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First Trust/Dow Jones Dividend & Income Allocation Portfolio

THE IMPORTANCE OF ...
...DIVIDENDS
  • Regardless of market conditions, dividends should be considered an important component of an investment strategy.
  • Steadily increasing dividends have the potential to amplify a stock's total return.
  • Companies that have the potential to regularly raise dividends provide investors an opportunity to keep up with the rising costs of living.
  • Steadily increasing dividends can provide a cushion to help offset a stock price's decline.
  • The tax-deferred compounding effect of reinvesting dividends year after year can enhance a portfolio's return.

... AND FIXED-INCOME
  • Seeks to provide regular income distributions.
  • Seeks to preserve capital with investment-grade bonds.
  • May reduce portfolio risk.
  • The compounding effects of reinvested income year after year can enhance a portfolio's return.
According to Ibbotson Associates, dividends have provided approximately 42% of the 10.12% average annual total return on the S&P 500 Index from January 1926 through December 2014.

INVESTMENT PROCESS

QUANTITATIVE EQUITY
The equity component of the portfolio is derived from a quantitative process that seeks to provide total return through investing generally in dividend-paying stocks included in the Dow Jones U.S. Total Stock Market IndexSM. This portion of the portfolio focuses on stable, dividend-paying companies with strong balance sheets.

Eligible Universe
Dow Jones U.S. Total Stock Market IndexSM constituents that pay a dividend, have a market cap greater than $1 billion and three-month average daily trading volume greater than $5 million.

Investment Process Overview
A proprietary multi-factor quantitative model is utilized:
Investment Process Overview

INVESTMENT-GRADE FIXED-INCOME
The investment-grade fixed-income component seeks to preserve capital and provide total return through a disciplined assessment of sector relative value and rigorous analysis of credit fundamentals.

Eligible Universe
The portfolio universe consists of: Dow Jones Equal Weight U.S. Issued Corporate Bond IndexSM; investment-grade bonds of issuers included in the Dow Jones Composite AverageSM; U.S. Treasury obligations; and securities issued or guaranteed by agencies of the U.S. Government. Bonds must have investment-grade ratings by a major rating agency. 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.

Investment Process Overview
  • Follows a top-down analysis of key secular and cyclical trends.
  • Bottom-up fundamental research of individual credits complements top-down process.
  • The investment process routinely monitors market conditions and portfolio risk for their effect on relative value.

This portfolio is rebalanced quarterly.


THE HISTORICAL ROLE OF DIVIDEND INCOME
To illustrate the role of dividends on a portfolio over time, if you had invested $1,000 in large company stocks (as measured by the S&P 500 Index) at year-end 1925, your investment would have grown to $5,305,992 by year-end 2014 with dividends reinvested. Capital appreciation alone would have only grown to $161,359 over the same 89-year period.
Dividend Chart

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

Principal Risk Considerations

An investor could lose money by investing in the Fund. There can be no assurance that the Fund will achieve its investment objective. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.

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.

Dividend Risk. There is no guarantee that the issuers of the Fund's equity securities will declare dividends in the future or that, if declared, they will remain at current levels or increase over time.

Equity Securities Risk. The Fund invests in equity securities. The value of the shares will fluctuate with changes in the value of these equity securities. Equity securities prices fluctuate for several reasons, including changes in investors' perceptions of the financial condition of an issuer or the general condition of the relevant stock market, such as any market volatility, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of the capital rises and borrowing costs increase.

ETF Risk. An ETF trades like common stock and represents a portfolio of securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities, although lack of liquidity in an ETF could result in it being more volatile. ETFs have management fees and other operating expenses that increase their costs.

Financial Companies Risk. The Fund invests in financial companies, including banks, thrifts and their holding companies. 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.

Income Risk. Income from the Fund's fixed-income investments could decline during periods of falling interest rates.

Interest Rate Risk. Interest rate risk is the risk that the value of the fixed-income securities in the Fund will decline because of rising market interest rates. Interest rate risk is generally lower for shorter-term investments and higher for longer-term investments.

Market Risk. Market risk is the risk that a particular security owned by the Fund or shares of the Fund 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.

Mortgage-Backed Securities Risk. The Fund may invest in mortgage-related securities, including mortgage-backed securities, which may make the Fund more susceptible to adverse economic, political or regulatory events that affect the value of real estate. 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 the 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 the 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.

Smaller Company Risk. The Fund invests in small- and/or 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.

The Dow Jones US Total Stock Market Index, Dow Jones Equal Weight US Issued Corporate Bond Index and Dow Jones Composite Average (the "Indexes") are products of S&P Dow Jones Indices LLC ("SPDJI"), and have been licensed for use by First Trust Advisors. Standard & Poor's® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by First Trust Advisors. First Trust Advisors' "First Trust/Dow Jones Dividend & Income Allocation Portfolio" 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 product(s) nor do they have any liability for any errors, omissions, or interruptions of the Indexes.

Not FDIC Insured • Not Bank Guaranteed • May Lose Value
 
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