0001445546-12-001283.txt : 20120308 0001445546-12-001283.hdr.sgml : 20120308 20120308160715 ACCESSION NUMBER: 0001445546-12-001283 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20111231 FILED AS OF DATE: 20120308 DATE AS OF CHANGE: 20120308 EFFECTIVENESS DATE: 20120308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST TRUST EXCHANGE-TRADED FUND CENTRAL INDEX KEY: 0001329377 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21774 FILM NUMBER: 12677378 BUSINESS ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 BUSINESS PHONE: 630-765-8000 MAIL ADDRESS: STREET 1: 120 EAST LIBERTY DRIVE, SUITE 400 CITY: WHEATON STATE: IL ZIP: 60187 0001329377 S000010772 First Trust Dow Select MicroCap Index Fund C000029773 First Trust Dow Select MicroCap Index Fund FDM 0001329377 S000010976 First Trust Morningstar Dividend Leaders Index Fund C000030350 First Trust Morningstar Dividend Leaders Index Fund FDL 0001329377 S000010977 First Trust US IPO Index Fund C000030351 First Trust US IPO Index Fund FPX 0001329377 S000011047 First Trust NASDAQ-100 Equal Weighted Index Fund C000030477 First Trust NASDAQ-100 Equal Weighted Index Fund QQEW 0001329377 S000011048 First Trust NASDAQ-100-Technology Sector Index Fund C000030478 First Trust NASDAQ-100-Technology Sector Index Fund QTEC 0001329377 S000012478 First Trust NYSE Arca Biotechnology Index Fund C000033929 First Trust NYSE Arca Biotechnology Index Fund FBT 0001329377 S000012479 First Trust Dow Jones Internet Index Fund C000033930 First Trust Dow Jones Internet Index Fund FDN 0001329377 S000012555 First Trust Strategic Value Index Fund C000034137 First Trust Strategic Value Index Fund FDV 0001329377 S000013259 First Trust Nasdaq-100 Ex-Technology Sector Index Fund C000035622 First Trust Nasdaq-100 Ex-Technology Sector Index Fund QQXT 0001329377 S000013797 First Trust Value Line Equity Allocation Index Fund C000037851 First Trust Value Line Equity Allocation Index Fund FVI 0001329377 S000013817 First Trust Value Line Dividend Index Fund C000037913 First Trust Value Line Dividend Index Fund FVD 0001329377 S000015169 First Trust Nasdaq Clean Edge Green Energy Index Fund C000041643 First Trust Nasdaq Clean Edge Green Energy Index Fund QCLN 0001329377 S000017115 First Trust Value Line 100 Exchange-Traded Fund C000047485 First Trust Value Line 100 Exchange-Traded Fund FVL 0001329377 S000017163 First Trust S&P REIT Index Fund C000047557 First Trust S&P REIT Index Fund FRI 0001329377 S000017177 First Trust ISE-Revere Natural Gas Index Fund C000047627 First Trust ISE-Revere Natural Gas Index Fund FCG 0001329377 S000017178 First Trust ISE Water Index Fund C000047628 First Trust ISE Water Index Fund FIW 0001329377 S000017179 First Trust ISE Chindia Index Fund C000047629 First Trust ISE Chindia Index Fund FNI 0001329377 S000026211 First Trust NASDAQ ABA Community Bank Index Fund C000078718 First Trust NASDAQ ABA Community Bank Index Fund QABA N-CSR 1 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, 2011 ------------------- 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: FIRST TRUST First Trust Exchange-Traded Fund First Trust Dow Jones Select MicroCap Index(SM) Fund First Trust Morningstar 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, 2011 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 Shareholder Letter.......................................................... 2 Market Overview............................................................. 3 Fund Performance Overview First Trust Dow Jones Select MicroCap Index(SM) Fund..................... 4 First Trust Morningstar 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 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 ................. 55 First Trust NYSE Arca Biotechnology Index Fund .......................... 56 First Trust Dow Jones Internet Index(SM) Fund ........................... 57 First Trust Strategic Value Index Fund .................................. 58 First Trust Value Line(R) Equity Allocation Index Fund .................. 60 First Trust Value Line(R) Dividend Index Fund ........................... 63 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund .............. 66 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund .............. 68 First Trust S&P REIT Index Fund ......................................... 70 First Trust ISE Water Index Fund ........................................ 72 First Trust ISE-Revere Natural Gas Index Fund ........................... 73 First Trust ISE Chindia Index Fund ...................................... 74 First Trust Value Line(R) 100 Exchange-Traded Fund ...................... 76 First Trust NASDAQ(R) ABA Community Bank Index Fund...................... 79 Statements of Assets and Liabilities........................................ 82 Statements of Operations.................................................... 86 Statements of Changes in Net Assets......................................... 90 Financial Highlights........................................................ 96 Notes to Financial Statements............................................... 107 Report of Independent Registered Public Accounting Firm..................... 119 Additional Information ..................................................... 120 Board of Trustees and Officers.............................................. 124 Risk Considerations......................................................... 126 Privacy Policy.............................................................. 129 CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of First Trust Exchange-Traded Fund (the "Trust") to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. When evaluating the information included in this report, you are cautioned not to place undue reliance on these forward-looking statements, which reflect the judgment of the Advisor and its representatives only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that arise after the date hereof. PERFORMANCE AND RISK DISCLOSURE There is no assurance that any series of the Trust described in this report (each such series is referred to as a "Fund" and collectively, the "Funds") will achieve its investment objective. Each Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline and that the value of the Fund shares may therefore be less than what you paid for them. Accordingly, you can lose money investing in a Fund. See "Risk Considerations" at the end of this report for a discussion of other risks of investing in the Funds. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. For the most recent month-end performance figures, please visit http://www.ftportfolios.com or speak with your financial advisor. Investment returns, net asset value and share price will fluctuate and Fund shares, when sold, may be worth more or less than their original cost. HOW TO READ THIS REPORT This report contains information that may help you evaluate your investment. It includes details about each Fund's portfolio and presents data and analysis that provide insight into each Fund's performance and investment approach. By reading the portfolio commentary by Robert F. Carey, Chief Investment Officer of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The risks of investing in each Fund are spelled out in its prospectus, statement of additional information, this report and other Fund regulatory filings. Page 1 -------------------------------------------------------------------------------- SHAREHOLDER LETTER -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL LETTER FROM THE CHAIRMAN AND CEO DECEMBER 31, 2011 Dear Shareholders: I am pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund. First Trust Advisors L.P. ("First Trust"), now in our 21st year, has always believed that staying invested in quality products and having a long-term horizon can help investors reach their financial goals. Like many successful investors, we understand that success in the markets doesn't just happen--it requires a long-term investment perspective through all kinds of markets. Although the markets have been somewhat choppy over the past six months, the equity market is well above the lows it sank to during the recent recession. The report you hold contains detailed information for the period covered by the report 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. A successful investor is also typically a knowledgeable one, as we have found to be the case at First Trust. First Trust remains committed to being a long-term investor and investment manager and to bringing you quality investment solutions regardless of market ups and downs. We offer a variety of products that could fit many financial plans to help those investors seeking long-term investment success. You may want to talk to your advisor about the other investments First Trust offers that might also fit your financial goals. First Trust will continue to make available up-to-date information about your investments so you and your financial advisor are current on any First Trust investments you own. We value our relationship with you, and thank you for the opportunity to assist you in achieving your financial goals. I look forward to 2012 and to the next edition of your Fund's report. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees of First Trust Exchange-Traded Fund Chief Executive Officer of First Trust Advisors L.P. Page 2 -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2011 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 The U.S. economy expanded in each of the past ten calendar quarters. While economic activity was sluggish in the first half of 2011, it did accelerate above the 2.0% level by year-end. GDP ranged from an annualized 0.4% in the first quarter of 2011 to an annualized 2.8% in the fourth quarter of 2011. That is still significant when you consider that the size of the U.S. economy (nominal dollars) has grown from $5.99 trillion in 1991 to $15.09 trillion in 2011. Over that same 20-year period, GDP averaged 2.6%, according to data from the Bureau of Economic Analysis. The Blue Chip Economic Indicators survey in December 2011 revealed a consensus GDP estimate of 2.2% for 2012. Estimates have been ratcheted down in recent months due to the ongoing debt crisis negotiations in Europe. The austerity measures forthcoming, as well as those already implemented, are expected to dampen economic activity in the European Union. If so, it would likely temper global growth as well, in our opinion. One of the most important and talked about economic indicators in 2011 was job growth. It is likely to be in 2012 as well. The U.S. has increased its nonfarm payrolls by 3.16 million since February 2010, yet the unemployment rate closed 2011 at 8.5%. While 8.5% is still high, it is down from 10.0% in October 2009. This issue will be a big point of contention in the upcoming general election. Since 1936, no incumbent in the White House has won a second term when the unemployment rate has been above 7.2%. A secondary issue is the rising number of people out-of-work for an extended period of time. The U.S. economic recovery, while not robust, is actually one of the better stories around the globe. Progress has been made on several fronts. The number of bank failures in the U.S. in 2011 fell by nearly 44% from 2010's total. The default rate on U.S. speculative-grade debt stood at 1.8% in December 2011, well below its historical average of 5.0%, according to Moody's. The companies in the REIT sector raised a record amount of capital in the public markets in 2011, including a record amount of equity, in an ongoing effort to strengthen their balance sheets, according to REIT.com. REITs raised $51.3 billion in public equity and debt in 2011, surpassing the previous record of $49.0 billion raised in 2006. RealtyTrac reported that foreclosures and repossessions declined 33% in 2011 to 2.7 million, their lowest level since 2007. S&P 500 Index earnings reached a record high in the third quarter of 2011. So we believe there is much to be encouraged about heading into 2012. U.S. STOCKS AND BONDS The major U.S. stock indices were mixed in 2011. The S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index returned 2.11%, -1.74%, and 1.00%, respectively, according to Bloomberg. Six of the 10 major sectors in the S&P 500 posted positive total returns. The top-performing sector was Utilities, up 19.88%, while the poorest showing came from Financials, down 17.03%. The year-over-year estimated earnings growth rate for the companies in the S&P 500 Index is expected be 9.00% in 2011, according to Standard & Poor's. A survey of 214 institutional investors just released by Bank of America Merrill Lynch revealed that more investors are willing to assume risk and fewer are predicting a global slowdown. Only a net 3% of institutional investors believe the global economy will weaken in the next 12 months, down from 27% in December. That is the biggest one-month improvement in sentiment since May 2009. While most continue to shy away from European equities, it appears that investors are favoring energy and technology stocks. In addition, portfolio managers in the U.S. are once again investing in banks. In the U.S. bond market, despite warnings from a high-profile analyst calling for a surge in defaults, the top-performing major debt group was municipal bonds. The Barclays Capital Municipal Bond: Long Bond (22+) Index posted a total return of 14.88%. The next closest domestic category was GNMAs, up 7.97%, as measured by the Barclays Capital GNMA 30 Index. All of the major debt groups in the U.S. posted positive returns. FOREIGN STOCKS AND BONDS The Barclays Capital Global Emerging Markets Index of debt securities rose 5.77% (USD) in 2011, while the MSCI Emerging Markets Index of stocks declined 18.42% (USD). The Barclays Capital Global Aggregate Index of higher quality debt rose 5.64% (USD), while the MSCI World Index (excluding the U.S.) of stocks from developed countries declined 13.71% (USD). The U.S. Dollar Index (DXY) rose 1.06% against a basket of major currencies in 2011. 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -8.69% -2.76% 0.68% -13.04% 4.36% Market Value -9.32% -2.91% 0.57% -13.71% 3.64% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) -8.16% -2.08% 1.40% -9.96% 9.08% Russell 2000(R) Index -4.18% 0.15% 3.26% 0.75% 22.26% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of -8.69% during the 12-month period covered by this report. During the same period, the benchmark Russell 2000(R) Index generated a return of -4.18%. The Materials (+1.09%) and Utilities (-0.15%) sectors were two of the top-performing sectors, while the Telecommunication Services (-40.11%) and Information Technology (-15.62%) sectors were two of the worst-performing sectors. Synovis Life Technologies, Inc. (+93.80%) and Charming Shoppes, Inc. (+84.91%) were two of the top-performing stocks during the period covered by this report. Alaska Communications Systems Group, Inc. (-70.25%) and Suffolk Bancorp (-66.77%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 by First Trust on behalf of the Fund. 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, 2011 -------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Financials 24.07% Industrials 20.56 Consumer Discretionary 15.58 Information Technology 14.19 Health Care 12.00 Materials 5.33 Energy 3.49 Utilities 2.26 Telecommunication Services 1.76 Consumer Staples 0.76 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 -------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS BBCN Bancorp, Inc. 0.94% Wright Medical Group, Inc. 0.85 Kenexa Corp. 0.83 Sturm, Ruger & Co., Inc. 0.83 Shuffle Master, Inc. 0.82 Boston Private Financial Holdings, Inc. 0.81 La-Z-Boy, Inc. 0.80 Hercules Offshore, Inc. 0.79 Standard Microsystems Corp. 0.78 Navigant Consulting, Inc. 0.77 ------- Total 8.22% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 27, 2005 - DECEMBER 31, 2011 First Trust Dow Jones Select Dow Jones Select Russell 2000(R) MicroCap Index(SM) Fund MicroCap Index(SM) Index 9/05 $10,000 $10,000 $10,000 12/05 10,374 10,397 10,252 06/06 10,968 11,033 11,094 12/06 12,001 12,115 12,134 06/07 12,746 12,910 12,917 12/07 11,278 11,474 11,944 06/08 9,896 10,100 10,825 12/08 7,520 7,707 7,909 06/09 7,362 7,568 8,118 12/09 9,087 9,393 10,058 06/10 8,833 9,153 9,862 12/10 11,427 11,876 12,759 6/11 11,811 12,319 13,551 12/11 10,435 10,907 12,227 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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 87 2 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% 01/01/07 - 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 01/01/11 - 12/31/11 161 2 0 0 Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FDL - FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND The First Trust Morningstar 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (03/09/06) Ended (03/09/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV 14.44% -1.53% 1.94% -7.41% 11.82% Market Value 14.22% -1.53% 1.94% -7.40% 11.79% INDEX PERFORMANCE Morningstar(R) Dividend Leaders(SM) Index 15.02% -1.04% 2.43% -5.07% 14.96% S&P 500(R) Index 2.11% -0.25% 1.93% -1.24% 11.76% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of +14.44% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of +2.11%. The Utilities (+20.21%) and Health Care (+14.47%) sectors were two of the top-performing sectors, while the Financials (-18.12%) and Industrials (-0.63%) sectors were two of the worst-performing sectors. The poor performance in the Financials sector was mitigated by the low average weight of the sector in the Fund (3.0%). Harleysville Group, Inc. (+59.79%) and H&R Block, Inc. (+43.24%) were two of the top-performing stocks during the period covered by this report. Federated Investors, Inc. (-36.38%) and First Niagara Financial Group, Inc. (-34.80%) were two of the worst-performing stocks during the period covered by this report. ------------------- Morningstar(R) is a service mark of Morningstar, Inc. and has been licensed for use by First Trust on behalf of the Fund. The First Trust Morningstar 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 DIVIDEND LEADERS(SM) INDEX FUND (CONTINUED) --------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Health Care 28.61% Utilities 26.77 Telecommunication Services 19.17 Consumer Staples 8.02 Energy 5.28 Industrials 4.46 Financials 2.84 Materials 1.83 Consumer Discretionary 1.71 Information Technology 1.31 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS AT&T, Inc. 9.97% Verizon Communications, Inc. 9.20 Johnson & Johnson 9.18 Merck & Co., Inc. 7.81 ConocoPhillips 5.28 Abbott Laboratories 4.80 Bristol-Myers Squibb Co. 3.70 Eli Lilly & Co. 3.13 Kraft Foods, Inc., Class A 3.03 Southern (The) Co. 2.63 ------- Total 58.73% ======= GROWTH OF A $10,000 INITIAL INVESTMENT MARCH 9, 2006 - DECEMBER 31, 2011 First Trust Morningstar Morningstar(R) Dividend S&P 500(R) Dividend Leaders(SM) Index Fund Leaders(SM) 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 06/11 10,535 10,806 11,604 12/11 11,182 11,498 11,176 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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 219 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% 01/01/07 - 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 01/01/11 - 12/31/11 33 0 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(R)-100 U.S. Index (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a modified value-weighted price index measuring the performance of the top 100 U.S. companies ranked quarterly by market capitalization in the IPOX Global Composite Index. The Index utilizes a 10% capping on all constituents and includes the 100 largest, typically best performing and most liquid initial public offerings ("IPOs") of the U.S. companies in the IPOX Global Composite Index. The IPOX Global Composite Index is reconstituted regularly with IPOs being added to the IPOX Global Composite Index at their seventh trading day upon "going public" and automatically exiting after 1,000 trading days or approximately four years thereafter. The Index is reconstituted quarterly to reflect changes in the stock market values of the IPOX Global Composite Index constituents and IPO activity during the past quarter, with potential new companies entering the Index while other companies reach 1,000 days in the Index and automatically drop out. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 04/13/06. --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE AS OF DECEMBER 31, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (04/12/06) Ended (04/12/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV 3.11% 2.58% 4.14% 13.60% 26.09% Market Value 2.98% 2.59% 4.13% 13.66% 26.05% INDEX PERFORMANCE IPOX(R)-100 U.S. Index 3.78% 3.22% 4.79% 17.17% 30.69% Russell 3000(R) Index 1.03% -0.01% 1.77% -0.07% 10.57% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of +3.11% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of +1.03%. The Consumer Staples (+31.19%) and Utilities (+30.04%) sectors were two of the top-performing sectors, while the Consumer Discretionary (-22.39%) and Financials (-7.08%) sectors were two of the worst-performing sectors. Pharmasset (+312.88%) and Generac Holdings, Inc. (+73.35%) were two of the top-performing stocks during the period covered by this report. IntraLinks Holdings, Inc. (-67.31%) and Amyris, Inc. (-66.94%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Information Technology 24.93% Consumer Discretionary 19.59 Consumer Staples 18.64 Energy 13.51 Financials 8.00 Industrials 7.86 Health Care 5.72 Utilities 1.17 Materials 0.58 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Visa, Inc., Class A 10.34% Philip Morris International, Inc. 10.16 General Motors Co. 6.64 Kinder Morgan, Inc. 4.76 Lorillard, Inc. 3.22 Dollar General Corp. 2.94 Mead Johnson Nutrition Co. 2.93 Discover Financial Services 2.76 Marathon Petroleum Corp. 2.49 Motorola Mobility Holdings, Inc. 2.43 ------- Total 48.67% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 12, 2006 - DECEMBER 31, 2011 First Trust US IPO IPOX(R)-100 U.S. Russell 3000(R) Index Fund Index 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 06/11 13,439 13,889 11,640 12/11 12,607 13,071 11,057 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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 135 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% 01/01/07 - 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 01/01/11 - 12/31/11 116 1 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (04/19/06) Ended (04/19/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -2.77% 2.96% 2.69% 15.68% 16.37% Market Value -2.82% 2.97% 2.69% 15.74% 16.32% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) -2.10% 3.62% 3.34% 19.45% 20.61% NASDAQ-100 Index(R) 3.68% 6.06% 5.60% 34.20% 36.45% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -2.77% during the 12-month period covered by this report. During the same period, the benchmark NASDAQ-100 Index(R) generated a return of +3.68%. The Consumer Staples (+7.84%) and Health Care (+4.43%) sectors were two of the top-performing sectors, while the Telecommunication Services (-20.27%) and Information Technology (-6.77%) sectors were two of the worst-performing sectors. Intuitive Surgical, Inc. (+79.64%) and Biogen Idec, Inc. (+64.13%) were two of the top-performing stocks during the period covered by this report. Research In Motion Ltd. (-75.06%) and First Solar, Inc. (-74.06%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Information Technology 49.20% Consumer Discretionary 22.63 Health Care 16.22 Industrials 5.06 Consumer Staples 3.93 Materials 1.95 Telecommunication Services 1.01 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Akamai Technologies, Inc. 1.19% Micron Technology, Inc. 1.08 Expedia, Inc. 1.08 Gilead Sciences, Inc. 1.08 Altera Corp. 1.07 Cerner Corp. 1.06 Research In Motion Ltd. 1.06 Warner Chilcott PLC, Class A 1.06 Yahoo!, Inc. 1.06 Alexion Pharmaceuticals, Inc. 1.05 ------- Total 10.79% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2011 First Trust NASDAQ-100 Equal NASDAQ-100 Equal NASDAQ-100 Weighted Index(SM) Fund Weighted 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 06/11 12,867 13,288 13,849 12/11 11,636 12,063 13,645 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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 151 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% 01/01/07 - 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 01/01/11 - 12/31/11 101 0 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (04/19/06) Ended (04/19/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -5.75% 4.03% 3.50% 21.84% 21.65% Market Value -5.90% 4.04% 3.49% 21.91% 21.60% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) -5.16% 4.70% 4.15% 25.82% 26.07% S&P 500 Information Technology Index 2.41% 3.83% 3.88% 20.69% 24.26% S&P 500(R) Index 2.11% -0.25% 1.42% -1.24% 8.39% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -5.75% during the 12-month period covered by this report. During the same period, the benchmark S&P 500 Information Technology Index generated a return of +2.41%. Cerner Corp. (+29.30%) and KLA-Tencor Corp. (+28.40%) were two of the top-performing stocks during the period covered by this report. Research In Motion Ltd. (-75.06%) and NetApp, Inc. (-34.01%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Information Technology 95.17% Health Care 2.46 Consumer Discretionary 2.37 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Akamai Technologies, Inc. 2.74% Micron Technology, Inc. 2.51 Altera Corp. 2.46 Cerner Corp. 2.46 Research In Motion Ltd. 2.44 Yahoo!, Inc. 2.44 Apple, Inc. 2.41 Seagate Technology PLC 2.41 Microchip Technology, Inc. 2.40 KLA-Tencor Corp. 2.37 ------- Total 24.64% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2011 First Trust NASDAQ-100-Technology NASDAQ-100 Technology S&P 500 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 06/11 13,006 13,435 12,383 11,253 12/11 12,165 12,606 12,426 10,839
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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 161 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% 01/01/07 - 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 01/01/11 - 12/31/11 91 0 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (06/19/06) Ended (06/19/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -16.36% 7.03% 9.51% 40.43% 65.35% Market Value -16.47% 6.99% 9.51% 40.21% 65.30% INDEX PERFORMANCE NYSE Arca Biotechnology Index(SM) -15.89% 7.67% 10.18% 44.70% 70.96% NASDAQ(R) Biotechnology Index 12.09% 6.72% 8.09% 38.42% 53.84% S&P 500(R) Index 2.11% -0.25% 2.41% -1.24% 14.10% S&P Composite 1500 Health Care Index 11.88% 3.20% 5.00% 17.04% 31.03% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -16.36% during the 12-month period covered by this report. During the same period, the benchmark S&P Composite 1500 Health Care Index generated a return of +11.88%. Alexion Pharmaceuticals, Inc. (+77.53%) and Biogen Idec, Inc. (+64.13%) were two of the top-performing stocks during the period covered by this report. Dendreon Corp. (-78.24%) and Human Genome Sciences, Inc. (-69.07%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM INDUSTRY INVESTMENTS Biotechnology 68.23% Life Sciences Tools & Services 25.73 Pharmaceuticals 6.04 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS United Therapeutics Corp. 6.28% Nektar Therapeutics 6.04 Illumina, Inc. 6.03 Amgen, Inc. 5.92 Incyte Corp. 5.75 Alexion Pharmaceuticals, Inc. 5.64 Myriad Genetics, Inc. 5.63 QIAGEN N.V. 5.57 Gilead Sciences, Inc. 4.99 Celgene Corp. 4.97 ------- Total 56.82% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 19, 2006 -DECEMBER 31, 2011 First Trust NYSE Arca NYSE Arca NASDAQ(R) S&P 500(R) S&P Composite 1500 Biotechnology Index Fund Biotechnology Index(SM) Biotechnology Index Index Health 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 06/11 22,182 22,880 15,694 11,847 13,374 12/11 16,534 17,096 15,385 11,410 13,104
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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 151 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% 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 01/01/11 - 12/31/11 100 0 0 0 Page 15 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND The First Trust Dow Jones Internet Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Dow Jones Internet Composite Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index represents companies that generate the majority of their revenues via the Internet. The Index was designed and is maintained according to a set of rules that were devised with the goal of providing clear and accurate views of the growing Internet market segment. The Index aims to consistently represent 80% of the float-adjusted Internet equity universe. The Index contains two sub-indexes, the Dow Jones Internet Commerce Index and the Dow Jones Internet Services Index. For its stock to be eligible for the "universe," a company must generate at least 50% of annual sales/revenues from the Internet, and be currently included in the Dow Jones U.S. Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 06/23/06. --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE AS OF DECEMBER 31, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (06/19/06) Ended (06/19/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -5.74% 7.51% 9.12% 43.64% 62.10% Market Value -5.85% 7.49% 9.12% 43.51% 62.10% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) -5.12% 8.10% 9.71% 47.61% 67.02% S&P 500(R) Index 2.11% -0.25% 2.41% -1.24% 14.10% S&P Composite 1500 Information Technology Index 1.12% 3.77% 6.17% 20.35% 39.30% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -5.74% during the 12-month period covered by this report. During the same period, the benchmark S&P Composite 1500 Information Technology Index generated a return of +1.12%. VirnetX Holding Corp. (+61.10%) and IAC/InterActiveCorp. (+48.87%) were two of the top-performing stocks during the period covered by this report. Monster Worldwide, Inc. (-66.44%) and Netflix, Inc. (-60.56%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 by First Trust on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Information Technology 75.89% Consumer Discretionary 17.27 Financials 4.32 Health Care 2.52 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Google, Inc., Class A 10.59% Amazon.com, Inc. 6.93 eBay, Inc. 5.89 priceline.com, Inc. 5.11 Yahoo!, Inc. 4.89 Juniper Networks, Inc. 3.86 Salesforce.com, Inc. 3.63 Check Point Software Technologies Ltd. 3.51 Akamai Technologies, Inc. 3.36 VeriSign, Inc. 3.12 ------- Total 50.89% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 19, 2006 - DECEMBER 31, 2011 First Trust Dow Jones Dow Jones Internet S&P 500(R) S&P Composite 1500 Internet Index(SM) Fund Composite Index(SM) Index Information 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 06/11 18,186 18,661 11,847 14,115 12/11 16,209 16,702 11,410 13,930
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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 151 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% 01/01/07 - 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 01/01/11 - 12/31/11 101 0 0 0 Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FDV - FIRST TRUST STRATEGIC VALUE INDEX FUND The First Trust 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (07/06/06) Ended (07/06/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -2.94% 1.33% 3.11% 6.82% 18.29% Market Value -3.07% 1.28% 3.09% 6.58% 18.18% INDEX PERFORMANCE Credit Suisse U.S. Value Index, Powered by HOLT(TM)* -2.13% N/A N/A N/A N/A S&P 500 Value Index -0.48% -2.96% -0.52% -13.96% -2.82% S&P 500(R) Index 2.11% -0.25% 1.91% -1.24% 10.95% --------------------------------------------------------------------------------------------------------------------------- * 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 other than the one year period. (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -2.94% during the 12-month period covered by this report. During the same period, the benchmark S&P 500 Value Index generated a return of -0.48%. The Health Care (+25.31%) and Consumer Discretionary (+6.66%) sectors were two of the top-performing sectors, while the Financials (-18.00%) and Information Technology (-13.43%) sectors were two of the worst-performing sectors. UnitedHealth Group, Inc. (+53.61%) and Biogen Idec, Inc. (+42.39%) were two of the top-performing stocks during the period covered by this report. Goldman Sachs Group, Inc. (-45.60%) and Citigroup, Inc. (-44.33%) were two of the worst-performing stocks during the period covered by this report. ------------------- "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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Financials 25.68% Health Care 21.43 Industrials 14.23 Energy 13.28 Information Technology 11.74 Materials 7.31 Consumer Discretionary 6.33 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS DISH Network Corp., Class A 2.50% UnitedHealth Group, Inc. 2.30 Merck & Co., Inc. 2.29 Pfizer, Inc. 2.27 Eli Lilly & Co. 2.26 Raytheon Co. 2.26 Marathon Oil Corp. 2.24 Ameriprise Financial, Inc. 2.21 Aetna, Inc. 2.20 Celgene Corp. 2.19 ------- Total 22.72% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JULY 6, 2006 - DECEMBER 31, 2011 First Trust Strategic S&P 500 Value S&P 500(R) Value Index Fund Index Index 07/06 $10,000 $10,000 $10,000 12/06 11,074 11,294 11,235 06/07 12,444 12,126 12,016 12/07 12,210 11,519 11,852 06/08 11,253 9,671 10,440 12/08 7,665 7,002 7,467 06/09 8,640 6,903 7,703 12/09 10,686 8,484 9,443 06/10 9,880 8,034 8,815 12/10 12,185 9,765 10,866 06/11 13,144 10,276 11,520 12/11 11,827 9,718 11,095 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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 129 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% 01/01/07 - 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 01/01/11 - 12/31/11 123 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (12/05/06) Ended (12/05/06) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -9.56% -0.36% -0.57% -1.78% -2.86% Market Value -9.65% -0.37% -0.56% -1.86% -2.79% INDEX PERFORMANCE Value Line(R) Equity Allocation Index(TM) -8.91% 0.47% 0.26% 2.40% 1.34% Russell 3000(R) Index 1.03% -0.01% 0.00% -0.07% 0.01% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -9.56% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of +1.03%. Oil States International, Inc. (+51.53%) and NewMarket Corp. (+49.14%) were two of the top-performing stocks during the period covered by this report. Suntech Power Holdings Co., Ltd., ADR (-62.85%) and Research In Motion Ltd. (-60.80%) were two of the worst-performing stocks during the period covered by this report. ------------------- "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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Consumer Discretionary 21.32% Consumer Staples 15.71 Information Technology 13.10 Utilities 12.89 Materials 9.18 Energy 7.05 Health Care 6.76 Financials 6.75 Industrials 3.66 Telecommunication Services 3.58 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Duke Energy Corp. 1.42% TJX (The) Cos., Inc. 1.38 Edison International 1.37 Eli Lilly & Co. 1.37 Philip Morris International, Inc. 1.35 Consolidated Edison, Inc. 1.33 McDonald's Corp. 1.33 Google, Inc., Class A 1.32 NIKE, Inc., Class B 1.32 MasterCard, Inc., Class A 1.31 ------- Total 13.50% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 5, 2006 - DECEMBER 31, 2011 First Trust Value Line(R) Equity Value Line(R) Equity Russell 3000(R) Allocation Index Fund Allocation Index(TM) Index 12/5/06 $10,000 $10,000 $10,000 12/06 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 06/11 10,976 11,405 10,529 12/11 9,714 10,132 10,001
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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 146 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% 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 01/01/11 - 12/31/11 105 0 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 (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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (08/19/03) Ended (08/19/03) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV 9.03% 2.08% 7.20% 10.85% 78.87% Market Value 8.96% 2.09% 7.20% 10.92% 78.88% INDEX PERFORMANCE Value Line(R) Dividend Index(TM) 9.88% 2.86% N/A 15.15% N/A S&P 500(R) Index 2.11% -0.25% 4.84% -1.24% 48.54% Dow Jones U.S. Select Dividend Index(SM) 12.42% -0.66% N/A -3.24% 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 (12/31/11) were 10.59% and 11.12% at NAV and Market Value, respectively. That compares to an Index return of 14.90% for the same period. The average annual total returns for the period from the reorganization date (12/15/06) through period end (12/31/11) were 2.01% and 2.11% at NAV and Market Value, respectively. That compares to an Index return of 2.80% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to December 15, 2006, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVD Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Amex) closing market price of the Predecessor FVD Fund. (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of +9.03% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of +2.11%. The Energy (+20.11%) and Utilities (+17.66%) sectors were two of the top-performing sectors, while the Materials (-0.99%) and Information Technology (-0.63%) sectors were two of the worst-performing sectors. VF Corp. (+47.40%) and Lorillard, Inc. (+46.26%) were two of the top-performing stocks during the period covered by this report. Federated Investors, Inc. (-39.58%) and Thomson Reuters Corp. (-25.80%) were two of the worst-performing stocks during the period covered by this report. ------------------- "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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Utilities 22.01% Consumer Staples 17.28 Financials 12.52 Industrials 11.29 Health Care 9.56 Consumer Discretionary 8.90 Information Technology 7.71 Energy 4.18 Materials 3.55 Telecommunication Services 3.00 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Federated Investors, Inc., Class B 0.61% Honda Motor Co., Ltd., ADR 0.61 Medtonic, Inc. 0.61 NSTAR 0.61 Omnicom Group, Inc. 0.61 Royal Bank of Canada 0.61 Sanofi, ADR 0.61 Toronto-Dominion (The) Bank 0.61 Bank of Montreal 0.60 Canadian Imperial Bank of Commerce 0.60 ------- Total 6.08% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT AUGUST 19, 2003 - DECEMBER 31, 2011 First Trust Value Line(R) S&P 500(R) Dividend Index Fund 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 06/11 17,738 15,423 12/11 17,885 14,854 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, 2011 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, 2007 through December 31, 2011. 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% 01/01/07 - 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 01/01/11 - 12/31/11 218 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% 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 01/01/11 - 12/31/11 33 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/11 to 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -1.08% 1.12% 5.58% Market Value -1.18% 1.11% 5.53% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) -0.38% 1.77% 8.94% Russell 1000(R) Index 1.50% -0.60% -2.89% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -1.08% during the 12-month period covered by this report. During the same period, the benchmark Russell 1000(R) Index generated a return of +1.50%. The Consumer Staples (+7.83%) and Health Care (+2.89%) sectors were two of the top-performing sectors, while the Telecommunication Services (-20.25%) and Information Technology (-8.19%) sectors were two of the worst-performing sectors. Intuitive Surgical, Inc. (+79.64%) and Biogen Idec, Inc. (+64.13%) were two of the top-performing stocks during the period covered by this report. First Solar, Inc. (-74.06%) and Netflix, Inc. (-60.56%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR (1) INVESTMENTS Consumer Discretionary 38.10% Health Care 26.71 Information Technology 14.11 Industrials 8.93 Consumer Staples 6.93 Materials 3.44 Telecommunication Services 1.78 ------- 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Expedia, Inc. 1.90% Gilead Sciences, Inc. 1.90 Alexion Pharmaceuticals, Inc. 1.86 Apollo Group, Inc., Class A 1.86 Warner Chilcott PLC, Class A 1.86 Amgen, Inc. 1.85 Intuitive Surgical, Inc. 1.85 Celgene Corp. 1.83 First Solar, Inc. 1.83 Starbucks Corp. 1.83 ------- Total 18.57% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2011 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 06/11 11,961 12,294 10,177 12/11 10,558 10,894 9,711
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, 2011 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, 2011. 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 01/01/11 - 12/31/11 159 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 01/01/11 - 12/31/11 93 0 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (02/08/07) Inception (02/08/07) 12/31/11 to 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -41.23% -13.84% -51.75% Market Value -41.41% -13.89% -51.90% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) Green Energy Index -40.81% -13.23% -50.07% Russell 2000(R) Index -4.18% -0.59% -2.88% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -41.23% during the 12-month period covered by this report. During the same period, the benchmark Russell 2000(R) Index generated a return of -4.18%. National Semiconductor Corp. (+80.42%) and Advanced Analogic Technologies (+61.45%) were two of the top-performing stocks during the period covered by this report. Ener1, Inc. (-92.36%) and Hanwha SolarOne Co., Ltd., ADR (-87.97%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Information Technology 73.93% Industrials 10.49 Consumer Discretionary 6.96 Energy 5.16 Utilities 1.99 Health Care 0.84 Materials 0.63 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Linear Technology Corp. 8.51% ON Semiconductor Corp. 8.11 Tesla Motors, Inc. 6.95 First Solar, Inc. 6.12 Cree, Inc. 5.97 AVX Corp. 4.28 Hexcel Corp. 4.21 Universal Display Corp. 4.09 Fairchild Semiconductor International Inc. 3.69 Itron, Inc. 3.53 ------- Total 55.46% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2011 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 06/11 7,640 7,879 10,765 12/11 4,825 4,992 9,713
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, 2011 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, 2011. 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 01/01/11 - 12/31/11 125 5 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 01/01/11 - 12/31/11 116 6 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 S&P Index Committee makes constituent changes on an as-needed basis. Share adjustments that exceed 5% are made at the time of the change. Share adjustments of less than 5% are made on a quarterly basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/10/07. --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE AS OF DECEMBER 31, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/11 to 12/31/11 to 12/31/11 FUND PERFORMANCE NAV 7.90% -2.88% -12.72% Market Value 7.82% -2.88% -12.72% INDEX PERFORMANCE S&P United States REIT Index* 8.48% N/A N/A FTSE EPRA/NAREIT North America Index 8.19% -2.32% -10.34% Russell 3000(R) Index 1.03% -1.51% -6.81% --------------------------------------------------------------------------------------------------------------------------- * On November 6, 2008, the Fund's underlying index changed from the S&P REIT Composite Index to the S&P United States REIT Index. Therefore, the Fund's performance and historical returns shown for the periods prior to November 6, 2008 are not necessarily indicative of the performance that the Fund, based on its current Index, would have generated. The inception date of the Index was June 30, 2008. Returns for the Index are only disclosed for those periods in which the Index was in existence for the whole period. (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of +7.90% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of +1.03%. Mission West Properties (+44.16%) and Extra Space Storage, Inc. (+43.01%) were two of the top-performing stocks during the period covered by this report. FelCor Lodging Trust, Inc. (-56.68%) and Getty Realty Corp. (-51.86%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM REIT CLASS INVESTMENTS Specialized 27.82% Retail 26.62 Residential 18.50 Office 15.92 Diversified 6.35 Industrial 4.79 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Simon Property Group, Inc. 10.25% Public Storage 5.16 Equity Residential 4.58 HCP, Inc. 4.57 Ventas, Inc. 4.29 Boston Properties, Inc. 3.98 Vornado Realty Trust 3.84 Prologis, Inc. 3.54 AvalonBay Communities, Inc. 3.36 Host Hotels & Resorts, Inc. 2.82 ------- Total 46.39% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2011 First Trust S&P FTSE EPRA/NAREIT Russell 3000(R) REIT Index Fund North America Index 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 06/11 8,899 9,163 9,811 12/11 8,729 8,965 9,319 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, 2011 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, 2011. 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% 05/10/07 - 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 01/01/11 - 12/31/11 149 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% 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 01/01/11 - 12/31/11 102 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/11 to 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -5.62% 1.54% 7.39% Market Value -5.97% 1.49% 7.13% INDEX PERFORMANCE ISE Water Index(TM) -4.95% 2.22% 10.76% Russell 3000(R) Index 1.03% -1.51% -6.81% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40)
PERFORMANCE REVIEW The Fund generated a NAV return of -5.62% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of +1.03%. American Water Works Co. (+30.04%) and Arch Chemicals, Inc. (+25.81%) were two of the top-performing stocks during the period covered by this report. Veolia Environnement, ADR (-60.52%) and Mueller Water Products, Inc. (-40.05%) were two of the worst-performing stocks during the period covered by this report. ------------------- "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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Industrials 62.86% Utilities 24.72 Health Care 4.29 Materials 4.14 Information Technology 3.99 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS American Water Works Co., Inc. 4.13% Companhia de Saneamento Basico do Estado de Sao Paulo, ADR 4.10 Aqua America, Inc. 4.10 Lindsay Corp. 4.10 California Water Service Group 4.07 Mueller Water Products, Inc., Class A 4.04 Flow International Corp. 4.00 Watts Water Technologies, Inc., Class A 3.79 Veolia Environment, ADR 3.77 Pentair, Inc. 3.65 ------- Total 39.75% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2011 First Trust ISE Water ISE Water Russell 3000(R) Index Fund Index(TM) 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 06/11 11,910 12,243 9,811 12/11 10,738 11,076 9,319 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, 2011 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, 2011. 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 01/01/11 - 12/31/11 131 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 01/01/11 - 12/31/11 121 0 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/11 to 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -6.85% -1.53% -6.93% Market Value -7.13% -1.54% -6.97% INDEX PERFORMANCE ISE-REVERE Natural Gas Index(TM) -6.18% -0.83% -3.80% Russell 3000(R) Index 1.03% -1.51% -6.81% S&P Composite 1500 Energy Index 3.92% 2.99% 14.68% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -6.85% during the 12-month period covered by this report. During the same period, the benchmark S&P Composite 1500 Energy Index generated a return of +3.92%. Petrohawk Energy Corp. (+111.95%) and Cabot Oil & Gas Corp. (+100.96%) were two of the top-performing stocks during the period covered by this report. Quicksilver Resources, Inc. (-54.48%) and Forest Oil Corp. (-48.09%) were two of the worst-performing stocks during the period covered by this report. ------------------- "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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SUB-INDUSTRY INVESTMENTS Oil & Gas Exploration & Production 78.55% Integrated Oil & Gas 17.80 Gas Utilities 3.65 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS SandRidge Energy, Inc. 3.76% Exxon Mobil Corp. 3.67 Questar Corp. 3.66 Talisman Energy, Inc. 3.62 Murphy Oil Corp. 3.60 PetroQuest Energy, Inc. 3.59 Royal Dutch Shell PLC, ADR 3.58 Stone Energy Corp. 3.57 ConocoPhillips 3.57 Noble Energy, Inc. 3.48 ------- Total 36.10% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2011 First Trust ISE-Revere ISE-REVERE Russell 3000(R) S&P Composite 1500 Natural Gas Index Fund Natural Gas Index(TM) Index 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 06/11 11,012 11,342 9,811 12,304 12/11 9,308 9,620 9,319 11,469
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, 2011 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, 2011. 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 01/01/11 - 12/31/11 151 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 01/01/11 - 12/31/11 101 0 0 0 Page 33 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FNI - FIRST TRUST ISE CHINDIA INDEX FUND The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a non-market capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks of companies from China and India currently trading on a U.S. exchange. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07. --------------------------------------------------------------------------------------------------------------------------- PERFORMANCE AS OF DECEMBER 31, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (05/08/07) Inception (05/08/07) 12/31/11 to 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -26.02% -1.11% -5.04% Market Value -26.24% -1.15% -5.25% INDEX PERFORMANCE ISE ChIndia Index(TM) -25.84% -0.50% -2.30% Russell 3000(R) Index 1.03% -1.51% -6.81% MSCI Emerging Markets Index -18.42% 0.58% 2.72% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -26.02% during the 12-month period covered by this report. During the same period, the benchmark MSCI Emerging Markets Index generated a return of -18.42%. The Telecommunication Services (+6.76%) and Utilities (+2.99%) sectors were two of the top-performing sectors, while the Financials (-37.78%) and Information Technology (-29.59%) sectors were two of the worst-performing sectors. Melco Crown Entertainment Ltd., ADR (+51.26%) and China Unicom (Hong Kong) Ltd., ADR (+49.12%) were two of the top-performing stocks during the period covered by this report. Longtop Financial Technologies Ltd., ADR (-97.84%) and ReneSola Ltd., ADR (-83.18%) were two of the worst-performing stocks during the period covered by this report. ------------------- "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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Information Technology 36.32% Financials 15.73 Energy 13.99 Consumer Discretionary 13.79 Telecommunication Services 10.20 Materials 4.33 Health Care 3.49 Industrials 1.39 Utilities 0.76 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS China Mobile Ltd., ADR 7.40% PetroChina Co., Ltd., ADR 7.38 Infosys Ltd., ADR 7.24 ICICI Bank Ltd., ADR 6.90 HDFC Bank Ltd., ADR 6.87 Baidu, Inc., ADR 6.60 Melco Crown Entertainment Ltd., ADR 4.42 Wipro Ltd., ADR 4.12 Tata Motors Ltd., ADR 3.96 CNOOC Ltd., ADR 3.80 ------- Total 58.69% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2011 First Trust ISE Chindia ISE ChIndia Russell 3000(R) MSCI Emerging Markets Index Fund Index(TM) Index 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 06/11 13,047 13,466 9,811 12,703 12/11 9,497 9,771 9,319 10,273
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, 2011 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, 2011. 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 01/01/11 - 12/31/11 65 1 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 01/01/11 - 12/31/11 186 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (06/12/03) Ended (06/12/03) 12/31/11 12/31/11 to 12/31/11 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -7.92% -3.58% 2.36% -16.65% 22.09% Market Value -7.92% -1.98% 2.36% -9.53% 22.08% INDEX PERFORMANCE Value Line(R) 100 Index(TM) -7.04% N/A N/A N/A N/A Russell 3000(R) Index 1.03% -0.01% 5.35% -0.07% 56.16% --------------------------------------------------------------------------------------------------------------------------- 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 (12/31/11) were -25.89% for both NAV and Market Value. That compares to an Index return of -23.11% for that same period. The average annual total returns for the period from the reorganization date (6/15/07) through period end (12/31/11) were -6.38% for both NAV and Market Value. That compares to an Index return of -5.63% for the same period. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. Prior to June 15, 2007, NAV and Market Value returns assumed that all dividend distributions were reinvested at prices obtained by the Dividend Reinvestment Plan of the Predecessor FVL Fund and the price used to calculate Market Value return was the AMEX (now known as the NYSE Amex) closing market price of the Predecessor FVL Fund. (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -7.92% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of +1.03%. Kinetic Concepts, Inc. (+61.39%) and Genesco, Inc. (+51.10%) were two of the top-performing stocks during the period covered by this report. China-Biotics, Inc. (-90.07%) and Suntech Power Holdings Co., Ltd., ADR (-64.47%) were two of the worst-performing stocks during the period covered by this report. ------------------- "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, 2011 --------------------------------------------------------- % OF LONG-TERM SECTOR INVESTMENTS Consumer Discretionary 23.31% Industrials 23.26 Materials 13.07 Health Care 11.08 Information Technology 10.09 Energy 7.07 Telecommunication Services 4.06 Consumer Staples 3.04 Utilities 2.99 Financials 2.03 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS Seagate Technology PLC 1.06% Railamerica, Inc. 1.05 Owens Corning, Inc. 1.04 Tenet Healthcare Corp. 1.04 Health Management Associates, Inc., Class A 1.04 Cost Plus, Inc. 1.04 Tenneco, Inc. 1.04 BCE, Inc. 1.04 Shaw Communications, Inc., Class B 1.03 AGCO Corp. 1.03 ------- Total 10.41% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 12, 2003 - DECEMBER 31, 2011 First Trust Value Line(R) 100 Russell 3000(R) Exchange-Traded Fund Index 08/03 $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 06/11 14,011 16,439 12/11 12,209 15,615 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 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, 2011 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, 2011. 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 01/01/11 - 12/31/11 137 2 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 01/01/11 - 12/31/11 111 2 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, 2011 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (06/29/09) Inception (06/29/09) 12/31/11 to 12/31/11 to 12/31/11 FUND PERFORMANCE NAV -6.48% 7.17% 18.96% Market Value -7.27% 6.89% 18.19% INDEX PERFORMANCE NASDAQ OMX(R) ABA Community Bank Index(SM) -5.84% 7.89% 20.96% S&P Composite 1500 Financials Sector Index -15.01% 6.33% 16.62% Russell 3000(R) Index 1.03% 15.79% 44.40% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 40.)
PERFORMANCE REVIEW The Fund generated a NAV return of -6.48% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of +1.03%. Citizens Republic Bancorp, Inc. (+85.37%) and Texas Capital Bancshares, Inc. (+43.91%) were two of the top-performing stocks during the period covered by this report. Hampton Roads Bankshares, Inc. (-85.34%) and Wilshire Bancorp, Inc. (-52.36%) were two of the worst-performing stocks during the period covered by this report. ------------------- 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 on behalf of the Fund. 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, 2011 --------------------------------------------------------- % OF LONG-TERM INDUSTRY INVESTMENTS Commercial Banks 80.23% Thrifts & Mortgage Finance 19.37 IT Services 0.40 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2011 --------------------------------------------------------- % OF LONG-TERM SECURITY INVESTMENTS People's United Financial, Inc. 4.93% BOK Financial Corp. 3.98 Commerce Bancshares, Inc. 3.70 Zions Bancorporation 3.19 East West Bancorp, Inc. 3.13 Signature Bank 2.95 TFS Financial Corp. 2.95 Hancock Holding Co. 2.88 SVB Financial Group 2.20 Fulton Financial Corp. 2.09 ------- Total 32.00% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 29, 2009 - DECEMBER 31, 2011 First Trust NASDAQ(R) ABA NASDAQ OMX(R) ABA Russell 3000(R) S&P Composite 1500 Community Bank Index Fund Community Bank Index(SM) Index Financials 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 06/11 12,520 12,688 15,201 13,420 12/11 11,898 12,095 14,439 11,662
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, 2011 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) through December 31, 2011. 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 01/01/11 - 12/31/11 135 2 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 01/01/11 - 12/31/11 111 4 0 0 Page 39 -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW -------------------------------------------------------------------------------- Total returns for the periods since inception are calculated from the inception date of each Fund. "Average annual total returns" represent the average annual change in value of an investment over the periods indicated. "Cumulative total returns" represent the total change in value of an investment over the periods indicated. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the Advisor. Each Fund's per share net asset value ("NAV") is the value of one share of the Fund and is computed by dividing the value of all assets of the Fund (including accrued interest and dividends), less all liabilities (including accrued expenses and dividends declared but unpaid), by the total number of outstanding shares. The price used to calculate market return ("Market Value") is determined by using the midpoint between the highest bid and the lowest offer on the stock exchange on which shares of the Fund are listed for trading as of the time that the Fund's NAV is calculated. Since shares of the Fund did not trade in the secondary market until after the Fund's inception, for the period from inception to the first day of secondary market trading in shares of the Fund, the NAV of the Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and Market Value returns assume that all dividend distributions have been reinvested in the Fund at NAV and Market Value, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike a Fund, an index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by each Fund. These expenses negatively impact the performance of each Fund. Also, market returns do not include brokerage commissions that may be payable on secondary market transactions. If brokerage commissions were included, market returns would be lower. The total returns presented reflect the reinvestment of dividends on securities in the indices. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. The investment return and principal value of shares of each Fund will vary with changes in market conditions. Shares of each Fund may be worth more or less than their original cost when they are redeemed or sold in the market. Each Fund's past performance is no guarantee of future results. Page 40 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2011 (UNAUDITED) As a shareholder of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar 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, 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 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, 2011. 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, 2011 DECEMBER 31, 2011 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND Actual $1,000.00 $883.50 0.60% $2.85 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND Actual $1,000.00 $1,061.40 0.45% $2.34 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 $938.10 0.60% $2.93 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 $904.30 0.60% $2.88 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 $935.30 0.60% $2.93 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 $745.40 0.60% $2.64 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND Actual $1,000.00 $891.30 0.60% $2.86 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, 2011 (UNAUDITED) ------------------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE RATIO EXPENSE PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2011 DECEMBER 31, 2011 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST STRATEGIC VALUE INDEX FUND Actual $1,000.00 $899.80 0.65% $3.11 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 $885.00 0.70% $3.33 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 $1,008.30 0.70% $3.54 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 $882.70 0.60% $2.85 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 $631.50 0.60% $2.47 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 $980.90 0.50% $2.50 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 $901.60 0.60% $2.88 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 $845.30 0.60% $2.79 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 $727.90 0.60% $2.61 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 $871.40 0.70% $3.30 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 $950.30 0.60% $2.95 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, 2011 through December 31, 2011), 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, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 1.2% 6,068 Astronics Corp. (b) $ 217,295 7,112 Ducommun, Inc. 90,678 6,727 LMI Aerospace, Inc. (b) 118,059 37,823 Taser International, Inc. (b) 193,654 ------------ 619,686 ------------ AIR FREIGHT & LOGISTICS -- 0.2% 5,945 Park-Ohio Holdings Corp. (b) 106,059 ------------ AUTO COMPONENTS -- 1.9% 13,194 Drew Industries, Inc. (b) 323,649 14,143 Standard Motor Products, Inc. 283,567 17,317 Stoneridge, Inc. (b) 145,983 16,106 Superior Industries International, Inc. 266,393 ------------ 1,019,592 ------------ BIOTECHNOLOGY -- 1.2% 63,141 Astex Pharmaceuticals (b) 119,337 48,470 Rigel Pharmaceuticals, Inc. (b) 382,428 32,410 SciClone Pharmaceuticals, Inc. (b) 139,039 ------------ 640,804 ------------ BUILDING PRODUCTS -- 0.5% 13,968 AAON, Inc. 286,204 ------------ CAPITAL MARKETS -- 1.7% 13,696 Calamos Asset Management, Inc., Class A 171,337 1,908 Diamond Hill Investment Group, Inc. 141,154 10,049 INTL FCStone, Inc. (b) 236,855 13,108 Safeguard Scientifics, Inc. (b) 206,975 22,161 SWS Group, Inc. 152,246 ------------ 908,567 ------------ CHEMICALS -- 2.7% 16,542 American Vanguard Corp. 220,670 33,869 Flotek Industries, Inc. (b) 337,335 5,912 Hawkins, Inc. 217,917 4,964 KMG Chemicals, Inc. 85,728 8,728 Quaker Chemical Corp. 339,432 14,940 Zep, Inc. 208,861 ------------ 1,409,943 ------------ COMMERCIAL BANKS -- 15.6% 1,939 Bancorp Rhode Island, Inc. 76,978 11,442 Banner Corp. 196,230 52,089 BBCN Bancorp, Inc. (b) 492,241 53,103 Boston Private Financial Holdings, Inc. 421,638 7,490 Bryn Mawr Bank Corp. 145,980 19,549 Cardinal Financial Corp. 209,956 17,032 Chemical Financial Corp. 363,122 27,387 Citizens Republic Bancorp, Inc. (b) 312,212 10,266 City Holding Co. 347,915 9,455 Community Trust Bancorp, Inc. 278,166 9,396 Financial Institutions, Inc. 151,651 55,396 First Busey Corp. 276,980 7,477 First Financial Corp. 248,835 9,821 First Interstate BancSystem, Inc., Class A 127,968 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMERCIAL BANKS (CONTINUED) 12,008 Hudson Valley Holding Corp. $ 254,810 14,608 Independent Bank Corp. 398,652 10,031 Lakeland Financial Corp. 259,502 29,950 Oriental Financial Group, Inc. 362,695 6,849 Republic Bancorp, Inc., Class A 156,842 19,045 S&T Bancorp, Inc. 372,330 16,491 Sandy Spring Bancorp, Inc. 289,417 10,675 Simmons First National Corp., Class A 290,253 11,176 Southside Bancshares, Inc. 242,072 21,512 State Bank Financial Corp. (b) 325,046 5,628 Tompkins Financial Corp. 216,734 19,648 TowneBank 240,492 9,701 Washington Trust Bancorp, Inc. 231,466 16,935 WesBanco, Inc. 329,725 12,059 West Coast Bancorp (b) 188,120 55,472 Western Alliance Bancorp (b) 345,591 ------------ 8,153,619 ------------ COMMERCIAL SERVICES & SUPPLIES -- 4.5% 6,171 A.T. Cross Co., Class A (b) 69,609 39,750 Cenveo, Inc. (b) 135,150 55,885 EnergySolutions, Inc. (b) 172,685 17,593 Ennis, Inc. 234,515 19,602 InnerWorkings, Inc. (b) 182,494 6,701 Intersections, Inc. 74,314 28,094 Metalico, Inc. (b) 92,429 9,123 Multi-Color Corp. 234,735 7,228 Schawk, Inc. 81,026 10,614 Standard Parking Corp. (b) 189,672 13,279 Team, Inc. (b) 395,050 12,458 US Ecology, Inc. 233,961 13,981 Viad Corp. 244,388 ------------ 2,340,028 ------------ COMMUNICATIONS EQUIPMENT -- 1.7% 10,289 Anaren, Inc. (b) 171,003 12,277 Black Box Corp. 344,247 15,258 Globecomm Systems, Inc. (b) 208,730 29,079 Symmetricom, Inc. (b) 156,736 ------------ 880,716 ------------ COMPUTERS & PERIPHERALS -- 1.0% 36,906 China Digital TV Holding Co. Ltd., ADR 116,992 10,409 Datalink Corp. (b) 85,978 19,833 Super Micro Computer, Inc. (b) 310,982 ------------ 513,952 ------------ CONSTRUCTION & ENGINEERING -- 1.4% 25,006 Furmanite Corp. (b) 157,788 13,237 Layne Christensen Co. (b) 320,335 13,885 MYR Group, Inc. (b) 265,759 ------------ 743,882 ------------ See Notes to Financial Statements Page 43 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) CONSUMER FINANCE -- 0.6% 34,351 Advance America Cash Advance Centers, Inc. $ 307,441 ------------ DISTRIBUTORS -- 0.2% 12,756 Voxx International Corp., Class A (b) 107,788 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.6% 15,255 Lincoln Educational Services Corp. 120,515 14,754 Universal Technical Institute, Inc. (b) 188,556 ------------ 309,071 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4% 30,738 Alaska Communications Systems Group, Inc. 92,521 17,454 Consolidated Communications Holdings, Inc. 332,499 34,113 Premiere Global Services, Inc. (b) 288,937 ------------ 713,957 ------------ ELECTRIC UTILITIES -- 0.9% 8,092 Central Vermont Public Service Corp. 284,029 7,383 Unitil Corp. 209,530 ------------ 493,559 ------------ ELECTRICAL EQUIPMENT -- 1.3% 10,140 Coleman Cable, Inc. (b) 88,218 12,948 Encore Wire Corp. 335,353 2,311 Preformed Line Products Co. 137,874 13,716 Vicor Corp. 109,180 ------------ 670,625 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 4.1% 10,195 Badger Meter, Inc. 300,039 23,363 CTS Corp. 214,940 12,148 Electro Rent Corp. 208,338 18,912 Maxwell Technologies, Inc. (b) 307,131 9,777 Measurement Specialties, Inc. (b) 273,365 25,496 Newport Corp. (b) 347,000 12,790 Park Electrochemical Corp. 327,680 3,080 Viasystems Group, Inc. (b) 52,113 8,361 Vishay Precision Group, Inc. (b) 133,609 ------------ 2,164,215 ------------ ENERGY EQUIPMENT & SERVICES -- 2.1% 5,385 Dawson Geophysical Co. (b) 212,869 14,647 Global Geophysical Services, Inc. (b) 98,428 93,529 Hercules Offshore, Inc. (b) 415,269 8,448 Mitcham Industries, Inc. (b) 184,504 8,312 Natural Gas Services Group, Inc. (b) 120,191 10,073 Union Drilling, Inc. (b) 62,856 ------------ 1,094,117 ------------ FOOD PRODUCTS -- 0.2% 13,186 Omega Protein Corp. (b) 94,016 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ GAS UTILITIES -- 0.5% 6,508 Chesapeake Utilities Corp. $ 282,122 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 5.1% 17,160 AngioDynamics, Inc. (b) 254,140 1,121 Atrion Corp. 269,298 9,450 Cantel Medical Corp. 263,938 15,806 Greatbatch, Inc. (b) 349,313 5,803 Kensey Nash Corp. (b) 111,360 28,521 Merit Medical Systems, Inc. (b) 381,611 37,538 RTI Biologics, Inc. (b) 166,669 24,687 Symmetry Medical, Inc. (b) 197,249 7,798 Synovis Life Technologies, Inc. (b) 217,018 26,815 Wright Medical Group, Inc. (b) 442,447 ------------ 2,653,043 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.0% 10,515 American Dental Partners, Inc. (b) 197,998 13,589 Assisted Living Concepts, Inc., Class A 202,340 16,438 Bio-Reference Laboratories, Inc. (b) 267,446 4,613 CorVel Corp. (b) 238,538 11,850 Ensign Group (The), Inc. 290,325 27,291 Metropolitan Health Networks, Inc. (b) 203,864 8,091 U.S. Physical Therapy, Inc. 159,231 ------------ 1,559,742 ------------ HEALTH CARE TECHNOLOGY -- 1.4% 15,809 Medidata Solutions, Inc. (b) 343,846 40,228 Merge Healthcare, Inc. (b) 195,106 7,263 Transcend Services, Inc. (b) 172,351 ------------ 711,303 ------------ HOTELS, RESTAURANTS & LEISURE -- 3.3% 16,851 AFC Enterprises, Inc. (b) 247,710 833 Biglari Holdings, Inc. (b) 306,744 12,183 Bravo Brio Restaurant Group, Inc. (b) 208,939 14,113 Caribou Coffee Co., Inc. (b) 196,876 66,232 Denny's Corp. (b) 249,032 17,525 Ruth's Hospitality Group, Inc. (b) 87,099 36,502 Shuffle Master, Inc. (b) 427,803 ------------ 1,724,203 ------------ HOUSEHOLD DURABLES -- 1.4% 35,254 La-Z-Boy, Inc. (b) 419,523 13,392 Libbey, Inc. (b) 170,614 10,180 Universal Electronics, Inc. (b) 171,736 ------------ 761,873 ------------ HOUSEHOLD PRODUCTS -- 0.4% 23,585 Central Garden & Pet Co., Class A (b) 196,227 ------------ INDUSTRIAL CONGLOMERATES -- 0.6% 8,607 Standex International Corp. 294,101 ------------ Page 44 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) INSURANCE -- 1.9% 11,025 Crawford & Co., Class A $ 44,872 13,680 eHealth, Inc. (b) 201,096 35,982 Meadowbrook Insurance Group, Inc. 384,288 28,157 National Financial Partners Corp. (b) 380,682 ------------ 1,010,938 ------------ INTERNET SOFTWARE & SERVICES -- 1.4% 25,340 Move, Inc. (b) 160,149 8,751 Stamps.com, Inc. (b) 228,663 60,359 United Online, Inc. 328,353 ------------ 717,165 ------------ IT SERVICES -- 1.1% 6,294 Cass Information Systems, Inc. 229,039 10,101 Computer Task Group, Inc. (b) 142,222 13,820 Virtusa Corp. (b) 200,113 ------------ 571,374 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.7% 17,681 JAKKS Pacific, Inc. 249,479 43,969 Smith & Wesson Holding Corp. (b) 191,705 12,960 Sturm, Ruger & Co., Inc. 433,641 ------------ 874,825 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.3% 42,998 Affymetrix, Inc. (b) 175,862 ------------ MACHINERY -- 5.0% 6,145 Alamo Group, Inc. 165,485 18,146 Altra Holdings, Inc. (b) 341,689 6,154 American Railcar Industries, Inc. (b) 147,265 5,875 Cascade Corp. 277,124 13,125 Columbus McKinnon Corp. (b) 166,556 13,772 Douglas Dynamics, Inc. 201,347 6,717 Graham Corp. 150,729 19,491 John Bean Technologies Corp. 299,577 8,457 Kadant, Inc. (b) 191,213 7,009 L.B. Foster Co., Class A 198,285 7,625 Miller Industries, Inc. 119,941 11,535 NN, Inc. (b) 69,210 6,335 Twin Disc, Inc. 230,087 8,446 Xerium Technologies, Inc. (b) 55,237 ------------ 2,613,745 ------------ MEDIA -- 1.2% 3,802 Fisher Communications, Inc. (b) 109,612 12,792 Global Sources Ltd. (b) 62,041 27,735 Journal Communications, Inc., Class A (b) 122,034 22,351 Knology, Inc. (b) 317,384 ------------ 611,071 ------------ METALS & MINING -- 1.7% 44,665 General Moly, Inc. (b) 138,015 4,304 Handy & Harman Ltd. (b) 42,609 29,482 Horsehead Holding Corp. (b) 265,633 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ METALS & MINING (CONTINUED) 9,071 Metals USA Holdings Corp. (b) $ 102,049 6,486 Olympic Steel, Inc. 151,253 4,649 Universal Stainless & Alloy Products, Inc. (b) 173,687 ------------ 873,246 ------------ MULTILINE RETAIL -- 0.8% 24,502 Fred's, Inc., Class A 357,239 3,765 Gordmans Stores, Inc. (b) 47,326 ------------ 404,565 ------------ OIL, GAS & CONSUMABLE FUELS -- 1.4% 93,466 Hyperdynamics Corp. (b) 228,992 7,969 TransMontaigne Partners L.P. (c) 267,041 38,514 VAALCO Energy, Inc. (b) 232,625 ------------ 728,658 ------------ PAPER & FOREST PRODUCTS -- 1.0% 10,200 Neenah Paper, Inc. 227,664 33,532 Wausau Paper Corp. 276,974 ------------ 504,638 ------------ PERSONAL PRODUCTS -- 0.2% 6,965 Nature's Sunshine Products, Inc. (b) 108,097 ------------ PHARMACEUTICALS -- 1.0% 41,257 Corcept Therapeutics, Inc. (b) 141,099 6,815 Hi-Tech Pharmacal Co., Inc. (b) 265,036 12,583 Obagi Medical Products, Inc. (b) 127,843 ------------ 533,978 ------------ PROFESSIONAL SERVICES -- 2.8% 29,306 CBIZ, Inc. (b) 179,060 9,054 CDI Corp. 125,036 7,344 CRA International, Inc. (b) 145,705 13,448 ICF International, Inc. (b) 333,241 10,840 Mistras Group, Inc. (b) 276,312 35,557 Navigant Consulting, Inc. (b) 405,705 ------------ 1,465,059 ------------ REAL ESTATE INVESTMENT TRUSTS -- 1.2% 71,573 Newcastle Investment Corp. 332,815 50,656 Resource Capital Corp. 284,180 ------------ 616,995 ------------ ROAD & RAIL -- 1.1% 15,323 Celadon Group, Inc. 180,964 10,390 Marten Transport Ltd. 186,916 10,391 Quality Distribution, Inc. (b) 116,899 7,345 Roadrunner Transportation Systems, Inc. (b) 103,785 ------------ 588,564 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.0% 21,757 AXT, Inc. (b) 90,727 15,317 Cohu, Inc. 173,848 17,157 IXYS Corp. (b) 185,810 See Notes to Financial Statements Page 45 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 14,383 Nanometrics, Inc. (b) $ 264,935 40,004 Photronics, Inc. (b) 243,224 21,541 Rudolph Technologies, Inc. (b) 199,470 15,764 Standard Microsystems Corp. (b) 406,238 ------------ 1,564,252 ------------ SOFTWARE -- 1.9% 16,218 Kenexa Corp. (b) 433,021 36,132 S1 Corp. (b) 345,783 14,321 TeleNav, Inc. (b) 111,847 18,642 VASCO Data Security International, Inc. (b) 121,546 ------------ 1,012,197 ------------ SPECIALTY RETAIL -- 4.0% 6,672 America's Car-Mart, Inc. (b) 261,409 8,842 Body Central Corp. (b) 220,696 29,113 Casual Male Retail Group, Inc. (b) 99,567 72,344 Charming Shoppes, Inc. (b) 354,486 8,992 Destination Maternity Corp. 150,346 28,930 Hot Topic, Inc. 191,227 15,077 Lithia Motors, Inc., Class A 329,583 6,726 Shoe Carnival, Inc. (b) 172,858 19,136 Stein Mart, Inc. (b) 130,316 61,576 Wet Seal, Inc., Class A (b) 200,738 ------------ 2,111,226 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.4% 12,281 Movado Group, Inc. 223,146 ------------ THRIFTS & MORTGAGE FINANCE -- 3.0% 14,427 Berkshire Hills Bancorp, Inc. 320,135 21,563 Dime Community Bancshares, Inc. 271,694 86,625 Doral Financial Corp. (b) 82,813 5,958 Federal Agricultural Mortgage Corp., Class C 107,363 21,449 Flushing Financial Corp. 270,901 8,624 Rockville Financial, Inc. 89,345 10,688 ViewPoint Financial Group 139,051 7,854 Walker & Dunlop, Inc. (b) 98,646 5,847 WSFS Financial Corp. 210,258 ------------ 1,590,206 ------------ TRADING COMPANIES & DISTRIBUTORS -- 2.0% 8,657 CAI International, Inc. (b) 133,837 6,382 DXP Enterprises, Inc. (b) 205,500 20,775 H&E Equipment Services, Inc. (b) 278,801 11,221 Houston Wire & Cable Co. 155,074 11,639 Titan Machinery, Inc. (b) 252,916 ------------ 1,026,128 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ WATER UTILITIES -- 0.8% 10,555 Middlesex Water Co. $ 196,956 8,928 SJW Corp. 211,058 ------------ 408,014 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.4% 15,036 USA Mobility, Inc. 208,549 ------------ TOTAL INVESTMENTS -- 100.0% 52,302,953 (Cost $48,817,502) (d) NET OTHER ASSETS AND LIABILITIES -- 0.0% 24,930 ------------ NET ASSETS -- 100.0% $ 52,327,883 ============ (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 $48,975,614. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,098,260 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,770,921. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $52,302,953 $ -- $ -- ========================================= * See Portfolio of Investments for industry breakout. Page 46 See Notes to Financial Statements FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 2.7% 93,071 Lockheed Martin Corp. $ 7,529,444 91,833 Raytheon Co. 4,442,880 ------------ 11,972,324 ------------ CAPITAL MARKETS -- 0.1% 46,204 Federated Investors, Inc., Class B 699,991 ------------ CHEMICALS -- 0.3% 20,557 Olin Corp. 403,945 33,626 RPM International, Inc. 825,518 ------------ 1,229,463 ------------ COMMERCIAL BANKS -- 1.1% 13,940 Bank of Hawaii Corp. 620,191 10,240 Community Bank System, Inc. 284,672 23,387 CVB Financial Corp. 234,572 150,530 First Niagara Financial Group, Inc. 1,299,074 22,507 Glacier Bancorp, Inc. 270,759 5,702 Park National Corp. 370,972 16,387 Trustmark Corp. 398,040 15,183 United Bankshares, Inc. 429,223 70,674 Valley National Bancorp 874,237 ------------ 4,781,740 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.7% 9,579 HNI Corp. 250,012 104,059 Pitney Bowes, Inc. 1,929,254 96,759 R.R. Donnelley & Sons Co. 1,396,232 120,793 Waste Management, Inc. 3,951,139 ------------ 7,526,637 ------------ COMPUTERS & PERIPHERALS -- 0.1% 16,205 Diebold, Inc. 487,284 ------------ CONTAINERS & PACKAGING -- 0.2% 25,118 Sonoco Products Co. 827,889 ------------ DISTRIBUTORS -- 0.5% 33,495 Genuine Parts Co. 2,049,894 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.4% 80,730 H&R Block, Inc. 1,318,321 3,652 Strayer Education, Inc. 354,938 ------------ 1,673,259 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 19.2% 1,474,009 AT&T, Inc. 44,574,032 1,024,171 Verizon Communications, Inc. 41,089,741 ------------ 85,663,773 ------------ ELECTRIC UTILITIES -- 14.8% 10,001 ALLETE, Inc. 419,842 159,264 American Electric Power Co., Inc. 6,579,196 67,649 Edison International 2,800,669 57,304 Entergy Corp. 4,186,057 221,807 Exelon Corp. 9,619,769 143,192 FirstEnergy Corp. 6,343,406 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ ELECTRIC UTILITIES (CONTINUED) 31,786 Hawaiian Electric Industries, Inc. $ 841,693 5,492 MGE Energy, Inc. 256,861 111,875 NextEra Energy, Inc. 6,810,950 86,600 Pepco Holdings, Inc. 1,757,980 34,280 Pinnacle West Capital Corp. 1,651,610 194,333 PPL Corp. 5,717,277 92,606 Progress Energy, Inc. 5,187,788 253,500 Southern (The) Co. 11,734,515 17,541 UIL Holdings Corp. 620,425 11,577 Unisource Energy Corp. 427,423 37,870 Westar Energy, Inc. 1,089,899 ------------ 66,045,360 ------------ FOOD PRODUCTS -- 5.0% 49,412 Campbell Soup Co. 1,642,455 108,831 ConAgra Foods, Inc. 2,873,138 81,467 H. J. Heinz Co. 4,402,477 362,865 Kraft Foods, Inc., Class A 13,556,636 ------------ 22,474,706 ------------ GAS UTILITIES -- 1.1% 36,145 AGL Resources, Inc. 1,527,488 26,872 Atmos Energy Corp. 896,181 5,930 Laclede Group (The), Inc. 239,987 7,078 Northwest Natural Gas Co. 339,248 17,703 Piedmont Natural Gas Co., Inc. 601,548 41,372 Questar Corp. 821,648 13,163 WGL Holdings, Inc. 582,068 ------------ 5,008,168 ------------ HOUSEHOLD DURABLES -- 0.3% 50,443 Leggett & Platt, Inc. 1,162,207 ------------ HOUSEHOLD PRODUCTS -- 1.8% 108,753 Kimberly-Clark Corp. 7,999,871 ------------ INSURANCE -- 0.4% 4,365 American National Insurance Co. 318,776 31,664 Arthur J. Gallagher & Co. 1,058,844 2,155 Harleysville Group, Inc. 121,908 9,722 Mercury General Corp. 443,518 ------------ 1,943,046 ------------ IT SERVICES -- 0.6% 97,439 Paychex, Inc. 2,933,888 ------------ LEISURE EQUIPMENT & PRODUCTS -- 0.5% 77,075 Mattel, Inc. 2,139,602 ------------ METALS & MINING -- 0.6% 73,771 Nucor Corp. 2,919,119 ------------ MULTI-UTILITIES -- 10.9% 31,050 Alliant Energy Corp. 1,369,615 17,420 Avista Corp. 448,565 12,378 Black Hills Corp. 415,653 112,563 CenterPoint Energy, Inc. 2,261,391 81,736 Consolidated Edison, Inc. 5,070,084 153,945 Dominion Resources, Inc. 8,171,401 52,774 DTE Energy Co. 2,873,544 See Notes to Financial Statements Page 47 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) MULTI-UTILITIES (CONTINUED) 29,054 Integrys Energy Group, Inc. $ 1,574,146 80,422 NiSource, Inc. 1,914,848 10,545 NorthWestern Corp. 377,406 26,853 NSTAR 1,261,017 131,673 PG&E Corp. 5,427,561 153,314 Public Service Enterprise Group, Inc. 5,060,895 36,444 SCANA Corp. 1,642,167 56,313 Sempra Energy 3,097,215 65,996 TECO Energy, Inc. 1,263,163 27,553 Vectren Corp. 832,927 50,621 Wisconsin Energy Corp. 1,769,710 134,440 Xcel Energy, Inc. 3,715,922 ------------ 48,547,230 ------------ OIL, GAS & CONSUMABLE FUELS -- 5.3% 323,619 ConocoPhillips 23,582,117 ------------ PAPER & FOREST PRODUCTS -- 0.7% 107,830 International Paper Co. 3,191,768 ------------ PHARMACEUTICALS -- 28.6% 381,142 Abbott Laboratories 21,431,615 468,758 Bristol-Myers Squibb Co. 16,519,032 336,400 Eli Lilly & Co. 13,980,784 625,730 Johnson & Johnson 41,035,373 925,437 Merck & Co., Inc. 34,888,975 ------------ 127,855,779 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.5% 41,634 Intersil Corp., Class A 434,659 54,106 Microchip Technology, Inc. 1,981,903 ------------ 2,416,562 ------------ SPECIALTY RETAIL -- 0.1% 40,731 American Eagle Outfitters, Inc. 622,777 ------------ THRIFTS & MORTGAGE FINANCE -- 1.2% 252,554 New York Community Bancorp, Inc. 3,124,093 24,487 Northwest Bancshares, Inc. 304,618 127,626 People's United Financial, Inc. 1,639,994 14,740 Provident Financial Services, Inc. 197,369 ------------ 5,266,074 ------------ TOBACCO -- 1.2% 121,930 Reynolds American, Inc. 5,050,340 7,281 Universal Corp. 334,635 ------------ 5,384,975 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.1% 6,266 Watsco, Inc. 411,426 ------------ DESCRIPTION VALUE --------------------------------------- ------------ TOTAL INVESTMENTS -- 100.0% $446,816,929 (Cost $417,273,230) (b) NET OTHER ASSETS AND LIABILITIES -- 0.0% 212,605 ------------ NET ASSETS -- 100.0% $447,029,534 ============ (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Aggregate cost for federal income tax purposes is $419,278,444. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $29,000,340 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,461,855. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $446,816,929 $ -- $ -- ========================================== * 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, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 0.2% 1,509 DigitalGlobe, Inc. (b) $ 25,819 ------------ AIRLINES -- 0.2% 2,365 Spirit Airlines, Inc. (b) 36,894 ------------ AUTO COMPONENTS -- 1.5% 10,705 Delphi Automotive PLC (b) 230,586 ------------ AUTOMOBILES -- 7.3% 51,023 General Motors Co. (b) 1,034,236 3,401 Tesla Motors, Inc. (b) 97,133 ------------ 1,131,369 ------------ BEVERAGES -- 1.8% 6,991 Dr. Pepper Snapple Group, Inc. 276,005 ------------ BIOTECHNOLOGY -- 2.3% 3,271 Ironwood Pharmaceuticals, Inc., Class A (b) 39,154 2,470 Pharmasset, Inc. (b) 316,654 ------------ 355,808 ------------ CAPITAL MARKETS -- 1.2% 4,013 Apollo Global Management LLC, Class A 49,801 1,484 Financial Engines, Inc. (b) 33,138 3,600 LPL Investment Holdings, Inc. (b) 109,944 ------------ 192,883 ------------ COMMERCIAL BANKS -- 0.8% 4,202 First Republic Bank (b) 128,623 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.4% 4,444 KAR Auction Services, Inc. (b) 59,994 ------------ COMMUNICATIONS EQUIPMENT -- 2.8% 9,768 Motorola Mobility Holdings, Inc. (b) 378,999 2,984 Ubiquiti Networks, Inc. (b) 54,398 ------------ 433,397 ------------ COMPUTERS & PERIPHERALS -- 0.4% 2,814 Fusion-io, Inc. (b) 68,099 ------------ CONSUMER FINANCE -- 3.0% 17,925 Discover Financial Services 430,200 1,376 Green Dot Corp., Class A (b) 42,959 ------------ 473,159 ------------ DIVERSIFIED CONSUMER SERVICES -- 1.1% 1,674 Bridgepoint Education, Inc. (b) 38,502 4,154 Education Management Corp. (b) 116,270 1,186 K12, Inc. (b) 21,277 ------------ 176,049 ------------ DIVERSIFIED FINANCIAL SERVICES -- 1.3% 2,933 CBOE Holdings, Inc. 75,847 3,932 MSCI, Inc., Class A (b) 129,481 ------------ 205,328 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ ELECTRICAL EQUIPMENT -- 1.4% 2,205 Generac Holdings, Inc. (b) $ 61,806 5,743 Sensata Technologies Holding N.V. (b) 150,926 ------------ 212,732 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.3% 2,765 Aeroflex Holding Corp. (b) 28,314 2,587 Invensense, Inc. (b) 25,766 ------------ 54,080 ------------ ENERGY EQUIPMENT & SERVICES -- 0.2% 1,692 C&J Energy Services, Inc. (b) 35,414 ------------ FOOD & STAPLES RETAILING -- 0.4% 1,565 Fresh Market (The), Inc. (b) 62,443 ------------ FOOD PRODUCTS -- 3.1% 2,890 Dole Food Co., Inc. (b) 24,999 6,639 Mead Johnson Nutrition Co. 456,298 ------------ 481,297 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 0.2% 1,358 Mako Surgical Corp. (b) 34,235 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.2% 3,203 Accretive Health, Inc. (b) 73,605 14,237 HCA Holdings, Inc. (b) 313,641 4,830 Select Medical Holdings Corp. (b) 40,958 2,137 Team Health Holdings, Inc. (b) 47,164 2,506 Vanguard Health Systems, Inc. (b) 25,611 ------------ 500,979 ------------ HOTELS, RESTAURANTS & LEISURE -- 1.9% 3,918 Dunkin' Brands Group, Inc. (b) 97,872 5,386 Hyatt Hotels Corp., Class A (b) 202,729 ------------ 300,601 ------------ INSURANCE -- 0.6% 2,407 Primerica, Inc. 55,938 3,868 Symetra Financial Corp. 35,083 ------------ 91,021 ------------ INTERNET & CATALOG RETAIL -- 0.8% 2,628 HomeAway, Inc. (b) 61,101 1,926 HSN, Inc. 69,837 ------------ 130,938 ------------ INTERNET SOFTWARE & SERVICES -- 2.5% 1,437 Ancestry.com, Inc. (b) 32,994 3,175 AOL, Inc. (b) 47,943 3,261 Bankrate, Inc. (b) 70,111 1,581 Cornerstone OnDemand, Inc. (b) 28,837 793 LogMeIn, Inc. (b) 30,570 4,275 Rackspace Hosting, Inc. (b) 183,868 ------------ 394,323 ------------ See Notes to Financial Statements Page 49 FIRST TRUST US IPO INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) IT SERVICES -- 13.5% 4,634 Booz Allen Hamilton Holding Corp., Class A (b) $ 79,937 2,652 FleetCor Technologies, Inc. (b) 79,215 1,842 Higher One Holdings, Inc. (b) 33,966 2,316 ServiceSource International, Inc. (b) 36,338 5,459 Teradata Corp. (b) 264,816 15,872 Visa, Inc., Class A 1,611,484 ------------ 2,105,756 ------------ MACHINERY -- 1.0% 6,019 Xylem, Inc. 154,628 ------------ MEDIA -- 2.3% 2,343 AMC Networks, Inc., Class A (b) 88,050 5,262 Pandora Media, Inc. (b) 52,672 5,200 Scripps Networks Interactive, Class A 220,584 ------------ 361,306 ------------ METALS & MINING -- 0.6% 2,736 Molycorp, Inc. (b) 65,609 2,283 SunCoke Energy, Inc. (b) 25,570 ------------ 91,179 ------------ MULTILINE RETAIL -- 2.9% 11,140 Dollar General Corp. (b) 458,300 ------------ OIL, GAS & CONSUMABLE FUELS -- 13.3% 1,987 Cloud Peak Energy, Inc. (b) 38,389 12,788 Cobalt International Energy, Inc. (b) 198,470 3,381 Concho Resources, Inc. (b) 316,969 2,823 CVR Energy, Inc. (b) 52,875 23,057 Kinder Morgan, Inc. 741,744 3,329 KiOR, Inc., Class A (b) 33,889 12,714 Kosmos Energy Ltd. (b) 155,873 11,627 Marathon Petroleum Corp. 387,063 3,015 Oasis Petroleum, Inc. (b) 87,706 1,381 Targa Resources Corp. 56,193 ------------ 2,069,171 ------------ PROFESSIONAL SERVICES -- 3.7% 11,715 Nielsen Holdings N.V. (b) 347,819 1,599 RPX Corp. (b) 20,227 5,333 Verisk Analytics, Inc., Class A (b) 214,013 ------------ 582,059 ------------ REAL ESTATE INVESTMENT TRUSTS -- 0.5% 2,699 CYS Investments, Inc. 35,465 2,045 DuPont Fabros Technology, Inc. 49,530 ------------ 84,995 ------------ ROAD & RAIL -- 0.2% 4,549 Swift Transportation Co. (b) 37,484 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.7% 8,007 Freescale Semiconductor Holdings I Ltd. (b) 101,288 4,149 GT Advanced Technologies, Inc. (b) 30,039 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 8,178 NXP Semiconductor N.V. (b) $ 125,696 ------------ 257,023 ------------ SOFTWARE -- 3.7% 882 BroadSoft, Inc. (b) 26,636 5,023 Fortinet, Inc. (b) 109,552 2,214 NetSuite, Inc. (b) 89,778 2,727 QLIK Technologies, Inc. (b) 65,993 2,342 RealPage, Inc. (b) 59,182 2,384 Solarwinds, Inc. (b) 66,633 2,480 SS&C Technologies Holdings, Inc. (b) 44,789 2,746 SuccessFactors, Inc. (b) 109,483 ------------ 572,046 ------------ SPECIALTY RETAIL -- 1.4% 2,893 Express, Inc. (b) 57,686 1,420 Francesca's Holdings Corp. (b) 24,566 3,465 GNC Acquisition Holdings, Inc., Class A (b) 100,312 952 Vitamin Shoppe, Inc. (b) 37,966 ------------ 220,530 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.3% 1,321 Vera Bradley, Inc. (b) 42,602 ------------ THRIFTS & MORTGAGE FINANCE -- 0.5% 3,173 BankUnited, Inc. 69,774 ------------ TOBACCO -- 13.4% 4,403 Lorillard, Inc. 501,942 20,161 Philip Morris International, Inc. 1,582,235 ------------ 2,084,177 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.5% 3,225 Air Lease Corp. (b) 76,465 ------------ TRANSPORTATION INFRASTRUCTURE -- 0.3% 2,791 Wesco Aircraft Holdings, Inc. (b) 39,046 ------------ WATER UTILITIES -- 1.2% 5,724 American Water Works Co., Inc. 182,367 ------------ TOTAL INVESTMENTS -- 99.9% 15,580,984 (Cost $14,831,539) (c) NET OTHER ASSETS AND LIABILITIES -- 0.1% 12,851 ------------ NET ASSETS -- 100.0% $ 15,593,835 ============ Page 50 See Notes to Financial Statements FIRST TRUST US IPO INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 (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 $14,966,750. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,062,617 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,448,383. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $15,580,984 $ -- $ -- ========================================== * 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, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 99.9% AIR FREIGHT & LOGISTICS -- 2.0% 10,808 C.H. Robinson Worldwide, Inc. $ 754,182 17,827 Expeditors International of Washington, Inc. 730,194 ------------ 1,484,376 ------------ BEVERAGES -- 0.9% 7,505 Hansen Natural Corp. (b) 691,511 ------------ BIOTECHNOLOGY -- 6.2% 10,843 Alexion Pharmaceuticals, Inc. (b) 775,275 11,985 Amgen, Inc. 769,557 6,525 Biogen Idec, Inc. (b) 718,076 11,300 Celgene Corp. (b) 763,880 19,367 Gilead Sciences, Inc. (b) 792,691 21,223 Vertex Pharmaceuticals, Inc. (b) 704,816 ------------ 4,524,295 ------------ CHEMICALS -- 1.0% 11,396 Sigma-Aldrich Corp. 711,794 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.0% 9,406 Stericycle, Inc. (b) 732,915 ------------ COMMUNICATIONS EQUIPMENT -- 4.0% 40,116 Cisco Systems, Inc. 725,297 6,865 F5 Networks, Inc. (b) 728,514 13,679 QUALCOMM, Inc. 748,241 53,547 Research In Motion Ltd. (b) 776,432 ------------ 2,978,484 ------------ COMPUTERS & PERIPHERALS -- 5.0% 1,889 Apple, Inc. (b) 765,045 47,883 Dell, Inc. (b) 700,528 20,153 NetApp, Inc. (b) 730,949 15,021 SanDisk Corp. (b) 739,184 46,641 Seagate Technology PLC 764,912 ------------ 3,700,618 ------------ DIVERSIFIED CONSUMER SERVICES -- 1.0% 14,350 Apollo Group, Inc., Class A (b) 773,034 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.0% 124,297 Flextronics International Ltd. (b) 703,521 ------------ FOOD & STAPLES RETAILING -- 2.0% 8,716 Costco Wholesale Corp. 726,217 10,878 Whole Foods Market, Inc. 756,891 ------------ 1,483,108 ------------ FOOD PRODUCTS -- 1.0% 15,901 Green Mountain Coffee Roasters, Inc. (b) 713,160 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.0% 20,764 DENTSPLY International, Inc. $ 726,532 1,665 Intuitive Surgical, Inc. (b) 770,912 ------------ 1,497,444 ------------ HEALTH CARE PROVIDERS & SERVICES -- 2.0% 16,537 Express Scripts, Inc. (b) 739,039 11,526 Henry Schein, Inc. (b) 742,620 ------------ 1,481,659 ------------ HEALTH CARE TECHNOLOGY -- 1.1% 12,772 Cerner Corp. (b) 782,285 ------------ HOTELS, RESTAURANTS & LEISURE -- 3.0% 31,155 Ctrip.com International Ltd., ADR (b) 729,027 16,552 Starbucks Corp. 761,557 6,812 Wynn Resorts Ltd. 752,658 ------------ 2,243,242 ------------ HOUSEHOLD DURABLES -- 1.0% 18,939 Garmin Ltd. 753,962 ------------ INTERNET & CATALOG RETAIL -- 5.0% 3,970 Amazon.com, Inc. (b) 687,207 27,350 Expedia, Inc. 793,697 46,641 Liberty Interactive Corp., Class A (b) 756,284 10,308 Netflix, Inc. (b) 714,241 1,575 priceline.com, Inc. (b) 736,643 ------------ 3,688,072 ------------ INTERNET SOFTWARE & SERVICES -- 6.2% 27,005 Akamai Technologies, Inc. (b) 871,721 6,284 Baidu, Inc., ADR (b) 731,898 23,674 eBay, Inc. (b) 718,032 1,150 Google, Inc., Class A (b) 742,785 20,728 VeriSign, Inc. 740,404 48,107 Yahoo!, Inc. (b) 775,966 ------------ 4,580,806 ------------ IT SERVICES -- 5.0% 13,912 Automatic Data Processing, Inc. 751,387 10,989 Cognizant Technology Solutions Corp., Class A (b) 706,703 12,531 Fiserv, Inc. (b) 736,071 14,288 Infosys Ltd., ADR 734,117 24,322 Paychex, Inc. 732,335 ------------ 3,660,613 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.0% 25,749 Mattel, Inc. 714,792 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.0% 18,505 Life Technologies Corp. (b) 720,030 ------------ MACHINERY -- 1.0% 19,870 PACCAR, Inc. 744,529 ------------ Page 52 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) MEDIA -- 5.0% 30,848 Comcast Corp., Class A $ 731,406 17,094 DIRECTV, Class A (b) 730,939 42,384 News Corp., Class A 756,131 406,597 Sirius XM Radio, Inc. (b) 740,006 34,352 Virgin Media, Inc. 734,446 ------------ 3,692,928 ------------ METALS & MINING -- 1.0% 7,070 Randgold Resources Ltd., ADR 721,847 ------------ MULTILINE RETAIL -- 1.7% 8,690 Dollar Tree, Inc. (b) 722,226 15,591 Sears Holdings Corp. (b) 495,482 ------------ 1,217,708 ------------ PHARMACEUTICALS -- 4.0% 34,467 Mylan, Inc. (b) 739,662 7,330 Perrigo Co. 713,209 16,846 Teva Pharmaceutical Industries Ltd., ADR 679,905 51,332 Warner Chilcott PLC, Class A (b) 776,653 ------------ 2,909,429 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 15.3% 21,111 Altera Corp. 783,218 69,669 Applied Materials, Inc. 746,155 24,989 Avago Technologies Ltd. 721,183 25,058 Broadcom Corp., Class A (b) 735,703 22,553 First Solar, Inc. (b) 761,389 30,981 Intel Corp. 751,289 15,632 KLA-Tencor Corp. 754,244 20,036 Lam Research Corp. (b) 741,733 24,842 Linear Technology Corp. 746,005 53,231 Marvell Technology Group Ltd. (b) 737,249 28,741 Maxim Integrated Products, Inc. 748,416 20,872 Microchip Technology, Inc. 764,541 126,704 Micron Technology, Inc. (b) 796,968 53,270 NVIDIA Corp. (b) 738,322 23,059 Xilinx, Inc. 739,272 ------------ 11,265,687 ------------ SOFTWARE -- 12.6% 60,579 Activision Blizzard, Inc. 746,333 25,520 Adobe Systems, Inc. (b) 721,450 23,067 Autodesk, Inc. (b) 699,622 21,697 BMC Software, Inc. (b) 711,228 35,769 CA, Inc. 723,070 13,283 Check Point Software Technologies Ltd. (b) 697,889 11,231 Citrix Systems, Inc. (b) 681,946 35,584 Electronic Arts, Inc. (b) 733,031 13,899 Intuit, Inc. 730,949 27,680 Microsoft Corp. 718,573 29,220 Nuance Communications, Inc. (b) 735,175 24,638 Oracle Corp. 631,965 46,551 Symantec Corp. (b) 728,523 ------------ 9,259,754 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ SPECIALTY RETAIL -- 3.9% 11,756 Bed Bath & Beyond, Inc. (b) $ 681,495 568 Orchard Supply Hardware Stores Corp., Class A (b) (c) 2,138 9,009 O'Reilly Automotive, Inc. (b) 720,270 15,312 Ross Stores, Inc. 727,779 51,113 Staples, Inc. 709,960 ------------ 2,841,642 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 1.0% 8,891 Fossil, Inc. (b) 705,590 ------------ TRADING COMPANIES & DISTRIBUTORS -- 1.0% 17,375 Fastenal Co. 757,724 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 1.0% 26,488 Vodafone Group PLC, ADR 742,459 ------------ TOTAL COMMON STOCKS -- 99.9% (Cost $80,657,449) 73,479,018 PREFERRED STOCK -- 0.0% SPECIALTY RETAIL -- 0.0% 568 Orchard Supply Hardware Stores Corp. (b) (c) 2,138 (Cost $0) ------------ TOTAL INVESTMENTS -- 99.9% 73,481,156 (Cost $80,657,449) (d) NET OTHER ASSETS AND LIABILITIES -- 0.1% 58,196 ------------ NET ASSETS -- 100.0% $ 73,539,352 ============ (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Non-income producing security. (c) This security is fair valued in accordance with procedures adopted by the Trust's Board of Trustees and in accordance with the provisions of the Investment Company Act of 1940, as amended. (d) Aggregate cost for federal income tax purposes is $81,514,571. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,564,540 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $10,597,955. ADR - American Depositary Receipt See Notes to Financial Statements Page 53 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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 TOTAL VALUE AT INVESTMENTS 12/31/2011 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------------------------------ Common Stocks: Specialty Retail $ 2,841,642 $ 2,839,504 $ 2,138 $ -- Other Industry Categories* 70,637,376 70,637,376 -- -- --------------------------------------------- Total Common Stock 73,479,018 73,476,880 2,138 -- Preferred Stocks* 2,138 -- 2,138 -- --------------------------------------------- TOTAL INVESTMENTS $ 73,481,156 $ 73,476,880 $ 4,276 $ -- ============================================= * See Portfolio of Investments for industry breakout. Industry categories are only shown separately if they include holdings in two or more levels or have holdings in only Level 3. Page 54 See Notes to Financial Statements FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% COMMUNICATIONS EQUIPMENT -- 9.4% 188,769 Cisco Systems, Inc. $ 3,412,943 32,305 F5 Networks, Inc. (b) 3,428,207 64,370 QUALCOMM, Inc. 3,521,039 251,972 Research In Motion Ltd. (b) 3,653,594 ------------ 14,015,783 ------------ COMPUTERS & PERIPHERALS -- 11.6% 8,888 Apple, Inc. (b) 3,599,640 225,317 Dell, Inc. (b) 3,296,388 94,834 NetApp, Inc. (b) 3,439,629 70,685 SanDisk Corp. (b) 3,478,409 219,476 Seagate Technology PLC 3,599,406 ------------ 17,413,472 ------------ HEALTH CARE TECHNOLOGY -- 2.5% 60,098 Cerner Corp. (b) 3,681,002 ------------ HOUSEHOLD DURABLES -- 2.4% 89,119 Garmin Ltd. 3,547,827 ------------ INTERNET SOFTWARE & SERVICES -- 12.1% 127,074 Akamai Technologies, Inc. (b) 4,101,949 29,571 Baidu, Inc., ADR (b) 3,444,135 5,410 Google, Inc., Class A (b) 3,494,319 97,538 VeriSign, Inc. 3,484,057 226,371 Yahoo!, Inc. (b) 3,651,364 ------------ 18,175,824 ------------ IT SERVICES -- 4.5% 51,710 Cognizant Technology Solutions Corp., Class A (b) 3,325,470 67,233 Infosys Ltd., ADR 3,454,432 ------------ 6,779,902 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 33.0% 99,340 Altera Corp. 3,685,514 327,833 Applied Materials, Inc. 3,511,091 117,587 Avago Technologies Ltd. 3,393,561 117,915 Broadcom Corp., Class A 3,461,984 145,782 Intel Corp. 3,535,213 73,556 KLA-Tencor Corp. 3,549,077 94,279 Lam Research Corp. (b) 3,490,209 116,897 Linear Technology Corp. 3,510,417 250,482 Marvell Technology Group Ltd. (b) 3,469,176 135,244 Maxim Integrated Products, Inc. 3,521,754 98,217 Microchip Technology, Inc. 3,597,689 596,217 Micron Technology, Inc. (b) 3,750,205 250,667 NVIDIA Corp. (b) 3,474,245 108,507 Xilinx, Inc. 3,478,734 ------------ 49,428,869 ------------ SOFTWARE -- 24.5% 120,089 Adobe Systems, Inc. (b) 3,394,916 108,542 Autodesk, Inc. (b) 3,292,079 102,096 BMC Software, Inc. (b) 3,346,707 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ SOFTWARE (CONTINUED) 168,316 CA, Inc. $ 3,402,508 62,505 Check Point Software Technologies Ltd. (b) 3,284,013 52,848 Citrix Systems, Inc. (b) 3,208,931 65,402 Intuit, Inc. 3,439,491 130,250 Microsoft Corp. 3,381,290 137,495 Nuance Communications, Inc. (b) 3,459,374 115,937 Oracle Corp. 2,973,784 219,050 Symantec Corp. (b) 3,428,132 ------------ 36,611,225 ------------ TOTAL INVESTMENTS -- 100.0% 149,653,904 (Cost $171,342,757) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 6,161 ------------ NET ASSETS -- 100.0% $149,660,065 ============ (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 $174,162,734. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,681,263 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $29,190,093. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $149,653,904 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 55 FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 98.1% BIOTECHNOLOGY -- 66.9% 141,721 Alexion Pharmaceuticals, Inc. (b) $ 10,133,052 165,378 Amgen, Inc. 10,618,922 782,158 Amylin Pharmaceuticals, Inc. (b) 8,900,958 81,001 Biogen Idec, Inc. (b) 8,914,160 131,997 Celgene Corp. (b) 8,922,997 937,460 Dendreon Corp. (b) 7,124,696 218,868 Gilead Sciences, Inc. (b) 8,958,267 724,997 Human Genome Sciences, Inc. (b) 5,357,728 687,516 Incyte Corp. (b) 10,319,615 435,467 InterMune, Inc. (b) 5,486,884 482,551 Myriad Genetics, Inc. (b) 10,104,618 156,009 Regeneron Pharmaceuticals, Inc. (b) 8,647,579 238,465 United Therapeutics Corp. (b) 11,267,471 232,139 Vertex Pharmaceuticals, Inc. (b) 7,709,336 ------------ 122,466,283 ------------ LIFE SCIENCES TOOLS & SERVICES -- 25.3% 1,849,854 Affymetrix, Inc. (b) 7,565,903 354,885 Illumina, Inc. (b) 10,816,894 229,124 Life Technologies Corp. (b) 8,915,215 723,825 QIAGEN N.V. (b) 9,996,023 1,998,602 Sequenom, Inc. (b) 8,893,779 ------------ 46,187,814 ------------ PHARMACEUTICALS -- 5.9% 1,938,635 Nektar Therapeutics (b) 10,846,663 ------------ TOTAL INVESTMENTS -- 98.1% 179,500,760 (Cost $266,928,269) (c) NET OTHER ASSETS AND LIABILITIES -- 1.9% 3,529,203 ------------ NET ASSETS -- 100.0% $183,029,963 ============ (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 $277,149,287. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $3,691,600 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $101,340,127. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $179,500,760 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 56 See Notes to Financial Statements FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% CAPITAL MARKETS -- 4.3% 1,224,641 E*TRADE Financial Corp. (b) $ 9,748,142 812,441 TD Ameritrade Holding Corp. 12,714,702 ------------ 22,462,844 ------------ COMMUNICATIONS EQUIPMENT -- 6.5% 984,349 Juniper Networks, Inc. (b) 20,090,563 244,285 NETGEAR, Inc. (b) 8,200,647 2,344,492 Sonus Networks, Inc. (b) 5,626,781 ------------ 33,917,991 ------------ HEALTH CARE TECHNOLOGY -- 2.5% 691,388 Allscripts Healthcare Solutions, Inc. (b) 13,094,889 ------------ INTERNET & CATALOG RETAIL -- 17.3% 208,093 Amazon.com, Inc. (b) 36,020,898 153,482 Blue Nile, Inc. (b) 6,274,344 275,971 Expedia, Inc. 8,008,679 185,980 Netflix, Inc. (b) 12,886,554 56,780 priceline.com, Inc. (b) 26,556,574 ------------ 89,747,049 ------------ INTERNET SOFTWARE & SERVICES -- 48.0% 541,310 Akamai Technologies, Inc. (b) 17,473,487 277,666 Constant Contact, Inc. (b) 6,444,628 304,061 DealerTrack Holdings, Inc. (b) 8,288,703 405,658 Digital River, Inc. (b) 6,092,983 1,067,680 EarthLink, Inc. 6,875,859 1,009,560 eBay, Inc. (b) 30,619,955 85,227 Google, Inc., Class A (b) 55,048,119 288,396 IAC/InterActiveCorp 12,285,670 846,016 Internap Network Services Corp. (b) 5,025,335 316,839 j2 Global, Inc. 8,915,850 1,032,859 Monster Worldwide, Inc. (b) 8,190,572 559,103 NIC, Inc. 7,441,661 518,264 RealNetworks, Inc. 3,886,980 1,084,801 United Online, Inc. 5,901,317 537,783 ValueClick, Inc. (b) 8,760,485 453,594 VeriSign, Inc. 16,202,378 260,913 Vocus, Inc. (b) 5,763,568 294,188 WebMD Health Corp. (b) 11,046,759 1,574,570 Yahoo!, Inc. (b) 25,397,814 ------------ 249,662,123 ------------ IT SERVICES -- 1.8% 731,028 Sapient Corp. 9,210,953 ------------ SOFTWARE -- 19.6% 370,328 Ariba, Inc. (b) 10,398,810 347,267 Check Point Software Technologies Ltd. (b) 18,245,408 211,496 Concur Technologies, Inc. (b) 10,741,882 325,837 Ebix, Inc. 7,200,998 435,758 Quest Software, Inc. (b) 8,105,099 186,207 Salesforce.com, Inc. (b) 18,892,562 522,182 TIBCO Software, Inc. (b) 12,485,372 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ SOFTWARE (CONTINUED) 341,316 Virnetx Holding Corp. (b) $ 8,522,660 379,681 Websense, Inc. (b) 7,111,425 ------------ 101,704,216 ------------ TOTAL INVESTMENTS -- 100.0% 519,800,065 (Cost $570,316,466) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% (116,684) ------------ NET ASSETS -- 100.0% $519,683,381 ============ (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 $581,525,578. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $14,438,795 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $76,164,308. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $519,800,065 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 57 FIRST TRUST STRATEGIC VALUE INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 6.5% 10,287 General Dynamics Corp. $ 683,160 11,415 Northrop Grumman Corp. 667,549 14,776 Raytheon Co. 714,863 ------------ 2,065,572 ------------ BIOTECHNOLOGY -- 4.3% 10,243 Celgene Corp. (b) 692,427 16,030 Gilead Sciences, Inc. (b) 656,108 ------------ 1,348,535 ------------ CAPITAL MARKETS -- 5.9% 14,109 Ameriprise Financial, Inc. 700,371 6,215 Goldman Sachs Group (The), Inc. 562,022 39,040 Morgan Stanley 590,675 ------------ 1,853,068 ------------ CHEMICALS -- 3.6% 3,756 CF Industries Holdings, Inc. 544,545 18,644 LyondellBasell Industries N.V., Class A 605,743 ------------ 1,150,288 ------------ COMMERCIAL BANKS -- 2.2% 54,350 Fifth Third Bancorp 691,332 ------------ COMPUTERS & PERIPHERALS -- 3.9% 42,497 Dell, Inc. (b) 621,731 12,721 SanDisk Corp. (b) 626,001 ------------ 1,247,732 ------------ CONSUMER FINANCE -- 1.9% 14,140 Capital One Financial Corp. 597,981 ------------ DIVERSIFIED FINANCIAL SERVICES -- 5.6% 100,577 Bank of America Corp. 559,208 21,514 Citigroup, Inc. 566,033 19,214 JPMorgan Chase & Co. 638,866 ------------ 1,764,107 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.8% 16,915 St. Jude Medical, Inc. 580,184 ------------ HEALTH CARE PROVIDERS & SERVICES -- 8.5% 16,462 Aetna, Inc. 694,532 15,183 CIGNA Corp. 637,686 8,097 McKesson Corp. 630,837 14,320 UnitedHealth Group, Inc. 725,738 ------------ 2,688,793 ------------ INSURANCE -- 8.1% 14,412 Aflac, Inc. 623,463 25,203 Allstate (The) Corp. 690,815 27,301 American International Group, Inc. (b) 633,383 12,508 Prudential Financial, Inc. 626,901 ------------ 2,574,562 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ MACHINERY -- 7.7% 6,313 Cummins, Inc. $ 555,670 8,657 Deere & Co. 669,619 13,259 Illinois Tool Works, Inc. 619,328 7,721 Parker Hannifin Corp. 588,726 ------------ 2,433,343 ------------ MEDIA -- 4.4% 13,990 DIRECTV, Class A (b) 598,212 27,799 DISH Network Corp., Class A 791,716 ------------ 1,389,928 ------------ METALS & MINING -- 3.7% 16,190 Freeport-McMoRan Copper & Gold, Inc. 595,630 9,409 Newmont Mining Corp. 564,634 ------------ 1,160,264 ------------ OIL, GAS & CONSUMABLE FUELS -- 13.3% 6,514 Apache Corp. 590,038 6,134 Chevron Corp. 652,658 24,148 Marathon Oil Corp. 706,812 16,901 Marathon Petroleum Corp. 562,634 11,785 Murphy Oil Corp. 656,896 14,981 Peabody Energy Corp. 496,021 25,301 Valero Energy Corp. 532,586 ------------ 4,197,645 ------------ PHARMACEUTICALS -- 6.8% 17,205 Eli Lilly & Co. 715,040 19,186 Merck & Co., Inc. 723,312 33,201 Pfizer, Inc. 718,470 ------------ 2,156,822 ------------ REAL ESTATE INVESTMENT TRUSTS -- 2.0% 39,898 Annaly Capital Management, Inc. 636,772 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.8% 18,127 Broadcom Corp., Class A (b) 532,209 27,496 Intel Corp. 666,778 ------------ 1,198,987 ------------ SOFTWARE -- 4.0% 21,911 Adobe Systems, Inc. (b) 619,424 24,867 Microsoft Corp. 645,547 ------------ 1,264,971 ------------ SPECIALTY RETAIL -- 1.9% 43,896 Staples, Inc. 609,715 ------------ TOTAL INVESTMENTS -- 99.9% 31,610,601 (Cost $32,011,788) (c) NET OTHER ASSETS AND LIABILITIES -- 0.1% 31,920 ------------ NET ASSETS -- 100.0% $ 31,642,521 ============ Page 58 See Notes to Financial Statements FIRST TRUST STRATEGIC VALUE INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 (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 $32,289,621. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,599,815 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,278,835. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $31,610,601 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 59 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.1% AEROSPACE & DEFENSE -- 1.6% 1,493 AAR Corp. $ 28,621 688 Curtiss-Wright Corp. 24,307 576 Moog, Inc., Class A (b) 25,304 386 Teledyne Technologies, Inc. (b) 21,172 ------------ 99,404 ------------ AIRLINES -- 0.4% 438 Allegiant Travel Co. (b) 23,363 ------------ AUTOMOBILES -- 1.0% 2,188 Honda Motor Co., Ltd., ADR 66,843 ------------ BEVERAGES -- 2.2% 431 Brown-Forman Corp., Class B 34,700 1,089 Coca-Cola (The) Co. 76,197 676 Molson Coors Brewing Co., Class B 29,433 ------------ 140,330 ------------ BIOTECHNOLOGY -- 1.3% 1,954 Gilead Sciences, Inc. (b) 79,977 ------------ BUILDING PRODUCTS -- 0.5% 1,017 Owens Corning, Inc. (b) 29,208 ------------ CAPITAL MARKETS -- 0.4% 3,508 American Capital Ltd. (b) 23,609 ------------ CHEMICALS -- 4.2% 874 Agrium, Inc. 58,654 865 Cabot Corp. 27,801 436 CF Industries Holdings, Inc. 63,211 356 Minerals Technologies, Inc. 20,125 1,129 Mosaic (The) Co. 56,936 126 NewMarket Corp. 24,962 624 OM Group, Inc. (b) 13,971 ------------ 265,660 ------------ COMPUTERS & PERIPHERALS -- 1.7% 194 Apple, Inc. (b) 78,570 923 Lexmark International, Inc., Class A 30,524 ------------ 109,094 ------------ CONSUMER FINANCE -- 1.4% 1,671 Capital One Financial Corp. 70,667 356 Cash America International, Inc. 16,600 ------------ 87,267 ------------ CONTAINERS & PACKAGING -- 1.0% 656 AptarGroup, Inc. 34,224 814 Ball Corp. 29,068 ------------ 63,292 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.2% 264 ITT Educational Services, Inc. (b) 15,019 ------------ DIVERSIFIED FINANCIAL SERVICES -- 0.5% 1,274 NASDAQ OMX Group (The), Inc. (b) 31,226 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.5% 2,592 AT&T, Inc. $ 78,382 1,911 BCE, Inc. 79,632 ------------ 158,014 ------------ ELECTRIC UTILITIES -- 6.4% 514 ALLETE, Inc. 21,578 4,105 Duke Energy Corp. 90,310 2,103 Edison International 87,064 580 El Paso Electric Co. 20,091 1,634 Great Plains Energy, Inc. 35,589 713 Pinnacle West Capital Corp. 34,352 2,813 PPL Corp. 82,758 1,191 Westar Energy, Inc. 34,277 ------------ 406,019 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 2.1% 1,567 AVX Corp. 19,995 1,318 Hitachi Ltd., ADR 68,720 2,344 Sanmina-SCI Corp. (b) 21,823 466 Tech Data Corp. (b) 23,025 ------------ 133,563 ------------ ENERGY EQUIPMENT & SERVICES -- 1.0% 579 Oil States International, Inc. (b) 44,218 1,209 RPC, Inc. 22,065 ------------ 66,283 ------------ FOOD & STAPLES RETAILING -- 1.9% 470 Casey's General Stores, Inc. 24,210 3,218 Kroger (The) Co. 77,940 493 Ruddick Corp. 21,021 ------------ 123,171 ------------ FOOD PRODUCTS -- 6.3% 2,460 Archer-Daniels-Midland Co. 70,356 478 Bunge Ltd. 27,342 630 Cal-Maine Foods, Inc. 23,039 2,383 Campbell Soup Co. 79,211 1,420 Flowers Foods, Inc. 26,951 335 J & J Snack Foods Corp. 17,849 338 Lancaster Colony Corp. 23,437 500 McCormick & Co., Inc. 25,210 1,478 Smithfield Foods, Inc. (b) 35,886 2,223 Unilever PLC, ADR 74,515 ------------ 403,796 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.7% 11,411 Boston Scientific Corp. (b) 60,935 296 IDEXX Laboratories, Inc. (b) 22,780 1,362 Wright Medical Group, Inc. (b) 22,473 ------------ 106,188 ------------ HEALTH CARE PROVIDERS & SERVICES -- 0.2% 432 LifePoint Hospitals, Inc. (b) 16,049 ------------ Page 60 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) HOTELS, RESTAURANTS & LEISURE -- 3.8% 829 Brinker International, Inc. $ 22,184 601 Darden Restaurants, Inc. 27,394 846 McDonald's Corp. 84,879 691 Papa John's International, Inc. (b) 26,037 785 Penn National Gaming, Inc. (b) 29,885 636 Tim Hortons, Inc. 30,795 3,909 Wendy's (The) Co. 20,952 ------------ 242,126 ------------ HOUSEHOLD DURABLES -- 0.7% 410 American Greetings Corp., Class A 5,129 1,812 Toll Brothers, Inc. (b) 37,001 ------------ 42,130 ------------ HOUSEHOLD PRODUCTS -- 2.9% 857 Colgate-Palmolive Co. 79,178 1,123 Kimberly-Clark Corp. 82,608 508 WD-40 Co. 20,528 ------------ 182,314 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.4% 1,107 TransAlta Corp. 22,826 ------------ INSURANCE -- 2.4% 116 Alleghany Corp. (b) 33,094 973 Chubb (The) Corp. 67,351 617 Hanover Insurance Group, Inc. 21,564 584 Transatlantic Holdings, Inc. 31,962 ------------ 153,971 ------------ INTERNET & CATALOG RETAIL -- 0.5% 1,063 Expedia, Inc. 30,848 ------------ INTERNET SOFTWARE & SERVICES -- 2.1% 130 Google, Inc., Class A (b) 83,967 773 IAC/InterActiveCorp 32,930 675 j2 Global, Inc. 18,994 ------------ 135,891 ------------ IT SERVICES -- 4.1% 422 DST Systems, Inc. 19,209 436 International Business Machines Corp. 80,172 223 MasterCard, Inc., Class A 83,139 530 MAXIMUS, Inc. 21,915 812 NeuStar, Inc., Class A (b) 27,746 584 Teradata Corp. (b) 28,330 ------------ 260,511 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.0% 1,198 Mattel, Inc. 33,257 594 Polaris Industries, Inc. 33,252 ------------ 66,509 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ MACHINERY -- 0.3% 479 Sauer-Danfoss, Inc. (b) $ 17,345 ------------ MEDIA -- 4.2% 2,934 CBS Corp., Class B 79,629 2,102 Live Nation Entertainment, Inc. (b) 17,468 4,507 News Corp., Class A 80,405 762 Scripps Networks Interactive, Class A 32,324 1,362 Shaw Communications, Inc., Class B 27,063 82 Washington Post (The) Co., Class B 30,898 ------------ 267,787 ------------ METALS & MINING -- 4.0% 5,966 Alcoa, Inc. 51,606 1,476 Barrick Gold Corp. 66,789 1,711 Commercial Metals Co. 23,663 1,611 Freeport-McMoRan Copper & Gold, Inc. 59,269 4,689 Kinross Gold Corp. 53,454 ------------ 254,781 ------------ MULTILINE RETAIL -- 1.4% 705 Dillard's, Inc., Class A 31,641 438 Dollar Tree, Inc. (b) 36,402 2,268 Saks, Inc. (b) 22,113 ------------ 90,156 ------------ MULTI-UTILITIES -- 5.6% 782 Alliant Energy Corp. 34,494 990 Ameren Corp. 32,799 838 Avista Corp. 21,578 1,676 CenterPoint Energy, Inc. 33,671 1,361 Consolidated Edison, Inc. 84,423 1,533 Dominion Resources, Inc. 81,371 623 Integrys Energy Group, Inc. 33,754 1,491 NiSource, Inc. 35,501 ------------ 357,591 ------------ OFFICE ELECTRONICS -- 1.1% 1,556 CANON, Inc., ADR 68,526 ------------ OIL, GAS & CONSUMABLE FUELS -- 6.0% 414 Alliance Resource Partners L.P. (c) 31,290 763 Chevron Corp. 81,183 1,107 ConocoPhillips 80,667 1,114 Royal Dutch Shell PLC, ADR 81,422 1,440 Tesoro Corp. (b) 33,639 3,500 Valero Energy Corp. 73,675 ------------ 381,876 ------------ PERSONAL PRODUCTS -- 1.0% 522 Herbalife Ltd. 26,972 740 Nu Skin Enterprises, Inc., Class A 35,942 ------------ 62,914 ------------ PHARMACEUTICALS -- 3.6% 2,098 Eli Lilly & Co. 87,193 2,136 Forest Laboratories, Inc. (b) 64,636 1,154 Johnson & Johnson 75,679 ------------ 227,508 ------------ See Notes to Financial Statements Page 61 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) REAL ESTATE INVESTMENT TRUSTS -- 1.0% 4,091 Annaly Capital Management, Inc. $ 65,292 ------------ REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.1% 2,464 Brookfield Asset Management, Inc., Class A 67,711 ------------ ROAD & RAIL -- 0.7% 1,493 Heartland Express, Inc. 21,335 851 Werner Enterprises, Inc. 20,509 ------------ 41,844 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.8% 2,086 Brooks Automation, Inc. 21,423 1,634 GT Advanced Technologies, Inc. (b) 11,830 517 Xilinx, Inc. 16,575 ------------ 49,828 ------------ SOFTWARE -- 1.2% 2,914 Microsoft Corp. 75,647 ------------ SPECIALTY RETAIL -- 6.6% 755 Aaron's, Inc. 20,143 643 Ascena Retail Group, Inc. (b) 19,110 254 AutoZone, Inc. (b) 82,542 447 DSW, Inc., Class A 19,762 1,588 Gap (The), Inc. 29,457 473 Genesco, Inc. (b) 29,203 487 Group 1 Automotive, Inc. 25,227 699 PetSmart, Inc. 35,852 723 Ross Stores, Inc. 34,364 1,424 Sonic Automotive, Inc., Class A 21,090 1,202 Stage Stores, Inc. 16,696 1,357 TJX (The) Cos., Inc. 87,594 ------------ 421,040 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 1.8% 868 NIKE, Inc., Class B 83,649 214 Ralph Lauren Corp. 29,549 ------------ 113,198 ------------ TOBACCO -- 1.4% 1,098 Philip Morris International, Inc. 86,171 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.3% 1,710 Aircastle Ltd. 21,751 ------------ WATER UTILITIES -- 0.5% 1,036 American Water Works Co., Inc. 33,007 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 1.1% 3,088 America Movil SAB de C.V., Series L, ADR 69,789 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ TOTAL COMMON STOCKS -- 100.1% $ 6,358,263 (Cost $6,149,375) MONEY MARKET FUND -- 0.0% 3,082 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (d) 3,082 (Cost $3,082) ------------ TOTAL INVESTMENTS -- 100.1% 6,361,345 (Cost $6,152,457) (e) NET OTHER ASSETS AND LIABILITIES -- (0.1)% (4,470) ------------ NET ASSETS -- 100.0% $ 6,356,875 ============ (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, 2011. (e) Aggregate cost for federal income tax purposes is $6,166,047. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $515,573 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $320,275. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------------------- Common Stocks* $ 6,358,263 $ -- $ -- Money Market Fund 3,082 -- -- ------------------------------------------ Total Investments $ 6,361,345 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 62 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 4.7% 29,498 Boeing (The) Co. $ 2,163,678 32,915 General Dynamics Corp. 2,185,885 39,869 Honeywell International, Inc. 2,166,880 32,586 L-3 Communications Holdings, Inc. 2,172,835 26,940 Lockheed Martin Corp. 2,179,446 37,220 Northrop Grumman Corp. 2,176,626 45,059 Raytheon Co. 2,179,954 29,593 United Technologies Corp. 2,162,952 ------------ 17,388,256 ------------ AIR FREIGHT & LOGISTICS -- 0.6% 29,811 United Parcel Service, Inc., Class B 2,181,867 ------------ AUTOMOBILES -- 0.6% 73,418 Honda Motor Co., Ltd., ADR 2,242,920 ------------ BEVERAGES -- 1.8% 31,351 Coca-Cola (The) Co. 2,193,630 49,757 Molson Coors Brewing Co., Class B 2,166,420 33,004 PepsiCo, Inc. 2,189,815 ------------ 6,549,865 ------------ BIOTECHNOLOGY -- 0.6% 34,008 Amgen, Inc. 2,183,654 ------------ CAPITAL MARKETS -- 1.2% 148,427 Federated Investors, Inc., Class B 2,248,669 163,370 KKR & Co. L.P. (b) 2,096,037 ------------ 4,344,706 ------------ CHEMICALS -- 2.4% 25,351 Air Products and Chemicals, Inc. 2,159,652 47,389 E.I. du Pont de Nemours & Co. 2,169,468 41,072 International Flavors & Fragrances, Inc. 2,152,994 26,092 PPG Industries, Inc. 2,178,421 ------------ 8,660,535 ------------ COMMERCIAL BANKS -- 4.8% 40,376 Bank of Montreal 2,213,009 44,116 Bank of Nova Scotia 2,197,418 39,212 BOK Financial Corp. 2,153,915 30,572 Canadian Imperial Bank of Commerce 2,212,496 56,978 Commerce Bancshares, Inc. 2,172,001 41,142 Cullen/Frost Bankers, Inc. 2,176,823 43,719 Royal Bank of Canada 2,227,920 29,970 Toronto-Dominion (The) Bank 2,242,056 ------------ 17,595,638 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.2% 76,547 Avery Dennison Corp. 2,195,368 66,691 Waste Management, Inc. 2,181,463 ------------ 4,376,831 ------------ COMPUTERS & PERIPHERALS -- 0.6% 71,782 Diebold, Inc. 2,158,485 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ CONTAINERS & PACKAGING -- 1.2% 72,832 Bemis Co., Inc. $ 2,190,787 65,514 Sonoco Products Co. 2,159,341 ------------ 4,350,128 ------------ DISTRIBUTORS -- 0.6% 35,387 Genuine Parts Co. 2,165,684 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.4% 72,929 AT&T, Inc. 2,205,373 58,956 CenturyLink, Inc. 2,193,163 127,371 Telefonica S.A., ADR 2,189,508 54,783 Verizon Communications, Inc. 2,197,894 ------------ 8,785,938 ------------ ELECTRIC UTILITIES -- 7.7% 51,767 ALLETE, Inc. 2,173,179 57,396 Cleco Corp. 2,186,788 99,626 Duke Energy Corp. 2,191,772 61,747 El Paso Electric Co. 2,138,916 29,770 Entergy Corp. 2,174,699 50,155 Exelon Corp. 2,175,222 48,869 FirstEnergy Corp. 2,164,897 46,642 MGE Energy, Inc. 2,181,446 36,050 NextEra Energy, Inc. 2,194,724 44,976 Pinnacle West Capital Corp. 2,166,944 47,073 Southern (The) Co. 2,179,009 61,539 UIL Holdings Corp. 2,176,634 76,095 Westar Energy, Inc. 2,190,014 ------------ 28,294,244 ------------ ELECTRICAL EQUIPMENT -- 1.2% 47,246 Emerson Electric Co. 2,201,191 32,698 Hubbell, Inc., Class B 2,186,188 ------------ 4,387,379 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.6% 90,416 Molex, Inc. 2,157,326 ------------ FOOD & STAPLES RETAILING -- 2.4% 103,388 Safeway, Inc. 2,175,284 74,289 Sysco Corp. 2,178,896 65,671 Walgreen Co. 2,171,083 36,617 Wal-Mart Stores, Inc. 2,188,232 ------------ 8,713,495 ------------ FOOD PRODUCTS -- 7.7% 75,440 Archer-Daniels-Midland Co. 2,157,584 65,888 Campbell Soup Co. 2,190,117 82,330 ConAgra Foods, Inc. 2,173,512 114,641 Flowers Foods, Inc. 2,175,886 53,947 General Mills, Inc. 2,179,998 40,339 H. J. Heinz Co. 2,179,920 35,605 Hershey (The) Co. 2,199,677 27,830 J.M. Smucker (The) Co. 2,175,471 43,168 Kellogg Co. 2,183,006 58,111 Kraft Foods, Inc., Class A 2,171,027 43,177 McCormick & Co., Inc. 2,176,984 115,853 Sara Lee Corp. 2,191,939 See Notes to Financial Statements Page 63 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) FOOD PRODUCTS (CONTINUED) 65,533 Unilever PLC, ADR $ 2,196,666 ------------ 28,351,787 ------------ GAS UTILITIES -- 5.3% 51,779 AGL Resources, Inc. 2,188,181 65,318 Atmos Energy Corp. 2,178,355 38,803 National Fuel Gas Co. 2,156,671 44,027 New Jersey Resources Corp. 2,166,128 45,143 Northwest Natural Gas Co. 2,163,704 63,816 Piedmont Natural Gas Co., Inc. 2,168,468 38,147 South Jersey Industries, Inc. 2,167,131 74,466 UGI Corp. 2,189,300 49,198 WGL Holdings, Inc. 2,175,536 ------------ 19,553,474 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.4% 44,240 Baxter International, Inc. 2,188,995 29,289 Becton, Dickinson & Co. 2,188,474 58,034 Medtronic, Inc. 2,219,801 63,026 St. Jude Medical, Inc. 2,161,792 ------------ 8,759,062 ------------ HEALTH CARE PROVIDERS & SERVICES -- 1.2% 85,411 Lincare Holdings, Inc. 2,195,917 77,826 Owens & Minor, Inc. 2,162,784 ------------ 4,358,701 ------------ HOTELS, RESTAURANTS & LEISURE -- 0.6% 21,788 McDonald's Corp. 2,185,990 ------------ HOUSEHOLD DURABLES -- 0.6% 92,283 Leggett & Platt, Inc. 2,126,200 ------------ HOUSEHOLD PRODUCTS -- 2.4% 32,791 Clorox (The) Co. 2,182,569 23,471 Colgate-Palmolive Co. 2,168,485 29,677 Kimberly-Clark Corp. 2,183,040 32,801 Procter & Gamble (The) Co. 2,188,155 ------------ 8,722,249 ------------ INDUSTRIAL CONGLOMERATES -- 0.6% 26,626 3M Co. 2,176,143 ------------ INSURANCE -- 5.9% 31,035 ACE Ltd. 2,176,174 79,665 Allstate (The) Corp. 2,183,618 64,778 Arthur J. Gallagher & Co. 2,166,176 31,159 Chubb (The) Corp. 2,156,826 71,641 Cincinnati Financial Corp. 2,182,185 28,105 Erie Indemnity Co., Class A 2,196,687 25,572 Everest Re Group, Ltd. 2,150,350 62,115 Hanover Insurance Group, Inc. 2,170,919 47,771 Mercury General Corp. 2,179,313 36,801 Travelers (The) Cos., Inc. 2,177,515 ------------ 21,739,763 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ IT SERVICES -- 2.4% 41,390 Accenture PLC, Class A $ 2,203,190 40,257 Automatic Data Processing, Inc. 2,174,280 90,904 Computer Sciences Corp. 2,154,425 72,856 Paychex, Inc. 2,193,694 ------------ 8,725,589 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.2% 68,164 Hasbro, Inc. 2,173,750 78,749 Mattel, Inc. 2,186,072 ------------ 4,359,822 ------------ MACHINERY -- 2.3% 49,276 Eaton Corp. 2,144,984 45,766 Illinois Tool Works, Inc. 2,137,730 42,498 Snap-on, Inc. 2,151,249 32,208 Stanley Black & Decker, Inc. 2,177,261 ------------ 8,611,224 ------------ MEDIA -- 1.8% 49,757 Omnicom Group, Inc. 2,218,167 82,828 Thomson Reuters Corp. 2,209,023 5,761 Washington Post (The) Co., Class B 2,170,802 ------------ 6,597,992 ------------ MULTILINE RETAIL -- 0.6% 42,042 Target Corp. 2,153,391 ------------ MULTI-UTILITIES -- 8.9% 49,476 Alliant Energy Corp. 2,182,386 83,586 Avista Corp. 2,152,340 35,053 Consolidated Edison, Inc. 2,174,338 41,003 Dominion Resources, Inc. 2,176,439 40,302 Integrys Energy Group, Inc. 2,183,562 101,803 MDU Resources Group, Inc. 2,184,693 47,195 NSTAR 2,216,277 38,631 OGE Energy Corp. 2,190,764 52,524 PG&E Corp. 2,165,039 66,752 Public Service Enterprise Group, Inc. 2,203,484 48,533 SCANA Corp. 2,186,897 39,840 Sempra Energy 2,191,200 72,232 Vectren Corp. 2,183,573 62,292 Wisconsin Energy Corp. 2,177,728 79,319 Xcel Energy, Inc. 2,192,377 ------------ 32,761,097 ------------ OFFICE ELECTRONICS -- 0.6% 49,836 CANON, Inc., ADR 2,194,777 ------------ OIL, GAS & CONSUMABLE FUELS -- 4.2% 20,289 Chevron Corp. 2,158,750 30,036 ConocoPhillips 2,188,723 58,546 Enbridge, Inc. 2,190,206 25,689 Exxon Mobil Corp. 2,177,400 29,835 Royal Dutch Shell PLC, ADR 2,180,640 43,246 Total S.A., ADR 2,210,303 49,927 TransCanada Corp. 2,180,312 ------------ 15,286,334 ------------ Page 64 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) PHARMACEUTICALS -- 5.4% 38,961 Abbott Laboratories $ 2,190,777 62,185 Bristol-Myers Squibb Co. 2,191,399 52,474 Eli Lilly & Co. 2,180,820 47,897 GlaxoSmithKline PLC, ADR 2,185,540 33,184 Johnson & Johnson 2,176,207 58,034 Merck & Co., Inc. 2,187,882 38,381 Novartis AG, ADR 2,194,242 100,633 Pfizer, Inc. 2,177,698 60,619 Sanofi, ADR 2,215,018 ------------ 19,699,583 ------------ REAL ESTATE INVESTMENT TRUSTS -- 0.6% 16,143 Public Storage 2,170,588 ------------ ROAD & RAIL -- 0.6% 20,729 Union Pacific Corp. 2,196,030 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.9% 60,220 Analog Devices, Inc. 2,154,672 202,289 Applied Materials, Inc. 2,166,515 89,201 Intel Corp. 2,163,124 73,938 Texas Instruments, Inc. 2,152,335 67,847 Xilinx, Inc. 2,175,175 ------------ 10,811,821 ------------ SOFTWARE -- 0.6% 84,132 Microsoft Corp. 2,184,067 ------------ SPECIALTY RETAIL -- 2.3% 114,942 Gap (The), Inc. 2,132,174 51,890 Home Depot (The), Inc. 2,181,456 85,779 Lowe's Cos., Inc. 2,177,071 154,717 Staples, Inc. 2,149,019 ------------ 8,639,720 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.6% 16,780 VF Corp. 2,130,892 ------------ TOBACCO -- 3.0% 73,714 Altria Group, Inc. 2,185,620 23,151 British American Tobacco PLC, ADR 2,196,567 19,214 Lorillard, Inc. 2,190,396 27,791 Philip Morris International, Inc. 2,181,038 52,487 Reynolds American, Inc. 2,174,011 ------------ 10,927,632 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.6% 78,664 Vodafone Group PLC, ADR 2,204,952 ------------ TOTAL INVESTMENTS -- 99.9% 366,165,831 (Cost $327,944,716) (c) NET OTHER ASSETS AND LIABILITIES -- 0.1% 232,726 ------------ NET ASSETS -- 100.0% $366,398,557 ============ (a) All percentages shown in the Portfolio of Investments are based on net assets. (b) Master Limited Partnership ("MLP"). (c) Aggregate cost for federal income tax purposes is $338,867,959. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $34,141,455 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $6,843,583. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $366,165,831 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 65 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (b) -- 100.0% AIR FREIGHT & LOGISTICS -- 3.6% 7,819 C.H. Robinson Worldwide, Inc. $ 545,610 12,898 Expeditors International of Washington, Inc. 528,302 ------------ 1,073,912 ------------ BEVERAGES -- 1.7% 5,430 Hansen Natural Corp. (c) 500,320 ------------ BIOTECHNOLOGY -- 10.8% 7,845 Alexion Pharmaceuticals, Inc. (c) 560,917 8,671 Amgen, Inc. 556,765 4,721 Biogen Idec, Inc. (c) 519,546 8,175 Celgene Corp. (c) 552,630 14,012 Gilead Sciences, Inc. (c) 573,511 15,355 Vertex Pharmaceuticals, Inc. (c) 509,940 ------------ 3,273,309 ------------ CHEMICALS -- 1.7% 8,245 Sigma-Aldrich Corp. 514,983 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.8% 6,806 Stericycle, Inc. (c) 530,324 ------------ DIVERSIFIED CONSUMER SERVICES -- 1.9% 10,383 Apollo Group, Inc., Class A (c) 559,332 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.7% 89,929 Flextronics International Ltd. (c) 508,998 ------------ FOOD & STAPLES RETAILING -- 3.6% 6,306 Costco Wholesale Corp. 525,416 7,870 Whole Foods Market, Inc. 547,595 ------------ 1,073,011 ------------ FOOD PRODUCTS -- 1.7% 11,504 Green Mountain Coffee Roasters, Inc. (c) 515,954 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 3.6% 15,023 DENTSPLY International, Inc. 525,655 1,205 Intuitive Surgical, Inc. (c) 557,927 ------------ 1,083,582 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.6% 11,964 Express Scripts, Inc. (c) 534,671 8,339 Henry Schein, Inc. (c) 537,282 ------------ 1,071,953 ------------ HOTELS, RESTAURANTS & LEISURE -- 5.4% 22,541 Ctrip.com International Ltd., ADR (c) 527,459 11,975 Starbucks Corp. 550,970 4,928 Wynn Resorts Ltd. 544,495 ------------ 1,622,924 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ INTERNET & CATALOG RETAIL -- 8.8% 2,873 Amazon.com, Inc. (c) $ 497,316 19,787 Expedia, Inc. 574,219 33,745 Liberty Interactive Corp., Class A (c) 547,175 7,458 Netflix, Inc. (c) 516,765 1,139 priceline.com, Inc. (c) 532,722 ------------ 2,668,197 ------------ INTERNET SOFTWARE & SERVICES -- 1.7% 17,128 eBay, Inc. (c) 519,492 ------------ IT SERVICES -- 5.3% 10,066 Automatic Data Processing, Inc. 543,664 9,066 Fiserv, Inc. (c) 532,537 17,597 Paychex, Inc. 529,846 ------------ 1,606,047 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.7% 18,629 Mattel, Inc. 517,141 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.7% 13,389 Life Technologies Corp. (c) 520,966 ------------ MACHINERY -- 1.8% 14,376 PACCAR, Inc. 538,669 ------------ MEDIA -- 8.9% 22,318 Comcast Corp., Class A 529,160 12,368 DIRECTV, Class A (c) 528,856 30,665 News Corp., Class A 547,063 294,174 Sirius XM Radio, Inc. (c) 535,397 24,854 Virgin Media, Inc. 531,378 ------------ 2,671,854 ------------ METALS & MINING -- 1.7% 5,115 Randgold Resources Ltd., ADR 522,242 ------------ MULTILINE RETAIL -- 2.9% 6,287 Dollar Tree, Inc. (c) 522,513 11,280 Sears Holdings Corp. (c) 358,478 ------------ 880,991 ------------ PHARMACEUTICALS -- 7.0% 24,937 Mylan, Inc. (c) 535,148 5,303 Perrigo Co. 515,982 12,188 Teva Pharmaceutical Industries Ltd., ADR 491,908 37,139 Warner Chilcott PLC, Class A (c) 561,913 ------------ 2,104,951 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.8% 16,317 First Solar, Inc. (c) 550,862 ------------ SOFTWARE -- 3.5% 43,829 Activision Blizzard, Inc. 539,973 25,745 Electronic Arts, Inc. (c) 530,347 ------------ 1,070,320 ------------ Page 66 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (b) (CONTINUED) SPECIALTY RETAIL -- 6.8% 8,505 Bed Bath & Beyond, Inc. (c) $ 493,035 401 Orchard Supply Hardware Stores Corp., Class A (c) (d) 1,506 6,518 O'Reilly Automotive, Inc. (c) 521,114 11,078 Ross Stores, Inc. 526,537 36,981 Staples, Inc. 513,666 ------------ 2,055,858 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 1.7% 6,433 Fossil, Inc. (c) 510,523 ------------ TRADING COMPANIES & DISTRIBUTORS -- 1.8% 12,571 Fastenal Co. 548,221 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 1.8% 19,164 Vodafone Group PLC, ADR 537,167 ------------ TOTAL COMMON STOCKS -- 100.0% 30,152,103 (Cost $30,861,003) PREFERRED STOCK -- 0.0% SPECIALTY RETAIL -- 0.0% 401 Orchard Supply Hardware Stores Corp. (c) (d) 1,506 (Cost $0) ------------ TOTAL INVESTMENTS -- 100.0% 30,153,609 (Cost $30,861,003) (e) NET OTHER ASSETS AND LIABILITIES -- 0.0% 3,286 ------------ NET ASSETS -- 100.0% $ 30,156,895 ============ (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) This security is fair valued in accordance with procedures adopted by the Trust's Board of Trustees and in accordance with the provisions of the Investment Company Act of 1940, as amended. (e) Aggregate cost for federal income tax purposes is $31,214,611. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,149,190 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,210,192. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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 TOTAL VALUE AT INVESTMENTS 12/31/2011 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------------------------------ Common Stocks: Specialty Retail $ 2,055,858 $ 2,054,352 $ 1,506 $ -- Other Industry Categories* 28,096,245 28,096,245 -- -- --------------------------------------------- Total Common Stocks 30,152,103 30,150,597 1,506 -- Preferred Stocks* 1,506 -- 1,506 -- --------------------------------------------- TOTAL INVESTMENTS $ 30,153,609 $ 30,150,597 $ 3,012 $ -- ============================================= * See Portfolio of Investments for industry breakout. Industry categories are only shown separately if they include holdings in two or more levels or have holdings in only Level 3. See Notes to Financial Statements Page 67 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 4.2% 36,125 Hexcel Corp. (b) $ 874,586 ------------ AUTOMOBILES -- 7.0% 50,520 Tesla Motors, Inc. (b) 1,442,851 ------------ BIOTECHNOLOGY -- 0.8% 18,074 Codexis, Inc. (b) 95,792 17,151 Metabolix, Inc. (b) 78,037 ------------ 173,829 ------------ BUILDING PRODUCTS -- 0.8% 12,751 Ameresco, Inc., Class A (b) 174,944 ------------ CHEMICALS -- 0.6% 17,279 Zoltek Cos., Inc. (b) 131,666 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.7% 13,470 EnerNOC, Inc. (b) 146,419 ------------ ELECTRICAL EQUIPMENT -- 2.9% 67,529 A123 Systems, Inc. (b) 108,722 25,852 American Superconductor Corp. (b) 95,394 130,594 Capstone Turbine Corp. (b) 151,489 60,216 Satcon Technology Corp. (b) 36,135 84,413 Valence Technology, Inc. (b) 82,725 15,105 Vicor Corp. 120,236 ------------ 594,701 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 16.0% 69,570 AVX Corp. 887,713 21,372 Echelon Corp. (b) 104,082 21,735 Elster Group SE, ADR (b) 282,555 20,479 Itron, Inc. (b) 732,534 14,144 Maxwell Technologies, Inc. (b) 229,699 61,217 Power-One, Inc. (b) 239,358 23,106 Universal Display Corp. (b) 847,759 ------------ 3,323,700 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 2.0% 22,841 Ormat Technologies, Inc. 411,823 ------------ MACHINERY -- 1.9% 13,411 ESCO Technologies, Inc. 385,969 ------------ OIL, GAS & CONSUMABLE FUELS -- 5.2% 22,903 Amyris, Inc. (b) 264,301 13,106 Gevo, Inc. (b) 82,437 16,543 Green Plains Renewable Energy, Inc. (b) 161,460 20,214 KiOR, Inc., Class A (b) 205,778 30,029 Solazyme, Inc. (b) 357,345 ------------ 1,071,321 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 57.9% 22,245 Advanced Analogic Technologies, Inc. (b) $ 128,576 3,309 Aixtron SE, ADR 42,024 21,716 Canadian Solar, Inc. (b) 57,765 56,158 Cree, Inc. (b) 1,237,722 63,561 Fairchild Semiconductor International, Inc. (b) 765,274 37,619 First Solar, Inc. (b) 1,270,017 63,960 GT Advanced Technologies, Inc. (b) 463,070 25,968 Hanwha SolarOne Co., Ltd., ADR (b) 25,519 34,714 International Rectifier Corp. (b) 674,146 15,676 IXYS Corp. (b) 169,771 67,230 JA Solar Holdings Co., Ltd., ADR (b) 90,088 6,722 JinkoSolar Holding Co., Ltd., ADR (b) 33,610 53,098 LDK Solar Co., Ltd., ADR (b) 222,481 58,781 Linear Technology Corp. 1,765,193 115,869 MEMC Electronic Materials, Inc. (b) 456,524 43,665 Microsemi Corp. (b) 731,389 16,643 O2Micro International Ltd., ADR (b) 66,406 217,855 ON Semiconductor Corp. (b) 1,681,841 14,103 Power Integrations, Inc. 467,655 43,816 Renesola Ltd., ADR (b) 67,038 11,349 Rubicon Technology, Inc. (b) 106,567 20,916 STR Holdings, Inc. (b) 172,139 50,483 SunPower Corp., Class A (b) 314,509 65,141 Suntech Power Holdings Co., Ltd., ADR (b) 143,962 36,878 Trina Solar Ltd., ADR (b) 246,345 19,465 Veeco Instruments, Inc. (b) 404,872 54,917 Yingli Green Energy Holding Co., Ltd., ADR (b) 208,685 ------------ 12,013,188 ------------ TOTAL INVESTMENTS -- 100.0% 20,744,997 (Cost $30,589,929) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% (5,370) ------------ NET ASSETS -- 100.0% $ 20,739,627 ============ (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 $35,405,199. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,681,776 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $16,341,978. ADR - American Depositary Receipt Page 68 See Notes to Financial Statements FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $20,744,997 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 69 FIRST TRUST S&P REIT INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (b) -- 99.8% DIVERSIFIED REITS -- 6.3% 29,290 American Assets Trust, Inc. $ 600,738 58,170 CapLease, Inc. 235,007 90,975 Cousins Properties, Inc. 583,150 9,600 Gladstone Commercial Corp. 168,480 72,000 Investors Real Estate Trust 525,240 101,792 Liberty Property Trust 3,143,337 9,579 One Liberty Properties, Inc. 158,053 16,296 PS Business Parks, Inc. 903,287 161,839 Vornado Realty Trust 12,438,946 57,955 Washington Real Estate Investment Trust 1,585,069 25,796 Winthrop Realty Trust 262,345 ------------ 20,603,652 ------------ INDUSTRIAL REITS -- 4.8% 216,052 DCT Industrial Trust, Inc. 1,106,186 23,551 EastGroup Properties, Inc. 1,023,997 75,985 First Industrial Realty Trust, Inc. (c) 777,327 44,115 First Potomac Realty Trust 575,701 34,442 Monmouth Real Estate Investment Corp., Class A 315,144 401,978 Prologis, Inc. 11,492,551 11,993 STAG Industrial, Inc. 137,560 6,612 Terreno Realty Corp. 100,106 ------------ 15,528,572 ------------ OFFICE REITS -- 15.9% 54,349 Alexandria Real Estate Equities, Inc. 3,748,451 134,940 BioMed Realty Trust, Inc. 2,439,715 129,502 Boston Properties, Inc. 12,898,399 118,891 Brandywine Realty Trust 1,129,465 73,440 CommonWealth REIT 1,222,042 17,412 Coresite Realty Corp. 310,282 63,149 Corporate Office Properties Trust 1,342,548 92,069 Digital Realty Trust, Inc. 6,138,240 112,118 Douglas Emmett, Inc. 2,045,032 221,866 Duke Realty Corp. 2,673,485 55,000 DuPont Fabros Technology, Inc. 1,332,100 63,291 Franklin Street Properties Corp. 629,745 30,955 Government Properties Income Trust 698,035 63,667 Highwoods Properties, Inc. 1,889,000 15,020 Hudson Pacific Properties, Inc. 212,683 51,284 Kilroy Realty Corp. 1,952,382 117,778 Lexington Realty Trust 882,157 76,442 Mack-Cali Realty Corp. 2,040,237 17,633 Mission West Properties, Inc. 159,050 37,578 MPG Office Trust, Inc. (c) 74,780 19,296 Parkway Properties, Inc. 190,259 151,604 Piedmont Office Realty Trust, Inc., Class A 2,583,332 75,570 SL Green Realty Corp. 5,035,985 ------------ 51,627,404 ------------ RESIDENTIAL REITS -- 18.5% 62,155 American Campus Communities, Inc. 2,608,024 106,065 Apartment Investment & Management Co., Class A 2,429,949 37,129 Associated Estates Realty Corp. 592,207 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ RESIDENTIAL REITS (CONTINUED) 83,403 AvalonBay Communities, Inc. $ 10,892,432 66,062 BRE Properties, Inc. 3,334,810 62,595 Camden Property Trust 3,895,913 26,939 Campus Crest Communities, Inc. 271,006 76,650 Colonial Properties Trust 1,598,919 80,692 Education Realty Trust, Inc. 825,479 35,787 Equity Lifestyle Properties, Inc. 2,386,635 260,201 Equity Residential 14,839,263 29,933 Essex Property Trust, Inc. 4,205,886 42,340 Home Properties, Inc. 2,437,514 33,181 Mid-America Apartment Communities, Inc. 2,075,471 45,509 Post Properties, Inc. 1,989,653 19,037 Sun Communities, Inc. 695,422 192,148 UDR, Inc. 4,822,915 11,241 UMH Properties, Inc. 104,654 ------------ 60,006,152 ------------ RETAIL REITS -- 26.5% 37,356 Acadia Realty Trust 752,350 8,639 Agree Realty Corp. 210,619 1,794 Alexander's, Inc. 663,834 130,142 CBL & Associates Properties, Inc. 2,043,229 48,923 Cedar Realty Trust, Inc. 210,858 191,934 DDR Corp. 2,335,837 52,301 Equity One, Inc. 888,071 26,570 Excel Trust, Inc. 318,840 55,697 Federal Realty Investment Trust 5,054,503 516,903 General Growth Properties, Inc. 7,763,883 23,729 Getty Realty Corp. 331,019 94,289 Glimcher Realty Trust 867,459 67,873 Inland Real Estate Corp. 516,514 356,969 Kimco Realty Corp. 5,797,177 55,800 Kite Realty Group Trust 251,658 115,737 Macerich (The) Co. 5,856,292 90,703 National Retail Properties, Inc. 2,392,745 48,834 Pennsylvania Real Estate Investment Trust 509,827 34,193 Ramco-Gershenson Properties Trust 336,117 116,849 Realty Income Corp. 4,085,041 78,872 Regency Centers Corp. 2,967,165 42,722 Retail Opportunity Investments Corp. 505,828 10,315 Saul Centers, Inc. 365,357 257,716 Simon Property Group, Inc. 33,229,901 76,049 Tanger Factory Outlet Centers, Inc. 2,229,757 50,804 Taubman Centers, Inc. 3,154,928 20,249 Urstadt Biddle Properties, Inc., Class A 366,102 106,002 Weingarten Realty Investors 2,312,964 ------------ 86,317,875 ------------ SPECIALIZED REITS -- 27.8% 59,678 Ashford Hospitality Trust 477,424 12,122 Chatham Lodging Trust 130,675 28,211 Chesapeake Lodging Trust 436,142 44,845 Cogdell Spencer, Inc. 190,591 107,516 CubeSmart 1,143,970 146,931 DiamondRock Hospitality Co. 1,416,415 40,987 Entertainment Properties Trust 1,791,542 Page 70 See Notes to Financial Statements FIRST TRUST S&P REIT INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (b) (CONTINUED) SPECIALIZED REITS (CONTINUED) 82,786 Extra Space Storage, Inc. $ 2,005,905 109,281 FelCor Lodging Trust, Inc. (c) 333,307 357,708 HCP, Inc. 14,819,842 166,474 Health Care REIT, Inc. 9,077,827 68,275 Healthcare Realty Trust, Inc. 1,269,232 132,671 Hersha Hospitality Trust 647,435 108,356 Hospitality Properties Trust 2,490,021 619,507 Host Hotels & Resorts, Inc. 9,150,118 73,498 LaSalle Hotel Properties 1,779,387 26,616 LTC Properties, Inc. 821,370 97,062 Medical Properties Trust, Inc. 958,002 24,334 National Health Investors, Inc. 1,070,209 90,498 OMEGA Healthcare Investors, Inc. 1,751,136 44,649 Pebblebrook Hotel Trust 856,368 124,543 Public Storage 16,746,052 25,178 RLJ Lodging Trust 423,746 142,670 Senior Housing Properties Trust 3,201,515 24,433 Sovran Self Storage, Inc. 1,042,556 143,294 Strategic Hotels & Resorts, Inc. (c) 769,489 23,930 Summit Hotel Properties, Inc. 225,899 104,100 Sunstone Hotel Investors, Inc. (c) 848,415 11,110 Universal Health Realty Income Trust 433,290 252,565 Ventas, Inc. 13,923,908 ------------ 90,231,788 ------------ TOTAL INVESTMENTS -- 99.8% 324,315,443 (Cost $339,580,242) (d) NET OTHER ASSETS AND LIABILITIES -- 0.2% 645,355 ------------ NET ASSETS -- 100.0% $324,960,798 ============ (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 $344,113,848. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,243,509 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $26,041,914. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $324,315,443 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 71 FIRST TRUST ISE WATER INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% CHEMICALS -- 4.1% 20,704 Ashland, Inc. $ 1,183,441 77,626 Calgon Carbon Corp. (b) 1,219,504 ------------ 2,402,945 ------------ COMMERCIAL SERVICES & SUPPLIES -- 3.5% 92,953 Tetra Tech, Inc. (b) 2,006,855 ------------ CONSTRUCTION & ENGINEERING -- 9.2% 35,030 AECOM Technology Corp. (b) 720,567 73,613 Aegion Corp. (b) 1,129,223 31,117 Layne Christensen Co. (b) 753,031 87,425 Northwest Pipe Co. (b) 1,998,536 20,157 URS Corp. (b) 707,914 ------------ 5,309,271 ------------ ELECTRICAL EQUIPMENT -- 6.8% 22,652 Emerson Electric Co. 1,055,357 38,548 Franklin Electric Co., Inc. 1,679,151 13,805 Roper Industries, Inc. 1,199,240 ------------ 3,933,748 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 4.0% 39,846 Badger Meter, Inc. 1,172,668 31,855 Itron, Inc. (b) 1,139,453 ------------ 2,312,121 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.3% 9,789 IDEXX Laboratories, Inc. (b) 753,362 ------------ INDUSTRIAL CONGLOMERATES -- 3.5% 43,545 Danaher Corp. 2,048,357 ------------ LIFE SCIENCES TOOLS & SERVICES -- 3.0% 49,568 Agilent Technologies, Inc. (b) 1,731,410 ------------ MACHINERY -- 39.9% 24,538 Crane Co. 1,146,170 819,295 Energy Recovery, Inc. (b) 2,113,781 663,350 Flow International Corp. (b) 2,321,725 11,279 Flowserve Corp. 1,120,230 47,293 IDEX Corp. 1,755,043 87,826 ITT Corp. 1,697,677 43,297 Lindsay Corp. 2,376,572 29,519 Mueller Industries, Inc. 1,134,120 959,210 Mueller Water Products, Inc., Class A 2,340,473 36,059 Pall Corp. 2,060,772 63,554 Pentair, Inc. 2,115,713 8,458 Valmont Industries, Inc. 767,902 64,201 Watts Water Technologies, Inc., Class A 2,196,316 ------------ 23,146,494 ------------ MULTI-UTILITIES -- 3.8% 198,048 Veolia Environment, ADR 2,188,430 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ WATER UTILITIES -- 20.9% 21,010 American States Water Co. $ 733,249 75,128 American Water Works Co., Inc. 2,393,578 107,902 Aqua America, Inc. 2,379,239 129,362 California Water Service Group 2,362,150 42,765 Cia de Saneamento Basico do Estado de Sao Paulo, ADR (b) 2,379,873 220,838 Consolidated Water Co., Ltd. 1,894,790 ------------ 12,142,879 ------------ TOTAL COMMON STOCKS -- 100.0% 57,975,872 (Cost $59,834,664) MONEY MARKET FUND -- 0.0% 27,308 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (c) 27,308 (Cost $27,308) ------------ TOTAL INVESTMENTS -- 100.0% 58,003,180 (Cost $59,861,972) (d) NET OTHER ASSETS AND LIABILITIES -- 0.0% (17,154) ------------ NET ASSETS -- 100.0% $ 57,986,026 ============ (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, 2011. (d) Aggregate cost for federal income tax purposes is $61,809,366. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,893,818 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $6,700,004. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $57,975,872 $ -- $ -- Money Market Fund 27,308 -- -- ------------------------------------------ TOTAL INVESTMENTS $58,003,180 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 72 See Notes to Financial Statements FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% GAS UTILITIES -- 3.6% 638,053 Questar Corp. $ 12,671,732 ------------ OIL, GAS & CONSUMABLE FUELS -- 96.4% 152,101 Anadarko Petroleum Corp. 11,609,869 125,213 Apache Corp. 11,341,794 150,355 Cabot Oil & Gas Corp. 11,411,945 494,973 Chesapeake Energy Corp. 11,032,948 178,892 Cimarex Energy Co. 11,073,415 642,422 Comstock Resources, Inc. (b) 9,829,057 169,647 ConocoPhillips 12,362,177 183,386 Devon Energy Corp. 11,369,932 636,725 EnCana Corp. 11,798,514 117,647 EOG Resources, Inc. 11,589,406 215,499 EQT Corp. 11,807,190 1,046,824 EXCO Resources, Inc. 10,939,311 150,060 Exxon Mobil Corp. 12,719,086 721,398 Forest Oil Corp. (b) 9,774,943 223,760 Murphy Oil Corp. 12,472,382 291,451 Newfield Exploration Co. (b) 10,996,446 127,774 Noble Energy, Inc. 12,060,588 1,883,641 PetroQuest Energy, Inc. (b) 12,432,031 381,082 QEP Resources, Inc. 11,165,703 1,520,047 Quicksilver Resources, Inc. (b) 10,199,515 179,159 Range Resources Corp. 11,097,108 169,737 Royal Dutch Shell PLC, ADR 12,406,077 1,595,554 SandRidge Energy, Inc. (b) 13,019,721 159,930 (SM) Energy Co. 11,690,883 331,774 Southwestern Energy Co. (b) 10,596,862 458,012 Statoil ASA, ADR 11,729,687 469,463 Stone Energy Corp. (b) 12,384,434 983,558 Talisman Energy, Inc. 12,540,364 354,618 Ultra Petroleum Corp. (b) 10,507,331 ------------ 333,958,719 ------------ TOTAL COMMON STOCKS -- 100.0% 346,630,451 (Cost $406,679,368) MONEY MARKET FUND -- 0.1% 272,025 Morgan Stanley Institutional Treasury Money Market Fund - 0.01% (c) 272,025 ------------ (Cost $272,025) TOTAL INVESTMENTS -- 100.1% 346,902,476 (Cost $406,951,393) (d) NET OTHER ASSETS AND LIABILITIES -- (0.1)% (346,088) ------------ NET ASSETS -- 100.0% $346,556,388 ============ (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, 2011. (d) Aggregate cost for federal income tax purposes is $414,109,165. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $13,669,129 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $80,875,818. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $346,630,451 $ -- $ -- Money Market Fund 272,025 -- -- ------------------------------------------ TOTAL INVESTMENTS $346,902,476 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. See Notes to Financial Statements Page 73 FIRST TRUST ISE CHINDIA INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.1% AIRLINES -- 0.7% 22,260 China Southern Airlines Co., Ltd., ADR (b) $ 566,517 ------------ AUTOMOBILES -- 4.0% 185,869 Tata Motors Ltd., ADR 3,141,186 ------------ COMMERCIAL BANKS -- 13.8% 207,639 HDFC Bank Ltd., ADR 5,456,753 207,126 ICICI Bank Ltd., ADR 5,474,340 ------------ 10,931,093 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.7% 23,834 New Oriental Education & Technology Group, Inc., ADR (b) 573,208 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.8% 9,607 China Telecom Corp., Ltd., ADR 548,848 79,269 China Unicom (Hong Kong) Ltd., ADR 1,674,954 ------------ 2,223,802 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7% 21,896 Mindray Medical International Ltd., ADR 561,413 ------------ HOTELS, RESTAURANTS & LEISURE -- 5.8% 24,840 Ctrip.com International Ltd., ADR (b) 581,256 19,269 Home Inns & Hotels Management, Inc., ADR (b) 497,140 364,465 Melco Crown Entertainment Ltd., ADR (b) 3,506,153 ------------ 4,584,549 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.8% 28,902 Huaneng Power International, Inc., ADR 607,520 ------------ INSURANCE -- 2.0% 42,081 China Life Insurance Co., Ltd., ADR 1,555,735 ------------ INTERNET & CATALOG RETAIL -- 2.7% 110,829 E-Commerce China Dangdang, Inc., ADR (b) 487,648 69,336 MakeMyTrip Ltd. (b) 1,666,837 ------------ 2,154,485 ------------ INTERNET SOFTWARE & SERVICES -- 16.9% 62,710 21Vianet Group, Inc., ADR (b) 573,797 44,957 Baidu, Inc., ADR (b) 5,236,142 12,195 NetEase.com, Inc., ADR (b) 546,946 29,845 Qihoo 360 Technology Co., Ltd., ADR (b) 468,268 156,606 Renren, Inc., ADR (b) 555,951 392,159 Sify Technologies Ltd., ADR (b) 1,576,479 54,204 SINA Corp. (b) 2,818,608 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ INTERNET SOFTWARE & SERVICES (CONTINUED) 10,999 Sohu.com, Inc. (b) $ 549,950 41,641 SouFun Holdings Ltd., ADR 607,959 28,917 Youku, Inc., ADR (b) 453,129 ------------ 13,387,229 ------------ IT SERVICES -- 11.4% 111,790 Infosys Ltd., ADR 5,743,770 320,561 Wipro Ltd., ADR 3,266,517 ------------ 9,010,287 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.7% 51,920 WuXi PharmaTech Cayman, Inc., ADR (b) 573,197 ------------ MEDIA -- 0.6% 25,377 Focus Media Holding Ltd., ADR (b) 494,598 ------------ METALS & MINING -- 4.3% 48,308 Aluminum Corp. of China Ltd., ADR 521,726 420,185 Sterlite Industries (India) Ltd., ADR 2,911,882 ------------ 3,433,608 ------------ OIL, GAS & CONSUMABLE FUELS -- 14.0% 16,129 China Petroleum & Chemical Corp., ADR 1,694,351 17,285 CNOOC Ltd., ADR 3,019,344 47,102 PetroChina Co., Ltd., ADR 5,855,250 25,324 Yanzhou Coal Mining Co., Ltd., ADR 537,122 ------------ 11,106,067 ------------ PHARMACEUTICALS -- 2.0% 55,496 Dr. Reddy's Laboratories Ltd., ADR 1,633,247 ------------ PROFESSIONAL SERVICES -- 0.7% 12,731 51job, Inc., ADR (b) 533,938 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.1% 126,661 LDK Solar Co., Ltd., ADR (b) 530,709 25,167 Spreadtrum Communications, Inc., ADR 525,487 211,879 Suntech Power Holdings Co., Ltd., ADR (b) 468,252 72,401 Trina Solar Ltd., ADR (b) 483,639 129,507 Yingli Green Energy Holding Co., Ltd., ADR (b) 492,127 ------------ 2,500,214 ------------ SOFTWARE -- 5.0% 64,464 Asiainfo-Linkage, Inc. (b) 499,596 24,205 Changyou.com Ltd., ADR (b) 557,925 143,718 Giant Interactive Group, Inc., ADR 586,370 52,488 Perfect World Co., Ltd., ADR (b) 549,550 171,521 Shanda Games Ltd., ADR 670,647 14,422 Shanda Interactive Entertainment Ltd., ADR (b) 577,024 54,318 VanceInfo Technologies, Inc., ADR (b) 492,664 ------------ 3,933,776 ------------ Page 74 See Notes to Financial Statements FIRST TRUST ISE CHINDIA INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) WIRELESS TELECOMMUNICATION SERVICES -- 7.4% 121,112 China Mobile Ltd., ADR $ 5,872,721 ------------ TOTAL INVESTMENTS -- 100.1% 79,378,390 (Cost $93,042,608) (c) NET OTHER ASSETS AND LIABILITIES -- (0.1)% (91,048) ------------ NET ASSETS -- 100.0% $ 79,287,342 ============ (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 $94,970,979. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,671,426 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $20,264,015. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $79,378,390 $ -- $ -- ========================================== COUNTRY ALLOCATIONS AS A PERCENTAGE OF NET ASSETS**: ---------------------------------------------------- China 47.2% India 38.9 Hong Kong 13.9 ------ 100.0% ====== * See Portfolio of Investments for industry breakout. ** Portfolio securities are categorized based on their country of incorporation. See Notes to Financial Statements Page 75 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 3.0% 15,769 Curtiss-Wright Corp. $ 557,119 12,754 Moog, Inc., Class A (b) 560,283 9,438 Triumph Group, Inc. 551,651 ------------ 1,669,053 ------------ AIR FREIGHT & LOGISTICS -- 1.0% 30,185 Park-Ohio Holdings Corp. (b) 538,500 ------------ AIRLINES -- 2.0% 7,491 Alaska Air Group, Inc. (b) 562,499 96,634 Hawaiian Holdings, Inc. (b) 560,477 ------------ 1,122,976 ------------ AUTO COMPONENTS -- 4.1% 46,994 Dana Holding Corp. (b) 570,977 39,991 Goodyear Tire & Rubber (The) Co. (b) 566,672 27,317 Standard Motor Products, Inc. 547,706 19,314 Tenneco, Inc. (b) 575,171 ------------ 2,260,526 ------------ BUILDING PRODUCTS -- 1.0% 20,174 Owens Corning, Inc. (b) 579,397 ------------ CHEMICALS -- 2.0% 3,884 CF Industries Holdings, Inc. 563,102 19,635 Dow Chemical (The) Co. 564,703 ------------ 1,127,805 ------------ COMPUTERS & PERIPHERALS -- 1.1% 35,795 Seagate Technology PLC 587,038 ------------ CONSTRUCTION & ENGINEERING -- 1.0% 26,800 Dycom Industries, Inc. (b) 560,656 ------------ CONSUMER FINANCE -- 1.0% 23,410 Discover Financial Services 561,840 ------------ CONTAINERS & PACKAGING -- 4.0% 15,783 Ball Corp. 563,611 16,587 Crown Holdings, Inc. (b) 556,992 42,932 Myers Industries, Inc. 529,781 9,809 Rock-Tenn Co., Class A 565,979 ------------ 2,216,363 ------------ DIVERSIFIED FINANCIAL SERVICES -- 1.0% 22,991 NASDAQ OMX Group (The), Inc. (b) 563,510 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 4.1% 18,851 AT&T, Inc. 570,054 13,795 BCE, Inc. 574,838 18,882 BT Group PLC, ADR 559,662 180,918 Cincinnati Bell, Inc. (b) 548,182 ------------ 2,252,736 ------------ ELECTRIC UTILITIES -- 1.0% 15,960 El Paso Electric Co. 552,854 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 6.0% 15,112 Arrow Electronics, Inc. (b) $ 565,340 52,874 Brightpoint, Inc. (b) 568,924 75,302 Celestica, Inc. (b) 551,964 28,159 Jabil Circuit, Inc. 553,606 48,607 PC Connection, Inc. 539,051 31,600 Zygo Corp. (b) 557,740 ------------ 3,336,625 ------------ ENERGY EQUIPMENT & SERVICES -- 3.0% 36,022 Helix Energy Solutions Group, Inc. (b) 569,148 7,460 Oil States International, Inc. (b) 569,720 29,835 RPC, Inc. 544,489 ------------ 1,683,357 ------------ FOOD & STAPLES RETAILING -- 2.0% 10,966 Casey's General Stores, Inc. 564,859 37,777 Ingles Markets, Inc., Class A 568,921 ------------ 1,133,780 ------------ FOOD PRODUCTS -- 1.0% 22,806 Smithfield Foods, Inc. (b) 553,730 ------------ HEALTH CARE PROVIDERS & SERVICES -- 6.1% 12,949 Aetna, Inc. 546,318 78,215 Health Management Associates, Inc., Class A (b) 576,445 6,304 Humana, Inc. 552,293 63,914 Select Medical Holdings Corp. (b) 541,991 112,804 Tenet Healthcare Corp. (b) 578,685 14,542 Universal Health Services, Inc., Class B 565,102 ------------ 3,360,834 ------------ HOTELS, RESTAURANTS & LEISURE -- 2.0% 14,735 Penn National Gaming, Inc. (b) 560,961 54,554 Pinnacle Entertainment, Inc. (b) 554,269 ------------ 1,115,230 ------------ HOUSEHOLD DURABLES -- 1.0% 18,820 Jarden Corp. 562,342 ------------ IT SERVICES -- 2.0% 9,947 CACI International, Inc., Class A (b) 556,236 16,602 NeuStar, Inc., Class A (b) 567,291 ------------ 1,123,527 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.0% 20,355 Mattel, Inc. 565,055 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.0% 77,254 Cambrex Corp. (b) 554,684 ------------ MACHINERY -- 7.1% 13,324 AGCO Corp. (b) 572,532 12,079 Cascade Corp. 569,767 Page 76 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) MACHINERY (CONTINUED) 15,321 CNH Global N.V. (b) $ 551,403 15,460 Kennametal, Inc. 564,599 15,069 Navistar International Corp. (b) 570,814 14,929 Sauer-Danfoss, Inc. (b) 540,579 14,606 Timken (The) Co. 565,398 ------------ 3,935,092 ------------ MARINE -- 1.0% 8,614 Kirby Corp. (b) 567,146 ------------ MEDIA -- 6.1% 29,695 Cinemark Holdings, Inc. 549,061 13,145 DIRECTV, Class A (b) 562,080 19,793 DISH Network Corp., Class A 563,705 40,162 Knology, Inc. (b) 570,300 28,848 Shaw Communications, Inc., Class B 573,210 49,586 Sinclair Broadcast Group, Inc., Class A 561,809 ------------ 3,380,165 ------------ METALS & MINING -- 3.0% 12,445 Barrick Gold Corp. 563,136 8,719 Cliffs Natural Resources, Inc. 543,630 11,503 Rio Tinto PLC, ADR 562,727 ------------ 1,669,493 ------------ MULTILINE RETAIL -- 3.1% 39,080 Fred's, Inc., Class A 569,786 11,355 Kohl's Corp. 560,369 17,543 Macy's, Inc. 564,534 ------------ 1,694,689 ------------ OFFICE ELECTRONICS -- 1.0% 69,396 Xerox Corp. 552,392 ------------ OIL, GAS & CONSUMABLE FUELS -- 4.0% 7,454 Alliance Resource Partners L.P. (c) 563,373 5,244 Chevron Corp. 557,962 10,017 Murphy Oil Corp. 558,347 26,636 Valero Energy Corp. 560,688 ------------ 2,240,370 ------------ PAPER & FOREST PRODUCTS -- 4.0% 19,248 International Paper Co. 569,741 18,857 MeadWestvaco Corp. 564,767 24,761 Neenah Paper, Inc. 552,665 8,349 Schweitzer-Mauduit International, Inc. 554,875 ------------ 2,242,048 ------------ PHARMACEUTICALS -- 4.0% 10,071 Abbott Laboratories 566,292 15,001 Merck & Co., Inc. 565,538 13,586 Teva Pharmaceutical Industries Ltd., ADR 548,331 9,227 Watson Pharmaceuticals, Inc. (b) 556,757 ------------ 2,236,918 ------------ SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ PROFESSIONAL SERVICES -- 1.0% 41,005 Kelly Services, Inc., Class A $ 560,948 ------------ ROAD & RAIL -- 5.1% 29,617 Arkansas Best Corp. 570,720 50,696 Avis Budget Group, Inc. (b) 543,461 7,783 Norfolk Southern Corp. 567,069 13,691 Old Dominion Freight Line, Inc. (b) 554,896 39,027 RailAmerica, Inc. (b) 581,112 ------------ 2,817,258 ------------ SPECIALTY RETAIL -- 6.1% 7,985 Advance Auto Parts, Inc. 555,996 59,048 Cost Plus, Inc. (b) 575,718 8,999 Genesco, Inc. (b) 555,598 17,238 Men's Wearhouse (The), Inc. 558,684 10,821 PetSmart, Inc. 555,009 37,878 Sonic Automotive, Inc., Class A 560,973 ------------ 3,361,978 ------------ TRADING COMPANIES & DISTRIBUTORS -- 1.0% 44,068 Aircastle Ltd. 560,545 ------------ WATER UTILITIES -- 2.0% 15,911 American States Water Co. 555,294 17,397 American Water Works Co., Inc. 554,268 ------------ 1,109,562 ------------ TOTAL INVESTMENTS -- 99.9% 55,511,022 (Cost $53,818,387) (d) NET OTHER ASSETS AND LIABILITIES -- 0.1% 31,658 ------------ NET ASSETS -- 100.0% $ 55,542,680 ============ (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 $54,203,006. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $3,623,649 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,315,633. ADR - American Depositary Receipt See Notes to Financial Statements Page 77 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $55,511,022 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 78 See Notes to Financial Statements FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND PORTFOLIO OF INVESTMENTS (a) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS -- 100.0% COMMERCIAL BANKS -- 80.2% 3,255 1st Source Corp. $ 82,449 3,193 Ameris Bancorp (b) 32,824 1,586 Arrow Financial Corp. 37,176 23,466 Associated Banc-Corp. 262,115 2,034 BancFirst Corp. 76,356 4,463 Bancorp (The), Inc. (b) 32,268 4,608 Bank of the Ozarks, Inc. 136,535 2,314 Banner Corp. 39,685 10,484 BBCN Bancorp, Inc. (b) 99,074 9,143 BOK Financial Corp. 502,225 10,488 Boston Private Financial Holdings, Inc. 83,275 1,760 Bryn Mawr Bank Corp. 34,302 1,034 Camden National Corp. 33,708 3,903 Cardinal Financial Corp. 41,918 10,574 Cathay General Bancorp 157,870 3,691 Chemical Financial Corp. 78,692 5,413 Citizens Republic Bancorp, Inc. (b) 61,708 1,991 City Holding Co. 67,475 5,311 Columbia Banking System, Inc. 102,343 12,261 Commerce Bancshares, Inc. 467,389 2,074 Community Trust Bancorp, Inc. 61,017 14,047 CVB Financial Corp. 140,891 2,677 Eagle Bancorp, Inc. (b) 38,924 20,039 East West Bancorp, Inc. 395,770 2,386 Enterprise Financial Services Corp. 35,313 1,856 Financial Institutions, Inc. 29,956 11,643 First Busey Corp. 58,215 1,166 First Citizens BancShares, Inc., Class A 204,038 2,399 First Community Bancshares, Inc. 29,940 7,833 First Financial Bancorp 130,341 4,229 First Financial Bankshares, Inc. 141,375 1,768 First Financial Corp. 58,839 3,837 First Merchants Corp. 32,499 10,015 First Midwest Bancorp, Inc. 101,452 1,181 First of Long Island (The) Corp. 31,084 14,688 FirstMerit Corp. 222,229 26,891 Fulton Financial Corp. 263,801 9,669 Glacier Bancorp, Inc. 116,318 1,812 Great Southern Bancorp, Inc. 42,745 11,388 Hancock Holding Co. 364,074 3,801 Home Bancshares, Inc. 98,484 3,947 IBERIABANK Corp. 194,587 2,888 Independent Bank Corp. 78,814 9,045 International Bancshares Corp. 165,840 14,954 Investors Bancorp, Inc. (b) 201,580 2,180 Lakeland Financial Corp. 56,397 7,350 MB Financial, Inc. 125,685 20,401 National Penn Bancshares, Inc. 172,184 4,451 NBT Bancorp, Inc. 98,501 4,424 Pacific Capital Bancorp (b) 124,934 4,772 PacWest Bancorp 90,429 4,613 Pinnacle Financial Partners, Inc. (b) 74,500 9,653 PrivateBancorp, Inc. 105,990 3,369 Renasant Corp. 50,535 2,508 Republic Bancorp, Inc., Class A 57,433 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMERCIAL BANKS (CONTINUED) 3,779 S&T Bancorp, Inc. $ 73,879 1,856 S.Y. Bancorp, Inc. 38,104 3,238 Sandy Spring Bancorp, Inc. 56,827 1,884 SCBT Financial Corp. 54,655 6,209 Signature Bank (b) 372,478 2,322 Simmons First National Corp., Class A 63,135 2,214 Southside Bancshares, Inc. 47,955 4,250 State Bank Financial Corp. (b) 64,218 3,093 StellarOne Corp. 35,198 8,332 Sterling Financial Corp. (b) 139,144 11,503 Sun Bancorp, Inc. (b) 27,837 21,066 Susquehanna Bancshares, Inc. 176,533 5,827 SVB Financial Group (b) 277,890 5,037 Texas Capital Bancshares, Inc. (b) 154,183 3,918 TowneBank 47,956 2,148 TriCo Bancshares 30,545 8,621 Trustmark Corp. 209,404 5,430 UMB Financial Corp. 202,268 15,399 Umpqua Holdings Corp. 190,794 3,503 Union First Market Bankshares Corp. 46,555 6,750 United Bankshares, Inc. 190,823 5,595 United Community Banks, Inc. (b) 39,109 2,249 Univest Corp. of Pennsylvania 32,925 4,058 Virginia Commerce Bancorp, Inc. (b) 31,368 2,190 Washington Trust Bancorp, Inc. 52,253 3,580 WesBanco, Inc. 69,703 2,595 West Coast Bancorp (b) 40,482 3,829 Westamerica Bancorporation 168,093 9,585 Wilshire Bancorp, Inc. (b) 34,794 4,831 Wintrust Financial Corp. 135,510 24,777 Zions Bancorporation 403,370 ------------ 10,132,089 ------------ IT SERVICES -- 0.4% 1,392 Cass Information Systems, Inc. 50,655 ------------ THRIFTS & MORTGAGE FINANCE -- 19.4% 10,809 Beneficial Mutual Bancorp, Inc. (b) 90,363 2,843 Berkshire Hills Bancorp, Inc. 63,086 7,960 Brookline Bancorp, Inc. 67,182 22,519 Capitol Federal Financial, Inc. 259,869 4,709 Dime Community Bancshares, Inc. 59,333 4,189 Flushing Financial Corp. 52,907 5,462 Northfield Bancorp, Inc. 77,342 13,109 Northwest Bancshares, Inc. 163,076 2,534 OceanFirst Financial Corp. 33,119 6,159 Oritani Financial Corp. 78,651 48,486 People's United Financial, Inc. 623,045 3,968 Rockville Financial, Inc. 41,109 1,485 Territorial Bancorp, Inc. 29,329 41,532 TFS Financial Corp. (b) 372,127 12,546 TrustCo Bank Corp. NY 70,383 2,121 United Financial Bancorp, Inc. 34,127 4,559 ViewPoint Financial Group 59,312 14,469 Washington Federal, Inc. 202,421 3,714 Westfield Financial, Inc. 27,335 See Notes to Financial Statements Page 79 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND PORTFOLIO OF INVESTMENTS (a) (CONTINUED) DECEMBER 31, 2011 SHARES DESCRIPTION VALUE --------- --------------------------------------- ------------ COMMON STOCKS (CONTINUED) THRIFTS & MORTGAGE FINANCE (CONTINUED) 1,158 WSFS Financial Corp. $ 41,642 ------------ 2,445,758 ------------ TOTAL INVESTMENTS -- 100.0% 12,628,502 (Cost $13,047,341) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 5,675 ------------ NET ASSETS -- 100.0% $ 12,634,177 ============ (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 $13,360,430. As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $352,465 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,084,393. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2011 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* $12,628,502 $ -- $ -- ========================================== * See Portfolio of Investments for industry breakout. Page 80 See Notes to Financial Statements This page intentionally left blank. FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2011
FIRST TRUST FIRST TRUST MORNINGSTAR DOW JONES SELECT DIVIDEND FIRST TRUST MICROCAP LEADERS(SM) US IPO INDEX(SM) FUND INDEX FUND INDEX FUND --------------- --------------- --------------- ASSETS: Investments at value................................................... $ 52,302,953 $ 446,816,929 $ 15,580,984 Cash................................................................... 18,421 -- 16,005 Receivables: Capital shares sold.............................................. -- 6,168,738 -- Investment securities sold....................................... 3,033,389 -- -- Dividends........................................................ 64,074 1,081,990 22,226 Interest......................................................... -- -- -- From investment advisor.......................................... -- 2,798 2,451 Reclaims......................................................... -- -- -- Prepaid expenses....................................................... 11,599 7,452 9,585 --------------- --------------- --------------- TOTAL ASSETS..................................................... 55,430,436 454,077,907 15,631,251 --------------- --------------- --------------- LIABILITIES: Due to Custodian....................................................... -- 657,736 -- Payables: Capital shares purchased......................................... 3,035,756 -- -- Investment securities purchased.................................. -- 6,166,454 60 Audit and tax fees............................................... 23,748 23,748 23,748 Licensing fees................................................... 19,093 83,102 9,115 Investment advisory fees......................................... 9,879 -- -- Printing fees.................................................... 5,266 35,587 1,524 Other liabilities...................................................... 8,811 81,746 2,969 --------------- --------------- --------------- TOTAL LIABILITIES................................................ 3,102,553 7,048,373 37,416 --------------- --------------- --------------- NET ASSETS............................................................. $ 52,327,883 $ 447,029,534 $ 15,593,835 =============== =============== =============== NET ASSETS CONSIST OF: Paid-in capital........................................................ $ 71,723,860 $ 452,263,673 $ 20,762,932 Par value.............................................................. 26,050 254,500 6,500 Accumulated net investment income (loss)............................... (56,755) -- -- Accumulated net realized gain (loss) on investments.................... (22,850,723) (35,032,338) (5,925,042) Net unrealized appreciation (depreciation) on investments.............. 3,485,451 29,543,699 749,445 --------------- --------------- --------------- NET ASSETS............................................................. $ 52,327,883 $ 447,029,534 $ 15,593,835 =============== =============== =============== NET ASSET VALUE, per share............................................. $ 20.09 $ 17.57 $ 23.99 =============== =============== =============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) ............................................................ 2,605,000 25,450,002 650,002 =============== =============== =============== Investments at cost.................................................... $ 48,817,502 $ 417,273,230 $ 14,831,539 =============== =============== ===============
Page 82 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 --------------- --------------- --------------- --------------- --------------- --------------- $ 73,481,156 $ 149,653,904 $ 179,500,760 $ 519,800,065 $ 31,610,601 $ 6,361,345 61,665 113,556 174,163 -- 14,752 -- -- -- -- -- -- -- -- -- 6,813,960 9,660,544 -- 55,220 72,671 -- -- 142,480 66,172 9,688 -- -- -- 5 -- -- -- -- -- -- -- 3,021 -- -- -- -- -- -- 2,094 4,757 11,281 121,696 972 11,369 --------------- --------------- --------------- --------------- --------------- --------------- 73,617,586 149,772,217 186,500,164 529,724,790 31,692,497 6,440,643 --------------- --------------- --------------- --------------- --------------- --------------- -- -- -- 1,499 -- -- -- -- 3,268,282 9,658,498 -- -- -- -- -- -- -- 55,160 23,748 23,748 23,748 23,748 23,748 23,748 19,956 40,575 55,600 216,742 8,453 2,385 14,475 9,151 66,387 23,738 9,120 -- 7,308 15,387 17,700 47,110 3,361 666 12,747 23,291 38,484 70,074 5,294 1,809 --------------- --------------- --------------- --------------- --------------- --------------- 78,234 112,152 3,470,201 10,041,409 49,976 83,768 --------------- --------------- --------------- --------------- --------------- --------------- $ 73,539,352 $ 149,660,065 $ 183,029,963 $ 519,683,381 $ 31,642,521 $ 6,356,875 =============== =============== =============== =============== =============== =============== $ 90,183,372 $ 182,462,187 $ 290,022,062 $ 596,397,984 $ 58,032,206 $ 12,048,566 32,000 62,000 56,000 161,000 14,500 3,500 -- -- -- -- -- 271 (9,499,727) (11,175,269) (19,620,590) (26,359,202) (26,002,998) (5,904,350) (7,176,293) (21,688,853) (87,427,509) (50,516,401) (401,187) 208,888 --------------- --------------- --------------- --------------- --------------- --------------- $ 73,539,352 $ 149,660,065 $ 183,029,963 $ 519,683,381 $ 31,642,521 $ 6,356,875 =============== =============== =============== =============== =============== =============== $ 22.98 $ 24.14 $ 32.68 $ 32.28 $ 21.82 $ 18.16 =============== =============== =============== =============== =============== =============== 3,200,002 6,200,002 5,600,002 16,100,002 1,450,002 350,002 =============== =============== =============== =============== =============== =============== $ 80,657,449 $ 171,342,757 $ 266,928,269 $ 570,316,466 $ 32,011,788 $ 6,152,457 =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 83 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 2011
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ(R) VALUE LINE(R) EX-TECHNOLOGY CLEAN EDGE(R) DIVIDEND SECTOR GREEN ENERGY INDEX FUND INDEX(SM) FUND INDEX FUND --------------- --------------- --------------- ASSETS: Investments at value................................................... $ 366,165,831 $ 30,153,609 $ 20,744,997 Cash................................................................... -- -- 44,561 Receivables: Capital shares sold.............................................. 11,941,738 -- -- Investment securities sold....................................... 25,694,660 -- -- Dividends........................................................ 1,022,741 46,809 -- Interest......................................................... -- -- -- From investment advisor.......................................... -- -- -- Reclaims......................................................... 17,060 -- 335 Prepaid expenses....................................................... 20,211 751 705 --------------- --------------- --------------- TOTAL ASSETS..................................................... 404,862,241 30,201,169 20,790,598 --------------- --------------- --------------- LIABILITIES: Due to Custodian....................................................... 498,580 997 -- Payables: Capital shares purchased......................................... 12,065,599 -- -- Investment securities purchased.................................. 25,543,265 -- 14,458 Audit and tax fees............................................... 23,748 23,748 23,748 Licensing fees................................................... 129,503 7,304 5,764 Investment advisory fees......................................... 102,603 2,596 183 Printing fees.................................................... 33,647 2,980 2,255 Other liabilities...................................................... 66,739 6,649 4,563 --------------- --------------- --------------- TOTAL LIABILITIES................................................ 38,463,684 44,274 50,971 --------------- --------------- --------------- NET ASSETS............................................................. $ 366,398,557 $ 30,156,895 $ 20,739,627 =============== =============== =============== NET ASSETS CONSIST OF: Paid-in capital........................................................ $ 385,928,102 $ 33,362,696 $ 57,791,740 Par value.............................................................. 228,880 14,500 21,500 Accumulated net investment income (loss)............................... -- -- -- Accumulated net realized gain (loss) on investments.................... (57,979,540) (2,512,907) (27,228,681) Net unrealized appreciation (depreciation) on investments.............. 38,221,115 (707,394) (9,844,932) --------------- --------------- --------------- NET ASSETS............................................................. $ 366,398,557 $ 30,156,895 $ 20,739,627 =============== =============== =============== NET ASSET VALUE, per share............................................. $ 16.01 $ 20.80 $ 9.65 =============== =============== =============== Number of shares outstanding (unlimited number of shares has been authorized, par value $0.01 per share) ......................................................... 22,887,986 1,450,002 2,150,002 =============== =============== =============== Investments at cost.................................................... $ 327,944,716 $ 30,861,003 $ 30,589,929 =============== =============== ===============
Page 84 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 --------------- --------------- --------------- --------------- --------------- --------------- $ 324,315,443 $ 58,003,180 $ 346,902,476 $ 79,378,390 $ 55,511,022 $ 12,628,502 -- -- -- 76,907 -- 10,778 -- -- -- -- 4,902,593 -- 3,877,863 -- 3,639,495 912,348 12,380,574 281,219 1,126,139 41,200 -- 41,278 70,391 20,079 7 1 3 -- -- -- -- -- -- -- -- 1,163 -- -- -- -- 502 -- 7,048 1,467 10,793 2,862 1,622 5,291 --------------- --------------- --------------- --------------- --------------- --------------- 329,326,500 58,045,848 350,552,767 80,411,785 72,866,704 12,947,032 --------------- --------------- --------------- --------------- --------------- --------------- 213,709 -- -- -- 9,796 -- 3,885,050 -- 3,638,266 911,318 4,962,445 -- -- -- -- 138,272 12,274,924 281,020 23,748 23,748 23,748 23,748 23,748 23,748 102,237 7,047 97,374 18,666 22,036 2,725 29,092 13,734 137,997 11,197 16,361 -- 30,492 5,615 38,893 8,490 5,363 1,189 81,374 9,678 60,101 12,752 9,351 4,173 --------------- --------------- --------------- --------------- --------------- --------------- 4,365,702 59,822 3,996,379 1,124,443 17,324,024 312,855 --------------- --------------- --------------- --------------- --------------- --------------- $ 324,960,798 $ 57,986,026 $ 346,556,388 $ 79,287,342 $ 55,542,680 $ 12,634,177 =============== =============== =============== =============== =============== =============== $ 344,549,203 $ 71,172,840 $ 500,301,014 $ 136,648,837 $ 145,729,306 $ 13,995,200 210,000 28,000 190,500 43,500 44,900 5,500 -- 15,568 83,767 -- (24,835) 1,117 (4,533,606) (11,371,590) (93,969,976) (43,740,777) (91,899,326) (948,801) (15,264,799) (1,858,792) (60,048,917) (13,664,218) 1,692,635 (418,839) --------------- --------------- --------------- --------------- --------------- --------------- $ 324,960,798 $ 57,986,026 $ 346,556,388 $ 79,287,342 $ 55,542,680 $ 12,634,177 =============== =============== =============== =============== =============== =============== $ 15.47 $ 20.71 $ 18.19 $ 18.23 $ 12.37 $ 22.97 =============== =============== =============== =============== =============== =============== 21,000,002 2,800,002 19,050,002 4,350,002 4,489,982 550,002 =============== =============== =============== =============== =============== =============== $ 339,580,242 $ 59,861,972 $ 406,951,393 $ 93,042,608 $ 53,818,387 $ 13,047,341 =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 85 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2011
FIRST TRUST FIRST TRUST MORNINGSTAR DOW JONES SELECT DIVIDEND FIRST TRUST MICROCAP LEADERS(SM) US IPO INDEX(SM) FUND INDEX FUND INDEX FUND --------------- --------------- --------------- INVESTMENT INCOME: Dividends.............................................................. $ 1,116,498 $ 9,523,637 $ 231,956 Foreign tax withholding................................................ (371) -- -- Interest............................................................... -- -- -- --------------- --------------- --------------- Total investment income............................................. 1,116,127 9,523,637 231,956 --------------- --------------- --------------- EXPENSES: Investment advisory fees............................................... 557,416 645,620 71,247 Licensing fees......................................................... 66,230 203,254 50,001 Accounting and administration fees..................................... 59,102 109,854 11,160 Audit and tax fees..................................................... 23,749 23,749 23,749 Legal fees............................................................. 21,405 66,764 4,329 Printing fees.......................................................... 19,866 52,483 5,675 Custodian fees......................................................... 13,935 26,901 2,226 Listing fees........................................................... 8,379 8,379 8,379 Transfer agent fees.................................................... 7,078 12,056 1,544 Trustees' fees and expenses............................................ 1,323 3,078 221 Registration and filing fees........................................... (216) 24,861 25 Expenses previously waived or reimbursed............................... -- -- -- Other expenses......................................................... 7,867 18,105 2,087 --------------- --------------- --------------- Total expenses...................................................... 786,134 1,195,104 180,643 Less fees waived and expenses reimbursed by the investment advisor . (117,235) (226,674) (73,773) --------------- --------------- --------------- Net expenses........................................................ 668,899 968,430 106,870 --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS)........................................... 447,228 8,555,207 125,086 --------------- --------------- --------------- REALIZED AND UNREALIZED GAIN (LOSS): Investments......................................................... (11,212,191) (1,907,466) (739,226) In-kind redemptions................................................. 14,739,409 14,068,420 1,855,793 Foreign currency transactions....................................... -- -- -- --------------- --------------- --------------- Net realized gain (loss)............................................... 3,527,218 12,160,954 1,116,567 Net change in unrealized appreciation (depreciation) on investments ... (15,388,722) 17,878,265 (1,032,399) --------------- --------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS)................................ (11,861,504) 30,039,219 84,168 --------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS..................................................... $ (11,414,276) $ 38,594,426 $ 209,254 =============== =============== ===============
Page 86 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 --------------- --------------- --------------- --------------- --------------- --------------- $ 704,876 $ 2,291,860 $ 189,695 $ 2,166,210 $ 806,670 $ 122,362 (2,294) -- -- -- (14,328) (2,365) -- -- -- 51 -- 3 --------------- --------------- --------------- --------------- --------------- --------------- 702,582 2,291,860 189,695 2,166,261 792,342 120,000 --------------- --------------- --------------- --------------- --------------- --------------- 339,525 1,570,171 1,260,807 2,482,993 183,051 34,240 84,881 392,543 252,162 403,507 36,610 10,856 45,255 205,901 158,969 311,973 20,000 6,217 23,749 23,749 23,749 23,749 23,749 23,749 20,428 81,633 69,245 140,227 8,723 1,627 18,526 73,182 68,045 123,882 8,315 3,015 10,610 49,068 39,400 77,594 4,576 856 15,343 23,446 8,379 8,379 8,379 12,192 5,474 20,993 16,451 31,756 2,084 1,195 1,062 4,581 3,623 7,808 469 87 1,219 834 12,820 579 -- -- -- -- -- 76,990 -- -- 8,784 23,884 21,221 35,052 3,440 975 --------------- --------------- --------------- --------------- --------------- --------------- 574,856 2,469,985 1,934,871 3,724,489 299,396 95,009 (65,568) (114,729) (43,660) -- (61,430) (47,073) --------------- --------------- --------------- --------------- --------------- --------------- 509,288 2,355,256 1,891,211 3,724,489 237,966 47,936 --------------- --------------- --------------- --------------- --------------- --------------- 193,294 (63,396) (1,701,516) (1,558,228) 554,376 72,064 --------------- --------------- --------------- --------------- --------------- --------------- (2,417,424) (9,298,574) (31,559,077) (24,237,028) (758,827) (920,481) 9,361,163 45,332,769 22,491,879 87,038,344 2,962,869 1,049,325 -- -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- 6,943,739 36,034,195 (9,067,198) 62,801,316 2,204,042 128,844 (14,365,617) (68,573,256) (114,433,625) (129,043,201) (3,710,370) (835,358) --------------- --------------- --------------- --------------- --------------- --------------- (7,421,878) (32,539,061) (123,500,823) (66,241,885) (1,506,328) (706,514) --------------- --------------- --------------- --------------- --------------- --------------- $ (7,228,584) $ (32,602,457) $ (125,202,339) $ (67,800,113) $ (951,952) $ (634,450) =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 87 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2011
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ(R) VALUE LINE(R) EX-TECHNOLOGY CLEAN EDGE(R) DIVIDEND SECTOR GREEN ENERGY INDEX FUND INDEX(SM) FUND INDEX FUND --------------- --------------- --------------- INVESTMENT INCOME: Dividends.............................................................. $ 10,012,978 $ 256,703 $ 132,993 Foreign tax withholding................................................ (161,141) (1,286) (442) Interest............................................................... -- 3 -- --------------- --------------- --------------- Total investment income............................................. 9,851,837 255,420 132,551 --------------- --------------- --------------- EXPENSES: Investment advisory fees............................................... 1,392,546 112,425 126,620 Licensing fees......................................................... 427,512 28,106 31,655 Accounting and administration fees..................................... 142,237 15,863 21,057 Audit and tax fees..................................................... 23,749 23,749 23,749 Legal fees............................................................. 75,276 7,092 6,998 Printing fees.......................................................... 36,428 9,199 9,661 Custodian fees......................................................... 34,814 3,513 3,957 Listing fees........................................................... 12,192 14,135 14,781 Transfer agent fees.................................................... 15,279 2,007 1,964 Trustees' fees and expenses............................................ 3,784 366 392 Registration and filing fees........................................... 14,438 420 82 Expenses previously waived or reimbursed............................... -- -- -- Other expenses......................................................... 21,171 2,701 3,560 --------------- --------------- --------------- Total expenses...................................................... 2,199,426 219,576 244,476 Less fees waived and expenses reimbursed by the investment advisor . (249,861) (50,938) (54,545) --------------- --------------- --------------- Net expenses........................................................ 1,949,565 168,638 189,931 --------------- --------------- --------------- NET INVESTMENT INCOME (LOSS)........................................... 7,902,272 86,782 (57,380) --------------- --------------- --------------- REALIZED AND UNREALIZED GAIN (LOSS): Investments......................................................... (5,025,923) (1,045,754) (4,519,799) In-kind redemptions................................................. 17,661,954 2,188,134 2,587,099 Foreign currency transactions....................................... -- -- -- --------------- --------------- --------------- Net realized gain (loss)............................................... 12,636,031 1,142,380 (1,932,700) Net change in unrealized appreciation (depreciation) on investments ... 3,716,675 (2,777,822) (13,448,678) --------------- --------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS)................................ 16,352,706 (1,635,442) (15,381,378) --------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS..................................................... $ 24,254,978 $ (1,548,660) $ (15,438,758) =============== =============== ===============
Page 88 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 --------------- --------------- --------------- --------------- --------------- --------------- $ 4,490,778 $ 869,963 $ 5,323,912 $ 2,306,909 $ 988,710 $ 279,167 -- (22,682) (411,055) (105,463) (17,929) -- 18 7 36 -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- 4,490,796 847,288 4,912,893 2,201,446 970,781 279,167 --------------- --------------- --------------- --------------- --------------- --------------- 532,334 243,875 1,988,749 551,533 413,305 50,249 185,456 30,484 497,187 110,307 132,035 11,306 91,083 32,040 250,080 112,860 43,726 8,506 23,750 23,749 23,749 23,749 23,749 23,749 51,580 14,811 117,724 28,621 18,728 3,196 44,003 17,097 94,583 27,565 13,949 4,728 22,181 7,621 62,148 17,236 10,333 1,570 8,379 8,379 8,379 8,379 8,379 13,771 9,608 3,609 26,376 7,011 5,307 1,413 2,560 775 6,194 1,682 1,032 162 33,317 1,186 4,451 6 1,181 1,207 -- -- -- -- -- -- 13,750 8,015 42,898 14,770 6,548 1,180 --------------- --------------- --------------- --------------- --------------- --------------- 1,018,001 391,641 3,122,518 903,719 678,272 121,037 (130,777) (25,829) (139,394) (76,490) (99,646) (45,663) --------------- --------------- --------------- --------------- --------------- --------------- 887,224 365,812 2,983,124 827,229 578,626 75,374 --------------- --------------- --------------- --------------- --------------- --------------- 3,603,572 481,476 1,929,769 1,374,217 392,155 203,793 --------------- --------------- --------------- --------------- --------------- --------------- (4,990,215) (2,014,989) (20,617,193) (8,706,316) (13,450,728) (795,402) 992,448 4,276,271 74,445,317 13,110,472 12,100,007 440,990 -- -- (147) -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- (3,997,767) 2,261,282 53,827,977 4,404,156 (1,350,721) (354,412) (21,892,948) (6,845,222) (112,055,233) (39,977,843) (4,336,999) (788,265) --------------- --------------- --------------- --------------- --------------- --------------- (25,890,715) (4,583,940) (58,227,256) (35,573,687) (5,687,720) (1,142,677) --------------- --------------- --------------- --------------- --------------- --------------- $ (22,287,143) $ (4,102,464) $ (56,297,487) $ (34,199,470) $ (5,295,565) $ (938,884) =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 89 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR 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, 2011 December 31, 2010 December 31, 2011 December 31, 2010 ----------------- ----------------- ----------------- ----------------- OPERATIONS: Net investment income (loss)................... $ 447,228 $ 499,285 $ 8,555,207 $ 2,913,346 Net realized gain (loss)....................... 3,527,218 (2,429,083) 12,160,954 1,461,455 Net change in unrealized appreciation (depreciation) .............................. (15,388,722) 18,873,114 17,878,265 8,079,545 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from operations............................. (11,414,276) 16,943,316 38,594,426 12,454,346 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (610,163) (470,895) (8,577,026) (2,936,478) Return of capital.............................. -- -- -- (25,193) ---------------- ---------------- ---------------- ---------------- Total distributions to shareholders............ (610,163) (470,895) (8,577,026) (2,961,671) ---------------- ---------------- ---------------- ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 7,892,863 137,291,718 357,088,401 99,924,591 Cost of shares redeemed........................ (96,590,691) (19,392,644) (83,370,049) (14,628,087) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions............... (88,697,828) 117,899,074 273,718,352 85,296,504 ---------------- ---------------- ---------------- ---------------- Total increase (decrease) in net assets........ (100,722,267) 134,371,495 303,735,752 94,789,179 NET ASSETS: Beginning of period............................ 153,050,150 18,678,655 143,293,782 48,504,603 ---------------- ---------------- ---------------- ---------------- End of period.................................. $ 52,327,883 $ 153,050,150 $ 447,029,534 $ 143,293,782 ================ ================ ================ ================ Accumulated net investment income (loss) at end of period............................ $ (56,755) $ 31,467 $ -- $ -- ================ ================ ================ ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period........ 6,905,000 1,055,000 9,000,002 3,400,002 Shares sold.................................... 350,000 6,900,000 21,500,000 6,600,000 Shares redeemed................................ (4,650,000) (1,050,000) (5,050,000) (1,000,000) ---------------- ---------------- ---------------- ---------------- Shares outstanding, end of period.............. 2,605,000 6,905,000 25,450,002 9,000,002 ================ ================ ================ ================
Page 90 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, 2011 2010 2011 2010 2011 2010 2011 2010 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 125,086 $ 147,944 $ 193,294 $ 432,430 $ (63,396) $ 1,544,493 $ (1,701,516) $ (893,750) 1,116,567 684,591 6,943,739 7,244,257 36,034,195 16,671,628 (9,067,198) 15,058,828 (1,032,399) 1,446,294 (14,365,617) 2,165,178 (68,573,256) 37,101,460 (114,433,625) 25,834,919 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 209,254 2,278,829 (7,228,584) 9,841,865 (32,602,457) 55,317,581 (125,202,339) 39,999,997 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (175,526) (134,485) (367,180) (346,700) (1,713,900) (1,556,425) -- -- -- -- -- -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (175,526) (134,485) (367,180) (346,700) (1,713,900) (1,556,425) -- -- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 8,666,281 5,506,758 79,966,639 63,221,332 196,450,901 417,327,774 640,051,793 196,944,891 (8,388,699) (3,411,585) (74,786,704) (37,130,166) (465,889,979) (104,439,045) (533,039,358) (102,793,389) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 277,582 2,095,173 5,179,935 26,091,166 (269,439,078) 312,888,729 107,012,435 94,151,502 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 311,310 4,239,517 (2,415,829) 35,586,331 (303,755,435) 366,649,885 (18,189,904) 134,151,499 15,282,525 11,043,008 75,955,181 40,368,850 453,415,500 86,765,615 201,219,867 67,068,368 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 15,593,835 $ 15,282,525 $ 73,539,352 $ 75,955,181 $ 149,660,065 $ 453,415,500 $ 183,029,963 $ 201,219,867 ============== ============== ============== ============== ============== ============== ============== ============== $ -- $ 13,751 $ -- $ 89,275 $ -- $ -- $ -- $ -- ============== ============== ============== ============== ============== ============== ============== ============== 650,002 550,002 3,200,002 2,050,002 17,650,002 4,100,002 5,150,002 2,350,002 350,000 250,000 3,200,000 2,950,000 7,300,000 18,300,000 15,400,000 5,850,000 (350,000) (150,000) (3,200,000) (1,800,000) (18,750,000) (4,750,000) (14,950,000) (3,050,000) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 650,002 650,002 3,200,002 3,200,002 6,200,002 17,650,002 5,600,002 5,150,002 ============== ============== ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 91 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, 2011 December 31, 2010 December 31, 2011 December 31, 2010 ----------------- ----------------- ----------------- ----------------- OPERATIONS: Net investment income (loss)................... $ (1,558,228) $ 655,966 $ 554,376 $ 644,739 Net realized gain (loss)....................... 62,801,316 24,987,964 2,204,042 6,878,550 Net change in unrealized appreciation (depreciation) ........................... (129,043,201) 64,467,650 (3,710,370) (2,858,232) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from operations............................. (67,800,113) 90,111,580 (951,952) 4,665,057 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (412,275) (659,835) (660,711) (657,855) Return of capital.............................. -- -- -- (7,885) ---------------- ---------------- ---------------- ---------------- Total distributions to shareholders............ (412,275) (659,835) (660,711) (665,740) ---------------- ---------------- ---------------- ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 519,933,101 517,361,186 13,640,278 52,387,882 Cost of shares redeemed........................ (521,516,911) (103,947,961) (17,017,824) (70,918,017) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions............... (1,583,810) 413,413,225 (3,377,546) (18,530,135) ---------------- ---------------- ---------------- ---------------- Total increase (decrease) in net assets........ (69,796,198) 502,864,970 (4,990,209) (14,530,818) NET ASSETS: Beginning of period............................ 589,479,579 86,614,609 36,632,730 51,163,548 ---------------- ---------------- ---------------- ---------------- End of period.................................. $ 519,683,381 $ 589,479,579 $ 31,642,521 $ 36,632,730 ================ ================ ================ ================ Accumulated net investment income (loss) at end of period............................ $ -- $ -- $ -- $ -- ================ ================ ================ ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period........ 17,200,002 3,450,002 1,600,002 2,500,002 Shares sold.................................... 14,900,000 17,650,000 550,000 2,500,000 Shares redeemed................................ (16,000,000) (3,900,000) (700,000) (3,400,000) ---------------- ---------------- ---------------- ---------------- Shares outstanding, end of period.............. 16,100,002 17,200,002 1,450,002 1,600,002 ================ ================ ================ ================
Page 92 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST VALUE LINE(R) FIRST TRUST NASDAQ-100 NASDAQ(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, 2011 2010 2011 2010 2011 2010 2011 2010 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 72,064 $ 100,085 $ 7,902,272 $ 4,980,314 $ 86,782 $ 173,556 $ (57,380) $ (26,978) 128,844 1,145,729 12,636,031 8,011,210 1,142,380 1,597,438 (1,932,700) (128,157) (835,358) (99,602) 3,716,675 13,888,773 (2,777,822) 1,230,277 (13,448,678) 633,094 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (634,450) 1,146,212 24,254,978 26,880,297 (1,548,660) 3,001,271 (15,438,758) 477,959 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (72,485) (102,971) (7,975,414) (5,061,937) (104,225) (158,610) -- -- -- -- -- (65,937) -- -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (72,485) (102,971) (7,975,414) (5,127,874) (104,225) (158,610) -- -- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 5,352,158 7,037,546 225,622,376 75,819,232 21,526,159 16,507,613 7,115,097 1,526,157 (5,394,000) (7,860,408) (94,012,975) (32,679,842) (11,867,696) (7,777,681) (7,056,700) (9,333,154) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (41,842) (822,862) 131,609,401 43,139,390 9,658,463 8,729,932 58,397 (7,806,997) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (748,777) 220,379 147,888,965 64,891,813 8,005,578 11,572,593 (15,380,361) (7,329,038) 7,105,652 6,885,273 218,509,592 153,617,779 22,151,317 10,578,724 36,119,988 43,449,026 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 6,356,875 $ 7,105,652 $ 366,398,557 $ 218,509,592 $ 30,156,895 $ 22,151,317 $ 20,739,627 $ 36,119,988 ============== ============== ============== ============== ============== ============== ============== ============== $ 271 $ -- $ -- $ -- $ -- $ 16,623 $ -- $ -- ============== ============== ============== ============== ============== ============== ============== ============== 350,002 400,002 14,487,986 11,487,986 1,050,002 600,002 2,200,002 2,700,002 250,000 400,000 14,500,000 5,250,000 950,000 850,000 450,000 100,000 (250,000) (450,000) (6,100,000) (2,250,000) (550,000) (400,000) (500,000) (600,000) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 350,002 350,002 22,887,986 14,487,986 1,450,002 1,050,002 2,150,002 2,200,002 ============== ============== ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 93 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, 2011 December 31, 2010 December 31, 2011 December 31, 2010 ----------------- ----------------- ----------------- ----------------- OPERATIONS: Net investment income (loss)................... $ 3,603,572 $ 1,371,447 $ 481,476 $ 405,065 Net realized gain (loss)....................... (3,997,767) 4,840,048 2,261,282 (70,286) Net change in unrealized appreciation (depreciation) ........................... (21,892,948) 4,804,142 (6,845,222) 7,533,201 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from operations............................. (22,287,143) 11,015,637 (4,102,464) 7,867,980 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (4,049,501) (1,400,636) (554,561) (319,290) Return of capital.............................. -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total distributions to shareholders............ (4,049,501) (1,400,636) (554,561) (319,290) ---------------- ---------------- ---------------- ---------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 453,173,259 66,628,620 34,659,837 17,153,891 Cost of shares redeemed........................ (172,941,669) (26,264,803) (25,127,425) (8,905,590) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from shareholder transactions............... 280,231,590 40,363,817 9,532,412 8,248,301 ---------------- ---------------- ---------------- ---------------- Total increase (decrease) in net assets........ 253,894,946 49,978,818 4,875,387 15,796,991 NET ASSETS: Beginning of period............................ 71,065,852 21,087,034 53,110,639 37,313,648 ---------------- ---------------- ---------------- ---------------- End of period.................................. $ 324,960,798 $ 71,065,852 $ 57,986,026 $ 53,110,639 ================ ================ ================ ================ Accumulated net investment income (loss) at end of period............................ $ -- $ 217,284 $ 15,568 $ 89,624 ================ ================ ================ ================ CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period........ 4,850,002 1,800,002 2,400,002 2,000,002 Shares sold.................................... 28,200,000 5,050,000 1,600,000 850,000 Shares redeemed................................ (12,050,000) (2,000,000) (1,200,000) (450,000) ---------------- ---------------- ---------------- ---------------- Shares outstanding, end of period.............. 21,000,002 4,850,002 2,800,002 2,400,002 ================ ================ ================ ================
Page 94 See Notes to Financial Statements
FIRST TRUST FIRST TRUST ISE-REVERE FIRST TRUST FIRST TRUST NASDAQ(R) ABA NATURAL GAS ISE CHINDIA VALUE LINE(R) 100 COMMUNITY BANK INDEX FUND INDEX FUND EXCHANGE-TRADED FUND INDEX FUND ------------------------------ ------------------------------ ------------------------------ ------------------------------ For the Year For the Year For the Year For the Year For the Year For the Year For the 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, 2011 2010 2011 2010 2011 2010 2011 2010 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 1,929,769 $ 769,258 $ 1,374,217 $ 1,074,343 $ 392,155 $ 4,512 $ 203,793 $ 112,441 53,827,977 20,680,688 4,404,156 3,627,703 (1,350,721) 18,153,935 (354,412) 242,654 (112,055,233) 2,466,035 (39,977,843) 14,801,653 (4,336,999) (1,728,785) (788,265) 1,511 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (56,297,487) 23,915,981 (34,199,470) 19,503,699 (5,295,565) 16,429,662 (938,884) 356,606 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (1,845,855) (1,172,607) (1,488,951) (1,073,636) (420,210) -- (204,876) (114,106) -- (54,408) -- -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (1,845,855) (1,227,015) (1,488,951) (1,073,636) (420,210) -- (204,876) (114,106) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 444,624,390 441,554,686 -- 91,212,949 85,357,150 81,283,340 6,285,743 8,559,196 (436,818,095) (531,689,123) (61,376,060) (53,531,101) (112,529,279) (69,715,177) (2,486,580) (4,426,523) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 7,806,295 (90,134,437) (61,376,060) 37,681,848 (27,172,129) 11,568,163 3,799,163 4,132,673 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- (50,337,047) (67,445,471) (97,064,481) 56,111,911 (32,887,904) 27,997,825 2,655,403 4,375,173 396,893,435 464,338,906 176,351,823 120,239,912 88,430,584 60,432,759 9,978,774 5,603,601 -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 346,556,388 $ 396,893,435 $ 79,287,342 $ 176,351,823 $ 55,542,680 $ 88,430,584 $ 12,634,177 $ 9,978,774 ============== ============== ============== ============== ============== ============== ============== ============== $ 83,767 $ -- $ -- $ 707 $ (24,835) $ 4,512 $ 1,117 $ 2,200 ============== ============== ============== ============== ============== ============== ============== ============== 20,250,002 26,500,002 7,050,002 5,650,002 6,539,982 5,789,982 400,002 250,002 20,550,000 24,500,000 -- 3,950,000 6,100,000 6,350,000 250,000 350,000 (21,750,000) (30,750,000) (2,700,000) (2,550,000) (8,150,000) (5,600,000) (100,000) (200,000) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 19,050,002 20,250,002 4,350,002 7,050,002 4,489,982 6,539,982 550,002 400,002 ============== ============== ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 95 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, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 22.17 $ 17.70 $ 14.74 $ 22.35 $ 23.92 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.10 0.09 0.09 0.17 0.16 Net realized and unrealized gain (loss) (2.02) 4.46 2.97 (7.60) (1.60) ---------- ---------- ---------- ---------- ---------- Total from investment operations (1.92) 4.55 3.06 (7.43) (1.44) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.16) (0.08) (0.10) (0.17) (0.13) Return of capital -- -- (0.00) (c) (0.01) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.16) (0.08) (0.10) (0.18) (0.13) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 20.09 $ 22.17 $ 17.70 $ 14.74 $ 22.35 ========== ========== ========== ========== ========== TOTAL RETURN (a) (8.69)% 25.77% 20.85% (33.33)% (6.02)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 52,328 $ 153,050 $ 18,679 $ 14,077 $ 17,993 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.71% 0.86% 0.94% 1.05% 1.35% 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 0.40% 0.94% 0.69% 0.79% 0.58% Portfolio turnover rate (b) 59% 86% 86% 85% 11%
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 15.92 $ 14.27 $ 13.09 $ 20.20 $ 23.51 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.61 0.57 0.56 0.83 0.92 Net realized and unrealized gain (loss) 1.65 1.66 1.19 (7.13) (3.35) ---------- ---------- ---------- ---------- ---------- Total from investment operations 2.26 2.23 1.75 (6.30) (2.43) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.61) (0.58) (0.57) (0.81) (0.88) Return of capital -- (0.00) (c) -- -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.61) (0.58) (0.57) (0.81) (0.88) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.57 $ 15.92 $ 14.27 $ 13.09 $ 20.20 ========== ========== ========== ========== ========== TOTAL RETURN (a) 14.44% 16.05% 14.24% (31.71)% (10.64)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 447,030 $ 143,294 $ 48,505 $ 43,196 $ 64,650 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.56% 0.66% 0.79% 0.72% 0.68% Ratio of net expenses to average net assets 0.45% 0.45% 0.45% 0.45% 0.45% Ratio of net investment income (loss) to average net assets 3.98% 4.22% 4.64% 5.07% 3.87% Portfolio turnover rate (b) 27% 30% 81% 56% 9% (a) 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. (b) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) 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 US IPO INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 23.51 $ 20.08 $ 14.09 $ 25.36 $ 22.20 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.18 0.20 0.59 0.15 0.05 Net realized and unrealized gain (loss) 0.55 3.45 5.72 (11.27) 3.17 ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.73 3.65 6.31 (11.12) 3.22 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.25) (0.22) (0.32) (0.14) (0.06) Return of capital -- -- -- (0.01) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.25) (0.22) (0.32) (0.15) (0.06) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 23.99 $ 23.51 $ 20.08 $ 14.09 $ 25.36 ========== ========== ========== ========== ========== TOTAL RETURN (a) 3.11% 18.28% 44.93% (43.88)% 14.53% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 15,594 $ 15,283 $ 11,043 $ 8,454 $ 26,633 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 1.01% 1.32% 1.34% 1.02% 1.06% 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 0.70% 1.28% 3.59% 0.50% 0.24% Portfolio turnover rate (b) 44% 43% 30% 62% 11%
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED 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, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 23.74 $ 19.69 $ 12.37 $ 22.08 $ 20.12 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.05 0.15 0.05 0.00 (c) (0.02) Net realized and unrealized gain (loss) (0.70) 4.02 7.32 (9.70) 1.98 ---------- ---------- ---------- ---------- ---------- Total from investment operations (0.65) 4.17 7.37 (9.70) 1.96 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.11) (0.12) (0.05) (0.00)(c) -- Return of capital -- -- -- (0.01) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.11) (0.12) (0.05) (0.01) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 22.98 $ 23.74 $ 19.69 $ 12.37 $ 22.08 ========== ========== ========== ========== ========== TOTAL RETURN (a) (2.77)% 21.25% 59.54% (43.96)% 9.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 73,539 $ 75,955 $ 40,369 $ 14,848 $ 30,911 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.68% 0.75% 0.67% 0.88% 0.95% 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 0.23% 0.79% 0.35% 0.01% (0.08)% Portfolio turnover rate (b) 27% 24% 36% 39% 15%
(a) 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. (b) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) 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 NASDAQ-100-TECHNOLOGY SECTOR 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, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 25.69 $ 21.16 $ 11.77 $ 21.50 $ 19.97 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.00 (a)(d) 0.10 0.01 -- (0.03) Net realized and unrealized gain (loss) (1.47) 4.53 9.39 (9.73) 1.56 ---------- ---------- ---------- ---------- ---------- Total from investment operations (1.47) 4.63 9.40 (9.73) 1.53 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.08) (0.10) (0.01) -- -- Return of capital -- -- (0.00)(d) -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.08) (0.10) (0.01) -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 24.14 $ 25.69 $ 21.16 $ 11.77 $ 21.50 ========== ========== ========== ========== ========== TOTAL RETURN (b) (5.75)% 21.92% 79.89% (45.26)% 7.66% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 149,660 $ 453,416 $ 86,766 $ 9,414 $ 23,652 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.63% 0.70% 0.67% 0.88% 0.92% 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 (0.02)% 0.71% 0.16% (0.01)% (0.16)% Portfolio turnover rate (c) 21% 26% 35% 33% 10%
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 39.07 $ 28.54 $ 19.70 $ 24.41 $ 23.55 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.30) (0.17) (0.16) 0.18 (0.10) Net realized and unrealized gain (loss) (6.09) 10.70 9.00 (4.62) 0.96 ---------- ---------- ---------- ---------- ---------- Total from investment operations (6.39) 10.53 8.84 (4.44) 0.86 ---------- ---------- ---------- ----------- ---------- 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 $ 32.68 $ 39.07 $ 28.54 $ 19.70 $ 24.41 ========== ========== ========== ========== ========== TOTAL RETURN (b) (16.36)% 36.90% 44.87% (18.33)% 3.65% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 183,030 $ 201,220 $ 67,068 $ 59,097 $ 73,241 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.61% 0.66% 0.72% 0.72% 0.73% 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 (0.54%) (0.60)% (0.60)% 0.67% (0.60)% Portfolio turnover rate (c) 44% 35% 44% 38% 11% (a) Per share amounts have been calculated using the average share method. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year 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) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (d) Amount represents less than $0.01 per share.
Page 98 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 FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 34.27 $ 25.11 $ 14.01 $ 25.09 $ 22.57 ---------- ----------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.10) 0.04 (0.05) 0.05 (0.16) Net realized and unrealized gain (loss) (1.87) 9.16 11.15 (11.08) 2.68 ---------- ----------- ---------- ---------- ---------- Total from investment operations (1.97) 9.20 11.10 (11.03) 2.52 ---------- ----------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.02) (0.04) -- (0.05) -- Return of capital -- -- -- (0.00)(c) -- ---------- ----------- ---------- ---------- ---------- Total distributions (0.02) (0.04) -- (0.05) -- ---------- ----------- ---------- ---------- ---------- Net asset value, end of period $ 32.28 $ 34.27 $ 25.11 $ 14.01 $ 25.09 ========== =========== ========== ========== =========== TOTAL RETURN (a) (5.74)% 36.63% 79.23% (44.02)% 11.17% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 519,683 $ 589,480 $ 86,615 $ 14,708 $ 36,386 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.66% 0.73% 0.82% 0.70% 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 (0.25)% 0.26% (0.46)% 0.21% (0.42)% Portfolio turnover rate (b) 18% 16% 35% 44% 6%
FIRST TRUST STRATEGIC VALUE INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 22.90 $ 20.47 $ 14.90 $ 24.12 $ 22.06 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.35 0.39 0.28 0.28 0.20 Net realized and unrealized gain (loss) (1.01) 2.44 5.57 (9.22) 2.07 ----------- ----------- ----------- ----------- ----------- Total from investment operations (0.66) 2.83 5.85 (8.94) 2.27 ----------- ----------- ----------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.42) (0.40) (0.28) (0.28) (0.21) Return of capital -- (0.00)(c) -- -- -- ----------- ----------- ----------- ----------- ----------- Total distributions (0.42) (0.40) (0.28) (0.28) (0.21) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 21.82 $ 22.90 $ 20.47 $ 14.90 $ 24.12 =========== =========== =========== =========== =========== TOTAL RETURN (a) (2.94)% 14.04% 39.43% (37.23)% 10.26% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 31,643 $ 36,633 $ 51,164 $ 35,762 $ 61,518 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.82% 0.86% 0.87% 0.72% 1.12% Ratio of net expenses to average net assets 0.65% 0.65% 0.65% 0.65% 0.65% Ratio of net investment income (loss) to average net assets 1.51% 1.58% 1.57% 1.31% 1.09% Portfolio turnover rate (b) 114% 197% 171% 157% 10% (a) 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 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. (b) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Amount represents less than $0.01 per share.
See Notes to Financial Statements Page 99 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 FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 20.30 $ 17.21 $ 12.98 $ 20.45 $ 19.78 ---------- ---------- ---------- ----------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.21 0.29 0.18 0.25 0.24 Net realized and unrealized gain (loss) (2.14) 3.09 4.23 (7.47) 0.68 ---------- ---------- ---------- ----------- ---------- Total from investment operations (1.93) 3.38 4.41 (7.22) 0.92 ---------- ---------- ---------- ----------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.21) (0.29) (0.18) (0.25) (0.25) ---------- ---------- ---------- ----------- ---------- Net asset value, end of period $ 18.16 $ 20.30 $ 17.21 $ 12.98 $ 20.45 ========== ========== ========== =========== ========== TOTAL RETURN (a) (9.56)% 19.85% 34.15% (35.45)% 4.65% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 6,357 $ 7,106 $ 6,885 $ 5,841 $ 13,291 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 1.39% 1.35% 1.24% 1.14% 1.36% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 1.05% 1.29% 1.24% 1.29% 1.04% Portfolio turnover rate (b) 184% 205% 191% 120% 43% (a) 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 returns calculated for a period of less than one year are not annualized. The total return would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (b) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
Page 100 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 FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 15.08 $ 13.37 $ 11.55 $ 15.75 $ 16.77 ----------- ---------- ---------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.42 0.41 (a) 0.38 0.45 0.44 Net realized and unrealized gain (loss) 0.93 1.71 1.82 (4.20) (0.99) ----------- ---------- ---------- ----------- ----------- Total from investment operations 1.35 2.12 2.20 (3.75) (0.55) ----------- ----------- ---------- ----------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.42) (0.40) (0.38) (0.45) (0.47) Return of capital -- (0.01) -- -- -- ----------- ---------- ---------- ----------- ----------- Total distributions to shareholders (0.42) (0.41) (0.38) (0.45) (0.47) ----------- ---------- ---------- ----------- ----------- Net asset value, end of period $ 16.01 $ 15.08 $ 13.37 $ 11.55 $ 15.75 =========== ========== ========== =========== =========== TOTAL RETURN (b) 9.03% 16.08% 19.58% (24.17)% (3.42)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 366,399 $ 218,510 $ 153,618 $ 115,403 $ 180,153 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.79% 0.84% 0.80% 0.84% 0.85% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 2.84% 2.94% 3.30% 3.20% 2.37% Portfolio turnover rate (c) 53% 55% 101% 109% 5% (a) Per share amounts have been calculated using the average share method. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total 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) 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 NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND
FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE FEBRUARY 8, 2007 (a) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ------------------- Net asset value, beginning of period $ 21.10 $ 17.63 $ 12.05 $ 21.19 $ 20.00 ---------- ---------- --------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.06 0.17 0.05 0.01 (0.01) Net realized and unrealized gain (loss) (0.28) 3.46 5.58 (9.14) 1.20 ---------- ---------- --------- ---------- ---------- Total from investment operations (0.22) 3.63 5.63 (9.13) 1.19 ---------- ---------- --------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.08) (0.16) (0.05) (0.01) -- Return of capital -- -- (0.00)(e) (0.00)(e) -- ---------- ---------- --------- ---------- ---------- Total distributions to shareholders (0.08) (0.16) (0.05) (0.01) -- ---------- ---------- --------- ---------- ---------- Net asset value, end of period $ 20.80 $ 21.10 $ 17.63 $ 12.05 $ 21.19 ========== ========== ========= ========== ========== TOTAL RETURN (b) (1.08)% 20.64% 46.74% (43.09)% 5.95% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 30,157 $ 22,151 $ 10,579 $ 7,232 $ 2,119 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.78% 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% 0.60% (c) Ratio of net investment income (loss) to average net assets 0.31% 1.02% 0.48% 0.03% (0.04)% (c) Portfolio turnover rate (d) 37% 19% 43% 67% 27%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND
FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE FEBRUARY 8, 2007 (a) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 16.42 $ 16.09 $ 11.19 $ 30.86 $ 20.00 ---------- ----------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.03) (0.01) (0.02) (0.04) (0.04) Net realized and unrealized gain (loss) (6.74) 0.34 4.92 (19.63) 10.90 ---------- ----------- ---------- ---------- ---------- Total from investment operations (6.77) 0.33 4.90 (19.67) 10.86 ---------- ----------- ---------- ---------- ---------- Net asset value, end of period $ 9.65 $ 16.42 $ 16.09 $ 11.19 $ 30.86 ========== =========== ========== ========== ========== TOTAL RETURN (b) (41.23)% 2.05% 43.79% (63.74)% 54.30% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 20,740 $ 36,120 $ 43,449 $ 23,504 $ 50,913 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.77% 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% 0.60% (c) Ratio of net investment income (loss) to average net assets (0.18)% (0.07)% (0.12)% (0.21)% (0.33)% (c) Portfolio turnover rate (d) 22% 22% 40% 32% 4% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total 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 S&P REIT INDEX FUND
FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE MAY 8, 2007 (a) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 14.65 $ 11.72 $ 9.43 $ 15.81 $ 20.00 ---------- ---------- --------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.28 0.29 0.25 0.31 0.32 (b) Net realized and unrealized gain (loss) 0.88 2.94 2.31 (6.38) (4.13) ---------- ---------- --------- ---------- ---------- Total from investment operations 1.16 3.23 2.56 (6.07) (3.81) ---------- ---------- --------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.34) (0.30) (0.25) (0.31) (0.38) Return of capital -- -- (0.02) -- -- ---------- ----------- --------- ---------- ---------- Total distributions (0.34) (0.30) (0.27) (0.31) (0.38) ---------- ---------- --------- ---------- ---------- Net asset value, end of period $ 15.47 $ 14.65 $ 11.72 $ 9.43 $ 15.81 ========== ========== ========= ========== ========== TOTAL RETURN (c) 7.90% 27.73% 28.00% (38.87)% (19.08)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 324,961 $ 71,066 $ 21,087 $ 5,187 $ 1,581 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.57% 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% 0.50% (d) Ratio of net investment income (loss) to average net assets 2.03% 2.60% 3.39% 3.40% 2.73% (d) Portfolio turnover rate (e) 9% 16% 13% 20% 25%
FIRST TRUST ISE WATER INDEX FUND
FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE MAY 8, 2007 (a) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ----------------- ----------------- Net asset value, beginning of period $ 22.13 $ 18.66 $ 15.69 $ 22.38 $ 20.00 ---------- ----------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.16 0.18 0.19 0.12 0.04 Net realized and unrealized gain (loss) (1.39) 3.43 2.97 (6.69) 2.38 ---------- ----------- ---------- ---------- ---------- Total from investment operations (1.23) 3.61 3.16 (6.57) 2.42 ---------- ----------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.19) (0.14) (0.19) (0.12) (0.04) ---------- ----------- ---------- ---------- ---------- Net asset value, end of period $ 20.71 $ 22.13 $ 18.66 $ 15.69 $ 22.38 ========== =========== ========== ========== ========== TOTAL RETURN (c) (5.62)% 19.49% 20.29% (29.40)% 12.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 57,986 $ 53,111 $ 37,314 $ 32,157 $ 12,310 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% 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% 0.60% (d) Ratio of net investment income (loss) to average net assets 0.79% 0.96% 1.20% 0.76% 0.46% (d) Portfolio turnover rate (e) 31% 38% 44% 45% 3% (a) Inception date. (b) Per share amounts have been calculated using the average share method. (c) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total 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 103 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 FOR THE MAY 8, 2007 (a) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ---------------- ----------------- Net asset value, beginning of period $ 19.60 $ 17.52 $ 11.80 $ 22.31 $ 20.00 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.08 0.03 0.07 0.14 0.03 Net realized and unrealized gain (loss) (1.41) 2.10 5.72 (10.51) 2.30 ---------- ---------- ---------- ---------- ---------- Total from investment operations (1.33) 2.13 5.79 (10.37) 2.33 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.08) (0.05) (0.07) (0.14) (0.02) Return of capital -- (0.00)(e) (0.00)(e) -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.08) (0.05) (0.07) (0.14) (0.02) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.19 $ 19.60 $ 17.52 $ 11.80 $ 22.31 ========== ========== ========== ========== ========== TOTAL RETURN (b) (6.85)% 12.22% 49.21% (46.57)% 11.67% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 346,556 $ 396,893 $ 464,339 $ 37,179 $ 11,157 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.63% 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% 0.60% (c) Ratio of net investment income (loss) to average net assets 0.39% 0.19% 0.53% 0.77% 0.32% (c) Portfolio turnover rate (d) 43% 93% 71% 116% 5%
FIRST TRUST ISE CHINDIA INDEX FUND
FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE MAY 8, 2007 (a) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- ----------------- ------------------ ----------------- Net asset value, beginning of period $ 25.01 $ 21.28 $ 11.78 $ 27.73 $ 20.00 ---------- ---------- --------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.27 0.17 0.09 0.17 0.02 Net realized and unrealized gain (loss) (6.75) 3.73 9.50 (15.92) 7.73 ---------- ---------- --------- ---------- ---------- Total from investment operations (6.48) 3.90 9.59 (15.75) 7.75 ---------- ---------- --------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.30) (0.17) (0.09) (0.20) (0.02) Return of capital -- -- (0.00)(e) (0.00)(e) -- ---------- ---------- --------- ---------- ---------- Total distributions (0.30) (0.17) (0.09) (0.20) (0.02) ---------- ---------- --------- ---------- ---------- Net asset value, end of period $ 18.23 $ 25.01 $ 21.28 $ 11.78 $ 27.73 ========== ========== ========= ========== ========== TOTAL RETURN (b) (26.02)% 18.46% 81.58% (56.98)% 38.73% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 79,287 $ 176,352 $ 120,240 $ 35,937 $ 104,004 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.66% 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% 0.60% (c) Ratio of net investment income (loss) to average net assets 1.00% 0.74% 0.58% 0.90% 0.17% (c) Portfolio turnover rate (d) 23% 34% 47% 39% 2% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total 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 104 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, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007 (a) ----------------- ----------------- ----------------- ----------------- --------------------- Net asset value, beginning of period $ 13.52 $ 10.44 $ 9.26 $ 17.91 $ 15.89 ---------- ---------- ----------- ---------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.08 0.00 (f) (0.01) (0.02) 1.02 Net realized and unrealized gain (loss) (1.15) 3.08 1.19 (8.63) 2.06 ---------- ---------- ----------- ---------- ----------- Total from investment operations (1.07) 3.08 1.18 (8.65) 3.08 ---------- ---------- ----------- ---------- ----------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.08) -- -- -- -- Net realized gains -- -- -- -- (1.06) Return of capital -- -- -- -- -- --------- ---------- ----------- ---------- ----------- Total distributions to shareholders (0.08) -- -- -- (1.06) --------- ---------- ----------- ---------- ----------- Net asset value, end of period $ 12.37 $ 13.52 $ 10.44 $ 9.26 $ 17.91 ========= ========== =========== ========== =========== TOTAL RETURN, BASED ON NET ASSET VALUE (b) (7.92)% 29.50% 12.74% (48.30)% 19.91% (e) RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 55,543 $ 88,431 $ 60,433 $ 75,825 $ 204,913 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.82% 0.87% 0.85% 0.86% 0.89% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.83% (d) Ratio of net investment income (loss) to average net assets 0.47% 0.01% (0.08)% (0.11)% (0.21)% Portfolio turnover rate (c) 202% 266% 235% 251% 111%
(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 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) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (d) 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. (e) 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. (f) 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 105 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 FOR THE JUNE 29, 2009 (a) YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, 2011 DECEMBER 31, 2010 DECEMBER 31, 2009 ----------------- ----------------- ----------------- Net asset value, beginning of period $ 24.95 $ 22.41 $ 20.00 ----------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.37 0.30 0.16 Net realized and unrealized gain (loss) (1.98) 2.55 2.40 ----------- ---------- ---------- Total from investment operations (1.61) 2.85 2.56 ----------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.37) (0.31) (0.15) ----------- ---------- ---------- Net asset value, end of period $ 22.97 $ 24.95 $ 22.41 =========== ========== ========== TOTAL RETURN (b) (6.48)% 12.77% 12.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 12,634 $ 9,979 $ 5,604 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.96% 1.16% 2.67% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 1.62% 1.40% 1.92% (c) Portfolio turnover rate (d) 29% 26% 15% (a) Inception date. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The 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 106 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 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 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 - (NYSE Arca, Inc. ticker "FDV") First Trust Value Line(R) Equity Allocation Index Fund - (NYSE Arca, Inc. ticker "FVI") First Trust Value Line(R) Dividend Index Fund - (NYSE Arca, Inc. ticker "FVD") First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund - (NASDAQ ticker "QQXT") First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (NASDAQ ticker "QCLN") First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ticker "FRI") First Trust ISE Water Index Fund - (NYSE Arca, Inc. ticker "FIW") First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca, Inc. ticker "FCG") First Trust ISE Chindia Index Fund - (NYSE Arca, Inc. ticker "FNI") First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca, Inc. ticker "FVL") First Trust NASDAQ(R) ABA Community Bank Index Fund - (NASDAQ ticker "QABA")
Each fund represents a separate series of shares 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"). 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 MicroCapIndex(SM) First Trust Morningstar Dividend Leaders(SM) Index Fund Morningstar(R) Dividend Leaders(SM) Index First Trust US IPO Index Fund IPOX(R)-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) First Trust Value Line(R) Equity Allocation Index Fund Value Line(R) Equity Allocation Index(TM) First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index(TM) 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(TM) First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM)
Page 107 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 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 daily 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. Each Fund's securities will be valued as follows: Portfolio securities listed on any exchange other than NASDAQ or the London Stock Exchange Alternative Investment Market ("AIM") are valued at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and asked price on such day. Portfolio securities traded on one or more 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. Securities listed on the NASDAQ or the AIM are valued at the official closing price on the business day as of which such value is being determined. If there is no official closing price on the valuation day, the securities are valued at the mean of the most recent bid and ask prices on such day. Portfolio securities traded in the over-the-counter market, but excluding securities trading on the NASDAQ 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. 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 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). Page 108 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 - 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. 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, 2011, 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 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 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. 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 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. The tax character of distributions paid by each Fund during the year ended December 31, 2011 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 $ 610,163 $ -- $ -- First Trust Morningstar Dividend Leaders(SM) Index Fund 8,577,026 -- -- First Trust US IPO Index Fund 175,526 -- -- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 367,180 -- -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,713,900 -- -- First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund 412,275 -- -- First Trust Strategic Value Index Fund 660,711 -- -- First Trust Value Line(R) Equity Allocation Index Fund 72,485 -- -- First Trust Value Line(R) Dividend Index Fund 7,975,414 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 104,225 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- -- First Trust S&P REIT Index Fund 4,049,501 -- -- First Trust ISE Water Index Fund 554,561 -- -- First Trust ISE-Revere Natural Gas Index Fund 1,845,855 -- -- First Trust ISE Chindia Index Fund 1,488,951 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund 420,210 -- -- First Trust NASDAQ(R) ABA Community Bank Index Fund 204,876 -- --
Page 109 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 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 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 -- --
As of December 31, 2011, 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 $ -- $ (22,749,366) $ 3,327,339 First Trust Morningstar Dividend Leaders(SM) Index Fund -- (33,027,124) 27,538,485 First Trust US IPO Index Fund -- (5,789,831) 614,234 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- (8,642,605) (8,033,415) First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (8,355,292) (24,508,830) First Trust NYSE Arca Biotechnology Index Fund -- (9,399,572) (97,648,527) First Trust Dow Jones Internet Index(SM) Fund -- (15,150,090) (61,725,513) First Trust Strategic Value Index Fund -- (25,725,165) (679,020) First Trust Value Line(R) Equity Allocation Index Fund 1,170 (5,891,659) 195,298 First Trust Value Line(R) Dividend Index Fund -- (47,056,297) 27,297,872 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (2,159,299) (1,061,002) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (22,413,411) (14,660,202) First Trust S&P REIT Index Fund -- -- (19,798,405) First Trust ISE Water Index Fund 15,568 (9,424,196) (3,806,186) First Trust ISE-Revere Natural Gas Index Fund 83,767 (86,812,204) (67,206,689) First Trust ISE Chindia Index Fund -- (41,812,406) (15,592,589) First Trust Value Line(R) 100 Exchange-Traded Fund 14,386 (91,553,928) 1,308,016 First Trust NASDAQ(R) ABA Community Bank Index Fund 1,117 (635,712) (731,928)
Page 110 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 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. However, due to the timing and amount of distributions, the Fund may be subject to an excise tax of 4% of the amount by which approximately 98.2% of the Fund's taxable income exceeds the distributions from such taxable income for the calendar year. 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 2008, 2009, 2010 and 2011 remain open to federal and state audit. As of December 31, 2011, 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. Under the Regulated Investment Company Modernization Act of 2010 (the "Act"), net capital losses recognized after December 31, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. At December 31, 2011, the Fund had pre-enactment and post-enactment net capital losses for federal income tax purposes as shown in the table below. 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 Post- Total Available Available Available Available Available Available Effective - Capital Through Through Through Through Through Through No Loss 2013 2014 2015 2016 2017 2018 Expiration Available ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $1,604,481 $ 910,503 $ 902,807 $ 3,227,616 $ 5,096,533 $11,007,426 $22,749,366 First Trust Morningstar Dividend Leaders(SM) Index Fund 52,755 202,279 198,670 14,962,284 16,831,977 473,435 305,724 33,027,124 First Trust US IPO Index Fund -- 303,759 740,683 2,682,788 1,127,563 65,058 869,980 5,789,831 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- -- 54,385 1,957,170 4,681,103 -- 1,949,947 8,642,605 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- -- 311,155 1,421,664 2,016,911 -- 4,605,562 8,355,292 First Trust NYSE Arca Biotechnology Index Fund -- -- -- 2,061,136 5,787,577 1,039,054 511,805 9,399,572 First Trust Dow Jones Internet Index(SM) Fund -- -- -- 6,295,170 1,163,966 -- 7,690,954 15,150,090 First Trust Strategic Value Index Fund -- 45,432 831,336 11,401,861 11,336,270 1,367,556 742,710 25,725,165 First Trust Value Line(R) Equity Allocation Index Fund -- -- 1,392,919 1,168,041 2,421,122 -- 909,577 5,891,659 First Trust Value Line(R) Dividend Index Fund -- -- 4,488,019 21,855,796 19,646,203 437,987 628,292 47,056,297 First Trust NASDAQ-100 Ex- Technology Sector Index(SM) Fund -- -- 7,779 143,597 1,051,894 80,899 875,130 2,159,299 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- 141,332 4,246,707 7,483,633 5,884,801 4,656,938 22,413,411 First Trust S&P REIT Index Fund -- -- -- -- -- -- -- -- First Trust ISE Water Index Fund -- -- 592 318,246 5,768,328 2,198,674 1,138,356 9,424,196 First Trust ISE-Revere Natural Gas Index Fund -- -- 5,274 7,264,703 32,569,413 40,089,981 6,882,833 86,812,204 First Trust ISE Chindia Index Fund -- -- -- 11,116,593 11,686,955 7,245,147 11,763,711 41,812,406 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- 1,905,072 47,805,834 29,477,928 -- 12,365,094 91,553,928 First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- -- -- 4,787 116,604 514,321 635,712
Page 111 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 In order to present paid-in capital and accumulated net realized gain (loss) on investments on the Statements of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to paid-in capital, accumulated net investment income (loss) and accumulated net realized gain (loss) on investments. These adjustments are primarily due to the difference between book and tax treatments of income and gains on various investment securities held by the Funds and in-kind transactions. The results of operations and net assets were not affected by these adjustments. For the year ended December 31, 2011, the adjustments for 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 $ 74,713 $ (14,271,023) $ 14,196,310 First Trust Morningstar Dividend Leaders(SM) Index Fund 21,819 (12,434,376) 12,412,557 First Trust US IPO Index Fund 36,689 (1,614,916) 1,578,227 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 84,611 (8,456,089) 8,371,478 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,777,296 (39,419,165) 37,641,869 First Trust NYSE Arca Biotechnology Index Fund 1,701,516 10,333,168 (12,034,684) First Trust Dow Jones Internet Index(SM) Fund 1,970,503 (77,873,827) 75,903,324 First Trust Strategic Value Index Fund 106,335 (2,741,610) 2,635,275 First Trust Value Line(R) Equity Allocation Index Fund 692 (1,048,015) 1,047,323 First Trust Value Line(R) Dividend Index Fund 73,142 (15,118,056) 15,044,914 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 820 (1,981,633) 1,980,813 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 57,380 (1,909,408) 1,852,028 First Trust S&P REIT Index Fund 228,645 101,783 (330,428) First Trust ISE Water Index Fund (971) (2,925,560) 2,926,531 First Trust ISE-Revere Natural Gas Index Fund (147) (65,022,566) 65,022,713 First Trust ISE Chindia Index Fund 114,027 (11,677,862) 11,563,835 First Trust Value Line(R) 100 Exchange-Traded Fund (1,292) (11,073,709) 11,075,001 First Trust NASDAQ(R) ABA Community Bank Index Fund -- (435,287) 435,287
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 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(R), 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. Page 112 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 F. ACCOUNTING PRONOUNCEMENT: In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs," modifying Topic 820, "Fair Value Measurements and Disclosures." At the same time, the International Accounting Standards Board ("IASB") issued International Financial Reporting Standard ("IFRS") 13, "Fair Value Measurement." The objective by the FASB and IASB is convergence of their guidance on fair value measurements and disclosures. Specifically, the ASU requires reporting entities to disclose (i) the amounts of any transfers between Level 1 and Level 2, and the reasons for the transfers, (ii) for Level 3 fair value measurements, quantitative information about significant unobservable inputs used, (iii) a description of the valuation processes used by the reporting entity, and (iv) a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs might result in a significantly higher or lower fair value measurement. The effective date of the ASU is for interim and annual periods beginning after December 15, 2011, and it is therefore not effective for the current fiscal year. Management is currently evaluating the impact of the updated standards on the Funds' financial statements, if any. 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Fund, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. First Trust is responsible for the selection and ongoing monitoring of the securities in each Fund's portfolio, managing the Funds' business affairs 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 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%
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"). Page 113 ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011
Expense Cap ----------- First Trust Dow Jones Select MicroCap Index(SM) Fund 0.60% First Trust Morningstar 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 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 1/20/2013
Expenses reimbursed and fees waived by First Trust under the Expense Reimbursement, Fee Waiver and Recovery Agreement are subject to recovery by First Trust for up to three years from the date the fee or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses or fees were reimbursed or waived by First Trust. These amounts would be included in "Expenses previously waived or reimbursed" on the Statements of Operations. The advisory fee waivers and expense reimbursements for the year ended December 31, 2011 and the expenses borne by the Advisor subject to recovery from each applicable Fund for the periods indicated were as follows: Page 114 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011
Expenses Borne by Advisor Subject to Recovery --------------------------------------------- Period Period Year Advisory Ended Ended Ended Fee Expense December December December Waivers Reimbursement 31, 2009 31, 2010 31, 2011 Total --------- ------------- -------- -------- -------- ---------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ 117,235 $ -- $ 48,917 $ 127,967 $ 117,235 $ 294,119 First Trust Morningstar Dividend Leaders(SM) Index Fund 226,674 -- 137,066 147,279 226,674 511,019 First Trust US IPO Index Fund 71,247 2,526 67,290 83,357 73,773 224,420 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 65,568 -- 16,264 79,793 65,568 161,625 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 114,729 -- 20,687 206,140 114,729 341,556 First Trust NYSE Arca Biotechnology Index Fund 43,660 -- 70,966 95,610 43,660 210,236 First Trust Dow Jones Internet Index(SM) Fund -- -- -- 109,122 -- 109,122 First Trust Strategic Value Index Fund 61,430 -- 86,736 83,712 61,430 231,878 First Trust Value Line(R) Equity Allocation Index Fund 34,240 12,833 31,276 50,388 47,073 128,737 First Trust Value Line(R) Dividend Index Fund 249,861 -- 125,081 228,962 249,861 603,904 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 50,938 -- 46,747 57,769 50,938 155,454 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 54,545 -- 74,427 66,287 54,545 195,259 First Trust S&P REIT Index Fund 130,777 -- 107,158 99,014 130,777 336,949 First Trust ISE Water Index Fund 25,829 -- 40,314 39,351 25,829 105,494 First Trust ISE-Revere Natural Gas Index Fund 139,394 -- 195,399 212,049 139,394 546,842 First Trust ISE Chindia Index Fund 76,490 -- 90,414 83,567 76,490 250,471 First Trust Value Line(R) 100 Exchange Traded Fund 99,646 -- 97,391 107,626 99,646 304,663 First Trust NASDAQ(R) ABA Community Bank Index Fund 45,663 -- 44,294 44,800 45,663 134,757
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. James A. Bowen, the Chief Executive Officer 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 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 agreement with First Trust which was entered into effective upon the closing of the Transaction and would be in effect for a maximum period of 150 days. A new investment management agreement with First Trust in connection with the Funds was approved by the Board of Trustees and was 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. The new investment management agreement between the Trust and First Trust relating to the Transaction was approved by shareholders of each affected Fund. See Submission of Matters to a Vote of Shareholders, in the Additional Information section of this report, for the results. The Trust's Board of Trustees also approved a new Distribution Agreement and Expense Reimbursement, Fee Waiver and Recovery Agreement for the Funds which were entered into effective upon the closing of the Transaction. 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 Page 115 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 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 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, 2011, 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 $ 65,981,468 $ 66,029,241 First Trust Morningstar Dividend Leaders(SM) Index Fund 60,383,706 59,807,813 First Trust US IPO Index Fund 7,672,764 7,720,461 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 23,503,996 23,719,420 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 80,432,586 86,062,066 First Trust NYSE Arca Biotechnology Index Fund 137,992,507 175,348,255 First Trust Dow Jones Internet Index(SM) Fund 110,424,781 137,282,461 First Trust Strategic Value Index Fund 41,694,377 41,681,675 First Trust Value Line(R) Equity Allocation Index Fund 12,686,175 12,701,820 First Trust Value Line(R) Dividend Index Fund 150,242,861 150,038,014 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 10,481,225 10,520,221 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 6,846,681 6,910,669 First Trust S&P REIT Index Fund 16,968,785 34,812,223 First Trust ISE Water Index Fund 19,095,675 19,311,425 First Trust ISE-Revere Natural Gas Index Fund 217,055,438 217,849,664 First Trust ISE Chindia Index Fund 32,101,578 32,220,516 First Trust Value Line(R) 100 Exchange-Traded Fund 165,313,340 165,263,809 First Trust NASDAQ(R) ABA Community Bank Index Fund 3,714,398 3,785,142
For the year ended December 31, 2011, 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 $ 7,885,371 $ 96,516,796 First Trust Morningstar Dividend Leaders(SM) Index Fund 356,253,984 83,185,480 First Trust US IPO Index Fund 8,658,467 8,386,251 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 79,975,103 74,771,571 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 196,455,820 460,648,974 First Trust NYSE Arca Biotechnology Index Fund 639,497,257 500,340,588 First Trust Dow Jones Internet Index(SM) Fund 519,901,666 494,380,029 First Trust Strategic Value Index Fund 13,624,890 17,031,846 First Trust Value Line(R) Equity Allocation Index Fund 5,343,687 5,365,890 First Trust Value Line(R) Dividend Index Fund 225,418,137 94,230,892 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 21,526,262 11,865,028 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 7,115,042 7,039,885 First Trust S&P REIT Index Fund 452,773,729 155,386,738 First Trust ISE Water Index Fund 34,507,923 24,762,510 First Trust ISE-Revere Natural Gas Index Fund 444,483,023 435,784,870 First Trust ISE Chindia Index Fund -- 61,290,142 First Trust Value Line(R) 100 Exchange-Traded Fund 85,309,229 112,497,514 First Trust NASDAQ(R) ABA Community Bank Index Fund 6,280,031 2,413,028
5. CREATION, REDEMPTION & TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the daily NAV per Share of each Fund on the transaction date times the number of Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as transfer agent, a standard creation transaction fee (the "Creation Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Page 116 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 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 April 29, 2012. 7. INDEMNIFICATION The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. Page 117 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 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 the following subsequent events: Effective January 1, 2012, each Independent Trustee will be paid a fixed annual retainer of $125,000 per year and an annual per fund fee of $4,000 for each closed-end fund or other actively managed fund and $1,000 for each index fund in the First Trust Fund Complex. The fixed annual retainer will be allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Additionally, the Lead Independent Trustee will be paid $15,000 annually, the Chairman of the Audit Committee will be paid $10,000 annually, and each of the Chairmen of the Nominating and Governance Committee and the Valuation Committee will be paid $5,000 annually to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Trustees continue to be reimbursed 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 before rotating to serve as chairman of another committee or as Lead Independent Trustee. The officers and "Interested" Trustee continue to receive no compensation from the Funds for acting in such capacities. Effective January 23, 2012, James A. Bowen resigned from his position as the President and Chief Executive Officer of the Trust. He will continue as a Trustee, the Chairman of the Board of Trustees and a member of the Executive Committee. The Board elected Mark R. Bradley to serve as the President and Chief Executive Officer and James M. Dykas to serve as the Treasurer, Chief Financial Officer and Chief Accounting Officer of the Funds. On January 23, 2012, the Board of Trustees approved a change to quarterly dividends for each of the Funds, except for First Trust Morningstar Dividend Leaders(SM) Index Fund and First Trust Value Line(R) Dividend Index Fund, which already declare and pay dividends quarterly. This change will be effective with the filing of each Fund's annual Form N-1A prospectus update in April 2012. Page 118 -------------------------------------------------------------------------------- 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 (the "Fund"), comprised of First Trust Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar 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, and First Trust NASDAQ(R) ABA Community Bank Index Fund, including the portfolios of investments, as of December 31, 2011 and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of 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 Fund is not required to have, nor were we engaged to perform, an audit of its 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 Fund's 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, 2011 by correspondence with the Fund's 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, 2011, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 24, 2012 Page 119 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 (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, 2011 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, 2011, 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 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 95.72% 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 100.00% First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the taxable year ended December 31, 2011, 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 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 100.00% First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
Page 120 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 (UNAUDITED) The following Funds meet the requirements of Section 853 of the Internal Revenue Code and elects to pass through to its shareholders credit for foreign taxes paid. The total amounts of income received by the Funds from sources within foreign countries and possessions of the United States and of taxes paid to such countries are as follows: Gross Foreign Income Foreign Taxes Paid ------------------------------ --------------------------- Amount Per Share Amount Per Share ----------- ----------- ---------- ----------- First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ -- $ -- $ -- First Trust Morningstar 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 2,306,909 0.53 44,865 0.01 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- -- -- First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- -- --
For the tax year ended December 31, 2011, the First Trust S&P REIT Index Fund designated $251,735, 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, $251,735, or amounts necessary, represents long-term capital gain from the Fund. 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 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
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 Page 121 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 (UNAUDITED) 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 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. MORNINGSTAR MAKES NO WARRANTIES AND BEARS NO LIABILITIES WITH RESPECT TO THE FUND. The First Trust US IPO Index 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. First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund and the First Trust NASDAQ-100-Technology Sector Index(SM) Fund have not been passed on by the Corporations as to their legality or suitability. These Funds are not issued, endorsed, sold, or promoted by the Corporations and should not be construed in anyway as investment advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THESE 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 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund is not issued, endorsed, sold, or promoted by the Corporations and 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 First Trust NASDAQ(R) ABA Community Bank Index 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 First Trust NYSE Arca Biotechnology Index 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. NYSE EURONEXT MAKES NO WARRANTIES AND BEARS NO LIABILITIES WITH REPSECT TO 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 FIRST TRUST STRATEGIC VALUE INDEX 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 Page 122 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 (UNAUDITED) MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE 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 of the First Trust ISE Chindia Index Fund, First Trust ISE-Revere Natural Gas Index Fund and First Trust ISE Water Index 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 123 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 (UNAUDITED) The Funds' 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 c/o First Trust Advisors L.P. Orthopedics; Co-Owner and Co-Director 82 None 120 East Liberty Drive, (January 1996 to May 2007), Suite 400 o Since Inception Sports Med Center for Fitness; Wheaton, IL 60187 Limited Partner, Gundersen Real D.O.B.: 04/51 Estate Limited Partnership; Member, Sportsmed LLC Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), 82 Director of ADM c/o First Trust Advisors L.P. Senior Vice President and Chief Investor Services, 120 East Liberty Drive, Financial Officer (May 2007 to March Inc. and ADM Suite 400 o Since Inception 2010), Vice President and Chief Investor Services, Wheaton, IL 60187 Financial Officer (1990 to May 2007), International D.O.B.: 11/57 ADM Investor Services, Inc. (Futures Commission Merchant) Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 82 Director of c/o First Trust Advisors L.P. Enterprises (Financial and Management Trust Company 120 East Liberty Drive, o Since Inception Consulting) of Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term President (June 2002 to Present), 82 Director of c/o First Trust Advisors L.P. Covenant College Covenant 120 East Liberty Drive, o Since Inception Transport Inc. Suite 400 Wheaton, IL 60187 D.O.B.: 03/54 INTERESTED TRUSTEE James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 82 None President, Chairman of the Board to Present), President (until December and CEO 2010), First Trust Advisors L.P. and 120 East Liberty Drive, o Since Inception First Trust Portfolios L.P.; Chairman Suite 400 of the Board of Directors, BondWave LLC Wheaton, IL 60187 (Software Development Company/ D.O.B.: 09/55 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 124 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 (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 120 E. Liberty Drive, Officer and Chief Present) and Chief Financial Officer, Suite 400 Accounting Officer o Since Inception First Trust Advisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P.; Chief Financial Officer, D.O.B.: 11/57 BondWave LLC (Software Development 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 October Suite 400 o Since June 2009 2007), First Trust Advisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P.; Associate Attorney (November 2003 D.O.B.: 08/76 to March 2006), Doyle & Bolotin, Ltd. James M. Dykas Assistant Treasurer o Indefinite Term Controller (January 2011 to Present), Senior Vice 120 E. Liberty Drive, President (April 2007 to January 2011), Vice Suite 400 o Since Inception President (January 2005 to April 2007), First Wheaton, IL 60187 Trust Advisors L.P. and First Trust D.O.B.: 01/66 Portfolios L.P. Roseanne Gatta Assistant Secretary o Indefinite Term Board Liaison Associate (July 2010 to Present), 120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Suite 400 o Since March 2011 Portfolios L.P.; Assistant Vice President Wheaton, IL 60187 (February 2001 to July 2010), PNC D.O.B.: 07/55 Global Investment Services W. Scott Jardine Secretary o Indefinite Term General Counsel, First Trust Advisors L.P., 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 Suite 400 o Since July 2008 Portfolios L.P.; Vice President (May 1998 to Wheaton, IL 60187 January 2008), Van Kampen Asset Management and D.O.B.: 07/58 Morgan 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 Officer o Assistant Secretary Assistant General Counsel (March 2004 to May Suite 400 Since Inception 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 Wheaton, IL 60187 Portfolios L.P. D.O.B.: 06/66 Stan Ueland Vice President o Indefinite Term Vice President (August 2005 to Present), First 120 E. Liberty Drive, Trust Advisors L.P. and First Trust Portfolios Suite 400 o Since Inception L.P.; Vice President (May 2004 to August 2005) Wheaton, IL 60187 BondWave LLC (Software Development Company/ D.O.B.: 11/70 Investment Advisor)
---------- (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 125 -------------------------------------------------------------------------------- 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. 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 126 -------------------------------------------------------------------------------- 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 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 127 -------------------------------------------------------------------------------- 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 128 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2011 (UNAUDITED) PRIVACY POLICY The open-end and closed-end funds advised by First Trust Advisors L.P. (each a "Fund") value our relationship with you and consider your privacy an important priority in maintaining that relationship. We are committed to protecting the security and confidentiality of your personal information. SOURCES OF INFORMATION We collect nonpublic personal information about you from the following sources: o Information we receive from you and 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 under 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, proxy services, solicitors 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. PRIVACY ONLINE We allow third-party companies, including AddThis, to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, we restrict access to your nonpublic personal information to those individuals who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. POLICY UPDATES AND INQUIRIES As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). Page 129 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. 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 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 [BLANK BACK COVER] ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) 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 $415,475 for 2010 and $378,000 for 2011. (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 2010 and $0 for 2011. 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 2010 and $0 for 2011. (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 $75,298 for 2010 and $67,500 for 2011. 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 2010 and $0 for 2011. (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 2010 and $0 for 2011. 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 2010 and $0 for 2011. (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 2010 were $75,298 for the registrant, $6,000 for the registrant's investment adviser and $57,145 for the registrant's distributor, and for 2011 were $67,500 for the registrant, $6,200 for the registrant's investment adviser and $59,063 for the registrant's distributor. (h) The registrant's audit committee of its Board of Trustees has determined that the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The Registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 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/ Mark R. Bradley ----------------------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date February 21, 2012 ---------------------- 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/ Mark R. Bradley ----------------------------------------------------- Mark R. Bradley, President and Chief Executive Officer (principal executive officer) Date February 21, 2012 ---------------------- By (Signature and Title)* /s/ James M. Dykas ----------------------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date February 21, 2012 ---------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CODE ETH 2 ethics.txt CODE OF ETHICS SENIOR FINANCIAL OFFICER CODE OF CONDUCT I. INTRODUCTION This code of conduct is being adopted by the investment companies advised by First Trust Advisors L.P., from time to time, (the "FUNDS"). The reputation and integrity of the Funds are valuable assets that are vital to the Funds' success. Each officer of the Funds, and officers and employees of the investment adviser to the Funds who work on Fund matters, including each of the Funds' senior financial officers ("SFOS"), is responsible for conducting each Fund's business in a manner that demonstrates a commitment to the highest standards of integrity. SFOs include the Principal Executive Officer (who is the President), the Controller (who is the principal accounting officer), and the Treasurer (who is the principal financial officer), and any person who performs a similar function. The Funds, First Trust Advisors L.P. and First Trust Portfolios have adopted Codes of Ethics under Rule 17j-1 under the Investment Company Act of 1940 (the "RULE 17J-1 CODE"). These Codes of Ethics are designed to prevent certain conflicts of interest that may arise when officers, employees, or directors of the Funds and the foregoing entities know about present or future Fund transactions and/or have the power to influence those transactions, and engage in transactions with respect to those same securities in their personal account(s) or otherwise take advantage of their position and knowledge with respect to those securities. In an effort to prevent these conflicts and in accordance with Rule 17j-1, the Funds adopted their Rule 17j-1 Code to prohibit transactions and conduct that create conflicts of interest, and to establish compliance procedures. The Sarbanes-Oxley Act of 2002 was designed to address corporate malfeasance and to help assure investors that the companies in which they invest are accurately and completely disclosing financial information. Under Section 406 of the Act, all public companies (including the Funds) must either have a code of ethics for their SFOs, or disclose why they do not. The Act was intended to prevent future situations (such as occurred in well-reported situations involving such companies as Enron and WorldCom) where a company creates an environment in which employees are afraid to express their opinions or to question unethical and potentially illegal business practices. The Funds have chosen to adopt a senior financial officer Code of Conduct to encourage their SFOs, and other Fund officers and employees of First Trust Advisors or First Trust Portfolios to act ethically and to question potentially unethical or illegal practices, and to strive to ensure that the Funds' financial disclosures are complete, accurate, and understandable. II. PURPOSES OF THIS CODE OF CONDUCT The purposes of this Code are: A. To promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; B. To promote full, fair, accurate, timely, and understandable disclosure in reports and documents that the Funds file with, or submits to, the SEC and in other public communications the Funds make; C. To promote compliance with applicable governmental laws, rules and regulations; D. To encourage the prompt internal reporting to an appropriate person of violations of the Code; and E. To establish accountability for adherence to the Code. III. QUESTIONS ABOUT THIS CODE The Funds' Boards of Trustees have designated W. Scott Jardine or other appropriate officer designated by the President of the respective Funds to be the Compliance Coordinator for the implementation and administration of the Code. IV. HANDLING OF FINANCIAL INFORMATION The Funds have adopted guidelines under which its SFOs perform their duties. However, the Funds expect that all officers or employees of the adviser or distributor who participate in the preparation of any part of any Fund's financial statements follow these guidelines with respect to each Fund: A. Act with honesty and integrity and avoid violations of this Code, including actual or apparent conflicts of interest with the Fund in personal and professional relationships. B. Disclose to the Fund's Compliance Coordinator any material transaction or relationship that reasonably could be expected to give rise to any violations of the Code, including actual or apparent conflicts of interest with the Fund. You should disclose these transactions or relationships whether you are involved or have only observed the transaction or relationship. If it is not possible to disclose the matter to the Compliance Coordinator, it should be disclosed to the Fund's Principal Financial Officer or Principal Executive Officer. C. Provide information to the Fund's other officers and appropriate employees of service providers (adviser, administrator, outside auditor, outside counsel, custodian, etc.) that is accurate, complete, objective, relevant, timely, and understandable. D. Endeavor to ensure full, fair, timely, accurate, and understandable disclosure in the Fund's periodic reports. E. Comply with the federal securities laws and other applicable laws and rules, such as the Internal Revenue Code. F. Act in good faith, responsibly, and with due care, competence and diligence, without misrepresenting material facts or allowing your independent judgment to be subordinated. G. Respect the confidentiality of information acquired in the course of your work except when you have Fund approval to disclose it or where disclosure is otherwise legally mandated. You may not use confidential information acquired in the course of your work for personal advantage. H. Share and maintain skills important and relevant to the Fund's needs. I. Proactively promote ethical behavior among peers in your work environment. J. Responsibly use and control all assets and resources employed or entrusted to you. K. Record or participate in the recording of entries in the Fund's books and records that are accurate to the best of your knowledge. V. WAIVERS OF THIS CODE SFOs and other parties subject to this Code may request a waiver of a provision of this Code (or certain provisions of the Fund's Rule 17j-1 Code) by submitting their request in writing to the Compliance Coordinator for appropriate review. An executive officer of the Fund or the Audit Committee will decide whether to grant a waiver. All waivers of this Code must be disclosed to the Fund's shareholders to the extent required by SEC rules. A good faith interpretation of the provisions of this Code, however, shall not constitute a waiver. VI. ANNUAL CERTIFICATION Each SFO will be asked to certify on an annual basis that he/she is in full compliance with the Code and any related policy statements. VII. REPORTING SUSPECTED VIOLATIONS A. SFOs or other officers of the Funds or employees of the First Trust group who work on Fund matters who observe, learn of, or, in good faith, suspect a violation of the Code MUST immediately report the violation to the Compliance Coordinator, another member of the Funds' or First Trust's senior management, or to the Audit Committee of the Fund Board. An example of a possible Code violation is the preparation and filing of financial disclosure that omits material facts, or that is accurate but is written in a way that obscures its meaning. B. Because service providers such as an administrator, outside accounting firm, and custodian provide much of the work relating to the Funds' financial statements, you should be alert for actions by service providers that may be illegal, or that could be viewed as dishonest or unethical conduct. You should report these actions to the Compliance Coordinator even if you know, or think, that the service provider has its own code of ethics for its SFOs or employees. C. SFOs or other officers or employees who report violations or suspected violations in good faith will not be subject to retaliation of any kind. Reported violations will be investigated and addressed promptly and will be treated confidentially to the extent possible. VIII. VIOLATIONS OF THE CODE A. Dishonest, unethical or illegal conduct will constitute a violation of this Code, regardless of whether this Code specifically refers to that particular conduct. A violation of this Code may result in disciplinary action, up to and including termination of employment. A variety of laws apply to the Funds and their operations, including the Securities Act of 1933, the Investment Company Act of 1940, state laws relating to duties owed by Fund directors and officers, and criminal laws. The federal securities laws generally prohibit the Funds from making material misstatements in its prospectus and other documents filed with the SEC, or from omitting to state a material fact. These material misstatements and omissions include financial statements that are misleading or omit materials facts. B. Examples of criminal violations of the law include stealing, embezzling, misapplying corporate or bank funds, making a payment for an expressed purpose on a Fund's behalf to an individual who intends to use it for a different purpose; or making payments, whether corporate or personal, of cash or other items of value that are intended to influence the judgment or actions of political candidates, government officials or businesses in connection with any of the Funds' activities. The Funds must and will report all suspected criminal violations to the appropriate authorities for possible prosecution, and will investigate, address and report, as appropriate, non-criminal violations. Amended: June 1, 2009 EX-99.CERT 3 certs_302.txt SECTION 302 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, Mark R. Bradley, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Exchange-Traded Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 21, 2012 /s/ Mark R. Bradley ---------------------- ------------------------------------------ Mark R. Bradley, President and Chief Executive Officer (principal executive officer) CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, James M. Dykas, certify that: 1. I have reviewed this report on Form N-CSR of First Trust Exchange-Traded Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 21, 2012 /s/ James M. Dykas ---------------------- ------------------------------------------ James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) EX-99.906 CERT 4 certs_906.txt SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(B) UNDER THE 1940 ACT AND SECTION 906 OF THE SARBANES-OXLEY ACT I, Mark R. Bradley, President and Chief Executive Officer of First Trust Exchange-Traded Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 21, 2012 /s/ Mark R. Bradley ---------------------- ------------------------------------------ Mark R. Bradley, President and Chief Executive Officer (principal executive officer) I, James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer of First Trust Exchange-Traded Fund (the "Registrant"), certify that: 1. The Form N-CSR of the Registrant (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: February 21, 2012 /s/ James M. Dykas ---------------------- ------------------------------------------ James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer)