N-CSR 1 etf1_ncsr.txt ANNUAL REPORT TO SHAREHOLDERS 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, IL 60187 ---------------------------------------------------------- (Address of principal executive offices) (Zip code) W. Scott Jardine, Esq. First Trust Portfolios L.P. 120 East Liberty Drive, Suite 400 Wheaton, IL 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, 2010 ------------------- 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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORT TO STOCKHOLDERS. The registrant's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: [LOGO OMITTED] First Trust First Trust Exchange-Traded Fund -------------------------------------------------------------- First Trust Dow Jones Select MicroCap Index(SM) Fund First Trust Morningstar(R) Dividend Leaders(SM) Index Fund First Trust US IPO Index Fund First Trust NASDAQ-100 Equal Weighted Index(SM) Fund First Trust NASDAQ-100-Technology Sector Index(SM) Fund First Trust NYSE Arca Biotechnology Index Fund First Trust Dow Jones Internet Index(SM) Fund First Trust Strategic Value Index Fund First Trust Value Line(R) Equity Allocation Index Fund First Trust Value Line(R) Dividend Index Fund First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund First Trust S&P REIT Index Fund First Trust ISE Water Index Fund First Trust ISE-Revere Natural Gas Index Fund First Trust ISE Chindia Index Fund First Trust Value Line(R) 100 Exchange-Traded Fund First Trust NASDAQ(R) ABA Community Bank Index Fund --------------------- Annual Report December 31, 2010 --------------------- -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 Shareholder Letter....................................................... 2 Market Overview.......................................................... 3 Fund Performance Overview First Trust Dow Jones Select MicroCap Index(SM) Fund.................. 4 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund............ 6 First Trust US IPO Index Fund......................................... 8 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund ................. 10 First Trust NASDAQ-100-Technology Sector Index(SM) Fund .............. 12 First Trust NYSE Arca Biotechnology Index Fund ....................... 14 First Trust Dow Jones Internet Index(SM) Fund ........................ 16 First Trust Strategic Value Index Fund ............................... 18 First Trust Value Line(R) Equity Allocation Index Fund ............... 20 First Trust Value Line(R) Dividend Index Fund ........................ 22 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund ........... 24 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund .......... 26 First Trust S&P REIT Index Fund ...................................... 28 First Trust ISE Water Index Fund ..................................... 30 First Trust ISE-Revere Natural Gas Index Fund ........................ 32 First Trust ISE Chindia Index Fund ................................... 34 First Trust Value Line(R) 100 Exchange-Traded Fund ................... 36 First Trust NASDAQ(R) ABA Community Bank Index Fund................... 38 Notes to Fund Performance Overview....................................... 40 Understanding Your Fund Expenses......................................... 41 Portfolio of Investments First Trust Dow Jones Select MicroCap Index(SM) Fund.................. 43 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund............ 47 First Trust US IPO Index Fund......................................... 49 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund ................. 52 First Trust NASDAQ-100-Technology Sector Index(SM) Fund .............. 54 First Trust NYSE Arca Biotechnology Index Fund ....................... 55 First Trust Dow Jones Internet Index(SM) Fund ........................ 56 First Trust Strategic Value Index Fund ............................... 57 First Trust Value Line(R) Equity Allocation Index Fund ............... 59 First Trust Value Line(R) Dividend Index Fund ........................ 62 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund ........... 65 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund .......... 67 First Trust S&P REIT Index Fund ...................................... 68 First Trust ISE Water Index Fund ..................................... 70 First Trust ISE-Revere Natural Gas Index Fund ........................ 71 First Trust ISE Chindia Index Fund ................................... 72 First Trust Value Line(R) 100 Exchange-Traded Fund ................... 74 First Trust NASDAQ(R) ABA Community Bank Index Fund................... 77 Statements of Assets and Liabilities..................................... 80 Statements of Operations................................................. 84 Statements of Changes in Net Assets...................................... 88 Financial Highlights..................................................... 94 Notes to Financial Statements............................................ 105 Report of Independent Registered Public Accounting Firm.................. 117 Additional Information .................................................. 118 Board of Trustees and Officers........................................... 123 Risk Considerations...................................................... 125 Privacy Policy........................................................... 128 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 any series of First Trust Exchange-Traded Fund (the "Trust") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. Performance and Risk Disclosure There is no assurance that any series of the Trust described in this report (each such series is referred to as a "Fund" and collectively, the "Funds") will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in a Fund. See "Risk Considerations" at the end of this report for a discussion of other risks of investing in the Funds. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit http://www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. How to Read This Report This report contains information that may help you evaluate your investment. It includes details about each Fund's portfolio and presents data and analysis that provide insight into each Fund's performance and investment approach. By reading the portfolio commentary by Robert F. Carey, Chief Investment Officer of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The risks of investing in each Fund are spelled out in its prospectus, statement of additional information, this report and other Fund regulatory filings. Page 1 -------------------------------------------------------------------------------- Shareholder Letter -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund Message from the President December 31, 2010 Dear Shareholders: I'm pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund. First Trust Advisors L.P. ("First Trust") has always believed that staying invested in quality products and having a long-term horizon can help investors reach their financial goals. Successful investors understand that the success they have achieved is typically because of their long-term investment perspective through all kinds of markets. While the past two years have been challenging, during 2010 the markets were recovering from their lows of 2008-2009. The report you hold gives detailed information for the past twelve months about the Funds that comprise the First Trust Exchange-Traded Fund. 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. That's why we remain committed to being a long-term investor and investment manager and to bringing you quality investment solutions regardless of the inevitable volatility the market experiences. We offer a variety of products that may fit many financial plans to help those investors seeking long-term investment success. You may want to talk to your advisor about the investments First Trust offers that might also fit your financial goals. First Trust is committed to making available up-to-date information about your investments so you and your financial advisor have current information on your portfolio. We continue to value our relationship with you, and we thank you for the opportunity to assist you in achieving your financial goals. I look forward to 2011 and to the next edition of the Fund's report. 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, 2010 [PHOTO OMITTED] Robert F. Carey, CFA Senior Vice President and Chief Investment Officer First Trust Advisors L.P. Mr. Carey is responsible for the overall management of research and analysis of the First Trust product line. Mr. Carey has 22 years of experience as an Equity and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst ("CFA") designation. He is a graduate of the University of Illinois at Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been quoted by several publications, including The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service, and Registered Rep. State of the Economy There are some distinct signals from the markets and economy that the healing process in the U.S. has taken hold. Perhaps the best is the plunge in the default rate of high-yield corporate bonds, which are highly speculative by design. So they are a good barometer of risk. The U.S. speculative-grade default rate stood at 3.4% in December, down from 14.1% in the fourth quarter of 2009, according to Moody's Investors Service. The overall credit situation in the debt markets continues to improve as well. Only 6.1% of companies with low credit ratings are considered to be distressed, down from over 80% in late 2008, according to Standard & Poor's. That would likely not be occurring if confidence in the economic recovery were not growing. There was a dramatic drop-off in the number of companies filing for bankruptcy in 2010. BankruptcyData.com reported that 106 public companies filed, down from 211 in 2009. Nine out of the top 10 filings were banks and financial firms, which is consistent with the notion that the epicenter of the subprime mortgage meltdown was the bank and brokerage industries. The S&P/Experian Consumer Credit Default Indices showed a marked improvement from November to December and year-over-year, according to Standard & Poor's. Defaults declined across all major categories of consumer borrowing. The following shows the (monthly and 12-month) default results as of December 2010: First Mortgage (-4.34% and -38.57%); Second Mortgage (-3.07% and -50.76%); Bank Card (-1.77% and -17.68%); and Auto Loans (-4.45% and -36.85%). The U.S. commercial real estate market performed better than many expected in 2010. Vacancies for apartment buildings, office complexes, retail malls and self-storage facilities are stabilizing. Commercial real estate prices jumped sharply from November to December, according to Moody's. The 4.1% rise was the largest sequential monthly gain on record since the Moody's/REAL Commercial Property Price Index was started in 2000. Gross domestic product ("GDP") in the U.S. has expanded for six consecutive quarters. GDP grew by an annualized 3.2% in the fourth quarter of 2010. The average quarterly growth rate over the past 20 years was 2.6%. The Blue Chip Economic Indicators survey revealed that those economists polled expect the U.S. GDP growth rate to be 3.1% in 2011. Brian Wesbury, Chief Economist at First Trust Advisors L.P., is more bullish and sees growth coming in at 4.4%. U.S. Stocks and Bonds All of the major U.S. stock indices posted double-digit returns in 2010. The S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were up 15.06%, 26.65%, and 26.32%, respectively, according to Bloomberg. All 10 major sectors in the S&P 500 posted gains. The top-performing sector was Consumer Discretionary, up 27.85%, while the poorest showing came from Health Care, up 2.90%. The year-over-year estimated earnings growth rate for the companies in the S&P 500 Index is expected to be 14.6% in 2010, according to Standard & Poor's. The current bull market in the S&P 500 lasted 663 calendar days at the close of 2010, according to Bespoke Investment Group. The bear market that preceded it lasted 517 calendar days. Since 1928, the average bull market has lasted 915 calendar days, vs. 310 for the average bear market. That is nearly three times as long. Since 1940, the average bull has lasted 1,600 calendar days, which just happens to be slightly more than three times the duration (517 days) of the last bear market. In the U.S. bond market, for the second consecutive year, the top-performing major debt group was high-yield corporate bonds. The Barclays Capital U.S. Corporate High Yield Index posted a total return of 15.12%. The next closest domestic category was intermediate corporate bonds, up 8.27%, as measured by the Barclays Capital Intermediate Corporate Index. The Barclays Capital Municipal Bond: Long Bond (22+) Index posted the worst return, up 1.1%. Foreign Stocks and Bonds Riskier asset classes dominated the overseas markets as well. The Barclays Capital Global Emerging Markets Index of debt securities rose 10.93% (USD) in 2010, while the MSCI Emerging Markets Index of stocks gained 18.88% (USD). The Barclays Capital Global Aggregate Index of higher quality debt returned 5.54% (USD), while the MSCI World Index (excluding the U.S.) of stocks from developed countries gained 11.15% (USD). The U.S. dollar boosted returns for U.S. investors by declining 1.06% against a basket of major currencies. Page 3 -------------------------------------------------------------------------------- Fund Performance Overview -------------------------------------------------------------------------------- FDM - First Trust Dow Jones Select MicroCap Index(SM) Fund The First Trust Dow Jones Select MicroCap Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Select MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index measures the performance of selected U.S. micro-capitalization companies chosen from all common stocks traded on the New York Stock Exchange ("NYSE(R)"), NYSE Amex 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, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/10 12/31/10 to 12/31/10 12/31/10 to 12/31/10 Fund Performance NAV 25.77% 1.95% 2.57% 10.16% 14.29% Market Value 25.98% 1.98% 2.57% 10.33% 14.29% Index Performance Dow Jones Select MicroCap Index(SM) 26.43% 2.70% 3.32% 14.22% 18.76% Russell 2000(R) Index 26.85% 4.47% 4.74% 24.46% 27.59% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review The Consumer Discretionary sector led all sectors in the Fund in contribution to total return over the twelve-month period with a +6.2% contribution. The Fund's holdings in the sector had an average weight in the portfolio of 16.7% and returned +35.3%. The top individual contributor from the sector was auto component company Dorman Products, Inc., which was helped by rebounding auto sales. The company returned +131.3% during the year as it reported year-over-year revenue increases of +14.6%, +19.5%, and +21.6% in the first, second, and third quarters of 2010, respectively. The Financials sector was the second best contributor to total return with a +6.1% contribution. iStar Financial, Inc. was the best individual contributor from the sector with a +0.6% contribution. During the time iStar Financial was in the Fund during 2010, it returned +106.2% as the company narrowed losses and restructured debt to avoid bankruptcy. The Materials sector was the best-performing sector in the Fund as the Fund's holdings from the sector had an annual return of +45.9%. Buckeye Technologies, Inc. was the Materials sector's best performer (+116.4% annual return) and contributor (+0.8% contribution). The cellulose-based fiber manufacturer cited robust demand and favorable pricing for its products as drivers for its strong sales growth. The Materials sector's small average weight in the Fund (6.9%) limited its contribution to the Fund's total return to +2.0%. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Buckeye Technologies, Inc. TeleCommunication Systems, Inc., Class A iStar Financial, Inc. Terra Nova Royalty Corp. Lindsay Corp. ATP Oil & Gas Corp. Dorman Products, Inc. A-Power Energy Generation Systems, Ltd. Applied Signal Technology, Inc. Dollar Financial Corp. ____________________ Dow Jones and Dow Jones Select MicroCap Index(SM) are products of Dow Jones Indexes, a licensed trademark of CME Group Index Services LLC ("CME") 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 CME, Dow Jones or their respective affiliates, and CME, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in the Fund. Page 4 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FDM - First Trust Dow Jones Select MicroCap Index(SM) Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Financials 27.45% Consumer Discretionary 18.58 Industrials 16.12 Information Technology 14.99 Health Care 7.46 Materials 5.46 Consumer Staples 3.32 Energy 3.24 Telecommunication Services 1.95 Utilities 1.43 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Buckeye Technologies, Inc. 1.18% Strategic Hotels & Resorts, Inc. 1.12 Lindsay Corp. 1.04 iStar Financial, Inc. 1.01 Sonic Solutions 1.00 Modine Manufacturing Co. 1.00 First Commonwealth Financial Corp. 0.95 Associated Estates Realty Corp. 0.88 ATMI, Inc. 0.88 Shuffle Master, Inc. 0.86 _____ Total 9.92% ===== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment September 27, 2005 - December 31, 2010 First Trust Dow Jones Select Dow Jones Select Russell MicroCap Index(SM) Fund MicroCap Index(SM) 2000(R) Index 9/05 $10,000 $10,000 $10,000 12/05 $10,374 $10,397 $10,252 6/06 $10,968 $11,033 $11,094 12/06 $12,001 $12,115 $12,134 6/07 $12,746 $12,910 $12,917 12/07 $11,278 $11,474 $11,944 6/08 $9,896 $10,100 $10,825 12/08 $7,520 $7,707 $7,909 6/09 $7,362 $7,568 $8,118 12/09 $9,087 $9,393 $10,058 6/10 $8,833 $9,153 $9,862 12/10 $11,427 $11,876 $12,759 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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 January 1, 2006 through December 31, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/06 - 12/31/06 125 8 2 0 01/01/07 - 12/31/07 125 12 5 0 01/01/08 - 12/31/08 139 9 1 0 01/01/09 - 12/31/09 121 6 0 0 01/01/10 - 12/31/10 169 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/06 - 12/31/06 116 0 0 0 01/01/07 - 12/31/07 100 4 5 0 01/01/08 - 12/31/08 99 5 0 0 01/01/09 - 12/31/09 120 5 0 0 01/01/10 - 12/31/10 83 0 0 0
Page 5 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FDL - First Trust Morningstar(R) Dividend Leaders(SM) Index Fund The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Morningstar(R) Dividend Leaders(SM) Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index offers investors a benchmark for dividend portfolios as well as a means to invest in a portfolio of stocks that have a consistent record of growing dividends as well as the ability to sustain them. The Index consists of the top 100 stocks, based on dividend yield, of the securities listed on one of the three major exchanges (NYSE(R), NYSE Amex or 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, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (03/09/06) Inception (03/09/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 16.05% -0.48% -2.28% Market Value 16.27% -0.45% -2.13% Index Performance Morningstar(R) Dividend Leaders(SM) Index 16.67% -0.01% -0.06% S&P 500(R) Index 15.06% 1.89% 9.45% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review The Telecommunication Services sector led all sectors over the twelve-month period in terms of contribution with a +4.1% contribution to the Fund's total return. The sector included Verizon Communications, Inc., which was the Fund's second largest holding (8.8% average weight) and top contributor (+2.4%). The wireless communication company returned +23.2% for the year on successful sales of its DROID smart phones and the announcement of its 4G network. The Energy sector was the next largest contributor to total return with a +3.4% contribution. The Fund's holdings in the sector included oil companies Chevron Corp. and ConocoPhillips. Both companies received most of their positive performance in the second half of the year as future global growth prospects improved and fears of a double-dip recession eased. Chevron returned +23.0% for the year and contributed +2.1% to the Fund's total return. ConocoPhillips returned +23.9% during the time it was held in the portfolio over the twelve months and contributed +1.2% to the Fund's total return. The Materials sector was the best performing sector in the Fund with a +47.5% annual return. E.I. du Pont de Nemours & Co. was mostly responsible for the sector's performance. The company returned +54.5% during the period and contributed +1.5% to the Fund's total return as robust auto sales increased demand for its products used in paint and electronics. Due to the Materials sector's small average Fund weight of 4.5%, its contribution to the Fund's total return was limited to +1.8%. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Verizon Communications, Inc. Exelon Corp. Chevron Corp. FirstEnergy Corp. E.I. du Pont de Nemours & Co. H&R Block, Inc. ConocoPhillips PPL Corp. AT&T, Inc. R.R. Donnelley & Sons Co. ____________________ Morningstar(R) 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 (Continued) -------------------------------------------------------------------------------- FDL - First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Utilities 28.34% Telecommunication Services 21.55 Energy 15.72 Health Care 15.53 Consumer Staples 6.44 Financials 3.63 Materials 3.26 Industrials 2.23 Information Technology 1.78 Consumer Discretionary 1.52 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Chevron Corp. 10.11% Verizon Communications, Inc. 10.09 AT&T, Inc. 9.90 Merck & Co., Inc. 8.17 ConocoPhillips 5.62 Bristol-Myers Squibb Co. 3.89 Eli Lilly & Co. 3.41 Kraft Foods, Inc., Class A 3.31 Southern Co. 2.68 E.I. du Pont de Nemours & Co. 2.66 ______ Total 59.84% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment March 9, 2006 - December 31, 2010 -------------------------------------------------------------------------------- First Trust Morningstar(R) Morningstar(R) Dividend Leaders(SM) Dividend Leaders(SM) S&P 500(R) Index Fund Index Index 03/06 $10,000 $10,000 $10,000 12/06 $12,077 $12,110 $11,317 06/07 $12,392 $12,462 $12,104 12/07 $10,793 $10,870 $11,939 06/08 $7,995 $8,069 $10,516 12/08 $7,371 $7,462 $7,522 06/09 $6,961 $7,067 $7,760 12/09 $8,420 $8,567 $9,512 06/10 $8,039 $8,197 $8,879 12/10 $9,771 $9,995 $10,945 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 03/15/06 - 12/31/06 116 8 3 0 01/01/07 - 12/31/07 122 6 5 0 01/01/08 - 12/31/08 148 8 4 2 01/01/09 - 12/31/09 135 4 3 0 01/01/10 - 12/31/10 185 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 03/15/06 - 12/31/06 75 0 0 0 01/01/07 - 12/31/07 107 10 1 0 01/01/08 - 12/31/08 84 4 2 1 01/01/09 - 12/31/09 106 3 1 0 01/01/10 - 12/31/10 66 1 0 0
Page 7 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FPX - First Trust US IPO Index Fund The First Trust US IPO Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the IPOX-100 U.S. Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a modified value-weighted price index measuring the performance of the top 100 U.S. companies ranked quarterly by market capitalization in the IPOX Global Composite Index. The Index utilizes a 10% capping on all constituents and includes the 100 largest, typically best performing and most liquid initial public offerings ("IPOs") of the U.S. companies in the IPOX Global Composite Index. The IPOX Global Composite Index is reconstituted regularly with IPOs being added to the IPOX Global Composite Index at their seventh trading day upon "going public" and automatically exiting after 1,000 trading days or approximately four years thereafter. The Index is reconstituted quarterly to reflect changes in the stock market values of the IPOX Global Composite Index constituents and IPO activity during the past quarter, with 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, 2010 -------------------------------------------------------------------------------- Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (04/12/06) Inception (04/12/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 18.28% 4.36% 22.30% Market Value 18.44% 4.38% 22.40% Index Performance IPOX-100 U.S. Index 19.08% 5.00% 25.93% Russell 3000(R) Index 16.93% 1.93% 9.45% ------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.) Performance Review The Consumer Discretionary sector led all sectors over the period with a +6.5% contribution to the Fund's total return. The sector had an average weight of 17.5% in the Fund, which was second only to the Information Technology sector, and the Fund's holdings in the sector returned +42.7%, which was best among all sectors with a greater than 2.0% average weight in the Fund. Time Warner Cable, Inc. was the top contributor from the sector with a 2.1% contribution to the Fund's total return. The company had an annual return of +64.4%, citing new customers and pricier products, such as DVRs, as reasons for the successful year. The Consumer Staples sector was the next best-contributing sector in the Fund, with a +5.4% contribution to the Fund's total return. Philip Morris International, Inc., the Fund's largest individual holding with an average weight of 10.1%, was the sector and the Fund's best individual contributor (+3.3%). Despite weakness in some markets, the company was able to raise prices on its cigarettes and increase its revenue +10% for the first three quarters of 2010 versus the same time period the previous year. Strong performance from Concho Resources, Inc. helped the Energy sector be the third best contributing sector with a +3.0% contribution to the Fund's total return. Concho Resources returned +95.2% for the year and contributed +0.9% to the Fund's total return as increasing oil prices helped boost revenues. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Philip Morris International, Inc. Visa, Inc., Class A Time Warner Cable, Inc. MasterCard, Inc., Class A Tyco Electronics Ltd. Clearwire Corp., Class A Mead Johnson Nutrition Co. A123 Systems, Inc. Concho Resources, Inc. Covidien PLC ____________________ The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of trading in the Fund. Page 8 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FPX - First Trust US IPO Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Information Technology 26.83% Consumer Discretionary 22.00 Consumer Staples 16.24 Energy 9.40 Financials 8.08 Industrials 7.21 Health Care 6.87 Telecommunication Services 1.70 Materials 0.88 Utilities 0.79 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- General Motors Co. 10.32% Philip Morris International, Inc. 9.78 Visa, Inc., Class A 8.66 Time Warner Cable, Inc. 4.18 Covidien PLC 4.08 Spectra Energy Corp. 2.89 Tyco Electronics Ltd. 2.82 Mead Johnson Nutrition Co. 2.27 Lorillard, Inc. 2.19 Western Union Co. 2.17 _______ Total 49.36% ======= -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment April 12, 2006 - December 31, 2010 First Trust US IPOX-100 Russell IPO Index Fund U.S. Index 3000(R) Index 04/06 $10,000 $10,000 $10,000 12/06 $11,100 $11,154 $11,064 06/07 $12,385 $12,481 $11,851 12/07 $12,712 $12,844 $11,633 06/08 $11,784 $11,941 $10,348 12/08 $7,134 $7,245 $7,293 06/09 $8,087 $8,248 $7,599 12/09 $10,339 $10,575 $9,360 06/10 $9,726 $9,980 $8,794 12/10 $12,228 $12,594 $10,945 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 04/13/06 - 12/31/06 37 0 0 0 01/01/07 - 12/31/07 96 9 4 1 01/01/08 - 12/31/08 133 3 6 0 01/01/09 - 12/31/09 109 3 0 0 01/01/10 - 12/31/10 149 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 04/13/06 - 12/31/06 144 0 0 0 01/01/07 - 12/31/07 135 5 1 0 01/01/08 - 12/31/08 108 2 1 0 01/01/09 - 12/31/09 135 5 0 0 01/01/10 - 12/31/10 103 0 0 0
Page 9 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QQEW - First Trust NASDAQ-100 Equal Weighted Index(SM) Fund The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is the equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the largest non-financial securities listed on 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, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (04/19/06) Inception (04/19/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 21.25% 3.90% 19.69% Market Value 21.13% 3.90% 19.69% Index Performance NASDAQ-100 Equal Weighted Index(SM) 21.98% 4.54% 23.19% NASDAQ-100 Index(R) 20.15% 6.02% 31.61% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review The Information Technology sector was the heaviest-weighted sector in the Fund with a 46.1% average weight. As a result, the sector was a clear leader in contribution to total return (+9.0%) over the period even though its performance (+19.8% annual return) lagged most other sectors in the Fund. Baidu, Inc. led the sector and Fund in contribution and performance. During 2010, the Chinese search engine widened its lead over Google as the most used search engine in China. Baidu had an annual return of +134.7% and contributed +1.1% to the Fund's total return. The Consumer Discretionary sector was the second best-contributing sector with a +4.7% contribution to the Fund's total return. priceline.com, Inc. was the top contributor from the sector. The company returned +82.9% for the year and contributed +1.0% to the Fund's total return. An increase in market share for hotel bookings outside the U.S. and acquisition of car-service company TravelJigsaw helped the company to the solid returns. The Industrials sector was the best performing (+42.6% annual return) and third best-contributing (+3.5%) sector in the Fund. Mining equipment manufacturer Joy Global, Inc. led the sector with a +70.1% annual return and a contribution to total return of +0.7%. The company benefitted from an increase in commodity demand from emerging markets which strengthened demand for its mining equipment. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Baidu, Inc., ADR Apollo Group Inc., Class A priceline.com, Inc. Vertex Pharmaceuticals, Inc. Illumina, Inc. Adobe Systems, Inc. Wynn Resorts, Ltd. NVIDIA Corp. SanDisk Corp. Cisco Systems, Inc. ____________________ NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Equal Weighted Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 10 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QQEW - First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments Information Technology 48.03% Consumer Discretionary 22.06 Health Care 17.81 Industrials 6.08 Telecommunication Services 3.02 Consumer Staples 2.00 Materials 1.00 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Sears Holdings Corp. 1.09% NVIDIA Corp. 1.07 Adobe Systems, Inc. 1.07 FLIR Systems, Inc. 1.05 Virgin Media, Inc. 1.05 Cisco Systems, Inc. 1.04 Millicom International Cellular S.A. 1.04 Applied Materials, Inc. 1.04 Infosys Technologies Ltd., ADR 1.03 Bed Bath & Beyond, Inc. 1.03 ______ Total 10.51% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment April 19, 2006 - December 31, 2010 First Trust NASDAQ-100 NASDAQ-100 Equal Equal Weighted NASDAQ-100 Weighted Index(SM) Fund Index(SM) Index(R) 04/06 $10,000 $10,000 $10,000 12/06 $10,060 $10,097 $10,168 06/07 $11,050 $11,117 $11,217 12/07 $11,040 $11,142 $12,124 06/08 $9,673 $9,785 $10,708 12/08 $6,187 $6,292 $7,084 06/09 $7,653 $7,803 $8,671 12/09 $9,871 $10,100 $10,954 06/10 $9,314 $9,561 $10,278 12/10 $11,968 $12,321 $13,161 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 04/25/06 - 12/31/06 105 0 1 0 01/01/07 - 12/31/07 151 0 3 0 01/01/08 - 12/31/08 152 4 1 1 01/01/09 - 12/31/09 144 0 0 0 01/01/10 - 12/31/10 155 1 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 04/25/06 - 12/31/06 68 0 0 0 01/01/07 - 12/31/07 97 0 0 0 01/01/08 - 12/31/08 94 1 0 0 01/01/09 - 12/31/09 104 3 1 0 01/01/10 - 12/31/10 95 1 0 0
Page 11 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QTEC - First Trust NASDAQ-100-Technology Sector Index(SM) Fund The First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-weighted index based on the securities of the NASDAQ-100 Index(R) that are classified as "technology" according to the Industry Classification Benchmark classification system. The NASDAQ-100 Index(R) includes 100 of the largest domestic and international non-financial companies listed on 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, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (04/19/06) Inception (04/19/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 21.92% 5.58% 29.07% Market Value 21.83% 5.60% 29.22% Index Performance NASDAQ-100 Technology Sector Index(SM) 22.66% 6.24% 32.93% S&P 500 Information Technology Index 10.19% 4.20% 21.33% S&P 500(R) Index 15.06% 1.28% 6.15% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review The Software industry led all industries in the Fund in contribution to total return over the twelve-month period with a contribution of +6.2%. Citrix Systems, Inc. was the best performer and contributor from the industry. The company, which makes software used to control computers remotely, jumped +19.7% in a single day after receiving upgrades by 5 analysts due to strong demand for its XenDesktop virtualization program. For the year, the company returned +64.4% and contributed +1.9% to the Fund's total return. The IT Services industry was the best-performing industry in the Fund with an annual return of +51.1%. Cognizant Technology Solutions Corp. led the industry in performance (+61.7%) and contribution to total return (+1.6%). For the quarter ended September 2010, the company reported its sixth consecutive revenue increase, including sequential increases of +15.2% and +10.1% reported in the quarters ending June and September 2010, respectively. Baidu, Inc. was well ahead of the rest of the Fund's constituents in performance and contribution. The Chinese search engine increased its lead over Google as the most used search engine in China, helping the company return +134.7% and contribute +3.1% to the Fund's total return during 2010. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Baidu, Inc., ADR Adobe Systems, Inc. Citrix Systems, Inc. NVIDIA Corp. SanDisk Corp. Cisco Systems, Inc. NetApp, Inc. Seagate Technology Cognizant Technology Solutions Corp., Class A Research In Motion Ltd. ____________________ NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Technology Sector Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 12 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QTEC - First Trust NASDAQ-100-Technology Sector Index(SM) Fund (Continued) -------------------------------------------------------------------------------- Portfolio Industry Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Industry Investments -------------------------------------------------------------------------------- Semiconductors & Semiconductor Equipment 32.54% Software 25.04 Computers & Peripherals 12.69 Internet Software & Services 12.23 Communications Equipment 9.93 IT Services 5.12 Health Care Technology 2.45 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- NVIDIA Corp. 2.69% Adobe Systems, Inc. 2.68 Cisco Systems, Inc. 2.60 Applied Materials, Inc. 2.59 Infosys Technologies Ltd., ADR 2.58 Xilinx, Inc. 2.57 Seagate Technology 2.56 NetApp, Inc. 2.56 SanDisk Corp. 2.56 Yahoo!, Inc. 2.55 ______ Total 25.94% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment April 19, 2006 - December 31, 2010 First Trust NASDAQ-100 S&P 500 NASDAQ-100-Technology Technology Information S&P 500(R) Sector Index(SM) Fund Sector Index(SM) Technology Index Index 04/06 $10,000 $10,000 $10,000 $10,000 12/06 $9,985 $10,020 $10,296 $10,975 06/07 $10,925 $10,989 $11,256 $11,739 12/07 $10,750 $10,847 $11,975 $11,579 06/08 $9,755 $9,872 $10,409 $10,199 12/08 $5,885 $5,983 $6,809 $7,295 06/09 $7,890 $8,048 $8,502 $7,526 12/09 $10,587 $10,838 $11,011 $9,224 06/10 $9,782 $10,041 $9,847 $8,611 12/10 $12,907 $13,293 $12,133 $10,615 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 04/25/06 - 12/31/06 103 1 1 1 01/01/07 - 12/31/07 153 0 0 0 01/01/08 - 12/31/08 138 6 1 1 01/01/09 - 12/31/09 151 4 0 0 01/01/10 - 12/31/10 188 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 04/25/06 - 12/31/06 68 0 0 0 01/01/07 - 12/31/07 98 0 0 0 01/01/08 - 12/31/08 104 2 1 0 01/01/09 - 12/31/09 94 3 0 0 01/01/10 - 12/31/10 63 1 0 0
Page 13 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FBT - First Trust NYSE Arca Biotechnology Index Fund The First Trust NYSE Arca Biotechnology Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NYSE Arca Biotechnology Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal dollar-weighted index designed to measure the performance of a cross section of companies in the biotechnology industry that are primarily involved in the use of biological processes to develop products or provide services. Such processes include, but are not limited to, recombinant DNA technology, molecular biology, genetic engineering, monoclonal antibody-based technology, lipid/liposome technology and genomics. This Index is rebalanced quarterly based on closing prices on the third Friday in January, April, July and October to ensure that each component stock continues to represent approximately equal weight in the Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 06/23/06.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (06/19/06) Inception (06/19/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 36.90% 16.22% 97.69% Market Value 36.99% 16.24% 97.89% Index Performance NYSE Arca Biotechnology Index(SM) 37.73% 16.93% 103.27% NASDAQ(R) Biotechnology Index 16.04% 7.23% 37.26% S&P 500(R) Index 15.06% 2.48% 11.74% S&P Composite 1500 Health Care Index 5.20% 3.54% 17.11% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review InterMune, Inc. was the Fund's leading performer (+179.1% annual return) and contributor (+15.6%) to the Fund's total return over the period. The company's stock tripled in March after an advisory panel to the FDA recommended approval of Intermune's lung drug Pirfenidone. In early May, the company's stock gave back those gains and more when the FDA did not approve the drug, but instead asked for a new clinical trial. In December, the company's stock more than doubled after the European Medicines Agency adopted a positive opinion for the same drug. Illumina, Inc. was the next best-performing stock in the Fund, with a +106.5% annual return. Helping the company's performance was the strong revenues it received from its HiSeq 2000 system, which can sequence a human genome faster and cheaper than existing methods. For the year, Illumina contributed +4.3% to the Fund's total return. Some other strong performers from the Fund included Sequenom, Inc. (+93.6%), OSI Pharmaceuticals (+85.0%), and Alexion Pharmaceuticals, Inc. (+65.0%). -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks InterMune, Inc. Vertex Pharmaceuticals, Inc. Sequenom, Inc. Human Genome Sciences, Inc. OSI Pharmaceuticals Celera Corp. Illumina, Inc. Gilead Sciences, Inc. Alexion Pharmaceuticals, Inc. Myriad Genetics, Inc. ____________________ The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Euronext or its affiliates ("NYSE Euronext") and is licensed for use by First Trust. The Fund is not sponsored or endorsed by NYSE Euronext. NYSE Euronext makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in the Fund or the ability of the Fund to track the performance of the various sectors represented in the stock market. NYSE Euronext has no obligation to take the needs of the owners of the Fund into consideration in determining, composing or calculating the Index. NYSE Euronext is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Fund. Page 14 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FBT - First Trust NYSE Arca Biotechnology Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Industry Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Industry Investments -------------------------------------------------------------------------------- Biotechnology 70.15% Life Sciences Tools & Services 26.09 Pharmaceuticals 3.76 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- InterMune, Inc. 11.31% Illumina, Inc. 5.90 Alexion Pharmaceuticals, Inc. 5.39 Myriad Genetics, Inc. 5.36 Life Technologies Corp. 5.35 Biogen Idec, Inc. 5.28 Sequenom, Inc. 5.08 Affymetrix, Inc. 4.93 Celera Corp. 4.86 QIAGEN N.V. 4.83 ______ Total 58.29% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment June 19, 2006 - December 31, 2010 First Trust NYSE Arca NYSE Arca NASDAQ(R) S&P S&P Composite Biotechnology Biotechnology Biotechnology 500(R) 1500 Health Index Fund Index(SM) Index Index Care Index 06/06 $10,000 $10,000 $10,000 $10,000 $10,000 12/06 $11,775 $11,815 $11,114 $11,554 $11,194 06/07 $12,105 $12,179 $11,177 $12,358 $11,919 12/07 $12,205 $12,320 $11,630 $12,189 $12,092 06/08 $11,410 $11,557 $11,086 $10,736 $10,593 12/08 $9,968 $10,138 $10,200 $7,679 $9,218 06/09 $10,722 $10,921 $10,491 $7,922 $9,305 12/09 $14,441 $14,758 $11,828 $9,711 $11,132 06/10 $15,629 $16,026 $11,227 $9,065 $10,324 12/10 $19,768 $20,327 $13,726 $11,174 $11,712 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 06/23/06 - 12/31/06 64 0 0 0 01/01/07 - 12/31/07 162 8 1 0 01/01/08 - 12/31/08 170 9 0 0 01/01/09 - 12/31/09 93 3 0 0 01/01/10 - 12/31/10 165 1 0 1 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 06/23/06 - 12/31/06 68 0 0 0 01/01/07 - 12/31/07 76 3 1 0 01/01/08 - 12/31/08 72 1 1 0 01/01/09 - 12/31/09 152 4 0 0 01/01/10 - 12/31/10 83 1 0 1
Page 15 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FDN - First Trust Dow Jones Internet Index(SM) Fund The First Trust Dow Jones Internet Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Internet Composite Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index represents companies that generate the majority of their revenues via the Internet. The Index was designed and is maintained according to a set of rules that were devised with the goal of providing clear and accurate views of the growing Internet market segment. The Index aims to consistently represent 80% of the float-adjusted Internet equity universe. The Index contains two sub-indexes, the Dow Jones Internet Commerce Index and the Dow Jones Internet Services Index. For its stock to be eligible for the "universe," a company must generate at least 50% of annual sales/revenues from the Internet, and be currently included in the Dow Jones U.S. Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 06/23/06.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (06/19/06) Inception (06/19/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 36.63% 12.70% 71.98% Market Value 36.74% 12.73% 72.18% Index Performance Dow Jones Internet Composite Index(SM) 37.25% 13.28% 76.02% S&P 500(R) Index 15.06% 2.48% 11.74% S&P Composite 1500 Information Technology Index 12.13% 7.32% 37.76% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review A majority of the Fund's holdings were a part of the Consumer Discretionary or Information Technology sectors. The Fund's holdings in the Consumer Discretionary sector made up an average of 18.8% of the Fund's portfolio, and had an annual return of +63.3%. The sector contributed +11.7% to the Fund's total return. The Fund's holdings in the Information Technology sector made up an average of 74.4% of the Fund, had an annual return of +35.9%, and contributed +26.5% to the Fund's total return. From the Consumer Discretionary sector, Netflix, Inc. led all the Fund's holdings with a +218.9% annual return and a +4.8% contribution to the Fund's total return. The online movie rental service surpassed 20 million subscribers as it enhanced its online streaming by making its service available through a multitude of devices. Also from the Consumer Discretionary sector, priceline.com, Inc. was the Fund's second best contributor to total return with a +4.1% contribution on an +82.9% annual return. An increase in market share for hotel bookings outside the U.S. and acquisition of car-service company TravelJigsaw helped the company to the solid returns. The leading contributor from the Information Technology sector was Salesforce.com, Inc. with a +3.1% contribution to total return on an annual return of +78.9%. The cloud computing company announced in November 2010 that it had increased its paying customers by +28% from the previous year and expects sales for the fiscal year 2012 to reach as high as $2 billion. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Netflix, Inc. Google, Inc., Class A priceline.com, Inc. Ticketmaster Entertainment Salesforce.com, Inc. E*TRADE Financial Corp. Akamai Technologies, Inc. Blue Nile, Inc. Amazon.com, Inc. Yahoo!, Inc. ____________________ Dow Jones and Dow Jones Internet Composite Index(SM) are products of Dow Jones Indexes, a licensed trademark of CME Group Index Services LLC ("CME") 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 CME, Dow Jones or their respective affiliates and CME, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in the Fund. Page 16 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FDN - First Trust Dow Jones Internet Index(SM) Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Information Technology 73.39% Consumer Discretionary 19.33 Financials 4.85 Health Care 2.43 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Google, Inc., Class A 10.18% Amazon.com, Inc. 7.65 eBay, Inc. 5.46 Yahoo!, Inc. 4.86 Juniper Networks, Inc. 4.83 priceline.com, Inc. 4.63 Salesforce.com, Inc. 4.01 Check Point Software Technologies Ltd. 3.35 Akamai Technologies, Inc. 3.21 Netflix, Inc. 3.15 ______ Total 51.33% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment June 19, 2006 - December 31, 2010 First Trust Dow Jones Dow Jones Internet S&P Composite 1500 Internet Composite Information Index(SM) Fund Index(SM) S&P 500(R) Index Technology Index 06/06 $10,000 $10,000 $10,000 $10,000 12/06 $11,285 $11,315 $11,554 $11,574 06/07 $12,975 $13,044 $12,358 $12,716 12/07 $12,545 $12,651 $12,189 $13,360 06/08 $11,203 $11,327 $10,736 $11,638 12/08 $7,023 $7,114 $7,679 $7,629 06/09 $9,374 $9,524 $7,922 $9,506 12/09 $12,587 $12,825 $9,711 $12,286 06/10 $11,980 $12,222 $9,065 $11,055 12/10 $17,197 $17,603 $11,174 $13,776 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 06/23/06 - 12/31/06 71 0 0 0 01/01/07 - 12/31/07 130 7 6 0 01/01/08 - 12/31/08 140 4 1 0 01/01/09 - 12/31/09 134 2 1 0 01/01/10 - 12/31/10 189 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 06/23/06 - 12/31/06 61 0 0 0 01/01/07 - 12/31/07 101 5 2 0 01/01/08 - 12/31/08 105 2 1 0 01/01/09 - 12/31/09 112 3 0 0 01/01/10 - 12/31/10 63 0 0 0
Page 17 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FDV - First Trust Strategic Value Index Fund The First Trust Strategic Value Index Fund (formerly known as 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 Credit Suisse U.S. Value Index, Powered by HOLT(TM) (the "Index"). The Index is an equally-weighted index which measures the performance of fifty stocks which have the highest HOLT valuation score and meet liquidity and tradeability requirements. The HOLT valuation scoring model aims to convert accounting data into cash as measured by HOLT's proprietary CFROI(R) metric. The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 07/11/06.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (07/06/06) Inception (07/06/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 14.04% 4.51% 21.87% Market Value 14.09% 4.52% 21.92% Index Performance Deutsche Bank CROCI(R) US+ Index(TM) 10.72% 4.25% 20.50% Credit Suisse U.S. Value Index, Powered by HOLT(TM) * N/A N/A N/A Composite Benchmark (1) 14.76% 5.16% 24.90% S&P 500 Value Index 15.10% -0.53% -2.35% S&P 500(R) Index 15.06% 1.87% 8.65% ------------------------------------------------------------------------------------------------------------------------------------
* On June 19, 2010, the Fund's underlying index changed from the Deutsche Bank CROCI(R) US+ Index(TM), to the Credit Suisse U.S. Value Index, Powered by HOLT(TM). Since the Fund's new underlying index had an inception date of June 14, 2010, it was not in existence for any of the periods disclosed. (See Notes to Fund Performance Overview on page 40.) Performance Review The Financials sector led all the sectors in the Fund for the period with a +4.1% contribution to total return. Financials companies had an average weight of 14.9% in the Fund, second only to the Health Care sector, and the Fund's holdings in the sector returned +14.7% for the year. Ameriprise Financial, Inc. was the sector's best contributor with a +0.7% contribution. The financial planning firm increased adviser productivity (operating net revenue per adviser) and was helped by market appreciation as it returned +50.7% for the year. The Energy sector was the second best-contributing sector in the Fund with a +3.6% contribution. The sector had two of the Fund's top five individual contributors: National Oilwell Varco, Inc. and Chevron Corp. Both companies experienced strong performance in the second half of the year as global economic prospects improved and energy prices increased. Chevron had a return of +36.3% during the time it was in the Fund in 2010 and contributed +0.7% to the Fund's total return. National Oilwell Varco also contributed +0.7% to the Fund's total return as the company returned +36.3% during the time it was held in the Fund in 2010. Materials company Freeport-McMoRan Copper & Gold, Inc. was the Fund's top individual contributor and performer. During the time it was held in the Fund in 2010, the company returned +83.2% and contributed +1.6% to the Fund's total return. The company's performance benefitted from favorable metals prices. The price of copper, for example, increased +48.8% in the second half of the year. Health Care stocks were a drag on the Fund's performance. The sector was the most represented sector in the Fund with a +32.3% average weight and it was the only sector with a negative contribution to the Fund's total return (-0.7%). -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Freeport-McMoRan Copper & Gold, Inc. Boston Scientific Corp. eBay, Inc. SanDisk Corp. Ameriprise Financial, Inc. Western Digital Corp. Chevron Corp. Gilead Sciences, Inc. National Oilwell Varco, Inc. Pfizer, Inc. (1) The Composite Benchmark is based on both the Deutsche Bank CROCI(R) US+ Index(TM), the Fund's prior Index (the "Old Index") and the Credit Suisse U.S. Value Index, Powered by HOLT(TM), the Fund's current Index (the "New Index"). FDV changed its underlying index at the close of business on June 18, 2010 from the Old Index to the New Index. Because of this, the June 18th closing value of the New Index was divided by the June 18th 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 June 18, 2010 and the New Index performance from June 19, 2010 (adjusted by the conversion multiple) through December 31, 2010. ____________________ "Credit Suisse," "HOLT" and "Credit Suisse U.S. Value Index, Powered by HOLT(TM)," are trademarks of Credit Suisse Group AG, Credit Suisse Securities (USA) LLC or one of their affiliates (collectively, "Credit Suisse"), and have been licensed for use for certain purposes by First Trust. THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY CREDIT SUISSE, AND CREDIT SUISSE MAKEs NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING THE ADVISABILITY OF INVESTING OR TRADING IN THE FUND. Page 18 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FDV - First Trust Strategic Value Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Health Care 29.41% Financials 28.26 Energy 10.71 Consumer Discretionary 9.64 Information Technology 7.64 Materials 4.23 Consumer Staples 4.04 Industrials 3.96 Telecommunication Services 2.11 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Valero Energy Corp. 2.40% Freeport-McMoRan Copper & Gold, Inc. 2.27 St. Jude Medical, Inc. 2.20 Hess Corp. 2.17 CVS Caremark Corp. 2.17 Bank of America Corp. 2.16 Marathon Oil Corp. 2.15 Citigroup, Inc. 2.15 Capital One Financial Corp. 2.13 Biogen Idec, Inc. 2.11 ______ Total 21.91% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment July 6, 2006 - December 31, 2010 First Trust Deutsche Bank Strategic Value CROCI(R) US+ S&P 500 S&P 500(R) Index Fund Index(TM) Value Index Index 07/06 $10,000 $10,000 $10,000 $10,000 12/06 $11,074 $11,072 $11,294 $11,235 06/07 $12,444 $12,472 $12,126 $12,016 12/07 $12,210 $12,273 $11,519 $11,852 06/08 $11,253 $11,332 $ 9,671 $10,440 12/08 $ 7,665 $ 7,762 $ 7,002 $ 7,467 06/09 $ 8,640 $ 8,775 $ 6,903 $ 7,703 12/09 $10,686 $10,884 $ 8,484 $ 9,443 06/10 $ 9,880 $10,014 $ 8,034 $ 8,815 12/10 $12,185 $12,051 $ 9,765 $10,866 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 07/11/06 - 12/31/06 63 1 0 0 01/01/07 - 12/31/07 121 15 4 0 01/01/08 - 12/31/08 115 3 2 0 01/01/09 - 12/31/09 139 3 0 0 01/01/10 - 12/31/10 152 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 07/11/06 - 12/31/06 57 0 0 0 01/01/07 - 12/31/07 100 8 2 1 01/01/08 - 12/31/08 126 7 0 0 01/01/09 - 12/31/09 107 3 0 0 01/01/10 - 12/31/10 100 0 0 0
Page 19 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FVI - First Trust Value Line(R) Equity Allocation Index Fund The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Equity Allocation Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the 1,700-stock Value Line(R) universe across market capitalizations and investment styles for growth and value that appear to have the greatest potential for capital appreciation. The Index is rebalanced on a semi-annual basis in February and August. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 12/07/06.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (12/05/06) Inception (12/05/06) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 19.85% 1.77% 7.42% Market Value 20.03% 1.81% 7.59% Index Performance Value Line(R) Equity Allocation Index(TM) 21.03% 2.65% 11.26% Russell 3000(R) Index 16.93% -0.25% -1.00% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review The Consumer Discretionary sector led all sectors in the Fund for the twelve months with a contribution to total return of +7.6%. It was the heaviest-weighted sector in the Fund with an average weight of 21.3% and the Fund's holdings in the sector returned +37.3%, second only to the Information Technology sector. From the Consumer Discretionary sector, Netflix, Inc. was the Fund's best individual performer and the sector's top individual contributor with an annual return of +218.9% and a +0.8% contribution to the Fund's total return. The online movie rental service surpassed 20 million subscribers as it enhanced its online streaming by making its service available through a multitude of devices. The Information Technology sector was the best performing sector in the Fund (+38.0%) and the second best contributor to the Fund's total return with a +5.0% contribution. The sector included the Fund's best individual contributor, electronics contract manufacturer Sanmina-SCI Corp. Sanmina-SCI was only held in the Fund from the beginning of 2010 to the second half of February 2010, but during that time the company's stock returned +49.4% and contributed +2.2% to the Fund's total return. In the fiscal first quarter of 2010, Sanmina-SCI posted its first quarterly profit in five quarters citing an increase in sales, a decrease in expenses, and a $35.6 million gain from a legal settlement. Also of note, the Financials and Health Care sectors had contributions to the Fund's total return of +2.6% and +2.3%, respectively. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Sanmina-SCI Corp. Potash Corp. of Saskatchewan, Inc. Novo Nordisk A/S, ADR H&R Block, Inc. Netflix, Inc. Daimler AG AutoZone, Inc. ITT Educational Services, Inc. priceline.com, Inc. L-3 Communications Holdings, Inc. ____________________ "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 (Continued) -------------------------------------------------------------------------------- FVI - First Trust Value Line(R) Equity Allocation Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Consumer Discretionary 24.10% Health Care 17.36 Financials 15.13 Information Technology 13.74 Consumer Staples 10.61 Utilities 6.72 Telecommunication Services 3.95 Industrials 3.46 Materials 2.65 Energy 2.28 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Magna International, Inc. 1.40% priceline.com, Inc. 1.38 Texas Instruments, Inc. 1.37 Tyco Electronics Ltd. 1.36 AutoZone, Inc. 1.34 Novo Nordisk A/S, ADR 1.34 Taiwan Semiconductor Manufacturing Co., Ltd., ADR 1.33 CenturyLink, Inc. 1.31 Cognizant Technology Solutions Corp., Class A 1.29 ConocoPhillips 1.27 ______ Total 13.39% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment December 5, 2006 - December 31, 2010 -------------------------------------------------------------------------------- First Trust Value Line(R) Equity Value Line(R) Allocation Equity Russell 3000(R) Index Fund Allocation Index(TM) Index 12/5/06 $10,000 $10,000 $10,000 12/31/06 $9,890 $9,897 $10,008 06/07 $10,610 $10,623 $10,720 12/07 $10,350 $10,398 $10,522 06/08 $9,470 $9,551 $9,360 12/08 $6,681 $6,772 $6,597 06/09 $7,037 $7,177 $6,874 12/09 $8,962 $9,192 $8,466 06/10 $8,831 $9,104 $7,954 12/10 $10,741 $11,125 $9,900 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 12/07/06 - 12/31/06 7 0 0 0 01/01/07 - 12/31/07 80 6 2 0 01/01/08 - 12/31/08 110 5 0 1 01/01/09 - 12/31/09 110 3 0 0 01/01/10 - 12/31/10 156 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 12/07/06 - 12/31/06 9 0 0 0 01/01/07 - 12/31/07 157 5 1 0 01/01/08 - 12/31/08 131 4 2 0 01/01/09 - 12/31/09 138 1 0 0 01/01/10 - 12/31/10 95 1 0 0
Page 21 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FVD - First Trust Value Line(R) Dividend Index Fund The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Dividend Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the universe of stocks which Value Line, Inc(R) gives a Safety(TM) Ranking of #1 or #2 in the Value Line(R) Safety(TM) Ranking System and have the potential to pay above-average dividends and achieve capital appreciation. The Index is rebalanced on a monthly basis. The Fund's shares are listed for trading on the NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (08/19/03) Ended (08/19/03) 12/31/10 12/31/10 to 12/31/10 12/31/10 to 12/31/10 Fund Performance NAV 16.08% 4.07% 6.95% 22.10% 64.05% Market Value 16.07% 6.95% 6.96% 39.94% 64.17% Index Performance Value Line(R) Dividend Index(TM) 17.00% N/A N/A N/A N/A S&P 500(R) Index 15.06% 2.29% 5.22% 11.99% 45.47% Dow Jones U.S. Select Dividend Index(SM) 18.32% 0.57% N/A 2.90% N/A ------------------------------------------------------------------------------------------------------------------------------------ On December 15, 2006, the Fund acquired the assets and adopted the financial and performance history of First Trust Value Line(R) Dividend Fund (the "Predecessor FVD Fund," a closed-end fund), which had an inception date of August 19, 2003. The inception date total returns at NAV include the sales load of $0.675 per share on the initial offering. The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVD Fund. The inception date of the Index was July 3, 2006. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (12/15/06) through period end (12/31/10) were 1.42% and 1.98% at NAV and Market Value, respectively. That compares to an Index return of 4.57% for the same period. The average annual returns for the period from the reorganization date (12/15/06) through period end (12/31/10) were 0.35% and 0.49% at NAV and Market Value, respectively. That compares to an Index return of 1.11% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to December 15, 2006, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVD Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Amex) closing market price of the Predecessor FVD Fund. (See Notes to Fund Performance Overview on page 40.)
Performance Review The Utilities sector led all sectors in the Fund with a contribution of +3.0% to the Fund's total return over the period. The Fund's holdings in the sector had an annual return of +12.4%, which was below-average compared to the other sectors, but the Utilities sector was the heaviest weighted sector with an average portfolio weight of 20.7%. Right behind the Utilities sector was the Financials sector with a +2.8% contribution to total return. The Fund's holdings in the sector returned +20.2% for the year and made up an average of 13.7% of the Fund's weight. Nearly half of the Fund's financial holdings were from the Insurance industry, and these holdings had an annual return of +25.0%. Erie Indemnity Co. was a part of the industry and was the Fund's best individual performer and contributor. In November of 2010, the company announced that in the third quarter earnings increased +35% versus the same quarter in 2009. The Materials sector was the best-performing sector in the Fund with an annual return of +30.8%. E.I. du Pont de Nemours & Co. was the best individual performer and contributor from the sector. The company returned +54.5% and contributed +0.3% to the Fund's total return during 2010 as robust auto sales increased demand for its products used in paint and electronics. Despite strong performance, the Materials sector's contribution to total return was limited to +1.5% because of its small average Fund weight of 4.9%. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Erie Indemnity Co., Class A BP PLC, ADR Eaton Corp. Murphy Oil Corp. Deere & Co. Elbit Systems, Ltd. E.I. du Pont de Nemours & Co. Pall Corp. Hasbro, Inc. Medtronic, Inc. ____________________ "Value Line(R)" and "Value Line(R) Dividend Index(TM)" 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(TM), is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Fund. Page 22 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FVD - First Trust Value Line(R) Dividend Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Utilities 20.06% Consumer Staples 18.28 Financials 13.44 Industrials 11.61 Health Care 9.75 Information Technology 7.31 Consumer Discretionary 6.68 Energy 4.93 Materials 4.88 Telecommunication Services 3.06 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Elbit Systems Ltd. 0.64% Enbridge, Inc. 0.62 Bank of Montreal 0.62 Washington Post (The) Co., Class B 0.62 National Fuel Gas Co. 0.62 Royal Bank of Canada 0.62 Raytheon Co. 0.62 Capitol Federal Financial, Inc. 0.62 Marathon Oil Corp. 0.62 ConocoPhillips 0.62 _____ Total 6.22% ===== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment August 19, 2003 - December 31, 2010 First Trust Value Line(R) Dividend Index Fund S&P 500(R) Index 08/03 $10,000 $10,000 12/03 $10,612 $11,166 06/04 $11,244 $11,551 12/04 $12,605 $12,381 06/05 $12,987 $12,281 12/05 $13,435 $12,989 06/06 $14,208 $13,341 12/06 $16,137 $15,041 06/07 $16,571 $16,088 12/07 $15,586 $15,867 06/08 $14,067 $13,977 12/08 $11,818 $ 9,997 06/09 $11,676 $10,313 12/09 $14,132 $12,642 06/10 $13,725 $11,801 12/10 $16,404 $14,547 -------------------------------------------------------------------------------- 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 index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 12/18/06 - 12/31/06 0 0 0 0 01/01/07 - 12/31/07 56 6 3 0 01/01/08 - 12/31/08 126 6 3 0 01/01/09 - 12/31/09 136 6 0 0 01/01/10 - 12/31/10 180 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 12/18/06 - 12/31/06 7 1 1 0 01/01/07 - 12/31/07 176 9 1 0 01/01/08 - 12/31/08 105 11 2 0 01/01/09 - 12/31/09 107 3 0 0 01/01/10 - 12/31/10 72 0 0 0
Page 23 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QQXT - First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index contains securities of the NASDAQ-100 Index(R) that are not classified as "technology" according to the Industry Classification Benchmark classification system and, as a result, is a subset of the NASDAQ-100 Index(R). The NASDAQ-100 Index(R) includes 100 of the largest domestic and international non-financial companies listed on 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, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 20.64% 1.69% 6.74% Market Value 20.77% 1.70% 6.79% Index Performance NASDAQ-100 Ex-Tech Sector Index(SM) 21.38% 2.32% 9.36% Russell 1000(R) Index 16.10% -1.13% -4.32% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review The Consumer Discretionary sector led all sectors in the Fund with a +7.4% contribution to the Fund's total return over the twelve months. The Fund's holdings in the sector had an average Fund weight of 31.0% and an annual return of +24.4%. priceline.com, Inc., the Fund's leading individual contributor, was a part of the Consumer Discretionary sector. The company returned +82.9% for the year and contributed +1.5% to the Fund's total return. priceline.com's strong returns were aided by an increase in market share for hotel bookings outside the U.S., and the acquisition of car-service company TravelJigsaw. The Industrials sector was the best-performing sector in the Fund as the Fund's holdings in the sector returned +42.4%. Within the sector, the Machinery industry had particularly good performance. The Fund's holdings in the industry consisted of Joy Global, Inc. and PACCAR, Inc., which had annual returns of +70.1% and +60.2%, respectively. Joy Global was one of the Fund's leading contributors with a +1.1% contribution to total return as increased commodity demand from emerging markets boosted demand for the company's mining equipment. Health Care company Illumina, Inc. was the best-performing stock in the Fund with a +106.5% annual return. Helping the company's performance was the strong revenues it received from its HiSeq 2000 system, which can sequence a human genome faster and cheaper than existing methods. For the year, Illumina contributed +1.5% to the Fund's total return. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks priceline.com, Inc. Apollo Group, Inc., Class A Illumina, Inc. Vertex Pharmaceuticals, Inc. Wynn Resorts Ltd. QIAGEN N.V. Joy Global, Inc. Gilead Sciences, Inc. Virgin Media, Inc. DISH Network Corp., Class A ____________________ NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Ex-Tech Sector Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the Corporations) and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 24 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QQXT - First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector (1) Investments -------------------------------------------------------------------------------- Consumer Discretionary 36.76% Health Care 28.05 Information Technology 15.02 Industrials 10.13 Telecommunication Services 5.03 Consumer Staples 3.34 Materials 1.67 _______ Total 100.00% ======= ____________________ (1) The above sector allocation is based on Standard & Poor's Global Industry Classification Standard ("GICS"), and is different than the industry sector classification system used by the Index to select securities, which is the Industry Classification Benchmark ("ICB") system, the joint classification system of Dow Jones Indexes and FTSE Group. -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Sears Holdings Corp. 1.82% FLIR Systems, Inc. 1.75 Virgin Media, Inc. 1.74 Millicom International Cellular S.A. 1.73 Bed Bath & Beyond, Inc. 1.72 Electronic Arts, Inc. 1.72 Stericycle, Inc. 1.72 Apollo Group, Inc., Class A 1.71 Comcast Corp., Class A 1.71 Flextronics International Ltd. 1.71 ______ Total 17.33% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment February 8, 2007 - December 31, 2010 First Trust NASDAQ-100 Ex-Technology NASDAQ-100 Ex-Tech Russell 1000(R) Sector Index(SM) Fund Sector Index(SM) Index 02/07 $10,000 $10,000 $10,000 12/07 $10,595 $10,653 $10,282 06/08 $9,057 $9,126 $9,131 12/08 $6,029 $6,102 $6,417 06/09 $7,060 $7,165 $6,694 12/09 $8,848 $9,009 $8,241 06/10 $8,454 $8,633 $7,714 12/10 $10,674 $10,935 $9,568 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 02/15/07 - 12/31/07 110 0 0 3 01/01/08 - 12/31/08 136 2 0 3 01/01/09 - 12/31/09 137 1 3 1 01/01/10 - 12/31/10 156 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 02/15/07 - 12/31/07 103 1 2 3 01/01/08 - 12/31/08 110 2 0 0 01/01/09 - 12/31/09 109 1 0 0 01/01/10 - 12/31/10 94 2 0 0
Page 25 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QCLN - First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (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 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.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 2.05% -4.94% -17.90% Market Value 2.05% -4.94% -17.90% Index Performance NASDAQ(R) Clean Edge(R) Green Energy Index 2.71% -4.28% -15.65% Russell 2000(R) Index 26.85% 0.35% 1.36% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review Companies involved in solar energy were hit hard during the year. In general, solar companies derive much of their revenue from Europe where solar power is heavily subsidized. The debt crisis that centered in Greece caused the Euro to plunge in value and prompted a push for austerity in European governments. SunPower Corp. (-45.8% annual return), Canadian Solar, Inc. (-57.0% annual return), and Suntech Power Holdings Co. Ltd. (-51.8% annual return) were all solar companies deriving a majority of their revenue from Europe, which had a tough 2010. The three companies were all among the Fund's five worst individual contributors as they combined to detract -4.1% from the Fund's total return. However, it was not a bad year for all clean energy companies. Baldor Electric Co. was the Fund's top individual contributor to total return. The company, which specializes in industrial electric motors, agreed to be bought for $4.2 billion by ABB Ltd. For the year, Baldor Electric returned +128.0% and contributed +2.9% to the Fund's total return. Though yet to have a profitable quarter, Universal Display Corp. had an annual return of +148.0% and contributed +1.3% to the Fund's total return. The company is part of the United States Display Consortium aimed at providing flat panel infrastructure in North America. Universal Display specializes in developing high-resolution, lightweight Organic Light Emitting Diode (OLED) technology. Power conversion company Power-One, Inc. was the Fund's best individual performer as it returned +184.0% during the time it was held in the Fund over the twelve months. Through the first three quarters of 2010 the company increased revenue +135% versus the same three quarters in 2009. The percentage of the Firm's revenue derived from renewable energy increased to 73% in the third quarter of 2010 versus 31% in the same quarter of 2009. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Baldor Electric Co. Suntech Power Holdings Co., Ltd., ADR Cree, Inc. Canadian Solar, Inc. Linear Technology Corp. American Superconductor Corp. Universal Display Corp. Broadwind Energy, Inc. Fairchild Semiconductor International, Inc. SunPower Corp., Class A ____________________ NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The NASDAQ OMX Group, Inc. ("NASDAQ OMX") and Clean Edge, Inc. ("Clean Edge(R)") respectively. NASDAQ OMX and Clean Edge(R) are, collectively with their affiliates, the "Corporations." The Marks are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 26 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QCLN - First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Information Technology 76.58% Industrials 15.30 Consumer Discretionary 3.46 Utilities 1.90 Materials 1.73 Energy 0.57 Health Care 0.46 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Linear Technology Corp. 8.17% First Solar, Inc. 8.16 Cree, Inc. 7.78 ON Semiconductor Corp. 5.95 National Semiconductor Corp. 3.97 Baldor Electric Co. 3.83 AVX Corp. 3.71 MEMC Electronic Materials, Inc. 3.62 Tesla Motors, Inc. 3.46 Itron, Inc. 3.17 ______ Total 51.82% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment February 8, 2007 - December 31, 2010 First Trust NASDAQ(R) Clean Edge(R) NASDAQ(R) Clean Edge(R) Russell 2000(R) Green Energy Index Fund Green Energy Index Index 02/07 $10,000 $10,000 $10,000 12/07 $15,430 $15,522 $9,489 06/08 $12,350 $12,472 $8,599 12/08 $5,595 $5,675 $6,283 06/09 $6,920 $7,038 $6,449 12/09 $8,045 $8,213 $7,990 06/10 $6,665 $6,824 $7,834 12/10 $8,210 $8,434 $10,136 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 02/14/07 - 12/31/07 39 0 4 3 01/01/08 - 12/31/08 87 1 2 0 01/01/09 - 12/31/09 92 4 0 0 01/01/10 - 12/31/10 79 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 02/14/07 - 12/31/07 176 0 0 0 01/01/08 - 12/31/08 156 3 4 0 01/01/09 - 12/31/09 152 3 1 0 01/01/10 - 12/31/10 173 0 0 0
Page 27 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FRI - First Trust S&P REIT Index Fund The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the S&P United States REIT Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index measures the securitized U.S. real estate investment trust ("REIT") market and maintains a constituency that reflects the composition of the overall REIT market. The Index contains securities selected for market representation according to geography and property type. All securities in the Index satisfy the Index's liquidity, price, and market capitalization requirements. The Standard & Poor's Index Committee, a team of Standard & Poor's economists and index analysts, maintains the Index. The Standard & Poor's 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, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 27.73% -5.65% -19.11% Market Value 27.82% -5.63% -19.05% Index Performance S&P United States REIT Index* 28.47% N/A N/A FTSE EPRA/NAREIT North America Index 28.65% -5.02% -17.13% Russell 3000(R) Index 16.93% -2.19% -7.76% ------------------------------------------------------------------------------------------------------------------------------------ * On November 6, 2008, the Fund's underlying index changed from the S&P REIT Composite Index to the S&P United States REIT Index. Therefore, the Fund's performance and historical returns shown for the periods prior to November 6, 2008 are not necessarily indicative of the performance that the Fund, based on its current Index, would have generated. The inception date of the Index was June 30, 2008. Returns for the Index are only disclosed for those periods in which the Index was in existence for the whole period.
(See Notes to Fund Performance Overview on page 40.) Performance Review Residential REITs were the best-performing REIT class in the Fund over the period. The Fund's holdings from the class returned +43.5% and contributed +6.6% to the Fund's total return. Equity Residential was the top contributor from the class with a +2.3% contribution to the Fund's total return. Equity Residential, which is the largest publicly-traded apartment landlord, benefitted as low homeownership rates and an improving economy drove up rent prices during 2010. For the year, Equity Residential returned +58.9%. Retail REITs also benefitted from the recovering economy. The class was the top-contributing class in the Fund with a +7.9% contribution to the Fund's total return. The Fund's top individual contributor, Simon Property Group, Inc., was from the Retail REITs class. The mall operator reported that its tenants' sales increased +10.6% in the third quarter of 2010 versus the same quarter in 2009. Over the same period, Simon Property was able to increase occupancy to 93.6% from 92.8% and raise its average rent per square foot to $38.69 from $38.35. For the year, Simon Property returned +28.5% and contributed +2.7% to the Fund's total return. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Simon Property Group, Inc. CommonWealth REIT Equity Residential Parkway Properties, Inc. Host Hotels & Resorts, Inc. Highwoods Properties, Inc. Public Storage Mack-Cali Realty Corp. Boston Properties, Inc. Cedar Shopping Centers, Inc. ____________________ Standard & Poor's(R), S&P(R) and S&P United States REIT Index are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by First Trust. The Fund is not sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding shares of the Fund. Page 28 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FRI - First Trust S&P REIT Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio REIT Class Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term REIT Class Investments -------------------------------------------------------------------------------- Retail 27.26% Specialized 26.91 Residential 16.51 Office 15.92 Diversified 7.55 Industrial 5.85 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Simon Property Group, Inc. 9.01% Equity Residential 4.57 Public Storage 4.38 Vornado Realty Trust 4.19 HCP, Inc. 4.14 Boston Properties, Inc. 3.73 Host Hotels & Resorts, Inc. 3.68 General Growth Properties, Inc. 3.27 AvalonBay Communities, Inc. 2.97 Ventas, Inc. 2.55 ______ Total 42.49% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment May 8, 2007 - December 31, 2010 First Trust S&P REIT FTSE EPRA/NAREIT Russell Index Fund North America Index 3000(R) Index 05/07 $10,000 $10,000 $10,000 12/07 $8,093 $8,206 $9,811 06/08 $7,739 $7,843 $8,728 12/08 $4,947 $4,872 $6,151 06/09 $4,319 $4,381 $6,405 12/09 $6,333 $6,442 $7,889 06/10 $6,679 $6,772 $7,412 12/10 $8,090 $8,287 $9,225 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%s 05/10/07 - 12/31/07 46 13 4 1 01/01/08 - 12/31/08 91 15 9 11 01/01/09 - 12/31/09 136 16 1 0 01/01/10 - 12/31/10 185 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 05/10/07 - 12/31/07 85 9 5 0 01/01/08 - 12/31/08 109 12 4 2 01/01/09 - 12/31/09 84 14 1 0 01/01/10 - 12/31/10 67 0 0 0
Page 29 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FIW - First Trust ISE Water Index Fund The First Trust ISE Water Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE Water Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a modified market capitalization weighted index comprised of 36 stocks that derive a substantial portion of their revenues from the potable and wastewater industries. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 19.49% 3.60% 13.78% Market Value 19.72% 3.64% 13.93% Index Performance ISE Water Index(TM) 20.36% 4.28% 16.53% Russell 3000(R) Index 16.93% -2.19% -7.76% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40)
Performance Review The Fund had an average weight of 54.9% in the Industrials sector, which consequently led all sectors in the Fund with a +10.3% contribution to total return over the period. Within the sector, the Machinery industry alone had an average Fund weight of 36.4% and contributed +7.9% to the Fund's total return. The industry included the Fund's leading individual contributor, irrigation equipment manufacturer Lindsay Corp. In October, the company reported earnings for the quarter ended 08/2010 were $0.47/share versus an estimate of $0.27/share. The upside surprise came from strong sales of the company's Quick Move Barrier product line and an increase in gross margins. For the year, Lindsay Corp. returned +50.2% and contributed +2.9% to the Fund's total return. The Utilities sector was the second best sector with a +4.9% contribution to the Fund's total return. The sector included the Fund's best individual performer, water-supply systems company Southwest Water Co. In March of 2010, it was announced that the company would be acquired by multiple companies for a significant premium. For the year, Southwest Water returned +87.3% and contributed +1.4% to the Fund's total return. Health Care company Millipore Corp., which had a segment of business dedicated to water purification for use in lab work, also had strong performance due to being acquired. The company returned +47.8% and contributed +2.1% to the Fund's total return after it was announced that Merck KGaA would buy Millipore for $107 per share. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Lindsay Corp. Energy Recovery, Inc. Millipore Corp. Mueller Water Products, Inc., Class A Companhia de Saneamento Basico do Tetra Tech, Inc. Estado de Sao Paulo, ADR Itron, Inc. Aqua America, Inc. Veolia Environment, ADR Southwest Water Co. ____________________ "International Securities Exchange(TM)", "ISE(TM)" and "ISE Water Index(TM)" are trademarks of the International Securities Exchange, LLC and have been licensed for use for certain purposes by First Trust. The Fund, based on the ISE Water Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 30 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FIW - First Trust ISE Water Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Industrials 59.31% Utilities 21.88 Materials 13.60 Health Care 1.97 Information Technology 1.97 Financials 1.27 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Companhia de Saneamento Basico do Estado de Sao Paulo, ADR 4.23% ITT Corp. 4.17 Watts Water Technologies, Inc., Class A 4.14 Aqua America, Inc. 4.13 Pentair, Inc. 4.08 American Water Works Co., Inc. 4.06 Nalco Holding Co. 3.96 California Water Service Group 3.93 Flow International Corp. 3.68 Energy Recovery, Inc. 3.68 ______ Total 40.06% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment May 8, 2007 - December 31, 2010 First Trust ISE ISE Water Russell Water Index Fund Index(TM) 3000(R) Index 05/07 $10,000 $10,000 $10,000 12/07 $11,212 $11,260 $9,811 06/08 $10,992 $11,056 $8,728 12/08 $7,915 $7,987 $6,151 06/09 $8,168 $8,276 $6,405 12/09 $9,522 $9,681 $7,889 06/10 $8,989 $9,168 $7,412 12/10 $11,378 $11,653 $9,225 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 05/11/07 - 12/31/07 51 0 0 1 01/01/08 - 12/31/08 129 3 3 1 01/01/09 - 12/31/09 103 4 0 0 01/01/10 - 12/31/10 146 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 05/11/07 - 12/31/07 109 0 1 0 01/01/08 - 12/31/08 106 8 3 0 01/01/09 - 12/31/09 131 13 1 0 01/01/10 - 12/31/10 105 1 0 0
Page 31 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FCG - First Trust ISE-Revere Natural Gas Index Fund The First Trust ISE-Revere Natural Gas Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE-REVERE Natural Gas Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. The Index is constructed by establishing the universe of stocks listed in the U.S. of companies involved in the natural gas exploration and production industries and then eliminates stocks whose natural gas proven reserves do not meet certain requirements. The Index then ranks all candidate stocks using four different methods and, often averaging the rankings, selects the top 30 stocks based on the final rank. The Index is rebalanced on a quarterly basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 12.22% -0.02% -0.09% Market Value 12.45% 0.05% 0.18% Index Performance ISE-REVERE Natural Gas Index(TM) 13.72% 0.69% 2.54% Russell 3000(R) Index 16.93% -2.19% -7.76% S&P Composite 1500 Energy Index 21.37% 2.74% 10.35% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review An abundance of natural gas supplies helped push down the price of natural gas -40.1% for the year, but the natural gas-related equities in the Fund still had positive returns in general during 2010. Mariner Energy, Inc. was the Fund's top individual performer and contributor to total return. In April, Apache Corp. announced it would purchase Mariner Energy for $26.22 per share, causing Mariner Energy stock to jump +42.0% in a single day. For the year, the company returned +126.1% and contributed +3.0% to the Fund's total return. Cimarex Energy Co. was the second best individual contributor in the Fund with an annual return of +67.9% and a +2.3% contribution. Successful drilling in western Oklahoma, the Permian Basin, and southeast Texas helped the company increase production volumes of oil & gas +36% in the third quarter of 2010 versus the third quarter of 2009. Forest Oil Corp. was another strong performer for the Fund, returning +70.6% for the year and contributing +2.0% to the Fund's total return. In November, Forest Oil announced that in the third quarter of 2010 net sales increased +16% versus the same quarter in 2009, and predicted year-over-year net sales growth in the fourth quarter would be +20%. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Mariner Energy, Inc. GMX Resources, Inc. Cimarex Energy Co. Compton Petroleum Corp. Forest Oil Corp. Petrohawk Energy Corp. Pioneer Natural Resources Co. Cabot Oil & Gas Corp. Newfield Exploration Co. PetroQuest Energy, Inc. ____________________ "International Securities Exchange(TM)", "ISE(TM)" and "ISE-REVERE Natural Gas Index(TM)" are trademarks of the International Securities Exchange, LLC and have been licensed for use for certain purposes by First Trust. The Fund, based on the ISE-REVERE Natural Gas Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 32 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FCG - First Trust ISE-Revere Natural Gas Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sub-industry Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sub-industry Investments -------------------------------------------------------------------------------- Oil & Gas Exploration & Production 70.15% Integrated Oil & Gas 26.69 Gas Utilities 3.16 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- SandRidge Energy, Inc. 3.69% Chesapeake Energy Corp. 3.62 Talisman Energy, Inc. 3.51 Forest Oil Corp. 3.51 SM Energy Co. 3.48 Devon Energy Corp. 3.43 Cabot Oil & Gas Corp. 3.43 Suncor Energy, Inc. 3.42 Statoilhydro ASA, ADR 3.41 Range Resources Corp. 3.40 ______ Total 34.90% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment May 8, 2007 - December 31, 2010 First Trust ISE-Revere ISE-REVERE Natural Gas Natural Gas Russell S&P Composite Index Fund Index(TM) 3000(R) Index 1500 Energy Index 05/07 $10,000 $10,000 $10,000 $10,000 12/07 $11,166 $11,213 $9,804 $12,170 06/08 $15,755 $15,942 $8,721 $13,578 12/08 $5,967 $6,016 $6,147 $7,810 06/09 $6,454 $6,518 $6,405 $7,740 12/09 $8,903 $9,017 $7,889 $9,092 06/10 $7,752 $7,891 $7,412 $8,016 12/10 $9,992 $10,254 $9,225 $11,036 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 05/11/07 - 12/31/07 49 0 0 2 01/01/08 - 12/31/08 131 6 1 2 01/01/09 - 12/31/09 174 1 0 0 01/01/10 - 12/31/10 124 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 05/11/07 - 12/31/07 109 2 0 0 01/01/08 - 12/31/08 101 8 4 0 01/01/09 - 12/31/09 77 0 0 0 01/01/10 - 12/31/10 127 1 0 0
Page 33 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FNI - First Trust ISE Chindia Index Fund The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a non-market capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks of companies from China and India currently trading on a U.S. exchange. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 18.46% 7.08% 28.36% Market Value 18.27% 7.10% 28.46% Index Performance ISE ChIndia Index(TM) 19.43% 7.85% 31.74% Russell 3000(R) Index 16.93% -2.19% -7.76% MSCI Emerging Markets Index 18.88% 6.52% 25.92% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review The Information Technology sector led all the sectors in the Fund with a +8.5% contribution to the Fund's total return over the twelve months. The sector was the heaviest-weighted sector in the Fund with an average weight of 34.6% and was also one of the better-performing sectors with an annual return of +24.7%. Baidu, Inc., the Fund's best individual performer and contributor, was part of the sector. The Chinese search engine returned +134.7% for the year and contributed +5.6% to the Fund's total return as it widened its lead over Google as the most used search engine in China. IT consulting and software services company Infosys Technologies Ltd. was another strong performer from the Information Technology sector. For the quarter ended September 30, 2010, the company reported quarter-over-quarter growth in net income of +14.7%, added 7,646 new employees, and added 27 new clients. For the entire year Infosys Technologies returned +40.2% and contributed +2.7% to the Fund's total return. The Financials sector was the second best contributor with a +4.1% contribution to total return. Two large commercial banks were responsible for the contribution. Strong loan demand helped ICICI Bank Ltd. and HDFC Bank Ltd. to annual returns of +36.3% and +29.2%, respectively, and a combined contribution to total return of +4.9%. The rest of the Fund's holdings in the Financials sector were a net detractor from total return. Robust global auto demand helped Tata Motors Ltd. be one of the Fund's best performers (+76.6% annual return) and contributors (+2.7% contribution). In particular, the company announced that it expects sales of its light commercial vehicles to increase +50% in the fiscal year 2011 over the fiscal year 2010. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Baidu, Inc., ADR Suntech Power Holdings Co. Ltd., ADR Tata Motors Ltd., ADR RINO International Corp. Infosys Technologies Ltd., ADR China Life Insurance Co. Ltd., ADR ICICI Bank Ltd., ADR NetEase.com, Inc., ADR HDFC Bank Ltd., ADR Tata Communications Ltd., ADR ____________________ "International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia Index(TM)" are trademarks of the International Securities Exchange, LLC and have been licensed for use for certain purposes by First Trust. The Fund, based on the ISE ChIndia Index(TM), is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 34 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FNI - First Trust ISE Chindia Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Information Technology 33.82% Financials 19.56 Energy 12.81 Consumer Discretionary 10.67 Telecommunication Services 8.44 Industrials 5.53 Materials 5.21 Health Care 3.26 Utilities 0.70 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- Infosys Technologies Ltd., ADR 7.64% ICICI Bank Ltd., ADR 7.24 CNOOC Ltd., ADR 7.15 HDFC Bank Ltd., ADR 7.01 China Mobile Ltd., ADR 6.95 Baidu, Inc., ADR 6.28 Sterlite Industries (India) Ltd., ADR 4.48 Wipro Ltd., ADR 4.23 Tata Motors Ltd., ADR 4.14 PetroChina Co., Ltd., ADR 4.13 ______ Total 59.25% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment May 8, 2007 - December 31, 2010 -------------------------------------------------------------------------------- First Trust ISE Russell MSCI ISE Chindia ChIndia 3000(R) Emerging Index Fund Index(TM) Index Markets Index 05/07 $10,000 $10,000 $10,000 $10,000 12/07 $13,873 $13,952 $9,804 $12,715 06/08 $9,985 $10,059 $8,721 $11,220 12/08 $5,968 $6,031 $6,147 $5,934 06/09 $8,329 $8,451 $6,405 $8,071 12/09 $10,836 $11,031 $7,889 $10,593 06/10 $10,540 $10,767 $7,412 $9,939 12/10 $12,836 $13,175 $9,225 $12,592 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV Quarter Ended 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 05/11/07 - 12/31/07 82 2 0 2 01/01/08 - 12/31/08 87 8 2 0 01/01/09 - 12/31/09 131 15 10 1 01/01/10 - 12/31/10 151 2 0 0 Number of Days Bid/Ask Midpoint Below NAV Quarter Ended 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 05/11/07 - 12/31/07 76 0 0 0 01/01/08 - 12/31/08 138 11 5 2 01/01/09 - 12/31/09 95 0 0 0 01/01/10 - 12/31/10 99 0 0 0
Page 35 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FVL - First Trust Value Line(R) 100 Exchange-Traded Fund The First Trust Value Line(R) 100 Exchange-Traded Fund seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) 100 Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-dollar weighted index that is designed to objectively identify and select 100 stocks from the universe of stocks to which Value Line(R) assigns a #1 ranking in the Value Line(R) Timeliness(TM) Ranking System (the "Ranking System"). At any one time, only 100 stocks are assigned a #1 ranking in the Ranking System. The Index is rebalanced quarterly. The Fund's shares are listed for trading on the NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year 5 Years Inception 5 Years Inception Ended Ended (06/12/03) Ended (06/12/03) 12/31/10 12/31/10 to 12/31/10 12/31/10 to 12/31/10 Fund Performance NAV 29.50% -1.09% 3.80% -5.32% 32.58% Market Value 29.50% 0.79% 3.80% 4.01% 32.58% Index Performance Value Line(R) 100 Index(TM) 30.74% N/A N/A N/A N/A Russell 3000(R) Index 16.93% 2.74% 5.93% 14.46% 54.57% ------------------------------------------------------------------------------------------------------------------------------------ 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 are only disclosed for those periods in which the Index was in existence for the entire period. The cumulative total returns for the period from the reorganization date (06/15/07) through period end (12/31/10) were -19.52% for both NAV and Market Value. That compares to an Index return of -17.28% for that same period. The average annual returns for the period from the reorganization date (6/15/07) through period end (12/31/10) were -5.94% for both NAV and Market Value. That compares to an Index return of -5.22% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to June 15, 2007, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVL Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Amex) closing market price of the Predecessor FVL Fund. (See Notes to Fund Performance Overview on page 40.)
Performance Review The Consumer Discretionary and Information Technology sectors were the main drivers of Fund performance over the period. Nine of the top ten of the Fund's leading individual contributors were from these two sectors. The Fund's holdings in the Consumer Discretionary sector had an annual return of +40.9% and contributed +12.5% to the Fund's total return. Included in the sector was Netflix, Inc., which was the Fund's leading individual performer and contributor. During the time it was held in the Fund during 2010, Netflix returned +169.6% and contributed +1.4% to the Fund's total return. The online movie rental service surpassed 20 million subscribers as it enhanced its online streaming by making its service available through a multitude of devices. Footwear company Deckers Outdoor Corp. was another leading performer from the Consumer Discretionary sector. The company had record sales of $277.9 million in the third quarter of 2010 on strong sales growth from the company's UGG(R) and Teva(R) brands. For the year, Deckers Outdoor returned +135.2% and contributed +1.1% to the Fund's total return. The Fund's holdings in the Information Technology sector returned +28.2% and contributed +8.2% to the Fund's total return. Cirrus Logic, Inc. was the top contributor from the sector. During the company's time in the Fund in 2010 it returned +78.7% and contributed +1.1% to the Fund's total return. The company's performance was driven by the success of Apple's iPhone and iPod, for which Cirrus supplies parts. Approximately 33% of Cirrus' revenue comes from Apple products. Industrials company Keithley Instruments, Inc. was the Fund's only top contributor not from the Consumer Discretionary or Information Technology sectors. Keithley Instruments returned +137.9% during the time it was in the Fund in 2010 and contributed +1.3% to the Fund's total return as it was acquired by Danaher Corp. for a significant premium. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the year ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Netflix, Inc. FSI International, Inc. Keithley Instruments, Inc. Sanmina-SCI Corp. Cirrus Logic, Inc. Overstock.com, Inc. Deckers Outdoor Corp. Unisys Corp. F5 Networks, Inc. Skechers USA, Inc., Class A ____________________ "Value Line(R)" and "Value Line(R) 100 Index(TM)" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust on behalf of the Fund. The Fund, based on the Value Line(R) 100 Index(TM), is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Fund. Page 36 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- FVL - First Trust Value Line(R) 100 Exchange-Traded Fund (Continued) -------------------------------------------------------------------------------- Portfolio Sector Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Sector Investments -------------------------------------------------------------------------------- Consumer Discretionary 34.86% Information Technology 26.02 Industrials 12.13 Materials 9.02 Health Care 6.96 Telecommunication Services 3.98 Consumer Staples 2.05 Energy 2.00 Financials 1.98 Utilities 1.00 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- NN, Inc. 1.08% Hitachi Ltd., ADR 1.08 China-Biotics, Inc. 1.06 Avis Budget Group, Inc. 1.04 Collective Brands, Inc. 1.04 Community Health Systems, Inc. 1.03 Tollgrade Communications, Inc. 1.03 Cypress Semiconductor Corp. 1.03 Knology, Inc. 1.03 Alliance Resource Partners L.P. 1.03 ______ Total 10.45% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment June 12, 2003 - December 31, 2010 -------------------------------------------------------------------------------- First Trust Value Line(R) 100 Exchange-Traded Fund Russell 3000(R) Index 06/03 $10,000 $10,000 12/03 $11,073 $11,367 06/04 $11,427 $11,775 12/04 $12,519 $12,725 06/05 $12,649 $12,724 12/05 $14,003 $13,504 06/06 $14,305 $13,940 12/06 $14,647 $15,626 06/07 $16,357 $16,737 12/07 $17,563 $16,429 06/08 $16,063 $14,614 12/08 $ 9,081 $10,300 06/09 $ 8,728 $10,732 12/09 $10,238 $13,219 06/10 $10,150 $12,419 12/10 $13,259 $15,457 -------------------------------------------------------------------------------- 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 index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 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, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 06/18/07 - 12/31/07 39 9 4 0 01/01/08 - 12/31/08 115 4 4 0 01/01/09 - 12/31/09 67 5 0 0 01/01/10 - 12/31/10 149 0 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 06/18/07 - 12/31/07 74 9 2 0 01/01/08 - 12/31/08 122 4 4 0 01/01/09 - 12/31/09 176 4 0 0 01/01/10 - 12/31/10 103 0 0 0
Page 37 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QABA - First Trust NASDAQ(R) ABA Community Bank Index Fund The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA Community Bank Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index includes a subset of banks and thrifts or their holding companies listed on NASDAQ(R). The Index is jointly owned and was developed by NASDAQ OMX(R) and the American Bankers Association ("ABA"). For the purposes of the Index, a "community bank" is considered to be all U.S. banks and thrifts or their holding companies listed on NASDAQ(R) excluding the 50 largest U.S. banks by asset size. Also excluded are banks that have an international specialization and those banks that have a credit-card specialization, as screened by the ABA based on the most recent data from the FDIC. Banks with an international specialization are those institutions with assets greater than $10 billion and more than 25% of total assets in foreign offices. Banks with a credit-card specialization are those institutions with credit-card loans plus securitized receivables in excess of 50% of total assets plus securitized receivables. Securities in the Index must have a market capitalization of at least $200 million and a three-month average daily trading volume of at least $500 thousand. The Index is rebalanced quarterly and reconstituted semi-annually. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was 07/01/09.
------------------------------------------------------------------------------------------------------------------------------------ Performance as of December 31, 2010 ------------------------------------------------------------------------------------------------------------------------------------ Average Annual Cumulative Total Returns Total Returns 1 Year Ended Inception (06/29/09) Inception (06/29/09) 12/31/10 to 12/31/10 to 12/31/10 Fund Performance NAV 12.77% 17.31% 27.20% Market Value 12.79% 17.47% 27.45% Index Performance NASDAQ OMX(R) ABA Community Bank Index(SM) 13.50% 18.08% 28.46% S&P Composite 1500 Financials Sector Index 13.29% 23.36% 37.21% Russell 3000(R) Index 16.93% 26.75% 42.94% ------------------------------------------------------------------------------------------------------------------------------------ (See Notes to Fund Performance Overview on page 40.)
Performance Review In general, banks had a positive year over the twelve-month period as the economy recovered and financial institutions continued to work through the consequences of the credit crisis. The Fund's holdings in the Commercial Banks industry returned +19.9% for the year and contributed +14.6% to the Fund's total return. Within the industry, Zions Bancorporation was the Fund's top individual contributor to total return. The company's stock price doubled within the first half of 2010 and at one point the company was the best-performing company in the S&P 500. Zion Bancorp's success in the early part of 2010 came as the company reported increasing interest margins and a decrease in bad loan write-offs which helped it narrow losses dramatically in the first quarter of 2010. For the entire year, the company returned +89.1% and contributed +1.9% to the Fund's total return. Also from the Commercial Banks industry, Cathay General Bancorp was the Fund's best individual performing company with a +121.8% annual return. The bank reversed five straight quarters of losses by reporting positive earnings in the third and fourth quarters of 2010. Helping the return to profitability was a sharp decrease in bad loan write-offs. In the third quarter of 2010, the bank had bad loan write-offs of $18.0 million, down from $57.0 million in the same quarter in 2009. The Thrifts & Mortgage Finance industry did not perform as well as sluggish job growth hindered a recovery in the housing market. Although there were a broad range of performances, in total the Fund's holdings in the industry returned -5.2% and detracted -1.4% from the Fund's total return. TFS Financial Corp. was the worst-contributing bank in the Fund as it detracted -1.0% from the Fund's total return on an annual return of -24.9%. The company fell -19.2% in one day after it had to suspend new equity loan and credit line originations over concerns from the Office of Thrift Supervision about TFS Financial's credit portfolio. -------------------------------------------------------------------------------- Top Five and Bottom Five Performing Stocks -------------------------------------------------------------------------------- (by contribution to return over the period ended December 31, 2010) Top-Performing Stocks Bottom-Performing Stocks Zions Bancorporation TFS Financial Corp. Signature Bank People's United Financial, Inc. Cathay General Bancorp Hancock Holding Co. Associated Banc-Corp. Washington Federal, Inc. Whitney Holding Corp. Umpqua Holdings Corp. ____________________ NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM) are trademarks of The NASDAQ OMX Group, Inc. ("NASDAQ OMX") and American Bankers Association ("ABA") (NASDAQ OMX and ABA, collectively with their affiliates, are referred to as the "Corporations") and are licensed for use by First Trust. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. Page 38 -------------------------------------------------------------------------------- Fund Performance Overview (Continued) -------------------------------------------------------------------------------- QABA - First Trust NASDAQ(R) ABA Community Bank Index Fund (Continued) -------------------------------------------------------------------------------- Portfolio Industry Allocation as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Industry Investments -------------------------------------------------------------------------------- Commerical Banks 77.53% Thrifts & Mortgage Finance 22.47 _______ Total 100.00% ======= -------------------------------------------------------------------------------- Top Ten Portfolio Holdings as of December 31, 2010 -------------------------------------------------------------------------------- % of Long-Term Security Investments -------------------------------------------------------------------------------- People's United Financial, Inc. 5.21% Zions Bancorporation 4.35 BOK Financial Corp. 3.67 Commerce Bancshares, Inc. 3.49 First Niagara Financial Group, Inc. 2.95 East West Bancorp, Inc. 2.92 TFS Financial Corp. 2.80 Associated Banc-Corp. 2.64 SVB Financial Group 2.25 FirstMerit Corp. 2.17 ______ Total 32.45% ====== -------------------------------------------------------------------------------- Performance of a $10,000 Initial Investment June 29, 2009 - December 31, 2010 First Trust NASDAQ(R) ABA NASDAQ OMX(R) S&P Composite Community Bank ABA Community Russell 1500 Financials Index Fund Bank Index(SM) 3000(R) Index Sector Index 06/09 $10,000 $10,000 $10,000 $10,000 12/09 $11,280 $11,318 $12,224 $12,112 06/10 $11,438 $11,505 $11,484 $11,744 12/10 $12,721 $12,846 $14,293 $13,722 -------------------------------------------------------------------------------- Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the indices do not actually hold a portfolio of securities and therefore do not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. Frequency Distribution of Discounts and Premiums Bid/Ask Midpoint vs. NAV as of December 31, 2010 The following Frequency Distribution of Discounts and Premiums charts are provided to show the frequency at which the bid/ask midpoint price for the Fund was at a discount or premium to the daily NAV. The following tables are for comparative purposes only and represent the period July 1, 2009 (commencement of trading as an exchange-traded fund) through December 31, 2010. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 07/01/09 - 12/31/09 60 3 1 0 01/01/10 - 12/31/10 151 1 0 0 Number of Days Bid/Ask Midpoint Below NAV For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 07/01/09 - 12/31/09 62 2 0 0 01/01/10 - 12/31/10 98 1 0 1
Page 39 -------------------------------------------------------------------------------- Notes to Fund Performance Overview -------------------------------------------------------------------------------- Total returns for the periods since inception are calculated from the inception date of each Fund. "Average annual total returns" represent the average annual change in value of an investment over the periods indicated. "Cumulative total returns" represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor. Each Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Value") is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike a Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund's past performance is no guarantee of future results. Page 40 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2010 (UNAUDITED) As a shareholder of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust US IPO Index Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust Strategic Value Index Fund (formerly known as First Trust DB Strategic Value Index Fund), First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia Index Fund, First Trust Value Line(R) 100 Exchange-Traded Fund, or First Trust NASDAQ(R) ABA Community Bank Index Fund (each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. This Example is intended to help you understand your ongoing costs (in U.S. dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held through the six-month period ended December 31, 2010. 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 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. 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 Expense Paid Beginning Ending Based on the During the Account Value Account Value Six-Month Six-Month July 1, 2010 December 31, 2010 Period (a) Period (b) ------------------------------------------------------------------------------------------------------------------------------------ First Trust Dow Jones Select MicroCap Index(SM) Fund Actual $1,000.00 $1,293.70 0.60% $3.47 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Actual $1,000.00 $1,215.50 0.45% $2.51 Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29 First Trust US IPO Index Fund Actual $1,000.00 $1,257.30 0.60% $3.41 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund Actual $1,000.00 $1,284.90 0.60% $3.46 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NASDAQ-100-Technology Sector Index(SM) Fund Actual $1,000.00 $1,319.50 0.60% $3.51 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NYSE Arca Biotechnology Index Fund Actual $1,000.00 $1,264.80 0.60% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 Page 41 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2010 (UNAUDITED) ------------------------------------------------------------------------------------------------------------------------------------ Annualized Expense Ratio Expense Paid Beginning Ending Based on the During the Account Value Account Value Six-Month Six-Month July 1, 2010 December 31, 2010 Period (a) Period (b) ------------------------------------------------------------------------------------------------------------------------------------ First Trust Dow Jones Internet Index(SM) Fund Actual $1,000.00 $1,435.50 0.60% $3.68 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust Strategic Value Index Fund Actual $1,000.00 $1,233.30 0.65% $3.66 Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31 First Trust Value Line(R) Equity Allocation Index Fund Actual $1,000.00 $1,216.30 0.70% $3.91 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 First Trust Value Line(R) Dividend Index Fund Actual $1,000.00 $1,195.20 0.70% $3.87 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund Actual $1,000.00 $1,262.60 0.60% $3.42 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund Actual $1,000.00 $1,231.80 0.60% $3.38 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust S&P REIT Index Fund Actual $1,000.00 $1,211.20 0.50% $2.79 Hypothetical (5% return before expenses) $1,000.00 $1,022.68 0.50% $2.55 First Trust ISE Water Index Fund Actual $1,000.00 $1,265.80 0.60% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust ISE-Revere Natural Gas Index Fund Actual $1,000.00 $1,288.90 0.60% $3.46 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust ISE Chindia Index Fund Actual $1,000.00 $1,217.80 0.60% $3.35 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 First Trust Value Line(R) 100 Exchange-Traded Fund Actual $1,000.00 $1,306.30 0.70% $4.07 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 First Trust NASDAQ(R) ABA Community Bank Index Fund Actual $1,000.00 $1,112.20 0.60% $3.19 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
(a) These expense ratios reflect expense caps. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2010 through December 31, 2010), multiplied by 184/365 (to reflect the one-half year period). Page 42 First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 99.9% Aerospace & Defense -- 1.3% 28,443 Applied Signal Technology, Inc. $ 1,077,705 28,992 Herley Industries, Inc. (b) 502,141 21,133 LMI Aerospace, Inc. (b) 337,917 ____________ 1,917,763 ____________ Air Freight & Logistics -- 0.2% 16,729 Park-Ohio Holdings Corp. (b) 349,803 ____________ Auto Components -- 3.4% 27,362 Dorman Products, Inc. (b) 991,599 41,445 Drew Industries, Inc. 941,630 98,862 Modine Manufacturing Co. (b) 1,532,361 44,425 Standard Motor Products, Inc. 608,622 49,616 Superior Industries International, Inc. 1,052,852 ____________ 5,127,064 ____________ Beverages -- 0.4% 9,924 Coca-Cola Bottling Co. Consolidated 551,576 ____________ Biotechnology -- 0.7% 100,387 PROLOR Biotech, Inc. (b) 649,504 104,382 ZIOPHARM Oncology, Inc. (b) 486,420 ____________ 1,135,924 ____________ Building Products -- 1.3% 29,252 AAON, Inc. 825,199 37,494 Insteel Industries, Inc. 468,300 29,820 Trex Co., Inc. (b) 714,487 ____________ 2,007,986 ____________ Capital Markets -- 0.9% 103,542 BGC Partners, Inc., Class A 860,434 87,329 TradeStation Group, Inc. (b) 589,471 ____________ 1,449,905 ____________ Chemicals -- 1.6% 18,299 Hawkins, Inc. 812,476 23,840 Quaker Chemical Corp. 993,413 64,920 Spartech Corp. (b) 607,651 ____________ 2,413,540 ____________ Commercial Banks -- 15.9% 24,275 Arrow Financial Corp. 667,805 162,540 Boston Private Financial Holdings, Inc. 1,064,637 61,408 Cardinal Financial Corp. 714,175 85,289 Center Financial Corp. (b) 646,491 33,741 City Holding Co. 1,222,436 78,600 CoBiz Financial, Inc. 477,888 29,164 Community Trust Bancorp, Inc. 844,589 41,052 Danvers Bancorp, Inc. 725,389 39,214 Eagle Bancorp, Inc. (b) 565,858 35,526 First Bancorp. 543,903 123,061 First Busey Corp. 578,387 206,168 First Commonwealth Financial Corp. 1,459,669 23,485 First Financial Corp. 825,263 54,254 First Merchants Corp. 480,690 15,583 First of Long Island (The) Corp. 450,505 Shares Description Value --------- --------------------------------- --------------- Commercial Banks (Continued) 31,516 Lakeland Financial Corp. $ 676,333 28,706 Metro Bancorp, Inc. (b) 316,053 53,534 Renasant Corp. 905,260 25,707 S.Y. Bancorp, Inc. 631,107 51,276 Sandy Spring Bancorp, Inc. 945,017 27,246 SCBT Financial Corp. 892,306 33,537 Simmons First National Corp., Class A 955,804 41,442 Southwest Bancorp, Inc. 513,881 48,490 StellarOne Corp. 705,045 57,380 Sterling Bancorp 600,769 20,546 Suffolk Bancorp 507,075 17,679 Tompkins Financial Corp. 692,310 61,721 TowneBank 980,747 40,932 Union First Market Bankshares Corp. 604,975 35,150 Univest Corp. of Pennsylvania 673,825 56,756 Virginia Commerce Bancorp, Inc. (b) 350,752 30,076 Washington Trust Bancorp, Inc. 658,063 53,200 WesBanco, Inc. 1,008,672 171,186 West Coast Bancorp (b) 482,745 ____________ 24,368,424 ____________ Commercial Services & Supplies -- 1.5% 22,008 Consolidated Graphics, Inc. (b) 1,065,847 26,353 Schawk, Inc. 542,345 33,156 Standard Parking Corp. (b) 626,317 ____________ 2,234,509 ____________ Communications Equipment -- 1.4% 31,567 Anaren, Inc. (b) 658,172 48,692 Calix, Inc. (b) 822,895 92,484 Symmetricom, Inc. (b) 655,711 ____________ 2,136,778 ____________ Construction & Engineering -- 1.5% 124,246 Great Lakes Dredge & Dock Corp. 915,693 17,560 Michael Baker Corp. (b) 546,116 39,159 MYR Group, Inc. (b) 822,339 ____________ 2,284,148 ____________ Diversified Consumer Services -- 1.5% 174,961 Stewart Enterprises, Inc., Class A 1,170,489 51,557 Universal Technical Institute, Inc. 1,135,285 ____________ 2,305,774 ____________ Diversified Telecommunication Services -- 1.3% 94,444 Alaska Communications Systems Group, Inc. 1,048,328 65,273 Cbeyond, Inc. (b) 997,372 ____________ 2,045,700 ____________ Electronic Equipment, Instruments & Components -- 3.7% 15,772 CPI International, Inc. (b) 305,188 71,906 CTS Corp. 795,281 28,771 DDi Corp. 338,347 See Notes to Financial Statements Page 43 First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Electronic Equipment, Instruments & Components (Continued) 51,171 Electro Scientific Industries, Inc. (b) $ 820,271 76,416 KEMET Corp. (b) 1,114,145 78,681 Methode Electronics, Inc. 1,020,493 87,438 Pulse Electronics Corp. 465,170 51,670 RadiSys Corp. (b) 459,863 27,384 Spectrum Control, Inc. (b) 410,486 ____________ 5,729,244 ____________ Energy Equipment & Services -- 1.5% 51,340 Basic Energy Services, Inc. (b) 846,083 26,556 Gulf Island Fabrication, Inc. 748,348 57,136 North American Energy Partners, Inc. (b) 700,488 ____________ 2,294,919 ____________ Food Products -- 1.1% 27,294 Calavo Growers, Inc. 629,127 138,300 SunOpta, Inc. (b) 1,081,506 ____________ 1,710,633 ____________ Gas Utilities -- 0.5% 20,219 Chesapeake Utilities Corp. 839,493 ____________ Health Care Equipment & Supplies -- 3.3% 110,150 Accuray, Inc. (b) 743,512 135,804 Alphatec Holdings, Inc. (b) 366,671 53,105 AngioDynamics, Inc. (b) 816,224 20,800 Kensey Nash Corp. (b) 578,864 34,846 Medical Action Industries, Inc. (b) 333,825 60,258 Merit Medical Systems, Inc. (b) 953,884 60,611 Natus Medical, Inc. (b) 859,464 74,624 STAAR Surgical Co. (b) 455,206 ____________ 5,107,650 ____________ Health Care Providers & Services -- 3.1% 33,624 American Dental Partners, Inc. (b) 454,260 21,346 Assisted Living Concepts, Inc., Class A (b) 694,385 14,805 CorVel Corp. (b) 715,822 26,540 Ensign Group (The), Inc. 660,050 23,048 National Healthcare Corp. 1,066,431 42,276 Rural/Metro Corp. (b) 616,384 24,830 U.S. Physical Therapy, Inc. (b) 492,131 ____________ 4,699,463 ____________ Hotels, Restaurants & Leisure -- 2.6% 54,638 AFC Enterprises, Inc. (b) 759,468 40,895 Ambassadors Group, Inc. 470,293 47,945 Isle of Capri Casinos, Inc. (b) 489,998 44,456 Marcus (The) Corp. 589,931 64,591 Ruth's Hospitality Group, Inc. (b) 299,056 114,672 Shuffle Master, Inc. (b) 1,312,994 ____________ 3,921,740 ____________ Shares Description Value --------- --------------------------------- --------------- Household Durables -- 1.8% 11,787 Blyth, Inc. $ 406,416 57,958 Ethan Allen Interiors, Inc. 1,159,739 76,701 Furniture Brands International, Inc. (b) 394,243 34,395 Libbey, Inc. (b) 532,091 18,320 Lifetime Brands, Inc. (b) 257,213 ____________ 2,749,702 ____________ Industrial Conglomerates -- 0.5% 27,097 Standex International Corp. 810,471 ____________ Insurance -- 1.4% 91,225 National Financial Partners Corp. (b) 1,222,415 46,028 Presidential Life Corp. 457,058 36,524 Stewart Information Services Corp. 421,122 ____________ 2,100,595 ____________ Internet Software & Services -- 1.5% 110,770 Internap Network Services Corp. (b) 673,482 56,649 QuinStreet, Inc. (b) 1,088,227 11,850 Travelzoo, Inc. (b) 488,457 ____________ 2,250,166 ____________ IT Services -- 0.6% 15,811 NCI, Inc., Class A (b) 363,495 31,779 Virtusa Corp. (b) 519,904 ____________ 883,399 ____________ Leisure Equipment & Products -- 1.4% 59,052 JAKKS Pacific, Inc. (b) 1,075,927 45,715 RC2 Corp. (b) 995,216 ____________ 2,071,143 ____________ Machinery -- 6.1% 17,838 Alamo Group, Inc. 496,253 57,001 Altra Holdings, Inc. (b) 1,132,040 54,297 Commercial Vehicle Group, Inc. (b) 882,326 49,844 Greenbrier (The) Cos., Inc. (b) 1,046,226 60,187 John Bean Technologies Corp. 1,211,564 26,564 Kadant, Inc. (b) 626,114 21,677 L.B. Foster Co., Class A (b) 887,456 26,670 Lindsay Corp. 1,584,998 23,188 Miller Industries, Inc. 329,965 28,651 Tecumseh Products Co., Class A (b) 373,896 34,897 TriMas Corp. (b) 713,993 ____________ 9,284,831 ____________ Media -- 1.2% 66,753 E.W. Scripps (The) Co., Class A (b) 677,543 33,062 Global Sources Ltd. (b) 314,750 91,694 Journal Communications, Inc., Class A (b) 463,055 67,153 LIN TV Corp., Class A (b) 355,911 ____________ 1,811,259 ____________ Metals & Mining -- 2.3% 111,290 General Moly, Inc. (b) 721,159 25,962 Haynes International, Inc. 1,085,991 46,059 Noranda Aluminum Holding Corp. (b) 672,461 Page 44 See Notes to Financial Statements First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Metals & Mining (Continued) 20,381 Olympic Steel, Inc. $ 584,527 14,392 Universal Stainless & Alloy Products, Inc. (b) 450,182 ____________ 3,514,320 ____________ Multiline Retail -- 1.4% 27,023 Bon-Ton Stores (The), Inc. (b) 342,111 78,490 Fred's, Inc., Class A 1,080,023 45,737 Retail Ventures, Inc. (b) 745,513 ____________ 2,167,647 ____________ Oil, Gas & Consumable Fuels -- 1.7% 122,417 Cheniere Energy, Inc. (b) 675,742 99,369 Crosstex Energy, Inc. 880,410 118,500 PetroQuest Energy, Inc. (b) 892,305 115,898 RAM Energy Resources, Inc. (b) 213,252 ____________ 2,661,709 ____________ Paper & Forest Products -- 1.6% 85,941 Buckeye Technologies, Inc. 1,805,621 31,190 Neenah Paper, Inc. 613,819 ____________ 2,419,440 ____________ Personal Products -- 1.8% 55,681 Elizabeth Arden, Inc. (b) 1,281,220 107,005 Prestige Brands Holdings, Inc. (b) 1,278,710 27,246 Schiff Nutrition International, Inc. 247,393 ____________ 2,807,323 ____________ Pharmaceuticals -- 0.3% 39,524 Obagi Medical Products, Inc. (b) 456,502 ____________ Professional Services -- 1.6% 84,060 CBIZ, Inc. (b) 524,534 60,134 Dolan (The) Co. (b) 837,065 29,660 Exponent, Inc. (b) 1,113,140 ____________ 2,474,739 ____________ Real Estate Investment Trusts -- 6.3% 88,438 Associated Estates Realty Corp. 1,352,217 122,250 CapLease, Inc. 711,495 35,157 Colony Financial, Inc. 703,843 125,291 Education Realty Trust, Inc. 973,511 124,624 First Industrial Realty Trust, Inc. (b) 1,091,706 197,360 iStar Financial, Inc. (b) 1,543,355 88,582 MPG Office Trust, Inc. (b) 243,601 211,448 RAIT Financial Trust (b) 463,071 120,875 Resource Capital Corp. 892,058 323,414 Strategic Hotels & Resorts, Inc. (b) 1,710,860 ____________ 9,685,717 ____________ Road & Rail -- 0.8% 32,636 Marten Transport Ltd. 697,758 33,921 Saia, Inc. (b) 562,749 ____________ 1,260,507 ____________ Shares Description Value --------- --------------------------------- --------------- Semiconductors & Semiconductor Equipment -- 5.2% 67,075 ATMI, Inc. (b) $ 1,337,476 66,267 AXT, Inc. (b) 691,828 49,484 DSP Group, Inc. (b) 402,800 79,549 Exar Corp. (b) 555,252 39,382 GSI Technology, Inc. (b) 318,994 53,120 IXYS Corp. (b) 617,254 104,646 LTX-Credence Corp. (b) 774,380 68,264 Mindspeed Technologies, Inc. (b) 416,411 53,335 Pericom Semiconductor Corp. (b) 585,618 113,700 Photronics, Inc. (b) 671,967 163,824 Silicon Image, Inc. (b) 1,204,106 46,259 Ultra Clean Holdings, Inc. (b) 430,671 ____________ 8,006,757 ____________ Software -- 2.6% 28,373 Interactive Intelligence, Inc. (b) 742,238 115,950 Magma Design Automation, Inc. (b) 580,909 50,211 Monotype Imaging Holdings, Inc. (b) 557,342 23,421 Rosetta Stone, Inc. (b) 496,994 102,371 Sonic Solutions (b) 1,535,565 ____________ 3,913,048 ____________ Specialty Retail -- 4.1% 70,002 Asbury Automotive Group, Inc. (b) 1,293,637 40,726 Big 5 Sporting Goods Corp. 621,886 90,005 Casual Male Retail Group, Inc. (b) 426,624 31,760 Citi Trends, Inc. (b) 779,708 47,112 Lithia Motors, Inc., Class A 673,230 116,773 Select Comfort Corp. (b) 1,066,137 19,646 Shoe Carnival, Inc. (b) 530,442 58,043 Stein Mart, Inc. 536,898 31,693 West Marine, Inc. (b) 335,312 ____________ 6,263,874 ____________ Textiles, Apparel & Luxury Goods -- 1.3% 30,692 Oxford Industries, Inc. 786,022 24,113 Perry Ellis International, Inc. (b) 662,384 32,601 Unifi, Inc. (b) 551,935 ____________ 2,000,341 ____________ Thrifts & Mortgage Finance -- 2.9% 29,750 Berkshire Hills Bancorp, Inc. 657,475 66,858 Dime Community Bancshares, Inc. 975,458 62,464 Flushing Financial Corp. 874,496 32,721 OceanFirst Financial Corp. 421,119 164,340 TrustCo Bank Corp. NY 1,041,916 33,575 ViewPoint Financial Group 392,492 ____________ 4,362,956 ____________ Trading Companies & Distributors -- 1.3% 54,054 Aceto Corp. 486,486 19,532 DXP Enterprises, Inc. (b) 468,768 35,247 Houston Wire & Cable Co. 473,720 See Notes to Financial Statements Page 45 First Trust Dow Jones Select MicroCap Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- -------------- Common Stocks (Continued) Trading Companies & Distributors (Continued) 31,183 Titan Machinery, Inc. (b) $ 601,832 ____________ 2,030,806 ____________ Water Utilities -- 0.9% 33,160 Middlesex Water Co. 608,486 28,043 SJW Corp. 742,298 ____________ 1,350,784 ____________ Wireless Telecommunication Services -- 0.6% 50,313 Shenandoah Telecommunications Co. 942,362 ____________ Total Investments -- 99.9% 152,912,434 (Cost $134,038,261) (c) Net Other Assets and Liabilities -- 0.1% 137,716 ____________ Net Assets -- 100.0% $153,050,150 ============ (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 $134,426,642. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $18,892,804 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $407,012. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 ___________________________________________ Common Stocks* $152,912,434 $ -- $ -- =========================================== * See Portfolio of Investments for industry breakout. Page 46 See Notes to Financial Statements First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 99.9% Chemicals -- 3.0% 76,240 E.I. du Pont de Nemours & Co. $ 3,802,851 7,128 Olin Corp. 146,267 12,865 RPM International, Inc. 284,316 ____________ 4,233,434 ____________ Commercial Banks -- 0.8% 11,677 BancorpSouth, Inc. 186,248 4,639 Bank of Hawaii Corp. 219,007 3,028 Community Bank System, Inc. 84,088 2,913 NBT Bancorp, Inc. 70,349 1,650 Park National Corp. 119,905 4,838 United Bankshares, Inc. 141,270 21,378 Valley National Bancorp 305,705 ____________ 1,126,572 ____________ Commercial Services & Supplies -- 2.0% 5,708 Healthcare Services Group, Inc. 92,869 2,550 Mine Safety Appliances Co. 79,382 32,254 Pitney Bowes, Inc. 779,902 30,985 R.R. Donnelley & Sons Co. 541,308 39,227 Waste Management, Inc. 1,446,299 ____________ 2,939,760 ____________ Distributors -- 0.5% 13,089 Genuine Parts Co. 671,989 ____________ Diversified Consumer Services -- 0.3% 35,788 H&R Block, Inc. 426,235 ____________ Diversified Telecommunication Services -- 21.5% 482,590 AT&T, Inc. 14,178,494 48,195 CenturyLink, Inc. 2,225,163 403,895 Verizon Communications, Inc. 14,451,363 ____________ 30,855,020 ____________ Electric Utilities -- 16.2% 3,602 ALLETE, Inc. 134,210 61,767 American Electric Power Co., Inc. 2,222,377 4,966 Cleco Corp. 152,754 14,275 DPL, Inc. 367,010 24,893 Edison International 960,870 6,188 Empire District Electric (The) Co. 137,374 22,283 Entergy Corp. 1,578,305 86,021 Exelon Corp. 3,581,914 47,311 FirstEnergy Corp. 1,751,453 13,092 Hawaiian Electric Industries, Inc. 298,367 2,079 MGE Energy, Inc. 88,898 40,835 NextEra Energy, Inc. 2,123,012 14,336 Northeast Utilities 457,032 4,282 Otter Tail Corp. 96,516 33,455 Pepco Holdings, Inc. 610,554 14,012 Pinnacle West Capital Corp. 580,797 67,147 PPL Corp. 1,767,309 41,941 Progress Energy, Inc. 1,823,595 Shares Description Value --------- --------------------------------- --------------- Electric Utilities (Continued) 100,185 Southern Co. $ 3,830,073 6,876 UIL Holdings Corp. 206,005 3,960 Unisource Energy Corp. 141,926 13,776 Westar Energy, Inc. 346,604 ____________ 23,256,955 ____________ Food Products -- 3.3% 289 Cal-Maine Foods, Inc. 9,127 150,307 Kraft Foods, Inc., Class A 4,736,173 ____________ 4,745,300 ____________ Gas Utilities -- 1.6% 9,743 AGL Resources, Inc. 349,286 9,891 Atmos Energy Corp. 308,599 2,296 Laclede Group (The), Inc. 83,896 3,309 New Jersey Resources Corp. 142,651 4,254 Nicor, Inc. 212,360 8,776 ONEOK, Inc. 486,805 6,469 Piedmont Natural Gas Co., Inc. 180,873 8,658 UGI Corp. 273,420 5,314 WGL Holdings, Inc. 190,082 ____________ 2,227,972 ____________ Health Care Equipment & Supplies -- 0.0% 3,304 Meridian Bioscience, Inc. 76,521 ____________ Household Durables -- 0.6% 14,023 Garmin Ltd. 434,573 17,849 Leggett & Platt, Inc. 406,243 ____________ 840,816 ____________ Household Products -- 1.9% 44,269 Kimberly-Clark Corp. 2,790,718 ____________ Insurance -- 1.2% 11,561 Arthur J. Gallagher & Co. 336,194 19,299 Cincinnati Financial Corp. 611,585 2,176 Erie Indemnity Co., Class A 142,463 1,224 Harleysville Group, Inc. 44,970 3,629 Mercury General Corp. 156,083 31,444 Old Republic International Corp. 428,582 ____________ 1,719,877 ____________ IT Services -- 0.9% 13,648 CoreLogic, Inc. 252,761 33,416 Paychex, Inc. 1,032,889 ____________ 1,285,650 ____________ Marine -- 0.1% 3,438 Alexander & Baldwin, Inc. 137,623 ____________ Multi-Utilities -- 10.5% 11,951 Alliant Energy Corp. 439,438 6,306 Avista Corp. 142,011 4,594 Black Hills Corp. 137,820 48,581 CenterPoint Energy, Inc. 763,693 35,487 Consolidated Edison, Inc. 1,759,091 65,210 Dominion Resources, Inc. 2,785,771 See Notes to Financial Statements Page 47 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Multi-Utilities (Continued) 20,757 DTE Energy Co. $ 940,707 10,690 Integrys Energy Group, Inc. 518,572 37,394 NiSource, Inc. 658,882 4,344 NorthWestern Corp. 125,238 9,999 NSTAR 421,858 7,905 OGE Energy Corp. 359,994 37,899 PG&E Corp. 1,813,088 56,249 Public Service Enterprise Group, Inc. 1,789,281 13,525 SCANA Corp. 549,115 24,555 TECO Energy, Inc. 437,079 11,072 Vectren Corp. 281,007 49,352 Xcel Energy, Inc. 1,162,240 ____________ 15,084,885 ____________ Oil, Gas & Consumable Fuels -- 15.7% 158,544 Chevron Corp. 14,467,140 118,082 ConocoPhillips 8,041,384 ____________ 22,508,524 ____________ Paper & Forest Products -- 0.3% 16,747 MeadWestvaco Corp. 438,101 ____________ Pharmaceuticals -- 15.5% 210,402 Bristol-Myers Squibb Co. 5,571,445 139,320 Eli Lilly & Co. 4,881,773 324,716 Merck & Co., Inc. 11,702,764 ____________ 22,155,982 ____________ Semiconductors & Semiconductor Equipment -- 0.9% 26,177 Maxim Integrated Products, Inc. 618,301 18,790 Microchip Technology, Inc. 642,806 ____________ 1,261,107 ____________ Specialty Retail -- 0.2% 12,279 Foot Locker, Inc. 240,914 ____________ Thrifts & Mortgage Finance -- 1.6% 23,639 First Niagara Financial Group, Inc. 330,473 60,453 Hudson City Bancorp, Inc. 770,171 62,603 New York Community Bancorp, Inc. 1,180,067 4,335 Provident Financial Services, Inc. 65,589 ____________ 2,346,300 ____________ Tobacco -- 1.2% 47,892 Reynolds American, Inc. 1,562,237 2,856 Universal Corp. 116,239 ____________ 1,678,476 ____________ Trading Companies & Distributors -- 0.1% 3,233 GATX Corp. 114,060 ____________ Description Value --------------------------------- --------------- Total Investments -- 99.9% $143,162,791 (Cost $131,497,357) (b) Net Other Assets and Liabilities -- 0.1% 130,991 ____________ Net Assets -- 100.0% $143,293,782 ============ (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Aggregate cost for federal income tax purposes is $133,534,816. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $10,508,967 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $880,992. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 ___________________________________________ Common Stocks* $143,162,791 $ -- $ -- =========================================== * See Portfolio of Investments for industry breakout. Page 48 See Notes to Financial Statements First Trust US IPO Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 99.9% Aerospace & Defense -- 0.8% 1,251 DigitalGlobe, Inc. (b) $ 39,669 3,876 Spirit AeroSystems Holdings, Inc., Class A (b) 80,660 ____________ 120,329 ____________ Automobiles -- 10.7% 42,750 General Motors Co. (b) 1,575,765 2,537 Tesla Motors, Inc. (b) 67,560 ____________ 1,643,325 ____________ Beverages -- 1.4% 6,177 Dr. Pepper Snapple Group, Inc. 217,183 ____________ Biotechnology -- 0.5% 3,409 Talecris Biotherapeutics Holdings Corp. (b) 79,430 ____________ Capital Markets -- 2.1% 1,599 Artio Global Investors, Inc. 23,585 2,957 LPL Investment Holdings, Inc. (b) 107,546 4,437 MF Global Holdings Ltd. (b) 37,093 9,939 Och-Ziff Capital Management Group LLC, Class A (c) 154,850 ____________ 323,074 ____________ Chemicals -- 0.1% 1,125 STR Holdings, Inc. (b) 22,500 ____________ Commercial Banks -- 0.7% 3,488 First Republic Bank (b) 101,571 ____________ Commercial Services & Supplies -- 0.3% 3,681 KAR Auction Services, Inc. (b) 50,798 ____________ Communications Equipment -- 0.4% 2,654 Aruba Networks, Inc. (b) 55,416 ____________ Computers & Peripherals -- 0.2% 3,367 SMART Technologies, Inc., Class A (b) 31,785 ____________ Construction & Engineering -- 1.4% 3,224 Aecom Technology Corp. (b) 90,175 4,106 KBR, Inc. 125,110 ____________ 215,285 ____________ Consumer Finance -- 2.4% 14,813 Discover Financial Services 274,485 1,112 Green Dot Corp., Class A (b) 63,095 2,414 Netspend Holdings, Inc. (b) 30,947 ____________ 368,527 ____________ Diversified Consumer Services -- 0.4% 3,841 Education Management Corp. (b) 69,522 ____________ Shares Description Value --------- --------------------------------- --------------- Diversified Financial Services -- 1.2% 2,777 CBOE Holdings, Inc. $ 63,482 3,231 MSCI, Inc., Class A (b) 125,880 ____________ 189,362 ____________ Electrical Equipment -- 1.6% 2,849 A123 Systems, Inc. (b) 27,180 1,837 Generac Holdings, Inc. (b) 29,704 1,212 Polypore International, Inc. (b) 49,365 4,703 Sensata Technologies Holding N.V. (b) 141,607 ____________ 247,856 ____________ Electronic Equipment, Instruments & Components -- 3.1% 2,237 Aeroflex Holding Corp. (b) 36,798 12,157 Tyco Electronics Ltd. 430,358 ____________ 467,156 ____________ Energy Equipment & Services -- 0.6% 2,191 Dresser-Rand Group, Inc. (b) 93,315 ____________ Food & Staples Retailing -- 0.4% 1,359 Fresh Market (The), Inc. (b) 55,991 ____________ Food Products -- 2.5% 2,400 Dole Food Co., Inc. (b) 32,424 5,564 Mead Johnson Nutrition Co. 346,359 ____________ 378,783 ____________ Health Care Equipment & Supplies -- 4.4% 13,642 Covidien PLC 622,894 1,602 Masimo Corp. 46,570 ____________ 669,464 ____________ Health Care Providers & Services -- 0.5% 2,477 Accretive Health, Inc. (b) 40,251 4,352 Select Medical Holdings Corp. (b) 31,813 ____________ 72,064 ____________ Health Care Technology -- 0.5% 3,143 Emdeon, Inc., Class A (b) 42,556 1,579 MedAssets, Inc. (b) 31,880 ____________ 74,436 ____________ Hotels, Restaurants & Leisure -- 1.4% 4,731 Hyatt Hotels Corp., Class A (b) 216,491 ____________ Insurance -- 1.4% 2,568 OneBeacon Insurance Group Ltd., Class A 38,931 1,978 Primerica, Inc. 47,967 3,214 Symetra Financial Corp. 44,032 2,809 Validus Holdings Ltd. 85,983 ____________ 216,913 ____________ See Notes to Financial Statements Page 49 First Trust US IPO Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Internet & Catalog Retail -- 0.3% 1,571 HSN, Inc. (b) $ 48,135 ____________ Internet Software & Services -- 1.6% 1,192 Ancestry.com, Inc. (b) 33,758 2,903 AOL, Inc. (b) 68,830 644 LogMeIn, Inc. (b) 28,555 3,430 Rackspace Hosting, Inc. (b) 107,736 ____________ 238,879 ____________ IT Services -- 14.7% 3,755 Booz Allen Hamilton Holding Corp., Class A (b) 72,960 3,401 Broadridge Financial Solutions, Inc. 74,584 5,992 Genpact Ltd. (b) 91,078 10,110 SAIC, Inc. (b) 160,345 4,556 Teradata Corp. (b) 187,525 18,798 Visa, Inc., Class A 1,323,003 17,839 Western Union Co. 331,270 ____________ 2,240,765 ____________ Machinery -- 0.7% 1,758 WABCO Holdings, Inc. (b) 107,115 ____________ Media -- 6.1% 3,085 Cinemark Holdings, Inc. 53,185 4,537 Scripps Networks Interactive, Class A 234,790 9,676 Time Warner Cable, Inc. 638,906 ____________ 926,881 ____________ Metals & Mining -- 0.7% 2,237 Molycorp, Inc. (b) 111,626 ____________ Multiline Retail -- 1.9% 9,276 Dollar General Corp. (b) 284,495 ____________ Oil, Gas & Consumable Fuels -- 8.8% 1,880 Clean Energy Fuels Corp. (b) 26,019 9,688 Cobalt International Energy, Inc. (b) 118,290 2,717 Concho Resources, Inc. (b) 238,199 4,623 Continental Resources, Inc. (b) 272,064 1,570 Duncan Energy Partners L.P. (c) 50,381 2,508 Oasis Petroleum, Inc. (b) 68,017 2,475 Patriot Coal Corp. (b) 47,941 11,019 SandRidge Energy, Inc. (b) 80,659 17,631 Spectra Energy Corp. 440,599 ____________ 1,342,169 ____________ Pharmaceuticals -- 1.0% 6,861 Warner Chilcott PLC, Class A 154,784 ____________ Professional Services -- 1.0% 4,686 Verisk Analytics, Inc., Class A (b) 159,699 ____________ Real Estate Investment Trusts -- 0.2% 1,622 DuPont Fabros Technology, Inc. 34,500 ____________ Road & Rail -- 1.1% 11,220 Hertz Global Holdings, Inc. (b) 162,578 ____________ Shares Description Value --------- --------------------------------- --------------- Semiconductors & Semiconductor Equipment -- 3.5% 1,216 Cavium Networks, Inc. (b) $ 45,819 2,332 First Solar, Inc. (b) 303,486 4,079 GT Solar International, Inc. (b) 37,201 6,780 NXP Semiconductor NV (b) 141,905 ____________ 528,411 ____________ Software -- 3.5% 1,171 CommVault Systems, Inc. (b) 33,514 1,941 Fortinet, Inc. (b) 62,791 1,095 Motricity, Inc. (b) 20,334 1,733 NetSuite, Inc. (b) 43,325 2,115 QLIK Technologies, Inc. (b) 54,588 1,320 RealD, Inc. (b) 34,214 1,719 RealPage, Inc. (b) 53,169 1,866 Solarwinds, Inc. (b) 35,921 1,911 Solera Holdings, Inc. 98,073 1,955 SS&C Technologies Holdings, Inc. (b) 40,097 2,066 SuccessFactors, Inc. (b) 59,831 ____________ 535,857 ____________ Specialty Retail -- 0.4% 2,414 Express, Inc. 45,383 1,072 hhgregg, Inc. (b) 22,459 ____________ 67,842 ____________ Textiles, Apparel & Luxury Goods -- 0.7% 2,605 Hanesbrands, Inc. (b) 66,167 1,102 Vera Bradley, Inc. (b) 36,366 ____________ 102,533 ____________ Tobacco -- 12.0% 4,069 Lorillard, Inc. 333,902 25,525 Philip Morris International, Inc. 1,493,978 ____________ 1,827,880 ____________ Trading Companies & Distributors -- 0.2% 1,309 Textainer Group Holdings Ltd. 37,293 ____________ Water Utilities -- 0.8% 4,757 American Water Works Co., Inc. 120,305 ____________ Wireless Telecommunication Services -- 1.7% 26,839 Clearwire Corp., Class A (b) 138,221 9,640 MetroPCS Communications, Inc. (b) 121,753 ____________ 259,974 ____________ Total Investments -- 99.9% 15,272,297 (Cost $13,490,453) (d) Net Other Assets and Liabilities -- 0.1% 10,228 ____________ Net Assets -- 100.0% $15,282,525 ============ Page 50 See Notes to Financial Statements First Trust US IPO Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 (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 $13,900,562. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,917,179 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $545,444. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $15,272,297 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 51 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.1% Air Freight & Logistics -- 2.0% 9,644 C.H. Robinson Worldwide, Inc. $ 773,352 13,763 Expeditors International of Washington, Inc. 751,460 ____________ 1,524,812 ____________ Biotechnology -- 6.9% 13,266 Amgen, Inc. (b) 728,303 11,181 Biogen Idec, Inc. (b) 749,686 12,854 Celgene Corp. (b) 760,186 11,675 Cephalon, Inc. (b) 720,581 10,917 Genzyme Corp. (b) 777,290 20,484 Gilead Sciences, Inc. (b) 742,340 21,490 Vertex Pharmaceuticals, Inc. (b) 752,795 ____________ 5,231,181 ____________ Chemicals -- 1.0% 11,411 Sigma-Aldrich Corp. 759,516 ____________ Commercial Services & Supplies -- 1.0% 9,673 Stericycle, Inc. (b) 782,739 ____________ Communications Equipment -- 4.0% 39,065 Cisco Systems, Inc. (b) 790,285 5,603 F5 Networks, Inc. (b) 729,287 15,445 QUALCOMM, Inc. 764,373 12,655 Research In Motion Ltd. (b) 735,635 ____________ 3,019,580 ____________ Computers & Peripherals -- 5.1% 2,376 Apple, Inc. (b) 766,402 55,851 Dell, Inc. (b) 756,781 14,159 NetApp, Inc. (b) 778,179 15,590 SanDisk Corp. (b) 777,317 51,824 Seagate Technology (b) 778,915 ____________ 3,857,594 ____________ Diversified Consumer Services -- 1.0% 19,796 Apollo Group, Inc., Class A (b) 781,744 ____________ Electronic Equipment, Instruments & Components -- 2.1% 99,581 Flextronics International Ltd. (b) 781,711 26,775 FLIR Systems, Inc. (b) 796,556 ____________ 1,578,267 ____________ Food & Staples Retailing -- 2.0% 10,605 Costco Wholesale Corp. 765,787 14,986 Whole Foods Market, Inc. (b) 758,142 ____________ 1,523,929 ____________ Health Care Equipment & Supplies -- 2.0% 22,121 DENTSPLY International, Inc. 755,875 2,867 Intuitive Surgical, Inc. (b) 738,969 ____________ 1,494,844 ____________ Shares Description Value --------- --------------------------------- --------------- Health Care Providers & Services -- 2.0% 13,874 Express Scripts, Inc. (b) $ 749,890 12,270 Henry Schein, Inc. (b) 753,255 ____________ 1,503,145 ____________ Health Care Technology -- 1.0% 7,856 Cerner Corp. (b) 744,278 ____________ Hotels, Restaurants & Leisure -- 3.0% 18,545 Ctrip.com International Ltd., ADR (b) 750,145 23,252 Starbucks Corp. 747,087 7,257 Wynn Resorts Ltd. 753,567 ____________ 2,250,799 ____________ Household Durables -- 1.0% 23,987 Garmin Ltd. 743,357 ____________ Internet & Catalog Retail -- 4.9% 4,290 Amazon.com, Inc. (b) 772,200 28,395 Expedia, Inc. 712,430 47,700 Liberty Media Corp. - Interactive, Class A (b) 752,229 4,231 Netflix, Inc. (b) 743,387 1,903 priceline.com, Inc. (b) 760,344 ____________ 3,740,590 ____________ Internet Software & Services -- 5.8% 14,975 Akamai Technologies, Inc. (b) 704,574 7,717 Baidu, Inc., ADR (b) 744,922 25,582 eBay, Inc. (b) 711,947 1,289 Google, Inc., Class A (b) 765,627 22,222 VeriSign, Inc. 725,993 46,677 Yahoo!, Inc. (b) 776,238 ____________ 4,429,301 ____________ IT Services -- 5.0% 16,257 Automatic Data Processing, Inc. 752,374 10,520 Cognizant Technology Solutions Corp., Class A (b) 771,011 12,604 Fiserv, Inc. (b) 738,090 10,327 Infosys Technologies Ltd., ADR 785,678 24,574 Paychex, Inc. 759,583 ____________ 3,806,736 ____________ Leisure Equipment & Products -- 1.0% 29,688 Mattel, Inc. 754,966 ____________ Life Sciences Tools & Services -- 3.0% 11,949 Illumina, Inc. (b) 756,850 13,735 Life Technologies Corp. (b) 762,292 39,209 QIAGEN N.V. (b) 766,536 ____________ 2,285,678 ____________ Page 52 See Notes to Financial Statements First Trust NASDAQ-100 Equal Weighted Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Machinery -- 2.0% 8,904 Joy Global, Inc. $ 772,422 13,484 PACCAR, Inc. 774,251 ____________ 1,546,673 ____________ Media -- 4.1% 35,581 Comcast Corp., Class A 781,715 19,403 DIRECTV, Class A (b) 774,762 52,648 News Corp., Class A 766,555 29,177 Virgin Media, Inc. 794,781 ____________ 3,117,813 ____________ Multiline Retail -- 2.1% 13,283 Dollar Tree, Inc. (b) 744,910 11,241 Sears Holdings Corp. (b) 829,024 ____________ 1,573,934 ____________ Pharmaceuticals -- 3.0% 35,597 Mylan, Inc. (b) 752,164 14,669 Teva Pharmaceutical Industries Ltd., ADR 764,695 33,769 Warner Chilcott PLC, Class A 761,829 ____________ 2,278,688 ____________ Semiconductors & Semiconductor Equipment -- 14.0% 20,808 Altera Corp. 740,349 55,975 Applied Materials, Inc. 786,449 17,386 Broadcom Corp., Class A 757,160 5,716 First Solar, Inc. (b) 743,880 35,500 Intel Corp. 746,565 19,127 KLA-Tencor Corp. 739,067 14,694 Lam Research Corp. (b) 760,855 21,816 Linear Technology Corp. 754,615 40,392 Marvell Technology Group Ltd. (b) 749,272 31,966 Maxim Integrated Products, Inc. 755,037 22,340 Microchip Technology, Inc. 764,251 92,789 Micron Technology, Inc. (b) 744,168 53,012 NVIDIA Corp. (b) 816,385 27,005 Xilinx, Inc. 782,605 ____________ 10,640,658 ____________ Software -- 12.1% 62,700 Activision Blizzard, Inc. 779,988 26,459 Adobe Systems, Inc. (b) 814,408 19,468 Autodesk, Inc. (b) 743,678 15,787 BMC Software, Inc. (b) 744,199 30,606 CA, Inc. 748,011 16,682 Check Point Software Technologies Ltd. (b) 771,709 11,007 Citrix Systems, Inc. (b) 752,989 47,881 Electronic Arts, Inc. (b) 784,291 15,424 Intuit, Inc. (b) 760,403 27,411 Microsoft Corp. 765,315 24,268 Oracle Corp. 759,589 44,972 Symantec Corp. (b) 752,831 ____________ 9,177,411 ____________ Shares Description Value --------- --------------------------------- --------------- Specialty Retail -- 5.0% 15,962 Bed Bath & Beyond, Inc. (b) $ 784,532 12,138 O'Reilly Automotive, Inc. (b) 733,378 12,099 Ross Stores, Inc. 765,262 33,811 Staples, Inc. 769,876 20,950 Urban Outfitters, Inc. (b) 750,220 ____________ 3,803,268 ____________ Trading Companies & Distributors -- 1.0% 12,795 Fastenal Co. 766,549 ____________ Wireless Telecommunication Services -- 3.0% 8,240 Millicom International Cellular S.A. 787,744 16,818 NII Holdings, Inc. (b) 751,092 28,547 Vodafone Group PLC, ADR 754,497 ____________ 2,293,333 ____________ Total Investments -- 100.1% 76,011,383 (Cost $68,822,059) (c) Net Other Assets and Liabilities -- (0.1)% (56,202) ____________ Net Assets -- 100.0% $75,955,181 ============ (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 $70,027,445. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $7,515,755 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,531,817. ADR -- American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $76,011,383 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 53 First Trust NASDAQ-100-Technology Sector Index(SM) Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Communications Equipment -- 9.9% 582,603 Cisco Systems, Inc. (b) $ 11,786,059 83,531 F5 Networks, Inc. (b) 10,872,395 230,352 QUALCOMM, Inc. 11,400,120 188,720 Research In Motion Ltd. (b) 10,970,294 ____________ 45,028,868 ____________ Computers & Peripherals -- 12.7% 35,433 Apple, Inc. (b) 11,429,269 832,907 Dell, Inc. (b) 11,285,890 211,166 NetApp, Inc. (b) 11,605,683 232,473 SanDisk Corp. (b) 11,591,104 772,842 Seagate Technology (b) 11,615,815 ____________ 57,527,761 ____________ Health Care Technology -- 2.5% 117,147 Cerner Corp. (b) 11,098,507 ____________ Internet Software & Services -- 12.2% 223,332 Akamai Technologies, Inc. (b) 10,507,770 115,058 Baidu, Inc., ADR (b) 11,106,549 19,227 Google, Inc., Class A (b) 11,420,261 331,413 VeriSign, Inc. 10,827,263 696,128 Yahoo!, Inc. (b) 11,576,609 ____________ 55,438,452 ____________ IT Services -- 5.1% 156,920 Cognizant Technology Solutions Corp., Class A (b) 11,500,667 154,022 Infosys Technologies Ltd., ADR 11,717,993 ____________ 23,218,660 ____________ Semiconductors & Semiconductor Equipment -- 32.6% 310,319 Altera Corp. 11,041,150 834,742 Applied Materials, Inc. 11,728,125 259,258 Broadcom Corp., Class A 11,290,686 529,396 Intel Corp. 11,133,198 285,232 KLA-Tencor Corp. 11,021,364 219,111 Lam Research Corp. (b) 11,345,568 325,340 Linear Technology Corp. 11,253,511 602,373 Marvell Technology Group Ltd. (b) 11,174,019 476,747 Maxim Integrated Products, Inc. 11,260,764 333,163 Microchip Technology, Inc. 11,397,506 1,383,777 Micron Technology, Inc. (b) 11,097,892 790,594 NVIDIA Corp. (b) 12,175,148 402,724 Xilinx, Inc. 11,670,941 ____________ 147,589,872 ____________ Software -- 25.0% 394,610 Adobe Systems, Inc. (b) 12,146,096 290,332 Autodesk, Inc. (b) 11,090,682 235,409 BMC Software, Inc. (b) 11,097,180 456,441 CA, Inc. 11,155,418 248,761 Check Point Software Technologies Ltd. (b) 11,507,684 Shares Description Value --------- --------------------------------- --------------- Software (Continued) 164,150 Citrix Systems, Inc. (b) $ 11,229,502 230,025 Intuit, Inc. (b) 11,340,232 408,809 Microsoft Corp. 11,413,947 361,923 Oracle Corp. 11,328,190 670,651 Symantec Corp. (b) 11,226,698 ____________ 113,535,629 ____________ Total Investments -- 100.0% (Cost $406,553,346) (c) 453,437,749 Net Other Assets and Liabilities -- 0.0% (22,249) ____________ Net Assets -- 100.0% $453,415,500 ============ (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 $410,553,708. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $46,297,785 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,413,744. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 ___________________________________________ Common Stocks* $453,437,749 $ -- $ -- =========================================== * See Portfolio of Investments for industry breakout. Page 54 See Notes to Financial Statements First Trust NYSE Arca Biotechnology Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Biotechnology -- 70.1% 134,751 Alexion Pharmaceuticals, Inc. (b) $ 10,854,193 160,965 Amgen, Inc. (b) 8,836,978 433,934 Amylin Pharmaceuticals, Inc. (b) 6,383,169 158,366 Biogen Idec, Inc. (b) 10,618,440 1,552,672 Celera Corp. (b) 9,781,833 156,849 Celgene Corp. (b) 9,276,050 142,983 Cephalon, Inc. (b) 8,824,911 241,339 Dendreon Corp. (b) 8,427,558 126,518 Genzyme Corp. (b) 9,008,082 241,772 Gilead Sciences, Inc. (b) 8,761,817 333,628 Human Genome Sciences, Inc. (b) 7,970,373 625,012 InterMune, Inc. (b) 22,750,437 472,063 Myriad Genetics, Inc. (b) 10,781,919 253,255 Vertex Pharmaceuticals, Inc. (b) 8,871,523 ____________ 141,147,283 ____________ Life Sciences Tools & Services -- 26.1% 1,973,940 Affymetrix, Inc. (b) 9,928,918 187,395 Illumina, Inc. (b) 11,869,600 193,894 Life Technologies Corp. (b) 10,761,117 496,760 QIAGEN N.V. (b) 9,711,658 1,275,154 Sequenom, Inc. (b) 10,226,735 ____________ 52,498,028 ____________ Pharmaceuticals -- 3.8% 587,965 Nektar Therapeutics (b) 7,555,350 ____________ Total Investments -- 100.0% 201,200,661 (Cost $174,194,545) (c) Net Other Assets and Liabilities -- 0.0% 19,206 ____________ Net Assets -- 100.0% $201,219,867 ============ (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 $186,193,337. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $27,798,109 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $12,790,785. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 ___________________________________________ Common Stocks* $201,200,661 $ -- $ -- =========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 55 First Trust Dow Jones Internet Index(SM) Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Capital Markets -- 4.9% 824,806 E*TRADE Financial Corp. (b) $ 13,196,896 808,974 TD Ameritrade Holding Corp. 15,362,416 ____________ 28,559,312 ____________ Communications Equipment -- 7.3% 770,318 Juniper Networks, Inc. (b) 28,440,141 251,930 NETGEAR, Inc. (b) 8,485,002 2,286,101 Sonus Networks, Inc. (b) 6,103,890 ____________ 43,029,033 ____________ Health Care Technology -- 2.4% 741,410 Allscripts Healthcare Solutions, Inc. (b) 14,286,971 ____________ Internet & Catalog Retail -- 19.3% 250,428 Amazon.com, Inc. (b) 45,077,040 130,411 Blue Nile, Inc. (b) 7,441,252 618,844 Expedia, Inc. 15,526,796 105,649 Netflix, Inc. (b) 18,562,529 68,208 priceline.com, Inc. (b) 27,252,506 ____________ 113,860,123 ____________ Internet Software & Services -- 47.1% 402,017 Akamai Technologies, Inc. (b) 18,914,900 1,288,590 Art Technology Group, Inc. (b) 7,705,768 246,092 Constant Contact, Inc. (b) 7,626,391 359,349 DealerTrack Holdings, Inc. (b) 7,212,134 250,928 Digital River, Inc. (b) 8,636,942 866,002 EarthLink, Inc. 7,447,617 1,154,884 eBay, Inc. (b) 32,140,422 100,978 Google, Inc., Class A (b) 59,977,903 394,355 IAC/InterActiveCorp (b) 11,317,989 818,755 Internap Network Services Corp. (b) 4,978,030 302,965 j2 Global Communications, Inc. (b) 8,770,837 541,829 Monster Worldwide, Inc. (b) 12,803,419 637,872 NIC, Inc. 6,193,737 1,293,835 RealNetworks, Inc. (b) 5,434,107 937,077 United Online, Inc. 6,184,708 537,799 ValueClick, Inc. (b) 8,620,918 496,159 VeriSign, Inc. 16,209,515 218,793 Vocus, Inc. (b) 6,051,814 250,019 WebMD Health Corp. (b) 12,765,970 1,719,611 Yahoo!, Inc. (b) 28,597,131 ____________ 277,590,252 ____________ IT Services -- 1.5% 717,986 Sapient Corp. 8,687,630 ____________ Software -- 17.5% 468,838 Ariba, Inc. (b) 11,013,005 426,740 Check Point Software Technologies Ltd. (b) 19,740,992 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100. Software (Continued) 217,157 Concur Technologies, Inc. (b) $ 11,276,963 307,223 Ebix, Inc. (b) 7,271,968 367,424 Quest Software, Inc. (b) 10,192,342 178,946 Salesforce.com, Inc. (b) 23,620,872 655,277 TIBCO Software, Inc. (b) 12,915,510 343,444 Websense, Inc. (b) 6,954,741 ____________ 102,986,393 ____________ Total Common Stocks -- 100.0% 588,999,714 (Cost $510,472,914) Money Market Fund -- 0.1% 861,706 Morgan Stanley Institutional Treasury Money Market Fund - 0.02% (c) 861,706 (Cost $861,706) ____________ Total Investments -- 100.1% 589,861,420 (Cost $511,334,620) (d) Net Other Assets and Liabilities -- (0.1)% (381,841) ____________ Net Assets -- 100.0% $589,479,579 ============ (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, 2010. (d) Aggregate cost for federal income tax purposes is $515,161,491. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $75,798,229 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,098,300. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 ___________________________________________ Common Stocks* $588,999,714 $ -- $ -- Money Market Fund 861,706 -- -- ___________________________________________ Total Investments $589,861,420 $ -- $ -- =========================================== * See Portfolio of Investments for industry breakout. Page 56 See Notes to Financial Statements First Trust Strategic Value Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 99.9% Aerospace & Defense -- 3.9% 10,394 General Dynamics Corp. $ 737,558 11,015 Northrop Grumman Corp. 713,552 ____________ 1,451,110 ____________ Biotechnology -- 5.8% 11,504 Biogen Idec, Inc. (b) 771,344 11,537 Celgene Corp. (b) 682,298 18,138 Gilead Sciences, Inc. (b) 657,321 ____________ 2,110,963 ____________ Capital Markets -- 4.0% 4,321 Goldman Sachs Group (The), Inc. 726,619 27,265 Morgan Stanley 741,881 ____________ 1,468,500 ____________ Computers & Peripherals -- 1.9% 16,314 Hewlett-Packard Co. 686,819 ____________ Consumer Finance -- 4.1% 18,295 Capital One Financial Corp. 778,635 38,366 Discover Financial Services 710,922 ____________ 1,489,557 ____________ Diversified Financial Services -- 6.4% 59,273 Bank of America Corp. 790,702 166,045 Citigroup, Inc. (b) 785,393 18,065 JPMorgan Chase & Co. 766,317 ____________ 2,342,412 ____________ Diversified Telecommunication Services -- 2.1% 16,701 CenturyLink, Inc. 771,085 ____________ Energy Equipment & Services -- 1.9% 10,311 Diamond Offshore Drilling, Inc. 689,497 ____________ Food & Staples Retailing -- 2.2% 22,817 CVS Caremark Corp. 793,347 ____________ Food Products -- 1.9% 22,781 Archer-Daniels-Midland Co. 685,253 ____________ Health Care Equipment & Supplies -- 4.3% 18,841 St. Jude Medical, Inc. (b) 805,453 14,164 Zimmer Holdings, Inc. (b) 760,323 ____________ 1,565,776 ____________ Health Care Providers & Services -- 9.8% 23,283 Aetna, Inc. 710,364 19,239 CIGNA Corp. 705,302 10,723 McKesson Corp. 754,685 19,537 UnitedHealth Group, Inc. 705,481 12,678 WellPoint, Inc. (b) 720,871 ____________ 3,596,703 ____________ Shares Description Value --------- --------------------------------- --------------- Insurance -- 11.8% 11,548 ACE Ltd. $ 718,863 23,059 Allstate (The) Corp. 735,121 11,981 Chubb (The) Corp. 714,547 17,943 Loews Corp. 698,162 12,934 Prudential Financial, Inc. 759,355 12,561 Travelers (The) Cos., Inc. 699,773 ____________ 4,325,821 ____________ Media -- 6.1% 34,139 Comcast Corp., Class A 750,034 48,744 News Corp., Class A 709,713 11,535 Time Warner Cable, Inc. 761,656 ____________ 2,221,403 ____________ Metals & Mining -- 4.2% 6,921 Freeport-McMoRan Copper & Gold, Inc. 831,143 11,687 Newmont Mining Corp. 717,932 ____________ 1,549,075 ____________ Oil, Gas & Consumable Fuels -- 8.8% 8,445 Chevron Corp. 770,606 10,382 Hess Corp. 794,638 21,253 Marathon Oil Corp. 786,999 37,981 Valero Energy Corp. 878,121 ____________ 3,230,364 ____________ Pharmaceuticals -- 9.5% 14,131 Abbott Laboratories 677,016 26,797 Bristol-Myers Squibb Co. 709,584 20,106 Eli Lilly & Co. 704,514 21,165 Forest Laboratories, Inc. (b) 676,857 41,368 Pfizer, Inc. 724,354 ____________ 3,492,325 ____________ Real Estate Investment Trusts -- 2.0% 40,121 Annaly Capital Management, Inc. 718,968 ____________ Semiconductors & Semiconductor Equipment -- 3.7% 34,286 Intel Corp. 721,035 35,038 Marvell Technology Group Ltd. (b) 649,955 ____________ 1,370,990 ____________ Software -- 2.0% 26,491 Microsoft Corp. 739,629 ____________ Specialty Retail -- 1.5% 16,460 Best Buy Co., Inc. 564,413 ____________ Textiles, Apparel & Luxury Goods -- 2.0% 8,607 VF Corp. 741,751 ____________ See Notes to Financial Statements Page 57 First Trust Strategic Value Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Description Value --------------------------------- --------------- Total Investments -- 99.9% $ 36,605,761 (Cost $33,296,578) (c) Net Other Assets and Liabilities -- 0.1% 26,969 ____________ Net Assets -- 100.0% $ 36,632,730 ============ (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 $33,728,355. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $3,375,131 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $497,725. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $36,605,761 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 58 See Notes to Financial Statements First Trust Value Line(R) Equity Allocation Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Aerospace & Defense -- 0.9% 1,334 Ceradyne, Inc. (b) $ 42,061 401 Cubic Corp. 18,907 ____________ 60,968 ____________ Airlines -- 0.9% 570 Alaska Air Group, Inc. (b) 32,313 4,873 JetBlue Airways Corp. (b) 32,211 ____________ 64,524 ____________ Auto Components -- 2.0% 1,914 Magna International, Inc. 99,528 791 TRW Automotive Holdings Corp. (b) 41,686 ____________ 141,214 ____________ Automobiles -- 1.3% 2,272 Honda Motor Co., Ltd., ADR 89,744 ____________ Beverages -- 1.4% 486 Brown-Forman Corp., Class B 33,835 658 Hansen Natural Corp. (b) 34,400 639 Molson Coors Brewing Co., Class B 32,072 ____________ 100,307 ____________ Biotechnology -- 1.9% 1,302 Biogen Idec, Inc. (b) 87,299 889 Cubist Pharmaceuticals, Inc. (b) 19,025 1,212 Myriad Genetics, Inc. (b) 27,682 ____________ 134,006 ____________ Building Products -- 0.3% 573 A.O. Smith Corp. 21,820 ____________ Capital Markets -- 0.9% 3,981 American Capital Ltd. (b) 30,096 1,426 Federated Investors, Inc., Class B 37,319 ____________ 67,415 ____________ Chemicals -- 2.2% 963 Air Products and Chemicals, Inc. 87,585 601 Cytec Industries, Inc. 31,889 319 Lubrizol (The) Corp. 34,095 ____________ 153,569 ____________ Commercial Banks -- 1.0% 5,149 Huntington Bancshares, Inc. 35,374 3,727 KeyCorp 32,984 ____________ 68,358 ____________ Commercial Services & Supplies -- 0.4% 1,098 Deluxe Corp. 25,276 ____________ Communications Equipment -- 2.5% 984 ADTRAN, Inc. 35,631 666 Black Box Corp. 25,501 751 InterDigital, Inc. (b) 31,272 9,536 Motorola, Inc. (b) 86,491 ____________ 178,895 ____________ Shares Description Value --------- --------------------------------- --------------- Computers & Peripherals -- 1.2% 1,754 SanDisk Corp. (b) $ 87,454 ____________ Construction & Engineering -- 0.4% 856 Layne Christensen Co. (b) 29,463 ____________ Consumer Finance -- 0.4% 818 First Cash Financial Services, Inc. (b) 25,350 ____________ Containers & Packaging -- 0.5% 510 Ball Corp. 34,705 ____________ Diversified Financial Services -- 2.8% 18,777 Citigroup, Inc. (b) 88,815 1,461 NASDAQ OMX Group (The), Inc. (b) 34,640 2,476 NYSE Euronext 74,231 ____________ 197,686 ____________ Diversified Telecommunication Services -- 3.5% 2,367 BCE, Inc. 83,934 2,021 CenturyLink, Inc. 93,310 1,089 Telefonica S.A., ADR 74,509 ____________ 251,753 ____________ Electric Utilities -- 3.8% 689 Cleco Corp. 21,194 4,283 Duke Energy Corp. 76,280 899 El Paso Electric Co. (b) 24,749 1,027 Otter Tail Corp. 23,149 1,695 PNM Resources, Inc. 22,069 1,706 Progress Energy, Inc. 74,177 1,222 Westar Energy, Inc. 30,745 ____________ 272,363 ____________ Electrical Equipment -- 0.4% 563 II-VI, Inc. (b) 26,101 ____________ Electronic Equipment, Instruments & Components -- 2.1% 1,420 Insight Enterprises, Inc. (b) 18,687 2,726 Tyco Electronics Ltd. 96,501 2,280 Vishay Intertechnology, Inc. (b) 33,470 ____________ 148,658 ____________ Energy Equipment & Services -- 0.5% 375 Core Laboratories N.V. 33,394 ____________ Food & Staples Retailing -- 0.6% 577 Ruddick Corp. 21,257 539 Weis Markets, Inc. 21,738 ____________ 42,995 ____________ Food Products -- 4.3% 2,291 Archer-Daniels-Midland Co. 68,913 2,013 Campbell Soup Co. 69,952 937 Fresh Del Monte Produce, Inc. 23,378 679 Hormel Foods Corp. 34,805 501 J.M. Smucker (The) Co. 32,891 See Notes to Financial Statements Page 59 First Trust Value Line(R) Equity Allocation Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Food Products (Continued) 398 Lancaster Colony Corp. $ 22,766 733 McCormick & Co., Inc. 34,106 452 Sanderson Farms, Inc. 17,696 ____________ 304,507 ____________ Health Care Equipment & Supplies -- 3.3% 1,027 Becton, Dickinson & Co. 86,802 727 Cooper (The) Cos., Inc. 40,959 865 Cyberonics, Inc. (b) 26,832 563 ICU Medical, Inc. (b) 20,549 1,056 Meridian Bioscience, Inc. 24,457 527 Varian Medical Systems, Inc. (b) 36,511 ____________ 236,110 ____________ Health Care Providers & Services -- 3.7% 2,183 CIGNA Corp. 80,029 1,477 Humana, Inc. (b) 80,851 617 LifePoint Hospitals, Inc. (b) 22,675 2,275 UnitedHealth Group, Inc. 82,150 ____________ 265,705 ____________ Hotels, Restaurants & Leisure -- 3.3% 1,013 McDonald's Corp. 77,758 820 Tim Hortons, Inc. 33,809 1,171 Wyndham Worldwide Corp. 35,083 1,783 Yum! Brands, Inc. 87,456 ____________ 234,106 ____________ Household Durables -- 1.6% 823 M.D.C. Holdings, Inc. 23,678 2,428 Sony Corp., ADR 86,704 ____________ 110,382 ____________ Household Products -- 2.3% 1,133 Clorox (The) Co. 71,696 1,124 Kimberly-Clark Corp. 70,857 557 WD-40 Co. 22,436 ____________ 164,989 ____________ Insurance -- 9.2% 1,364 ACE Ltd. 84,909 100 Alleghany Corp. (b) 30,637 959 Axis Capital Holdings Ltd. 34,409 949 Berkshire Hathaway, Inc., Class B (b) 76,024 1,372 Chubb (The) Corp. 81,826 1,056 CNA Financial Corp. (b) 28,565 368 Everest Re Group Ltd. 31,214 668 Hanover Insurance Group, Inc. 31,209 90 Markel Corp. (b) 34,032 402 PartnerRe Ltd. 32,301 624 Reinsurance Group of America, Inc. 33,515 402 RLI Corp. 21,133 1,290 Selective Insurance Group, Inc. 23,413 Shares Description Value --------- --------------------------------- --------------- Insurance (Continued) 621 Transatlantic Holdings, Inc. $ 32,056 1,453 Travelers (The) Cos., Inc. 80,947 ____________ 656,190 ____________ Internet & Catalog Retail -- 1.9% 220 Netflix, Inc. (b) 38,654 245 priceline.com, Inc. (b) 97,890 ____________ 136,544 ____________ IT Services -- 3.6% 1,250 Cognizant Technology Solutions Corp., Class A (b) 91,612 708 DST Systems, Inc. 31,400 570 International Business Machines Corp. 83,653 346 MAXIMUS, Inc. 22,691 598 Wright Express Corp. (b) 27,508 ____________ 256,864 ____________ Leisure Equipment & Products -- 2.2% 681 Hasbro, Inc. 32,129 3,351 Mattel, Inc. 85,216 535 Polaris Industries, Inc. 41,741 ____________ 159,086 ____________ Life Sciences Tools & Services -- 0.5% 976 Charles River Laboratories International, Inc. (b) 34,687 ____________ Marine -- 0.2% 1,240 Genco Shipping & Trading Ltd. (b) 17,856 ____________ Media -- 3.7% 4,077 Comcast Corp., Class A 89,572 1,889 DIRECTV, Class A (b) 75,428 2,365 Time Warner, Inc. 76,082 623 Valassis Communications, Inc. (b) 20,154 ____________ 261,236 ____________ Multiline Retail -- 1.8% 1,206 99 Cents Only Stores (b) 19,224 979 Dillard's, Inc., Class A 37,143 689 Dollar Tree, Inc. (b) 38,639 679 Family Dollar Stores, Inc. 33,753 ____________ 128,759 ____________ Multi-Utilities -- 2.9% 938 Avista Corp. 21,124 1,532 Consolidated Edison, Inc. 75,941 1,533 MDU Resources Group, Inc. 31,074 3,250 Xcel Energy, Inc. 76,537 ____________ 204,676 ____________ Oil, Gas & Consumable Fuels -- 1.8% 580 Alliance Resource Partners L.P. (c) 38,141 1,324 ConocoPhillips 90,164 ____________ 128,305 ____________ Page 60 See Notes to Financial Statements First Trust Value Line(R) Equity Allocation Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Personal Products -- 0.8% 534 Herbalife Ltd. $ 36,510 731 Nu Skin Enterprises, Inc., Class A 22,120 ____________ 58,630 ____________ Pharmaceuticals -- 7.9% 1,455 Abbott Laboratories 69,709 2,768 Bristol-Myers Squibb Co. 73,296 2,041 Eli Lilly & Co. 71,517 2,613 Forest Laboratories, Inc. (b) 83,564 1,910 GlaxoSmithKline PLC, ADR 74,910 730 Medicis Pharmaceutical Corp., Class A 19,557 2,082 Merck & Co., Inc. 75,035 844 Novo Nordisk A/S, ADR 95,009 ____________ 562,597 ____________ Semiconductors & Semiconductor Equipment -- 3.9% 1,041 Cirrus Logic, Inc. (b) 16,635 2,419 Fairchild Semiconductor International, Inc. (b) 37,761 3,956 Micron Technology, Inc. (b) 31,727 7,511 Taiwan Semiconductor Manufacturing Co., Ltd., ADR 94,188 3,001 Texas Instruments, Inc. 97,532 ____________ 277,843 ____________ Software -- 0.4% 2,193 Mentor Graphics Corp. (b) 26,316 ____________ Specialty Retail -- 4.7% 537 Advance Auto Parts, Inc. 35,523 1,261 Aeropostale, Inc. (b) 31,071 350 AutoZone, Inc. (b) 95,406 482 Children's Place Retail Stores (The), Inc. (b) 23,926 1,518 Foot Locker, Inc. 29,783 512 Jos. A. Bank Clothiers, Inc. (b) 20,644 1,543 Penske Automotive Group, Inc. (b) 26,879 946 Rent-A-Center, Inc. 30,537 594 Ross Stores, Inc. 37,571 ____________ 331,340 ____________ Textiles, Apparel & Luxury Goods -- 1.7% 642 Deckers Outdoor Corp. (b) 51,193 667 Fossil, Inc. (b) 47,010 1,074 Iconix Brand Group, Inc. (b) 20,739 ____________ 118,942 ____________ Thrifts & Mortgage Finance -- 0.8% 1,800 New York Community Bancorp, Inc. 33,930 1,719 Provident Financial Services, Inc. 26,008 ____________ 59,938 ____________ Tobacco -- 1.2% 1,401 Philip Morris International, Inc. 82,000 ____________ Shares Description Value --------- --------------------------------- --------------- Wireless Telecommunication Services -- 0.4% 940 Syniverse Holdings, Inc. (b) $ 28,999 ____________ Total Common Stocks -- 100.0% 7,102,625 (Cost $6,058,379) Money Market Fund -- 0.3% 21,235 Morgan Stanley Institutional Treasury Money Market Fund - 0.02% (d) 21,235 (Cost $21,235) ____________ Total Investments -- 100.3% 7,123,860 (Cost $6,079,614) (e) Net Other Assets and Liabilities -- (0.3)% (18,208) ____________ Net Assets -- 100.0% $ 7,105,652 ============ (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) Master Limited Partnership ("MLP"). (d) Represents annualized 7-day yield at December 31, 2010. (e) Aggregate cost for federal income tax purposes is $6,082,365. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,077,485 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $35,990. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $ 7,102,625 $ -- $ -- Money Market Fund 21,235 -- -- __________________________________________ Total Investments $ 7,123,860 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 61 First Trust Value Line(R) Dividend Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Aerospace & Defense -- 4.9% 20,586 Boeing (The) Co. $ 1,343,442 26,251 Elbit Systems Ltd. 1,389,203 18,746 General Dynamics Corp. 1,330,216 24,965 Honeywell International, Inc. 1,327,139 19,232 Lockheed Martin Corp. 1,344,509 20,620 Northrop Grumman Corp. 1,335,764 29,249 Raytheon Co. 1,355,399 16,814 United Technologies Corp. 1,323,598 ____________ 10,749,270 ____________ Air Freight & Logistics -- 0.6% 18,307 United Parcel Service, Inc., Class B 1,328,722 ____________ Beverages -- 2.5% 18,994 Brown-Forman Corp., Class B 1,322,362 20,484 Coca-Cola (The) Co. 1,347,233 26,388 Molson Coors Brewing Co., Class B 1,324,414 20,376 PepsiCo, Inc. 1,331,164 ____________ 5,325,173 ____________ Capital Markets -- 0.6% 50,679 Federated Investors, Inc., Class B 1,326,269 ____________ Chemicals -- 3.7% 14,664 Air Products and Chemicals, Inc. 1,333,691 26,856 E.I. du Pont de Nemours & Co. 1,339,577 24,094 International Flavors & Fragrances, Inc. 1,339,385 16,056 PPG Industries, Inc. 1,349,828 13,975 Praxair, Inc. 1,334,193 15,818 Sherwin-Williams (The) Co. 1,324,758 ____________ 8,021,432 ____________ Commercial Banks -- 5.5% 27,954 Bank of Hawaii Corp. 1,319,708 23,608 Bank of Montreal 1,359,113 23,623 Bank of Nova Scotia 1,351,236 24,541 BOK Financial Corp. 1,310,490 17,125 Canadian Imperial Bank of Commerce 1,342,600 33,514 Commerce Bancshares, Inc. 1,331,511 21,609 Cullen/Frost Bankers, Inc. 1,320,742 25,937 Royal Bank of Canada 1,358,061 18,156 Toronto-Dominion (The) Bank 1,349,172 ____________ 12,042,633 ____________ Commercial Services & Supplies -- 1.2% 31,370 Avery Dennison Corp. 1,328,206 36,396 Waste Management, Inc. 1,341,920 ____________ 2,670,126 ____________ Communications Equipment -- 0.6% 130,418 Nokia Corp., ADR 1,345,914 ____________ Shares Description Value --------- --------------------------------- --------------- Computers & Peripherals -- 0.6% 41,189 Diebold, Inc. $ 1,320,108 ____________ Containers & Packaging -- 1.2% 40,231 Bemis Co., Inc. 1,313,944 39,270 Sonoco Products Co. 1,322,221 ____________ 2,636,165 ____________ Distributors -- 0.6% 25,956 Genuine Parts Co. 1,332,581 ____________ Diversified Telecommunication Services -- 2.5% 45,569 AT&T, Inc. 1,338,817 28,726 CenturyLink, Inc. 1,326,280 19,664 Telefonica S.A., ADR 1,345,411 37,545 Verizon Communications, Inc. 1,343,360 ____________ 5,353,868 ____________ Electric Utilities -- 6.1% 35,629 ALLETE, Inc. 1,327,537 74,880 Duke Energy Corp. 1,333,613 18,658 Entergy Corp. 1,321,546 31,902 Exelon Corp. 1,328,399 35,781 FirstEnergy Corp. 1,324,613 25,559 NextEra Energy, Inc. 1,328,812 30,640 Progress Energy, Inc. 1,332,227 34,819 Southern Co. 1,331,130 44,062 UIL Holdings Corp. 1,320,098 52,661 Westar Energy, Inc. 1,324,951 ____________ 13,272,926 ___________ Electrical Equipment -- 1.8% 22,748 Cooper Industries PLC 1,325,981 23,274 Emerson Electric Co. 1,330,574 21,943 Hubbell, Inc., Class B 1,319,433 ____________ 3,975,988 ____________ Electronic Equipment, Instruments & Components -- 0.6% 58,052 Molex, Inc. 1,318,942 ____________ Food & Staples Retailing -- 2.5% 45,867 Sysco Corp. 1,348,490 34,211 Walgreen Co. 1,332,860 24,881 Wal-Mart Stores, Inc. 1,341,832 32,620 Weis Markets, Inc. 1,315,565 ____________ 5,338,747 ____________ Food Products -- 7.9% 44,296 Archer-Daniels-Midland Co. 1,332,424 38,623 Campbell Soup Co. 1,342,149 59,424 ConAgra Foods, Inc. 1,341,794 37,356 General Mills, Inc. 1,329,500 26,921 H. J. Heinz Co. 1,331,513 27,932 Hershey (The) Co. 1,316,994 20,244 J.M. Smucker (The) Co. 1,329,019 26,099 Kellogg Co. 1,333,137 42,165 Kraft Foods, Inc., Class A 1,328,619 23,017 Lancaster Colony Corp. 1,316,572 Page 62 See Notes to Financial Statements First Trust Value Line(R) Dividend Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Food Products (Continued) 28,395 McCormick & Co., Inc. $ 1,321,219 76,120 Sara Lee Corp. 1,332,861 43,262 Unilever PLC, ADR 1,335,931 ____________ 17,291,732 ____________ Gas Utilities -- 5.5% 36,588 AGL Resources, Inc. 1,311,680 42,529 Atmos Energy Corp. 1,326,905 20,703 National Fuel Gas Co. 1,358,531 30,473 New Jersey Resources Corp. 1,313,691 28,114 Northwest Natural Gas Co. 1,306,457 47,248 Piedmont Natural Gas Co., Inc. 1,321,054 24,890 South Jersey Industries, Inc. 1,314,690 42,165 UGI Corp. 1,331,571 36,789 WGL Holdings, Inc. 1,315,942 ____________ 11,900,521 ____________ Health Care Equipment & Supplies -- 3.1% 8,216 Alcon, Inc. 1,342,494 15,846 Becton, Dickinson & Co. 1,339,304 29,033 Covidien PLC 1,325,647 36,117 Medtronic, Inc. 1,339,580 24,287 Teleflex, Inc. 1,306,883 ____________ 6,653,908 ____________ Health Care Providers & Services -- 1.2% 34,334 Cardinal Health, Inc. 1,315,335 44,311 Owens & Minor, Inc. 1,304,073 ____________ 2,619,408 ____________ Hotels, Restaurants & Leisure -- 1.2% 17,440 McDonald's Corp. 1,338,694 26,916 Yum! Brands, Inc. 1,320,230 ____________ 2,658,924 ____________ Household Durables -- 1.2% 57,575 Leggett & Platt, Inc. 1,310,407 19,809 Stanley Black & Decker, Inc. 1,324,628 ____________ 2,635,035 ____________ Household Products -- 2.4% 20,892 Clorox (The) Co. 1,322,046 16,576 Colgate-Palmolive Co. 1,332,213 21,106 Kimberly-Clark Corp. 1,330,522 20,611 Procter & Gamble (The) Co. 1,325,906 ____________ 5,310,687 ____________ Industrial Conglomerates -- 0.6% 15,318 3M Co. 1,321,943 ____________ Insurance -- 6.1% 21,477 ACE Ltd. 1,336,943 45,319 Arthur J. Gallagher & Co. 1,317,877 22,210 Chubb (The) Corp. 1,324,604 Shares Description Value --------- --------------------------------- --------------- Insurance (Continued) 41,549 Cincinnati Financial Corp. $ 1,316,688 20,643 Erie Indemnity Co., Class A 1,351,497 15,581 Everest Re Group Ltd. 1,321,581 30,896 Mercury General Corp. 1,328,837 16,641 PartnerRe Ltd. 1,337,104 25,598 RLI Corp. 1,345,687 23,892 Travelers (The) Cos., Inc. 1,331,023 ____________ 13,311,841 ____________ IT Services -- 1.8% 27,625 Accenture PLC, Class A 1,339,536 28,620 Automatic Data Processing, Inc. 1,324,534 43,402 Paychex, Inc. 1,341,556 ____________ 4,005,626 ____________ Leisure Equipment & Products -- 0.6% 27,476 Hasbro, Inc. 1,296,318 ____________ Machinery -- 2.4% 22,803 Dover Corp. 1,332,835 13,115 Eaton Corp. 1,331,304 24,895 Illinois Tool Works, Inc. 1,329,393 23,245 Snap-on, Inc. 1,315,202 ____________ 5,308,734 ____________ Media -- 1.9% 35,686 Thomson Reuters Corp. 1,330,017 41,303 Time Warner, Inc. 1,328,718 3,092 Washington Post (The) Co., Class B 1,358,934 ____________ 4,017,669 ____________ Multi-Utilities -- 8.5% 36,071 Alliant Energy Corp. 1,326,331 58,664 Avista Corp. 1,321,113 26,845 Consolidated Edison, Inc. 1,330,707 31,077 Dominion Resources, Inc. 1,327,609 66,512 MDU Resources Group, Inc. 1,348,198 31,501 NSTAR 1,329,027 29,280 OGE Energy Corp. 1,333,411 27,631 PG&E Corp. 1,321,867 42,408 Public Service Enterprise Group, Inc. 1,348,999 32,676 SCANA Corp. 1,326,646 25,534 Sempra Energy 1,340,024 52,312 Vectren Corp. 1,327,679 22,549 Wisconsin Energy Corp. 1,327,234 56,815 Xcel Energy, Inc. 1,337,993 ____________ 18,646,838 ____________ Office Electronics -- 0.6% 25,706 CANON, Inc., ADR 1,319,746 ____________ Oil, Gas & Consumable Fuels -- 4.9% 14,790 Chevron Corp. 1,349,587 19,848 ConocoPhillips 1,351,649 24,125 Enbridge, Inc. 1,360,650 See Notes to Financial Statements Page 63 First Trust Value Line(R) Dividend Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Oil, Gas & Consumable Fuels (Continued) 18,256 Exxon Mobil Corp. $ 1,334,879 36,507 Marathon Oil Corp. 1,351,854 20,170 Royal Dutch Shell PLC, Class A, ADR 1,346,953 25,219 Total S.A., ADR 1,348,712 34,885 TransCanada Corp. 1,327,025 ____________ 10,771,309 ____________ Pharmaceuticals -- 5.5% 28,132 Abbott Laboratories 1,347,804 50,296 Bristol-Myers Squibb Co. 1,331,838 38,006 Eli Lilly & Co. 1,331,730 34,046 GlaxoSmithKline PLC, ADR 1,335,284 21,523 Johnson & Johnson 1,331,198 36,789 Merck & Co., Inc. 1,325,876 22,740 Novartis AG, ADR 1,340,523 76,208 Pfizer, Inc. 1,334,402 41,471 Sanofi-Aventis, ADR 1,336,610 ____________ 12,015,265 ____________ Real Estate Investment Trusts -- 0.6% 13,144 Public Storage 1,333,065 ____________ Semiconductors & Semiconductor Equipment -- 2.4% 34,965 Analog Devices, Inc. 1,317,132 94,663 Applied Materials, Inc. 1,330,015 63,957 Intel Corp. 1,345,016 45,976 Xilinx, Inc. 1,332,384 ____________ 5,324,547 ____________ Software -- 0.6% 47,484 Microsoft Corp. 1,325,753 ____________ Specialty Retail -- 0.6% 37,822 Home Depot (The), Inc. 1,326,039 ____________ Textiles, Apparel & Luxury Goods -- 0.6% 15,391 VF Corp. 1,326,396 ____________ Thrifts & Mortgage Finance -- 0.6% 113,723 Capitol Federal Financial, Inc. 1,354,441 ____________ Tobacco -- 3.1% 53,963 Altria Group, Inc. 1,328,569 17,278 British American Tobacco PLC, ADR 1,342,501 16,185 Lorillard, Inc. 1,328,141 22,746 Philip Morris International, Inc. 1,331,323 40,835 Reynolds American, Inc. 1,332,038 ____________ 6,662,572 ____________ Wireless Telecommunication Services -- 0.6% 50,089 Vodafone Group PLC, ADR 1,323,852 ____________ Total Investments -- 100.0% $218,421,033 (Cost $183,916,593) (b) Net Other Assets and Liabilities -- 0.0% 88,559 ____________ Net Assets -- 100.0% $218,509,592 ============ (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Aggregate cost for federal income tax purposes is $192,945,070. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $28,117,835 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,641,872. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $218,421,033 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 64 See Notes to Financial Statements First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (b) -- 100.1% Air Freight & Logistics -- 3.4% 4,687 C.H. Robinson Worldwide, Inc. $ 375,851 6,690 Expeditors International of Washington, Inc. 365,274 ____________ 741,125 ____________ Biotechnology -- 11.5% 6,449 Amgen, Inc. (c) 354,050 5,434 Biogen Idec, Inc. (c) 364,350 6,247 Celgene Corp. (c) 369,448 5,676 Cephalon, Inc. (c) 350,323 5,306 Genzyme Corp. (c) 377,787 9,956 Gilead Sciences, Inc. (c) 360,805 10,445 Vertex Pharmaceuticals, Inc. (c) 365,888 ____________ 2,542,651 ____________ Chemicals -- 1.7% 5,547 Sigma-Aldrich Corp. 369,208 ____________ Commercial Services & Supplies -- 1.7% 4,702 Stericycle, Inc. (c) 380,486 ____________ Diversified Consumer Services -- 1.7% 9,623 Apollo Group, Inc., Class A (c) 380,012 ____________ Electronic Equipment, Instruments & Components -- 3.5% 48,403 Flextronics International Ltd. (c) 379,964 13,015 FLIR Systems, Inc. (c) 387,196 ____________ 767,160 ____________ Food & Staples Retailing -- 3.3% 5,154 Costco Wholesale Corp. 372,170 7,285 Whole Foods Market, Inc. (c) 368,548 ____________ 740,718 ____________ Health Care Equipment & Supplies -- 3.3% 10,752 DENTSPLY International, Inc. 367,396 1,393 Intuitive Surgical, Inc. (c) 359,046 ____________ 726,442 ____________ Health Care Providers & Services -- 3.3% 6,743 Express Scripts, Inc. (c) 364,459 5,964 Henry Schein, Inc. (c) 366,130 ____________ 730,589 ____________ Hotels, Restaurants & Leisure -- 4.9% 9,014 Ctrip.com International Ltd., ADR (c) 364,616 11,303 Starbucks Corp. 363,165 3,528 Wynn Resorts Ltd. 366,348 ____________ 1,094,129 ____________ Household Durables -- 1.6% 11,659 Garmin Ltd. 361,312 ____________ Shares Description Value --------- --------------------------------- --------------- Internet & Catalog Retail -- 8.2% 2,085 Amazon.com, Inc. (c) $ 375,300 13,801 Expedia, Inc. 346,267 23,186 Liberty Media Corp. - Interactive, Class A (c) 365,643 2,057 Netflix, Inc. (c) 361,415 924 priceline.com, Inc. (c) 369,184 ____________ 1,817,809 ____________ Internet Software & Services -- 1.6% 12,434 eBay, Inc. (c) 346,038 ____________ IT Services -- 4.9% 7,902 Automatic Data Processing, Inc. 365,705 6,126 Fiserv, Inc. (c) 358,738 11,945 Paychex, Inc. 369,220 ____________ 1,093,663 ____________ Leisure Equipment & Products -- 1.7% 14,430 Mattel, Inc. 366,955 ____________ Life Sciences Tools & Services -- 5.0% 5,807 Illumina, Inc. (c) 367,815 6,675 Life Technologies Corp. (c) 370,463 19,057 QIAGEN N.V. (c) 372,564 ____________ 1,110,842 ____________ Machinery -- 3.4% 4,328 Joy Global, Inc. 375,454 6,554 PACCAR, Inc. 376,331 ____________ 751,785 ____________ Media -- 6.8% 17,295 Comcast Corp., Class A 379,971 9,432 DIRECTV, Class A (c) 376,620 25,590 News Corp., Class A 372,590 14,182 Virgin Media, Inc. 386,318 ____________ 1,515,499 ____________ Multiline Retail -- 3.5% 6,455 Dollar Tree, Inc. (c) 361,997 5,463 Sears Holdings Corp. (c) 402,896 ____________ 764,893 ____________ Pharmaceuticals -- 5.0% 17,303 Mylan, Inc. (c) 365,613 7,130 Teva Pharmaceutical Industries Ltd., ADR 371,687 16,413 Warner Chilcott PLC, Class A 370,277 ____________ 1,107,577 ____________ Semiconductors & Semiconductor Equipment -- 1.6% 2,779 First Solar, Inc. (c) 361,659 ____________ See Notes to Financial Statements Page 65 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (b) (Continued) Software -- 3.4% 30,476 Activision Blizzard, Inc. $ 379,122 23,274 Electronic Arts, Inc. (c) 381,228 ____________ 760,350 ____________ Specialty Retail -- 8.4% 7,759 Bed Bath & Beyond, Inc. (c) 381,355 5,899 O'Reilly Automotive, Inc. (c) 356,418 5,881 Ross Stores, Inc. 371,973 16,435 Staples, Inc. 374,225 10,184 Urban Outfitters, Inc. (c) 364,689 ____________ 1,848,660 ____________ Trading Companies & Distributors -- 1.7% 6,219 Fastenal Co. 372,580 ____________ Wireless Telecommunication Services -- 5.0% 4,005 Millicom International Cellular S.A. 382,878 8,174 NII Holdings, Inc. (c) 365,051 13,876 Vodafone Group PLC, ADR 366,743 ____________ 1,114,672 ____________ Total Common Stocks -- 100.1% 22,166,814 (Cost $20,096,386) Money Market Fund -- 0.0% 10,975 Morgan Stanley Institutional Treasury Money Market Fund - 0.02% (d) 10,975 (Cost $10,975) ____________ Total Investments -- 100.1% 22,177,789 (Cost $20,107,361) (e) Net Other Assets and Liabilities -- (0.1)% (26,472) ____________ Net Assets -- 100.0% $ 22,151,317 ============ (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, 2010. (e) Aggregate cost for federal income tax purposes is $20,447,887. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,286,932 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $557,030. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $22,166,814 $ -- $ -- Money Market Fund 10,975 -- -- __________________________________________ Total Investments $22,177,789 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 66 See Notes to Financial Statements First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Aerospace & Defense -- 2.5% 49,688 Hexcel Corp. (b) $ 898,856 ____________ Automobiles -- 3.5% 46,888 Tesla Motors, Inc. (b) 1,248,627 ____________ Biotechnology -- 0.5% 13,739 Metabolix, Inc. (b) 167,204 ____________ Chemicals -- 1.7% 21,135 STR Holdings, Inc. (b) 422,700 17,570 Zoltek Cos., Inc. (b) 202,933 ____________ 625,633 ____________ Commercial Services & Supplies -- 0.8% 12,737 EnerNOC, Inc. (b) 304,542 ____________ Electrical Equipment -- 10.5% 53,636 A123 Systems, Inc. (b) 511,687 35,202 Advanced Battery Technologies, Inc. (b) 135,528 25,878 American Superconductor Corp. (b) 739,852 21,964 Baldor Electric Co. 1,384,611 54,674 Broadwind Energy, Inc. (b) 126,297 83,108 Ener1, Inc. (b) 314,979 9,554 PowerSecure International, Inc. (b) 74,330 59,669 Satcon Technology Corp. (b) 268,511 15,305 Vicor Corp. 251,002 ____________ 3,806,797 ____________ Electronic Equipment, Instruments & Components -- 11.7% 86,789 AVX Corp. 1,339,154 12,933 Comverge, Inc. (b) 89,367 21,376 Echelon Corp. (b) 217,821 20,643 Itron, Inc. (b) 1,144,654 13,583 Maxwell Technologies, Inc. (b) 256,583 54,498 Power-One, Inc. (b) 555,880 19,681 Universal Display Corp. (b) 603,223 ____________ 4,206,682 ____________ Independent Power Producers & Energy Traders -- 1.9% 23,210 Ormat Technologies, Inc. 686,552 ____________ Machinery -- 1.4% 13,559 ESCO Technologies, Inc. 513,072 ____________ Oil, Gas & Consumable Fuels -- 0.6% 18,281 Green Plains Renewable Energy, Inc. (b) 205,844 ____________ Semiconductors & Semiconductor Equipment -- 64.9% 4,498 Aixtron SE, ADR 167,326 22,201 Canadian Solar, Inc. (b) 275,070 42,668 Cree, Inc. (b) 2,811,395 25,461 Energy Conversion Devices, Inc. (b) 117,121 63,272 Fairchild Semiconductor International, Inc. (b) 987,676 22,638 First Solar, Inc. (b) 2,946,109 63,622 GT Solar International, Inc. (b) 580,233 35,449 International Rectifier Corp. (b) 1,052,481 Shares Description Value --------- --------------------------------- --------------- Semiconductors & Semiconductor Equipment (Continued) 15,862 IXYS Corp. (b) $ 184,316 67,449 JA Solar Holdings Co., Ltd., ADR (b) 466,747 44,542 LDK Solar Co., Ltd., ADR (b) 450,765 85,310 Linear Technology Corp. 2,950,873 116,192 MEMC Electronic Materials, Inc. (b) 1,308,322 42,679 Microsemi Corp. (b) 977,349 104,162 National Semiconductor Corp. 1,433,269 17,238 O2Micro International Ltd., ADR (b) 106,531 217,497 ON Semiconductor Corp. (b) 2,148,870 14,279 Power Integrations, Inc. 573,159 39,425 Renesola Ltd., ADR (b) 344,574 11,719 Rubicon Technology, Inc. (b) 247,036 21,457 Solarfun Power Holdings Co., Ltd., ADR (b) 175,304 28,540 SunPower Corp., Class A (b) 366,168 65,684 Suntech Power Holdings Co., Ltd., ADR (b) 526,129 36,573 Trina Solar Ltd., ADR (b) 856,540 20,387 Veeco Instruments, Inc. (b) 875,826 52,855 Yingli Green Energy Holding Co., Ltd., ADR (b) 522,208 ____________ 23,451,397 ____________ Total Investments -- 100.0% 36,115,206 (Cost $32,511,460) (c) Net Other Assets and Liabilities -- 0.0% 4,782 ____________ Net Assets -- 100.0% $ 36,119,988 ============ (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 $37,954,558. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,476,451 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $8,315,803. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $36,115,206 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 67 First Trust S&P REIT Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (b) -- 99.8% Diversified REITs -- 7.5% 12,538 CapLease, Inc. $ 72,971 18,413 Colonial Properties Trust 332,355 22,675 Cousins Properties, Inc. 189,109 3,434 Excel Trust, Inc. 41,551 1,873 Gladstone Commercial Corp. 35,269 17,226 Investors Real Estate Trust 154,517 25,040 Liberty Property Trust 799,277 1,762 One Liberty Properties, Inc. 29,425 4,103 PS Business Parks, Inc. 228,619 35,645 Vornado Realty Trust 2,970,298 14,052 Washington Real Estate Investment Trust 435,471 4,978 Winthrop Realty Trust, Inc. 63,669 ____________ 5,352,531 ____________ Industrial REITs -- 5.8% 36,918 AMB Property Corp. 1,170,670 47,540 DCT Industrial Trust, Inc. 252,437 13,071 DuPont Fabros Technology, Inc. 278,020 5,916 EastGroup Properties, Inc. 250,365 13,982 First Industrial Realty Trust, Inc. (c) 122,482 11,158 First Potomac Realty Trust 187,678 7,444 Monmouth Real Estate Investment Corp., Class A 63,274 124,759 ProLogis 1,801,520 1,502 Terreno Realty Corp. (c) 26,931 ____________ 4,153,377 ____________ Office REITs -- 15.9% 12,133 Alexandria Real Estate Equities, Inc. 888,864 28,687 BioMed Realty Trust, Inc. 535,013 30,718 Boston Properties, Inc. 2,644,820 29,480 Brandywine Realty Trust 343,442 15,816 CommonWealth REIT 403,466 14,666 Corporate Office Properties Trust 512,577 19,834 Digital Realty Trust, Inc. 1,022,244 27,077 Douglas Emmett, Inc. 449,478 55,278 Duke Realty Corp. 688,764 15,229 Franklin Street Properties Corp. 217,013 15,711 Highwoods Properties, Inc. 500,395 11,478 Kilroy Realty Corp. 418,603 27,275 Lexington Realty Trust 216,836 17,437 Mack-Cali Realty Corp. 576,467 3,909 Mission West Properties, Inc. 26,151 7,385 MPG Office Trust, Inc. (c) 20,309 4,807 Parkway Properties, Inc. 84,219 29,150 Piedmont Office Realty Trust, Inc., Class A 587,081 17,159 SL Green Realty Corp. 1,158,404 ____________ 11,294,146 ____________ Residential REITs -- 16.5% 14,638 American Campus Communities, Inc. 464,903 25,660 Apartment Investment & Management Co., Class A 663,054 9,070 Associated Estates Realty Corp. 138,680 Shares Description Value --------- --------------------------------- --------------- Residential REITs (Continued) 18,699 AvalonBay Communities, Inc. $ 2,104,572 14,052 BRE Properties, Inc. 611,262 15,057 Camden Property Trust 812,777 12,793 Education Realty Trust, Inc. 99,402 6,759 Equity Lifestyle Properties, Inc. 378,031 62,365 Equity Residential 3,239,862 6,869 Essex Property Trust, Inc. 784,577 8,251 Home Properties, Inc. 457,848 7,495 Mid-America Apartment Communities, Inc. 475,858 10,693 Post Properties, Inc. 388,156 3,824 Sun Communities, Inc. 127,377 39,933 UDR, Inc. 939,224 2,479 UMH Properties, Inc. 25,286 ____________ 11,710,869 ____________ Retail REITs -- 27.2% 8,826 Acadia Realty Trust 160,986 1,904 Agree Realty Corp. 49,866 447 Alexander's, Inc. 184,289 30,273 CBL & Associates Properties, Inc. 529,777 10,307 Cedar Shopping Centers, Inc. 64,831 43,246 Developers Diversified Realty Corp. 609,336 10,110 Equity One, Inc. 183,800 13,489 Federal Realty Investment Trust 1,051,198 149,970 General Growth Properties, Inc. (c) 2,321,536 4,989 Getty Realty Corp. 156,056 18,185 Glimcher Realty Trust 152,754 16,610 Inland Real Estate Corp. 146,168 89,004 Kimco Realty Corp. 1,605,632 13,887 Kite Realty Group Trust 75,129 28,527 Macerich (The) Co. 1,351,324 18,303 National Retail Properties, Inc. 485,030 12,141 Pennsylvania Real Estate Investment Trust 176,409 8,320 Ramco-Gershenson Properties Trust 103,584 25,673 Realty Income Corp. 878,017 17,949 Regency Centers Corp. 758,166 2,512 Saul Centers, Inc. 118,943 64,218 Simon Property Group, Inc. 6,389,049 8,877 Tanger Factory Outlet Centers, Inc. 454,414 11,989 Taubman Centers, Inc. 605,205 5,069 Urstadt Biddle Properties, Inc., Class A 98,592 26,401 Weingarten Realty Investors 627,288 ____________ 19,337,379 ____________ Specialized REITs -- 26.9% 8,519 Ashford Hospitality Trust (c) 82,208 4,042 Chesapeake Lodging Trust 76,030 10,968 Cogdell Spencer, Inc. 63,614 33,890 DiamondRock Hospitality Co. (c) 406,680 10,203 Entertainment Properties Trust 471,889 19,195 Extra Space Storage, Inc. 333,993 18,725 FelCor Lodging Trust, Inc. (c) 131,824 79,880 HCP, Inc. 2,938,785 31,819 Health Care REIT, Inc. 1,515,857 Page 68 See Notes to Financial Statements First Trust S&P REIT Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (b) (Continued) Specialized REITs (Continued) 14,125 Healthcare Realty Trust, Inc. $ 299,026 33,003 Hersha Hospitality Trust, Class A 217,820 27,065 Hospitality Properties Trust 623,578 146,006 Host Hotels & Resorts, Inc. 2,609,127 16,018 LaSalle Hotel Properties 422,875 5,750 LTC Properties, Inc. 161,460 24,395 Medical Properties Trust, Inc. 264,198 6,071 National Health Investors, Inc. 273,316 27,680 Nationwide Health Properties, Inc. 1,006,998 21,593 OMEGA Healthcare Investors, Inc. 484,547 8,747 Pebblebrook Hotel Trust 177,739 30,622 Public Storage 3,105,683 30,690 Senior Housing Properties Trust 673,339 6,062 Sovran Self Storage, Inc. 223,142 33,169 Strategic Hotels & Resorts, Inc. (c) 175,464 25,874 Sunstone Hotel Investors, Inc. (c) 267,278 2,739 Universal Health Realty Income Trust 100,056 18,080 U-Store-It Trust 172,302 34,443 Ventas, Inc. 1,807,569 ____________ 19,086,397 ____________ Total Investments -- 99.8% 70,934,699 (Cost $64,306,550) (d) Net Other Assets and Liabilities -- 0.2% 131,153 ____________ Net Assets -- 100.0% $ 71,065,852 ============ (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) The industry classification is based upon Standard & Poor's Global Industry Classification Standard (GICS) Sub-Industry. (c) Non-income producing security. (d) Aggregate cost for federal income tax purposes is $64,726,888. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,638,025 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $430,214. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $70,934,699 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 69 First Trust ISE Water Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 99.8% Aerospace & Defense -- 4.2% 42,481 ITT Corp. $ 2,213,685 ____________ Building Products -- 1.2% 8,224 Ameron International Corp. 628,067 ____________ Chemicals -- 11.5% 18,167 Arch Chemicals, Inc. 689,074 35,371 Ashland, Inc. 1,798,969 102,028 Calgon Carbon Corp. (b) 1,542,664 65,683 Nalco Holding Co. 2,097,915 ____________ 6,128,622 ____________ Commercial Services & Supplies -- 3.4% 72,899 Tetra Tech, Inc. (b) 1,826,849 ____________ Construction & Engineering -- 6.3% 37,527 Aecom Technology Corp. (b) 1,049,630 19,230 Layne Christensen Co. (b) 661,897 68,240 Northwest Pipe Co. (b) 1,639,807 ____________ 3,351,334 ____________ Diversified Financial Services -- 1.3% 21,249 PICO Holdings, Inc. (b) 675,718 ____________ Electrical Equipment -- 3.9% 26,639 Franklin Electric Co., Inc. 1,036,790 13,541 Roper Industries, Inc. 1,034,938 ____________ 2,071,728 ____________ Electronic Equipment, Instruments & Components -- 2.0% 18,827 Itron, Inc. (b) 1,043,957 ____________ Health Care Equipment & Supplies -- 2.0% 15,088 IDEXX Laboratories, Inc. (b) 1,044,391 ____________ Machinery -- 40.2% 23,763 Badger Meter, Inc. 1,050,800 16,470 Crane Co. 676,423 40,144 Danaher Corp. 1,893,592 532,784 Energy Recovery, Inc. (b) 1,949,989 477,056 Flow International Corp. (b) 1,951,159 9,066 Flowserve Corp. 1,080,848 39,939 IDEX Corp. 1,562,414 31,809 Lindsay Corp. 1,890,409 32,327 Mueller Industries, Inc. 1,057,093 393,609 Mueller Water Products, Inc., Class A 1,641,350 31,568 Pall Corp. 1,565,141 59,282 Pentair, Inc. 2,164,386 7,683 Valmont Industries, Inc. 681,713 59,957 Watts Water Technologies, Inc., Class A 2,193,827 ____________ 21,359,144 ____________ Metals & Mining -- 2.0% 34,924 AMCOL International Corp. 1,082,644 ____________ Shares Description Value --------- --------------------------------- --------------- Multi-Utilities -- 3.5% 64,229 Veolia Environment, ADR $ 1,885,763 ____________ Water Utilities -- 18.3% 30,368 American States Water Co. 1,046,785 85,134 American Water Works Co., Inc. 2,153,039 97,476 Aqua America, Inc. 2,191,261 55,926 California Water Service Group 2,084,362 42,413 Companhia de Saneamento Basico do Estado de Sao Paulo, ADR (b) 2,242,799 ____________ 9,718,246 ____________ Total Common Stocks -- 99.8% 53,030,148 (Cost $48,043,718) Money Market Fund -- 0.1% 40,289 Morgan Stanley Institutional Treasury Money Market Fund - 0.02% (c) 40,289 (Cost $40,289) ____________ Total Investments -- 99.9% (Cost $48,084,007) (d) 53,070,437 Net Other Assets and Liabilities -- 0.1% 40,202 ____________ Net Assets -- 100.0% $ 53,110,639 ============ (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, 2010. (d) Aggregate cost for federal income tax purposes is $50,470,436. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $5,015,307 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,415,306. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $53,030,148 $ -- $ -- Money Market Fund 40,289 -- -- __________________________________________ Total Investments $53,070,437 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 70 See Notes to Financial Statements First Trust ISE-Revere Natural Gas Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Gas Utilities -- 3.2% 721,525 Questar Corp. $ 12,561,750 ____________ Oil, Gas & Consumable Fuels -- 96.8% 110,690 Apache Corp. 13,197,569 359,742 Cabot Oil & Gas Corp. 13,616,235 554,995 Chesapeake Energy Corp. 14,379,920 148,361 Cimarex Energy Co. 13,134,399 515,208 Comstock Resources, Inc. (b) 12,653,508 196,973 ConocoPhillips 13,413,861 173,564 Devon Energy Corp. 13,626,510 442,760 EnCana Corp. 12,893,171 140,171 EOG Resources, Inc. 12,813,031 687,223 EXCO Resources, Inc. 13,345,871 176,233 Exxon Mobil Corp. 12,886,157 366,479 Forest Oil Corp. (b) 13,915,208 170,699 Hess Corp. 13,065,301 179,592 Murphy Oil Corp. 13,388,584 175,770 Newfield Exploration Co. (b) 12,674,775 668,795 Petrohawk Energy Corp. (b) 12,205,509 1,693,807 PetroQuest Energy, Inc. (b) 12,754,367 871,266 Quicksilver Resources, Inc. (b) 12,842,461 300,295 Range Resources Corp. 13,507,269 195,700 Royal Dutch Shell PLC, Class A, ADR 13,068,846 2,003,227 SandRidge Energy, Inc. (b) 14,663,622 234,436 SM Energy Co. 13,815,313 356,816 Southwestern Energy Co. (b) 13,355,623 568,641 Statoilhydro ASA, ADR 13,516,596 560,127 Stone Energy Corp. (b) 12,485,231 354,331 Suncor Energy, Inc. 13,567,334 627,862 Talisman Energy, Inc. 13,932,258 243,734 Total S.A., ADR 13,034,894 264,569 Ultra Petroleum Corp. (b) 12,638,461 ____________ 384,391,884 ____________ Total Common Stocks -- 100.0% 396,953,634 (Cost $344,947,318) Money Market Fund -- 0.1% 197,147 Morgan Stanley Institutional Treasury Money Market Fund - 0.02% (c) 197,147 (Cost $197,147) ____________ Total Investments -- 100.1% 397,150,781 (Cost $345,144,465) (d) Net Other Assets and Liabilities -- (0.1)% (257,346) ____________ Net Assets -- 100.0% $396,893,435 ============ (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, 2010. (d) Aggregate cost for federal income tax purposes is $348,034,541. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $53,470,995 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $4,354,755. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 ___________________________________________ Common Stocks* $396,953,634 $ -- $ -- Money Market Fund 197,147 -- -- ___________________________________________ Total Investments $397,150,781 $ -- $ -- =========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 71 First Trust ISE Chindia Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Airlines -- 0.7% 42,397 China Southern Airlines Co., Ltd., ADR (b) $ 1,293,533 ____________ Commercial Banks -- 14.3% 73,979 HDFC Bank Ltd., ADR 12,362,631 252,252 ICICI Bank Ltd., ADR 12,774,041 ____________ 25,136,672 ____________ Diversified Consumer Services -- 0.7% 12,162 New Oriental Education & Technology Group, Inc., ADR (b) 1,279,807 ____________ Diversified Telecommunication Services -- 1.5% 25,339 China Telecom Corp., Ltd., ADR 1,324,723 91,859 China Unicom (Hong Kong) Ltd., ADR 1,308,991 ____________ 2,633,714 ____________ Health Care Equipment & Supplies -- 0.7% 48,773 Mindray Medical International Ltd., ADR 1,287,607 ____________ Hotels, Restaurants & Leisure -- 5.8% 61,327 China Lodging Group Ltd., ADR (b) 1,336,315 156,435 Ctrip.com International Ltd., ADR (b) 6,327,796 29,851 Home Inns & Hotels Management, Inc., ADR (b) 1,222,697 222,564 Melco Crown Entertainment Ltd., ADR (b) 1,415,507 ____________ 10,302,315 ____________ Independent Power Producers & Energy Traders -- 0.7% 57,794 Huaneng Power International, Inc., ADR 1,235,636 ____________ Insurance -- 4.5% 110,068 China Life Insurance Co., Ltd., ADR 6,732,859 71,703 CNinsure, Inc., ADR 1,236,877 ____________ 7,969,736 ____________ Internet & Catalog Retail -- 2.2% 141,544 Makemytrip Ltd. (b) 3,825,934 ____________ Internet Software & Services -- 10.5% 114,671 Baidu, Inc., ADR (b) 11,069,192 33,928 NetEase.com, Inc., ADR (b) 1,226,497 47,801 SINA Corp. (b) 3,289,665 45,995 Sohu.com, Inc. (b) 2,920,222 ____________ 18,505,576 ____________ Shares Description Value --------- --------------------------------- --------------- IT Services -- 11.9% 177,032 Infosys Technologies Ltd., ADR $ 13,468,595 482,450 Wipro Ltd., ADR 7,463,501 ____________ 20,932,096 ____________ Life Sciences Tools & Services -- 0.7% 76,258 WuXi PharmaTech Cayman, Inc., ADR (b) 1,230,804 ____________ Machinery -- 4.1% 248,699 Tata Motors Ltd., ADR 7,296,829 ____________ Media -- 1.9% 155,643 Focus Media Holding Ltd., ADR (b) 3,413,251 ____________ Metals & Mining -- 5.2% 56,473 Aluminum Corp. of China Ltd., ADR (b) 1,287,020 477,880 Sterlite Industries (India) Ltd., ADR 7,904,135 ____________ 9,191,155 ____________ Oil, Gas & Consumable Fuels -- 12.8% 13,723 China Petroleum & Chemical Corp., ADR 1,313,154 52,899 CNOOC Ltd., ADR 12,609,535 55,362 PetroChina Co., Ltd., ADR 7,279,549 45,186 Yanzhou Coal Mining Co., Ltd., ADR 1,382,692 ____________ 22,584,930 ____________ Pharmaceuticals -- 1.8% 87,241 Dr. Reddy's Laboratories Ltd., ADR 3,224,427 ____________ Professional Services -- 0.7% 23,808 51job, Inc. ADR (b) 1,172,544 ____________ Real Estate Management & Development -- 0.8% 92,923 E-House China Holdings Ltd., ADR 1,390,128 ____________ Semiconductors & Semiconductor Equipment -- 6.4% 182,673 JA Solar Holdings Co., Ltd., ADR (b) 1,264,097 56,349 Jinkosolar Holding Co. Ltd., ADR (b) 1,133,742 123,837 LDK Solar Co., Ltd., ADR (b) 1,253,231 146,765 Renesola Ltd., ADR (b) 1,282,726 147,778 Solarfun Power Holdings Co., Ltd., ADR (b) 1,207,346 75,674 Spreadtrum Communications, Inc., ADR (b) 1,390,131 155,283 Suntech Power Holdings Co., Ltd., ADR (b) 1,243,817 52,891 Trina Solar Ltd., ADR (b) 1,238,707 122,188 Yingli Green Energy Holding Co., Ltd., ADR (b) 1,207,218 ____________ 11,221,015 ____________ Page 72 See Notes to Financial Statements First Trust ISE Chindia Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Software -- 5.1% 80,363 AsiaInfo Holdings, Inc. (b) $ 1,331,615 45,831 Changyou.com Ltd., ADR (b) 1,306,642 33,295 Longtop Financial Technologies Ltd., ADR (b) 1,204,613 54,438 Perfect World Co., Ltd., ADR (b) 1,287,459 205,471 Shanda Games Ltd., ADR (b) 1,323,233 33,115 Shanda Interactive Entertainment Ltd., ADR (b) 1,312,678 35,261 VanceInfo Technologies, Inc., ADR (b) 1,217,915 ____________ 8,984,155 ____________ Wireless Telecommunication Services -- 7.0% 246,862 China Mobile Ltd., ADR 12,249,292 ____________ Total Investments -- 100.0% 176,361,156 (Cost $150,047,531) (c) Net Other Assets and Liabilities -- 0.0% (9,333) ____________ Net Assets -- 100.0% $176,351,823 ============ (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 $153,041,021. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $28,953,745 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $5,633,610. ADR - American Depositary Receipt ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 ___________________________________________ Common Stocks* $176,361,156 $ -- $ -- =========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 73 First Trust Value Line(R) 100 Exchange-Traded Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 99.9% Air Freight & Logistics -- 1.0% 42,589 Park-Ohio Holdings Corp. (b) $ 890,536 ____________ Airlines -- 5.0% 15,710 Alaska Air Group, Inc. (b) 890,600 71,359 Delta Air Lines, Inc. (b) 899,124 134,202 JetBlue Airways Corp. (b) 887,075 68,392 Southwest Airlines Co. 887,728 90,012 US Airways Group, Inc. (b) 901,020 ____________ 4,465,547 ____________ Auto Components -- 8.0% 69,083 American Axle & Manufacturing Holdings, Inc. (b) 888,407 11,223 Autoliv, Inc. 885,944 51,088 Dana Holding Corp. (b) 879,224 17,104 Magna International, Inc. 889,408 62,697 Standard Motor Products, Inc. 858,949 41,054 Superior Industries International, Inc. 871,166 21,067 Tenneco, Inc. (b) 867,118 16,993 TRW Automotive Holdings Corp. (b) 895,531 _____________ 7,035,747 ____________ Automobiles -- 1.0% 52,662 Ford Motor Co. (b) 884,195 ____________ Biotechnology -- 1.0% 13,993 Cephalon, Inc. (b) 863,648 ____________ Capital Markets -- 2.0% 104,520 BGC Partners, Inc., Class A 868,561 62,170 Blackstone Group (The) L.P. (c) 879,706 ____________ 1,748,267 ____________ Chemicals -- 5.0% 15,850 Albemarle Corp. 884,113 23,281 Cabot Corp. 876,530 10,731 Eastman Chemical Co. 902,262 56,623 Huntsman Corp. 883,885 38,228 Solutia, Inc. (b) 882,302 ____________ 4,429,092 ____________ Commercial Services & Supplies -- 1.0% 37,250 Deluxe Corp. 857,495 ____________ Communications Equipment -- 3.0% 29,822 Finisar Corp. (b) 885,415 341,698 Powerwave Technologies, Inc. (b) 867,913 97,951 Tollgrade Communications, Inc. (b) 908,985 ____________ 2,662,313 ____________ Computers & Peripherals -- 1.0% 17,471 SanDisk Corp. (b) 871,104 ____________ Shares Description Value --------- --------------------------------- --------------- Diversified Telecommunication Services -- 3.0% 25,089 BCE, Inc. $ 889,656 30,912 BT Group PLC, ADR 882,228 67,304 General Communication, Inc., Class A (b) 852,069 ____________ 2,623,953 ____________ Electronic Equipment, Instruments & Components -- 9.0% 25,932 Arrow Electronics, Inc. (b) 888,171 26,808 Avnet, Inc. (b) 885,468 17,811 Hitachi Ltd., ADR 950,217 44,178 Jabil Circuit, Inc. 887,536 49,911 Newport Corp. (b) 866,954 100,385 PC Connection, Inc. (b) 889,411 83,734 Power-One, Inc. (b) 854,087 76,259 Sanmina-SCI Corp. (b) 875,453 59,505 Vishay Intertechnology, Inc. (b) 873,534 ____________ 7,970,831 ____________ Energy Equipment & Services -- 1.0% 47,206 RPC, Inc. 855,373 ____________ Food Products -- 1.0% 42,508 Smithfield Foods, Inc. (b) 876,940 ____________ Health Care Equipment & Supplies -- 2.0% 21,996 Hill-Rom Holdings, Inc. 865,982 21,203 Kinetic Concepts, Inc. (b) 887,982 ____________ 1,753,964 ____________ Health Care Providers & Services -- 3.0% 24,460 Community Health Systems, Inc. (b) 914,070 93,813 Health Management Associates, Inc., Class A (b) 894,976 10,076 Laboratory Corp. of America Holdings (b) 885,882 ____________ 2,694,928 ____________ Hotels, Restaurants & Leisure -- 1.0% 55,595 Domino's Pizza, Inc. (b) 886,740 ____________ IT Services -- 1.0% 19,717 DST Systems, Inc. 874,449 ____________ Leisure Equipment & Products -- 1.0% 156,964 Leapfrog Enterprises, Inc. (b) 871,150 ____________ Machinery -- 3.0% 77,186 NN, Inc. (b) 954,019 30,239 Sauer-Danfoss, Inc. (b) 854,252 30,219 Tata Motors Ltd., ADR 886,625 ____________ 2,694,896 ____________ Page 74 See Notes to Financial Statements First Trust Value Line(R) 100 Exchange-Traded Fund Portfolio of Investments (a) (Continued) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks (Continued) Media -- 7.0% 26,464 Cablevision Systems Corp., Class A $ 895,542 22,412 DIRECTV, Class A (b) 894,911 87,270 Global Sources Ltd. (b) 830,810 58,028 Knology, Inc. (b) 906,978 106,780 Sinclair Broadcast Group, Inc., Class A 873,460 13,467 Time Warner Cable, Inc. 889,226 27,676 Valassis Communications, Inc. (b) 895,319 ____________ 6,186,246 ____________ Metals & Mining -- 2.0% 22,676 Brush Engineered Materials, Inc. (b) 876,200 11,368 Cliffs Natural Resources, Inc. 886,818 ____________ 1,763,018 ____________ Multiline Retail -- 2.0% 23,166 Dillard's, Inc., Class A 878,918 15,597 Dollar Tree, Inc. (b) 874,680 ____________ 1,753,598 ____________ Oil, Gas & Consumable Fuels -- 1.0% 13,789 Alliance Resource Partners L.P. (c) 906,765 ____________ Paper & Forest Products -- 2.0% 32,795 International Paper Co. 893,336 33,870 MeadWestvaco Corp. 886,039 ____________ 1,779,375 ____________ Personal Products -- 1.1% 63,731 China-Biotics, Inc. (b) 936,846 ____________ Pharmaceuticals -- 0.9% 59,307 Medicines (The) Co. (b) 838,008 ____________ Road & Rail -- 1.0% 59,267 Avis Budget Group, Inc. (b) 922,195 ____________ Semiconductors & Semiconductor Equipment -- 12.0% 71,936 Atmel Corp. (b) 886,251 94,211 Brooks Automation, Inc. (b) 854,494 48,922 Cypress Semiconductor Corp. (b) 908,971 57,059 Fairchild Semiconductor International, Inc. (b) 890,691 16,887 Lam Research Corp. (b) 874,409 36,772 MKS Instruments, Inc. (b) 900,546 27,244 Novellus Systems, Inc. (b) 880,526 148,070 Photronics, Inc. (b) 875,094 116,132 RF Micro Devices, Inc. (b) 853,570 86,674 STMicroelectronics NV 904,877 27,437 Texas Instruments, Inc. 891,702 76,194 TriQuint Semiconductor, Inc. (b) 890,708 ____________ 10,611,839 ____________ Shares Description Value --------- --------------------------------- --------------- Specialty Retail -- 10.0% 13,376 Advance Auto Parts, Inc. $ 884,822 43,401 Collective Brands, Inc. (b) 915,761 23,660 Dick's Sporting Goods, Inc. (b) 887,250 22,809 DSW, Inc., Class A (b) 891,832 28,548 Limited Brands, Inc. 877,280 64,659 Pep Boys-Manny, Moe & Jack (The) 868,370 21,996 PetSmart, Inc. 875,881 82,874 Pier 1 Imports, Inc. (b) 870,177 61,354 Sally Beauty Holdings, Inc. (b) 891,474 51,146 Stage Stores, Inc. 886,872 ____________ 8,849,719 ____________ Textiles, Apparel & Luxury Goods -- 4.9% 10,457 Deckers Outdoor Corp. (b) 833,841 12,464 Fossil, Inc. (b) 878,463 13,685 Phillips-Van Heusen Corp. 862,292 35,551 Timberland (The) Co., Class A (b) 874,199 51,985 Unifi, Inc. (b) 880,106 ____________ 4,328,901 ____________ Trading Companies & Distributors -- 1.0% 39,103 United Rentals, Inc. (b) 889,593 ____________ Water Utilities -- 1.0% 34,963 American Water Works Co., Inc. 884,214 ____________ Wireless Telecommunication Services -- 1.0% 70,341 MetroPCS Communications, Inc. (b) 888,407 ____________ Total Investments -- 99.9% 88,349,892 (Cost $82,320,258) (d) Net Other Assets and Liabilities -- 0.1% 80,692 ____________ Net Assets -- 100.0% $ 88,430,584 ============ (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 $82,605,529. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,636,910 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $892,547. ADR- American Depositary Receipt See Notes to Financial Statements Page 75 First Trust Value Line(R) 100 Exchange-Traded Fund Portfolio of Investments (a) (Continued) December 31, 2010 ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 __________________________________________ Common Stocks* $88,349,892 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 76 See Notes to Financial Statements First Trust NASDAQ(R) ABA Community Bank Index Fund Portfolio of Investments (a) December 31, 2010 Shares Description Value --------- --------------------------------- --------------- Common Stocks -- 100.0% Commercial Banks -- 77.5% 2,376 Ameris Bancorp (b) $ 25,043 1,131 Arrow Financial Corp. 31,114 17,404 Associated Banc-Corp. 263,671 1,544 BancFirst Corp. 63,597 2,633 Bancorp (The), Inc. (b) 26,778 1,709 Bank of the Ozarks, Inc. 74,085 6,848 BOK Financial Corp. 365,683 7,691 Boston Private Financial Holdings, Inc. 50,376 2,892 Cardinal Financial Corp. 33,634 7,897 Cathay General Bancorp 131,880 4,013 Center Financial Corp. (b) 30,419 3,018 Centerstate Banks, Inc. 23,903 2,760 Chemical Financial Corp. 61,134 39,934 Citizens Republic Bancorp, Inc. (b) 24,559 1,558 City Holding Co. 56,446 3,955 Columbia Banking System, Inc. 83,292 8,763 Commerce Bancshares, Inc. 348,154 1,534 Community Trust Bancorp, Inc. 44,425 10,652 CVB Financial Corp. 92,353 2,105 Danvers Bancorp, Inc. 37,195 14,884 East West Bancorp, Inc. 290,982 880 First Citizens BancShares, Inc., Class A 166,364 1,794 First Community Bancshares, Inc. 26,802 5,838 First Financial Bancorp 107,886 2,097 First Financial Bankshares, Inc. 107,324 1,323 First Financial Corp. 46,490 1,540 First Interstate BancSystem, Inc., Class A 23,470 2,572 First Merchants Corp. 22,788 7,448 First Midwest Bancorp, Inc. 85,801 10,942 FirstMerit Corp. 216,542 20,008 Fulton Financial Corp. 206,883 7,232 Glacier Bancorp, Inc. 109,276 3,710 Hancock Holding Co. 129,331 2,860 Home Bancshares, Inc. 63,006 1,773 Hudson Valley Holding Corp. 43,900 2,703 IBERIABANK Corp. 159,828 2,132 Independent Bank Corp. 57,671 6,809 International Bancshares Corp. 136,384 11,406 Investors Bancorp, Inc. (b) 149,647 1,622 Lakeland Financial Corp. 34,808 5,426 MB Financial, Inc. 93,978 3,818 Nara Bancorp, Inc. (b) 37,493 13,741 National Penn Bancshares, Inc. 110,340 3,466 NBT Bancorp, Inc. 83,704 3,260 Pacific Capital Bancorp (b) 92,128 3,555 PacWest Bancorp 76,006 3,385 Pinnacle Financial Partners, Inc. (b) 45,968 7,179 PrivateBancorp, Inc. 103,234 4,693 Prosperity Bancshares, Inc. 184,341 2,518 Renasant Corp. 42,579 1,874 Republic Bancorp, Inc., Class A 44,508 2,801 S&T Bancorp, Inc. 63,275 Shares Description Value --------- --------------------------------- --------------- Commercial Banks (Continued) 1,379 S.Y. Bancorp, Inc. $ 33,854 2,414 Sandy Spring Bancorp, Inc. 44,490 1,286 SCBT Financial Corp. 42,117 4,135 Signature Bank (b) 206,750 1,733 Simmons First National Corp., Class A 49,391 1,571 Southside Bancshares, Inc. 33,101 1,950 Southwest Bancorp, Inc. 24,180 10,253 Sterling Bancshares, Inc. 71,976 6,218 Sterling Financial Corp. (b) 117,955 974 Suffolk Bancorp 24,038 13,053 Susquehanna Bancshares, Inc. 126,353 4,223 SVB Financial Group (b) 224,030 3,701 Texas Capital Bancshares, Inc. (b) 78,720 2,905 TowneBank 46,160 6,425 Trustmark Corp. 159,597 4,064 UMB Financial Corp. 168,331 11,519 Umpqua Holdings Corp. 140,301 4,385 United Bankshares, Inc. 128,042 1,626 Washington Trust Bancorp, Inc. 35,577 2,674 WesBanco, Inc. 50,699 9,699 West Coast Bancorp (b) 27,351 2,928 Westamerica Bancorporation 162,416 9,719 Whitney Holding Corp. 137,524 2,965 Wilshire Bancorp, Inc. 22,593 3,458 Wintrust Financial Corp. 114,218 17,897 Zions Bancorporation 433,644 ____________ 7,733,886 ____________ Thrifts & Mortgage Finance -- 22.5% 2,028 Abington Bancorp, Inc. 24,194 4,600 Bank Mutual Corp. 21,988 8,149 Beneficial Mutual Bancorp, Inc. (b) 71,956 1,413 Berkshire Hills Bancorp, Inc. 31,227 5,941 Brookline Bancorp, Inc. 64,460 16,845 Capitol Federal Financial, Inc. 200,624 3,478 Dime Community Bancshares, Inc. 50,744 21,029 First Niagara Financial Group, Inc. 293,985 3,141 Flushing Financial Corp. 43,974 11,144 Northwest Bancshares, Inc. 131,053 5,652 Oritani Financial Corp. 69,181 37,105 People's United Financial, Inc. 519,841 3,848 Provident New York Bancorp 40,366 1,230 Territorial Bancorp, Inc. 24,489 31,015 TFS Financial Corp. 279,755 7,757 TrustCo Bank Corp. NY 49,179 1,622 United Financial Bancorp, Inc. 24,768 3,504 ViewPoint Financial Group 40,962 11,316 Washington Federal, Inc. 191,467 2,844 Westfield Financial, Inc. 26,307 854 WSFS Financial Corp. 40,514 ____________ 2,241,034 ____________ See Notes to Financial Statements Page 77 First Trust NASDAQ(R) ABA Community Bank Index Fund Portfolio of Investments (a) (Continued) December 31, 2010 Description Value --------------------------------- --------------- Total Investments -- 100.0% (Cost $9,605,494) (c) $ 9,974,920 Net Other Assets and Liabilities -- 0.0% 3,854 ____________ Net Assets -- 100.0% $ 9,978,774 ============ (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 $9,628,715. As of December 31, 2010, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $506,130 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $159,925. ____________________ Valuation Inputs A summary of the inputs used to value the Fund's investments as of December 31, 2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs Investments Level 1 Level 2 Level 3 _________________________________________ Common Stocks* $ 9,974,920 $ -- $ -- ========================================= * See Portfolio of Investments for industry breakout. Page 78 See Notes to Financial Statements This page intentionally left blank. Page 79 First Trust Exchange-Traded Fund Statements of Assets and Liabilities December 31, 2010
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................................................... $ 152,912,434 $ 143,162,791 $ 15,272,297 Cash................................................................... 56,456 37,452 65,725 Receivables: Capital shares sold.............................................. -- 2,390,950 -- Investment securities sold....................................... 465,436 -- -- Dividends........................................................ 184,306 316,025 21,141 Interest......................................................... -- -- -- From investment advisor.......................................... -- -- 1,385 Reclaims......................................................... -- -- -- Prepaid expenses....................................................... 2,602 3,772 508 ______________ ______________ _____________ Total Assets..................................................... 153,621,234 145,910,990 15,361,056 ______________ ______________ _____________ LIABILITIES: Due to Custodian....................................................... -- -- -- Payables: Capital shares purchased......................................... -- -- -- Investment securities purchased.................................. 467,189 2,506,595 -- Investment advisory fees......................................... 26,961 24,820 -- Audit and tax fees............................................... 24,749 24,749 24,749 Printing fees.................................................... 12,373 11,200 1,207 Licensing fees................................................... 9,213 24,999 50,001 Other liabilities...................................................... 30,599 24,845 2,574 ______________ ______________ _____________ Total Liabilities................................................ 571,084 2,617,208 78,531 ______________ ______________ _____________ NET ASSETS............................................................. $ 153,050,150 $ 143,293,782 15,282,525 ============== ============== ============= NET ASSETS consist of: Paid-in capital........................................................ $ 146,182,378 $ 166,297,264 $ 18,907,123 Par value.............................................................. 69,050 90,000 6,500 Accumulated net investment income (loss)............................... 31,467 -- 13,751 Accumulated net realized gain (loss) on investments.................... (12,106,918) (34,758,916) (5,426,693) Net unrealized appreciation (depreciation) on investments.............. 18,874,173 11,665,434 1,781,844 ______________ ______________ _____________ NET ASSETS............................................................. $ 153,050,150 $ 143,293,782 $ 15,282,525 ============== ============== ============= NET ASSET VALUE, per share............................................. $ 22.17 $ 15.92 $ 23.51 ============== ============== ============= Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 6,905,000 9,000,002 650,002 ============== ============== ============= Investments at cost.................................................... $ 134,038,261 $ 131,497,357 $ 13,490,453 ============== ============== =============
Page 80 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- NYSE Arca Dow Jones Strategic Value Line(R) Equity Equal Weighted Technology Sector Biotechnology Internet Value Allocation Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund ________________ ___________________ _______________ _________________ ______________ ____________________ $ 76,011,383 $ 453,437,749 $ 201,200,661 $ 589,861,420 $ 36,605,761 $ 7,123,860 1,953 329,761 93,606 -- 36,396 -- 2,384,909 2,580,939 -- -- -- -- -- -- 2,065,588 -- -- -- 23,128 -- -- -- 43,513 8,474 -- -- -- 5 -- -- -- -- -- -- -- 1,993 -- -- -- -- 768 528 2,392 9,117 6,679 9,709 1,729 312 ____________ _____________ _____________ _____________ _____________ _____________ 78,423,765 456,357,566 203,366,534 589,871,134 36,688,167 7,135,167 ____________ _____________ _____________ _____________ _____________ _____________ -- -- -- 15,480 -- -- -- -- 1,966,689 -- -- -- 2,387,027 2,580,556 -- -- -- -- 22,935 125,156 69,928 79,814 14,082 -- 24,749 24,749 24,749 24,749 24,749 24,749 5,716 35,736 16,418 47,343 2,919 571 16,670 92,439 35,654 114,255 9,076 2,618 11,487 83,430 33,229 109,914 4,611 1,577 ____________ _____________ _____________ _____________ _____________ _____________ 2,468,584 2,942,066 2,146,667 391,555 55,437 29,515 ____________ _____________ _____________ _____________ _____________ _____________ $ 75,955,181 $ 453,415,500 $ 201,219,867 $ 589,479,579 $ 36,632,730 $ 7,105,652 ============ ============= ============= ============= ============= ============= $ 76,631,959 $ 414,144,896 $ 195,048,811 $ 522,067,470 $ 58,772,977 $ 11,043,085 32,000 176,500 51,500 172,000 16,000 3,500 89,275 -- -- -- -- -- (7,987,377) (7,790,299) (20,886,560) (11,286,691) (25,465,430) (4,985,179) 7,189,324 46,884,403 27,006,116 78,526,800 3,309,183 1,044,246 ____________ _____________ _____________ _____________ _____________ _____________ $ 75,955,181 $ 453,415,500 $ 201,219,867 $ 589,479,579 $ 36,632,730 $ 7,105,652 ============ ============= ============= ============= ============= ============= $ 23.74 $ 25.69 $ 39.07 $ 34.27 $ 22.90 $ 20.30 ============ ============= ============= ============= ============= ============= 3,200,002 17,650,002 5,150,002 17,200,002 1,600,002 350,002 ============ ============= ============= ============= ============= ============= $ 68,822,059 $ 406,553,346 $ 174,194,545 $ 511,334,620 $ 33,296,578 $ 6,079,614 ============ ============= ============= ============= ============= =============
See Notes to Financial Statements Page 81 First Trust Exchange-Traded Fund Statements of Assets and Liabilities (Continued) December 31, 2010
First Trust First Trust First Trust NASDAQ(R) Value Line(R) NASDAQ-100 Clean Edge(R) Dividend Ex-Technology Sector Green Energy Index Fund Index(SM) Fund Index Fund ________________ ____________________ _______________ ASSETS: Investments at value................................................... $ 218,421,033 $ 22,177,789 $ 36,115,206 Cash................................................................... -- -- 43,996 Receivables: Capital shares sold.............................................. -- -- -- Investment securities sold....................................... 13,313,415 -- -- Dividends........................................................ 495,442 11,996 12,831 Interest......................................................... -- -- -- From investment advisor.......................................... -- -- -- Reclaims......................................................... 17,251 -- 120 Prepaid expenses....................................................... 7,831 815 1,713 ______________ _______________ _____________ Total Assets..................................................... 232,254,972 22,190,600 36,173,866 ______________ _______________ _____________ LIABILITIES: Due to Custodian....................................................... 100,667 -- -- Payables: Capital shares purchased......................................... 8,312,666 -- -- Investment securities purchased.................................. 5,085,997 -- -- Investment advisory fees......................................... 70,446 2,626 12,123 Audit and tax fees............................................... 24,749 24,749 24,749 Printing fees.................................................... 40,045 1,784 2,888 Licensing fees................................................... 78,325 5,074 9,115 Other liabilities...................................................... 32,485 5,050 5,003 ______________ _______________ _____________ Total Liabilities................................................ 13,745,380 39,283 53,878 ______________ _______________ _____________ NET ASSETS............................................................. $ 218,509,592 $ 22,151,317 $ 36,119,988 ============== =============== ============= NET ASSETS consist of: Paid-in capital........................................................ $ 239,357,787 $ 21,727,420 $ 55,880,815 Par value.............................................................. 144,880 10,500 22,000 Accumulated net investment income (loss)............................... -- 16,623 -- Accumulated net realized gain (loss) on investments.................... (55,497,515) (1,673,654) (23,386,573) Net unrealized appreciation (depreciation) on investments.............. 34,504,440 2,070,428 3,603,746 ______________ _______________ _____________ NET ASSETS............................................................. $ 218,509,592 $ 22,151,317 $ 36,119,988 ============== =============== ============= NET ASSET VALUE, per share............................................. $ 15.08 $ 21.10 $ 16.42 ============== =============== ============= Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) 14,487,986 1,050,002 2,200,002 ============== =============== ============= Investments at cost.................................................... $ 183,916,593 $ 20,107,361 $ 32,511,460 ============== =============== =============
Page 82 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ(R) ABA S&P ISE ISE-Revere ISE Value Line(R) 100 Community REIT Water Natural Gas Chindia Exchange-Traded Bank Index Fund Index Fund Index Fund Index Fund Fund Index Fund ________________ ______________ _______________ _______________ ___________________ ________________ $ 70,934,699 $ 53,070,437 $ 397,150,781 $ 176,361,156 $ 88,349,892 $ 9,974,920 -- -- -- 519,720 132,597 27,104 -- -- -- -- -- -- -- -- -- -- 35,232,201 -- 278,213 104,917 123,340 -- 61,086 9,522 3 3 5 -- -- -- -- -- -- -- -- 905 -- 1,066 -- -- 1,115 -- 11,067 2,046 20,589 6,366 2,992 5,428 ______________ ____________ _____________ _____________ _____________ _____________ 71,223,982 53,178,469 397,294,715 176,887,242 123,779,883 10,017,879 ______________ ____________ _____________ _____________ _____________ _____________ 17,742 7,110 11,685 -- -- -- -- -- -- -- 16,283,082 -- 81,544 -- -- 366,251 18,962,409 9,903 15,667 18,768 196,441 70,633 30,584 -- 24,748 24,749 24,749 24,749 24,749 24,749 5,581 4,200 30,872 13,864 7,104 682 -- 5,905 92,756 35,438 29,791 1,558 12,848 7,098 44,777 24,484 11,580 2,213 ______________ ____________ _____________ _____________ _____________ _____________ 158,130 67,830 401,280 535,419 35,349,299 39,105 ______________ ____________ _____________ _____________ _____________ _____________ $ 71,065,852 $ 53,110,639 $ 396,893,435 $ 176,351,823 $ 88,430,584 $ 9,978,774 ============== ============ ============= ============= ============= ============= $ 64,809,541 $ 58,717,897 $ 427,460,006 $ 186,434,062 $ 161,805,934 $ 9,762,250 48,500 24,000 202,500 70,500 65,400 4,000 217,284 89,624 -- 707 4,512 2,200 (637,622) (10,707,312) (82,775,387) (36,467,071) (79,474,896) (159,102) 6,628,149 4,986,430 52,006,316 26,313,625 6,029,634 369,426 ______________ ____________ _____________ _____________ _____________ _____________ $ 71,065,852 $ 53,110,639 $ 396,893,435 $ 176,351,823 $ 88,430,584 $ 9,978,774 ============== ============ ============= ============= ============= ============= $ 14.65 $ 22.13 $ 19.60 $ 25.01 $ 13.52 $ 24.95 ============== ============ ============= ============= ============= ============= 4,850,002 2,400,002 20,250,002 7,050,002 6,539,982 400,002 ============== ============ ============= ============= ============= ============= $ 64,306,550 $ 48,084,007 $ 345,144,465 $ 150,047,531 $ 82,320,258 $ 9,605,494 ============== ============ ============= ============= ============= =============
See Notes to Financial Statements Page 83 First Trust Exchange-Traded Fund Statements of Operations For the Year Ended December 31, 2010
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........................................................ $ 818,697 $ 3,223,861 $ 217,766 Foreign tax withholding.......................................... (160) -- (303) Interest......................................................... -- -- -- ________________ ______________ _______________ Total investment income....................................... 818,537 3,223,861 217,463 ________________ ______________ _______________ EXPENSES: Investment advisory fees......................................... 266,043 207,010 46,346 Licensing fees................................................... 34,213 99,999 50,001 Accounting and administration fees............................... 31,689 37,302 8,618 Legal fees....................................................... 27,734 27,413 4,549 Audit and tax fees............................................... 24,764 24,764 24,764 Printing fees.................................................... 20,155 18,344 4,217 Registration and filing fees..................................... 12,636 8,689 226 Custodian fees................................................... 9,014 10,268 2,017 Listing fees..................................................... 8,371 8,371 8,371 Transfer agent fees.............................................. 2,660 3,450 579 Trustees' fees and expenses...................................... 1,250 1,511 251 Other expenses................................................... 8,690 10,673 2,937 ________________ ______________ _______________ Total expenses................................................ 447,219 457,794 152,876 Less fees waived and expenses reimbursed by the investment advisor......................................... (127,967) (147,279) (83,357) ________________ ______________ _______________ Net expenses.................................................. 319,252 310,515 69,519 ________________ ______________ _______________ NET INVESTMENT INCOME (LOSS)..................................... 499,285 2,913,346 147,944 ________________ ______________ _______________ REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... (5,521,691) (1,835,870) (529,130) In-kind redemptions........................................... 3,092,608 3,297,325 1,213,721 Foreign currency transactions................................. -- -- -- ________________ ______________ _______________ Net realized gain (loss)......................................... (2,429,083) 1,461,455 684,591 Net change in unrealized appreciation (depreciation) on investments ............................................... 18,873,114 8,079,545 1,446,294 ________________ ______________ _______________ NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 16,444,031 9,541,000 2,130,885 ________________ ______________ _______________ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 16,943,316 $ 12,454,346 $ 2,278,829 ================ ============== ===============
Page 84 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- NYSE Arca Dow Jones 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 _________________ __________________ ___________________ ________________ _________________ ____________________ $ 765,485 $ 2,844,802 $ -- $ 2,158,732 $ 910,568 $ 157,075 (6,509) -- -- -- (576) (2,495) -- -- -- 34 -- 7 _____________ ______________ _________________ ______________ _______________ _______________ 758,976 2,844,802 -- 2,158,766 909,992 154,587 _____________ ______________ _________________ ______________ _______________ _______________ 217,698 866,873 595,834 1,001,867 204,041 38,930 54,430 216,725 119,167 161,911 40,808 12,303 30,037 110,254 76,122 127,175 22,404 7,479 23,330 96,488 61,876 109,178 19,139 3,062 24,764 24,764 24,764 24,734 24,764 24,764 14,904 66,262 42,998 82,727 9,220 2,880 2,668 33,269 10,268 43,864 154 -- 8,936 32,303 20,835 36,772 6,170 1,994 17,848 20,188 8,371 8,371 10,871 8,371 2,721 10,836 7,448 12,523 2,040 389 1,184 4,683 3,523 5,408 886 182 7,819 23,804 18,154 28,122 8,468 4,536 _____________ ______________ _________________ ______________ _______________ _______________ 406,339 1,506,449 989,360 1,642,652 348,965 104,890 (79,793) (206,140) (95,610) (139,852) (83,712) (50,388) _____________ ______________ _________________ ______________ _______________ _______________ 326,546 1,300,309 893,750 1,502,800 265,253 54,502 _____________ ______________ _________________ ______________ _______________ _______________ 432,430 1,544,493 (893,750) 655,966 644,739 100,085 _____________ ______________ _________________ ______________ _______________ _______________ (814,254) (3,723,917) (14,812,232) (3,829,374) (1,870,584) 21,316 8,058,511 20,395,545 29,871,060 28,817,338 8,749,134 1,124,413 -- -- -- -- -- -- _____________ ______________ _________________ ______________ _______________ _______________ 7,244,257 16,671,628 15,058,828 24,987,964 6,878,550 1,145,729 2,165,178 37,101,460 25,834,919 64,467,650 (2,858,232) (99,602) _____________ ______________ _________________ ______________ _______________ _______________ 9,409,435 53,773,088 40,893,747 89,455,614 4,020,318 1,046,127 _____________ ______________ _________________ ______________ _______________ _______________ $ 9,841,865 $ 55,317,581 $ 39,999,997 $ 90,111,580 $ 4,665,057 $ 1,146,212 ============= ============== ================= ============== =============== ===============
See Notes to Financial Statements Page 85 First Trust Exchange-Traded Fund Statements of Operations (Continued) For the Year Ended December 31, 2010
First Trust First Trust First Trust NASDAQ(R) Value Line(R) NASDAQ-100 Clean Edge(R) Dividend Ex-Technology Sector Green Energy Index Fund Index(SM) Fund Index Fund _______________ ______________________ _______________ INVESTMENT INCOME: Dividends........................................................ $ 6,279,689 $ 278,809 $ 194,812 Foreign tax withholding.......................................... (115,184) (3,302) (158) Interest......................................................... -- 8 -- ______________ _______________ _____________ Total investment income....................................... 6,164,505 275,515 194,654 ______________ _______________ _____________ EXPENSES: Investment advisory fees......................................... 845,851 67,973 147,754 Licensing fees................................................... 258,053 16,993 36,938 Accounting and administration fees............................... 88,215 10,766 20,575 Legal fees....................................................... 68,764 7,285 14,794 Audit and tax fees............................................... 24,764 24,764 24,764 Printing fees.................................................... 53,333 6,753 10,028 Registration and filing fees..................................... 4,835 1,657 62 Custodian fees................................................... 22,614 2,935 5,130 Listing fees..................................................... 8,371 16,230 18,548 Transfer agent fees.............................................. 8,458 849 1,847 Trustees' fees and expenses...................................... 3,761 385 792 Other expenses................................................... 26,134 3,138 6,687 ______________ _______________ _____________ Total expenses................................................ 1,413,153 159,728 287,919 Less fees waived and expenses reimbursed by the investment advisor.......................................... (228,962) (57,769) (66,287) ______________ _______________ _____________ Net expenses.................................................. 1,184,191 101,959 221,632 ______________ _______________ _____________ NET INVESTMENT INCOME (LOSS)..................................... 4,980,314 173,556 (26,978) ______________ _______________ _____________ REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... (1,805,690) (317,823) (3,496,932) In-kind redemptions........................................... 9,816,900 1,915,261 3,368,775 Foreign currency transactions................................. -- -- -- ______________ _______________ _____________ Net realized gain (loss)......................................... 8,011,210 1,597,438 (128,157) Net change in unrealized appreciation (depreciation) on investments................................................. 13,888,773 1,230,277 633,094 ______________ _______________ _____________ NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 21,899,983 2,827,715 504,937 ______________ _______________ _____________ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 26,880,297 $ 3,001,271 $ 477,959 ============== =============== =============
Page 86 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust NASDAQ(R) ABA S&P ISE ISE-Revere ISE Value Line(R) 100 Community REIT Water Natural Gas Chindia Exchange-Traded Bank Index Fund Index Fund Index Fund Index Fund Fund Index Fund _______________ ________________ ___________________ ________________ _________________ _________________ $ 1,634,837 $ 677,798 $ 3,576,104 $ 2,069,361 $ 444,763 $ 160,478 -- (18,393) (337,199) (125,007) (4,722) -- 9 39 137 -- -- -- _____________ ______________ _______________ ______________ _______________ _______________ 1,634,846 659,444 3,239,042 1,944,354 440,041 160,478 _____________ ______________ _______________ ______________ _______________ _______________ 158,039 169,586 1,646,522 580,008 311,092 32,025 75,000 21,198 411,631 116,002 99,446 7,205 29,207 23,080 209,224 74,577 33,934 6,859 24,354 17,862 163,432 60,413 25,598 3,763 24,764 24,764 24,734 24,764 24,764 24,764 17,616 12,391 77,142 33,839 14,421 3,707 4,577 752 4,996 4,693 1,216 341 8,991 5,792 55,162 19,965 8,683 1,673 8,371 8,371 10,871 8,371 8,376 10,898 2,634 2,120 20,582 7,250 3,111 400 1,207 935 8,896 3,231 1,357 181 7,653 6,879 48,641 20,465 11,157 1,021 _____________ ______________ _______________ ______________ _______________ _______________ 362,413 293,730 2,681,833 953,578 543,155 92,837 (99,014) (39,351) (212,049) (83,567) (107,626) (44,800) _____________ ______________ _______________ ______________ _______________ _______________ 263,399 254,379 2,469,784 870,011 435,529 48,037 _____________ ______________ _______________ ______________ _______________ _______________ 1,371,447 405,065 769,258 1,074,343 4,512 112,441 _____________ ______________ _______________ ______________ _______________ _______________ (409,036) (2,831,974) (46,141,984) (10,139,316) 4,440,299 (136,602) 5,249,084 2,761,688 66,821,501 13,767,019 13,713,636 379,256 -- -- 1,171 -- -- -- _____________ ______________ _______________ ______________ _______________ _______________ 4,840,048 (70,286) 20,680,688 3,627,703 18,153,935 242,654 4,804,142 7,533,201 2,466,035 14,801,653 (1,728,785) 1,511 _____________ ______________ _______________ ______________ _______________ _______________ 9,644,190 7,462,915 23,146,723 18,429,356 16,425,150 244,165 _____________ ______________ _______________ ______________ _______________ _______________ $ 11,015,637 $ 7,867,980 $ 23,915,981 $ 19,503,699 $ 16,429,662 $ 356,606 ============= ============== =============== ============== =============== ===============
See Notes to Financial Statements Page 87 First Trust Exchange-Traded Fund Statements of Changes in Net Assets
First Trust First Trust Dow Jones Select Morningstar(R) MicroCap Dividend Leaders(SM) Index(SM) Fund Index Fund _______________________________________ _______________________________________ For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2009 _________________ _________________ _________________ _________________ OPERATIONS: Net investment income (loss)................... $ 499,285 $ 99,591 $ 2,913,346 $ 1,863,995 Net realized gain (loss)....................... (2,429,083) (3,260,012) 1,461,455 (15,104,759) Net change in unrealized appreciation (depreciation)................................ 18,873,114 6,256,604 8,079,545 18,721,051 ______________ ______________ _____________ ______________ Net increase (decrease) in net assets resulting from operations............................. 16,943,316 3,096,183 12,454,346 5,480,287 ______________ ______________ _____________ ______________ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (470,895) (95,349) (2,936,478) (1,912,571) Return of capital.............................. -- (3,442) (25,193) -- ______________ ______________ _____________ ______________ Total distributions to shareholders............ (470,895) (98,791) (2,961,671) (1,912,571) ______________ ______________ _____________ ______________ SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 137,291,718 1,604,570 99,924,591 3,229,577 Cost of shares redeemed........................ (19,392,644) -- (14,628,087) (1,488,733) ______________ ______________ _____________ ______________ Net increase (decrease) in net assets resulting from shareholder transactions............... 117,899,074 1,604,570 85,296,504 1,740,844 ______________ ______________ _____________ ______________ Total increase (decrease) in net assets........ 134,371,495 4,601,962 94,789,179 5,308,560 NET ASSETS: Beginning of period............................ 18,678,655 14,076,693 48,504,603 43,196,043 ______________ ______________ _____________ ______________ End of period.................................. $ 153,050,150 $ 18,678,655 $ 143,293,782 $ 48,504,603 ============== ============== ============= ============== Accumulated net investment income (loss) at end of period.......................... $ 31,467 $ -- $ -- $ 23,132 ============== ============== ============= ============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period........ 1,055,000 955,000 3,400,002 3,300,002 Shares sold.................................... 6,900,000 100,000 6,600,000 250,000 Shares redeemed................................ (1,050,000) -- (1,000,000) (150,000) ______________ ______________ _____________ ______________ Shares outstanding, end of period.............. 6,905,000 1,055,000 9,000,002 3,400,002 ============== ============== ============= ==============
Page 88 See Notes to Financial Statements
First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ-100- NYSE Arca US IPO Equal Weighted Technology Sector Biotechnology Index Fund Index(SM) Fund Index(SM) Fund Index Fund ________________________________ _______________________________ ________________________________ ______________________________ For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2010 2009 2010 2009 2010 2009 2010 2009 _______________ ______________ ______________ _______________ ______________ ______________ ______________ _______________ $ 147,944 $ 326,659 $ 432,430 $ 84,474 $ 1,544,493 $ 47,396 $ (893,750) $ (366,386) 684,591 (2,107,191) 7,244,257 (2,559,856) 16,671,628 (1,248,014) 15,058,828 6,436,819 1,446,294 5,263,706 2,165,178 13,318,318 37,101,460 17,103,466 25,834,919 15,981,380 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 2,278,829 3,483,174 9,841,865 10,842,936 55,317,581 15,902,848 39,999,997 22,051,813 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ (134,485) (177,486) (346,700) (81,000) (1,556,425) (47,396) -- -- -- -- -- -- -- (4,284) -- -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ (134,485) (177,486) (346,700) (81,000) (1,556,425) (51,680) -- -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 5,506,758 2,399,386 63,221,332 22,078,917 417,327,774 68,935,710 196,944,891 25,101,247 (3,411,585) (3,115,834) (37,130,166) (7,320,031) (104,439,045) (7,434,859) (102,793,389) (39,181,567) ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 2,095,173 (716,448) 26,091,166 14,758,886 312,888,729 61,500,851 94,151,502 (14,080,320) ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 4,239,517 2,589,240 35,586,331 25,520,822 366,649,885 77,352,019 134,151,499 7,971,493 11,043,008 8,453,768 40,368,850 14,848,028 86,765,615 9,413,596 67,068,368 59,096,875 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ $ 15,282,525 $ 11,043,008 $ 75,955,181 $ 40,368,850 $453,415,500 $ 86,765,615 $201,219,867 $ 67,068,368 ============ ============ ============ ============= ============ ============ ============ ============ $ 13,751 $ 147,960 $ 89,275 $ 3,474 $ -- $ -- $ -- $ -- ============ ============ ============ ============= ============ ============ ============ ============ 550,002 600,002 2,050,002 1,200,002 4,100,002 800,002 2,350,002 3,000,002 250,000 200,000 2,950,000 1,250,000 18,300,000 3,700,000 5,850,000 950,000 (150,000) (250,000) (1,800,000) (400,000) (4,750,000) (400,000) (3,050,000) (1,600,000) ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 650,002 550,002 3,200,002 2,050,002 17,650,002 4,100,002 5,150,002 2,350,002 ============ ============ ============ ============= ============ ============ ============ ============
See Notes to Financial Statements Page 89 First Trust Exchange-Traded Fund Statements of Changes in Net Assets (Continued)
First Trust First Trust Dow Jones Internet 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, 2010 December 31, 2009 December 31, 2010 December 31, 2009 _________________ _________________ _________________ _________________ OPERATIONS: Net investment income (loss)................ $ 655,966 $ (165,911) $ 644,739 $ 612,384 Net realized gain (loss).................... 24,987,964 (6,700,895) 6,878,550 (3,359,390) Net change in unrealized appreciation (depreciation) 64,467,650 27,167,822 (2,858,232) 16,222,958 ______________ ______________ _____________ ______________ Net increase (decrease) in net assets resulting from operations............................. 90,111,580 20,301,016 4,665,057 13,475,952 ______________ ______________ _____________ ______________ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (659,835) -- (657,855) (615,441) Return of capital.............................. -- -- (7,885) -- ______________ ______________ _____________ ______________ Total distributions to shareholders............ (659,835) -- (665,740) (615,441) ______________ ______________ _____________ ______________ SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 517,361,186 55,632,202 52,387,882 36,080,112 Cost of shares redeemed........................ (103,947,961) (4,027,094) (70,918,017) (33,539,545) ______________ ______________ _____________ ______________ Net increase (decrease) in net assets resulting from shareholder transactions............... 413,413,225 51,605,108 (18,530,135) 2,540,567 ______________ ______________ _____________ ______________ Total increase (decrease) in net assets........ 502,864,970 71,906,124 (14,530,818) 15,401,078 NET ASSETS: Beginning of period............................ 86,614,609 14,708,485 51,163,548 35,762,470 ______________ ______________ _____________ ______________ End of period.................................. $ 589,479,579 $ 86,614,609 $ 36,632,730 $ 51,163,548 ============== ============== ============= ============== Accumulated net investment income (loss) at end of period........................ $ -- $ -- $ -- $ 13,083 ============== ============== ============= ============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period........ 3,450,002 1,050,002 2,500,002 2,400,002 Shares sold.................................... 17,650,000 2,650,000 2,500,000 2,100,000 Shares redeemed................................ (3,900,000) (250,000) (3,400,000) (2,000,000) ______________ ______________ _____________ ______________ Shares outstanding, end of period.............. 17,200,002 3,450,002 1,600,002 2,500,002 ============== ============== ============= ==============
Page 90 See Notes to Financial Statements
First Trust First Trust First Trust First Trust NASDAQ-100 NASDAQ(R) Value Line(R) Equity Allocation Value Line(R) Dividend Ex-Technology Sector Clean Edge(R) Green Energy Index Fund Index Fund Index(SM) Fund Index Fund ________________________________ _______________________________ ________________________________ _______________________________ For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2010 2009 2010 2009 2010 2009 2010 2009 _______________ ______________ ______________ _______________ ______________ ______________ ______________ _______________ $ 100,085 $ 71,945 $ 4,980,314 $ 4,171,920 $ 173,556 $ 33,018 $ (26,978) $ (42,039) 1,145,729 (1,566,547) 8,011,210 (19,463,309) 1,597,438 (274,109) (128,157) (15,488,353) (99,602) 3,266,470 13,888,773 40,298,153 1,230,277 2,513,932 633,094 28,253,714 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 1,146,212 1,771,868 26,880,297 25,006,764 3,001,271 2,272,841 477,959 12,723,322 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ (102,971) (70,920) (5,061,937) (4,139,046) (158,610) (31,380) -- -- -- -- (65,937) -- -- -- -- -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ (102,971) (70,920) (5,127,874) (4,139,046) (158,610) (31,380) -- -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 7,037,546 2,778,637 75,819,232 23,235,060 16,507,613 4,857,161 1,526,157 12,111,351 (7,860,408) (3,434,999) (32,679,842) (5,887,786) (7,777,681) (3,751,861) (9,333,154) (4,889,964) ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ (822,862) (656,362) 43,139,390 17,347,274 8,729,932 1,105,300 (7,806,997) 7,221,387 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 220,379 1,044,586 64,891,813 38,214,992 11,572,593 3,346,761 (7,329,038) 19,944,709 6,885,273 5,840,687 153,617,779 115,402,787 10,578,724 7,231,963 43,449,026 23,504,317 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ $ 7,105,652 $ 6,885,273 $218,509,592 $153,617,779 $ 22,151,317 $ 10,578,724 $ 36,119,988 $ 43,449,026 ============ ============ ============ ============= ============ ============ ============ ============ $ -- $ 1,603 $ -- $ 81,266 $ 16,623 $ 1,638 $ -- $ -- ============ ============ ============ ============= ============ ============ ============ ============ 400,002 450,002 11,487,986 9,987,986 600,002 600,002 2,700,002 2,100,002 400,000 200,000 5,250,000 2,050,000 850,000 300,000 100,000 950,000 (450,000) (250,000) (2,250,000) (550,000) (400,000) (300,000) (600,000) (350,000) ____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________ 350,002 400,002 14,487,986 11,487,986 1,050,002 600,002 2,200,002 2,700,002 ============ ============ ============ ============= ============ ============ ============ ============
See Notes to Financial Statements Page 91 First Trust Exchange-Traded Fund Statements of Changes in Net Assets (Continued)
First Trust S&P First Trust REIT ISE Water Index Fund Index Fund _______________________________________ _______________________________________ For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2009 _________________ _________________ _________________ _________________ OPERATIONS: Net investment income (loss)................... $ 1,371,447 $ 250,761 $ 405,065 $ 398,192 Net realized gain (loss)....................... 4,840,048 (1,510,091) (70,286) (5,300,995) Net change in unrealized appreciation (depreciation) 4,804,142 3,426,166 7,533,201 10,860,501 ______________ ______________ _____________ ______________ Net increase (decrease) in net assets resulting from operations............................. 11,015,637 2,166,836 7,867,980 5,957,698 ______________ ______________ _____________ ______________ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (1,400,636) (251,687) (319,290) (394,615) Return of capital.............................. -- (22,048) -- -- ______________ ______________ _____________ ______________ Total distributions to shareholders............ (1,400,636) (273,735) (319,290) (394,615) ______________ ______________ _____________ ______________ SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 66,628,620 16,004,640 17,153,891 5,354,182 Cost of shares redeemed........................ (26,264,803) (1,997,981) (8,905,590) (5,760,858) ______________ ______________ _____________ ______________ Net increase (decrease) in net assets resulting from shareholder transactions............... 40,363,817 14,006,659 8,248,301 (406,676) ______________ ______________ _____________ ______________ Total increase (decrease) in net assets........ 49,978,818 15,899,760 15,796,991 5,156,407 NET ASSETS: Beginning of period............................ 21,087,034 5,187,274 37,313,648 32,157,241 ______________ ______________ _____________ ______________ End of period.................................. $ 71,065,852 $ 21,087,034 $ 53,110,639 $ 37,313,648 ============== ============== ============= ============== Accumulated net investment income (loss) at end of period............................ $ 217,284 $ -- $ 89,624 $ 3,849 ============== ============== ============= ============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period........ 1,800,002 550,002 2,000,002 2,050,002 Shares sold.................................... 5,050,000 1,550,000 850,000 350,000 Shares redeemed................................ (2,000,000) (300,000) (450,000) (400,000) ______________ ______________ _____________ ______________ Shares outstanding, end of period.............. 4,850,002 1,800,002 2,400,002 2,000,002 ============== ============== ============= ============== (a) Inception date.
Page 92 See Notes to Financial Statements
First Trust First Trust ISE-Revere First Trust First Trust NASDAQ(R) ABA Natural Gas ISE Chindia Value Line(R) 100 Community Bank Index Fund Index Fund Exchange-Traded Fund Index Fund ________________________________ _______________________________ ________________________________ _______________________________ For the Period For the Year For the Year For the Year For the Year For the Year For the Year For the Year June 29, 2009 (a) Ended Ended Ended Ended Ended Ended Ended through December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2010 2009 2010 2009 2010 2009 2010 2009 _______________ ______________ ______________ _______________ ______________ ______________ ____________ _________________ $ 769,258 $ 877,559 $ 1,074,343 $ 393,226 $ 4,512 $ (51,697) $ 112,441 $ 41,248 20,680,688 (16,133,113) 3,627,703 (7,886,218) 18,153,935 (4,969,496) 242,654 (53,829) 2,466,035 77,981,940 14,801,653 44,375,061 (1,728,785) 11,828,826 1,511 367,915 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ 23,915,981 62,726,386 19,503,699 36,882,069 16,429,662 6,807,633 356,606 355,334 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ (1,172,607) (942,177) (1,073,636) (393,226) -- -- (114,106) (37,500) (54,408) (15,658) -- (149) -- -- -- -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ (1,227,015) (957,835) (1,073,636) (393,375) -- -- (114,106) (37,500) ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ 441,554,686 430,438,876 91,212,949 53,606,608 81,283,340 6,573,698 8,559,196 5,285,767 (531,689,123) (65,047,038) (53,531,101) (5,792,265) (69,715,177) (28,773,841) (4,426,523) -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ (90,134,437) 365,391,838 37,681,848 47,814,343 11,568,163 (22,200,143) 4,132,673 5,285,767 ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ (67,445,471) 427,160,389 56,111,911 84,303,037 27,997,825 (15,392,510) 4,375,173 5,603,601 464,338,906 37,178,517 120,239,912 35,936,875 60,432,759 75,825,269 5,603,601 -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ $396,893,435 $464,338,906 $176,351,823 $120,239,912 $ 88,430,584 $ 60,432,759 $ 9,978,774 $ 5,603,601 ============ ============ ============ ============ ============ ============ ============ ============== $ -- $ -- $ 707 $ -- $ 4,512 $ -- $ 2,200 $ 3,748 ============ ============ ============ ============ ============ ============ ============ ============== 26,500,002 3,150,002 5,650,002 3,050,002 5,789,982 8,189,982 250,002 -- 24,500,000 27,350,000 3,950,000 2,950,000 6,350,000 700,000 350,000 250,002 (30,750,000) (4,000,000) (2,550,000) (350,000) (5,600,000) (3,100,000) (200,000) -- ____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________ 20,250,002 26,500,002 7,050,002 5,650,002 6,539,982 5,789,982 400,002 250,002 ============ ============ ============ ============ ============ ============ ============ ==============
See Notes to Financial Statements Page 93 First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust Dow Jones Select MicroCap Index(SM) Fund For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 17.70 $ 14.74 $ 22.35 $ 23.92 $ 20.73 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.09 0.09 0.17 0.16 0.06 (b) Net realized and unrealized gain (loss) 4.46 2.97 (7.60) (1.60) 3.19 (b) __________ __________ __________ __________ __________ Total from investment operations 4.55 3.06 (7.43) (1.44) 3.25 __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.08) (0.10) (0.17) (0.13) (0.06) Return of capital -- (0.00) (f) (0.01) -- -- __________ __________ __________ __________ __________ Total distributions (0.08) (0.10) (0.18) (0.13) (0.06) __________ __________ __________ __________ __________ Net asset value, end of period $ 22.17 $ 17.70 $ 14.74 $ 22.35 $ 23.92 ========== ========== ========== ========== ========== TOTAL RETURN (c) 25.77% 20.85% (33.33)% (6.02)% 15.69% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $153,050 $ 18,679 $ 14,077 $ 17,993 $ 16,865 Ratios to average net assets: Ratio of total expenses to average net assets 0.86% 0.94% 1.05% 1.35% 1.18% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.94% 0.69% 0.79% 0.58% 0.24% Portfolio turnover rate (e) 86% 86% 85% 11% 20% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund For the Period For the For the For the For the March 9, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 14.27 $ 13.09 $ 20.20 $ 23.51 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.57 0.56 0.83 0.92 0.59 (b) Net realized and unrealized gain (loss) 1.66 1.19 (7.13) (3.35) 3.52 (b) __________ __________ __________ __________ __________ Total from investment operations 2.23 1.75 (6.30) (2.43) 4.11 __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.58) (0.57) (0.81) (0.88) (0.60) Return of capital (0.00) (f) -- -- -- -- __________ __________ __________ __________ __________ Total distributions (0.58) (0.57) (0.81) (0.88) (0.60) __________ __________ __________ __________ __________ Net asset value, end of period $ 15.92 $ 14.27 $ 13.09 $ 20.20 $ 23.51 ========== ========== ========== ========== ========== TOTAL RETURN (c) 16.05% 14.24% (31.71)% (10.64)% 20.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $143,294 $ 48,505 $ 43,196 $ 64,650 $ 75,237 Ratios to average net assets: Ratio of total expenses to average net assets 0.66% 0.79% 0.72% 0.68% 0.99% (d) Ratio of net expenses to average net assets 0.45% 0.45% 0.45% 0.45% 0.45% (d) Ratio of net investment income (loss) to average net assets 4.22% 4.64% 5.07% 3.87% 3.55% (d) Portfolio turnover rate (e) 30% 81% 56% 9% 9% (a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share.
Page 94 See Notes to Financial Statements First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust US IPO Index Fund For the Period For the For the For the For the April 12, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 20.08 $ 14.09 $ 25.36 $ 22.20 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.20 0.59 0.15 0.05 0.01 (b) Net realized and unrealized gain (loss) 3.45 5.72 (11.27) 3.17 2.19 (b) __________ __________ __________ __________ __________ Total from investment operations 3.65 6.31 (11.12) 3.22 2.20 __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.22) (0.32) (0.14) (0.06) -- Return of capital -- -- (0.01) -- -- __________ __________ __________ __________ __________ Total distributions (0.22) (0.32) (0.15) (0.06) -- __________ __________ __________ __________ __________ Net asset value, end of period $ 23.51 $ 20.08 $ 14.09 $ 25.36 $ 22.20 ========== ========== ========== ========== ========== TOTAL RETURN (c) 18.28% 44.93% (43.88)% 14.53% 11.00% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 15,283 $ 11,043 $ 8,454 $ 26,633 $ 19,981 Ratios to average net assets: Ratio of total expenses to average net assets 1.32% 1.34% 1.02% 1.06% 1.44% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 1.28% 3.59% 0.50% 0.24% 0.07% (d) Portfolio turnover rate (e) 43% 30% 62% 11% 26% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund For the Period For the For the For the For the April 19, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 19.69 $ 12.37 $ 22.08 $ 20.12 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.15 0.05 0.00 (f) (0.02) (0.01) (b) Net realized and unrealized gain (loss) 4.02 7.32 (9.70) 1.98 0.13 (b) __________ __________ __________ __________ __________ Total from investment operations 4.17 7.37 (9.70) 1.96 0.12 __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.12) (0.05) (0.00) (f) -- -- Return of capital -- -- (0.01) -- -- __________ __________ __________ __________ __________ Total distributions (0.12) (0.05) (0.01) -- -- __________ __________ __________ __________ __________ Net asset value, end of period $ 23.74 $ 19.69 $ 12.37 $ 22.08 $ 20.12 ========== ========== ========== ========== ========== TOTAL RETURN (c) 21.25% 59.54% (43.96)% 9.74% 0.60% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 75,955 $ 40,369 $ 14,848 $ 30,911 $ 26,158 Ratios to average net assets: Ratio of total expenses to average net assets 0.75% 0.67% 0.88% 0.95% 1.31% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.79% 0.35% 0.01% (0.08)% (0.07)% (d) Portfolio turnover rate (e) 24% 36% 39% 15% 1% (a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestmenof all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share.
See Notes to Financial Statements Page 95 First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust NASDAQ-100-Technology Sector Index(SM) Fund For the Period For the For the For the For the April 19, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 21.16 $ 11.77 $ 21.50 $ 19.97 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.10 0.01 -- (0.03) (0.03)(b) Net realized and unrealized gain (loss) 4.53 9.39 (9.73) 1.56 0.00 (b)(f) __________ __________ __________ __________ __________ Total from investment operations 4.63 9.40 (9.73) 1.53 (0.03) __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.10) (0.01) -- -- -- Return of capital -- (0.00)(f) -- -- -- __________ __________ __________ __________ __________ Total distributions (0.10) (0.01) -- -- -- __________ __________ __________ __________ __________ Net asset value, end of period $ 25.69 $ 21.16 $ 11.77 $ 21.50 $ 19.97 ========== ========== ========== ========== ========== TOTAL RETURN (c) 21.92% 79.89% (45.26)% 7.66% (0.15)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 453,416 $ 86,766 $ 9,414 $ 23,652 $ 27,960 Ratios to average net assets: Ratio of total expenses to average net assets 0.70% 0.67% 0.88% 0.92% 1.37% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.71% 0.16% (0.01)% (0.16)% (0.20)% (d) Portfolio turnover rate (e) 26% 35% 33% 10% 7% First Trust NYSE Arca Biotechnology Index Fund For the Period For the For the For the For the April 19, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 28.54 $ 19.70 $ 24.41 $ 23.55 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) (0.17) (0.16) 0.18 (0.10) (0.07)(b) Net realized and unrealized gain (loss) 10.70 9.00 (4.62) 0.96 3.62 (b) __________ __________ __________ __________ __________ Total from investment operations 10.53 8.84 (4.44) 0.86 3.55 __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income -- -- (0.18) -- -- Return of capital -- -- (0.09) -- -- __________ __________ __________ __________ __________ Total distributions -- -- (0.27) -- -- __________ __________ __________ __________ __________ Net asset value, end of period $ 39.07 $ 28.54 $ 19.70 $ 24.41 $ 23.55 ========== ========== ========== ========== ========== TOTAL RETURN (c) 36.90% 44.87% (18.33)% 3.65% 17.75% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 201,220 $ 67,068 $ 59,097 $ 73,241 $ 29,438 Ratios to average net assets: Ratio of total expenses to average net assets 0.66% 0.72% 0.72% 0.73% 1.22% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets (0.60)% (0.60)% 0.67% (0.60)% (0.60)% (d) Portfolio turnover rate (e) 35% 44% 38% 11% 4% (a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestmenof all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share.
Page 96 See Notes to Financial Statements First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust Dow Jones Internet Index(SM) Fund For the Period For the For the For the For the June 19, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 25.11 $ 14.01 $ 25.09 $ 22.57 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.04 (0.05) 0.05 (0.16) (0.07)(b) Net realized and unrealized gain (loss) 9.16 11.15 (11.08) 2.68 2.64 (b) __________ __________ __________ __________ __________ Total from investment operations 9.20 11.10 (11.03) 2.52 2.57 __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.04) -- (0.05) -- -- Return of capital -- -- (0.00) (f) -- -- __________ __________ __________ __________ __________ Total distributions (0.04) -- (0.05) -- -- __________ __________ __________ __________ __________ Net asset value, end of period $ 34.27 $ 25.11 $ 14.01 $ 25.09 $ 22.57 ========== ========== ========== ========== ========== TOTAL RETURN (c) 36.63% 79.23% (44.02)% 11.17% 12.85% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 589,480 $ 86,615 $ 14,708 $ 36,386 $ 25,953 Ratios to average net assets: Ratio of total expenses to average net assets 0.66% 0.73% 0.82% 0.70% 1.24% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.26% (0.46)% 0.21% (0.42)% (0.55)% (d) Portfolio turnover rate (e) 16% 35% 44% 6% 4% First Trust Strategic Value Index Fund For the Period For the For the For the For the July 6, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 20.47 $ 14.90 $ 24.12 $ 22.06 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.39 0.28 0.28 0.20 0.12 (b) Net realized and unrealized gain (loss) 2.44 5.57 (9.22) 2.07 2.03 (b) __________ __________ __________ __________ __________ Total from investment operations 2.83 5.85 (8.94) 2.27 2.15 __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.40) (0.28) (0.28) (0.21) (0.09) Return of capital (0.00) (f) -- -- -- -- __________ __________ __________ __________ __________ Total distributions (0.40) (0.28) (0.28) (0.21) (0.09) __________ __________ __________ __________ __________ Net asset value, end of period $ 22.90 $ 20.47 $ 14.90 $ 24.12 $ 22.06 ========== ========== ========== ========== ========== TOTAL RETURN (c) 14.04% 39.43% (37.23)% 10.26% 10.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 36,633 $ 51,164 $ 35,762 $ 61,518 $ 17,650 Ratios to average net assets: Ratio of total expenses to average net assets 0.86% 0.87% 0.72% 1.12% 2.59% (d) Ratio of net expenses to average net assets 0.65% 0.65% 0.65% 0.65% 0.65% (d) Ratio of net investment income (loss) to average net assets 1.58% 1.57% 1.31% 1.09% 1.29% (d) Portfolio turnover rate (e) 197% 171% 157% 10% 4% (a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestmenof all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (f) Amount represents less than $0.01 per share.
See Notes to Financial Statements Page 97 First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust Value Line(R) Equity Allocation Index Fund For the Period For the For the For the For the December 5, 2006 (a) Year Ended Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006 _________________ _________________ _________________ _________________ _________________ Net asset value, beginning of period $ 17.21 $ 12.98 $ 20.45 $ 19.78 $ 20.00 __________ __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.29 0.18 0.25 0.24 0.03 (b) Net realized and unrealized gain (loss) 3.09 4.23 (7.47) 0.68 (0.25)(b) __________ __________ __________ __________ __________ Total from investment operations 3.38 4.41 (7.22) 0.92 (0.22) __________ __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.29) (0.18) (0.25) (0.25) -- __________ __________ __________ __________ __________ Net asset value, end of period $ 20.30 $ 17.21 $ 12.98 $ 20.45 $ 19.78 ========== ========== ========== ========== ========== TOTAL RETURN (c) 19.85% 34.15% (35.45)% 4.65% (1.10)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 7,106 $ 6,885 $ 5,841 $ 13,291 $ 18,793 Ratios to average net assets: Ratio of total expenses to average net assets 1.35% 1.24% 1.14% 1.36% 3.25% (d) Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% (d) Ratio of net investment income (loss) to average net assets 1.29% 1.24% 1.29% 1.04% 1.82% (d) Portfolio turnover rate (e) 205% 191% 120% 43% 1% (a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestmenof all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
Page 98 See Notes to Financial Statements First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust Value Line(R) Dividend Index Fund For the Period For the For the For the For the June 1, 2006 For the Year Ended Year Ended Year Ended Year Ended through Year Ended December 31, December 31, December 31, December 31, December 31, May 31, 2010 2009 2008 2007 2006 (a) 2006 (a) ______________ ______________ ______________ ______________ ______________ ____________ Net asset value, beginning of period $ 13.37 $ 11.55 $ 15.75 $ 16.77 $ 16.55 $ 17.24 __________ __________ __________ __________ __________ _________ Income from investment operations: Net investment income (loss) 0.41 (b) 0.38 0.45 0.44 0.24 (b) 0.43 Net realized and unrealized gain (loss) 1.71 1.82 (4.20) (0.99) 2.10 (b) 1.00 __________ __________ __________ __________ __________ _________ Total from investment operation 2.12 2.20 (3.75) (0.55) 2.34 1.43 __________ __________ __________ __________ __________ _________ Distributions paid to shareholders from: Net investment income (0.40) (0.38) (0.45) (0.47) (0.63) (0.42) Net realized gains -- -- -- -- (1.49) (1.70) Return of capital (0.01) -- -- -- -- -- __________ __________ __________ __________ __________ _________ Total distributions to shareholders (0.41) (0.38) (0.45) (0.47) (2.12) (2.12) __________ __________ __________ __________ __________ _________ Net asset value, end of period $ 15.08 $ 13.37 $ 11.55 $ 15.75 $ 16.77 $ 16.55 ========== ========== ========== ========== ========== ========= TOTAL RETURN, BASED ON NET ASSET VALUE 16.08% (d) 19.58% (d) (24.17)% (d) (3.42)% (d) 14.70% (d)(h) 10.26% (c) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 218,510 $ 153,618 $ 115,403 $ 180,153 $ 451,642 $ 536,258 Ratios to average net assets: Ratio of total expenses to average net assets 0.84% 0.80% 0.84% 0.85% 0.94% (e) 0.93% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.93% (e)(g) 0.93% Ratio of net investment income (loss) to average net assets 2.94% 3.30% 3.20% 2.37% 2.36% (e) 2.51% Portfolio turnover rate (f) 55% 101% 109% 5% 28% 58%
(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) 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 returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (e) Annualized. (f) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (g) 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. (h) Prior to December 18, 2006, total return based on net asset value assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of First Trust Value Line(R) Dividend Fund. See Reorganization History below. Reorganization History: _______________________ First Trust Value Line(R) Dividend Fund (the "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 Amex) on Friday, December 15, 2006 and FVD began trading on the AMEX on Monday, December 18, 2006 (effective November 6, 2008, FVD began trading on NYSE Arca), under the ticker symbol "FVD," the same ticker symbol used by the Predecessor FVD Fund. The assets of the Predecessor FVD Fund were transferred to, and the liabilities of the Predecessor FVD fund were assumed by, FVD in exchange for shares of FVD on a one share for one share basis based upon the net asset value ("NAV") of the Predecessor FVD Fund on Friday, December 15, 2006. FVD shares have been distributed to the Predecessor FVD Fund shareholders, on a tax-free basis for federal income tax purposes, and the Predecessor FVD Fund has been terminated. The historical results of the Predecessor FVD Fund survive for financial reporting purposes. See Notes to Financial Statements Page 99 First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund For the Period For the For the For the February 8, 2007 (a) Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 ___________________ ___________________ ___________________ ____________________ Net asset value, beginning of period $ 17.63 $ 12.05 $ 21.19 $ 20.00 __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.17 0.05 0.01 (0.01) Net realized and unrealized gain (loss) 3.46 5.58 (9.14) 1.20 __________ __________ __________ __________ Total from investment operations 3.63 5.63 (9.13) 1.19 __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.16) (0.05) (0.01) -- Return of capital -- (0.00) (e) (0.00) (e) -- __________ __________ __________ __________ Total distributions (0.16) (0.05) (0.01) -- __________ __________ __________ __________ Net asset value, end of period $ 21.10 $ 17.63 $ 12.05 $ 21.19 ========== ========== ========== ========== TOTAL RETURN (b) 20.64% 46.74% (43.09)% 5.95% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 22,151 $ 10,579 $ 7,232 $ 2,119 Ratios to average net assets: Ratio of total expenses to average net assets 0.94% 1.28% 1.86% 2.61% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 1.02% 0.48% 0.03% (0.04)% (c) Portfolio turnover rate (d) 19% 43% 67% 27% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund For the Period For the For the For the February 8, 2007 (a) Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 ___________________ ___________________ ___________________ ____________________ Net asset value, beginning of period $ 16.09 $ 11.19 $ 30.86 $ 20.00 __________ __________ __________ __________ Income from investment operations: Net investment income (loss) (0.01) (0.02) (0.04) (0.04) Net realized and unrealized gain (loss) 0.34 4.92 (19.63) 10.90 __________ __________ __________ __________ Total from investment operations 0.33 4.90 (19.67) 10.86 __________ __________ __________ __________ Net asset value, end of period $ 16.42 $ 16.09 $ 11.19 $ 30.86 ========== ========== ========== ========== TOTAL RETURN (b) 2.05% 43.79% (63.74)% 54.30% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 36,120 $ 43,449 $ 23,504 $ 50,913 Ratios to average net assets: Ratio of total expenses to average net assets 0.78% 0.81% 0.83% 1.00% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets (0.07)% (0.12)% (0.21)% (0.33)% (c) Portfolio turnover rate (d) 22% 40% 32% 4% (a) Inception date. (b) Total return based on net asset value is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (e) Amount represents less than $0.01 per share.
Page 100 See Notes to Financial Statements First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period First Trust S&P REIT Index Fund
For the Period For the For the For the May 8, 2007 (a) Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 ___________________ ___________________ ___________________ ____________________ Net asset value, beginning of period $ 11.72 $ 9.43 $ 15.81 $ 20.00 __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.29 0.25 0.31 0.32 (b) Net realized and unrealized gain (loss) 2.94 2.31 (6.38) (4.13) (b) __________ __________ __________ __________ Total from investment operations 3.23 2.56 (6.07) (3.81) __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.30) (0.25) (0.31) (0.38) Return of capital -- (0.02) -- -- __________ __________ __________ __________ Total distributions (0.30) (0.27) (0.31) (0.38) __________ __________ __________ __________ Net asset value, end of period $ 14.65 $ 11.72 $ 9.43 $ 15.81 ========== ========== ========== ========== TOTAL RETURN (c) 27.73% 28.00% (38.87)% (19.08)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 71,066 $ 21,087 $ 5,187 $ 1,581 Ratios to average net assets: Ratio of total expenses to average net assets 0.69% 1.95% 5.30% 8.41% (d) Ratio of net expenses to average net assets 0.50% 0.50% 0.50% 0.50% (d) Ratio of net investment income (loss) to average net assets 2.60% 3.39% 3.40% 2.73% (d) Portfolio turnover rate (e) 16% 13% 20% 25% First Trust ISE Water Index Fund For the Period For the For the For the May 8, 2007 (a) Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 ___________________ ___________________ ___________________ ____________________ Net asset value, beginning of period $ 18.66 $ 15.69 $ 22.38 $ 20.00 __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.18 0.19 0.12 0.04 Net realized and unrealized gain (loss) 3.43 2.97 (6.69) 2.38 __________ __________ __________ __________ Total from investment operations 3.61 3.16 (6.57) 2.42 __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.14) (0.19) (0.12) (0.04) __________ __________ __________ __________ Net asset value, end of period $ 22.13 $ 18.66 $ 15.69 $ 22.38 ========== ========== ========== ========== TOTAL RETURN (c) 19.49% 20.29% (29.40)% 12.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 53,111 $ 37,314 $ 32,157 $ 12,310 Ratios to average net assets: Ratio of total expenses to average net assets 0.69% 0.72% 0.77% 1.68% (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 0.96% 1.20% 0.76% 0.46% (d) Portfolio turnover rate (e) 38% 44% 45% 3% (a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return based on net asset value is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (d) Annualized. (e) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
See Notes to Financial Statements Page 101 First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust ISE-Revere Natural Gas Index Fund For the Period For the For the For the May 8, 2007 (a) Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 ___________________ ___________________ ___________________ ____________________ Net asset value, beginning of period $ 17.52 $ 11.80 $ 22.31 $ 20.00 __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.03 0.07 0.14 0.03 Net realized and unrealized gain (loss) 2.10 5.72 (10.51) 2.30 __________ __________ __________ __________ Total from investment operations 2.13 5.79 (10.37) 2.33 __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.05) (0.07) (0.14) (0.02) Return of capital (0.00) (e) (0.00) (e) -- -- __________ __________ __________ __________ Total distributions (0.05) (0.07) (0.14) (0.02) __________ __________ __________ __________ Net asset value, end of period $ 19.60 $ 17.52 $ 11.80 $ 22.31 ========== ========== ========== ========== TOTAL RETURN (b) 12.22% 49.21% (46.57)% 11.67% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 396,893 $ 464,339 $ 37,179 $ 11,157 Ratios to average net assets: Ratio of total expenses to average net assets 0.65% 0.72% 0.77% 2.36% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 0.19% 0.53% 0.77% 0.32% (c) Portfolio turnover rate (d) 93% 71% 116% 5% First Trust ISE Chindia Index Fund For the Period For the For the For the May 8, 2007 (a) Year Ended Year Ended Year Ended through December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 ___________________ ___________________ ___________________ ____________________ Net asset value, beginning of period $ 21.28 $ 11.78 $ 27.73 $ 20.00 __________ __________ __________ __________ Income from investment operations: Net investment income (loss) 0.17 0.09 0.17 0.02 Net realized and unrealized gain (loss) 3.73 9.50 (15.92) 7.73 __________ __________ __________ __________ Total from investment operations 3.90 9.59 (15.75) 7.75 __________ __________ __________ __________ Distributions paid to shareholders from: Net investment income (0.17) (0.09) (0.20) (0.02) Return of capital -- (0.00) (e) (0.00) (e) -- __________ __________ __________ __________ Total distributions (0.17) (0.09) (0.20) (0.02) __________ __________ __________ __________ Net asset value, end of period $ 25.01 $ 21.28 $ 11.78 $ 27.73 ========== ========== ========== ========== TOTAL RETURN (b) 18.46% 81.58% (56.98)% 38.73% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 176,352 $ 120,240 $ 35,937 $ 104,004 Ratios to average net assets: Ratio of total expenses to average net assets 0.66% 0.73% 0.73% 0.82% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 0.74% 0.58% 0.90% 0.17% (c) Portfolio turnover rate (d) 34% 47% 39% 2% (a) Inception date. (b) Total return based on net asset value is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (e) Amount represents less than $0.01 per share.
Page 102 See Notes to Financial Statements First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust Value Line(R) 100 Exchange-Traded Fund For the For the For the For the For the Year Ended Year Ended Year Ended Year Ended Year Ended December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007(a) December 31, 2006(a) _________________ _________________ _________________ ____________________ ____________________ Net asset value, beginning of period $ 10.44 $ 9.26 $ 17.91 $ 15.89 $ 17.16 ___________ ___________ ___________ ___________ ___________ Income from investment operations: Net investment income (loss) 0.00 (g) (0.01) (0.02) 1.02 (0.07) Net realized and unrealized gain (loss) 3.08 1.19 (8.63) 2.06 0.68 ___________ ___________ ___________ ___________ ___________ Total from investment operations 3.08 1.18 (8.65) 3.08 0.61 ___________ ___________ ___________ ___________ ___________ Distributions paid to shareholders from: Net realized gains -- -- -- (1.06) (1.88) ___________ ___________ ___________ ___________ ___________ Net asset value, end of period $ 13.52 $ 10.44 $ 9.26 $ 17.91 $ 15.89 =========== =========== =========== =========== =========== TOTAL RETURN, BASED ON NET ASSET VALUE 29.50% (c) 12.74% (c) (48.30)% (c) 19.91% (c) (f) 4.59% (b) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 88,431 $ 60,433 $ 75,825 $ 204,913 $ 277,902 Ratios to average net assets: Ratio of total expenses to average net assets 0.87% 0.85% 0.86% 0.89% 0.97% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.83% (e) 0.97% Ratio of net investment income (loss) to average net assets 0.01% (0.08)% (0.11)% (0.21)% (0.40)% Portfolio turnover rate (d) 266% 235% 251% 111% 234% (a) The Fund commenced operations on June 12, 2003. Results for periods prior to June 18, 2007 are of First Trust Value Line(R) 100 Fund. See Reorganization History below. (b) Total return based on net asset value is the combination of reinvested dividend distributions and reinvested capital gains distributions, if any, at prices obtained by the Dividend Reinvestment Plan and changes in net asset value per share and does not reflect sales load. (c) Total return based on net asset value is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived or expenses reimbursed by the investment advisor. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (e) The annualized expense ratio is capped at 0.70%. This ratio of 0.83% includes expenses for a portion of the period prior to the reorganization of the First Trust Value Line(R) 100 Fund. (f) Prior to June 18, 2007, total return based on net asset value assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of First Trust Value Line(R) 100 Fund. See Reorganization History below. (g) Amount represents less than $0.01 per share. 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 Amex) on Friday, June 15, 2007 and FVL began trading on the AMEX on Monday, June 18, 2007 (effective November 6, 2008, FVL began trading on NYSE Arca), under the ticker symbol "FVL," the same ticker symbol used by the Predecessor FVL Fund. The assets of the Predecessor FVL Fund were transferred to, and the liabilities of the Predecessor FVL Fund were assumed by, FVL in exchange for shares of FVL on a one share for one share basis based upon the net asset value ("NAV") of the Predecessor FVL Fund on Friday, June 15, 2007. FVL shares have been distributed to the Predecessor FVL Fund shareholders, on a tax-free basis for federal income tax purposes, and the Predecessor FVL Fund has been terminated. The historical results of the Predecessor FVL Fund survive for financial reporting purposes.
See Notes to Financial Statements Page 103 First Trust Exchange-Traded Fund Financial Highlights For a Share outstanding throughout each period
First Trust NASDAQ(R) ABA Community Bank Index Fund For the Period For the June 29, 2009 (a) Year Ended through December 31, 2010 December 31, 2009 ____________________ ___________________ Net asset value, beginning of period $ 22.41 $ 20.00 __________ __________ Income from investment operations: Net investment income (loss) 0.30 0.16 Net realized and unrealized gain (loss) 2.55 2.40 __________ __________ Total from investment operations 2.85 2.56 __________ __________ Distributions paid to shareholders from: Net investment income (0.31) (0.15) __________ __________ Net asset value, end of period $ 24.95 $ 22.41 ========== ========== TOTAL RETURN (b) 12.77% 12.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 9,979 $ 5,604 Ratios to average net assets: Ratio of total expenses to average net assets 1.16% 2.67% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 1.40% 1.92% (c) Portfolio turnover rate (d) 26% 15% (a) Inception date. (b) Total return based on net asset value is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total returns calculated for a period of less than one year are not annualized. The total returns would have been lower if certain fees had not been waived or expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
Page 104 See Notes to Financial Statements -------------------------------------------------------------------------------- Notes to Financial Statements -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 1. Organization First Trust Exchange-Traded Fund (the "Trust") is an open-end management investment company organized as a Massachusetts business trust on August 8, 2003, and is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"). The Trust currently consists of eighteen exchange-traded funds: First Trust Dow Jones Select MicroCap Index(SM) Fund - (NYSE Arca, Inc. ticker "FDM") First Trust Morningstar(R) Dividend Leaders(SM) Index Fund - (NYSE Arca, Inc. ticker "FDL") First Trust US IPO Index Fund - (NYSE Arca, Inc. ticker "FPX") First Trust NASDAQ-100 Equal Weighted Index(SM) Fund - (NASDAQ ticker "QQEW") First Trust NASDAQ-100-Technology Sector Index(SM) Fund - (NASDAQ ticker "QTEC") First Trust NYSE Arca Biotechnology Index Fund - (NYSE Arca, Inc. ticker "FBT") First Trust Dow Jones Internet Index(SM) Fund - (NYSE Arca, Inc. ticker "FDN") First Trust Strategic Value Index Fund(1) - (NYSE Arca, Inc. ticker "FDV") First Trust Value Line(R) Equity Allocation Index Fund - (NYSE Arca, Inc. ticker "FVI") First Trust Value Line(R) Dividend Index Fund - (NYSE Arca, Inc. ticker "FVD") First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund - (NASDAQ ticker "QQXT") First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (NASDAQ ticker "QCLN") First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ticker "FRI") First Trust ISE Water Index Fund - (NYSE Arca, Inc. ticker "FIW") First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca, Inc. ticker "FCG") First Trust ISE Chindia Index Fund - (NYSE Arca, Inc. ticker "FNI") First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca, Inc. ticker "FVL") First Trust NASDAQ(R) ABA Community Bank Index Fund - (NASDAQ ticker "QABA") (1) Formerly First Trust DB Strategic Value Index Fund. Each fund represents a separate series of beneficial interest in the Trust (each a "Fund" and collectively, the "Funds"). Each Fund's shares are listed and traded on NYSE Arca, Inc. ("NYSE Arca") except for the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund, the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, and the First Trust NASDAQ(R) ABA Community Bank Index Fund, which are listed and traded on The NASDAQ Stock Market, Inc. ("NASDAQ(R)"). Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value ("NAV"), only in large specified blocks consisting of 50,000 shares called a "Creation Unit." Creation Units are issued and redeemed principally in-kind for securities included in a Fund's relevant index. Except when aggregated in Creation Units, shares are not redeemable securities of a Fund. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices:
Fund Index First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones Select MicroCap Index(SM) First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar(R) Dividend Leaders(SM) Index First Trust US IPO Index Fund IPOX-100 U.S. Index First Trust NASDAQ-100 Equal Weighted Index(SM) Fund NASDAQ-100 Equal Weighted Index(SM) First Trust NASDAQ-100-Technology Sector Index(SM) Fund NASDAQ-100 Technology Sector Index(SM) First Trust NYSE Arca Biotechnology Index Fund NYSE Arca Biotechnology Index(SM) First Trust Dow Jones Internet Index(SM) Fund Dow Jones Internet Composite Index(SM) First Trust Strategic Value Index Fund Credit Suisse U.S. Value Index, Powered by HOLT(TM) (2) First Trust Value Line(R) Equity Allocation Index Fund Value Line(R) Equity Allocation Index First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund NASDAQ-100 Ex-Tech Sector Index(SM) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index First Trust S&P REIT Index Fund S&P United States REIT Index First Trust ISE Water Index Fund ISE Water Index(TM) First Trust ISE-Revere Natural Gas Index Fund ISE-REVERE Natural Gas Index(TM) First Trust ISE Chindia Index Fund ISE ChIndia Index(TM) First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM)
(2) Effective June 18, 2010, the Fund's underlying index was changed from the Deutsche Bank CROCI(R) US+ Index(TM). Page 105 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 2. Significant Accounting Policies The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the financial statements. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. Portfolio Valuation Each Fund's NAV is determined daily as of the close of regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day the NYSE is open for trading. The NAV is calculated by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of shares outstanding. Each Fund's investments are valued at market value or, in the absence of market value with respect to any portfolio securities, at fair value in accordance with valuation procedures adopted by the Trust's Board of Trustees and in accordance with the 1940 Act. Portfolio securities listed on any exchange other than NASDAQ(R) or the London Stock Exchange Alternative Investment Market ("AIM") are valued at the last sale price on the business day as of which such value is being determined. Securities listed on the NASDAQ(R) 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(R) or the AIM, the securities are valued at the mean of the most recent bid and asked prices on such day. Portfolio securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Portfolio securities traded in the over-the-counter market, but excluding securities trading on the NASDAQ(R) or the AIM, are valued at the closing bid prices. Short-term investments that mature in less than 60 days when purchased are valued at amortized cost. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Board of Trustees or its delegate at fair value. The use of fair value pricing by each Fund is governed by valuation procedures adopted by the Board of Trustees and is in accordance with the provisions of the 1940 Act. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security's "fair value." As a general principle, the current "fair value" of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. The use of fair value prices by a Fund generally results in prices used by the Fund that may differ from current market quotations or official closing prices on the applicable exchange. A variety of factors may be considered in determining the fair value of such securities. In addition, the use of fair value prices and certain current market quotations or official closing prices could result in a difference between the prices used to calculate a Fund's NAV and the prices used by such Fund's corresponding index, which, in turn, could result in a difference between a Fund's performance and the performance of its underlying index. The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical securities. An active market is a market in which transactions for the security occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: - Quoted prices for similar securities in active markets. - Quoted prices for identical or similar securities in markets that are non-active. A non-active market is a market where there are few transactions for the security, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. - Inputs other than quoted prices that are observable for the security (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). - Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the security. Page 106 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 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, 2010, is included with each Fund's Portfolio of Investments. B. Securities Transactions and Investment Income Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Distributions received from a Fund's investments in publicly-traded master limited partnerships ("MLPs") generally are comprised of return of capital from the MLP to the extent of the cost basis of such MLP investments. Cumulative distributions received in excess of the Fund's cost basis in an MLP generally are recorded as capital gain. Distributions received from a Fund's investments in real estate investment trusts ("REITs") are comprised of return of capital, capital gains and income. The actual character of the amounts received during the year are not known until after the fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. A Fund's characterization may be subsequently revised based on information received from the 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 year ended December 31, 2010 was as follows:
Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital ____________________ ________________ _________________ First Trust Dow Jones Select MicroCap Index(SM) Fund $ 470,895 $ -- $ -- First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 2,936,478 -- 25,193 First Trust US IPO Index Fund 134,485 -- -- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 346,700 -- -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,556,425 -- -- First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund 659,835 -- -- First Trust Strategic Value Index Fund 657,855 -- 7,885 First Trust Value Line(R) Equity Allocation Index Fund 102,971 -- -- First Trust Value Line(R) Dividend Index Fund 5,061,937 -- 65,937 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 158,610 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- -- First Trust S&P REIT Index Fund 1,400,636 -- -- First Trust ISE Water Index Fund 319,290 -- -- First Trust ISE-Revere Natural Gas Index Fund 1,172,607 -- 54,408 First Trust ISE Chindia Index Fund 1,073,636 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund -- -- -- First Trust NASDAQ(R) ABA Community Bank Index Fund 114,106 -- --
Page 107 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 The tax character of distributions paid by each Fund during the period ended December 31, 2009 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 $ 95,349 $ -- $ 3,442 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 1,912,571 -- -- First Trust US IPO Index Fund 177,486 -- -- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 81,000 -- -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 47,396 -- 4,284 First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund -- -- -- First Trust Strategic Value Index Fund 615,441 -- -- First Trust Value Line(R) Equity Allocation Index Fund 70,920 -- -- First Trust Value Line(R) Dividend Index Fund 4,139,046 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 31,380 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- -- First Trust S&P REIT Index Fund 251,687 -- 22,048 First Trust ISE Water Index Fund 394,615 -- -- First Trust ISE-Revere Natural Gas Index Fund 942,177 -- 15,658 First Trust ISE Chindia Index Fund 393,226 -- 149 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- -- First Trust NASDAQ(R) ABA Community Bank Index Fund 37,500 -- --
As of December 31, 2010, the components of distributable earnings on a tax basis for each Fund were as follows:
Accumulated Undistributed Capital and Net Unrealized Ordinary Other Appreciation Income Gain (Loss) (Depreciation) ______________________________________________________________ First Trust Dow Jones Select MicroCap Index(SM) Fund $ 31,467 $ (11,718,537) $ 18,485,792 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- (32,721,457) 9,627,975 First Trust US IPO Index Fund 13,751 (5,016,584) 1,371,735 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 89,275 (6,781,991) 5,983,938 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (3,789,937) 42,884,041 First Trust NYSE Arca Biotechnology Index Fund -- (8,887,768) 15,007,324 First Trust Dow Jones Internet Index(SM) Fund -- (7,459,820) 74,699,929 First Trust Strategic Value Index Fund -- (25,033,653) 2,877,406 First Trust Value Line(R) Equity Allocation Index Fund -- (4,982,428) 1,041,495 First Trust Value Line(R) Dividend Index Fund -- (46,469,038) 25,475,963 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 16,623 (1,333,128) 1,729,902 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (17,943,475) (1,839,352) First Trust S&P REIT Index Fund -- -- 6,207,811 First Trust ISE Water Index Fund 89,624 (8,320,883) 2,600,001 First Trust ISE-Revere Natural Gas Index Fund -- (79,885,311) 49,116,240 First Trust ISE Chindia Index Fund 707 (33,473,581) 23,320,135 First Trust Value Line(R) 100 Exchange-Traded Fund 4,512 (79,189,625) 5,744,363 First Trust NASDAQ(R) ABA Community Bank Index Fund 2,200 (135,881) 346,205
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. Page 108 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 The Funds are subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ended 2007, 2008, 2009, and 2010 remain open to federal and state audit. As of December 31, 2010, management has evaluated the application of these standards to the Funds, and has determined that no provision for income tax is required in the Funds' financial statements for uncertain tax positions. At December 31, 2010 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 Capital Capital Capital Capital Capital Loss Loss Loss Loss Loss Loss Total Available Available Available Available Available Available Capital Through Through Through Through Through Through Loss 2013 2014 2015 2016 2017 2018 Available ___________ ___________ ___________ ___________ ___________ ___________ ___________ First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $1,604,481 $ 910,503 $ 902,807 $ 3,227,616 $ 5,073,130 $11,718,537 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 52,755 202,279 198,670 14,962,284 16,831,977 473,492 32,721,457 First Trust US IPO Index Fund -- 303,759 740,683 2,682,788 1,127,563 64,368 4,919,161 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- -- 55,981 1,957,170 4,681,103 -- 6,694,254 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- -- 351,362 1,421,664 2,016,911 -- 3,789,937 First Trust NYSE Arca Biotechnology Index Fund -- -- -- 2,061,136 5,787,577 1,039,054 8,887,767 First Trust Dow Jones Internet Index(SM) Fund -- -- -- 6,295,854 1,163,966 -- 7,459,820 First Trust Strategic Value Index Fund -- 45,432 831,336 11,401,861 11,336,270 1,372,099 24,986,998 First Trust Value Line(R) Equity Allocation Index Fund -- -- 1,393,265 1,168,041 2,421,122 -- 4,982,428 First Trust Value Line(R) Dividend Index Fund -- -- 4,488,019 21,855,796 19,646,203 441,093 46,431,111 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- 7,779 143,597 1,051,894 80,899 1,284,169 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- 141,332 4,246,707 7,483,633 5,884,801 17,756,473 First Trust S&P REIT Index Fund -- -- -- -- -- -- -- First Trust ISE Water Index Fund -- -- 592 318,246 5,768,328 2,198,674 8,285,840 First Trust ISE-Revere Natural Gas Index Fund -- -- 5,274 7,264,703 32,569,413 40,045,921 79,885,311 First Trust ISE Chindia Index Fund -- -- -- 11,116,593 11,686,955 7,245,147 30,048,695 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- 1,905,863 47,805,834 29,477,928 -- 79,189,625 First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- -- -- 4,787 116,604 121,391
During the taxable year ended December 31, 2010, the Funds utilized capital loss carryforwards in the following amounts:
Capital Loss Carryforward Utilized __________________________________ First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 230,582 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 279,729 First Trust Dow Jones Internet Index(SM) Fund 150,572 First Trust Value Line(R) Equity Allocation Index Fund 45,836 First Trust S&P REIT Index Fund 245,651 First Trust Value Line(R) 100 Exchange-Traded Fund 4,898,237
Page 109 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 Capital losses incurred after October 31 ("Post-October Losses") within the taxable year can be deemed to arise on the first business day of each Fund's next taxable year. During the taxable year ended December 31, 2010, the following Funds incurred and elected to defer net capital losses as follows:
Post-October Losses _______________________ First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- First Trust US IPO Index Fund 97,423 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 87,737 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- First Trust NYSE Arca Biotechnology Index Fund 1 First Trust Dow Jones Internet Index(SM) Fund -- First Trust Strategic Value Index Fund 46,655 First Trust Value Line(R) Equity Allocation Index Fund -- First Trust Value Line(R) Dividend Index Fund 37,927 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 48,959 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 187,002 First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 35,043 First Trust ISE-Revere Natural Gas Index Fund -- First Trust ISE Chindia Index Fund 3,424,886 First Trust Value Line(R) 100 Exchange-Traded Fund -- First Trust NASDAQ(R) ABA Community Bank Index Fund 14,490
Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These permanent differences are primarily due to the varying treatment of income and gain/loss on portfolio securities held by the Fund and in-kind transactions and have no impact on net assets or net asset value per share. Temporary differences, which arise from recognizing certain items of income, expense and gain/loss in different periods for financial statement and tax purposes, will reverse at some time in the future. For the fiscal year ended December 31, 2010, 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 $ 3,077 $ (2,769,349) $ 2,766,272 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- (3,262,851) 3,262,851 First Trust US IPO Index Fund (147,668) (1,042,177) 1,189,845 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 71 (6,857,244) 6,857,173 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 11,932 (18,964,253) 18,952,321 First Trust NYSE Arca Biotechnology Index Fund 893,750 (25,261,857) 24,368,107 First Trust Dow Jones Internet Index(SM) Fund 3,869 (23,575,545) 23,571,676 First Trust Strategic Value Index Fund 33 (6,299,504) 6,299,471 First Trust Value Line(R) Equity Allocation Index Fund 1,283 (1,093,608) 1,092,325 First Trust Value Line(R) Dividend Index Fund 357 (6,564,363) 6,564,006 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 39 (1,653,576) 1,653,537 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 26,978 (2,463,772) 2,436,794 First Trust S&P REIT Index Fund 246,473 (4,328,186) 4,081,713 First Trust ISE Water Index Fund -- (2,372,907) 2,372,907 First Trust ISE-Revere Natural Gas Index Fund 403,349 (53,840,093) 53,436,744 First Trust ISE Chindia Index Fund -- (11,533,282) 11,533,282 First Trust Value Line(R) 100 Exchange-Traded Fund -- (13,518,578) 13,518,578 First Trust NASDAQ(R) ABA Community Bank Index Fund 117 (347,927) 347,810
On December 22, 2010, President Obama signed into law the Regulated Investment Company Modernization Act of 2010 effective for tax years beginning after December 22, 2010. Management is currently evaluating the impact the Act will have on future financial statement disclosures. Page 110 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 E. Expenses Expenses that are directly related to one of the Funds are charged directly to the respective Fund. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. First Trust Advisors L.P. ("First Trust" or the "Advisor") has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
Fund Licensor First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones & Company, Inc. First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar, Inc. First Trust US IPO Index Fund IPOX Schuster LLC First Trust NASDAQ-100 Equal Weighted Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust NASDAQ-100-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc. First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc. First Trust Strategic Value Index Fund Credit Suisse Securities (USA) LLC and Credit Suisse Group 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 First Trust ISE Water Index Fund International Securities Exchange, LLC First Trust ISE-Revere Natural Gas Index Fund International Securities Exchange, LLC First Trust ISE Chindia Index Fund International Securities Exchange, LLC First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R) First Trust NASDAQ(R) ABA Community Bank Index Fund The NASDAQ Stock Market, Inc.
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. 3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements First Trust is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. First Trust serves as investment advisor to the Funds pursuant to an Investment Management Agreement. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund's portfolio and providing certain other services necessary for the management of the Funds. For these services, First Trust is entitled to receive monthly fees from each Fund calculated at the following annual rates:
% of Average Daily Net Assets __________________ First Trust Dow Jones Select MicroCap Index(SM) Fund 0.50% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.30% First Trust US IPO Index Fund 0.40% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.40% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.40% First Trust NYSE Arca Biotechnology Index Fund 0.40% First Trust Dow Jones Internet Index(SM) Fund 0.40% First Trust Strategic Value Index Fund 0.50% First Trust Value Line(R) Equity Allocation Index Fund 0.50% First Trust Value Line(R) Dividend Index Fund 0.50% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.40% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40% First Trust S&P REIT Index Fund 0.30% First Trust ISE Water Index Fund 0.40% First Trust ISE-Revere Natural Gas Index Fund 0.40% First Trust ISE Chindia Index Fund 0.40% First Trust Value Line(R) 100 Exchange-Traded Fund 0.50% First Trust NASDAQ(R) ABA Community Bank Index Fund 0.40%
Page 111 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement in which the Advisor has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of each Fund (excluding interest expense, brokerage commissions and other trading expenses, taxes and extraordinary expenses) exceed the below amount as a percentage of average daily net assets per year (the "Expense Cap").
Expense Cap _____________ First Trust Dow Jones Select MicroCap Index(SM) Fund 0.60% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.45% First Trust US IPO Index Fund 0.60% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.60% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.60% First Trust NYSE Arca Biotechnology Index Fund 0.60% First Trust Dow Jones Internet Index(SM) Fund 0.60% First Trust Strategic Value Index Fund 0.65% First Trust Value Line(R) Equity Allocation Index Fund 0.70% First Trust Value Line(R) Dividend Index Fund 0.70% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.60% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60% First Trust S&P REIT Index Fund 0.50% First Trust ISE Water Index Fund 0.60% First Trust ISE-Revere Natural Gas Index Fund 0.60% First Trust ISE Chindia Index Fund 0.60% First Trust Value Line(R) 100 Exchange-Traded Fund 0.70% First Trust NASDAQ(R) ABA Community Bank Index Fund 0.60%
Each Fund's Expense Cap will be in effect until the Expense Cap Termination Date listed below:
Fund Name Expense Cap Termination Date _________ ______________________________ First Trust Dow Jones Select MicroCap Index(SM) Fund 12/6/2012 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 12/6/2012 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 12/6/2012 First Trust Dow Jones Internet Index(SM) Fund 12/6/2012 First Trust Value Line(R) Equity Allocation Index Fund 12/6/2012 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 12/6/2012 First Trust S&P REIT Index Fund 12/6/2012 First Trust ISE Water Index Fund 12/6/2012 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 12/20/2012 First Trust US IPO Index Fund 1/3/2013 First Trust NYSE Arca Biotechnology Index Fund 1/3/2013 First Trust Strategic Value Index Fund 1/3/2013 First Trust Value Line(R) Dividend Index Fund 1/3/2013 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 1/3/2013 First Trust ISE Chindia Index Fund 1/3/2013 First Trust Value Line(R) 100 Exchange-Traded Fund 1/3/2013 First Trust NASDAQ(R) ABA Community Bank Index Fund 1/3/2013 First Trust ISE-Revere Natural Gas Index Fund 1/3/2013
The Expense Reimbursement, Fee Waiver and Recovery Agreement allows First Trust to recover from the Funds any fees waived or expenses reimbursed during the three year period after the date of the waiver or reimbursement to the extent that the actual expense ratio of a particular Fund is less than such Fund's applicable Expense Cap in place during the fiscal year that the fee was waived or the expense reimbursed. First Trust may recover a portion of the previously waived or reimbursed amount equal to the amount that the Expense Cap exceeds the actual expense ratio in place during the fiscal year that the fee was waived or the expense reimbursed. These amounts would be included in "Expenses previously waived or reimbursed" on the Statements of Operations. Page 112 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 The advisory fee waivers and expense reimbursements for the year ended December 31, 2010 and the expenses borne by the Advisor subject to reimbursement by each Fund for the periods indicated were as follows:
Expenses Borne by Advisor Subject to Recovery _______________________________________________________ Period Period Year Advisory Ended Ended Ended Fee Expense December December December Waivers Reimbursement 31, 2008 31, 2009 31, 2010 Total ______________________________________________________________________________________ First Trust Dow Jones Select MicroCap Index(SM) Fund $ 127,967 $ -- $ 68,793 $ 48,917 $ 127,967 $ 245,677 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 147,279 -- 139,071 137,066 147,279 423,416 First Trust US IPO Index Fund 46,346 37,011 80,132 67,290 83,357 230,779 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 79,793 -- 62,497 16,264 79,793 158,554 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 206,140 -- 41,362 20,687 206,140 268,189 First Trust NYSE Arca Biotechnology Index Fund 95,610 -- 71,442 70,966 95,610 238,018 First Trust Dow Jones Internet Index(SM) Fund 139,852 -- 51,795 46,260 139,852 237,907 First Trust Strategic Value Index Fund 83,712 -- 41,333 86,736 83,712 211,781 First Trust Value Line(R) Equity Allocation Index Fund 38,930 11,458 42,356 31,276 50,388 124,020 First Trust Value Line(R) Dividend Index Fund 228,962 -- 198,186 125,081 228,962 552,229 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 57,769 -- 44,692 46,747 57,769 149,208 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 66,287 -- 96,621 74,427 66,287 237,335 First Trust S&P REIT Index Fund 99,014 -- 117,085 107,158 99,014 323,257 First Trust ISE Water Index Fund 39,351 -- 53,268 40,314 39,351 132,933 First Trust ISE-Revere Natural Gas Index Fund 212,049 -- 109,371 195,399 212,049 516,819 First Trust ISE Chindia Index Fund 83,567 -- 91,365 90,414 83,567 265,346 First Trust Value Line(R) 100 Exchange Traded Fund 107,626 -- 221,381 97,391 107,626 426,398 First Trust NASDAQ(R) ABA Community Bank Index Fund 32,025 12,775 -- 44,294 44,800 89,094
The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the servicing 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. BNY Mellon Investment Servicing (US) Inc. (formerly PNC Global Investment Servicing (U.S.) Inc.) provides certain administrative services to the Trust and the Funds in connection with the Trust's Board of Trustees meetings and other related matters. On July 1, 2010, The PNC Financial Services Group sold the outstanding stock of PNC Global Investment Servicing (U.S.) Inc. to The Bank of New York Mellon Corporation. At the closing of the sale, PNC Global Investment Servicing (U.S.) Inc. changed its name to BNY Mellon Investment Servicing (US) Inc. James A. Bowen, the President of First Trust, on October 12, 2010, acquired 100% of the voting stock of The Charger Corporation, the general partner of First Trust (the "Transaction"). First Trust is a limited partnership with one limited partner and one general partner (The Charger Corporation). The Transaction is not expected to impact the day-to-day operations of the Funds or First Trust. The consummation of the Transaction was deemed to be an "assignment" (as defined in the 1940 Act) of the investment management agreement and distribution agreement for each Fund and resulted in the automatic termination of the agreements. In addition, the former expense reimbursement, fee waiver and recovery agreement terminated pursuant to its terms upon the termination of the investment management agreement. The Trust's Board of Trustees approved an interim investment management agreements with First Trust which were entered into effective upon the closing of the Transaction and would be in effect for a maximum period of 150 days. New investment management agreements with First Trust have been approved by the Board of Trustees of the Fund and were submitted to shareholders of each Fund as of the record date (September 30, 2010) for approval to take effect upon such shareholder approval. Special meetings of the shareholders of the Funds were held on December 6, 2010, December 20, 2010, January 3, 2011 and January 20, 2011. A new investment management agreement between the Trust and First Trust relating to the change in control of First Trust Advisors L.P. was approved at certain of such meetings. The Trust's Board of Trustees also approved a new Page 113 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 Distribution Agreement and Recovery Agreement, if applicable, for each Fund which were entered into effective upon the closing of the Transaction. See Submission of Matters to a Vote of Shareholders, in the Additional Information section of this report, for the results. 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 additional trust in the First Trust Fund Complex. The annual retainer is allocated equally among each of the trusts. No additional meeting fees are paid in connection with Board or Committee meetings. Additionally, the Lead Independent Trustee is paid $10,000 annually, the Chairman of the Audit Committee is paid $5,000 annually and each of the Chairmen of the Nominating and Governance Committee and Valuation Committee is paid $2,500 annually to serve in such capacities, with such compensation paid by the trusts in the First Trust Fund Complex and allocated equally among those trusts. Trustees are also reimbursed by the trusts in the First Trust Fund Complex for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and each Committee chairman will serve two-year terms ending December 31, 2011, before rotating to serve as chairman of another Committee or as Lead Independent Trustee. The officers and "Interested" Trustee receive no compensation from the trusts for serving in such capacities. 4. Purchases and Sales of Securities For the year ended December 31, 2010, 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 $ 46,267,796 $ 46,234,807 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 21,208,271 20,983,561 First Trust US IPO Index Fund 4,900,176 5,014,174 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 13,334,359 13,238,112 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 55,795,195 55,887,868 First Trust NYSE Arca Biotechnology Index Fund 51,545,621 53,558,010 First Trust Dow Jones Internet Index(SM) Fund 40,844,628 41,692,216 First Trust Strategic Value Index Fund 79,933,566 79,951,906 First Trust Value Line(R) Equity Allocation Index Fund 15,719,710 15,712,635 First Trust Value Line(R) Dividend Index Fund 92,198,941 92,209,897 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 3,226,609 3,207,506 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 7,992,635 8,005,155 First Trust S&P REIT Index Fund 8,113,847 8,167,831 First Trust ISE Water Index Fund 15,889,014 15,948,987 First Trust ISE-Revere Natural Gas Index Fund 374,127,336 375,886,007 First Trust ISE Chindia Index Fund 48,167,763 48,071,377 First Trust Value Line(R) 100 Exchange-Traded Fund 165,010,014 164,967,105 First Trust NASDAQ(R) ABA Community Bank Index Fund 2,046,879 2,039,276
For the year ended December 31, 2010, 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 $ 137,147,689 $ 19,378,387 First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 99,576,522 14,599,375 First Trust US IPO Index Fund 5,499,092 3,279,966 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 63,181,112 37,043,038 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 417,103,873 104,114,319 First Trust NYSE Arca Biotechnology Index Fund 197,368,148 101,971,372 First Trust Dow Jones Internet Index(SM) Fund 517,684,917 103,914,952 First Trust Strategic Value Index Fund 52,137,908 70,660,482 First Trust Value Line(R) Equity Allocation Index Fund 7,022,325 7,854,271 First Trust Value Line(R) Dividend Index Fund 75,697,085 32,619,701 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 16,502,181 7,759,807 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 1,526,519 9,343,624 First Trust S&P REIT Index Fund 66,392,858 26,119,384 First Trust ISE Water Index Fund 17,136,623 8,790,321 First Trust ISE-Revere Natural Gas Index Fund 440,974,925 529,885,465 First Trust ISE Chindia Index Fund 91,154,121 53,458,904 First Trust Value Line(R) 100 Exchange-Traded Fund 81,272,597 69,822,691 First Trust NASDAQ(R) ABA Community Bank Index Fund 8,542,886 4,423,043
Page 114 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 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 fee of up to three times the Creation Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to transactions effected outside of the clearing process (i.e., through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. The price for each Creation Unit will equal the daily NAV per Share of a Fund on the transaction date times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes. Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard redemption transaction fee (the "Redemption Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Number of Securities Redemption in a Creation Unit Transaction Fee __________________________ ___________________ 1-100 $500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Redemption Transaction Fee is applicable to each redemption transaction regardless of the number of Creation Units redeemed in the transaction. An additional variable fee of up to three times the Redemption Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to redemptions effected outside of the clearing process or to the extent that redemptions are for cash. Each Fund reserves the right to effect redemptions in cash. A shareholder may request cash redemption in lieu of securities; however, a Fund may, in its discretion, reject any such request. 6. Distribution Plan The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, the Funds will not pay 12b-1 fees any time before May 15, 2011 (except for First Trust NASDAQ(R) ABA Community Bank Index Fund which will not pay 12b-1 fees any time before June 30, 2011). Page 115 -------------------------------------------------------------------------------- Notes to Financial Statements (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 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 Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed. Page 116 -------------------------------------------------------------------------------- Report of Independent Registered Public Accounting Firm -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of First Trust Exchange-Traded Fund: We have audited the accompanying statements of assets and liabilities of First Trust Exchange-Traded Fund, comprised of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust US IPO Index Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust Strategic Value Index Fund (formerly known as First Trust DB Strategic Value Index Fund), First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia Index Fund, First Trust Value Line(R) 100 Exchange-Traded Fund and First Trust NASDAQ(R) ABA Community Bank Index Fund (collectively, the "Funds"), including the portfolios of investments, as of December 31, 2010, the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the Funds' custodian and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the funds constituting the First Trust Exchange-Traded Fund as of December 31, 2010, the results of their operations for the year then ended, and the changes in their net assets and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 25, 2011 Page 117 -------------------------------------------------------------------------------- Additional Information -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (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, 2010 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, 2010, 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 100.00% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100.00% First Trust US IPO Index Fund 100.00% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00% First Trust NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index(SM) Fund 100.00% First Trust Strategic Value Index Fund 100.00% First Trust Value Line(R) Equity Allocation Index Fund 100.00% First Trust Value Line(R) Dividend Index Fund 100.00% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 73.46% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 100.00% First Trust ISE-Revere Natural Gas Index Fund 100.00% First Trust ISE Chindia Index Fund -- First Trust Value Line(R) 100 Exchange-Traded Fund -- First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the taxable year ended December 31, 2010, 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 100.00% First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100.00% First Trust US IPO Index Fund 100.00% First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00% First Trust NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index(SM) Fund 100.00% First Trust Strategic Value Index Fund 100.00% First Trust Value Line(R) Equity Allocation Index Fund 100.00% First Trust Value Line(R) Dividend Index Fund 100.00% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100.00% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 100.00% First Trust ISE-Revere Natural Gas Index Fund 100.00% First Trust ISE Chindia Index Fund 100.00% First Trust Value Line(R) 100 Exchange-Traded Fund -- First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the tax year ended December 31, 2010, the First Trust S&P REIT Index Fund designated $45,197, or amounts necessary, as long-term capital gain. During the tax year, Fund shareholders redeemed amounts in excess of our long-term capital gain and of these proceeds, $45,197, or amounts necessary, represents long-term capital gain from the Fund. Page 118 -------------------------------------------------------------------------------- Additional Information (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (Unaudited) Submission of Matters to a Vote of Shareholders Special meetings of the shareholders of the Funds were held on December 6, 2010, December 20, 2010, January 3, 2011 and January 20, 2011. A new investment management agreement between the Trust and First Trust relating to the change in control of First Trust Advisors L.P. was approved at certain of such meetings as detailed below. The terms of the new investment management agreement are substantially similar to the terms of the previous agreements.
Ticker Symbol Date of Vote % of Voted Voted For Voted Against Abstained _______________ ______________ ____________ ____________ ________________ ____________ FDM 12/6/2010 62.83% 1,840,384 5,371 10,916 QQEW 12/6/2010 51.39% 1,288,109 15,666 6,561 QTEC 12/6/2010 56.42% 6,714,638 36,598 46,797 FDN 12/6/2010 58.54% 6,379,155 19,386 40,541 FVI 12/6/2010 55.63% 192,332 2,000 381 QQXT 12/6/2010 72.00% 646,766 1,008 200 FRI 12/6/2010 70.82% 3,135,275 5,233 10,825 FIW 12/6/2010 51.07% 1,097,967 12,418 13,070 FDL 12/20/2010 50.02% 2,346,778 53,693 200,803 FPX 1/3/2011 53.92% 241,251 7,451 47,867 FBT 1/3/2011 52.31% 2,180,970 29,815 195,518 FDV 1/3/2011 52.42% 744,121 32,622 88,190 FVD 1/3/2011 51.22% 5,539,652 172,812 683,786 QCLN 1/3/2011 50.62% 942,236 34,209 187,722 FNI 1/3/2011 50.31% 2,592,043 60,461 340,950 FVL 1/3/2011 50.87% 2,256,802 112,857 244,798 QABA 1/3/2011 52.45% 181,041 3,160 25,581 FCG 1/20/2011 50.06% 9,111,862 265,456 1,135,890
Advisory Agreement Board Considerations regarding Approval of Investment Management Agreements The Board of Trustees of the First Trust Exchange-Traded Fund (the "Trust"), including the Independent Trustees, approved the Interim Investment Management Agreement and the New Investment Management Agreement (collectively, the "Agreements") with First Trust Advisors L.P. (the "Advisor") on behalf of the following series of the Trust (each a "Fund" and collectively, the "Funds"): First Trust Value Line(R) 100 Exchange-Traded Fund First Trust Value Line(R) Dividend Index Fund First Trust Dow Jones Select MicroCap Index(SM) Fund First Trust Morningstar(R) Dividend Leaders(SM) Index Fund First Trust US IPO Index Fund First Trust NASDAQ-100 Equal Weighted Index(SM) Fund First Trust NASDAQ-100-Technology Sector Index(SM) Fund First Trust NYSE Arca Biotechnology Index Fund First Trust Dow Jones Internet Index(SM) Fund First Trust Strategic Value Index Fund First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund First Trust Value Line(R) Equity Allocation Index Fund First Trust ISE Chindia Index Fund First Trust ISE Water Index Fund First Trust ISE-Revere Natural Gas Index Fund First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund First Trust S&P REIT Index Fund First Trust NASDAQ(R) ABA Community Bank Index Fund The Board approved the Agreements at a meeting held on September 20, 2010. The Board determined that the terms of the Agreements are fair and reasonable and that the Agreements are in the best interests of the Trust and each Fund. The Board also determined that it believes that the scope and quality of services to be provided to the Trust and each Fund under the Agreements will be at least equivalent to the scope and quality of services provided under the current Investment Management Agreement with the Advisor (the "Original Agreement"). On August 25, 2010, the Independent Trustees were informed that James A. Bowen, the President of the Advisor and a Trustee and Chairman of the Board of the Trust, had entered into an agreement to acquire 100% of the common stock of The Charger Corporation, the general partner of the Advisor (the "Transaction"), the consummation of which would constitute a "change of control" of the Advisor and would result in the "assignment" and termination of the Original Agreement under its terms and in accordance with Section 15 of the Investment Company Act of 1940, as amended (the "1940 Act"). On August 31, 2010, counsel to the Independent Trustees forwarded to Mr. Bowen and the Advisor a request for information regarding the Transaction. In anticipation of the consummation of Page 119 -------------------------------------------------------------------------------- Additional Information (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (Unaudited) the Transaction, the Board at its meeting held on September 20, 2010, considered the information provided by Mr. Bowen and the Advisor in response to the Independent Trustees' request for information and considered the approval of the Agreements. To reach its determination, the Board considered its duties under the 1940 Act, as well as under the general principles of state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. In connection with its deliberations regarding the Agreements, the Board noted the Advisor's representation that apart from their effective and termination dates and any provisions of the Interim Investment Management Agreement required by Rule 15a-4 under the 1940 Act, the Agreements were the same in all material respects as the Original Agreement. The Board noted that it had recently considered the Advisor's capabilities and the terms of the Original Agreement at a meeting held on March 21-22, 2010 and had determined to renew the Original Agreement on behalf of each Fund, except for First Trust NASDAQ(R) ABA Community Bank Index Fund, for an additional one-year term (the "2010 Renewal"). The Board noted that it had approved the Original Agreement on behalf of First Trust NASDAQ(R) ABA Community Bank Index Fund for an initial two-year term ending July 1, 2011. The Board considered that in connection with the 2010 Renewal, it had received a report from the Advisor that, among other things, outlined the services provided by the Advisor to each Fund (including the relevant personnel responsible for these services and their experience); the advisory fee for each Fund as compared to fees charged by investment advisors to comparable funds and as compared to fees charged to other clients of the Advisor; expenses of each Fund compared to expense ratios of comparable funds; the nature of expenses incurred in providing services to each Fund and the potential for economies of scale, if any; financial data on the Advisor; any fall out benefits to the Advisor and its affiliate, First Trust Portfolios L.P.; and information on the Advisor's compliance program. Prior to the September meeting, the Advisor represented to the Board that there had been no material changes to the information provided in March 2010 in connection with the 2010 Renewal and that the Board could continue to rely on such information. Because the Board determined that any differences between the Original Agreement and the Agreements were immaterial, the Board determined that much of its previous analysis in connection with the 2010 Renewal applied to its review and consideration of the Agreements. The Board considered that the information presented in connection with the 2010 Renewal was also relevant to First Trust NASDAQ(R) ABA Community Bank Index Fund. Accordingly, the Board took note of such prior analysis and supplemented it with the additional considerations noted below. The Independent Trustees also met separately with their independent legal counsel to discuss the Transaction and their consideration of the Agreements. In reviewing the Agreements for each Fund, the Board considered the nature, quality and extent of services to be provided by the Advisor under the Agreements. The Board noted that the Transaction was not expected to result in any changes to the personnel of the Advisor responsible for providing services to the Trust and each Fund. The Board also considered the representations of the Advisor that there will be no diminution in services provided under the Agreements. In light of the information presented and the considerations made at the September meeting, including the considerations made in connection with the 2010 Renewal, the Board concluded that the nature, quality and extent of services to be provided to the Trust and each Fund by the Advisor under the Agreements are expected to be satisfactory. The Board considered the advisory fees payable by each Fund under the Agreements, noting that they would be the same as the fees payable by each Fund under the Original Agreement. The Board considered that the Advisor agreed to extend the expense cap for each Fund for a two-year period in connection with the approval of the Agreements. For each Fund, the Board noted that expenses borne by the Advisor are proposed to be subject to reimbursement by the Fund for up to three years from the date the fee or expense was incurred, but no reimbursement payment would be made by the Fund if it would result in the Fund exceeding an expense ratio equal to the expense cap in place at the time the expenses were borne by the Advisor. The Board considered that in connection with the 2010 Renewal it had reviewed the fees charged by the Advisor to other exchange-traded funds ("ETFs") and other advisory clients with investment objectives and policies similar to the Funds', noting that those fees generally were similar to the fees charged to the Funds. The Board also considered performance information for each Fund, including each Fund's quarterly performance report, which is part of the process that the Board has established for monitoring each Fund's performance and portfolio risk on an ongoing basis. In light of the information presented on the fees and performance of each Fund and the considerations made at the September meeting, including the considerations made in connection with the 2010 Renewal, the Board concluded that the advisory fees for each Fund were reasonable and appropriate in light of the nature, quality and extent of services expected to be provided by the Advisor to each Fund under the Agreements. The Board noted that the Advisor has continued to invest in personnel and infrastructure and considered whether fee levels reflect any economies of scale for the benefit of shareholders. The Board concluded that the advisory fee for each Fund continues to reflect an appropriate level of sharing of any economies of scale at current asset levels. The Board noted that in connection with the 2010 Renewal it had reviewed the costs of the services provided and profits realized by the Advisor from serving as investment advisor to each Fund other than First Trust NASDAQ(R) ABA Community Bank Index Fund for the twelve months ended December 31, 2009 and had noted that the Advisor estimated that it incurred a loss in providing services to each such Fund in 2009 except for First Trust Value Line(R) Dividend Index Fund. The Board considered that the Advisor had identified as a fall-out benefit to the Advisor and First Trust Portfolios L.P. their exposure to investors and brokers who, in the absence of the Funds, may have had no dealings with the Advisor, and noted that the Advisor does not utilize soft dollars in connection with its management of the Funds' portfolios. Based on all of the information considered and the conclusions reached, the Board, including the Independent Trustees, determined that the terms of the Agreements are fair and reasonable and that the Agreements are in the best interests of Trust and each Fund. No single factor was determinative in the Board's analysis. Page 120 -------------------------------------------------------------------------------- Additional Information (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (Unaudited) Licensing Information Dow Jones, Dow Jones Internet Composite Index(SM) and Dow Jones Select MicroCap Index(SM) are products of Dow Jones Indexes, a licensed trademark of CME Group Index Services LLC ("CME") and have been licensed for use. "Dow Jones(R)", "Dow Jones Internet Composite Index(SM)", "Dow Jones Select MicroCap Index(SM)" and "Dow Jones Indexes" are service marks of Dow Jones Trademark Holdings, LLC ("Dow Jones") and have been licensed to CME and have been sublicensed for use for certain purposes by First Trust on behalf of the Funds. 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 CME, Dow Jones or their respective affiliates, and CME, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in such 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. The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of trading in the Fund. IPOX(R)'s only relationship to First Trust is the licensing of certain trademarks and trade names of IPOX(R) and of the U.S. IPOX(R) 100 Index, which is determined, composed and calculated by IPOX(R) without regard to First Trust or the Fund. IPOX(R) IS A REGISTERED INTERNATIONAL TRADEMARK OF IPOX(R) SCHUSTER LLC AND IPOX(R) SCHUSTER, IPOX(R)-100 AND IPOX(R)-30 ARE TRADEMARKS AND SERVICE MARKS OF IPOX(R) SCHUSTER LLC (WWW.IPOXSCHUSTER.COM) AND HAVE BEEN LICENSED FOR CERTAIN PURPOSES FROM IPOX(R) SCHUSTER LLC TO FIRST TRUST PURSUANT TO THE PRODUCT LICENSE AGREEMENT. A PATENT WITH RESPECT TO THE IPOX(R) INDEX METHODOLOGY HAS BEEN ISSUED (U.S. PAT. NO. 7,698,197). NASDAQ(R), NASDAQ-100(R), 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 OMX Group, Inc. ("NASDAQ OMX") or its affiliates (NASDAQ OMX with its affiliates are referred to as the "Corporations") and are licensed for use by First Trust Advisors L.P. The Funds have not been passed on by the Corporations as to their legality or suitability. The Funds are not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in anyway as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUNDS. NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The NASDAQ OMX Group, Inc. ("NASDAQ OMX"), Clean Edge(R) or their affiliates (NASDAQ OMX and Clean Edge(R), collectively with their affiliates, are referred to herein as the "Corporations"). The Marks are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Fund should not be construed in any way as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM) are trademarks of The NASDAQ OMX Group, Inc. ("NASDAQ OMX"), American Bankers Association ("ABA") or their affiliates (NASDAQ OMX and ABA, collectively with their affiliates, are referred to as the "Corporations") and are licensed for use by First Trust Advisors L.P. The Fund has not been passed on by the Corporations as to its legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND. The NYSE Arca Biotechnology Index(SM) is a trademark of the NYSE Euronext or its affiliates ("NYSE Euronext") and is licensed for use by First Trust Advisors L.P. The Fund is not sponsored or endorsed by the NYSE Euronext. NYSE Euronext makes no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of investing in the Fund or the ability of the Fund to track the performance of the various sectors represented in the stock market. NYSE Euronext has no obligation to take the needs of the owners of the Fund into consideration in determining, composing or calculating the Index. NYSE Euronext is not responsible for and has not participated in any determination or calculation made with respect to issuance or redemption of the Fund. "Credit Suisse", "HOLT" and "Credit Suisse U.S. Value Index, Powered by HOLT(TM)," are trademarks of Credit Suisse Group, Credit Suisse Securities (USA) LLC or one of their affiliates (collectively, "Credit Suisse"), and have been licensed for use for certain purposes by First Trust. THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY CREDIT SUISSE OR THE INDEX CALCULATION AGENT, AND CREDIT SUISSE AND THE INDEX CALCULATION AGENT MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING THE ADVISABILITY OF INVESTING OR TRADING IN SUCH PRODUCT(S) OR IN SECURITIES GENERALLY, THE RESULTS TO BE OBTAINED FROM THE USE OF THE CREDIT SUISSE US VALUE INDEX, POWERED BY HOLT, THE FIGURE AT WHICH THE SAID INDEX STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR DAY OR OTHERWISE. CREDIT SUISSE MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE Page 121 -------------------------------------------------------------------------------- Additional Information (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (Unaudited) OR USE WITH RESPECT TO THE CREDIT SUISSE US VALUE INDEX, POWERED BY HOLT(TM) OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL CREDIT SUISSE OR THE INDEX CALCULATION AGENT HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN CREDIT SUISSE AND FIRST TRUST. "Value Line(R)", "Value Line(R) Equity Allocation Index(TM)", "Value Line(R) Dividend Index(TM)" and "Value Line(R) 100 Index(TM)" are trademarks of Value Line(R), Inc. and have been licensed for use for certain purposes by First Trust Advisors L.P. on behalf of the Funds. The First Trust Value Line(R) Equity Allocation Index Fund, based on the Value Line(R) Equity Allocation Index(TM), the First Trust Value Line(R) Dividend Index Fund, based on the Value Line(R) Dividend Index(TM) and the First Trust Value Line(R) 100 Exchange-Traded Fund, based on the Value Line(R) 100 Index(TM), are not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R) makes no representation regarding the advisability of investing in the Funds. Standard & Poor's(R) and S&P(R) are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by First Trust Advisors L.P. The First Trust S&P REIT Index Fund is not sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding shares of the Fund. "International Securities Exchange(TM)", "ISE(TM)", "ISE Water Index(TM)", "ISE ChIndia Index(TM)" and the "ISE-REVERE Natural Gas Index(TM)" are trademarks of the International Securities Exchange, LLC and have been licensed for use for certain purposes by First Trust Advisors L.P. Each Fund, based on its corresponding index, is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such Funds. Page 122 -------------------------------------------------------------------------------- Board of Trustees and Officers -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (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 Term of Office the First Trust Other Name, Address, and Year First Fund Complex Trusteeships or Date of Birth and Elected or Principal Occupations Overseen by Directorships Position with the Trust Appointed During Past 5 Years Trustee Held by Trustee ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton 67 None c/o First Trust Advisors L.P. Orthopedics; Co-Owner and Co-Director 120 E. Liberty Drive, o Since Inception (January 1996 to May 2007), Sports Med Suite 400 Center for Fitness; Limited Partner, Wheaton, IL 60187 Gundersen Real Estate Limited D.O.B.: 04/51 Partnership; Member, Sportsmed LLC Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), 67 Director of ADM c/o First Trust Advisors L.P. Senior Vice President and Chief Investor Services, 120 E. Liberty Drive, o Since Inception Financial Officer (May 2007 to Inc. and ADM Suite 400 March 2010), Vice President and Investor Services, Wheaton, IL 60187 Chief Financial Officer (1990 to International D.O.B.: 11/57 May 2007), ADM Investor Services, Inc. (Futures Commission Merchant) Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 67 None c/o First Trust Advisors L.P. Enterprises (Financial and Management 120 E. Liberty Drive, o Since Inception Consulting) Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term President (June 2002 to Present), Covenant 67 Director of c/o First Trust Advisors L.P. College Covenant 120 E. Liberty Drive, o Since Inception Transport Inc. Suite 400 Wheaton, IL 60187 D.O.B.: 03/54 ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE ----------------------------------------------------------------------------------------------------------------------------------- James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 67 Trustee of President, Chairman of the to Present), President (until Wheaton College Board and CEO o Since Inception December 2010), First Trust Advisors 120 E. Liberty Drive, L.P. and First Trust Portfolios L.P.; Suite 400 Chairman of the Board of Directors, Wheaton, IL 60187 BondWave LLC (Software Development D.O.B.: 09/55 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) 1 Mr. Bowen is deemed an "interested person" of the Trust due to his position as Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust.
Page 123 -------------------------------------------------------------------------------- Board of Trustees and Officers (Continued) -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (Unaudited)
Position and Term of Office Name, Address Offices and Length of Principal Occupations and Date of Birth with Trust Service During Past 5 Years ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS WHO ARE NOT TRUSTEES(2) ----------------------------------------------------------------------------------------------------------------------------------- Mark R. Bradley Treasurer, Chief Financial o Indefinite Term Chief Operating Officer (December 2010 to Present) 120 E. Liberty Drive, Officer and Chief and Chief Financial Officer, First Trust Advisors Suite 400 Accounting Officer o Since Inception L.P. and First Trust Portfolios L.P.; Chief Wheaton, IL 60187 Financial Officer, BondWave LLC (Software Development D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) Erin E. Chapman Assistant Secretary o Indefinite Term Assistant General Counsel (October 2007 to 120 E. Liberty Drive, Present), Associate Counsel (March 2006 to Suite 400 o Since June 2009 October 2007), First Trust Advisors L.P. and First Wheaton, IL 60187 Trust Portfolios L.P.; Associate Attorney D.O.B.: 08/76 (November 2003 to March 2006), Doyle & Bolotin, Ltd. James M. Dykas Assistant Treasurer o Indefinite Term Controller (January 2011 to Present) and Senior 120 E. Liberty Drive, Vice President (April 2007 to Present), Vice Suite 400 o Since Inception President (January 2005 to April 2007), First Trust Wheaton, IL 60187 Advisors L.P. and First Trust Portfolios L.P. D.O.B.: 01/66 W. Scott Jardine Secretary o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Trust Portfolios L.P.; Secretary, BondWave LLC Suite 400 o Since Inception (Software Development Company/Investment Wheaton, IL 60187 Advisor) and Stonebridge Advisors LLC D.O.B.: 05/60 (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to 120 E. Liberty Drive, Present), Vice President (April 2004 to September Suite 400 o Since Inception 2005), First Trust Advisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P. D.O.B.: 02/70 Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President (January 2008 to Present), 120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios Suite 400 o Since July 2008 L.P.; Vice President (May 1998 to January 2008), Wheaton, IL 60187 Van Kampen Asset Management and Morgan D.O.B.: 07/58 Stanley Investment Management Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present), 120 E. Liberty Drive, Chief Compliance o Assistant Secretary Assistant General Counsel (March 2004 to May Suite 400 Officer Since June 2006 2007), First Trust Advisors L.P. and First Trust Wheaton, IL 60187 o Chief Compliance Portfolios L.P. D.O.B.: 12/66 Officer since January 2011 Roger F. Testin Vice President o Indefinite Term Senior Vice President (November 2003 to Present), 120 E. Liberty Drive, Vice President (August 2001 to November 2003), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 06/66 Stan Ueland Vice President o Indefinite Term Vice President (August 2005 to Present), First Trust 120 E. Liberty Drive, Advisors L.P. and First Trust Portfolios L.P; Vice Suite 400 o Since Inception President (May 2004 to August 2005), BondWave Wheaton, IL 60187 LLC (Software Development Company/Investment D.O.B.: 11/70 Advisor) 2 The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function.
Page 124 -------------------------------------------------------------------------------- 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 (800) 621-1675 to request a prospectus, which contains this and other information about each Fund. For additional information about the risks associated with investing in the Funds, please see the Funds' statement of additional information, as well as other regulatory filings. Read these documents carefully before you invest. First Trust Portfolios L.P. is the distributor of the First Trust Exchange-Traded Fund. The following summarizes some of the risks that should be considered for the Funds. Risk Considerations: Each Fund's shares will change in value, and you could lose money by investing in a Fund. Shares are subject to market fluctuations caused by such factors as economic, political, regulatory or market developments, changes in interest rates and perceived trends in stock prices. Overall stock values could decline generally or could underperform other investments. Overall stock market values could decline generally or could underperform other investments. An investment in a Fund involves risks similar to those of investing in any fund of equity securities traded on an exchange. Investors buying or selling Fund shares on the secondary market may incur brokerage commissions. In addition, investors who sell Fund shares may receive less than the Fund shares' net asset value. Unlike shares of open-end funds, investors are generally not able to purchase exchange-traded fund ("ETF") shares directly from a Fund and individual ETF shares are not redeemable. However, specified large blocks of ETF shares called creation units can be purchased from, or redeemed to, a Fund. Each Fund is subject to index tracking risk. You should anticipate that the value of Fund shares will decline, more or less, in correlation with any decline in the value of the index that the Fund seeks to track. Each Fund's return may not match the return of the index it seeks to track for a number of reasons. While First Trust seeks to have a correlation of 0.95 or better, before expenses, between a Fund's performance and the performance of its corresponding index, there can be no assurance that a Fund will be able to achieve such a correlation. Accordingly, each Fund's performance may correlate to a lesser extent and may possibly vary substantially from the performance of its corresponding index. Each Fund is also exposed to additional market risk due to a policy of investing principally in the securities included in its corresponding index. As a result of such policies, securities held by each Fund will generally not be bought or sold in response to market fluctuations and the securities may be issued by companies concentrated in a particular industry. As a result, each Fund will generally not sell a stock because the stock's issuer is in financial trouble, unless that stock is removed or is anticipated to be removed from the index the Fund seeks to track. Each Fund relies on a license from an index provider that permits the Fund to use its corresponding index and associated trade names and trademarks in connection with the name and investment strategies of the Fund. Such licenses may be terminated by the respective index provider and, as a result, each Fund may lose its ability to use such intellectual property. There is also no guarantee that the index provider has all rights to license the respective intellectual property to First Trust, on behalf of the Fund. Accordingly, in the event the license is terminated or the index provider does not have rights to license the particular intellectual property, it may have a significant effect on the operation of the related Fund. Each Fund is subject to issuer specific changes risk. The value of an individual security or a particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. Each Fund will be concentrated in the securities of companies of a given industry if the Fund's corresponding index is concentrated in such industry. A concentration makes a Fund more susceptible to any single occurrence affecting the related industry and may subject a Fund to greater market risk than less concentrated funds. With the exception of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Value Line(R) Dividend Index Fund, First Trust Value Line(R) Equity Allocation Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund, each Fund is considered to be non-diversified. As a result, those Funds are exposed to additional market risk. A non-diversified fund may invest a relatively high percentage of its assets in a limited number of issuers. As a result, changes in the market value of a single portfolio security could cause greater fluctuations in share price than would occur in a diversified fund. Furthermore, non-diversified funds are more susceptible to any single political, regulatory or economic occurrence. The Funds are not actively managed. The Funds may be affected by a general decline in certain market segments relating to their corresponding index. The Funds invests in securities included in or representative of their corresponding index regardless of their investment merit. The Funds generally will not attempt to take defensive positions in declining markets. The First Trust Dow Jones Select MicroCap Index(SM) Fund invests in micro-capitalization companies. Such companies may be more vulnerable to adverse general market or economic developments, may be less liquid, and may experience greater price volatility than larger, more established companies. Page 125 -------------------------------------------------------------------------------- Risk Considerations (Unaudited) (Continued) -------------------------------------------------------------------------------- The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund and the First Trust Dow Jones Internet Index(SM) Fund invest in stocks of companies in the technology sector. You should be aware that an investment in a portfolio which invests in a particular sector involves additional risks, including limited diversification. The companies engaged in the technology sector are subject to fierce competition and high research and development costs, and their products and services may be subject to rapid obsolescence. The First Trust NYSE Arca Biotechnology Index Fund is concentrated in stocks of companies in the biotechnology sector. You should be aware that an investment in a portfolio which is concentrated in a particular sector involves additional risks, including limited diversification. The companies engaged in the biotechnology sector are subject to fierce competition, substantial research and development costs, governmental regulations and pricing constraints, and their products and services may be subject to rapid obsolescence. The First Trust NYSE Arca Biotechnology Index Fund invests in the securities of companies in the health care sector. Because companies in the health care sector are involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals and health care facilities and services, general problems of these companies include extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulations. The First Trust US IPO Fund invests in companies that have recently conducted an initial public offering. The stocks of such companies are often subject to extreme price volatility and speculative trading. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust S&P REIT Index Fund, First Trust Value Line(R) Dividend Index Fund and First Trust NASDAQ(R) ABA Community Bank Index Fund invest in securities of companies in the financials sector. Banks, thrifts and their holding companies are especially subject to the adverse effects of economic recession; volatile interest rates; portfolio concentrations in geographic markets and in commercial and residential real estate loans; and competition from new entrants in their fields of business. Although recently enacted legislation repealed most of the barriers which separated the banking, insurance and securities industries, these industries are still extensively regulated at both the federal and state level and may be adversely affected by increased regulations. The downturn in the U.S. and world economies has adversely affected banks, thrifts and other companies in the financials sector. The First Trust US IPO Fund, the First Trust Dow Jones Internet Index(SM) Fund, the First Trust ISE Chindia Index Fund, the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM) Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in securities of companies in the information technology industry. Information technology companies are generally subject to the risks of rapidly changing technologies; short product life cycles; fierce competition; and aggressive pricing and reduced profit margins. The First Trust Strategic Value Index Fund and the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund invest in the securities of companies in the consumer discretionary sector. Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer discretionary products in the marketplace. The First Trust ISE-Revere Natural Gas Index Fund invests in the securities of companies in the energy sector. General problems of issuers in the energy sector include volatile fluctuations in price and supply of energy fuels, international politics, terrorist attacks, reduced demand as a result of increases in energy efficiency and energy conservation, the success of exploration projects, clean-up and litigation costs relating to oil spills and environmental damage, and tax and other regulatory policies of various governments. In addition, recent oil prices have been at historic highs and extremely volatile. The First Trust ISE Water Index Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in the securities of companies in the industrials sector. General risks of these companies include the general state of the economy, intense competition, consolidation, domestic and international politics, excess capacity and consumer demand and spending trends. In addition, they may also be significantly affected by overall capital spending levels, economic cycles, technical obsolescence, delays in modernization, labor relations, government regulations and e-commerce initiatives. The First Trust S&P REIT Index Fund invests in companies in the real estate industry, including real estate investment trusts ("REITs") and is subject to the risks associated with investing in real estate (any of which could cause the value of a REIT's stock price to decline), which may include, but are not limited to, possible declines in the value of real estate, adverse general and local economic conditions, possible lack of availability of mortgage funds, overbuilding in a REIT's market, changes in interest rates and environmental problems. Furthermore, increases in interest rates typically lower the present value of a REIT's future earnings stream, and may make financing property purchases and improvements more costly. Page 126 -------------------------------------------------------------------------------- Risk Considerations (Unaudited) (Continued) -------------------------------------------------------------------------------- With the exception of First Trust Strategic Value Index Fund and First Trust Dow Jones Select MicroCap Index(SM) Fund, the Funds may invest in small capitalization and mid-capitalization companies. Such companies' securities may be less liquid and may experience greater price volatility than securities of larger, more established companies. Because a Fund's corresponding index may include American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S. companies, the investments of certain Funds, including but not limited to, the First Trust ISE Chindia Index Fund, the First Trust ISE-Revere Natural Gas Index Fund, the First Trust ISE Water Index Fund and the First Trust Value Line(R) 100 Exchange-Traded Fund, involve risks of investing in non-U.S. securities that are in addition to the risk associated with domestic securities. Non-U.S. companies, in general, are not subject to the regulatory requirements of U.S. companies and, as such, there may be less publicly available information about these companies. Moreover, non-U.S. accounting, auditing and financial reporting standards generally are different from those applicable to U.S. companies. In addition, non-U.S. companies are exposed to additional economic, political, social or diplomatic events. ADRs and ADSs also involve substantially identical risks to those associated with investments in non-U.S. securities. In addition, the issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities. The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in renewable and alternative energy companies. You should be aware that share prices of renewable and alternative energy companies have been significantly more volatile than shares of companies operating in other more established industries and the securities included in the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund may be subject to sharp price declines. This industry is relatively nascent and under-researched in comparison to more established and mature sectors, and should therefore be regarded as having greater investment risk. The First Trust ISE Water Index Fund invests in companies in the potable water and wastewater industries. You should be aware that adverse developments in these industries may significantly affect the value of the shares of the First Trust ISE Water Index Fund. Companies involved in the potable water and wastewater industries are subject to environmental considerations, taxes, government regulation, price and supply fluctuations, competition and conservation. The First Trust ISE-Revere Natural Gas Index Fund invests in companies in the natural gas industry. You should be aware that one of the natural gas industry's primary risks is the competitive risk associated with the prices of alternative fuels, such as coal and oil. Additionally, the natural gas industry is sensitive to increased interest rates because of the industry's capital intensive nature. Furthermore, there are additional risks and hazards that are inherent in the natural gas industry that may cause the price of natural gas to widely fluctuate. The First Trust ISE Chindia Index Fund invests in the securities of Chinese and Indian companies. You should be aware that investments in such companies are subject to additional risks, which are associated with possible adverse economic, political and social developments in those countries. The First Trust NASDAQ(R) ABA Community Bank Index Fund is concentrated in the securities of NASDAQ(R) listed community banks as defined by its corresponding index which involves additional risks, including limited diversification. These companies are subject to certain risks, including the adverse effects of volatile interest rates, economic recession, increased competition from new entrants in the field, and potential increased regulation. The financial performance of these companies may also be highly dependent upon the business environment in certain geographic regions of the United States and may be adversely impacted by any downturn or unfavorable economic or employment developments in their local markets and the United States as a whole. These companies may also be subject to interest rate risks and changes in monetary policy as their earnings are largely dependent upon their net interest income and lending risks that could further increase because of increases in interest rates and/or continuing economic weakness. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 127 -------------------------------------------------------------------------------- Privacy Policy -------------------------------------------------------------------------------- First Trust Exchange-Traded Fund December 31, 2010 (Unaudited) Privacy Policy The open-end and closed-end funds advised by First Trust Advisors L.P. (each a "Fund") value our relationship with you and consider your privacy an important priority in maintaining 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. In addition to using this information to verify your identity (as required by law), the permitted uses may also 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 with affiliates of the Fund. Confidentiality and Security With regard to our internal security procedures, each 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 go to www.ftportfolios.com, or contact us at (800) 621-1675 (First Trust Portfolios) or (800) 222-6822 (First Trust Advisors). Page 128 [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 BNY Mellon Investment Servicing (US), 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 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 has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. (e) Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. As of the end of the period covered by the report, the registrant's board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is "independent," as defined by Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees -- The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $427,500 for 2009 and $415,475 for 2010. (b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each of the last two fiscal years, for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were $0 for 2009 and $0 for 2010. Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were $0 for 2009 and $0 for 2010. (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 $73,850 for 2009 and $75,298.20 for 2010. 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 2009 and $0 for 2010. (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 2009 and $0 for 2010. All Other Fees (Investment Adviser and Distributor) -- The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant to the registrant's investment adviser and distributor, other than the services reported in paragraphs (a) through (c) of this Item were $0 for 2009 and $0 for 2010. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee (the "Committee") is responsible for the pre-approval of all audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the registrant by its independent auditors. The Chairman of the Committee is authorized to give such pre-approvals on behalf of the Committee up to $25,000 and report any such pre-approval to the full Committee. The Committee is also responsible for the pre-approval of the independent auditor's engagements for non-audit services with the registrant's adviser (not including a sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant, subject to the de minimis exceptions for non-audit services described in Rule 2-01 of Regulation S-X. If the independent auditor has provided non-audit services to the registrant's adviser (other than any sub-adviser whose role is primarily portfolio management and is sub-contracted with or overseen by another investment adviser) and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to its policies, the Committee will consider whether the provision of such non-audit services is compatible with the auditor's independence. (e)(2) The percentage of services described in each of paragraphs (b) through (d) for the registrant and the registrant's investment adviser of this Item that were approved by the audit committee pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows: (b) 0% (c) 0% (d) 0% (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for 2009 were $73,850 for the registrant, $36,000 for the registrant's investment adviser and $37,300 for the registrant's distributor, and for 2010 were $75,298.20 for the registrant, $6,000 for the registrant's investment adviser and $57,145 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. ITEM 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 consisting of all the independent directors of the Registrant. The audit committee of the registrant is comprised of: Richard E. Erickson, Thomas R. Kadlec, Robert F. Keith and Niel B. Nielson. ITEM 6. INVESTMENTS. (a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. (b) Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)), or this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3 (c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not Applicable (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) First Trust Exchange-Traded Fund ------------------------------------------------------------------- By (Signature and Title)* /s/ James A. Bowen ----------------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Date February 23, 2011 ---------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ James A. Bowen ----------------------------------------------------- James A. Bowen, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Date February 23, 2011 ---------------------- By (Signature and Title)* /s/ Mark R. Bradley ----------------------------------------------------- Mark R. Bradley, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date February 23, 2011 ---------------------- * Print the name and title of each signing officer under his or her signature.