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Target Diversified Global Allocation, 3rd Quarter 2020 Series

The Target Diversified Global Allocation Portfolio is a unit investment trust which seeks 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. The portfolio is comprised of the two strategies described below.

Diversified Equity Strategic Allocation Strategy – 60%

  • Establish a universe of stocks from 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, registered 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 Selection Universe

Growth 150 300 250 100
Value 150 300 250
  • 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
Risk Model Value & International Model Growth Model
Debt to equity Price to book Price to sales
Beta Price to cash flow Price to cash flow
Earnings variability Return on assets Change in return on assets
  3-month Price appreciation 6-month Price appreciation


  • Select the 30 highest scoring stocks with the best overall ranking from each of the seven style classes, 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 as follows: large-cap growth 25%, large-cap value 25%, mid-cap growth 10%, mid-cap value 10%, small-cap growth 5%, small-cap value 5% and international 20%. Stocks are approximately equally weighted within their style.

Target Global Dividend Leaders Strategy – 40%

  • Establish three distinct universes which consist of the following: domestic equity, international equity, and U.S. REITs.
  • Registered investment companies and limited partnerships are excluded from all universes. REITs are also excluded from the domestic and international equity universes.
  • Select the stocks in each universe that meet the following criteria:
    • Market capitalization greater than $1 billion.
    • Three month average daily trading volume greater than $1 million.
    • Dividend yield greater than twice that of the S&P 500 Index at the time of selection.
  • Rank the selected stocks within each universe on the following factors:
    • Price to cash flow.
    • Return on assets.
    • 3, 6, and 12-month price appreciation.
  • Select the 20 stocks within each universe with the best overall rankings. The domestic and international equity universes are subject to a maximum of four stocks from any one of the major GICS® market sectors. The financials and real estate sectors are combined for the sector limit purpose. If a universe has less than 20 eligible securities, all eligible securities are selected.
  • The universes are approximately weighted as shown below. Stocks are approximately equally weighted within their universe.
    • 40% domestic equity.
    • 40% international equity.
    • 20% REITs.
    Not FDIC Insured • Not Bank Guaranteed • May Lose Value

    Mountain Chart

    Standard Deviations* Average Annual Total Returns*
    S&P 1500
    Strategy S&P 1500
    Since 1998 14.96% 13.67% 7.86% 9.15%
    20 years 14.62% 13.42% 6.43% 8.71%
    15 years 14.03% 13.63% 9.06% 8.41%
    10 years 12.64% 11.64% 13.50% 8.91%
    5 years 12.08% 10.78% 11.44% 5.26%
    3 years 12.28% 11.16% 14.63% 6.37%
    *Through 12/31/19

    Annual Total Returns
    Year S&P 1500

    1998 26.32% 9.60%
    1999 20.24% 17.81%
    2000 -6.96% 4.26%
    2001 -10.63% 2.20%
    2002 -21.30% -9.95%
    2003 29.55% 36.53%
    2004 11.76% 20.82%
    2005 5.65% 12.83%
    2006 15.31% 18.65%
    2007 5.53% 15.48%
    2008 -36.72% -31.70%
    2009 27.24% 35.46%
    2010 16.39% 15.98%
    2011 1.72% 1.50%
    2012 16.13% 9.75%
    2013 32.77% 29.04%
    2014 13.05% 9.02%
    2015 1.01% -4.06%
    2016 12.99% 11.88%
    2017 21.10% 13.70%
    2018 -4.97% -11.19%
    2019 30.87% 19.21%
    06/30/20 -4.07% -17.51%

    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. 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 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.

    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.

    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.

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

    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.

    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.

    The recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December 2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to disrupt manufacturing, supply chains and sales in affected areas and negatively impact global economic growth prospects. The COVID-19 outbreak has also caused significant volatility and declines in global financial markets, which have caused losses for investors. The impact of the COVID-19 outbreak may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession.

    Although this unit investment trust terminates in approximately 15 months, the strategy is long-term. Investors should consider their ability to pursue investing in successive portfolios, if available. There may be tax consequences unless units are purchased in an IRA or other qualified plan.

The information in the prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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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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