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Target Double Play Portfolio, 2nd Quarter 2017 Series

Target Double Play Portfolio

Finding the right mix of investments is a key factor to successful investing. Because different investments often react differently to economic and market changes, diversifying among low-correlated investments primarily helps to reduce volatility and also has the potential to enhance your returns. Target Dbl. Play (Target Double Play Portfolio) has been developed to seek to address this purpose.

The Target Double Play Portfolio is a unit investment trust which consists of an approximately equal weighting between two strategies - The Dow® Target Dividend Strategy and the Value Line® Target 25 Strategy. It invests in a fixed portfolio of stocks which are selected by applying pre-determined screens and factors and holds the stocks for approximately 15 months. The portfolio offers several important advantages:

  • Complete transparency from the stock selection process to portfolio holdings and individual stock weightings;
  • Automated buy decisions helping to eliminate unwanted emotions from the investment process;
  • No style drift from manager-driven trading;
  • Low cash positions so more of your money is put to work;
  • Diversification, discipline, and a periodic rebalancing opportunity helping to decrease volatility and potentially increase returns.

As you can see in the adjacent charts, if this strategy had been applied since 1992, investors would have realized higher total returns than by investing in the S&P 500 Index. It is important to note that the past performance of the strategy is hypothetical and it is not indicative of the future performance of the Target Double Play Portfolio.

Strategy Performance

History has shown that bear and bull markets are a normal occurrence. Although past performance is no guarantee of future results, history has also shown that equity investors have been rewarded for their patience over the long-term.The chart below illustrates this point based on applying the hypothetical strategy over one year and three year periods. Of course, there is no guarantee that the performance of the strategy or the trust will be positive over any future time period.

Chart


Portfolio Selection Process

The Target Double Play Portfolio seeks to provide the potential for above-average total return by adhering to a simple investment strategy; however, there is no assurance the objective will be met. On the initial date of deposit, the portfolio is approximately equally weighted between the two strategies described below.

The Dow® Target Dividend Strategy

  • Begin with the stocks that comprise the Dow Jones Select Dividend IndexSM. The index consists of 100 widely-traded, dividend-paying stocks derived from the Dow Jones U.S. Total Market IndexSM.
  • Rank each of the 100 stocks on two factors:
    • Rank each of the 100 stocks on two factors: Change in return on assets over the last 12 months. An increase in return on assets is generally used as an indication of improving business fundamentals and would receive a higher ranking than a stock with a negative change in return on assets.
    • Price to book. A lower, but positive, price to book ratio is generally used as an indication of value.
  • Purchase an approximately equally-weighted portfolio of the 20 stocks with the best overall ranking on the two factors.

Value Line® Target 25 Strategy

  • Begin with the 100 stocks that Value Line® currently gives a #1 ranking for TimelinessTM (stocks of financial companies and companies whose shares are not listed on a U.S. exchange are not eligible for inclusion in the Value Line® Target 25 Strategy). Value Line® ranks approximately 1,700 stocks, only 100 of which are given their #1 ranking for TimelinessTM. They base their rankings on a long-term trend of earnings, prices, recent earnings, price momentum, and earnings surprises.
  • Rank the stocks on four factors:
    • 12 month price appreciation
    • 6 month price appreciation
    • Return on assets
    • Price to cash flow
  • Purchase a market cap-weighted portfolio of the 25 eligible stocks with the best overall ranking on the factors, subject to a minimum weighting of approximately 1% and a maximum weighting of approximately 25%.

Mountain Chart


Standard Deviations* Average Annual Total Returns*
S&P 500
Index
Strategy S&P 500
Index
Strategy
Since 1992 14.20% 17.64% 9.13% 13.28%
20 years 15.27% 18.41% 7.67% 10.95%
15 years 14.34% 16.09% 6.69% 4.81%
10 years 15.26% 17.11% 6.94% 1.63%
5 years 10.36% 10.88% 14.64% 10.65%
3 years 10.73% 10.73% 8.85% 4.94%
*Through 12/30/16

Annual Total Returns
Year S&P 500
Index


Strategy

1992 7.61% 12.25%
1993 10.04% 21.46%
1994 1.30% 1.74%
1995 37.50% 49.30%
1996 22.89% 35.15%
1997 33.31% 36.96%
1998 28.55% 47.06%
1999 21.03% 52.71%
2000 -9.10% 7.05%
2001 -11.88% 19.97%
2002 -22.09% -12.57%
2003 28.65% 35.48%
2004 10.87% 20.26%
2005 4.90% 10.89%
2006 15.76% 8.93%
2007 5.56% 12.23%
2008 -36.99% -45.62%
2009 26.46% 8.39%
2010 15.08% 22.07%
2011 2.08% -12.19%
2012 15.98% 9.42%
2013 32.36% 31.18%
2014 13.66% 11.21%
2015 1.38% -7.90%
2016 11.93% 13.95%
04/28/17 7.15% 1.73%

Past performance is no guarantee of future results and the actual current performance of the portfolio may be lower or higher than the hypothetical performance of the strategy. Hypothetical returns for the strategy in certain years were significantly higher than the returns of the S&P 500 Index.Hypothetical strategy returns were the result of certain market factors and events which may not be replicated in the future. You can obtain performance information which is current through the most recent month-end by calling First Trust Portfolios L.P. at 1-800-621-1675 option 2. Investment return and principal value of the portfolio will fluctuate causing units of the portfolio, when redeemed, to be worth more or less than their original cost.

Simulated strategy returns are hypothetical, meaning that they do not represent actual trading, and, thus, may not reflect material economic and market factors, such as liquidity constraints, that may have had an impact on actual decision making. The hypothetical performance is the retroactive application of the strategy designed with the full benefit of hindsight. Strategy returns reflect a sales charge of 2.95% in the first year, 1.95% in subsequent years, estimated annual operating expenses of 0.187%, plus organization costs, but not taxes or commissions paid by the portfolio to purchase securities. Returns assume that all dividends received during a year are reinvested monthly. Actual portfolio performance will vary from that of investing in the strategy stocks because it may not be invested equally in these stocks and may not be fully invested at all times. It is important to note that the strategy may underperform the S&P 500 Index in certain years and may produce negative results.

The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. The index cannot be purchased directly by investors.

Standard Deviation is a measure of price variability (risk). A higher degree of variability indicates more volatility and therefore greater risk.

Not FDIC Insured • Not Bank Guaranteed • May Lose Value

You should consider the portfolio's investment objectives, risks, and charges and expenses carefully before investing. Contact your financial advisor or call First Trust Portfolios, L.P. at 1-800-621-1675 to request a prospectus, which contains this and other information about the portfolio. Read it carefully before you invest.

Risk Considerations:

An investment in this unmanaged unit investment trust should be made with an understanding of the risks involved with owning common stocks, such as an economic recession and the possible deterioration of either the financial condition of the issuers of the equity securities or the general condition of the stock market.

An investment in a portfolio containing equity securities of foreign issuers is subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting foreign issuers.

An investment in a portfolio containing small-cap and mid-cap companies is subject to additional risks, as the share prices of small-cap companies and certain mid-cap companies are often more volatile than those of larger companies due to several factors, including limited trading volumes, products, financial resources, management inexperience and less publicly available information.

One of the securities in the portfolio is issued by a Real Estate Investment Trust (REIT). Companies involved in the real estate industry are subject to changes in the real estate market, vacancy rates and competition, volatile interest rates and economic recession.

The value of the securities held by the trust may be subject to steep declines or increased volatility due to changes in performance or perception of the issuers.

The "Dow Jones Industrial Average" is a product of S&P Dow Jones Indices LLC ("SPDJI"), and has been licensed for use by First Trust Advisors L.P. Standard & Poor's® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC ("S&P"); DJIA®, The Dow®, Dow Jones®, and Dow Jones Industrial Average are trademarks of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust Advisors L.P. The Dow® Target Dividend, based on a strategy based on the Dow Jones Industrial Average, is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such products.

"Value Line," "The Value Line Investment Survey," and "Timeliness"are trademarks or registered trademarks of Value Line, Inc. ("Value Line") in the United States and other countries and have been licensed for use for certain purposes by First Trust Portfolios L.P. and First Trust Advisors L.P. The Target Double Play Portfolio is not sponsored, endorsed, recommended, sold or promoted by Value Line and Value Line makes no representation regarding the advisability of investing in products utilizing such strategy. First Trust Portfolios L.P. and First Trust Advisors L.P. are not affiliated with any Value Line company.

 
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