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, 2008 --------------------------- 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 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 Annual Report December 31, 2008 Front Cover -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2008 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 Amex(R) 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 Notes to Fund Performance Overview 38 Understanding Your Fund Expenses 39 Portfolio of Investments First Trust Dow Jones Select MicroCap Index(SM) Fund 41 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 45 First Trust US IPO Index Fund 47 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 50 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 52 First Trust Amex(R) Biotechnology Index Fund 53 First Trust Dow Jones Internet Index(SM) Fund 54 First Trust DB Strategic Value Index Fund 55 First Trust Value Line(R) Equity Allocation Index Fund 56 First Trust Value Line(R) Dividend Index Fund 59 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 62 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 64 First Trust S&P REIT Index Fund 66 First Trust ISE Water Index Fund 68 First Trust ISE-Revere Natural Gas Index Fund 69 First Trust ISE Chindia Index Fund 70 First Trust Value Line(R) 100 Exchange-Traded Fund 72 Statements of Assets and Liabilities 74 Statements of Operations 78 Statements of Changes in Net Assets 82 Financial Highlights 88 Notes to Financial Statements 98 Report of Independent Registered Public Accounting Firm 109 Additional Information 110 Board of Trustees and Officers 112 Risk Considerations 114 Privacy Policy 117 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 (individually, 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 the portfolios 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, 2008 Dear Shareholders: The year ended December 31, 2008 brought all sorts of challenges to investors. Throughout 2008, the financial sector was plagued with failures in banking, insurance and by brokerage firms. By year's end, after a meltdown in the credit markets, historically high levels of volatility in the stock market, and the resulting turmoil to the overall economy, the Dow Jones Industrial Average's (the "Dow") total return was -31.92% (as of 12/31/08). In fact, 2008 was the Dow's third worst calendar year since its inception in 1896. For the year, the negative total return performance of the Dow was surpassed only by 1931 and 1907, two years in which the U.S. was also enduring a major banking crisis. Of the thirty stocks in the Dow, only two were up in 2008. Yet, regardless of the market, 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. While no one has the ability to predict when the markets will recover, we believe that staying invested in quality products and having a long-term perspective can help investors reach their financial goals. The report you hold contains detailed information about the Funds that comprise First Trust Exchange-Traded Fund for the twelve-month period ended December 31, 2008. It contains each Fund's performance review and financial statements for the period. I encourage you to read this document and discuss it with your financial advisor. First Trust has been through many types of markets and remains committed to bringing you quality investment solutions regardless of the inevitable ups and downs experienced in the market. We offer a variety of products that may fit many financial plans to help those investors seeking long-term investment success. As well, we are committed to making available up-to-date reports 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, 2008 [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 21 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 ECONOMY The combination of the subprime mortgage meltdown, corresponding credit crunch, historically low levels of consumer confidence and significant job losses pushed the U.S. economy, which was already in recession, into a deeper one in the fourth quarter of 2008. The recession actually commenced in December 2007, according to the National Bureau of Economic Research (NBER). Perhaps the most troublesome indicator at year-end was the acceleration in job losses. While the U.S. lost 2.6 million jobs in 2008, 1.1 million of them came in the last two months. A close second would be the ongoing deterioration of the housing market, both in terms of declining home values and record-high foreclosure activity. Filings surpassed 3 million in 2008, up 81% from 2007, according to RealtyTrac.com. For the 12-month period ended December 2008, home prices were down 18.2% nationwide, according to the S&P/Case-Shiller 20-city home price index. Most economists acknowledge that a recovery cannot begin until home prices stabilize. At the present time, the government is in the midst of implementing a three-pronged approach to addressing the challenges mentioned above. First, the Federal Reserve Bank (the "Fed") has cut the federal funds target rate to an all-time low of 0-0.25%. Second, the Treasury Department has already tapped approximately one-half of the $700 billion appropriated to the Troubled Asset Relief Program (TARP). It took just 77 days to invest the capital with a little over half ($168 billion) disseminated across 116 banking institutions. The incoming Obama Administration has stated that it intends to use some of the remaining $350 billion from TARP to buy "toxic" securities from these troubled institutions in an effort to free-up lending. Finally, the Obama Administration is touting a fiscal stimulus package ("Recovery and Reinvestment Plan") totaling as much as $825 billion that includes tax cuts and capital earmarked for infrastructure projects with the goal of creating as many as 3 million new jobs in the next few years. All in all, the government is throwing an unprecedented amount of monetary/fiscal stimulus at the problem. U.S. STOCKS AND BONDS The major U.S. stock indices posted bear market returns across the board in 2008. The S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were down 37.0%, 36.2%, and 31.1%, respectively, according to Bloomberg. None of the 10 major sectors in the S&P 500 finished the year in positive territory. The top performing sector was Consumer Staples (-15.4%), while the poorest performer was Financials (-55.2%). If we had to pick one word to sum up 2008 volatile would be as relevant as any. The VIX Volatility Index ("VIX") reached an all-time high of 80.86 on 11/20/08. The VIX stood at 40.00 on 12/31, down 50% from the high. So far this decade, the average reading for the VIX has been 21.02, according to Bloomberg. If the VIX can manage to work its way down into the 30s we could see higher stock prices, according to Bespoke Investment Group. All in all, U.S. stocks lost $6.9 trillion in 2008 and equity markets plunged by more than $30 trillion globally. About the only securities to make money were those "backed by the full faith and credit of the U.S. government." If there is a silver lining for stocks heading into 2009 it very well could be the huge amount of cash sitting on the sidelines. Americans were holding $8.85 trillion in cash and equivalents (low-yielding) at the end of November 2008. In the U.S. bond market, the only two groups that finished up for the year were Treasuries and GNMAs. The Barclays Capital U.S. Treasury: Intermediate Index and GNMA 30 Year Index posted total returns of 11.35% and 7.86%, respectively. At the other end of the spectrum, the Barclays Capital U.S. Corporate High Yield Index posted the poorest return declining 26.2%. In mid-December, the yield spread between high yield corporates and Treasuries surpassed 20 percentage points, an all-time high. FOREIGN STOCKS AND BONDS The old adage says that when the U.S. sneezes the rest of the world catches a cold. This was certainly the case in 2008. The U.S. recession not only derailed the global growth story but the bull market in foreign stocks and most bonds as well. As was the case in the U.S., the riskiest securities fared the worst. The Barclays Capital Global Emerging Markets Index of debt securities fell 16.2% (USD) in 2008, while on the equities front the MSCI Emerging Markets Index and MSCI World Index (excluding the U.S.) returned -53.4% (USD) and -43.3% (USD), respectively. The Barclays Capital Global Aggregate Index of higher quality debt, however, returned 4.8% (USD). Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- 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 total 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(R)"), NYSE Alternext US and The NASDAQ Stock Market, Inc. ("NASDAQ(R)") 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (09/27/05) Inception (09/27/05) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -33.33% -24.80% -8.37% Market Value -33.67% -25.06% -8.47% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) -32.83% -22.93% -7.67% Russell 2000 Index -33.79% -20.83% -6.91%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The utilities sector was the biggest positive contributor to portfolio performance during the period ended December 31, 2008, as investors focused on the relative safety of the sector during a tumultuous year. Telecommunications services was the only other sector to post a positive contribution to return for the year. Industrials, the largest sector in the Fund's portfolio, was the biggest drag on absolute performance as investment in new capital equipment slowed due to the global economic downturn. Consumer discretionary stocks also hurt the Fund's performance due to the retrenchment of consumer spending during the year. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Shenandoah Telecommunications Co. Flotek Industries, Inc. Chart Industries, Inc. Callon Petroleum Co. Emergent Biosolutions, Inc. Oriental Financial Group, Inc. American Science & Engineering, Inc. Valassis Communications, Inc. Insituform Technologies, Inc., Class A Calamos Asset Management, Inc., Class A PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Financials 28.34% Industrials 20.44 Consumer Discretionary 17.43 Information Technology 10.65 Health Care 9.52 Materials 4.18 Energy 3.08 Consumer Staples 2.69 Telecommunication Services 2.15 Utilities 1.52 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Shenandoah Telecom Co. 1.19% American Science & Engineering, Inc. 1.17 Harleysville National Corp. 1.11 Greatbatch, Inc. 1.09 TowneBank 1.09 Insituform Technologies, Inc., Class A 0.99 Community Trust Bancorp, Inc. 0.89 CastlePoint Holdings Ltd. 0.87 First Merchants Corp. 0.87 Jos. A. Bank Clothiers, Inc. 0.86 ------- Total 10.13% ======= _________________________ 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 4 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FDM - FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (CONTINUED) Growth of a $10,000 Initial Investment September 27, 2005 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust The Dow Jones Dow Jones Select Select MicroCap MicroCap Index(SM) Fund Index(SM) Russell 2000 Index ----------------------- --------------- ------------------ 9/27/2005 $10,000 $10,000 $10,000 12/31/2005 10,374 10,397 10,254 12/31/2006 12,002 12,115 12,146 12/31/2007 11,279 11,474 11,956 12/31/2008 7,520 7,707 7,916 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total assets in common stocks that comprise the Index. The objective of the Index is to offer 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(R)"), NYSE Alternext US or The NASDAQ Stock Market, Inc. ("NASDAQ(R)")) 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (03/09/06) Inception (03/09/06) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -31.71% -26.29% -10.28% Market Value -31.95% -26.09% -10.19% INDEX PERFORMANCE Morningstar(R) Dividend Leaders(SM) Index -31.35% -25.38% -9.87% S&P 500 Index -37.00% -24.78% -9.62%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The consumer staples and utilities sectors posted the best performance in the Fund's portfolio as investors sought safety in more defensive sectors amid the market turmoil over the course of 2008. Financials, the largest sector weighting at a 45.0% average weight over the period ended December 31, 2008, was the largest drag in the Fund's portfolio as deteriorating credit market conditions hurt performance within the sector. Materials stocks also weighed on overall portfolio performance as falling commodity prices hurt earnings in the sector. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Wells Fargo & Co. Bank of America Corp. Bristol-Myers Squibb Co. Wachovia Corp. Philip Morris International, Inc. Dow Chemical Co. UST, Inc. Citigroup, Inc. Dominion Resources, Inc. AT&T, Inc. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Financials 35.94% Health Care 22.75 Utilities 17.33 Telecommunication Services 14.60 Consumer Discretionary 3.57 Materials 2.63 Consumer Staples 2.19 Industrials 0.99 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Bank of America Corp. 9.48% AT&T, Inc. 8.45 Pfizer, Inc. 8.06 Verizon Communications, Inc. 6.15 Wells Fargo & Co. 5.75 Merck & Co., Inc. 5.42 Bristol-Myers Squibb Co. 4.71 U.S. Bancorp 4.63 Eli Lilly & Co. 4.57 Southern Co. 2.98 ------- Total 60.20% ======= _________________________ 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 6 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FDL - FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND (CONTINUED) Growth of a $10,000 Initial Investment March 9, 2006 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Morningstar(R) Morningstar(R) Dividend Leaders(SM) Dividend Leaders Index Fund Index(SM) S&P 500 Index -------------------------- ---------------- ------------- 3/9/2006 $10,000 $10,000 $10,000 12/31/2006 12,080 12,110 11,317 12/31/2007 10,795 10,870 11,938 12/31/2008 7,372 7,462 7,521 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FPX - FIRST TRUST US IPO INDEX FUND The First Trust US IPO Index Fund (formerly known as First Trust IPOX-100 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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (04/12/06) Inception (04/12/06) 12/3108 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -43.88% -28.66% -11.67% Market Value -44.14% -28.71% -11.70% INDEX PERFORMANCE IPOX-100 U.S. Index -43.59% -27.55% -11.16% Russell 3000 Index -37.30% -26.96% -10.90% (See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW Utilities stocks were the best performers in the Fund's portfolio over the period ended December 31, 2008 as investors sought out more defensive sectors during the market turmoil of 2008. Technology stocks were the biggest drag on the Fund's portfolio as the economic slowdown adversely impacted IT spending budgets and the sector had the largest weight in the underlying index. Consumer discretionary stocks also negatively impacted portfolio results as declines in forecasts for consumer spending weighed on the sector. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS AECOM Technology Corp. Visa, Inc., Class A Bucyrus International, Inc. Viacom, Inc., Class B Validus Holdings Ltd. Google, Inc., Class A Auxilium Pharmaceuticals, Inc. Covidien Ltd. Stanley, Inc. Tyco Electronics Ltd. *See Note 8 in Notes to Financial Statements for information regarding this Fund's name change. _________________________ IPOX is a trademark of IPOX Schuster LLC, IPOX IPO Indexes and Derivatives (patent pending). Page 8 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FPX - FIRST TRUST US IPO INDEX FUND (CONTINUED) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 28.27% Consumer Discretionary 16.03 Consumer Staples 14.74 Health Care 9.30 Industrials 8.83 Energy 7.70 Financials 7.26 Telecommunication Services 3.91 Utilities 2.10 Materials 1.86 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Philip Morris International, Inc. 10.22% Visa Inc., Class A 9.35 Time Warner Cable Inc., Class A 6.32 MasterCard, Inc., Class A 5.57 Covidien Ltd. 5.50 Viacom, Inc., Class B 3.53 First Solar, Inc. 3.37 Western Union Co. 3.09 Spectra Energy Corp. 2.90 Lorillard, Inc. 2.86 ------- Total 52.71% ======= Growth of a $10,000 Initial Investment April 12, 2006 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust US IPO Index Fund IPOX-100 U.S. Index Russell 3000 Index ----------------- ------------------- ------------------ 4/12/2006 $10,000 $10,000 $10,000 12/31/2006 11,100 11,154 11,069 12/31/2007 12,713 12,844 11,649 12/31/2008 7,135 7,245 7,304 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 9 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (04/19/06) Inception (04/19/06) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -43.96% -38.13% -16.28% Market Value -44.48% -38.18% -16.31% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) -43.61% -37.17% -15.79% NASDAQ-100 Index(R) -41.57% -29.16% -11.97%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The consumer discretionary sector had a negative impact on performance of the Fund as the strength of consumer spending was called into question over the period ended December 31, 2008. Technology stocks were the biggest drag on the Fund's portfolio, as the economic slowdown adversely impacted IT spending budgets and the technology sector was the largest weight in the underlying index. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Apollo Group, Inc., Class A Focus Media Holding Ltd., ADR Vertex Pharmaceuticals, Inc. Sirius XM Radio, Inc. Ryanair Holdings PLC, ADR Liberty Media Corp.-Interactive, Class A Amgen, Inc. Cadence Design Systems, Inc. Gilead Sciences, Inc. Garmin Ltd. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 46.64% Health Care 18.23 Consumer Discretionary 17.98 Industrials 11.14 Telecommunication Services 2.01 Materials 2.00 Consumer Staples 2.00 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS FLIR Systems, Inc. 1.14% Liberty Global, Inc., Class A 1.14 Logitech International S.A. 1.10 Comcast Corp., Class A 1.07 Life Technologies Corp. 1.07 J.B. Hunt Transport Services, Inc. 1.06 C.H. Robinson Worldwide, Inc. 1.06 Autodesk, Inc. 1.06 Henry Schein, Inc. 1.06 Automatic Data Processing, Inc. 1.05 ------- Total 10.81% ======= _________________________ 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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (CONTINUED) Growth of a $10,000 Initial Investment April 19, 2006 - December 31, 2008 [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) ---------------------- -------------------- ------------------- 4/19/2006 $10,000 $10,000 $10,000 12/31/2006 10,060 10,097 10,168 12/31/2007 11,040 11,142 12,124 12/31/2008 6,187 6,283 7,084 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 11 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (04/19/06) Inception (04/19/06) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -45.26% -41.15% -17.82% Market Value -45.89% -41.80% -18.16% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) -45.05% -40.40% -17.42% S&P 500 Information Technology Index -43.14% -31.91% -13.25% S&P 500 Index -37.00% -27.05% -11.01%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW BEA Systems, Inc. boosted performance in the Fund's portfolio as the business software maker was acquired by Oracle Corp. during the period ended December 31, 2008. Cadence Design Systems, Inc. was the biggest drag on performance after the maker of programs for creating semiconductors reported disappointing results. Sun Microsystems, Inc. also hurt the Fund's performance as demand for its enterprise servers slumped as its customers delayed large-scale systems purchases. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS BEA Systems, Inc. Cadence Design Systems, Inc. Seagate Technology, Inc. Sun Microsystems, Inc. IAC/InterActiveCorp. SanDisk Corp. Maxim Integrated Products, Inc. Baidu.com, Inc., ADR QUALCOMM, Inc. NVIDIA Corp. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 100.00% ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Logitech International S.A. 2.85% Autodesk, Inc. 2.75 Juniper Networks, Inc. 2.69 Citrix Systems, Inc. 2.68 Xilinx, Inc. 2.67 NetApp, Inc. 2.66 Intuit, Inc. 2.65 QUALCOMM, Inc. 2.65 CA, Inc. 2.65 Check Point Software Technologies Ltd. 2.65 ------- Total 26.90% ======= _________________________ 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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED) Growth of a $10,000 Initial Investment April 19, 2006 - December 31, 2008 [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 Index --------------------- ---------------- ---------------- ------------- 4/19/2006 $10,000 $10,000 $10,000 $10,000 12/31/2006 9,985 10,020 10,296 10,975 12/31/2007 10,750 10,847 11,974 11,578 12/31/2008 5,885 5,960 6,808 7,294
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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FBT - FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND The 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 Amex(R) Biotechnology Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (06/19/06) Inception (06/19/06) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -18.33% -0.32% -0.13% Market Value -19.03% -0.73% -0.29% INDEX PERFORMANCE Amex(R) Biotechnology Index(SM) -17.72% 1.37% 0.54% NASDAQ(R) Biotechnology Index -12.30% 2.00% 0.78% S&P 500 Index -37.00% -23.21% -9.89%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW Millennium Pharmaceuticals, Inc. was the biggest contributor to the Fund's portfolio return over the period ended December 31, 2008 as it was acquired by Takeda Pharmaceuticals, Inc. at a 67% announced premium. ImClone Systems, Inc. also posted strong returns as it was first targeted for acquisition by Bristol-Myers Squibb Co. at a 43.5% announced premium and then subsequently sold for an even higher price to Eli Lilly & Co. Affymetrix, Inc. had the most negative impact on the Fund's returns after the company reduced revenue forecasts due to reduced spending by pharmaceutical companies. Human Genome Sciences, Inc. was also a poor performer due to investor concern over its pipeline for new gene therapies. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Millennium Pharmaceuticals, Inc. Affymetrix, Inc. ImClone Systems Human Genome Sciences, Inc. Vertex Pharmaceuticals, Inc. Amylin Pharmaceuticals, Inc. Nektar Therapeutics Life Technologies Corp. Gilead Sciences, Inc. Celera Corp. ________________________________ The Amex(R) 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. Page 14 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FBT - FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND (CONTINUED) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Health Care 100.00% ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Nektar Therapeutics 8.91% Gilead Sciences, Inc. 6.08 Vertex Pharmaceuticals, Inc. 6.05 Amgen, Inc. 5.89 Cephalon, Inc. 5.67 Biogen Idec, Inc. 5.36 Genzyme Corp. 5.35 Celera Corp. 5.00 Genentech, Inc. 4.95 OSI Pharmaceuticals, Inc. 4.92 ------- Total 58.18% ======= Growth of a $10,000 Initial Investment June 19, 2006 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust Amex(R) Amex(R) Biotechnology Biotechnology NASDAQ(R) Index Fund Index(SM) Biotechnology Index S&P 500 Index ------------------- ------------- ------------------- ------------- 6/19/2006 $10,000 $10,000 $10,000 $10,000 12/31/2006 11,775 11,815 11,114 11,554 12/31/2007 12,205 12,321 11,630 12,188 12/31/2008 9,968 10,138 10,200 7,678
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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 15 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (06/19/06) Inception (06/19/06) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -44.02% -29.77% -13.02% Market Value -44.26% -29.77% -13.02% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) -43.77% -28.86% -12.56% S&P 500 Index -37.00% -23.21% -9.89%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW BEA Systems, Inc. was the biggest contributor to the Fund's portfolio return as the firm was acquired by Oracle Corp. during the period ended December 31, 2008. Google, Inc., Class A, had the most negative impact on returns after a broad economic slowdown put its high revenue growth expectations in doubt. eBay, Inc. hurt the Fund's performance as declines in consumer spending adversely impacted the outlook for its core retail business. Amazon.com, Inc. was also a drag on performance after the internet retailer posted results that did not live up to lofty expectations. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS BEA Systems, Inc. Google, Inc., Class A Netflix, Inc. eBay, Inc. CNET Networks, Inc. Yahoo!, Inc. Concur Technologies, Inc. Amazon.com, Inc. HSN, Inc. Salesforce.com, Inc. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 72.15% Consumer Discretionary 18.64 Financials 5.25 Health Care 2.04 Industrials 1.92 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Juniper Networks, Inc. 10.01% Amazon.com, Inc. 9.96 Google, Inc., Class A 9.67 eBay, Inc. 9.41 Yahoo!, Inc. 9.34 TD Ameritrade Holding Corp. 4.58 VeriSign, Inc. 4.49 Check Point Software Technologies Ltd. 4.36 Salesforce.com, Inc. 4.29 Priceline.com, Inc. 3.98 ------- Total 70.09% ======= ______________________________ 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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (CONTINUED) Growth of a $10,000 Initial Investment June 19, 2006 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Dow Jones Internet Dow Jones Internet Index(SM) Fund Composite Index(SM) S&P 500 Index ------------------ ------------------- ------------- 6/19/2006 $10,000 $10,000 $10,000 12/31/2006 11,285 11,316 11,554 12/31/2007 12,546 12,652 12,188 12/31/2008 7,023 7,114 7,678 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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+ IndexTM (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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (06/19/06) Inception (06/19/06) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -37.23% -23.35% -10.14% Market Value -37.89% -23.81% -10.36% INDEX PERFORMANCE Deutsche Bank CROCI(R) US+ Index(TM) -36.75% -22.38% -9.67% S&P 500 Value Index -39.21% -29.95% -13.32%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW Health care stocks were the best performers in the Fund's portfolio over the period ended December 31, 2008 as the sector is perceived as being less impacted by the slowing economy. The energy sector had the largest negative absolute impact on Fund performance during 2008 as oil prices experienced a major downturn in the latter half of the year. Consumer discretionary stocks also hurt performance, as the broad economic downturn curtailed consumer spending. Information Technology stocks were also a drag on performance, as IT spending was cut due to the gloomy economic outlook. The Fund's portfolio had no financial exposure as the underlying index does not hold stocks issued by financial companies. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Amgen, Inc. Noble Corp. Zimmer Holdings, Inc. CBS Corp., Class B Intel Corp. Ingersoll-Rand Co. Ltd. Applied Materials, Inc. Freeport-McMoRan Copper & Gold, Inc. Kohl's Corp. Best Buy Co., Inc. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Energy 33.15% Information Technology 23.38 Health Care 22.20 Consumer Discretionary 7.84 Industrials 7.44 Materials 5.99 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Freeport-McMoRan Copper & Gold, Inc. 3.03% Occidental Petroleum Corp. 2.98 Nucor Corp. 2.96 Hess Corp. 2.94 Halliburton Co. 2.86 Viacom, Inc., Class B 2.83 Marathon Oil Corp. 2.75 Baker Hughes, Inc. 2.67 Merck & Co., Inc. 2.64 Eaton Corp. 2.59 ------- Total 28.25% ======= _________________________ "Deutsche Bank" and "Deutsche Bank CROCI(R) US+ IndexTM" 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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FDV - FIRST TRUST DB STRATEGIC VALUE INDEX FUND (CONTINUED) Growth of a $10,000 Initial Investment July 6, 2006 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust The Deutsche DB Strategic Bank CROCI(R) Value Index Fund US+ Index(TM) S&P 500 Value Index ---------------- ------------- ------------------- 7/6/2006 $10,000 $10,000 $10,000 12/31/2006 11,074 11,072 11,298 12/31/2007 12,210 12,273 11,527 12/31/2008 7,664 7,763 7,007 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 19 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 (the "Index"). The Fund will normally invest at least 90% of its total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (12/05/06) Inception (12/05/06) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -35.45% -33.19% -17.69% Market Value -36.89% -34.46% -18.46% INDEX PERFORMANCE Value Line(R) Equity Allocation Index -34.87% -32.28% -17.13% Russell 3000 Index -37.30% -33.96% -18.13%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW Utilities and consumer staples posted the best returns in the Fund's portfolio over the period ended December 31, 2008 as investors sought the safety of more defensive sectors amid the market turmoil. The technology sector had the largest negative impact on the Fund's performance as the year's economic pessimism contributed to lower demand for both consumer and enterprise IT products. The financials sector was also a drag on the Fund's performance as continued credit market turmoil sent shares lower. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Bed Bath & Beyond, Inc. Hartford Financial Services Group, Inc. Fording Canadian Coal Trust Lincoln National Corp. Alpha Natural Resources, Inc. Alcon, Inc. Cliffs Natural Resources, Inc. Prudential Financial, Inc. Millennium Pharmaceuticals, Inc. Baker Hughes, Inc. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Consumer Discretionary 25.53% Information Technology 16.23 Industrials 12.57 Health Care 12.36 Financials 10.98 Utilities 8.64 Consumer Staples 7.01 Energy 4.11 Materials 1.97 Telecommunication Services 0.60 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Bed Bath & Beyond, Inc. 2.26% Chubb (The) Corp. 1.81 Nationwide Financial Services, Inc., Class A 1.74 Exxon Mobil Corp. 1.73 AutoZone, Inc. 1.72 Clorox (The) Co. 1.61 Consolidated Edison, Inc. 1.60 Kroger (The) Co. 1.55 Progress Energy, Inc. 1.54 Xcel Energy, Inc. 1.54 ------- Total 17.10% ======= ____________________________ "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 20 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (CONTINUED) Growth of a $10,000 Initial Investment December 5, 2006 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Value Line(R) Equity Value Line(R) Allocation Equity Index Fund Allocation Index Russell 3000 Index -------------------- ---------------- ------------------ 12/5/2006 $10,000 $10,000 $10,000 12/31/2006 9,890 9,897 10,008 12/31/2007 10,350 10,399 10,532 12/31/2008 6,681 6,773 6,604 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 7 0 0 0 01/01/07 - 12/31/07 80 6 2 0 01/01/08 - 12/31/08 110 5 0 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 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
Page 21 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the universe of stocks of 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 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended 5 Years Ended Inception (08/19/03) Inception (08/19/03) 12/31/08 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -24.17% 11.37% 18.18% 3.16% Market Value -25.00% 20.00% 17.26% 3.01% INDEX PERFORMANCE Value Line(R) Dividend Index -23.63% N/A N/A N/A S&P 500 Index -37.00% -10.48% -0.04% -0.01%
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 (12/31/08) were -26.94% and -27.16% at NAV and Market Value, respectively. That compares to an Index return of -25.84% for the same period. The average annual returns for the period from the reorganization date (12/15/06) through period end (12/31/08) were -14.23% and -14.36% at NAV and Market Value, respectively. That compares to an Index return of -13.59% 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 Alternext US) closing market price of the Predecessor FVD Fund. (See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW Defensive sectors, such as utilities, consumer staples and health care, were the best performers in the Fund's portfolio and posted returns ahead of the overall market for the period ended December 31, 2008. Investors sought the relative safety of those sectors as turmoil in the markets accelerated during the second half of 2008. Financial stocks were the biggest drag on absolute performance in the Fund's portfolio as deteriorating credit market conditions weighed on shares. The financial sector had the largest weight in the portfolio (25.9% average weight). Industrial stocks also negatively impacted the Fund's performance due to the slowing global economy. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Snap-On, Inc. Gannett Co., Inc. Capitol Federal Financial Protective Life Corp. New Jersey Resources Corp. Manulife Financial Corp. MetLife, Inc. Hartford Financial Services Group, Inc. Piedmont Natural Gas Co. Bank of America Corp. _____________________________ "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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (CONTINUED) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Utilities 23.15% Financials 20.01 Industrials 14.94 Consumer Discretionary 10.64 Consumer Staples 10.42 Health Care 4.91 Materials 4.71 Energy 4.23 Information Technology 4.20 Telecommunication Services 2.79 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Lincoln National Corp. 0.78% Bank of Nova Scotia 0.77 Allstate (The) Corp. 0.75 Eaton Corp. 0.75 City National Corp. 0.75 Bank of New York Mellon (The) 0.75 Air Products & Chemicals, Inc. 0.74 Bank of Hawaii Corp. 0.74 Exelon Corp. 0.74 Ingersoll-Rand Co., Ltd., Class A 0.74 ------- Total 7.51% ======= Growth of a $10,000 Initial Investment August 19, 2003 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Value Line(R) Dividend Index Fund S&P 500 Index ------------------------- ------------- 8/19/2003 $10,000 $10,000 12/31/2003 10,612 11,166 12/31/2004 12,605 12,381 12/31/2005 13,436 12,989 12/31/2006 16,137 15,040 12/31/2007 15,586 15,865 12/31/2008 11,819 9,995 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 is no guarantee of future results. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2008 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, 2008. 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 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
Page 23 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -43.09% -39.71% -23.45% Market Value -43.54% -40.16% -23.75% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) -42.72% -38.98% -22.93% Russell 1000 Index -37.60% -35.82% -20.86%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW Health care sector stocks were the best performers in the Fund's portfolio over the period ended December 31, 2008, outperforming holdings from all other sectors on an absolute return basis. Consumer discretionary stocks were the biggest drag on the Fund's performance as the sector had the largest weight in the portfolio and was among the worst performers on an absolute basis. Telecommunications stocks also hurt performance as the sector posted returns that trailed the broader market. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Apollo Group Inc., Class A Focus Media Holding Ltd., ADR Vertex Pharmaceuticals, Inc. Sirius XM Radio, Inc. Ryanair Holdings PLC, ADR Liberty Media Corp.-Interactive, Class A Amgen, Inc. Whole Foods Market, Inc. Gilead Sciences, Inc. Garmin Ltd. ____________________ 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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR(1) INVESTMENTS Health Care 29.70% Consumer Discretionary 29.30 Industrials 18.15 Information Technology 13.07 Telecommunication Services 3.27 Materials 3.26 Consumer Staples 3.25 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS FLIR Systems, Inc. 1.86% Liberty Global, Inc., Class A 1.86 Comcast Corp., Class A 1.75 Life Technologies Corp. 1.74 J.B. Hunt Transport Services, Inc. 1.73 C.H. Robinson Worldwide, Inc. 1.73 Henry Schein, Inc. 1.72 Automatic Data Processing, Inc. 1.71 DIRECTV Group (The), Inc. 1.71 DENTSPLY International, Inc. 1.70 ------- Total 17.51% ======= (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. Growth of a $10,000 Initial Investment February 8, 2007 - December 31, 2008 [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 Index --------------------- ---------------- ------------------ 02/08/2007 $10,000 $10,000 $10,000 12/31/2007 10,595 10,653 10,284 12/31/2008 6,030 6,102 6,417 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 25 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 First Trust 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 (the "Index"). The Fund will normally invest at least 90% of its total 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 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.
AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -63.74% -44.05% -26.42% Market Value -63.80% -44.15% -26.49% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) Green Energy Index -63.44% -43.25% -25.83% Russell 2000 Index -33.79% -37.17% -21.74%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The Fund's portfolio produced returns that trailed the broader market over the period ended December 31, 2008 due to falling energy prices and downward pressure on once high valuations in the sector. Rising energy prices are generally positive for alternative energy firms as it makes their technologies more cost competitive with traditional supply sources. Solar-focused companies were among the biggest drags on the Fund's performance as evidenced by Suntech Power Holdings Co., Ltd., ADR and SunPower Corp., Class A, two of the worst performers in the portfolio by contribution to return. Silicon wafer manufacturer MEMC Electronic Materials, Inc. was another significant contributor to downside performance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Ultralife Corp. Suntech Power Holdings Co., Ltd., ADR Greatbatch, Inc. MEMC Electronic Materials, Inc. IXYS Corp. SunPower Corp., Class A Ener1, Inc. ON Semiconductor Corp. Orion Energy Systems, Inc. Energy Conversion Devices, Inc. * See Note 8 in Notes to Financial Statements for information regarding this Fund's name change. _____________________ 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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (CONTINUED) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 47.98% Industrials 43.77 Utilities 3.79 Health Care 2.62 Materials 1.23 Energy 0.34 Consumer Discretionary 0.27 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Linear Technology Corp. 8.03% First Solar, Inc. 7.71 MEMC Electronic Materials, Inc. 6.72 Itron, Inc. 6.33 SunPower Corp., Class A 4.66 Cree, Inc. 4.09 ON Semiconductor Corp. 4.07 Ormat Technologies, Inc. 3.79 Suntech Power Holdings Co., Ltd., ADR 3.56 AVX Corp. 3.54 ------- Total 52.50% ======= Growth of a $10,000 Initial Investment February 8, 2007 - December 31, 2008 [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 Index --------------------- ---------------- ------------------ 02/08/2007 $10,000 $10,000 $10,000 12/31/2007 15,430 15,522 9,490 12/31/2008 5,595 5,675 6,283 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 27 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -38.87% -50.53% -34.73% Market Value -39.07% -50.78% -34.94% INDEX PERFORMANCE S&P REIT Composite Index -37.96% -49.77% -34.08% S&P United States REIT Index -38.33% -49.86% -34.16% Composite Benchmark (1) -38.64% -50.32% -34.52% Russell 3000 Index -37.30% -38.49% -25.48%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW Specialized REITs were the top performing REIT sub-industry in the period ended December 31, 2008. The residential and diversified REIT sub-industries also performed well relative to the other REIT sub-industries. Retail REITs were the biggest drag on absolute Fund performance as the sub-industry was among the worst performers and had the largest weight in the underlying index. Industrial REITs also negatively impacted the Fund's portfolio as the sub-industry was the second worst performing sub-industry in the underlying index. Mortgage REITs were the worst performing sub-industry although a small weight (0.7% average weight) limited their impact on overall portfolio performance. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Public Storage ProLogis Franklin Street Properties Corp. Simon Property Group, Inc. Realty Income Corp. General Growth Properties, Inc. Tanger Factory Outlet Centers, Inc. Macerich (The) Co. Corporate Office Properties Trust Kimco Realty Corp. (1) The Composite Benchmark is based on both the S&P REIT Composite Index, the Fund's prior Index (the "Old Index") and the S&P United States REIT Index, the Fund's current Index (the "New Index"). FRI changed its underlying index at the close of business on November 5, 2008 to the New Index. Because of this, the November 5th closing value of the New Index was divided by the November 5th closing value of the Old Index to obtain a conversion multiple to make the performance of the indexes comparable. Using this conversion multiple, the Composite Benchmark return is calculated using the performance of the Old Index from Fund inception through November 5, 2008 and the New Index performance from November 6, 2008 (adjusted by the conversion multiple) through December 31, 2008. __________________ Standard & Poor's(R), S&P(R) and S&P United States REIT Index are registered trademarks of The McGraw-Hill Companies, Inc. ("McGraw-Hill") and have been licensed for use by First Trust Advisors L.P. The Fund is not sponsored, endorsed, sold or promoted by McGraw-Hill or Citigroup Global Markets and its affiliates ("Citigroup") and neither McGraw-Hill nor Citigroup make any representation, warranty or condition regarding the advisability of investing in the Fund. Page 28 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FRI - FIRST TRUST S&P REIT INDEX FUND (CONTINUED) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Financials 100.00% ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Simon Property Group, Inc. 7.50% Public Storage 6.23 Vornado Realty Trust 5.19 Equity Residential 5.07 HCP, Inc. 4.39 Boston Properties, Inc. 4.16 Ventas, Inc. 3.01 AvalonBay Communities, Inc. 2.92 Health Care REIT, Inc. 2.73 Kimco Realty Corp. 2.62 ------- Total 43.82% ======= Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS
First Trust S&P REIT S&P S&P REIT Composite United States Index Fund Index REIT Index Russell 3000 Index --------------------- ---------------- ------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 $10,000 12/31/2007 8,092 8,096 8,130 9,811 12/31/2008 4,947 5,023 5,014 6,151
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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 29 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 IndexTM (the "Index"). The Fund will normally invest at least 90% of its total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -29.40% -20.85% -13.22% Market Value -29.67% -21.15% -13.42% INDEX PERFORMANCE ISE Water Index(TM) -29.06% -20.13% -12.72% Russell 3000 Index -37.30% -38.49% -25.48% (See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The Fund's portfolio declined over the period ended December 31, 2008 due to deteriorating prospects for global macroeconomic growth. Less economically sensitive water utilities held up well relative to the industrial companies in the Fund's portfolio. Companies focused on producing the parts and equipment and technology needed to support the growth of the water industry struggled in 2008. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS California Water Service Group Nalco Holding Co. Insituform Technologies Inc., Class A Crane Co. Aqua America, Inc. Veolia Environnement, ADR Tetra Tech, Inc. Cascal N.V. Ashland, Inc. Pentair, Inc. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Industrials 57.61% Utilities 24.24 Materials 8.99 Information Technology 4.12 Health Care 3.84 Financials 1.20 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Veolia Environment, ADR 4.70% Itron, Inc. 4.12 Roper Industries, Inc. 4.06 ITT Corp. 4.01 Aqua America, Inc. 3.98 Pall Corp. 3.94 Nalco Holding Co. 3.92 Millipore Corp. 3.84 Pentair, Inc. 3.69 Flowserve Corp. 3.67 ------- Total 39.93% ======= ____________________ "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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FIW - FIRST TRUST ISE WATER INDEX FUND (CONTINUED) Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust ISE Water ISE Water Index Fund Index(TM) Russell 3000 Index --------------------- ---------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 11,212 11,260 9,811 12/31/2008 7,916 7,988 6,151 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 31 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -46.57% -40.33% -26.88% Market Value -47.22% -41.09% -27.44% INDEX PERFORMANCE ISE-REVERE Natural Gas IndexTM -46.35% -39.84% -26.48% Russell 3000 Index -37.30% -38.49% -25.48%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The weak commodity market weighed on the natural gas companies that comprise the underlying index, hurting the Fund's performance over the period ended December 31, 2008. Natural gas prices fell over 2008, with the front month NYMEX natural gas contract falling from $7.483/Million British Thermal Units ("MMbtu") at the beginning of 2008 to $5.622/MMbtu as of 12/31/08. In addition, front month NYMEX WTI crude oil declined sharply in 2008, falling from $95.98/per barrel to $44.60/per barrel by the end of the year, which hurt the bottom line of many natural gas companies that have oil operations. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Brigham Exploration Co. Constellation Energy Partners LLC Comstock Resources, Inc. Compton Petroleum Corp. Delta Petroleum Corp. Stone Energy Corp. Linn Energy LLC BreitBurn Energy Partners L.P. Contango Oil & Gas Co. Pioneer Natural Resources Co. PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Energy 96.60% Utilites 3.40 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS PetroQuest Energy, Inc. 3.92% Linn Energy LLC 3.82 Mariner Energy, Inc. 3.70 Talisman Energy, Inc. 3.57 Quicksilver Resources, Inc. 3.57 W&T Offshore, Inc. 3.50 EnCana Corp. 3.48 Apache Corp. 3.45 Anadarko Petroleum Corp. 3.45 SandRidge Energy, Inc. 3.41 ------- Total 35.87% ======= __________________ "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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (CONTINUED) Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust ISE-REVERE ISE-Revere Natural Natural Gas Gas Index Fund Index(TM) Russell 3000 Index --------------------- ---------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 11,167 11,213 9,811 12/31/2008 5,967 6,016 6,151 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 33 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(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 total 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, 2007
AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -56.98% -40.32% -26.87% Market Value -56.67% -39.87% -26.54% INDEX PERFORMANCE ISE ChIndia Index(TM) -56.77% -39.69% -26.37% Russell 3000 Index -37.30% -38.49% -25.48%
(See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The Fund's portfolio produced poor results over the period ended December 31, 2008 as investors took profits, given mounting questions about the sustainability of economic growth in both countries and uneasiness over equity valuations. Both countries contributed to the downside results in the Fund's performance. Chinese stocks were responsible for more of the downside contribution to the Fund's return than Indian stocks, and underperformed their Indian peers on average as well. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Shanda Interactive Entertainment Ltd., ADR Baidu.com, Inc., ADR Nam Tai Electronics, Inc. Suntech Power Holdings Co. Ltd., ADR Huaneng Power International, Inc., ADR ICICI Bank Ltd., ADR E-House China Holdings Ltd. Sterlite Industries (India) Ltd., ADR Netease.com, Inc., ADR Satyam Computer Services Ltd., ADR PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Information Technology 26.18% Financials 22.37 Energy 15.04 Telecommunication Services 11.99 Industrials 8.90 Materials 6.11 Health Care 4.20 Consumer Discretionary 3.70 Consumer Staples 0.76 Utilities 0.75 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS ICICI Bank Ltd., ADR 7.48% HDFC Bank Ltd., ADR 7.23 Infosys Technologies Ltd., ADR 6.99 Chine Life Insurance Co., Ltd., ADR 6.89 PetroChina Co., Ltd., ADR 6.83 China Mobile Ltd., ADR 6.78 Baidu.com, Inc., ADR 4.51 Wipro Ltd., ADR 4.18 CNOOC Ltd., ADR 3.92 China Petroleum & Chemical Corp., ADR 3.58 ------- Total 58.39% ======= ___________________ "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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FNI - FIRST TRUST ISE CHINDIA INDEX FUND (CONTINUED) Growth of a $10,000 Initial Investment May 8, 2007 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust ISE Chindia ISE ChIndia Index Fund Index(TM) Russell 3000 Index --------------------- ---------------- ------------------ 05/08/2007 $10,000 $10,000 $10,000 12/31/2007 13,873 13,952 9,811 12/31/2008 5,968 6,031 6,151 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 35 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND The First Trust Value Line(R) 100 Exchange-Traded 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) 100 Index (the "Index"). The Fund will normally invest at least 90% of its total 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, 2008 AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended 5 Years Ended Inception (06/12/03) Inception (06/12/03) 12/31/08 12/31/08 to 12/31/08 to 12/31/08 FUND PERFORMANCE NAV -48.30% -18.00% -9.19% -1.72% Market Value -48.69% -17.76% -9.59% -1.80% INDEX PERFORMANCE Value Line(R) 100 Index -48.07% N/A N/A N/A Russell 3000 Index -37.30% -9.18% 3.24% 0.57%
-------------------------------------------------------------------------------- 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 will only be 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 (12/31/08) were -44.88% and -45.12% at NAV and Market Value, respectively. That compares to an Index return of -44.42% for that same period. The average annual returns for the period from the reorganization date (6/15/07) through period end (12/31/08) were -31.99% and -32.18% at NAV and Market Value, respectively. That compares to an Index return of -31.58% 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 Alternext US) closing market price of the Predecessor FVL Fund. (See Notes to Fund Performance Overview on page 38.) PERFORMANCE REVIEW The Fund's portfolio produced returns that trailed the broader market during the period ended December 31, 2008 as the growth-oriented momentum stocks the portfolio favors trailed the overall market. Energy stocks posted the worst performance on an absolute basis as the steep sell-off in oil prices adversely impacted the portfolio's energy sector holdings. Industrial stocks produced the largest negative contribution to the Fund's performance as the global growth outlook rapidly deteriorated over the course of 2008. In the health care sector, weak returns and a large weighting relative to the broader market also hurt portfolio performance. Information technology stocks were also a significant drag on the Fund's performance as returns in the sector trailed the overall market. On the positive side, financial stocks were significantly underweighted in the Fund's portfolio relative to the broader market during 2008, resulting in the avoidance of potentially large negative return contributions. TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS (by contribution to return over the twelve months ended December 31, 2008) TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS Thoratec Corp. PAREXEL International Corp Axsys Technologies, Inc. Bruker Corp. Panera Bread Co., Class A Covance, Inc. ITT Educational Services, Inc. Central European Distribution Corp. AutoZone, Inc. Energy Conversion Devices, 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 (UNAUDITED)(CONTINUED) -------------------------------------------------------------------------------- FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (CONTINUED) PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008 % OF LONG-TERM SECTOR INVESTMENTS Health Care 36.40% Consumer Discretionary 19.04 Industrials 14.32 Information Technology 14.17 Consumer Staples 8.93 Materials 3.03 Financials 2.12 Energy 1.02 Telecommunication Services 0.97 ------- Total 100.00% ======= TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008 % OF LONG-TERM SECURITY INVESTMENTS Axsys Technologies, Inc. 1.23% Crawford & Co., Class B 1.10 CryoLife, Inc. 1.09 FLIR Systems, Inc. 1.09 Nash Finch Co. 1.06 Interwoven, Inc. 1.06 Synaptics, Inc. 1.06 Endo Pharmaceuticals Holdings, Inc. 1.05 DIRECTV Group (The), Inc. 1.05 Corinthian Colleges, Inc. 1.05 ------- Total 10.84% ======= Growth of a $10,000 Initial Investment June 12, 2003 - December 31, 2008 [GRAPHIC OMITTED] EDGARIZATION OF DATA POINTS First Trust Value Line(R) 100 Exchange-Traded Fund Russell 3000 Index ---------------------- ------------------ 06/12/2003 $10,000 $10,000 12/31/2003 11,073 11,367 12/31/2004 12,518 12,725 12/31/2005 14,003 13,508 12/31/2006 14,646 15,644 12/31/2007 17,562 16,464 12/31/2008 9,080 10,323 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 is no guarantee of future results. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008 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, 2008. 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 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
Page 37 -------------------------------------------------------------------------------- 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. The 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 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. 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 the Fund will vary with changes in market conditions. Shares of the Fund may be worth more or less than their original cost when they are redeemed or sold in the market. The Fund's past performance is no guarantee of future results. Page 38 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2008 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 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, or First Trust Value Line(R) 100 Exchange-Traded 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 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 through the six-month period ended December 31, 2008. 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 transaction 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, 2008 DECEMBER 31, 2008 PERIOD (a) SIX-MONTH PERIOD (b) FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND Actual $1,000.00 $759.80 0.60% $2.65 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND Actual $1,000.00 $921.90 0.45% $2.17 Hypothetical (5% return before expenses) $1,000.00 $1,022.87 0.45% $2.29 FIRST TRUST US IPO INDEX FUND Actual $1,000.00 $605.40 0.60% $2.42 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND Actual $1,000.00 $639.60 0.60% $2.47 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND Actual $1,000.00 $603.30 0.60% $2.42 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
Page 39
Annualized Expense Ratio Beginning Ending Based on the Expense Paid Account Value Account Value Six-Month During the July 1, 2008 December 31, 2008 Period (a) Six-Month Period (b) FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND Actual $1,000.00 $873.60 0.60% $2.82 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND Actual $1,000.00 $626.80 0.60% $2.45 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST DB STRATEGIC VALUE INDEX FUND Actual $1,000.00 $681.10 0.65% $2.75 Hypothetical (5% return before expenses) $1,000.00 $1,021.87 0.65% $3.30 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND Actual $1,000.00 $705.50 0.70% $3.00 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND Actual $1,000.00 $840.10 0.70% $3.24 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND Actual $1,000.00 $665.70 0.60% $2.51 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND Actual $1,000.00 $453.00 0.60% $2.19 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST S&P REIT INDEX FUND Actual $1,000.00 $639.20 0.50% $2.06 Hypothetical (5% return before expenses) $1,000.00 $1,022.62 0.50% $2.54 FIRST TRUST ISE WATER INDEX FUND Actual $1,000.00 $720.10 0.60% $2.59 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND Actual $1,000.00 $378.70 0.60% $2.08 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST ISE CHINDIA INDEX FUND Actual $1,000.00 $597.70 0.60% $2.41 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND Actual $1,000.00 $565.30 0.70% $2.75 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56
(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, 2008 through December 31, 2008), multiplied by 184/366 (to reflect the one-half year period). Page 40 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Aerospace & Defense--2.4% 2,227 American Science & Engineering, Inc. $ 164,709 3,235 Applied Signal Technology, Inc. 58,036 2,539 Ducommun, Inc. 42,401 13,691 GenCorp, Inc. (b) 50,383 2,289 LMI Aerospace, Inc. (b) 26,026 ------------- 341,555 ------------- Air Freight & Logistics--0.2% 2,255 Dynamex, Inc. (b) 33,261 ------------- Auto Components--0.1% 3,935 Stoneridge, Inc. (b) 17,944 ------------- Beverages--0.5% 2,516 Boston Beer (The) Co., Inc., Class A (b) 71,454 ------------- Biotechnology--0.6% 3,491 Emergent Biosolutions, Inc. (b) 91,150 ------------- Building Products--2.0% 3,605 AAON, Inc. 75,272 7,301 Apogee Enterprises, Inc. 75,639 7,060 Gibraltar Industries, Inc. 84,297 4,146 Insteel Industries, Inc. 46,808 ------------- 282,016 ------------- Capital Markets--0.9% 4,933 Calamos Asset Management, Inc., Class A 36,504 5,307 Penson Worldwide, Inc. (b) 40,439 8,640 TradeStation Group, Inc. (b) 55,729 ------------- 132,672 ------------- Chemicals--2.9% 4,761 American Vanguard Corp. 55,704 4,584 Balchem Corp. 114,186 5,746 Flotek Industries, Inc. (b) 14,480 6,194 Landec Corp. (b) 40,757 3,859 LSB Industries, Inc. (b) 32,107 2,747 Quaker Chemical Corp. 45,188 5,493 Zep, Inc. 106,070 ------------- 408,492 ------------- Commercial Banks--17.1% 3,194 Bank of the Ozarks, Inc. 94,670 3,114 Capital City Bank Group, Inc. 84,825 3,997 Center Financial Corp. 24,661 5,090 CoBiz Financial, Inc. 49,577 3,420 Community Trust Bancorp, Inc. 125,685 2,487 First Community Bancshares Inc. 86,722 9,477 First Financial Bancorp. 117,420 5,512 First Merchants Corp. 122,422 10,828 Harleysville National Corp. 156,355 4,026 Home Bancshares, Inc. 108,501 4,131 Independent Bank Corp. 108,067 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Commercial Banks (Continued) 5,996 Lakeland Bancorp, Inc. $ 67,515 4,473 MainSource Financial Group, Inc. 69,332 5,761 Oriental Financial Group 34,854 5,302 Renasant Corp. 90,293 3,049 S.Y. Bancorp, Inc. 83,848 2,851 SCBT Financial Corp. 98,360 3,225 Simmons First National Corp., Class A 95,041 3,200 Southside Bancshares, Inc. 75,200 3,717 Southwest Bancorp, Inc. 48,172 5,649 Stellarone Corp. 95,468 4,569 Sterling Bancorp 64,103 2,437 Suffolk Bancorp 87,561 7,823 Texas Capital Bancshares, Inc. (b) 104,515 1,871 Tompkins Trustco, Inc. 108,424 6,159 TowneBank 152,681 5,845 Wilshire Bancorp, Inc. 53,073 ------------- 2,407,345 ------------- Commercial Services & Supplies--2.0% 6,769 Bowne & Co., Inc. 39,802 2,889 Cornell Cos., Inc. (b) 53,707 6,444 Ennis, Inc. 78,036 3,208 Schawk, Inc. 36,764 2,098 Standard Parking Corp. (b) 40,575 3,930 Standard Register (The) Co. 35,095 ------------- 283,979 ------------- Communications Equipment--2.3% 2,230 Bel Fuse, Inc., Class B 47,276 4,191 DG Fastchannel, Inc. (b) 52,304 6,065 Digi International, Inc. (b) 49,187 3,971 EMS Technologies, Inc. (b) 102,730 5,181 Globecomm Systems, Inc. (b) 28,444 6,481 Harris Stratex Networks, Inc., Class A (b) 33,442 5,443 Opnext, Inc. (b) 9,525 ------------- 322,908 ------------- Computers & Peripherals--0.7% 5,127 Stratasys, Inc. (b) 55,116 6,368 Super Micro Computer, Inc. (b) 40,309 ------------- 95,425 ------------- Construction & Engineering--2.5% 9,236 Furmanite Corp. (b) 49,782 7,085 Insituform Technologies, Inc., Class A (b) 139,504 2,325 Northwest Pipe Co. (b) 99,068 3,323 Sterling Construction Co., Inc. (b) 61,608 ------------- 349,962 ------------- Consumer Finance--0.5% 6,145 Dollar Financial Corp. (b) 63,294 ------------- See Notes to Financial Statements. Page 41 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Containers & Packaging--0.4% 6,907 Myers Industries, Inc. $ 55,256 ------------- Diversified Consumer Services--1.4% 6,548 Jackson Hewitt Tax Service, Inc. 102,738 2,269 Learning Tree International, Inc. (b) 19,332 2,014 Pre-Paid Legal Services, Inc. (b) 75,102 ------------- 197,172 ------------- Diversified Financial Services--0.3% 3,546 Asset Acceptance Capital Corp. (b) 18,120 3,508 Encore Capital Group, Inc. (b) 25,258 ------------- 43,378 ------------- Diversified Telecommunication Services--2.1% 2,418 Atlantic Tele-Network, Inc. 64,198 5,973 Consolidated Communications Holdings, Inc. 70,959 5,968 Shenandoah Telecom Co. 167,403 ------------- 302,560 ------------- Electric Utilities--0.4% 2,580 Central Vermont Public Service Corp. 61,559 ------------- Electrical Equipment--0.3% 5,440 LSI Industries, Inc. 37,373 ------------- Electronic Equipment, Instruments &Components--2.8% 8,529 CTS Corp. 46,995 6,285 Electro Scientific Industries, Inc. (b) 42,675 3,925 FARO Technologies, Inc. (b) 66,176 6,002 Gerber Scientific, Inc. (b) 30,670 3,471 Measurement Specialties, Inc. (b) 24,123 9,656 Methode Electronics, Inc. 65,081 9,119 Newport Corp. (b) 61,827 10,856 TTM Technologies, Inc. (b) 56,560 ------------- 394,107 ------------- Energy Equipment & Services--1.2% 1,985 Bolt Technology Corp. (b) 13,816 15,616 Boots & Coots International (b) 18,427 6,799 Bronco Drilling Co., Inc. (b) 43,922 1,868 Dawson Geophysical Co. (b) 33,269 5,325 ENGlobal Corp. (b) 17,306 1,203 OYO Geospace Corp. (b) 21,016 2,931 Union Drilling, Inc. (b) 15,212 ------------- 162,968 ------------- Food & Staples Retailing--0.4% 3,158 Ingles Markets, Inc. 55,549 ------------- Food Products--0.4% 9,327 B&G Foods, Inc., Class A 50,366 3,213 Omega Protein Corp. (b) 12,884 ------------- 63,250 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Gas Utilities--0.4% 1,726 Chesapeake Utilities Corp. $ 54,334 ------------- Health Care Equipment & Supplies--2.0% 2,457 Cynosure, Inc., Class A (b) 22,432 5,799 Greatbatch, Inc. (b) 153,442 3,305 ICU Medical, Inc. (b) 109,528 ------------- 285,402 ------------- Health Care Providers & Services--6.2% 1,915 Almost Family, Inc. (b) 86,137 13,367 Assisted Living Concepts, Inc., Class A (b) 55,473 3,021 Bio-Reference Laboratories, Inc. (b) 79,241 1,985 Corvel Corp. (b) 43,630 7,236 Cross Country Healthcare, Inc. (b) 63,604 2,417 Emergency Medical Services Corp., Class A (b) 88,486 7,810 Hanger Orthopedic Group, Inc. (b) 113,323 4,027 MedCath Corp. (b) 42,042 2,862 MWI Veterinary Supply, Inc. (b) 77,160 8,320 Odyssey HealthCare, Inc. (b) 76,960 4,574 RehabCare Group, Inc. (b) 69,342 5,071 Skilled Healthcare Group, Inc., Class A (b) 42,799 3,000 U.S. Physical Therapy, Inc. (b) 39,990 ------------- 878,187 ------------- Health Care Technology--0.5% 2,585 Computer Programs & Systems, Inc. 69,278 ------------- Hotels, Restaurants & Leisure--3.3% 6,402 AFC Enterprises, Inc. (b) 30,025 4,851 Ambassadors Group, Inc. 44,629 3,338 Bluegreen Corp. (b) 10,448 6,114 California Pizza Kitchen, Inc. (b) 65,542 24,158 Denny's Corp. (b) 48,074 5,273 Marcus (The) Corp. 85,581 4,742 O'Charley's, Inc. 9,484 3,439 Peet's Coffee & Tea, Inc. (b) 79,957 3,625 Red Robin Gourmet Burgers, Inc. (b) 61,009 13,385 Ruby Tuesday, Inc. (b) 20,881 3,449 Town Sports International Holdings, Inc. (b) 11,002 ------------- 466,632 ------------- Household Durables--0.5% 2,305 Hooker Furniture Corp. 17,656 3,546 Universal Electronics, Inc. (b) 57,516 ------------- 75,172 ------------- Household Products--0.5% 11,377 Central Garden & Pet Co., Class A (b) 67,124 ------------- Industrial Conglomerates--0.4% 3,151 Standex International Corp. 62,516 ------------- Page 42 See Notes to Financial Statements. FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Insurance--5.0% 2,172 American Physicians Capital, Inc. $ 104,473 4,766 Amerisafe, Inc. (b) 97,846 9,060 CastlePoint Holdings Ltd. 122,854 2,043 FPIC Insurance Group, Inc. (b) 89,443 14,764 Meadowbrook Insurance Group, Inc. 95,080 8,054 PMA Capital Corp., Class A (b) 57,022 5,460 Presidential Life Corp. 53,999 5,375 Seabright Insurance Holdings, Inc. (b) 63,103 ------------- 683,820 ------------- Internet & Catalog Retail--0.9% 3,311 Bidz.com, Inc. (b) 15,231 6,016 PetMed Express, Inc. (b) 106,062 ------------- 121,293 ------------- Internet Software & Services--1.2% 3,908 Liquidity Services, Inc. (b) 32,554 8,107 Perficient, Inc. (b) 38,751 12,155 S1 Corp. (b) 95,903 ------------- 167,208 ------------- IT Services--1.9% 13,266 Ciber, Inc. (b) 63,809 3,691 ExlService Holdings, Inc. (b) 31,632 5,418 Gevity HR, Inc. 8,181 11,751 Global Cash Access Holdings, Inc. (b) 26,087 9,488 Hackett Group, Inc. (b) 27,705 4,339 Integral Systems, Inc. (b) 52,285 1,668 NCI, Inc., Class A (b) 50,257 ------------- 259,956 ------------- Leisure Equipment & Products--0.7% 4,417 RC2 Corp. (b) 47,129 10,114 Smith & Wesson Holding Corp. (b) 22,959 1,804 Steinway Musical Instruments (b) 31,588 ------------- 101,676 ------------- Machinery--4.7% 6,661 Altra Holdings, Inc. (b) 52,689 2,293 American Railcar Industries, Inc. 24,145 2,117 Ampco-Pittsburgh Corp. 45,939 2,411 Cascade Corp. 71,992 4,819 Columbus McKinnon Corp. (b) 65,779 9,787 Flow International Corp. (b) 23,685 3,948 Greenbrier Cos., Inc. 27,123 1,607 Hurco Cos., Inc. (b) 19,284 3,269 Kadant, Inc. (b) 44,066 1,200 Key Technology, Inc. (b) 22,668 664 K-Tron International, Inc. (b) 53,054 2,600 L.B. Foster Co., Class A (b) 81,327 4,206 Lydall, Inc. (b) 24,185 4,125 NN, Inc. 9,446 4,153 Tennant Co. 63,956 2,249 Thermadyne Holdings Corp. (b) 15,451 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Machinery (Continued) 2,277 Twin Disc, Inc. $ 15,689 ------------- 660,478 ------------- Marine--0.3% 1,456 International Shipholding Corp. 36,880 ------------- Media--1.2% 4,808 Cox Radio, Inc., Class A (b) 28,896 6,864 E.W. Scripps Co., (The) Class A 15,169 6,546 Martha Stewart Living Omnimedia, Inc., Class A (b) 17,020 11,832 Sinclair Broadcast Group, Inc., Class A 36,679 12,067 Valassis Communications, Inc. (b) 15,928 5,571 World Wrestling Entertainment, Inc., Class A 61,727 ------------- 175,419 ------------- Metals & Mining--0.5% 4,566 A.M. Castle & Co. 49,449 1,683 Universal Stainless & Alloy (b) 24,387 ------------- 73,836 ------------- Oil, Gas & Consumable Fuels--1.9% 5,463 Callon Petroleum Co. (b) 14,204 9,638 DHT Maritime, Inc. 53,395 3,791 Duncan Energy Partners LP. (c) 51,558 3,169 K-Sea Transportation Partners LP. (c) 40,880 14,770 VAALCO Energy, Inc. (b) 109,888 ------------- 269,925 ------------- Paper & Forest Products--0.4% 9,800 Buckeye Technologies, Inc. (b) 35,672 6,092 KapStone Paper & Packaging Corp. (b) 14,499 ------------- 50,171 ------------- Personal Products--0.9% 3,581 Inter Parfums, Inc. 27,502 8,895 Prestige Brands Holdings, Inc. (b) 93,842 ------------- 121,344 ------------- Pharmaceuticals--0.1% 2,584 Caraco Pharmaceutical Laboratories, Ltd., Inc. (b) 15,297 ------------- Professional Services--4.0% 1,814 Barrett Business Services, Inc. 19,773 3,334 CDI Corp. 43,142 3,528 COMSYS IT Partners, Inc. (b) 7,903 2,766 CRA International, Inc. (b) 74,487 3,466 Exponent, Inc. (b) 104,256 6,485 Hudson Highland Group, Inc. (b) 21,725 1,776 ICF International, Inc. (b) 43,636 9,289 Kforce, Inc. (b) 71,340 6,067 LECG Corp. (b) 40,710 9,052 On Assignment, Inc. (b) 51,325 13,055 Spherion Corp. (b) 28,852 2,717 Volt Information Sciences, Inc. (b) 19,644 See Notes to Financial Statements. Page 43 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Professional Services (Continued) 964 VSE Corp. $ 37,818 ------------- 564,611 ------------- Real Estate Investment Trusts--1.3% 19,500 Anthracite Capital, Inc. 43,485 12,207 Hersha Hospitality Trust 36,621 8,626 Kite Realty Group Trust 47,961 14,531 NorthStar Realty Finance Corp. 56,816 ------------- 184,883 ------------- Road & Rail--0.3% 3,389 Saia, Inc. (b) 36,805 ------------- Semiconductors & Semiconductor Equipment--0.6% 6,381 IXYS Corp. 52,707 6,482 Pericom Semiconductor Corp. (b) 35,521 ------------- 88,228 ------------- Software--1.2% 4,016 i2 Technologies, Inc. (b) 25,662 5,034 Kenexa Corp. (b) 40,171 7,063 Radiant Systems, Inc. (b) 23,802 9,373 TeleCommunication Systems, Inc. (b) 80,515 ------------- 170,150 ------------- Specialty Retail--7.0% 2,593 America's Car-Mart, Inc. (b) 35,809 8,008 Asbury Automotive Group, Inc. 36,597 4,774 Big 5 Sporting Goods Corp. 24,873 7,011 Cato (The) Corp., Class A 105,866 8,982 Christopher & Banks Corp. 50,299 3,629 Citi Trends, Inc. (b) 53,419 2,917 Conn's, Inc. (b) 24,736 4,101 DSW, Inc., Class A (b) 51,098 5,901 Group 1 Automotive, Inc. 63,554 3,945 hhgregg, Inc. (b) 34,243 11,197 Hot Topic, Inc. (b) 103,796 4,611 Jos. A. Bank Clothiers, Inc. (b) 120,577 3,312 Midas, Inc. (b) 34,743 4,681 Monro Muffler Brake, Inc. 119,366 2,240 Shoe Carnival, Inc. (b) 21,392 22,202 Wet Seal, Inc., Class A (b) 65,940 4,649 Zumiez, Inc. (b) 34,635 ------------- 980,943 ------------- Textiles, Apparel & Luxury Goods--2.3% 6,745 K-Swiss, Inc., Class A 76,893 4,738 Maidenform Brands, Inc. (b) 48,091 4,474 Movado Group, Inc. 42,011 3,160 Perry Ellis International, Inc. (b) 20,034 4,084 Steven Madden Ltd. (b) 87,071 3,867 Volcom, Inc. (b) 42,150 ------------- 316,250 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Thrifts & Mortgage Finance--3.4% 3,041 Berkshire Hills Bancorp, Inc. $ 93,846 2,954 First Financial Holdings, Inc. 59,789 4,936 First Financial Northwest, Inc. 46,102 4,304 First Place Financial Corp. 16,484 5,009 Flushing Financial Corp. 59,908 2,147 OceanFirst Financial Corp. 35,640 9,295 Ocwen Financial Corp. (b) 85,328 1,555 WSFS Financial Corp. 74,624 ------------- 471,721 ------------- Trading Companies & Distributors--1.3% 2,159 DXP Enterprises, Inc. (b) 31,543 3,872 H&E Equipment Services, Inc. (b) 29,853 4,181 Houston Wire & Cable Co. 38,925 8,169 Interline Brands, Inc. (b) 86,837 ------------- 187,158 ------------- Water Utilities--0.7% 3,291 SJW Corp. 98,533 ------------- Total Investments--100.0% (Cost $20,325,404) (d) 14,069,859 Net Other Assets and Liabilities--0.0% 6,834 ------------- Net Assets--100.0% $ 14,076,693 ============= (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 $20,560,177. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $416,196 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $6,906,514. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ------------------------------------------------------------- Level 1 - Quoted Prices - Investments $14,069,859 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $14,069,859 =============== Page 44 See Notes to Financial Statements. FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.8% Auto Components--0.1% 4,134 Cooper Tire & Rubber Co. $ 25,465 ------------- Chemicals--2.6% 75,241 Dow Chemical (The) Co. 1,135,387 ------------- Commercial Banks--23.5% 7,633 Associated Banc-Corp. 159,759 34,934 BB&T Corp. 959,288 1,743 City National Corp. 84,884 20,084 Comerica, Inc. 398,667 6,809 F.N.B. Corp. 89,879 39,711 Fifth Third Bancorp 328,013 1,216 First Busey Corp. 22,180 3,125 First Midwest Bancorp, Inc. 62,406 3,940 FirstMerit Corp. 81,125 9,612 Fulton Financial Corp. 92,467 24,584 Huntington Bancshares, Inc. 188,313 24,306 Marshall & Ilsley Corp. 331,534 3,625 National Penn Bancshares, Inc. 52,599 3,688 Old National Bancorp 66,974 2,409 Pacific Capital Bancorp 40,664 1,228 PacWest Bancorp 33,033 619 Park National Corp. 44,413 18,575 PNC Financial Services Group, Inc. 910,175 989 S&T Bancorp., Inc. 35,110 25,479 SunTrust Banks, Inc. 752,650 6,093 Susquehanna Bancshares, Inc. 96,940 8,223 Synovus Financial Corp. 68,251 9,432 TCF Financial Corp. 128,841 2,240 Trustmark Corp. 48,362 79,770 U.S. Bancorp 1,995,048 3,266 Umpqua Holdings Corp. 47,259 1,503 United Bankshares, Inc. 49,930 6,020 Valley National Bancorp 121,905 4,841 Webster Financial Corp. 66,709 84,101 Wells Fargo & Co. 2,479,296 5,110 Whitney Holding Corp. 81,709 3,924 Wilmington Trust Corp. 87,270 5,461 Zions Bancorp 133,849 ------------- 10,139,502 ------------- Commercial Services & Supplies--0.8% 11,734 Pitney Bowes, Inc. 298,982 6,335 Steelcase, Inc., Class A 35,603 ------------- 334,585 ------------- Diversified Financial Services--9.4% 290,240 Bank of America Corp. 4,086,579 ------------- Diversified Telecommunication Services--14.6% 127,836 AT&T, Inc. 3,643,326 78,247 Verizon Communications, Inc. 2,652,573 ------------- 6,295,899 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Electric Utilities--8.7% 21,756 American Electric Power Co., Inc. $ 724,041 5,941 DPL, Inc. 135,692 2,529 Empire District Electric (The) Co. 44,510 10,310 Great Plains Energy, Inc. 199,292 4,913 Hawaiian Electric Industries, Inc. 108,774 13,565 Pepco Holdings, Inc. 240,914 6,747 Pinnacle West Capital Corp. 216,781 15,951 Progress Energy, Inc. 635,647 34,700 Southern Co. 1,283,901 1,312 UIL Holdings Corp. 39,399 6,399 Westar Energy, Inc. 131,243 ------------- 3,760,194 ------------- Gas Utilities--1.2% 4,233 AGL Resources, Inc. 132,704 5,071 Atmos Energy Corp. 120,183 669 Laclede Group (The), Inc. 31,336 2,321 Nicor, Inc. 80,632 2,298 Piedmont Natural Gas Co., Inc. 72,778 2,170 WGL Holdings, Inc. 70,937 ------------- 508,570 ------------- Hotels, Restaurants & Leisure--1.6% 29,550 Carnival Corp. 718,656 ------------- Household Durables--0.8% 10,074 Leggett & Platt, Inc. 153,024 17,801 Newell Rubbermaid, Inc. 174,094 ------------- 327,118 ------------- Insurance--1.1% 5,003 Arthur J. Gallagher & Co. 129,628 7,479 Cincinnati Financial Corp. 217,414 1,378 Mercury General Corp. 63,374 2,298 Zenith National Insurance Corp. 72,548 ------------- 482,964 ------------- Machinery--0.1% 2,731 Briggs & Stratton Corp. 48,038 ------------- Media--0.9% 46,704 Gannett Co., Inc. 373,632 ------------- Multi-Utilities--7.4% 16,114 Ameren Corp. 535,952 2,046 Black Hills Corp. 55,160 17,342 CenterPoint Energy, Inc. 218,856 752 CH Energy Group, Inc. 38,645 16,287 Consolidated Edison, Inc. 634,054 9,844 DTE Energy Co. 351,135 4,817 Integrys Energy Group, Inc. 207,035 4,115 NSTAR 150,156 4,881 OGE Energy Corp. 125,832 5,572 SCANA Corp. 198,363 12,722 TECO Energy, Inc. 157,117 4,147 Vectren Corp. 103,716 See Notes to Financial Statements. Page 45 FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Multi-Utilities (Continued) 23,031 Xcel Energy, Inc. $ 427,225 ------------- 3,203,246 ------------- Pharmaceuticals--22.7% 87,310 Bristol-Myers Squibb Co. 2,029,958 48,902 Eli Lilly & Co. 1,969,284 76,835 Merck & Co., Inc. 2,335,784 196,122 Pfizer, Inc. 3,473,320 ------------- 9,808,346 ------------- Real Estate Investment Trusts--0.5% 4,847 Rayonier, Inc. 151,954 5,564 Redwood Trust, Inc. 82,959 ------------- 234,913 ------------- Specialty Retail--0.2% 12,550 Foot Locker, Inc. 92,117 ------------- Thrifts & Mortgage Finance--1.3% 5,424 Astoria Financial Corp. 89,388 4,150 First Niagara Financial Group, Inc. 67,106 27,517 New York Community Bancorp, Inc. 329,102 4,326 Washington Federal, Inc. 64,717 ------------- 550,313 ------------- Tobacco--2.2% 14,638 Reynolds American, Inc. 590,058 5,134 UST, Inc. 356,197 ------------- 946,255 ------------- Trading Companies & Distributors--0.1% 1,155 Watsco, Inc. 44,352 ------------- Total Investments--99.8% (Cost $58,251,293) (b) 43,116,131 Net Other Assets and Liabilities--0.2% 79,912 ------------- Net Assets--100.0% $ 43,196,043 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Aggregate cost for federal income tax purposes is $59,710,111. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $186,944 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $16,780,924. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ------------------------------------------------------------- Level 1 - Quoted Prices - Investments $43,116,131 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- ----------------- Total $43,116,131 ================= Page 46 See Notes to Financial Statements. FIRST TRUST US IPO INDEX FUND (d) PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Aerospace & Defense--1.7% 538 Aerovironment Inc. (b) $ 19,804 1,453 DynCorp International, Inc., Class A (b) 22,042 3,566 Spirit Aerosystems Holdings, Inc., Class A (b) 36,266 599 Stanley, Inc. (b) 21,696 1,240 TransDigm Group, Inc. (b) 41,627 ------------- 141,435 ------------- Airlines--0.3% 518 Allegiant Travel Co. (b) 25,159 ------------- Auto Components--0.3% 1,782 WABCO Holdings, Inc. 28,138 ------------- Beverages--1.2% 6,466 Dr. Pepper Snapple Group, Inc. (b) 105,073 ------------- Biotechnology--0.6% 961 Acorda Therapeutics, Inc. (b) 19,710 763 Emergent Biosolutions, Inc. (b) 19,922 811 Osiris Therapeutics, Inc. (b) 15,539 ------------- 55,171 ------------- Capital Markets--3.1% 5,521 Ameriprise Financial, Inc. 128,971 3,115 Lazard Ltd., Class A 92,640 1,528 optionsXpress Holdings, Inc. 20,414 1,564 RiskMetrics Group, Inc. (b) 23,288 ------------- 265,313 ------------- Chemicals--1.9% 3,655 Celanese Corp., Class A 45,432 1,449 CF Industries Holding, Inc. 71,233 5,975 Huntsman Corp. 20,554 1,888 Rockwood Holdings, Inc. (b) 20,390 ------------- 157,609 ------------- Communications Equipment--0.2% 1,786 Starent Networks Corp. (b) 21,307 ------------- Computers & Peripherals--0.8% 4,486 Teradata Corp. (b) 66,527 ------------- Construction & Engineering--1.7% 2,628 Aecom Technology Corp. (b) 80,759 4,117 KBR, Inc. 62,578 ------------- 143,337 ------------- Consumer Finance--1.4% 12,232 Discover Financial Services 116,571 ------------- Diversified Consumer Services--0.5% 425 Capella Education Co. (b) 24,973 1,115 Grand Canyon Education, Inc. (b) 20,940 ------------- 45,913 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Diversified Financial Services--0.7% 1,035 Interactive Brokers Group, Inc., Class A (b) $ 18,516 2,550 MSCI, Inc., Class A (b) 45,288 ------------- 63,804 ------------- Diversified Telecommunication Services--1.9% 3,623 Embarq Corp. 130,283 1,075 NTELOS Holdings Corp. 26,510 ------------- 156,793 ------------- Electric Utilities--0.7% 1,265 ITC Holdings Corp. 55,255 ------------- Electrical Equipment--4.3% 2,067 First Solar, Inc. (b) 285,163 2,186 SunPower Corp., Class A (b) 80,882 ------------- 366,045 ------------- Electronic Equipment, Instruments & Components--3.4% 2,879 Dolby Laboratories, Inc., Class A (b) 94,316 11,664 Tyco Electronics Ltd. 189,073 ------------- 283,389 ------------- Energy Equipment & Services--1.3% 2,700 Cal Dive International, Inc. (b) 17,577 2,089 Dresser-Rand Group, Inc. (b) 36,035 1,580 IHS, Inc. Class A (b) 59,124 ------------- 112,736 ------------- Health Care Equipment & Supplies--6.8% 12,835 Covidien Ltd. 465,140 2,699 ev3, Inc. (b) 16,464 1,453 Masimo Corp. (b) 43,343 921 NuVasive, Inc. (b) 31,913 1,216 Volcano Corp. (b) 18,240 ------------- 575,100 ------------- Health Care Providers & Services--0.6% 1,492 Healthspring, Inc. (b) 29,795 464 LHC Group, Inc. (b) 16,704 ------------- 46,499 ------------- Health Care Technology--0.2% 1,148 MedAssets, Inc. (b) 16,761 ------------- Hotels, Restaurants & Leisure--2.9% 3,432 Burger King Holdings, Inc. 81,956 4,617 Tim Hortons, Inc. 133,154 4,520 Wyndham Worldwide Corp. 29,606 ------------- 244,716 ------------- See Notes to Financial Statements. Page 47 FIRST TRUST US IPO INDEX FUND (d) PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Independent Power Producers & Energy Traders--0.4% 1,156 Ormat Technologies, Inc. $ 36,842 ------------- Insurance--2.0% 1,249 Allied World Assurance Holdings Ltd. 50,709 1,245 Employers Holdings, Inc. 20,543 2,158 Flagstone Reinsurance Holdings Ltd. 21,084 2,424 OneBeacon Insurance Group Ltd. 25,307 1,908 Validus Holdings Ltd. 49,913 ------------- 167,556 ------------- Internet Software & Services--1.3% 1,268 Gmarket Inc., ADR (b) 21,873 1,859 Omniture, Inc. (b) 19,780 2,978 Rackspace Hosting Inc. (b) 16,022 1,136 VistaPrint Ltd. (b) 21,141 1,471 WebMD Health Corp., Class A (b) 34,700 ------------- 113,516 ------------- IT Services--21.5% 3,604 Broadridge Financial Solutions, Inc. 45,194 5,468 Genpact Ltd. (b) 44,947 959 Heartland Payment Systems, Inc. 16,783 3,294 MasterCard, Inc., Class A 470,811 3,050 Metavante Technologies, Inc. (b) 49,136 2,010 NeuStar, Inc., Class A (b) 38,451 5,167 SAIC, Inc. (b) 100,653 15,074 Visa, Inc., Class A 790,631 18,238 Western Union Co. 261,533 ------------- 1,818,139 ------------- Machinery--0.1% 754 Mueller Water Products Inc., Class A 6,334 ------------- Media--11.7% 2,764 Cinemark Holdings, Inc. 20,537 1,192 Morningstar, Inc. (b) 42,316 4,174 Scripps Networks Interactive Inc., Class A 91,828 24,901 Time Warner Cable, Inc., Class A (b) 534,126 15,637 Viacom, Inc., Class B (b) 298,041 ------------- 986,848 ------------- Oil, Gas & Consumable Fuels--6.4% 1,797 Alpha Natural Resources, Inc. (b) 29,093 1,150 Bill Barrett Corp. (b) 24,300 1,937 Concho Resources, Inc. (b) 44,202 4,312 Continental Resources, Inc. (b) 89,302 2,690 EXCO Resources, Inc. (b) 24,371 1,136 Foundation Coal Holdings, Inc. 15,927 1,972 Patriot Coal Corp. (b) 12,325 4,233 SandRidge Energy, Inc. (b) 26,033 15,574 Spectra Energy Corp. 245,134 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Oil, Gas & Consumable Fuels (Continued) 1,946 W&T Offshore, Inc. $ 27,867 ------------- 538,554 ------------- Personal Products--0.4% 1,627 Herbalife Ltd. 35,273 ------------- Pharmaceuticals--1.1% 6,392 Warner Chilcott Ltd., Class A (b) 92,684 ------------- Road & Rail--0.5% 8,232 Hertz Global Holdings, Inc. (b) 41,736 ------------- Semiconductors & Semiconductor Equipment--0.5% 1,538 Atheros Communications (b) 22,009 776 Hittite Microwave Corp. (b) 22,861 ------------- 44,870 ------------- Software--0.5% 1,770 Solera Holdings, Inc. (b) 42,657 ------------- Specialty Retail--0.2% 1,593 J. Crew Group, Inc. (b) 19,435 ------------- Textiles, Apparel & Luxury Goods--0.4% 2,383 Hanesbrands, Inc. (b) 30,383 ------------- Tobacco--13.1% 4,284 Lorillard, Inc. 241,403 19,855 Philip Morris International, Inc. 863,891 ------------- 1,105,294 ------------- Trading Companies & Distributors--0.3% 2,634 RSC Holdings, Inc. (b) 22,442 ------------- Water Utilities--1.0% 4,078 American Water Works Co., Inc. 85,149 ------------- Wireless Telecommunication Services--2.1% 4,188 Clearwire Corp., Class A (b) 20,647 8,925 MetroPCS Communications, Inc. (b) 132,536 1,744 Syniverse Holdings, Inc. (b) 20,823 ------------- 174,006 ------------- Total Investments--100.0% (Cost $13,382,525) (c) 8,454,369 Net Other Assets and Liabilities--(0.0)% (601) ------------- Net Assets--100.0% $ 8,453,768 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. Page 48 See Notes to Financial Statements. FIRST TRUST US IPO INDEX FUND (d) PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 (c) Aggregate cost for federal income tax purposes is $13,499,390. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $23,752 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $5,068,773. (d) Formerly known as First Trust IPOX-100 Index Fund. See Note 8 in Notes to Financial Statements for information on the Fund's name change. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ------------------------------------------------------------- Level 1 - Quoted Prices - Investments $ 8,454,369 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- ----------------- Total $ 8,454,369 ================= See Notes to Financial Statements. Page 49 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Air Freight & Logistics--2.1% 2,874 C.H. Robinson Worldwide, Inc. $ 158,156 4,641 Expeditors International of Washington, Inc. 154,406 ------------- 312,562 ------------- Airlines--1.0% 4,977 Ryanair Holdings PLC, ADR (b) 144,731 ------------- Beverages--1.0% 4,518 Hansen Natural Corp. (b) 151,489 ------------- Biotechnology--7.1% 2,572 Amgen, Inc. (b) 148,533 3,183 Biogen Idec, Inc. (b) 151,606 2,721 Celgene Corp. (b) 150,417 1,920 Cephalon, Inc. (b) 147,917 2,182 Genzyme Corp. (b) 144,819 2,997 Gilead Sciences, Inc. (b) 153,267 4,989 Vertex Pharmaceuticals, Inc. (b) 151,566 ------------- 1,048,125 ------------- Chemicals--1.0% 3,672 Sigma-Aldrich Corp. 155,105 ------------- Commercial Services & Supplies--2.0% 6,648 Cintas Corp. 154,433 2,814 Stericycle, Inc. (b) 146,553 ------------- 300,986 ------------- Communications Equipment--4.0% 8,942 Cisco Systems, Inc. (b) 145,755 8,825 Juniper Networks, Inc. (b) 154,525 4,247 QUALCOMM, Inc. 152,170 3,474 Research In Motion Ltd. (b) 140,975 ------------- 593,425 ------------- Computers & Peripherals--5.9% 1,653 Apple Computer, Inc. (b) 141,084 13,416 Dell, Inc. (b) 137,380 10,485 Logitech International S.A. (b) 163,356 10,940 NetApp, Inc. (b) 152,832 32,700 Seagate Technology 144,861 35,764 Sun Microsystems, Inc. (b) 136,618 ------------- 876,131 ------------- Construction & Engineering--1.0% 6,245 Foster Wheeler Ltd. (b) 146,008 ------------- Diversified Consumer Services--1.0% 1,967 Apollo Group, Inc., Class A (b) 150,712 ------------- Electrical Equipment--1.0% 1,057 First Solar, Inc. (b) 145,824 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Electronic Equipment, Instruments &Components--2.2% 59,751 Flextronics International Ltd. (b) $ 152,963 5,520 FLIR Systems, Inc. (b) 169,353 ------------- 322,316 ------------- Food & Staples Retailing--1.0% 2,765 Costco Wholesale Corp. 145,163 ------------- Health Care Equipment & Supplies--3.1% 5,498 DENTSPLY International, Inc. 155,263 11,437 Hologic, Inc. (b) 149,482 1,185 Intuitive Surgical, Inc. (b) 150,483 ------------- 455,228 ------------- Health Care Providers & Services--3.0% 2,425 Express Scripts, Inc. (b) 133,327 4,274 Henry Schein, Inc. (b) 156,812 8,086 Patterson Cos., Inc. (b) 151,613 ------------- 441,752 ------------- Hotels, Restaurants & Leisure--1.9% 15,058 Starbucks Corp. (b) 142,449 3,456 Wynn Resorts Ltd. (b) 146,050 ------------- 288,499 ------------- Household Durables--1.0% 7,650 Garmin Ltd. 146,651 ------------- Internet & Catalog Retail--3.0% 2,885 Amazon.com, Inc. (b) 147,943 18,256 Expedia, Inc. (b) 150,430 47,994 Liberty Media Corp. - Interactive, Class A (b) 149,741 ------------- 448,114 ------------- Internet Software & Services--6.7% 9,550 Akamai Technologies, Inc. (b) 144,110 1,135 Baidu.com, Inc., ADR (b) 148,197 10,296 eBay, Inc. (b) 143,732 480 Google, Inc., Class A (b) 147,672 9,099 IAC/InterActiveCorp (b) 143,127 7,099 VeriSign, Inc. (b) 135,449 11,419 Yahoo!, Inc. (b) 139,312 ------------- 1,001,599 ------------- IT Services--5.0% 3,957 Automatic Data Processing, Inc. 155,667 8,265 Cognizant Technology Solutions Corp., Class A (b) 149,266 4,083 Fiserv, Inc. (b) 148,499 5,822 Infosys Technologies Ltd., ADR 143,047 5,667 Paychex, Inc. 148,929 ------------- 745,408 ------------- Page 50 See Notes to Financial Statements. FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Life Sciences Tools & Services--3.1% 5,932 Illumina, Inc. (b) $ 154,529 6,807 Life Technologies Corp. (b) 158,671 5,182 Pharmaceutical Product Development, Inc. 150,330 ------------- 463,530 ------------- Machinery--2.0% 6,262 Joy Global, Inc. 143,337 5,250 PACCAR, Inc. 150,150 ------------- 293,487 ------------- Media--5.0% 9,440 Comcast Corp., Class A 159,347 6,791 DIRECTV Group (The), Inc. (b) 155,582 12,685 DISH Network Corp., Class A (b) 140,677 13,551 Focus Media Holding Ltd., ADR (b) 123,179 10,634 Liberty Global, Inc., Class A (b) 169,293 ------------- 748,078 ------------- Metals & Mining--1.0% 12,695 Steel Dynamics, Inc. 141,930 ------------- Multiline Retail--1.0% 3,800 Sears Holdings Corp. (b) 147,706 ------------- Pharmaceuticals--2.0% 3,417 Teva Pharmaceutical Industries Ltd., ADR 145,462 10,641 Warner Chilcott Ltd., Class A (b) 154,294 ------------- 299,756 ------------- Road & Rail--1.1% 6,021 J.B. Hunt Transport Services, Inc. 158,172 ------------- Semiconductors & Semiconductor Equipment--11.8% 9,050 Altera Corp. 151,226 14,687 Applied Materials, Inc. 148,779 8,457 Broadcom Corp., Class A (b) 143,515 10,303 Intel Corp. 151,042 6,922 KLA-Tencor Corp. 150,830 6,744 Lam Research Corp. (b) 143,512 6,725 Linear Technology Corp. 148,757 20,868 Marvell Technology Group Ltd. (b) 139,190 12,087 Maxim Integrated Products, Inc. 138,034 7,587 Microchip Technology, Inc. 148,174 17,463 NVIDIA Corp. (b) 140,926 8,595 Xilinx, Inc. 153,162 ------------- 1,757,147 ------------- Software--11.0% 15,662 Activision Blizzard, Inc. (b) 135,320 6,723 Adobe Systems, Inc. (b) 143,133 8,034 Autodesk, Inc. (b) 157,867 8,206 CA, Inc. 152,057 7,990 Check Point Software Technologies Ltd. (b) 151,730 6,526 Citrix Systems, Inc. (b) 153,817 8,556 Electronic Arts, Inc. (b) 137,238 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Software (Continued) 6,400 Intuit, Inc. (b) $ 152,256 7,781 Microsoft Corp. 151,263 8,368 Oracle Corp. (b) 148,365 11,062 Symantec Corp. (b) 149,558 ------------- 1,632,604 ------------- Specialty Retail--5.0% 5,719 Bed Bath & Beyond, Inc. (b) 145,377 4,938 O'Reilly Automotive, Inc. (b) 151,794 5,093 Ross Stores, Inc. 151,415 8,130 Staples, Inc. 145,690 9,834 Urban Outfitters, Inc. (b) 147,313 ------------- 741,589 ------------- Trading Companies & Distributors--1.0% 4,382 Fastenal Co. 152,713 ------------- Wireless Telecommunication Services--2.0% 3,332 Millicom International Cellular S.A. 149,640 8,188 NII Holdings, Inc. (b) 148,858 ------------- 298,498 ------------- Total Investments--100.0% (Cost $23,149,210) (c) $ 14,855,038 Net Other Assets and Liabilities--(0.0)% (7,010) ------------- Net Assets--100.0% $ 14,848,028 ============= (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 $23,735,887. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $160,253 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,041,102. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ------------------------------------------------------------- Level 1 - Quoted Prices - Investments $14,855,038 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- ----------------- Total $14,855,038 ================= See Notes to Financial Statements. Page 51 FIRST TRUST NASDAQ-100 TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Communications Equipment--10.3% 14,675 Cisco Systems, Inc. (b) $ 239,203 14,484 Juniper Networks, Inc. (b) 253,614 6,971 QUALCOMM, Inc. 249,771 5,702 Research In Motion Ltd. (b) 231,387 ------------- 973,975 ------------- Computers & Peripherals--15.3% 2,713 Apple Computer, Inc. (b) 231,555 22,019 Dell, Inc. (b) 225,475 17,209 Logitech International S.A. (b) 268,115 17,956 NetApp, Inc. (b) 250,845 53,669 Seagate Technology 237,754 58,701 Sun Microsystems, Inc. (b) 224,238 ------------- 1,437,982 ------------- Internet Software & Services--15.0% 15,674 Akamai Technologies, Inc. (b) 236,521 1,863 Baidu.com, Inc., ADR (b) 243,252 787 Google, Inc., Class A (b) 242,121 14,936 IAC/InterActiveCorp (b) 234,943 11,651 VeriSign, Inc. (b) 222,301 18,741 Yahoo!, Inc. (b) 228,640 ------------- 1,407,778 ------------- IT Services--5.1% 13,566 Cognizant Technology Solutions Corp., Class A (b) 245,002 9,554 Infosys Technologies Ltd., ADR 234,742 ------------- 479,744 ------------- Semiconductors & Semiconductor Equipment--30.6% 14,854 Altera Corp. 248,210 24,106 Applied Materials, Inc. 244,194 13,883 Broadcom Corp., Class A (b) 235,595 16,911 Intel Corp. 247,915 11,363 KLA-Tencor Corp. 247,600 11,070 Lam Research Corp. (b) 235,570 11,040 Linear Technology Corp. 244,205 34,249 Marvell Technology Group Ltd. (b) 228,441 19,837 Maxim Integrated Products, Inc. 226,539 12,453 Microchip Technology, Inc. 243,207 28,662 NVIDIA Corp. (b) 231,302 14,107 Xilinx, Inc. 251,386 ------------- 2,884,164 ------------- Software--23.7% 11,035 Adobe Systems, Inc. (b) 234,935 13,186 Autodesk, Inc. (b) 259,104 13,469 CA, Inc. 249,581 13,115 Check Point Software Technologies Ltd. (b) 249,054 10,710 Citrix Systems, Inc. (b) 252,435 10,503 Intuit, Inc. (b) 249,866 12,772 Microsoft Corp. 248,288 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Software (Continued) 13,734 Oracle Corp. (b) $ 243,504 18,156 Symantec Corp. (b) 245,469 ------------- 2,232,236 ------------- Total Investments--100.0% (Cost $16,736,402) (c) 9,415,879 Net Other Assets and Liabilities--(0.0)% (2,283) ------------- Net Assets--100.0% $ 9,413,596 ============= (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 $16,793,266. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $0 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $7,377,387. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ------------------------------------------------------------- Level 1 - Quoted Prices - Investments $ 9,415,879 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- ----------------- Total $ 9,415,879 ================= Page 52 See Notes to Financial Statements. FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.2% Biotechnology--69.3% 78,270 Alexion Pharmaceuticals, Inc. (b) $ 2,832,591 59,772 Amgen, Inc. (b) 3,451,833 237,831 Amylin Pharmaceuticals, Inc. (b) 2,580,466 65,938 Biogen Idec, Inc. (b) 3,140,627 262,688 Celera Corp. (b) 2,923,717 52,112 Celgene Corp. (b) 2,880,751 43,162 Cephalon, Inc. (b) 3,325,200 35,034 Genentech, Inc. (b) 2,904,669 47,315 Genzyme Corp. (b) 3,140,297 69,714 Gilead Sciences, Inc. (b) 3,565,175 772,889 Human Genome Sciences, Inc. (b) 1,638,525 201,213 InterMune, Inc. (b) 2,128,834 73,848 OSI Pharmaceuticals, Inc. (b) 2,883,764 116,776 Vertex Pharmaceuticals, Inc. (b) 3,547,655 ------------- 40,944,104 ------------- Life Sciences Tools & Services--29.9% 662,027 Affymetrix, Inc. (b) 1,979,461 99,411 Illumina, Inc. (b) 2,589,657 102,431 Life Technologies Corp. (b) 2,387,667 53,355 Millipore Corp. (b) 2,748,849 940,000 Nektar Therapeutics (b) 5,226,399 139,427 Sequenom, Inc. (b) 2,766,232 ------------- 17,698,265 ------------- Total Investments--99.2% (Cost $73,452,552) (c) 58,642,369 Net Other Assets and Liabilities--0.8% 454,506 ------------- Net Assets--100.0% $ 59,096,875 ============= (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 $78,280,844. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $762,712 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $20,401,187. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ------------------------------------------------------------- Level 1 - Quoted Prices - Investments $58,642,369 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- ----------------- Total $58,642,369 ================= See Notes to Financial Statements. Page 53 FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.1% Capital Markets--5.3% 86,509 E*TRADE Financial Corp. (b) $ 99,485 47,292 TD Ameritrade Holding Corp. (b) 673,911 ------------- 773,396 ------------- Communications Equipment--10.6% 84,153 Juniper Networks, Inc. (b) 1,473,519 53,091 Sonus Networks, Inc. (b) 83,884 ------------- 1,557,403 ------------- Health Care Technology--2.0% 11,616 Allscripts-Misys Healthcare Solutions, Inc. 115,231 17,611 HLTH Corp. (b) 184,211 ------------- 299,442 ------------- Internet & Catalog Retail--18.7% 28,605 Amazon.com, Inc. (b) 1,466,865 40,880 Expedia, Inc. (b) 336,851 9,052 NetFlix, Inc. (b) 270,564 3,111 Overstock.com, Inc. (b) 33,537 7,948 Priceline.com, Inc. (b) 585,370 7,872 Ticketmaster Entertainment, Inc. (b) 50,538 ------------- 2,743,725 ------------- Internet Software & Services--46.9% 33,072 Akamai Technologies, Inc. (b) 499,056 16,838 Ariba, Inc. (b) 121,402 25,007 Art Technology Group, Inc. (b) 48,264 7,248 DealerTrack Holdings, Inc. (b) 86,179 7,269 Digital River, Inc. (b) 180,271 21,218 EarthLink, Inc. (b) 143,434 99,239 eBay, Inc. (b) 1,385,376 4,628 Google, Inc., Class A (b) 1,423,803 12,720 IAC/InterActiveCorp (b) 200,086 9,873 Internap Network Services Corp. (b) 24,683 8,871 Interwoven, Inc. (b) 111,775 8,578 j2 Global Communications, Inc. (b) 171,903 9,035 ModusLink Global Solutions, Inc. (b) 26,111 17,547 RealNetworks, Inc. (b) 61,941 10,490 SonicWALL, Inc. (b) 41,750 15,906 United Online, Inc. 96,549 16,957 ValueClick, Inc. (b) 115,986 34,677 VeriSign, Inc. (b) 661,637 8,776 Websense, Inc. (b) 131,377 112,684 Yahoo!, Inc. (b) 1,374,745 ------------- 6,906,328 ------------- IT Services--1.6% 13,606 CyberSource Corp. (b) 163,136 16,210 Sapient Corp. (b) 71,972 ------------- 235,108 ------------- Professional Services--1.9% 23,404 Monster Worldwide, Inc. (b) 282,954 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Software--13.1% 33,769 Check Point Software Technologies Ltd. (b) $ 641,274 9,669 Concur Technologies, Inc. (b) 317,337 11,853 Quest Software, Inc. (b) 149,229 19,748 Salesforce.com, Inc. (b) 632,133 35,171 TIBCO Software, Inc. (b) 182,537 ------------- 1,922,510 ------------- Total Common Stocks--100.1% (Cost $27,829,538) 14,720,866 Money Market Funds--0.3% 49,049 Morgan Stanley Institutional Treasury Money Market Fund--0.06% (c) (Cost $49,049) 49,049 ------------- Total Investments--100.4% (Cost $27,878,587) (d) 14,769,915 Net Other Assets and Liabilities--(0.4)% (61,430) ------------- Net Assets--100.0% $ 14,708,485 ============= (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, 2008. (d) Aggregate cost for federal income tax purposes is $28,802,290. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $13,548 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $14,045,923. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ------------------------------------------------------------- Level 1 - Quoted Prices - Investments $14,769,915 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- ---------------- Total $14,769,915 ================ Page 54 See Notes to Financial Statements. FIRST TRUST DB STRATEGIC VALUE INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.9% Biotechnology--2.5% 18,588 Biogen Idec, Inc. (b) $ 885,346 ------------- Communications Equipment--2.5% 92,942 Corning, Inc. 885,737 ------------- Computers & Peripherals--4.4% 75,476 Dell, Inc. (b) 772,874 75,256 EMC Corp. (b) 787,931 ------------- 1,560,805 ------------- Energy Equipment & Services--10.0% 29,790 Baker Hughes, Inc. 955,365 56,251 Halliburton Co. 1,022,644 37,070 Noble Corp. 818,876 16,155 Transocean Ltd. (b) 763,324 ------------- 3,560,209 ------------- Health Care Equipment & Supplies--2.4% 20,888 Zimmer Holdings, Inc. (b) 844,293 ------------- Health Care Providers & Services--2.5% 23,482 McKesson Corp. 909,458 ------------- Hotels, Restaurants & Leisure--2.5% 36,771 Carnival Corp. 894,271 ------------- Internet Software & Services--4.6% 57,846 eBay, Inc. (b) 807,530 70,148 Yahoo!, Inc. (b) 855,806 ------------- 1,663,336 ------------- Machinery--7.4% 18,642 Eaton Corp. 926,694 24,398 Illinois Tool Works, Inc. 855,150 20,670 Parker Hannifin Corp. 879,302 ------------- 2,661,146 ------------- Media--5.3% 98,869 News Corp., Class A 898,719 52,983 Viacom, Inc., Class B (b) 1,009,856 ------------- 1,908,575 ------------- Metals & Mining--6.0% 44,268 Freeport-McMoRan Copper & Gold, Inc. 1,081,910 22,919 Nucor Corp. 1,058,858 ------------- 2,140,768 ------------- Oil, Gas & Consumable Fuels--23.1% 23,225 Anadarko Petroleum Corp. 895,324 11,834 Apache Corp. 881,988 10,802 Chevron Corp. 799,024 16,749 ConocoPhillips 867,598 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Oil, Gas & Consumable Fuels (Continued) 12,495 Devon Energy Corp. $ 821,046 19,568 Hess Corp. 1,049,627 35,936 Marathon Oil Corp. 983,209 18,791 Noble Energy, Inc. 924,893 17,745 Occidental Petroleum Corp. 1,064,522 ------------- 8,287,231 ------------- Pharmaceuticals--14.8% 37,446 Bristol-Myers Squibb Co. 870,620 22,872 Eli Lilly & Co. 921,055 33,454 Forest Laboratories, Inc. (b) 852,073 31,005 Merck & Co., Inc. 942,552 47,642 Pfizer, Inc. 843,740 23,056 Wyeth 864,831 ------------- 5,294,871 ------------- Semiconductors & Semiconductor Equipment--9.7% 81,422 Applied Materials, Inc. 824,805 53,643 Broadcom Corp., Class A (b) 910,322 60,700 Intel Corp. 889,862 53,568 Texas Instruments, Inc. 831,375 ------------- 3,456,364 ------------- Software--2.2% 40,562 Microsoft Corp. 788,525 ------------- Total Investments--99.9% (Cost $45,796,478) (c) 35,740,935 Net Other Assets and Liabilities--0.1% 21,535 ------------- Net Assets--100.0% $ 35,762,470 ============= (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 $46,881,248. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $638,720 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $11,779,033. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $35,740,935 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $35,740,935 =============== See Notes to Financial Statements. Page 55 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Aerospace & Defense--3.1% 532 Esterline Technologies Corp. (b) $ 20,157 891 Lockheed Martin Corp. 74,915 1,655 Raytheon Co. 84,472 ------------- 179,544 ------------- Air Freight & Logistics--0.3% 705 Forward Air Corp. 17,110 ------------- Airlines--0.9% 6,319 Southwest Airlines Co. 54,470 ------------- Auto Components--1.0% 3,110 Johnson Controls, Inc. 56,478 ------------- Automobiles--1.1% 3,070 Honda Motor Co., Ltd., ADR 65,514 ------------- Biotechnology--2.0% 1,267 Genzyme Corp. (b) 84,091 785 OSI Pharmaceuticals, Inc. (b) 30,654 ------------- 114,745 ------------- Building Products--0.3% 1,309 Gibraltar Industries, Inc. 15,629 ------------- Capital Markets--1.0% 955 Franklin Resources, Inc. 60,910 ------------- Chemicals--1.1% 742 CF Industries Holding, Inc. 36,477 396 NewMarket Corp. 13,824 881 Terra Industries, Inc. 14,686 ------------- 64,987 ------------- Commercial Banks--0.4% 484 City National Corp. 23,571 ------------- Communications Equipment--1.4% 703 Black Box Corp. 18,362 1,787 QUALCOMM, Inc. 64,029 ------------- 82,391 ------------- Computers & Peripherals--1.4% 3,994 Dell, Inc. (b) 40,899 2,122 QLogic Corp. (b) 28,520 740 Synaptics, Inc. (b) 12,254 ------------- 81,673 ------------- Construction & Engineering--1.0% 1,276 EMCOR Group, Inc. (b) 28,621 343 Insituform Technologies, Inc., Class A (b) 6,754 1,134 Quanta Services, Inc. (b) 22,453 ------------- 57,828 ------------- Containers & Packaging--0.3% 477 Rock-Tenn Co., Class A 16,304 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Diversified Consumer Services--0.7% 461 ITT Educational Services, Inc. (b) $ 43,786 ------------- Diversified Telecommunication Services--0.6% 628 Alaska Communications Systems Group, Inc. 5,891 1,064 CenturyTel, Inc. 29,079 ------------- 34,970 ------------- Electric Utilities--4.3% 5,492 Duke Energy Corp. 82,435 1,059 El Paso Electric Co. (b) 19,157 1,152 Pinnacle West Capital Corp. 37,014 1,071 Portland General Electric Co. 20,852 2,264 Progress Energy, Inc. 90,221 ------------- 249,679 ------------- Electrical Equipment--1.2% 630 A.O. Smith Corp. 18,598 1,006 Brady Corp., Class A 24,093 576 II-VI, Inc. (b) 10,996 833 Woodward Governor Co. 19,176 ------------- 72,863 ------------- Electronic Equipment, Instruments &Components--1.8% 4,766 Celestica, Inc. (b) 21,971 3,128 Ingram Micro, Inc., Class A (b) 41,884 2,185 Jabil Circuit, Inc. 14,749 1,274 L-1 Identity Solutions, Inc. (b) 8,587 630 MTS Systems Corp. 16,783 ------------- 103,974 ------------- Energy Equipment & Services--1.3% 1,293 Baker Hughes, Inc. 41,467 514 CARBO Ceramics, Inc. 18,262 1,551 RPC, Inc. 15,138 ------------- 74,867 ------------- Food & Staples Retailing--2.6% 1,101 BJ's Wholesale Club, Inc. (b) 37,720 3,430 Kroger (The) Co. 90,586 1,118 Spartan Stores, Inc. 25,994 ------------- 154,300 ------------- Food Products--2.4% 2,076 Cadbury PLC, ADR 74,050 624 Cal-Maine Foods, Inc. 17,909 742 Lancaster Colony Corp. 25,451 911 TreeHouse Foods, Inc. (b) 24,816 ------------- 142,226 ------------- Health Care Equipment & Supplies--1.5% 570 Alcon, Inc. 50,838 Page 56 See Notes to Financial Statements. FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Health Care Equipment & Supplies (Continued) 835 Conmed Corp. (b) $ 19,990 972 Cyberonics, Inc. (b) 16,106 ------------- 86,934 ------------- Health Care Providers & Services--1.2% 413 Amedisys, Inc. (b) 17,073 786 LifePoint Hospitals, Inc. (b) 17,952 1,200 Lincare Holdings, Inc. (b) 32,317 ------------- 67,342 ------------- Hotels, Restaurants & Leisure--1.5% 889 Bob Evans Farms, Inc. 18,162 703 CEC Entertainment, Inc. (b) 17,048 859 McDonald's Corp. 53,421 ------------- 88,631 ------------- Household Durables--2.1% 1,225 Helen of Troy Ltd. (b) 21,266 344 National Presto Industries, Inc. 26,488 4,739 Panasonic Corp., ADR 58,953 1,941 Tempur-Pedic International, Inc. 13,762 ------------- 120,469 ------------- Household Products--1.6% 1,697 Clorox (The) Co. 94,285 ------------- Industrial Conglomerates--1.3% 1,359 3M Co. 78,197 ------------- Insurance--9.2% 2,071 Chubb (The) Corp. 105,620 710 Hanover Insurance Group, Inc. 30,509 1,496 Hartford Financial Services Group (The), Inc. 24,564 1,986 Lincoln National Corp. 37,416 2,295 Loews Corp. 64,834 2,545 MBIA, Inc. (b) 10,358 1,952 Nationwide Financial Services, Inc., Class A 101,914 386 Odyssey Re Holdings Corp. 19,999 1,323 Prudential Financial, Inc. 40,034 460 RLI Corp. 28,134 4,124 Unum Group 76,706 ------------- 540,088 ------------- Internet & Catalog Retail--0.7% 1,286 NetFlix, Inc. (b) 38,439 ------------- Internet Software & Services--0.4% 1,756 Interwoven, Inc. (b) 22,126 ------------- IT Services--2.7% 2,392 Accenture Ltd., Class A 78,434 858 Computer Sciences Corp. (b) 30,150 SHARES DESCRIPTION VALUE -------------------------------------------------------------- IT Services (Continued) 623 DST Systems, Inc. (b) $ 23,662 1,509 Gartner, Inc. (b) 26,905 ------------- 159,151 ------------- Leisure Equipment & Products--0.8% 979 Hasbro, Inc. 28,557 1,132 Pool Corp. 20,342 ------------- 48,899 ------------- Life Sciences Tools & Services--1.5% 1,584 Albany Molecular Research, Inc. (b) 15,428 1,354 PerkinElmer, Inc. 18,834 1,637 Thermo Fisher Scientific, Inc. (b) 55,773 ------------- 90,035 ------------- Machinery--1.4% 612 Gorman-Rupp (The) Co. 19,045 4,345 Mueller Water Products Inc., Class A 36,499 1,102 Pentair, Inc. 26,084 ------------- 81,628 ------------- Media--4.4% 3,530 DIRECTV Group (The), Inc. (b) 80,872 1,280 DreamWorks Animation SKG, Inc., Class A (b) 32,333 2,264 McGraw-Hill (The) Cos., Inc. 52,502 3,075 Thomson (The) Corp. 89,636 ------------- 255,343 ------------- Metals & Mining--0.3% 808 AMCOL International Corp. 16,928 ------------- Multiline Retail--1.7% 1,212 Big Lots, Inc. (b) 17,562 989 Dollar Tree, Inc. (b) 41,340 1,603 Family Dollar Stores, Inc. 41,790 ------------- 100,692 ------------- Multi-Utilities--4.4% 727 CH Energy Group, Inc. 37,361 2,406 Consolidated Edison, Inc. 93,665 788 Integrys Energy Group, Inc. 33,868 4,861 Xcel Energy, Inc. 90,172 ------------- 255,066 ------------- Oil, Gas & Consumable Fuels--2.8% 1,234 ConocoPhillips 63,921 1,268 Exxon Mobil Corp. 101,225 ------------- 165,146 ------------- Paper & Forest Products--0.3% 1,794 Glatfelter 16,684 ------------- Personal Products--0.3% 878 Herbalife Ltd. 19,035 ------------- See Notes to Financial Statements. Page 57 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Pharmaceuticals--6.2% 2,058 Eli Lilly & Co. $ 82,876 2,061 GlaxoSmithKline PLC, ADR 76,813 1,395 Johnson & Johnson 83,463 2,729 Sanofi-Aventis, ADR 87,764 1,223 Watson Pharmaceuticals, Inc. (b) 32,495 ------------- 363,411 ------------- Professional Services--1.2% 405 Dun & Bradstreet (The) Corp. 31,265 1,358 Kelly Services, Inc., Class A 17,668 1,155 Resources Connection, Inc. (b) 18,919 ------------- 67,852 ------------- Road & Rail--0.8% 1,000 J.B.Hunt Transport Services, Inc. 26,270 1,114 Kansas City Southern (b) 21,222 ------------- 47,492 ------------- Semiconductors & Semiconductor Equipment--3.6% 9,419 Atmel Corp. (b) 29,481 2,420 Integrated Device Technology, Inc. (b) 13,576 4,121 Intel Corp. 60,414 2,987 Linear Technology Corp. 66,073 6,421 Marvell Technology Group Ltd. (b) 42,828 ------------- 212,372 ------------- Software--4.9% 3,410 Compuware Corp. (b) 23,018 1,102 Fair Isaac Corp. 18,580 3,549 Microsoft Corp. 68,992 1,967 Parametric Technology Corp. (b) 24,883 1,729 SAP AG, ADR 62,623 1,105 Sybase, Inc. (b) 27,371 4,542 Symantec Corp. (b) 61,407 ------------- 286,874 ------------- Specialty Retail--9.4% 906 Advance Auto Parts, Inc. 30,487 1,161 Aeropostale, Inc. (b) 18,692 722 AutoZone, Inc. (b) 100,697 5,190 Bed Bath & Beyond, Inc. (b) 131,929 885 Buckle (The), Inc. 19,311 2,578 Foot Locker, Inc. 18,923 689 Gymboree (The) Corp. (b) 17,976 1,168 Hibbett Sports, Inc. (b) 18,349 1,061 Jo-Ann Stores, Inc. (b) 16,435 1,680 RadioShack Corp. 20,059 1,009 Ross Stores, Inc. 29,998 695 Sherwin-Williams (The) Co. 41,526 2,708 TJX (The) Cos., Inc. 55,704 637 Tractor Supply Co. (b) 23,021 1,104 Zale Corp. (b) 3,676 ------------- 546,783 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Textiles, Apparel & Luxury Goods--2.2% 1,597 Nike, Inc., Class B $ 81,447 561 Polo Ralph Lauren Corp. 25,475 962 Wolverine World Wide, Inc. 20,240 ------------- 127,162 ------------- Thrifts & Mortgage Finance--0.3% 1,137 Washington Federal, Inc. 17,010 ------------- Trading Companies & Distributors--1.1% 860 GATX Corp. 26,634 445 W.W. Grainger, Inc. 35,084 ------------- 61,718 ------------- Total Common Stocks--100.0% (Cost $7,966,233) 5,843,611 Money Market Fund--0.8% 46,450 Morgan Stanley Institutional Treasury Money Market Fund -- 0.06% (c) (Cost $46,450) 46,450 ------------- Total Investments--100.8% (Cost $8,012,683) (d) 5,890,061 Net Other Assets and Liabilities--(0.8)% (49,374) ------------- Net Assets--100.0% $ 5,840,687 ============= (a) All percentages shown in Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Represents annualized 7-day yield at December 31, 2008. (d) Aggregate cost for federal income tax purposes is $8,050,885. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $99,220 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,260,044. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $ 5,890,061 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $ 5,890,061 =============== Page 58 See Notes to Financial Statements. FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.9% Aerospace & Defense--2.1% 19,124 Boeing (The) Co. $ 816,021 24,651 Honeywell International, Inc. 809,292 18,224 Northrop Grumman Corp. 820,809 ------------- 2,446,122 ------------- Air Freight & Logistics--0.7% 14,785 United Parcel Service, Inc., Class B 815,541 ------------- Auto Components--0.7% 38,267 Autoliv, Inc. 821,210 ------------- Automobiles--1.4% 38,398 Honda Motor Co., Ltd., ADR 819,413 12,917 Toyota Motor Corp., ADR 845,289 ------------- 1,664,702 ------------- Beverages--1.4% 17,608 Coca-Cola (The) Co. 797,114 14,630 PepsiCo, Inc. 801,285 ------------- 1,598,399 ------------- Capital Markets--1.4% 30,444 Bank of New York Mellon (The) 862,478 47,631 Federated Investors, Inc., Class B 807,822 ------------- 1,670,300 ------------- Chemicals--3.4% 17,054 Air Products and Chemicals, Inc. 857,305 40,019 Dow Chemical (The) Co. 603,887 31,468 E.I. du Pont de Nemours & Co. 796,140 27,700 International Flavors & Fragrances, Inc. 823,244 19,803 PPG Industries, Inc. 840,241 ------------- 3,920,817 ------------- Commercial Banks--8.0% 18,895 Bank of Hawaii Corp. 853,487 32,469 Bank of Montreal 834,129 32,469 Bank of Nova Scotia 883,157 17,712 City National Corp. 862,574 16,434 Cullen/Frost Bankers, Inc. 832,875 14,233 M&T Bank Corp. 817,117 28,257 Royal Bank of Canada 838,103 23,383 Toronto-Dominion Bank (The) 838,748 33,364 U.S. Bancorp 834,434 28,680 Wells Fargo & Co. 845,486 34,904 Wilmington Trust Corp. 776,265 ------------- 9,216,375 ------------- Commercial Services & Supplies--2.9% 24,567 Avery Dennison Corp. 804,078 32,536 Pitney Bowes, Inc. 829,017 33,578 Republic Services, Inc. 832,399 24,972 Waste Management, Inc. 827,572 ------------- 3,293,066 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Communications Equipment--0.7% 51,364 Nokia Oyj, ADR $ 801,278 ------------- Consumer Finance--0.7% 42,692 American Express Co. 791,937 ------------- Containers & Packaging--1.3% 31,632 Bemis Co., Inc. 749,046 32,739 Sonoco Products Co. 758,235 ------------- 1,507,281 ------------- Distributors--0.7% 21,676 Genuine Parts Co. 820,653 ------------- Diversified Financial Services--0.7% 58,122 Bank of America Corp. 818,358 ------------- Diversified Telecommunication Services--2.8% 27,955 AT&T, Inc. 796,718 30,293 CenturyTel, Inc. 827,907 11,836 Telefonica SA, ADR 797,628 23,531 Verizon Communications, Inc. 797,701 ------------- 3,219,954 ------------- Electric Utilities--7.7% 52,991 Duke Energy Corp. 795,395 9,592 Entergy Corp. 797,383 15,297 Exelon Corp. 850,665 16,019 FirstEnergy Corp. 778,203 15,440 FPL Group, Inc. 777,095 35,777 Hawaiian Electric Industries, Inc. 792,103 25,607 Pinnacle West Capital Corp. 822,753 43,327 Portland General Electric Co. 843,577 20,159 Progress Energy, Inc. 803,336 21,771 Southern Co. 805,527 40,766 Westar Energy, Inc. 836,111 ------------- 8,902,148 ------------- Electrical Equipment--2.1% 28,462 Cooper Industries Ltd., Class A 831,944 22,813 Emerson Electric Co. 835,184 24,706 Hubbell, Inc., Class B 807,392 ------------- 2,474,520 ------------- Food & Staples Retailing--0.7% 34,087 Sysco Corp. 781,956 ------------- Food Products--7.0% 28,288 Campbell Soup Co. 848,923 48,422 ConAgra Foods, Inc. 798,963 20,931 H.J. Heinz Co. 787,006 22,423 Hershey (The) Co. 778,975 19,143 J.M. Smucker (The) Co. 830,040 18,621 Kellogg Co. 816,531 29,278 Kraft Foods, Inc., Class A 786,114 25,156 McCormick & Co., Inc. 801,470 82,001 Sara Lee Corp. 802,790 See Notes to Financial Statements. Page 59 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Food Products (Continued) 34,295 Unilever PLC, ADR $ 789,471 ------------- 8,040,283 ------------- Gas Utilities--6.4% 26,748 AGL Resources, Inc. 838,550 33,266 Atmos Energy Corp. 788,404 26,523 National Fuel Gas Co. 830,966 21,236 New Jersey Resources Corp. 835,637 17,480 Northwest Natural Gas Co. 773,140 25,229 Piedmont Natural Gas Co. 799,002 20,943 South Jersey Industries, Inc. 834,579 33,308 UGI Corp. 813,381 25,213 WGL Holdings, Inc. 824,213 ------------- 7,337,872 ------------- Hotels, Restaurants & Leisure--0.7% 12,807 McDonald's Corp. 796,467 ------------- Household Durables--2.9% 19,984 Fortune Brands, Inc. 824,940 68,144 Panasonic Corp., ADR 847,711 21,277 Snap-On, Inc. 837,888 24,815 Stanley Works (The) 846,192 ------------- 3,356,731 ------------- Household Products--1.4% 14,382 Clorox (The) Co. 799,064 14,996 Kimberly-Clark Corp. 790,889 ------------- 1,589,953 ------------- Industrial Conglomerates--2.7% 13,951 3M Co. 802,741 39,280 Carlisle Cos., Inc. 813,095 48,935 General Electric Co. 792,747 51,264 Textron, Inc. 711,032 ------------- 3,119,615 ------------- Insurance--5.1% 26,514 Allstate (The) Corp. 868,599 31,864 Arthur J. Gallagher & Co. 825,596 27,154 Cincinnati Financial Corp. 789,367 21,462 Erie Indemnity Co., Class A 807,615 47,689 Lincoln National Corp. 898,460 48,723 Manulife Financial Corp. 829,753 17,938 Mercury General Corp. 824,969 ------------- 5,844,359 ------------- IT Services--1.4% 20,815 Automatic Data Processing, Inc. 818,862 30,671 Paychex, Inc. 806,034 ------------- 1,624,896 ------------- Machinery--4.4% 18,822 Caterpillar, Inc. 840,779 25,590 Dover Corp. 842,423 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Machinery (Continued) 17,436 Eaton Corp. $ 866,743 35,761 Graco, Inc. 848,609 23,665 Illinois Tool Works, Inc. 829,458 49,027 Ingersoll-Rand Co., Ltd., Class A 850,618 ------------- 5,078,630 ------------- Media--2.8% 103,472 Gannett Co., Inc. 827,776 33,592 Interactive Data Corp. 828,379 32,917 McGraw-Hill (The) Cos., Inc. 763,345 28,055 Thomson (The) Corp. 817,803 ------------- 3,237,303 ------------- Multi-Utilities--9.0% 28,369 Alliant Energy Corp. 827,807 24,159 Ameren Corp. 803,528 20,164 Consolidated Edison, Inc. 784,985 22,670 Dominion Resources, Inc. 812,493 18,949 Integrys Energy Group, Inc. 814,428 21,856 NSTAR 797,525 31,456 OGE Energy Corp. 810,936 20,159 PG&E Corp. 780,355 22,907 SCANA Corp. 815,489 19,441 Sempra Energy 828,771 31,494 Vectren Corp. 787,665 18,895 Wisconsin Energy Corp. 793,212 42,576 Xcel Energy, Inc. 789,785 ------------- 10,446,979 ------------- Office Electronics--0.7% 25,860 CANON, Inc., ADR 812,004 ------------- Oil, Gas & Consumable Fuels--4.2% 17,514 BP PLC, ADR 818,604 11,333 Chevron Corp. 838,302 15,877 ConocoPhillips 822,429 15,033 Royal Dutch Shell PLC, ADR 795,847 14,579 Total S.A., ADR 806,219 29,256 TransCanada Corp. 794,008 ------------- 4,875,409 ------------- Pharmaceuticals--4.9% 34,295 Bristol-Myers Squibb Co. 797,359 21,060 Eli Lilly & Co. 848,086 21,862 GlaxoSmithKline PLC, ADR 814,797 13,345 Johnson & Johnson 798,431 45,773 Pfizer, Inc. 810,640 24,332 Sanofi-Aventis, ADR 782,517 21,568 Wyeth 809,016 ------------- 5,660,846 ------------- Real Estate Investment Trusts--2.8% 23,397 Plum Creek Timber Co., Inc. 812,812 15,123 Simon Property Group, Inc. 803,485 27,381 Washington Real Estate Investment Trust 774,882 Page 60 See Notes to Financial Statements. FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Real Estate Investment Trusts (Continued) 38,873 Weingarten Realty Investors $ 804,282 ------------- 3,195,461 ------------- Semiconductors & Semiconductor Equipment--1.4% 54,839 Intel Corp. 803,939 36,172 Linear Technology Corp. 800,125 ------------- 1,604,064 ------------- Specialty Retail--0.7% 33,139 Home Depot (The), Inc. 762,860 ------------- Textiles, Apparel & Luxury Goods--0.7% 14,665 VF Corp. 803,202 ------------- Thrifts & Mortgage Finance--1.3% 17,748 Capitol Federal Financial 809,309 48,363 Washington Federal, Inc. 723,510 ------------- 1,532,819 ------------- Total Investments--99.9% (Cost $134,966,856) (b) 115,284,370 Net Other Assets and Liabilities--0.1% 118,417 -------------- Net Assets--100.0% $ 115,402,787 ============== (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Aggregate cost for federal income tax purposes is $143,731,988. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,366,709 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $29,814,327. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $115,284,370 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $115,284,370 =============== See Notes to Financial Statements. Page 61 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (b)--100.0% Air Freight & Logistics--3.4% 2,279 C.H. Robinson Worldwide, Inc. $ 125,414 3,682 Expeditors International of Washington, Inc. 122,500 ------------- 247,914 ------------- Airlines--1.6% 3,948 Ryanair Holdings PLC, ADR (c) 114,808 ------------- Beverages--1.7% 3,584 Hansen Natural Corp. (c) 120,172 ------------- Biotechnology--11.5% 2,041 Amgen, Inc. (c) 117,868 2,524 Biogen Idec, Inc. (c) 120,218 2,159 Celgene Corp. (c) 119,350 1,523 Cephalon, Inc. (c) 117,332 1,730 Genzyme Corp. (c) 114,820 2,377 Gilead Sciences, Inc. (c) 121,559 3,958 Vertex Pharmaceuticals, Inc. (c) 120,243 ------------- 831,390 ------------- Chemicals--1.7% 2,913 Sigma-Aldrich Corp. 123,045 ------------- Commercial Services & Supplies--3.3% 5,274 Cintas Corp. 122,515 2,232 Stericycle, Inc. (c) 116,243 ------------- 238,758 ------------- Construction & Engineering--1.6% 4,955 Foster Wheeler Ltd. (c) 115,848 ------------- Diversified Consumer Services--1.6% 1,560 Apollo Group, Inc., Class A (c) 119,527 ------------- Electrical Equipment--1.6% 839 First Solar, Inc. (c) 115,748 ------------- Electronic Equipment, Instruments &Components--3.5% 47,397 Flextronics International Ltd. (c) 121,336 4,379 FLIR Systems, Inc. (c) 134,348 ------------- 255,684 ------------- Food & Staples Retailing--1.6% 2,194 Costco Wholesale Corp. 115,185 ------------- Health Care Equipment & Supplies--5.0% 4,362 DENTSPLY International, Inc. 123,182 9,071 Hologic, Inc. (c) 118,558 940 Intuitive Surgical, Inc. (c) 119,371 ------------- 361,111 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Health Care Providers & Services--4.8% 1,923 Express Scripts, Inc. (c) $ 105,727 3,391 Henry Schein, Inc. (c) 124,416 6,415 Patterson Cos., Inc. (c) 120,281 ------------- 350,424 ------------- Hotels, Restaurants & Leisure--3.2% 11,946 Starbucks Corp. (c) 113,009 2,742 Wynn Resorts Ltd. (c) 115,877 ------------- 228,886 ------------- Household Durables--1.6% 6,068 Garmin Ltd. 116,324 ------------- Internet & Catalog Retail--4.9% 2,289 Amazon.com, Inc. (c) 117,380 14,480 Expedia, Inc. (c) 119,315 38,069 Liberty Media Corp. - Interactive, Class A (c) 118,775 ------------- 355,470 ------------- Internet Software & Services--1.6% 8,168 eBay, Inc. (c) 114,025 ------------- IT Services--5.0% 3,139 Automatic Data Processing, Inc. 123,489 3,239 Fiserv, Inc. (c) 117,802 4,496 Paychex, Inc. 118,155 ------------- 359,446 ------------- Life Sciences Tools & Services--5.1% 4,705 Illumina, Inc. (c) 122,565 5,399 Life Technologies Corp. (c) 125,851 4,111 Pharmaceutical Product Development, Inc. 119,260 ------------- 367,676 ------------- Machinery--3.2% 4,967 Joy Global, Inc. 113,695 4,164 PACCAR, Inc. 119,090 ------------- 232,785 ------------- Media--8.2% 7,488 Comcast Corp., Class A 126,397 5,386 DIRECTV Group (The), Inc. (c) 123,393 10,062 DISH Network Corp., Class A (c) 111,588 10,748 Focus Media Holding Ltd., ADR (c) 97,699 8,435 Liberty Global, Inc., Class A (c) 134,286 ------------- 593,363 ------------- Metals & Mining--1.6% 10,069 Steel Dynamics, Inc. 112,571 ------------- Multiline Retail--1.6% 3,015 Sears Holdings Corp. (c) 117,193 ------------- Page 62 See Notes to Financial Statements. FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (b) (Continued) Pharmaceuticals--3.3% 2,711 Teva Pharmaceutical Industries Ltd., ADR $ 115,407 8,442 Warner Chilcott Ltd., Class A (c) 122,409 ------------- 237,816 ------------- Road & Rail--1.7% 4,776 J.B. Hunt Transport Services, Inc. 125,466 ------------- Software--3.0% 12,424 Activision Blizzard, Inc. (c) 107,343 6,787 Electronic Arts, Inc. (c) 108,864 ------------- 216,207 ------------- Specialty Retail--8.1% 4,537 Bed Bath & Beyond, Inc. (c) 115,331 3,918 O'Reilly Automotive, Inc. (c) 120,439 4,041 Ross Stores, Inc. 120,139 6,450 Staples, Inc. 115,584 7,800 Urban Outfitters, Inc. (c) 116,844 ------------- 588,337 ------------- Trading Companies & Distributors--1.7% 3,476 Fastenal Co. 121,139 ------------- Wireless Telecommunication Services--3.3% 2,643 Millicom International Cellular S.A. 118,697 6,494 NII Holdings, Inc. (c) 118,060 ------------- 236,757 ------------- Total Common Stocks--100.0% (Cost $8,906,856) 7,233,075 Money Market Funds--0.6% 42,111 Morgan Stanley Institutional Treasury Money Market Fund--0.06% (d) (Cost $42,111) 42,111 ------------- Total Investments--100.6% (Cost $8,948,967) (e) $ 7,275,186 Net Others Assets and Liabilities--(0.6)% (43,223) ------------- Net Assets--100.0% $ 7,231,963 ============= (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, 2008. (e) Aggregate cost for federal income tax purposes is $9,294,397. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $124,418 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,143,629. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $ 7,275,186 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $ 7,275,186 =============== See Notes to Financial Statements. Page 63 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (d) PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.1% Aerospace & Defense--2.3% 14,379 Ascent Solar Technologies, Inc. (b) $ 54,065 66,175 Hexcel Corp. (b) 489,033 ------------- 543,098 ------------- Auto Components--0.3% 56,379 Ballard Power Systems, Inc. (b) 63,708 ------------- Biotechnology--0.9% 15,763 Metabolix, Inc. (b) 200,505 ------------- Chemicals--1.2% 63,964 Altair Nanotechnologies, Inc. (b) 78,036 23,627 Zoltek Cos., Inc. (b) 212,407 ------------- 290,443 ------------- Commercial Services & Supplies--0.4% 13,907 EnerNOC, Inc. (b) 103,468 ------------- Electrical Equipment--41.0% 37,620 Advanced Battery Technologies, Inc. (b) 100,069 29,719 American Superconductor Corp. (b) 484,717 31,757 Baldor Electric Co. 566,862 17,626 C&D Technologies, Inc. (b) 55,169 24,468 Canadian Solar, Inc. (b) 158,063 119,346 Capstone Turbine Corp. (b) 100,251 39,608 China BAK Battery, Inc. (b) 64,165 19,406 China Sunergy Co., Ltd., ADR (b) 76,654 77,513 Ener1, Inc. (b) 554,218 31,386 Energy Conversion Devices, Inc. (b) 791,241 113,225 Evergreen Solar, Inc. (b) 361,188 13,152 First Solar, Inc. (b) 1,814,451 47,241 FuelCell Energy, Inc. (b) 183,295 81,714 GrafTech International Ltd. (b) 679,860 98,109 GT Solar International, Inc. (b) 283,535 85,412 JA Solar Holdings Co., Ltd., ADR (b) 373,250 18,125 Orion Energy Systems, Inc. (b) 98,056 60,698 Plug Power, Inc. (b) 61,912 60,294 Power-One, Inc. (b) 71,750 22,286 Solarfun Power Holdings Co., Ltd., ADR (b) 111,653 29,629 SunPower Corp., Class A (b) 1,096,274 71,640 Suntech Power Holdings Co., Ltd., ADR (b) 838,188 11,990 Ultralife Batteries, Inc. (b) 160,786 82,500 Valence Technology, Inc. (b) 150,150 20,532 Vicor Corp. 135,717 45,584 Yingli Green Energy Holding Co., Ltd., ADR (b) 278,062 ------------- 9,649,536 ------------- Electronic Equipment, Instruments &Components--11.2% 104,745 AVX Corp. 831,675 27,773 Echelon Corp. (b) 226,350 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Electronic Equipment, Instruments &Components (Continued) 23,346 Itron, Inc. (b) $ 1,488,074 14,998 Maxwell Technologies, Inc. (b) 76,040 ------------- 2,622,139 ------------- Health Care Equipment & Supplies--1.8% 15,734 Greatbatch, Inc. (b) 416,322 ------------- Independent Power Producers & Energy Traders--3.8% 27,962 Ormat Technologies, Inc. 891,149 ------------- Oil, Gas & Consumable Fuels--0.3% 29,510 Aventine Renewable Energy Holdings, Inc. (b) 19,182 33,089 Gushan Enviromental Energy Ltd., ADR 60,883 ------------- 80,065 ------------- Semiconductors & Semiconductor Equipment--36.9% 31,458 Advanced Analogic Technologies, Inc. (b) 95,003 60,658 Cree, Inc. (b) 962,642 53,347 EMCORE Corp. (b) 69,351 85,245 Fairchild Semiconductor International, Inc. (b) 416,848 50,049 International Rectifier Corp. (b) 675,662 21,356 IXYS Corp. 176,401 28,824 LDK Solar Co., Ltd., ADR (b) 378,171 85,340 Linear Technology Corp. 1,887,721 110,568 MEMC Electronic Materials, Inc. (b) 1,578,911 55,669 Microsemi Corp. (b) 703,656 25,694 O2Micro International Ltd., ADR (b) 50,360 281,765 ON Semiconductor Corp. (b) 958,001 20,134 Power Integrations, Inc. 400,264 21,990 Renesola Ltd., ADR (b) 96,976 14,613 Rubicon Technology, Inc. (b) 62,251 16,263 Trina Solar Ltd., ADR (b) 151,083 ------------- 8,663,301 ------------- Total Investments--100.1% (Cost $48,806,796) (c) 23,523,734 Net Other Assets and Liabilities--(0.1)% (19,417) ------------- Net Assets--100.0% $ 23,504,317 ============= (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. Page 64 See Notes to Financial Statements. FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (d) PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 (c) Aggregate cost for federal income tax purposes is $50,510,345. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $59,224 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $27,045,835. (d) Formerly known as First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund. See Note 8 in Notes to Financial Statements for information on the Fund's name change. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $23,523,734 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $23,523,734 =============== See Notes to Financial Statements. Page 65 FIRST TRUST S&P REIT INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.2% Real Estate Investment Trusts--99.2% 1,042 Acadia Realty Trust $ 14,869 253 Agree Realty Corp. 4,587 66 Alexander's, Inc. 16,823 1,038 Alexandria Real Estate Equities, Inc. 62,633 3,172 AMB Property Corp. 74,288 1,362 American Campus Communities, Inc. 27,894 207 American Land Lease, Inc. 2,861 3,261 Apartment Investment & Management Co. 37,665 2,987 Ashford Hospitality Trust 3,435 475 Associated Estates Realty Corp. 4,337 2,484 AvalonBay Communities, Inc. 150,481 2,587 BioMed Realty Trust, Inc. 30,320 3,890 Boston Properties, Inc. 213,950 2,839 Brandywine Realty Trust 21,889 1,646 BRE Properties, Inc. 46,055 1,715 Camden Property Trust 53,748 1,526 CapLease, Inc. 2,640 2,136 CBL & Associates Properties, Inc. 13,884 1,433 Cedar Shopping Centers, Inc. 10,146 480 Cogdell Spencer, Inc. 4,493 1,546 Colonial Properties Trust 12,878 1,661 Corporate Office Properties Trust 50,993 1,406 Cousins Properties, Inc. 19,473 5,597 DCT Industrial Trust, Inc. 28,321 3,873 Developers Diversified Realty Corp. 18,900 2,900 DiamondRock Hospitality Co. 14,703 2,350 Digital Realty Trust, Inc. 77,198 3,921 Douglas Emmett, Inc. 51,208 4,745 Duke Realty Corp. 52,005 983 DuPont Fabros Technology, Inc. 2,035 807 EastGroup Properties, Inc. 28,713 918 Education Realty Trust, Inc. 4,792 1,059 Entertainment Properties Trust 31,558 800 Equity Lifestyle Properties, Inc. 30,688 1,062 Equity One, Inc. 18,797 8,760 Equity Residential 261,223 863 Essex Property Trust, Inc. 66,235 2,753 Extra Space Storage, Inc. 28,411 1,899 Federal Realty Investment Trust 117,890 2,042 FelCor Lodging Trust, Inc. 3,757 1,426 First Industrial Realty Trust, Inc. 10,766 881 First Potomac Realty Trust 8,193 1,906 Franklin Street Properties Corp. 28,114 7,344 General Growth Properties, Inc. 9,474 559 Getty Realty Corp. 11,773 276 Gladstone Commercial Corp. 2,346 1,217 Glimcher Realty Trust 3,420 1,397 Gramercy Capital Corp. 1,788 8,136 HCP, Inc. 225,937 3,331 Health Care REIT, Inc. 140,568 1,894 Healthcare Realty Trust, Inc. 44,471 1,555 Hersha Hospitality Trust 4,665 2,047 Highwoods Properties, Inc. 56,006 1,040 Home Properties, Inc. 42,224 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Real Estate Investment Trusts (Continued) 3,027 Hospitality Properties Trust $ 45,011 16,827 Host Hotels & Resorts, Inc. 127,380 7,332 HRPT Properties Trust 24,709 1,858 Inland Real Estate Corp. 24,117 1,893 Investors Real Estate Trust 20,274 1,065 Kilroy Realty Corp. 35,635 7,375 Kimco Realty Corp. 134,815 1,095 Kite Realty Group Trust 6,088 1,322 LaSalle Hotel Properties 14,608 3,025 Lexington Realty Trust 15,125 3,161 Liberty Property Trust 72,166 745 LTC Properties, Inc. 15,109 2,451 Macerich (The) Co. 44,510 2,122 Mack-Cali Realty Corp. 51,989 1,543 Maguire Properties, Inc. (b) 2,253 2,136 Medical Properties Trust, Inc. 13,478 908 Mid-America Apartment Communities, Inc. 33,741 636 Mission West Properties, Inc. 4,865 785 Monmouth Real Estate Investment Corp. 5,495 778 National Health Investors, Inc. 21,341 2,524 National Retail Properties, Inc. 43,388 3,199 Nationwide Health Properties, Inc. 91,875 2,651 Omega Healthcare Investors, Inc. 42,336 256 One Liberty Properties, Inc. 2,253 493 Parkway Properties, Inc. 8,874 1,269 Pennsylvania Real Estate Investment Trust 9,454 1,423 Post Properties, Inc. 23,480 8,555 ProLogis 118,829 481 PS Business Parks, Inc. 21,481 4,037 Public Storage 320,941 598 Ramco-Gershenson Properties Trust 3,696 3,358 Realty Income Corp. 77,738 2,254 Regency Centers Corp. 105,262 351 Saul Centers, Inc. 13,865 3,689 Senior Housing Properties Trust 66,107 7,272 Simon Property Group, Inc. 386,360 1,837 SL Green Realty Corp. 47,578 708 Sovran Self Storage, Inc. 25,488 2,396 Strategic Hotels & Resorts, Inc. 4,025 528 Sun Communities, Inc. 7,392 1,561 Sunstone Hotel Investors, Inc. 9,663 573 Supertel Hospitality, Inc. 974 1,019 Tanger Factory Outlet Centers, Inc. 38,335 1,707 Taubman Centers, Inc. 43,460 4,386 UDR, Inc. 60,483 382 Universal Health Realty Income Trust 12,572 686 Urstadt Biddle Properties, Inc. 10,928 1,583 U-Store-It Trust 7,044 4,614 Ventas, Inc. 154,892 4,424 Vornado Realty Trust 266,988 1,687 Washington Real Estate Investment Trust 47,742 2,496 Weingarten Realty Investors 51,642 Page 66 See Notes to Financial Statements. FIRST TRUST S&P REIT INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Real Estate Investment Trusts (Continued) 386 Winthrop Realty Trust, Inc. $ 4,184 ------------- Total Common Stocks--99.2% (Cost $6,750,718) 5,148,559 Money Market Fund--0.6% 30,349 Morgan Stanley Institutional Treasury Money Market Fund--0.06% (c) (Cost $30,349) 30,349 ------------- Total Investments--99.8% (Cost $6,781,067) (d) 5,178,908 Net Other Assets and Liabilities--0.2% 8,366 ------------- Net Assets--100.0% $ 5,187,274 ============= (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, 2008. (d) Aggregate cost for federal income tax purposes is $6,964,048. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $19,910 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,805,050. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $ 5,178,908 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $ 5,178,908 =============== See Notes to Financial Statements. Page 67 FIRST TRUST ISE WATER INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Building Products--1.9% 9,521 Ameron International Corp. $ 599,061 ------------- Chemicals--9.0% 24,181 Arch Chemicals, Inc. 630,399 65,088 Calgon Carbon Corp. (b) 999,752 109,237 Nalco Holding Co. 1,260,594 ------------- 2,890,745 ------------- Commercial Services & Supplies--3.6% 48,256 Tetra Tech, Inc. (b) 1,165,382 ------------- Construction & Engineering--6.9% 31,785 Insituform Technologies, Inc., Class A (b) 625,847 34,553 Layne Christensen Co. (b) 829,618 17,593 Northwest Pipe Co. (b) 749,637 ------------- 2,205,102 ------------- Diversified Financial Services--1.2% 14,489 PICO Holdings, Inc. (b) 385,118 ------------- Electrical Equipment--6.0% 21,993 Franklin Electric Co., Inc. 618,223 30,075 Roper Industries, Inc. 1,305,556 ------------- 1,923,779 ------------- Electronic Equipment, Instruments &Components--4.1% 20,787 Itron, Inc. (b) 1,324,963 ------------- Life Sciences Tools & Services--3.8% 23,977 Millipore Corp. (b) 1,235,295 ------------- Machinery--39.3% 19,622 Badger Meter, Inc. 569,430 58,443 Crane Co. 1,007,557 48,895 Energy Recovery, Inc. (b) 370,624 22,885 Flowserve Corp. 1,178,578 12,691 Gorman-Rupp (The) Co. 394,944 47,121 IDEX Corp. 1,137,972 28,029 ITT Corp. 1,289,055 21,232 Lindsay Corp. 674,965 27,652 Mueller Industries, Inc. 693,512 95,868 Mueller Water Products Inc., Class A 805,291 44,511 Pall Corp. 1,265,448 50,155 Pentair, Inc. 1,187,169 18,132 Valmont Industries, Inc. 1,112,580 37,920 Watts Water Technologies, Inc., Class A 946,862 ------------- 12,633,987 ------------- Multi-Utilities--4.7% 47,665 Veolia Environment, ADR 1,511,457 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Water Utilities--19.5% 19,494 American States Water Co. $ 642,912 51,046 American Water Works Co., Inc. 1,065,840 62,079 Aqua America, Inc. 1,278,208 22,012 California Water Service Group 1,022,017 85,146 Cascal N.V. 342,287 46,099 Companhia de Saneamento Basico do Estado de Sao Paulo, ADR (b) 1,116,057 31,586 Consolidated Water Co., Ltd. 394,825 14,089 SJW Corp. 421,825 ------------- 6,283,971 ------------- Total Common Stocks--100.0% (Cost $45,566,132) 32,158,860 Money Market Fund--0.0% 2,885 Morgan Stanley Institutional Treasury Money Market Fund--0.06% (c) (Cost $2,885) 2,885 ------------- Total Investments--100.0% (Cost $45,569,017) (d) 32,161,745 Net Other Assets and Liabilities--(0.0)% (4,504) ------------- Net Assets--100.0% $32,157,241 ============= (a) All percentages shown in Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Represents annualized 7-day yield at December 31, 2008 (d) Aggregate cost for federal income tax purposes is $46,182,248. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $476,222 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $14,496,725. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $32,161,745 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $32,161,745 =============== Page 68 See Notes to Financial Statements. FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--99.9% Gas Utilities--3.4% 38,605 Questar Corp. $ 1,261,997 ------------- Oil, Gas & Consumable Fuels--96.5% 33,215 Anadarko Petroleum Corp. 1,280,438 17,193 Apache Corp. 1,281,394 58,320 Bill Barrett Corp. (b) 1,232,302 26,147 BP PLC, ADR 1,222,111 45,928 Cabot Oil & Gas Corp. 1,194,128 73,916 Chesapeake Energy Corp. 1,195,222 45,673 Cimarex Energy Co. 1,223,123 23,934 ConocoPhillips 1,239,781 256,242 Delta Petroleum Corp. (b) 1,219,712 18,074 Devon Energy Corp. 1,187,643 27,827 EnCana Corp. 1,293,399 60,980 Enerplus Resources Fund 1,193,988 18,096 EOG Resources, Inc. 1,204,832 66,520 Forest Oil Corp. (b) 1,096,915 39,334 Goodrich Petroleum Corp. (b) 1,178,053 94,905 Linn Energy LLC 1,420,728 134,717 Mariner Energy, Inc. (b) 1,374,113 58,822 Newfield Exploration Co. (b) 1,161,735 24,698 Noble Energy, Inc. 1,215,636 69,845 PetroHawk Energy Corp. (b) 1,091,677 215,405 PetroQuest Energy, Inc. (b) 1,456,137 67,655 Pioneer Natural Resources Co. 1,094,658 237,904 Quicksilver Resources, Inc. (b) 1,325,125 23,406 Royal Dutch Shell PLC, ADR 1,239,114 206,024 SandRidge Energy, Inc. (b) 1,267,048 59,190 St. Mary Land & Exploration Co. 1,202,149 132,825 Talisman Energy, Inc. 1,326,922 34,261 Ultra Petroleum Corp. (b) 1,182,347 90,772 W&T Offshore, Inc. 1,299,855 ------------- 35,900,285 ------------- Total Common Stocks--99.9% (Cost $65,603,941) 37,162,282 Money Market Fund--0.1% 30,527 Morgan Stanley Institutional Treasury Money Market Fund--0.06 % (c) (Cost $30,527) 30,527 ------------- Total Investments--100.0% (Cost $65,634,468) (d) 37,192,809 Net Other Assets and Liabilities--(0.0)% (14,292) ------------- Net Assets--100.0% $ 37,178,517 ============= (a) All percentages shown in Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Represents annualized 7-day yield at December 31, 2008. (d) Aggregate cost for federal income tax purposes is $68,014,728. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $396,392 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $31,218,311. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $37,192,809 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $37,192,809 =============== See Notes to Financial Statements. Page 69 FIRST TRUST ISE CHINDIA INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks--100.0% Airlines--1.5% 17,575 China Eastern Airlines, ADR (b) $ 268,897 29,534 China Southern Airlines Co., Ltd., ADR (b) 250,744 ------------- 519,641 ------------- Chemicals--0.7% 10,011 Sinopec Shanghai Petrochemical Co., Ltd., ADR 261,888 ------------- Commercial Banks--14.7% 36,416 HDFC Bank Ltd., ADR 2,599,374 139,586 ICICI Bank Ltd., ADR 2,687,030 ------------- 5,286,404 ------------- Construction & Engineering--0.8% 25,241 KHD Humboldt Wedag International Ltd. (b) 281,942 ------------- Diversified Consumer Services--0.7% 4,623 New Oriental Education & Technology Group, Inc., ADR (b) 253,849 ------------- Diversified Telecommunications--4.6% 6,471 China Telecom Corp., Ltd., ADR 246,222 56,796 China Unicom Ltd., ADR 692,911 32,570 Tata Communications., Ltd., ADR 696,020 ------------- 1,635,153 ------------- Electrical Equipment--3.3% 79,956 JA Solar Holdings Co., Ltd., ADR (b) 349,407 51,607 Solarfun Power Holdings Co., Ltd., ADR (b) 258,551 25,586 Suntech Power Holdings Co., Ltd., ADR (b) 299,356 46,035 Yingli Green Energy Holding Co., Ltd., ADR (b) 280,814 ------------- 1,188,128 ------------- Health Care Equipment & Supplies--1.3% 11,933 China Medical Technologies, Inc., ADR 241,763 13,519 Mindray Medical International Ltd., ADR 243,342 ------------- 485,105 ------------- Hotels, Restaurants & Leisure--1.5% 11,358 Ctrip.com International Ltd., ADR 270,320 87,750 Melco PBL Entertainment Ltd., ADR (b) 278,168 ------------- 548,488 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Independent Power Producers & Energy Traders--0.8% 9,235 Huaneng Power International, Inc., ADR $ 269,477 ------------- Insurance--6.9% 53,407 China Life Insurance Co., Ltd., ADR 2,478,085 ------------- Internet Software & Services--8.6% 19,352 AsiaInfo Holdings, Inc. (b) 229,128 12,405 Baidu.com, Inc., ADR (b) 1,619,721 12,471 NetEase.com, Inc. ADR (b) 275,609 8,865 SINA Corp. (b) 205,225 16,151 Sohu.com, Inc. (b) 764,588 ------------- 3,094,271 ------------- IT Services--14.0% 102,183 Infosys Technologies Ltd., ADR 2,510,636 111,707 Satyam Computer Services Ltd., ADR 1,009,831 184,864 Wipro Ltd., ADR 1,502,944 ------------- 5,023,411 ------------- Life Sciences Tools & Services--0.8% 37,626 WuXi PharmaTech Cayman, Inc., ADR (b) 300,632 ------------- Machinery--2.0% 164,826 Tata Motors Ltd., ADR 733,476 ------------- Marine--0.6% 25,613 Seaspan Corp. 227,700 ------------- Media--1.5% 28,971 Focus Media Holding Ltd., ADR (b) 263,346 48,420 VisionChina Media, Inc., ADR (b) 264,374 ------------- 527,720 ------------- Metals & Mining--5.4% 50,220 Aluminum Corp. of China Ltd., ADR 678,472 227,365 Sterlite Industries (India) Ltd., ADR 1,255,055 ------------- 1,933,527 ------------- Oil, Gas & Consumable Fuels--15.0% 20,849 China Petroleum & Chemical Corp., ADR 1,288,260 14,791 CNOOC Ltd., ADR 1,408,694 27,575 PetroChina Co., Ltd., ADR 2,453,623 33,853 Yanzhou Coal Mining Co., Ltd., ADR 254,575 ------------- 5,405,152 ------------- Personal Products--0.8% 40,243 American Oriental Bioengineering, Inc. (b) 273,250 ------------- Pharmaceuticals--2.0% 73,810 Dr. Reddy's Laboratories Ltd., ADR 723,338 ------------- Real Estate Management & Development--0.8% 34,235 E-House China Holdings Ltd., ADR (b) 277,304 ------------- Page 70 See Notes to Financial Statements. FIRST TRUST ISE CHINDIA INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Road & Rail--0.7% 13,153 Guangshen Railway Co., Ltd., ADR $ 247,803 ------------- Semiconductors & Semiconductor Equipment--0.7% 19,230 LDK Solar Co., Ltd., ADR (b) 252,298 ------------- Software--2.9% 40,715 Giant Interactive Group, Inc., ADR (b) 264,240 16,183 Longtop Financial Technologies Ltd., ADR (b) 244,687 14,451 Perfect World Co., Ltd., ADR (b) 249,280 8,675 Shanda Interactive Entertainment Ltd., ADR (b) 280,723 ------------- 1,038,930 ------------- Wireless Telecommunication Services--7.4% 47,916 China Mobile Ltd., ADR 2,436,528 58,997 Hutchison Telecommunications International Ltd., ADR 238,938 ------------- 2,675,466 ------------- Total Investments--100.0% (Cost $68,805,527) (c) 35,942,438 Net Other Assets and Liabilities--(0.0)% (5,563) ------------- Net Assets--100.0% $ 35,936,875 ============= (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 $69,609,985. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $107,160 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $33,774,707. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $35,942,438 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $35,942,438 =============== See Notes to Financial Statements. Page 71 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks --100.3% Aerospace & Defense--2.2% 8,889 Alliant Techsystems, Inc. (b) $ 762,321 17,066 Axsys Technologies, Inc. (b) 936,240 ------------- 1,698,561 ------------- Air Freight & Logistics--2.0% 14,157 C.H. Robinson Worldwide, Inc. 779,060 23,238 Expeditors International of Washington, Inc. 773,128 ------------- 1,552,188 ------------- Biotechnology--6.0% 12,822 Amgen, Inc. (b) 740,471 13,881 Celgene Corp. (b) 767,342 14,562 Gilead Sciences, Inc. (b) 744,701 25,548 Martek Biosciences Corp. (b) 774,359 11,290 Myriad Genetics, Inc. (b) 748,075 19,491 OSI Pharmaceuticals, Inc. (b) 761,124 ------------- 4,536,072 ------------- Chemicals--1.0% 47,968 Calgon Carbon Corp. (b) 736,788 ------------- Commercial Services & Supplies--2.0% 12,272 Clean Harbors, Inc. (b) 778,535 14,245 Stericycle, Inc. (b) 741,880 ------------- 1,520,415 ------------- Communications Equipment --1.0% 32,497 ViaSat, Inc. (b) 782,528 ------------- Computers & Peripherals--1.1% 48,476 Synaptics, Inc. (b) 802,763 ------------- Containers & Packaging--1.0% 22,947 Rock-Tenn Co., Class A 784,328 ------------- Diversified Consumer Services--6.1% 9,719 Apollo Group, Inc., Class A (b) 744,670 48,638 Corinthian Colleges, Inc. (b) 796,203 12,833 DeVry, Inc. 736,743 34,880 H&R Block, Inc. 792,474 8,354 ITT Educational Services, Inc. (b) 793,463 3,482 Strayer Education, Inc. 746,576 ------------- 4,610,129 ------------- Diversified Telecommunication Services--1.0% 29,922 NTELOS Holdings Corp. 737,877 ------------- Electronic Equipment, Instruments &Components--3.1% 26,998 FLIR Systems, Inc. (b) 828,298 11,003 Mettler-Toledo International, Inc. (b) 741,602 28,929 MTS Systems Corp. 770,669 ------------- 2,340,569 ------------- SHARES DESCRIPTION VALUE -------------------------------------------------------------- Food & Staples Retailing--4.0% 21,678 BJ's Wholesale Club, Inc. (b) $ 742,688 18,037 Nash Finch Co. 809,681 31,424 Spartan Stores, Inc. 730,608 13,083 Wal-Mart Stores, Inc. 733,433 ------------- 3,016,410 ------------- Food Products--4.0% 34,340 Diamond Foods, Inc. 691,951 31,289 Flowers Foods, Inc. 762,200 20,089 Green Mountain Coffee Roasters, Inc. (b) 777,444 28,759 TreeHouse Foods, Inc. (b) 783,396 ------------- 3,014,991 ------------- Health Care Equipment & Supplies--14.0% 13,650 Baxter International, Inc. 731,504 10,862 Becton, Dickinson & Co. 742,852 9,155 C.R. Bard, Inc. 771,400 85,670 CryoLife, Inc. (b) 831,855 45,780 Cyberonics, Inc. (b) 758,575 13,577 Edwards Lifesciences Corp. (b) 746,056 29,183 Greatbatch, Inc. (b) 772,182 13,134 Haemonetics Corp. (b) 742,071 29,631 Meridian Bioscience, Inc. 754,702 20,364 ResMed, Inc. (b) 763,243 22,726 St. Jude Medical, Inc. (b) 749,049 29,848 STERIS Corp. 713,069 23,874 Thoratec Corp. (b) 775,666 21,386 Varian Medical Systems, Inc. (b) 749,365 ------------- 10,601,589 ------------- Health Care Providers & Services--6.7% 17,692 Amedisys, Inc. (b) 731,387 18,539 Chemed Corp. 737,297 14,858 DaVita, Inc. (b) 736,511 12,231 Express Scripts, Inc. (b) 672,460 17,106 Medco Health Solutions, Inc. (b) 716,912 20,369 Owens & Minor, Inc. 766,894 25,737 Psychiatric Solutions, Inc. (b) 716,775 ------------- 5,078,236 ------------- Health Care Technology--2.0% 19,455 Cerner Corp. (b) 748,045 28,524 Computer Programs & Systems, Inc. 764,443 ------------- 1,512,488 ------------- Hotels, Restaurants & Leisure--2.9% 11,929 McDonald's Corp. 741,864 14,041 Panera Bread Co., Class A (b) 733,502 31,654 Peet's Coffee & Tea, Inc. (b) 735,956 ------------- 2,211,322 ------------- Household Products--1.0% 13,589 Church & Dwight Co., Inc. 762,615 ------------- Page 72 See Notes to Financial Statements. FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2008 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Common Stocks (Continued) Insurance--1.1% 57,449 Crawford & Co., Class B (b) $ 835,308 ------------- Internet & Catalog Retail--1.0% 26,234 NetFlix, Inc. (b) 784,134 ------------- Internet Software & Services--1.1% 63,860 Interwoven, Inc. (b) 804,636 ------------- IT Services--6.0% 22,890 Accenture Ltd., Class A 750,563 15,868 Alliance Data Systems Corp. (b) 738,338 17,271 CACI International Inc., Class A (b) 778,749 22,413 Global Payments, Inc. 734,922 14,510 ManTech International Corp., Class A (b) 786,298 38,552 SAIC, Inc. (b) 750,993 ------------- 4,539,863 ------------- Life Sciences Tools & Services--1.0% 11,746 Techne Corp. 757,852 ------------- Machinery--1.0% 18,487 Wabtec Corp. 734,858 ------------- Media--3.1% 46,685 Comcast Corp., Class A 788,043 34,896 DIRECTV Group (The), Inc. (b) 799,467 41,081 Shaw Communications, Inc., Class B 726,312 ------------- 2,313,822 ------------- Metals & Mining--1.0% 13,315 Compass Minerals International, Inc. 781,058 ------------- Multiline Retail--2.0% 17,251 Dollar Tree, Inc. (b) 721,092 29,678 Family Dollar Stores, Inc. 773,705 ------------- 1,494,797 ------------- Oil, Gas & Consumable Fuels--1.0% 26,899 Southwestern Energy Co. (b) 779,264 ------------- Pharmaceuticals--6.9% 31,944 Bristol-Myers Squibb Co. 742,698 30,985 Endo Pharmaceuticals Holdings, Inc. (b) 801,892 12,430 Johnson & Johnson 743,687 13,738 Novo-Nordisk A/S, ADR 705,996 22,565 Perrigo Co. 729,075 22,663 Sanofi-Aventis, ADR 728,842 17,516 Teva Pharmaceutical Industries Ltd., ADR 745,656 ------------- 5,197,846 ------------- Professional Services--1.0% 10,236 Dun & Bradstreet (The) Corp. 790,219 ------------- Road & Rail--4.0% 9,828 Burlington Northern Santa Fe Corp. 744,078 25,692 Genesee & Wyoming, Inc., Class A (b) 783,605 SHARES DESCRIPTION VALUE -------------------------------------------------------------- Road & Rail (Continued) 16,412 Norfolk Southern Corp. $ 772,185 15,591 Union Pacific Corp. 745,250 ------------- 3,045,118 ------------- Software--2.0% 32,268 Intuit, Inc. (b) 767,656 41,808 Oracle Corp. (b) 741,256 ------------- 1,508,912 ------------- Specialty Retail--3.0% 5,694 AutoZone, Inc. (b) 794,142 28,568 Jos. A. Bank Clothiers, Inc. (b) 747,053 21,225 Tractor Supply Co. (b) 767,072 ------------- 2,308,267 ------------- Textiles, Apparel & Luxury Goods--1.0% 14,918 Nike, Inc., Class B 760,818 ------------- Thrifts & Mortgage Finance--1.0% 48,897 Hudson City Bancorp, Inc. 780,396 ------------- Trading Companies & Distributors--2.0% 21,963 Fastenal Co. 765,411 9,945 W.W. Grainger, Inc. 784,063 ------------- 1,549,474 ------------- Total Investments--100.3% (Cost $80,136,918) (c) 76,066,511 Net Other Assets and Liabilities--(0.3)% (241,242) ------------- Net Assets--100.0% $ 75,825,269 ============= (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 $80,537,966. As of December 31, 2008, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,570,559 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $7,042,014. ADR - American Depositary Receipt. ------------------------------------- Security Valuation Inputs A summary of the inputs used to value the Fund's total investments as of December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes to Financial Statements): Valuation Inputs Investments ----------------------------------------------------------- Level 1 - Quoted Prices - Investments $76,066,511 Level 2 - Other Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- --------------- Total $76,066,511 =============== See Notes to Financial Statements. Page 73 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2008
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 $ 14,069,859 $ 43,116,131 $ 8,454,369 Cash 143,017 -- 39,327 Receivables: Capital shares sold 712,564 -- -- Investment securities sold 31,205 400,512 -- Dividends 19,245 186,592 12,383 Interest -- -- -- Reclaims -- -- -- From investment advisor 10,678 7,994 6,249 Other assets 557 1,651 635 ------------- -------------- -------------- Total Assets 14,987,125 43,712,880 8,512,963 ------------- -------------- -------------- LIABILITIES: Due to Custodian -- 5,024 -- Payables: Investment securities purchased 834,388 423,351 -- Audit and tax fees 29,300 29,300 29,300 Printing fees 16,108 9,979 4,916 Investment advisory fees -- -- -- Licensing fees 891 27,487 182 Accrued expenses and other liabilities 29,745 21,696 24,797 ------------- -------------- -------------- Total Liabilities 910,432 516,837 59,195 ------------- -------------- -------------- NET ASSETS $ 14,076,693 $ 43,196,043 $ 8,453,768 ============= ============== ============== NET ASSETS consist of: Paid-in capital $ 23,970,936 $ 76,357,516 $ 18,040,398 Par value 9,550 33,000 6,000 Accumulated net investment income (loss) -- 70,975 -- Accumulated net realized gain (loss) on investments (3,648,248) (18,130,286) (4,664,474) Net unrealized appreciation (depreciation) on investments (6,255,545) (15,135,162) (4,928,156) ------------- -------------- -------------- NET ASSETS $ 14,076,693 $ 43,196,043 $ 8,453,768 ============= ============== ============== NET ASSET VALUE, per share $ 14.74 $ 13.09 $ 14.09 ============= ============== ============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 955,000 3,300,002 600,002 ------------- -------------- -------------- Investments at cost $ 20,325,404 $ 58,251,293 $ 13,382,525 ============= ============== ==============
Page 74
First Trust First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- Amex(R) Dow Jones DB Strategic Value Line(R) Value Line(R) Equal Weighted Technology Sector Biotechnology Internet Value Equity Allocation Dividend Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund Index Fund ---------------- ------------------- ---------------- ------------------ --------------- -------------------- ---------------- $ 14,855,038 $ 9,415,879 $ 58,642,369 $ 14,769,915 $ 35,740,935 $ 5,890,061 $ 115,284,370 86,763 92,896 54,798 -- 21,153 -- -- 1,185,677 -- -- -- -- -- -- -- -- 493,451 -- -- 19,673 -- 3,563 1,227 -- -- 59,653 7,308 366,303 -- -- -- 4 -- 1 -- -- -- -- -- -- 246 10,274 736 -- -- -- -- -- -- 718 521 2,698 955 1,660 -- 4,600 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- 16,132,495 9,510,523 59,193,316 14,770,874 35,823,401 5,917,289 115,665,547 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- -- -- -- 4,243 -- 1,773 58,904 1,186,087 -- -- -- -- 19,945 -- 29,223 29,300 29,223 29,223 29,300 29,300 29,300 21,463 17,217 16,611 5,109 10,240 6,152 28,207 -- 21,996 10,514 1,227 2,562 1,450 12,494 3,686 2,488 25,586 3,437 9,095 2,713 41,619 44,008 25,926 14,507 19,150 9,734 15,269 92,236 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- 1,284,467 96,927 96,441 62,389 60,931 76,602 262,760 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- $ 14,848,028 $ 9,413,596 $ 59,096,875 $ 14,708,485 $ 35,762,470 $ 5,840,687 $ 115,402,787 ============== ============== ============== ============== ============== ============== ================ $ 29,196,554 $ 20,522,667 $ 82,619,841 $ 35,279,215 $ 65,132,021 $ 10,804,138 $ 172,725,522 12,000 8,000 30,000 10,500 24,000 4,500 99,880 -- -- -- -- 16,119 578 48,392 (6,066,354) (3,796,548) (8,742,783) (7,472,558) (19,354,127) (2,845,907) (37,788,521) (8,294,172) (7,320,523) (14,810,183) (13,108,672) (10,055,543) (2,122,622) (19,682,486) -------------- -------------- -------------- -------------- -------------- -------------- ---------------- $ 14,848,028 $ 9,413,596 $ 59,096,875 $ 14,708,485 $ 35,762,470 $ 5,840,687 $ 115,402,787 ============== ============== ============== ============== ============== ============== ================ $ 12.37 $ 11.77 $ 19.70 $ 14.01 $ 14.90 $ 12.98 $ 11.55 ============== ============== ============== ============== ============== ============== ================ 1,200,002 800,002 3,000,002 1,050,002 2,400,002 450,002 9,987,986 -------------- -------------- -------------- -------------- -------------- -------------- ---------------- $ 23,149,210 $ 16,736,402 $ 73,452,552 $ 27,878,587 $ 45,796,478 $ 8,012,683 $ 134,966,856 ============== ============== ============== ============== ============== ============== ================
See Notes to Financial Statements. Page 75 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 2008
First Trust First Trust NASDAQ-100 NASDAQ(R) Clean Edge(R) Ex-Technology Sector Green Energy Index(SM) Fund Index Fund ----------------------- ----------------------- ASSETS: Investments at value $ 7,275,186 $ 23,523,734 Cash -- 33,451 Receivables: Capital shares sold -- -- Investment securities sold -- -- Dividends 2,292 5,207 Interest 2 -- Reclaims -- -- From investment advisor -- 4,048 Other assets -- 1,285 -------------- -------------- Total Assets 7,277,480 23,567,725 -------------- -------------- LIABILITIES: Due to Custodian 1,821 -- Payables: Investment securities purchased -- -- Audit and tax fees 29,224 29,300 Printing fees 5,270 6,365 Investment advisory fees 273 -- Licensing fees 1,416 6,096 Accrued expenses and other liabilities 7,513 21,647 -------------- -------------- Total Liabilities 45,517 63,408 -------------- -------------- NET ASSETS $ 7,231,963 $ 23,504,317 ============== ============== NET ASSETS consist of: Paid-in capital $ 10,134,178 $ 56,952,070 Par value 6,000 21,000 Accumulated net investment income (loss) -- -- Accumulated net realized gain (loss) on investments (1,234,434) (8,185,691) Net unrealized appreciation (depreciation) on investments (1,673,781) (25,283,062) -------------- -------------- NET ASSETS $ 7,231,963 $ 23,504,317 ============== ============== NET ASSET VALUE, per share $ 12.05 $ 11.19 ============== ============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 600,002 2,100,002 -------------- -------------- Investments at cost $ 8,948,967 $ 48,806,796 ============== ==============
Page 76 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust S&P ISE ISE-Revere ISE First Trust REIT Water Natural Gas Chindia Value Line(R) 100 Index Fund Index Fund Index Fund Index Fund Exchange-Traded Fund ----------------- ----------------- ----------------- ----------------- ---------------------- $ 5,178,908 $ 32,161,745 $ 37,192,809 $ 35,942,438 $ 76,066,511 -- -- 9,707 50,718 -- -- -- -- -- -- -- -- -- -- -- 42,392 56,609 16,294 2,699 42,897 2 2 1 -- -- -- 2,338 -- -- 3,509 5,211 1,772 23,491 7,401 5,666 7,551 -- -- 4,031 4,038 -------------- -------------- --------------- -------------- --------------- 5,234,064 32,222,466 37,242,302 36,007,287 76,122,621 -------------- -------------- --------------- -------------- --------------- 721 8,634 -- -- 171,700 -- -- -- -- -- 30,050 29,300 29,300 29,300 29,300 4,667 9,650 7,887 21,133 23,732 -- -- -- -- -- -- 4,399 10,784 7,532 32,793 11,352 13,242 15,814 12,447 39,827 -------------- -------------- --------------- -------------- --------------- 46,790 65,225 63,785 70,412 297,352 -------------- -------------- --------------- -------------- --------------- $ 5,187,274 $ 32,157,241 $ 37,178,517 $ 35,936,875 $ 75,825,269 ============== ============== =============== ============== =============== $ 7,088,578 $ 49,143,847 $ 95,138,883 $ 91,187,018 $ 156,776,434 5,500 20,500 31,500 30,500 81,900 735 272 6,195 -- -- (305,380) (3,600,106) (29,556,402) (22,417,554) (76,962,658) (1,602,159) (13,407,272) (28,441,659) (32,863,089) (4,070,407) -------------- -------------- --------------- -------------- --------------- $ 5,187,274 $ 32,157,241 $ 37,178,517 $ 35,936,875 $ 75,825,269 ============== ============== =============== ============== =============== $ 9.43 $ 15.69 $ 11.80 $ 11.78 $ 9.26 ============== ============== =============== ============== =============== 550,002 2,050,002 3,150,002 3,050,002 8,189,982 -------------- -------------- --------------- -------------- --------------- $ 6,781,067 $ 45,569,017 $ 65,634,468 $ 68,805,527 $ 80,136,918 ============== ============== =============== ============== ===============
See Notes to Financial Statements. Page 77 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008
First Trust First Trust Dow Jones Select Morningstar(R) First Trust MicroCap Dividend Leaders(SM) US IPO Index(SM) Fund Index Fund Index Fund -------------------- -------------------- ------------------- INVESTMENT INCOME: Dividends (a) $ 210,905 $ 2,826,237 $ 209,474 Interest -- -- -- ------------- -------------- ------------- Total investment income 210,905 2,826,237 209,474 ------------- -------------- ------------- EXPENSES: Investment advisory fees 76,083 153,642 76,420 Audit and tax fees 26,098 30,582 26,333 Licensing fees 25,067 102,354 65,273 Accounting and administration fees 10,923 28,187 11,738 Listing fees 10,028 10,028 10,028 Printing fees 6,705 13,172 -- Custodian fees 1,902 6,402 2,388 Trustees' fees and expenses 1,361 2,368 149 Transfer agent fees 761 2,561 955 Legal fees -- 9,676 -- Registration and filing fees -- -- -- Other expenses 1,165 10,561 1,477 ------------- -------------- ------------- Total expenses 160,093 369,533 194,761 Less fees waived and expenses reimbursed by the investment advisor (68,793) (139,071) (80,132) ------------- -------------- ------------- Net expenses 91,300 230,462 114,629 ------------- -------------- ------------- NET INVESTMENT INCOME (LOSS) 119,605 2,595,775 94,845 ------------- -------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (1,118,138) (18,465,968) (3,588,951) In-kind redemptions (315,800) (823,056) (403,820) ------------- -------------- ------------- Net realized gain (loss) (1,433,938) (19,289,024) (3,992,771) ------------- -------------- ------------- Net change in unrealized appreciation (depreciation) on investments (4,841,892) (3,052,374) (6,916,703) ------------- -------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (6,275,830) (22,341,398) (10,909,474) ------------- -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (6,156,225) $ (19,745,623) $ (10,814,629) ============= ============== ============= (a) Net of foreign withholding tax of $72 for the First Trust Dow Jones Select MicroCap Index(SM) Fund, $1,197 for the First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, $1,408 for the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, $214 for the First Trust NASDAQ-100-Technology Sector Index(SM) Fund and $1,537 for the First Trust Value Line(R) Equity Allocation Index Fund.
Page 78 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- Amex(R) 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 -------------------- -------------------- -------------------- -------------------- -------------------- --------------------- $ 136,276 $ 87,070 $ 743,278 $ 185,723 $ 1,166,998 $ 189,431 -- -- -- 1,326 -- 308 ------------- ------------- ------------- ------------- ------------- ------------- 136,276 87,070 743,278 187,049 1,166,998 189,739 ------------- ------------- ------------- ------------- ------------- ------------- 89,504 59,486 234,511 92,656 298,368 47,698 26,257 26,334 26,264 26,264 26,917 27,647 22,376 14,871 46,902 25,067 20,115 15,025 13,320 8,865 31,653 13,150 31,671 6,619 37,233 16,200 11,701 10,217 12,146 10,356 -- -- 35,974 10,070 14,656 -- 2,797 1,859 7,878 3,316 8,008 1,192 100 197 838 73 806 118 1,119 744 2,931 1,158 2,984 477 -- -- 11,943 -- 4,970 -- -- -- -- -- -- -- 4,047 2,035 12,541 8,808 8,570 -- ------------- ------------- ------------- ------------- ------------- ------------- 196,753 130,591 423,136 190,779 429,211 109,132 (62,497) (41,362) (71,442) (51,795) (41,333) (42,356) ------------- ------------- ------------- ------------- ------------- ------------- 134,256 89,229 351,694 138,984 387,878 66,776 ------------- ------------- ------------- ------------- ------------- ------------- 2,020 (2,159) 391,584 48,065 779,120 122,963 ------------- ------------- ------------- ------------- ------------- ------------- (5,411,121) (2,848,572) (11,885,464) (2,133,071) (18,748,801) (1,555,700) (336,299) (782,106) 2,025,678 (4,367,670) 2,289,628 (257,474) ------------- ------------- ------------- ------------- ------------- ------------- (5,747,420) (3,630,678) (9,859,786) (6,500,741) (16,459,173) (1,813,174) ------------- ------------- ------------- ------------- ------------- ------------- (6,647,266) (5,540,626) (8,907,572) (10,241,121) (8,452,355) (2,790,104) ------------- ------------- ------------- ------------- ------------- ------------- (12,394,686) (9,171,304) (18,767,358) (16,741,862) (24,911,528) (4,603,278) ------------- ------------- ------------- ------------- ------------- ------------- $ (12,392,666) $ (9,173,463) $ (18,375,774) $ (16,693,797) $ (24,132,408) $ (4,480,315) ============= ============ ============= ============= ============= =============
See Notes to Financial Statements. Page 79 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS (CONTINUED)
First Trust First Trust First Trust Value Line(R) NASDAQ-100 NASDAQ(R) Clean Edge(R) Dividend Ex-Technology Sector Green Energy Index Fund Index(SM) Fund Index Fund ------------------ -------------------- -------------------------- INVESTMENT INCOME: Dividends (a) $ 5,439,640 $ 21,743 $ 161,901 Interest -- 624 -- -------------- ------------- -------------- Total investment income 5,439,640 22,367 161,901 -------------- ------------- -------------- EXPENSES: Investment advisory fees 697,843 14,241 165,607 Audit and tax fees 24,514 29,714 29,807 Licensing fees 213,995 3,560 41,402 Accounting and administration fees 73,387 3,881 22,735 Listing fees 14,678 13,088 39,620 Printing fees 45,182 -- 13,206 Custodian fees 18,115 1,163 6,018 Trustees' fees and expenses 456 186 338 Transfer agent fees 6,978 178 2,070 Legal fees 50,042 -- 14,966 Registration and filing fees -- 43 802 Other expenses 29,976 -- 8,460 -------------- ------------- -------------- Total expenses 1,175,166 66,054 345,031 Less fees waived and expenses reimbursed by the investment advisor (198,186) (44,692) (96,621) -------------- ------------- -------------- Net expenses 976,980 21,362 248,410 -------------- ------------- -------------- NET INVESTMENT INCOME (LOSS) 4,462,660 1,005 (86,509) -------------- ------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (31,834,943) (1,174,536) (8,111,293) In-kind redemptions 1,290,920 -- (869,814) -------------- ------------- -------------- Net realized gain (loss) (30,544,023) (1,174,536) (8,981,107) -------------- ------------- -------------- Net change in unrealized appreciation (depreciation) on investments (10,121,962) (1,464,973) (30,855,031) -------------- ------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (40,665,985) (2,639,509) (39,836,138) -------------- ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (36,203,325) $ (2,638,504) $ (39,922,647) ============== ============= ============== (a) Net of foreign withholding tax of $73,425 for the First Trust Value Line(R) Dividend Index Fund, $210 for the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, $6,585 for the First Trust ISE Water Index Fund, $83,744 for the First Trust ISE-Revere Natural Gas Index Fund, $683 for the First Trust ISE Chindia Index Fund and $5,932 for the First Trust Value Line(R) 100 Exchange-Traded Fund.
Page 80 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust S&P ISE ISE-Revere ISE First Trust REIT Water Natural Gas Chindia Value Line(R) 100 Index Fund Index Fund Index Fund Index Fund Exchange-Traded Fund ---------------------- ---------------------- ---------------------- ---------------------- ------------------------ $ 94,083 $ 421,862 $ 880,069 $ 1,061,915 $ 818,241 885 1,290 2,019 -- -- ------------- ------------- -------------- -------------- -------------- 94,968 423,152 882,088 1,061,915 818,241 ------------- ------------- -------------- -------------- -------------- 7,312 124,894 257,309 283,462 688,674 31,339 29,625 29,683 29,625 23,028 75,206 15,612 64,327 56,692 218,850 4,033 17,829 36,176 37,872 72,802 10,120 11,229 11,229 11,229 19,951 -- 14,803 31,893 46,298 43,987 987 5,104 9,848 10,393 17,586 154 2,108 3,134 221 10,402 122 1,561 3,216 3,543 6,887 -- 16,231 42,135 26,360 43,719 -- -- 2,469 -- -- -- 1,537 3,916 10,825 39,639 ------------- ------------- -------------- -------------- -------------- 129,273 240,533 495,335 516,520 1,185,525 (117,085) (53,268) (109,371) (91,365) (221,381) ------------- ------------- -------------- -------------- -------------- 12,188 187,265 385,964 425,155 964,144 ------------- ------------- -------------- -------------- -------------- 82,780 235,887 496,124 636,760 (145,903) ------------- ------------- -------------- -------------- -------------- (277,460) (3,604,230) (30,205,718) (20,635,148) (66,003,553) (946,629) (2,140,008) 4,523,736 (3,581,633) 9,843,012 ------------- ------------- -------------- -------------- -------------- (1,224,089) (5,744,238) (25,681,982) (24,216,781) (56,160,541) ------------- ------------- -------------- -------------- -------------- (1,217,844) (13,730,526) (28,462,419) (35,314,697) (26,736,162) ------------- ------------- -------------- -------------- -------------- (2,441,933) (19,474,764) (54,144,401) (59,531,478) (82,896,703) ------------- ------------- -------------- -------------- -------------- $ (2,359,153) $ (19,238,877) $ (53,648,277) $ (58,894,718) $ (83,042,606) ============= ============== ============== ============== ==============
See Notes to Financial Statements. Page 81 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
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, 2008 December 31, 2007 December 31, 2008 December 31, 2007 ------------------ ------------------ ----------------- ----------------- OPERATIONS: Net investment income (loss) $ 119,605 $ 104,779 $ 2,595,775 $ 3,301,865 Net realized gain (loss) (1,433,938) 1,235,896 (19,289,024) 4,928,844 Net change in unrealized appreciation (depreciation) (4,841,892) (2,332,891) (3,052,374) (17,025,191) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (6,156,225) (992,216) (19,745,623) (8,794,482) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (134,425) (101,775) (2,534,302) (3,182,601) Net realized gain -- -- -- -- Return of capital (4,281) -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders (138,706) (101,775) (2,534,302) (3,182,601) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 4,065,981 20,378,526 12,711,476 69,676,425 Value of shares repurchased (1,687,158) (18,156,774) (11,885,997) (68,286,075) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions 2,378,823 2,221,752 825,479 1,390,350 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (3,916,108) 1,127,761 (21,454,446) (10,586,733) NET ASSETS: Beginning of period 17,992,801 16,865,040 64,650,489 75,237,222 ------------- ------------- ------------- ------------- End of period $14,076,693 $17,992,801 $43,196,043 $64,650,489 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period $ -- $ 4,380 $ 70,975 $ 9,502 ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period 805,000 705,000 3,200,002 3,200,002 Shares sold 250,000 850,000 850,000 2,950,000 Shares repurchased (100,000) (750,000) (750,000) (2,950,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period 955,000 805,000 3,300,002 3,200,002 ============= ============= ============= =============
Page 82 See Notes to Financial Statements.
First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- First Trust US IPO Equal Weighted Technology Sector Amex(R) 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, 2008 2007 2008 2007 2008 2007 2008 2007 ------------- -------------- ------------ -------------- ------------ -------------- ------------- -------------- $ 94,845 $ 59,250 $ 2,020 $ (19,001) $ (2,159) $ (37,744) $ 391,584 $ (302,002) (3,992,771) 1,899,376 (5,747,420) 3,268,754 (3,630,678) 3,065,233 (9,859,786) 7,149,648 (6,916,703) 1,187,879 (6,647,266) (1,694,511) (5,540,626) (1,702,778) (8,907,572) (7,597,605) ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ (10,814,629) 3,146,505 (12,392,666) 1,555,242 (9,173,463) 1,324,711 (18,375,774) (749,959) ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ (100,763) (67,725) (2,020) -- -- -- (391,584) -- -- -- -- -- -- -- -- -- (7,057) -- (7,600) -- -- -- (201,756) -- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ (107,820) (67,725) (9,620) -- -- -- (593,340) -- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ 9,223,133 22,872,902 5,116,238 26,192,404 1,934,589 21,483,865 64,260,013 90,771,660 (16,479,647) (19,299,601) (8,777,226) (22,994,445) (6,999,081) (27,116,601) (59,435,071) (46,218,394) ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ (7,256,514) 3,573,301 (3,660,988) 3,197,959 (5,064,492) (5,632,736) 4,824,942 44,553,266 ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ (18,178,963) 6,652,081 (16,063,274) 4,753,201 (14,237,955) (4,308,025) (14,144,172) 43,803,307 26,632,731 19,980,650 30,911,302 26,158,101 23,651,551 27,959,576 73,241,047 29,437,740 ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ $ 8,453,768 $ 26,632,731 $ 14,848,028 $ 30,911,302 $ 9,413,596 $ 23,651,551 $ 59,096,875 $ 73,241,047 ============ ============ ============= ============ ============ ============= ============= ============ -- $ 1,158 $ -- $ -- $ -- $ -- $ -- $ -- ============ ============ ============= ============ ============ ============= ============= ============ 1,050,002 900,002 1,400,002 1,300,002 1,100,002 1,400,002 3,000,002 1,250,002 400,000 950,000 300,000 1,150,000 100,000 950,000 2,750,000 3,600,000 (850,000) (800,000) (500,000) (1,050,000) (400,000) (1,250,000) (2,750,000) (1,850,000) ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------ 600,002 1,050,002 1,200,002 1,400,002 800,002 1,100,002 3,000,002 3,000,002 ============ ============ ============= ============ ============ ============= ============= ============
See Notes to Financial Statements. Page 83 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, 2008 December 31, 2007 December 31, 2008 December 31, 2007 ------------------- ----------------- ------------------ ----------------- OPERATIONS: Net investment income (loss) $ 48,065 $ (231,090) $ 779,120 $ 399,329 Net realized gain (loss) (6,500,741) 6,875,695 (16,459,173) 4,078,150 Net change in unrealized appreciation (depreciation) (10,241,121) (4,669,550) (8,452,355) (2,024,723) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (16,693,797) 1,975,055 (24,132,408) 2,452,756 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (48,065) -- (786,001) (394,875) Net realized gain -- -- -- -- Return of capital (1,660) -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders (49,725) -- (786,001) (394,875) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 16,539,332 79,688,355 60,739,339 104,762,439 Value of shares repurchased (21,472,981) (71,230,802) (61,576,153) (62,952,782) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions (4,933,649) 8,457,553 (836,814) 41,809,657 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (21,677,171) 10,432,608 (25,755,223) 43,867,538 NET ASSETS: Beginning of Period 36,385,656 25,953,048 61,517,693 17,650,155 ------------- ------------- ------------- ------------- End of Period $ 14,708,485 $ 36,385,656 $ 35,762,470 $ 61,517,693 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period $ -- $ -- $ 16,119 $ 22,423 ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period 1,450,002 1,150,002 2,550,002 800,002 Shares sold 750,000 3,200,000 2,700,000 4,350,000 Shares repurchased (1,150,000) (2,900,000) (2,850,000) (2,600,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period 1,050,002 1,450,002 2,400,002 2,550,002 ============= ============= ============= ============= (a) Inception date.
Page 84 See Notes to Financial Statements.
First Trust First Trust First Trust NASDAQ-100 Value Line(R) Equity Allocation Value Line(R) Dividend Ex-Technology Sector Index Fund Index Fund Index(SM) Fund ---------------------------------------- --------------------------------------- ----------------------------------------- For the Period For the Year For the Year For the Year For the Year For the Year February 8, 2007 (a) Ended Ended Ended Ended Ended through December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007 ------------------- ----------------- ----------------- ----------------- ----------------- ----------------- $ 122,963 $ 156,232 $ 4,462,660 $ 6,133,255 $ 1,005 $ (1,364) (1,813,174) (403,914) (30,544,023) 55,377,383 (1,174,536) 457,158 (2,790,104) 851,149 (10,121,962) (65,904,350) (1,464,973) (208,808) --------------- --------------- --------------- --------------- --------------- --------------- (4,480,315) 603,467 (36,203,325) (4,393,712) (2,638,504) 246,986 --------------- --------------- --------------- --------------- --------------- --------------- (125,551) (171,605) (4,414,268) (6,533,096) (1,005) -- -- -- -- -- -- -- -- -- -- -- (335) -- --------------- --------------- --------------- --------------- --------------- --------------- (125,551) (171,605) (4,414,268) (6,533,096) (1,340) -- --------------- --------------- --------------- --------------- --------------- --------------- 9,013,426 25,789,407 13,912,902 177,729,932 7,753,235 8,275,318 (11,858,239) (31,723,062) (38,045,744) (438,291,965) -- (6,403,732) --------------- --------------- --------------- --------------- --------------- --------------- (2,844,813) (5,933,655) (24,132,842) (260,562,033) 7,753,235 1,871,586 --------------- --------------- --------------- --------------- --------------- --------------- (7,450,679) (5,501,793) (64,750,435) (271,488,841) 5,113,391 2,118,572 13,291,366 18,793,159 180,153,222 451,642,063 2,118,572 -- --------------- --------------- --------------- --------------- --------------- --------------- $ 5,840,687 $ 13,291,366 $ 115,402,787 $ 180,153,222 $ 7,231,963 $ 2,118,572 =============== =============== =============== =============== =============== =============== $ 578 $ 3,164 $ 48,392 $ -- $ -- $ -- =============== =============== =============== =============== =============== =============== 650,002 950,002 11,437,986 26,938,000 100,002 -- 500,000 1,300,000 1,200,000 10,500,000 500,000 400,002 (700,000) (1,600,000) (2,650,000) (26,000,014) -- (300,000) --------------- --------------- --------------- --------------- --------------- --------------- 450,002 650,002 9,987,986 11,437,986 600,002 100,002 =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements. Page 85 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
First Trust First Trust NASDAQ(R) S&P Clean Edge(R) Green REIT Energy Index Fund Index Fund --------------------------------------- --------------------------------------- For the Period For the Period For the Year February 8, 2007 (a) For the Year May 8, 2007 (a) Ended through Ended through December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007 ------------------- ----------------- ----------------- ----------------- OPERATIONS: Net investment income (loss) $ (86,509) $ (64,652) $ 82,780 $ 37,501 Net realized gain (loss) (8,981,107) 4,547,068 (1,224,089) (64,033) Net change in unrealized appreciation (depreciation) (30,855,031) 5,571,969 (1,217,844) (384,315) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (39,922,647) 10,054,385 (2,359,153) (410,847) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- (82,045) (37,501) Net realized gain -- -- -- -- Return of capital -- -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders -- -- (82,045) (37,501) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold 18,128,749 57,955,176 7,707,488 3,796,816 Value of shares repurchased (5,614,820) (17,096,526) (1,660,294) (1,767,190) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions 12,513,929 40,858,650 6,047,194 2,029,626 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets (27,408,718) 50,913,035 3,605,996 1,581,278 NET ASSETS: Beginning of Period 50,913,035 -- 1,581,278 -- ------------- ------------- ------------- ------------- End of Period $ 23,504,317 $ 50,913,035 $ 5,187,274 $ 1,581,278 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period $ -- $ -- $ 735 $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period 1,650,002 -- 100,002 -- Shares sold 800,000 2,350,002 650,000 200,002 Shares repurchased (350,000) (700,000) (200,000) (100,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period 2,100,002 1,650,002 550,002 100,002 ============= ============= ============= ============= (a) Inception date. (b) Results prior to June 18, 2007 are of First Trust Value Line(R) 100 Fund.
Page 86 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust ISE Water ISE-Revere Natural Gas ISE Chindia Value Line(R) 100 Index Fund Index Fund Index Fund Exchange-Traded Fund ----------------------------- ------------------------------ ----------------------------- ------------------------------- For the Period For the Period For the Period For the Period For the Year May 8, 2007 (a) For the Year May 8, 2007 (a) For the Year May 8, 2007 (a) For the Year May 8, 2007 (a) Ended through Ended through Ended through Ended through December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2008 2007 2008 2007 2008 2007 2008 2007 ------------- -------------- ------------- -------------- ------------- --------------- ------------------------------- $ 235,887 $ 24,450 $ 496,124 $ 10,866 $ 636,760 $ 47,735 $ (145,903) $ (497,794) (5,744,238) 263,879 (25,681,982) 403,859 (24,216,781) 2,084,309 (56,160,541) 52,128,707 (13,730,526) 323,254 (28,462,419) 20,760 (35,314,697) 2,451,608 (26,736,162) (5,434,509) ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- (19,238,877) 611,583 (53,648,277) 435,485 (58,894,718) 4,583,652 (83,042,606) 46,196,404 ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- (235,615) (24,475) (496,336) (9,200) (723,411) (58,125) -- -- -- -- -- -- -- -- -- (18,451,951) -- -- -- -- (7,375) -- -- -- ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- (235,615) (24,475) (496,336) (9,200) (730,786) (58,125) -- (18,451,951) ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- 60,229,848 18,295,951 165,183,948 17,272,326 13,396,978 119,626,564 59,176,893 219,100,688 (20,907,834) (6,573,340) (85,018,202) (6,541,227) (21,838,899) (20,147,791) (105,222,443) (319,833,579) ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- 39,322,014 11,722,611 80,165,746 10,731,099 (8,441,921) 99,478,773 (46,045,550) (100,732,891) ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- 19,847,522 12,309,719 26,021,133 11,157,384 (68,067,425) 104,004,300 (129,088,156) (72,988,438) 12,309,719 -- 11,157,384 -- 104,004,300 -- 204,913,425 277,901,863 ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- $ 32,157,241 $ 12,309,719 $ 37,178,517 $ 11,157,384 $ 35,936,875 $104,004,300 $ 75,825,269 $ 204,913,425 ============= ============ ============= ============ ============ ============ ============ ============= $ 272 $ -- $ 6,195 $ 1,666 $ -- $ 1,096 $ -- $ -- ============= ============ ============= ============ ============ ============ ============ ============= 550,002 -- 500,002 -- 3,750,002 -- 11,439,982 17,490,000 2,650,000 850,002 6,150,000 800,002 550,000 4,500,002 3,750,000 12,750,000 (1,150,000) (300,000) (3,500,000) (300,000) (1,250,000) (750,000) (7,000,000) (18,800,018) ------------- ------------ ------------- ------------ ------------ ------------ ------------ ------------- 2,050,002 550,002 3,150,002 500,002 3,050,002 3,750,002 8,189,982 11,439,982 ============= ============ ============= ============ ============ ============ ============ =============
See Notes to Financial Statements. Page 87 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 Period For the For the For the September 27, 2005 (a) Year Ended Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 December 31, 2005 ------------------- ------------------ ------------------ -------------------- Net asset value, beginning of period $ 22.35 $ 23.92 $ 20.73 $ 20.00 ---------- ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.17 0.16 0.06 (b) 0.03 (b) Net realized and unrealized gain (loss) (7.60) (1.60) 3.19 (b) 0.72 (b) ---------- ---------- ---------- ---------- Total from investment operations (7.43) (1.44) 3.25 0.75 ---------- ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.17) (0.13) (0.06) (0.02) Return of capital (0.01) -- -- -- ---------- ---------- ---------- ---------- Total distribution (0.18) (0.13) (0.06) (0.02) ---------- ---------- ---------- ---------- Net asset value, end of period $ 14.74 $ 22.35 $ 23.92 $ 20.73 ========== ========== ========== ========== TOTAL RETURN (c) (33.33)% (6.02)% 15.69% 3.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 14,077 $ 17,993 $ 16,865 $ 39,492 Ratios to average net assets: Ratio of total expenses to average net assets 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%(d) Ratio of net investment income (loss) to average net assets 0.79% 0.58% 0.24% 0.51%(d) Portfolio turnover rate (e) 85% 11% 20% 6%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
For the Period For the For the March 9, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 20.20 $ 23.51 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.83 0.92 0.59 (b) Net realized and unrealized gain (loss) (7.13) (3.35) 3.52 (b) ---------- ---------- ---------- Total from investment operations (6.30) (2.43) 4.11 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.81) (0.88) (0.60) ---------- ---------- ---------- Net asset value, end of period $ 13.09 $ 20.20 $ 23.51 ========== ========== ========== TOTAL RETURN (c) (31.71)% (10.64)% 20.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 43,196 $ 64,650 $ 75,237 Ratios to average net assets: Ratio of total expenses to average net assets 0.72% 0.68% 0.99%(d) Ratio of net expenses to average net assets 0.45% 0.45% 0.45%(d) Ratio of net investment income (loss) to average net assets 5.07% 3.87% 3.55%(d) Portfolio turnover rate (e) 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 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. (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 88 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 April 12, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 25.36 $ 22.20 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.15 0.05 0.01 (b) Net realized and unrealized gain (loss) (11.27) 3.17 2.19 (b) ---------- ---------- ---------- Total from investment operations (11.12) 3.22 2.20 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.14) (0.06) -- Return of capital (0.01) -- -- ---------- ---------- ---------- Total distributions (0.15) (0.06) -- ---------- ---------- ---------- Net asset value, end of period $ 14.09 $ 25.36 $ 22.20 ========== ========== ========== TOTAL RETURN (c) (43.88)% 14.53% 11.00% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 8,454 $ 26,633 $ 19,981 Ratios to average net assets: Ratio of total expenses to average net assets1 .02% 1.06% 1.44%(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 0.50% 0.24% 0.07%(d) Portfolio turnover rate (e) 62% 11% 26%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
For the Period For the For the April 19, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 22.08 $ 20.12 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.00 (f) (0.02) (0.01) (b) Net realized and unrealized gain (loss) (9.70) 1.98 0.13 (b) ---------- ---------- ---------- Total from investment operations (9.70) 1.96 0.12 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.00) (f) -- -- Return of capital (0.01) -- -- ---------- ---------- ---------- Total distributions (0.01) -- -- ---------- ---------- ---------- Net asset value, end of period $ 12.37 $ 22.08 $ 20.12 ========== ========== ========== TOTAL RETURN (c) (43.96)% 9.74% 0.60% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 14,848 $ 30,911 $ 26,158 Ratios to average net assets: Ratio of total expenses to average net assets 0.88% 0.95% 1.31%(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 0.01% (0.08)% (0.07)%(d) Portfolio turnover rate (e) 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 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. (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 89 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 April 19, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 21.50 $ 19.97 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) -- (0.03) (0.03)(b) Net realized and unrealized gain (loss) (9.73) 1.56 0.00 (b)(f) ---------- ---------- ---------- Total from investment operations (9.73) 1.53 (0.03) ---------- ---------- ---------- Net asset value, end of period $ 11.77 $ 21.50 $ 19.97 ========== ========== ========== TOTAL RETURN (c) (45.26)% 7.66% (0.15)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 9,414 $ 23,652 $ 27,960 Ratios to average net assets: Ratio of total expenses to average net assets 0.88% 0.92% 1.37% (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 (0.01)% (0.16)% (0.20)%(d) Portfolio turnover rate (e) 33% 10% 7%
First Trust Amex(R) Biotechnology Index Fund
For the Period For the For the June 19, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 24.41 $ 23.55 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.18 (0.10) (0.07) (b) Net realized and unrealized gain (loss) (4.62) 0.96 3.62 (b) ---------- ---------- ---------- Total from investment operations (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 $ 19.70 $ 24.41 $ 23.55 ========== ========== ========== TOTAL RETURN (c) (18.33)% 3.65% 17.75% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 59,097 $ 73,241 $ 29,438 Ratios to average net assets: Ratio of total expenses to average net assets 0.72% 0.73% 1.22%(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 0.67% (0.60)% (0.60)%(d) Portfolio turnover rate (e) 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 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. (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 90 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 June 19, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 25.09 $ 22.57 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.05 (0.16) (0.07) (b) Net realized and unrealized gain (loss) (11.08) 2.68 2.64 (b) ---------- ---------- ---------- Total from investment operations (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 $ 14.01 $ 25.09 $ 22.57 ========== ========== ========== TOTAL RETURN (c) (44.02)% 11.17% 12.85% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 14,708 $ 36,386 $ 25,953 Ratios to average net assets: Ratio of total expenses to average net assets 0.82% 0.70% 1.24%(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 0.21% (0.42)% (0.55)%(d) Portfolio turnover rate (e) 44% 6% 4%
First Trust DB Strategic Value Index Fund
For the Period For the For the July 6, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 24.12 $ 22.06 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.28 0.20 0.12 (b) Net realized and unrealized gain (loss) (9.22) 2.07 2.03 (b) ---------- ---------- ---------- Total from investment operations (8.94) 2.27 2.15 ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.28) (0.21) (0.09) ---------- ---------- ---------- Net asset value, end of period $ 14.90 $ 24.12 $ 22.06 ========== ========== ========== TOTAL RETURN (c) (37.23)% 10.26% 10.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 35,762 $ 61,518 $ 17,650 Ratios to average net assets: Ratio of total expenses to average net assets 0.72% 1.12% 2.59%(d) Ratio of net expenses to average net assets 0.65% 0.65% 0.65%(d) Ratio of net investment income (loss) to average net assets 1.31% 1.09% 1.29%(d) Portfolio turnover rate (e) 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 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. (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 91 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 December 5, 2006 (a) Year Ended Year Ended through December 31, 2008 December 31, 2007 December 31, 2006 -------------------- ------------------- --------------------- Net asset value, beginning of period $ 20.45 $ 19.78 $ 20.00 ---------- ---------- ---------- Income from investment operations: Net investment income (loss) 0.25 0.24 0.03 (b) Net realized and unrealized gain (loss) (7.47) 0.68 (0.25) (b) ---------- ---------- ---------- Total from investment operations (7.22) 0.92 (0.22) ---------- ---------- ---------- Distributions paid to shareholders from: Net investment income (0.25) (0.25) -- ---------- ---------- ---------- Net asset value, end of period $ 12.98 $ 20.45 $ 19.78 ========== ========== ========== TOTAL RETURN (c) (35.45)% 4.65% (1.10)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 5,841 $ 13,291 $ 18,793 Ratios to average net assets: Ratio of total expenses to average net assets 1.14% 1.36% 3.25%(d) Ratio of net expenses to average net assets 0.70% 0.70% 0.70%(d) Ratio of net investment income (loss) to average net assets 1.29% 1.04% 1.82%(d) Portfolio turnover rate (e) 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 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. (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 92 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 Year June 1, 2006 For the Year For the Year For the Year Year Ended Ended through Ended Ended Ended December 31, December 31, December 31, May 31, May 31, May 31, 2008 2007 2006 (a) 2006 (a) 2005 (a) 2004 (a) ------------- -------------- --------------- ------------- ------------- ------------- Net asset value, beginning of period $ 15.75 $ 16.77 $ 16.55 $ 17.24 $ 16.13 $ 14.33(j) ----------- ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income gain (loss) 0.45 0.44 0.24(b) 0.43 0.41 0.27 Net realized and unrealized gain (loss) (4.20) (0.99) 2.10(b) 1.00 1.99 1.86 ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations (3.75) (0.55) 2.34 1.43 2.40 2.13 ----------- ----------- ----------- ----------- ----------- ----------- Distributions paid to shareholders from: Net investment income (0.45) (0.47) (0.63) (0.42) (0.37) (0.20) Net realized gains -- -- (1.49) (1.70) (0.92) (0.11) ----------- ----------- ----------- ----------- ----------- ----------- Total distributions to shareholders (0.45) (0.47) (2.12) (2.12) (1.29) (0.31) ----------- ----------- ----------- ----------- ----------- ----------- Common Shares offering costs charged to paid-in capital -- -- -- -- (0.00)(c) (0.02) ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 11.55 $ 15.75 $ 16.77 $ 16.55 $ 17.24 $ 16.13 =========== =========== =========== =========== =========== =========== TOTAL RETURN, BASED ON NET ASSET VALUE (24.17)%(e) (3.42)%(e) 14.70%(e)(i) 10.26%(d) 16.05%(d) 15.09%(d) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 115,403 $ 180,153 $ 451,642 $ 536,258 $ 558,705 $ 522,731 Ratios to average net assets: Ratio of total expenses to average net assets 0.84% 0.85% 0.94%(f) 0.93% 0.93% 0.93%(f) Ratio of net expenses to average net assets 0.70% 0.70% 0.93%(f)(h) 0.93% 0.93% 0.93%(f) Ratio of net investment income (loss) to average net assets 3.20% 2.37% 2.36% (f) 2.51% 2.45% 2.29%(f) Portfolio turnover rate (g) 109% 5% 28% 58% 57% 46%
(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 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. (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. (j) Net of sales load of $0.675 per common shares on initial offering. Reorganization History: ----------------------- First Trust Value Line(R) Dividend Fund (the "Predecessor 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 Predecessor 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 93 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 February 8, 2007 (a) Year Ended through December 31, 2008 December 31, 2007 ----------------- ------------------ Net asset value, beginning of period $ 21.19 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.01 (0.01) Net realized and unrealized gain (loss) (9.14) 1.20 ---------- ---------- Total from investment operations (9.13) 1.19 Distributions paid to shareholders from: Net investment income (0.01) -- Return of capital (0.00)(e) -- ---------- ---------- Total distributions (0.01) -- Net asset value, end of period $ 12.05 $ 21.19 ========== ========== TOTAL RETURN (b) (43.09)% 5.95% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 7,232 $ 2,119 Ratios to average net assets: Ratio of total expenses to average net assets 1.86% 2.61% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 0.03% (0.04)%(c) Portfolio turnover rate (d) 67% 27%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
For the Period For the February 8, 2007 (a) Year Ended through December 31, 2008 December 31, 2007 ----------------- ------------------ Net asset value, beginning of period $ 30.86 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) (0.04) (0.04) Net realized and unrealized gain (loss) (19.63) 10.90 ---------- ---------- Total from investment operations (19.67) 10.86 ---------- ---------- Net asset value, end of period $ 11.19 $ 30.86 ========== ========== TOTAL RETURN (b) (63.74)% 54.30% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 23,504 $ 50,913 Ratios to average net assets: Ratio of total expenses to average net assets 0.83% 1.00% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets (0.21)% (0.33)%(c) Portfolio turnover rate (d) 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 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. (e) 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 S&P REIT Index Fund
For the Period For the May 8, 2007 (a) Year Ended through December 31, 2008 December 31, 2007 ----------------- ------------------ Net asset value, beginning of period $ 15.81 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.31 0.32 (b) Net realized and unrealized gain (loss) (6.38) (4.13)(b) ---------- ---------- Total from investment operations (6.07) (3.81) ---------- ---------- Distributions paid to shareholders from: Net investment income (0.31) (0.38) ---------- ---------- Net asset value, end of period $ 9.43 $ 15.81 ========== ========== TOTAL RETURN (c) (38.87)% (19.08)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 5,187 $ 1,581 Ratios to average net assets: Ratio of total expenses to average net assets 5.30% 8.41%(d) Ratio of net expenses to average net assets 0.50% 0.50%(d) Ratio of net investment income (loss) to average net assets 3.40% 2.73%(d) Portfolio turnover rate (e) 20% 25%
First Trust ISE Water Index Fund
For the Period For the May 8, 2007 (a) Year Ended through December 31, 2008 December 31, 2007 ----------------- ------------------ Net asset value, beginning of period $ 22.38 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.12 0.04 Net realized and unrealized gain (loss) (6.69) 2.38 ---------- ---------- Total from investment operations (6.57) 2.42 ---------- ---------- Distributions paid to shareholders from: Net investment income (0.12) (0.04) ---------- ---------- Net asset value, end of period $ 15.69 $ 22.38 ========== ========== TOTAL RETURN (c) (29.40)% 12.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 32,157 $ 12,310 Ratios to average net assets: Ratio of total expenses to average net assets 0.77% 1.68%(d) Ratio of net expenses to average net assets 0.60% 0.60%(d) Ratio of net investment income (loss) to average net assets 0.76% 0.46%(d) Portfolio turnover rate (e) 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 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. (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 95 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 May 8, 2007 (a) Year Ended through December 31, 2008 December 31, 2007 ----------------- ------------------ Net asset value, beginning of period $ 22.31 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.14 0.03 Net realized and unrealized gain (loss) (10.51) 2.30 ---------- ---------- Total from investment operations (10.37) 2.33 ---------- ---------- Distributions paid to shareholders from: Net investment income (0.14) (0.02) ---------- ---------- Net asset value, end of period $ 11.80 $ 22.31 ========== ========== TOTAL RETURN (b) (46.57)% 11.67% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 37,179 $ 11,157 Ratios to average net assets: Ratio of total expenses to average net assets 0.77% 2.36%(c) Ratio of net expenses to average net assets 0.60% 0.60%(c) Ratio of net investment income (loss) to average net assets 0.77% 0.32%(c) Portfolio turnover rate (d) 116% 5%
First Trust ISE Chindia Index Fund
For the Period For the May 8, 2007 (a) Year Ended through December 31, 2008 December 31, 2007 ----------------- ------------------ Net asset value, beginning of period $ 27.73 $ 20.00 ---------- ---------- Income from investment operations: Net investment income (loss) 0.17 0.02 Net realized and unrealized gain (loss) (15.92) 7.73 ---------- ---------- Total from investment operations (15.75) 7.75 ---------- ---------- Distributions paid to shareholders from: Net investment income (0.20) (0.02) Return of capital (0.00)(e) -- ---------- ---------- Total distributions (0.20) (0.02) ---------- ---------- Net asset value, end of period $ 11.78 $ 27.73 ========== ========== TOTAL RETURN (b) (56.98)% 38.73% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 35,937 $ 104,004 Ratios to average net assets: Ratio of total expenses to average net assets 0.73% 0.82%(c) Ratio of net expenses to average net assets 0.60% 0.60%(c) Ratio of net investment income (loss) to average net assets 0.90% 0.17%(c) Portfolio turnover rate (d) 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 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. (e) Amount represents less than $0.01 per share.Trust Value Line(R) 100 Exchange-Traded Fund Page 96 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 Year For the Year For the Year For the Year Year Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, 2008 2007 (a) 2006 (a) 2005 (a) 2004 (a) ------------- ------------- ------------- ------------- ------------- Net asset value, beginning of period $ 17.91 $ 15.89 $ 17.16 $ 18.05 $ 16.61 ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income (loss) (0.02) 1.02 (0.07) (0.08) (0.09) Net realized and unrealized gain (loss) (8.63) 2.06 0.68 2.00 2.19 ----------- ----------- ----------- ----------- ----------- Total from investment operations (8.65) 3.08 0.61 1.92 2.10 Distributions paid to shareholders from: Net realized gains -- (1.06) (1.88) (2.81) (0.66) ----------- ----------- ----------- ----------- ----------- Common Shares offering costs charged to paid-in capital -- -- -- -- (0.00)(b) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 9.26 $ 17.91 $ 15.89 $ 17.16 $ 18.05 =========== =========== =========== =========== =========== TOTAL RETURN, BASED ON NET ASSET VALUE (48.30)%(d) 19.91%(d)(g) 4.59%(c) 11.86%(c) 13.05%(c) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 75,825 $ 204,913 $ 277,902 $ 300,049 $ 315,632 Ratios to average net assets: Ratio of total expenses to average net assets 0.86% 0.89% 0.97% 0.95% 0.97% Ratio of net expenses to average net assets 0.70% 0.83%(f) 0.97% 0.95% 0.97% Ratio of net investment income (loss) to average net assets (0.11)% (0.21)% (0.40)% (0.43)% (0.52)% Portfolio turnover rate (e) 251% 111% 234% 240% 220%
(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) Amount represents less than $0.01 per share. (c) 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. (d) 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 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 or expenses reimbursed by the investment advisor. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) The annualized expense ratio is capped at 0.70% for the first two years from the date of the reorganization. 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. (g) 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 "Predecessor 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 Predecessor 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 97 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 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 seventeen 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(1) - (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 Amex(R) Biotechnology Index Fund - (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(2) - (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") (1) Formerly First Trust IPOX-100 Index Fund. See Note 8 to Financial Statements for information regarding this Fund's name change. (2) Formerly First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund. See Note 8 to Financial Statements for information regarding this Fund's name change. Each fund represents a separate series of beneficial interest in the Trust (individually, 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 and the First Trust NASDAQ(R) Clean Edge(R) Green Energy 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 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 Amex(R) Biotechnology Index Fund Amex(R) Biotechnology Index(SM) First Trust Dow Jones Internet Index(SM) Fund Dow Jones Internet Composite Index(SM) First Trust DB Strategic Value Index Fund Deutsche Bank CROCI(R) US+ Index(TM) 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(3) First Trust S&P REIT Index Fund S&P United States REIT Index(4) 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
(3) Formerly NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index. See Note 8 to Financial Statements for information regarding this Index's name change. Page 98 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 (4) 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. 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 net asset value ("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") and 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 ask 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) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; 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 that may differ from current market quotations or official closing sale 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 sale 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 Index. In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No.157, Fair Value Measurements ("FAS 157"), effective for fiscal years beginning after November 15, 2007. This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. FAS 157 became effective for the Funds as of January 1, 2008, the beginning of each Fund's current fiscal year. The three levels of the fair value hierarchy under FAS 157 are as follows: o Level 1- quoted prices in active markets for identical securities o Level 2- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) o Level 3- significant unobservable inputs (including a Fund's own assumption in determining the fair value of investments) 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, 2008 is included with each Fund's Portfolio of Investments. Page 99 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 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 are 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, 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 -- -- --
Page 100 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 The tax character of distributions paid by each Fund during the period ended December 31, 2007 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 $ 101,775 $ -- $ -- First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (A) 3,792,601 -- -- First Trust US IPO Index Fund 67,725 -- -- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- -- -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- -- -- First Trust Amex(R) Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund -- -- -- First Trust DB Strategic Value Index Fund 394,875 -- -- First Trust Value Line(R) Equity Allocation Index Fund 171,605 -- -- First Trust Value Line(R) Dividend Index Fund 6,533,096 -- -- 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 37,501 -- -- First Trust ISE Water Index Fund 24,475 -- -- First Trust ISE-Revere Natural Gas Index Fund 9,200 -- -- First Trust ISE Chindia Index Fund 58,125 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund (B) -- -- --
(A) For the tax year ended November 30, 2007, the Fund distributed $2,951,001 from ordinary income. The Fund changed its tax year to December 31, effective December 1, 2007, and therefore had a short tax year of December 1 to December 31, 2007. The Fund distributed $841,600 from ordinary income for the period December 1 through December 31, 2007. (B) All distributions were paid prior to June 18, 2007 and are of First Trust Value Line(R) 100 Fund and are reported on the Statement of Changes found on page 87 of this report. As of December 31, 2008, 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 $ -- $ (6,490,318) $ (3,413,475) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 70,975 (16,593,980) (16,671,468) First Trust US IPO Index Fund -- (5,045,021) (4,547,609) First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- (8,880,849) (5,479,677) First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (7,377,387) (3,739,684) First Trust Amex(R) Biotechnology Index Fund -- (19,638,475) (3,914,491) First Trust Dow Jones Internet Index(SM) Fund -- (14,032,375) (6,548,840) First Trust DB Strategic Value Index Fund 16,119 (11,140,313) (18,269,357) First Trust Value Line(R) Equity Allocation Index Fund 578 (2,160,824) (2,807,705) First Trust Value Line(R) Dividend Index Fund 48,392 (28,447,618) (29,023,389) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (2,019,211) (889,004) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (26,986,611) (6,482,142) First Trust S&P REIT Index Fund 735 (1,785,140) (122,399) First Trust ISE Water Index Fund 272 (14,020,503) (2,986,875) First Trust ISE-Revere Natural Gas Index Fund 6,195 (30,821,919) (27,176,142) First Trust ISE Chindia Index Fund -- (33,667,547) (21,613,096) First Trust Value Line(R) 100 Exchange-Traded Fund -- (4,471,455) (76,561,610)
Page 101 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 D. Income Taxes Each Fund intends to 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. In June 2006, FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes." FIN 48 establishes 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, and is effective for the Funds' current fiscal year. As of December 31, 2008, management has evaluated the application of FIN 48 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, 2008 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 Available Available Available Available Total Through Through Through Through Capital Loss 2013 2014 2015 2016 Available ------------- ------------ ----------- ----------- -------------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ 1,604,481 $ 910,503 $ 893,582 $ 3,408,566 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 52,755 202,279 198,670 14,961,725 15,415,429 First Trust US IPO Index Fund -- 303,759 740,683 2,682,788 3,727,230 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- 15,480 271,083 1,957,170 2,243,733 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- 95,862 535,229 1,421,664 2,052,755 First Trust Amex(R) Biotechnology Index Fund -- -- -- 2,061,136 2,061,136 First Trust Dow Jones Internet Index(SM) Fund -- -- -- 6,446,426 6,446,426 First Trust DB Strategic Value Index Fund -- 45,432 831,336 11,401,861 12,278,629 First Trust Value Line(R) Equity Allocation Index Fund -- -- 1,439,101 1,167,881 2,606,982 First Trust Value Line(R) Dividend Index Fund -- -- 4,488,019 21,877,186 26,365,205 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- 7,779 143,596 151,375 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- 141,332 4,246,707 4,388,039 First Trust S&P REIT Index Fund -- -- 10,162 11,848 22,010 First Trust ISE Water Index Fund -- -- 592 318,246 318,838 First Trust ISE-Revere Natural Gas Index Fund -- -- 5,274 7,264,703 7,269,977 First Trust ISE Chindia Index Fund -- -- -- 11,202,148 11,202,148 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- 6,804,100 47,805,834 54,609,934
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. 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 $ 4,909 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 1,256,039 First Trust US IPO Index Fund 820,379 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 3,235,944 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,686,929 First Trust Amex(R) Biotechnology Index Fund 1,853,355 First Trust Dow Jones Internet Index(SM) Fund 102,414 First Trust DB Strategic Value Index Fund 5,990,728 First Trust Value Line(R) Equity Allocation Index Fund 200,723 First Trust Value Line(R) Dividend Index Fund 2,658,184 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 737,629 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 2,094,103 First Trust S&P REIT Index Fund 100,389 First Trust ISE Water Index Fund 2,668,037 First Trust ISE-Revere Natural Gas Index Fund 19,906,165 First Trust ISE Chindia Index Fund 10,410,948 First Trust Value Line(R) 100 Exchange-Traded Fund 21,951,676
Page 102 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 In order to present paid-in capital and accumulated net realized gains (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 gains (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 assets were not affected by these adjustments. For the period ended December 31, 2008, 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 $ 10,440 $ 338,951 $ (349,391) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- 2,139,133 (2,139,133) First Trust US IPO Index Fund 4,760 684,086 (688,846) First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- 550,990 (550,590) First Trust NASDAQ-100-Technology Sector Index(SM) Fund 2,159 782,106 (784,265) First Trust Amex(R) Biotechnology Index Fund -- 1,483,910 (1,483,910) First Trust Dow Jones Internet Index(SM) Fund -- 5,139,109 (5,139,109) First Trust DB Strategic Value Index Fund 577 (1,508,257) 1,507,680 First Trust Value Line(R) Equity Allocation Index Fund 2 406,558 (406,560) First Trust Value Line(R) Dividend Index Fund -- (101,249) 101,249 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 86,509 1,251,500 (1,338,009) First Trust S&P REIT Index Fund -- 967,010 (967,010) First Trust ISE Water Index Fund -- 2,180,132 (2,180,132) First Trust ISE-Revere Natural Gas Index Fund 4,741 (3,768,534) 3,763,793 First Trust ISE Chindia Index Fund 85,555 3,737,614 (3,823,169) First Trust Value Line(R) 100 Exchange-Traded Fund 145,903 (9,614,229) 9,468,326
E. Expenses Expenses that are directly related to one of the Funds are charged directly to that Fund. General expenses of the Trust are allocated to all the Funds based upon the average net assets of each Fund. 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 Amex(R) Biotechnology Index Fund NYSE Euronext First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc. First Trust DB Strategic Value Index Fund Deutsche Bank AG 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 / Citigroup 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)
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 103 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 F. Accounting Pronouncement In March 2008, FASB released Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS 161"). FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit risk related contingent features in derivative agreements. The application of FAS 161 is required for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. Management is currently evaluating the impact the adoption of FAS 161 will have on the Funds' financial statement disclosures, if any. 3. Investment Advisory Fee and Other Affiliated Transactions 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 Amex(R) 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% 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 the Funds to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceeded the percentage of average daily net assets per year (the "Expense Cap") as shown below: 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 Amex(R) 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% Page 104 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 Except for First Trust Value Line(R) 100 Exchange-Traded Fund's Expense Cap, which has an Expense Cap Termination Date of June 18, 2009, each Fund's Expense Cap will be in effect until the Expense Cap Termination Date of May 15, 2009. Expenses borne by the Advisor are subject to reimbursement by a Fund up to three years from the date the fee or expense was incurred, but no reimbursement payment will be made by a Fund if it would result in the Fund exceeding its Expense Cap. The advisory fee waivers and expense reimbursements for the period ended December 31, 2008 and the expenses borne by the Advisor subject to reimbursement by each Fund from inception through December 31, 2008 were as follows:
Expenses Borne by Advisor Advisory Fee Expense Subject to Waivers Reimbursements Reimbursement ----------------- -------------------- ------------------ First Trust Dow Jones Select MicroCap Index(SM) Fund $ 68,793 $ -- $ 350,298 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 139,071 -- 457,617 First Trust US IPO Index Fund 76,420 3,712 295,841 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 62,497 -- 248,583 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 41,362 -- 210,615 First Trust Amex(R) Biotechnology Index Fund 71,442 -- 217,225 First Trust Dow Jones Internet Index(SM) Fund 51,795 -- 186,538 First Trust DB Strategic Value Index Fund 41,333 -- 294,960 First Trust Value Line(R) Equity Allocation Index Fund 42,356 -- 166,745 First Trust Value Line(R) Dividend Index Fund 198,186 -- 625,616 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 14,241 30,451 105,934 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 96,621 -- 173,854 First Trust S&P REIT Index Fund 7,312 109,773 225,693 First Trust ISE Water Index Fund 53,268 -- 110,932 First Trust ISE-Revere Natural Gas Index Fund 109,371 -- 168,728 First Trust ISE Chindia Index Fund 91,365 -- 152,586 First Trust Value Line(R) 100 Exchange-Traded Fund 221,381 -- 359,956
The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM") (formerly known as The Bank of New York). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, 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. ("PNC"), formerly known as PFPC, 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 added to 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 with such compensation paid by the trusts in the First Trust Fund Complex and divided 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. Effective January 1, 2008, each of the chairmen of the Nominating and Governance Committee and the 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 divided among those trusts. Also effective January 1, 2008, the Lead Independent Trustee and each Committee chairman will serve two-year terms. The officers and "interested" Trustee receive no compensation from the trusts for serving in such capacities. Page 105 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 Purchases and Sales of Securities For the period ended December 31, 2008, 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 $ 13,318,047 $ 13,378,732 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 29,310,898 29,158,740 First Trust US IPO Index Fund 12,008,507 12,073,809 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 8,953,750 9,042,717 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 4,990,180 5,058,812 First Trust Amex(R) Biotechnology Index Fund 22,426,218 24,030,727 First Trust Dow Jones Internet Index(SM) Fund 10,578,864 10,138,747 First Trust DB Strategic Value Index Fund 93,890,444 109,369,540 First Trust Value Line(R) Equity Allocation Index Fund 11,593,388 14,839,586 First Trust Value Line(R) Dividend Index Fund 154,882,480 154,761,280 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 2,593,818 2,607,671 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 13,258,053 13,234,963 First Trust S&P REIT Index Fund 603,020 509,525 First Trust ISE Water Index Fund 13,973,695 14,560,699 First Trust ISE-Revere Natural Gas Index Fund 70,749,407 81,756,450 First Trust ISE Chindia Index Fund 27,794,630 27,994,647 First Trust Value Line(R) 100 Exchange-Traded Fund 351,840,590 362,213,758
For the period ended December 31, 2008, 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 $ 4,065,374 $ 1,681,916 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 12,610,166 11,807,338 First Trust US IPO Index Fund 9,214,453 16,448,911 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 5,117,620 8,781,146 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,935,066 7,013,304 First Trust Amex(R) Biotechnology Index Fund 63,764,788 57,571,136 First Trust Dow Jones Internet Index(SM) Fund 16,562,713 21,554,518 First Trust DB Strategic Value Index Fund 60,564,169 45,955,596 First Trust Value Line(R) Equity Allocation Index Fund 8,568,556 8,217,060 First Trust Value Line(R) Dividend Index Fund 13,806,381 38,150,223 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 7,767,493 -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 18,155,627 5,630,792 First Trust S&P REIT Index Fund 7,617,131 1,631,449 First Trust ISE Water Index Fund 60,158,902 20,261,084 First Trust ISE-Revere Natural Gas Index Fund 165,166,510 74,009,508 First Trust ISE Chindia Index Fund 13,398,811 21,816,658 First Trust Value Line(R) 100 Exchange-Traded Fund 58,728,655 95,195,210
Page 106 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 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: 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 transaction 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 transaction 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 June 30, 2009. Page 107 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 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. 8. Subsequent Events First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund Effective January 5, 2009, the Licensor changed the name of "NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index" to "NASDAQ(R) Clean Edge(R) Green Energy Index." Accordingly, the Board of Trustees thereafter approved a change in the name of the Fund from "First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund" to "First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund." The Board of Trustees also changed the Fund's investment objective to: "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." 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. First Trust US IPO Index Fund On December 15, 2008, the Board of Trustees approved the name change of this Fund from "First Trust IPOX-100 Index Fund" to "First Trust US IPO Index Fund." The change to the Fund name had no effect on the investment strategies or risks of the Fund. The ticker symbol and CUSIP number remain the same. Page 108 -------------------------------------------------------------------------------- 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 (formerly, First Trust IPOX-100 Index Fund), First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100- Technology Sector Index(SM) Fund, 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 (formerly, First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series 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 and First Trust Value Line(R) 100 Exchange-Traded Fund (collectively, the "Funds"), including the portfolios of investments, as of December 31, 2008, the related statements of operations, 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, 2008, 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 First Trust Exchange-Traded Fund as of December 31, 2008, the results of their operations, 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 20, 2009 Page 109 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 (UNAUDITED) Proxy 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 each Fund voted proxies relating to its portfolio securities during the period ended June 30, 2008 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 Form N-Q is 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, 2008, 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 Sector Index(SM) Fund -- First Trust Amex(R) Biotechnology Index Fund 100% First Trust Dow Jones Internet Index(SM) Fund 100% 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 99.43% 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 --
For the taxable year ended December 31, 2008, 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 Sector Index(SM) Fund -- First Trust Amex(R) Biotechnology Index Fund 100% First Trust Dow Jones Internet Index(SM) Fund 100% 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 --
Page 110 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- 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 CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. 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 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. The Amex(R) Biotechnology Index(SM) is a trademark of the NYSE Euronext or its affliliates ("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", "Value Line(R) Dividend Index" 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 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, the First Trust Value Line(R) Dividend Index Fund, based on the Value Line(R) Dividend Index and the First Trust Value Line(R) 100 Exchange-Traded Fund, based on the Value Line(R) 100 Index, 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 The McGraw-Hill Companies, Inc. ("McGraw-Hill") and have been licensed for use by First Trust Advisors L.P. The Fund is not sponsored, endorsed, sold or promoted by McGraw-Hill or Citigroup Global Markets and its affiliates ("Citigroup"), and neither McGraw-Hill nor Citigroup make any representation, warranty or condition regarding the advisability of investing in the Fund. "International Securities ExchangeTM", "ISETM", "ISE Water IndexTM", "ISE ChIndia IndexTM" and the ISE-Revere Natural Gas IndexTM" are trademarks of the International Securities ExchangeTM 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 ExchangeTM and the International Securities ExchangeTM makes no representation regarding the advisability of trading in such products. Page 111 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2008 (UNAUDITED) 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 THE FIRST TRUST OTHER TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR NAME, ADDRESS AND YEAR FIRST OVERSEEN BY DIRECTORSHIPS DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS TRUSTEE HELD BY TRUSTEE POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS ---------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES ---------------------------------------------------------------------------------------------------------------------------------- Richard E. Erickson, Trustee o Indefinite Term Physician; President, 60 None c/o First Trust Advisors L.P. Wheaton Orthopedics; 120 East Liberty Drive o Since Inception Co-owner and Co-Director Suite 400 (January 1996 to May Wheaton, IL 60187 2007), Sports Med Center D.O.B. : 04/51 for Fitness; Limited Partner, Gundersen Real Estate Limited Partnership; Member, Sportsmed LLC Thomas R. Kadlec, Trustee o Indefinite Term Senior Vice President and 60 Director of ADM Investor c/o First Trust Advisors L.P. Chief Financial Officer Services, Inc. 120 East Liberty Drive o Since Inception (May 2007 to Present), and Director of Suite 400 Vice President and Chief Archer Financial Wheaton, IL 60187 Financial Officer (1990 to Services, Inc. D.O.B. : 11/57 May 2007), ADM Investor Services, Inc. (Futures Commission Merchant); President (May 2005 to Present), ADM Derivatives, Inc.; Registered Representative (2000 to Present), Segerdahl & Company, Inc., a FINRA member (Broker-Dealer) Robert F. Keith, Trustee o Indefinite Term President (2003 to 60 None c/o First Trust Advisors L.P. Present), Hibs Enterprises 120 East Liberty Drive o Since Inception (Financial and Management Suite 400 Consulting); President Wheaton, IL 60187 (2001 to 2003), Aramark D.O.B. : 11/56 Management Services LP; President and Chief Operating Officer (1998 to 2003), Service Master Management Services, LP Niel B. Nielson, Trustee o Indefinite Term President (June 2002 to 60 Director of c/o First Trust Advisors L.P. Present), Covenant College Covenant 120 East Liberty Drive o Since Inception Transport Inc. Suite 400 Wheaton, IL 60187 D.O.B. : 03/54 ---------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE ---------------------------------------------------------------------------------------------------------------------------------- James A. Bowen(1), Trustee, o Indefinite Term President, First Trust 60 Trustee of President, Chairman of the Board Advisors L.P. and First Wheaton College and CEO o Since Inception Trust Portfolios L.P.; 120 East Liberty Drive Chairman of the Board of Suite 400 Directors, BondWave Wheaton, IL 60187 LLC (Software Development D.O.B. : 09/55 Company/Broker-Dealer/Investment Advisor) and Stonebridge 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 112 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (UNAUDITED) - (CONTINUED) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2008
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS AND DATE OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS ---------------------------------------------------------------------------------------------------------------------------------- OFFICERS WHO ARE NOT TRUSTEES (2) ---------------------------------------------------------------------------------------------------------------------------------- Mark R. Bradley Treasurer, Controller, o Indefinite Term Chief Financial Officer, 120 East Liberty Drive Chief Financial Officer First Trust Advisors L.P. and Suite 400 and Chief Accounting o 3 years, 6 months First Trust Portfolios L.P.; Wheaton, IL 60187 Officer served Chief Financial Officer, D.O.B. : 11/57 BondWave LLC (Software Development Company/Broker-Dealer/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) James M. Dykas Assistant Treasurer o Indefinite Senior Vice President (April 120 East Liberty Drive Term 2007 to Present), Vice Suite 400 President (January 2005 to Wheaton, IL 60187 o 3 years served April 2007), First Trust D.O.B. : 01/66 Advisors L.P. and First Trust Portfolios L.P.; Executive Director (December 2002 to January 2005), Vice President (December 2000 to December 2002), Van Kampen Asset Management and Morgan Stanley Investment Management W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust 120 East Liberty Drive Compliance Officer Advisors L.P. and First Trust Suite 400 o 3 years, 6 months Portfolios L.P.; Secretary, Wheaton, IL 60187 served BondWave LLC (Software Development D.O.B. : 05/60 Company/Broker-Dealer/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Senior Vice President 120 East Liberty Drive Term (September 2005 to Present), Suite 400 Vice President (April 2004 to Wheaton, IL 60187 o 3 years served September 2005), First Trust D.O.B. : 02/70 Advisors L.P. and First Trust Portfolios L.P.; Chief Operating Officer (January 2004 to April 2004), Mina Capital Management, LLC; Chief Operating Officer (April 2000 to January 2004), Samaritan Asset Management Services, Inc. Kristi A. Maher Assistant Secretary o Indefinite Term Deputy General Counsel (May 120 East Liberty Drive 2007 to Present), Assistant Suite 400 o 3 years, 6 months General Counsel (March 2004 Wheaton, IL 60187 served to May 2007), First Trust D.O.B. : 12/66 Advisors L.P. and First Trust Portfolios L.P.; Associate (December 1995 to March 2004), Chapman and Cutler LLP Roger F. Testin Vice President o Indefinite Term Senior Vice President, (November 2003 to 120 East Liberty Drive Present), Vice President (August 2001 to Suite 400 o 3 years, 6 months November 2003), First Trust Advisors L.P. Wheaton, IL 60187 served and First Trust Portfolios L.P.; Analyst D.O.B. : 06/66 (1998-2001), Dolan Capital Management Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President 120 East Liberty Drive (January 2008 to Present), Suite 400 o 6 months served First Trust Advisors L.P. and Wheaton, IL 60187 First Trust Portfolios L.P.; D.O.B. : 07/58 Vice President (May 1998 to January 2008), Van Kampen Asset Management and Morgan Stanley Investment Management Stan Ueland Vice President o Indefinite Term Vice President (August 2005 120 East Liberty Drive to Present), First Trust Suite 400 o 2 years served Advisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P; Vice President D.O.B. : 11/70 (May 2004 to August 2005), BondWave LLC (Software Development Company/Broker-Dealer/Investment Advisor); Account Executive (January 2003 to May 2004), Mina Capital Management, LLC and Samaritan Asset Management Services, Inc.; Sales Consultant (January 1997 to January 2003), Oracle Corporation _______________________ (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
Page 113 -------------------------------------------------------------------------------- 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. In 2008, securities markets have been significantly negatively affected by the financial crisis that initially resulted from the downturn in the subprime mortgage market in the United States. The potential impact of the financial crisis on securities markets may prove to be significant and long-lasting and may have a substantial impact on the value of a Fund. 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 stocks 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 more diversified 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. Page 114 -------------------------------------------------------------------------------- RISK CONSIDERATIONS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- 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. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, the First Trust Amex(R) Biotechnology Index Fund and the First Trust Dow Jones Internet Index(SM) Fund invest in small-cap companies and are subject to additional risks, as the share prices of small-cap companies may be less liquid and are often more volatile than those of larger companies. The First Trust Dow Jones Internet Index(SM) Fund invests in the securities of Internet companies. Internet companies are subject to rapid changes in technology, worldwide competition, rapid obsolescence of products and services, loss of patent protections, cyclical market patterns, evolving industry standards, frequent new product introductions and the considerable risk of owning small capitalization companies that have recently begun operations. 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 Amex(R) 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 Amex(R) 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 and First Trust Value Line(R) Dividend Index Fund invest in securities of companies in the financial services industry. 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 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, recently oil prices have been at historic highs and extremely volatile. Page 115 -------------------------------------------------------------------------------- RISK CONSIDERATIONS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- 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. The First Trust Amex(R) Biotechnology Index Fund, the First Trust Dow Jones Internet Index(SM) Fund, the First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, the First Trust Value Line(R) Equity Allocation Index Fund, the First Trust Value Line(R) Dividend Index Fund, the First Trust Value Line(R) 100 Exchange-Traded Fund, the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology 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, the First Trust US IPO Index Fund, the First Trust ISE Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund, the First Trust ISE Chindia Index Fund and the First Trust S&P REIT Index Fund 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. The First Trust Value Line(R) 100 Exchange-Traded Fund, the First Trust ISE Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund and the First Trust ISE Chindia Index Fund invest in non-U.S. securities and such securities may be denominated in currencies other than the U.S. Dollar. 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. 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. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 116 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- The open-end and closed-end funds advised by First Trust Advisors L.P. (each a "Fund") consider your privacy an important priority in maintaining our relationship. We are committed to protecting the security and confidentiality of your personal information. Sources of Information We may collect nonpublic personal information about you from the following sources: o Information we receive from you or your broker-dealer, investment advisor or financial representative through interviews, applications, agreements or other forms; o Information about your transactions with us, our affiliates or others; o Information we receive from your inquiries by mail, e-mail or telephone; and o 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. 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. Disclosure of Information We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. The permitted uses include the disclosure of such information to unaffiliated companies for the following reasons: o 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 and printers. o 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 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. Confidentiality and Security With regard to our internal security procedures, the Fund restricts 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. 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 contact us at (800) 621-1675. Page 117 [LOGO OMITTED] 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 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) There have been no amendments, during the period covered by this report, to 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, and that relates to any element of the code of ethics description. (d) The registrant, during the period covered by this report, 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. 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 (Registrant) -- 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 for those fiscal years were $260,000 for 2007 and $425,000 for 2008. (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 $1,800 for 2007 and $0 for 2008. These fees were for additional audit work. 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 $1,800 for 2007 and $0 for 2008. These fees were for additional audit work. (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 $35,900 for 2007 and $77,250 for 2008. These fees were for excise tax review and RIC review. 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 2007 and $0 for 2008. (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 2007 and $0 for 2008. 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 for 2007 were $25,369 for the registrant's investment adviser and $0 for the distributor and for 2008 were $0 for the registrant's adviser and $0 for the distributor. These fees were for tax consulting services. (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 of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(c) of Rule 2-01 of Regulation S-X are as follows: (b) 0% (c) 0% (d) 0% The percentage of services described in each of paragraphs (b) through (d) for 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)(ii) of Rule 2-01 of Regulation S-X are as follows: (b) 0% (c) 0% (d) 46.69% The percentage of services described in each of paragraphs (b) through (d) for the Registrant's distributor of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: (b) N/A (c) N/A (d) N/A (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 from the inception of the registrant for 2007 were $35,900 for the registrant, $39,869 for the registrant's investment adviser and $32,225 for the registrant's distributor, and for 2008 were $77,250 for the registrant, $12,143 for the registrant's investment adviser and $31,863 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 change to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, 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: /s/ James A. Bowen ------------------------------- Name: James A. Bowen Title: Chairman of the Board, President and Chief Executive Officer Date: February 26, 2009 ----------------------------- 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: /s/ James A. Bowen ------------------------------- Name: James A. Bowen Title: Chairman of the Board, President and Chief Executive Officer Date: February 26, 2009 ----------------------------- By: /s/ Mark R. Bradley ------------------------------- Name: Mark R. Bradley Title: Treasurer, Controller, Chief Financial Officer and Chief Accounting Officer Date: February 26, 2009 -----------------------------