-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WjP3AVrsy2M63Ipg8VCmSSwhMoSQfWYBuJlGbenPgu8T8Zirj021qS3rw8RLJfVu 2RTAizyVFtS6vb0NfYnl/A== 0001445546-10-001419.txt : 20100310 0001445546-10-001419.hdr.sgml : 20100310 20100310151833 ACCESSION NUMBER: 0001445546-10-001419 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100310 DATE AS OF CHANGE: 20100310 EFFECTIVENESS DATE: 20100310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED FUND CENTRAL INDEX KEY: 0001329377 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21774 FILM NUMBER: 10670359 BUSINESS ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 BUSINESS PHONE: 630-765-8000 MAIL ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 0001329377 S000010772 First Trust Dow Select MicroCap Index Fund C000029773 First Trust Dow Select MicroCap Index Fund FDM 0001329377 S000010976 First Trust Morningstar Dividend Leaders Index Fund C000030350 First Trust Morningstar Dividend Leaders Index Fund FDL 0001329377 S000010977 First Trust US IPO Index Fund C000030351 First Trust US IPO Index Fund FPX 0001329377 S000011047 First Trust NASDAQ-100 Equal Weighted Index Fund C000030477 First Trust NASDAQ-100 Equal Weighted Index Fund QQEW 0001329377 S000011048 First Trust NASDAQ-100-Technology Sector Index Fund C000030478 First Trust NASDAQ-100-Technology Sector Index Fund QTEC 0001329377 S000012478 First Trust NYSE Arca Biotechnology Index Fund C000033929 First Trust NYSE Arca Biotechnology Index Fund FBT 0001329377 S000012479 First Trust Dow Jones Internet Index Fund C000033930 First Trust Dow Jones Internet Index Fund FDN 0001329377 S000012555 First Trust DB Strategic Value Index Fund C000034137 First Trust DB Strategic Value Index Fund FDV 0001329377 S000013259 First Trust Nasdaq-100 Ex-Technology Sector Index Fund C000035622 First Trust Nasdaq-100 Ex-Technology Sector Index Fund QQXT 0001329377 S000013797 First Trust Value Line Equity Allocation Index Fund C000037851 First Trust Value Line Equity Allocation Index Fund FVI 0001329377 S000013817 First Trust Value Line Dividend Index Fund C000037913 First Trust Value Line Dividend Index Fund FVD 0001329377 S000015169 First Trust Nasdaq Clean Edge Green Energy Index Fund C000041643 First Trust Nasdaq Clean Edge Green Energy Index Fund QCLN 0001329377 S000017115 First Trust Value Line 100 Exchange-Traded Fund C000047485 First Trust Value Line 100 Exchange-Traded Fund FVL 0001329377 S000017163 First Trust S&P REIT Index Fund C000047557 First Trust S&P REIT Index Fund FRI 0001329377 S000017177 First Trust ISE-Revere Natural Gas Index Fund C000047627 First Trust ISE-Revere Natural Gas Index Fund FCG 0001329377 S000017178 First Trust ISE Water Index Fund C000047628 First Trust ISE Water Index Fund FIW 0001329377 S000017179 First Trust ISE Chindia Index Fund C000047629 First Trust ISE Chindia Index Fund FNI 0001329377 S000026211 First Trust NASDAQ ABA Community Bank Index Fund C000078718 First Trust NASDAQ ABA Community Bank Index Fund QABA N-CSR 1 etf_ncsr.txt CERTIFIED ANNUAL SHAREHOLDER 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 811-21774 ----------- First Trust Exchange-Traded Fund ------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 120 East Liberty Drive, Suite 400 Wheaton, Illinois 60187 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) W. Scott Jardine, Esq. First Trust Portfolios L.P. 120 East Liberty Drive, Suite 400 Wheaton, Illinois 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, 2009 --------------------------- 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. Report to Stockholders. The registrant's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: [LOGO OMITTED] FIRST TRUST FIRST TRUST EXCHANGE-TRADED FUND - ----------------------------------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund First Trust Morningstar(R) Dividend Leaders(SM) Index Fund First Trust US IPO Index Fund First Trust NASDAQ-100 Equal Weighted Index(SM) Fund First Trust NASDAQ-100-Technology Sector Index(SM) Fund First Trust NYSE Arca Biotechnology Index Fund First Trust Dow Jones Internet Index(SM) Fund First Trust DB Strategic Value Index Fund First Trust Value Line(R) Equity Allocation Index Fund First Trust Value Line(R) Dividend Index Fund First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund First Trust S&P REIT Index Fund First Trust ISE Water Index Fund First Trust ISE-Revere Natural Gas Index Fund First Trust ISE Chindia Index Fund First Trust Value Line(R) 100 Exchange-Traded Fund First Trust NASDAQ(R) ABA Community Bank Index Fund - ------------------ Annual Report December 31, 2009 - ------------------ Front Cover - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2009 Shareholder Letter 2 Market Overview 3 Fund Performance Overview First Trust Dow Jones Select MicroCap Index(SM) Fund 4 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 6 First Trust US IPO Index Fund 8 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 10 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 12 First Trust NYSE Arca Biotechnology Index Fund 14 First Trust Dow Jones Internet Index(SM) Fund 16 First Trust DB Strategic Value Index Fund 18 First Trust Value Line(R) Equity Allocation Index Fund 20 First Trust Value Line(R) Dividend Index Fund 22 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 24 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 26 First Trust S&P REIT Index Fund 28 First Trust ISE Water Index Fund 30 First Trust ISE-Revere Natural Gas Index Fund 32 First Trust ISE Chindia Index Fund 34 First Trust Value Line(R) 100 Exchange-Traded Fund 36 First Trust NASDAQ(R) ABA Community Bank Index Fund 38 Notes to Fund Performance Overview 40 Understanding Your Fund Expenses 41 Portfolio of Investments First Trust Dow Jones Select MicroCap Index(SM) Fund 43 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 48 First Trust US IPO Index Fund 50 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 53 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 55 First Trust NYSE Arca Biotechnology Index Fund 56 First Trust Dow Jones Internet Index(SM) Fund 57 First Trust DB Strategic Value Index Fund 58 First Trust Value Line(R) Equity Allocation Index Fund 59 First Trust Value Line(R) Dividend Index Fund 62 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 65 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 67 First Trust S&P REIT Index Fund 68 First Trust ISE Water Index Fund 70 First Trust ISE-Revere Natural Gas Index Fund 71 First Trust ISE Chindia Index Fund 72 First Trust Value Line(R) 100 Exchange-Traded Fund 74 First Trust NASDAQ(R) ABA Community Bank Index Fund 77 Statements of Assets and Liabilities 80 Statements of Operations 84 Statements of Changes in Net Assets 88 Financial Highlights 94 Notes to Financial Statements 105 Report of Independent Registered Public Accounting Firm 116 Additional Information 117 Board of Trustees and Officers 119 Risk Considerations 121 Privacy Policy 124 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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") and its 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 First Trust Exchange-Traded Fund (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 its 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 of the Trust described in this report (each such series is referred to as a "Fund" and collectively, the "Funds") will achieve its investment objective. 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 investing in a Fund. See "Risk Considerations" at the end of this report for a discussion of 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 http://www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. How to Read This Report This report contains information that may help you evaluate your investment. It includes details about each Fund's portfolio and presents data and analysis that provide insight into each Fund's performance and investment approach. By reading the portfolio commentary by Robert F. Carey, Chief Investment Officer of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. 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 the Advisor 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 risks of investing in each Fund are spelled out in its prospectus, statement of additional information, this report and other Fund regulatory filings. Page 1 - -------------------------------------------------------------------------------- SHAREHOLDER LETTER - -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2009 Dear Shareholders: The year 2009 was more positive for the U.S. and global markets, which eased the minds of economists and investors alike. Many economists believe that the recession that began in December 2007 ended in March 2009. In fact, the Dow Jones Industrial Average's total return from March 9 (the statistical end of the bear market) to December 31, 2009, was 61.59%. Of course, no one can guarantee that this trend will continue, but the economy has continued to rise and most investors have found it easier to open their financial statements since March. First Trust Advisors L.P. ("First Trust") has always believed that in order to be successful in reaching your financial goals, you should be invested for the long term. A long-term investor understands that the market, from a historical perspective, has always experienced ups and downs. But history has shown that the patient investor is typically rewarded over the long term. We have always believed that staying invested in quality products and having a long-term perspective can help investors reach their financial goals. The report you hold will give you detailed information about the Funds that comprise the First Trust Exchange-Traded Fund for the period covered by the report. It contains each Fund's performance overview and financial statements for the period. I encourage you to read this document and discuss it with your financial advisor. Since its inception, First Trust has been through many types of markets. We remain committed to bringing you quality investment solutions regardless of the inevitable volatility the market experiences. We offer a variety of products that can fit many financial plans to help those investors seeking long-term investment success. As well, we are committed to making available up-to-date information about your investments so you and your financial advisor have current information on your portfolio. We continue to value our relationship with you, and we thank you for the opportunity to assist you in achieving your financial goals. Sincerely, /s/ James A. Bowen James A. Bowen President of First Trust Exchange-Traded Fund Page 2 - -------------------------------------------------------------------------------- MARKET OVERVIEW - -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2009 [PHOTO OMITTED] ROBERT F. CAREY, CFA SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER FIRST TRUST ADVISORS L.P. Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has 22 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst ("CFA") designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service, and Registered Rep. STATE OF THE U.S. ECONOMY Data indicates that the recession that commenced in December 2007 may have ended in March 2009, though no official word has come from the National Bureau of Economic Research - the organization responsible for defining expansions and contractions in the U.S. economy. The U.S. economy expanded by 2.2% the third quarter of 2009. A survey of economists by Bloomberg found a consensus GDP growth estimate of 4.5% for the fourth quarter of 2009. The ISM Manufacturing Index closed December 2009 at a reading of 55.9 - above 50 indicates expansion. That is a major advancement over its 32.9 index level in December 2008. With the aid of government stimulus, such as the first-time homebuyer tax credit, we saw the residential real estate market begin to stabilize. What we have not seen is a ramp-up in lending. While interest rates have remained extremely low, banks have yet to loosen lending standards in a meaningful way. Small businesses, in particular, have found it very difficult to secure capital. The overall tone of the U.S. economy has clearly been influenced by legislative initiatives. The Obama Administration has spent a lot of political capital in the areas of health care reform (coverage for the uninsured) and Cap and Trade (regulate carbon emissions). Neither has been enacted into law. Despite decent earnings, the performance of health care and utility stocks suffered the better part of 2009 from the uncertainty over how said legislation would impact their bottom line. Perhaps we can get some better guidance on these issues early on in 2010. As we begin 2010, we can safely say that the economy is in far better shape than a year ago, but some concerns linger. The Blue Chip Economic Indicators survey of 52 economists conducted at the start of January 2010 forecasted a GDP growth rate of 2.8%, compared to an estimated growth rate of -2.5% for 2009. High productivity remained a key driver of the U.S. economy during the recession. The Conference Board reported that U.S. productivity rose 2.5% in 2009 and is projected to gain another 3.0% in 2010. Moving forward, three topics to keep an eye on are the potential for rising interest rates, the direction of state budget deficits ($193 billion estimated for fiscal 2010) and the ability of companies involved in commercial real estate to rollover loans coming due ($300 billion targeted). U.S. STOCKS AND BONDS All of the major U.S. stock indices posted outsized returns in 2009. The S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were up 26.5%, 37.4%, and 25.6%, respectively, according to Bloomberg. All 10 major sectors in the S&P 500 posted gains. The top-performing sector was Technology, up 59.9%, while the poorest showing came from Telecommunications Services, up 2.6%. The year-over-year estimated earnings growth rate for the companies in the S&P 500 Index is expected be 36.3% in 2010, vs. 12.7% in 2009, according to Standard & Poor's. Bloomberg surveyed strategists from Wall Street's largest firms and found the average 2010 price target for the S&P 500 Index is 1225, or a gain of 9.82%, according to Bespoke Investment Group. According to Ibbotson Associates, from 1926 through 2009, the average annual total return for the S&P 500 Index was 9.81%. The bull market in stocks was accompanied by a sharp reduction in volatility. The VIXVolatility Index ("VIX"), an index that measures the implied volatility of S&P 500 Index options, plunged from a high of nearly 80 in October 2008, one month after the Lehman Brothers bankruptcy, to 21.68 on December 31, 2009. The VIX averaged 21.92 from 2000 through 2009. The higher the index value, the greater the implied risk in the market. The last time the VIX fell below 20 for an extended period of time was from May 2003 through July 2007. From 4/30/03-7/31/07, the S&P 500 Index posted a cumulative total return of 71.3%. In the U.S. bond market, the top-performing group was high-yield corporate bonds. The Barclays Capital U.S. Corporate High Yield Index posted a total return of 58.21%. The next closest domestic category was municipal bonds, up 23.43%, as measured by the Barclays Capital Municipal Bond: Long Bond (22+) Index. The Barclays Capital U.S. Treasury: Intermediate Index posted the worst return, down 1.4%. It was the only major category in the red. FOREIGN STOCKS AND BONDS Riskier asset classes dominated the overseas markets as well. The Barclays Capital Global Emerging Markets Index of debt securities rose 35.61% (USD) in 2009, while the MSCI Emerging Markets Index of stocks gained 78.51% (USD). The Barclays Capital Global Aggregate Index of higher quality debt returned 6.93% (USD), while the MSCI World Index (excluding the U.S.) of stocks from developed countries gained 34.29% (USD). The U.S. dollar boosted returns for U.S. investors by declining 5.9% against a basket of major currencies. Page 3 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW - -------------------------------------------------------------------------------- FDM - FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND The First Trust Dow Jones Select MicroCap Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Select MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index measures the performance of selected U.S. micro-capitalization companies chosen from all common stocks traded on the New York Stock Exchange, NYSE Amex and The NASDAQ Stock Market, Inc. that are comparatively liquid and have strong fundamentals relative to the micro-capitalization segment as a whole. The Fund's shares are listed for trading on the NYSE Arca, Inc. ("NYSE Arca"). The first day of secondary market trading in shares of the Fund was 09/30/05.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (09/27/05) Inception (09/27/05) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 20.85% -2.22% -9.13% Market Value 21.05% -2.26% -9.28% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) 21.89% -1.46% -6.07% Russell 2000(R) Index 27.17% 0.13% 0.58%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's net asset value ("NAV") return of 20.85% for the year ended December 31, 2009 underperformed the benchmark Russell 2000(R) Index return of 27.17% by - -6.32%. 2009 was a roller coaster year as markets fell to lows not seen in over a decade before starting a sharp rally that persisted through the last three quarters of 2009. The Financials sector was the worst-performing sector in the Fund, returning -12.7% and contributing -5.8% to the Fund's total return. The Consumer Discretionary sector led all sectors with a +12.1% contribution to the Fund's total return. Leading the sector was newspaper advertiser Valassis Communications, Inc. The company bounced off of all-time lows by returning to profit in the first quarter of 2009 and winning a lawsuit against News Corp. that awarded Valassis $300 million. Before Valassis was sold from the Fund in late August, its stock returned +1,033.7%. Relative performance was worst in the Information Technology sector, which caused -6.0% of Fund underperformance. Relative to the benchmark, the Fund had a smaller weight (12.7% versus 18.4%) and lower performance (+39.8% versus +59.7%) in the sector. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Valassis Communications, Inc. Harleysville National Corp. Group 1 Automotive, Inc. Jackson Hewitt Tax Service, Inc. Ruby Tuesday, Inc. First Merchants Corp. Jos. A. Bank Clothiers, Inc. TowneBank Central Garden & Pet Co., Class A Shenandoah Telecommunications Co. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Industrials 19.96% Financials 16.33 Consumer Discretionary 14.78 Information Technology 14.29 Health Care 10.48 Consumer Staples 7.50 Materials 7.44 Energy 6.90 Telecommunication Services 1.53 Utilities 0.79 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS ATP Oil & Gas Corp. 1.14% Albany International Corp., Class A 0.91 EV Energy Partner L.P. 0.88 Dollar Financial Corp. 0.83 Zoll Medical Corp. 0.82 Manhattan Associates, Inc. 0.79 World Acceptance Corp. 0.76 American Capital Agency Corp. 0.75 Heartland Payment Systems, Inc. 0.72 Belo Corp., Class A 0.72 ------- Total 8.32% ======= Page 4 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FDM - FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (Continued) Growth of a $10,000 Initial Investment September 27, 2005 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust The Dow Jones Dow Jones Select Select MicroCap MicroCap Index(SM) Fund Index(SM) Russell 2000(R) Index ----------------------- --------------- --------------------- 09/27/2005 $10,000 $10,000 $10,000 12/31/2005 10,374 10,397 10,252 06/30/2006 10,968 11,033 11,094 12/31/2006 12,001 12,115 12,134 06/30/2007 12,746 12,910 12,917 12/31/2007 11,278 11,474 11,944 06/30/2008 9,896 10,100 10,825 12/31/2008 7,520 7,707 7,909 06/30/2009 7,362 7,568 8,118 12/31/2009 9,087 9,393 10,058 Performance figures assume reinvest ment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period September 30, 2005 (commencement of trading) through December 31, 2009. Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points > 200 Basis Points 09/30/05 - 12/31/05 31 1 3 0 01/01/06 - 12/31/06 125 8 2 0 01/01/07 - 12/31/07 125 12 5 0 01/01/08 - 12/31/08 139 9 1 0 01/01/09 - 12/31/09 121 6 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points > 200 Basis Points 09/30/05 - 12/31/05 29 0 0 0 01/01/06 - 12/31/06 116 0 0 0 01/01/07 - 12/31/07 100 4 5 0 01/01/08 - 12/31/08 99 5 0 0 01/01/09 - 12/31/09 120 5 0 0
__________________________ Dow Jones and Dow Jones Select MicroCap Index(SM) are trademarks of Dow Jones & Company, Inc. and have been licensed for use. The Fund, based on the Dow Jones Select MicroCap Index(SM), is not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in the Fund. Page 5 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FDL - FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Morningstar(R) Dividend Leaders(SM) Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index offers investors a benchmark for dividend portfolios as well as a means to invest in a portfolio of stocks that have a consistent record of growing dividends as well as the ability to sustain them. The Index consists of the top 100 stocks, based on dividend yield, of the securities listed on one of the three major exchanges (the New York Stock Exchange, NYSE Amex or The NASDAQ Stock Market, Inc.) that have been selected through the application of Morningstar, Inc.'s proprietary multi-step screening process. The Index is rebalanced four times annually in March, June, September and December. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 03/15/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (03/09/06) Inception (03/09/06) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 14.24% -4.41% -15.80% Market Value 13.90% -4.41% -15.82% INDEX PERFORMANCE Morningstar(R) Dividend Leaders(SM) Index 14.81% -3.97% -14.33% S&P 500(R) Index 26.46% -1.30% -4.88%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 14.24% for the year ended December 31, 2009 underperformed the benchmark S&P 500(R) Index return of 26.46% by -12.22%. After falling to decade lows, markets experienced a sharp rally the last three quarters of 2009 as confidence in the financial system rebounded and the economy officially grew in the third quarter. The rebound in economic activity helped the Materials sector be the best-performing sector in the Fund, returning +54.4%. The Telecommunications sector was the worst performer, returning +4.5%, and was the Fund's second heaviest-weighted sector. Bank of America Corp.'s stock returned -5.9% during the time it was held in the Fund. However, a large portion of the Fund's shares in this bank stock were purchased during the market lows of March. This allowed Bank of America to lead all Fund holdings with a contribution to total return of +4.7%. The Fund's relative performance was hurt by not having much exposure to the Information Technology sector. It was the benchmark's heaviest-weighted (18.1%) and best-performing (+62.1%) sector. Information Technology alone caused -10.6% of Fund underperformance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Bank of America Corp. Pfizer, Inc. Dow Chemical Co. SunTrust Banks, Inc. Merck & Co., Inc. U.S. Bancorp E.I. DuPont de Nemours & Co. Ameren Corp. Wells Fargo & Co. Fifth Third Bancorp PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Utilities 31.66% Telecommunication Services 20.11 Health Care 18.10 Consumer Staples 9.83 Industrials 5.70 Materials 5.70 Financials 4.33 Consumer Discretionary 3.40 Information Technology 1.17 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS AT&T, Inc. 10.17% Verizon Communications, Inc. 7.81 Merck & Co., Inc. 7.08 Bristol-Myers Squibb Co. 6.11 Eli Lilly & Co. 4.91 Kraft Foods, Inc., Class A 4.03 E.I. DuPont de Nemours & Co. 3.71 Southern Co. 3.47 Exelon Corp. 3.39 Dominion Resources, Inc. 2.64 ------- Total 53.32% ======= Page 6 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FDL - FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND (Continued) Growth of a $10,000 Initial Investment March 9, 2006 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Morningstar(R) Morningstar(R) Dividend Leaders(SM) Dividend Leaders Index Fund Index(SM) S&P 500(R) Index -------------------------- ---------------- ---------------- 03/09/2006 $10,000 $10,000 $10,000 12/31/2006 12,077 12,110 11,317 06/30/2007 12,392 12,462 12,104 12/31/2007 10,793 10,870 11,939 06/30/2008 7,955 8,069 10,516 12/31/2008 7,371 7,462 7,522 06/30/2009 6,961 7,067 7,760 12/31/2009 8,420 8,567 9,512 Performance figures assume reinvest ment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period March 15, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points > 200 Basis Points 03/15/06 - 12/31/06 116 8 3 0 01/01/07 - 12/31/07 122 6 5 0 01/01/08 - 12/31/08 148 8 4 2 01/01/09 - 12/31/09 135 4 3 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points > 200 Basis Points 03/15/06 - 12/31/06 75 0 0 0 01/01/07 - 12/31/07 107 10 1 0 01/01/08 - 12/31/08 84 4 2 1 01/01/09 - 12/31/09 106 3 1 0
__________________________ Morningstar is a service mark of Morningstar, Inc. and has been licensed for use. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund is not sponsored, endorsed, issued, sold or promoted by Morningstar, Inc., nor does this company make any representation regarding the advisability of investing in the Fund. Page 7 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FPX - FIRST TRUST US IPO INDEX FUND First Trust US IPO Index Fund The First Trust US IPO Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the IPOX-100 U.S. Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a modified value-weighted price index measuring the performance of the top 100 U.S. companies ranked quarterly by market capitalization in the IPOX Global Composite Index. The Index utilizes a 10% capping on all constituents and includes the 100 largest, typically best-performing and most liquid initial public offerings ("IPOs") of the U.S. companies in the IPOX Global Composite Index. The IPOX Global Composite Index is reconstituted regularly with IPOs being added to the IPOX Global Composite Index at their seventh trading day upon "going public" and automatically exiting after 1,000 trading days or approximately four years thereafter. The Index is reconstituted quarterly to reflect changes in the stock market values of the IPOX Global Composite Index constituents and IPO activity during the past quarter, with potential new companies entering the Index while other companies reach 1,000 days in the Index and automatically drop out. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 04/13/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (04/12/06) Inception (04/12/06) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 44.93% 0.90% 3.39% Market Value 44.96% 0.89% 3.35% INDEX PERFORMANCE IPOX-100 U.S. Index 45.97% 1.51% 5.75% Russell 3000(R) Index 28.34% -1.76% -6.40%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 44.93% for the year ended December 31, 2009 outperformed the benchmark Russell 3000(R) Index return of 28.34% by 16.59%. The market rally that started in March 2009 and lasted through the end of the year enabled every sector in the Fund to make a positive contribution to total return. The Information Technology sector companies in the Fund returned +68.4%, which combined with the sector's heavy weight to contribute +19.7% to the Fund's total return. The sector included two of the Fund's three largest holdings, Visa, Inc. and MasterCard, Inc., which returned +67.8% and +79.7%, respectively, due to a sharp rebound in consumer spending. The companies were also the best contributors to total return, with Visa contributing +6.2% and MasterCard contributing +4.6%. The Fund had superior performance and a larger weight in this sector which caused +8.8% of Fund outperformance. The Consumer Staples sector was responsible for an additional +4.2% of Fund outperformance. This was largely attributable to the sector's large positions in tobacco companies Lorillard, Inc. and Philip Morris International, Inc. The two companies made up more than 12% of the Fund, contributed +3.2% to total return, and caused +2.8% of Fund outperformance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Visa, Inc., Class A SunPower Corp., Class A MasterCard, Inc., Class A MetroPCS Communications, Inc. Viacom, Inc., Class B W&T Offshore, Inc. Lorillard, Inc. HealthSpring, Inc. Philip Morris International, Inc. Mueller Water Products, Inc. __________________________ IPOX is a trademark of IPOX Schuster LLC, IPOX IPO Indexes and Derivatives (patent pending). Page 8 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FPX - FIRST TRUST US IPO INDEX FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 30.25% Consumer Discretionary 16.59 Consumer Staples 16.37 Health Care 9.23 Industrials 9.22 Energy 7.53 Financials 6.15 Materials 1.79 Telecommunication Services 1.54 Utilities 1.33 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Visa, Inc., Class A 10.07% Philip Morris International, Inc. 9.55 MasterCard, Inc., Class A 6.73 Covidien PLC 4.84 Viacom Inc., Class B 3.65 Time Warner Cable, Inc. 2.95 Spectra Energy Corp. 2.69 Western Union Co. 2.64 Lorillard, Inc. 2.61 First Solar, Inc. 2.33 ------- Total 48.06% ======= Performance figures assume reinvest ment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Growth of a $10,000 Initial Investment April 12, 2006 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust US IPO Index Fund IPOX-100 U.S. Index Russell 3000(R) Index ----------------- ------------------- --------------------- 04/12/2006 $10,000 $10,000 $10,000 12/31/2006 11,100 11,154 11,064 06/30/2007 12,385 12,481 11,851 12/31/2007 12,712 12,844 11,633 06/30/2008 11,784 11,941 10,348 12/31/2008 7,134 7,245 7,293 06/30/2009 8,087 8,248 7,599 12/31/2009 10,339 10,575 9,360 FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period April 13, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points > 200 Basis Points 04/13/06 - 12/31/06 37 0 0 0 01/01/07 - 12/31/07 96 9 4 1 01/01/08 - 12/31/08 133 3 6 0 01/01/09 - 12/31/09 109 3 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points > 200 Basis Points 04/13/06 - 12/31/06 144 0 0 0 01/01/07 - 12/31/07 135 5 1 0 01/01/08 - 12/31/08 108 2 1 0 01/01/09 - 12/31/09 135 5 0 0
Page 9 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is the equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the largest non-financial securities listed on The NASDAQ Stock Market, Inc. ("NASDAQ(R)") based on market capitalization. The Index contains the same securities as the NASDAQ-100 Index(R) but each of the securities is initially set at a weight of 1.00% of the Index and is rebalanced quarterly. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 04/25/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (04/19/06) Inception (04/19/06) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 59.54% -0.35% -1.29% Market Value 59.83% -0.32% -1.19% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) 60.51% 0.27% 1.00% NASDAQ-100 Index(R) 54.63% 2.49% 9.54%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 59.54% for the year ended December 31, 2009 outperformed the benchmark NASDAQ-100 Index(R) return of 54.63% by 4.91%. As the worst of the financial crisis passed and confidence returned to markets with a sharp rally in the last three quarters of 2009, a resilient but prudent consumer boosted the Consumer Discretionary sector. Within the Fund, Consumer Discretionary stocks returned +86.9%, largely due to the performance of the Internet & Catalog Retail sub-sector. Strong performers included Liberty Media Holding Corp. - Interactive (+247.4%), Expedia, Inc. (+212.3%), and Amazon.com, Inc. (+162.3%). However, the best performer in the Fund was computer drive designer and manufacturer Seagate Technology, Inc. The company had a tough start to 2009 and had to scrap its dividend, cut jobs, and lower prices on its products. However, once inventories thinned out, demand for computer drives increased and the company's stock price climbed back to pre-financial crisis levels. For the year, Seagate's stock returned +313.5%. Fund outperformance was largest in the Consumer Discretionary sector. The Fundheavier weight in the sector caused +6.7% of outperformance. The Fund's equal-weighting methodology worked in the Fund's favor in the Health Care sector, giving the Fund an additional +3.2% of outperformance. The Fund lost relative performance in the Information Technology sector, mostly because of the benchmark's largest holding, Apple, Inc. Apple had an average benchmark weight of 13.2% versus the Fund's 1.1%. The company's return of +146.9% detracted -13.8% from the Fund's outperformance. However, companies like Seagate were able to limit the sector's detraction from outperformance to -8.9%.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Seagate Technology, Inc. Pharmaceutical Product Development, Inc. Liberty Media Holding Corp. - Interactive, Class A Genzyme Corp. Baidu, Inc., ADR Apollo Group, Inc., Class A Sun Microsystems, Inc. Cephalon, Inc. Expedia, Inc. Gilead Sciences, Inc.
__________________________ NASDAQ(R), NASDAQ-100, NASDAQ-100 INDEX(R), AND NASDAQ-100 Equal Weighted Index(SM) are trademarks of The NASDAQ Stock Market, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 10 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 45.30% Health Care 20.22 Consumer Discretionary 19.86 Industrials 9.70 Telecommunication Services 2.97 Consumer Staples 0.99 Materials 0.96 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS SanDisk Corp. 1.12% NVIDIA Corp. 1.09 Illumina, Inc. 1.08 Sears Holdings Corp. 1.07 Apple, Inc. 1.05 Flir Systems, Inc. 1.05 Biogen Idec, Inc. 1.05 BMC Software, Inc. 1.04 Teva Pharmaceutical Industries Ltd., ADR 1.04 Electronic Arts, Inc. 1.04 ------- Total 10.63% ======= Growth of a $10,000 Initial Investment April 19, 2006 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust NASDAQ-100 Equal Weighted NASDAQ-100 Equal Index(SM) Fund Weighted Index(SM) NASDAQ-100 Index(R) ---------------------- -------------------- ------------------- 04/19/2006 $10,000 $10,000 $10,000 12/31/2006 10,060 10,097 10,168 06/30/2007 11,050 11,117 11,217 12/31/2007 11,040 11,142 12,124 06/30/2008 9,673 9,785 10,708 12/31/2008 6,187 6,292 7,084 06/30/2009 7,653 7,803 8,671 12/31/2009 9,871 10,100 10,954 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period April 25, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 04/25/06 - 12/31/06 105 0 1 0 01/01/07 - 12/31/07 151 0 3 0 01/01/08 - 12/31/08 152 4 1 1 01/01/09 - 12/31/09 144 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 04/25/06 - 12/31/06 68 0 0 0 01/01/07 - 12/31/07 97 0 0 0 01/01/08 - 12/31/08 94 1 0 0 01/01/09 - 12/31/09 104 3 1 0
Page 11 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND The First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-weighted index based on the securities of the NASDAQ-100 Index(R) that are classified as "technology" according to the Industry Classification Benchmark classification system. The NASDAQ-100 Index(R) includes 100 of the largest domestic and international non-financial companies listed on The NASDAQ Stock Market, Inc. ("NASDAQ(R)") based on market capitalization. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 04/25/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (04/19/06) Inception (04/19/06) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 79.89% 1.55% 5.87% Market Value 82.25% 1.60% 6.07% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) 81.15% 2.20% 8.38% S&P 500 Information Technology Index 61.72% 2.63% 10.11% S&P 500(R) Index 26.45% -2.16% -7.76%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 79.89% for the year ended December 31, 2009 outperformed the benchmark S&P 500 Information Technology Index return of 61.72% by 18.17%. The Computers & Peripherals industry was the best-performing industry in the Fund. The Fund's holdings in the industry returned +149.2%, led by Seagate Technology, Inc.'s return of +313.5%. The company cut jobs, prices, and its dividend early in 2009, but bounced back strongly as improving economic conditions and thin inventories boosted demand for its computer drives. Due to its heavy weight in the Fund, the Semiconductor industry was the best contributor to total return, with a contribution of +24.4%. It was led by Marvell Technology Group Ltd.'s +211.0% return and +4.5% contribution to total return. The company, which supplies processors to tech giants like Apple, Research In Motion, and Samsung Electronics, benefitted from an increase in demand for consumer electronics. The Semiconductor industry also led the Fund in terms of relative performance. The Fund had a heavier weight and better performance in the industry relative to the benchmark, resulting in +15.6% of Fund outperformance. Much of this is explained by the benchmark not holding Marvell Technology (+211.0%), NVIDIA Corp. (+131.4%), Maxim Integrated Products, Inc. (+87.2%), and Lam Research Group (+84.2%). These names alone caused +11.7% of Fund outperformance relative to the benchmark. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Seagate Technology, Inc. BMC Software, Inc. Baidu, Inc., ADR Logitech International S.A. Sun Microsystems, Inc. SanDisk Corp. Marvell Technology Group Ltd. CA, Inc. Cognizant Technology Solutions Corp. IAC/InterActiveCorp __________________________ NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), and NASDAQ-100 Technology Sector Index(SM) are trademarks of The NASDAQ Stock Market, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 12 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND (Continued) PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM INDUSTRY INVESTMENTS Semiconductors & Semiconductor Equipment 31.55% Software 26.08 Computers & Peripherals 16.27 Internet Software & Services 10.45 Communications Equipment 7.75 IT Services 5.19 Health Care Technology 2.71 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS SanDisk Corp. 2.94% NVIDIA Corp. 2.84 Apple, Inc. 2.76 BMC Software, Inc. 2.73 Cerner Corp. 2.71 Citrix Systems, Inc. 2.70 Dell, Inc. 2.67 Linear Technology Corp. 2.67 Seagate Technology, Inc. 2.66 Intel Corp. 2.66 ------- Total 27.34% ======= Growth of a $10,000 Initial Investment April 19, 2006 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust NASDAQ-100 S&P 500 NASDAQ-100-Technology Technology Information Sector Index(SM) Fund Sector Index(SM) Technology Index S&P 500(R) Index --------------------- ---------------- ---------------- ---------------- 04/19/2006 $10,000 $10,000 $10,000 $10,000 12/31/2006 9,985 10,020 10,296 10,975 06/30/2007 10,925 10,989 11,256 11,739 12/31/2007 10,750 10,847 11,975 11,579 06/30/2008 9,755 9,872 10,409 10,199 12/31/2008 5,885 5,983 6,809 7,295 06/30/2009 7,890 8,048 8,502 7,526 12/31/2009 10,587 10,838 11,011 9,224
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period April 25, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 04/25/06 - 12/31/06 103 1 1 1 01/01/07 - 12/31/07 153 0 0 0 01/01/08 - 12/31/08 138 6 1 1 01/01/09 - 12/31/09 151 4 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 04/25/06 - 12/31/06 68 0 0 0 01/01/07 - 12/31/07 98 0 0 0 01/01/08 - 12/31/08 104 2 1 0 01/01/09 - 12/31/09 94 3 0 0
Page 13 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FBT - FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND The First Trust NYSE Arca Biotechnology Index Fund (formerly known as First Trust Amex(R) Biotechnology Index Fund) (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NYSE Arca Biotechnology Index(SM) (formerly known as the Amex(R) Biotechnology Index(SM)) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal dollar-weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. Such processes include, but are not limited to, recombinant DNA technology, molecular biology, genetic engineering, monoclonal antibody-based technology, lipid/liposome technology, and genomics. This Index is rebalanced quarterly based on closing prices on the third Friday in January, April, July and October to ensure that each component stock continues to represent approximately equal weight in the Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 06/23/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (06/19/06) Inception (06/19/06) 12/31/09 to 12/31/09 to 12/31/09 NAV 44.87% 10.96% 44.41% Market Value 45.51% 10.97% 44.46% INDEX PERFORMANCE NYSE Arca Biotechnology Index(SM) 45.58% 11.63% 47.58% NASDAQ(R) Biotechnology Index 15.96% 4.86% 18.28% S&P 500(R) Index 26.46% -0.82% -2.89% S&P Composite 1500 Health Care Index 20.76% 3.08% 11.32%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 44.87% for the year ended December 31, 2009 outperformed the benchmark S&P Composite 1500 Health Care Index return of 20.76% by 24.11%. Biotechnology company Human Genome Sciences, Inc. was the main driver of the Fund's performance during 2009. In July the company released results of a study that showed a drug it developed with GlaxoSmithKline, Benlysta, was able to reduce lupus symptoms in patients. Human Genome Sciences' stock price multiplied on the news. At the end of October the results of a 52-week test were released which confirmed that the drug met its primary objective of reducing lupus symptoms and Human Genome Sciences' stock increased further. For the period covered by this report, the company's stock returned +1,342.4% and contributed +34.3% to the Fund's total return. Sequenom, Inc. was the worst performer in the Fund, returning -79.1% and contributing -5.4% to total return. The company's stock plunged more than -60% on one day in April when the company reported a delay in its Down's syndrome test due to employee mishandling of data. The Fund received +35.5% of outperformance from the Biotechnology industry mostly due to Human Genome Sciences, and received another +8.1% of outperformance from the Life Sciences Tools & Services industry because of the Fund's heavy weight in the strong-performing industry. However, -17.0% of the outperformance was reversed by the positive performance the benchmark received from the Health Care Equipment & Supplies, Health Care Providers & Services, and Pharmaceutical industries, to which the Fund had little exposure. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Human Genome Sciences, Inc. Sequenom, Inc. Affymetrix, Inc. Celera Corp. Life Technologies Corp. Myriad Genetics, Inc. Nektar Therapeutics Genzyme Corp. Millipore Corp. Cephalon, Inc. __________________________ The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Euronext or its affiliates ("NYSE Euronext") and is licensed for use by First Trust Advisors L.P. The Fund is not sponsored or endorsed by NYSE Euronext. NYSE Euronext makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in the Fund or the ability of the Fund to track the performance of the various sectors represented in the stock market. NYSE Euronext has no obligation to take the needs of the owners of the Fund into consideration in determining, composing or calculating the Index. NYSE Euronext is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Fund. Page 14 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FBT - FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (Continued) PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM INDUSTRY INVESTMENTS Biotechnology 72.60% Life Sciences Tools & Services 22.59 Pharmaceuticals 4.81 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Human Genome Sciences, Inc. 7.60% Vertex Pharmaceuticals, Inc. 6.10 Cephalon, Inc. 5.69 Sequenom, Inc. 5.67 Biogen Idec, Inc. 5.39 Life Technologies Corp. 5.32 Alexion Pharmaceuticals, Inc. 5.26 Celera Corp. 5.14 Celgene Corp. 4.89 Amylin Pharmaceuticals, Inc. 4.87 ------- Total 55.93% ======= Growth of a $10,000 Initial Investment June 19, 2006 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust NYSE Arca NYSE Arca S&P Biotechnology Biotechnology NASDAQ(R) Composite 1500 Index Fund Index(SM) Biotechnology Index S&P 500(R) Index Health Care Index --------------------- ------------- ------------------- ---------------- ----------------- 06/19/2006 $10,000 $10,000 $10,000 $10,000 $10,000 12/31/2006 11,775 11,815 11,114 11,554 11,194 06/30/2007 12,105 12,179 11,177 12,358 11,919 12/31/2007 12,205 12,320 11,630 12,189 12,092 06/30/2008 11,410 11,557 11,086 10,736 10,593 12/31/2008 9,968 10,138 10,200 7,679 9,218 06/30/2009 10,722 10,921 10,491 7,922 9,305 12/31/2009 14,441 14,758 11,828 9,711 11,132
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period June 23, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 06/23/06 - 12/31/06 64 0 0 0 01/01/07 - 12/31/07 162 8 1 0 01/01/08 - 12/31/08 170 9 0 0 01/01/09 - 12/31/09 93 3 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 06/23/06 - 12/31/06 68 0 0 0 01/01/07 - 12/31/07 76 3 1 0 01/01/08 - 12/31/08 72 1 1 0 01/01/09 - 12/31/09 152 4 0 0
Page 15 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND The First Trust Dow Jones Internet Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Internet Composite Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index represents companies that generate the majority of their revenues via the Internet. The Index was designed and is maintained according to a set of rules that were devised with the goal of providing clear and accurate views of the growing Internet market segment. The Index aims to consistently represent 80% of the float-adjusted Internet equity universe. The Index contains two sub-indexes, the Dow Jones Internet Commerce Index and the Dow Jones Internet Services Index. For its stock to be eligible for the "universe," a company must generate at least 50% of annual sales/revenues from the Internet, and be currently included in the Dow Jones U.S. Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 06/23/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (06/19/06) Inception (06/19/06) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 79.23% 6.73% 25.87% Market Value 79.30% 6.74% 25.92% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) 80.28% 7.29% 28.25% S&P 500(R) Index 26.46% -0.82% -2.89% S&P Composite 1500 Information Technology Index 61.04% 5.99% 22.86%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 79.23% for the year ended December 31, 2009 outperformed the benchmark S&P Composite 1500 Information Technology Index return of 61.04% by 18.19%. After falling to decade lows, markets experienced a sharp rally the last three quarters of 2009 as confidence in the financial system rebounded and the economy officially grew in the third quarter. A resilient consumer helped the Fund's Consumer Discretionary companies lead the Fund with a +180.1% return. The best three performers in the sector, which also were the best in the Fund, were Expedia, Inc. (+212.2%), priceline.com, Inc. (+196.5%), and Amazon.com, Inc. (+162.3). Along with great performance, Amazon.com was also the Fund's second largest holding, which helped it beat all other holdings with a contribution to the Fund's total return of +12.1%. In total, the Consumer Discretionary sector contributed +26.9% to the Fund's total return. The Information Technology sector was by far the heaviest-weighted sector in the Fund, and positive performance helped it beat all other sectors in contribution to the Fund's total return, with a contribution of +47.6%. The sector included the Fund's largest holding and second best contributor, Google, Inc. Google more than doubled on the year, returning +101.5%, and contributed +9.2% to the Fund's total return. The Consumer Discretionary sector was the main cause of Fund outperformance as the benchmark did not hold any companies in the sector. This resulted in +26.9% of Fund outperformance. Some of the outperformance was reversed by the Information Technology sector. The Fund and benchmark had very similar performance from their holdings in this sector, but the Fund was underweight in the sector relative to the benchmark, causing it to give up -13.7% of outperformance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Amazon.com, Inc. Constant Contact, Inc. Google, Inc., Class A ModusLink Global Solutions, Inc. priceline.com, Inc. Overstock.com, Inc. Expedia, Inc. RealNetworks, Inc. Salesforce.com, Inc. Sonus Networks, Inc. __________________________ Dow Jones and Dow Jones Internet Composite Index(SM) are trademarks of Dow Jones & Company, Inc. and have been licensed for use. The Fund, based on the Dow Jones Internet Composite Index(SM), is not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in the Fund. Page 16 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 71.60% Consumer Discretionary 18.73 Financials 5.65 Industrials 2.25 Health Care 1.77 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Google, Inc., Class A 9.95% Amazon.com, Inc. 6.63 eBay, Inc. 5.78 Yahoo!, Inc. 5.53 Juniper Networks, Inc. 4.42 Salesforce.com, Inc. 3.84 priceline.com, Inc. 3.82 Check Point Software Technologies Ltd. 3.20 Expedia, Inc. 3.10 VeriSign, Inc. 3.10 ------- Total 49.37% ======= Growth of a $10,000 Initial Investment June 19, 2006 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust Dow Jones Internet Dow Jones Internet S&P Composite 1500 Index(SM) Fund Composite Index(SM) S&P 500(R) Index Information Technology Index ------------------ ------------------- --------------- ----------------------------- 06/19/2006 $10,000 $10,000 $10,000 $10,000 12/31/2006 11,285 11,315 11,554 11,574 06/30/2007 12,975 13,044 12,358 12,716 12/31/2007 12,545 12,651 12,189 13,360 06/30/2008 11,203 11,327 10,736 11,638 12/31/2008 7,023 7,114 7,679 7,629 06/30/2009 9,374 9,524 7,922 9,506 12/31/2009 12,587 12,825 9,711 12,286
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period June 23, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 06/23/06 - 12/31/06 71 0 0 0 01/01/07 - 12/31/07 130 7 6 0 01/01/08 - 12/31/08 140 4 1 0 01/01/09 - 12/31/09 134 2 1 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 06/23/06 - 12/31/06 61 0 0 0 01/01/07 - 12/31/07 101 5 2 0 01/01/08 - 12/31/08 105 2 1 0 01/01/09 - 12/31/09 112 3 0 0
Page 17 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FDV - FIRST TRUST DB STRATEGIC VALUE INDEX FUND* The First Trust DB Strategic Value Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Deutsche Bank CROCI(R) US+ Index(TM) (the "Index"). The objective of the Index is to identify companies that may be undervalued based upon their "economic" price/earnings ratios. The Index is an equal dollar-weighted index which is intended to reflect the total return performance of 40 stocks with the lowest CROCI(R) Economic Price Earnings Ratios, determined by taking the 251 stocks with the highest market capitalization in the S&P 500(R) Index and then excluding any stocks issued by financial companies. The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 07/11/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (07/06/06) Inception (07/06/06) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 39.43% 1.92% 6.86% Market Value 40.27% 1.92% 6.87% INDEX PERFORMANCE Deutsche Bank CROCI(R) US+ Index(TM) 40.21% 2.46% 8.84% S&P 500 Value Index 21.18% -4.60% -15.16% S&P 500(R) Index 26.46% -1.63% -5.57%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 39.43% for the year ended December 31, 2009 outperformed the benchmark S&P 500 Value Index return of 21.18% by 18.25%. After the worst of the financial crisis passed in March 2009, confidence returned to the banking system and the economy stabilized and eventually grew in the third quarter. A stock market rally that started in March 2009 continued to the end of the year. The best-performing sector in the Fund was Information Technology, as the Fund's holdings in the sector returned +71.8%. Within the sector, Juniper Networks, Inc. was held for only two months in the Fund, but that is all the time it needed to return +70.8% and contribute +2.1% to the Fund's total return. The Health Care sector was also a strong performer in contribution to the Fund's total return, with a contribution of +11.7%. The sector included McKesson Corp., the Fund's second largest individual contributor. The company, the largest drug distributor in the U.S., controlled costs to increase margins and beat analysts' earnings expectations ($1.06/share vs. $0.86/share) for the second quarter of 2009. After being added to the Fund in March, McKesson returned +115.0% and contributed +2.5% to the Fund's total return. The Health Care sector was responsible for the +9.3% of Fund outperformance, since the Fund had better performance and a heavier weight in the sector relative to the benchmark. The Fund received an additional +6.3% of outperformance from the Energy sector. The Fund and benchmark received similar performance from this sector but the Fund's weight in the sector was significantly higher. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Gap, Inc. Agilent Technologies, Inc. McKesson Corp. Coach, Inc. Juniper Networks, Inc. Devon Energy Corp. eBay, Inc. Intel Corp. Noble Energy, Inc. Rockwell Collins, Inc. * See Note 9 to Financial Statements for information regarding notice of termination of the Index license from Deutsche Bank AG effective June 21, 2010. __________________________ "Deutsche Bank" and "Deutsche Bank CROCI(R) US+ Index(TM)" are service marks of Deutsche Bank AG ("Deutsche Bank"). Deutsche Bank has no relationship to First Trust or the Fund, other than the licensing of the Index and its service marks for use in connection with the Fund. Page 18 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FDV - FIRST TRUST DB STRATEGIC VALUE INDEX FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Health Care 47.60% Industrials 14.44 Information Technology 10.56 Consumer Discretionary 10.08 Consumer Staples 9.88 Energy 4.96 Utilities 2.48 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS News Corp., Class A 2.83% Biogen Idec, Inc. 2.76 Yahoo!, Inc. 2.75 Dell, Inc. 2.65 Boston Scientific Corp. 2.62 Baxter International, Inc. 2.58 Forest Laboratories, Inc. 2.56 Nike, Inc., Class B 2.55 McKesson Corp. 2.55 Medtronic, Inc. 2.54 ------- Total 26.39% ======= Growth of a $10,000 Initial Investment July 6, 2006 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust The Deutsche DB Strategic Bank CROCI(R) S&P 500 Value Index Fund US+ Index(TM) S&P 500(R) Index Value Index ---------------- ------------- ---------------- ----------------- 07/06/2006 $10,000 $10,000 $10,000 $10,000 12/31/2006 11,074 11,072 11,235 11,294 06/30/2007 12,444 12,472 12,016 12,126 12/31/2007 12,210 12,273 11,852 11,519 06/30/2008 11,253 11,332 10,440 9,671 12/31/2008 7,665 7,762 7,467 7,002 06/30/2009 8,640 8,775 7,703 6,903 12/31/2009 10,686 10,884 9,443 8,484
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period July 11, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 07/11/06 - 12/31/06 63 1 0 0 01/01/07 - 12/31/07 121 15 4 0 01/01/08 - 12/31/08 115 3 2 0 01/01/09 - 12/31/09 139 3 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 07/11/06 - 12/31/06 57 0 0 0 01/01/07 - 12/31/07 100 8 2 1 01/01/08 - 12/31/08 126 7 0 0 01/01/09 - 12/31/09 107 3 0 0
Page 19 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Equity Allocation Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the 1,700-stock Value Line(R) universe across market capitalizations and investment styles for growth and value that appear to have the greatest potential for capital appreciation. The Index is rebalanced on a semi-annual basis in February and August. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 12/07/06.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (12/05/06) Inception (12/05/06) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 34.15% -3.50% -10.38% Market Value 36.78% -3.50% -10.36% INDEX PERFORMANCE Value Line(R) Equity Allocation Index(TM) 35.73% -2.70% -8.08% Russell 3000(R) Index 28.34% -5.27% -15.34%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 34.15% for the year ended December 31, 2009 outperformed the benchmark Russell 3000(R) Index return of 28.34% by 5.81%. The broad market rally that started in March 2009 and continued through the end of the year helped every sector represented in the Fund to positive double-digit returns. The Information Technology sector was the top-performing and top-contributing sector in the Fund. The Fund's holdings in the sector returned +79.2% and contributed +12.1% to the Fund's total return. The sector included the Fund's largest individual contributor to total return, Sanmina-SCI Corp. The company, which was added to the Fund in August, booked $1 billion of new business in 2009 and returned to profitability during the final quarter of 2009. Sanmina-SCI returned +128.4% while held by the Fund and contributed +2.4% to total return. The Fund received +4.7% of outperformance from the Consumer Discretionary sector. Both the Fund and benchmark received strong performance from this sector, but the Fund's weight in the sector was double the benchmark's weight. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Sanmina-SCI Corp. Unum Group Cognizant Technology Solutions Corp. Mueller Water Products, Inc. Infosys Technologies Ltd., ADR Chubb Corp. TJX Cos. Bed Bath & Beyond, Inc. Oshkosh Corp. Johnson Controls, Inc. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 17.39% Consumer Discretionary 16.87 Financials 15.42 Industrials 12.06 Health Care 11.14 Utilities 7.99 Materials 6.20 Energy 5.92 Consumer Staples 4.80 Telecommunication Services 2.21 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Sanmina-SCI Corp. 3.72% priceline.com, Inc. 1.49 Xcel Energy, Inc. 1.39 Infosys Technologies Ltd., ADR 1.34 Cognizant Technology Solutions Corp., Class A 1.33 Alcon, Inc. 1.31 Microsoft Corp. 1.30 Ford Motor Co. 1.29 Rockwell Collins, Inc. 1.28 Schlumberger Ltd. 1.27 ------- Total 15.72% ======= Page 20 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (Continued) Growth of a $10,000 Initial Investment December 5, 2006 - June 30, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust Value Line(R) Equity Value Line(R) Allocation Equity Index Fund Allocation Index(TM) Russell 3000(R) Index -------------------- -------------------- --------------------- 12/05/2006 $10,000 $10,000 $10,000 12/31/2006 9,890 9,897 10,008 06/30/2007 10,610 10,623 10,720 12/31/2007 10,350 10,398 10,522 06/30/2008 9,470 9,551 9,360 12/31/2008 6,681 6,772 6,597 06/30/2009 7,037 7,177 6,874 12/31/2009 8,962 9,192 8,466
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period December 7, 2006 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/07/06 - 12/31/06 7 0 0 0 01/01/07 - 12/31/07 80 6 2 0 01/01/08 - 12/31/08 110 5 0 1 01/01/09 - 12/31/09 110 3 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/07/06 - 12/31/06 9 0 0 0 01/01/07 - 12/31/07 157 5 1 0 01/01/08 - 12/31/08 131 4 2 0 01/01/09 - 12/31/09 138 1 0 0
__________________________ "Value Line(R)" and "Value Line(R) Equity Allocation Index" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the Value Line(R) Equity Allocation Index, is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Fund. Page 21 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Dividend Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the universe of stocks which Value Line, Inc(R) gives a Safety(TM) Ranking of #1 or #2 in the Value Line(R) Safety(TM) Ranking System and have the potential to pay above-average dividends and achieve capital appreciation. The Index is rebalanced on a monthly basis. The Fund's shares are listed for trading on the NYSE Arca.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (08/19/03) Ended (08/19/03) 12/31/09 12/31/09 to 12/31/09 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 19.58% 2.31% 5.58% 12.12% 41.32% Market Value 20.62% 4.49% 5.60% 24.56% 41.43% INDEX PERFORMANCE Value Line(R) Dividend Index 20.53% N/A N/A N/A N/A S&P 500(R) Index 26.46% 0.42% 3.75% 2.11% 26.42% Dow Jones U.S. Select Dividend Index(SM) 11.13% -2.03% N/A -9.74% N/A
On December 15, 2006, the Fund acquired the assets and adopted the financial and performance history of First Trust Value Line(R) Dividend Fund (the "Predecessor FVD Fund," a closed-end fund), which had an inception date of August 19, 2003. The inception date total returns at NAV include the sales load of $0.675 per share on the initial offering. The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVD Fund. The inception date of the Index was July 3, 2006. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (12/15/06) through period end (12/31/09) were -12.57% and -27.40% at NAV and Market Value, respectively. That compares to an Index return of -10.62% for the same period. The average annual returns for the period from the reorganization date (12/15/06) through period end (12/31/09) were -4.32% and -4.16% at NAV and Market Value, respectively. That compares to an Index return of -3.62% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to December 15, 2006, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVD Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Amex) closing market price of the Predecessor FVD Fund. (See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 19.58% for the year ended December 31, 2009 outperformed the benchmark Dow Jones U.S. Select Dividend Index(SM) return of 11.13% by 8.45%. The Industrials sector led all sectors in the Fund, with performance of +33.2% and a +5.1% contribution to total return. Air Products & Chemicals was the sector's leading individual contributor. The recession hurt Air Products & Chemicals hydrogen sales, but the company reported that profit for its fiscal third quarter rose +61% after the company cut about 13% of its workforce. General Dynamics was the sector's leading contributor, returning +72.7% during its time in the Fund and contributing +0.5% to the Fund's total return. The defense company was awarded a government contract to build three multi-billion dollar Stealth destroyers at its shipyard in Maine. The Fund received +13.8% of outperformance from the Financials sector due to the Fund's holdings in the sector performing better than the benchmark's holdings in the sector (+9.9% vs. -20.0%). This was because of the Fund's exposure to Canadian banks that were not hit nearly as hard by the recent financial crisis. Canada's banks avoided the need of government assistance much longer than other G7 nations. The Fund's top four performers and contributors (Bank of Montreal, Royal Bank of Canada, Toronto-Dominion Bank, and Bank of Nova Scotia) were all Canadian banks. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Bank of Montreal Lincoln National Corp. Royal Bank of Canada Wilmington Trust Corp. Toronto-Dominion Bank Gannett Co., Inc. Bank of Nova Scotia Dow Chemical Co. Time Warner, Inc. Integrys Energy Group, Inc. __________________________ "Value Line(R)" and "Value Line(R) Dividend Index" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the Value Line(R) Dividend Index, is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Fund. Page 22 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Utilities 18.95% Industrials 14.70 Consumer Staples 13.66 Financials 13.09 Consumer Discretionary 12.29 Health Care 7.37 Energy 6.25 Information Technology 6.25 Materials 4.33 Telecommunication Services 3.11 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS ConAgra Foods, Inc. 0.65% E.I. DuPont de Nemours & Co. 0.64 Snap-On, Inc. 0.64 Diebold, Inc. 0.64 Bank of Montreal 0.64 Nokia Corp., ADR 0.64 Enbridge, Inc. 0.64 Owens & Minor, Inc. 0.64 ACE Ltd. 0.64 Bank of Nova Scotia 0.63 ------- Total 6.40% ======= Growth of a $10,000 Initial Investment August 19, 2003 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Value Line(R) Dividend Index Fund S&P 500(R) Index ------------------- ---------------- 08/19/2003 $10,000 $10,000 12/31/2003 10,612 11,166 06/30/2009 11,244 11,551 12/31/2004 12,605 12,381 06/30/2009 12,987 12,281 12/31/2005 13,435 12,989 06/30/2009 14,208 13,341 12/31/2006 16,137 15,041 06/30/2009 16,571 16,088 12/31/2007 15,586 15,867 06/30/2009 14,067 13,977 12/31/2008 11,818 9,997 06/30/2009 11,676 10,313 12/31/2009 14,132 12,642 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period December 18, 2006 (commencement of trading as an exchange-traded fund) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/18/06 - 12/31/06 0 0 0 0 01/01/07 - 12/31/07 56 6 3 0 01/01/08 - 12/31/08 126 6 3 0 01/01/09 - 12/31/09 136 6 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 12/18/06 - 12/31/06 7 1 1 0 01/01/07 - 12/31/07 176 9 1 0 01/01/08 - 12/31/08 105 11 2 0 01/01/09 - 12/31/09 107 3 0 0
Page 23 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index contains securities of the NASDAQ-100 Index(R) that are not classified as "technology" according to the Industry Classification Benchmark classification system and, as a result, is a subset of the NASDAQ-100 Index(R). The NASDAQ-100 Index(R) includes 100 of the largest domestic and international non-financial companies listed on The Nasdaq Stock Market, Inc. ("NASDAQ(R)") based on market capitalization. The Index is equally-weighted and is rebalanced four times annually in March, June, September and December. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 02/15/07.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 46.74% -4.14% -11.52% Market Value 47.76% -4.16% -11.57% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) 47.64% -3.54% -9.91% Russell 1000(R) Index 28.43% -6.46% -17.59%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 46.74% for the year ended December 31, 2009 outperformed the benchmark Russell 1000(R) Index return of 28.43% by 18.31%. The broad market rally that started in March 2009 and continued through the end of the year helped every sector represented in the Fund to positive double-digit returns. The Consumer Discretionary sector was the Fund's best-performing (+85.1%) and top-contributing (24.0%) sector. A resilient but bargain-seeking consumer gave a particular boost to the Internet & Catalog Retail industry. Liberty Media Holding Corp. - Interactive was the leading performer and contributor in the entire Fund, with a +247.4% return. The company reported much improved second quarter revenue and operating profit numbers, particularly from its shopping network QVC. The Internet Catalog & Retail industry also benefitted from the performance of Expedia, Inc. (+212.3%) and Amazon.com, Inc. (+162.3%). The industry, which was mostly comprised of the three mentioned companies, contributed +8.3% to the Fund's total return, though its average weight in the Fund was only 5.7%. The Health Care sector contributed +8.0% to the Fund's total return, making it the second best sector by contribution. The sector included Intuitive Surgical, Inc., which reported an +18.8% increase in revenue for the second quarter and earnings of $1.62 versus expectations of $1.27. The company returned +138.9% for the year and contributed +2.1% to total return. The Fund received +19.5% of outperformance from the Consumer Discretionary sector due to its larger weight and better performance relative to the benchmark's holdings. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Liberty Media Holding Corp. - Interactive, Class A Pharmaceutical Product Development, Inc. Expedia, Inc. Genzyme Corp. Flextronics International Ltd. Apollo Group Inc., Class A Amazon.com, Inc. Cephalon, Inc. Intuitive Surgical, Inc. Gilead Sciences, Inc.
__________________________ NASDAQ, NASDAQ-100, NASDAQ-100 Index(R), and NASDAQ-100 Ex-Tech Sector Index(SM) are trademarks of the NASDAQ Stock Market, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 24 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR (1) INVESTMENTS Consumer Discretionary 32.16% Health Care 31.08 Industrials 15.72 Information Technology 13.06 Telecommunication Services 4.81 Consumer Staples 1.61 Materials 1.56 ------- Total 100.00% ======= (1) The above sector allocation is based on Standard & Poor's Global Industry Classification Standard (GICS), and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark (ICB) system, the joint classification system of Dow Jones Indexes and FTSE Group. TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Illumina, Inc. 1.74% Sears Holdings Corp. 1.73 FLIR Systems, Inc. 1.71 Biogen Idec, Inc. 1.69 Teva Pharmaceutical Industries Ltd., ADR 1.68 Electronic Arts, Inc. 1.68 Hologic, Inc. 1.68 Cephalon, Inc. 1.68 Urban Outfitters, Inc. 1.67 Intuitive Surgical, Inc. 1.66 ------- Total 16.92% ======= Growth of a $10,000 Initial Investment February 8, 2007 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust NASDAQ-100 NASDAQ-100 Ex-Technology Ex-Tech Sector Index(SM) Fund Sector Index(SM) Russell 1000(R) Index --------------------- ---------------- --------------------- 02/08/2007 $10,000 $10,000 $10,000 12/31/2007 10,595 10,653 10,282 06/30/2008 9,057 9,126 9,131 12/31/2008 6,029 6,102 6,417 06/30/2009 7,060 7,165 6,694 12/31/2009 8,848 9,009 8,241 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period February 15, 2007 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 02/15/07 - 12/31/07 110 0 0 3 01/01/08 - 12/31/08 136 2 0 3 01/01/09 - 12/31/09 137 1 3 1 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 02/15/07 - 12/31/07 103 1 2 3 01/01/08 - 12/31/08 110 2 0 0 01/01/09 - 12/31/09 109 1 0 0
Page 25 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (formerly known as NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund) (the "Fund"), seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ(R) Clean Edge(R) Green Energy Index (formerly known as NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equity index designed to track the performance of clean energy companies that are publicly traded in the United States and includes companies engaged in the manufacturing, development, distribution and installation of emerging clean-energy technologies including, but not limited to, solar photovoltaics, biofuels and advanced batteries. The Index is a modified market capitalization weighted index in which larger companies receive a larger Index weighting. The Index weighting methodology also includes caps to prevent high concentrations among larger alternative energy stocks. The Index is reconstituted semi-annually in March and September and rebalanced quarterly. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 02/14/07.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 43.79% -7.24% -19.55% Market Value 44.05% -7.24% -19.55% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) Green Energy Index 44.72% -6.57% -17.87% Russell 2000(R) Index 27.17% -7.46% -20.10%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 43.79% for the year ended December 31, 2009 outperformed the benchmark Russell 2000(R) Index return of 27.17% by 16.62%. Both the Fund and benchmark benefitted from the broad market rally that began in March 2009 and lasted through the end of the year. The Fund received extra performance benefits from being heavily weighted in the Information Technology sector, which outperformed the broader markets. In particular, the Fund had an average weight of +40.5% in the Semiconductor industry. This included a large position in Cree, Inc., which contributed +9.6% to the Fund's total return. The company returned +255.2% after making deals to sell LED chips to LG Display Co., and LED lights to retail giant Wal-Mart Stores, Inc. In total the Information Technology sector returned +60.6% and contributed +31.0% to the Fund's total return. The Industrials sector had the Fund's best performer, Trina Solar Ltd., which returned +480.9%. The company benefitted from a surge in demand from Germany as builders rushed to complete projects before the decline in government incentives to use solar energy. The Fund received +19.6% of outperformance due to the Fund being overweight in the Information Technology sector relative to the benchmark. An additional +12.6% of outperformance was gained by the Fund in the Industrials sector. The Fund's holdings in this sector performed better than the benchmark's (+35.0% versus +13.9%), and the Fund's weight in this sector was larger (42.3% versus 15.9%). The Consumer Discretionary sector detracted -8.2% from outperformance. The Fund had a very small weight in this sector which was insignificant to performance. The benchmark had a 13.0% weight in this sector and received strong performance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Cree, Inc. Energy Conversion Devices, Inc. ON Semiconductor Corp. SunPower Corp., Class A Linear Technology Corp. LDK Solar Co. Ltd., ADR American Superconductor Corp. Evergreen Solar, Inc. Trina Solar Ltd., ADR Greatbatch, Inc. __________________________ NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The NASDAQ Stock Market, Inc. ("NASDAQ(R)") and Clean Edge, Inc. ("Clean Edge(R)") respectively. NASDAQ(R) and Clean Edge(R) are, collectively with their affiliates, the "Corporations." The Marks are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 26 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 54.01% Industrials 40.86 Utilities 2.91 Health Care 1.24 Materials 0.55 Consumer Discretionary 0.43 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Cree, Inc. 8.39% First Solar, Inc. 8.10 Linear Technology Corp. 8.06 ON Semiconductor Corp. 6.15 National Semiconductor Corp. 5.97 MEMC Electronic Materials, Inc. 4.03 Itron, Inc. 3.96 AVX Corp. 3.64 Suntech Power Holdings Co. Ltd., ADR 3.61 American Superconductor Corp. 3.06 ------- Total 54.97% ======= Growth of a $10,000 Initial Investment February 8, 2007 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust NASDAQ(R) NASDAQ(R) Clean Clean Edge(R) Edge(R) Green Green Energy Enegy Index Fund Index Russell 2000(R) Index --------------------- ---------------- --------------------- 02/08/2007 $10,000 $10,000 $10,000 12/31/2007 15,430 15,522 9,489 06/30/2008 12,350 12,472 8,599 12/31/2008 5,595 5,675 6,283 06/30/2009 6,920 7,038 6,449 12/31/2009 8,045 8,213 7,990 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period February 14, 2007 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 02/14/07 - 12/31/07 39 0 4 3 01/01/08 - 12/31/08 87 1 2 0 01/01/09 - 12/31/09 92 4 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 02/14/07 - 12/31/07 176 0 0 0 01/01/08 - 12/31/08 156 3 4 0 01/01/09 - 12/31/09 152 3 1 0
Page 27 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FRI - FIRST TRUST S&P REIT INDEX FUND The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the S&P United States REIT Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index measures the securitized U.S. real estate investment trust ("REIT") market and maintains a constituency that reflects the composition of the overall REIT market. The Index contains securities selected for market representation according to geography and property type. All securities in the Index satisfy the Index's liquidity, price, and market capitalization requirements. The Standard & Poor's Index Committee, a team of Standard & Poor's economists and index analysts, maintains the Index. The S&P Index Committee makes constituent changes on an as-needed basis. Share adjustments that exceed 5% are made at the time of the change. Share adjustments of less than 5% are made on a quarterly basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/10/07.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 28.00% -15.84% -36.67% Market Value 28.68% -15.84% -36.67% INDEX PERFORMANCE S&P United States REIT Index* 28.60% N/A N/A FTSE EPRA/NAREIT North America Index 32.22% -8.55% -21.11% Russell 3000(R) Index 28.34% -15.28% -35.58%
*On November 6, 2008, the Fund's underlying index changed from the S&P REIT Composite Index to the S&P United States REIT Index. Therefore, the Fund's performance and historical returns shown for the periods prior to November 6, 2008 are not necessarily indicative of the performance that the Fund, based on its current index, would have generated. The inception date of the Index was June 30, 2008. Returns for the Index are only disclosed for those periods in which the Index was in existence for the whole period. (See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 28.00% for the year ended December 31, 2009 underperformed the benchmark FTSE EPRA/NAREIT North American Index return of 32.22% by -4.22%. It was a strong and volatile year for REITs. In the wake of the beaten-down housing industry and financial crisis, the Fund started 2009 by losing over -40% in just over two months. However, improving economic conditions, low interest rates, and signs of a bottom in real estate prices created conditions for the Fund to appreciate. Every class of REIT in the Fund had positive returns for the year. The best contributing class was the Retail REIT class, with a contribution of +6.3%. The Fund's largest individual contributor, Simon Property Group, Inc., was from this class. Simon Property was able to raise capital and purchase Prime Outlets Acquisition Co. for $2.33 billion, which included 22 retail outlet centers. The Fund and the benchmark are similar in terms of weights and holdings. However, the Fund underperformed due to the benchmark gaining +6.1% in performance from its exposure to Canadian REITs, to which the Fund had no exposure. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Simon Property Group, Inc. HRPT Properties Trust Public Storage Regency Centers Corp. Vornado Realty Trust Washington Real Estate Investment Trust Ventas, Inc. Education Realty Trust, Inc. ProLogis Strategic Hotels & Resorts, Inc. __________________________ Standard & Poor's(R) and S&P(R) are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by First Trust Advisors L.P. The First Trust S&P REIT Index Fund is not sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding shares of the Fund. Page 28 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FRI - FIRST TRUST S&P REIT INDEX FUND (Continued) PORTFOLIO REIT CLASS ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM REIT CLASS INVESTMENTS Retail 24.61% Residential 15.84 Health Care 14.91 Office 14.23 Diversified 6.54 Lodging/Resorts 6.26 Self Storage 6.01 Industrial 5.71 Industrial/Office Mixed 3.20 Specialty 2.69 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Simon Property Group, Inc. 10.00% Public Storage 4.86 Vornado Realty Trust 4.82 Equity Residential 4.10 Boston Properties, Inc. 4.09 HCP, Inc. 3.94 Host Hotels & Resorts, Inc. 3.24 Ventas, Inc. 3.01 AvalonBay Communities, Inc. 2.94 ProLogis 2.85 ------- Total 43.85% ======= Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust FTSE EPRA/NAREIT S&P REIT North America Index Fund Russell 3000(R) Index Index --------------------- --------------------- ---------------- 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 8,093 9,804 8,206 06/30/2008 7,739 8,721 7,843 12/31/2008 4,947 6,147 4,872 06/30/2009 4,319 6,405 4,381 12/31/2009 6,333 7,889 6,442
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period May 10, 2007 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/10/07 - 12/31/07 46 13 4 1 01/01/08 - 12/31/08 91 15 9 11 01/01/09 - 12/31/09 136 16 1 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/10/07 - 12/31/07 85 9 5 0 01/01/08 - 12/31/08 109 12 4 2 01/01/09 - 12/31/09 84 14 1 0
Page 29 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FIW - FIRST TRUST ISE WATER INDEX FUND The First Trust ISE Water Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE Water Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a modified market capitalization weighted index comprised of 36 stocks that derive a substantial portion of their revenues from the potable and wastewater industries. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 20.29% -1.83% -4.78% Market Value 20.69% -1.85% -4.83% INDEX PERFORMANCE ISE Water Index(TM) 21.21% -1.21% -3.19% Russell 3000(R) Index 28.34% -8.55% -21.11%
(See Notes to Fund Performance Overview on page 40) PERFORMANCE REVIEW The Fund's NAV return of 20.29% for the year ended December 31, 2009 underperformed the benchmark Russell 3000(R) Index return of 28.34% by -8.05%. The Fund's holdings in the Materials sector returned +55.4%, making it the best-performing sector in the Fund. The sector was led by Nalco Holding Co., the Fund's largest holding and best-performing stock. The water treatment and process improvement company weathered the recession through cost savings and strong free cash flow. The cash flow enabled the company to maintain its strategy of expanding in China, India and the Middle East. Nalco returned +122.5% and contributed +4.7% to the Fund's total return. The Industrials sector was the Fund's leading contributor to the Fund's total return with a contribution of +12.0%. Performance in this sector was average (+20.7%) but more than half of the Fund's weight was in this sector. The Fund's Information Technology sector holdings made up a small part of the Fund and only returned +7.8%. The same sector was the benchmark's heaviest weight (+18.1%) and the best performer (+61.8%), causing -11.1% of Fund underperformance. The Fund lost an additional -4.8% of relative performance because it had no exposure to the strong Consumer Discretionary sector. The Industrials sector contributed +10.2% to the Fund's relative performance due to the Fund being very overweight in the sector relative to the benchmark. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009)
Top-Performing Stocks Bottom-Performing Stocks Nalco Holding Co. Mueller Water Products, Inc., Class A Companhia de Saneamento Basico do Estado de Sao Paulo, ADR Northwest Pipe Co. Flowserve Corp. Aqua America, Inc. Millipore Corp. California Water Service Group Valmont Industries, Inc. SJW Corp.
__________________________ "International Securities Exchange(TM)", "ISE(TM)" and "ISE Water Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. The Fund, based on the ISE Water Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products. Page 30 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FIW - FIRST TRUST ISE WATER INDEX FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Industrials 53.19% Utilities 26.04 Materials 11.14 Information Technology 4.13 Health Care 3.55 Financials 1.95 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Nalco Holding Co. 4.18% Danaher Corp. 4.11 Tetra Tech, Inc. 4.08 Aqua America, Inc. 4.05 Pentair, Inc. 4.04 American Water Works Co., Inc. 4.00 Companhia de Saneamento Basico do Estado de Sao Paulo, ADR 3.94 IDEX Corp. 3.94 Veolia Environment, ADR 3.93 ITT Corp. 3.81 ------- Total 40.08% ======= Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust ISE Water ISE Water Index Fund Index(TM) Russell 3000(R) Index ----------------- ------------- --------------------- 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 11,212 11,260 9,804 06/30/2008 10,992 11,056 8,721 12/31/2008 7,915 7,987 6,147 06/30/2009 8,168 8,276 6,405 12/31/2009 9,522 9,681 7,889 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period May 11, 2007 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/11/07 - 12/31/07 51 0 0 1 01/01/08 - 12/31/08 129 3 3 1 01/01/09 - 12/31/09 103 4 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/11/07 - 12/31/07 109 0 1 0 01/01/08 - 12/31/08 106 8 3 0 01/01/09 - 12/31/09 131 13 1 0
Page 31 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND The First Trust ISE-Revere Natural Gas Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE-REVERE Natural Gas Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. The Index is constructed by establishing the universe of stocks listed in the U.S. of companies involved in the natural gas exploration and production industries and then eliminates stocks whose natural gas-proven reserves do not meet certain requirements. The Index then ranks all candidate stocks using four different methods and, often averaging the rankings, selects the top 30 stocks based on the final rank. The Index is rebalanced on a quarterly basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 49.21% -4.29% -10.97% Market Value 51.22% -4.27% -10.91% INDEX PERFORMANCE ISE-REVERE Natural Gas Index(TM) 49.87% -3.83% -9.83% Russell 3000(R) Index 28.34% -8.55% -21.11% S&P Composite 1500 Energy Index 16.41% -3.53% -9.08%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 49.21% for the year ended December 31, 2009 outperformed the benchmark S&P Composite 1500 Energy Index return of 16.41% by 32.80%. The Fund was heavily weighted in the Oil & Gas Exploration & Production sub-industry. Even though Natural Gas prices fell over -50% during 2009, performance was still strong since many of these companies explore for gas and oil. Oil prices rebounded over +70% from February lows through the end of the year as economic activity picked up. For the year, the Fund's holdings in the Oil & Gas Exploration & Production sub-industry returned +54.8% and contributed +50.1% to the Fund's total return. Pioneer Natural Resources Co. was the Fund's best performer and leading contributor to total return. In October, the company announced a significant natural gas discovery in southern Texas. Though the company missed earnings expectations in the second and third quarters, it maintained a strong cash position. For the year, Pioneer returned +198.7% and contributed +5.0% to the Fund's total return. Delta Petroleum Corp. was the worst performer in the Fund, as it returned -88.4% during its time in the Fund, and detracted -5.8% from the Fund's total return. The company was hit hard by the drop in energy prices early in 2009. In September, the company was hit again after its first exploration well in the promising Columbia River Basin returned only water. The Fund gained +42.3% of outperformance (the difference between the sub-industry's contribution to the Fund's total return and the sub-industry's contribution to the benchmark's total return) from the Oil & Gas Exploration & Production sub-industry due to its large weight in the sub-industry relative to the benchmark. The benchmark had most of its weight in Integrated Oil & Gas companies, including a 31.8% average weight in Exxon Mobil Corp., which returned - -12.6%. However, -9.6% of the Fund's outperformance was reversed due to the Fund not having any exposure to the Energy Equipment & Services industry, which gave the benchmark strong performance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Pioneer Natural Resources Co. Delta Petroleum Corp. Newfield Exploration Co. PetroQuest Energy, Inc. Stone Energy Corp. W&T Offshore, Inc. Quicksilver Resources, Inc. ConocoPhillips Talisman Energy, Inc. Goodrich Petroleum Corp. __________________________ "International Securities Exchange(TM)", "ISE(TM)" and "ISE-REVERE Natural Gas Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. The Fund, based on the ISE-REVERE Natural Gas Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products. Page 32 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (Continued) PORTFOLIO SUB-INDUSTRY ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SUB-INDUSTRY INVESTMENTS Oil & Gas Exploration & Production 90.80% Integrated Oil & Gas 6.02 Gas Utilities 3.18 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Delta Petroleum Corp. 4.06% Brigham Exploration Co. 3.66 Pioneer Natural Resources Co. 3.55 Newfield Exploration Co. 3.52 Southwestern Energy Co. 3.50 Devon Energy Corp. 3.46 Range Resources Corp. 3.45 EnCana Corp. 3.44 Quicksilver Resources, Inc. 3.42 Cabot Oil & Gas Corp. 3.42 ------- Total 35.48% ======= Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust ISE-REVERE S&P ISE-Revere Natural Natural Gas Russell 3000(R) Composite 1500 Gas Index Fund Index(TM) Index Energy Index ------------------- ------------- --------------- -------------- 05/08/2007 $10,000 $10,000 $10,000 $10,000 12/31/2007 11,166 11,213 9,804 12,170 06/30/2008 15,755 15,942 8,721 13,578 12/31/2008 5,967 6,016 6,147 7,810 06/30/2009 6,454 6,518 6,405 7,740 12/31/2009 8,903 9,017 7,889 9,092
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period May 11, 2007 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/11/07 - 12/31/07 49 0 0 2 01/01/08 - 12/31/08 131 6 1 2 01/01/09 - 12/31/09 174 1 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/11/07 - 12/31/07 109 2 0 0 01/01/08 - 12/31/08 101 8 4 0 01/01/09 - 12/31/09 77 0 0 0
Page 33 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FNI - FIRST TRUST ISE CHINDIA INDEX FUND The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a non-market capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks of companies from China and India currently trading on a U.S. exchange. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/09 to 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 81.58% 3.08% 8.36% Market Value 80.62% 3.17% 8.61% INDEX PERFORMANCE ISE ChIndia Index(TM) 82.89% 3.77% 10.31% Russell 3000(R) Index 28.34% -8.55% -21.11% MSCI Emerging Markets Index 78.51% 2.19% 5.93%
(See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 81.58% for the year ended December 31, 2009 outperformed the benchmark MSCI Emerging Markets Index return of 78.51% by 3.07%. The Chinese and Indian economies maintained strong growth throughout the global economic turmoil of 2009, which helped the Fund and benchmark achieve impressive returns. The Information Technology sector led all sectors with a contribution to the Fund's total return of +29.9%. The sector included the Fund's largest individual contributor, Baidu, Inc. The Chinese search engine operator returned +214.9% during the year due to China's strong economic growth and growing number of Internet users. Baidu contributed +11.5% to the Fund's total return. Tata Motors Ltd. was the best-performing company in the Fund, with a +282.2% return on surging auto sales in India. Satyam Computer Services Ltd. returned -49.2%, as ramifications from an accounting scandal that broke in 2008 continued to hurt the company. The Fund gained +15.9% of outperformance from the Information Technology sector due to the Fund's weight in the sector being double the benchmark's weight. The Fund lost -9.3% of that outperformance due to having smaller weights and inferior performance in the Consumer Staples and Telecommunication Services sectors. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Baidu, Inc., ADR Satyam Computer Services Ltd., ADR Infosys Technologies Ltd., ADR China Mobile Ltd., ADR Sterlite Industries (India) Ltd., ADR LDK Solar Co., Ltd., ADR Tata Motors Ltd., ADR KHD Humboldt Wedag International Ltd. Wipro Ltd., ADR American Oriental Bioengineering, Inc. __________________________ "International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. The Fund, based on the ISE ChIndia Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products. Page 34 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FNI - FIRST TRUST ISE CHINDIA INDEX FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 28.44% Financials 21.98 Energy 12.07 Telecommunication Services 11.56 Industrials 10.66 Materials 5.40 Consumer Discretionary 5.21 Health Care 4.02 Utilities 0.66 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Infosys Technologies Ltd., ADR 7.33% ICICI Bank Ltd., ADR 7.16 China Mobile Ltd., ADR 7.04 HDFC Bank Ltd., ADR 6.89 PetroChina Co., Ltd., ADR 6.68 China Life Insurance Co., Ltd., ADR 6.64 Wipro Ltd., ADR 4.44 Tata Motors Ltd., ADR 4.34 NetEase.com, Inc., ADR 4.08 Sterlite Industries (India) Ltd., ADR 4.06 ------- Total 58.66% ======= Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust MSCI ISE Chindia ISE ChIndia Emerging Markets Index Fund Index(TM) Russell 3000(R) Index Index ------------- --------------- --------------------- ---------------- 05/08/2007 $10,000 $10,000 $10,000 $10,000 12/31/2007 13,873 13,952 9,804 12,715 06/30/2008 9,985 10,059 8,721 11,220 12/31/2008 5,968 6,031 6,147 5,934 06/30/2009 8,329 8,451 6,405 8,071 12/31/2009 10,836 11,031 7,889 10,593
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period May 11, 2007 (commencement of trading) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/11/07 - 12/31/07 82 2 0 2 01/01/08 - 12/31/08 87 8 2 0 01/01/09 - 12/31/09 131 15 10 1 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 05/11/07 - 12/31/07 76 0 0 0 01/01/08 - 12/31/08 138 11 5 2 01/01/09 - 12/31/09 95 0 0 0
Page 35 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND The First Trust Value Line(R) 100 Exchange-Traded Fund seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) 100 Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-dollar weighted index that is designed to objectively identify and select 100 stocks from the universe of stocks to which Value Line(R) assigns a #1 ranking in the Value Line(R) Timeliness(TM) Ranking System (the "Ranking System"). At any one time, only 100 stocks are assigned a #1 ranking in the Ranking System. The Index is rebalanced quarterly. The Fund's shares are listed for trading on the NYSE Arca.
PERFORMANCE AS OF DECEMBER 31, 2009 Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (06/12/03) Ended (06/12/03) 12/31/09 12/31/09 to 12/31/09 12/31/09 to 12/31/09 FUND PERFORMANCE NAV 12.74% -3.94% 0.36% -18.22% 2.38% Market Value 13.23% -2.90% 0.36% -13.68% 2.38% INDEX PERFORMANCE Value Line(R) 100 Index(TM) 13.83% N/A N/A N/A N/A Russell 3000(R) Index 28.34% 0.76% 4.35% 3.88% 32.19%
On June 15, 2007, the Fund acquired the assets and adopted the financial and performance history of First Trust Value Line(R) 100 Fund (the "Predecessor FVL Fund," a closed-end fund), which had an inception date of June 12, 2003. The inception date total returns at NAV include the sales load of $0.675 per share on the initial offering. The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVL Fund. The inception date of the Index was January 16, 2007. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (06/15/07) through period end (12/31/09) were -37.86% and -37.86% at NAV and Market Value, respectively. That compares to an Index return of -36.73% for that same period. The average annual returns for the period from the reorganization date (6/15/07) through period end (12/31/09) were -17.05% and -17.05% at NAV and Market Value, respectively. That compares to an Index return of -16.45% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to June 15, 2007, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVL Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Amex) closing market price of the Predecessor FVL Fund. (See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV return of 12.74% for the year ended December 31, 2009 underperformed the benchmark Russell 3000(R) Index return of 28.34% by -15.60%. Markets had a volatile year and in March 2009 major indices reached lows not seen in over a decade before starting a sharp rally that persisted through the last three quarters of 2009 as confidence returned to the financial system and economic conditions improved. The volatility hurt the Fund's performance as the Fund uses an investment strategy partially based on price momentum. In many cases, the Fund sold out of companies at lows before the rebound, or did not buy into companies until well after the market rally began. For example, the Fund did not buy Apple, Inc. until May. From May to the end of the year the stock returned +56.1%. The benchmark benefitted from Apple's return for the entire year, which was +146.9%. The Fund's holdings in every sector except Energy returned less compared to their counterparts in the benchmark. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the year ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Green Mountain Coffee Roasters, Inc. Crawford & Co., Class B priceline.com, Inc. Nash Finch Co. F5 Networks, Inc. Martek Biosciences Corp. Cerner Corp. Endo Pharmaceuticals Holdings, Inc. Synaptics, Inc. Axsys Technologies, Inc. __________________________ "Value Line(R)" and "Value Line(R) 100 Index" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the Value Line(R) 100 Index, is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Fund. Page 36 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (Continued) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM SECTOR INVESTMENTS Consumer Discretionary 31.59% Information Technology 24.27 Health Care 22.07 Consumer Staples 8.21 Industrials 3.96 Telecommunication Services 3.96 Financials 2.95 Materials 1.99 Energy 1.00 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS Green Mountain Coffee Roasters, Inc. 1.17% Chiquita Brands International, Inc. 1.09 Deckers Outdoor Corp. 1.08 EnerNOC, Inc. 1.08 Teletech Holdings, Inc. 1.05 Apple, Inc. 1.05 Jo-Ann Stores, Inc. 1.05 Salesforce.com, Inc. 1.05 Hospira, Inc. 1.04 CEVA, Inc. 1.04 ------- Total 10.70% ======= Growth of a $10,000 Initial Investment June 12, 2003 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Value Line(R) 100 Exchange-Traded Fund Russell 3000(R) Index ---------------------- --------------------- 06/12/2003 $10,000 $10,000 12/31/2003 11,073 11,367 06/30/2004 11,427 10,775 12/31/2004 12,519 12,725 06/30/2005 12,649 12,724 12/31/2005 14,003 13,504 06/30/2006 14,305 13,940 12/31/2006 14,647 15,626 06/30/2007 16,357 16,737 12/31/2007 17,563 16,429 06/30/2008 16,063 14,614 12/31/2008 9,081 10,300 06/30/2009 8,728 10,732 12/31/2009 10,238 13,219 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period June 18, 2007 (commencement of trading as an exchange-traded fund) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 06/18/07 - 12/31/07 39 9 4 0 01/01/08 - 12/31/08 115 4 4 0 01/01/09 - 12/31/09 67 5 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 06/18/07 - 12/31/07 74 9 2 0 01/01/08 - 12/31/08 122 4 4 0 01/01/09 - 12/31/09 176 4 0 0
Page 37 - -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) - -------------------------------------------------------------------------------- QABA - FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA Community Bank Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index includes a subset of banks and thrifts or their holding companies listed on NASDAQ(R). The Index is jointly owned and was developed by NASDAQ OMX(R) and the American Bankers Association ("ABA"). For the purposes of the Index, a "community bank" is considered to be all U.S. banks and thrifts or their holding companies listed on NASDAQ(R) excluding the 50 largest U.S. banks by asset size. Also excluded are banks that have an international specialization and those banks that have a credit-card specialization, as screened by the ABA based on the most recent data from the FDIC. Banks with an international specialization are those institutions with assets greater than $10 billion and more than 25% of total assets in foreign offices. Banks with a credit-card specialization are those institutions with credit-card loans plus securitized receivables in excess of 50% of total assets plus securitized receivables. Companies in the Index must have a market capitalization of at least $200 million and a three-month average daily trading volume of at least $500 thousand. The Index is rebalanced quarterly and reconstituted semi-annually. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 07/01/09. PERFORMANCE AS OF DECEMBER 31, 2009 Cumulative Total Returns Inception (06/29/09) to 12/31/09 FUND PERFORMANCE NAV 12.80% Market Value 13.00% INDEX PERFORMANCE NASDAQ OMX(R) ABA Community Bank Index(SM) 13.18% S&P Composite 1500 Financials Sector Index 21.12% Russell 3000(R) Index 22.24% (See Notes to Fund Performance Overview on page 40.) PERFORMANCE REVIEW The Fund's NAV since inception return of 12.80% underperformed the benchmark S&P Composite 1500 Financials Sector Index return of 21.12% by -8.32%. Because of the Fund's inception date, it missed the worst of the financial crisis, but still participated in a strong third quarter for financial stocks as confidence returned to the banking system. East West Bancorp, Inc. was the Fund's best performer and top contributor to the Fund's total return. After a tough second quarter, the company decreased its losses in the second half of 2009 and also purchased United Commercial Bank. News of the purchase sent East West's stock up +55% in a single day. From Fund inception through the end of the year, East West returned +136.3% and contributed +1.1% to the Fund's total return. Another strong performer in the Fund was International Bancshares Corp. The Texas-based bank returned +86.5% and contributed +0.8% to the Fund's total return by reporting consistent profits throughout the year. Hispanic Business Magazine ranked International Bancshares the number one Hispanic-owned financial institution in the United States. PrivateBancorp, Inc. was the worst-performing company in the Fund. The company's shares dropped sharply in October after it reported a loss of -$0.68 per share versus an expected -$0.25 per share due to an increase in loan defaults. The Fund underperformed the benchmark due to the benchmark's heavy weight in large-cap financial institutions. For example, JPMorgan had an average weight of 10.6% in the benchmark and returned +20.7% for the period covered in this report, contributing -2.4% to the Fund's relative performance. In total, the benchmark received a +15.8% contribution to total return from the large-cap institutions. The Fund's larger weight in small-cap and mid-cap banks could only reverse +8.2% of the Fund's underperformance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the period ended December 31, 2009) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS East West Bancorp, Inc. PrivateBancorp, Inc. Commerce Bancshares, Inc. Capitol Federal Financial Fulton Financial Corp. Associated Banc-Corp People's United Financial, Inc. United Community Banks, Inc. BOK Financial Corp. First Busey Corp. __________________________ NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM) are trademarks of The NASDAQ OMX Group, Inc. and American Bankers Association (NASDAQ OMX and ABA, collectively with their affiliates, are referred to as the "Corporations") and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 38 - -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW - -------------------------------------------------------------------------------- QABA - FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (Continued) PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2009 % OF LONG-TERM INDUSTRY INVESTMENTS Commercial Banks 72.85% Thrifts & Mortgage Finance 27.15 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2009 % OF LONG-TERM SECURITY INVESTMENTS People's United Financial, Inc. 7.19% TFS Financial Corp. 4.63 BOK Financial Corp. 3.98 Commerce Bancshares, Inc. 3.97 First Niagara Financial Group, Inc. 3.24 Capitol Federal Financial 2.88 Washington Federal, Inc. 2.68 Prosperity Bancshares, Inc. 2.32 Zions Bancorp 2.19 East West Bancorp, Inc. 2.15 ------- Total 35.23% ======= Growth of a $10,000 Initial Investment June 29, 2009 - December 31, 2009 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust NASDAQ(R) NASDAQ OMX(R) S&P Composite ABA Community Bank ABA Community Bank 1500 Financials Russell Index Fund Index(SM) Sector Index 3000(R) Index --------------------- ------------- ------------------ ---------------- 06/29/2009 $10,000 $10,000 $10,000 $10,000 12/31/2009 11,280 11,318 12,112 12,224
Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2009 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period July 1, 2009 (commencement of trading as an exchange-traded fund) through December 31, 2009.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 07/01/09 - 12/31/09 60 3 1 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points 07/01/09 - 12/31/09 62 2 0 0
Page 39 - -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW - -------------------------------------------------------------------------------- Total returns for the periods since inception are calculated from the inception date of each Fund. "Average annual total returns" represent the average annual change in value of an investment over the periods indicated. "Cumulative total returns" represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor. Each Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Value") is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike a Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund's past performance is no guarantee of future results. Page 40 FIRST-TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2009 (UNAUDITED) As a shareholder of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust US IPO Index Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust DB Strategic Value Index Fund, First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia Index Fund, First Trust Value Line(R) 100 Exchange-Traded Fund, or First Trust NASDAQ(R) ABA Community Bank Index Fund (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 fees, 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 funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of July 1, 2009 to December 31, 2009. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the six-month 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 first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides 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 costs 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 brokerage commissions or creation and redemption fees paid on purchases and sales of Fund shares. Therefore, the second line in 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.
- ------------------------------------------------------------------------------------------------------------------------------------ Annualized Expense Ratio Beginning Ending Based on the Expense Paid Account Value Account Value Six-Month During the July 1, 2009 December 31, 2009 Period (a) Six-Month Period (b) - ------------------------------------------------------------------------------------------------------------------------------------ First Trust Dow Jones Select MicroCap Index(SM) Fund Actual $1,000.00 $1,234.30 0.60% $3.38 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Actual $1,000.00 $1,209.60 0.45% $2.51 Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29 First Trust US IPO Index Fund Actual $1,000.00 $1,278.40 0.60% $3.45 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund Actual $1,000.00 $1,289.90 0.60% $3.46 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NASDAQ-100-Technology Sector Index(SM) Fund Actual $1,000.00 $1,341.80 0.60% $3.54 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NYSE Arca Biotechnology Index Fund Actual $1,000.00 $1,346.90 0.60% $3.55 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust Dow Jones Internet Index(SM) Fund Actual $1,000.00 $1,342.80 0.60% $3.54 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 Page 41 FIRST-TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (Continued) DECEMBER 31, 2009 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ Annualized Expense Ratio Beginning Ending Based on the Expense Paid Account Value Account Value Six-Month During the July 1, 2009 December 31, 2009 Period (a) Six-Month Period (b) - ------------------------------------------------------------------------------------------------------------------------------------ First Trust DB Strategic Value Index Fund Actual $1,000.00 $1,236.90 0.65% $3.66 Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31 First Trust Value Line(R) Equity Allocation Index Fund Actual $1,000.00 $1,273.60 0.70% $4.01 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 First Trust Value Line(R) Dividend Index Fund Actual $1,000.00 $1,210.40 0.70% $3.90 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund Actual $1,000.00 $1,253.20 0.60% $3.41 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund Actual $1,000.00 $1,162.60 0.60% $3.27 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust S&P REIT Index Fund Actual $1,000.00 $1,466.10 0.50% $3.11 Hypothetical (5% return before expenses) $1,000.00 $1,022.68 0.50% $2.55 First Trust ISE Water Index Fund Actual $1,000.00 $1,165.80 0.60% $3.28 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust ISE-Revere Natural Gas Index Fund Actual $1,000.00 $1,379.40 0.60% $3.60 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust ISE Chindia Index Fund Actual $1,000.00 $1,301.10 0.60% $3.48 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust Value Line(R) 100 Exchange-Traded Fund Actual $1,000.00 $1,173.00 0.70% $3.83 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 First Trust NASDAQ(R) ABA Community Bank Index Fund Actual $1,000.00 $1,147.50 0.60% $3.25 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 __________________________ (a) These expense ratios reflect expense caps. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2009 through December 31, 2009), multiplied by 184/365 (to reflect the one-half year period).
Page 42 First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.9% Aerospace & Defense -- 0.7% 3,556 Applied Signal Technology, Inc. $ 68,595 4,008 Ladish Co., Inc. (b) 60,441 ------------- 129,036 ------------- Air Freight & Logistics -- 0.5% 16,226 Air Transport Services Group, Inc. (b) 42,837 2,433 Dynamex, Inc. (b) 44,037 ------------- 86,874 ------------- Airlines -- 0.5% 14,085 Hawaiian Holdings, Inc. (b) 98,595 ------------- Auto Components -- 1.0% 3,503 Dorman Products, Inc. (b) 54,857 8,218 Spartan Motors, Inc. 46,267 5,522 Standard Motor Products, Inc. (b) 47,048 3,132 Wonder Auto Technology, Inc. (b) 36,832 ------------- 185,004 ------------- Beverages -- 1.0% 2,756 Boston Beer (The) Co., Inc., Class A (b) 128,430 1,154 Coca-Cola Bottling Co. Consolidated 62,339 ------------- 190,769 ------------- Biotechnology -- 0.4% 14,948 QLT, Inc. (b) 74,142 ------------- Building Products -- 1.0% 3,890 AAON, Inc. 75,816 2,571 American Woodmark Corp. 50,597 4,800 Insteel Industries, Inc. 62,400 ------------- 188,813 ------------- Capital Markets -- 2.5% 9,372 BGC Partners, Inc., Class A 43,298 5,324 Calamos Asset Management, Inc., Class A 61,386 6,091 Duff & Phelps Corp., Class A 111,222 4,290 Evercore Partners, Inc., Class A 130,416 5,728 Penson Worldwide, Inc. (b) 51,896 8,869 TradeStation Group, Inc. (b) 69,976 ------------- 468,194 ------------- Chemicals -- 3.8% 2,342 Hawkins, Inc. 51,126 4,859 Innophos Holdings, Inc. 111,708 6,476 Innospec, Inc. 65,343 7,161 Landec Corp. (b) 44,685 4,812 LSB Industries, Inc. (b) 67,849 11,901 Omnova Solutions, Inc. (b) 72,953 3,010 Quaker Chemical Corp. 62,126 8,566 ShengdaTech, Inc. (b) 52,510 5,899 Zep, Inc. 102,171 7,564 Zoltek Cos., Inc. (b) 71,858 ------------- 702,329 ------------- Shares Description Value - --------- ------------------------------------------------- Commercial Banks -- 6.6% 1,255 Alliance Financial Corp. $ 34,073 2,900 Arrow Financial Corp. 72,500 7,461 Banco Latinoamericano de Comercio Exterior SA, Class E 103,708 1,415 Bank of Marin Bancorp 46,072 1,982 Camden National Corp. 64,811 7,761 Cardinal Financial Corp. 67,831 4,548 First Bancorp. 63,536 1,478 First of Long Island (The) Corp. 37,320 3,012 German American Bancorp, Inc. 48,945 2,590 Great Southern Bancorp, Inc. 55,322 6,630 Oriental Financial Group, Inc. 71,604 2,578 Peoples Bancorp, Inc. 24,955 5,721 Renasant Corp. 77,806 3,433 SCBT Financial Corp. 95,060 4,143 Simmons First National Corp., Class A 115,175 4,076 Southside Bancshares, Inc. 79,971 4,011 Southwest Bancorp, Inc. 27,836 1,653 United Security Bancshares, Inc. 28,333 3,812 Washington Trust Bancorp, Inc. 59,391 6,308 Wilshire Bancorp, Inc. 51,663 ------------- 1,225,912 ------------- Commercial Services & Supplies -- 4.3% 14,754 ACCO Brands Corp. (b) 107,409 8,401 APAC Customer Services, Inc. (b) 50,070 2,701 Consolidated Graphics, Inc. (b) 94,589 3,386 Cornell Cos., Inc. (b) 76,862 7,076 Ennis, Inc. 118,806 8,747 Innerworkings, Inc. (b) 51,607 15,428 Interface, Inc., Class A 128,207 3,349 M & F Worldwide Corp. (b) 132,285 3,117 Multi-Color Corp. 38,059 ------------- 797,894 ------------- Communications Equipment -- 2.0% 4,041 Anaren, Inc. (b) 60,817 7,201 Ceragon Networks Ltd. (b) 84,540 6,857 Digi International, Inc. (b) 62,536 24,208 Extreme Networks, Inc. (b) 69,477 5,711 Globecomm Systems, Inc. (b) 44,660 7,857 SeaChange International, Inc. (b) 51,620 ------------- 373,650 ------------- Computers & Peripherals -- 0.9% 5,533 Stratasys, Inc. (b) 95,610 6,261 Super Micro Computer, Inc. (b) 69,623 ------------- 165,233 ------------- Construction & Engineering -- 2.3% 9,967 Furmanite Corp. (b) 37,974 11,926 Great Lakes Dredge & Dock Corp. 77,281 6,569 KHD Humboldt Wedag International Ltd. (b) 89,404 2,153 Michael Baker Corp. (b) 89,134 See Notes to Financial Statements Page 43 First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Construction & Engineering (Continued) 5,013 MYR Group, Inc. (b) $ 90,635 4,854 Pike Electric Corp. (b) 45,045 ------------- 429,473 ------------- Construction Materials -- 0.1% 506 United States Lime & Minerals, Inc. (b) 17,472 ------------- Consumer Finance -- 2.0% 13,569 Advance America Cash Advance Centers, Inc. 75,444 6,556 Dollar Financial Corp. (b) 155,115 3,968 World Acceptance Corp. (b) 142,173 ------------- 372,732 ------------- Containers & Packaging -- 1.4% 1,589 AEP Industries, Inc. (b) 60,827 10,254 Boise, Inc. (b) 54,449 3,220 Bway Holding Co. (b) 61,888 8,698 Myers Industries, Inc. 79,152 ------------- 256,316 ------------- Distributors -- 0.5% 2,678 Core-Mark Holding Co., Inc. (b) 88,267 ------------- Diversified Consumer Services -- 0.1% 1,336 CPI Corp. 16,406 ------------- Diversified Financial Services -- 0.3% 3,786 Encore Capital Group, Inc. (b) 65,876 ------------- Diversified Telecommunication Services -- 1.2% 6,446 Consolidated Communications Holdings, Inc. 112,805 10,773 General Communication, Inc., Class A (b) 68,732 3,700 SureWest Communications (b) 36,852 ------------- 218,389 ------------- Electric Utilities -- 0.3% 2,872 Unitil Corp. 65,999 ------------- Electrical Equipment -- 1.9% 6,399 A-Power Energy Generation Systems Ltd. (b) 117,038 4,566 Fushi Copperweld, Inc. (b) 46,208 5,573 Harbin Electric, Inc. (b) 114,469 1,497 Jinpan International Ltd. 71,362 ------------- 349,077 ------------- Electronic Equipment, Instruments & Components -- 1.1% 9,205 CTS Corp. 88,552 4,391 OSI Systems, Inc. (b) 119,787 ------------- 208,339 ------------- Shares Description Value - --------- ------------------------------------------------- Energy Equipment & Services -- 3.5% 2,947 Exterran Partners L.P. (c) $ 66,160 3,399 Gulf Island Fabrication, Inc. 71,481 7,169 Matrix Service Co. (b) 76,350 3,303 Natural Gas Services Group (b) 62,262 5,540 North American Energy Partners, Inc. (b) 40,220 1,298 OYO Geospace Corp. (b) 55,671 3,407 Phi, Inc. (b) 70,525 3,544 T-3 Energy Services, Inc. (b) 90,372 8,740 Tesco Corp. (b) 112,833 ------------- 645,874 ------------- Food & Staples Retailing -- 0.7% 372 Arden Group, Inc., Class A 35,570 3,508 Ingles Markets, Inc., Class A 53,076 1,524 Village Super Market, Inc., Class A 41,636 ------------- 130,282 ------------- Food Products -- 2.4% 10,248 AgFeed Industries, Inc. (b) 51,240 12,963 B&G Foods, Inc., Class A 119,000 3,211 Calavo Growers, Inc. 54,587 1,986 Seneca Foods Corp., Class A (b) 47,406 17,704 SunOpta, Inc. (b) 59,485 7,714 Zhongpin, Inc. (b) 120,416 ------------- 452,134 ------------- Gas Utilities -- 0.4% 2,541 Chesapeake Utilities Corp. 81,439 ------------- Health Care Equipment & Supplies -- 4.4% 12,148 Accuray, Inc. (b) 68,150 437 Atrion Corp. 68,050 3,567 Cantel Medical Corp. 71,982 2,458 Exactech, Inc. (b) 42,548 4,907 IRIS International, Inc. (b) 60,650 4,006 Medical Action Industries, Inc. (b) 64,336 7,759 Natus Medical, Inc. (b) 114,756 14,931 RTI Biologics, Inc. (b) 57,335 8,982 Symmetry Medical, Inc. (b) 72,395 1,583 Young Innovations, Inc. 39,227 5,756 Zoll Medical Corp. (b) 153,800 ------------- 813,229 ------------- Health Care Providers & Services -- 4.5% 3,008 Air Methods Corp. (b) 101,129 7,846 Allion Healthcare, Inc. (b) 51,470 2,550 America Service Group, Inc. 40,469 4,194 American Dental Partners, Inc. (b) 54,103 8,915 AMN Healthcare Services, Inc. (b) 80,770 10,614 BioScrip, Inc. (b) 88,733 2,997 Chindex International, Inc. (b) 42,348 1,960 Corvel Corp. (b) 65,738 7,810 Cross Country Healthcare, Inc. (b) 77,397 4,346 MedCath Corp. (b) 34,377 Page 44 See Notes to Financial Statements First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Health Care Providers & Services (Continued) 3,518 Providence Service Corp. (b) $ 55,584 5,589 Triple-S Management Corp., Class B (b) 98,366 3,238 U.S. Physical Therapy, Inc. (b) 54,819 ------------- 845,303 ------------- Health Care Technology -- 0.5% 8,643 Omnicell, Inc. (b) 101,037 ------------- Hotels, Restaurants & Leisure -- 4.3% 6,909 AFC Enterprises, Inc. (b) 56,377 5,235 Ambassadors Group, Inc. 69,573 6,598 California Pizza Kitchen, Inc. (b) 88,743 3,480 Carrols Restaurant Group, Inc. (b) 24,604 26,072 Denny's Corp. (b) 57,098 1,398 Einstein Noah Restaurant Group, Inc. (b) 13,742 2,021 Landry's Restaurants, Inc. (b) 43,027 5,691 Marcus (The) Corp. 72,959 3,530 Peet's Coffee & Tea, Inc. (b) 117,655 3,912 Red Robin Gourmet Burgers, Inc. (b) 70,025 14,679 Shuffle Master, Inc. (b) 120,955 3,631 Universal Travel Group (b) 36,818 8,667 Youbet.com, Inc. (b) 24,874 ------------- 796,450 ------------- Household Durables -- 1.2% 1,778 Blyth, Inc. 59,954 2,945 Hooker Furniture Corp. 36,430 12,291 Sealy Corp. (b) 38,839 3,727 Universal Electronics, Inc. (b) 86,541 ------------- 221,764 ------------- Household Products -- 0.2% 1,719 Orchids Paper Products Co. (b) 34,414 ------------- Insurance -- 0.7% 1,644 American Physicians Service Group, Inc. 37,927 4,062 First Mercury Financial Corp. 55,690 5,582 Universal Insurance Holdings, Inc. 32,766 ------------- 126,383 ------------- Internet Software & Services -- 1.3% 4,217 Liquidity Services, Inc. (b) 42,465 11,025 LivePerson, Inc. (b) 76,844 8,392 Perficient, Inc. (b) 70,745 7,222 Web.com Group, Inc. (b) 47,160 ------------- 237,214 ------------- IT Services -- 2.9% 5,291 China Information Security Technology, Inc. (b) 32,593 4,033 ExlService Holdings, Inc. (b) 73,239 Shares Description Value - --------- ------------------------------------------------- IT Services (Continued) 10,201 Heartland Payment Systems, Inc. $ 133,939 6,405 iGATE Corp. 64,050 8,617 InfoGROUP, Inc. (b) 69,108 1,989 NCI, Inc., Class A (b) 54,996 6,744 Ness Technologies, Inc. (b) 33,046 3,950 Virtusa Corp. (b) 35,787 4,810 Yucheng Technologies Ltd. (b) 41,029 ------------- 537,787 ------------- Leisure Equipment & Products -- 0.7% 5,853 RC2 Corp. (b) 86,332 5,212 Sturm, Ruger & Co., Inc. 50,556 ------------- 136,888 ------------- Machinery -- 4.3% 7,540 Albany International Corp., Class A 169,348 7,297 Altra Holdings, Inc. (b) 90,118 2,284 Ampco-Pittsburgh Corp. 72,014 4,608 CIRCOR International, Inc. 116,029 5,201 Columbus McKinnon Corp. (b) 71,046 3,517 Dynamic Materials Corp. 70,516 2,701 Graham Corp. 55,911 727 K-Tron International, Inc. (b) 79,054 2,775 L.B. Foster Co., Class A (b) 82,723 ------------- 806,759 ------------- Marine -- 0.7% 5,584 Euroseas Ltd. 21,833 1,516 International Shipholding Corp. 47,102 12,847 Star Bulk Carriers Corp. 36,229 5,968 Ultrapetrol Bahamas Ltd. (b) 28,408 ------------- 133,572 ------------- Media -- 2.5% 24,567 Belo Corp., Class A 133,645 7,608 Dolan Media Co. (b) 77,678 4,233 Global Sources Ltd. (b) 26,456 10,691 Lee Enterprises, Inc. (b) 37,098 16,221 McClatchy (The) Co., Class A 57,422 2,263 Rentrak Corp. (b) 39,987 6,012 World Wrestling Entertainment, Inc., Class A 92,164 ------------- 464,450 ------------- Metals & Mining -- 1.1% 3,259 Haynes International, Inc. 107,450 2,609 Olympic Steel, Inc. 85,001 2,085 Sutor Technology Group Ltd. (b) 5,546 ------------- 197,997 ------------- Oil, Gas & Consumable Fuels -- 3.4% 11,598 ATP Oil & Gas Corp. (b) 212,012 33,803 Endeavour International Corp. (b) 36,507 5,461 EV Energy Partners L.P. (c) 165,086 1,343 Global Partners L.P. (c) 30,835 See Notes to Financial Statements Page 45 First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Oil, Gas & Consumable Fuels (Continued) 4,033 K-Sea Transportation Partners L.P. (c) $ 46,702 2,552 Martin Midstream Partners L.P. (c) 80,567 2,570 TransMontaigne Partners L.P. (c) 70,675 ------------- 642,384 ------------- Paper & Forest Products -- 1.1% 10,576 Buckeye Technologies, Inc. (b) 103,222 11,313 KapStone Paper & Packaging Corp. (b) 111,433 ------------- 214,655 ------------- Personal Products -- 2.5% 2,723 China Sky One Medical, Inc. (b) 61,948 7,351 Elizabeth Arden, Inc. (b) 106,149 3,790 Inter Parfums, Inc. 46,124 3,654 Medifast, Inc. (b) 111,739 11,752 Prestige Brands Holdings, Inc. (b) 92,371 3,212 Revlon, Inc., Class A (b) 54,636 ------------- 472,967 ------------- Pharmaceuticals -- 0.6% 2,546 Hi-Tech Pharmacal Co., Inc. (b) 71,415 4,206 Obagi Medical Products, Inc. (b) 50,472 ------------- 121,887 ------------- Professional Services -- 2.8% 4,240 Advisory Board (The) Co. (b) 129,998 3,599 CDI Corp. 46,607 2,986 CRA International, Inc. (b) 79,577 7,193 Hill International, Inc. (b) 44,884 3,478 ICF International, Inc. (b) 93,211 14,089 Spherion Corp. (b) 79,180 1,173 VSE Corp. 52,879 ------------- 526,336 ------------- Real Estate Investment Trusts -- 2.5% 5,253 American Capital Agency Corp. 139,415 16,905 Ashford Hospitality Trust (b) 78,439 8,223 First Potomac Realty Trust 103,363 18,803 NorthStar Realty Finance Corp. 64,494 8,425 Ramco-Gershenson Properties Trust 80,375 ------------- 466,086 ------------- Semiconductors & Semiconductor Equipment -- 0.8% 18,554 Kopin Corp. (b) 77,556 6,996 Pericom Semiconductor Corp. (b) 80,664 ------------- 158,220 ------------- Software -- 5.3% 12,232 Actuate Corp. (b) 52,353 9,596 Deltek, Inc. (b) 74,657 4,650 Double-Take Software, Inc. (b) 46,453 Shares Description Value - --------- ------------------------------------------------- Software (Continued) 4,453 i2 Technologies, Inc. (b) $ 85,141 3,563 Interactive Intelligence, Inc. (b) 65,702 5,433 Kenexa Corp. (b) 70,901 6,160 Manhattan Associates, Inc. (b) 148,025 6,353 Monotype Imaging Holdings, Inc. (b) 57,367 5,303 PROS Holdings, Inc. (b) 54,886 7,763 Radiant Systems, Inc. (b) 80,735 14,484 S1 Corp. (b) 94,436 11,288 TeleCommunication Systems, Inc. (b) 109,268 7,358 VASCO Data Security International, Inc. (b) 46,135 ------------- 986,059 ------------- Specialty Retail -- 2.8% 3,038 America's Car-Mart, Inc. (b) 79,991 5,152 Big 5 Sporting Goods Corp. 88,511 2,239 Books-A-Million, Inc. 15,046 3,147 Conn's, Inc. (b) 18,379 3,888 DSW, Inc., Class A (b) 100,621 3,252 Kirkland's, Inc. (b) 56,487 6,031 Lithia Motors, Inc., Class A (b) 49,575 3,986 West Marine, Inc. (b) 32,127 26,535 Wet Seal, Inc., Class A (b) 91,546 ------------- 532,283 ------------- Textiles, Apparel & Luxury Goods -- 1.7% 5,285 Maidenform Brands, Inc. (b) 88,206 3,929 Oxford Industries, Inc. 81,252 35,054 Quiksilver, Inc. (b) 70,809 4,643 Volcom, Inc. (b) 77,724 ------------- 317,991 ------------- Thrifts & Mortgage Finance -- 1.7% 2,949 ESB Financial Corp. 38,986 4,336 First Financial Holdings, Inc. 56,325 7,996 Flushing Financial Corp. 90,035 10,420 Provident New York Bancorp 87,945 1,937 WSFS Financial Corp. 49,645 ------------- 322,936 ------------- Tobacco -- 0.6% 24,323 Alliance One International, Inc. (b) 118,696 ------------- Trading Companies & Distributors -- 1.0% 7,624 H&E Equipment Services, Inc. (b) 79,976 4,512 Houston Wire & Cable Co. 53,693 3,991 Titan Machinery, Inc. (b) 46,056 ------------- 179,725 ------------- Wireless Telecommunication Services -- 0.4% 6,187 USA Mobility, Inc. 68,119 ------------- Page 46 See Notes to Financial Statements First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2009 Description Value ------------------------------------------------- Total Investments -- 99.9% (Cost $18,665,052) (d) $18,666,111 Net Other Assets and Liabilities -- 0.1% 12,544 ------------- Net Assets -- 100.0% $18,678,655 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Master Limited Partnership ("MLP"). (d) Aggregate cost for federal income tax purposes is $18,941,803. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,979,840 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,255,532. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $18,666,111 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 47 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.8% Capital Markets -- 0.0% 845 Legg Mason, Inc. $ 25,485 ------------- Chemicals -- 5.4% 1,709 Cabot Corp. 44,827 53,323 E.I. du Pont de Nemours & Co. 1,795,385 2,484 Eastman Chemical Co. 149,636 3,866 Olin Corp. 67,732 7,507 PPG Industries, Inc. 439,460 6,371 RPM International, Inc. 129,523 ------------- 2,626,563 ------------- Commercial Banks -- 0.7% 2,304 Bank of Hawaii Corp. 108,426 1,894 Community Bank System, Inc. 36,573 4,918 CVB Financial Corp. 42,492 2,974 Trustmark Corp. 67,034 3,323 United Bankshares, Inc. 66,360 ------------- 320,885 ------------- Commercial Services & Supplies -- 2.7% 1,842 Healthcare Services Group, Inc. 39,529 15,851 Pitney Bowes, Inc. 360,769 11,850 R.R. Donnelley & Sons Co. 263,900 19,824 Waste Management, Inc. 670,249 ------------- 1,334,447 ------------- Computers & Peripherals -- 0.2% 3,110 Diebold, Inc. 88,480 ------------- Containers & Packaging -- 0.3% 4,505 Sonoco Products Co. 131,771 ------------- Distributors -- 0.6% 8,238 Genuine Parts Co. 312,715 ------------- Diversified Consumer Services -- 0.6% 11,967 H&R Block, Inc. 270,694 ------------- Diversified Telecommunication Services -- 20.1% 175,729 AT&T, Inc. 4,925,684 28,417 CenturyTel, Inc. 1,028,980 114,127 Verizon Communications, Inc. 3,781,027 ------------- 9,735,691 ------------- Electric Utilities -- 17.6% 27,555 American Electric Power Co., Inc. 958,638 2,479 Cleco Corp. 67,751 5,903 DPL, Inc. 162,923 12,694 Edison International 441,497 2,975 Empire District Electric (The) Co. 55,722 33,544 Exelon Corp. 1,639,295 17,541 FirstEnergy Corp. 814,779 6,752 Hawaiian Electric Industries, Inc. 141,117 2,232 IDACORP, Inc. 71,312 7,958 Northeast Utilities 205,237 16,988 Pepco Holdings, Inc. 286,248 Shares Description Value - --------- ------------------------------------------------- Electric Utilities (Continued) 6,974 Pinnacle West Capital Corp. $ 255,109 19,599 PPL Corp. 633,244 20,598 Progress Energy, Inc. 844,724 50,477 Southern Co. 1,681,894 2,263 UIL Holdings Corp. 63,545 1,615 Unisource Energy Corp. 51,987 7,348 Westar Energy, Inc. 159,599 ------------- 8,534,621 ------------- Electrical Equipment -- 2.8% 29,616 Emerson Electric Co. 1,261,642 1,951 Hubbell, Inc., Class B 92,282 ------------- 1,353,924 ------------- Food & Staples Retailing -- 0.4% 14,202 SUPERVALU, Inc. 180,507 ------------- Food Products -- 5.4% 304 Cal-Maine Foods, Inc. 10,360 15,114 H. J. Heinz Co. 646,275 71,801 Kraft Foods, Inc., Class A 1,951,551 ------------- 2,608,186 ------------- Gas Utilities -- 1.9% 4,362 AGL Resources, Inc. 159,082 5,166 Atmos Energy Corp. 151,880 1,158 Laclede Group (The), Inc. 39,106 2,422 Nicor, Inc. 101,966 4,753 ONEOK, Inc. 211,841 3,573 Piedmont Natural Gas Co., Inc. 95,578 1,835 Southwest Gas Corp. 52,352 2,714 WGL Holdings, Inc. 91,028 ------------- 902,833 ------------- Household Products -- 2.5% 18,940 Kimberly-Clark Corp. 1,206,667 ------------- Insurance -- 1.3% 6,998 Arthur J. Gallagher & Co. 157,525 11,409 Cincinnati Financial Corp. 299,372 1,836 Erie Indemnity Co., Class A 71,641 633 Harleysville Group, Inc. 20,123 1,980 Mercury General Corp. 77,735 ------------- 626,396 ------------- IT Services -- 1.0% 15,604 Paychex, Inc. 478,107 ------------- Leisure Equipment & Products -- 0.8% 16,819 Mattel, Inc. 336,044 1,462 Polaris Industries, Inc. 63,787 ------------- 399,831 ------------- Machinery -- 0.0% 1,082 Barnes Group, Inc. 18,286 ------------- Media -- 0.1% 4,984 Regal Entertainment Group, Class A 71,969 ------------- Page 48 See Notes to Financial Statements First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Multi-Utilities -- 12.1% 6,706 Alliant Energy Corp. $ 202,924 2,595 Avista Corp. 56,026 2,603 Black Hills Corp. 69,318 23,614 CenterPoint Energy, Inc. 342,639 1,008 CH Energy Group, Inc. 42,860 18,171 Consolidated Edison, Inc. 825,509 32,901 Dominion Resources, Inc. 1,280,507 9,760 DTE Energy Co. 425,438 20,061 NiSource, Inc. 308,538 5,616 NSTAR 206,669 4,633 OGE Energy Corp. 170,911 24,772 Public Service Enterprise Group, Inc. 823,669 6,823 SCANA Corp. 257,091 12,366 TECO Energy, Inc. 200,576 5,485 Vectren Corp. 135,370 25,686 Xcel Energy, Inc. 545,057 ------------- 5,893,102 ------------- Pharmaceuticals -- 18.1% 117,135 Bristol-Myers Squibb Co. 2,957,659 66,510 Eli Lilly & Co. 2,375,072 93,846 Merck & Co., Inc. 3,429,133 ------------- 8,761,864 ------------- Specialty Retail -- 0.7% 11,791 Foot Locker, Inc. 131,352 10,778 Limited Brands, Inc. 207,368 ------------- 338,720 ------------- Textiles, Apparel & Luxury Goods -- 0.5% 3,472 VF Corp. 254,289 ------------- Thrifts & Mortgage Finance -- 2.3% 9,571 First Niagara Financial Group, Inc. 133,132 27,479 Hudson City Bancorp, Inc. 377,287 38,704 New York Community Bancorp, Inc. 561,595 2,023 Northwest Bancshares, Inc. 22,900 2,918 Provident Financial Services, Inc. 31,077 ------------- 1,125,991 ------------- Tobacco -- 1.6% 13,371 Reynolds American, Inc. 708,262 1,219 Universal Corp. 55,598 ------------- 763,860 ------------- Trading Companies & Distributors -- 0.1% 1,880 GATX Corp. 54,050 ------------- Description Value ------------------------------------------------- Total Investments -- 99.8% (Cost $44,834,045) (b) $ 48,419,934 Net Other Assets and Liabilities -- 0.2% 84,669 ------------- Net Assets -- 100.0% $ 48,504,603 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Aggregate cost for federal income tax purposes is $45,541,942. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,415,212 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,537,220. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements) Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $48,419,934 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 49 First Trust US IPO Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.9% Aerospace & Defense -- 1.4% 1,003 DigitalGlobe, Inc. (b) $ 24,273 1,256 DynCorp International, Inc., Class A (b) 18,024 3,153 Spirit AeroSystems Holdings, Inc., Class A (b) 62,618 1,093 TransDigm Group, Inc. 51,906 ------------- 156,821 ------------- Airlines -- 0.2% 446 Allegiant Travel Co. (b) 21,038 ------------- Auto Components -- 0.3% 1,430 WABCO Holdings, Inc. 36,880 ------------- Beverages -- 1.5% 5,679 Dr. Pepper Snapple Group, Inc. 160,716 ------------- Biotechnology -- 0.7% 851 Acorda Therapeutics, Inc. (b) 21,462 2,677 Talecris Biotherapeutics Holdings Corp. (b) 59,617 ------------- 81,079 ------------- Capital Markets -- 2.2% 674 KBW, Inc. (b) 18,441 2,060 Lazard Ltd., Class A (c) 78,218 2,717 MF Global Ltd. (b) 18,883 7,997 Och-Ziff Capital Management Group LLC, Class A (c) 109,879 1,402 RiskMetrics Group, Inc. (b) 22,306 ------------- 247,727 ------------- Chemicals -- 1.8% 1,084 CF Industries Holdings, Inc. 98,406 5,304 Huntsman Corp. 59,882 1,657 Rockwood Holdings, Inc. (b) 39,039 ------------- 197,327 ------------- Commercial Services & Supplies -- 0.2% 1,975 EnergySolutions, Inc. 16,768 ------------- Communications Equipment -- 0.2% 1,977 Aruba Networks, Inc. (b) 21,075 ------------- Computers & Peripherals -- 1.1% 3,827 Teradata Corp. (b) 120,283 ------------- Construction & Engineering -- 1.2% 2,517 Aecom Technology Corp. (b) 69,218 3,584 KBR, Inc. 68,096 ------------- 137,314 ------------- Consumer Finance -- 1.6% 12,133 Discover Financial Services 178,476 ------------- Shares Description Value - --------- ------------------------------------------------- Diversified Consumer Services -- 1.2% 1,194 Bridgepoint Education, Inc. (b) $ 17,934 373 Capella Education Co. (b) 28,087 3,192 Education Management Corp. (b) 70,256 1,018 Grand Canyon Education, Inc. (b) 19,352 ------------- 135,629 ------------- Diversified Financial Services -- 0.7% 2,313 MSCI, Inc., Class A (b) 73,553 ------------- Diversified Telecommunication Services -- 1.0% 16,201 Clearwire Corp., Class A (b) 109,519 ------------- Electric Utilities -- 0.5% 1,133 ITC Holdings Corp. 59,018 ------------- Electrical Equipment -- 3.4% 2,291 A123 Systems, Inc. (b) 51,410 1,900 First Solar, Inc. (b) 257,260 3,208 GT Solar International, Inc. (b) 17,837 2,168 SunPower Corp., Class A (b) 51,338 ------------- 377,845 ------------- Electronic Equipment, Instruments & Components -- 2.3% 10,257 Tyco Electronics Ltd. 251,809 ------------- Energy Equipment & Services -- 0.7% 1,672 Complete Production Services, Inc. (b) 21,736 1,845 Dresser-Rand Group, Inc. (b) 58,320 ------------- 80,056 ------------- Food Products -- 0.2% 1,954 Dole Food Co., Inc. (b) 24,249 ------------- Health Care Equipment & Supplies -- 5.5% 11,161 Covidien PLC 534,500 2,508 ev3, Inc. (b) 33,457 1,288 Masimo Corp. (b) 39,181 ------------- 607,138 ------------- Health Care Providers & Services -- 1.3% 2,651 Brookdale Senior Living, Inc. (b) 48,222 2,607 Emdeon, Inc., Class A (b) 39,757 1,285 Healthspring, Inc. (b) 22,629 3,570 Select Medical Holdings Corp. (b) 37,913 ------------- 148,521 ------------- Health Care Technology -- 0.2% 1,019 MedAssets, Inc. (b) 21,613 ------------- Hotels, Restaurants & Leisure -- 3.4% 3,022 Burger King Holdings, Inc. 56,874 Page 50 See Notes to Financial Statements First Trust US IPO Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Hotels, Restaurants & Leisure (Continued) 3,884 Hyatt Hotels Corp., Class A (b) $ 115,782 4,046 Tim Hortons, Inc. 123,443 3,993 Wyndham Worldwide Corp. 80,539 ------------- 376,638 ------------- Insurance -- 1.6% 1,107 Allied World Assurance Holdings Ltd. 51,000 1,850 Flagstone Reinsurance Holdings Ltd. 20,239 2,126 OneBeacon Insurance Group Ltd., Class A 29,296 2,931 Validus Holdings Ltd. 78,961 ------------- 179,496 ------------- Internet & Catalog Retail -- 0.2% 1,259 HSN, Inc. (b) 25,419 ------------- Internet Software & Services -- 2.0% 2,409 AOL, Inc. (b) 56,082 2,738 Rackspace Hosting, Inc. (b) 57,087 962 Vistaprint NV (b) 54,507 1,272 WebMD Health Corp., Class A (b) 48,959 ------------- 216,635 ------------- IT Services -- 22.6% 3,059 Broadridge Financial Solutions, Inc. 69,011 4,818 Genpact Ltd. (b) 71,788 2,900 MasterCard, Inc., Class A 742,342 1,660 NeuStar, Inc., Class A (b) 38,247 8,888 SAIC, Inc. (b) 168,339 12,707 Visa, Inc., Class A 1,111,354 15,471 Western Union Co. 291,628 ------------- 2,492,709 ------------- Media -- 8.8% 2,444 Cinemark Holdings, Inc. 35,120 1,084 Morningstar, Inc. (b) 52,401 3,702 Scripps Networks Interactive, Class A 153,633 7,878 Time Warner Cable, Inc. 326,070 13,568 Viacom, Inc., Class B (b) 403,377 ------------- 970,601 ------------- Multiline Retail -- 1.5% 7,614 Dollar General Corp. (b) 170,782 ------------- Oil, Gas & Consumable Fuels -- 6.8% 1,918 Concho Resources, Inc. (b) 86,118 3,797 Continental Resources, Inc. (b) 162,853 1,287 Duncan Energy Partners L.P. (c) 30,566 4,732 EXCO Resources, Inc. 100,461 2,019 Patriot Coal Corp. (b) 31,214 4,593 SandRidge Energy, Inc. (b) 43,312 14,457 Spectra Energy Corp. 296,513 ------------- 751,037 ------------- Shares Description Value - --------- ------------------------------------------------- Personal Products -- 2.5% 2,057 Bare Escentuals, Inc. (b) $ 25,157 1,364 Herbalife Ltd. 55,337 4,571 Mead Johnson Nutrition Co., Class A 199,753 ------------- 280,247 ------------- Pharmaceuticals -- 1.5% 5,621 Warner Chilcott PLC, Class A (b) 160,030 ------------- Professional Services -- 1.8% 1,412 IHS, Inc., Class A (b) 77,392 4,024 Verisk Analytics, Inc., Class A (b) 121,846 ------------- 199,238 ------------- Road & Rail -- 1.0% 9,159 Hertz Global Holdings, Inc. (b) 109,175 ------------- Semiconductors & Semiconductor Equipment -- 0.5% 930 Cavium Networks, Inc. (b) 22,162 672 Hittite Microwave Corp. (b) 27,384 ------------- 49,546 ------------- Software -- 1.7% 940 CommVault Systems, Inc. (b) 22,269 1,479 Fortinet, Inc. (b) 25,986 1,392 NetSuite, Inc. (b) 22,244 1,453 Solarwinds, Inc. (b) 33,433 1,554 Solera Holdings, Inc. 55,960 1,599 SuccessFactors, Inc. (b) 26,511 ------------- 186,403 ------------- Specialty Retail -- 0.6% 1,419 J. Crew Group, Inc. (b) 63,486 ------------- Textiles, Apparel & Luxury Goods -- 0.5% 2,127 Hanesbrands, Inc. (b) 51,282 ------------- Tobacco -- 12.2% 3,591 Lorillard, Inc. 288,106 21,860 Philip Morris International, Inc. 1,053,433 ------------- 1,341,539 ------------- Water Utilities -- 0.8% 3,903 American Water Works Co., Inc. 87,466 ------------- Wireless Telecommunication Services -- 0.5% 7,877 MetroPCS Communications, Inc. (b) 60,102 ------------- Total Investments -- 99.9% (Cost $10,700,735) (d) 11,036,285 Net Other Assets and Liabilities -- 0.1% 6,723 ------------- Net Assets -- 100.0% $11,043,008 ============= See Notes to Financial Statements Page 51 First Trust US IPO Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Master Limited Partnership ("MLP"). (d) Aggregate cost for federal income tax purposes is $10,837,142. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,317,054 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,117,911. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $11,036,285 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. Page 52 See Notes to Financial Statements First Trust NASDAQ-100 Equal Weighted Index(SM) Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 100.0% Air Freight & Logistics -- 2.0% 6,792 C.H. Robinson Worldwide, Inc. $ 398,894 11,387 Expeditors International of Washington, Inc. 395,471 ------------- 794,365 ------------- Biotechnology -- 7.0% 7,082 Amgen, Inc. (b) 400,629 7,888 Biogen Idec, Inc. (b) 422,008 7,066 Celgene Corp. (b) 393,435 6,691 Cephalon, Inc. (b) 417,585 8,095 Genzyme Corp. (b) 396,736 9,225 Gilead Sciences, Inc. (b) 399,258 9,333 Vertex Pharmaceuticals, Inc. (b) 399,919 ------------- 2,829,570 ------------- Chemicals -- 1.0% 7,698 Sigma-Aldrich Corp. 388,980 ------------- Commercial Services & Supplies -- 1.8% 13,378 Cintas Corp. 348,497 7,164 Stericycle, Inc. (b) 395,238 ------------- 743,735 ------------- Communications Equipment -- 3.0% 16,935 Cisco Systems, Inc. (b) 405,424 8,865 QUALCOMM, Inc. 410,095 5,647 Research In Motion Ltd. (b) 381,398 ------------- 1,196,917 ------------- Computers & Peripherals -- 6.2% 2,019 Apple, Inc. (b) 425,726 28,753 Dell, Inc. (b) 412,893 23,419 Logitech International S.A. (b) 400,465 11,890 NetApp, Inc. (b) 408,897 15,660 SanDisk Corp. (b) 453,983 22,629 Seagate Technology 411,622 ------------- 2,513,586 ------------- Construction & Engineering -- 1.0% 13,481 Foster Wheeler AG (b) 396,881 ------------- Diversified Consumer Services -- 1.0% 6,765 Apollo Group, Inc., Class A (b) 409,824 ------------- Electrical Equipment -- 1.0% 2,910 First Solar, Inc. (b) 394,014 ------------- Electronic Equipment, Instruments & Components -- 2.1% 56,042 Flextronics International Ltd. (b) 409,667 13,011 FLIR Systems, Inc. (b) 425,720 ------------- 835,387 ------------- Food & Staples Retailing -- 1.0% 6,763 Costco Wholesale Corp. 400,167 ------------- Shares Description Value - --------- ------------------------------------------------- Health Care Equipment & Supplies -- 3.1% 11,476 DENTSPLY International, Inc. $ 403,611 28,921 Hologic, Inc. (b) 419,355 1,364 Intuitive Surgical, Inc. (b) 413,728 ------------- 1,236,694 ------------- Health Care Providers & Services -- 3.0% 4,681 Express Scripts, Inc. (b) 404,672 7,658 Henry Schein, Inc. (b) 402,811 14,643 Patterson Cos., Inc. (b) 409,711 ------------- 1,217,194 ------------- Health Care Technology -- 1.0% 5,074 Cerner Corp. (b) 418,300 ------------- Hotels, Restaurants & Leisure -- 1.9% 16,685 Starbucks Corp. (b) 384,756 6,585 Wynn Resorts Ltd. 383,445 ------------- 768,201 ------------- Household Durables -- 1.0% 12,675 Garmin Ltd. 389,122 ------------- Internet & Catalog Retail -- 4.0% 3,078 Amazon.com, Inc. (b) 414,052 15,660 Expedia, Inc. (b) 402,619 37,880 Liberty Media Corp. - Interactive, Class A (b) 410,619 1,828 priceline.com, Inc. (b) 399,418 ------------- 1,626,708 ------------- Internet Software & Services -- 5.0% 952 Baidu, Inc., ADR (b) 391,491 17,427 eBay, Inc. (b) 410,231 662 Google, Inc., Class A (b) 410,427 16,565 VeriSign, Inc. (b) 401,535 24,479 Yahoo!, Inc. (b) 410,758 ------------- 2,024,442 ------------- IT Services -- 4.9% 9,331 Automatic Data Processing, Inc. 399,554 8,891 Cognizant Technology Solutions Corp., Class A (b) 402,762 8,296 Fiserv, Inc. (b) 402,190 7,221 Infosys Technologies Ltd., ADR 399,105 12,780 Paychex, Inc. 391,579 ------------- 1,995,190 ------------- Leisure Equipment & Products -- 1.0% 19,835 Mattel, Inc. 396,303 ------------- Life Sciences Tools & Services -- 3.0% 14,173 Illumina, Inc. (b) 434,403 7,700 Life Technologies Corp. (b) 402,171 17,670 QIAGEN N.V. (b) 394,394 ------------- 1,230,968 ------------- See Notes to Financial Statements Page 53 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Machinery -- 2.0% 7,624 Joy Global, Inc. $ 393,322 10,961 PACCAR, Inc. 397,556 ------------- 790,878 ------------- Media -- 4.9% 22,929 Comcast Corp., Class A 386,583 11,966 DIRECTV, Class A (b) 399,066 18,851 DISH Network Corp., Class A 391,535 29,615 News Corp., Class A 405,429 23,574 Virgin Media, Inc. 396,751 ------------- 1,979,364 ------------- Multiline Retail -- 1.1% 5,180 Sears Holdings Corp. (b) 432,271 ------------- Pharmaceuticals -- 3.0% 21,649 Mylan, Inc. (b) 398,991 7,467 Teva Pharmaceutical Industries Ltd., ADR 419,496 14,468 Warner Chilcott PLC, Class A (b) 411,904 ------------- 1,230,391 ------------- Road & Rail -- 0.9% 11,929 J.B. Hunt Transport Services, Inc. 384,949 ------------- Semiconductors & Semiconductor Equipment -- 12.1% 17,558 Altera Corp. 397,338 29,048 Applied Materials, Inc. 404,929 12,539 Broadcom Corp., Class A (b) 394,352 20,159 Intel Corp. 411,244 10,916 KLA-Tencor Corp. 394,723 10,387 Lam Research Corp. (b) 407,274 13,501 Linear Technology Corp. 412,320 19,755 Marvell Technology Group Ltd. (b) 409,916 19,598 Maxim Integrated Products, Inc. 397,839 13,901 Microchip Technology, Inc. 403,963 23,490 NVIDIA Corp. (b) 438,793 16,028 Xilinx, Inc. 401,662 ------------- 4,874,353 ------------- Software -- 12.0% 35,721 Activision Blizzard, Inc. (b) 396,860 10,583 Adobe Systems, Inc. (b) 389,243 16,062 Autodesk, Inc. (b) 408,136 10,514 BMC Software, Inc. (b) 421,611 17,526 CA, Inc. 393,634 11,923 Check Point Software Technologies, Ltd. (b) 403,951 10,023 Citrix Systems, Inc. (b) 417,057 23,628 Electronic Arts, Inc. (b) 419,397 12,965 Intuit, Inc. (b) 398,155 13,067 Microsoft Corp. 398,413 16,233 Oracle Corp. 398,358 22,434 Symantec Corp. (b) 401,344 ------------- 4,846,159 ------------- Shares Description Value - --------- ------------------------------------------------- Specialty Retail -- 5.0% 10,538 Bed Bath & Beyond, Inc. (b) $ 407,083 10,524 O'Reilly Automotive, Inc. (b) 401,175 9,211 Ross Stores, Inc. 393,402 16,079 Staples, Inc. 395,382 11,896 Urban Outfitters, Inc. (b) 416,241 ------------- 2,013,283 ------------- Trading Companies & Distributors -- 1.0% 9,889 Fastenal Co. 411,778 ------------- Wireless Telecommunication Services -- 3.0% 5,402 Millicom International Cellular S.A. 398,505 11,653 NII Holdings, Inc. (b) 391,308 17,663 Vodafone Group PLC, ADR 407,839 ------------- 1,197,652 ------------- Total Investments -- 100.0% (Cost $35,343,480) (c) 40,367,626 Net Other Assets and Liabilities -- 0.0% 1,224 ------------- Net Assets -- 100.0% $40,368,850 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $36,793,034. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,540,370 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $965,778. ADR -- American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $40,367,626 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. Page 54 See Notes to Financial Statements First Trust NASDAQ-100 Technology Sector Index(SM) Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 100.0% Communications Equipment -- 7.7% 95,103 Cisco Systems, Inc. (b) $ 2,276,766 49,792 QUALCOMM, Inc. 2,303,378 31,701 Research In Motion Ltd. (b) 2,141,085 ------------- 6,721,229 ------------- Computers & Peripherals -- 16.3% 11,349 Apple, Inc. (b) 2,393,050 161,481 Dell, Inc. (b) 2,318,867 131,520 Logitech International S.A. (b) 2,248,992 66,769 NetApp, Inc. (b) 2,296,186 87,940 SanDisk Corp. (b) 2,549,381 127,076 Seagate Technology 2,311,512 ------------- 14,117,988 ------------- Health Care Technology -- 2.7% 28,485 Cerner Corp. (b) 2,348,304 ------------- Internet Software & Services -- 10.5% 5,354 Baidu, Inc., ADR (b) 2,201,725 3,721 Google, Inc., Class A (b) 2,306,946 93,030 VeriSign, Inc. (b) 2,255,047 137,468 Yahoo!, Inc. (b) 2,306,713 ------------- 9,070,431 ------------- IT Services -- 5.2% 49,927 Cognizant Technology Solutions Corp., Class A (b) 2,261,693 40,555 Infosys Technologies Ltd., ADR 2,241,475 ------------- 4,503,168 ------------- Semiconductors & Semiconductor Equipment -- 31.5% 98,611 Altera Corp. 2,231,567 163,144 Applied Materials, Inc. 2,274,227 70,414 Broadcom Corp., Class A (b) 2,214,520 113,202 Intel Corp. 2,309,321 61,309 KLA-Tencor Corp. 2,216,934 58,343 Lam Research Corp. (b) 2,287,629 75,829 Linear Technology Corp. 2,315,818 110,937 Marvell Technology Group Ltd. (b) 2,301,943 110,057 Maxim Integrated Products, Inc. 2,234,157 78,070 Microchip Technology, Inc. 2,268,714 131,912 NVIDIA Corp. (b) 2,464,116 90,010 Xilinx, Inc. 2,255,651 ------------- 27,374,597 ------------- Software -- 26.1% 59,436 Adobe Systems, Inc. (b) 2,186,056 90,193 Autodesk, Inc. (b) 2,291,804 59,056 BMC Software, Inc. (b) 2,368,146 98,436 CA, Inc. 2,210,872 66,950 Check Point Software Technologies, Ltd. (b) 2,268,266 56,299 Citrix Systems, Inc. (b) 2,342,601 72,817 Intuit, Inc. (b) 2,236,210 73,371 Microsoft Corp. 2,237,082 Shares Description Value - --------- ------------------------------------------------- Software (Continued) 91,157 Oracle Corp. $ 2,236,993 125,994 Symantec Corp. (b) 2,254,033 ------------- 22,632,063 ------------- Total Investments -- 100.0% (Cost $76,984,837) (c) 86,767,780 Net Other Assets and Liabilities -- 0.0% (2,165) ------------- Net Assets -- 100.0% $86,765,615 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $78,412,845. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $8,585,843 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $230,908. ADR - American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $86,767,780 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 55 First Trust NYSE Arca Biotechnology Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.8% Biotechnology -- 72.5% 72,145 Alexion Pharmaceuticals, Inc. (b) $ 3,522,119 54,084 Amgen, Inc. (b) 3,059,532 229,786 Amylin Pharmaceuticals, Inc. (b) 3,260,663 67,408 Biogen Idec, Inc. (b) 3,606,328 497,511 Celera Corp. (b) 3,437,801 58,821 Celgene Corp. (b) 3,275,153 60,993 Cephalon, Inc. (b) 3,806,573 59,315 Genzyme Corp. (b) 2,907,028 71,849 Gilead Sciences, Inc. (b) 3,109,625 166,199 Human Genome Sciences, Inc. (b) 5,085,690 230,152 InterMune, Inc. (b) 3,001,182 122,774 Myriad Genetics, Inc. (b) 3,204,401 104,022 OSI Pharmaceuticals, Inc. (b) 3,227,803 95,239 Vertex Pharmaceuticals, Inc. (b) 4,080,991 ------------- 48,584,889 ------------- Life Sciences Tools & Services -- 22.5% 373,652 Affymetrix, Inc. (b) 2,182,128 76,092 Illumina, Inc. (b) 2,332,220 68,197 Life Technologies Corp. (b) 3,561,929 44,892 Millipore Corp. (b) 3,247,936 916,661 Sequenom, Inc. (b) 3,794,976 ------------- 15,119,189 ------------- Pharmaceuticals -- 4.8% 345,327 Nektar Therapeutics (b) 3,218,448 ------------- Total Investments -- 99.8% (Cost $65,751,329) (c) 66,922,526 Net Other Assets and Liabilities -- 0.2% 145,842 ------------- Net Assets -- 100.0% $67,068,368 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $68,586,147. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $7,674,135 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,337,756. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $66,922,526 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout.~ Page 56 See Notes to Financial Statements First Trust Dow Jones Internet Index(SM) Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 100.0% Capital Markets -- 5.6% 1,326,401 E*TRADE Financial Corp. (b) $ 2,321,202 132,819 TD Ameritrade Holding Corp. (b) 2,574,032 ------------- 4,895,234 ------------- Communications Equipment -- 6.9% 143,466 Juniper Networks, Inc. (b) 3,826,238 56,325 NETGEAR, Inc. (b) 1,221,690 456,402 Sonus Networks, Inc. (b) 963,008 ------------- 6,010,936 ------------- Health Care Technology -- 1.8% 75,816 Allscripts-Misys Healthcare Solutions, Inc. (b) 1,533,757 ------------- Internet & Catalog Retail -- 18.7% 42,684 Amazon.com, Inc. (b) 5,741,852 22,258 Blue Nile, Inc. (b) 1,409,599 104,568 Expedia, Inc. (b) 2,688,443 35,917 Netflix, Inc. (b) 1,980,463 15,148 priceline.com, Inc. (b) 3,309,838 89,307 Ticketmaster Entertainment, Inc. (b) 1,091,332 ------------- 16,221,527 ------------- Internet Software & Services -- 43.9% 98,174 Akamai Technologies, Inc. (b) 2,486,748 255,754 Art Technology Group, Inc. (b) 1,153,451 61,379 Constant Contact, Inc. (b) 982,064 64,267 DealerTrack Holdings, Inc. (b) 1,207,577 52,469 Digital River, Inc. (b) 1,416,138 159,117 EarthLink, Inc. 1,322,262 212,507 eBay, Inc. (b) 5,002,415 13,899 Google, Inc., Class A (b) 8,617,102 92,854 IAC/InterActiveCorp (b) 1,901,650 192,290 Internap Network Services Corp. (b) 903,763 66,894 j2 Global Communications, Inc. (b) 1,361,293 236,299 RealNetworks, Inc. (b) 876,669 159,112 United Online, Inc. 1,144,015 132,293 ValueClick, Inc. (b) 1,338,805 110,886 VeriSign, Inc. (b) 2,687,877 48,254 Vocus, Inc. (b) 868,572 285,712 Yahoo!, Inc. (b) 4,794,247 ------------- 38,064,648 ------------- IT Services -- 3.5% 83,733 CyberSource Corp. (b) 1,683,871 158,580 Sapient Corp. (b) 1,311,456 ------------- 2,995,327 ------------- Professional Services -- 2.3% 112,110 Monster Worldwide, Inc. (b) 1,950,714 ------------- Shares Description Value - --------- ------------------------------------------------- Software -- 17.3% 124,447 Ariba, Inc. (b) $ 1,558,076 81,848 Check Point Software Technologies, Ltd. (b) 2,773,010 43,017 Concur Technologies, Inc. (b) 1,838,977 82,253 Quest Software, Inc. (b) 1,513,455 45,041 Salesforce.com, Inc. (b) 3,322,675 123,518 SonicWALL, Inc. (b) 939,972 186,742 TIBCO Software, Inc. (b) 1,798,326 69,020 Websense, Inc. (b) 1,205,089 ------------- 14,949,580 ------------- Total Investments -- 100.0% (Cost $72,562,573) (c) 86,621,723 Net Other Assets and Liabilities -- 0.0% (7,114) ------------- Net Assets -- 100.0% $ 86,614,609 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $77,651,291. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $12,002,482 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,032,050. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $86,621,723 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout.~ See Notes to Financial Statements Page 57 First Trust DB Strategic Value Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.9% Aerospace & Defense -- 12.1% 18,811 General Dynamics Corp. $ 1,282,346 31,654 Honeywell International, Inc. 1,240,837 24,257 ITT Corp. 1,206,543 16,247 Lockheed Martin Corp. 1,224,212 24,143 Raytheon Co. 1,243,847 ------------- 6,197,785 ------------- Beverages -- 2.4% 19,900 PepsiCo, Inc. 1,209,920 ------------- Biotechnology -- 7.5% 22,340 Amgen, Inc. (b) 1,263,774 26,372 Biogen Idec, Inc. (b) 1,410,902 27,272 Gilead Sciences, Inc. (b) 1,180,332 ------------- 3,855,008 ------------- Computers & Peripherals -- 2.6% 94,402 Dell, Inc. (b) 1,355,613 ------------- Food Products -- 5.0% 40,222 Archer-Daniels-Midland Co. 1,259,351 56,222 ConAgra Foods, Inc. 1,295,917 ------------- 2,555,268 ------------- Health Care Equipment & Supplies -- 17.7% 22,511 Baxter International, Inc. 1,320,945 16,347 Becton, Dickinson & Co. 1,289,124 149,135 Boston Scientific Corp. (b) 1,342,215 29,507 Medtronic, Inc. 1,297,718 34,527 St. Jude Medical, Inc. (b) 1,269,903 24,532 Stryker Corp. 1,235,677 21,569 Zimmer Holdings, Inc. (b) 1,274,944 ------------- 9,030,526 ------------- Health Care Providers & Services -- 5.0% 39,548 Cardinal Health, Inc. 1,275,027 20,850 McKesson Corp. 1,303,125 ------------- 2,578,152 ------------- Independent Power Producers & Energy Traders -- 2.5% 95,108 AES (The) Corp. (b) 1,265,887 ------------- Industrial Conglomerates -- 2.3% 78,486 General Electric Co. 1,187,493 ------------- Internet Software & Services -- 5.4% 3,679 AOL, Inc. (b) 85,647 53,679 eBay, Inc. (b) 1,263,604 83,651 Yahoo!, Inc. (b) 1,403,664 ------------- 2,752,915 ------------- Media -- 5.1% 105,621 News Corp., Class A 1,445,951 40,441 Time Warner, Inc. 1,178,451 ------------- 2,624,402 ------------- Shares Description Value - --------- ------------------------------------------------- Oil, Gas & Consumable Fuels -- 5.0% 16,274 Chevron Corp. $ 1,252,935 25,084 ConocoPhillips 1,281,040 ------------- 2,533,975 ------------- Pharmaceuticals -- 17.3% 23,625 Abbott Laboratories 1,275,514 50,583 Bristol-Myers Squibb Co. 1,277,221 33,985 Eli Lilly & Co. 1,213,604 40,724 Forest Laboratories, Inc. (b) 1,307,648 19,743 Johnson & Johnson 1,271,647 34,922 Merck & Co., Inc. 1,276,050 68,719 Pfizer, Inc. 1,249,998 ------------- 8,871,682 ------------- Software -- 2.5% 42,381 Microsoft Corp. 1,292,197 ------------- Specialty Retail -- 2.4% 58,366 Gap (The), Inc. 1,222,768 ------------- Textiles, Apparel & Luxury Goods -- 2.6% 19,760 NIKE, Inc., Class B 1,305,543 ------------- Tobacco -- 2.5% 24,301 Reynolds American, Inc. 1,287,224 ------------- Total Investments -- 99.9% (Cost $44,958,943) (c) 51,126,358 Net Other Assets and Liabilities -- 0.1% 37,190 ------------- Net Assets -- 100.0% $51,163,548 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $47,132,555. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $5,127,354 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,133,551. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $51,126,358 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout.~ Page 58 See Notes to Financial Statements First Trust Value Line(R) Equity Allocation Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.9% Aerospace & Defense -- 3.1% 956 AAR Corp. (b) $ 21,969 1,265 Goodrich Corp. 81,276 471 HEICO Corp. 20,879 1,593 Rockwell Collins, Inc. 88,189 ------------- 212,313 ------------- Auto Components -- 0.3% 1,177 Tenneco, Inc. (b) 20,868 ------------- Automobiles -- 2.5% 1,522 Daimler AG 81,123 8,904 Ford Motor Co. (b) 89,040 ------------- 170,163 ------------- Beverages -- 0.4% 2,979 Cott Corp. (b) 24,428 ------------- Biotechnology -- 1.0% 1,252 Human Genome Sciences, Inc. (b) 38,311 3,211 Incyte Corp. Ltd. (b) 29,252 ------------- 67,563 ------------- Capital Markets -- 0.8% 1,055 Federated Investors, Inc., Class B 29,012 797 Legg Mason, Inc. 24,038 ------------- 53,050 ------------- Chemicals -- 1.2% 820 Ashland, Inc. 32,488 402 Minerals Technologies, Inc. 21,897 241 NewMarket Corp. 27,660 ------------- 82,045 ------------- Commercial Banks -- 3.5% 1,498 Bank of Montreal 79,514 7,829 Marshall & Ilsley Corp. 42,668 17,625 Popular, Inc. 39,833 1,210 Toronto-Dominion (The) Bank 75,891 ------------- 237,906 ------------- Commercial Services & Supplies -- 0.2% 1,054 Deluxe Corp. 15,589 ------------- Communications Equipment -- 0.3% 816 ADTRAN, Inc. 18,401 ------------- Computers & Peripherals -- 3.2% 4,910 Dell, Inc. (b) 70,508 1,424 Hewlett-Packard Co. 73,350 588 International Business Machines Corp. 76,969 ------------- 220,827 ------------- Construction & Engineering -- 2.0% 1,290 Fluor Corp. 58,102 1,180 Foster Wheeler AG (b) 34,739 1,220 KBR, Inc. 23,180 Shares Description Value - --------- ------------------------------------------------- Construction & Engineering (Continued) 799 Layne Christensen Co. (b) $ 22,939 ------------- 138,960 ------------- Consumer Finance -- 1.1% 5,114 Discover Financial Services 75,227 ------------- Containers & Packaging -- 2.2% 591 Ball Corp. 30,555 345 Greif, Inc., Class A 18,623 2,127 Owens-Illinois, Inc. (b) 69,915 1,530 Packaging Corp. of America 35,205 ------------- 154,298 ------------- Diversified Financial Services -- 1.5% 4,009 Bank of America Corp. 60,376 14,036 Citigroup, Inc. 46,459 ------------- 106,835 ------------- Diversified Telecommunication Services -- 1.2% 954 Telefonica S.A., ADR 79,678 ------------- Electric Utilities -- 2.6% 4,771 Duke Energy Corp. 82,109 1,178 El Paso Electric Co. (b) 23,890 1,759 Progress Energy, Inc. 72,136 ------------- 178,135 ------------- Electrical Equipment -- 0.4% 626 Hubbell, Inc., Class B 29,610 ------------- Electronic Equipment, Instruments & Components -- 4.3% 23,239 Sanmina-SCI Corp. (b) 256,326 811 Tech Data Corp. (b) 37,841 ------------- 294,167 ------------- Energy Equipment & Services -- 3.6% 796 Diamond Offshore Drilling, Inc. 78,342 2,023 Noble Corp. 82,336 1,342 Schlumberger Ltd. 87,351 ------------- 248,029 ------------- Food & Staples Retailing -- 0.4% 16,404 Rite Aid Corp. (b) 24,770 ------------- Food Products -- 2.8% 2,734 Del Monte Foods Co. 31,004 1,342 J. M. Smucker (The) Co. 82,868 2,542 Unilever PLC, ADR 81,090 ------------- 194,962 ------------- Gas Utilities -- 0.3% 453 Suburban Propane Partners L.P. (c) 21,327 ------------- Health Care Equipment & Supplies -- 3.4% 548 Alcon, Inc. 90,064 1,835 Align Technology, Inc. (b) 32,700 See Notes to Financial Statements Page 59 First Trust Value Line(R) Equity Allocation Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Health Care Equipment & Supplies (Continued) 670 Cooper (The) Cos., Inc. $ 25,540 1,020 Cyberonics, Inc. (b) 20,849 797 Inverness Medical Innovations, Inc. (b) 33,084 796 Kinetic Concepts, Inc. (b) 29,969 ------------- 232,206 ------------- Health Care Providers & Services -- 1.4% 921 Community Health Systems, Inc. (b) 32,788 4,297 Health Management Associates, Inc., Class A (b) 31,239 5,846 Tenet Healthcare Corp. (b) 31,510 ------------- 95,537 ------------- Health Care Technology -- 0.9% 1,092 Eclipsys Corp. (b) 20,224 2,157 IMS Health, Inc. 45,426 ------------- 65,650 ------------- Hotels, Restaurants & Leisure -- 0.6% 211 Chipotle Mexican Grill, Inc., Class A (b) 18,602 650 WMS Industries, Inc. (b) 26,000 ------------- 44,602 ------------- Household Durables -- 2.2% 1,305 American Greetings Corp., Class A 28,436 1,200 Jarden Corp. 37,092 2,274 La-Z-Boy, Inc. (b) 21,671 1,260 Tempur-Pedic International, Inc. (b) 29,774 822 Tupperware Brands Corp. 38,280 ------------- 155,253 ------------- Independent Power Producers & Energy Traders -- 1.0% 5,056 AES (The) Corp. (b) 67,295 ------------- Industrial Conglomerates -- 0.4% 859 Carlisle Cos., Inc. 29,429 ------------- Insurance -- 6.6% 1,126 American Financial Group, Inc. 28,094 1,592 Assured Guaranty Ltd. 34,642 1,625 Chubb (The) Corp. 79,917 3,179 CNA Financial Corp. (b) 76,296 1,570 Protective Life Corp. 25,983 1,497 Prudential Financial, Inc. 74,491 644 Reinsurance Group of America, Inc. 30,687 1,475 Travelers (The) Cos., Inc. 73,543 1,854 XL Capital Ltd., Class A 33,984 ------------- 457,637 ------------- Internet & Catalog Retail -- 2.0% 627 Netflix, Inc. (b) 34,573 469 priceline.com, Inc. (b) 102,476 ------------- 137,049 ------------- Shares Description Value - --------- ------------------------------------------------- Internet Software & Services -- 0.8% 347 Equinix, Inc. (b) $ 36,834 791 j2 Global Communications, Inc. (b) 16,097 ------------- 52,931 ------------- IT Services -- 6.5% 1,930 Accenture PLC, Class A 80,095 2,025 Cognizant Technology Solutions Corp., Class A (b) 91,733 1,404 Computer Sciences Corp. (b) 80,772 610 DST Systems, Inc. (b) 26,566 1,664 Infosys Technologies Ltd., ADR 91,969 1,099 TeleTech Holdings, Inc. (b) 22,013 881 Unisys Corp. (b) 33,971 648 Wright Express Corp. (b) 20,645 ------------- 447,764 ------------- Leisure Equipment & Products -- 0.6% 4,536 Eastman Kodak Co. (b) 19,142 481 Polaris Industries, Inc. 20,986 ------------- 40,128 ------------- Life Sciences Tools & Services -- 1.1% 1,547 Thermo Fisher Scientific, Inc. (b) 73,776 ------------- Machinery -- 3.9% 910 AGCO Corp. (b) 29,429 678 Bucyrus International, Inc. 38,219 1,511 CNH Global N.V. (b) 37,745 1,489 Cummins, Inc. 68,285 322 Flowserve Corp. 30,439 425 Lindsay Corp. 16,936 377 Middleby (The) Corp. (b) 18,481 331 Valmont Industries, Inc. 25,967 ------------- 265,501 ------------- Media -- 0.5% 1,325 Cablevision Systems Corp., Class A 34,211 ------------- Metals & Mining -- 2.4% 5,254 Alcoa, Inc. 84,695 1,511 United States Steel Corp. 83,286 ------------- 167,981 ------------- Multiline Retail -- 0.6% 1,219 Dillard's, Inc., Class A 22,491 3,183 Saks, Inc. (b) 20,880 ------------- 43,371 ------------- Multi-Utilities -- 4.1% 2,111 CMS Energy Corp. 33,058 1,715 Consolidated Edison, Inc. 77,913 1,364 Sempra Energy 76,357 4,496 Xcel Energy, Inc. 95,405 ------------- 282,733 ------------- Oil, Gas & Consumable Fuels -- 2.3% 1,204 Frontline Ltd. 32,893 1,921 Imperial Oil Ltd. 74,266 440 Overseas Shipholding Group, Inc. 19,338 Page 60 See Notes to Financial Statements First Trust Value Line(R) Equity Allocation Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Oil, Gas & Consumable Fuels (Continued) 1,444 Southern Union Co. $ 32,779 ------------- 159,276 ------------- Paper & Forest Products -- 0.3% 3,189 Louisiana-Pacific Corp. (b) 22,259 ------------- Personal Products -- 1.3% 2,019 Bare Escentuals, Inc. (b) 24,692 837 Herbalife Ltd. 33,957 1,033 Nu Skin Enterprises, Inc., Class A 27,757 ------------- 86,406 ------------- Pharmaceuticals -- 3.4% 1,811 GlaxoSmithKline PLC, ADR 76,515 2,250 Merck & Co., Inc. 82,215 1,143 Novo Nordisk A/S, ADR 72,980 ------------- 231,710 ------------- Professional Services -- 0.3% 1,008 Corporate Executive Board (The) Co. 23,003 ------------- Real Estate Investment Trusts -- 1.4% 4,177 Annaly Capital Management, Inc. 72,471 1,647 Apartment Investment & Management Co., Class A 26,220 ------------- 98,691 ------------- Road & Rail -- 1.4% 1,752 Avis Budget Group, Inc. (b) 22,986 1,146 Union Pacific Corp. 73,230 ------------- 96,216 ------------- Semiconductors & Semiconductor Equipment -- 0.6% 3,169 PMC-Sierra, Inc. (b) 27,444 705 Tessera Technologies, Inc. (b) 16,405 ------------- 43,849 ------------- Software -- 1.7% 1,265 Jack Henry & Associates, Inc. 29,247 2,942 Microsoft Corp. 89,701 ------------- 118,948 ------------- Specialty Retail -- 5.7% 1,192 Cabela's, Inc. (b) 16,998 3,712 Gap (The), Inc. 77,766 640 Group 1 Automotive, Inc. (b) 18,144 985 Guess?, Inc. 41,666 454 Gymboree (The) Corp. (b) 19,744 925 J. Crew Group, Inc. (b) 41,385 768 Jo-Ann Stores, Inc. (b) 27,832 903 Rent-A-Center, Inc. (b) 16,001 1,618 Sally Beauty Holdings, Inc. (b) 12,378 1,777 Talbots (The), Inc. (b) 15,833 1,987 TJX (The) Cos., Inc. 72,625 996 Urban Outfitters, Inc. (b) 34,850 ------------- 395,222 ------------- Shares Description Value - --------- ------------------------------------------------- Textiles, Apparel & Luxury Goods -- 1.7% 1,362 Hanesbrands, Inc. (b) $ 32,838 426 Polo Ralph Lauren Corp. 34,498 728 Warnaco Group (The), Inc. (b) 30,714 800 Wolverine World Wide, Inc. 21,776 ------------- 119,826 ------------- Thrifts & Mortgage Finance -- 0.5% 5,542 MGIC Investment Corp. (b) 32,033 ------------- Trading Companies & Distributors -- 0.3% 1,929 Aircastle Ltd. 19,001 ------------- Wireless Telecommunication Services -- 1.1% 1,548 America Movil S.A.B. de C.V., ADR 72,725 ------------- Total Common Stocks -- 99.9% (Cost $5,737,522) 6,881,370 Money Market Fund -- 0.9% 62,958 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (d) (Cost $62,958) 62,958 ------------- Total Investments -- 100.8% (Cost $5,800,480) (e) 6,944,328 Net Other Assets and Liabilities -- (0.8)% (59,055) ------------- Net Assets -- 100.0% $ 6,885,273 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Master Limited Partnership ("MLP"). (d) Represents annualized 7-day yield at December 31, 2009. (e) Aggregate cost for federal income tax purposes is $5,810,934. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,198,093 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $64,699. ADR - American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $ 6,881,370 $ -- $ -- Money Market Fund 62,958 -- -- ---------------------------------------- Total Investments $ 6,944,328 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout.~ See Notes to Financial Statements Page 61 First Trust Value Line(R) Dividend Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.9% Aerospace & Defense -- 4.3% 17,395 Boeing (The) Co. $ 941,591 13,771 General Dynamics Corp. 938,769 23,871 Honeywell International, Inc. 935,743 12,385 Lockheed Martin Corp. 933,210 16,804 Northrop Grumman Corp. 938,504 17,836 Raytheon Co. 918,911 13,618 United Technologies Corp. 945,225 ------------- 6,551,953 ------------- Air Freight & Logistics -- 0.6% 16,113 United Parcel Service, Inc., Class B 924,403 ------------- Automobiles -- 0.6% 28,238 Honda Motor Co., Ltd., ADR 957,268 ------------- Beverages -- 1.9% 18,043 Brown-Forman Corp., Class B 966,564 16,519 Coca-Cola (The) Co. 941,583 15,618 PepsiCo, Inc. 949,574 ------------- 2,857,721 ------------- Capital Markets -- 0.6% 34,919 Federated Investors, Inc., Class B 960,272 ------------- Chemicals -- 3.1% 11,769 Air Products and Chemicals, Inc. 953,995 29,380 E.I. du Pont de Nemours & Co. 989,225 23,157 International Flavors & Fragrances, Inc. 952,679 16,221 PPG Industries, Inc. 949,577 11,809 Praxair, Inc. 948,381 ------------- 4,793,857 ------------- Commercial Banks -- 5.0% 20,029 Bank of Hawaii Corp. 942,565 18,492 Bank of Montreal 981,555 20,819 Bank of Nova Scotia 973,080 20,089 BOK Financial Corp. 954,629 23,895 Commerce Bancshares, Inc. 925,214 18,850 Cullen/Frost Bankers, Inc. 942,500 18,002 Royal Bank of Canada 964,007 15,480 Toronto-Dominion (The) Bank 970,906 ------------- 7,654,456 ------------- Commercial Services & Supplies -- 1.8% 25,543 Avery Dennison Corp. 932,064 31,889 Cintas Corp. 830,708 28,632 Waste Management, Inc. 968,048 ------------- 2,730,820 ------------- Communications Equipment -- 0.7% 76,236 Nokia Corp., ADR 979,633 ------------- Computers & Peripherals -- 1.3% 34,689 Diebold, Inc. 986,902 Shares Description Value - --------- ------------------------------------------------- Computers & Peripherals (Continued) 7,342 International Business Machines Corp. $ 961,068 ------------- 1,947,970 ------------- Containers & Packaging -- 1.2% 31,329 Bemis Co., Inc. 928,905 31,381 Sonoco Products Co. 917,894 ------------- 1,846,799 ------------- Distributors -- 0.6% 24,746 Genuine Parts Co. 939,358 ------------- Diversified Telecommunication Services -- 2.5% 34,298 AT&T, Inc. 961,373 26,585 CenturyTel, Inc. 962,643 11,308 Telefonica S.A., ADR 944,444 28,606 Verizon Communications, Inc. 947,717 ------------- 3,816,177 ------------- Electric Utilities -- 6.1% 28,537 ALLETE, Inc. 932,589 54,379 Duke Energy Corp. 935,863 11,244 Entergy Corp. 920,209 19,109 Exelon Corp. 933,857 20,021 FirstEnergy Corp. 929,976 17,331 FPL Group, Inc. 915,423 44,724 Portland General Electric Co. 912,817 22,805 Progress Energy, Inc. 935,233 27,995 Southern Co. 932,793 42,935 Westar Energy, Inc. 932,548 ------------- 9,281,308 ------------- Electrical Equipment -- 1.9% 22,178 Cooper Industries PLC, Class A 945,670 22,277 Emerson Electric Co. 949,000 20,213 Hubbell, Inc., Class B 956,075 ------------- 2,850,745 ------------- Energy Equipment & Services -- 0.6% 14,812 Schlumberger Ltd. 964,113 ------------- Food & Staples Retailing -- 1.2% 33,965 Sysco Corp. 948,982 17,688 Wal-Mart Stores, Inc. 945,424 ------------- 1,894,406 ------------- Food Products -- 8.1% 28,221 Campbell Soup Co. 953,870 43,269 ConAgra Foods, Inc. 997,350 13,571 General Mills, Inc. 960,963 22,351 H. J. Heinz Co. 955,729 26,570 Hershey (The) Co. 950,940 25,002 Hormel Foods Corp. 961,327 15,579 J. M. Smucker (The) Co. 962,003 18,105 Kellogg Co. 963,186 Page 62 See Notes to Financial Statements First Trust Value Line(R) Dividend Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Food Products (Continued) 34,997 Kraft Foods, Inc., Class A $ 951,218 19,484 Lancaster Colony Corp. 968,355 26,223 McCormick & Co., Inc. 947,437 77,999 Sara Lee Corp. 950,028 30,188 Unilever PLC, ADR 962,997 ------------- 12,485,403 ------------- Gas Utilities -- 5.5% 25,508 AGL Resources, Inc. 930,277 31,998 Atmos Energy Corp. 940,741 18,891 National Fuel Gas Co. 944,550 25,330 New Jersey Resources Corp. 947,342 20,874 Northwest Natural Gas Co. 940,165 35,970 Piedmont Natural Gas Co., Inc. 962,198 24,617 South Jersey Industries, Inc. 939,877 38,428 UGI Corp. 929,573 27,946 WGL Holdings, Inc. 937,309 ------------- 8,472,032 ------------- Health Care Equipment & Supplies -- 1.2% 21,684 Medtronic, Inc. 953,662 17,408 Teleflex, Inc. 938,117 ------------- 1,891,779 ------------- Health Care Providers & Services -- 0.6% 22,739 Owens & Minor, Inc. 976,185 ------------- Hotels, Restaurants & Leisure -- 1.2% 15,074 McDonald's Corp. 941,221 26,988 Yum! Brands, Inc. 943,770 ------------- 1,884,991 ------------- Household Durables -- 1.3% 46,947 Leggett & Platt, Inc. 957,719 66,472 Panasonic Corp., ADR 953,873 ------------- 1,911,592 ------------- Household Products -- 2.4% 15,294 Clorox (The) Co. 932,934 11,349 Colgate-Palmolive Co. 932,320 14,647 Kimberly-Clark Corp. 933,160 15,409 Procter & Gamble (The) Co. 934,248 ------------- 3,732,662 ------------- Industrial Conglomerates -- 1.3% 11,600 3M Co. 958,972 27,643 Carlisle Cos., Inc. 947,049 ------------- 1,906,021 ------------- Insurance -- 5.6% 19,364 ACE Ltd. 975,946 42,741 Arthur J. Gallagher & Co. 962,100 19,464 Chubb (The) Corp. 957,240 36,840 Cincinnati Financial Corp. 966,682 Shares Description Value - --------- ------------------------------------------------- Insurance (Continued) 23,859 Erie Indemnity Co., Class A $ 930,978 10,964 Everest Re Group Ltd. 939,395 24,370 Mercury General Corp. 956,766 12,820 PartnerRe Ltd. 957,141 19,408 Travelers (The) Cos., Inc. 967,683 ------------- 8,613,931 ------------- IT Services -- 1.9% 23,248 Accenture PLC, Class A 964,792 22,085 Automatic Data Processing, Inc. 945,679 30,509 Paychex, Inc. 934,796 ------------- 2,845,267 ------------- Leisure Equipment & Products -- 0.6% 29,518 Hasbro, Inc. 946,347 ------------- Machinery -- 3.7% 16,995 Deere & Co. 919,260 23,066 Dover Corp. 959,776 14,761 Eaton Corp. 939,095 19,848 Illinois Tool Works, Inc. 952,505 23,375 Snap-on, Inc. 987,827 18,470 Stanley Works (The) 951,390 ------------- 5,709,853 ------------- Media -- 3.1% 27,790 McGraw-Hill (The) Cos., Inc. 931,243 24,269 Omnicom Group, Inc. 950,131 29,816 Thomson Reuters Corp. 961,566 31,102 Time Warner, Inc. 906,312 2,144 Washington Post (The) Co., Class B 942,503 ------------- 4,691,755 ------------- Multiline Retail -- 0.6% 19,148 Target Corp. 926,189 ------------- Multi-Utilities -- 7.4% 30,678 Alliant Energy Corp. 928,316 20,660 Consolidated Edison, Inc. 938,584 24,072 Dominion Resources, Inc. 936,882 40,126 MDU Resources Group, Inc. 946,974 26,202 NSTAR 964,234 25,943 OGE Energy Corp. 957,037 20,953 PG&E Corp. 935,551 25,008 SCANA Corp. 942,301 17,075 Sempra Energy 955,859 37,798 Vectren Corp. 932,855 19,332 Wisconsin Energy Corp. 963,314 43,388 Xcel Energy, Inc. 920,693 ------------- 11,322,600 ------------- Office Electronics -- 0.6% 22,977 CANON, Inc., ADR 972,387 ------------- Oil, Gas & Consumable Fuels -- 5.6% 16,502 BP PLC, ADR 956,621 12,188 Chevron Corp. 938,354 See Notes to Financial Statements Page 63 First Trust Value Line(R) Dividend Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Oil, Gas & Consumable Fuels (Continued) 18,667 ConocoPhillips $ 953,324 21,155 Enbridge, Inc. 977,784 17,531 Murphy Oil Corp. 950,180 11,709 Occidental Petroleum Corp. 952,527 15,945 Royal Dutch Shell PLC, ADR 958,454 15,091 Total S.A., ADR 966,428 28,213 TransCanada Corp. 969,681 ------------- 8,623,353 ------------- Pharmaceuticals -- 5.5% 17,518 Abbott Laboratories 945,797 36,512 Bristol-Myers Squibb Co. 921,928 26,064 Eli Lilly & Co. 930,745 22,581 GlaxoSmithKline PLC, ADR 954,047 14,683 Johnson & Johnson 945,732 25,062 Merck & Co., Inc. 915,765 17,557 Novartis AG, ADR 955,628 50,756 Pfizer, Inc. 923,252 24,176 Sanofi-Aventis, ADR 949,392 ------------- 8,442,286 ------------- Real Estate Investment Trusts -- 1.2% 11,734 Public Storage 955,734 34,286 Washington Real Estate Investment Trust 944,580 ------------- 1,900,314 ------------- Road & Rail -- 1.2% 17,639 Canadian National Railway Co. 958,856 14,588 Union Pacific Corp. 932,173 ------------- 1,891,029 ------------- Semiconductors & Semiconductor Equipment -- 0.6% 47,017 Intel Corp. 959,147 ------------- Software -- 1.2% 30,949 Microsoft Corp. 943,635 20,187 SAP AG, ADR 944,953 ------------- 1,888,588 ------------- Specialty Retail -- 3.1% 44,937 Gap (The), Inc. 941,430 32,616 Home Depot (The), Inc. 943,581 15,235 Sherwin-Williams (The) Co. 939,238 38,775 Staples, Inc. 953,477 25,412 TJX (The) Cos., Inc. 928,809 ------------- 4,706,535 ------------- Textiles, Apparel & Luxury Goods -- 1.2% 12,973 VF Corp. 950,143 34,778 Wolverine World Wide, Inc. 946,657 ------------- 1,896,800 ------------- Shares Description Value - --------- ------------------------------------------------- Thrifts & Mortgage Finance -- 0.6% 30,255 Capitol Federal Financial $ 951,822 ------------- Wireless Telecommunication Services -- 0.6% 41,338 Vodafone Group PLC, ADR 954,494 ------------- Total Investments -- 99.9% (Cost $132,838,954) (b) 153,454,621 Net Other Assets and Liabilities -- 0.1% 163,158 ------------- Net Assets -- 100.0% $153,617,779 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Aggregate cost for federal income tax purposes is $143,622,559. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $14,112,111 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $4,280,049. ADR - American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $153,454,621 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout.~ Page 64 See Notes to Financial Statements First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (b) -- 100.0% Air Freight & Logistics -- 3.2% 2,882 C.H. Robinson Worldwide, Inc. $ 169,260 4,833 Expeditors International of Washington, Inc. 167,850 ------------- 337,110 ------------- Biotechnology -- 11.4% 3,006 Amgen, Inc. (c) 170,049 3,350 Biogen Idec, Inc. (c) 179,225 3,000 Celgene Corp. (c) 167,040 2,841 Cephalon, Inc. (c) 177,307 3,437 Genzyme Corp. (c) 168,447 3,916 Gilead Sciences, Inc. (c) 169,485 3,961 Vertex Pharmaceuticals, Inc. (c) 169,729 ------------- 1,201,282 ------------- Chemicals -- 1.6% 3,267 Sigma-Aldrich Corp. 165,081 ------------- Commercial Services & Supplies -- 3.0% 5,679 Cintas Corp. 147,938 3,040 Stericycle, Inc. (c) 167,717 ------------- 315,655 ------------- Construction & Engineering -- 1.6% 5,722 Foster Wheeler AG (c) 168,456 ------------- Diversified Consumer Services -- 1.7% 2,872 Apollo Group, Inc., Class A (c) 173,986 ------------- Electrical Equipment -- 1.6% 1,235 First Solar, Inc. (c) 167,219 ------------- Electronic Equipment, Instruments & Components -- 3.3% 23,789 Flextronics International Ltd. (c) 173,898 5,524 FLIR Systems, Inc. (c) 180,745 ------------- 354,643 ------------- Food & Staples Retailing -- 1.6% 2,871 Costco Wholesale Corp. 169,877 ------------- Health Care Equipment & Supplies -- 5.0% 4,871 DENTSPLY International, Inc. 171,313 12,278 Hologic, Inc. (c) 178,031 580 Intuitive Surgical, Inc. (c) 175,926 ------------- 525,270 ------------- Health Care Providers & Services -- 4.9% 1,988 Express Scripts, Inc. (c) 171,862 3,250 Henry Schein, Inc. (c) 170,950 6,216 Patterson Cos., Inc. (c) 173,924 ------------- 516,736 ------------- Shares Description Value - --------- ------------------------------------------------- Hotels, Restaurants & Leisure -- 3.1% 7,082 Starbucks Corp. (c) $ 163,311 2,794 Wynn Resorts Ltd. 162,694 ------------- 326,005 ------------- Household Durables -- 1.6% 5,381 Garmin Ltd. 165,197 ------------- Internet & Catalog Retail -- 6.5% 1,307 Amazon.com, Inc. (c) 175,818 6,647 Expedia, Inc. (c) 170,894 16,080 Liberty Media Corp. - Interactive, Class A (c) 174,307 775 priceline.com, Inc. (c) 169,338 ------------- 690,357 ------------- Internet Software & Services -- 1.6% 7,398 eBay, Inc. (c) 174,149 ------------- IT Services -- 4.8% 3,960 Automatic Data Processing, Inc. 169,567 3,523 Fiserv, Inc. (c) 170,795 5,424 Paychex, Inc. 166,192 ------------- 506,554 ------------- Leisure Equipment & Products -- 1.6% 8,419 Mattel, Inc. 168,212 ------------- Life Sciences Tools & Services -- 4.9% 6,015 Illumina, Inc. (c) 184,360 3,268 Life Technologies Corp. (c) 170,687 7,500 QIAGEN N.V. (c) 167,400 ------------- 522,447 ------------- Machinery -- 3.2% 3,236 Joy Global, Inc. 166,945 4,653 PACCAR, Inc. 168,764 ------------- 335,709 ------------- Media -- 7.9% 9,734 Comcast Corp., Class A 164,115 5,079 DIRECTV, Class A (c) 169,384 8,001 DISH Network Corp., Class A 166,181 12,572 News Corp., Class A 172,111 10,007 Virgin Media, Inc. 168,418 ------------- 840,209 ------------- Multiline Retail -- 1.7% 2,199 Sears Holdings Corp. (c) 183,506 ------------- Pharmaceuticals -- 4.9% 9,190 Mylan, Inc. (c) 169,372 3,170 Teva Pharmaceutical Industries Ltd., ADR 178,091 6,141 Warner Chilcott PLC, Class A (c) 174,834 ------------- 522,297 ------------- See Notes to Financial Statements Page 65 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (b) (Continued) Road & Rail -- 1.5% 5,064 J.B. Hunt Transport Services, Inc. $ 163,415 ------------- Software -- 3.3% 15,164 Activision Blizzard, Inc. (c) 168,472 10,031 Electronic Arts, Inc. (c) 178,050 ------------- 346,522 ------------- Specialty Retail -- 8.1% 4,473 Bed Bath & Beyond, Inc. (c) 172,792 4,466 O'Reilly Automotive, Inc. (c) 170,244 3,909 Ross Stores, Inc. 166,953 6,826 Staples, Inc. 167,851 5,050 Urban Outfitters, Inc. (c) 176,700 ------------- 854,540 ------------- Trading Companies & Distributors -- 1.6% 4,198 Fastenal Co. 174,805 ------------- Wireless Telecommunication Services -- 4.8% 2,293 Millicom International Cellular S.A. 169,155 4,947 NII Holdings, Inc. (c) 166,120 7,497 Vodafone Group PLC, ADR 173,106 ------------- 508,381 ------------- Total Common Stocks -- 100.0% (Cost $9,737,469) 10,577,620 Money Market Fund -- 0.5% 58,294 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (d) (Cost $58,294) 58,294 ------------- Total Investments -- 100.5% (Cost $9,795,763) (e) 10,635,914 Net Other Assets and Liabilities -- (0.5)% (57,190) ------------- Net Assets -- 100.0% $ 10,578,724 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) The industry allocation is based on Standard & Poor's Global Industry Classification Standard (GICS), and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark (ICB) system, the joint classification system of Dow Jones Indexes and FTSE Group. (c) Non-income producing security. (d) Represents annualized 7-day yield at December 31, 2009. (e) Aggregate cost for federal income tax purposes is $10,153,766. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $957,198 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $475,050. ADR - American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $10,577,620 $ -- $ -- Money Market Fund 58,294 -- -- ---------------------------------------- Total Investments $10,635,914 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout.~ Page 66 See Notes to Financial Statements First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 100.0% Aerospace & Defense -- 2.1% 70,937 Hexcel Corp. (b) $ 920,762 ------------- Auto Components -- 0.4% 60,274 Ballard Power Systems, Inc. (b) 114,520 58,149 Raser Technologies, Inc. (b) 72,105 ------------- 186,625 ------------- Biotechnology -- 0.5% 19,117 Metabolix, Inc. (b) 211,625 ------------- Chemicals -- 0.6% 25,266 Zoltek Cos., Inc. (b) 240,027 ------------- Commercial Services & Supplies -- 1.2% 17,600 EnerNOC, Inc. (b) 534,864 ------------- Electrical Equipment -- 35.9% 49,104 Advanced Battery Technologies, Inc. (b) 196,416 32,474 American Superconductor Corp. (b) 1,328,187 34,197 Baldor Electric Co. 960,594 70,923 Broadwind Energy, Inc. (b) 573,767 31,351 Canadian Solar, Inc. (b) 903,536 144,052 Capstone Turbine Corp. (b) 185,827 46,666 China BAK Battery, Inc. (b) 129,731 88,900 Ener1, Inc. (b) 563,626 33,574 Energy Conversion Devices, Inc. (b) 354,877 152,538 Evergreen Solar, Inc. (b) 230,332 25,971 First Solar, Inc. (b) 3,516,473 61,941 FuelCell Energy, Inc. (b) 232,898 105,326 GT Solar International, Inc. (b) 585,612 94,358 JA Solar Holdings Co., Ltd., ADR (b) 537,841 28,887 Solarfun Power Holdings Co., Ltd., ADR (b) 220,408 40,323 SunPower Corp., Class A (b) 954,849 94,349 Suntech Power Holdings Co., Ltd., ADR (b) 1,569,024 22,559 Trina Solar Ltd., ADR (b) 1,217,509 12,487 Ultralife Corp. (b) 53,944 92,832 Valence Technology, Inc. (b) 84,477 75,769 Yingli Green Energy Holding Co., Ltd., ADR (b) 1,197,908 ------------- 15,597,836 ------------- Electronic Equipment, Instruments & Components -- 9.7% 124,951 AVX Corp. 1,583,129 18,142 Comverge, Inc. (b) 203,916 30,082 Echelon Corp. (b) 347,748 25,443 Itron, Inc. (b) 1,719,184 19,207 Maxwell Technologies, Inc. (b) 342,653 ------------- 4,196,630 ------------- Health Care Equipment & Supplies -- 0.8% 17,021 Greatbatch, Inc. (b) 327,314 ------------- Independent Power Producers & Energy Traders -- 2.9% 33,339 Ormat Technologies, Inc. 1,261,548 ------------- Machinery -- 1.6% 19,407 ESCO Technologies, Inc. 695,741 ------------- Shares Description Value - --------- ------------------------------------------------- Semiconductors & Semiconductor Equipment -- 44.3% 31,529 Advanced Analogic Technologies, Inc. (b) $ 124,224 64,675 Cree, Inc. (b) 3,645,730 90,961 Fairchild Semiconductor International, Inc., Class A (b) 908,700 52,313 International Rectifier Corp. (b) 1,157,164 22,788 IXYS Corp. (b) 169,087 56,683 LDK Solar Co., Ltd., ADR (b) 397,348 114,698 Linear Technology Corp. 3,502,877 128,464 MEMC Electronic Materials, Inc. (b) 1,749,680 60,122 Microsemi Corp. (b) 1,067,165 168,811 National Semiconductor Corp. 2,592,937 27,163 O2Micro International Ltd., ADR (b) 142,062 303,362 ON Semiconductor Corp. (b) 2,672,619 19,833 Power Integrations, Inc. 721,128 24,638 Renesola Ltd., ADR (b) 117,277 14,718 Rubicon Technology, Inc. (b) 298,923 ------------- 19,266,921 ------------- Total Investments -- 100.0% (Cost $40,469,241) (c) 43,439,893 Net Other Assets and Liabilities -- 0.0% 9,133 ------------- Net Assets -- 100.0% $43,449,026 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $47,400,471. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $5,979,146 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,939,724. ADR - American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $43,439,893 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 67 First Trust S&P REIT Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (b) -- 99.9% Diversified REITs -- 8.7% 4,775 CapLease, Inc. $ 20,915 6,143 Colonial Properties Trust 72,057 9,244 Cousins Properties, Inc. 70,532 793 Gladstone Commercial Corp. 10,634 6,804 Investors Real Estate Trust 61,236 10,432 Liberty Property Trust 333,928 1,672 PS Business Parks, Inc. 83,684 14,525 Vornado Realty Trust 1,015,879 5,533 Washington Real Estate Investment Trust 152,434 1,210 Winthrop Realty Trust, Inc. 13,141 ------------- 1,834,440 ------------- Industrial REITs -- 6.1% 13,553 AMB Property Corp. 346,279 19,205 DCT Industrial Trust, Inc. 96,409 3,887 DuPont Fabros Technology, Inc. 69,927 2,420 EastGroup Properties, Inc. 92,638 5,079 First Industrial Realty Trust, Inc. 26,563 2,783 First Potomac Realty Trust 34,982 2,549 Monmouth Real Estate Investment Corp., Class A 18,965 43,837 ProLogis 600,129 ------------- 1,285,892 ------------- Office REITs -- 17.4% 4,092 Alexandria Real Estate Equities, Inc. 263,075 9,097 BioMed Realty Trust, Inc. 143,551 12,851 Boston Properties, Inc. 861,917 11,911 Brandywine Realty Trust 135,785 5,396 Corporate Office Properties Trust 197,655 7,088 Digital Realty Trust, Inc. 356,385 11,261 Douglas Emmett, Inc. 160,469 20,751 Duke Realty Corp. 252,540 6,275 Franklin Street Properties Corp. 91,678 6,585 Highwoods Properties, Inc. 219,610 20,738 HRPT Properties Trust 134,175 3,997 Kilroy Realty Corp. 122,588 9,480 Lexington Realty Trust 57,638 7,286 Mack-Cali Realty Corp. 251,877 1,774 Mission West Properties, Inc. 12,755 2,003 Parkway Properties, Inc. 41,702 7,154 SL Green Realty Corp. 359,417 ------------- 3,662,817 ------------- Residential REITs -- 15.4% 4,837 American Campus Communities, Inc. 135,920 10,839 Apartment Investment & Management Co., Class A 172,557 1,377 Associated Estates Realty Corp. 15,519 7,544 AvalonBay Communities, Inc. 619,438 5,034 BRE Properties, Inc. 166,525 5,945 Camden Property Trust 251,890 5,252 Education Realty Trust, Inc. 25,420 2,813 Equity Lifestyle Properties, Inc. 141,972 25,582 Equity Residential 864,160 Shares Description Value - --------- ------------------------------------------------- Residential REITs (Continued) 2,697 Essex Property Trust, Inc. $ 225,604 3,108 Home Properties, Inc. 148,283 2,673 Mid-America Apartment Communities, Inc. 129,052 4,489 Post Properties, Inc. 87,984 1,549 Sun Communities, Inc. 30,593 14,157 UDR, Inc. 232,741 ------------- 3,247,658 ------------- Retail REITs -- 24.5% 3,685 Acadia Realty Trust 62,166 759 Agree Realty Corp. 17,677 189 Alexander's, Inc. (c) 57,535 12,772 CBL & Associates Properties, Inc. 123,505 4,191 Cedar Shopping Centers, Inc. 28,499 16,025 Developers Diversified Realty Corp. 148,392 3,045 Equity One, Inc. 49,238 5,669 Federal Realty Investment Trust 383,905 1,629 Getty Realty Corp. 38,330 6,366 Glimcher Realty Trust 17,188 6,570 Inland Real Estate Corp. 53,546 37,216 Kimco Realty Corp. 503,532 5,835 Kite Realty Group Trust 23,748 8,936 Macerich (The) Co. 321,249 7,633 National Retail Properties, Inc. 161,972 3,677 Pennsylvania Real Estate Investment Trust 31,107 2,852 Ramco-Gershenson Properties Trust 27,208 9,661 Realty Income Corp. 250,317 7,440 Regency Centers Corp. 260,846 1,151 Saul Centers, Inc. 37,707 26,413 Simon Property Group, Inc. 2,107,757 3,731 Tanger Factory Outlet Centers, Inc. 145,472 2,819 Taubman Centers, Inc. 101,230 1,985 Urstadt Biddle Properties, Inc., Class A 30,311 9,655 Weingarten Realty Investors 191,072 ------------- 5,173,509 ------------- Specialized REITs -- 27.8% 5,336 Ashford Hospitality Trust (c) 24,759 3,193 Cogdell Spencer, Inc. 18,072 10,956 DiamondRock Hospitality Co. 92,797 3,892 Entertainment Properties Trust 137,271 8,007 Extra Space Storage, Inc. 92,481 5,993 FelCor Lodging Trust, Inc. (c) 21,575 27,156 HCP, Inc. 829,344 11,396 Health Care REIT, Inc. 505,071 5,499 Healthcare Realty Trust, Inc. 118,009 4,657 Hersha Hospitality Trust 14,623 11,430 Hospitality Properties Trust 271,005 58,468 Host Hotels & Resorts, Inc. 682,322 5,884 LaSalle Hotel Properties 124,917 2,151 LTC Properties, Inc. 57,539 7,427 Medical Properties Trust, Inc. 74,270 2,556 National Health Investors, Inc. 94,546 10,396 Nationwide Health Properties, Inc. 365,731 Page 68 See Notes to Financial Statements First Trust S&P REIT Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (b) (Continued) Specialized REITs (Continued) 7,884 Omega Healthcare Investors, Inc. $ 153,344 12,565 Public Storage 1,023,419 11,800 Senior Housing Properties Trust 258,066 2,547 Sovran Self Storage, Inc. 91,004 6,965 Strategic Hotels & Resorts, Inc. (c) 12,955 9,097 Sunstone Hotel Investors, Inc. (c) 80,781 1,103 Universal Health Realty Income Trust 35,329 7,226 U-Store-It Trust 52,894 14,508 Ventas, Inc. 634,580 ------------- 5,866,704 ------------- Total Common Stocks -- 99.9% (Cost $19,247,013) 21,071,020 Money Market Fund -- 0.9% 195,134 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (d) (Cost $195,134) 195,134 ------------- Total Investments -- 100.8% (Cost $19,442,147) (e) 21,266,154 Net Other Assets and Liabilities -- (0.8)% (179,120) ------------- Net Assets -- 100.0% $ 21,087,034 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) The industry classification is based upon GICS Sub-Industry. (c) Non-income producing security. (d) Represents annualized 7-day yield at December 31, 2009. (e) Aggregate cost for federal income tax purposes is $20,381,241. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,251,088 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $366,175. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ----------------------------------------------------------------- Common Stocks* $21,071,020 $ -- $ -- Money Market Fund 195,134 -- -- ----------------------------------------- Total Investments $21,266,154 $ -- $ -- ========================================= * See the Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 69 First Trust ISE Water Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.9% Aerospace & Defense -- 3.8% 28,601 ITT Corp. $ 1,422,614 ------------- Chemicals -- 9.1% 28,049 Ashland, Inc. 1,111,301 52,187 Calgon Carbon Corp. (b) 725,399 61,070 Nalco Holding Co. 1,557,896 ------------- 3,394,596 ------------- Commercial Services & Supplies -- 4.1% 55,990 Tetra Tech, Inc. (b) 1,521,248 ------------- Construction & Engineering -- 6.8% 29,163 Aecom Technology Corp. (b) 801,983 56,000 Insituform Technologies, Inc., Class A (b) 1,272,320 17,112 Northwest Pipe Co. (b) 459,628 ------------- 2,533,931 ------------- Diversified Financial Services -- 2.0% 22,208 PICO Holdings, Inc. (b) 726,868 ------------- Electrical Equipment -- 5.3% 25,827 Franklin Electric Co., Inc. 751,049 23,626 Roper Industries, Inc. 1,237,294 ------------- 1,988,343 ------------- Electronic Equipment, Instruments & Components -- 4.1% 24,756 Agilent Technologies, Inc. (b) 769,169 11,388 Itron, Inc. (b) 769,487 ------------- 1,538,656 ------------- Life Sciences Tools & Services -- 3.6% 18,284 Millipore Corp. (b) 1,322,848 ------------- Machinery -- 33.1% 19,309 Badger Meter, Inc. 768,884 20,359 Danaher Corp. 1,530,997 68,142 Energy Recovery, Inc. (b) 468,817 159,235 Flow International Corp. (b) 490,444 7,654 Flowserve Corp. 723,533 47,141 IDEX Corp. 1,468,442 20,623 Lindsay Corp. 821,826 213,715 Mueller Water Products, Inc., Class A 1,111,318 31,783 Pall Corp. 1,150,545 46,617 Pentair, Inc. 1,505,729 13,617 Valmont Industries, Inc. 1,068,254 40,597 Watts Water Technologies, Inc., Class A 1,255,259 ------------- 12,364,048 ------------- Metals & Mining -- 2.0% 26,760 AMCOL International Corp. 760,519 ------------- Shares Description Value - --------- ------------------------------------------------- Multi-Utilities -- 3.9% 44,578 Veolia Environment, ADR $ 1,465,725 ------------- Water Utilities -- 22.1% 31,564 American States Water Co. 1,117,681 66,493 American Water Works Co., Inc. 1,490,108 86,223 Aqua America, Inc. 1,509,765 34,151 California Water Service Group 1,257,440 81,024 Cascal N.V. 438,340 37,609 Companhia de Saneamento Basico do Estado de Sao Paulo, ADR (b) 1,471,264 35,772 Consolidated Water Co., Ltd. 511,182 75,676 Southwest Water Co. 445,731 ------------- 8,241,511 ------------- Total Common Stocks -- 99.9% (Cost $39,827,678) 37,280,907 Money Market Fund -- 0.4% 150,096 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (c) (Cost $150,096) 150,096 ------------- Total Investments -- 100.3% (Cost $39,977,774) (d) 37,431,003 Net Other Assets and Liabilities -- (0.3)% (117,355) ------------- Net Assets -- 100.0% $37,313,648 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Represents annualized 7-day yield at December 31, 2009. (d) Aggregate cost for federal income tax purposes is $40,277,579. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,579,689 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $4,426,265. ADR - American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $37,280,907 $ -- $ -- Money Market Fund 150,096 -- -- ---------------------------------------- Total Investments $37,431,003 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. Page 70 See Notes to Financial Statements First Trust ISE-Revere Natural Gas Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 100.0% Gas Utilities -- 3.2% 355,859 Questar Corp. $ 14,793,059 ------------- Oil, Gas & Consumable Fuels -- 96.8% 2,341,743 Advantage Oil & Gas Ltd. 15,268,164 240,676 Anadarko Petroleum Corp. 15,022,996 147,488 Apache Corp. 15,216,337 1,253,979 Brigham Exploration Co. (b) 16,991,415 364,027 Cabot Oil & Gas Corp. 15,867,937 606,027 Chesapeake Energy Corp. 15,683,979 179,485 Chevron Corp. 13,818,550 293,518 Cimarex Energy Co. 15,547,648 18,125,70 2Delta Petroleum Corp. (b) 18,850,730 218,450 Devon Energy Corp. 16,056,075 493,871 EnCana Corp. 15,996,482 162,194 EOG Resources, Inc. 15,781,476 728,434 EXCO Resources, Inc. 15,464,654 694,368 Forest Oil Corp. (b) 15,449,688 551,216 Linn Energy LLC 15,367,902 1,071,950 Mariner Energy, Inc. (b) 12,445,340 338,922 Newfield Exploration Co. (b) 16,346,208 209,940 Noble Energy, Inc. 14,951,927 629,535 Petrohawk Energy Corp. (b) 15,102,545 2,519,276 PetroQuest Energy, Inc. (b) 15,443,162 342,582 Pioneer Natural Resources Co. 16,502,175 1,058,937 Quicksilver Resources, Inc. (b) 15,894,644 321,733 Range Resources Corp. 16,038,390 235,399 Royal Dutch Shell PLC, ADR 14,149,834 336,714 Southwestern Energy Co. (b) 16,229,615 794,806 Stone Energy Corp. (b) 14,346,248 818,580 Talisman Energy, Inc. 15,258,331 299,631 Ultra Petroleum Corp. (b) 14,939,602 336,389 XTO Energy, Inc. 15,652,180 ------------- 449,684,234 ------------- Total Common Stocks -- 100.0% (Cost $414,937,012) 464,477,293 Money Market Fund -- 0.2% 683,300 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (c) (Cost $683,300) 683,300 ------------- Total Investments -- 100.2% (Cost $415,620,312) (d) 465,160,593 Net Other Assets and Liabilities -- (0.2)% (821,687) ------------- Net Assets -- 100.0% $ 464,338,906 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Represents annualized 7-day yield at December 31, 2009. (d) Aggregate cost for federal income tax purposes is $424,893,789. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $52,126,696 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $11,859,892. ADR - American Depositary Receipt __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $464,477,293 $ -- $ -- Money Market Fund 683,300 -- -- ----------------------------------------- Total Investments $465,160,593 $ -- $ -- ========================================= * See the Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 71 First Trust ISE Chindia Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 99.9% Biotechnology -- 0.6% 120,178 Sinovac Biotech Ltd. (b) $ 760,727 ------------- Chemicals -- 0.7% 21,025 Sinopec Shanghai Petrochemical Co. Ltd., ADR (b) 822,078 ------------- Commercial Banks -- 14.0% 63,661 HDFC Bank Ltd., ADR 8,281,023 228,157 ICICI Bank Ltd., ADR 8,603,800 ------------- 16,884,823 ------------- Commercial Services & Supplies -- 0.7% 29,622 Rino International Corp. (b) 819,048 ------------- Diversified Consumer Services -- 0.7% 10,711 New Oriental Education & Technology Group, Inc., ADR (b) 809,859 ------------- Diversified Telecommunication Services -- 4.5% 19,089 China Telecom Corp., Ltd., ADR 790,666 181,860 China Unicom (Hong Kong) Ltd., ADR 2,384,185 156,169 Tata Communications Ltd., ADR 2,256,642 ------------- 5,431,493 ------------- Electrical Equipment -- 5.6% 46,904 A-Power Energy Generation Systems Ltd. (b) 857,874 37,652 Harbin Electric, Inc. (b) 773,372 179,610 JA Solar Holdings Co., Ltd., ADR (b) 1,023,777 140,709 Suntech Power Holdings Co., Ltd., ADR (b) 2,339,991 17,183 Trina Solar Ltd., ADR (b) 927,366 53,613 Yingli Green Energy Holding Co., Ltd., ADR (b) 847,622 ------------- 6,770,002 ------------- Health Care Equipment & Supplies -- 0.7% 25,975 Mindray Medical International Ltd., ADR 881,072 ------------- Hotels, Restaurants & Leisure -- 3.2% 32,470 Ctrip.com International Ltd., ADR (b) 2,333,294 22,470 Home Inns & Hotels Management, Inc., ADR (b) 794,315 218,884 Melco Crown Entertainment Ltd., ADR (b) 737,639 ------------- 3,865,248 ------------- Independent Power Producers & Energy Traders -- 0.7% 35,243 Huaneng Power International, Inc., ADR 789,443 ------------- Shares Description Value - --------- ------------------------------------------------- Insurance -- 7.3% 108,806 China Life Insurance Co., Ltd., ADR $ 7,980,920 40,375 CNinsure, Inc., ADR 810,730 ------------- 8,791,650 ------------- Internet Software & Services -- 9.4% 11,422 Baidu, Inc., ADR (b) 4,697,069 130,375 NetEase.com, Inc., ADR (b) 4,903,404 18,261 SINA Corp. (b) 825,032 15,365 Sohu.com, Inc. (b) 880,107 ------------- 11,305,612 ------------- IT Services -- 14.3% 159,249 Infosys Technologies Ltd., ADR 8,801,692 41,921 Patni Computer Systems Ltd., ADR 857,284 470,045 Satyam Computer Services Ltd., ADR (b) 2,166,908 239,381 Wipro Ltd., ADR 5,331,015 ------------- 17,156,899 ------------- Life Sciences Tools & Services -- 0.6% 47,639 WuXi PharmaTech Cayman, Inc., ADR (b) 760,318 ------------- Machinery -- 4.3% 309,304 Tata Motors Ltd., ADR 5,214,865 ------------- Media -- 0.7% 50,450 Focus Media Holding Ltd., ADR (b) 799,633 ------------- Metals & Mining -- 4.7% 28,902 Aluminum Corp. of China Ltd., ADR (b) 787,579 267,994 Sterlite Industries (India) Ltd., ADR 4,882,851 ------------- 5,670,430 ------------- Oil, Gas & Consumable Fuels -- 12.1% 9,895 China Petroleum & Chemical Corp., ADR 871,453 30,745 CNOOC Ltd., ADR 4,779,310 67,447 PetroChina Co., Ltd., ADR 8,023,495 38,071 Yanzhou Coal Mining Co., Ltd., ADR 831,090 ------------- 14,505,348 ------------- Pharmaceuticals -- 2.0% 100,245 Dr. Reddy's Laboratories Ltd., ADR 2,426,931 ------------- Real Estate Management & Development -- 0.6% 40,534 E-House China Holdings Ltd., ADR (b) 734,476 ------------- Semiconductors & Semiconductor Equipment -- 0.6% 95,890 LDK Solar Co., Ltd., ADR (b) 672,189 ------------- Software -- 4.2% 26,427 AsiaInfo Holdings, Inc. (b) 805,231 Page 72 See Notes to Financial Statements First Trust ISE Chindia Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) Software (Continued) 26,685 Changyou.com Ltd., ADR (b) $ 886,209 22,832 Longtop Financial Technologies Ltd., ADR (b) 845,241 19,036 Perfect World Co., Ltd., ADR (b) 750,780 15,496 Shanda Interactive Entertainment Ltd., ADR (b) 815,244 48,512 VanceInfo Technologies, Inc., ADR (b) 931,915 ------------- 5,034,620 ------------- Textiles, Apparel & Luxury Goods -- 0.7% 43,429 Fuqi International, Inc. (b) 779,551 ------------- Wireless Telecommunication Services -- 7.0% 182,078 China Mobile Ltd., ADR 8,453,882 ------------- Total Investments -- 99.9% (Cost $108,628,225) (c) 120,140,197 Net Other Assets and Liabilities -- 0.1% 99,715 ------------- Net Assets -- 100.0% $ 120,239,912 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $114,130,696. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $15,782,646 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,773,145. ADR - American Depositary Receipt. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - --------------------------------------------------------------- Common Stocks* $120,140,197 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 73 First Trust Value Line(R) 100 Exchange-Traded Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 100.0% Auto Components -- 1.9% 14,070 Fuel Systems Solutions, Inc. (b) $ 580,247 24,750 TRW Automotive Holdings Corp. (b) 591,030 ------------- 1,171,277 ------------- Beverages -- 1.0% 13,203 Boston Beer (The) Co., Inc., Class A (b) 615,260 ------------- Capital Markets -- 0.9% 2,482 BlackRock, Inc. 576,320 ------------- Chemicals -- 2.0% 8,329 Lubrizol (The) Corp. 607,601 5,185 NewMarket Corp. 595,082 ------------- 1,202,683 ------------- Commercial Services & Supplies -- 2.0% 23,976 Corrections Corp. of America (b) 588,611 21,408 EnerNOC, Inc. (b) 650,589 ------------- 1,239,200 ------------- Communications Equipment -- 2.0% 20,819 Blue Coat Systems, Inc. (b) 594,174 11,530 F5 Networks, Inc. (b) 610,860 ------------- 1,205,034 ------------- Computers & Peripherals -- 2.1% 3,015 Apple, Inc. (b) 635,743 13,830 Western Digital Corp. (b) 610,594 ------------- 1,246,337 ------------- Consumer Finance -- 1.0% 17,416 Cash America International, Inc. 608,863 ------------- Diversified Telecommunication Services -- 2.0% 11,060 Atlantic Tele-Network, Inc. 608,411 7,156 Telefonica S.A., ADR 597,669 ------------- 1,206,080 ------------- Electrical Equipment -- 1.0% 14,268 American Superconductor Corp. (b) 583,561 ------------- Electronic Equipment, Instruments & Components -- 1.0% 12,907 Tech Data Corp. (b) 602,241 ------------- Food & Staples Retailing -- 1.0% 16,327 Walgreen Co. 599,527 ------------- Food Products -- 2.3% 36,468 Chiquita Brands International, Inc. (b) 657,883 8,688 Green Mountain Coffee Roasters, Inc. (b) 707,811 ------------- 1,365,694 ------------- Shares Description Value - --------- ------------------------------------------------- Health Care Equipment & Supplies -- 7.1% 3,738 Alcon, Inc. $ 614,340 34,791 Align Technology, Inc. (b) 619,976 45,076 ev3, Inc. (b) 601,314 12,375 Hospira, Inc. (b) 631,125 2,057 Intuitive Surgical, Inc. (b) 623,929 15,986 Kinetic Concepts, Inc. (b) 601,873 18,897 Sirona Dental Systems, Inc. (b) 599,791 ------------- 4,292,348 ------------- Health Care Providers & Services -- 6.9% 22,892 AmerisourceBergen Corp. 596,794 16,813 Catalyst Health Solutions, Inc. (b) 613,170 16,072 CIGNA Corp. 566,860 16,880 Community Health Systems, Inc. (b) 600,928 9,398 McKesson Corp. 587,375 10,183 MEDNAX, Inc. (b) 612,100 38,964 Odyssey HealthCare, Inc. (b) 607,059 ------------- 4,184,286 ------------- Health Care Technology -- 1.0% 7,593 Cerner Corp. (b) 625,967 ------------- Hotels, Restaurants & Leisure -- 3.0% 15,361 Cracker Barrel Old Country Store, Inc. 583,564 25,830 Starbucks Corp. (b) 595,640 15,251 WMS Industries, Inc. (b) 610,040 ------------- 1,789,244 ------------- Household Durables -- 2.9% 25,686 American Greetings Corp., Class A 559,698 60,743 La-Z-Boy, Inc. (b) 578,881 12,810 Tupperware Brands Corp. 596,561 ------------- 1,735,140 ------------- Insurance -- 1.0% 12,943 Aflac, Inc. 598,614 ------------- Internet & Catalog Retail -- 4.0% 4,501 Amazon.com, Inc. (b) 605,474 22,866 Expedia, Inc. (b) 587,885 11,077 Netflix, Inc. (b) 610,786 2,726 priceline.com, Inc. (b) 595,631 ------------- 2,399,776 ------------- Internet Software & Services -- 2.0% 5,570 Equinix, Inc. (b) 591,256 999 Google, Inc., Class A (b) 619,360 ------------- 1,210,616 ------------- IT Services -- 9.0% 9,281 Alliance Data Systems Corp. (b) 599,460 13,215 Cognizant Technology Solutions Corp., Class A (b) 598,639 Page 74 See Notes to Financial Statements First Trust Value Line(R) 100 Exchange-Traded Fund Portfolio of Investments (a) (Continued) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks (Continued) IT Services (Continued) 11,381 Global Payments, Inc. $ 612,981 13,903 Hewitt Associates, Inc., Class A (b) 587,541 11,052 Infosys Technologies Ltd., ADR 610,844 2,341 MasterCard, Inc., Class A 599,249 31,776 TeleTech Holdings, Inc. (b) 636,473 15,742 Unisys Corp. (b) 607,012 18,655 Wright Express Corp. (b) 594,348 ------------- 5,446,547 ------------- Life Sciences Tools & Services -- 5.0% 6,184 Bio-Rad Laboratories, Inc., Class A (b) 596,509 49,561 Bruker Corp. (b) 597,706 11,557 Life Technologies Corp. (b) 603,622 5,760 Mettler-Toledo International, Inc. (b) 604,742 9,802 Waters Corp. (b) 607,332 ------------- 3,009,911 ------------- Machinery -- 0.9% 6,071 Flowserve Corp. 573,892 ------------- Media -- 2.9% 22,874 Cablevision Systems Corp., Class A 590,607 32,344 Valassis Communications, Inc. (b) 590,601 19,785 Viacom, Inc., Class B (b) 588,208 ------------- 1,769,416 ------------- Multiline Retail -- 1.0% 20,241 Big Lots, Inc. (b) 586,584 ------------- Oil, Gas & Consumable Fuels -- 1.0% 12,486 Newfield Exploration Co. (b) 602,200 ------------- Personal Products -- 3.9% 48,241 Bare Escentuals, Inc. (b) 589,987 14,675 Herbalife Ltd. 595,365 13,763 NBTY, Inc. (b) 599,241 22,187 Nu Skin Enterprises, Inc., Class A 596,165 ------------- 2,380,758 ------------- Pharmaceuticals -- 2.0% 22,564 Medicis Pharmaceutical Corp., Class A 610,356 15,417 Perrigo Co. 614,214 ------------- 1,224,570 ------------- Semiconductors & Semiconductor Equipment -- 3.1% 49,033 CEVA, Inc. (b) 630,564 11,133 Cree, Inc. (b) 627,567 29,946 Marvell Technology Group Ltd. (b) 621,380 ------------- 1,879,511 ------------- Software -- 5.1% 14,282 Concur Technologies, Inc. (b) 610,556 24,062 Informatica Corp. (b) 622,243 Shares Description Value - --------- ------------------------------------------------- Software (Continued) 20,098 Red Hat, Inc. (b) $ 621,028 8,573 Salesforce.com, Inc. (b) 632,430 16,421 Solera Holdings, Inc. 591,320 ------------- 3,077,577 ------------- Specialty Retail -- 9.0% 34,470 Big 5 Sporting Goods Corp. 592,195 24,874 CarMax, Inc. (b) 603,194 26,284 Dress Barn (The), Inc. (b) 607,160 23,403 DSW, Inc., Class A (b) 605,670 13,817 Guess?, Inc. 584,459 13,411 J. Crew Group, Inc. (b) 600,008 17,534 Jo-Ann Stores, Inc. (b) 635,432 16,080 TJX (The) Cos., Inc. 587,724 17,642 Urban Outfitters, Inc. (b) 617,294 ------------- 5,433,136 ------------- Textiles, Apparel & Luxury Goods -- 7.0% 16,106 Coach, Inc. 588,352 57,705 Culp, Inc. (b) 575,896 6,442 Deckers Outdoor Corp. (b) 655,280 17,890 Fossil, Inc. (b) 600,389 7,375 Polo Ralph Lauren Corp. 597,228 14,539 Steven Madden Ltd. (b) 599,588 13,926 Warnaco Group (The), Inc. (b) 587,538 ------------- 4,204,271 ------------- Wireless Telecommunication Services -- 2.0% 12,829 America Movil S.A.B. de C.V., ADR 602,706 17,355 NII Holdings, Inc. (b) 582,781 ------------- 1,185,487 ------------- Total Investments -- 100.0% (Cost $52,673,509) (c) 60,431,928 Net Other Assets and Liabilities -- 0.0% 831 ------------- Net Assets -- 100.0% $ 60,432,759 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Aggregate cost for federal income tax purposes is $52,695,900. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $8,259,344 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $523,316. ADR- American Depositary Receipt. See Notes to Financial Statements Page 75 First Trust Value Line(R) 100 Exchange-Traded Fund Portfolio of Investments (a) (Continued) December 31, 2009 __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $60,431,928 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout. Page 76 See Notes to Financial Statements First Trust NASDAQ(R) ABA Community Bank Index Fund Portfolio of Investments (a) December 31, 2009 Shares Description Value - --------- ------------------------------------------------- Common Stocks -- 100.0% Commercial Banks -- 72.9% 764 Arrow Financial Corp. $ 19,100 8,858 Associated Banc-Corp. 97,527 1,060 BancFirst Corp. 39,262 1,170 Bank of the Ozarks, Inc. 34,246 4,691 BOK Financial Corp. 222,916 4,756 Boston Private Financial Holdings, Inc. 27,442 530 Camden National Corp. 17,331 1,988 Cardinal Financial Corp. 17,375 4,283 Cathay General Bancorp 32,337 1,785 Centerstate Banks, Inc. 18,011 1,655 Chemical Financial Corp. 39,025 1,101 City Holding Co. 35,595 1,947 Columbia Banking System, Inc. 31,502 5,747 Commerce Bancshares, Inc. 222,524 1,050 Community Trust Bancorp, Inc. 25,673 7,359 CVB Financial Corp. 63,582 1,517 Danvers Bancorp, Inc. 19,706 7,619 East West Bancorp, Inc. 120,380 1,156 First Bancorp. 16,149 607 First Citizens BancShares, Inc., Class A 99,554 3,563 First Financial Bancorp 51,877 1,443 First Financial Bankshares, Inc. 78,254 910 First Financial Corp. 27,773 3,796 First Midwest Bancorp, Inc. 41,338 5,947 FirstMerit Corp. 119,773 12,211 Fulton Financial Corp. 106,480 4,269 Glacier Bancorp, Inc. 58,571 929 Great Southern Bancorp, Inc. 19,843 2,551 Hancock Holding Co. 111,708 1,779 Home Bancshares, Inc. 42,821 1,430 IBERIABANK Corp. 76,948 1,450 Independent Bank Corp. 30,290 4,727 International Bancshares Corp. 89,482 7,932 Investors Bancorp, Inc. (b) 86,776 1,104 Lakeland Financial Corp. 19,044 3,505 MB Financial, Inc. 69,119 2,620 Nara Bancorp, Inc. 29,711 8,708 National Penn Bancshares, Inc. 50,419 2,379 NBT Bancorp, Inc. 48,460 2,344 PacWest Bancorp 47,232 2,283 Pinnacle Financial Partners, Inc. (b) 32,464 44,305 Popular, Inc. 100,129 4,946 PrivateBancorp, Inc. 44,366 3,214 Prosperity Bancshares, Inc. 130,071 1,460 Renasant Corp. 19,856 1,281 Republic Bancorp, Inc., Class A 26,389 1,920 S&T Bancorp, Inc. 32,659 941 S.Y. Bancorp, Inc. 20,090 882 SCBT Financial Corp. 24,423 2,814 Signature Bank (b) 89,767 1,157 Simmons First National Corp., Class A 32,165 1,035 Southside Bancshares, Inc. 20,307 Shares Description Value - --------- ------------------------------------------------- Commercial Banks (Continued) 1,575 StellarOne Corp. $ 15,687 5,664 Sterling Bancshares, Inc. 29,056 666 Suffolk Bancorp 19,780 5,985 Susquehanna Bancshares, Inc. 35,252 2,841 SVB Financial Group (b) 118,441 2,480 Texas Capital Bancshares, Inc. (b) 34,621 1,814 TowneBank 21,188 1,094 TriCo Bancshares 18,215 4,410 Trustmark Corp. 99,401 2,799 UMB Financial Corp. 110,141 6,012 Umpqua Holdings Corp. 80,621 1,270 Union Bankshares Corp. 15,735 3,008 United Bankshares, Inc. 60,070 6,508 United Community Banks, Inc. (b) 22,062 1,139 Univest Corp. of Pennsylvania 19,967 1,111 Washington Trust Bancorp, Inc. 17,309 1,841 WesBanco, Inc. 22,718 2,023 Westamerica Bancorporation 112,014 6,682 Whitney Holding Corp. 60,873 2,038 Wilshire Bancorp, Inc. 16,691 1,674 Wintrust Financial Corp. 51,542 9,575 Zions Bancorporation 122,847 ------------- 4,082,073 ------------- Thrifts & Mortgage Finance -- 27.1% 3,216 Bank Mutual Corp. 22,255 5,671 Beneficial Mutual Bancorp, Inc. (b) 55,803 965 Berkshire Hills Bancorp, Inc. 19,956 4,089 Brookline Bancorp, Inc. 40,522 5,133 Capitol Federal Financial 161,484 2,383 Dime Community Bancshares, Inc. 27,929 13,038 First Niagara Financial Group, Inc. 181,359 2,156 Flushing Financial Corp. 24,276 7,563 Northwest Bancshares, Inc. 85,613 24,126 People's United Financial, Inc. 402,904 2,740 Provident New York Bancorp 23,126 21,363 TFS Financial Corp. 259,347 5,310 TrustCo Bank Corp. NY 33,453 1,171 United Financial Bancorp, Inc. 15,352 7,778 Washington Federal, Inc. 150,426 2,113 Westfield Financial, Inc. 17,432 ------------- 1,521,237 ------------- Total Investments -- 100.0% (Cost $5,235,395) (c) 5,603,310 Net Other Assets and Liabilities -- 0.0% 291 ------------- Net Assets -- 100.0% $ 5,603,601 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. See Notes to Financial Statements Page 77 First Trust NASDAQ(R) ABA Community Bank Index Fund Portfolio of Investments (a) (Continued) December 31, 2009 (c) Aggregate cost for federal income tax purposes is $5,253,662. As of December 31, 2009, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $563,194 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $213,546. __________________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2009 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 - ---------------------------------------------------------------- Common Stocks* $ 5,603,310 $ -- $ -- ======================================== * See the Portfolio of Investments for industry breakout.~ Page 78 See Notes to Financial Statements This page intentionally left blank. Page 79 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2009
First Trust First Trust Dow Jones Select Morningstar(R) First Trust MicroCap Dividend Leaders(SM) US IPO Index(SM) Fund Index Fund Index Fund ------------------- ------------------- ---------------- ASSETS: Investments at value $ 18,666,111 $ 48,419,934 $ 11,036,285 Cash 41,939 33,854 81,435 Receivables: Capital shares sold 885,202 -- -- Dividends 19,557 178,044 16,314 Investment securities sold -- -- -- Interest -- -- -- Reclaims -- -- -- From investment advisor -- -- -- Prepaid expenses 769 2,104 475 -------------- -------------- -------------- Total Assets 19,613,578 48,633,936 11,134,509 -------------- -------------- -------------- LIABILITIES: Due to Custodian -- -- -- Payables: Investment securities purchased 885,683 60,160 -- Audit and tax fees 28,425 28,425 28,425 Investment advisory fees 14,843 207 9,346 Printing fees 2,595 7,282 1,658 Licensing fees -- 25,000 50,000 Other liabilities 3,377 8,259 2,072 -------------- -------------- -------------- Total Liabilities 934,923 129,333 91,501 -------------- -------------- -------------- NET ASSETS $ 18,678,655 $ 48,504,603 $ 11,043,008 ============== ============== ============== NET ASSETS consist of: Paid-in capital $ 25,575,532 $ 77,819,102 $ 15,623,105 Par value 10,550 34,000 5,500 Accumulated net investment income (loss) -- 23,132 147,960 Accumulated net realized gain (loss) on investments (6,908,486) (32,957,520) (5,069,107) Net unrealized appreciation (depreciation) on investments 1,059 3,585,889 335,550 -------------- -------------- -------------- NET ASSETS $ 18,678,655 $ 48,504,603 $ 11,043,008 ============== ============== ============== NET ASSET VALUE, per share $ 17.70 $ 14.27 $ 20.08 ============== ============== ============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 1,055,000 3,400,002 550,002 -------------- -------------- -------------- Investments at cost $ 18,665,052 $ 44,834,045 $ 10,700,735 ============== ============== ==============
Page 80 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- NYSE Arca Dow Jones DB Strategic Value Line(R) Equity Equal Weighted Technology Sector Biotechnology Internet Value Allocation Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- $ 40,367,626 $ 86,767,780 $ 66,922,526 $ 86,621,723 $ 51,126,358 $ 6,944,328 52,797 82,769 -- -- 7,456 -- 3,980,859 1,058,065 -- 5,081,164 4,092,877 -- 10,871 -- -- -- 94,545 10,152 -- -- 230,550 148,378 -- 36,041 -- -- -- -- -- -- -- -- -- -- -- 246 -- -- -- -- -- -- 1,087 1,039 3,451 1,722 2,199 303 -------------- -------------- -------------- -------------- -------------- -------------- 44,413,240 87,909,653 67,156,527 91,852,987 55,323,435 6,991,070 -------------- -------------- -------------- -------------- -------------- -------------- -- -- 8,362 77,902 -- 34,200 3,979,648 1,057,812 -- 5,091,969 4,091,590 36,230 28,425 28,425 28,425 28,455 28,425 28,425 15,972 18,113 17,234 14,293 13,844 1,909 5,141 10,576 10,043 11,222 6,970 1,037 8,767 14,512 12,953 -- 11,260 2,535 6,437 14,600 11,142 14,537 7,798 1,461 -------------- -------------- -------------- -------------- -------------- -------------- 4,044,390 1,144,038 88,159 5,238,378 4,159,887 105,797 -------------- -------------- -------------- -------------- -------------- -------------- $ 40,368,850 $ 86,765,615 $ 67,068,368 $ 86,614,609 $ 51,163,548 $ 6,885,273 ============== ============== ============== ============== ============== ============== $ 43,695,120 $ 82,439,346 $ 76,557,202 $ 85,220,069 $ 71,002,526 $ 10,773,122 20,500 41,000 23,500 34,500 25,000 4,000 3,474 -- -- -- 13,083 1,603 (8,374,390) (5,497,674) (10,683,531) (12,699,110) (26,044,476) (5,037,300) 5,024,146 9,782,943 1,171,197 14,059,150 6,167,415 1,143,848 -------------- -------------- -------------- -------------- -------------- -------------- $ 40,368,850 $ 86,765,615 $ 67,068,368 $ 86,614,609 $ 51,163,548 $ 6,885,273 ============== ============== ============== ============== ============== ============== $ 19.69 $ 21.16 $ 28.54 $ 25.11 $ 20.47 $ 17.21 ============== ============== ============== ============== ============== ============== 2,050,002 4,100,002 2,350,002 3,450,002 2,500,002 400,002 -------------- -------------- -------------- -------------- -------------- -------------- $ 35,343,480 $ 76,984,837 $ 65,751,329 $ 72,562,573 $ 44,958,943 $ 5,800,480 ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 81 FIRST TRUST EXCHANGE-TRADED FUND STATEMENT OF ASSETS AND LIABILITIES (Continued) DECEMBER 31, 2009
First Trust First Trust First Trust NASDAQ(R) Value Line(R) NASDAQ-100 Clean Edge(R) Dividend Ex-Technology Sector Green Energy Index Fund Index(SM) Fund Index Fund ----------------- -------------------- ---------------- ASSETS: Investments at value $ 153,454,621 $ 10,635,914 $ 43,439,893 Cash -- -- 42,308 Receivables: Capital shares sold -- -- -- Dividends 414,403 5,412 21,147 Investment securities sold 5,818 -- -- Interest -- -- -- Reclaims 13,953 -- -- From investment advisor -- 2,979 -- Prepaid expenses 6,622 317 1,840 --------------- --------------- --------------- Total Assets 153,895,417 10,644,622 43,505,188 --------------- --------------- --------------- LIABILITIES: Due to Custodian 98,346 31,380 -- Payables: Investment securities purchased -- -- -- Audit and tax fees 28,425 28,425 28,425 Investment advisory fees 40,896 -- 3,339 Printing fees 23,603 1,606 6,320 Licensing fees 57,176 2,466 10,481 Other liabilities 29,192 2,021 7,597 --------------- --------------- --------------- Total Liabilities 277,638 65,898 56,162 --------------- --------------- --------------- NET ASSETS $ 153,617,779 $ 10,578,724 $ 43,449,026 =============== =============== =============== NET ASSETS consist of: Paid-in capital $ 189,750,328 $ 11,348,451 $ 61,246,018 Par value 114,880 6,000 27,000 Accumulated net investment income (loss) 81,266 1,638 -- Accumulated net realized gain (loss) on investments (56,944,362) (1,617,516) (20,794,644) Net unrealized appreciation (depreciation) on investments 20,615,667 840,151 2,970,652 --------------- --------------- --------------- NET ASSETS $ 153,617,779 $ 10,578,724 $ 43,449,026 =============== =============== =============== NET ASSET VALUE, per share $ 13.37 $ 17.63 $ 16.09 =============== =============== =============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 11,487,986 600,002 2,700,002 --------------- --------------- --------------- Investments at cost $ 132,838,954 $ 9,795,763 $ 40,469,241 =============== =============== ===============
Page 82 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ(R) ABA S&P ISE ISE-Revere ISE Value Line(R) 100 Community REIT Water Natural Gas Chindia Exchange-Traded Bank Index Fund Index Fund Index Fund Index Fund Fund Index Fund -------------------- --------------------- --------------------- ------------------- --------------------- -------------------- $ 21,266,154 $ 37,431,003 $ 465,160,593 $ 120,140,197 $ 60,431,928 $ 5,603,310 -- -- -- 352,985 220,723 15,775 1,778,579 -- -- -- -- -- 76,367 79,728 199,745 -- 13,863 9,637 -- -- -- -- -- 10,202 -- -- 13 -- -- -- -- 3,404 -- -- 5,733 -- 4,653 -- -- -- -- 6,911 8,420 1,698 4,770 2,677 3,710 39 -------------- -------------- --------------- --------------- -------------- -------------- 23,134,173 37,515,833 465,365,121 120,495,859 60,675,957 5,645,874 -------------- -------------- --------------- --------------- -------------- -------------- 184,140 148,000 651,893 -- -- -- 1,825,256 -- -- 144,167 150,175 10,366 31,574 28,425 28,455 28,425 28,425 28,425 -- 9,171 91,715 21,796 19,104 -- 2,533 5,566 62,355 17,865 9,307 835 -- 4,730 104,514 21,722 25,740 1,237 3,636 6,293 87,283 21,972 10,447 1,410 -------------- -------------- --------------- --------------- -------------- -------------- 2,047,139 202,185 1,026,215 255,947 243,198 42,273 -------------- -------------- --------------- --------------- -------------- -------------- $ 21,087,034 $ 37,313,648 $ 464,338,906 $ 120,239,912 $ 60,432,759 $ 5,603,601 ============== ============== =============== =============== ============== ============== $ 20,394,511 $ 48,100,689 $ 464,149,607 $ 137,232,932 $ 136,726,693 $ 5,283,267 18,000 20,000 265,000 56,500 57,900 2,500 -- 3,849 -- -- -- 3,748 (1,149,484) (8,264,119) (49,615,982) (28,561,492) (84,110,253) (53,829) 1,824,007 (2,546,771) 49,540,281 11,511,972 7,758,419 367,915 -------------- -------------- --------------- --------------- -------------- -------------- $ 21,087,034 $ 37,313,648 $ 464,338,906 $ 120,239,912 $ 60,432,759 $ 5,603,601 ============== ============== =============== =============== ============== ============== $ 11.72 $ 18.66 $ 17.52 $ 21.28 $ 10.44 $ 22.41 ============== ============== =============== =============== ============== ============== 1,800,002 2,000,002 26,500,002 5,650,002 5,789,982 250,002 -------------- -------------- --------------- --------------- -------------- -------------- $ 19,442,147 $ 39,977,774 $ 415,620,312 $ 108,628,225 $ 52,673,509 $ 5,235,395 ============== ============== =============== =============== ============== ==============
See Notes to Financial Statements Page 83 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS
First Trust First Trust Dow Jones Select Morningstar(R) First Trust MicroCap Dividend Leaders(SM) US IPO Index(SM) Fund Index Fund Index Fund --------------------- --------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, 2009 December 31, 2009 December 31, 2009 --------------------- --------------------------------------- INVESTMENT INCOME: Dividends $ 186,887 $ 2,044,718 $ 381,346 Foreign tax withholding (140) (93) (57) Interest -- -- -- ------------- -------------- ------------- Total investment income 186,747 2,044,625 381,289 ------------- -------------- ------------- EXPENSES: Investment advisory fees 72,632 120,419 36,420 Audit and tax fees 29,144 29,144 29,144 Licensing fees 24,109 97,513 49,818 Accounting and administration fees 11,926 22,141 7,155 Custodian fees 11,295 5,554 517 Listing fees (1,444) 2,024 6,611 Transfer agent fees 726 2,007 455 Registration and filing fees (3,692) (8,837) (2,239) Trustees' fees and expenses (407) 398 417 Printing fees (5,028) 19,347 2,929 Legal fees (5,427) 19,037 (12,307) Other expenses 2,239 8,949 3,000 ------------- -------------- ------------- Total expenses 136,073 317,696 121,920 Less fees waived and expenses reimbursed by the investment advisor (48,917) (137,066) (67,290) ------------- -------------- ------------- Net expenses 87,156 180,630 54,630 ------------- -------------- ------------- NET INVESTMENT INCOME (LOSS) 99,591 1,863,995 326,659 ------------- -------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (3,260,012) (14,944,902) (651,715) In-kind redemptions -- (159,857) (1,455,476) Foreign currency transactions -- -- -- ------------- -------------- ------------- Net realized gain (loss) (3,260,012) (15,104,759) (2,107,191) Net change in unrealized appreciation (depreciation) on investments 6,256,604 18,721,051 5,263,706 ------------- -------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) 2,996,592 3,616,292 3,156,515 ------------- -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,096,183 $ 5,480,287 $ 3,483,174 ============= ============== =============
Page 84 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- NYSE Arca Dow Jones DB Strategic Value Line(R) Equal Weighted Technology Sector Biotechnology Internet Value Equity Allocation Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund --------------------- --------------------- --------------------- --------------------- ------------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2009 --------------------- --------------------- --------------------- --------------------- ------------------------------------------- $ 232,077 $ 220,364 $ -- $ 52,336 $ 865,999 $ 114,327 (1,463) -- -- -- -- (1,920) -- -- -- 13 -- 25 ------------- ------------- ------------- ------------- ------------- ------------- 230,614 220,364 -- 52,349 865,999 112,432 ------------- ------------- ------------- ------------- ------------- ------------- 97,361 115,308 244,423 145,507 195,107 28,919 29,221 29,144 29,221 29,251 29,144 29,144 24,340 28,827 48,884 21,665 35,585 9,086 14,825 16,136 30,789 19,778 20,722 6,333 3,992 3,417 7,286 4,653 5,873 (951) 335 (4,128) 3,813 4,500 3,452 4,352 1,217 1,441 3,055 1,819 1,951 289 (2,653) (1,138) (3,265) (734) (2,127) (2,761) 858 1,386 3,390 834 2,149 73 (4,343) 3,713 26,617 20,985 14,787 (826) (5,397) (3,427) 30,391 9,729 19,044 (2,627) 2,648 2,976 12,748 6,533 14,664 732 ------------- ------------- ------------- ------------- ------------- ------------- 162,404 193,655 437,352 264,520 340,351 71,763 (16,264) (20,687) (70,966) (46,260) (86,736) (31,276) ------------- ------------- ------------- ------------- ------------- ------------- 146,140 172,968 366,386 218,260 253,615 40,487 ------------- ------------- ------------- ------------- ------------- ------------- 84,474 47,396 (366,386) (165,911) 612,384 71,945 ------------- ------------- ------------- ------------- ------------- ------------- (2,734,817) (1,942,139) (7,610,195) (5,807,784) (8,768,047) (2,202,150) 174,961 694,125 14,047,014 (893,111) 5,408,657 635,603 -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- (2,559,856) (1,248,014) 6,436,819 (6,700,895) (3,359,390) (1,566,547) 13,318,318 17,103,466 15,981,380 27,167,822 16,222,958 3,266,470 ------------- ------------- ------------- ------------- ------------- ------------- 10,758,462 15,855,452 22,418,199 20,466,927 12,863,568 1,699,923 ------------- ------------- ------------- ------------- ------------- ------------- $ 10,842,936 $ 15,902,848 $ 22,051,813 $ 20,301,016 $ 13,475,952 $ 1,771,868 ============= ============= ============= ============= ============= =============
See Notes to Financial Statements Page 85 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS (Continued)
First Trust First Trust First Trust NASDAQ(R) Value Line(R) NASDAQ-100 Clean Edge(R) Dividend Ex-Technology Sector Green Energy Index Fund Index(SM) Fund Index Fund ------------------------------------------------------------- For the Year For the Year For the Year Ended Ended Ended December 31, 2009 December 31, 2009 December 31, 2009 --------------------- --------------------------------------- INVESTMENT INCOME: Dividends $ 5,140,585 $ 75,233 $ 169,117 Foreign tax withholding (84,684) (703) -- Interest -- 16 -- -------------- -------------- -------------- Total investment income 5,055,901 74,546 169,117 -------------- -------------- -------------- EXPENSES: Investment advisory fees 631,411 27,685 140,771 Audit and tax fees 29,144 29,220 29,144 Licensing fees 192,967 6,921 35,193 Accounting and administration fees 64,606 5,297 19,285 Custodian fees (1,178) 1,218 5,348 Listing fees (16,660) 15,739 8,705 Transfer agent fees 3,814 346 1,760 Registration and filing fees (18,976) 4 (430) Trustees' fees and expenses 5,455 282 1,783 Printing fees 56,021 1,822 22,679 Legal fees 62,458 1,272 18,158 Other expenses -- (1,531) 3,187 -------------- -------------- -------------- Total expenses 1,009,062 88,275 285,583 Less fees waived and expenses reimbursed by the investment advisor (125,081) (46,747) (74,427) -------------- -------------- -------------- Net expenses 883,981 41,528 211,156 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) 4,171,920 33,018 (42,039) -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (20,007,499) (641,955) (12,862,195) In-kind redemptions 544,190 367,846 (2,626,158) Foreign currency transactions -- -- -- -------------- -------------- -------------- Net realized gain (loss) (19,463,309) (274,109) (15,488,353) Net change in unrealized appreciation (depreciation) on investments 40,298,153 2,513,932 28,253,714 -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) 20,834,844 2,239,823 12,765,361 -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 25,006,764 $ 2,272,841 $ 12,723,322 ============== ============== ==============
___________________________ (a) Inception date. Page 86 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ(R) ABA S&P ISE ISE-Revere ISE Value Line(R) 100 Community REIT Water Natural Gas Chindia Exchange-Traded Bank Index Fund Index Fund Index Fund Index Fund Fund Index Fund --------------------- --------------------- --------------------- --------------------- ------------------------------------------- For the Period For the Year For the Year For the Year For the Year For the Year June 29, 2009 (a) Ended Ended Ended Ended Ended through December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2009 December 31, 2009 --------------------- --------------------- --------------------- --------------------- ------------------------------------------- $ 287,752 $ 620,509 $ 1,971,107 $ 856,097 $ 423,280 $ 54,165 -- (23,554) (93,392) (54,404) (15,925) -- 9 11 66 -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- 287,761 596,966 1,877,781 801,693 407,355 54,165 ------------- ------------- ------------- ------------- ------------- ------------- 22,199 132,762 666,814 272,412 327,894 8,611 34,793 29,144 29,174 29,144 29,144 28,425 74,332 16,595 166,704 54,482 102,358 1,937 6,465 17,770 84,429 35,473 34,088 2,108 2,049 4,616 27,108 21,226 1,647 474 4,634 (121) (121) (120) (5,765) 12,400 370 1,659 8,335 3,405 3,179 108 (611) (1,105) 13,592 1,052 -- 267 242 973 6,669 2,734 (4,697) 84 2,741 16,670 99,287 28,922 24,266 1,546 248 16,005 76,589 34,055 30,143 1,055 (3,304) 4,120 17,041 16,096 14,186 196 ------------- ------------- ------------- ------------- ------------- ------------- 144,158 239,088 1,195,621 498,881 556,443 57,211 (107,158) (40,314) (195,399) (90,414) (97,391) (44,294) ------------- ------------- ------------- ------------- ------------- ------------- 37,000 198,774 1,000,222 408,467 459,052 12,917 ------------- ------------- ------------- ------------- ------------- ------------- 250,761 398,192 877,559 393,226 (51,697) 41,248 ------------- ------------- ------------- ------------- ------------- ------------- (1,032,547) (5,074,106) (24,857,713) (6,659,876) (7,241,834) (53,829) (477,544) (226,889) 8,724,452 (1,226,342) 2,272,338 -- -- -- 148 -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- (1,510,091) (5,300,995) (16,133,113) (7,886,218) (4,969,496) (53,829) 3,426,166 10,860,501 77,981,940 44,375,061 11,828,826 367,915 ------------- ------------- ------------- ------------- ------------- ------------- 1,916,075 5,559,506 61,848,827 36,488,843 6,859,330 314,086 ------------- ------------- ------------- ------------- ------------- ------------- $ 2,166,836 $ 5,957,698 $ 62,726,386 $ 36,882,069 $ 6,807,633 $ 355,334 ============= ============= ============= ============= ============= =============
See Notes to Financial Statements Page 87 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
First Trust First Trust Dow Jones Select Morningstar(R) MicroCap Dividend Leaders(SM) Index(SM) Fund Index Fund ---------------------------------------------------------------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, 2009 December 31, 2008 December 31, 2009 December 31, 2008 ----------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 99,591 $ 119,605 $ 1,863,995 $ 2,595,775 Net realized gain (loss) (3,260,012) (1,433,938) (15,104,759) (19,289,024) Net change in unrealized appreciation (depreciation) 6,256,604 (4,841,892) 18,721,051 (3,052,374) -------------- --------------- --------------- ---------------- Net increase (decrease) in net assets resulting from operations 3,096,183 (6,156,225) 5,480,287 (19,745,623) -------------- --------------- --------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (95,349) (134,425) (1,912,571) (2,534,302) Return of capital (3,442) (4,281) -- -- -------------- --------------- --------------- ---------------- Total distributions to shareholders (98,791) (138,706) (1,912,571) (2,534,302) -------------- --------------- --------------- ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 1,604,570 4,065,981 3,229,577 12,711,476 Cost of shares redeemed -- (1,687,158) (1,488,733) (11,885,997) -------------- --------------- --------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions 1,604,570 2,378,823 1,740,844 825,479 -------------- --------------- --------------- ---------------- Total increase (decrease) in net assets 4,601,962 (3,916,108) 5,308,560 (21,454,446) NET ASSETS: Beginning of period 14,076,693 17,992,801 43,196,043 64,650,489 -------------- --------------- --------------- ---------------- End of period $ 18,678,655 $ 14,076,693 $ 48,504,603 $ 43,196,043 ============== =============== =============== ================ Accumulated net investment income (loss) at end of period $ -- $ -- $ 23,132 $ 70,975 ============== =============== =============== ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period 955,000 805,000 3,300,002 3,200,002 Shares sold 100,000 250,000 250,000 850,000 Shares redeemed -- (100,000) (150,000) (750,000) -------------- --------------- --------------- ---------------- Shares outstanding, end of period 1,055,000 955,000 3,400,002 3,300,002 ============== =============== =============== ================
Page 88 See Notes to Financial Statements
First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- NYSE Arca US IPO Equal Weighted Technology Sector Biotechnology Index Fund Index(SM) Fund Index(SM) Fund Index Fund - ------------------------------------------------------------------------------------------------------------------------------------ For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2009 2008 2009 2008 2009 2008 2009 2008 - ------------------------------------------------------------------------------------------------------------------------------------ $ 326,659 $ 94,845 $ 84,474 $ 2,020 $ 47,396 $ (2,159) $ (366,386) $ 391,584 (2,107,191) (3,992,771) (2,559,856) (5,747,420) (1,248,014) (3,630,678) 6,436,819 (9,859,786) 5,263,706 (6,916,703) 13,318,318 (6,647,266) 17,103,466 (5,540,626) 15,981,380 (8,907,572) - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- 3,483,174 (10,814,629) 0,842,936 (12,392,666) 15,902,848 (9,173,463) 22,051,813 (18,375,774) - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- (177,486) (100,763) (81,000) (2,020) (47,396) -- -- (391,584) -- (7,057) -- (7,600) (4,284) -- -- (201,756) - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- (177,486) (107,820) (81,000) (9,620) (51,680) -- -- (593,340) - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- 2,399,386 9,223,133 22,078,917 5,116,238 68,935,710 1,934,589 25,101,247 64,260,013 (3,115,834) (16,479,647) (7,320,031) (8,777,226) (7,434,859) (6,999,081) (39,181,567) (59,435,071) - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- (716,448) (7,256,514) 14,758,886 (3,660,988) 61,500,851 (5,064,492) (14,080,320) 4,824,942 - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- 2,589,240 (18,178,963) 25,520,822 (16,063,274) 77,352,019 (14,237,955) 7,971,493 (14,144,172) 8,453,768 26,632,731 14,848,028 30,911,302 9,413,596 23,651,551 59,096,875 73,241,047 - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- $ 11,043,008 $ 8,453,768 $ 40,368,850 $ 14,848,028 $ 86,765,615 $ 9,413,596 $ 67,068,368 $ 59,096,875 ============== ============== =============== ============== ============== =============== =============== =============== $ 147,960 $ -- $ 3,474 $ -- $ -- $ -- $ -- $ -- ============== ============== =============== ============== ============== =============== =============== =============== 600,002 1,050,002 1,200,002 1,400,002 800,002 1,100,002 3,000,002 3,000,002 200,000 400,000 1,250,000 300,000 3,700,000 100,000 950,000 2,750,000 (250,000) (850,000) (400,000) (500,000) (400,000) (400,000) (1,600,000) (2,750,000) - -------------- -------------- --------------- -------------- -------------- --------------- --------------- --------------- 550,002 600,002 2,050,002 1,200,002 4,100,002 800,002 2,350,002 3,000,002 ============== ============== =============== ============== ============== =============== =============== ===============
See Notes to Financial Statements Page 89 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (Continued)
First Trust First Trust Dow Jones Internet DB Strategic Value Index(SM) Fund Index Fund --------------------------------------------------------------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, 2009 December 31, 2008 December 31, 2009 December 31, 2008 ---------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (165,911) $ 48,065 $ 612,384 $ 779,120 Net realized gain (loss) (6,700,895) (6,500,741) (3,359,390) (16,459,173) Net change in unrealized appreciation (depreciation) 27,167,822 (10,241,121) 16,222,958 (8,452,355) -------------- --------------- --------------- ---------------- Net increase (decrease) in net assets resulting from operations 20,301,016 (16,693,797) 13,475,952 (24,132,408) -------------- --------------- --------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- (48,065) (615,441) (786,001) Return of capital -- (1,660) -- -- -------------- --------------- --------------- ---------------- Total distributions to shareholders -- (49,725) (615,441) (786,001) -------------- --------------- --------------- ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 55,632,202 16,539,332 36,080,112 60,739,339 Cost of shares redeemed (4,027,094) (21,472,981) (33,539,545) (61,576,153) -------------- --------------- --------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions 51,605,108 (4,933,649) 2,540,567 (836,814) -------------- --------------- --------------- ---------------- Total increase (decrease) in net assets 71,906,124 (21,677,171) 15,401,078 (25,755,223) NET ASSETS: Beginning of period 14,708,485 36,385,656 35,762,470 61,517,693 -------------- --------------- --------------- ---------------- End of period $ 86,614,609 $ 14,708,485 $ 51,163,548 $ 35,762,470 ============== =============== =============== ================ Accumulated net investment income (loss) at end of period $ -- $ -- $ 13,083 $ 16,119 ============== =============== =============== ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period 1,050,002 1,450,002 2,400,002 2,550,002 Shares sold 2,650,000 750,000 2,100,000 2,700,000 Shares redeemed (250,000) (1,150,000) (2,000,000) (2,850,000) -------------- --------------- --------------- ---------------- Shares outstanding, end of period 3,450,002 1,050,002 2,500,002 2,400,002 ============== =============== =============== ================
Page 90 See Notes to Financial Statements
First Trust First Trust First Trust First Trust NASDAQ-100- NASDAQ(R) Value Line(R) Equity Allocation Value Line(R) Dividend Ex-Technology Sector Clean Edge(R) Green Energy Index Fund Index Fund Index(SM) Fund Index Fund - ------------------------------------------------------------------------------------------------------------------------------------ For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2009 2008 2009 2008 2009 2008 2009 2008 - ---------------------------------------------------------------------------------------------------------------------------------- $ 71,945 $ 122,963 $ 4,171,920 $ 4,462,660 $ 33,018 $ 1,005 $ (42,039) $ (86,509) (1,566,547) (1,813,174) (19,463,309) (30,544,023) (274,109) (1,174,536) (15,488,353) (8,981,107) 3,266,470 (2,790,104) 40,298,153 (10,121,962) 2,513,932 (1,464,973) 28,253,714 (30,855,031) - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- 1,771,868 (4,480,315) 25,006,764 (36,203,325) 2,272,841 (2,638,504) 12,723,322 (39,922,647) - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- (70,920) (125,551) (4,139,046) (4,414,268) (31,380) (1,005) -- -- -- -- -- -- -- (335) -- -- - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- (70,920) (125,551) (4,139,046) (4,414,268) (31,380) (1,340) -- -- - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- 2,778,637 9,013,426 23,235,060 13,912,902 4,857,161 7,753,235 12,111,351 18,128,749 (3,434,999) (11,858,239) (5,887,786) (38,045,744) (3,751,861) -- (4,889,964) (5,614,820) - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- (656,362) (2,844,813) 17,347,274 (24,132,842) 1,105,300 7,753,235 7,221,387 12,513,929 - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- 1,044,586 (7,450,679) 38,214,992 (64,750,435) 3,346,761 5,113,391 19,944,709 (27,408,718) 5,840,687 13,291,366 115,402,787 180,153,222 7,231,963 2,118,572 23,504,317 50,913,035 - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- $ 6,885,273 $ 5,840,687 $ 153,617,779 $ 115,402,787 $ 10,578,724 $ 7,231,963 $ 43,449,026 $ 23,504,317 ============== ============== ================ ============== ============== ============== =============== =============== $ 1,603 $ 578 $ 81,266 $ 48,392 $ 1,638 $ -- $ -- $ -- ============== ============== ================ ============== ============== ============== =============== =============== 450,002 650,002 9,987,986 11,437,986 600,002 100,002 2,100,002 1,650,002 200,000 500,000 2,050,000 1,200,000 300,000 500,000 950,000 800,000 (250,000) (700,000) (550,000) (2,650,000) (300,000) -- (350,000) (350,000) - -------------- -------------- ---------------- -------------- -------------- -------------- --------------- --------------- 400,002 450,002 11,487,986 9,987,986 600,002 600,002 2,700,002 2,100,002 ============== ============== ================ ============== ============== ============== =============== ===============
See Notes to Financial Statements Page 91 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (Continued)
First Trust S&P First Trust REIT ISE Water Index Fund Index Fund ------------------------------------------------------------------------------------ For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, 2009 December 31, 2008 December 31, 2009 December 31, 2008 ---------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 250,761 $ 82,780 $ 398,192 $ 235,887 Net realized gain (loss) (1,510,091) (1,224,089) (5,300,995) (5,744,238) Net change in unrealized appreciation (depreciation) 3,426,166 (1,217,844) 10,860,501 (13,730,526) ------------- ------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations 2,166,836 (2,359,153) 5,957,698 (19,238,877) ------------- ------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (251,687) (82,045) (394,615) (235,615) Return of capital (22,048) -- -- -- ------------- ------------- --------------- --------------- Total distributions to shareholders (273,735) (82,045) (394,615) (235,615) ------------- ------------- --------------- --------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 16,004,640 7,707,488 5,354,182 60,229,848 Cost of shares redeemed (1,997,981) (1,660,294) (5,760,858) (20,907,834) ------------- ------------- --------------- --------------- Net increase (decrease) in net assets resulting from shareholder transactions 14,006,659 6,047,194 (406,676) 39,322,014 ------------- ------------- --------------- --------------- Total increase (decrease) in net assets 15,899,760 3,605,996 5,156,407 19,847,522 NET ASSETS: Beginning of period 5,187,274 1,581,278 32,157,241 12,309,719 ------------- ------------- --------------- --------------- End of period $21,087,034 $ 5,187,274 $ 37,313,648 $ 32,157,241 ============= ============= =============== =============== Accumulated net investment income (loss) at end of period $ -- $ 735 $ 3,849 $ 272 ============= ============= =============== =============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period 550,002 100,002 2,050,002 550,002 Shares sold 1,550,000 650,000 350,000 2,650,000 Shares redeemed (300,000) (200,000) (400,000) (1,150,000) ------------- ------------- --------------- --------------- Shares outstanding, end of period 1,800,002 550,002 2,000,002 2,050,002 ============= ============= =============== ===============
(a) Inception date. Page 92 See Notes to Financial Statements
First Trust First Trust ISE-Revere First Trust First Trust NASDAQ(R) ABA Natural Gas ISE Chindia Value Line(R) 100 Community Bank Index Fund Index Fund Exchange-Traded Fund Index Fund - --------------------------------------------------------------------------------------------------------------------------------- For the Year For the Year For the Year For the Year For the Year For the Year For the Period Ended Ended Ended Ended Ended Ended June 29, 2009 (a) December 31, December 31, December 31, December 31, December 31, December 31, through 2009 2008 2009 2008 2009 2008 December 31, 2009 - ------------------------------------------------------------------------------------------------------------------------------------ $ 877,559 $ 496,124 $ 393,226 $ 636,760 $ (51,697) $ (145,903) $ 41,248 (16,133,113) (25,681,982) (7,886,218) (24,216,781) (4,969,496) (56,160,541) (53,829) 77,981,940 (28,462,419) 44,375,061 (35,314,697) 11,828,826 (26,736,162) 367,915 - --------------- -------------- --------------- -------------- -------------- --------------- --------------- 62,726,386 (53,648,277) 36,882,069 (58,894,718) 6,807,633 (83,042,606) 355,334 - --------------- -------------- --------------- -------------- -------------- --------------- --------------- (942,177) (496,336) (393,226) (723,411) -- -- (37,500) (15,658) -- (149) (7,375) -- -- -- - --------------- -------------- --------------- -------------- -------------- --------------- --------------- (957,835) (496,336) (393,375) (730,786) -- -- (37,500) - --------------- -------------- --------------- -------------- -------------- --------------- --------------- 430,438,876 165,183,948 53,606,608 13,396,978 6,573,698 59,176,893 5,285,767 (65,047,038) (85,018,202) (5,792,265) (21,838,899) (28,773,841) (105,222,443) -- - --------------- -------------- --------------- -------------- -------------- --------------- --------------- 365,391,838 80,165,746 47,814,343 (8,441,921) (22,200,143) (46,045,550) 5,285,767 - --------------- -------------- --------------- -------------- -------------- --------------- --------------- 427,160,389 26,021,133 84,303,037 (68,067,425) (15,392,510) (129,088,156) 5,603,601 37,178,517 11,157,384 35,936,875 104,004,300 75,825,269 204,913,425 -- - --------------- -------------- --------------- -------------- -------------- --------------- --------------- $ 464,338,906 $ 37,178,517 $ 120,239,912 $ 35,936,875 $ 60,432,759 $ 75,825,269 $ 5,603,601 =============== ============== =============== ============== ============== =============== =============== $ -- $ 6,195 $ -- $ -- $ -- $ -- $ 3,748 =============== ============== =============== ============== ============== =============== =============== 3,150,002 500,002 3,050,002 3,750,002 8,189,982 11,439,982 -- 27,350,000 6,150,000 2,950,000 550,000 700,000 3,750,000 250,002 (4,000,000) (3,500,000) (350,000) (1,250,000) (3,100,000) (7,000,000) -- - --------------- -------------- --------------- -------------- -------------- --------------- --------------- 26,500,002 3,150,002 5,650,002 3,050,002 5,789,982 8,189,982 250,002 =============== ============== =============== ============== ============== =============== ===============
See Notes to Financial Statements Page 93 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust Dow Jones Select MicroCap Index(SM) Fund
For the For the For the For the For the Period Year Ended Year Ended Year Ended Year Ended September 27, 2005 (a) December 31, December 31, December 31, December 31, through 2009 2008 2007 2006 December 31, 2005 ------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.74 $ 22.35 $ 23.92 $ 20.73 $ 20.00 ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.09 0.17 0.16 0.06 (b) 0.03 (b) Net realized and unrealized gain (loss) 2.97 (7.60) (1.60) 3.19 (b) 0.72 (b) ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.06 (7.43) (1.44) 3.25 0.75 ---------- ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.10) (0.17) (0.13) (0.06) (0.02) Return of capital (0.00) (f) (0.01) -- -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.10) (0.18) (0.13) (0.06) (0.02) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.70 $ 14.74 $ 22.35 $ 23.92 $ 20.73 ========== ========== ========== ========== ========== TOTAL RETURN (c) 20.85% (33.33)% (6.02)% 15.69% 3.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 18,679 $ 14,077 $ 17,993 $ 16,865 $ 39,492 Ratios to average net assets: Ratio of total expenses to average net assets 0.94% 1.05% 1.35% 1.18% 1.44% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.69% 0.79% 0.58% 0.24% 0.51% (d) Portfolio turnover rate (e) 86% 85% 11% 20% 6% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund For the Period For the For the For the March 9, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 ----------------------------------------------------------------------------------- Net asset value, beginning of period $ 13.09 $ 20.20 $ 23.51 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.56 0.83 0.92 0.59 (b) Net realized and unrealized gain (loss) 1.19 (7.13) (3.35) 3.52 (b) ---------- ---------- ---------- ---------- Total from investment operations 1.75 (6.30) (2.43) 4.11 ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.57) (0.81) (0.88) (0.60) ---------- ---------- ---------- ---------- Net asset value, end of period $ 14.27 $ 13.09 $ 20.20 $ 23.51 ========== ========== ========== ========== TOTAL RETURN (c) 14.24% (31.71)% (10.64)% 20.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 48,505 $ 43,196 $ 64,650 $ 75,237 Ratios to average net assets: Ratio of total expenses to average net assets 0.79% 0.72% 0.68% 0.99% (d) Ratio of net expenses to average net assets 0.45% 0.45% 0.45% 0.45% (d) Ratio of net investment income (loss) to average net assets 4.64% 5.07% 3.87% 3.55% (d) Portfolio turnover rate (e) 81% 56% 9% 9%
(a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share. Page 94 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust US IPO Index Fund
For the Period For the For the For the April 12, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 ----------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.09 $ 25.36 $ 22.20 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.59 0.15 0.05 0.01 (b) Net realized and unrealized gain (loss) 5.72 (11.27) 3.17 2.19 (b) ---------- ---------- ---------- ---------- Total from investment operations 6.31 (11.12) 3.22 2.20 ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.32) (0.14) (0.06) -- Return of capital -- (0.01) -- -- ---------- ---------- ---------- ---------- Total distributions (0.32) (0.15) (0.06) -- ---------- ---------- ---------- ---------- Net asset value, end of period $ 20.08 $ 14.09 $ 25.36 $ 22.20 ========== ========== ========== ========== TOTAL RETURN (c) 44.93% (43.88)% 14.53% 11.00% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 11,043 $ 8,454 $ 26,633 $ 19,981 Ratios to average net assets: Ratio of total expenses to average net assets 1.34% 1.02% 1.06% 1.44% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 3.59% 0.50% 0.24% 0.07% (d) Portfolio turnover rate (e) 30% 62% 11% 26% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund For the Period For the For the For the April 19, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 ----------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.37 $ 22.08 $ 20.12 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.05 0.00 (f) (0.02) (0.01)(b) Net realized and unrealized gain (loss) 7.32 (9.70) 1.98 0.13 (b) ---------- ---------- ---------- ---------- Total from investment operations 7.37 (9.70) 1.96 0.12 ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.05) (0.00)(f) -- -- Return of capital -- (0.01) -- -- ---------- ---------- ---------- ---------- Total distributions (0.05) (0.01) -- -- ---------- ---------- ---------- ---------- Net asset value, end of period $ 19.69 $ 12.37 $ 22.08 $ 20.12 ========== ========== ========== ========== TOTAL RETURN (c) 59.54% (43.96)% 9.74% 0.60% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 40,369 $ 14,848 $ 30,911 $ 26,158 Ratios to average net assets: Ratio of total expenses to average net assets 0.67% 0.88% 0.95% 1.31% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.35% 0.01% (0.08)% (0.07)%(d) Portfolio turnover rate (e) 36% 39% 15% 1%
(a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share. See Notes to Financial Statements Page 95 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust NASDAQ-100-Technology Sector Index(SM) Fund
For the Period For the For the For the April 19, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 --------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.77 $ 21.50 $ 19.97 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.01 -- (0.03) (0.03)(b) Net realized and unrealized gain (loss) 9.39 (9.73) 1.56 0.00 (b) (f) ---------- ---------- ---------- ---------- Total from investment operations 9.40 (9.73) 1.53 (0.03) ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.01) -- -- -- Return of capital (0.00) (f) -- -- -- ---------- ---------- ---------- ---------- Total distributions (0.01) -- -- -- ---------- ---------- ---------- ---------- Net asset value, end of period $ 21.16 $ 11.77 $ 21.50 $ 19.97 ========== ========== ========== ========== TOTAL RETURN (c) 79.89% (45.26)% 7.66% (0.15)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 86,766 $ 9,414 $ 23,652 $ 27,960 Ratios to average net assets: Ratio of total expenses to average net assets 0.67% 0.88% 0.92% 1.37% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.16% (0.01)% (0.16)% (0.20)% (d) Portfolio turnover rate (e) 35% 33% 10% 7% First Trust NYSE Arca Biotechnology Index Fund For the Period For the For the For the June 19, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 ----------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.70 $ 24.41 $ 23.55 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) (0.16) 0.18 (0.10) (0.07)(b) Net realized and unrealized gain (loss) 9.00 (4.62) 0.96 3.62 (b) ---------- ---------- ---------- ---------- Total from investment operations 8.84 (4.44) 0.86 3.55 ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income -- (0.18) -- -- Return of capital -- (0.09) -- -- ---------- ---------- ---------- ---------- Total distributions -- (0.27) -- -- ---------- ---------- ---------- ---------- Net asset value, end of period $ 28.54 $ 19.70 $ 24.41 $ 23.55 ========== ========== ========== ========== TOTAL RETURN (c) 44.87% (18.33)% 3.65% 17.75% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 67,068 $ 59,097 $ 73,241 $ 29,438 Ratios to average net assets: Ratio of total expenses to average net assets 0.72% 0.72% 0.73% 1.22% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets (0.60)% 0.67% (0.60)% (0.60)% (d) Portfolio turnover rate (e) 44% 38% 11% 4%
(a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share. Page 96 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust Dow Jones Internet Index(SM) Fund
For the Period For the For the For the June 19, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 ----------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.01 $ 25.09 $ 22.57 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) (0.05) 0.05 (0.16) (0.07)(b) Net realized and unrealized gain (loss) 11.15 (11.08) 2.68 2.64 (b) ---------- ---------- ---------- ---------- Total from investment operations 11.10 (11.03) 2.52 2.57 ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income -- (0.05) -- -- Return of capital -- (0.00) (f) -- -- ---------- ---------- ---------- ---------- Total distributions -- (0.05) -- -- ---------- ---------- ---------- ---------- Net asset value, end of period $ 25.11 $ 14.01 $ 25.09 $ 22.57 ========== ========== ========== ========== TOTAL RETURN (c) 79.23% (44.02)% 11.17% 12.85% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 86,615 $ 14,708 $ 36,386 $ 25,953 Ratios to average net assets: Ratio of total expenses to average net assets 0.73% 0.82% 0.70% 1.24% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets (0.46)% 0.21% (0.42)% (0.55)% (d) Portfolio turnover rate (e) 35% 44% 6% 4% First Trust DB Strategic Value Index Fund For the Period For the For the For the July 6, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 --------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.90 $ 24.12 $ 22.06 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.28 0.28 0.20 0.12 (b) Net realized and unrealized gain (loss) 5.57 (9.22) 2.07 2.03 (b) ---------- ---------- ---------- ---------- Total from investment operations 5.85 (8.94) 2.27 2.15 ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.28) (0.28) (0.21) (0.09) ---------- ---------- ---------- ---------- Net asset value, end of period $ 20.47 $ 14.90 $ 24.12 $ 22.06 ========== ========== ========== ========== TOTAL RETURN (c) 39.43% (37.23)% 10.26% 10.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 51,164 $ 35,762 $ 61,518 $ 17,650 Ratios to average net assets: Ratio of total expenses to average net assets 0.87% 0.72% 1.12% 2.59% (d) Ratio of net expenses to average net assets 0.65% 0.65% 0.65% 0.65% (d) Ratio of net investment income (loss) to average net assets 1.57% 1.31% 1.09% 1.29% (d) Portfolio turnover rate (e) 171% 157% 10% 4%
(a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share. See Notes to Financial Statements Page 97 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust Value Line(R) Equity Allocation Index Fund
For the Period For the For the For the December 5, 2006 (a) Year Ended Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 ----------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.98 $ 20.45 $ 19.78 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.18 0.25 0.24 0.03 (b) Net realized and unrealized gain (loss) 4.23 (7.47) 0.68 (0.25)(b) ---------- ---------- ---------- ---------- Total from investment operations 4.41 (7.22) 0.92 (0.22) ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.18) (0.25) (0.25) -- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.21 $ 12.98 $ 20.45 $ 19.78 ========== ========== ========== ========== TOTAL RETURN (c) 34.15% (35.45)% 4.65% (1.10)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 6,885 $ 5,841 $ 13,291 $ 18,793 Ratios to average net assets: Ratio of total expenses to average net assets 1.24% 1.14% 1.36% 3.25% (d) Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% (d) Ratio of net investment income (loss) to average net assets 1.24% 1.29% 1.04% 1.82% (d) Portfolio turnover rate (e) 191% 120% 43% 1%
(a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. Page 98 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust Value Line(R) Dividend Index Fund
For the Period For the For the For the June 1, 2006 For the For the Year Ended Year Ended Year Ended through Year Ended Year Ended December 31, December 31, December 31, December 31, May 31, May 31, 2009 2008 2007 2006 (a) 2006 (a) 2005 (a) ------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.55 $ 15.75 $ 16.77 $ 16.55 $ 17.24 $ 16.13 ----------- ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income (loss) 0.38 0.45 0.44 0.24 (b) 0.43 0.41 Net realized and unrealized gain (loss) 1.82 (4.20) (0.99) 2.10 (b) 1.00 1.99 ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations 2.20 (3.75) (0.55) 2.34 1.43 2.40 ----------- ----------- ----------- ----------- ----------- ----------- Distributions paid to shareholders from: Net investment income (0.38) (0.45) (0.47) (0.63) (0.42) (0.37) Net realized gains -- -- -- (1.49) (1.70) (0.92) ----------- ----------- ----------- ----------- ----------- ----------- Total distributions to shareholders (0.38) (0.45) (0.47) (2.12) (2.12) (1.29) ----------- ----------- ----------- ----------- ----------- ----------- Common Shares offering costs charged to paid-in capital -- -- -- -- -- (0.00)(c) ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 13.37 $ 11.55 $ 15.75 $ 16.77 $ 16.55 $ 17.24 =========== =========== =========== =========== =========== =========== TOTAL RETURN, BASED ON NET ASSET VALUE 19.58% (e) (24.17)%(e) (3.42)% (e) 14.70% (e)(i) 10.26% (d) 16.05%(d) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 153,618 $ 115,403 $ 180,153 $ 451,642 $ 536,258 $ 558,705 Ratios to average net assets: Ratio of total expenses to average net assets 0.80% 0.84% 0.85% 0.94%(f) 0.93% 0.93% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.93%(f) (h) 0.93% 0.93% Ratio of net investment income (loss) to average net assets 3.30% 3.20% 2.37% 2.36%(f) 2.51% 2.45% Portfolio turnover rate (g) 101% 109% 5% 28% 58% 57%
(a) The Fund commenced operations on August 19, 2003. Results for periods prior to December 18, 2006 are of First Trust Value Line(R) Dividend Fund. See Reorganization History below. (b) Per share amounts have been calculated using the average share method. (c) Amount represents less than $0.01 per share. (d) Total return based on net asset value is the combination of reinvested dividend distributions and reinvested capital gains distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in net asset value per share and does not reflect sales load. (e) Total return based on net asset value is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (f) Annualized. (g) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (h) The annualized expense ratio is capped at 0.70%. This ratio of 0.93% includes expenses for a portion of the period prior to the reorganization for the First Trust Value Line(R) Dividend Fund. (i) Prior to December 18, 2006, total return based on net asset value assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of First Trust Value Line(R) Dividend Fund. See Reorganization History below. REORGANIZATION HISTORY: First Trust Value Line(R) Dividend Fund (the "Predeccessor FVD Fund"), a closed-end fund organized as a Massachusetts business trust on June 11, 2003, reorganized with and into First Trust Value Line(R) Dividend Index Fund ("FVD"), an exchange-traded fund and newly created series of the Trust effective Friday, December 15, 2006. The Predeccessor FVD Fund ceased trading on the AMEX (now known as NYSE Alternext US) on Friday, December 15, 2006 and FVD began trading on the AMEX on Monday, December 18, 2006 (effective November 6, 2008, FVD began trading on NYSE Arca), under the ticker symbol "FVD," the same ticker symbol used by the Predecessor FVD Fund. The assets of the Predecessor FVD Fund were transferred to, and the liabilities of the Predecessor FVD fund were assumed by, FVD in exchange for shares of FVD on a one share for one share basis based upon the net asset value ("NAV") of the Predecessor FVD Fund on Friday, December 15, 2006. FVD shares have been distributed to the Predecessor FVD Fund shareholders, on a tax-free basis for federal income tax purposes, and the Predecessor FVD Fund has been terminated. The historical results of the Predecessor FVD Fund survive for financial reporting purposes. See Notes to Financial Statements Page 99 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
For the Period For the For the February 8, 2007 (a) Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 ---------------------------------------------------------------- Net asset value, beginning of period $ 12.05 $ 21.19 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.05 0.01 (0.01) Net realized and unrealized gain (loss) 5.58 (9.14) 1.20 ---------- ---------- ---------- Total from investment operations 5.63 (9.13) 1.19 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.05) (0.01) -- Return of capital (0.00) (e) (0.00) (e) -- ---------- ---------- ---------- Total distributions (0.05) (0.01) -- ---------- ---------- ---------- Net asset value, end of period $ 17.63 $ 12.05 $ 21.19 ========== ========== ========== TOTAL RETURN (b) 46.74% (43.09)% 5.95% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 10,579 $ 7,232 $ 2,119 Ratios to average net assets: Ratio of total expenses to average net assets 1.28% 1.86% 2.61% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 0.48% 0.03% (0.04)%(c) Portfolio turnover rate (d) 43% 67% 27% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund For the Period For the For the February 8, 2007 (a) Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 ---------------------------------------------------------------- Net asset value, beginning of period $ 11.19 $ 30.86 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) (0.02) (0.04) (0.04) Net realized and unrealized gain (loss) 4.92 (19.63) 10.90 ---------- ---------- ---------- Total from investment operations 4.90 (19.67) 10.86 ---------- ---------- ---------- Net asset value, end of period $ 16.09 $ 11.19 $ 30.86 ========== ========== ========== TOTAL RETURN (b) 43.79% (63.74)% 54.30% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 43,449 $ 23,504 $ 50,913 Ratios to average net assets: Ratio of total expenses to average net assets 0.81% 0.83% 1.00% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets (0.12)% (0.21)% (0.33)%(c) Portfolio turnover rate (d) 40% 32% 4%
(a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (e) Amount represents less than $0.01 per share. Page 100 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust S&P REIT Index Fund
For the Period For the For the May 8, 2007 (a) Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 ---------------------------------------------------------------- Net asset value, beginning of period $ 9.43 $ 15.81 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.25 0.31 0.32 (b) Net realized and unrealized gain (loss) 2.31 (6.38) (4.13)(b) ---------- ---------- ---------- Total from investment operations 2.56 (6.07) (3.81) ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.25) (0.31) (0.38) Return of capital (0.02) -- -- ---------- ---------- ---------- Total distributions (0.27) (0.31) (0.38) ---------- ---------- ---------- Net asset value, end of period $ 11.72 $ 9.43 $ 15.81 ========== ========== ========== TOTAL RETURN (c) 28.00% (38.87)% (19.08)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 21,087 $ 5,187 $ 1,581 Ratios to average net assets: Ratio of total expenses to average net assets 1.95% 5.30% 8.41% (d) Ratio of net expenses to average net assets 0.50% 0.50% 0.50% (d) Ratio of net investment income (loss) to average net assets 3.39% 3.40% 2.73% (d) Portfolio turnover rate (e) 13% 20% 25% First Trust ISE Water Index Fund For the Period For the For the May 8, 2007 (a) Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 ---------------------------------------------------------------- Net asset value, beginning of period $ 15.69 $ 22.38 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.19 0.12 0.04 Net realized and unrealized gain (loss) 2.97 (6.69) 2.38 ---------- ---------- ---------- Total from investment operations 3.16 (6.57) 2.42 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.19) (0.12) (0.04) ---------- ---------- ---------- Net asset value, end of period $ 18.66 $ 15.69 $ 22.38 ========== ========== ========== TOTAL RETURN (c) 20.29% (29.40)% 12.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 37,314 $ 32,157 $ 12,310 Ratios to average net assets: Ratio of total expenses to average net assets 0.72% 0.77% 1.68% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 1.20% 0.76% 0.46% (d) Portfolio turnover rate (e) 44% 45% 3%
(a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. See Notes to Financial Statements Page 101 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust ISE-Revere Natural Gas Index Fund
For the Period For the For the May 8, 2007 (a) Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 ---------------------------------------------------------------- Net asset value, beginning of period $ 11.80 $ 22.31 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.07 0.14 0.03 Net realized and unrealized gain (loss) 5.72 (10.51) 2.30 ---------- ---------- ---------- Total from investment operations 5.79 (10.37) 2.33 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.07) (0.14) (0.02) Return of capital (0.00) (e) -- -- ---------- ---------- ---------- Total distributions (0.07) (0.14) (0.02) ---------- ---------- ---------- Net asset value, end of period $ 17.52 $ 11.80 $ 22.31 ========== ========== ========== TOTAL RETURN (b) 49.21% (46.57)% 11.67% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 464,339 $ 37,179 $ 11,157 Ratios to average net assets: Ratio of total expenses to average net assets 0.72% 0.77% 2.36%(c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60%(c) Ratio of net investment income (loss) to average net assets 0.53% 0.77% 0.32%(c) Portfolio turnover rate (d) 71% 116% 5% First Trust ISE Chindia Index Fund For the Period For the For the May 8, 2007 (a) Year Ended Year Ended through December 31, 2009 December 31, 2008 December 31, 2007 ---------------------------------------------------------------- Net asset value, beginning of period $ 11.78 $ 27.73 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.09 0.17 0.02 Net realized and unrealized gain (loss) 9.50 (15.92) 7.73 ---------- ---------- ---------- Total from investment operations 9.59 (15.75) 7.75 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.09) (0.20) (0.02) Return of capital (0.00) (e) (0.00) (e) -- ---------- ---------- ---------- Total distributions (0.09) (0.20) (0.02) ---------- ---------- ---------- Net asset value, end of period $ 21.28 $ 11.78 $ 27.73 ========== ========== ========== TOTAL RETURN (b) 81.58% (56.98)% 38.73% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $120,240 $ 35,937 $104,004 Ratios to average net assets: Ratio of total expenses to average net assets 0.73% 0.73% 0.82% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 0.58% 0.90% 0.17% (c) Portfolio turnover rate (d) 47% 39% 2%
(a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (e) Amount represents less than $0.01 per share.Trust Value Line(R) 100 Exchange-Traded Fund Page 102 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust Value Line(R) 100 Exchange-Traded Fund
For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, December 31, 2009 2008 2007 (a) 2006 (a) 2005 (a) -------------------------------------------------------------------------------------- Net asset value, beginning of period $ 9.26 $ 17.91 $ 15.89 $ 17.16 $ 18.05 ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income (loss) (0.01) (0.02) 1.02 (0.07) (0.08) Net realized and unrealized gain (loss) 1.19 (8.63) 2.06 0.68 2.00 ----------- ----------- ----------- ----------- ----------- Total from investment operations 1.18 (8.65) 3.08 0.61 1.92 ----------- ----------- ----------- ----------- ----------- Distributions paid to shareholders from: Net realized gains -- -- (1.06) (1.88) (2.81) ----------- ----------- ----------- ----------- ----------- Common Shares offering costs charged to paid-in capital -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 10.44 $ 9.26 $ 17.91 $ 15.89 $ 17.16 =========== =========== =========== =========== =========== TOTAL RETURN, BASED ON NET ASSET VALUE 12.74% (c) (48.30)% (c) 19.91%(c)(f) 4.59% (b) 11.86%(b) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 60,433 $ 75,825 $ 204,913 $ 277,902 $ 300,049 Ratios to average net assets: Ratio of total expenses to average net assets 0.85% 0.86% 0.89% 0.97% 0.95% Ratio of net expenses to average net assets 0.70% 0.70% 0.83%(e) 0.97% 0.95% Ratio of net investment income (loss) to average net assets (0.08)% (0.11)% (0.21)% (0.40)% (0.43)% Portfolio turnover rate (d) 235% 251% 111% 234% 240%
(a) The Fund commenced operations on June 12, 2003. Results for periods prior to June 18, 2007 are of First Trust Value Line(R) 100 Fund. See Reorganization History below. (b) Total return based on net asset value is the combination of reinvested dividend distributions and reinvested capital gains distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in net asset value per share and does not reflect sales load. (c) Total return based on net asset value is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived or expenses reimbursed by the investment advisor. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (e) The annualized expense ratio is capped at 0.70%. This ratio of 0.83% includes expenses for a portion of the period prior to the reorganization of the First Trust Value Line(R) 100 Fund. (f) Prior to June 18, 2007, total return based on net asset value assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of First Trust Value Line(R) 100 Fund. See Reorganization History below. REORGANIZATION HISTORY: First Trust Value Line(R) 100 Fund (the "Predeccessor FVL Fund"), a closed-end fund organized as a Massachusetts business trust on April 18, 2003, reorganized with and into First Trust Value Line(R) 100 Exchange-Traded Fund ("FVL"), an exchange-traded fund and newly created series of the Trust effective Friday, June 15, 2007. The Predeccessor FVL Fund ceased trading on the AMEX (now known as NYSE Alternext US) on Friday, June 15, 2007 and FVL began trading on the AMEX on Monday, June 18, 2007 (effective November 6, 2008, FVL began trading on NYSE Arca), under the ticker symbol "FVL," the same ticker symbol used by the Predecessor FVL Fund. The assets of the Predecessor FVL Fund were transferred to, and the liabilities of the Predecessor FVL Fund were assumed by, FVL in exchange for shares of FVL on a one share for one share basis based upon the net asset value ("NAV") of the Predecessor FVL Fund on Friday, June 15, 2007. FVL shares have been distributed to the Predecessor FVL Fund shareholders, on a tax-free basis for federal income tax purposes, and the Predecessor FVL Fund has been terminated. The historical results of the Predecessor FVL Fund survive for financial reporting purposes. See Notes to Financial Statements Page 103 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD First Trust NASDAQ(R) ABA Community Bank Index Fund
For the Period June 29, 2009 (a) through December 31, 2009 ------------------------ Net asset value, beginning of period $ 20.00 ---------- Income from investment operations: Net investment income (loss) 0.16 Net realized and unrealized gain (loss) 2.40 ---------- Total from investment operations 2.56 ---------- Distributions paid to shareholders from: Net investment income (0.15) ---------- Net asset value, end of period $ 22.41 ========== TOTAL RETURN (b) 12.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 5,604 Ratios to average net assets: Ratio of total expenses to average net assets 2.67% (c) Ratio of net expenses to average net assets 0.60% (c) Ratio of net investment income (loss) to average net assets 1.92% (c) Portfolio turnover rate (d) 15% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The return presented does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total return would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
Page 104 See Notes to Financial Statements - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 1. Organization First Trust Exchange-Traded Fund (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently consists of eighteen exchange-traded funds:
First Trust Dow Jones Select MicroCap Index(SM) Fund - (NYSE Arca, Inc. ticker "FDM") First Trust Morningstar(R) Dividend Leaders(SM) Index Fund - (NYSE Arca, Inc. ticker "FDL") First Trust US IPO Index Fund - (NYSE Arca, Inc. ticker "FPX") First Trust NASDAQ-100 Equal Weighted Index(SM) Fund - (NASDAQ ticker "QQEW") First Trust NASDAQ-100-Technology Sector Index(SM) Fund - (NASDAQ ticker "QTEC") First Trust NYSE Arca Biotechnology Index Fund (1) - (NYSE Arca, Inc. ticker "FBT") First Trust Dow Jones Internet Index(SM) Fund - (NYSE Arca, Inc. ticker "FDN") First Trust DB Strategic Value Index Fund - (NYSE Arca, Inc. ticker "FDV") First Trust Value Line(R) Equity Allocation Index Fund - (NYSE Arca, Inc. ticker "FVI") First Trust Value Line(R) Dividend Index Fund - (NYSE Arca, Inc. ticker "FVD") First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund - (NASDAQ ticker "QQXT") First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (NASDAQ ticker "QCLN") First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ticker "FRI") First Trust ISE Water Index Fund - (NYSE Arca, Inc. ticker "FIW") First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca, Inc. ticker "FCG") First Trust ISE Chindia Index Fund - (NYSE Arca, Inc. ticker "FNI") First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca, Inc. ticker "FVL") First Trust NASDAQ(R) ABA Community Bank Index Fund - (NASDAQ ticker "QABA")
Each fund represents a separate series of beneficial interest in the Trust (each a "Fund" and collectively, the "Funds"). Each Fund's shares are listed and traded on NYSE Arca, Inc. ("NYSE Arca") except for the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund, the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, and the First Trust NASDAQ(R) ABA Community Bank Index Fund, which are listed and traded on The NASDAQ Stock Market, Inc. ("NASDAQ(R)"). Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value ("NAV"), only in large specified blocks consisting of 50,000 shares called a "Creation Unit." Creation Units are issued and redeemed principally in-kind for securities included in a Fund's relevant index. Except when aggregated in Creation Units, shares are not redeemable securities of a Fund. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices:
Fund Index First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones Select MicroCap Index(SM) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar(R) Dividend Leaders(SM) Index First Trust US IPO Index Fund IPOX-100 U.S. Index First Trust NASDAQ-100 Equal Weighted Index(SM) Fund NASDAQ-100 Equal Weighted Index(SM) First Trust NASDAQ-100-Technology Sector Index(SM) Fund NASDAQ-100 Technology Sector Index(SM) First Trust NYSE Arca Biotechnology Index Fund (1) NYSE Arca Biotechnology Index(SM) (1) First Trust Dow Jones Internet Index(SM) Fund Dow Jones Internet Composite Index(SM) First Trust DB Strategic Value Index Fund (2) Deutsche Bank CROCI(R) US+ Index(TM) (2) First Trust Value Line(R) Equity Allocation Index Fund Value Line(R) Equity Allocation Index First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund NASDAQ-100 Ex-Tech Sector Index(SM) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index First Trust S&P REIT Index Fund S&P United States REIT Index First Trust ISE Water Index Fund ISE Water Index(TM) First Trust ISE-Revere Natural Gas Index Fund ISE-REVERE Natural Gas Index(TM) First Trust ISE Chindia Index Fund ISE ChIndia Index(TM) First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM) (1) The Fund was formerly known as the First Trust Amex(R) Biotechnology Index Fund and the Index was formerly known as the Amex(R) Biotechnology Index(SM). The changes to the Fund name and the underlying Index name had no effect on the investment strategies or risks of the Fund or the Index construction or methodology. The ticker symbol and CUSIP number remain the same. (2) See Note 9 to Financial Statements for information regarding notice of termination of the Index license from Deutsche Bank AG effective June 21, 2010.
Page 105 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 2. Significant Accounting Policies The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America 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 Each Fund's NAV 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. The NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding. Each Fund's investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value in accordance with valuation procedures adopted by the Trust's Board of Trustees and in accordance with the 1940 Act. Portfolio securities listed on any exchange other than the NASDAQ National Market ("NASDAQ") or the London Stock Exchange Alternative Investment Market ("AIM") are valued at the last sale price on the business day as of which such value is being determined. Securities listed on the NASDAQ or the AIM are valued at the official closing price on the business day as of which such value is being determined. If there has been no sale on such day, or no official closing price in the case of securities traded on the NASDAQ or the AIM, the securities are valued at the mean of the most recent bid and asked prices on such day. Portfolio securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market, but excluding securities trading on the NASDAQ and the AIM, are valued at the closing bid prices. Short-term investments that mature in less than 60 days when purchased are valued at amortized cost. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board of Trustees or its delegate at fair value. The use of fair value pricing by each Fund is governed by valuation procedures adopted by the Board of Trustees and is in accordance with the provisions of the 1940 Act. 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 pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market 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 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. The use of fair value prices by a Fund generally results in prices used by the Fund that may differ from current market quotations or official closing prices on the applicable exchange. A variety of factors may be considered in determining the fair value of such securities. In addition, the use of fair value prices and certain current market quotations or official closing prices could result in a difference between the prices used to calculate a Fund's NAV and the prices used by such Fund's corresponding index, which, in turn, could result in a difference between a Fund's performance and the performance of its underlying index. 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 securities. An active market is a market in which transactions for the security 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 securities in active markets. o Quoted prices for identical or similar securities in markets that are non-active. A non-active market is a market where there are few transactions for the security, 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 security (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 reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the security. Page 106 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value each Fund's investments as of December 31, 2009, 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, if any, is recorded on the accrual basis. A Fund may hold publicly-traded master limited partnerships ("MLPs") and real estate investment trusts ("REITs"). Distributions from such investments may include a return of capital component from the MLP or REIT to the extent of the cost basis of such MLP or REIT investments. The actual character of amounts received during the year is not known until after the fiscal year end. A Fund records the character of distributions received from the MLPs or REITs during the year based on estimates available. A Fund's characterization may be subsequently revised based on information received from the MLPs or REITs after their tax reporting periods conclude. C. Dividends and Distribution to Shareholders Dividends from net investment income of each Fund, if any, are declared and paid semi-annually, except for First Trust Morningstar(R) Dividend Leaders(SM) Index Fund and First Trust Value Line(R) Dividend Index Fund, which declare and pay dividends quarterly, or as the Board of Trustees may determine from time to time. Distributions of net realized gains earned by each Fund, if any, are distributed at least annually. Distributions from income and capital gains are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing treatments of income and gains on various investment securities held by a Fund, timing differences and differing characterization of distributions made by a Fund. The tax character of distributions paid by each Fund during the period ended December 31, 2009 was as follows:
Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital --------------------------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 95,349 $ -- $ 3,442 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 1,912,571 -- -- First Trust US IPO Index Fund 177,486 -- -- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 81,000 -- -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 47,396 -- 4,284 First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund -- -- -- First Trust DB Strategic Value Index Fund 615,441 -- -- First Trust Value Line(R) Equity Allocation Index Fund 70,920 -- -- First Trust Value Line(R) Dividend Index Fund 4,139,046 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 31,380 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- -- First Trust S&P REIT Index Fund 251,687 -- 22,048 First Trust ISE Water Index Fund 394,615 -- -- First Trust ISE-Revere Natural Gas Index Fund 942,177 -- 15,658 First Trust ISE Chindia Index Fund 393,226 -- 149 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- -- First Trust NASDAQ(R) ABA Community Bank Index Fund 37,500 -- --
Page 107 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 The tax character of distributions paid by each Fund (with the exception of First Trust NASDAQ(R) ABA Community Bank Index Fund, which had an inception date of June 29, 2009) during the year ended December 31, 2008 were as follows:
Distributions Distributions Distributions paid from paid paid from Ordinary from Capital Return of Income Gains Capital ------------------ ------------------ ------------------ First Trust Dow Jones Select MicroCap Index(SM) Fund $ 134,425 $ -- $ 4,281 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 2,534,302 -- -- First Trust US IPO Index Fund 100,763 -- 7,057 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 2,020 -- 7,600 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- -- -- First Trust Amex(R) Biotechnology Index Fund 391,584 -- 201,756 First Trust Dow Jones Internet Index(SM) Fund 48,065 -- 1,660 First Trust DB Strategic Value Index Fund 786,001 -- -- First Trust Value Line(R) Equity Allocation Index Fund 125,551 -- -- First Trust Value Line(R) Dividend Index Fund 4,414,268 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 1,005 -- 335 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- -- First Trust S&P REIT Index Fund 82,045 -- -- First Trust ISE Water Index Fund 235,615 -- -- First Trust ISE-Revere Natural Gas Index Fund 496,336 -- -- First Trust ISE Chindia Index Fund 723,411 -- 7,375 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- --
As of December 31, 2009, the components of distributable earnings on a tax basis for each Fund were as follows:
Accumulated Undistributed Net Unrealized Capital and Ordinary Appreciation Other Income (Depreciation) Gain (Loss) --------------------------------------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ (275,692) $ (6,631,735) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 23,132 2,877,992 (32,249,623) First Trust US IPO Index Fund 147,960 199,143 (4,932,700) First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 3,474 3,574,592 (6,924,836) First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- 8,354,935 (4,069,666) First Trust NYSE Arca Biotechnology Index Fund -- (1,663,621) (7,848,713) First Trust Dow Jones Internet Index(SM) Fund -- 8,970,432 (7,610,392) First Trust DB Strategic Value Index Fund 13,083 3,993,803 (23,870,864) First Trust Value Line(R) Equity Allocation Index Fund 1,603 1,133,394 (5,026,846) First Trust Value Line(R) Dividend Index Fund 81,266 9,832,062 (46,160,757) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 1,638 482,148 (1,259,513) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (3,960,578) (13,863,414) First Trust S&P REIT Index Fund -- 884,913 (210,390) First Trust ISE Water Index Fund 3,849 (2,846,576) (7,964,314) First Trust ISE-Revere Natural Gas Index Fund -- 40,266,804 (40,342,505) First Trust ISE Chindia Index Fund -- 6,009,501 (23,059,021) First Trust Value Line(R) 100 Exchange-Traded Fund -- 7,736,028 (84,087,862) First Trust NASDAQ(R) ABA Community Bank Index Fund 3,748 349,648 (35,562)
D. Income Taxes Each Fund intends to qualify or 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, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. Page 108 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 The Funds are subject to tax 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 ending 2006, 2007, 2008, and 2009 remain open to federal and state audit. As of December 31, 2009, 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. At December 31, 2009 for federal income tax purposes, each Fund has capital loss carryforwards available that are shown in the table below, to the extent provided by regulations, to offset future capital gains through the years indicated. To the extent that these loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to Fund shareholders. The Funds are 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.
Capital Loss Capital Loss Capital Loss Capital Loss Capital Loss Available Available Available Available Available Total Through Through Through Through Through Capital Loss 2013 2014 2015 2016 2017 Available ------------------------------------------------------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ 1,604,481 $ 910,503 $ 902,807 $ 3,213,944 $ 6,631,735 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 52,755 202,279 198,670 14,962,284 16,833,635 32,249,623 First Trust US IPO Index Fund -- 303,759 740,683 2,682,788 1,134,862 4,862,092 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- 15,480 271,083 1,957,170 4,681,103 6,924,836 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- 95,862 535,229 1,421,664 2,016,911 4,069,666 First Trust NYSE Arca Biotechnology Index Fund -- -- -- 2,061,136 5,787,577 7,848,713 First Trust Dow Jones Internet Index(SM) Fund -- -- -- 6,446,426 1,163,966 7,610,392 First Trust DB Strategic Value Index Fund -- 45,432 831,336 11,401,861 11,336,270 23,614,899 First Trust Value Line(R) Equity Allocation Index Fund -- -- 1,439,101 1,168,041 2,419,704 5,026,846 First Trust Value Line(R) Dividend Index Fund -- -- 4,488,019 21,855,796 19,636,444 45,980,259 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- 7,779 143,597 1,051,894 1,203,270 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- 141,332 4,246,707 7,483,633 11,871,672 First Trust S&P REIT Index Fund -- -- 10,162 14,326 185,902 210,390 First Trust ISE Water Index Fund -- -- 592 318,246 5,768,328 6,087,166 First Trust ISE-Revere Natural Gas Index Fund -- -- 5,274 7,264,703 32,569,413 39,839,390 First Trust ISE Chindia Index Fund -- -- -- 11,116,593 11,686,955 22,803,548 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- 6,804,100 47,805,834 29,477,928 84,087,862 First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- -- -- 4,787 4,787
Capital losses incurred after October 31 ("Post-October Losses") within the taxable year can be deemed to arise on the first business day of each Fund's next taxable year. During the taxable year ended December 31, 2009, the following Funds incurred and elected to defer net capital losses as follows:
Post-October Losses ----------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- First Trust US IPO Index Fund 70,608 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- First Trust NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index(SM) Fund -- First Trust DB Strategic Value Index Fund 255,965 First Trust Value Line(R) Equity Allocation Index Fund -- First Trust Value Line(R) Dividend Index Fund 180,498 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 56,243 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 1,991,742 First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 1,877,148 First Trust ISE-Revere Natural Gas Index Fund 503,115 First Trust ISE Chindia Index Fund 255,473 First Trust Value Line(R) 100 Exchange-Traded Fund -- First Trust NASDAQ(R) ABA Community Bank Index Fund 30,775
Page 109 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 In order to present paid-in capital and accumulated net realized gain (loss) on investments on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net asset were not affected by these adjustments. For the period ended December 31, 2009, the adjustments of each Fund were as follows:
Accumulated Accumulated Net Net Investment Realized Gain (Loss) Paid-in Income (Loss) on Investments Capital ------------------- ------------------------ ------------------ First Trust Dow Jones Select MicroCap Index(SM) Fund $ (4,242) $ (226) $ 4,468 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 733 277,525 (278,258) First Trust US IPO Index Fund (1,213) 1,702,558 (1,701,345) First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- 251,820 (251,820) First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (453,112) 453,112 First Trust NYSE Arca Biotechnology Index Fund 366,386 (8,377,567) 8,011,181 First Trust Dow Jones Internet Index(SM) Fund 165,911 1,474,343 (1,640,254) First Trust DB Strategic Value Index Fund 21 (3,330,959) 3,330,938 First Trust Value Line(R) Equity Allocation Index Fund -- (624,846) 624,846 First Trust Value Line(R) Dividend Index Fund -- 307,468 (307,468) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (108,973) 108,973 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 42,039 2,879,400 (2,921,439) First Trust S&P REIT Index Fund 191 665,987 (666,178) First Trust ISE Water Index Fund -- 636,982 (636,982) First Trust ISE-Revere Natural Gas Index Fund 58,423 (3,926,467) 3,868,044 First Trust ISE Chindia Index Fund -- 1,742,280 (1,742,280) First Trust Value Line(R) 100 Exchange-Traded Fund 51,697 (2,178,099) 2,126,402 First Trust NASDAQ(R)ABA Community Bank Index Fund -- -- --
E. Expenses Expenses that are directly related to one of the Funds are charged directly to the respective Fund. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. First Trust Portfolios L.P. ("FTP") or First Trust Advisors L.P. ("First Trust" or the "Advisor") has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
Fund Licensor First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones & Company, Inc. First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar, Inc. First Trust US IPO Index Fund IPOX Schuster LLC First Trust NASDAQ-100 Equal Weighted Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust NASDAQ-100-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext . First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc. First Trust DB Strategic Value Index Fund (1) Deutsche Bank AG (1) First Trust Value Line(R) Equity Allocation Index Fund Value Line Publishing, Inc.(R) First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The NASDAQ Stock Market, Inc./Clean Edge, Inc. First Trust S&P REIT Index Fund Standard & Poor's First Trust ISE Water Index Fund International Securities Exchange, LLC First Trust ISE-Revere Natural Gas Index Fund International Securities Exchange, LLC First Trust ISE Chindia Index Fund International Securities Exchange, LLC First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R) First Trust NASDAQ(R) ABA Community Bank Index Fund The NASDAQ Stock Market, Inc.
(1) See Note 9 to Financial Statements for information regarding notice of termination of the Index license from Deutsche Bank AG effective June 21, 2010. The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreement. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations. Page 110 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements First Trust is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. First Trust serves as investment advisor to the Funds pursuant to an Investment Management Agreement. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund's portfolio and providing certain other services necessary for the management of the Funds. For these services, First Trust is entitled to receive monthly fees from each Fund calculated at the following annual rates: % of Average Daily Net Assets --------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund 0.50% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.30% First Trust US IPO Index Fund 0.40% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.40% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.40% First Trust NYSE Arca Biotechnology Index Fund 0.40% First Trust Dow Jones Internet Index(SM) Fund 0.40% First Trust DB Strategic Value Index Fund 0.50% First Trust Value Line(R) Equity Allocation Index Fund 0.50% First Trust Value Line(R) Dividend Index Fund 0.50% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.40% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40% First Trust S&P REIT Index Fund 0.30% First Trust ISE Water Index Fund 0.40% First Trust ISE-Revere Natural Gas Index Fund 0.40% First Trust ISE Chindia Index Fund 0.40% First Trust Value Line(R) 100 Exchange-Traded Fund 0.50% First Trust NASDAQ(R) ABA Community Bank Index Fund 0.40% The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement in which the Advisor has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed the below amount as a percentage of average daily net assets per year (the "Expense Cap"). Expense Cap ------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund 0.60% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.45% First Trust US IPO Index Fund 0.60% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.60% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.60% First Trust NYSE Arca Biotechnology Index Fund 0.60% First Trust Dow Jones Internet Index(SM) Fund 0.60% First Trust DB Strategic Value Index Fund 0.65% First Trust Value Line(R) Equity Allocation Index Fund 0.70% First Trust Value Line(R) Dividend Index Fund 0.70% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.60% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60% First Trust S&P REIT Index Fund 0.50% First Trust ISE Water Index Fund 0.60% First Trust ISE-Revere Natural Gas Index Fund 0.60% First Trust ISE Chindia Index Fund 0.60% First Trust Value Line(R) 100 Exchange-Traded Fund 0.70% First Trust NASDAQ(R) ABA Community Bank Index Fund 0.60% Except for the First Trust NASDAQ(R) ABA Community Bank Index Fund, which has an Expense Cap Termination Date of June 30, 2011, each Fund's Expense Cap will be in effect until the Expense Cap Termination Date of May 15, 2010. First Trust has entered into an agreement with the Trust that allows First Trust to recover from the Funds any fees waived or expenses reimbursed during the three year period after the date of the waiver or reimbursement. However, First Trust's ability to recover such amounts is limited to the extent that it would not Page 111 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 exceed the amount waived or reimbursed during such period. To the extent that the actual expense ratio of a particular Fund is less than such Fund's applicable expense cap, First Trust may recover a portion of the previously waived or reimbursed amount equal to the amount that the expense cap exceeds the actual expense ratio. These amounts would be included in "Expenses previously waived or reimbursed" on the Statements of Operations. The advisory fee waivers and expense reimbursements for the period ended December 31, 2009 and the expenses borne by the Advisor subject to reimbursement by each Fund for the periods indicated were as follows:
Expenses Borne by Advisor Subject to Reimbursement ---------------------------------------------------- Period Period Period Advisory Ended Ended Ended Fee Expense December December December Waivers Reimbursement 31, 2007 31, 2008 31, 2009 Total ------------------------------------------------------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 48,917 $ -- $ 137,185 $ 68,793 $ 48,917 $ 254,895 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 120,419 16,647 199,880 139,071 137,066 476,017 First Trust US IPO Index Fund 36,420 30,870 113,731 80,132 67,290 261,153 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 16,264 -- 86,008 62,497 16,264 164,769 First Trust NASDAQ-100-Technology Index(SM) Fund 20,687 -- 75,489 41,362 20,687 137,538 First Trust NYSE Arca Biotechnology Index Fund 70,966 -- 65,395 71,442 70,966 207,803 First Trust Dow Jones Internet Index(SM) Fund 46,260 -- 54,768 51,795 46,260 152,823 First Trust DB Strategic Value Index Fund 86,736 -- 172,875 41,333 86,736 300,944 First Trust Value Line(R) Equity Allocation Index Fund 28,919 2,357 98,378 42,356 31,276 172,010 First Trust Value Line(R) Dividend Index Fund 125,081 -- 392,894 198,186 125,081 716,161 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 27,685 19,062 61,242 44,692 46,747 152,681 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 74,427 -- 77,233 96,621 74,427 248,281 First Trust S&P REIT Index Fund 22,199 84,959 108,608 117,085 107,158 332,851 First Trust ISE Water Index Fund 40,314 -- 57,664 53,268 40,314 151,246 First Trust ISE-Revere Natural Gas Index Fund 195,399 -- 59,322 109,371 195,399 364,092 First Trust ISE Chindia Index Fund 90,414 -- 61,221 91,365 90,414 243,000 First Trust Value Line(R) 100 Exchange-Traded Fund 97,391 -- 132,258 221,381 97,391 451,030 First Trust NASDAQ(R) ABA Community Bank Index Fund 8,611 35,683 -- -- 44,294 44,294
The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative, and transfer agency services for the Trust. As custodian, BNYM is responsible for custody of the Trust's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Trust's securities and cash. As transfer agent, BNYM is responsible for performing transfer agency services for the Trust. BNYM is a subsidiary of the Bank of New York Mellon Corporation, a financial holding company.* PNC Global Investment Servicing (U.S.) Inc. provides certain administrative services to the Trust and the Funds in connection with the Trust's Board of Trustees meetings and other related matters.* Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid an annual retainer of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and an annual retainer of $7,500 per trust for each subsequent trust in the First Trust Fund Complex. The annual retainer is allocated equally among each of the trusts. No additional meeting fees are paid in connection with board or committee meetings. Additionally, the Lead Independent Trustee is paid $10,000 annually and the Audit Committee Chairman is paid $5,000 annually and each of the Chairmen of the Nominating and Governance Committee and Valuation Committee are paid $2,500 annually to serve in such capacities, with such compensation paid by the trusts in the First Trust Fund Complex and equally allocated among those trusts. Trustees are also reimbursed by the trusts in the First Trust Fund Complex for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and each Committee chairman served two-year terms ending December 31, 2009, before rotating to serve as chairman of another Committee or as Lead Independent Trustee. The officers and "Interested" Trustee receive no compensation from the trusts for serving in such capacities. * See Note 9 to Financial Statements for information regarding the pending stock purchase agreement between The PNCFinancial Services Group, Inc. and The Bank of New York Mellon Corporation. Page 112 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 4. Purchases and Sales of Securities For the period ended December 31, 2009, the cost of purchases and proceeds from sales of investment securities for each Fund, excluding short-term investments and in-kind transactions, were as follows:
Purchases Sales ----------------- ----------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 12,606,561 $ 12,616,706 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 32,568,896 32,614,217 First Trust US IPO Index Fund 2,839,286 2,697,449 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 8,745,109 8,737,277 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 10,695,692 10,633,680 First Trust NYSE Arca Biotechnology Index Fund 27,003,223 26,808,587 First Trust Dow Jones Internet Index(SM) Fund 13,251,269 13,519,489 First Trust DB Strategic Value Index Fund 66,792,969 66,786,130 First Trust Value Line(R) Equity Allocation Index Fund 11,018,623 11,027,826 First Trust Value Line(R) Dividend Index Fund 127,328,162 127,321,412 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 3,025,711 3,027,057 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 14,028,725 14,129,233 First Trust S&P REIT Index Fund 1,180,173 1,039,550 First Trust ISE Water Index Fund 14,481,753 14,520,256 First Trust ISE-Revere Natural Gas Index Fund 120,014,566 119,358,909 First Trust ISE Chindia Index Fund 31,623,584 31,653,583 First Trust Value Line(R) 100 Exchange-Traded Fund 154,163,217 154,490,043 First Trust NASDAQ(R) ABA Community Bank Index Fund 621,528 607,132 For the period ended December 31, 2009 the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows: Purchases Sales ----------------- ----------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 1,601,840 $ -- First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 3,202,745 1,469,912 First Trust US IPO Index Fund 2,308,331 3,023,870 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 22,062,013 7,315,720 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 68,879,265 7,444,828 First Trust NYSE Arca Biotechnology Index Fund 25,206,567 39,539,245 First Trust Dow Jones Internet Index(SM) Fund 55,733,381 4,031,231 First Trust DB Strategic Value Index Fund 35,838,040 33,323,024 First Trust Value Line(R) Equity Allocation Index Fund 2,771,393 3,424,355 First Trust Value Line(R) Dividend Index Fund 23,161,990 5,833,333 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 4,857,397 3,751,331 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 12,148,431 4,897,126 First Trust S&P REIT Index Fund 15,797,914 1,932,152 First Trust ISE Water Index Fund 5,342,495 5,741,450 First Trust ISE-Revere Natural Gas Index Fund 429,620,434 64,745,288 First Trust ISE Chindia Index Fund 53,528,229 5,789,313 First Trust Value Line(R) 100 Exchange-Traded Fund 6,574,817 28,741,905 First Trust ABA(R) NASDAQ Community Bank Index Fund 5,274,828 --
5. Creation, Redemption & Transaction Fees Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the daily NAV per Share of each Fund on the transaction date times the number of Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as transfer agent, a standard creation transaction fee (the "Creation Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Page 113 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 Number of Securities Creation in a Creation Unit Transaction Fee -------------------------- ------------------- 1-100 $500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Creation Transaction Fee is applicable to each purchase transaction regardless of the number of Creation Units purchased in the transaction. An additional variable fee of up to three times the Creation Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to transactions effected outside of the clearing process (i.e., through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. The price for each Creation Unit will equal the daily NAV per Share of a Fund on the transaction date times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes. Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard redemption transaction fee (the "Redemption Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Number of Securities Redemption in a Creation Unit Transaction Fee -------------------------- ------------------- 1-100 $500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Redemption Transaction Fee is applicable to each redemption transaction regardless of the number of Creation Units redeemed in the transaction. An additional variable fee of up to three times the Redemption Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to redemptions effected outside of the clearing process or to the extent that redemptions are for cash. Each Fund reserves the right to effect redemptions in cash. A shareholder may request cash redemption in lieu of securities; however, a Fund may, in its discretion, reject any such request. 6. Distribution Plan The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, the Funds will not pay 12b-1 fees any time before May 15, 2010 (except for the First Trust NASDAQ(R) ABA Community Bank Index Fund which will not pay 12b-1 fees any time before June 30, 2011). 7. Indemnification The Trust, on behalf of the Funds, 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. Page 114 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 8. Concentration Risk Each Fund may be concentrated in stocks of companies in an individual industry or sector if the Fund's corresponding index is concentrated in an individual industry or sector. You should be aware that an investment in a portfolio that is concentrated in an individual industry or sector involves additional risk, including limited diversification. 9. Subsequent Events Management has evaluated the impact of all subsequent events on the Funds through February 26, 2010, the date the financial statements were issued, and has determined subsequent events as follows: FIRST TRUST DB STRATEGIC VALUE INDEX FUND - NOTICE OF TERMINATION OF UNDERLYING INDEX LICENSE FROM INDEX PROVIDER EFFECTIVE JUNE 21, 2010 The First Trust DB Strategic Value Index Fund currently seeks investment results that correspond generally to the price and yield (before fees and expenses) of the Deutsche Bank CROCI(R) US+ Index(TM) ("Index") pursuant to a license agreement dated June 30, 2006 (the "License Agreement"), by and between Deutsche Bank AG, London Branch (the "Index Provider") and First Trust Advisors L.P. ("First Trust"), the Fund's investment manager. Pursuant to the terms of the License Agreement, the Index Provider has provided written notice to First Trust of the termination of the License Agreement, to be effective June 21, 2010. Per the Fund's prospectus, the Board will seek to engage a replacement index, if practicable. First Trust is currently evaluating the impact of the termination of the License Agreement on the Fund and has commenced seeking an alternative index for the Fund to track, as well as considering additional options for the Fund. There is no assurance that a suitable replacement index will be found. PENDING STOCK PURCHASE AGREEMENT BETWEEN PNC FINANCIAL SERVICES GROUP, INC. AND THE BANK OF NEW YORK MELLON CORPORATION On February 2, 2010, The PNC Financial Services Group, Inc. ("PNC") entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with The Bank of New York Mellon Corporation ("BNY Mellon"). Upon the terms and subject to the conditions set forth in the Stock Purchase Agreement, which has been approved by the board of directors of each company, PNC will sell to BNY Mellon (the "Stock Sale") 100% of the issued and outstanding shares of PNC Global Investment Services Inc., an indirect, wholly-owned subsidiary of PNC. The Stock Sale includes PNC Global Investment Servicing (U.S.)Inc., PFPC Trust Company and PFPC Distributors, Inc. and PNC has indicated that it is expected to close in the third quarter of 2010. Page 115 - ------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - ------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of First Trust Exchange-Traded Fund: We have audited the accompanying statements of assets and liabilities of First Trust Exchange-Traded Fund, comprised of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust US IPO Index Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100 Technology Sector Index(SM) Fund, First Trust NYSE Arca Biotechnology Index Fund (formerly known as First Trust Amex(R) Biotechnology Index Fund), First Trust Dow Jones Internet Index(SM) Fund, First Trust DB Strategic Value Index Fund, First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia Index Fund, First Trust Value Line(R) 100 Exchange-Traded Fund and First Trust NASDAQ(R) ABA Community Bank Index Fund (collectively, the "Funds"), including the portfolios of investments, as of December 31, 2009, the related statements of operations for the year or period then ended, and the statements of changes in net assets and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the Funds' custodian and brokers; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds constituting the First Trust Exchange-Traded Fund as of December 31, 2009, the results of their operations for the year or period then ended, and the changes in their net assets and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Chicago, Illinois February 26, 2010 Page 116 - ------------------------------------------------------------------------------- ADDITIONAL INFORMATION - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 Voting Policies and Procedures A description of the policies and procedures that the Funds use to determine how to vote proxies and information on how the Funds voted proxies relating to portfolio securities during the period ended June 30, 2009 is available (1) without charge, upon request, by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; and (3) on the Securities and Exchange Commission's website at http://www.sec.gov. Portfolio Holdings The Trust files a complete schedule of each Fund's portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the Trust's website located at http://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, 2009, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
Dividends Received Deduction ------------------------------------ First Trust Dow Jones Select MicroCap Index(SM) Fund 100% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100% First Trust US IPO Index Fund 100% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100% First Trust NASDAQ-100-Technology Index Fund 100% First Trust NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index(SM) Fund -- First Trust DB Strategic Value Index(SM) Fund 100% First Trust Value Line(R) Equity Allocation Index Fund 100% First Trust Value Line(R) Dividend Index Fund 100% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 100% First Trust ISE-Revere Natural Gas Index Fund 100% First Trust ISE Chindia Index Fund -- First Trust Value Line(R) 100 Exchange-Traded Fund -- First Trust NASDAQ(R) ABA Community Bank Index Fund 100%
For the taxable year ended December 31, 2009, the following percentages of income dividends paid by the Funds is hereby designated as qualified dividend income:
Qualified Dividend Income --------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund 100% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100% First Trust US IPO Index Fund 100% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100% First Trust NASDAQ-100-Technology Index(SM) Fund 100% First Trust NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index Fund -- First Trust DB Strategic Value Index Fund 100% First Trust Value Line(R) Equity Allocation Index Fund 100% First Trust Value Line(R) Dividend Index Fund 100% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 100% First Trust ISE-Revere Natural Gas Index Fund 100% First Trust ISE Chindia Index Fund 100% First Trust Value Line(R) 100 Exchange-Traded Fund -- First Trust NASDAQ(R) ABA Community Bank Index Fund 100%
Page 117 - ------------------------------------------------------------------------------- ADDITIONAL INFORMATION (Continued) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 Licensing Information Dow Jones, Dow Jones Internet Composite Index(SM) and Dow Jones Select MicroCap Index(SM) are trademarks of Dow Jones & Company, Inc. and have been licensed for use. The First Trust Dow Jones Select MicroCap Index(SM) Fund, based on the Dow Jones Select MicroCap Index(SM) and the First Trust Dow Jones Internet Index(SM) Fund, based on the Dow Jones Internet Composite Index(SM), are not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in the Funds. Morningstar is a service mark of Morningstar, Inc. and has been licensed for use. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund is not sponsored, endorsed, issued, sold or promoted by Morningstar, Inc., nor does this company make any representation regarding the advisability of investing in the Fund. IPOX is a trademark of IPOX Schuster LLC. IPOX IPO Indexes and Derivatives (patent pending). NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), NASDAQ-100 Technology Sector Index(SM), NASDAQ-100 Equal-Weighted Index(SM), and NASDAQ-100 Ex-Tech Sector Index(SM), are trademarks of the NASDAQ Stock Market, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust Advisors L.P. The Funds have not been passed on by the Corporations as to their legality or suitability. The Funds are not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in anyway as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUNDS. NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The NASDAQ Stock Market, Inc. ("NASDAQ(R)") and Clean Edge, Inc. ("Clean Edge") respectively. NASDAQ(R) and Clean Edge(R) are, collectively with their affiliates, the "Corporations." The Marks are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM) are trademarks of The NASDAQ OMX Group, Inc. and American Bankers Association ("ABA") (NASDAQ OMX and ABA, collectively with their affiliates, are referred to as the "Corporations") and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. The NYSE Arca Biotechnology Index(SM) is a trademark of the NYSE Euronext or its affiliates ("NYSE Euronext") and is licensed for use by First Trust Advisors L.P. The Fund is not sponsored or endorsed by the NYSE Euronext. NYSE Euronext makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in the Fund or the ability of the Fund to track the performance of the various sectors represented in the stock market. NYSE Euronext has no obligation to take the needs of the owners of the Fund into consideration in determining, composing or calculating the Index. NYSE Euronext is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Fund. "Deutsche Bank" and "Deutsche Bank CROCI(R) US+ Index" are service marks of Deutsche Bank AG ("Deutsche Bank"). Deutsche Bank has no relationship to First Trust Advisors L.P. or the First Trust DB Strategic Value Index Fund, other than the licensing of the Index and its service marks for use in connection with the Fund. "Value Line(R)", "Value Line(R) Equity Allocation Index(TM)", "Value Line(R) Dividend Index(TM)" and "Value Line(R) 100 Index(TM)" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust Advisors L.P. on behalf of the Funds. The First Trust Value Line(R) Equity Allocation Index Fund, based on the Value Line(R) Equity Allocation Index(TM), the First Trust Value Line(R) Dividend Index Fund, based on the Value Line(R) Dividend Index(TM) and the First Trust Value Line(R) 100 Exchange-Traded Fund, based on the Value Line(R) 100 Index(TM), are not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Funds. Standard & Poor's(R) and S&P(R) are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by First Trust Advisors L.P. The First Trust S&P REIT Index Fund is not sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding shares of the Fund. "International Securities Exchange(TM)", "ISE(TM)", "ISE Water Index(TM)", "ISE ChIndia Index(TM)" and the "ISE-REVERE Natural Gas Index(TM)" are trademarks of the International Securities Exchange(TM) and have been licensed for use for certain purposes by First Trust Advisors L.P. Each Fund, based on its corresponding index, is not sponsored, endorsed, sold or promoted by the International Securities Exchange(TM) and the International Securities Exchange(TM) makes no representation regarding the advisability of trading in such products. Page 118 - ------------------------------------------------------------------------------- Board of Trustees and Officers (Unaudited) - ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND December 31, 2009 Each Fund's respective statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891.
Number of Portfolios in Term of Office the First Trust Other Name, Address, and Year First Fund Complex Trusteeships or Date of Birth and Elected or Principal Occupations Overseen by Directorships Position with the Trust Appointed During Past 5 Years Trustee Held by Trustee INDEPENDENT TRUSTEES Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton 61 None c/o First Trust Advisors L.P. Orthopedics; Co-Owner and Co-Director 120 E. Liberty Drive, o Since Inception (January 1996 to May 2007), Sports Med Suite 400 Center for Fitness; Limited Partner, Wheaton, IL 60187 Gundersen Real Estate Limited D.O.B.: 04/51 Partnership; Member, Sportsmed LLC Thomas R. Kadlec, Trustee o Indefinite Term Senior Vice President and Chief Financial 61 Director of ADM c/o First Trust Advisors L.P. Officer (May 2007 to Present), Vice Investor Services, 120 E. Liberty Drive, o Since Inception President and Chief Financial Officer Inc. and Director Suite 400 (1990 to May 2007), ADM Investor of Archer Wheaton, IL 60187 Services, Inc. (Futures Commission Financial Services, D.O.B.: 11/57 Merchant) Inc. Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 61 None c/o First Trust Advisors L.P. Enterprises (Financial and Management 120 E. Liberty Drive, o Since Inception Consulting) Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term President (June 2002 to Present), Covenant 61 Director of c/o First Trust Advisors L.P. College Covenant 120 E. Liberty Drive, o Since Inception Transport Inc. Suite 400 Wheaton, IL 60187 D.O.B.: 03/5 INTERESTED TRUSTEE James A. Bowen(1), Trustee, President, o Indefinite Term President, First Trust Advisors L.P. and 61 Trustee of Chairman of the Board and CEO First Trust Portfolios L.P.; Chairman of the Wheaton College 120 E. Liberty Drive, o Since Inception Board of Directors, BondWave LLC Suite 400 (Software Development Company/ Wheaton, IL 60187 Investment Advisor) and Stonebridge D.O.B.: 09/55 Advisors LLC (Investment Advisor) __________________________ 1 Mr. Bowen is deemed an "interested person" of the Trust due to his position as President of First Trust Advisors L.P., investment advisor of the Trust Page 119 - ------------------------------------------------------------------------------- Board of Trustees and Officers (Unaudited) (Continued) - ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2009 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 WHO ARE NOT TRUSTEES(2) Mark R. Bradley Treasurer, Controller, Chief o Indefinite Term Chief Financial Officer, First Trust Advisors L.P. 120 E. Liberty Drive, Financial Officer and Chief and First Trust Portfolios L.P.; Chief Financial Suite 400 Accounting Officer o Since Inception Officer, BondWave LLC (Software Development Wheaton, IL 60187 Company/Investment Advisor) and Stonebridge D.O.B.: 11/57 Advisors LLC (Investment Advisor) Erin E. Chapman Assistant Secretary o Indefinite Term Assistant General Counsel (October 2007 to 120 E. Liberty Drive, Present), Associate Counsel (March 2006 to Suite 400 o Since June 2009 October 2007), First Trust Advisors L.P. and First Wheaton, IL 60187 Trust Portfolios L.P.; Associate Attorney D.O.B.: 08/76 (November 2003 to March 2006), Doyle & Bolotin Ltd., James M. Dykas Assistant Treasurer o Indefinite Term Senior Vice President (April 2007 to Present), Vice 120 E. Liberty Drive, President (January 2005 to April 2007), First Trust Suite 400 o Since Inception Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 D.O.B.: 01/66 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Compliance Officer Trust Portfolios L.P.; Secretary, BondWave LLC Suite 400 o Since Inception (Software Development Company/Investment Wheaton, IL 60187 Advisor) and Stonebridge Advisors LLC D.O.B.: 05/60 (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to 120 E. Liberty Drive, Present), Vice President (April 2004 to September Suite 400 o Since Inception 2005), First Trust Advisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P. D.O.B.: 02/70 Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President (January 2008 to Present), 120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios Suite 400 o Since July 2008 L.P.; Vice President (May 1998 to January 2008), Wheaton, IL 60187 Van Kampen Asset Management and Morgan D.O.B.: 07/58 Stanley Investment Management Kristi A. Maher Assistant Secretary o Indefinite Term Deputy General Counsel (May 2007 to Present), 120 E. Liberty Drive, and Deputy Chief o Assistant Secretary Assistant General Counsel (March 2004 to May Suite 400 Compliance Officer since June 2006 2007), First Trust Advisors L.P. and First Trust Wheaton, IL 60187 o Deputy Chief Portfolios L.P. D.O.B.: 12/66 Compliance Officer Since November 2009 Roger F. Testin Vice President o Indefinite Term Senior Vice President (November 2003 to Present), 120 E. Liberty Drive, Vice President (August 2001 to November 2003), Suite 400 o Since Inception First Trust Advisors L. P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 06/66 Stan Ueland Vice President o Indefinite Term Vice President (August 2005 to Present), First Trust 120 E. Liberty Drive, Advisors L.P. and First Trust Portfolios L.P; Vice Suite 400 o Since Inception President (May 2004 to August 2005), BondWave Wheaton, IL 60187 LLC (Software Development Company/Investment D.O.B.: 11/70 Advisor) __________________________ 2 The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
Page 120 - ------------------------------------------------------------------------------- RISK CONSIDERATIONS (Unaudited) - ------------------------------------------------------------------------------- RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST TRUST PORTFOLIOS L.P. AT 1-800-621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND. The following summarizes some of the risks that should be considered for the Funds. Risk Considerations: Each Fund's shares will change in value, and you could lose money by investing in a Fund. 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 stock prices. Overall stock values could decline generally or could underperform other investments. Overall stock market values could decline generally or could underperform other investments. An investment in a Fund involves risks similar to those of investing in any fund of equity securities traded on an exchange. Investors buying or selling Fund shares on the secondary market may incur brokerage commissions. In addition, investors who sell Fund shares may receive less than the Fund shares' net asset value. Unlike shares of open-end mutual funds, investors are generally not able to purchase ETF shares directly from a Fund and individual ETF shares are not redeemable. However, specified large blocks of ETF shares called creation units can be purchased from, or redeemed to, a Fund. Each Fund is subject to index tracking risk. You should anticipate that the value of Fund shares will decline, more or less, in correlation with any decline in the value of the index that the Fund seeks to track. Each Fund's return may not match the return of the index it seeks to track for a number of reasons. While First Trust seeks to have a correlation of 0.95 or better, before expenses, between a Fund's performance and the performance of its corresponding index, there can be no assurance that a Fund will be able to achieve such a correlation. Accordingly, each Fund's performance may correlate to a lesser extent and may possibly vary substantially from the performance of its corresponding index. Each Fund is also exposed to additional market risk due to a policy of investing principally in the securities included in its corresponding index. As a result of such policies, securities held by each Fund will generally not be bought or sold in response to market fluctuations and the securities may be issued by companies concentrated in a particular industry. As a result, each Fund will generally not sell a stock because the stock's issuer is in financial trouble, unless that stock is removed or is anticipated to be removed from the index the Fund seeks to track. Each Fund relies on a license from an index provider that permits the Fund to use its corresponding index and associated trade names and trademarks in connection with the name and investment strategies of the Fund. Such licenses may be terminated by the respective index provider and, as a result, each Fund may lose its ability to use such intellectual property. There is also no guarantee that the index provider has all rights to license the respective intellectual property to First Trust, on behalf of the Fund. Accordingly, in the event the license is terminated or the index provider does not have rights to license the particular intellectual property, it may have a significant effect on the operation of the related Fund. Each Fund is subject to issuer specific changes risk. The value of an individual security or a particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. Each Fund will be concentrated in the securities of companies of a given industry if the Fund's corresponding index is concentrated in such industry. A concentration makes a Fund more susceptible to any single occurrence affecting the related industry and may subject a Fund to greater market risk than less concentrated funds. With the exception of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Value Line(R) Dividend Index Fund, First Trust Value Line(R) Equity Allocation Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund, each Fund is considered to be non-diversified. As a result, those Funds are exposed to additional market risk. A non-diversified fund may invest a relatively high percentage of its assets in a limited number of issuers. As a result, changes in the market value of a single portfolio security could cause greater fluctuations in share price than would occur in a diversified fund. Furthermore, non-diversified funds are more susceptible to any single political, regulatory or economic occurrence. The Funds are not actively managed. The Funds may be affected by a general decline in certain market segments relating to their corresponding index. The Funds invests in securities included in or representative of their corresponding index regardless of their investment merit. The Funds generally will not attempt to take defensive positions in declining markets. The First Trust Dow Jones Select MicroCap Index(SM) Fund invests in micro-capitalization companies. Such companies may be more vulnerable to adverse general market or economic developments, may be less liquid, and may experience greater price volatility than larger, more established companies. Page 121 - ------------------------------------------------------------------------------- RISK CONSIDERATIONS (Unaudited) (Continued) - ------------------------------------------------------------------------------- The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund and the First Trust Dow Jones Internet Index(SM) Fund invest in stocks of companies in the technology sector. You should be aware that an investment in a portfolio which invests in a particular sector involves additional risks, including limited diversification. The companies engaged in the technology sector are subject to fierce competition and high research and development costs, and their products and services may be subject to rapid obsolescence. The First Trust NYSE Arca Biotechnology Index Fund is concentrated in stocks of companies in the biotechnology sector. You should be aware that an investment in a portfolio which is concentrated in a particular sector involves additional risks, including limited diversification. The companies engaged in the biotechnology sector are subject to fierce competition, substantial research and development costs, governmental regulations and pricing constraints, and their products and services may be subject to rapid obsolescence. The First Trust NYSE Arca Biotechnology Index Fund invests in the securities of companies in the health care sector. Because companies in the health care sector are involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals and health care facilities and services, general problems of these companies include extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulations. The First Trust US IPO Fund invests in companies that have recently conducted an initial public offering. The stocks of such companies are often subject to extreme price volatility and speculative trading. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust S&P REIT Index Fund, First Trust Value Line(R) Dividend Index Fund and First Trust NASDAQ(R) ABA Community Bank Index Fund invest in securities of companies in the financials sector. Banks, thrifts and their holding companies are especially subject to the adverse effects of economic recession; 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. Although recently enacted legislation repealed most of the barriers which separated the banking, insurance and securities industries, these industries are still extensively regulated at both the federal and state level and may be adversely affected by increased regulations. The downturn in the U.S. and world economies has adversely affected banks, thrifts and other companies in the financials sector. The First Trust US IPO Fund, the First Trust Dow Jones Internet Index(SM) Fund, the First Trust ISE Chindia Index Fund, the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in securities of companies in the information technology industry. Information technology companies are generally subject to the risks of rapidly changing technologies; short product life cycles; fierce competition; and aggressive pricing and reduced profit margins. The First Trust DB Strategic Value Index Fund and the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund invest in the securities of companies in the consumer discretionary sector. Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer discretionary products in the marketplace. The First Trust ISE-Revere Natural Gas Index Fund invests in the securities of companies in the energy sector. General problems of issuers in the energy sector include volatile fluctuations in price and supply of energy fuels, international politics, terrorist attacks, reduced demand as a result of increases in energy efficiency and energy conservation, the success of exploration projects, clean-up and litigation costs relating to oil spills and environmental damage, and tax and other regulatory policies of various governments. In addition, recent oil prices have been at historic highs and extremely volatile. The First Trust ISE Water Index Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in the securities of companies in the industrials sector. General risks of these companies include the general state of the economy, intense competition, consolidation, domestic and international politics, excess capacity and consumer demand and spending trends. In addition, they may also be significantly affected by overall capital spending levels, economic cycles, technical obsolescence, delays in modernization, labor relations, government regulations and e-commerce initiatives. The First Trust S&P REIT Index Fund invests in companies in the real estate industry, including real estate investment trusts ("REITs") and is subject to the risks associated with investing in real estate (any of which could cause the value of a REIT's stock price to decline), which may include, but are not limited to, possible declines in the value of real estate, adverse general and local economic conditions, possible lack of availability of mortgage funds, overbuilding in a REIT's market, changes in interest rates and environmental problems. Furthermore, increases in interest rates typically lower the present value of a REIT's future earnings stream, and may make financing property purchases and improvements more costly. Page 122 - ------------------------------------------------------------------------------- RISK CONSIDERATIONS (Unaudited) (Continued) - ------------------------------------------------------------------------------- With the exception of First Trust DB Strategic Value Index Fund and First Trust Dow Jones Select MicroCap Index(SM) Fund, the Funds may invest in small capitalization and mid-capitalization companies. Such companies' securities may be less liquid and may experience greater price volatility than securities of larger, more established companies. Because a Fund's corresponding index may include American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S. companies, the investments of certain Funds, including but not limited to, the First Trust ISE Chindia Index Fund, the First Trust ISE-Revere Natural Gas Index Fund, the First Trust ISE Water Index Fund and the First Trust Value Line(R) 100 Exchange-Traded Fund, involve risks of investing in non-U.S. securities that are in addition to the risk associated with domestic securities. Non-U.S. companies, in general, are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about these companies. Moreover, non-U.S. accounting, auditing and financial reporting standards generally are different from those applicable to U.S. companies. In addition, non-U.S. companies are exposed to additional economic, political, social or diplomatic events. ADRs and ADSs also involve substantially identical risks to those associated with investments in non-U.S. securities. In addition, the issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities. The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in renewable and alternative energy companies. You should be aware that share prices of renewable and alternative energy companies have been significantly more volatile than shares of companies operating in other more established industries and the securities included in the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund may be subject to sharp price declines. This industry is relatively nascent and under-researched in comparison to more established and mature sectors, and should therefore be regarded as having greater investment risk. The First Trust ISE Water Index Fund invests in companies in the potable water and wastewater industries. You should be aware that adverse developments in these industries may significantly affect the value of the shares of the First Trust ISE Water Index Fund. Companies involved in the potable water and wastewater industries are subject to environmental considerations, taxes, government regulation, price and supply fluctuations, competition and conservation. The First Trust ISE-Revere Natural Gas Index Fund invests in companies in the natural gas industry. You should be aware that one of the natural gas industry's primary risks is the competitive risk associated with the prices of alternative fuels, such as coal and oil. Additionally, the natural gas industry is sensitive to increased interest rates because of the industry's capital intensive nature. Furthermore, there are additional risks and hazards that are inherent in the natural gas industry that may cause the price of natural gas to widely fluctuate. The First Trust ISE Chindia Index Fund invests in the securities of Chinese and Indian companies. You should be aware that investments in such companies are subject to additional risks, which are associated with possible adverse economic, political and social developments in those countries. The First Trust NASDAQ(R) ABA Community Bank Index Fund is concentrated in the securities of NASDAQ(R) listed community banks as defined by its corresponding index which involves additional risks, including limited diversification. These companies are subject to certain risks, including the adverse effects of volatile interest rates, economic recession, increased competition from new entrants in the field, and potential increased regulation. The financial performance of these companies may also be highly dependent upon the business environment in certain geographic regions of the United States and may be adversely impacted by any downturn or unfavorable economic or employment developments in their local markets and the United States as a whole. These companies may also be subject to interest rate risks and changes in monetary policy as their earnings are largely dependent upon their net interest income and lending risks that could further increase because of increases in interest rates and/or continuing economic weakness. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 123 - ------------------------------------------------------------------------------- PRIVACY POLICY - ------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2009 (Unaudited) Privacy Policy The open-end and closed-end funds advised by First Trust Advisors L.P. (each a "Fund") value our relationship with you and consider your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information. I. SOURCES OF INFORMATION We collect nonpublic personal information about you from the following sources: A. Information we receive from you and your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; B. Information about your transactions with us, our affiliates or others; C. Information we receive from your inquiries by mail, e-mail or telephone; and D. 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. II. 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. III. 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: A. 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. B. 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 with affiliates of the Fund. IV. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, we restrict access to your nonpublic personal information to those individuals 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. V. 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 www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). Page 124 [LOGO OMMITTED] FIRST TRUST FIRST TRUST EXCHANGE-TRADED FUND INVESTMENT ADVISOR First Trust Advisors L.P. 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ADMINISTRATOR, CUSTODIAN, FUND ACCOUNTANT & TRANSFER AGENT The Bank of New York Mellon 101 Barclay Street New York, NY 10286 BOARD ADMINISTRATOR PNC Global Investment Servicing (U.S.) 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 [INSIDE BACK COVER] [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) During the period covered by this report, 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 was amended to name W. Scott Jardine as the Compliance Coordinator for the implementation and administration of the aforementioned code. The amended code of ethics is provided as an exhibit pursuant to Item 12(a)(1). (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 of them 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 $425,000 for 2008 and $427,500 for 2009. (b) Audit-Related Fees (Registrant) -- The aggregate fees billed in 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 2008 and $0 for 2009. Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate fees billed in 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 2008 and $0 for 2009. (c) Tax Fees (Registrant) -- The aggregate fees billed in 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 $77,250 for 2008 and $73,850 for 2009. Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed in 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's adviser and distributor were $0 for 2008 and $0 for 2009. (d) All Other Fees (Registrant) -- The aggregate fees billed in 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 2008 and $0 for 2009. All Other Fees (Investment Adviser and Distributor) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant's investment adviser and distributor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for 2008 and $0 for 2009. (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 2008 were $77,250 for the registrant, $12,143 for the registrant's investment adviser and $31,863 for the registrant's distributor, and for 2009 were $73,850 for the registrant, $36,000 for the registrant's investment adviser and $37,300 for the registrant's distributor. (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. Items 5. Audit Committee of Listed Registrants. The registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Robert F. Keith and Niel B. Nielson. 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 trustees, 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 last fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. 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 (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 Exchange-Traded Fund By (Signature and Title)* /s/ James A. Bowen ---------------------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Date: February 19, 2010 --------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ James A. Bowen ----------------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Date: February 19, 2010 ------------------------------------------------------------------------ By (Signature and Title)* /s/ Mark R. Bradley ----------------------------------------------------- Mark R. Bradley, Treasurer, Controller, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: February 19, 2010 ------------------------------------------------------------------------ * Print the name and title of each signing officer under his or her signature. EX-99.CODE ETH 2 ethics.txt CODE OF ETHICS SENIOR FINANCIAL OFFICER CODE OF CONDUCT I. INTRODUCTION This code of conduct is being adopted by the investment companies advised by First Trust Advisors L.P., from time to time, (the "Funds"). The reputation and integrity of the Funds are valuable assets that are vital to the Funds' success. Each officer of the Funds, and officers and employees of the investment adviser to the Funds who work on Fund matters, including each of the Funds' senior financial officers ("SFOs"), is responsible for conducting each Fund's business in a manner that demonstrates a commitment to the highest standards of integrity. SFOs include the Principal Executive Officer (who is the President), the Controller (who is the principal accounting officer), and the Treasurer (who is the principal financial officer), and any person who performs a similar function. The Funds, First Trust Advisors L.P. and First Trust Portfolios have adopted Codes of Ethics under Rule 17j-1 under the Investment Company Act of 1940 (the "Rule 17j-1 Code"). These Codes of Ethics are designed to prevent certain conflicts of interest that may arise when officers, employees, or directors of the Funds and the foregoing entities know about present or future Fund transactions and/or have the power to influence those transactions, and engage in transactions with respect to those same securities in their personal account(s) or otherwise take advantage of their position and knowledge with respect to those securities. In an effort to prevent these conflicts and in accordance with Rule 17j-1, the Funds adopted their Rule 17j-1 Code to prohibit transactions and conduct that create conflicts of interest, and to establish compliance procedures. The Sarbanes-Oxley Act of 2002 was designed to address corporate malfeasance and to help assure investors that the companies in which they invest are accurately and completely disclosing financial information. Under Section 406 of the Act, all public companies (including the Funds) must either have a code of ethics for their SFOs, or disclose why they do not. The Act was intended to prevent future situations (such as occurred in well-reported situations involving such companies as Enron and WorldCom) where a company creates an environment in which employees are afraid to express their opinions or to question unethical and potentially illegal business practices. The Funds have chosen to adopt a senior financial officer Code of Conduct to encourage their SFOs, and other Fund officers and employees of First Trust Advisors or First Trust Portfolios to act ethically and to question potentially unethical or illegal practices, and to strive to ensure that the Funds' financial disclosures are complete, accurate, and understandable. II. PURPOSES OF THIS CODE OF CONDUCT The purposes of this Code are: A. To promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; B. To promote full, fair, accurate, timely, and understandable disclosure in reports and documents that the Funds file with, or submits to, the SEC and in other public communications the Funds make; C. To promote compliance with applicable governmental laws, rules and regulations; D. To encourage the prompt internal reporting to an appropriate person of violations of the Code; and E. To establish accountability for adherence to the Code. III. QUESTIONS ABOUT THIS CODE The Funds' Boards of Trustees have designated W. Scott Jardine or other appropriate officer designated by the President of the respective Funds to be the Compliance Coordinator for the implementation and administration of the Code. IV. HANDLING OF FINANCIAL INFORMATION The Funds have adopted guidelines under which its SFOs perform their duties. However, the Funds expect that all officers or employees of the adviser or distributor who participate in the preparation of any part of any Fund's financial statements follow these guidelines with respect to each Fund: A. Act with honesty and integrity and avoid violations of this Code, including actual or apparent conflicts of interest with the Fund in personal and professional relationships. B. Disclose to the Fund's Compliance Coordinator any material transaction or relationship that reasonably could be expected to give rise to any violations of the Code, including actual or apparent conflicts of interest with the Fund. You should disclose these transactions or relationships whether you are involved or have only observed the transaction or relationship. If it is not possible to disclose the matter to the Compliance Coordinator, it should be disclosed to the Fund's Principal Financial Officer or Principal Executive Officer. C. Provide information to the Fund's other officers and appropriate employees of service providers (adviser, administrator, outside auditor, outside counsel, custodian, etc.) that is accurate, complete, objective, relevant, timely, and understandable. D. Endeavor to ensure full, fair, timely, accurate, and understandable disclosure in the Fund's periodic reports. E. Comply with the federal securities laws and other applicable laws and rules, such as the Internal Revenue Code. F. Act in good faith, responsibly, and with due care, competence and diligence, without misrepresenting material facts or allowing your independent judgment to be subordinated. G. Respect the confidentiality of information acquired in the course of your work except when you have Fund approval to disclose it or where disclosure is otherwise legally mandated. You may not use confidential information acquired in the course of your work for personal advantage. H. Share and maintain skills important and relevant to the Fund's needs. I. Proactively promote ethical behavior among peers in your work environment. J. Responsibly use and control all assets and resources employed or entrusted to you. K. Record or participate in the recording of entries in the Fund's books and records that are accurate to the best of your knowledge. V. WAIVERS OF THIS CODE SFOs and other parties subject to this Code may request a waiver of a provision of this Code (or certain provisions of the Fund's Rule 17j-1 Code) by submitting their request in writing to the Compliance Coordinator for appropriate review. An executive officer of the Fund or the Audit Committee will decide whether to grant a waiver. All waivers of this Code must be disclosed to the Fund's shareholders to the extent required by SEC rules. A good faith interpretation of the provisions of this Code, however, shall not constitute a waiver. VI. ANNUAL CERTIFICATION Each SFO will be asked to certify on an annual basis that he/she is in full compliance with the Code and any related policy statements. VII. REPORTING SUSPECTED VIOLATIONS A. SFOs or other officers of the Funds or employees of the First Trust group who work on Fund matters who observe, learn of, or, in good faith, suspect a violation of the Code must immediately report the violation to the Compliance Coordinator, another member of the Funds' or First Trust's senior management, or to the Audit Committee of the Fund Board. An example of a possible Code violation is the preparation and filing of financial disclosure that omits material facts, or that is accurate but is written in a way that obscures its meaning. B. Because service providers such as an administrator, outside accounting firm, and custodian provide much of the work relating to the Funds' financial statements, you should be alert for actions by service providers that may be illegal, or that could be viewed as dishonest or unethical conduct. You should report these actions to the Compliance Coordinator even if you know, or think, that the service provider has its own code of ethics for its SFOs or employees. C. SFOs or other officers or employees who report violations or suspected violations in good faith will not be subject to retaliation of any kind. Reported violations will be investigated and addressed promptly and will be treated confidentially to the extent possible. VIII. VIOLATIONS OF THE CODE A. Dishonest, unethical or illegal conduct will constitute a violation of this Code, regardless of whether this Code specifically refers to that particular conduct. A violation of this Code may result in disciplinary action, up to and including termination of employment. A variety of laws apply to the Funds and their operations, including the Securities Act of 1933, the Investment Company Act of 1940, state laws relating to duties owed by Fund directors and officers, and criminal laws. The federal securities laws generally prohibit the Funds from making material misstatements in its prospectus and other documents filed with the SEC, or from omitting to state a material fact. These material misstatements and omissions include financial statements that are misleading or omit materials facts. B. Examples of criminal violations of the law include stealing, embezzling, misapplying corporate or bank funds, making a payment for an expressed purpose on a Fund's behalf to an individual who intends to use it for a different purpose; or making payments, whether corporate or personal, of cash or other items of value that are intended to influence the judgment or actions of political candidates, government officials or businesses in connection with any of the Funds' activities. The Funds must and will report all suspected criminal violations to the appropriate authorities for possible prosecution, and will investigate, address and report, as appropriate, non-criminal violations. Amended: June 1, 2009 EX-99.CERT 3 cert302.txt 302 CERTIFICATION I, James A. Bowen, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Exchange-Traded Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 19, 2010 /s/ James A. Bowen ------------------------ -------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Certification Pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act I, Mark R. Bradley, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Exchange-Traded Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 19, 2010 /s/ Mark R. Bradley ---------------------- -------------------------------------------------- Mark R. Bradley, Treasurer, Controller, Chief Financial Officer and Chief Accounting Officer (principal financial officer) EX-99.906CERT 4 cert906.txt 906 CERTIFICATION EXHIBIT (b) I, James A. Bowen, Chairman of the Board, President and Chief Executive Officer of First Trust Exchange-Traded Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 19, 2010 /s/ James A. Bowen ------------------------- ---------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) I, Mark R. Bradley, Treasurer, Controller, Chief Financial Officer and Chief Accounting Officer of First Trust Exchange-Traded Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 19, 2010 /s/ Mark R. Bradley ------------------------- ---------------------------------------------- Mark R. Bradley, Treasurer, Controller, Chief Financial Officer and Chief Accounting Officer (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----