------ ------------ ------------ Net asset value, beginning of period....... $ 10.54 $ 9.86 $ 10.39 $ 10.00 ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............... 0.24 0.20 0.19 0.07 Net realized and unrealized gain (loss).... 0.39 0.71 (0.53) (b) 0.39 ---------- ---------- ---------- ---------- Total from investment operations........... 0.63 0.91 (0.34) 0.46 ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income...................... (0.25) (0.23) (0.19) (0.07) Net realized gain.......................... (0.03) -- -- -- ---------- ---------- ---------- ---------- Total from distributions................... (0.28) (0.23) (0.19) (0.07) ---------- ---------- ---------- ---------- Net asset value, end of period............. $ 10.89 $ 10.54 $ 9.86 $ 10.39 ========== ========== ========== ========== TOTAL RETURN (c) (d)....................... 6.04% 9.27% (3.24)% (b) 4.57% ========== ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's)....... $ 20,083 $ 17,965 $ 12,257 $ 6,894 Ratio of total expenses to average net assets.................................. 2.17% 2.22% 2.60% 6.00% (e) Ratio of net expenses to average net assets.................................. 0.83% 0.83% 0.90% 1.20% (e) Ratio of net investment income (loss) to average net assets................... 2.24% 2.10% 2.17% 2.35% (e) Portfolio turnover rate.................... 46% 46% 93% 15%
CLASS II SHARES YEAR ENDED DECEMBER 31, PERIOD ------------------------------------------------ ENDED 2017 2016 2015 12/31/2014 (a) ------------ ------------ ------------ ------------ Net asset value, beginning of period....... $ 10.54 $ 9.86 $ 10.39 $ 10.00 ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............... 0.27 0.20 0.24 0.04 Net realized and unrealized gain (loss).... 0.38 0.74 (0.55) (b) 0.43 ---------- ---------- ---------- ---------- Total from investment operations........... 0.65 0.94 (0.31) 0.47 ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income...................... (0.28) (0.26) (0.22) (0.08) Net realized gain.......................... (0.03) -- -- -- ---------- ---------- ---------- ---------- Total from distributions................... (0.31) (0.26) (0.22) (0.08) ---------- ---------- ---------- ---------- Net asset value, end of period............. $ 10.88 $ 10.54 $ 9.86 $ 10.39 ========== ========== ========== ========== TOTAL RETURN (c) (d)....................... 6.22% 9.53% (3.01)% (b) 4.74% ========== ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's)....... $ 159 $ 156 $ 100 $ 105 Ratio of total expenses to average net assets.................................. 1.92% 1.99% 2.31% 14.44% (e) Ratio of net expenses to average net assets.................................. 0.58% 0.58% 0.67% 0.95% (e) Ratio of net investment income (loss) to average net assets................... 2.49% 2.34% 2.32% 0.54% (e) Portfolio turnover rate.................... 46% 46% 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 in connection with a trade error, which represents less than $0.01 per share. Since the Advisor reimbursed the Fund, there was 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. Page 60 See Notes to Financial Statements FIRST TRUST DORSEY WRIGHT TACTICAL CORE PORTFOLIO FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I SHARES YEAR ENDED DECEMBER 31, PERIOD ------------------------------ ENDED 2017 2016 12/31/2015 (a) ------------ ------------ ------------ Net asset value, beginning of period....... $ 9.85 $ 9.94 $ 10.00 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............... 0.06 0.09 0.01 Net realized and unrealized gain (loss).... 1.66 0.01 (0.07) ---------- ---------- ---------- Total from investment operations........... 1.72 0.10 (0.06) ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income...................... (0.06) (0.09) -- Net realized gain.......................... (0.10) (0.10) -- ---------- ---------- ---------- Total from distributions................... (0.16) (0.19) -- ---------- ---------- ---------- Net asset value, end of period............. $ 11.41 $ 9.85 $ 9.94 ========== ========== ========== TOTAL RETURN (b) (c)....................... 17.50% 0.95% (0.60)% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's)....... $ 22,477 $ 10,360 $ 5,440 Ratio of total expenses to average net assets.................................. 1.85% 2.13% 11.71% (d) Ratio of net expenses to average net assets.................................. 0.75% 0.83% 0.79% (d) Ratio of net investment income (loss) to average net assets................... 0.76% 0.98% 1.54% (d) Portfolio turnover rate.................... 31% 265% --%
CLASS II SHARES YEAR ENDED DECEMBER 31, PERIOD ------------------------------ ENDED 2017 2016 12/31/2015 (a) ------------ ------------ ------------ Net asset value, beginning of period....... $ 9.83 $ 9.95 $ 10.00 ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)............... 0.10 0.11 0.01 Net realized and unrealized gain (loss).... 1.66 (0.02) (0.06) ---------- ---------- ---------- Total from investment operations........... 1.76 0.09 (0.05) ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income...................... (0.09) (0.11) -- Net realized gain.......................... (0.10) (0.10) -- ---------- ---------- ---------- Total from distributions................... (0.19) (0.21) -- ---------- ---------- ---------- Net asset value, end of period............. $ 11.40 $ 9.83 $ 9.95 ========== ========== ========== TOTAL RETURN (b) (c)....................... 17.94% 0.88% (0.50)% ========== ========== ========== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's)....... $ 59 $ 50 $ 50 Ratio of total expenses to average net assets.................................. 46.41% 57.64% 37.40% (d) Ratio of net expenses to average net assets.................................. 0.50% 0.57% 0.51% (d) Ratio of net investment income (loss) to average net assets................... 0.93% 1.13% 0.86% (d) Portfolio turnover rate.................... 31% 265% --%
----------------------------- (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 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. See Notes to Financial Statements Page 61 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 1. ORGANIZATION First Trust Variable Insurance Trust (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on December 14, 2011 and is registered with the Securities and Exchange Commission (the "SEC") 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 will be derived from a quantitative process that seeks to provide total return through investing generally in dividend-paying stocks included in the Dow Jones U.S. Total Stock Market Index(SM). First Trust Advisors L.P. ("First Trust" or the "Advisor") reserves the right to over-weight, under-weight or exclude certain securities from the Fund that would otherwise be selected pursuant to the quantitative process in certain instances. First Trust Dow Jones' fixed-income component seeks to provide income and preserve capital through investing in a diversified investment-grade bond portfolio. Investment-grade bonds are those bonds rated "BBB-" or higher by Standard & Poor's Ratings Group or Fitch Ratings, Inc. or "Baa3" or higher by Moody's Investors Service, Inc. at the time of purchase. Under normal market conditions, at the time of purchase approximately 80% of the net assets of the Fund allocated to corporate bonds are invested in: investment-grade bonds included in the Dow Jones Equal Weight 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 Composite Average. 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 primary 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 Weight U.S. Issued Corporate Bond Index(SM) was known as the Dow Jones Corporate Bond Index(SM). Page 62 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 First Trust Dorsey Wright's investment objective is to seek 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 are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board 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 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 a third-party 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. Page 63 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 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. Commercial paper, fixed income and other debt securities having a remaining maturity of sixty 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 third-party 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 third-party 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 third-party pricing services; 6) relationships among various securities; Page 64 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 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, 2017, 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 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 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. 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 Page 65 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 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 semi-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, 2017, have been reclassified at year end to reflect the following:
Accumulated Accumulated Net Realized Net Investment Gain (Loss) on Income (Loss) Investments Paid-in Capital ------------------ ------------------ ------------------ First Trust Dow Jones $ -- $ -- $ -- First Trust Multi Income 25,908 (36,138) 10,230 First Trust Dorsey Wright (21) 21 --
The tax character of distributions paid by each applicable Fund during the year ended December 31, 2017 was as follows:
Distributions paid Distributions paid Distributions paid from Ordinary from Capital from Return Income Gains of Capital ------------------ ------------------ ------------------ First Trust Dow Jones $ 26,821,760 $ 15,440,439 $ -- First Trust Multi Income 462,252 53,628 -- First Trust Dorsey Wright 145,137 167,401 --
Page 66 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 The tax character of distributions paid by each applicable Fund during the year ended December 31, 2016 was as follows:
Distributions paid Distributions paid Distributions paid from Ordinary from Capital from Return Income Gains of Capital ------------------ ------------------ ------------------ First Trust Dow Jones $ 8,174,962 $ 7,142,984 $ -- First Trust Multi Income 366,638 -- -- First Trust Dorsey Wright 195,082 -- --
As of December 31, 2017, the components of distributable earnings on a tax basis for each Fund were as follows:
Undistributed Accumulated Net Unrealized Ordinary Capital and Other Appreciation Income Gain (Loss) (Depreciation) ------------------ ------------------ ------------------ First Trust Dow Jones $ 453,576 $ 1,140,539 $ 73,466,916 First Trust Multi Income -- 44,541 786,104 First Trust Dorsey Wright 11,964 31,914 2,371,683
F. INCOME TAXES Each Fund intends to continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal or state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% of the Fund's taxable income exceeds the distributions from such taxable income for the calendar year. The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2014, 2015, 2016 and 2017 remain open to federal and state audit for First Trust Dow Jones and First Trust Multi Income. Also, the taxable years ended 2015, 2016 and 2017 remain open to federal and state audit for First Trust Dorsey Wright. As of December 31, 2017, 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, 2017, the Funds had no capital loss carryforwards for federal income tax purposes. During the taxable year ended December 31, 2017, the following Funds utilized capital loss carryforwards in the following amounts:
Capital Loss Carryforward Utilized --------------- First Trust Dow Jones $ -- First Trust Multi Income 127,844 First Trust Dorsey Wright --
G. EXPENSES Each Fund will pay all expenses directly related to its operations. Each Participating Insurance Company performs certain administrative services for the Funds, their Accounts and the Contracts. Each Fund pays an administrative services fee of 0.20% of average daily net assets to cover expenses incurred by Participating Insurance Companies in connection with these services. First Trust has entered into various licensing agreements, which allow First Trust to use certain trademarks and trade names of the applicable licensors (see Licensing Information in the Additional Information section of this report). The Trust, on behalf of First Trust Dow Jones 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. Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 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. J. PRINCIPAL-ONLY SECURITIES A principal-only security ("PO Security") is the principal-only portion of a mortgage-backed security that does not receive any interest, is priced at a deep discount to its redemption value and ultimately receives the redemption value. Generally speaking, when interest rates are falling and prepayment rates are increasing, the value of a PO Security will rise. Conversely, when interest rates are rising and prepayment rates are decreasing, generally the value of a PO Security will fall. These securities, if any, are identified on the Portfolio of Investments. K. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS On October 13, 2016, the SEC adopted new rules and forms, and amended existing rules and forms. The new and amended rules and forms are intended to modernize the reporting of information provided by funds and to improve the quality and type of information that funds provide to the SEC and investors. In part, the new and amended rules and forms amend Regulation S-X and require standardized, enhanced disclosures about derivatives in a fund's financial statements, as well as other amendments. The compliance date for the amendments of Regulation S-X was August 1, 2017, which resulted in additional disclosure for variable interest rate securities and derivative instruments within the Portfolio of Investments. The new form types and other rule amendments will be effective for the First Trust funds, including the Funds, for reporting periods beginning on and after June 1, 2018. Management is evaluating the new form types and other rule amendments that are effective on and after June 1, 2018 to determine the impact to the Funds. 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 ongoing 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 Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 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. 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. FTCP also owns, through a wholly-owned subsidiary, a 51% ownership interest in Stonebridge. During the year ended December 31, 2016, First Trust Dow Jones received a reimbursement from the Advisor of $1,000 in connection with a trade error. 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 annual operating expenses of Class I shares and Class II shares (excluding interest expense, brokerage commissions and other trading expenses, acquired fund fees and expenses, if any, and taxes and extraordinary expenses) from exceeding 1.20% and 0.95% (each an "Expense Cap"), respectively, of each Fund's average daily net assets per year at least until May 1, 2019. 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% (each an "Expense Cap"), respectively, of each Fund's average daily net assets per year at least until May 1, 2019. 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 year ended December 31, 2017, and the expenses borne and fees waived by First Trust subject to recovery from the applicable Fund at December 31, 2017, are included in the table below.
FEES WAIVED OR EXPENSES BORNE BY FIRST TRUST SUBJECT TO RECOVERY ------------------------------------------------------------------------------------- YEAR YEAR YEAR ENDED ENDED ENDED FEES EXPENSES DECEMBER 31, DECEMBER 31, DECEMBER 31, WAIVED REIMBURSED 2015 2016 2017 TOTAL ------------ ------------ ------------ ------------ ------------ ---------- First Trust Dow Jones $ 203,355 $ -- $ 347,277 $ 338,513 $ 203,355 $ 889,145 First Trust Multi Income 116,567 72,690 151,967 152,851 189,257 494,075 First Trust Dorsey Wright 55,418 143,766 48,180 157,770 199,184 405,134
During the year ended December 31, 2017, First Trust did not recover any fees that were previously waived or reimbursed. 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, 2019. During the year ended December 31, 2017, First Trust reimbursed First Trust Multi Income $71,883 of fees that are not subject to recovery. BNY Mellon Investment Servicing (US) Inc. ("BNYM IS") serves as First Trust Down Jones', First Trust Multi Income's and First Trust Dorsey Wright's transfer agent in accordance with certain fee arrangements. As transfer agent, BNYM IS is responsible for maintaining shareholder records for the Funds. BNYM IS is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 The Bank of New York Mellon ("BNYM") serves as First Trust Dow Jones' and First Trust Multi Income's administrator, fund accountant 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 Funds, including maintaining the Funds' books of account, records of the Funds' securities transactions, and certain other books and records. As custodian, BNYM is responsible for custody of each Fund's assets. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. 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. 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 equally among each fund in the First Trust Fund Complex. 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. Independent 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, 2017 DECEMBER 31, 2016 SHARES VALUE SHARES VALUE ------------ ------------ ------------ ------------ Sales: Class I 12,209,439 $163,359,896 21,522,285 $269,075,266 Class II 12,731 181,551 5 67 ------------ ------------ ------------ ------------ Total Sales: 12,222,170 $163,541,447 21,522,290 $269,075,333 ============ ============ ============ ============ Dividend Reinvestment: Class I 3,094,656 $ 42,252,292 1,224,785 $ 15,317,280 Class II 667 9,149 18 230 ------------ ------------ ------------ ------------ Total Dividend Reinvestment: 3,095,323 $ 42,261,441 1,224,803 $ 15,317,510 ============ ============ ============ ============ Redemptions: Class I (3,937,247) $(52,916,444) (782,373) $ (9,596,410) Class II (22) (309) (42) (484) ------------ ------------ ------------ ------------ Total Redemptions: (3,937,269) $(52,916,753) (782,415) $ (9,596,894) ============ ============ ============ ============
Page 70 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 Capital transactions for First Trust Multi Income were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2017 DECEMBER 31, 2016 SHARES VALUE SHARES VALUE ------------ ------------ ------------ ------------ Sales: Class I 529,437 $ 5,744,312 607,792 $ 6,311,829 Class II -- -- 4,618 48,485 ------------ ------------ ------------ ------------ Total Sales: 529,437 $ 5,744,312 612,410 $ 6,360,314 ============ ============ ============ ============ Dividend Reinvestment: Class I 47,398 $ 511,337 34,761 $ 363,323 Class II 130 1,406 68 715 ------------ ------------ ------------ ------------ Total Dividend Reinvestment: 47,528 $ 512,743 34,829 $ 364,038 ============ ============ ============ ============ Redemptions: Class I (437,125) $ (4,750,415) (180,072) $ (1,854,107) Class II (305) (3,336) (2) (23) ------------ ------------ ------------ ------------ Total Redemptions: (437,430) $ (4,753,751) (180,074) $ (1,854,130) ============ ============ ============ ============
Capital transactions for First Trust Dorsey Wright were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2017 DECEMBER 31, 2016 SHARES VALUE SHARES VALUE ------------ ------------ ------------ ------------ Sales: Class I 1,099,884 $ 11,844,556 1,367,166 $ 13,236,943 Class II -- -- -- -- ------------ ------------ ------------ ------------ Total Sales: 1,099,884 $ 11,844,556 1,367,166 $ 13,236,943 ============ ============ ============ ============ Dividend Reinvestment: Class I 27,252 $ 311,559 19,542 $ 194,032 Class II 86 979 106 1,050 ------------ ------------ ------------ ------------ Total Dividend Reinvestment: 27,338 $ 312,538 19,648 $ 195,082 ============ ============ ============ ============ Redemptions: Class I (209,529) $ (2,272,459) (881,838) $ (8,731,398) Class II -- -- -- -- ------------ ------------ ------------ ------------ Total Redemptions: (209,529) $ (2,272,459) (881,838) $ (8,731,398) ============ ============ ============ ============
Page 71 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 5. DERIVATIVE TRANSACTIONS The following table presents the types of derivatives held by First Trust Dow Jones at December 31, 2017, 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, 2017.
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 Unrealized appreciation on Unrealized depreciation on futures contracts* $ 107,305 futures contracts* $ 13,125
* Includes cumulative appreciation (depreciation) on futures contracts as reported in the Portfolio of Investments. The current day's variation margin is reported within the Statements of Assets and Liabilities. 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, 2017, on derivatives instruments held by First Trust Dow Jones, 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 $ (307,925) Net change in unrealized appreciation (depreciation) on futures 88,305
During the year ended December 31, 2017, the notional value of futures contracts opened and closed were $95,495,609 and $86,209,124, respectively. First Trust Dow Jones does not have the right to offset financial assets and financial liabilities related to futures contracts on the Statements of Assets and Liabilities. 6. AFFILIATED TRANSACTIONS First Trust Multi Income 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. Each 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, 2017, and for the year then ended are as follows:
CHANGE IN UNREALIZED SHARES AT VALUE AT APPRECIATION REALIZED VALUE AT DIVIDEND SECURITY NAME 12/31/2017 12/31/2016 PURCHASES SALES (DEPRECIATION) GAIN (LOSS) 12/31/2017 INCOME ---------------------- ----------- ----------- ----------- ------------ --------------- ----------- ----------- ------------ First Trust Low Duration Opportunities ETF 71 $ 31,308 $ 812,397 $ (840,093) $ 83 $ (27) $ 3,668 $ 3,527 First Trust Preferred Securities and Income ETF 59,280 1,229,166 580,850 (706,370) 49,543 33,004 1,186,193 78,210 First Trust Senior Loan Fund 57,460 2,886,006 547,492 (642,992) (19,460) (7,795) 2,763,251 99,949 First Trust Tactical High Yield ETF 24,290 1,251,761 176,094 (259,834) 19,181 (7,437) 1,179,765 65,488 ----------- ----------- ------------ --------------- ----------- ----------- ------------ $ 5,398,241 $ 2,116,833 $ (2,449,289) $ 49,347 $ 17,745 $ 5,132,877 $ 247,174 =========== =========== ============ =============== =========== =========== ============
Page 72 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 Amounts relating to these investments in First Trust Dorsey Wright at December 31, 2017, and for the year then ended are as follows:
CHANGE IN UNREALIZED SHARES AT VALUE AT APPRECIATION REALIZED VALUE AT DIVIDEND SECURITY NAME 12/31/2017 12/31/2016 PURCHASES SALES (DEPRECIATION) GAIN (LOSS) 12/31/2017 INCOME ---------------------- ----------- ----------- ----------- ------------ --------------- ----------- ----------- ------------ First Trust BICK Index Fund 3,582 $ -- $ 109,569 $ (16,224) $ 12,694 $ 2,102 $ 108,141 $ 943 First Trust Brazil AlphaDEX(R) Fund -- 47,954 16,359 (63,880) (2,160) 1,727 -- 370 First Trust Chindia ETF 2,735 45,532 51,826 (14,803) 21,209 4,542 108,306 1,991 First Trust Developed Markets ex-US AlphaDEX(R) Fund 6,245 121,845 226,096 (19,915) 56,751 4,911 389,688 5,280 First Trust Dow Jones Internet Index Fund 18,466 915,810 963,735 (307,004) 361,959 94,544 2,029,044 -- First Trust Emerging Markets AlphaDEX(R) Fund 9,521 120,217 128,191 (43,020) 45,816 14,527 265,731 5,915 First Trust Energy AlphaDEX(R) Fund -- 1,004,600 185,801 (1,040,911) (84,446) (65,044) -- 2,521 First Trust Germany AlphaDEX(R) Fund 2,220 49,013 51,979 (14,433) 23,265 3,862 113,686 2,052 First Trust Industrials/ Producer Durables AlphaDEX(R) Fund 50,529 857,478 938,283 (51,611) 302,162 4,660 2,050,972 8,979 First Trust Large Cap Growth AlphaDEX(R) Fund 36,638 976,533 992,397 (62,891) 327,157 9,050 2,242,246 7,341 First Trust Latin America AlphaDEX(R) Fund -- 50,247 14,859 (65,510) 317 87 -- 357 First Trust Mid Cap Core AlphaDEX(R) Fund 33,948 1,079,192 1,023,994 (133,381) 237,442 24,495 2,231,742 17,306 First Trust Nasdaq Bank ETF 68,921 -- 1,858,133 (49,502) 217,162 484 2,026,277 17,756 First Trust NASDAQ-100- Technology Sector Index Fund 27,895 910,017 966,486 (300,483) 352,146 78,600 2,006,766 14,347 First Trust Small Cap Growth AlphaDEX(R) Fund 50,699 1,009,666 996,948 (170,377) 308,456 21,168 2,165,861 2,204 First Trust Switzerland AlphaDEX(R) Fund 2,061 50,943 53,008 (14,131) 15,620 3,401 108,841 1,297 First Trust Technology AlphaDEX(R) Fund 37,157 -- 1,932,618 -- (25,721) -- 1,906,897 838 First Trust Utilities AlphaDEX(R) Fund -- 929,322 947,119 (1,873,681) (29,325) 26,565 -- 24,811 ----------- ----------- ------------ --------------- ----------- ----------- ------------ $ 8,168,369 $11,457,401 $ (4,241,757) $ 2,140,504 $ 229,681 $17,754,198 $ 114,308 =========== =========== ============ =============== =========== =========== ============
7. 12B-1 SERVICE PLAN The Trust has adopted a plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act, which provides that Class I shares of each of the Funds will be subject to an annual service fee. First Trust Portfolios L.P. ("FTP"), an affiliate of First Trust, serves as the distributor of shares of the Funds. FTP uses the service fee to compensate each Participating Insurance Company for providing account services to policy owners. These services include establishing and maintaining Contract owners' accounts, supplying information to Contract owners, delivering Fund materials to Contract owners, answering inquiries, and providing other personal services to Contract owners. Each Fund may spend up to 0.25% per year of the average daily net assets of its Class I shares as a service fee under the Plan. In addition, the Plan permits First Trust to use a portion of its advisory fee to compensate FTP for expenses incurred in connection with the sale of a Fund's Class I shares including, without limitation, compensation of its sales force, expenses of printing and distributing the Prospectus to persons other than Contract owners, expenses of preparing, printing and distributing advertising and sales literature and reports to Contract owners used in connection with the sale of a Fund's Class I Shares, certain other expenses associated with the servicing of Class I shares of a Fund, and any service-related expenses that may be authorized from time to time by the Board. Page 73 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 During the year ended December 31, 2017, 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 year ended December 31, 2017, were as follows: PURCHASES SALES --------------- --------------- First Trust Dow Jones $ 501,952,734 $ 367,003,115 First Trust Multi Income 8,635,458 7,681,961 First Trust Dorsey Wright 14,315,018 4,887,269 Cost of purchases and proceeds from sales of U.S. Government investment securities, excluding short-term investments, for the year ended December 31, 2017, were as follows: PURCHASES SALES --------------- --------------- First Trust Dow Jones $ 81,947,784 $ 81,802,549 First Trust Multi Income 1,426,954 1,019,569 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 $200 million Credit Agreement (the "BNYM Line of Credit") with BNYM to be a liquidity backstop during periods of high redemption volume. Prior to February 3, 2017, the BNYM Line of Credit was $135 million. A commitment fee of 0.15% of the daily amount of the excess of the commitment amount over the outstanding principal balance of the loans will be charged by BNYM, which First Trust will allocate amongst the funds that have access to the BNYM Line of Credit. These fees are reflected in 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, 2017. 10. INDEMNIFICATION The Trust has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 11. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed. Page 74 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- TO THE SHAREHOLDERS AND THE BOARD OF TRUSTEES OF FIRST TRUST VARIABLE INSURANCE TRUST: Opinion on the Financial Statements and Financial Highlights 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, 2017, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the periods presented, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the portfolios constituting the First Trust Variable Insurance Trust as of December 31, 2017, and the results of their operations, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on the Funds' financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Chicago, Illinois February 12, 2018 We have served as the auditor of one or more First Trust investment companies since 2001. Page 75 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (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 https://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 https://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, 2017, 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 25.45% First Trust Multi Income Allocation Portfolio 16.34% First Trust Dorsey Wright Tactical Core Portfolio 0.00%
For the year ended December 31, 2017, 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 GAIN DISTRIBUTIONS ------------------------------------- First Trust Dow Jones Dividend & Income Allocation Portfolio $ 15,440,439 First Trust Multi Income Allocation Portfolio 53,628 First Trust Dorsey Wright Tactical Core Portfolio 167,401
LICENSING INFORMATION Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"). The trademarks have been licensed to S&P Dow Jones Indices LLC and have been sublicensed for use for certain purposes by First Trust Advisors L.P. ("First Trust"). The DOW JONES EQUAL WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND DOW JONES COMPOSITE AVERAGE are products of S&P Dow Jones Indices LLC and has been licensed for use by First Trust. The First Trust/Dow Jones Dividend & Income Allocation Portfolio is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, or any of their respective affiliates (collectively, "S&P Dow Jones Indices"). Neither S&P Dow Jones Indices nor its affiliates make any representation or warranty, express or implied, to the owners of the First Trust/Dow Jones Dividend & Income Allocation Portfolio or any member of the public regarding the advisability of investing in securities generally or in the First Trust/Dow Jones Dividend & Income Allocation Portfolio particularly or the ability of the DOW JONES EQUAL WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND DOW JONES COMPOSITE AVERAGE to track general market performance. S&P Dow Jones Indices only relationship to First Trust with respect to the DOW JONES EQUAL WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND DOW JONES COMPOSITE AVERAGE is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices. The DOW JONES EQUAL WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND DOW JONES COMPOSITE AVERAGE is determined, composed and calculated by S&P Dow Jones Indices without regard to First Trust or the First Trust/Dow Jones Dividend & Income Allocation Portfolio. S&P Dow Jones Indices has no obligation to take the needs of First Trust or the owners of the First Trust/Dow Jones Dividend & Income Allocation Portfolio into consideration in determining, composing or calculating the DOW JONES EQUAL WEIGHT U.S. ISSUED CORPORATE BOND INDEX(SM), DOW JONES U.S. TOTAL STOCK MARKET INDEX(SM) AND DOW JONES COMPOSITE AVERAGE. Neither S&P Dow Jones Indices nor its affiliates are responsible for and have not participated in the determination of the prices, and amount of the First Trust/Dow Jones Dividend & Income Allocation Portfolio or the timing of the issuance or sale of the First Trust/Dow Jones Dividend & Income Allocation Portfolio or in the determination or calculation of the equation by which the First Trust/Dow Jones Dividend & Income Allocation Portfolio is to be managed. S&P Dow Jones Indices has no obligation or liability in connection with the administration, marketing or trading of the First Trust/Dow Jones Dividend & Income Allocation Portfolio. There is no assurance Page 76 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED) 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' prospectuses and statements of additional information, as well as other regulatory filings. 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. CALL RISK. If an issuer calls higher-yielding debt instruments held by the Funds, performance could be adversely impacted. Page 77 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED) 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' 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 Page 78 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED) 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. FUND OF FUNDS RISK. The First Trust Multi Income Allocation Portfolio and the First Trust Dorsey Wright Tactical Core Portfolio invest in securities of other ETFs, which involves additional expenses that would not be present in a direct investment in such ETFs. Furthermore, the Funds' investment performance and risks are directly related to the investment performance and risks of the underlying ETFs in which the Funds invest. 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. Each 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 Page 79 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED) 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 each 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 ETFs 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 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. 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. Page 80 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED) MLP TAX RISK. With respect to First Trust Multi Income Allocation Portfolio, the Fund's ability to meet its investment objectives depends, in part, on the level of taxable income and distributions it receives from the MLP and MLP-related entities in which the Fund invests, a factor over which the Fund has no control. The benefit the Fund derives from its investment in MLPs is dependent on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no income tax liability at the entity level. If, as a result of a change in an MLP's business, an MLP were treated as a corporation for federal income tax purposes, such MLP would be obligated to pay federal income tax on its income at the applicable corporate tax rate. If an MLP was classified as a corporation for federal income tax purposes, the amount of cash available for distribution with respect to its units would be reduced and any such distributions received by the Fund would be taxed entirely as dividend income if paid out of the earnings of the MLP. Therefore, treatment of an MLP as a corporation for federal income tax purposes would result in a material reduction in the after-tax return to the Fund, likely causing a substantial reduction in the value of the shares of a Fund. 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. 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. Page 81 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED) 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, 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. Page 82 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (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 TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS NAME, ADDRESS, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 151 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 E. Liberty Drive, o Since Trust Limited Partnership (June 1992 to December Suite 400 Inception 2016); Member, Sportsmed LLC (April 2007 Wheaton, IL 60187 to November 2015) D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 151 Director of ADM c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services, 120 E. Liberty Drive, o Since Trust Inc., ADM Suite 400 Inception Investor Services Wheaton, IL 60187 International, D.O.B.: 11/57 Futures Industry Association, and National Futures Association Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 151 Director of Trust c/o First Trust Advisors L.P. Management Consulting) Company of 120 E. Liberty Drive, o Since Trust Illinois Suite 400 Inception Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 151 Director of c/o First Trust Advisors L.P. Officer (January 2015 to Present), Covenant 120 E. Liberty Drive, o Since Trust Pelita Harapan Educational Foundation Transport, Inc. Suite 400 Inception (Educational Products and Services); (May 2003 to Wheaton, IL 60187 President and Chief Executive May 2014) D.O.B.: 03/54 Officer (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 151 None and Chairman of the Board Advisors L.P. and First Trust Portfolios 120 E. Liberty Drive, o Since Trust L.P.; Chairman of the Board of Directors, Suite 400 Inception BondWave LLC (Software Development Wheaton, IL 60187 Company) and Stonebridge Advisors LLC D.O.B.: 09/55 (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 83 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED)
POSITION AND TERM OF OFFICE NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS AND DATE OF BIRTH WITH TRUST 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), Controller (January 2011 Suite 400 o Since January 2016 to January 2016), Senior Vice President (April 2007 Wheaton, IL 60187 to January 2016), First Trust Advisors L.P. and First D.O.B.: 01/66 Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) Donald P. Swade Treasurer, Chief o Indefinite Term Senior Vice President (July 2016 to Present), Vice 120 E. Liberty Drive, Financial Officer and President (April 2012 to July 2016), First Trust Suite 400 Chief Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 D.O.B.: 08/72 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P. Secretary and General Suite 400 o Since Trust Counsel, BondWave LLC; Secretary, Stonebridge Wheaton, IL 60187 Inception Advisors LLC D.O.B.: 05/60 Daniel J. Lindquist Vice President o Indefinite Term Managing Director, First Trust Advisors L.P. and 120 E. Liberty Drive, First Trust Portfolios L.P. Suite 400 o Since Trust Wheaton, IL 60187 Inception D.O.B: 02/70 Kristi A. Maher Chief Compliance o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. 120 E. Liberty Drive, Officer and and First Trust Portfolios L.P. Suite 400 Assistant Secretary o Since Trust Wheaton, IL 60187 Inception D.O.B.: 12/66 Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and 120 E. Liberty Drive, First Trust Portfolios L.P. Suite 400 o Since Trust Wheaton, IL 60187 Inception D.O.B.: 06/66
----------------------------- (2) Officers of the Trust have an indefinite term. The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 84 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST VARIABLE INSURANCE TRUST DECEMBER 31, 2017 (UNAUDITED) 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. USE OF WEB ANALYTICS We currently use third party analytics tools, Google Analytics and AddThis, to gather information for purposes of improving First Trust's website and marketing our products and services to you. These tools employ cookies, which are small pieces of text stored in a file by your web browser and sent to websites that you visit, to collect information, track website usage and viewing trends such as the number of hits, pages visited, videos and PDFs viewed and the length of user sessions in order to evaluate website performance and enhance navigation of the website. We may also collect other anonymous information, which is generally limited to technical and web navigation information such as the IP address of your device, internet browser type and operating system for purposes of analyzing the data to make First Trust's website better and more useful to our users. The information collected does not include any personal identifiable information such as your name, address, phone number or email address unless you provide that information through the website for us to contact you in order to answer your questions or respond to your requests. To find out how to opt-out of these services click on: Google Analytics and AddThis. 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 https://www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). May 2017 Page 85 This Page Left Blank Intentionally. This Page Left Blank Intentionally. This Page Left Blank Intentionally. 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 10 Wright Street 10 Westport Road, Suite C101 Westport, CT 06880 Wilton, CT 06897 ADMINISTRATOR, FUND ACCOUNTANT, & 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 BNY Mellon Investment Servicing (US) Inc. 301 Bellevue Parkway Wilmington, DE 19809 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 $90,750 for the fiscal year ended December 31, 2016 and $90,750 for the fiscal year ended December 31, 2017. (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 $275.73 for the fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. Audit-Related Fees (Investment Adviser) -- 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, 2016 and $0 for the fiscal year ended December 31, 2017. Audit-Related Fees (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 fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. Audit-Related Fees (Investment Sub-Advisor) -- 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, 2016 and $0 for the fiscal year ended December 31, 2017. (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 $12,175 for the fiscal year ended December 31, 2016 and $12,175 for the fiscal year ended December 31, 2017. Tax Fees (Investment Adviser) -- 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 were $0 for the fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. Tax Fees (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 were $0 for the fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. Tax Fees (Investment Sub-Adviser) -- 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 were $0 for the fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. (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, 2016 and $0 for the fiscal year ended December 31, 2017. All Other Fees (Investment Adviser) -- The aggregate fees billed for each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. All Other Fees (Distributor) -- The aggregate fees billed for each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. All Other Fees (Investment Sub-Adviser) -- The aggregate fees billed for each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for the fiscal year ended December 31, 2016 and $0 for the fiscal year ended December 31, 2017. (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, 2016 were $12,175 for the registrant, $13,000 for the registrant's investment adviser, $32,500 for the registrant's distributor and $3,000 for the registrant's investment sub-adviser, and for the fiscal year ended December 31, 2017 were $12,175 for the registrant, $44,000 for the registrant's investment adviser, $63,400 for the registrant's distributor and $3,000 for the registrant's investment sub-adviser. (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. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. (a) Not applicable. (b) Not applicable. ITEM 13. 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. (a)(4) 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 12, 2018 ------------------- 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 12, 2018 ------------------- By (Signature and Title)* /s/ Donald P. Swade ---------------------------------------- Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: February 12, 2018 ------------------- * Print the name and title of each signing officer under his or her signature.