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Diversified Equity Strategic Allocation Portfolio, 2nd Quarter 2024 Series

The Diversified Equity Strategic Allocation Portfolio is a unit investment trust which is designed to provide broad equity diversification by investing in common stocks across various market capitalizations, growth and value styles, sectors and countries. The trust 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 trust seeks above-average total return; however, there is no assurance the objective will be met.

A Tactical Approach To Security Selection

When selecting stocks for the portfolio we apply a proprietary rules-based selection process which analyzes stocks to assess valuations based on multiple factors. Our goal is to identify stocks which exhibit the fundamental characteristics that enable them to provide the greatest potential for capital appreciation.

1. Identify the Universe of Eligible Stocks

The first step in our selection process is to establish a universe of stocks from which the portfolio will be selected. The universe is divided into seven distinct styles consisting of six domestic equity asset classes and one international equity asset class.

The domestic universe is established by identifying the 3,000 largest U.S. stocks (excluding limited partnerships, royalty trusts, regulated investment companies and business development companies) and then separating them into large-cap (largest 10%), mid-cap (next 20%), and small-cap (remaining 70%). The stocks in each group are then divided evenly between growth and value by their price-to-book ratios to establish the universe of stocks eligible for selection from within each asset class. In the case of the small-cap universe, only the 250 largest stocks with a minimum average daily trading volume of $1,000,000 within each growth and value group are included to ensure sufficient liquidity. The international universe consists of the 100 largest companies from developed nations which are ADRs or directly listed in the United States.

Number Of Eligible Stocks In Each Universe Chart

2. Apply the rules-based stock selection models

We then rank the stocks within each of the seven universes based on two multi-factor models. Half of a stock’s ranking is based on a risk model and the remaining half is based on a model which is determined by their style designation. Value and international stocks are ranked on one model while growth stocks are ranked using a separate model.

Stock Selection Factors Chart

Stock Selection Process Chart

3. Select the Highest Scoring Stocks

The 30 stocks with the best overall ranking from each of the seven style classes are selected for the portfolio, subject to a maximum of six stocks from any one of the major market sectors. The financials and real estate sectors are combined for the sector limit purpose. The seven style classes are approximately weighted based on the allocation shown below. Stocks are approximately equally weighted within their style.

Portfolio Composition Chart

Mountain Chart

Standard Deviations* Average Annual Total Returns*
S&P 1500 Index Strategy S&P 1500 Index Strategy
Since 1996 15.64% 14.02% 9.71% 9.67%
25 years 15.49% 13.92% 7.79% 8.59%
20 years 15.10% 14.03% 9.73% 8.81%
15 years 15.57% 14.25% 13.90% 10.94%
10 years 15.34% 14.36% 11.74% 8.68%
5 years 18.74% 17.87% 15.36% 11.20%
3 years 17.58% 16.44% 9.80% 8.48%
*Through 12/29/23

Annual Total Returns
Year S&P 1500 Index Strategy
1996 22.30% 15.80%
1997 32.93% 27.85%
1998 26.32% 14.35%
1999 20.24% 21.77%
2000 -6.96% 4.50%
2001 -10.63% -0.68%
2002 -21.30% -11.23%
2003 29.55% 29.24%
2004 11.76% 18.52%
2005 5.65% 14.16%
2006 15.31% 11.79%
2007 5.53% 11.14%
2008 -36.72% -32.21%
2009 27.24% 24.02%
2010 16.39% 13.52%
2011 1.72% 2.54%
2012 16.13% 8.42%
2013 32.77% 31.88%
2014 13.05% 13.10%
2015 1.01% 1.70%
2016 12.99% 10.14%
2017 21.10% 17.70%
2018 -4.97% -9.32%
2019 30.87% 22.41%
2020 17.91% 8.80%
2021 28.41% 22.76%
2022 -17.79% -11.94%
2023 25.41% 18.09%
3/28/24 10.30% 7.85%

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 1500 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 1.85% and estimated annual operating expenses of 0.185%, plus organization costs, but not taxes or commissions paid by the portfolio to purchase securities. Strategy returns assume that dividends are reinvested semi-annually while index returns assume dividends 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 1500 Index in certain years and may produce negative results.

The S&P 1500 Index is an unmanaged index of 1500 stocks representing the large cap, mid cap and small cap segments of the U.S. equity market. 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 professional 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.

Certain of the securities in the portfolio are issued by Real Estate Investment Trusts (REITs). 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.

Securities of non-U.S. issuers are subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange control restrictions impacting non-U.S. 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.

Large capitalization companies may grow at a slower rate than the overall market.

As the use of Internet technology has become more prevalent in the course of business, the trust has become more susceptible to potential operational risks through breaches in cybersecurity.

Ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Hamas and other militant groups in the Middle East, have caused and could continue to cause significant market disruptions and volatility within the markets in Russia, Europe, the Middle East and the United States. The hostilities and sanctions resulting from those hostilities could have a significant impact on certain investments as well as performance.

The ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public health crisis, may cause significant volatility and uncertainty in global financial markets. While vaccines have been developed, there is no guarantee that vaccines will be effective against future variants of the disease.

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.

This UIT is a buy and hold strategy and investors should consider their ability to hold the trust until maturity. There may be tax consequences unless units are purchased in an IRA or other qualified plan.


CUSIP identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by FactSet Research Systems Inc. and are not for use or dissemination in a manner that would serve as a substitute for any CUSIP service. The CUSIP Database, ©2024 CUSIP Global Services. "CUSIP" is a registered trademark of the American Bankers Association.

Fund Cusip Information
30335B389 (Cash)
30335B397 (Reinvest)
30335B405 (Cash-Fee)
30335B413 (Reinvest-Fee)
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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