0001445546-13-001399.txt : 20130308 0001445546-13-001399.hdr.sgml : 20130308 20130308150114 ACCESSION NUMBER: 0001445546-13-001399 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20121231 FILED AS OF DATE: 20130308 DATE AS OF CHANGE: 20130308 EFFECTIVENESS DATE: 20130308 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: 13676947 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 0001329377 S000035456 First Trust CBOE S&P 500 VIX Tail Hedge Fund C000108867 First Trust CBOE S&P 500 VIX Tail Hedge Fund VIXH 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) 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, 2012 ------------------- 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 Book 1 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 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 Value Line(R) 100 Exchange-Traded Fund Annual Report December 31, 2012 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 NYSE Arca Biotechnology Index Fund ........................... 10 First Trust Dow Jones Internet Index(SM) Fund ............................ 12 First Trust Strategic Value Index Fund ................................... 14 First Trust Value Line(R) Equity Allocation Index Fund.................... 16 First Trust Value Line(R) Dividend Index Fund............................. 18 First Trust Value Line(R) 100 Exchange-Traded Fund........................ 20 Notes to Fund Performance Overview........................................... 22 Understanding Your Fund Expenses............................................. 23 Portfolio of Investments First Trust Dow Jones Select MicroCap Index(SM) Fund...................... 25 First Trust Morningstar Dividend Leaders(SM) Index Fund................... 30 First Trust US IPO Index Fund............................................. 32 First Trust NYSE Arca Biotechnology Index Fund............................ 35 First Trust Dow Jones Internet Index(SM) Fund............................. 36 First Trust Strategic Value Index Fund.................................... 37 First Trust Value Line(R) Equity Allocation Index Fund.................... 39 First Trust Value Line(R) Dividend Index Fund............................. 43 First Trust Value Line(R) 100 Exchange-Traded Fund........................ 46 Statements of Assets and Liabilities......................................... 50 Statements of Operations .................................................... 52 Statements of Changes in Net Assets.......................................... 54 Financial Highlights......................................................... 58 Notes to Financial Statements................................................ 63 Report of Independent Registered Public Accounting Firm...................... 72 Additional Information....................................................... 73 Board of Trustees and Officers............................................... 74 Risk Considerations.......................................................... 76 Privacy Policy............................................................... 78 CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund (the "Trust") described in this report (each such series is referred to as a "Fund" and collectively, as the "Funds") 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 Fund described in this report 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 Market Strategist, 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, 2012 Dear Shareholders: I am pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund. The report you hold contains detailed information about the portfolios in First Trust Exchange-Traded Fund over the twelve months ended December 31, 2012. It contains a market overview and a performance analysis 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 financial solutions regardless of market ups and downs. We have always believed, as I have written previously, that there are two ways to attain success in reaching your financial goals: staying invested in quality products and having a long-term investment horizon. We are committed to this approach in the products we manage or supervise and offer to investors. As you know, First Trust offers a variety of products that we believe could fit many financial plans to help investors seeking long-term investment success. We encourage you to talk to your advisor about the other investments First Trust offers that might also fit your financial goals and to discuss those goals with your advisor regularly so that he or she can help keep you on track. 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 2013 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 and Chief Executive Officer of First Trust Advisors L.P. Page 2 -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2012 ROBERT F. CAREY, CFA SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST 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 23 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/INVESTING The U.S. economy continued to grow at around a 2% annual clip during 2012. The Federal Reserve has injected trillions of dollars of stimulus into the economy since the start of the financial crisis. It has already helped stabilize the commercial and residential real estate markets in the U.S. by artificially keeping interest rates at or near historically low levels. While we continue to see job creation on a monthly basis, the number of new jobs created, 158,000 per month on average in 2012, is at least 100,000 below the low end of the desired target. We believe a good amount of the stimulus is simply sitting idle waiting to be put to work. Some smart policy making out of Washington, D.C. early in 2013 could inspire a real boost in economic activity, in our opinion. Should economic growth in the U.S. accelerate at some point in response to the abundance of stimulus from the Federal Reserve, interest rates could quickly begin to rise off their artificially low levels, in our opinion. While that would naturally impede total returns in the bond market, it should benefit the relative performance of equities. Data from Standard & Poor's revealed that, since 1953, U.S. stocks actually posted their best returns when the yield on the 10-year Treasury note rose to around 4.0%, according to Businessweek. The S&P 500(R) Index gained an average of 1.7% per month during periods when yields climbed to a range of 3.0% to 4.0%. Stock prices usually retrench when the yield on the 10-year Treasury note tops 6.0%. Sam Stovall, S&P's chief equity strategist, defined this "sweet spot" as a period where growth in the economy reduces unemployment, increases corporate earnings, but does not trigger growth-slowing efforts by the Federal Reserve. U.S. STOCKS AND BONDS All of the major U.S. stock indices posted double-digit total returns in 2012. The S&P 500(R) Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were up 16.00%, 17.86%, and 16.32%, respectively, according to Bloomberg. All 10 major sectors in the S&P 500(R) Index posted gains in 2012. The top-performing sector was financials, up 28.92%, as measured by the S&P 500 Financials Index. The sector with the poorest showing was utilities, up 1.31%, as measured by the S&P 500 Utilities Index. Volatility was down in 2012. The VIX Index averaged 17.82, markedly below its 10-year average of 20.95. The 2013 estimated earnings growth rates for the S&P 500(R) Index, S&P MidCap 400 Index and S&P SmallCap 600 Index are 13.77%, 19.85% and 32.17%, respectively. The S&P 500(R) Index did not post a single closing price value in 2012 that was below its 2011 year-end close of 1257.60, according to Bespoke Investment Group. In other words, the index was up, on a year-to-date basis, every trading day of 2012. Since 1928, only eight other calendar years (1943, 1951, 1958, 1964, 1967, 1975, 1976 & 1979) accomplished this feat. The S&P 500(R) Index's average price-only return for these nine years (including 2012) was 20.37%, according to Bespoke. The index was up 13.41% (price-only) in 2012. With respect to the previous eight occasions, the average price-only return for the following year was 10.52%. In the U.S. bond market, the top-performing major debt group in 2012 was high-yield corporate bonds. The Barclays Capital U.S. Corporate High Yield Index posted a total return of 15.81%. The next closest domestic category was municipal bonds, up 11.26%, as measured by the Barclays Capital Municipal Bond: Long Bond (22+) Index. The Barclays Capital U.S. Treasury: Intermediate Index posted the weakest return, up 1.71%. FOREIGN STOCKS AND BONDS Riskier asset classes outperformed overseas in 2012. The Barclays Capital Global Emerging Markets Index of debt securities rose 18.14% (USD), compared to 4.32% (USD) for the Barclays Capital Global Aggregate Index of higher-quality debt. The MSCI Emerging Markets Index posted a total return of 18.22% (USD), compared to 16.83% (USD) for the MSCI World Index (excluding the U.S.). The U.S. dollar provided little influence on returns from investments overseas for U.S. investors by declining 0.5% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY). 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 September 30, 2005.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 15.86% 1.40% 2.65% 7.21% 20.91% Market Value 16.57% 1.35% 2.64% 6.93% 20.81% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) 16.69% 2.10% 3.38% 10.93% 27.28% Russell 2000(R) Index 16.35% 3.56% 4.97% 19.09% 42.25% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of +15.86% during the 12-month period covered by this report. During the same period, the benchmark Russell 2000(R) Index generated a return of +16.35%. The Consumer Discretionary sector was the top- performing (+33.3%) sector in the Fund. Within the sector, the Specialty Retail industry had a particularly strong performance (+46.5%) and contribution to total return (+1.4%). The Financials sector contributed the most to the Fund's total return (+5.9%). The sector had a strong return (+22.8%) and was the heaviest-weighted sector in the Fund (25.8% average weight). The Energy (-21.1%) and Telecommunication Services (-11.7%) sectors were the worst performing sectors in the Fund, but the sectors' low average weights (5.6% combined weight) contained the sectors' negative contribution to the Fund to -1.3%. Financials company Newcastle Investment Corp. was the leading individual contributor to total return with a +0.6% contribution as the company returned +76.7% while held in the Fund during this reporting period. Energy company Hyperdynamics Corp. was the worst contributor to the Fund's total return with a -0.3% contribution. The company returned -71.8% while held in the Fund this reporting period. ---------- 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, 2012 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Financials 28.65% Industrials 19.18 Consumer Discretionary 14.75 Information Technology 12.50 Health Care 9.01 Materials 4.79 Energy 3.32 Telecommunication Services 3.32 Consumer Staples 2.82 Utilities 1.66 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS OfficeMax, Inc. 0.99 % Sunrise Senior Living, Inc. 0.98 ACCO Brands Corp. 0.97 Badger Meter, Inc. 0.79 Hovnanian Enterprises, Inc., Class A 0.79 Headwaters, Inc. 0.71 Krispy Kreme Doughnuts, Inc. 0.71 Oriental Financial Group, Inc. 0.71 Altra Holdings, Inc. 0.69 Berkshire Hills Bancorp, Inc. 0.69 ----- Total 8.03% ===== PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 27, 2005 - DECEMBER 31, 2012 First Trust Dow Jones Select Dow Jones Select Russell 2000(R) MicroCap Index(SM) Fund MicroCap Index(SM) Index 09/05 $10000 $10000 $10000 12/05 10374 10397 10252 06/06 10968 11033 11094 12/06 12001 12115 12134 06/07 12746 12910 12917 12/07 11278 11474 11944 06/08 9896 10100 10825 12/08 7520 7707 7909 06/09 7362 7568 8118 12/09 9087 9393 10058 06/10 8833 9153 9862 12/10 11427 11876 12759 06/11 11811 12319 13551 12/11 10435 10907 12227 06/12 11107 11648 13270 12/12 12091 12728 14225 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 70 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% 01/01/08 - 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 01/01/12 - 12/31/12 179 1 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 March 15, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 9.14% 2.49% 2.97% 13.08% 22.04% Market Value 9.02% 2.33% 2.95% 12.21% 21.88% INDEX PERFORMANCE Morningstar(R) Dividend Leaders(SM) Index 9.76% 3.03% 3.47% 16.08% 26.17% S&P 500(R) Index 16.00% 1.66% 3.88% 8.59% 29.65% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated an NAV return of +9.14% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of +16.00%. The Consumer Discretionary sector was the top-performing sector in the Fund with a +22.4% annual return; however, the sector had an average weight in the Fund of only 1.8%. The Health Care sector was the top-contributing sector in the Fund with a +3.4% contribution and an annual return of +12.8%. The Utilities sector was the worst-performing sector in the Fund with a +0.9% return for the year. Telecommunication companies AT&T Corp. and Verizon Communication, Inc. were the top individual contributors to the Fund's total return. AT&T had a contribution of +1.9% and an annual return of +17.5%. Verizon Communications had a contribution of +1.3% and returned +13.1% during the reporting period. The main cause of the Fund underperforming its benchmark was the Fund's overweight position in the Utilities sector relative to the benchmark (27.2% vs. 3.5% average weight). The Fund also lost relative performance by being underweight the strong-performing Financials sector relative to the benchmark (2.7% vs. 14.6% average weight). --------------- 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, 2012 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Utilities 28.29% Health Care 24.81 Telecommunication Services 19.40 Energy 6.69 Industrials 6.35 Consumer Staples 3.86 Materials 3.60 Financials 2.66 Information Technology 2.57 Consumer Discretionary 1.77 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS AT&T, Inc. 9.90% Johnson & Johnson 9.74 Verizon Communications, Inc. 9.49 Merck & Co., Inc. 7.90 ConocoPhillips 5.33 Bristol-Myers Squibb Co. 3.71 Duke Energy Corp. 3.57 Eli Lilly & Co. 3.40 Exelon Corp. 2.99 Southern (The) Co. 2.82 ------ Total 58.85% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT MARCH 9, 2006 - DECEMBER 31, 2012 First Trust Morningstar Dividend Morningstar(R) Dividend S&P 500(R) Leaders(SM) Index Fund Leaders(SM) Index Index 03/06 $10000 $10000 $10000 12/06 12077 12110 11317 06/07 12392 12462 12104 12/07 10793 10870 11939 06/08 7995 8069 10516 12/08 7371 7462 7522 06/09 6961 7067 7760 12/09 8420 8567 9512 06/10 8039 8197 8879 12/10 9771 9995 10945 06/11 10535 10806 11604 12/11 11182 11498 11176 06/12 12107 12491 12236 12/12 12204 12620 12964 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 171 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% 01/01/08 - 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 01/01/12 - 12/31/12 79 0 0 0 Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FPX - FIRST TRUST US IPO INDEX FUND The First Trust U.S. 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 April 13, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 30.01% 5.22% 7.63% 28.95% 63.93% Market Value 30.27% 5.17% 7.66% 28.66% 64.20% INDEX PERFORMANCE IPOX(R)-100 U.S. Index 30.77% 5.88% 8.30% 33.06% 70.91% Russell 3000(R) Index 16.42% 2.04% 3.83% 10.65% 28.72% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
) PERFORMANCE REVIEW The Fund generated an NAV return of +30.01% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of +16.42%. The Information Technology sector led all sectors in the Fund in performance (+37.6%) and contribution to total return (+9.4%). Within the sector, the IT Services industry stood out with a +6.1% contribution to total return and a +48.8% one-year return. The industry included the Fund's top individual contributor Visa, Inc. The company returned +49.7% while held in the Fund this period and contributed +4.7% to the Fund's total return. The Energy sector was the second-best performing and contributing sector with a return of +36.3% and a +6.7% contribution to total return. Marathon Petroleum Corp. and Phillips 66 boosted the Fund's performance within the Energy sector. Marathon Petroleum returned +94.1% for the year and contributed +2.4% to the Fund's total return. Phillips 66 returned +72.5% while it was held in the Fund this reporting period and contributed +2.7% to the Fund's total return. The Materials sector was the only sector in the Fund with a negative return (-17.6%), but the Fund's average weight in the sector was only 0.7%. Relative to the benchmark, the Fund had meaningful outperformance in the Energy and Information Technology sectors. In the Energy sector, the Fund's holdings outperformed the benchmark's constituents +36.3% versus +3.8%. In the Information Technology sector, the Fund's holdings outperformed the benchmark's constituents +37.6% versus +13.9%. --------------- 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, 2012 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Consumer Discretionary 25.12% Energy 23.12 Information Technology 19.97 Industrials 10.31 Consumer Staples 7.90 Financials 7.36 Health Care 4.16 Utilities 1.19 Materials 0.87 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Facebook, Inc., Class A 9.58% General Motors Co. 8.18 Kinder Morgan, Inc. 6.63 Phillips 66 6.02 Kraft Foods Group, Inc. 4.88 Marathon Petroleum Corp. 3.87 Dollar General Corp. 2.62 HCA Holdings, Inc. 2.42 Mead Johnson Nutrition Co. 2.42 Delphi Automotive PLC 2.20 ------ Total 48.82% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 12, 2006 - DECEMBER 31, 2012 First Trust US IPO IPOX(R)-100 U.S. Russell 3000(R) Index Fund Index Index 04/06 $10000 $10000 $10000 12/06 11100 11154 11064 06/07 12385 12481 11851 12/07 12712 12844 11633 06/08 11784 11941 10348 12/08 7134 7245 7293 06/09 8087 8248 7599 12/09 10339 10575 9360 06/10 9726 9980 8794 12/10 12228 12594 10945 06/11 13439 13889 11640 12/11 12607 13071 11057 06/12 14314 14885 12088 12/12 16391 17092 12873 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 149 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% 01/01/08 - 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 01/01/12 - 12/31/12 97 2 0 0 Page 9 -------------------------------------------------------------------------------- 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 June 23, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 40.91% 13.81% 13.82% 90.91% 133.00% Market Value 40.07% 13.56% 13.71% 88.85% 131.54% INDEX PERFORMANCE NYSE Arca Biotechnology Index(SM) 41.74% 14.49% 14.51% 96.70% 142.33% NASDAQ(R) Biotechnology Index 32.29% 11.84% 11.49% 74.99% 103.51% S&P 500(R) Index 16.00% 1.66% 4.38% 8.59% 32.36% S&P Composite 1500 Health Care Index 18.35% 5.10% 6.94% 28.24% 55.07% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
) PERFORMANCE REVIEW The Fund generated an NAV return of 40.91% 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 18.35%. Regeneron Pharmaceuticals, Inc. (+208.6%), Amylin Pharmaceuticals, Inc. (+171.9%) and Human Genome Sciences, Inc. (+92.7%) were the top-performing companies in the Fund. Dendredon Corp. (-30.4%), InterMune, Inc. (-23.1%), and Affymetrx, Inc. (-22.5%) were the worst-performing companies in the Fund. The Fund's focus on pure biotech companies and equal-weight methodology allowed it to have significantly different performance from its broad-based, market-cap weighted benchmark. ------------------ 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 10 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FBT - FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (CONTINUED) -------------------------------------------------------- PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2012 -------------------------------------------------------- % OF TOTAL INDUSTRY LONG-TERM INVESTMENTS Biotechnology 69.38% Life Sciences Tools & Services 26.90 Pharmaceuticals 3.72 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Sequenom, Inc. 6.62% Dendreon Corp. 5.98 Illumina, Inc. 5.84 BioMarin Pharmaceutical, Inc. 5.71 Gilead Sciences, Inc. 5.41 Regeneron Pharmaceuticals, Inc. 5.30 QIAGEN N.V. 5.17 InterMune, Inc. 5.14 Celgene Corp. 4.95 Biogen Idec, Inc. 4.94 ------ Total 55.06% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 12, 2006 - DECEMBER 31, 2012
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 $10000 $10000 $10000 $10000 $10000 12/06 11775 11815 11114 11554 11194 06/07 12105 12179 11177 12358 11919 12/07 12205 12320 11630 12189 12092 06/08 11410 11557 11086 10736 10593 12/08 9968 10138 10200 7679 9218 06/09 10722 10921 10491 7922 9305 12/09 14441 14758 11828 9711 11132 06/10 15629 16026 11227 9065 10324 12/10 19768 20327 13726 11174 11712 06/11 22182 22880 15694 11847 13374 12/11 16534 17096 15385 11410 13104 06/12 22185 23013 19204 12493 14610 12/12 23299 24233 20352 13236 15510
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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 121 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% 01/01/08 - 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 01/01/12 - 12/31/12 128 1 0 0 Page 11 -------------------------------------------------------------------------------- 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 June 23, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 20.85% 9.32% 10.84% 56.15% 95.89% Market Value 20.66% 9.19% 10.81% 55.23% 95.59% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) 21.64% 9.93% 11.46% 60.58% 103.15% S&P 500(R) Index 16.00% 1.66% 4.38% 8.59% 32.36% S&P Composite 1500 Information Technology Index 14.75% 3.65% 7.44% 19.65% 59.85% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
) PERFORMANCE REVIEW The Fund generated an NAV return of 20.85% 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 14.75%. The Internet & Catalog Retail industry, part of the Consumer Discretionary sector, was the top-performing industry in the Fund (+46.8%). Expedia, Inc. (+115.6%), Amazon.com, Inc (+44.9%), Netflix, Inc. (+33.6%), and priceline.com, Inc. (+32.6%) were standout performers from the industry. The Internet Software & Services industry, part of the Information Technology sector, led all other industries in the Fund in contribution to total return (+9.8% contribution). The strong contribution was a result of the industry being the heaviest-weighted in the Fund (+48.8% average weight) and solid performance for the year (+19.8%). eBay, Inc. (+68.1%) and Rackspace Hosting, Inc. (+73.3%) were the top-performers from the Internet Software & Services industry. The Fund's exposure to the Internet & Catalog Retail industry, which the benchmark does not have, was the main driver of the Fund's outperformance of its benchmark. ----------- 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 12 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (CONTINUED) -------------------------------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 -------------------------------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 73.13% Consumer Discretionary 21.48 Financials 4.00 Health Care 1.39 ------- Total 100.00% ======= -------------------------------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 -------------------------------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Google, Inc., Class A 9.95% Amazon.com, Inc. 7.61 eBay, Inc. 6.45 priceline.com, Inc. 5.13 Salesforce.com, Inc. 4.45 Yahoo!, Inc. 4.39 Facebook, Inc., Class A 3.49 Equinix, Inc. 3.31 Juniper Networks, Inc. 3.28 Rackspace Hosting, Inc. 3.14 ------ Total 51.20% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 19, 2006 - DECEMBER 31, 2012
First Trust S&P Composite 1500 Dow Jones Internet Dow Jones Internet S&P 500(R) Information Technology Index(SM) Fund Composite Index(SM) Index Index 06/06 $10000 $10000 $10000 $10000 12/06 11285 11315 11554 11574 06/07 12975 13044 12358 12716 12/07 12545 12651 12189 13360 06/08 11203 11327 10736 11638 12/08 7023 7114 7679 7629 06/09 9374 9524 7922 9506 12/09 12587 12825 9711 12286 06/10 11980 12222 9065 11055 12/10 17197 17603 11174 13776 06/11 18186 18661 11847 14115 12/11 16209 16702 11410 13930 06/12 17741 18335 12493 15702 12/12 19590 20315 13236 15985
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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 122 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% 01/01/08 - 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 01/01/12 - 12/31/12 128 0 0 0 Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FDV - FIRST TRUST STRATEGIC VALUE INDEX FUND The First Trust Strategic Value Index Fund (formerly known as First Trust DB Strategic Value Index Fund) (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Credit Suisse U.S. Value Index, Powered by HOLT(TM) (the "Index"). The Index is an equally-weighted index which measures the performance of fifty stocks which have the highest HOLT valuation score and meet liquidity and tradeability requirements. The HOLT valuation scoring model aims to convert accounting data into cash as measured by HOLT's proprietary CFROI(R) metric. The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was July 11, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 17.45% 2.62% 5.20% 13.78% 38.93% Market Value 17.37% 2.49% 5.17% 13.09% 38.72% INDEX PERFORMANCE Credit Suisse U.S. Value Index, Powered by HOLT(TM)* 18.29% N/A N/A N/A N/A S&P 500 Value Index 17.68% -0.15% 2.09% -0.73% 14.36% S&P 500(R) Index 16.00% 1.66% 3.97% 8.59% 28.70% ---------------------------------------------------------------------------------------------------------------------------
) * 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). The inception date of the Index was June 14, 2010. Returns for the Index are only disclosed for those periods in which the Index was in existence for the entire period. (See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated an NAV return of 17.45% during the 12-month period covered by this report. During the same period, the benchmark S&P 500 Value Index generated a return of 17.68%. The Financials sector contributed +8.4% to the Fund's total return to lead all other sectors. The Fund's Financials holdings returned +31.4% and comprised an average of and comprised an average of 28.5% of the Fund's weight during the reporting period. Insurance companies American International Group, Inc. (+52.2%) and of the Fund's weight during the reporting period. Insurance companies American International Group, Inc. (+52.2%) and Allstate Corp. (+50.2%), and Financial Services company Citigroup, Inc. (+50.6%) were the Fund's top performers from the Financials sector. The Information Technology sector was the Fund's worst-performing sector with a return of -0.1%. The Fund's exposure to the Computers & Peripherals industry was a particular drag. Within the industry, Hewlett-Packard Co., Dell, Inc., and SanDisk Corp. returned -39.9%, -29.6%, and -27.0%, respectively, while they were held in the Fund this reporting period, respectively. ---------- "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 14 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FDV - FIRST TRUST STRATEGIC VALUE INDEX FUND (CONTINUED) -------------------------------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 -------------------------------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Financials 28.19% Information Technology 16.16 Energy 16.04 Health Care 13.75 Industrials 12.28 Consumer Discretionary 6.00 Materials 5.56 Telecommunication Services 2.02 ------- Total 100.00% ======= -------------------------------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 -------------------------------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Valero Energy Corp. 2.26% Ford Motor Co. 2.26 Cisco Systems, Inc. 2.24 Marathon Petroleum Corp. 2.20 General Motors Co. 2.19 BlackRock, Inc. 2.15 Eaton Corp. PLC 2.14 American International Group, Inc. 2.12 Cummins, Inc. 2.12 Dell, Inc. 2.12 ------ Total 21.80% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT AUGUST 19, 2003 - DECEMBER 31, 2012 First Trust Strategic Value S&P 500 S&P 500(R) Index Fund Value Index Index 07/06 $10000 $10000 $10000 12/06 11074 11294 11235 06/07 12444 12126 12016 12/07 12210 11519 11852 06/08 11253 9671 10440 12/08 7665 7002 7467 06/09 8640 6903 7703 12/09 10686 8484 9443 06/10 9880 8034 8815 12/10 12185 9765 10866 06/11 13144 10276 11520 12/11 11827 9718 11095 06/12 12469 10585 12148 12/12 13890 11436 12871 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 147 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% 01/01/08 - 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 01/01/12 - 12/31/12 103 0 0 0 Page 15 -------------------------------------------------------------------------------- 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 December 7, 2006.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 8.74% 0.41% 0.91% 2.07% 5.64% Market Value 7.74% 0.17% 0.76% 0.85% 4.74% INDEX PERFORMANCE Value Line(R) Equity Allocation Index(TM) 9.64% 1.33% 1.75% 6.86% 11.11% Russell 3000(R) Index 16.42% 2.04% 2.54% 10.65% 16.43% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
) PERFORMANCE REVIEW The Fund generated an NAV return of 8.74% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 16.42%. The Consumer Discretionary sector topped all other sectors in the Fund in average weight (19.2%), performance (+22.7%), and contribution to total return (+4.2%). Over half of the sector's contribution came from the Specialty Retail industry, which had performance of +35.0% and a contribution of +2.3%. The Financials and Materials sectors also had solid performance with returns of +21.3% and +20.9%, respectively. The Telecommunication Services sector had the worst performance of any sector in the Fund. The Fund's holdings in the sector had a return of -13.7%; however, the sector's low average Fund weight (2.2%) limited its contribution to the Fund's return to -0.2%. Underperformance within the Information Technology sector was one cause of the Fund lagging its benchmark. The Fund's holdings in the sector underperformed the benchmark's constituents +1.5% vs. +13.9%. The combination of being underweight (12.1% vs. 15.9%) and underperforming (+21.3% vs. +26.2%) in the Financials sector was also a drag on the Fund's relative performance. ----------- "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 16 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (CONTINUED) -------------------------------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 -------------------------------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Consumer Discretionary 18.06% Energy 12.98 Financials 12.92 Health Care 12.73 Information Technology 11.97 Industrials 10.94 Materials 6.91 Consumer Staples 5.50 Utilities 4.75 Telecommunication Services 3.24 ------- Total 100.00% ======= -------------------------------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 -------------------------------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Eastman Chemical Co. 1.46% Murphy Oil Corp. 1.43 TJX (The) Cos., Inc. 1.38 Valero Energy Corp. 1.38 Kroger (The) Co. 1.36 SunTrust Banks, Inc. 1.34 Baxter International, Inc. 1.33 Eli Lilly & Co. 1.33 Thermo Fisher Scientific, Inc. 1.31 Ensco PLC, Class A 1.28 ------ Total 13.60% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 5, 2006 - DECEMBER 31, 2012 First Trust Value Line(R) Value Line(R) Russell Equity Allocation Equity Allocation 3000(R) Index Fund Index(TM) Index 12/5/06 $10000 $10000 $10000 12/06 9890 9897 10008 06/07 10610 10623 10720 12/07 10350 10398 10522 06/08 9470 9551 9360 12/08 6681 6772 6597 06/09 7037 7177 6874 12/09 8962 9192 8466 06/10 8831 9104 7954 12/10 10741 11125 9900 06/11 10976 11405 10529 12/11 9714 10132 10001 06/12 9883 10350 10933 12/12 10563 11109 11643 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 124 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% 01/01/08 - 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 01/01/12 - 12/31/12 122 3 0 0 Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Dividend Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is designed to objectively identify and select those stocks from the universe of stocks which Value Line, Inc(R) gives a Safety(TM) Ranking of #1 or #2 in the Value Line(R) Safety(TM) Ranking System and have the potential to pay above-average dividends and achieve capital appreciation. The Index is rebalanced on a monthly basis. The Fund's shares are listed for trading on the NYSE Arca.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 11.17% 4.99% 7.61% 27.59% 98.86% Market Value 10.15% 4.74% 7.51% 26.03% 97.04% INDEX PERFORMANCE Value Line(R) Dividend Index(TM) 12.09% 5.81% N/A 32.61% N/A S&P 500(R) Index 16.00% 1.66% 5.98% 8.59% 72.31% Dow Jones U.S. Select Dividend Index(SM) 10.84% 2.49% N/A 13.09% 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 (12/31/12) 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 (12/31/12) 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 22.) PERFORMANCE REVIEW The Fund generated an NAV return of 11.17% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of 16.00%. The Fund received strong performance from the Health Care (+19.3%), Industrials (+18.9%), and Financials (+17.6%) sectors. On the other side of the spectrum, the Telecommunication Services (+1.7%) and Utilities sectors (+2.0%) were the worst-performing sectors in the Fund. The Fund's overweight position in the weak-performing Utilities sector relative to the benchmark (23.2% vs. 3.5% average weight) was a major cause of the Fund lagging the benchmark. The Fund's relative performance also suffered by being underweight (11.5% vs. 14.6% average weight) and underperforming (+17.6% vs. +28.8%) the benchmark in the Financials sector. ---------- "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 18 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (CONTINUED) -------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 -------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Utilities 25.52% Consumer Staples 17.07 Financials 10.97 Industrials 10.37 Information Technology 9.75 Health Care 9.17 Consumer Discretionary 6.75 Energy 5.51 Telecommunication Services 2.45 Materials 2.44 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS KKR & Co. L.P. 0.64% Weis Markets, Inc. 0.63 Aqua America, Inc. 0.62 Eaton Corp. PLC 0.62 Enbridge, Inc. 0.62 Erie Indemnity Co., Class A 0.62 Kinder Morgan, Inc. 0.62 Leggett & Platt, Inc. 0.62 Walgreen Co. 0.62 Washington Post (The) Co., Class B 0.62 ----- Total 6.23% ===== PERFORMANCE OF A $10,000 INITIAL INVESTMENT AUGUST 19, 2003 - DECEMBER 31, 2012 First Trust Value Line(R) S&P 500(R) Dividend Index Fund Index 08/03 $10000 $10000 12/03 10612 11166 06/04 11244 11551 12/04 12605 12381 06/05 12987 12281 12/05 13435 12989 06/06 14208 13341 12/06 16137 15041 06/07 16571 16088 12/07 15586 15867 06/08 14067 13977 12/08 11818 9997 06/09 11676 10313 12/09 14132 12642 06/10 13725 11801 12/10 16404 14547 06/11 17738 15423 12/11 17885 14854 06/12 19017 16264 12/12 19882 17232 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 205 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% 01/01/08 - 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 01/01/12 - 12/31/12 44 1 0 0 Page 19 -------------------------------------------------------------------------------- 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 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (09/27/05) Ended (09/27/05) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 8.53% -5.48% 2.99% -24.56% 32.49% Market Value 7.55% -5.71% 2.89% -25.49% 31.30% INDEX PERFORMANCE Value Line(R) 100 Index(TM) 9.39% -4.70% N/A -21.41% N/A Russell 3000(R) Index 16.42% 2.04% 6.46% 10.65% 81.79% ---------------------------------------------------------------------------------------------------------------------------
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 (12/31/12) 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 (12/31/12) 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 22.) PERFORMANCE REVIEW The Fund generated an NAV return of 8.53% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 16.42%. The Health Care sector was the top-performing sector in the Fund with an annual return of +18.2%. Life Sciences company Cambrex Corp. was the best individual performer from the sector. The company returned +82.8% while held in the Fund this reporting period and contributed +0.8% to the Fund's total return. Due to being the heaviest-weighted sector in the Fund (29.0% average weight), the Consumer Discretionary sector was the top-contributing sector. The Fund's holdings in the sector returned +15.7% and contributed +3.1% to the Fund's total return. Cost Plus, Inc., the Fund's top individual performer and contributor, was a part of the sector. The company returned +124.7% while held in the Fund during the reporting period and contributed +1.1% to the Fund's total return. On a relative basis, the Fund underperformed its benchmark. One reason was that the Fund's holdings in the Information Technology underperformed the benchmark's constituents in the sector -1.5% vs. +13.9%. The cause of the underperformance was the weak performance of the Fund's holdings in the Semiconductor (-33.1%), Electronic Equipment (-17.6%), and IT Services (-10.4%) industries. The Fund's relative performance also suffered due to being underweight (3.6% vs. 15.9% average weight) and underperforming (+10.1% vs. +26.2%) in the Financials sector. --------- "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 20 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (CONTINUED) -------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 -------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Consumer Discretionary 34.75% Industrials 13.77 Financials 10.85 Information Technology 9.32 Health Care 9.20 Materials 9.16 Energy 6.00 Consumer Staples 5.94 Utilities 1.01 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Canadian Pacific Railway Ltd. 1.24% Apogee Enterprises, Inc. 1.19 Equifax, Inc. 1.19 AMN Healthcare Services, Inc. 1.17 Eagle Materials, Inc. 1.16 CoStar Group, Inc. 1.14 Carriage Services, Inc., Class A 1.12 PPG Industries, Inc. 1.12 Equinix, Inc. 1.11 Flowserve Corp. 1.10 ------ Total 11.54% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 12, 2003 - DECEMBER 31, 2012 First Trust Value Line(R) Russell 3000(R) 100 Exchange-Traded Fund Index 08/03 $10000 $10000 12/03 11073 11367 06/04 11427 11775 12/04 12519 12725 06/05 12649 12724 12/05 14003 13504 06/06 14305 13940 12/06 14647 15626 06/07 16357 16737 12/07 17563 16429 06/08 16063 14614 12/08 9081 10300 06/09 8728 10732 12/09 10238 13219 06/10 10150 12419 12/10 13259 15457 06/11 14011 16439 12/11 12209 15615 06/12 12550 17070 12/12 13250 18178 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 73 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% 01/01/08 - 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 01/01/12 - 12/31/12 177 0 0 0 Page 21 -------------------------------------------------------------------------------- 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 22 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2012 (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 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 Value Line(R) 100 Exchange-Traded Fund (each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, and other Fund expenses. This Example is intended to help you understand your ongoing costs 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, 2012. 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 EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH July 1, 2012 December 31, 2012 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND Actual $1,000.00 $1,088.60 0.60% $3.15 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND Actual $1,000.00 $1,008.00 0.45% $2.27 Hypothetical (5% return before expenses) $1,000.00 $1,022.87 0.45% $2.29 FIRST TRUST US IPO INDEX FUND Actual $1,000.00 $1,145.10 0.60% $3.24 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND Actual $1,000.00 $1,050.20 0.60% $3.09 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND Actual $1,000.00 $1,104.20 0.60% $3.17 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST STRATEGIC VALUE INDEX FUND Actual $1,000.00 $1,114.00 0.65% $3.45 Hypothetical (5% return before expenses) $1,000.00 $1,021.87 0.65% $3.30
Page 23 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2012 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH July 1, 2012 December 31, 2012 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND Actual $1,000.00 $1,068.80 0.70% $3.64 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND Actual $1,000.00 $1,045.50 0.70% $3.60 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND Actual $1,000.00 $1,055.80 0.70% $3.62 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56 (a) These expense ratios reflect expense caps. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2012 through December 31, 2012), multiplied by 184/366 (to reflect the one-half year period)
Page 24 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 0.8% 5,456 Astronics Corp. (a) $ 124,833 25,083 Kratos Defense & Security Solutions, Inc. (a) 126,168 4,567 LMI Aerospace, Inc. (a) 88,326 -------------- 339,327 -------------- AIR FREIGHT & LOGISTICS -- 0.5% 25,347 Air Transport Services Group, Inc. (a) 101,641 4,231 Park-Ohio Holdings Corp. (a) 90,163 -------------- 191,804 -------------- AIRLINES -- 0.7% 24,752 Hawaiian Holdings, Inc. (a) 162,621 19,174 Republic Airways Holdings, Inc. (a) 108,908 -------------- 271,529 -------------- AUTO COMPONENTS -- 0.7% 14,990 Spartan Motors, Inc. 73,900 11,157 Superior Industries International, Inc. 227,603 -------------- 301,503 -------------- BEVERAGES -- 0.1% 26,556 Central European Distribution Corp. (a) 57,627 -------------- BUILDING PRODUCTS -- 1.4% 8,978 AAON, Inc. 187,371 4,681 American Woodmark Corp. (a) 130,225 21,961 Griffon Corp. 251,673 -------------- 569,269 -------------- CAPITAL MARKETS -- 3.5% 9,819 Calamos Asset Management, Inc., Class A 103,787 1,234 Diamond Hill Investment Group, Inc. 83,739 14,219 Duff & Phelps Corp., Class A 222,101 12,035 FXCM, Inc., Class A 121,192 15,710 HFF, Inc., Class A 234,079 16,728 KBW, Inc. 255,938 6,543 Manning & Napier, Inc. 82,442 7,835 Piper Jaffray Cos., Inc. (a) 251,739 13,619 SWS Group, Inc. (a) 72,045 -------------- 1,427,062 -------------- CHEMICALS -- 2.5% 8,476 Arabian American Development Co. (a) 70,436 21,345 Flotek Industries, Inc. (a) 260,409 4,417 Hawkins, Inc. 170,673 12,386 Landec Corp. (a) 117,543 22,511 Omnova Solutions, Inc. (a) 157,802 10,785 Zep, Inc. 155,735 13,238 Zoltek Cos., Inc. (a) 102,595 -------------- 1,035,193 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMERCIAL BANKS -- 16.4% 3,778 American National Bankshares, Inc. $ 76,278 11,473 Ameris Bancorp (a) 143,298 5,783 Arrow Financial Corp. 144,286 14,668 Bancorp (The), Inc. (a) 160,908 8,419 Banner Corp. 258,716 5,421 Bryn Mawr Bank Corp. 120,726 14,109 Cardinal Financial Corp. 229,553 7,145 City Holding Co. 249,003 16,841 CoBiz Financial, Inc. 125,802 9,153 Eagle Bancorp, Inc. (a) 182,785 7,960 Enterprise Financial Services Corp. 104,037 6,176 Financial Institutions, Inc. 115,059 36,308 First Busey Corp. 168,832 10,981 First California Financial Group, Inc. (a) 84,773 7,353 First Community Bancshares, Inc. 117,427 5,484 First Financial Corp. 165,836 4,887 FNB United Corp. (a) 56,689 6,919 Heartland Financial USA, Inc. 180,932 7,759 Hudson Valley Holding Corp. 120,808 12,871 Lakeland Bancorp, Inc. 131,027 7,873 Lakeland Financial Corp. 203,438 3,454 Mercantile Bank Corp. 56,991 8,036 MetroCorp Bancshares, Inc. (a) 88,316 21,953 Oriental Financial Group, Inc. 293,073 4,892 Peoples Bancorp, Inc. 99,944 12,101 Renasant Corp. 231,613 5,347 Republic Bancorp, Inc., Class A 112,982 14,322 S&T Bancorp, Inc. 258,799 6,291 S.Y. Bancorp, Inc. 141,044 11,994 Sandy Spring Bancorp, Inc. 232,924 8,018 Simmons First National Corp., Class A 203,336 7,615 Southside Bancshares, Inc. 160,372 8,805 Southwest Bancorp, Inc. (a) 98,616 11,128 StellarOne Corp. 157,350 14,910 Sterling Bancorp 135,830 5,535 Tompkins Financial Corp. 219,407 15,004 TowneBank 232,412 6,394 TriCo Bancshares 107,100 9,755 Union First Market Bankshares Corp. 153,836 11,878 Virginia Commerce Bancorp, Inc. (a) 106,308 6,703 Washington Trust Bancorp, Inc. 176,356 9,291 West Coast Bancorp 205,796 29,876 Wilshire Bancorp, Inc. (a) 175,372 -------------- 6,787,990 -------------- COMMERCIAL SERVICES & SUPPLIES -- 2.5% 54,483 ACCO Brands Corp. (a) 399,905 4,334 Intersections, Inc. 41,086 5,911 Multi-Color Corp. 141,805 7,360 Standard Parking Corp. (a) 161,847 7,000 TMS International Corp., Class A (a) 87,640 8,120 US Ecology, Inc. 191,145 -------------- 1,023,428 -------------- See Notes to Financial Statements Page 25 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) COMMUNICATIONS EQUIPMENT -- 2.3% 6,038 Anaren, Inc. (a) $ 117,439 7,964 Black Box Corp. 193,844 13,128 CalAmp Corp. (a) 109,225 12,699 Digi International, Inc. (a) 120,259 43,495 Extreme Networks, Inc. (a) 158,322 19,692 Symmetricom, Inc. (a) 113,623 8,034 Telular Corp. 76,082 2,555 TESSCO Technologies, Inc. 56,568 -------------- 945,362 -------------- CONSTRUCTION & ENGINEERING -- 1.8% 4,577 Argan, Inc. 82,386 9,559 Layne Christensen Co. (a) 231,997 4,089 Michael Baker Corp. 101,939 9,956 MYR Group, Inc. (a) 221,521 4,519 Northwest Pipe Co. (a) 107,823 -------------- 745,666 -------------- CONSTRUCTION MATERIALS -- 0.7% 34,268 Headwaters, Inc. (a) 293,334 -------------- CONTAINERS & PACKAGING -- 0.3% 1,970 AEP Industries, Inc. (a) 116,683 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.4% 14,363 Cbeyond, Inc. (a) 129,841 17,689 Consolidated Communications Holdings, Inc. 281,609 3,519 Hawaiian Telcom Holdco, Inc. (a) 68,620 7,591 IDT Corp., Class B 72,418 23,909 InContact, Inc. (a) 123,849 14,589 Neutral Tandem, Inc. 37,494 21,390 Premiere Global Services, Inc. (a) 209,194 5,557 Primus Telecommunications Group, Inc. 60,405 -------------- 983,430 -------------- ELECTRIC UTILITIES -- 0.4% 6,235 Unitil Corp. 161,611 -------------- ELECTRICAL EQUIPMENT -- 0.3% 8,186 Global Power Equipment Group, Inc. 140,390 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 3.0% 6,824 Agilysys, Inc. (a) 57,117 6,891 Badger Meter, Inc. 326,702 9,478 Electro Rent Corp. 145,772 14,127 GSI Group, Inc. (a) 122,340 7,385 Measurement Specialties, Inc. (a) 253,749 15,530 Mercury Systems, Inc. (a) 142,876 5,861 Richardson Electronics Ltd. 66,346 8,880 Zygo Corp. (a) 139,416 -------------- 1,254,318 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ ENERGY EQUIPMENT & SERVICES -- 1.9% 12,480 Matrix Service Co. (a) $ 143,520 5,814 Mitcham Industries, Inc. (a) 79,245 5,939 Natural Gas Services Group, Inc. (a) 97,518 29,877 Pioneer Energy Services Corp. (a) 216,907 4,153 RigNet, Inc. (a) 84,846 15,116 Tesco Corp. (a) 172,171 -------------- 794,207 -------------- FOOD & STAPLES RETAILING -- 1.2% 4,752 Chefs' Warehouse (The), Inc. (a) 75,129 6,661 Ingles Markets, Inc., Class A 114,969 13,414 Roundy's, Inc. 59,692 10,479 Spartan Stores, Inc. 160,957 2,717 Village Super Market, Inc., Class A 89,281 -------------- 500,028 -------------- FOOD PRODUCTS -- 0.5% 6,125 Calavo Growers, Inc. 154,411 3,836 John B. Sanfilippo & Son, Inc. 69,739 -------------- 224,150 -------------- GAS UTILITIES -- 0.5% 4,621 Chesapeake Utilities Corp. 209,793 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 2.5% 16,843 AngioDynamics, Inc. (a) 185,105 5,456 Anika Therapeutics, Inc. (a) 54,233 13,997 Invacare Corp. 228,151 14,427 Natus Medical, Inc. (a) 161,294 5,897 PhotoMedex, Inc. (a) 85,565 25,335 RTI Biologics, Inc. (a) 108,180 6,837 Vascular Solutions, Inc. (a) 108,025 2,662 Young Innovations, Inc. 104,909 -------------- 1,035,462 -------------- HEALTH CARE PROVIDERS & SERVICES -- 4.9% 4,000 Almost Family, Inc. 81,040 9,494 Assisted Living Concepts, Inc., Class A 92,567 13,722 Gentiva Health Services, Inc. (a) 137,906 16,344 Healthways, Inc. (a) 174,881 25,666 Kindred Healthcare, Inc. (a) 277,706 7,119 LHC Group, Inc. (a) 151,635 14,202 PharMerica Corp. (a) 202,236 6,164 Providence Service Corp. (a) 104,726 9,653 Skilled Healthcare Group, Inc., Class A (a) 61,490 28,119 Sunrise Senior Living, Inc. (a) 404,351 9,137 Triple-S Management Corp., Class B (a) 168,760 5,716 U.S. Physical Therapy, Inc. 157,419 -------------- 2,014,717 -------------- Page 26 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) HEALTH CARE TECHNOLOGY -- 0.2% 9,105 Epocrates, Inc. (a) $ 80,306 -------------- HOTELS, RESTAURANTS & LEISURE -- 4.8% 580 Biglari Holdings, Inc. (a) 226,212 8,654 Bravo Brio Restaurant Group, Inc. (a) 116,223 45,153 Denny's Corp. (a) 220,347 2,860 Einstein Noah Restaurant Group, Inc. 34,921 37,249 Jamba, Inc. (a) 83,438 31,309 Krispy Kreme Doughnuts, Inc. (a) 293,678 9,548 Marcus (The) Corp. 119,063 13,631 Multimedia Games Holding Co., Inc. (a) 200,512 6,246 Red Robin Gourmet Burgers, Inc. (a) 220,421 28,821 Ruby Tuesday, Inc. (a) 226,533 17,111 Ruth's Hospitality Group, Inc. (a) 124,397 10,358 Town Sports International Holdings, Inc. 110,313 -------------- 1,976,058 -------------- HOUSEHOLD DURABLES -- 2.9% 15,228 American Greetings Corp., Class A 257,201 3,088 Cavco Industries, Inc. (a) 154,338 2,734 Flexsteel Industries, Inc. 58,644 46,514 Hovnanian Enterprises, Inc., Class A (a) 325,598 9,965 Libbey, Inc. (a) 192,823 24,097 Sealy Corp. (a) 52,290 7,296 Skullcandy, Inc. (a) 56,836 11,210 Zagg, Inc. (a) 82,506 -------------- 1,180,236 -------------- INSURANCE -- 1.2% 4,235 American Safety Insurance Holdings Ltd. (a) 80,126 8,760 AMERISAFE, Inc. (a) 238,710 1,086 National Western Life Insurance Co., Class A 171,306 -------------- 490,142 -------------- INTERNET & CATALOG RETAIL -- 0.8% 13,746 Nutrisystem, Inc. 112,580 10,626 Orbitz Worldwide, Inc. (a) 28,903 6,776 Overstock.com, Inc. (a) 96,964 9,637 PetMed Express, Inc. 106,971 -------------- 345,418 -------------- INTERNET SOFTWARE & SERVICES -- 1.8% 24,127 Dice Holdings, Inc. (a) 221,486 15,951 Perficient, Inc. (a) 187,903 3,577 Travelzoo, Inc. (a) 67,927 43,823 United Online, Inc. 244,970 -------------- 722,286 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ IT SERVICES -- 2.0% 6,847 Computer Task Group, Inc. (a) $ 124,821 32,077 Global Cash Access Holdings, Inc. (a) 251,484 12,921 Hackett Group (The), Inc. 55,302 11,872 TNS, Inc. (a) 246,106 9,707 Virtusa Corp. (a) 159,486 -------------- 837,199 -------------- LEISURE EQUIPMENT & PRODUCTS -- 0.5% 34,194 Callaway Golf Co. 222,261 -------------- LIFE SCIENCES TOOLS & SERVICES -- 0.4% 14,384 Cambrex Corp. (a) 163,690 -------------- MACHINERY -- 4.8% 4,380 Alamo Group, Inc. 142,963 12,951 Altra Holdings, Inc. 285,570 9,391 Columbus McKinnon Corp. (a) 155,139 6,182 Dynamic Materials Corp. 85,930 30,005 Federal Signal Corp. (a) 228,338 21,644 Flow International Corp. (a) 75,754 5,771 FreightCar America, Inc. 129,386 4,812 Graham Corp. 93,834 13,933 John Bean Technologies Corp. 247,589 5,452 Kadant, Inc. (a) 144,533 4,592 L.B. Foster Co., Class A 199,476 8,183 Lydall, Inc. (a) 117,344 8,210 NN, Inc. (a) 75,204 -------------- 1,981,060 -------------- MEDIA -- 0.7% 8,566 Carmike Cinemas, Inc. (a) 128,490 9,330 Global Sources Ltd. (a) 60,459 17,042 Journal Communications, Inc., Class A (a) 92,197 -------------- 281,146 -------------- METALS & MINING -- 0.3% 3,324 Universal Stainless & Alloy Products, Inc. (a) 122,223 -------------- MULTILINE RETAIL -- 0.2% 4,305 Gordmans Stores, Inc. (a) 64,661 -------------- OIL, GAS & CONSUMABLE FUELS -- 1.4% 1,016 Adams Resources & Energy, Inc. 35,631 10,206 Crimson Exploration, Inc. (a) 27,964 26,536 Penn Virginia Corp. 117,024 19,098 Resolute Energy Corp. (a) 155,267 27,862 VAALCO Energy, Inc. (a) 241,006 -------------- 576,892 -------------- PAPER & FOREST PRODUCTS -- 1.0% 7,639 Neenah Paper, Inc. 217,482 22,332 Wausau Paper Corp. 193,395 -------------- 410,877 -------------- See Notes to Financial Statements Page 27 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) PERSONAL PRODUCTS -- 0.6% 6,581 Medifast, Inc. (a) $ 173,672 4,404 Nature's Sunshine Products, Inc. 63,770 -------------- 237,442 -------------- PHARMACEUTICALS -- 1.0% 5,341 Hi-Tech Pharmacal Co., Inc. 186,828 8,387 Obagi Medical Products, Inc. (a) 113,979 2,384 Pernix Therapeutics Holdings (a) 18,476 24,748 SciClone Pharmaceuticals, Inc. (a) 106,664 -------------- 425,947 -------------- PROFESSIONAL SERVICES -- 2.5% 3,040 Barrett Business Services, Inc. 115,794 24,101 CBIZ, Inc. (a) 142,437 6,707 CDI Corp. 114,891 9,190 GP Strategies Corp. (a) 189,773 9,407 ICF International, Inc. (a) 220,500 19,973 Resources Connection, Inc. 238,478 -------------- 1,021,873 -------------- REAL ESTATE INVESTMENT TRUSTS -- 1.7% 30,551 CapLease, Inc. 170,169 35,191 Kite Realty Group Trust 196,718 24,041 RAIT Financial Trust 135,831 22,234 Summit Hotel Properties, Inc. 211,223 -------------- 713,941 -------------- ROAD & RAIL -- 2.1% 11,475 Arkansas Best Corp. 109,586 10,003 Celadon Group, Inc. 180,754 7,442 Marten Transport Ltd. 136,859 10,576 Quality Distribution, Inc. (a) 63,456 7,727 Saia, Inc. (a) 178,648 31,672 Student Transportation, Inc. 194,466 -------------- 863,769 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.9% 16,966 Advanced Energy Industries, Inc. (a) 234,300 13,243 Integrated Silicon Solution, Inc. (a) 119,187 7,362 Intermolecular, Inc. (a) 65,522 29,119 Photronics, Inc. (a) 173,549 15,579 Rudolph Technologies, Inc. (a) 209,538 -------------- 802,096 -------------- SOFTWARE -- 1.5% 23,586 Actuate Corp. (a) 132,082 11,502 American Software, Inc., Class A 89,255 15,389 EPIQ Systems, Inc. 196,671 8,220 TeleNav, Inc. (a) 65,596 13,891 VASCO Data Security International, Inc. (a) 113,351 -------------- 596,955 -------------- SPECIALTY RETAIL -- 3.3% 3,888 America's Car-Mart, Inc. (a) 157,542 8,108 Big 5 Sporting Goods Corp. 106,215 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SPECIALTY RETAIL (CONTINUED) 20,364 Casual Male Retail Group, Inc. (a) $ 85,529 7,299 Citi Trends, Inc. (a) 100,434 5,861 Destination Maternity Corp. 126,363 11,447 MarineMax, Inc. (a) 102,336 13,280 New York & Co., Inc. (a) 50,597 41,782 OfficeMax, Inc. 407,792 6,898 Shoe Carnival, Inc. 141,340 13,266 Stein Mart, Inc. 100,026 -------------- 1,378,174 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.8% 11,354 Maidenform Brands, Inc. (a) 221,289 5,790 Perry Ellis International, Inc. 115,221 -------------- 336,510 -------------- THRIFTS & MORTGAGE FINANCE -- 5.8% 11,999 Berkshire Hills Bancorp, Inc. 286,296 5,185 Bofi Holding, Inc. (a) 144,506 13,892 Dime Community Bancshares, Inc. 192,960 5,062 Federal Agricultural Mortgage Corp., Class C 164,515 7,960 First Financial Holdings, Inc. 104,117 9,412 Flagstar Bancorp, Inc. (a) 182,593 13,989 Flushing Financial Corp. 214,591 5,606 HomeStreet, Inc. (a) 143,233 8,239 OceanFirst Financial Corp. 113,286 19,574 Provident New York Bancorp 182,234 45,245 TrustCo Bank Corp. 238,894 8,812 United Financial Bancorp, Inc. 138,525 8,171 Walker & Dunlop, Inc. (a) 136,129 3,829 WSFS Financial Corp. 161,775 -------------- 2,403,654 -------------- TOBACCO -- 0.4% 39,681 Alliance One International, Inc. (a) 144,439 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.9% 12,308 Aceto Corp. 123,573 6,935 CAI International, Inc. (a) 152,223 13,881 H&E Equipment Services, Inc. 209,187 7,816 Houston Wire & Cable Co. 95,902 9,772 SeaCube Container Leasing Ltd. 184,202 -------------- 765,087 -------------- WATER UTILITIES -- 0.8% 7,589 Middlesex Water Co. 148,441 6,200 SJW Corp. 164,920 -------------- 313,361 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.9% 7,438 NTELOS Holdings Corp. 97,512 10,717 Shenandoah Telecommunications Co. 164,078 10,568 USA Mobility, Inc. 123,434 -------------- 385,024 -------------- Page 28 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 DESCRIPTION VALUE ------------------------------------------------------------ TOTAL INVESTMENTS -- 100.0% $ 41,266,610 (Cost $38,053,172) (b) NET OTHER ASSETS AND LIABILITIES -- 0.0% 14,764 -------------- NET ASSETS -- 100.0% $ 41,281,374 ============== (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $38,547,492. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,588,499 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,869,381. ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 41,266,610 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. See Notes to Financial Statements Page 29 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 4.1% 124,294 Lockheed Martin Corp. $ 11,471,093 72,562 Northrop Grumman Corp. 4,903,740 103,855 Raytheon Co. 5,977,894 -------------- 22,352,727 -------------- CAPITAL MARKETS -- 0.2% 40,930 Federated Investors, Inc., Class B 828,014 8,329 Greenhill & Co., Inc. 433,025 -------------- 1,261,039 -------------- CHEMICALS -- 0.1% 27,164 Olin Corp. 586,471 -------------- COMMERCIAL BANKS -- 0.5% 16,844 Bank of Hawaii Corp. 741,978 14,660 Community Bank System, Inc. 401,098 6,954 Park National Corp. 449,437 24,206 Trustmark Corp. 543,667 20,829 United Bankshares, Inc. 506,561 -------------- 2,642,741 -------------- COMMERCIAL SERVICES & SUPPLIES -- 2.0% 15,492 Deluxe Corp. 499,462 13,640 HNI Corp. 410,019 252,659 Pitney Bowes, Inc. 2,688,292 186,141 R.R. Donnelley & Sons Co. 1,675,269 166,645 Waste Management, Inc. 5,622,602 -------------- 10,895,644 -------------- COMPUTERS & PERIPHERALS -- 0.8% 140,296 Seagate Technology PLC 4,276,222 -------------- CONTAINERS & PACKAGING -- 0.5% 10,360 Greif, Inc., Class A 461,020 24,393 Packaging Corp. of America 938,399 37,010 Sonoco Products Co. 1,100,307 -------------- 2,499,726 -------------- DIVERSIFIED CONSUMER SERVICES -- 0.4% 105,187 H&R Block, Inc. 1,953,323 7,124 Strayer Education, Inc. 400,155 -------------- 2,353,478 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 19.4% 1,601,374 AT&T, Inc. 53,982,317 1,195,525 Verizon Communications, Inc. 51,730,367 -------------- 105,712,684 -------------- ELECTRIC UTILITIES -- 19.8% 14,488 ALLETE, Inc. 593,718 192,337 American Electric Power Co., Inc. 8,208,943 305,220 Duke Energy Corp. 19,473,036 84,037 Entergy Corp. 5,357,359 SHARES DESCRIPTION VALUE ------------------------------------------------------------ ELECTRIC UTILITIES (CONTINUED) 547,220 Exelon Corp. $ 16,274,323 204,563 FirstEnergy Corp. 8,542,551 43,677 Hawaiian Electric Industries, Inc. 1,098,040 131,270 NextEra Energy, Inc. 9,082,571 99,123 Northeast Utilities 3,873,727 114,827 Pepco Holdings, Inc. 2,251,757 42,663 Pinnacle West Capital Corp. 2,174,960 27,294 Portland General Electric Co. 746,764 260,605 PPL Corp. 7,461,121 359,454 Southern (The) Co. 15,388,226 21,813 UIL Holdings Corp. 781,123 15,443 UNS Energy Corp. 655,092 53,532 Westar Energy, Inc. 1,532,086 175,479 Xcel Energy, Inc. 4,687,044 -------------- 108,182,441 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.1% 26,114 Molex, Inc., Class A 582,864 -------------- FOOD & STAPLES RETAILING -- 1.0% 180,280 Sysco Corp. 5,707,665 -------------- FOOD PRODUCTS -- 0.7% 1,461 Cal-Maine Foods, Inc. 58,761 122,291 ConAgra Foods, Inc. 3,607,585 -------------- 3,666,346 -------------- GAS UTILITIES -- 1.0% 49,596 AGL Resources, Inc. 1,982,352 32,335 Atmos Energy Corp. 1,135,605 7,903 Laclede Group (The), Inc. 305,135 10,043 Northwest Natural Gas Co. 443,901 24,819 Piedmont Natural Gas Co., Inc. 777,083 19,118 WGL Holdings, Inc. 749,234 -------------- 5,393,310 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.0% 14,320 Meridian Bioscience, Inc. 289,980 -------------- HOUSEHOLD DURABLES -- 0.3% 55,838 Leggett & Platt, Inc. 1,519,910 -------------- HOUSEHOLD PRODUCTS -- 1.9% 122,238 Kimberly-Clark Corp. 10,320,554 -------------- INSURANCE -- 0.5% 3,000 American National Insurance Co. 204,870 43,068 Arthur J. Gallagher & Co. 1,492,306 19,251 Mercury General Corp. 764,072 13,121 OneBeacon Insurance Group Ltd., Class A 182,382 13,103 Tower Group, Inc. 232,841 -------------- 2,876,471 -------------- IT SERVICES -- 0.7% 114,675 Paychex, Inc. 3,570,980 -------------- Page 30 See Notes to Financial Statements FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) LEISURE EQUIPMENT & PRODUCTS -- 1.0% 40,522 Hasbro, Inc. $ 1,454,740 104,533 Mattel, Inc. 3,827,998 -------------- 5,282,738 -------------- MACHINERY -- 0.1% 27,490 Harsco Corp. 646,015 -------------- MEDIA -- 0.1% 14,570 Meredith Corp. 501,936 -------------- METALS & MINING -- 3.0% 99,881 Cliffs Natural Resources, Inc. 3,851,411 36,533 Commercial Metals Co. 542,880 330,760 Freeport-McMoRan Copper & Gold, Inc. 11,311,992 60,839 Steel Dynamics, Inc. 835,320 -------------- 16,541,603 -------------- MULTI-UTILITIES -- 7.4% 40,874 Alliant Energy Corp. 1,794,777 26,280 Avista Corp. 633,611 16,629 Black Hills Corp. 604,298 158,067 CenterPoint Energy, Inc. 3,042,790 93,926 CMS Energy Corp. 2,289,916 114,664 Consolidated Edison, Inc. 6,368,438 63,399 DTE Energy Co. 3,807,110 35,959 Integrys Energy Group, Inc. 1,877,779 111,334 NiSource, Inc. 2,771,103 14,467 NorthWestern Corp. 502,439 174,631 PG&E Corp. 7,016,674 51,516 SCANA Corp. 2,351,190 68,407 Sempra Energy 4,852,793 97,475 TECO Energy, Inc. 1,633,681 35,686 Vectren Corp. 1,049,168 -------------- 40,595,767 -------------- OIL, GAS & CONSUMABLE FUELS -- 6.7% 501,258 ConocoPhillips 29,067,951 271,165 Spectra Energy Corp. 7,424,498 -------------- 36,492,449 -------------- PERSONAL PRODUCTS -- 0.2% 65,296 Avon Products, Inc. 937,651 -------------- PHARMACEUTICALS -- 24.7% 619,822 Bristol-Myers Squibb Co. 20,199,999 375,713 Eli Lilly & Co. 18,530,165 757,550 Johnson & Johnson 53,104,255 1,052,057 Merck & Co., Inc. 43,071,214 -------------- 134,905,633 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.5% 78,132 Microchip Technology, Inc. 2,546,322 -------------- SOFTWARE -- 0.6% 138,536 CA, Inc. 3,045,021 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ THRIFTS & MORTGAGE FINANCE -- 1.4% 171,292 Hudson City Bancorp, Inc. $ 1,392,604 308,413 New York Community Bancorp, Inc. 4,040,210 165,507 People's United Financial, Inc. 2,000,980 17,688 Provident Financial Services, Inc. 263,905 -------------- 7,697,699 -------------- TOBACCO -- 0.1% 8,499 Universal Corp. 424,185 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.1% 19,117 Tal International Group, Inc. 695,476 -------------- TOTAL INVESTMENTS -- 99.9% 545,003,748 (Cost $528,593,928) (a) NET OTHER ASSETS AND LIABILITIES -- 0.1% 513,197 -------------- NET ASSETS -- 100.0% $ 545,516,945 ============== (a) Aggregate cost for federal income tax purposes is $530,895,057. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $27,477,857 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $13,369,166. ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 545,003,748 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. See Notes to Financial Statements Page 31 FIRST TRUST US IPO INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 0.8% 8,366 Exelis, Inc. $ 94,285 2,211 Huntington Ingalls Industries, Inc. 95,825 -------------- 190,110 -------------- AIRLINES -- 0.2% 3,159 Spirit Airlines, Inc. (a) 55,977 -------------- AUTO COMPONENTS -- 2.9% 8,146 Allison Transmission Holdings, Inc. (b) 166,342 14,161 Delphi Automotive PLC (a) 541,658 -------------- 708,000 -------------- AUTOMOBILES -- 8.9% 69,838 General Motors Co. (a) 2,013,430 5,074 Tesla Motors, Inc. (a) 171,856 -------------- 2,185,286 -------------- BUILDING PRODUCTS -- 0.9% 7,261 Fortune Brands Home & Security, Inc. (a) 212,166 -------------- CAPITAL MARKETS -- 1.4% 5,798 Apollo Global Management LLC, Class A (c) 100,653 1,927 Carlyle Group L.P. (The) (c) 50,160 2,111 Financial Engines, Inc. (a) 58,580 4,842 LPL Financial Holdings, Inc. 136,351 -------------- 345,744 -------------- CHEMICALS -- 0.3% 6,224 PetroLogistics L.P. (c) 84,273 -------------- COMMERCIAL BANKS -- 1.2% 4,212 BankUnited, Inc. 102,941 5,840 First Republic Bank 191,435 -------------- 294,376 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.5% 6,183 KAR Auction Services, Inc. 125,144 -------------- COMMUNICATIONS EQUIPMENT -- 0.7% 3,053 Palo Alto Networks, Inc. (a) 163,397 -------------- COMPUTERS & PERIPHERALS -- 0.4% 4,271 Fusion-io, Inc. (a) 97,934 -------------- CONTAINERS & PACKAGING -- 0.3% 5,026 Berry Plastics Group, Inc. (a) 80,818 -------------- DIVERSIFIED FINANCIAL SERVICES -- 0.5% 3,891 CBOE Holdings, Inc. 114,629 -------------- ELECTRICAL EQUIPMENT -- 2.2% 5,308 Babcock & Wilcox (The) Co. 139,069 3,038 Generac Holdings, Inc. 104,234 SHARES DESCRIPTION VALUE ------------------------------------------------------------ ELECTRICAL EQUIPMENT (CONTINUED) 7,962 Sensata Technologies Holding N.V. (a) $ 258,606 3,260 Solarcity Corp. (a) 38,892 -------------- 540,801 -------------- ENERGY EQUIPMENT & SERVICES -- 0.4% 3,862 Forum Energy Technologies, Inc. (a) 95,585 -------------- FOOD & STAPLES RETAILING -- 0.4% 2,148 Fresh Market (The), Inc. (a) 103,297 -------------- FOOD PRODUCTS -- 7.5% 3,962 Dole Food Co., Inc. (a) 45,444 26,426 Kraft Foods Group, Inc. 1,201,590 9,054 Mead Johnson Nutrition Co. 596,568 -------------- 1,843,602 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.1% 9,895 CareFusion Corp. (a) 282,799 -------------- HEALTH CARE PROVIDERS & SERVICES -- 3.0% 19,751 HCA Holdings, Inc. 595,887 6,267 Select Medical Holdings Corp. 59,098 3,005 Team Health Holdings, Inc. (a) 86,454 -------------- 741,439 -------------- HOTELS, RESTAURANTS & LEISURE -- 3.4% 5,402 Bloomin' Brands, Inc. (a) 84,488 15,614 Burger King Worldwide, Inc. 256,694 4,707 Dunkin' Brands Group, Inc. 156,178 7,402 Hyatt Hotels Corp., Class A (a) 285,495 1,539 Marriott Vacations Worldwide Corp. (a) 64,130 -------------- 846,985 -------------- INSURANCE -- 1.1% 4,756 First American Financial Corp. 114,572 2,514 Primerica, Inc. 75,445 5,312 Symetra Financial Corp. 68,950 -------------- 258,967 -------------- INTERNET & CATALOG RETAIL -- 2.4% 29,135 Groupon, Inc. (a) (b) 142,179 3,706 HomeAway, Inc. (a) 81,532 2,419 HSN, Inc. 133,238 5,777 TripAdvisor, Inc. (a) 242,403 -------------- 599,352 -------------- INTERNET SOFTWARE & SERVICES -- 10.3% 3,732 AOL, Inc. 110,504 2,252 Cornerstone OnDemand, Inc. (a) 66,502 88,630 Facebook, Inc., Class A (a) 2,360,217 -------------- 2,537,223 -------------- Page 32 See Notes to Financial Statements FIRST TRUST US IPO INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) IT SERVICES -- 2.2% 5,889 Booz Allen Hamilton Holding Corp. $ 81,975 3,770 FleetCor Technologies, Inc. (a) 202,261 3,029 InterXion Holding NV (a) 71,969 9,517 Vantiv, Inc., Class A (a) 194,337 -------------- 550,542 -------------- MACHINERY -- 1.3% 4,308 Rexnord Corp. (a) 91,760 8,286 Xylem, Inc. 224,551 -------------- 316,311 -------------- MEDIA -- 1.3% 2,672 AMC Networks, Inc., Class A (a) 132,264 2,767 Madison Square Garden (The) Co., Class A (a) 122,717 7,585 Pandora Media, Inc. (a) (b) 69,630 -------------- 324,611 -------------- METALS & MINING -- 0.2% 3,120 SunCoke Energy, Inc. (a) 48,641 -------------- MULTILINE RETAIL -- 2.6% 14,659 Dollar General Corp. (a) 646,315 -------------- OIL, GAS & CONSUMABLE FUELS -- 22.7% 2,724 Cloud Peak Energy, Inc. (a) 52,655 18,309 Cobalt International Energy, Inc. (a) 449,669 46,234 Kinder Morgan, Inc. 1,633,447 17,345 Kosmos Energy Ltd. (a) 214,211 5,718 Laredo Petroleum Holdings, Inc. (a) 103,839 15,125 Marathon Petroleum Corp. 952,875 4,099 Northern Tier Energy L.P. (c) 104,279 4,163 Oasis Petroleum, Inc. (a) 132,383 27,908 Phillips 66 1,481,915 7,942 QEP Resources, Inc. 240,404 1,894 Targa Resources Corp. 100,079 8,883 WPX Energy, Inc. (a) 132,179 -------------- 5,597,935 -------------- PROFESSIONAL SERVICES -- 3.5% 16,150 Nielsen Holdings N.V. (a) 494,029 7,439 Verisk Analytics, Inc., Class A (a) 379,389 -------------- 873,418 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.7% 7,068 American Realty Capital Trust, Inc. 81,635 7,803 CYS Investments, Inc. 92,154 -------------- 173,789 -------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.7% 1,694 Howard Hughes (The) Corp. (a) 123,696 6,245 Realogy Holdings Corp. (a) 262,040 1,285 Zillow, Inc., Class A (a) (b) 35,659 -------------- 421,395 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.7% 11,071 Freescale Semiconductor Ltd. (a) (b) $ 121,892 11,228 NXP Semiconductors N.V. (a) 296,082 -------------- 417,974 -------------- SOFTWARE -- 4.7% 7,133 Fortinet, Inc. (a) 150,292 2,470 Guidewire Software, Inc. (a) 73,408 3,195 NetSuite, Inc. (a) 215,024 3,830 QLIK Technologies, Inc. (a) 83,188 5,574 ServiceNow, Inc. (a) 167,387 3,323 Solarwinds, Inc. (a) 174,291 4,398 Splunk, Inc. (a) 127,630 3,518 SS&C Technologies Holdings, Inc. (a) 81,336 32,851 Zynga, Inc., Class A (a) 77,857 -------------- 1,150,413 -------------- SPECIALTY RETAIL -- 1.5% 2,406 Five Below, Inc. (a) 77,089 4,429 GNC Holdings, Inc., Class A 147,397 1,692 Restoration Hardware Holdings, Inc. (a) (b) 57,071 1,345 Vitamin Shoppe, Inc. (a) 77,149 -------------- 358,706 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 2.1% 8,908 Michael Kors Holdings Ltd. (a) 454,575 3,026 Tumi Holdings, Inc. (a) 63,092 -------------- 517,667 -------------- THRIFTS & MORTGAGE FINANCE -- 0.8% 5,379 EverBank Financial Corp. 80,201 4,032 Nationstar Mortgage Holdings, Inc. (a) 124,911 -------------- 205,112 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.9% 4,433 Air Lease Corp. (a) 95,309 4,660 MRC Global, Inc. (a) 129,455 -------------- 224,764 -------------- WATER UTILITIES -- 1.2% 7,883 American Water Works Co., Inc. 292,696 -------------- TOTAL COMMON STOCKS -- 99.9% 24,628,193 (Cost $22,283,664) -------------- COLLATERAL FOR SECURITIES ON LOAN -- 1.3% MONEY MARKET FUND -- 0.2% 65,554 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (d) 65,554 (Cost $65,554) -------------- See Notes to Financial Statements Page 33 FIRST TRUST US IPO INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 PRINCIPAL VALUE DESCRIPTION VALUE ------------------------------------------------------------ REPURCHASE AGREEMENT -- 1.1% $ 262,962 JPMorgan Chase & Co., 0.08% (d), dated 12/31/12, due 01/02/13, with a maturity value of $262,962. Collateralized by U.S. Treasury Note, interest rate of 0.75%, due 10/31/17. The value of the collateral including accrued interest is $268,184. $ 262,962 (Cost $262,962) -------------- TOTAL COLLATERAL FOR SECURITIES ON LOAN -- 1.3% 328,516 (Cost $328,516) -------------- TOTAL INVESTMENTS -- 101.2% 24,956,709 (Cost $22,612,180) (e) NET OTHER ASSETS AND LIABILITIES -- (1.2)% (297,328) -------------- NET ASSETS -- 100.0% $ 24,659,381 ============== (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2C - Securities Lending in the Notes to Financial Statements). The aggregate market value of such securities is $324,099 and the total value of the collateral held by the Fund is $328,516. (c) Master Limited Partnership ("MLP"). (d) Interest rate shown reflects yield as of December 31, 2012. (e) Aggregate cost for federal income tax purposes is $23,250,119. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,486,508 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $779,918. ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 24,628,193 $ -- $ -- Money Market Fund 65,554 -- -- Repurchase Agreement -- 262,962 -- ----------------------------------------------- Total Investment $ 24,693,747 $ 262,962 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 34 See Notes to Financial Statements FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.4% BIOTECHNOLOGY -- 69.0% 108,552 Alexion Pharmaceuticals, Inc. (a) $ 10,183,263 133,852 Amgen, Inc. 11,554,105 80,225 Biogen Idec, Inc. (a) 11,766,601 276,138 BioMarin Pharmaceutical, Inc. (a) 13,599,796 149,510 Celgene Corp. (a) 11,769,427 2,696,077 Dendreon Corp. (a) (b) 14,235,287 175,370 Gilead Sciences, Inc. (a) 12,880,926 802,249 ImmunoGen, Inc. (a) (b) 10,228,675 677,912 Incyte Corp. (a) (b) 11,260,118 1,261,975 InterMune, Inc. (a) 12,228,538 428,108 Myriad Genetics, Inc. (a) 11,665,943 73,738 Regeneron Pharmaceuticals, Inc. (a) 12,614,360 212,780 United Therapeutics Corp. (a) 11,366,708 232,458 Vertex Pharmaceuticals, Inc. (a) 9,749,288 -------------- 165,103,035 -------------- LIFE SCIENCES TOOLS & SERVICES -- 26.7% 3,279,275 Affymetrix, Inc. (a) (b) 10,395,302 250,189 Illumina, Inc. (a) (b) 13,908,006 238,148 Life Technologies Corp. (a) 11,688,304 677,263 QIAGEN N.V. (a) (b) 12,292,323 3,335,498 Sequenom, Inc. (a) (b) 15,743,551 -------------- 64,027,486 -------------- PHARMACEUTICALS -- 3.7% 1,193,643 Nektar Therapeutics (a) (b) 8,844,895 -------------- TOTAL COMMON STOCKS -- 99.4% 237,975,416 (Cost $256,048,665) -------------- COLLATERAL FOR SECURITIES ON LOAN -- 18.4% MONEY MARKET FUND -- 3.7% 8,780,014 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) 8,780,014 (Cost $8,780,014) -------------- PRINCIPAL VALUE ----------- REPURCHASE AGREEMENT -- 14.7% $35,220,221 JPMorgan Chase & Co., 0.08% (c), dated 12/31/12, due 01/02/13, with a maturity value of $35,220,300. Collateralized by U.S. Treasury Note, interest rate of 0.75%, due 10/31/17. The value of the collateral including accrued interest is $35,919,593. 35,220,221 (Cost $35,220,221) -------------- TOTAL COLLATERAL FOR SECURITIES ON LOAN - 18.4% 44,000,235 (Cost $44,000,235) -------------- DESCRIPTION VALUE ------------------------------------------------------------ TOTAL INVESTMENTS -- 117.8% $ 281,975,651 (Cost $300,048,900) (d) NET OTHER ASSETS AND LIABILITIES -- (17.8)% (42,530,470) -------------- NET ASSETS -- 100.0% $ 239,445,181 ============== (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2C - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $43,826,344 and the total value of the collateral held by the Fund is $44,000,235. (c) Interest rate shown reflects yield as of December 31, 2012. (d) Aggregate cost for federal income tax purposes is $323,823,118. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $22,990,601 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $64,838,068. ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 237,975,416 $ -- $ -- Money Market Fund 8,780,014 -- -- Repurchase Agreement -- 35,220,221 -- ----------------------------------------------- Total Investment $ 246,755,430 $ 35,220,221 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. See Notes to Financial Statements Page 35 FIRST TRUST DOW JONES INTERNET INDEX(SM) INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% CAPITAL MARKETS -- 4.0% 1,138,888 E*TRADE Financial Corp. (a) $ 10,193,048 721,346 TD Ameritrade Holding Corp. 12,125,826 -------------- 22,318,874 -------------- COMMUNICATIONS EQUIPMENT -- 5.7% 928,523 Juniper Networks, Inc. (a) 18,264,047 214,184 NETGEAR, Inc. (a) 8,443,133 2,955,071 Sonus Networks, Inc. (a) 5,023,621 -------------- 31,730,801 -------------- HEALTH CARE TECHNOLOGY -- 1.4% 821,831 Allscripts Healthcare Solutions, Inc. (a) 7,741,648 -------------- INTERNET & CATALOG RETAIL -- 21.5% 168,984 Amazon.com, Inc. (a) 42,438,642 236,276 Expedia, Inc. 14,519,160 1,587,000 Groupon, Inc. (a) 7,744,560 146,853 Netflix, Inc. (a) 13,625,021 46,017 priceline.com, Inc. (a) 28,585,761 305,656 TripAdvisor, Inc. (a) 12,825,326 -------------- 119,738,470 -------------- INTERNET SOFTWARE & SERVICES -- 52.7% 394,444 Akamai Technologies, Inc. (a) 16,136,704 197,760 Cornerstone OnDemand, Inc. (a) 5,839,853 267,184 DealerTrack Technologies, Inc. (a) 7,673,524 360,871 Digital River, Inc. (a) 5,192,934 902,779 EarthLink, Inc. 5,831,952 704,252 eBay, Inc. (a) 35,930,937 89,491 Equinix, Inc. (a) 18,453,044 730,497 Facebook, Inc., Class A (a) 19,453,135 78,171 Google, Inc., Class A (a) 55,452,162 261,140 IAC/InterActiveCorp 12,351,922 249,675 j2 Global, Inc. 7,635,061 143,118 LinkedIn Corp., Class A (a) 16,432,809 1,007,114 Monster Worldwide, Inc. (a) 5,659,981 147,991 OpenTable, Inc. (a) 7,221,961 235,803 Rackspace Hosting, Inc. (a) 17,513,089 925,766 United Online, Inc. 5,175,032 406,082 ValueClick, Inc. (a) 7,882,052 392,276 VeriSign, Inc. (a) 15,228,154 264,269 Vocus, Inc. (a) 4,592,995 1,230,095 Yahoo!, Inc. (a) 24,478,891 -------------- 294,136,192 -------------- IT SERVICES -- 1.3% 698,602 Sapient Corp. (a) 7,377,237 -------------- SOFTWARE -- 13.3% 163,117 Concur Technologies, Inc. (a) 11,013,660 326,533 Ebix, Inc. 5,247,385 136,753 NetSuite, Inc. (a) 9,203,477 147,735 Salesforce.com, Inc. (a) 24,834,254 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SOFTWARE (CONTINUED) 536,942 TIBCO Software, Inc. (a) $ 11,818,093 235,269 Virnetx Holding Corp. (a) 6,888,676 362,441 Websense, Inc. (a) 5,451,113 -------------- 74,456,658 -------------- TOTAL INVESTMENTS -- 99.9% 557,499,880 (Cost $520,460,065) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 381,664 -------------- NET ASSETS -- 100.0% $ 557,881,544 ============== (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $533,393,187. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $70,481,093 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $46,374,400. ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 557,499,880 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 36 See Notes to Financial Statements FIRST TRUST STRATEGIC VALUE INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 4.0% 9,392 General Dynamics Corp. $ 650,584 11,344 Raytheon Co. 652,961 -------------- 1,303,545 -------------- AUTOMOBILES -- 4.4% 56,958 Ford Motor Co. 737,606 24,836 General Motors Co. (a) 716,022 -------------- 1,453,628 -------------- BIOTECHNOLOGY -- 2.1% 8,779 Celgene Corp. (a) 691,083 -------------- CAPITAL MARKETS -- 8.3% 3,398 BlackRock, Inc. 702,401 5,152 Goldman Sachs Group (The), Inc. 657,189 35,759 Morgan Stanley 683,712 14,040 State Street Corp. 660,020 -------------- 2,703,322 -------------- CHEMICALS -- 2.0% 3,153 CF Industries Holdings, Inc. 640,564 -------------- COMMERCIAL BANKS -- 2.1% 44,521 Fifth Third Bancorp 676,274 -------------- COMMUNICATIONS EQUIPMENT -- 4.3% 37,212 Cisco Systems, Inc. 731,216 10,775 QUALCOMM, Inc. 668,265 -------------- 1,399,481 -------------- COMPUTERS & PERIPHERALS -- 6.1% 68,254 Dell, Inc. 691,413 45,171 Hewlett-Packard Co. 643,687 21,460 Seagate Technology PLC 654,101 -------------- 1,989,201 -------------- DIVERSIFIED FINANCIAL SERVICES -- 4.1% 16,908 Citigroup, Inc. 668,880 15,169 JPMorgan Chase & Co. 666,981 -------------- 1,335,861 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.0% 16,899 CenturyLink, Inc. 661,089 -------------- ELECTRICAL EQUIPMENT -- 2.1% 12,901 Eaton Corp. PLC 699,234 -------------- ENERGY EQUIPMENT & SERVICES -- 3.9% 11,002 Ensco PLC, Class A 652,199 8,913 National Oilwell Varco, Inc. 609,203 -------------- 1,261,402 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.9% 16,808 St. Jude Medical, Inc. $ 607,441 -------------- HEALTH CARE PROVIDERS & SERVICES -- 7.7% 14,597 Aetna, Inc. 675,841 8,541 Humana, Inc. 586,169 11,535 UnitedHealth Group, Inc. 625,658 10,628 WellPoint, Inc. 647,458 -------------- 2,535,126 -------------- INSURANCE -- 11.9% 12,463 Aflac, Inc. 662,035 16,572 Allstate (The) Corp. 665,697 19,639 American International Group, Inc. (a) 693,257 18,569 MetLife, Inc. 611,663 11,209 Prudential Financial, Inc. 597,776 9,270 Travelers (The) Cos., Inc. 665,771 -------------- 3,896,199 -------------- MACHINERY -- 6.1% 7,385 Caterpillar, Inc. 661,549 6,383 Cummins, Inc. 691,598 7,555 Deere & Co. 652,903 -------------- 2,006,050 -------------- METALS & MINING -- 3.6% 16,120 Freeport-McMoRan Copper & Gold, Inc. 551,304 13,412 Newmont Mining Corp. 622,853 -------------- 1,174,157 -------------- MULTILINE RETAIL -- 1.5% 11,803 Kohl's Corp. 507,293 -------------- OIL, GAS & CONSUMABLE FUELS -- 12.2% 7,854 Apache Corp. 616,539 20,841 Marathon Oil Corp. 638,985 11,416 Marathon Petroleum Corp. 719,208 10,714 Murphy Oil Corp. 638,019 8,174 Occidental Petroleum Corp. 626,210 21,639 Valero Energy Corp. 738,323 -------------- 3,977,284 -------------- PHARMACEUTICALS -- 2.0% 13,335 Eli Lilly & Co. 657,682 -------------- REAL ESTATE INVESTMENT TRUSTS -- 1.8% 42,458 Annaly Capital Management, Inc. 596,110 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.0% 20,722 Broadcom Corp., Class A 688,178 29,947 Intel Corp. 617,806 -------------- 1,305,984 -------------- See Notes to Financial Statements Page 37 FIRST TRUST STRATEGIC VALUE INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) SOFTWARE -- 1.8% 21,769 Microsoft Corp. $ 581,885 -------------- TOTAL INVESTMENTS -- 99.9% 32,659,895 (Cost $30,779,668) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 47,295 -------------- NET ASSETS -- 100.0% $ 32,707,190 ============== (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $31,205,642. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,897,534 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,443,281. ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 32,659,895 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 38 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 1.8% 247 Cubic Corp. $ 11,848 297 Moog, Inc., Class A (a) 12,186 662 Northrop Grumman Corp. 44,738 -------------- 68,772 -------------- AIRLINES -- 0.5% 1,961 Southwest Airlines Co. 20,081 -------------- AUTO COMPONENTS -- 1.3% 627 Cooper Tire & Rubber Co. 15,901 435 Dorman Products, Inc. 15,373 1,400 Goodyear Tire & Rubber (The) Co. (a) 19,334 -------------- 50,608 -------------- AUTOMOBILES -- 0.4% 383 Thor Industries, Inc. 14,336 -------------- BEVERAGES -- 1.0% 314 Brown-Forman Corp., Class B 19,860 411 Molson Coors Brewing Co., Class B 17,587 -------------- 37,447 -------------- BIOTECHNOLOGY -- 0.5% 329 United Therapeutics Corp. (a) 17,575 -------------- CAPITAL MARKETS -- 1.0% 1,662 American Capital Ltd. (a) (b) 19,944 856 SEI Investments Co. 19,979 -------------- 39,923 -------------- CHEMICALS -- 5.3% 467 Agrium, Inc. 46,658 218 CF Industries Holdings, Inc. 44,289 832 Eastman Chemical Co. 56,618 330 Georgia Gulf Corp. 13,622 82 NewMarket Corp. 21,500 286 Westlake Chemical Corp. 22,680 -------------- 205,367 -------------- COMMERCIAL BANKS -- 3.2% 1,808 CapitalSource, Inc. (b) 13,705 967 Old National Bancorp 11,478 6,481 Regions Financial Corp. 46,145 1,827 SunTrust Banks, Inc. 51,795 -------------- 123,123 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.7% 429 Deluxe Corp. 13,831 697 Geo Group (The), Inc. 19,655 1,823 R.R. Donnelley & Sons Co. 16,407 1,329 Steelcase, Inc., Class A 16,932 -------------- 66,825 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMUNICATIONS EQUIPMENT -- 1.2% 4,643 Telefonaktiebolaget LM Ericsson ADR $ 46,894 -------------- COMPUTERS & PERIPHERALS -- 2.1% 73 Apple, Inc. 38,911 1,328 Seagate Technology PLC 40,478 -------------- 79,389 -------------- CONSTRUCTION & ENGINEERING -- 0.5% 732 Quanta Services, Inc. (a) 19,976 -------------- CONSUMER FINANCE -- 1.6% 1,231 Discover Financial Services 47,455 298 First Cash Financial Services, Inc. (a) 14,787 -------------- 62,242 -------------- DISTRIBUTORS -- 0.3% 255 Core-Mark Holding Co., Inc. 12,074 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.7% 997 BCE, Inc. 42,811 3,820 Frontier Communications Corp. 16,350 707 TELUS Corp. 46,054 -------------- 105,215 -------------- ELECTRIC UTILITIES -- 1.2% 373 El Paso Electric Co. 11,903 508 Empire District Electric (The) Co. 10,353 510 Otter Tail Corp. 12,750 587 PNM Resources, Inc. 12,039 -------------- 47,045 -------------- ELECTRICAL EQUIPMENT -- 0.3% 214 Belden, Inc. 9,628 -------------- ENERGY EQUIPMENT & SERVICES -- 3.7% 834 Ensco PLC, Class A 49,439 363 Helmerich & Payne, Inc. 20,332 1,191 Nabors Industries Ltd. (a) 17,210 586 National Oilwell Varco, Inc. 40,053 1,446 RPC, Inc. 17,699 -------------- 144,733 -------------- FOOD & STAPLES RETAILING -- 2.4% 2,016 Kroger (The) Co. 52,456 616 Wal-Mart Stores, Inc. 42,030 -------------- 94,486 -------------- FOOD PRODUCTS -- 0.3% 487 Fresh Del Monte Produce, Inc. 12,832 -------------- GAS UTILITIES -- 0.7% 283 Laclede Group (The), Inc. 10,927 276 National Fuel Gas Co. 13,990 -------------- 24,917 -------------- See Notes to Financial Statements Page 39 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) HEALTH CARE EQUIPMENT & SUPPLIES -- 1.6% 771 Baxter International, Inc. $ 51,395 427 Hill-Rom Holdings, Inc. 12,169 -------------- 63,564 -------------- HEALTH CARE PROVIDERS & SERVICES -- 3.3% 194 Chemed Corp. 13,307 745 Community Health Systems, Inc. 22,901 733 Express Scripts Holding Co. (a) 39,582 470 LifePoint Hospitals, Inc. (a) 17,743 591 Omnicare, Inc. 21,335 1,382 Select Medical Holdings Corp. 13,032 -------------- 127,900 -------------- HEALTH CARE TECHNOLOGY -- 0.3% 751 MedAssets, Inc. (a) 12,594 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.6% 542 Brinker International, Inc. 16,797 298 Cheesecake Factory (The), Inc. 9,750 161 Cracker Barrel Old Country Store, Inc. 10,346 236 Papa John's International, Inc. (a) 12,966 1,313 Sonic Corp. (a) 13,668 -------------- 63,527 -------------- HOUSEHOLD DURABLES -- 0.4% 278 Jarden Corp. (a) 14,373 -------------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.5% 870 NRG Energy, Inc. 20,001 -------------- INDUSTRIAL CONGLOMERATES -- 1.2% 492 3M Co. 45,682 -------------- INSURANCE -- 5.6% 53 Alleghany Corp. (a) 17,778 1,194 Allstate (The) Corp. 47,963 506 Assurant, Inc. 17,558 175 Everest Re Group, Ltd. 19,241 349 Hanover Insurance Group, Inc. 13,520 1,297 MetLife, Inc. 42,723 243 PartnerRe Ltd. 19,559 320 Reinsurance Group of America, Inc. 17,127 372 Torchmark Corp. 19,221 -------------- 214,690 -------------- INTERNET SOFTWARE & SERVICES -- 0.3% 430 j2 Global, Inc. 13,149 -------------- IT SERVICES -- 1.8% 464 Accenture PLC, Class A 30,856 214 CACI International, Inc., Class A (a) 11,777 618 CSG Systems International, Inc. (a) 11,235 SHARES DESCRIPTION VALUE ------------------------------------------------------------ IT SERVICES (CONTINUED) 227 MAXIMUS, Inc. $ 14,351 -------------- 68,219 -------------- LEISURE EQUIPMENT & PRODUCTS -- 1.9% 483 Hasbro, Inc. 17,340 1,075 LeapFrog Enterprises, Inc. (a) 9,277 1,272 Mattel, Inc. 46,581 -------------- 73,198 -------------- LIFE SCIENCES TOOLS & SERVICES -- 2.3% 780 Life Technologies Corp. (a) 38,283 795 Thermo Fisher Scientific, Inc. 50,705 -------------- 88,988 -------------- MACHINERY -- 3.1% 170 Lindsay Corp. 13,621 264 Snap-on, Inc. 20,853 826 Terex Corp. (a) 23,219 485 Toro (The) Co. 20,845 637 Trinity Industries, Inc. 22,817 143 Valmont Industries, Inc. 19,527 -------------- 120,882 -------------- MEDIA -- 3.9% 569 Lamar Advertising Co., Class A (a) 22,049 1,835 News Corp., Class A 46,866 303 Scripps Networks Interactive, Class A 17,550 507 Time Warner Cable, Inc. 49,275 505 Valassis Communications, Inc. 13,019 -------------- 148,759 -------------- METALS & MINING -- 1.3% 886 Commercial Metals Co. 13,166 339 Reliance Steel & Aluminum Co. 21,052 537 Worthington Industries, Inc. 13,956 -------------- 48,174 -------------- MULTILINE RETAIL -- 0.8% 259 Dillard's, Inc., Class A 21,696 795 Fred's, Inc., Class A 10,582 -------------- 32,278 -------------- MULTI-UTILITIES -- 1.5% 454 Avista Corp. 10,946 750 DTE Energy Co. 45,037 -------------- 55,983 -------------- OIL, GAS & CONSUMABLE FUELS -- 9.2% 400 Chevron Corp. 43,256 930 Murphy Oil Corp. 55,381 496 Occidental Petroleum Corp. 37,999 640 Royal Dutch Shell PLC, ADR 44,128 3,388 Talisman Energy, Inc. 38,386 Page 40 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) OIL, GAS & CONSUMABLE FUELS (CONTINUED) 511 Tesoro Corp. $ 22,510 920 Total S.A., ADR 47,849 802 Ultra Petroleum Corp. (a) 14,540 1,559 Valero Energy Corp. 53,193 -------------- 357,242 -------------- PAPER & FOREST PRODUCTS -- 0.4% 355 Schweitzer-Mauduit International, Inc. 13,856 -------------- PERSONAL PRODUCTS -- 0.7% 359 Herbalife Ltd. 11,826 408 Nu Skin Enterprises, Inc., Class A 15,116 -------------- 26,942 -------------- PHARMACEUTICALS -- 4.7% 962 AstraZeneca PLC, ADR 45,474 1,040 Eli Lilly & Co. 51,293 1,018 Merck & Co., Inc. 41,677 1,564 Mylan, Inc. (a) 42,978 -------------- 181,422 -------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.2% 1,304 Brookfield Asset Management, Inc., Class A 47,792 -------------- ROAD & RAIL -- 1.5% 501 Canadian National Railway Co. 45,596 969 Heartland Express, Inc. 12,665 -------------- 58,261 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.3% 1,322 Altera Corp. 45,530 1,122 Analog Devices, Inc. 47,191 473 Cirrus Logic, Inc. (a) 13,703 847 First Solar, Inc. (a) 26,155 1,688 Intel Corp. 34,824 -------------- 167,403 -------------- SOFTWARE -- 2.3% 1,491 Microsoft Corp. 39,855 1,435 Oracle Corp. 47,814 -------------- 87,669 -------------- SPECIALTY RETAIL -- 7.0% 434 ANN, Inc. (a) 14,687 968 Brown Shoe Co., Inc. 17,782 1,151 Chico's FAS, Inc. 21,247 487 Foot Locker, Inc. 15,642 1,326 Gap (The), Inc. 41,159 200 Group 1 Automotive, Inc. 12,398 256 Lumber Liquidators Holdings, Inc. (a) 13,525 266 PetSmart, Inc. 18,178 862 Ross Stores, Inc. 46,677 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SPECIALTY RETAIL (CONTINUED) 632 Stage Stores, Inc. $ 15,661 1,259 TJX (The) Cos., Inc. 53,445 -------------- 270,401 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.5% 527 Hanesbrands, Inc. (a) 18,877 -------------- THRIFTS & MORTGAGE FINANCE -- 0.3% 788 Provident Financial Services, Inc. 11,757 -------------- TOBACCO -- 1.1% 492 Philip Morris International, Inc. 41,151 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.3% 1,017 Aircastle Ltd. 12,753 -------------- WATER UTILITIES -- 0.9% 287 American States Water Co. 13,770 591 American Water Works Co., Inc. 21,944 -------------- 35,714 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.5% 2,009 MetroPCS Communications, Inc. (a) 19,969 -------------- TOTAL COMMON STOCKS -- 100.0% 3,866,658 (Cost $3,667,866) MONEY MARKET FUND -- 0.3% 12,324 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class-0.03% (c) 12,324 (Cost $12,324) -------------- TOTAL INVESTMENTS -- 100.3% 3,878,982 (Cost $3,680,190) (d) NET OTHER ASSETS AND LIABILITIES -- (0.3)% (10,650) -------------- NET ASSETS -- 100.0% $ 3,868,332 ============== (a) Non-income producing security. (b) Business Development Company. (c) Interest rate shown reflects yield as of December 31, 2012. (d) Aggregate cost for federal income tax purposes is $3,685,678. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $300,706 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $107,402. ADR - American Depositary Receipt See Notes to Financial Statements Page 41 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 3,866,658 $ -- $ -- Money Market Fund 12,324 -- -- ----------------------------------------------- Total Investments $ 3,878,982 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 42 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 4.9% 40,945 Boeing (The) Co. $ 3,085,615 44,777 General Dynamics Corp. 3,101,703 48,855 Honeywell International, Inc. 3,100,827 40,091 L-3 Communications Holdings, Inc. 3,071,772 33,530 Lockheed Martin Corp. 3,094,484 45,285 Northrop Grumman Corp. 3,060,360 52,974 Raytheon Co. 3,049,184 37,823 United Technologies Corp. 3,101,864 -------------- 24,665,809 -------------- AIR FREIGHT & LOGISTICS -- 0.6% 41,675 United Parcel Service, Inc., Class B 3,072,698 -------------- BEVERAGES -- 2.4% 84,688 Coca-Cola (The) Co. 3,069,940 26,671 Diageo PLC, ADR 3,109,305 71,871 Molson Coors Brewing Co., Class B 3,075,360 44,802 PepsiCo, Inc. 3,065,801 -------------- 12,320,406 -------------- CAPITAL MARKETS -- 0.7% 212,909 KKR & Co. L.P. (a) 3,242,604 -------------- CHEMICALS -- 1.2% 36,484 Air Products and Chemicals, Inc. 3,065,385 69,371 E.I. du Pont de Nemours & Co. 3,119,614 -------------- 6,184,999 -------------- COMMERCIAL BANKS -- 4.9% 50,464 Bank of Montreal 3,093,443 52,856 Bank of Nova Scotia 3,059,305 56,341 BOK Financial Corp. 3,068,331 37,477 Canadian Imperial Bank of Commerce 3,021,021 87,623 Commerce Bancshares, Inc. 3,072,062 56,898 Cullen/Frost Bankers, Inc. 3,087,855 51,170 Royal Bank of Canada 3,085,551 36,808 Toronto-Dominion (The) Bank 3,104,019 -------------- 24,591,587 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.2% 89,488 Avery Dennison Corp. 3,124,921 91,921 Waste Management, Inc. 3,101,414 -------------- 6,226,335 -------------- COMMUNICATIONS EQUIPMENT -- 1.2% 156,864 Cisco Systems, Inc. 3,082,378 62,790 Harris Corp. 3,074,198 -------------- 6,156,576 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMPUTERS & PERIPHERALS -- 0.6% 100,928 Diebold, Inc. $ 3,089,406 -------------- CONTAINERS & PACKAGING -- 1.2% 92,993 Bemis Co., Inc. 3,111,546 104,278 Sonoco Products Co. 3,100,185 -------------- 6,211,731 -------------- DISTRIBUTORS -- 0.6% 48,740 Genuine Parts Co. 3,098,889 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.8% 92,194 AT&T, Inc. 3,107,860 79,191 CenturyLink, Inc. 3,097,952 71,443 Verizon Communications, Inc. 3,091,338 -------------- 9,297,150 -------------- ELECTRIC UTILITIES -- 10.3% 75,592 ALLETE, Inc. 3,097,760 76,315 Cleco Corp. 3,053,363 48,167 Duke Energy Corp. 3,073,055 97,481 El Paso Electric Co. 3,110,619 48,324 Entergy Corp. 3,080,655 74,506 FirstEnergy Corp. 3,111,371 122,032 Hawaiian Electric Industries, Inc. 3,067,884 60,731 MGE Energy, Inc. 3,094,244 44,488 NextEra Energy, Inc. 3,078,125 79,454 Northeast Utilities 3,105,062 55,329 OGE Energy Corp. 3,115,576 59,900 Pinnacle West Capital Corp. 3,053,702 113,858 Portland General Electric Co. 3,115,155 72,155 Southern (The) Co. 3,088,955 85,527 UIL Holdings Corp. 3,062,722 107,485 Westar Energy, Inc. 3,076,221 115,593 Xcel Energy, Inc. 3,087,489 -------------- 52,471,958 -------------- ELECTRICAL EQUIPMENT -- 1.2% 58,175 Eaton Corp. PLC 3,153,085 58,857 Emerson Electric Co. 3,117,067 -------------- 6,270,152 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.6% 114,782 Molex, Inc. 3,136,992 -------------- Food & Staples Retailing -- 3.1% 118,095 Kroger (The) Co. 3,072,832 97,420 Sysco Corp. 3,084,317 85,292 Walgreen Co. 3,156,657 45,364 Wal-Mart Stores, Inc. 3,095,186 81,323 Weis Markets, Inc. 3,185,422 -------------- 15,594,414 -------------- FOOD PRODUCTS -- 6.1% 112,134 Archer-Daniels-Midland Co. 3,071,350 See Notes to Financial Statements Page 43 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) FOOD PRODUCTS (CONTINUED) 87,970 Campbell Soup Co. $ 3,069,273 104,453 ConAgra Foods, Inc. 3,081,364 75,869 General Mills, Inc. 3,065,866 53,300 H. J. Heinz Co. 3,074,344 42,605 Hershey (The) Co. 3,076,933 36,031 J.M. Smucker (The) Co. 3,107,313 55,408 Kellogg Co. 3,094,537 68,440 Kraft Foods Group, Inc. 3,111,967 80,294 Unilever PLC, ADR 3,108,984 -------------- 30,861,931 -------------- GAS UTILITIES -- 6.1% 77,014 AGL Resources, Inc. 3,078,250 86,937 Atmos Energy Corp. 3,053,228 60,412 National Fuel Gas Co. 3,062,284 77,765 New Jersey Resources Corp. 3,081,049 70,074 Northwest Natural Gas Co. 3,097,271 97,572 Piedmont Natural Gas Co., Inc. 3,054,979 157,899 Questar Corp. 3,120,084 61,221 South Jersey Industries, Inc. 3,081,253 94,865 UGI Corp. 3,103,034 78,511 WGL Holdings, Inc. 3,076,846 -------------- 30,808,278 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 2.4% 46,448 Baxter International, Inc. 3,096,224 39,596 Becton, Dickinson & Co. 3,096,011 74,595 Medtronic, Inc. 3,059,887 86,023 St. Jude Medical, Inc. 3,108,871 -------------- 12,360,993 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.2% 74,470 Cardinal Health, Inc. 3,066,675 110,032 Owens & Minor, Inc. 3,137,012 -------------- 6,203,687 -------------- HOTELS, RESTAURANTS & LEISURE -- 0.6% 34,837 McDonald's Corp. 3,072,972 -------------- HOUSEHOLD DURABLES -- 0.6% 116,459 Leggett & Platt, Inc. 3,170,014 -------------- HOUSEHOLD PRODUCTS -- 2.5% 42,247 Clorox (The) Co. 3,093,326 29,611 Colgate-Palmolive Co. 3,095,534 37,124 Kimberly-Clark Corp. 3,134,379 45,397 Procter & Gamble (The) Co. 3,082,002 -------------- 12,405,241 -------------- INDUSTRIAL CONGLOMERATES -- 0.6% 33,379 3M Co. 3,099,240 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ INSURANCE -- 4.9% 38,858 ACE Ltd. $ 3,100,868 88,875 Arthur J. Gallagher & Co. 3,079,519 89,334 Assurant, Inc. 3,099,890 78,790 Cincinnati Financial Corp. 3,085,416 45,832 Erie Indemnity Co., Class A 3,172,491 80,690 Hanover Insurance Group, Inc. 3,125,931 76,976 Mercury General Corp. 3,055,178 42,988 Travelers (The) Cos., Inc. 3,087,398 -------------- 24,806,691 -------------- IT SERVICES -- 2.4% 46,468 Accenture PLC, Class A 3,090,122 54,116 Automatic Data Processing, Inc. 3,085,153 98,749 Paychex, Inc. 3,075,044 273,821 SAIC, Inc. 3,099,654 -------------- 12,349,973 -------------- LEISURE EQUIPMENT & PRODUCTS -- 1.2% 86,671 Hasbro, Inc. 3,111,489 84,989 Mattel, Inc. 3,112,297 -------------- 6,223,786 -------------- MACHINERY -- 1.2% 50,927 Illinois Tool Works, Inc. 3,096,871 42,362 Stanley Black & Decker, Inc. 3,133,517 -------------- 6,230,388 -------------- MEDIA -- 1.9% 62,212 Omnicom Group, Inc. 3,108,111 107,895 Thomson Reuters Corp. 3,135,429 8,623 Washington Post (The) Co., Class B 3,149,206 -------------- 9,392,746 -------------- MULTILINE RETAIL -- 1.2% 71,574 Kohl's Corp. 3,076,251 52,244 Target Corp. 3,091,277 -------------- 6,167,528 -------------- MULTI-UTILITIES -- 8.5% 70,011 Alliant Energy Corp. 3,074,183 128,644 Avista Corp. 3,101,607 160,423 CenterPoint Energy, Inc. 3,088,143 55,577 Consolidated Edison, Inc. 3,086,747 59,889 Dominion Resources, Inc. 3,102,250 51,035 DTE Energy Co. 3,064,652 58,591 Integrys Energy Group, Inc. 3,059,622 145,220 MDU Resources Group, Inc. 3,084,473 101,854 Public Service Enterprise Group, Inc. 3,116,732 67,593 SCANA Corp. 3,084,944 43,377 Sempra Energy 3,077,164 183,409 TECO Energy, Inc. 3,073,935 104,770 Vectren Corp. 3,080,238 83,216 Wisconsin Energy Corp. 3,066,510 -------------- 43,161,200 -------------- Page 44 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) OFFICE ELECTRONICS -- 0.6% 78,452 CANON, Inc., ADR $ 3,076,103 -------------- OIL, GAS & CONSUMABLE FUELS -- 5.5% 28,635 Chevron Corp. 3,096,589 53,227 ConocoPhillips 3,086,634 72,542 Enbridge, Inc. 3,142,519 35,787 Exxon Mobil Corp. 3,097,365 88,798 Kinder Morgan, Inc. 3,137,233 40,127 Occidental Petroleum Corp. 3,074,130 45,252 Royal Dutch Shell PLC, ADR 3,120,125 60,248 Total S.A., ADR 3,133,499 65,542 TransCanada Corp. 3,101,447 -------------- 27,989,541 -------------- PHARMACEUTICALS -- 5.5% 65,833 AstraZeneca PLC, ADR 3,111,926 95,829 Bristol-Myers Squibb Co. 3,123,067 63,430 Eli Lilly & Co. 3,128,368 71,262 GlaxoSmithKline PLC, ADR 3,097,759 44,425 Johnson & Johnson 3,114,193 75,099 Merck & Co., Inc. 3,074,553 49,320 Novartis AG, ADR 3,121,956 124,028 Pfizer, Inc. 3,110,622 65,917 Sanofi, ADR 3,123,147 -------------- 28,005,591 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.6% 21,325 Public Storage 3,091,272 -------------- ROAD & RAIL -- 0.6% 50,179 Norfolk Southern Corp. 3,103,069 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.1% 73,869 Analog Devices, Inc. 3,106,930 273,580 Applied Materials, Inc. 3,129,755 150,708 Intel Corp. 3,109,106 100,569 Texas Instruments, Inc. 3,111,605 86,502 Xilinx, Inc. 3,105,422 -------------- 15,562,818 -------------- SOFTWARE -- 1.2% 139,239 CA, Inc. 3,060,473 114,952 Microsoft Corp. 3,072,667 -------------- 6,133,140 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.6% 20,729 VF Corp. 3,129,457 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ TOBACCO -- 3.1% 98,251 Altria Group, Inc. $ 3,087,046 30,917 British American Tobacco PLC, ADR 3,130,346 26,641 Lorillard, Inc. 3,108,206 37,146 Philip Morris International, Inc. 3,106,892 74,684 Reynolds American, Inc. 3,094,158 -------------- 15,526,648 -------------- WATER UTILITIES -- 0.6% 124,226 Aqua America, Inc. 3,157,825 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.6% 123,830 Vodafone Group PLC, ADR 3,119,278 -------------- TOTAL INVESTMENTS -- 99.9% 507,841,116 (Cost $462,531,690) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 262,125 -------------- NET ASSETS -- 100.0% $ 508,103,241 ============== (a) Master Limited Partnership ("MLP"). (b) Aggregate cost for federal income tax purposes is $474,730,571. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $40,431,519 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $7,320,974. ADR - American Depositary Receipt ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 507,841,116 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. See Notes to Financial Statements Page 45 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AUTO COMPONENTS -- 2.1% 13,525 Dorman Products, Inc. $ 477,973 15,218 Drew Industries, Inc. 490,781 -------------- 968,754 -------------- AUTOMOBILES -- 2.1% 12,554 Thor Industries, Inc. 469,896 27,355 Winnebago Industries, Inc. (a) 468,591 -------------- 938,487 -------------- BEVERAGES -- 2.1% 7,751 Brown-Forman Corp., Class B 490,251 4,193 Diageo PLC, ADR 488,820 -------------- 979,071 -------------- BIOTECHNOLOGY -- 1.1% 2,835 Regeneron Pharmaceuticals, Inc. (a) 484,983 -------------- BUILDING PRODUCTS -- 4.3% 7,627 A.O. Smith Corp. 481,035 15,728 American Woodmark Corp. (a) 437,553 22,730 Apogee Enterprises, Inc. 544,838 9,078 Lennox International, Inc. 476,777 -------------- 1,940,203 -------------- CAPITAL MARKETS -- 4.0% 3,440 Affiliated Managers Group, Inc. (a) 447,716 13,926 Eaton Vance Corp. 443,543 14,506 Piper Jaffray Cos., Inc. (a) 466,078 11,692 Raymond James Financial, Inc. 450,493 -------------- 1,807,830 -------------- CHEMICALS -- 6.0% 13,972 American Vanguard Corp. 434,110 6,317 Ecolab, Inc. 454,192 6,731 International Flavors & Fragrances, Inc. 447,881 1,713 NewMarket Corp. 449,149 3,772 PPG Industries, Inc. 510,540 2,893 Sherwin-Williams (The) Co. 445,001 -------------- 2,740,873 -------------- COMMERCIAL BANKS -- 1.9% 4,310 M&T Bank Corp. 424,406 29,377 PrivateBancorp, Inc. 450,055 -------------- 874,461 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.0% 19,099 Healthcare Services Group, Inc. 443,670 -------------- CONSTRUCTION MATERIALS -- 2.1% 9,035 Eagle Materials, Inc. 528,547 4,749 Martin Marietta Materials, Inc. 447,736 -------------- 976,283 -------------- DISTRIBUTORS -- 1.0% 10,495 Pool Corp. 444,148 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ DIVERSIFIED CONSUMER SERVICES -- 1.1% 43,215 Carriage Services, Inc. $ 512,962 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.1% 9,911 Moody's Corp. 498,722 -------------- ELECTRICAL EQUIPMENT -- 2.1% 6,832 Acuity Brands, Inc. 462,731 7,623 Franklin Electric Co., Inc. 473,922 -------------- 936,653 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 3.1% 9,893 Badger Meter, Inc. 469,027 9,277 Rogers Corp. (a) 460,696 8,059 Trimble Navigation Ltd. (a) 481,767 -------------- 1,411,490 -------------- ENERGY EQUIPMENT & SERVICES -- 1.1% 9,047 Bristow Group, Inc. 485,462 -------------- FOOD & STAPLES RETAILING -- 1.0% 8,092 United Natural Foods, Inc. (a) 433,650 -------------- FOOD PRODUCTS -- 2.8% 7,290 Hain Celestial Group (The), Inc. (a) 395,264 7,385 McCormick & Co., Inc. 469,169 16,798 Tootsie Roll Industries, Inc. 435,404 -------------- 1,299,837 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 6.0% 12,706 Abaxis, Inc. 471,393 8,483 Cyberonics, Inc. (a) 445,612 11,300 DENTSPLY International, Inc. 447,593 11,188 Haemonetics Corp. (a) 456,918 7,113 Sirona Dental Systems, Inc. (a) 458,504 20,953 SurModics, Inc. (a) 468,509 -------------- 2,748,529 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.2% 46,182 AMN Healthcare Services, Inc. (a) 533,402 -------------- HOTELS, RESTAURANTS & LEISURE -- 2.0% 17,905 AFC Enterprises, Inc. (a) 467,858 10,622 Domino's Pizza, Inc. 462,588 -------------- 930,446 -------------- HOUSEHOLD DURABLES -- 9.0% 23,124 D.R. Horton, Inc. 457,393 17,927 Ethan Allen Interiors, Inc. 460,903 11,834 Lennar Corp., Class A 457,621 12,709 M.D.C. Holdings, Inc. 467,183 5,031 Mohawk Industries, Inc. (a) 455,154 501 NVR, Inc. (a) 460,920 24,959 PulteGroup, Inc. (a) 453,255 12,490 Ryland Group (The), Inc. 455,885 Page 46 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) HOUSEHOLD DURABLES (CONTINUED) 12,984 Toll Brothers, Inc. (a) $ 419,773 -------------- 4,088,087 -------------- INSURANCE -- 1.0% 12,672 Arthur J. Gallagher & Co. 439,085 -------------- INTERNET & CATALOG RETAIL -- 1.0% 11,675 Blue Nile, Inc. (a) 449,487 -------------- INTERNET SOFTWARE & SERVICES -- 2.2% 5,829 CoStar Group, Inc. (a) 520,938 2,451 Equinix, Inc. (a) 505,396 -------------- 1,026,334 -------------- IT SERVICES -- 2.0% 7,139 MAXIMUS, Inc. 451,328 2,997 Visa, Inc., Class A 454,285 -------------- 905,613 -------------- MACHINERY -- 2.0% 6,393 Chart Industries, Inc. (a) 426,222 3,414 Flowserve Corp. 501,175 -------------- 927,397 -------------- MEDIA -- 3.0% 26,907 Lions Gate Entertainment Corp. (a) 441,275 18,284 News Corp., Class A 466,973 9,547 Time Warner, Inc. 456,633 -------------- 1,364,881 -------------- OIL, GAS & CONSUMABLE FUELS -- 4.9% 9,171 Cabot Oil & Gas Corp. 456,165 14,367 Copano Energy LLC (b) 454,428 12,145 El Paso Pipeline Partners L.P. (b) 449,001 5,645 Kinder Morgan Energy Partners L.P. (b) 450,415 10,279 Magellan Midstream Partners L.P. (b) 443,950 -------------- 2,253,959 -------------- PAPER & FOREST PRODUCTS -- 1.0% 23,956 Louisiana-Pacific Corp. (a) 462,830 -------------- PHARMACEUTICALS -- 0.9% 2,650 Novo Nordisk A/S, ADR 432,507 -------------- PROFESSIONAL SERVICES -- 2.2% 10,192 Advisory Board (The) Co. (a) 476,884 10,062 Equifax, Inc. 544,555 -------------- 1,021,439 -------------- REAL ESTATE INVESTMENT TRUSTS -- 2.9% 4,141 Federal Realty Investment Trust 430,747 6,768 Ventas, Inc. 438,025 16,604 Weyerhaeuser Co. 461,923 -------------- 1,330,695 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ ROAD & RAIL -- 1.2% 5,569 Canadian Pacific Railway Ltd. $ 565,922 -------------- SOFTWARE -- 2.0% 33,383 Cadence Design Systems, Inc. (a) 451,005 7,577 Manhattan Associates, Inc. (a) 457,196 -------------- 908,201 -------------- SPECIALTY RETAIL -- 9.6% 9,408 AutoNation, Inc. (a) 373,497 12,059 Foot Locker, Inc. 387,335 11,756 Gap (The), Inc. 364,906 7,777 Group 1 Automotive, Inc. 482,096 7,899 Home Depot (The), Inc. 488,553 9,049 Lumber Liquidators Holdings, Inc. (a) 478,059 18,765 Stage Stores, Inc. 464,997 11,527 Urban Outfitters, Inc. (a) 453,703 8,028 Vitamin Shoppe, Inc. (a) 460,486 9,549 Williams-Sonoma, Inc. 417,960 -------------- 4,371,592 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 3.9% 12,504 Gildan Activewear, Inc. 457,396 12,622 Hanesbrands, Inc. (a) 452,120 12,087 Luxottica Group S.p.A. ADR 499,797 8,143 Oxford Industries, Inc. 377,510 -------------- 1,786,823 -------------- TRANSPORTATION INFRASTRUCTURE -- 1.0% 9,815 Macquarie Infrastructure Co. LLC 447,171 -------------- WATER UTILITIES -- 1.0% 23,557 Middlesex Water Co. 460,775 -------------- TOTAL INVESTMENTS -- 100.0% 45,632,714 (Cost $44,336,379) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 2,164 -------------- NET ASSETS -- 100.0% $ 45,634,878 ============== (a) Non-income producing security. (b) Master Limited Partnership ("MLP"). (c) Aggregate cost for federal income tax purposes is $44,378,000. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,776,994 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $522,280. ADR - American Depositary Receipt See Notes to Financial Statements Page 47 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 ------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 45,632,714 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 48 See Notes to Financial Statements This page intentionally left blank. FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2012
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR FIRST TRUST MICROCAP DIVIDEND LEADERS(SM) US IPO INDEX(SM)FUND INDEX FUND INDEX FUND ---------------- ------------------- --------------- ASSETS: Investments, at value.................................................. $ 41,266,610 $ 545,003,748 $ 24,956,709 Repurchase Agreement, at value......................................... -- -- -- Cash................................................................... 61,879 -- -- Receivables: Capital shares sold.............................................. -- -- 3,082,372 Investment securities sold....................................... -- 5,911,313 31,896 Due from authorized participant.................................. -- -- 303,872 Dividends........................................................ 17,451 1,018,820 16,316 Interest......................................................... -- -- -- From investment advisor.......................................... -- -- 1,178 Reclaims......................................................... -- -- -- Securities lending income........................................ -- -- 2,080 Prepaid expenses....................................................... 1,119 12,526 12,941 -------------- ------------------ --------------- TOTAL ASSETS..................................................... 41,347,059 551,946,407 28,407,364 -------------- ------------------ --------------- LIABILITIES: Due to Custodian....................................................... -- 359,871 1,847 Payables: Capital shares purchased......................................... -- 5,464,831 303,872 Investment securities purchased.................................. -- 24,816 3,078,350 Audit and tax fees............................................... 23,750 23,750 23,750 Investment advisory fees......................................... 12,215 123,221 -- Printing fees.................................................... 5,958 36,112 2,280 Licensing fees................................................... 4,480 138,113 -- Trustees' fees................................................... 10 83 -- Collateral for securities on loan................................ -- -- 328,516 Other liabilities...................................................... 19,272 258,665 9,368 -------------- ------------------ --------------- TOTAL LIABILITIES................................................ 65,685 6,429,462 3,747,983 -------------- ------------------ --------------- NET ASSETS............................................................. $ 41,281,374 $ 5 45,516,945 $ 24,659,381 ============== ================== =============== NET ASSETS CONSIST OF: Paid-in capital........................................................ $ 61,792,165 $ 565,458,859 $ 29,005,664 Par value.............................................................. 18,050 295,500 8,000 Accumulated net investment income (loss)............................... (60,563) -- -- Accumulated net realized gain (loss) on investments.................... (23,681,716) (36,647,234) (6,698,812) Net unrealized appreciation (depreciation) on investments.............. 3,213,438 16,409,820 2,344,529 -------------- ----------------- - --------------- NET ASSETS............................................................. $ 41,281,374 $ 545,516,945 $ 24,659,381 ============== ================== =============== NET ASSET VALUE, per share............................................. $ 22.87 $ 18.46 $ 30.82 ============== ================== =============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)....................................... 1,805,000 29,550,002 800,002 ============== ================== =============== Investments, at cost................................................... $ 38,053,172 $ 528,593,928 $ 22,612,180 ============== ================== =============== Repurchase Agreement, at cost.......................................... $ -- $ -- $ -- ============== ================== =============== Securities on loan, at value........................................... $ -- $ -- $ 324,099 ============== ================== ===============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES STRATEGIC VALUE LINE(R) EQUITY VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET VALUE ALLOCATION DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX(SM) FUND INDEX FUND INDEX FUND INDEX FUND FUND --------------- --------------- --------------- -------------------- --------------- ----------------- $ 246,755,430 $ 557,499,880 $ 32,659,895 $ 3,878,982 $ 507,841,116 $ 45,632,714 35,220,221 -- -- -- -- -- 197,193 -- 49,253 -- 35,350 77,432 -- 3,825,457 -- -- -- -- 1,494,552 6,578,932 -- -- 48,011,182 12,619,626 -- -- -- -- -- -- -- -- 53,622 4,215 835,209 28,106 -- 14 -- -- -- -- -- -- -- 4,195 -- -- -- -- -- 376 52,755 501 52,003 -- -- -- -- -- 7,045 10,903 767 11,296 21,648 4,880 --------------- --------------- --------------- --------------- --------------- --------------- 283,726,444 567,915,186 32,763,537 3,899,064 556,797,260 58,363,259 --------------- --------------- --------------- --------------- --------------- --------------- -- 90,507 -- 1,594 -- -- -- -- -- -- 30,148,044 -- -- 9,414,219 -- -- 17,879,303 12,647,264 23,750 23,750 23,750 23,750 23,750 23,750 89,500 185,518 7,914 -- 203,561 12,260 22,147 51,396 3,140 889 32,634 5,624 47,913 77,920 8,078 1,479 192,904 18,572 -- -- -- -- 23 -- 44,000,235 -- -- -- -- -- 97,718 190,332 13,465 3,020 213,800 20,911 --------------- --------------- --------------- --------------- --------------- --------------- 44,281,263 10,033,642 56,347 30,732 48,694,019 12,728,381 --------------- --------------- --------------- --------------- --------------- --------------- $ 239,445,181 $ 557,881,544 $ 32,707,190 $ 3,868,332 $ 508,103,241 $ 45,634,878 =============== =============== =============== =============== =============== =============== $ 298,400,342 $ 564,632,960 $ 57,066,271 $ 9,806,194 $ 522,485,629 $ 140,917,918 52,000 143,000 13,000 2,000 293,880 34,400 -- -- 8,047 (743) 35,845 310 (40,933,912) (43,934,231) (26,260,355) (6,137,911) (60,021,539) (96,614,085) (18,073,249) 37,039,815 1,880,227 198,792 45,309,426 1,296,335 --------------- --------------- --------------- --------------- --------------- --------------- $ 239,445,181 $ 557,881,544 $ 32,707,190 $ 3,868,332 $ 508,103,241 $ 45,634,878 =============== =============== =============== =============== =============== =============== $ 46.05 $ 39.01 $ 25.16 $ 19.34 $ 17.29 $ 13.27 =============== =============== =============== =============== =============== =============== 5,200,002 14,300,002 1,300,002 200,002 29,387,986 3,439,982 =============== =============== =============== =============== =============== =============== $ 264,828,679 $ 520,460,065 $ 30,779,668 $ 3 ,680,190 $ 462,531,690 $ 44,336,379 =============== =============== =============== =============== =============== =============== $ 35,220,221 $ -- $ -- $ -- $ -- $ -- =============== =============== =============== =============== =============== =============== $ 43,826,344 $ -- $ -- $ -- $ -- $ -- =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 51 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2012
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR FIRST TRUST MICROCAP DIVIDEND LEADERS(SM) US IPO INDEX(SM) FUND INDEX FUND INDEX FUND ---------------- -------------------- ------------------ INVESTMENT INCOME: Dividends........................................................ $ 986,916 $ 24,057,519 $ 343,1284 Foreign tax withholding.......................................... (1,757) -- -- Interest......................................................... -- -- -- Securities lending income (net of fees).......................... -- -- 3,199 ------------ ------------ ------------- Total investment income....................................... 985,159 24,057,519 346,3278 ------------ ------------ ------------- EXPENSES: Investment advisory fees......................................... 248,865 1,667,623 73,9608 Accounting and administration fees............................... 29,825 280,808 11,8004 Licensing fees................................................... 28,845 498,658 50,0055 Audit and tax fees............................................... 24,018 24,018 24,0188 Printing fees.................................................... 12,985 84,144 6,4984 Listing fees..................................................... 8,219 10,717 7,8892 Legal fees....................................................... 7,827 112,740 3,5581 Trustees' fees and expenses...................................... 6,428 30,240 4,8786 Custodian fees................................................... 6,221 69,484 2,3116 Transfer agent fees.............................................. 2,489 27,794 9248 Registration and filing fees..................................... -- 667 3449 Expenses previously waived or reimbursed......................... -- -- -- Other expenses................................................... 2,519 17,174 9059 ------------ ------------ ------------- Total expenses................................................ 378,241 2,824,067 187,0902 Less fees waived and expenses reimbursed by the (79,603) (322,632) (76,1504) investment advisor........................................ ------------ ------------ ------------- Net expenses.................................................. 298,638 2,501,435 110,9408 ------------ ------------ ------------- NET INVESTMENT INCOME (LOSS)..................................... 686,521 21,556,084 235,3870 ------------ ------------ ------------- REALIZED AND UNREALIZED GAIN (LOSS):............................. Net realized gain (loss) on:..................................... Investments................................................... (1,135,879) (3,027,195) (932,4730) In-kind redemptions........................................... 8,150,798 39,594,831 3,820,5171 ------------ ------------ ------------- Net realized gain (loss)......................................... 7,014,919 36,567,636 2,888,0441 Net change in unrealized appreciation (depreciation) on investments................................................ (272,013) (13,133,879) 1,595,0840 ------------ ------------ ------------- NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 6,742,906 23,433,757 4,483,1281 ------------ ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 7,429,427 $ 44,989,841 $ 4,718,5151 ============ ============ =============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES STRATEGIC VALUE LINE(R) VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET VALUE EQUITY ALLOCATION DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX(SM) FUND INDEX FUND INDEX FUND INDEX FUND FUND ---------------- ----------------- ---------------- ----------------- ----------------- ----------------- $ 227,459 $ 1,790,544 $ 811,168 $ 123,435 $ 17,474,312 $ 921,634 -- -- (561) (2,170) (246,564) (7,196) -- 134 -- 3 -- -- 68,510 -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ 295,969 1,790,678 810,607 121,268 17,227,748 914,438 ------------ ------------ ------------ ------------ ------------ ------------ 956,369 1,960,241 162,638 25,867 2,308,633 263,848 121,209 247,055 18,322 5,779 234,352 30,284 191,274 266,323 32,527 8,019 699,496 82,855 24,018 24,018 24,018 24,018 24,018 24,018 52,047 104,016 6,753 2,649 71,990 11,944 8,219 8,219 7,889 22,889 22,889 19,192 47,827 81,747 5,531 878 88,331 8,691 15,768 27,904 5,497 4,249 26,323 6,526 29,886 61,257 4,066 647 57,716 6,596 11,955 24,503 1,626 259 23,086 2,638 (7,637) 2,537 -- -- 6,758 (1,179) -- 109,122 -- -- -- -- 15,658 21,646 2,060 205 18,622 2,749 ------------ ------------ ------------ ------------ ------------ ------------ 1,466,593 2,938,588 270,927 95,459 3,582,214 458,162 (32,040) -- (59,498) (59,245) (350,127) (88,774) ------------ ------------ ------------ ------------ ------------ ------------ 1,434,553 2,938,588 211,429 36,214 3,232,087 369,388 ------------ ------------ ------------ ------------ ------------ ------------ (1,138,584) (1,147,910) 599,178 85,054 13,995,661 545,050 ------------ ------------ ------------ ------------ ------------ ------------ (30,263,917) (22,252,953) (436,587) (271,115) (5,844,375) (5,054,620) 33,714,065 24,463,335 2,633,354 466,730 32,036,084 9,056,281 ------------ ------------ ------------ ------------ ------------ ------------ 3,450,148 2,210,382 2,196,767 195,615 26,191,709 4,001,661 69,354,260 87,556,216 2,281,414 (10,096) 7,088,311 (396,300) ------------ ------------ ------------ ------------ ------------ ------------ 72,804,408 89,766,598 4,478,181 185,519 33,280,020 3,605,361 ------------ ------------ ------------ ------------ ------------ ------------ $ 71,665,824 $ 88,618,688 $ 5,077,359 $ 270,573 $ 47,275,681 $ 4,150,411 ============ ============ ============ ============ ============ ============
See Notes to Financial Statements Page 53 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, December 31, December 31, December 31, 2012 2011 2012 2011 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)................... $ 686,521 $ 447,228 $ 21,556,084 $ 8,555,207 Net realized gain (loss)....................... 7,014,919 3,527,218 36,567,636 12,160,954 Net change in unrealized appreciation (depreciation)............................. (272,013) (15,388,722) (13,133,879) 17,878,265 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations................... 7,429,427 (11,414,276) 44,989,841 38,594,426 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (763,985) (610,163) (21,586,886) (8,577,026) ------------- ------------- ------------- ------------- Total distributions to shareholders............ (763,985) (610,163) (21,586,886) (8,577,026) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 21,606,716 7,892,863 391,010,969 357,088,401 Cost of shares redeemed........................ (39,318,667) (96,590,691) (315,926,513) (83,370,049) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions............... (17,711,951) (88,697,828) 75,084,456 273,718,352 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets........ (11,046,509) (100,722,267) 98,487,411 303,735,752 NET ASSETS: Beginning of period............................ 52,327,883 153,050,150 447,029,534 143,293,782 ------------- ------------- ------------- ------------- End of period.................................. $ 41,281,374 $ 52,327,883 $ 545,516,945 $ 447,029,534 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period............................ $ (60,563) $ (56,755) $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period........ 2,605,000 6,905,000 25,450,002 9,000,002 Shares sold.................................... 1,000,000 350,000 21,300,000 21,500,000 Shares redeemed................................ (1,800,000) (4,650,000) (17,200,000) (5,050,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.............. 1,805,000 2,605,000 29,550,002 25,450,002 ============= ============= ============= =============
Page 54 See Notes to Financial Statements FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES US IPO BIOTECHNOLOGY INTERNET INDEX FUND INDEX FUND INDEX(SM)FUND ----------------------------- ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, December 31, December 31, 2012 2011 2012 2011 2012 2011 ----------------------------- ----------------------------- ----------------------------- $ 235,387 $ 125,086 $ (1,138,584) $ (1,701,516) $ (1,147,910) $ (1,558,228) 2,888,044 1,116,567 3,450,148 (9,067,198) 2,210,382 62,801,316 1,595,084 (1,032,399) 69,354,260 (114,433,625) 87,556,216 (129,043,201) ------------- ------------- ------------- ------------ ------------- ------------- 4,718,515 209,254 71,665,824 (125,202,339) 88,618,688 (67,800,113) ------------- ------------- ------------- ------------ ------------- ------------- (267,146) (175,526) -- -- -- (412,275) ------------- ------------- ------------- ------------ ------------- ------------- (267,146) (175,526) -- -- -- (412,275) ------------- ------------- ------------- ------------ ------------- ------------- 17,551,471 8,666,281 128,745,653 640,051,793 160,053,757 519,933,101 (12,937,294) (8,388,699) (143,996,259) (533,039,358) (210,474,282) (521,516,911) ------------- ------------- ------------- ------------ ------------- ------------- 4,614,177 277,582 (15,250,606) 107,012,435 (50,420,525) (1,583,810) ------------- ------------- ------------- ------------ ------------- ------------- 9,065,546 311,310 56,415,218 (18,189,904) 38,198,163 (69,796,198) 15,593,835 15,282,525 183,029,963 201,219,867 519,683,381 589,479,579 ------------- ------------- ------------- ------------ ------------- ------------- $ 24,659,381 $ 15,593,835 $ 239,445,181 $183,029,963 $ 557,881,544 $ 519,683,381 ============= ============= ============= ============= ============= ============= $ -- $ -- $ -- $ -- $ -- $ -- ============= ============= ============= ============= ============= ============= 650,002 650,002 5,600,002 5,150,002 16,100,002 17,200,002 600,000 350,000 3,000,000 15,400,000 4,400,000 14,900,000 (450,000) (350,000) (3,400,000) (14,950,000) (6,200,000) (16,000,000) ------------- ------------- ------------- ------------ ------------- ------------- 800,002 650,002 5,200,002 5,600,002 14,300,002 16,100,002 ============= ============= ============= ============= ============= =============
See Notes to Financial Statements Page 55 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) FIRST TRUST FIRST TRUST STRATEGIC VALUE VALUE LINE(R) EQUITY INDEX FUND ALLOCATION INDEX FUND ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, December 31, December 31, December 31, 2012 2011 2012 2011 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)................... $ 599,178 $ 554,376 $ 85,054 $ 72,064 Net realized gain (loss)....................... 2,196,767 2,204,042 195,615 128,844 Net change in unrealized appreciation (depreciation)............................. 2,281,414 (3,710,370) (10,096) (835,358) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations............................ 5,077,359 (951,952) 270,573 (634,450) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (591,636) (660,711) (97,326) (72,485) ------------- ------------- ------------- ------------- Total distributions to shareholders............ (591,636) (660,711) (97,326) (72,485) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 14,561,038 13,640,278 4,818,770 5,352,158 Cost of shares redeemed........................ (17,982,092) (17,017,824) (7,480,560) (5,394,000) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions.................. (3,421,054) (3,377,546) (2,661,790) (41,842) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets........ 1,064,669 (4,990,209) (2,488,543) (748,777) NET ASSETS: Beginning of period............................ 31,642,521 36,632,730 6,356,875 7,105,652 ------------- ------------- ------------- ------------- End of period.................................. $ 32,707,190 $ 31,642,521 $ 3,868,332 $ 6,356,875 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period............................ $ 8,047 $ -- $ (743) $ 271 ============= ============= ============= ============= CHANGES IN SHARES OUSTANDING: Shares outstanding, beginning of period........ 1,450,002 1,600,002 350,002 350,002 Shares sold.................................... 600,000 550,000 250,000 250,000 Shares redeemed................................ (750,000) (700,000) (400,000) (250,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.............. 1,300,002 1,450,002 200,002 350,002 ============= ============= ============= =============
Page 56 See Notes to Financial Statements FIRST TRUST FIRST TRUST VALUE LINE(R) DIVIDEND VALUE LINE(R) 100 INDEX FUND EXCHANGE-TRADED FUND ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, December 31, December 31, December 31, 2012 2011 2012 2011 ----------------------------- ----------------------------- $ 13,995,661 $ 7,902,272 $ 545,050 $ 392,155 26,191,709 12,636,031 4,001,661 (1,350,721) 7,088,311 3,716,675 (396,300) (4,336,999) ------------- ------------- ------------- ------------- 47,275,681 24,254,978 4,150,411 (5,295,565) ------------- ------------- ------------- ------------- (13,920,854) (7,975,414) (559,524) (420,210) ------------- ------------- ------------- ------------- (13,920,854) (7,975,414) (559,524) (420,210) ------------- ------------- ------------- ------------- 304,870,331 225,622,376 61,932,673 85,357,150 (196,520,474) (94,012,975) (75,431,362) (112,529,279) ------------- ------------- ------------- ------------- 108,349,857 131,609,401 (13,498,689) (27,172,129) ------------- ------------- ------------- ------------- 141,704,684 147,888,965 (9,907,802) (32,887,904) 366,398,557 218,509,592 55,542,680 88,430,584 ------------- ------------- ------------- ------------- $ 508,103,241 $ 366,398,557 $ 45,634,878 $55,542,680 ============= ============= ============= ============= $ 35,845 $ -- $ 310 $ (24,835) ============= ============= ============= ============= 22,887,986 14,487,986 4,489,982 6,539,982 18,150,000 14,500,000 4,600,000 6,100,000 (11,650,000) (6,100,000) (5,650,000) (8,150,000) ------------- ------------- ------------- ------------- 29,387,986 22,887,986 3,439,982 4,489,982 ============= ============= ============= =============
See Notes to Financial Statements Page 57 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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 20.09 $ 22.17 $ 17.70 $ 14.74 $ 22.35 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.35 0.10 0.09 0.09 0.17 Net realized and unrealized gain (loss) 2.83 (2.02) 4.46 2.97 (7.60) ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.18 (1.92) 4.55 3.06 (7.43) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.40) (0.16) (0.08) (0.10) (0.17) Return of capital -- -- -- (0.00)(a) (0.01) ---------- ---------- ---------- ---------- ---------- Total distributions (0.40) (0.16) (0.08) (0.10) (0.18) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 22.87 $ 20.09 $ 22.17 $ 17.70 $ 14.74 ========== ========== ========== ========== ========== TOTAL RETURN (b) 15.86% (8.69)% 25.77% 20.85% (33.33)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 41,281 $ 52,328 $ 153,050 $ 18,679 $ 14,077 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.76% 0.71% 0.86% 0.94% 1.05% 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 1.38% 0.40% 0.94% 0.69% 0.79% Portfolio turnover rate (c) 71% 59% 86% 86% 85%
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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 17.57 $ 15.92 $ 14.27 $ 13.09 $ 20.20 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.71 0.61 0.57 0.56 0.83 Net realized and unrealized gain (loss) 0.89 1.65 1.66 1.19 (7.13) ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.60 2.26 2.23 1.75 (6.30) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.71) (0.61) (0.58) (0.57) (0.81) Return of capital -- -- (0.00)(a) -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.71) (0.61) (0.58) (0.57) (0.81) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.46 $ 17.57 $ 15.92 $ 14.27 $ 13.09 ========== ========== ========== ========== ========== TOTAL RETURN (b) 9.14% 14.44% 16.05% 14.24% (31.71)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 545,517 $ 447,030 $ 143,294 $ 48,505 $ 43,196 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.51% 0.56% 0.66% 0.79% 0.72% 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 3.88% 3.98% 4.22% 4.64% 5.07% Portfolio turnover rate (c) 31% 27% 30% 81% 56% (a) Amount represents less than $0.01 per share. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
Page 58 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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 23.99 $ 23.51 $ 20.08 $ 14.09 $ 25.36 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.31 0.18 0.20 0.59 0.15 Net realized and unrealized gain (loss) 6.87 0.55 3.45 5.72 (11.27) ---------- ---------- ---------- ---------- ---------- Total from investment operations 7.18 0.73 3.65 6.31 (11.12) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.35) (0.25) (0.22) (0.32) (0.14) Return of capital -- -- -- -- (0.01) ---------- ---------- ---------- ---------- ---------- Total distributions (0.35) (0.25) (0.22) (0.32) (0.15) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 30.82 $ 23.99 $ 23.51 $ 20.08 $ 14.09 ========== ========== ========== ========== ========== TOTAL RETURN (a) 30.01% 3.11% 18.28% 44.93% (43.88)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 24,659 $ 15,594 $ 15,283 $ 11,043 $ 8,454 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 1.01% 1.01% 1.32% 1.34% 1.02% 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 1.27% 0.70% 1.28% 3.59% 0.50% Portfolio turnover rate (b) 48% 44% 43% 30% 62%
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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 32.68 $ 39.07 $ 28.54 $ 19.70 $ 24.41 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.22) (0.30) (0.17) (0.16) 0.18 Net realized and unrealized gain (loss) 13.59 (6.09) 10.70 9.00 (4.62) ---------- ---------- ---------- ---------- ---------- Total from investment operations 13.37 (6.39) 10.53 8.84 (4.44) ---------- ---------- ---------- ---------- ---------- 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 $ 46.05 $ 32.68 $ 39.07 $ 28.54 $ 19.70 ========== ========== ========== ========== ========== TOTAL RETURN (a) 40.91% (16.36)% 36.90% 44.87% (18.33)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 239,445 $ 183,030 $ 201,220 $ 67,068 $ 59,097 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.61% 0.61% 0.66% 0.72% 0.72% 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 (0.48)% (0.54)% (0.60)% (0.60)% 0.67% Portfolio turnover rate (b) 39% 44% 35% 44% 38% (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.
See Notes to Financial Statements Page 59 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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 32.28 $ 34.27 $ 25.11 $ 14.01 $ 25.09 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.08) (0.10) 0.04 (0.05) 0.05 Net realized and unrealized gain (loss) 6.81 (1.87) 9.16 11.15 (11.08) ---------- ---------- ---------- ---------- ---------- Total from investment operations 6.73 (1.97) 9.20 11.10 (11.03) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income -- (0.02) (0.04) -- (0.05) Return of capital -- -- -- -- (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions -- (0.02) (0.04) -- (0.05) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 39.01 $ 32.28 $ 34.27 $ 25.11 $ 14.01 ========== ========== ========== ========== ========== TOTAL RETURN (b) 20.85% (5.74)% 36.63% 79.23% (44.02)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 557,882 $ 519,683 $ 589,480 $ 86,615 $ 14,708 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% 0.66% 0.73% 0.82% 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)% (0.25)% 0.26% (0.46)% 0.21% Portfolio turnover rate (c) 33% 18% 16% 35% 44%
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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 21.82 $ 22.90 $ 20.47 $ 14.90 $ 24.12 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.45 0.35 0.39 0.28 0.28 Net realized and unrealized gain (loss) 3.34 (1.01) 2.44 5.57 (9.22) ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.79 (0.66) 2.83 5.85 (8.94) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.45) (0.42) (0.40) (0.28) (0.28) Return of capital -- -- (0.00)(a) -- -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.45) (0.42) (0.40) (0.28) (0.28) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 25.16 $ 21.82 $ 22.90 $ 20.47 $ 14.90 ========== ========== ========== ========== ========== TOTAL RETURN (b) 17.45% (2.94)% 14.04% 39.43% (37.23)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 32,707 $ 31,643 $ 36,633 $ 51,164 $ 35,762 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.83% 0.82% 0.86% 0.87% 0.72% 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 1.84% 1.51% 1.58% 1.57% 1.31% Portfolio turnover rate (c) 84% 114% 197% 171% 157% (a) Amount represents less than $0.01 per share. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions.
Page 60 See Notes to Financial Statements 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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 18.16 $ 20.30 $ 17.21 $ 12.98 $ 20.45 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.34 0.21 0.29 0.18 0.25 Net realized and unrealized gain (loss) 1.24 (2.14) 3.09 4.23 (7.47) ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.58 (1.93) 3.38 4.41 (7.22) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.40) (0.21) (0.29) (0.18) (0.25) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 19.34 $ 18.16 $ 20.30 $ 17.21 $ 12.98 ========== ========== ========== ========== ========== TOTAL RETURN (a) 8.74% (9.56)% 19.85% 34.15% (35.45)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 3,868 $ 6,357 $ 7,106 $ 6,885 $ 5,841 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 1.85% 1.39% 1.35% 1.24% 1.14% 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 1.64% 1.05% 1.29% 1.24% 1.29% Portfolio turnover rate (b) 203% 184% 205% 191% 120%
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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 16.01 $ 15.08 $ 13.37 $ 11.55 $ 15.75 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.50 0.42 0.41(c) 0.38 0.45 Net realized and unrealized gain (loss) 1.28 0.93 1.71 1.82 (4.20) ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.78 1.35 2.12 2.20 (3.75) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.50) (0.42) (0.40) (0.38) (0.45) Return of capital -- -- (0.01) -- -- ---------- ---------- ---------- ---------- ---------- Total distributions to shareholders (0.50) (0.42) (0.41) (0.38) (0.45) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.29 $ 16.01 $ 15.08 $ 13.37 $ 11.55 ========== ========== ========== ========== ========== TOTAL RETURN (a) 11.17% 9.03% 16.08% 19.58% (24.17)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 508,103 $ 366,399 $ 218,510 $ 153,618 $ 115,403 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.78% 0.79% 0.84% 0.80% 0.84% 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 3.03% 2.84% 2.94% 3.30% 3.20% Portfolio turnover rate (b) 54% 53% 55% 101% 109% (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) Per share amounts have been calculated using the average share method.
See Notes to Financial Statements Page 61 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 12.37 $ 13.52 $ 10.44 $ 9.26 $ 17.91 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.15 0.08 0.00(a) (0.01) (0.02) Net realized and unrealized gain (loss) 0.90 (1.15) 3.08 1.19 (8.63) ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.05 (1.07) 3.08 1.18 (8.65) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.15) (0.08) -- -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 13.27 $ 12.37 $ 13.52 $ 10.44 $ 9.26 ========== ========== ========== ========== ========== TOTAL RETURN (b) 8.53% (7.92)% 29.50% 12.74% (48.30)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 45,635 $ 55,543 $ 88,431 $ 60,433 $ 75,825 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.87% 0.82% 0.87% 0.85% 0.86% 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 1.03% 0.47% 0.01% (0.08)% (0.11)% Portfolio turnover rate (c) 304% 202% 266% 235% 251% (a) Amount represents less than $0.01 per share. (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.
Page 62 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 nineteen exchange-traded funds. This report covers the nine funds listed below: First Trust Dow Jones Select MicroCap Index(SM) Fund (NYSE Arca, Inc. ("NYSE Arca") ticker "FDM") First Trust Morningstar Dividend Leaders(SM) Index Fund (NYSE Arca ticker "FDL") First Trust US IPO Index Fund (NYSE Arca ticker "FPX") First Trust NYSE Arca Biotechnology Index Fund (NYSE Arca ticker "FBT") First Trust Dow Jones Internet Index(SM) Fund (NYSE Arca ticker "FDN") First Trust Strategic Value Index Fund (NYSE Arca ticker "FDV") First Trust Value Line(R) Equity Allocation Index Fund (NYSE Arca ticker "FVI") First Trust Value Line(R) Dividend Index Fund (NYSE Arca ticker "FVD") First Trust Value Line(R) 100 Exchange-Traded Fund (NYSE Arca ticker "FVL") 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 currently are listed and traded on the NYSE Arca. Unlike conventional mutual funds, each Fund issues and redeems shares on a continuous basis, at net asset value ("NAV"), only in large specified blocks consisting of 50,000 shares called a "Creation Unit." Creation Units are issued and redeemed principally in-kind for securities included in a Fund's relevant index. Except when aggregated in Creation Units, shares are not redeemable securities of a Fund. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones Select MicroCap Index(SM) First Trust Morningstar 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 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 Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index(TM)
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 ("U.S. GAAP") 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: Common stocks and other equity securities listed on any national or foreign exchange (excluding the NASDAQ(R) Stock Market, LLC ("NASDAQ") and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded or, for NASDAQ and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities. 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. Page 63 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 materially affect the value of the security after the market has closed but before the calculation of a Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security s "fair value." As a general principle, the current "fair value" of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. The use of fair value prices by a Fund generally results in prices used by the Fund that may differ from current market quotations or official closing prices on the applicable exchange. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following: 1) the type of security; 2) the size of the holding; 3) the initial cost of the security; 4) transactions in comparable securities; 5) price quotes from dealers and/or pricing services; 6) relationships among various securities; 7) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 8) an analysis of the issuer's financial statements; and 9) the existence of merger proposals or tender offers that might affect the value of the security. 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 investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 o Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. o Level 3 Level 3 inputs are unobservable inputs. Unobservable inputs may reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing the investment. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund's investments as of December 31, 2012, 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. Page 64 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 C. Securities Lending The Funds may lend securities representing up to 20% of the value of their total assets to broker-dealers, banks, and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. The collateral amount is valued at the beginning of each business day using the market value of the loaned securities from the prior business day. If additional collateral is necessary, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds. Under the Funds securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. acts as the Funds securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities in the form of fees or interest on the investment of any cash received as collateral. The dividend and interest earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2012, only FPX and FBT have securities in the securities lending program. D. Dividends and Distribution to Shareholders Effective May 1, 2012, dividends from net investment income of each Fund, if any, are declared and paid quarterly or as the Board of Trustees may determine from time to time. Prior to May 1, 2012, dividends from net investment income were declared and paid semiannually, with the exception of FDL and FVD. 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 U.S. GAAP. 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 Funds and have no impact on net assets or NAV 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, 2012 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 $ 763,985 $ -- $ -- First Trust Morningstar Dividend Leaders(SM) Index Fund 21,586,886 -- -- First Trust US IPO Index Fund 267,146 -- -- First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund -- -- -- First Trust Strategic Value Index Fund 591,636 -- -- First Trust Value Line(R) Equity Allocation Index Fund 97,326 -- -- First Trust Value Line(R) Dividend Index Fund 13,920,854 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund 559,524 -- --
Page 65 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 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 Value Line(R) 100 Exchange-Traded Fund 420,210 -- --
As of December 31, 2012, 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 $ 5,570 $ (23,253,529) $ 2,719,118 First Trust Morningstar Dividend Leaders(SM) Index Fund -- (34,346,105) 14,108,691 First Trust US IPO Index Fund -- (6,060,873) 1,706,590 First Trust NYSE Arca Biotechnology Index Fund -- (17,159,694) (41,847,467) First Trust Dow Jones Internet Index(SM) Fund -- (31,001,109) 24,106,693 First Trust Strategic Value Index Fund 8,047 (25,834,381) 1,454,253 First Trust Value Line(R) Equity Allocation Index Fund -- (6,133,166) 193,304 First Trust Value Line(R) Dividend Index Fund 35,845 (47,822,658) 33,110,545 First Trust Value Line(R)100 Exchange-Traded Fund 310 (96,572,464) 1,254,714
E. 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, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% 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 ending 2009, 2010, 2011 and 2012 remain open to federal and state audit. As of December 31, 2012, 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 arising in taxable years after December 22, 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 up to 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, 2012, the Fund had pre-enactment and post-enactment net capital losses for federal income tax purposes as shown in the following table. 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. Page 66 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012
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 $11,511,589 $23,253,529 First Trust Morningstar Dividend Leaders(SM) Index Fund 52,755 202,279 198,670 14,962,284 16,831,977 473,435 1,624,705 34,346,105 First Trust US IPO Index Fund 303,759 740,683 2,682,788 1,127,563 65,058 1,141,022 6,060,873 First Trust NYSE Arca Biotechnology Index Fund -- -- -- 2,061,136 5,787,577 1,039,054 8,271,927 17,159,694 First Trust Dow Jones Internet Index(SM) Fund -- -- -- 6,295,170 1,163,966 -- 23,541,973 31,001,109 First Trust Strategic Value Index Fund -- 45,432 831,336 11,401,861 11,336,270 1,367,556 851,926 25,834,381 First Trust Value Line(R) Equity Allocation Index Fund -- -- 1,392,919 1,168,041 2,421,122 -- 1,151,084 6,133,166 First Trust Value Line(R) Dividend Index Fund -- -- 4,488,019 21,855,796 19,646,203 437,987 1,394,653 47,822,658 First Trust Value Line(R) 100 Exchange-Traded Fund -- -- 1,905,072 47,805,834 29,477,928 -- 17,383,630 96,572,464
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 fiscal year ended December 31, 2012, 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 $ 73,656 $ (7,845,912) $ 7,772,256 First Trust Morningstar Dividend Leaders(SM) Index Fund 30,802 (38,182,532) 38,151,730 First Trust US IPO Index Fund 31,759 (3,661,814) 3,630,055 First Trust NYSE Arca Biotechnology Index Fund 1,138,584 (24,763,470) 23,624,886 First Trust Dow Jones Internet Index(SM) Fund 1,147,910 (19,785,411) 18,637,501 First Trust Strategic Value Index Fund 505 (2,454,124) 2,453,619 First Trust Value Line(R) Equity Allocation Index Fund 11,258 (429,176) 417,918 First Trust Value Line(R) Dividend Index Fund (38,962) (28,233,708) 28,272,670 First Trust Value Line(R) 100 Exchange-Traded Fund 39,619 (8,716,420) 8,676,801
Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 F. Expenses General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. Expenses that are directly related to one of the Funds are charged directly to the respective 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 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 Value Line(R)100 Exchange-Traded Fund Value Line Publishing, Inc.(R)
The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreement. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations. 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. 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 administrative 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 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 Value Line(R) 100 Exchange-Traded Fund 0.50% The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("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"). The Expense Cap will be in effect until at least April 30, 2013. 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 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 Value Line(R) 100 Exchange-Traded Fund 0.70% Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 Expenses reimbursed and fees waived by First Trust under the Expense Reimbursement 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 were reimbursed or fees were 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, 2012 and the expenses borne by the Advisor subject to recovery from each applicable Fund for the periods indicated were as follows:
Expenses Borne by Advisor Subject to Recovery -------------------------------------------------------- Year Year Year Advisory Ended Ended Ended Fee Expense December December December Waivers Reimbursement 31, 2010 31, 2011 31, 2012 Total ---------- ------------- ------------ ------------ ------------ ------------ First Trust Dow Jones Select MicroCap Index(SM) Fund $ 79,603 $ -- $ 127,967 $ 117,235 $ 79,603 $ 324,805 First Trust Morningstar Dividend Leaders(SM) Index Fund 322,632 -- 147,279 226,674 322,632 696,585 First Trust US IPO Index Fund 73,960 2,190 83,357 73,773 76,150 233,280 First Trust NYSE Arca Biotechnology Index Fund 32,040 -- 95,610 43,660 32,040 171,310 First Trust Dow Jones Internet Index(SM) Fund -- -- -- -- -- -- First Trust Strategic Value Index Fund 59,498 -- 83,712 61,430 59,498 204,640 First Trust Value Line(R) Equity Allocation Index Fund 25,867 33,378 50,388 47,073 59,245 156,706 First Trust Value Line(R) Dividend Index Fund 350,127 -- 228,962 249,861 350,127 828,950 First Trust Value Line(R) 100 Exchange Traded Fund 88,774 -- 107,626 99,646 88,774 296,046
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 maintaining shareholder records for the Trust. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. 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 of the Trust and James M. Dykas to serve as the Treasurer, Chief Financial Officer and Chief Accounting Officer of the Trust. Effective January 1, 2012, 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 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 is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Prior to January 1, 2012, each Independent Trustee received 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 was allocated equally among each of the trusts. Additionally, the Lead Independent Trustee is paid $15,000 annually, the Chairman of the Audit Committee is paid $10,000 annually, and each of the Chairmen of the Nominating and Governance Committee and Valuation Committee is 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. Prior to January 1, 2012, the annual amounts paid were $10,000, $5,000 and $2,500, respectively. Trustees are 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 until December 31, 2013 before rotating to serve as chairman of another committee or as Lead Independent Trustee. After December 31, 2013, the Lead Independent Trustee and Committee chairmen will rotate every three years. The officers and "Interested" Trustee receive no compensation from the Trust for serving in such capacities. Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 4. PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2012, 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 $ 34,629,672 $ 34,579,446 First Trust Morningstar Dividend Leaders(SM) Index Fund 171,141,909 170,929,326 First Trust US IPO Index Fund 9,067,561 9,019,351 First Trust NYSE Arca Biotechnology Index Fund 90,806,636 90,455,931 First Trust Dow Jones Internet Index(SM) Fund 166,012,393 167,636,759 First Trust Strategic Value Index Fund 27,157,459 27,037,115 First Trust Value Line(R) Equity Allocation Index Fund 10,363,518 10,380,895 First Trust Value Line(R) Dividend Index Fund 248,987,660 248,680,607 First Trust Value Line(R) 100 Exchange-Traded Fund 158,195,183 158,140,945
For the year ended December 31, 2012, 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 $ 21,596,201 $ 39,297,154 First Trust Morningstar Dividend Leaders(SM) Index Fund 390,239,785 315,576,433 First Trust US IPO Index Fund 17,524,046 12,960,076 First Trust NYSE Arca Biotechnology Index Fund 128,777,482 143,457,939 First Trust Dow Jones Internet Index(SM) Fund 160,030,700 210,543,515 First Trust Strategic Value Index Fund 14,379,660 17,923,344 First Trust Value Line(R) Equity Allocation Index Fund 4,818,326 7,475,504 First Trust Value Line(R) Dividend Index Fund 304,478,686 196,347,633 First Trust Value Line(R) 100 Exchange-Traded Fund 61,903,064 75,385,503
5. CREATION, REDEMPTION & TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the daily NAV per Share of each Fund on the transaction date times the number of Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as transfer agent, a standard creation transaction fee (the "Creation Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Number of Securities Creation in a Creation Unit Transaction Fee ---------------------- ----------------- 1-100 $500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Creation Transaction Fee is applicable to each purchase transaction regardless of the number of Creation Units purchased in the transaction. An additional variable fee of up to three times the Creation Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to transactions effected outside of the clearing process (i.e., through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. The price for each Creation Unit will equal the daily NAV per Share of a Fund on the transaction date times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes. Page 70 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 30, 2013. 7. INDEMNIFICATION The Trust, on behalf of the Funds, has a variety of indemnification obligations under contracts with its service providers. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 8. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed. Page 71 -------------------------------------------------------------------------------- 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 Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar Dividend Leaders(SM) Index Fund, First Trust US IPO Index 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, and First Trust Value Line(R) 100 Exchange-Traded Fund, each a series of the First Trust Exchange-Traded Fund (the "Fund"), including the portfolios of investments, as of December 31, 2012, 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 five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's 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, 2012 by correspondence with the Fund's custodian and brokers; where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the funds listed above included in the First Trust Exchange-Traded Fund as of December 31, 2012, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Deltitte & Touche LLP Chicago, Illinois February 28, 2013 Page 72 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (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, 2012 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, 2012, 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 NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index(SM) Fund -- 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 Value Line(R) 100 Exchange-Traded Fund 100.00%
For the taxable year ended December 31, 2012, 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 NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index(SM) Fund -- 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 Value Line(R) 100 Exchange-Traded Fund 100.00%
Page 73 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (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 THE FIRST TRUST OTHER NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR DATE OF BIRTH AND AND PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS POSITION WITH THE TRUST LENGTH OF SERVICE DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 98 None c/o First Trust Advisors L.P. Co-Owner and Co-Director (January 1996 120 East Liberty Drive, o Since Inception to May 2007), Sports Med Center for Suite 400 Fitness; Limited Partner, Gundersen Real Wheaton, IL 60187 Estate Limited Partnership; Member, D.O.B.: 04/51 Sportsmed LLC Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 98 Director of ADM c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services, 120 East Liberty Drive, o Since Inception (May 2007 to March 2010), Vice President Inc. and ADM Suite 400 and Chief Financial Officer (1990 to May Investor Services, Wheaton, IL 60187 2007), ADM Investor Services, Inc. (Futures International D.O.B.: 11/57 Commission Merchant) Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 98 None c/o First Trust Advisors L.P. Enterprises (Financial and Management 120 East Liberty Drive, o Since June 2006 Consulting) Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer 98 Director of c/o First Trust Advisors L.P. (June 2012 to Present), Dew Learning LLC Covenant 120 East Liberty Drive, o Since Inception (Educational Products and Services), Transport Inc. Suite 400 President (June 2002 to June 2012), Wheaton, IL 60187 Covenant College D.O.B.: 03/54 ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee and o Indefinite Term Chief Executive Officer (December 2010 98 None Chairman of the Board to Present), President (until December 120 East Liberty Drive, o Since Inception 2010), First Trust Advisors L.P. and First Suite 400 Trust Portfolios L.P.; Chairman of the Wheaton, IL 60187 Board of Directors, BondWave LLC D.O.B.: 09/55 (Software Development Company/ Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor)
------------------------ (1) Mr. Bowen is deemed an "interested person" of the Trust due to his position as Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust. Page 74 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (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(2) ------------------------------------------------------------------------------------------------------------------------------------ Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present) 120 E. Liberty Drive, Financial Officer and Chief Financial Officer, First Trust Advisors Suite 400 o President and Chief L.P. and First Trust Portfolios L.P.; Chief Financial Wheaton, IL 60187 Executive Officer Officer, BondWave LLC (Software Development D.O.B.: 11/57 Since January 2012 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) o Treasurer, Chief Financial Officer and Chief Accounting Officer from Inception to January 2012 James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice 120 E. Liberty Drive, Financial Officer President (April 2007 to January 2011), Vice Suite 400 and Chief Accounting o Treasurer, Chief President (January 2005 to April 2007), First Trust Wheaton, IL 60187 Officer Financial Officer and Advisors L.P. and First Trust Portfolios L.P. D.O.B.: 01/66 Chief Accounting Officer Since January 2012 o Assistant Treasurer from December 2005 to Janaury 2012 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary, BondWave LLC Suite 400 o Since Inception (Software Development Company/Investment Wheaton, IL 60187 Advisor) and Stonebridge Advisors LLC D.O.B.: 05/60 (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to 120 E. Liberty Drive, Present), First Trust Advisors L.P. and First Trust Suite 400 o Since December 2005 Portfolios L.P. Wheaton, IL 60187 D.O.B.: 02/70 Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present), 120 E. Liberty Drive, Chief Compliance Officer First Trust Advisors L.P. and First Trust Suite 400 o Assistant Secretary Portfolios L.P. Wheaton, IL 60187 Since Inception D.O.B.: 12/66 o Chief Compliance Officer since January 2011 Roger F. Testin Vice President o Indefinite Term Senior Vice President (November 2003 to Present), 120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Suite 400 o Since Inception Portfolios L.P. Wheaton, IL 60187 D.O.B.: 06/66 Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present), 120 E. Liberty Drive, Vice President (August 2005 to September 2012), Suite 400 o Since December 2006 First Trust Advisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P. D.O.B.: 11/70
--------------------- (2) Officers of the Trust have an indefinite term. The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 75 -------------------------------------------------------------------------------- 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 76 -------------------------------------------------------------------------------- RISK CONSIDERATIONS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- The First Trust Dow Jones Internet Index(SM) Fund invests 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 and First Trust Value Line(R) Dividend 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 and the First Trust Dow Jones Internet Index(SM) 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 invests 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. 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 Value Line(R) 100 Exchange-Traded Fund, involves 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. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 77 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (UNAUDITED) PRIVACY POLICY First Trust values our relationship with you and considers 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 (a social media sharing service), 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, First Trust restricts access to your nonpublic personal information to those First Trust employees 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 78 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] FIRST TRUST FIRST TRUST EXCHANGE-TRADED FUND Book 2 First Trust NASDAQ-100 Equal Weighted Index(SM) Fund First Trust NASDAQ-100-Technology Sector Index(SM) 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 NASDAQ(R) ABA Community Bank Index Fund First Trust CBOE S&P 500 VIX Tail Hedge Fund Annual Report December 31, 2012 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 Shareholder Letter.......................................................... 2 Market Overview............................................................. 3 Fund Performance Overview First Trust NASDAQ-100 Equal Weighted Index(SM) Fund .................... 4 First Trust NASDAQ-100-Technology Sector Index(SM) Fund ................. 6 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund .............. 8 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund ............. 10 First Trust S&P REIT Index Fund ......................................... 12 First Trust ISE Water Index Fund ........................................ 14 First Trust ISE-Revere Natural Gas Index Fund ........................... 16 First Trust ISE Chindia Index Fund ...................................... 18 First Trust NASDAQ(R) ABA Community Bank Index Fund...................... 20 First Trust CBOE S&P 500 VIX Tail Hedge Fund............................. 22 Notes to Fund Performance Overview.......................................... 24 Understanding Your Fund Expenses............................................ 25 Portfolio of Investments First Trust NASDAQ-100 Equal Weighted Index(SM) Fund .................... 27 First Trust NASDAQ-100-Technology Sector Index(SM) Fund ................. 30 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund .............. 31 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund ............. 33 First Trust S&P REIT Index Fund ......................................... 35 First Trust ISE Water Index Fund ........................................ 37 First Trust ISE-Revere Natural Gas Index Fund ........................... 38 First Trust ISE Chindia Index Fund ...................................... 39 First Trust NASDAQ(R) ABA Community Bank Index Fund...................... 41 First Trust CBOE S&P 500 VIX Tail Hedge Fund............................. 43 Statements of Assets and Liabilities........................................ 50 Statements of Operations.................................................... 54 Statements of Changes in Net Assets......................................... 58 Financial Highlights........................................................ 62 Notes to Financial Statements............................................... 67 Report of Independent Registered Public Accounting Firm..................... 77 Additional Information ..................................................... 78 Board of Trustees and Officers.............................................. 81 Risk Considerations......................................................... 83 Privacy Policy.............................................................. 86 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding the goals, beliefs, plans or current expectations of First Trust Advisors L.P. ("First Trust" or the "Advisor") and its representatives, taking into account the information currently available to them. Forward-looking statements include all statements that do not relate solely to current or historical fact. For example, forward-looking statements include the use of words such as "anticipate," "estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or other words that convey uncertainty of future events or outcomes. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of any series of First Trust Exchange-Traded Fund (the "Trust") described in this report (each such series is referred to as a "Fund" and collectively, as the "Funds") 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 Fund described in this report 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 Market Strategist, 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, 2012 Dear Shareholders: I am pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund. The report you hold contains detailed information about the portfolios in First Trust Exchange-Traded Fund over the twelve months ended December 31, 2012. It contains a market overview and a performance analysis 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 financial solutions regardless of market ups and downs. We have always believed, as I have written previously, that there are two ways to attain success in reaching your financial goals: staying invested in quality products and having a long-term investment horizon. We are committed to this approach in the products we manage or supervise and offer to investors. As you know, First Trust offers a variety of products that we believe could fit many financial plans to help investors seeking long-term investment success. We encourage you to talk to your advisor about the other investments First Trust offers that might also fit your financial goals and to discuss those goals with your advisor regularly so that he or she can help keep you on track. 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 2013 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 and Chief Executive Officer of First Trust Advisors L.P. Page 2 -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2012 ROBERT F. CAREY, CFA SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST 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 23 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/INVESTING The U.S. economy continued to grow at around a 2% annual clip during 2012. The Federal Reserve has injected trillions of dollars of stimulus into the economy since the start of the financial crisis. It has already helped stabilize the commercial and residential real estate markets in the U.S. by artificially keeping interest rates at or near historically low levels. While we continue to see job creation on a monthly basis, the number of new jobs created, 158,000 per month on average in 2012, is at least 100,000 below the low end of the desired target. We believe a good amount of the stimulus is simply sitting idle waiting to be put to work. Some smart policy making out of Washington, D.C. early in 2013 could inspire a real boost in economic activity, in our opinion. Should economic growth in the U.S. accelerate at some point in response to the abundance of stimulus from the Federal Reserve, interest rates could quickly begin to rise off their artificially low levels, in our opinion. While that would naturally impede total returns in the bond market, it should benefit the relative performance of equities. Data from Standard & Poor's revealed that, since 1953, U.S. stocks actually posted their best returns when the yield on the 10-year Treasury note rose to around 4.0%, according to Businessweek. The S&P 500(R) Index gained an average of 1.7% per month during periods when yields climbed to a range of 3.0% to 4.0%. Stock prices usually retrench when the yield on the 10-year Treasury note tops 6.0%. Sam Stovall, S&P's chief equity strategist, defined this "sweet spot" as a period where growth in the economy reduces unemployment, increases corporate earnings, but does not trigger growth-slowing efforts by the Federal Reserve. U.S. STOCKS AND BONDS All of the major U.S. stock indices posted double-digit total returns in 2012. The S&P 500(R) Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were up 16.00%, 17.86%, and 16.32%, respectively, according to Bloomberg. All 10 major sectors in the S&P 500(R) Index posted gains in 2012. The top-performing sector was financials, up 28.92%, as measured by the S&P 500 Financials Index. The sector with the poorest showing was utilities, up 1.31%, as measured by the S&P 500 Utilities Index. Volatility was down in 2012. The VIX Index averaged 17.82, markedly below its 10-year average of 20.95. The 2013 estimated earnings growth rates for the S&P 500(R) Index, S&P MidCap 400 Index and S&P SmallCap 600 Index are 13.77%, 19.85% and 32.17%, respectively. The S&P 500(R) Index did not post a single closing price value in 2012 that was below its 2011 year-end close of 1257.60, according to Bespoke Investment Group. In other words, the index was up, on a year-to-date basis, every trading day of 2012. Since 1928, only eight other calendar years (1943, 1951, 1958, 1964, 1967, 1975, 1976 & 1979) accomplished this feat. The S&P 500(R) Index's average price-only return for these nine years (including 2012) was 20.37%, according to Bespoke. The index was up 13.41% (price-only) in 2012. With respect to the previous eight occasions, the average price-only return for the following year was 10.52%. In the U.S. bond market, the top-performing major debt group in 2012 was high-yield corporate bonds. The Barclays Capital U.S. Corporate High Yield Index posted a total return of 15.81%. The next closest domestic category was municipal bonds, up 11.26%, as measured by the Barclays Capital Municipal Bond: Long Bond (22+) Index. The Barclays Capital U.S. Treasury: Intermediate Index posted the weakest return, up 1.71%. FOREIGN STOCKS AND BONDS Riskier asset classes outperformed overseas in 2012. The Barclays Capital Global Emerging Markets Index of debt securities rose 18.14% (USD), compared to 4.32% (USD) for the Barclays Capital Global Aggregate Index of higher-quality debt. The MSCI Emerging Markets Index posted a total return of 18.22% (USD), compared to 16.83% (USD) for the MSCI World Index (excluding the U.S.). The U.S. dollar provided little influence on returns from investments overseas for U.S. investors by declining 0.5% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY). Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW -------------------------------------------------------------------------------- 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 April 25, 2006.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (04/19/06) Ended (04/19/06) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 14.86% 3.90% 4.42% 21.07% 33.66% Market Value 13.90% 3.54% 4.29% 18.98% 32.49% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) 15.45% 4.56% 5.06% 24.98% 39.25% NASDAQ-100 Index(R) 18.34% 5.90% 7.41% 33.18% 61.47% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of 14.86% during the 12-month period covered by this report. During the same period, the benchmark NASDAQ-100 Index(R) generated a return of 18.34%. The Telecommunication Services sector was the top-performing sector in the Fund (+31.4%); however, due to its low average weight in the Fund (2.1%), the sector's contribution to return was limited to +0.6%. The Consumer Discretionary sector was the Fund's top-contributing sector with a +4.8% contribution to the Fund's total return. The Fund's holdings in the sector returned +23.5% and comprised an average of 22.3% of the Fund's weight. The sector's performance was helped by the Internet & Catalog Retail industry, in particular Expedia, Inc. The company was the Fund's top individual performer and contributor with a +115.5% return and contribution to return of +1.0%. The Information Technology sector was the heaviest-weighted (48.4% average weight) and worst-performing (+7.3%) sector in the Fund. Underperformance relative to the benchmark within the sector (+7.3% vs. +14.5%) was the main reason the Fund lagged the benchmark for the year. The main reason of the performance difference was the Fund's significant underweight position in Apple, Inc. (+32.6% return) relative to the benchmark. ------------- 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 4 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 45.98% Consumer Discretionary 24.10 Health Care 15.86 Industrials 6.04 Consumer Staples 4.01 Telecommunication Services 2.01 Materials 2.00 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Apple, Inc. 1.03% Expedia, Inc. 1.03 News Corp., Class A 1.03 Yahoo!, Inc. 1.03 Baidu, Inc., ADR 1.02 Equinix, Inc. 1.02 Facebook, Inc., Class A 1.02 Monster Beverage Corp. 1.02 Stericycle, Inc. 1.02 Symantec Corp. 1.02 ------- Total 10.24% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2012 First Trust NASDAQ-100 NASDAQ-100 Equal NASDAQ-100 Equal Weighted Index(SM) Fund Weighted Index(SM) Index(R) 04/06 $10000 $10000 $10000 12/06 10060 10097 10168 06/07 11050 11117 11217 12/07 11040 11142 12124 06/08 9673 9785 10708 12/08 6187 6292 7084 06/09 7653 7803 8671 12/09 9871 10100 10954 06/10 9314 9561 10278 12/10 11968 12321 13161 06/11 12867 13288 13849 12/11 11636 12063 13645 06/12 12704 13203 15750 12/12 13365 13927 16145 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 157 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% 01/01/08 - 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 01/01/12 - 12/31/12 92 1 0 0 Page 5 -------------------------------------------------------------------------------- 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 April 25, 2006.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (04/19/06) Ended (04/19/06) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 8.02% 4.10% 4.16% 22.24% 31.41% Market Value 7.02% 3.89% 4.01% 21.00% 30.14% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) 8.70% 4.79% 4.81% 26.33% 37.04% S&P 500 Information Technology Index 14.82% 3.57% 5.45% 19.15% 42.68% S&P 500(R) Index 16.00% 1.66% 3.48% 8.59% 25.73% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of 8.02% 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 14.82%. The Software industry led all other Technology industries in the Fund in performance (+14.1%) and contribution to the Fund's return (+3.2%). Adobe Systems, Inc. (+33.3%) and Oracle Corp. (+31.7%) were the best-performing companies from the industry. The Computers & Peripherals industry had an annual return of +13.6%, making it the second-best performing industry. The Fund's top-individual performing security, Seagate Technology, Inc. (+95.3%), and tech giant Apple, Inc. (+32.6%), boosted the industry's return. Relative to the benchmark, the Fund was significantly underweight Apple, Inc. (2.4% vs. 21.8% average weight) and overweight the weak-performing Semiconductor industry (33.2% vs. 11.3% average weight), causing the Fund to lag its benchmark. ------------- 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 6 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 93.26% Health Care 4.47 Consumer Discretionary 2.27 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Apple, Inc. 2.34% Yahoo!, Inc. 2.34 Baidu, Inc., ADR 2.32 Equinix, Inc. 2.32 Facebook, Inc., Class A 2.31 Symantec Corp. 2.31 Avago Technologies Ltd. 2.30 Nuance Communications, Inc. 2.30 QUALCOMM, Inc. 2.30 Western Digital Corp. 2.30 ------- Total 23.14% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2012 S&P 500 First Trust NASDAQ-100 Information NASDAQ-100-Technology Technology Sector Technology S&P 500(R) Sector Index(SM) Fund Index(SM) Index Index 04/06 $10000 $10000 $10000 $10000 12/06 9985 10020 10296 10975 06/07 10925 10989 11256 11739 12/07 10750 10847 11975 11579 06/08 9755 9872 10409 10199 12/08 5885 5983 6809 7295 06/09 7890 8048 8502 7526 12/09 10587 10838 11011 9224 06/10 9782 10041 9847 8611 12/10 12907 13293 12133 10615 06/11 13006 13435 12383 11253 12/11 12165 12606 12426 10839 06/12 12720 13222 14084 11868 12/12 13141 13702 14269 12574 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 132 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% 01/01/08 - 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 01/01/12 - 12/31/12 117 1 0 0 Page 7 -------------------------------------------------------------------------------- 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 February 15, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (02/08/07) Ended (02/08/07) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 20.31% 3.70% 4.14% 19.90% 27.03% Market Value 19.31% 3.50% 3.99% 18.78% 25.91% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) 20.91% 4.34% 4.79% 23.65% 31.73% Russell 1000(R) Index 16.42% 1.92% 2.10% 9.95% 13.06% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of 20.31% during the 12-month period covered by this report. During the same period, the benchmark Russell 1000(R) Index generated a return of 16.42%. The Consumer Discretionary and Health Care sectors were the main contributors to the Fund's total return. The Fund's holdings in the Consumer Discretionary sector returned +24.4% and made up an average of 37.5% of the Fund's weight, resulting in a +8.8% contribution to total return. Expedia, Inc. was the sector's best individual performer in the sector with a +115.6% total return. The Fund's holdings in the Health Care sector had an average weight in the Fund of 26.0% and returned +24.5%, resulting in a +6.5% contribution to total return. Gilead Sciences, Inc. led the way in performance in the sector with a +79.5% total return. The Telecommunication Services sector actually had the best performance of any sector (+31.4%), but its contribution to total return was limited due to its average Fund weight of only 3.7%. Most of the sector's performance came from Virgin Media, Inc.'s +72.9% return. The Fund was able to outperform its benchmark due to being overweight in the Consumer Discretionary (37.5% vs. 11.9% average weight) and Health Care (26.0% vs. 11.7% average weight) sectors relative to the benchmark. -------------- 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 8 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECTOR (1) LONG-TERM INVESTMENTS Consumer Discretionary 41.24% Health Care 24.78 Industrials 10.79 Information Technology 8.88 Consumer Staples 7.15 Telecommunication Services 3.59 Materials 3.57 ------- 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, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Expedia, Inc. 1.84% News Corp., Class A 1.83 Monster Beverage Corp. 1.82 Stericycle, Inc. 1.82 Dollar Tree, Inc. 1.81 Fastenal Co. 1.81 Gilead Sciences, Inc. 1.81 Perrigo Co. 1.81 Sears Holdings Corp. 1.81 Virgin Media, Inc. 1.81 ------- Total 18.17% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2012 First Trust NASDAQ-100 Ex-Technology Sector NASDAQ-100 Ex-Tech Russell 1000(R) Index(SM) Fund Sector Index(SM) Index 02/07 $10000 $10000 $10000 12/07 10595 10653 10282 06/08 9057 9126 9131 12/08 6029 6102 6417 06/09 7060 7165 6694 12/09 8848 9009 8241 06/10 8454 8633 7714 12/10 10674 10935 9568 06/11 11961 12294 10177 12/11 10558 10894 9711 06/12 11906 12317 10622 12/12 12703 13172 11306 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 127 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% 01/01/08 - 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 01/01/12 - 12/31/12 111 11 0 0 Page 9 -------------------------------------------------------------------------------- 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 February 14, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (02/08/07) Ended (02/08/07) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV -0.50% -20.82% -11.71% -68.89% -51.99% Market Value -0.39% -20.86% -11.74% -68.95% -52.09% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) Green Energy Index -1.32% -20.51% -11.32% -68.26% -50.73% Russell 2000(R) Index 16.35% 3.56% 2.10% 19.09% 13.00% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of -0.50% during the 12-month period covered by this report. During the same period, the benchmark Russell 2000(R) Index generated a return of 16.35%. Cree, Inc. (+54.2% return, +2.8% contribution), Linear Technology Corp. (+18.7% return, +1.6% contribution), and Tesla Motors, Inc. (+18.6% return, +1.0 contribution) were the top contributors to the Fund's total return. GT Advanced Technologies, Inc. (-58.2% return, -1.6% contribution), Universal Display Corp. (-30.2% return, -1.0% contribution), and Solazyme, Inc. (-34.0% return, -0.9% contribution) were the worst contributors to the Fund's total return. The Fund's focus in clean energy companies, in particular solar companies, was the main reason the Fund underperformed its benchmark. -------------- 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 10 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 71.62% Industrials 13.70 Consumer Discretionary 7.57 Energy 3.31 Utilities 2.91 Materials 0.89 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS CON Semiconductor Corp. 8.04% Cree, Inc. 7.95 Linear Technology Corp. 7.81 Tesla Motors, Inc. 7.57 Hexcel Corp. 7.40 First Solar, Inc. 4.32 Microsemi Corp. 4.15 Fairchild Semiconductor International, Inc. 4.08 AVX Corp. 3.99 Universal Display Corp. 3.96 ------- Total 59.27% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2012 First Trust NASDAQ(R) Clean Edge(R) Green NASDAQ(R) Clean Edge(R) Russell 2000(R) Energy Index Fund Green Energy Index Index 02/07 $10000 $10000 $10000 12/07 15430 15522 9489 06/08 12350 12472 8599 12/08 5595 5675 6283 06/09 6920 7038 6449 12/09 8045 8213 7990 06/10 6665 6824 7834 12/10 8210 8434 10136 06/11 7640 7879 10765 12/11 4825 4992 9713 06/12 4670 4822 10542 12/12 4801 4927 11301 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 37 6 1 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% 01/01/08 - 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 01/01/12 - 12/31/12 153 52 1 0 Page 11 -------------------------------------------------------------------------------- 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 May 10, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (05/08/07) Ended (05/08/07) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 17.39% 4.83% 0.43% 26.60% 2.45% Market Value 16.86% 4.78% 0.35% 26.27% 2.00% INDEX PERFORMANCE S&P United States REIT Index* 17.99% N/A N/A N/A N/A FTSE EPRA/NAREIT North America Index 18.14% 5.24% 1.02% 29.08% 5.92% Russell 3000(R) Index 16.42% 2.04% 1.45% 10.65% 8.48% ---------------------------------------------------------------------------------------------------------------------------- * 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. Effective December 31, 2008, the S&P REIT Composite Index was discontinued. 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 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of 17.39% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 16.42%. It was a strong year for REITs as the vast majority of the Fund's holdings had a positive return for the reporting period. Simon Property Group, Inc., Prologis, Inc., and Ventas, Inc. were the Fund's top three contributors to total return. The Fund's largest holding, Simon Property Group, Inc., returned +26.0% during the period and contributed +2.6% to the Fund's total return. Prologis, Inc. contributed +1.1% to the Fund's total return on an annual return of +31.9%. Ventas returned +22.3% during the reporting period and had a contribution of +0.9%. ----------------- 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 12 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FRI - FIRST TRUST S&P REIT INDEX FUND (CONTINUED) ----------------------------------------------------------- PORTFOLIO REIT CLASS ALLOCATION AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL REIT CLASS LONG-TERM INVESTMENTS Specialized 28.37% Retail 27.14 Residential 17.65 Office 13.96 Diversified 7.89 Industrial 4.99 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Simon Property Group, Inc. 10.77% Public Storage 4.60 HCP, Inc. 4.50 Ventas, Inc. 4.21 Equity Residential 4.01 Prologis, Inc. 3.70 Boston Properties, Inc. 3.52 Health Care REIT, Inc. 3.50 AvalonBay Communities, Inc. 3.42 Vornado Realty Trust 2.99 ------- Total 45.22% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2012 First Trust S&P FTSE EPRA/NAREIT Russell 3000(R) REIT Index Fund North America Index Index 05/07 $10000 $10000 $10000 12/07 8093 8206 9811 06/08 7739 7843 8728 12/08 4947 4872 6151 06/09 4319 4381 6405 12/09 6333 6442 7889 06/10 6679 6772 7412 12/10 8090 8287 9225 06/11 8899 9163 9811 12/11 8729 8965 9319 06/12 10007 10276 10188 12/12 10247 10593 10849 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, 2012 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, 2008 through December 31, 2012. Shareholders may pay more than NAV when they buy Fund shares and receive less than NAV when they sell those shares because shares are bought and sold at current market price. Data presented represents past performance and cannot be used to predict future results. -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%S 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 01/01/12 - 12/31/12 37 6 1 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% 01/01/08 - 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 01/01/12 - 12/31/12 153 52 1 0 Page 13 -------------------------------------------------------------------------------- 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 May 11, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (05/08/07) Ended (05/08/07) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 26.83% 3.97% 5.62% 21.47% 36.20% Market Value 26.15% 3.81% 5.48% 20.53% 35.14% INDEX PERFORMANCE ISE Water Index(TM) 27.77% 4.68% 6.34% 25.69% 41.52% Russell 3000(R) Index 16.42% 2.04% 1.45% 10.65% 8.48% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24)
PERFORMANCE REVIEW The Fund generated an NAV return of 26.83% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 16.42%. Mueller Water Products, Inc. was the Fund's top individual holding in terms of performance and contribution. During the reporting period, the company returned +134.2% and contributed +3.8% to the Fund's total return. Badger Meter, Inc. (+64.0%) and Cia de Saneamento Basico do Estado de Sao Paulo (+55.1%) were the other top-performing companies in the Fund. The Fund's focused holdings in the Machinery and Water Utilities industries allowed for the Fund to outperform its benchmark during the reporting period. -------------- "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 14 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FIW - FIRST TRUST ISE WATER INDEX FUND (CONTINUED) ---------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 ---------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Industrials 60.88% Utilities 22.75 Health Care 7.30 Information Technology 4.94 Materials 4.13 ------- Total 100.00% ======= ---------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ---------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Ashland, Inc. 4.13% Flowserve Corp. 4.02 Agilent Technologies, Inc. 4.00 Cia de Saneamento Basico do Estado de Sao Paulo, ADR 4.00 Danaher Corp. 4.00 Pentair Ltd. 3.99 Emerson Electric Co. 3.98 Roper Industries, Inc. 3.94 Pall Corp. 3.89 American Water Works Co., Inc. 3.86 ------- Total 39.81% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2012 First Trust ISE Water ISE Water Russell 3000(R) Index Fund Index(TM) Index 05/07 $10000 $10000 $10000 12/07 11212 11260 9811 06/08 10992 11056 8728 12/08 7915 7987 6151 06/09 8168 8276 6405 12/09 9522 9681 7889 06/10 8989 9168 7412 12/10 11378 11653 9225 06/11 11910 12243 9811 12/11 10738 11076 9319 06/12 11803 12225 10188 12/12 13619 14153 10849 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 121 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% 01/01/08 - 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 01/01/12 - 12/31/12 127 1 0 0 Page 15 -------------------------------------------------------------------------------- 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 May 11, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (05/08/07) Ended (05/08/07) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV -13.51% -6.34% -3.77% -27.91% -19.50% Market Value -13.46% -6.33% -3.77% -27.87% -19.49% INDEX PERFORMANCE ISE-REVERE Natural Gas Index(TM) -12.94% -5.67% -3.09% -25.31% -16.25% Russell 3000(R) Index 16.42% 2.04% 1.45% 10.65% 8.48% S&P Composite 1500 Energy Index 4.34% -0.34% 3.23% -1.68% 19.66% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of -13.51% 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 4.34%. Quicksilver Resources, Inc. (-57.4%), Forest Oil Corp. (-50.6%), and Magnum Hunter Resources Corp. (-43.7% while held in the Fund) were the worst-performing stocks in the Fund for the reporting period. Cabot Oil & Gas Corp. (+31.3%) and EOG Resources, Inc. (+23.4%) were two of the Fund's standout performers on the upside. The Fund underperformed its benchmark during the reporting period due to its concentration in exploration and production companies, and underweight position in integrated oil companies and refining companies. ------------ "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 16 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (CONTINUED) ----------------------------------------------------------- PORTFOLIO SUB-INDUSTRY ALLOCATION AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SUB-INDUSTRY LONG-TERM INVESTMENTS Oil & Gas Exploration & Production 89.20% Integrated Oil & Gas 7.23 Gas Utilities 3.57 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Goodrich Petroleum Corp. 4.07% Magnum Hunter Resources Corp. 3.92 SM Energy Co. 3.88 Cabot Oil & Gas Corp. 3.76 EQT Corp. 3.68 Forest Oil Corp. 3.67 Newfield Exploration Co. 3.67 Cenovus Energy, Inc. 3.63 Apache Corp. 3.60 QEP Resources, Inc. 3.60 ------- Total 37.48% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2012 First Trust ISE-REVER Russell S&P Composite ISE-Revere Natural Natural Gas 3000(R) 1500 Energy Gas Index Fund Index(TM) Index Index 05/07 $10000 $10000 $10000 $10000 12/07 11166 11213 9804 12170 06/08 15755 15942 8721 13578 12/08 5967 6016 6147 7810 06/09 6454 6518 6405 7740 12/09 8903 9017 7889 9092 06/10 7752 7891 7412 8016 12/10 9992 10254 9225 11036 06/11 11012 11342 9811 12304 12/11 9308 9620 9319 11469 06/12 8426 8735 10188 11132 12/12 8051 8375 10849 11967 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, 2012 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, 2008 through December 31, 2012. 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% 01/01/08 - 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 01/01/12 - 12/31/12 151 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% 01/01/08 - 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 01/01/12 - 12/31/12 99 0 0 0 Page 17 -------------------------------------------------------------------------------- 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 May 11, 2007.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (05/08/07) Ended (05/08/07) 12/31/12 12/31/12 to 12/31/12 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 17.11% -4.33% 1.90% -19.84% 11.21% Market Value 16.41% -4.49% 1.75% -20.52% 10.30% INDEX PERFORMANCE ISE ChIndia Index(TM) 17.52% -3.82% 2.48% -17.70% 14.83% Russell 3000(R) Index 16.42% 2.04% 1.45% 10.65% 8.48% MSCI Emerging Markets Index 18.22% -0.92% 3.50% -4.49% 21.44% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of 17.11% during the 12-month period covered by this report. During the same period, the benchmark MSCI Emerging Markets Index generated a return of 18.22%. The Financials sector was the largest contributor to the Fund's total return with a +8.6% contribution. The Fund's holdings in the sector returned +59.4% and made up an average of 16.8% of the Fund's weight. ICICI Bank Ltd. (+68.4%) and HDFC Bank Ltd. (+56.0) were the standout performers from the sector. The Information Technology sector was the worst-performing sector in the Fund with a return of -10.4%. Performance in the sector was hindered by the Fund's large positions in Baidu, Inc., and Infosys Ltd., which had returns of -13.9% and -16.1%, respectively. --------------- "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 18 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- FNI - FIRST TRUST ISE CHINDIA INDEX FUND (CONTINUED) --------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 --------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 36.11% Consumer Discretionary 20.41 Financials 14.33 Energy 9.48 Telecommunication Services 8.50 Materials 4.82 Health Care 3.38 Industrials 1.45 Utilities 0.76 Consumer Staples 0.76 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 --------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Baidu, Inc., ADR 7.00% China Mobile Ltd., ADR 6.98 Michael Kors Holdings Ltd. 6.95 Infosys Ltd., ADR 6.90 ICICI Bank Ltd., ADR 6.81 HDFC Bank Ltd., ADR 6.72 Tata Motors Ltd., ADR 4.22 Sterlite Industries (India) Ltd., ADR 4.06 PetroChina Co., Ltd., ADR 3.99 CNOOC Ltd., ADR 3.94 ------- Total 57.57% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2012 First Trust ISE Chindia Index ISE ChIndia Russell 3000(R) MSCI Emerging Fund Index(TM) Index Markets Index 05/07 $10000 $10000 $10000 $10000 12/07 13873 13952 9804 12715 06/08 9985 10059 8721 11220 12/08 5968 6031 6147 5934 06/09 8329 8451 6405 8071 12/09 10836 11031 7889 10593 06/10 10540 10767 7412 9939 12/10 12836 13175 9225 12592 06/11 13047 13466 9811 12703 12/11 9497 9771 9319 10273 06/12 10069 10375 10188 10677 12/12 11121 11483 10849 12145 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, 2012 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, 2008 through December 31, 2012. 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% 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 01/01/12 - 12/31/12 63 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% 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 01/01/12 - 12/31/12 175 11 0 0 Page 19 -------------------------------------------------------------------------------- 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 Indexsm (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 July 1, 2009.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (06/29/09) Inception (06/29/09) 12/31/12 to 12/31/12 to 12/31/12 FUND PERFORMANCE NAV 13.52% 8.95% 35.05% Market Value 13.38% 8.71% 34.01% INDEX PERFORMANCE NASDAQ OMX(R) ABA Community Bank Index(SM) 14.24% 9.66% 38.19% S&P Composite 1500 Financials Sector Index 26.97% 11.84% 48.07% Russell 3000(R) Index 16.42% 15.97% 68.11% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated an NAV return of 13.52% during the 12-month period covered by this report. During the same period, the benchmark S&P Composite 1500 Financials Sector Index generated a return of 26.97%. Zions Bancorporation (+31.7%), Pacific Capital Bancorp (+61.5%), and Texas Capital Bancshares, Inc. (+46.4%) were three of the Fund's top-performing securities. People's United Financial, Inc. was the largest detractor from the Fund's total return. The company returned -7.2% while it was held in the Fund this period and contributed -0.3% to the Fund's return. The main reason the Fund underperformed its benchmark was its underweight position in the Diversified Financial Services industry relative to the benchmark. Since the Fund focuses on community banks, it did not have any allocation in the industry, which tends to be made up of large financial service companies. The Diversified Financial Services industry was the top-returning industry in the benchmark. --------------- 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 20 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- QABA - FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (CONTINUED) --------------------------------------------------------- PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2012 --------------------------------------------------------- % OF TOTAL INDUSTRY LONG-TERM INVESTMENTS Commercial Banks 84.92% Thrifts & Mortgage Finance 14.59 IT Services 0.49 ------- Total 100.00% ======= --------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 --------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Zions Bancorporation 3.98% BOK Financial Corp. 3.75 Signature Bank 3.38 Commerce Bancshares, Inc. 3.24 East West Bancorp, Inc. 3.04 TFS Financial Corp. 3.00 Hancock Holding Co. 2.71 SVB Financial Group 2.51 Associated Banc-Corp. 2.27 Investors Bancorp, Inc. 2.01 ------- Total 29.89% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 29, 2009 - DECEMBER 31, 2012 First Trust NASDAQ(R) NASDAQ OMX(R) Russell S&P Composite ABA Community ABA Community 3000(R) 1500 Financials Bank Index Fund Bank Index(SM) Index Sector Index 06/09 $10000 $10000 $10000 $10000 12/09 11280 11318 12224 12112 06/10 11438 11505 11484 11744 12/10 12721 12846 14293 13722 06/11 12520 12688 15201 13420 12/11 11898 12095 14439 11662 06/12 13081 13343 15785 13227 12/12 13507 13817 16809 14806 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, 2012 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, 2012. 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 01/01/12 - 12/31/12 100 17 1 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 01/01/12 - 12/31/12 114 18 0 0 Page 21 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- VIXH - FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND The First Trust CBOE S&P 500 VIX Tail Hedge 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 CBOE VIX Tail Hedge Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks and call options included in the Index. The Index is composed of each of the equity securities comprising the S&P 500 and an out-of-the-money call option position on the Chicago Board Options Exchange Market Volatility Index (the "VIX Index"). The VIX Index is quoted in percentage points, is calculated and disseminated in real-time by CBOE and is a way of measuring the market's expectation of volatility in the S&P 500 over the next 30-day period. The Index, and in turn the Fund, tracks the performance of an S&P 500 stock portfolio (with dividends reinvested), and call options on the VIX Index. The amount of the Index allocated to call options on the VIX Index is reevaluated and rebalanced each month, depending on the level of forward expected volatility in the S&P 500, as measured by the closest to maturity VIX Index futures. The Index is designed to help cope with extreme downward movements in the market by hedging its portfolio through purchasing call options on the VIX Index, or "tail hedging." The Index is reconstituted and rebalanced monthly. 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 August 30, 2012. -------------------------------------------------------------------------------- PERFORMANCE -------------------------------------------------------------------------------- CUMULATIVE TOTAL RETURNS Inception (08/29/12) to 12/31/12 FUND PERFORMANCE NAV -1.37% Market Value -1.01% INDEX PERFORMANCE CBOE VIX Tail Hedge Index(SM) -1.20% S&P 500(R) Index 1.93% (See Notes to Fund Performance Overview on page 24.) PERFORMANCE REVIEW The Fund generated a NAV return of -1.37% from its inception on 8/29/2012 through 12/31/2012. During the same period, the benchmark S&P 500(R) Index generated a return of 1.93%. The Fund lagged its benchmark due to its option overlay. At every monthly rebalance during the covered period, the Fund allocated 1.0% of total assets to an out-of-the-money VIX call option set to expire the following month. Every option purchased during the period expired worthless, causing the Fund to underperform its benchmark. Page 22 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (CONTINUED) -------------------------------------------------------------------------------- VIXH - FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (CONTINUED) --------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2012 --------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 19.04% Financials 15.61 Health Care 12.01 Consumer Discretionary 11.50 Energy 10.99 Consumer Staples 10.61 Industrials 10.12 Materials 3.62 Utilities 3.44 Telecommunication Services 3.06 ------- Total 100.00% ======= ---------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2012 ---------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Apple, Inc. 3.93% Exxon Mobil Corp. 3.10 General Electric Co. 1.73 Chevron Corp. 1.66 International Business Machines Corp. 1.60 Microsoft Corp. 1.59 Johnson & Johnson 1.53 AT&T, Inc. 1.50 Google, Inc., Class A 1.48 Proctor & Gamble Co. 1.46 ------- Total 19.58% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 29, 2012 - DECEMBER 31, 2012 First Trust CBOE S&P 500 CBOE VIX Tail Hdge S&P 500(R) VIX Tail Hedge Fund Index(SM) Index 08/12 $10000 $10000 $10000 12/12 9863 9880 10193 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, 2012 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 August 29, 2012 (commencement of trading) through December 31, 2012. 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% 08/29/12 - 12/31/12 57 3 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% 08/29/12 - 12/31/12 21 1 1 0 Page 23 -------------------------------------------------------------------------------- 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 24 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2012 (UNAUDITED) As a shareholder of First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) 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 NASDAQ(R) ABA Community Bank Index Fund, or First Trust CBOE S&P 500 VIX Tail Hedge 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 (or since inception) and held through the six-month (or shorter) period ended December 31, 2012. 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 2012 DECEMBER 31 2012 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND Actual $1,000.00 $1,052.00 0.60% $3.09 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND Actual $1,000.00 $1,033.10 0.60% $3.07 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND Actual $1,000.00 $1,066.90 0.60% $3.12 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND Actual $1,000.00 $1,028.00 0.60% $3.06 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST S&P REIT INDEX FUND Actual $1,000.00 $1,024.00 0.50% $2.54 Hypothetical (5% return before expenses) $1,000.00 $1,022.62 0.50% $2.54 FIRST TRUST ISE WATER INDEX FUND Actual $1,000.00 $1,153.90 0.60% $3.25 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND Actual $1,000.00 $ 955.50 0.60% $2.95 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 Page 25 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2012 (UNAUDITED) ------------------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE RATIO EXPENSE PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX MONTH SIX MONTH JULY 1 2012 DECEMBER 31 2012 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST ISE CHINDIA INDEX FUND Actual $1,000.00 $1,104.50 0.60% $3.17 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND Actual $1,000.00 $1,032.60 0.60% $3.07 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 ------------------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE PAID EXPENSE RATIO DURING THE BEGINNING ENDING BASED ON THE PERIOD ACCOUNT VALUE ACCOUNT VALUE NUMBER OF DAYS AUGUST 29, 2012 (c) AUGUST 29, 2012 (c) DECEMBER 31, 2012 IN THE PERIOD (a) TO DECEMBER 31, 2012 (d) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND Actual $1,000.00 $986.30 0.60% $2.04 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 (a) These expense ratios reflect expense caps for certain Funds. See Note 3 in Notes to Financial Statements. (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, 2012 through December 31, 2012), multiplied by 184/366 (to reflect the one-half year period). (c) Inception date. (d) Actual expenses are equal to the annualized expense ratio as indicated in the table, multiplied by the average account value over the period, multiplied by 125/366 (to reflect the actual period August 29, 2012 through December 31, 2012). Hypothetical expenses are assumed for the most recent half-year period.
Page 26 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AIR FREIGHT & LOGISTICS -- 2.0% 13,366 C.H. Robinson Worldwide, Inc. $ 844,999 21,397 Expeditors International of Washington, Inc. 846,251 ------------ 1,691,250 ------------ BEVERAGES -- 1.0% 16,319 Monster Beverage Corp. (a) 862,949 ------------ Biotechnology -- 6.9% 9,056 Alexion Pharmaceuticals, Inc. (a) 849,543 9,753 Amgen, Inc. 841,879 5,670 Biogen Idec, Inc. (a) 831,619 10,667 Celgene Corp. (a) 839,706 11,678 Gilead Sciences, Inc. (a) 857,749 4,901 Regeneron Pharmaceuticals, Inc. (a) 838,414 19,759 Vertex Pharmaceuticals, Inc. (a) 828,693 ------------ 5,887,603 ------------ CHEMICALS -- 1.0% 11,535 Sigma-Aldrich Corp. 848,745 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.0% 9,273 Stericycle, Inc. (a) 864,893 ------------ COMMUNICATIONS EQUIPMENT -- 3.0% 42,589 Cisco Systems, Inc. 836,874 8,722 F5 Networks, Inc. (a) 847,342 13,795 QUALCOMM, Inc. 855,566 ------------ 2,539,782 ------------ COMPUTERS & PERIPHERALS -- 6.0% 1,636 Apple, Inc. 872,037 81,531 Dell, Inc. 825,909 25,135 NetApp, Inc. (a) 843,279 19,182 SanDisk Corp. (a) 835,568 27,921 Seagate Technology PLC 851,032 20,203 Western Digital Corp. 858,426 ------------ 5,086,251 ------------ FOOD & STAPLES RETAILING -- 2.0% 8,545 Costco Wholesale Corp. 843,990 9,324 Whole Foods Market, Inc. 851,561 ------------ 1,695,551 ------------ FOOD PRODUCTS -- 1.0% 33,002 Mondelez International, Inc., Class A 840,561 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.0% 21,065 DENTSPLY International, Inc. 834,385 1,711 Intuitive Surgical, Inc. (a) 839,023 ------------ 1,673,408 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.0% 17,531 Catamaran Corp. (a) 825,885 SHARES DESCRIPTION VALUE ------------------------------------------------------------ HEALTH CARE PROVIDERS & SERVICES (CONTINUED) 15,679 Express Scripts Holding Co. (a) $ 846,666 10,499 Henry Schein, Inc. (a) 844,750 ------------ 2,517,301 ------------ HEALTH CARE TECHNOLOGY -- 1.0% 10,857 Cerner Corp. (a) 842,937 ------------ HOTELS, RESTAURANTS & LEISURE -- 2.0% 15,861 Starbucks Corp. 850,467 7,490 Wynn Resorts Ltd. 842,550 ------------ 1,693,017 ------------ HOUSEHOLD DURABLES -- 1.0% 20,701 Garmin Ltd. (b) 845,015 ------------ INTERNET & CATALOG RETAIL -- 4.0% 3,309 Amazon.com, Inc. (a) 831,022 14,266 Expedia, Inc. 876,646 43,560 Liberty Interactive Corp., Class A (a) 857,261 1,373 priceline.com, Inc. (a) 852,907 ------------ 3,417,836 ------------ INTERNET SOFTWARE & SERVICES -- 7.1% 20,357 Akamai Technologies, Inc. (a) 832,805 8,611 Baidu, Inc., ADR (a) 863,597 16,555 eBay, Inc. (a) 844,636 4,197 Equinix, Inc. (a) 865,422 32,359 Facebook, Inc., Class A (a) 861,720 1,187 Google, Inc., Class A (a) 842,022 43,929 Yahoo!, Inc. (a) 874,187 ------------ 5,984,389 ------------ IT SERVICES -- 4.0% 14,761 Automatic Data Processing, Inc. 841,525 11,531 Cognizant Technology Solutions Corp., Class A (a) 853,870 10,665 Fiserv, Inc. (a) 842,855 27,063 Paychex, Inc. 842,742 ------------ 3,380,992 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.0% 23,042 Mattel, Inc. 843,798 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.0% 16,817 Life Technologies Corp. (a) 825,378 ------------ MACHINERY -- 1.0% 18,958 PACCAR, Inc. 857,091 ------------ MEDIA -- 9.1% 22,830 Comcast Corp., Class A 853,385 16,909 DIRECTV (a) 848,156 13,461 Discovery Communications, Inc., Class A (a) 854,504 13,604 Liberty Global, Inc., Class A (a) 856,916 See Notes to Financial Statements Page 27 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) MEDIA (CONTINUED) 7,394 Liberty Media Corp. - Liberty Capital, Class A (a) $ 857,778 34,070 News Corp., Class A 870,148 288,627 Sirius XM Radio, Inc. 834,132 16,011 Viacom, Inc., Class B 844,420 23,340 Virgin Media, Inc. 857,745 ------------ 7,677,184 ------------ METALS & MINING -- 1.0% 8,546 Randgold Resources Ltd., ADR 848,191 ------------ MULTILINE RETAIL -- 2.0% 21,240 Dollar Tree, Inc. (a) 861,494 20,807 Sears Holdings Corp. (a) (b) 860,578 ------------ 1,722,072 ------------ PHARMACEUTICALS -- 2.0% 30,568 Mylan, Inc. (a) 840,009 8,270 Perrigo Co. 860,328 ------------ 1,700,337 ------------ PROFESSIONAL SERVICES -- 1.0% 16,682 Verisk Analytics, Inc., Class A (a) 850,782 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 14.0% 24,641 Altera Corp. 848,636 20,150 Analog Devices, Inc. 847,509 73,935 Applied Materials, Inc. 845,817 27,102 Avago Technologies Ltd. 858,049 25,625 Broadcom Corp., Class A 851,006 40,953 Intel Corp. 844,860 17,577 KLA-Tencor Corp. 839,478 24,838 Linear Technology Corp. 851,944 28,891 Maxim Integrated Products, Inc. 849,395 26,085 Microchip Technology, Inc. 850,110 134,540 Micron Technology, Inc. (a) 854,329 68,830 NVIDIA Corp. 845,921 27,481 Texas Instruments, Inc. 850,262 23,547 Xilinx, Inc. 845,337 ------------ 11,882,653 ------------ SOFTWARE -- 11.9% 79,813 Activision Blizzard, Inc. 847,614 22,538 Adobe Systems, Inc. (a) 849,232 23,951 Autodesk, Inc. (a) 846,668 20,878 BMC Software, Inc. (a) 828,021 38,305 CA, Inc. 841,944 17,877 Check Point Software Technologies Ltd. (a) 851,660 12,853 Citrix Systems, Inc. (a) 845,085 13,834 Intuit, Inc. 823,123 30,935 Microsoft Corp. 826,893 38,416 Nuance Communications, Inc. (a) 857,445 25,181 Oracle Corp. 839,031 45,845 Symantec Corp. (a) 862,344 ------------ 10,119,060 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ SPECIALTY RETAIL -- 4.0% 15,256 Bed Bath & Beyond, Inc. (a) $ 852,963 9,445 O'Reilly Automotive, Inc. (a) 844,572 15,761 Ross Stores, Inc. 853,458 73,731 Staples, Inc. 840,533 ------------ 3,391,526 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 1.0% 9,159 Fossil, Inc. (a) 852,703 ------------ TRADING COMPANIES & DISTRIBUTORS -- 1.0% 18,450 Fastenal Co. 861,430 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 2.0% 11,993 SBA Communications Corp., Class A (a) 851,743 33,825 Vodafone Group PLC, ADR 852,052 ------------ 1,703,795 ------------ TOTAL COMMON STOCKS -- 100.0% 84,808,480 (Cost $82,276,987) ------------ COLLATERAL FOR SECURITIES ON LOAN -- 1.6% MONEY MARKET FUND -- 0.3% 278,948 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) 278,948 (Cost $278,948) ------------ PRINCIPAL VALUE ---------- REPURCHASE AGREEMENT -- 1.3% $1,118,974 JPMorgan Chase & Co., 0.08% (c), dated 12/31/12, due 01/02/13, with a maturity value of $1,118,977. Collateralized by U.S. Treasury Note, interest rate of 0.75%, due 10/31/17. The value of the collateral including accrued interest is $1,141,194. 1,118,974 (Cost $1,118,974) ------------ TOTAL COLLATERAL FOR SECURITIES ON LOAN -- 1.6% 1,397,922 (Cost $1,397,922) ------------ TOTAL INVESTMENTS -- 101.6% 86,206,402 (Cost $83,674,909) (d) NET OTHER ASSETS AND LIABILITIES -- (1.6)% (1,391,598) ------------ NET ASSETS -- 100.0% $ 84,814,804 ============ Page 28 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2C - Securities Lending in the Notes to Financial Statements). The aggregate market value of such securities is $1,107,963 and the total market value of the collateral held by the Fund is $1,397,922. (c) Interest rate shown reflects yield as of December 31, 2012. (d) Aggregate cost for federal income tax purposes is $84,428,815. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,636,111 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $4,858,524. ADR - American Depositary Receipt ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 84,808,480 $ -- $ -- Money Market Fund 278,948 -- -- Repurchase Agreement -- 1,118,974 -- -------------------------------------------- Total Investments $ 85,087,428 $ 1,118,974 $ -- ============================================ * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. See Notes to Financial Statements Page 29 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% COMMUNICATIONS EQUIPMENT -- 6.8% 121,073 Cisco Systems, Inc. $ 2,379,084 24,796 F5 Networks, Inc. (a) 2,408,931 39,224 QUALCOMM, Inc. 2,432,673 ------------ 7,220,688 ------------ COMPUTERS & PERIPHERALS -- 13.6% 4,653 Apple, Inc. 2,480,189 231,698 Dell, Inc. 2,347,101 71,455 NetApp, Inc. (a) 2,397,315 54,526 SanDisk Corp. (a) 2,375,152 79,337 Seagate Technology PLC 2,418,192 57,415 Western Digital Corp. 2,439,563 ------------ 14,457,512 ------------ HEALTH CARE PROVIDERS & SERVICES -- 2.2% 49,837 Catamaran Corp. (a) 2,347,821 ------------ HEALTH CARE TECHNOLOGY -- 2.2% 30,871 Cerner Corp. (a) 2,396,825 ------------ HOUSEHOLD DURABLES -- 2.3% 58,841 Garmin Ltd. 2,401,890 ------------ INTERNET SOFTWARE & SERVICES -- 13.8% 57,869 Akamai Technologies, Inc. (a) 2,367,421 24,484 Baidu, Inc., ADR (a) 2,455,500 11,930 Equinix, Inc. (a) 2,459,966 92,026 Facebook, Inc., Class A (a) 2,450,652 3,377 Google, Inc., Class A (a) 2,395,543 124,890 Yahoo!, Inc. (a) 2,485,311 ------------ 14,614,393 ------------ IT SERVICES -- 2.3% 32,777 Cognizant Technology Solutions Corp., Class A (a) 2,427,137 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 31.9% 70,047 Altera Corp. 2,412,419 57,279 Analog Devices, Inc. 2,409,155 210,140 Applied Materials, Inc. 2,404,001 77,060 Avago Technologies Ltd. 2,439,720 72,833 Broadcom Corp., Class A 2,418,784 116,407 Intel Corp. 2,401,476 49,961 KLA-Tencor Corp. 2,386,137 70,620 Linear Technology Corp. 2,422,266 82,142 Maxim Integrated Products, Inc. 2,414,975 74,152 Microchip Technology, Inc. 2,416,614 382,375 Micron Technology, Inc. (a) 2,428,081 195,677 NVIDIA Corp. 2,404,870 78,132 Texas Instruments, Inc. 2,417,404 66,942 Xilinx, Inc. 2,403,218 ------------ 33,779,120 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ SOFTWARE -- 24.9% 64,084 Adobe Systems, Inc. (a) $ 2,414,685 68,093 Autodesk, Inc. (a) 2,407,088 59,362 BMC Software, Inc. (a) 2,354,297 108,905 CA, Inc. 2,393,732 50,823 Check Point Software Technologies Ltd. (a) 2,421,208 36,532 Citrix Systems, Inc. (a) 2,401,979 39,333 Intuit, Inc. 2,340,313 87,909 Microsoft Corp. 2,349,808 109,201 Nuance Communications, Inc. (a) 2,437,366 71,582 Oracle Corp. 2,385,112 130,346 Symantec Corp. (a) 2,451,808 ------------ 26,357,396 ------------ TOTAL INVESTMENTS -- 100.0% 106,002,782 (Cost $109,823,598) (b) NET OTHER ASSETS AND LIABILITIES -- 0.0% 5,199 ------------ NET ASSETS -- 100.0% $106,007,981 ============ (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $111,259,551. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $5,911,838 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $11,168,607. ADR - American Depositary Receipt ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $106,002,782 $ -- $ -- ============================================ * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 30 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) -- 100.0% AIR FREIGHT & LOGISTICS -- 3.5% 11,806 C.H. Robinson Worldwide, Inc. $ 746,375 18,899 Expeditors International of Washington, Inc. 747,456 ------------ 1,493,831 ------------ BEVERAGES -- 1.8% 14,414 Monster Beverage Corp. (b) 762,212 ------------ BIOTECHNOLOGY -- 12.4% 7,998 Alexion Pharmaceuticals, Inc. (b) 750,292 8,615 Amgen, Inc. 743,647 5,009 Biogen Idec, Inc. (b) 734,670 9,421 Celgene Corp. (b) 741,621 10,317 Gilead Sciences, Inc. (b) 757,784 4,328 Regeneron Pharmaceuticals, Inc. (b) 740,391 17,445 Vertex Pharmaceuticals, Inc. (b) 731,643 ------------ 5,200,048 ------------ CHEMICALS -- 1.8% 10,188 Sigma-Aldrich Corp. 749,633 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.8% 8,192 Stericycle, Inc. (b) 764,068 ------------ FOOD & STAPLES RETAILING -- 3.6% 7,547 Costco Wholesale Corp. 745,417 8,235 Whole Foods Market, Inc. 752,103 ------------ 1,497,520 ------------ FOOD PRODUCTS -- 1.8% 29,148 Mondelez International, Inc., Class A 742,400 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 3.5% 18,608 DENTSPLY International, Inc. 737,063 1,511 Intuitive Surgical, Inc. (b) 740,949 ------------ 1,478,012 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.6% 13,848 Express Scripts Holding Co. (b) 747,792 9,277 Henry Schein, Inc. (b) 746,427 ------------ 1,494,219 ------------ HOTELS, RESTAURANTS & LEISURE -- 3.6% 14,008 Starbucks Corp. 751,109 6,615 Wynn Resorts Ltd. 744,121 ------------ 1,495,230 ------------ INTERNET & CATALOG RETAIL -- 7.2% 2,922 Amazon.com, Inc. (b) 733,831 12,600 Expedia, Inc. 774,270 38,485 Liberty Interactive Corp., Class A (b) 757,385 1,213 priceline.com, Inc. (b) 753,516 ------------ 3,019,002 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET SOFTWARE & SERVICES -- 1.8% 14,622 eBay, Inc. (b) $ 746,014 ------------ IT SERVICES -- 5.3% 13,040 Automatic Data Processing, Inc. 743,410 9,421 Fiserv, Inc. (b) 744,542 23,912 Paychex, Inc. 744,620 ------------ 2,232,572 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.8% 20,354 Mattel, Inc. 745,363 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.7% 14,851 Life Technologies Corp. (b) 728,887 ------------ MACHINERY -- 1.8% 16,745 PACCAR, Inc. 757,041 ------------ MEDIA -- 16.1% 20,168 Comcast Corp., Class A 753,880 14,936 DIRECTV (b) 749,189 11,890 Discovery Communications, Inc., Class A (b) 754,777 12,015 Liberty Global, Inc., Class A (b) 756,825 6,530 Liberty Media Corp. - Liberty Capital, Class A (b) 757,545 30,094 News Corp., Class A 768,601 254,955 Sirius XM Radio, Inc. 736,820 14,143 Viacom, Inc., Class B 745,902 20,616 Virgin Media, Inc. 757,638 ------------ 6,781,177 ------------ METALS & MINING -- 1.8% 7,549 Randgold Resources Ltd., ADR 749,238 ------------ MULTILINE RETAIL -- 3.6% 18,757 Dollar Tree, Inc. (b) 760,784 18,389 Sears Holdings Corp. (b) (c) 760,569 ------------ 1,521,353 ------------ PHARMACEUTICALS -- 3.6% 26,999 Mylan, Inc. (b) 741,933 7,305 Perrigo Co. 759,939 ------------ 1,501,872 ------------ PROFESSIONAL SERVICES -- 1.8% 14,734 Verisk Analytics, Inc., Class A (b) 751,434 ------------ SOFTWARE -- 1.8% 70,502 Activision Blizzard, Inc. 748,731 ------------ SPECIALTY RETAIL -- 7.1% 13,475 Bed Bath & Beyond, Inc. (b) 753,387 8,344 O'Reilly Automotive, Inc. (b) 746,121 13,923 Ross Stores, Inc. 753,931 65,121 Staples, Inc. 742,379 ------------ 2,995,818 ------------ See Notes to Financial Statements Page 31 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) (CONTINUED) TEXTILES, APPAREL & LUXURY GOODS -- 1.8% 8,090 Fossil, Inc. (b) $ 753,179 ------------ TRADING COMPANIES & DISTRIBUTORS -- 1.8% 16,294 Fastenal Co. 760,767 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 3.6% 10,590 SBA Communications Corp., Class A (b) 752,102 29,878 Vodafone Group PLC, ADR 752,627 ------------ 1,504,729 ------------ TOTAL COMMON STOCKS -- 100.0% 41,974,350 (Cost $38,322,626) ------------ MONEY MARKET FUND -- 0.1% 44,435 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 0.03% (d) 44,435 (Cost $44,435) ------------ COLLATERAL FOR SECURITIES ON LOAN -- 1.0% MONEY MARKET FUND -- 0.2% 81,703 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (d) 81,703 (Cost $81,703) ------------ PRINCIPAL VALUE ---------- REPURCHASE AGREEMENT -- 0.8% $ 327,745 JPMorgan Chase & Co., 0.08% (d), dated 12/31/12, due 01/02/13, with a maturity value of $327,746. Collateralized by U.S. Treasury Note, interest rate of 0.75%, due 10/31/17. The value of the collateral including accrued interest is $334,253. 327,745 (Cost $327,745) ------------ TOTAL COLLATERAL FOR SECURITIES ON LOAN -- 1.0% 409,448 (Cost $409,448) ------------ TOTAL INVESTMENTS -- 101.1% 42,428,233 (Cost $38,776,509) (e) NET OTHER ASSETS AND LIABILITIES --(1.1)% (446,508) ------------ NET ASSETS -- 100.0% $ 41,981,725 ============ (a) 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. (b) Non-income producing security. (c) All or a portion of this security is on loan. (See Note 2C - Securities Lending in the Notes to Financial Statements). The aggregate market value of such securities is $420,218 and the total market value of the collateral held by the Fund is $409,448. (d) Interest rate shown reflects yield as of December 31, 2012. (e) Aggregate cost for federal income tax purposes is $39,105,860. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,492,830 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,170,457. ADR - American Depositary Receipt ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 41,974,350 $ -- $ -- Money Market Funds 126,138 -- -- Repurchase Agreement -- 327,745 -- ----------------------------------------------- Total Investments $ 42,100,488 $ 327,745 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 32 See Notes to Financial Statements FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 7.4% 37,732 Hexcel Corp. (a) $ 1,017,255 ------------ AUTOMOBILES -- 7.6% 30,707 Tesla Motors, Inc. (a) 1,040,046 ------------ BUILDING PRODUCTS -- 0.9% 12,379 Ameresco, Inc., Class A (a) 121,438 ------------ CHEMICALS -- 0.9% 15,704 Zoltek Cos., Inc. (a) 121,706 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.1% 13,218 EnerNOC, Inc. (a) 155,311 ------------ ELECTRICAL EQUIPMENT -- 1.0% 24,918 American Superconductor Corp. (a) (b) 65,285 18,663 Enphase Energy, Inc. (a) (b) 68,120 ------------ 133,405 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 14.3% 50,908 AVX Corp. 548,788 11,855 Itron, Inc. (a) 528,140 13,340 Maxwell Technologies, Inc. (a) 110,589 55,521 Power-One, Inc. (a) 228,191 21,259 Universal Display Corp. (a) 544,656 ------------ 1,960,364 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 2.9% 20,767 Ormat Technologies, Inc. 400,388 ------------ MACHINERY -- 3.3% 12,182 ESCO Technologies, Inc. 455,729 ------------ OIL, GAS & CONSUMABLE FUELS -- 3.3% 27,166 Amyris, Inc. (a) (b) 84,758 23,535 KiOR, Inc., Class A (a) (b) 150,859 27,831 Solazyme, Inc. (a) (b) 218,752 ------------ 454,369 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 57.3% 17,313 Advanced Energy Industries, Inc. (a) 239,093 32,143 Cree, Inc. (a) 1,092,219 38,925 Fairchild Semiconductor International, Inc. (a) 560,520 19,239 First Solar, Inc. (a) (b) 594,100 54,401 GT Advanced Technologies, Inc. (a) 164,291 30,402 International Rectifier Corp. (a) 539,027 31,290 Linear Technology Corp. 1,073,247 105,569 MEMC Electronic Materials, Inc. (a) 338,877 27,130 Microsemi Corp. (a) 570,815 156,641 ON Semiconductor Corp. (a) 1,104,319 13,242 Power Integrations, Inc. 445,064 10,302 Rubicon Technology, Inc. (a) 62,945 54,418 SunPower Corp., Class A (a) (b) 305,829 33,666 Trina Solar Ltd., ADR (a) (b) 146,110 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 17,899 Veeco Instruments, Inc. (a) $ 528,379 49,795 Yingli Green Energy Holding Co., Ltd., ADR (a) (b) 117,018 ------------ 7,881,853 ------------ TOTAL COMMON STOCKS -- 100.0% 13,741,864 (Cost $18,522,964) ------------ COLLATERAL FOR SECURITIES ON LOAN -- 8.0% MONEY MARKET FUND -- 1.5% 204,597 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) 204,597 (Cost $204,597) ------------ PRINCIPAL VALUE ---------- REPURCHASE AGREEMENT -- 6.5% $ 899,596 JPMorgan Chase & Co., 0.08% (c), dated 12/31/12, due 01/02/13, with a maturity value of $899,598. Collateralized by U.S. Treasury Note, interest rate of 0.75%, due 10/31/17. The value of the collateral including accrued interest is $917,459. 899,596 (Cost $899,596) ------------ TOTAL COLLATERAL FOR SECURITIES ON LOAN -- 8.0% 1,104,193 (Cost $1,104,193) ------------ TOTAL INVESTMENTS -- 108.0% 14,846,057 (Cost $19,627,157) (d) NET OTHER ASSETS AND LIABILITIES -- (8.0)% (1,105,942) ------------ NET ASSETS -- 100.0% $ 13,740,115 ============ (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2C - Securities Lending in the Notes to Financial Statements). The aggregate market value of such securities is $1,103,560 and the total market value of the collateral held by the Fund is $1,104,193. (c) Interest rate shown reflects yield as of December 31, 2012. (d) Aggregate cost for federal income tax purposes is $21,809,220. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $962,755 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $7,925,918. ADR - American Depositary Receipt See Notes to Financial Statements Page 33 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 13,741,864 $ -- $ -- Money Market Fund 204,597 -- -- Repurchase Agreement -- 899,596 -- ----------------------------------------------- Total Investments $ 13,946,461 $ 899,596 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 34 See Notes to Financial Statements FIRST TRUST S&P REIT INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) -- 99.7% DIVERSIFIED REITS -- 7.9% 29,789 American Assets Trust, Inc. $ 832,007 9,874 American Realty Capital Properties, Inc. 130,732 140,150 American Realty Capital Trust, Inc. 1,618,732 56,095 CapLease, Inc. 312,449 80,108 Cousins Properties, Inc. 668,902 243,223 Duke Realty Corp. 3,373,503 45,166 First Potomac Realty Trust 558,252 9,678 Gladstone Commercial Corp. 173,720 1,061 Gyrodyne Co. of America, Inc. 76,456 81,422 Investors Real Estate Trust 710,814 134,307 Lexington Realty Trust 1,403,508 104,567 Liberty Property Trust 3,740,362 9,953 One Liberty Properties, Inc. 201,946 15,893 PS Business Parks, Inc. 1,032,727 7,456 Select Income REIT 184,685 149,802 Vornado Realty Trust 11,996,144 58,655 Washington Real Estate Investment Trust 1,533,828 14,898 Whitestone REIT, Class B 209,317 25,752 Winthrop Realty Trust 284,560 50,553 WP Carey, Inc. 2,636,339 ------------ 31,678,983 ------------ INDUSTRIAL REITS -- 5.0% 238,096 DCT Industrial Trust, Inc. 1,545,243 26,210 EastGroup Properties, Inc. 1,410,360 79,167 First Industrial Realty Trust, Inc. (b) 1,114,671 36,152 Monmouth Real Estate Investment Corp., Class A 374,535 407,612 Prologis, Inc. 14,873,762 30,841 STAG Industrial, Inc. 554,213 9,623 Terreno Realty Corp. 148,579 ------------ 20,021,363 ------------ OFFICE REITS -- 13.9% 56,323 Alexandria Real Estate Equities, Inc. 3,904,310 136,474 BioMed Realty Trust, Inc. 2,638,042 133,418 Boston Properties, Inc. 14,116,959 126,855 Brandywine Realty Trust 1,546,362 74,112 CommonWealth REIT 1,173,934 18,676 Coresite Realty Corp. 516,578 71,450 Corporate Office Properties Trust 1,784,821 109,090 Digital Realty Trust, Inc. 7,406,120 115,762 Douglas Emmett, Inc. 2,697,255 55,977 DuPont Fabros Technology, Inc. 1,352,404 63,813 Franklin Street Properties Corp. 785,538 38,177 Government Properties Income Trust 915,103 69,449 Highwoods Properties, Inc. 2,323,069 24,636 Hudson Pacific Properties, Inc. 518,834 65,957 Kilroy Realty Corp. 3,124,383 73,460 Mack-Cali Realty Corp. 1,918,041 46,027 MPG Office Trust, Inc. (b) 141,763 29,504 Parkway Properties, Inc. 412,761 148,438 Piedmont Office Realty Trust, Inc., Class A 2,679,306 SHARES DESCRIPTION VALUE ------------------------------------------------------------ OFFICE REITS (CONTINUED) 79,917 SL Green Realty Corp. $ 6,125,638 ------------ 56,081,221 ------------ RESIDENTIAL REITS -- 17.6% 92,533 American Campus Communities, Inc. 4,268,547 128,716 Apartment Investment & Management Co., Class A 3,483,055 43,768 Associated Estates Realty Corp. 705,540 101,155 AvalonBay Communities, Inc. 13,715,606 67,962 BRE Properties, Inc. 3,454,508 74,389 Camden Property Trust 5,074,074 34,099 Campus Crest Communities, Inc. 418,054 73,248 Colonial Properties Trust 1,565,310 99,951 Education Realty Trust, Inc. 1,063,479 34,444 Equity Lifestyle Properties, Inc. 2,317,737 284,534 Equity Residential 16,124,542 32,303 Essex Property Trust, Inc. 4,737,235 45,325 Home Properties, Inc. 2,778,876 37,379 Mid-America Apartment Communities, Inc. 2,420,290 48,121 Post Properties, Inc. 2,403,644 24,191 Sun Communities, Inc. 964,979 221,211 UDR, Inc. 5,260,397 13,061 UMH Properties, Inc. 134,920 ------------ 70,890,793 ------------ RETAIL REITS -- 27.0% 44,811 Acadia Realty Trust 1,123,860 9,607 Agree Realty Corp. 257,372 1,851 Alexander's, Inc. 612,311 142,408 CBL & Associates Properties, Inc. 3,020,474 48,343 Cedar Realty Trust, Inc. 255,251 213,678 DDR Corp. 3,346,197 54,646 Equity One, Inc. 1,148,112 39,526 Excel Trust, Inc. 500,794 57,153 Federal Realty Investment Trust 5,945,055 398,550 General Growth Properties, Inc. 7,911,218 23,627 Getty Realty Corp. 426,704 125,592 Glimcher Realty Trust 1,392,815 68,727 Inland Real Estate Corp. 575,932 360,486 Kimco Realty Corp. 6,964,590 64,611 Kite Realty Group Trust 361,176 120,818 Macerich (The) Co. 7,043,689 97,311 National Retail Properties, Inc. 3,036,103 46,539 Pennsylvania Real Estate Investment Trust 820,948 42,191 Ramco-Gershenson Properties Trust 561,562 118,020 Realty Income Corp. 4,745,584 79,935 Regency Centers Corp. 3,766,537 40,720 Retail Opportunity Investments Corp. 523,659 28,556 Retail Properties of America, Inc., Class A 341,815 20,178 Rouse Properties, Inc. 341,412 11,264 Saul Centers, Inc. 481,987 273,578 Simon Property Group, Inc. 43,249,946 83,048 Tanger Factory Outlet Centers, Inc. 2,840,242 54,564 Taubman Centers, Inc. 4,295,278 See Notes to Financial Statements Page 35 FIRST TRUST S&P REIT INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) (CONTINUED) RETAIL REITS (CONTINUED) 22,575 Urstadt Biddle Properties, Inc., Class A $ 444,276 98,734 Weingarten Realty Investors 2,643,109 ------------ 108,978,008 ------------ Specialized REITs -- 28.3% 54,854 Ashford Hospitality Trust 576,516 11,686 Chatham Lodging Trust 179,731 35,029 Chesapeake Lodging Trust 731,406 105,206 CubeSmart 1,532,852 172,579 DiamondRock Hospitality Co. 1,553,211 41,425 EPR Properties 1,910,107 90,579 Extra Space Storage, Inc. 3,296,170 97,766 FelCor Lodging Trust, Inc. (b) 456,567 399,791 HCP, Inc. 18,062,557 229,653 Health Care REIT, Inc. 14,075,432 77,144 Healthcare Realty Trust, Inc. 1,852,228 47,396 Healthcare Trust of America, Inc., Class A 469,220 152,752 Hersha Hospitality Trust 763,760 109,340 Hospitality Properties Trust 2,560,743 640,942 Host Hotels & Resorts, Inc. 10,043,561 83,362 LaSalle Hotel Properties 2,116,561 26,970 LTC Properties, Inc. 949,074 119,894 Medical Properties Trust, Inc. 1,433,932 21,412 National Health Investors, Inc. 1,210,420 99,091 OMEGA Healthcare Investors, Inc. 2,363,320 53,742 Pebblebrook Hotel Trust 1,241,440 127,512 Public Storage 18,484,140 94,274 RLJ Lodging Trust 1,826,087 32,766 Sabra Health Care REIT, Inc. 711,678 156,138 Senior Housing Properties Trust 3,691,102 26,914 Sovran Self Storage, Inc. 1,671,359 157,194 Strategic Hotels & Resorts, Inc. (b) 1,006,042 40,822 Summit Hotel Properties, Inc. 387,809 120,960 Sunstone Hotel Investors, Inc. (b) 1,295,482 11,220 Universal Health Realty Income Trust 567,844 261,378 Ventas, Inc. 16,916,384 ------------ 113,936,735 ------------ TOTAL COMMON STOCKS -- 99.7% 401,587,103 (Cost $375,830,010) MONEY MARKET FUND -- 0.0% 92,411 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 0.03% (c) 92,411 (Cost $92,411) ------------ TOTAL INVESTMENTS -- 99.7% 401,679,514 (Cost $375,922,421) (d) NET OTHER ASSETS AND LIABILITIES -- 0.3% 1,208,757 ------------ NET ASSETS -- 100.0% $402,888,271 ============ (a) The industry classification is based upon Standard & Poor's Global Industry Classification Standard ("GICS") Sub-Industry. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2012. (d) Aggregate cost for federal income tax purposes is $380,864,034. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $31,970,402 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $11,154,922. ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 401,587,103 $ -- $ -- Money Market Fund 92,411 -- -- ----------------------------------------------- Total Investments $ 401,679,514 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 36 See Notes to Financial Statements FIRST TRUST ISE WATER INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.6% CHEMICALS -- 4.1% 37,213 Ashland, Inc. $ 2,992,297 ------------ COMMERCIAL SERVICES & SUPPLIES -- 2.0% 54,545 Tetra Tech, Inc. (a) 1,442,715 ------------ CONSTRUCTION & ENGINEERING -- 4.3% 88,755 AECOM Technology Corp. (a) 2,112,369 41,650 Northwest Pipe Co. (a) 993,769 ------------ 3,106,138 ------------ ELECTRICAL EQUIPMENT -- 9.9% 54,471 Emerson Electric Co. 2,884,784 23,877 Franklin Electric Co., Inc. 1,484,433 25,626 Roper Industries, Inc. 2,856,787 ------------ 7,226,004 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 4.9% 30,895 Badger Meter, Inc. 1,464,732 47,530 Itron, Inc. (a) 2,117,461 ------------ 3,582,193 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 3.3% 25,779 IDEXX Laboratories, Inc. (a) 2,392,291 ------------ INDUSTRIAL CONGLOMERATES -- 4.0% 51,703 Danaher Corp. 2,890,198 ------------ LIFE SCIENCES TOOLS & SERVICES -- 4.0% 70,737 Agilent Technologies, Inc. 2,895,973 ------------ MACHINERY -- 40.5% 47,940 Crane Co. 2,218,663 271,086 Energy Recovery, Inc. (a) 921,692 260,620 Flow International Corp. (a) 912,170 19,829 Flowserve Corp. 2,910,897 50,937 Gorman-Rupp (The) Co. 1,519,451 54,811 IDEX Corp. 2,550,356 93,837 ITT Corp. 2,201,416 18,693 Lindsay Corp. 1,497,683 29,679 Mueller Industries, Inc. 1,484,840 254,871 Mueller Water Products, Inc., Class A 1,429,826 46,794 Pall Corp. 2,819,807 58,775 Pentair Ltd. 2,888,791 100,962 Rexnord Corp. (a) 2,150,491 18,194 Valmont Industries, Inc. 2,484,391 34,243 Watts Water Technologies, Inc., Class A 1,472,107 ------------ 29,462,581 ------------ MULTI-UTILITIES -- 3.6% 213,551 Veolia Environment, ADR 2,613,864 ------------ WATER UTILITIES -- 19.0% 30,097 American States Water Co. 1,444,054 75,270 American Water Works Co., Inc. 2,794,775 SHARES DESCRIPTION VALUE ------------------------------------------------------------ WATER UTILITIES (CONTINUED) 100,346 Aqua America, Inc. $ 2,550,795 116,367 Cadiz, Inc. (a) 921,627 78,476 California Water Service Group 1,440,035 34,677 Cia de Saneamento Basico do Estado de Sao Paulo, ADR 2,897,957 116,521 Consolidated Water Co., Ltd. 862,255 36,206 SJW Corp. 963,080 ------------ 13,874,578 ------------ TOTAL COMMON STOCKS -- 99.6% 72,478,832 (Cost $62,632,890) MONEY MARKET FUND -- 0.0% 30,942 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 0.03% (b) 30,942 (Cost $30,942) ------------ TOTAL INVESTMENTS -- 99.6% 72,509,774 (Cost $62,663,832) (c) NET OTHER ASSETS AND LIABILITIES -- 0.4% 259,613 ------------ NET ASSETS -- 100.0% $ 72,769,387 ============ (a) Non-income producing security. (b) Interest rate shown reflects yield as of December 31, 2012. (c) Aggregate cost for federal income tax purposes is $64,637,789. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $9,801,589 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,929,604. ADR - American Depositary Receipt ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 72,478,832 $ -- $ -- Money Market Fund 30,942 -- -- ----------------------------------------------- Total Investments $ 72,509,774 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. See Notes to Financial Statements Page 37 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% GAS UTILITIES -- 3.6% 700,383 Questar Corp. $ 13,839,568 ------------ OIL, GAS & CONSUMABLE FUELS -- 96.4% 183,664 Anadarko Petroleum Corp. 13,648,072 177,871 Apache Corp. 13,962,873 736,927 Bill Barrett Corp. (a) 13,109,931 292,789 Cabot Oil & Gas Corp. 14,563,325 419,974 Cenovus Energy, Inc. 14,085,928 827,265 Chesapeake Energy Corp. 13,749,144 891,893 Comstock Resources, Inc. (a) 13,494,341 263,858 Devon Energy Corp. 13,731,170 679,878 EnCana Corp. (b) 13,434,389 115,130 EOG Resources, Inc. 13,906,553 241,743 EQT Corp. 14,258,002 1,831,483 EXCO Resources, Inc. (b) 12,399,140 2,127,252 Forest Oil Corp. (a) 14,231,316 1,695,483 Goodrich Petroleum Corp. (a) (b) 15,801,901 3,805,413 Magnum Hunter Resources Corp. (a) (b) 15,183,598 531,814 Newfield Exploration Co. (a) 14,241,979 136,966 Noble Energy, Inc. 13,934,921 3,092,438 Penn Virginia Corp. 13,637,652 461,728 QEP Resources, Inc. 13,976,506 4,228,238 Quicksilver Resources, Inc. (a) (b) 12,092,761 220,531 Range Resources Corp. 13,855,963 2,044,699 SandRidge Energy, Inc. (a) (b) 12,983,839 288,046 (SM) Energy Co. 15,038,882 416,020 Southwestern Energy Co. (a) 13,899,228 557,343 Statoil ASA, ADR 13,955,869 1,228,655 Talisman Energy, Inc. 13,920,661 709,452 Ultra Petroleum Corp. (a) (b) 12,862,365 ------------ 373,960,309 ------------ TOTAL COMMON STOCKS -- 100.0% 387,799,877 (Cost $487,661,887) ------------ COLLATERAL FOR SECURITIES ON LOAN -- 11.8% MONEY MARKET FUND -- 2.3% 9,186,253 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) 9,186,253 (Cost $9,186,253) ------------ PRINCIPAL VALUE ----------- REPURCHASE AGREEMENT -- 9.5% $36,849,814 JPMorgan Chase & Co., 0.08% (c), dated 12/31/12, due 01/02/13, with a maturity value of $36,849,896. Collateralized by U.S. Treasury Note, interest rate of 0.75%, due 10/31/17. The value of the collateral including accrued interest is $37,581,545. 36,849,814 (Cost $36,849,814) ------------ DESCRIPTION VALUE ------------------------------------------------------------ TOTAL COLLATERAL FOR SECURITIES ON LOAN -- 11.8% $ 46,036,067 (Cost $46,036,067) ------------ TOTAL INVESTMENTS -- 111.8% 433,835,944 (Cost $533,697,954) (d) NET OTHER ASSETS AND LIABILITIES -- (11.8)% (45,936,642) ------------ NET ASSETS -- 100.0% $387,899,302 ============ (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2C - Securities Lending in the Notes to Financial Statements). The aggregate market value of such securities is $45,608,366 and the total market value of the collateral held by the Fund is $46,036,067. (c) Interest rate shown reflects yield as of December 31, 2012. (d) Aggregate cost for federal income tax purposes is $543,760,568. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $11,425,214 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $121,349,838. ADR - American Depositary Receipt ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 387,799,877 $ -- $ -- Money Market Fund 9,186,253 -- -- Repurchase Agreement -- 36,849,814 -- ----------------------------------------------- Total Investments $ 396,986,130 $ 36,849,814 $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 38 See Notes to Financial Statements FIRST TRUST ISE CHINDIA INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AUTOMOBILES -- 4.2% 97,059 Tata Motors Ltd., ADR $ 2,787,535 ------------ COMMERCIAL BANKS -- 13.5% 109,015 HDFC Bank Ltd., ADR 4,439,091 103,153 ICICI Bank Ltd., ADR 4,498,502 ------------ 8,937,593 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.7% 24,819 New Oriental Education & Technology Group, Inc., ADR 482,233 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.5% 8,811 China Telecom Corp., Ltd., ADR 500,905 30,844 China Unicom (Hong Kong) Ltd., ADR (a) 502,449 ------------ 1,003,354 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.5% 46,707 Hollysys Automation Technologies Ltd. (b) 554,412 33,845 Nam Tai Electronics, Inc. (a) 467,738 ------------ 1,022,150 ------------ FOOD PRODUCTS -- 0.8% 39,202 Zhongpin, Inc. (b) 503,354 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7% 14,319 Mindray Medical International Ltd., ADR 468,231 ------------ HOTELS, RESTAURANTS & LEISURE -- 7.0% 41,916 7 Days Group Holdings Ltd. ADR (b) 505,507 29,384 China Lodging Group Ltd., ADR (b) 500,997 23,155 Ctrip.com International Ltd., ADR (a) (b) 527,702 18,017 Home Inns & Hotels Management, Inc., ADR (b) 520,691 153,059 Melco Crown Entertainment Ltd., ADR (a) (b) 2,577,514 ------------ 4,632,411 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.8% 13,555 Huaneng Power International, Inc., ADR 503,568 ------------ INSURANCE -- 0.8% 10,608 China Life Insurance Co., Ltd., ADR 527,112 ------------ INTERNET & CATALOG RETAIL -- 0.7% 109,225 E-Commerce China Dangdang, Inc., ADR (a) (b) 453,284 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET SOFTWARE & SERVICES -- 17.7% 57,225 21Vianet Group, Inc., ADR (b) $ 549,932 46,110 Baidu, Inc., ADR (b) 4,624,372 33,109 NetEase, Inc., ADR (b) 1,408,788 51,142 Qihoo 360 Technology Co. Ltd., ADR (b) 1,518,406 151,833 Renren, Inc., ADR (a) (b) 523,824 28,314 SINA Corp. (b) 1,421,929 11,610 Sohu.com, Inc. (b) 549,617 21,267 SouFun Holdings Ltd., ADR 531,675 30,556 Youku Tudou, Inc., ADR (a) (b) 557,342 ------------ 11,685,885 ------------ IT SERVICES -- 10.8% 107,707 Infosys Ltd., ADR (a) 4,556,006 294,859 Wipro Ltd., ADR (a) 2,582,965 ------------ 7,138,971 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.8% 31,437 WuXi PharmaTech Cayman, Inc., ADR (b) 495,133 ------------ MARINE -- 0.7% 29,209 Seaspan Corp. (a) 468,220 ------------ MEDIA -- 0.8% 20,745 Focus Media Holding Ltd., ADR 532,732 ------------ METALS & MINING -- 4.8% 42,278 Aluminum Corp. of China Ltd., ADR (a) (b) 503,531 311,698 Sterlite Industries (India) Ltd., ADR 2,683,720 ------------ 3,187,251 ------------ OIL, GAS & CONSUMABLE FUELS -- 9.5% 4,368 China Petroleum & Chemical Corp., ADR 501,971 11,832 CNOOC Ltd., ADR 2,603,040 18,335 PetroChina Co., Ltd., ADR 2,636,206 30,594 Yanzhou Coal Mining Co., Ltd., ADR 522,545 ------------ 6,263,762 ------------ PHARMACEUTICALS -- 1.9% 38,174 Dr. Reddy's Laboratories Ltd., ADR 1,270,812 ------------ PROFESSIONAL SERVICES -- 0.7% 10,448 51job, Inc., ADR (b) 488,444 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.8% 29,977 Spreadtrum Communications, Inc., ADR (a) 527,595 ------------ SOFTWARE -- 5.3% 46,885 AsiaInfo-Linkage, Inc. (b) 508,702 44,342 AutoNavi Holdings Ltd. ADR (b) 503,282 18,499 Changyou.com Ltd., ADR 485,784 See Notes to Financial Statements Page 39 FIRST TRUST ISE CHINDIA INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) SOFTWARE (CONTINUED) 94,493 Giant Interactive Group, Inc., ADR (a) $ 511,207 82,010 NQ Mobile, Inc. ADR (a) (b) 495,340 45,919 Perfect World Co., Ltd., ADR 488,119 161,855 Shanda Games Ltd., ADR 492,039 ------------ 3,484,473 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 7.0% 90,001 Michael Kors Holdings Ltd. (b) 4,592,751 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 7.0% 78,497 China Mobile Ltd., ADR 4,609,344 ------------ TOTAL COMMON STOCKS -- 100.0% 66,066,198 (Cost $65,361,819) ------------ COLLATERAL FOR SECURITIES ON LOAN -- 16.2% MONEY MARKET FUND -- 3.1% 2,013,410 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) 2,013,410 (Cost $2,013,410) ------------ PRINCIPAL VALUE ---------- REPURCHASE AGREEMENT -- 13.1% $8,685,251 JPMorgan Chase & Co., 0.08% (c), dated 12/31/12, due 01/02/13, with a maturity value of $8,685,271. Collateralized by U.S. Treasury Note, interest rate of 0.75%, due 10/31/17. The value of the collateral including accrued interest is $8,857,715. 8,685,251 (Cost $8,685,251) ------------ TOTAL COLLATERAL FOR SECURITIES ON LOAN -- 16.2% 10,698,661 (Cost $10,698,661) ------------ TOTAL INVESTMENTS -- 116.2% 76,764,859 (Cost $76,060,480) (d) NET OTHER ASSETS AND LIABILITIES -- (16.2)% (10,698,513) ------------ NET ASSETS -- 100.0% $ 66,066,346 ============ (a) All or a portion of this security is on loan. (See Note 2C - Securities Lending in the Notes to Financial Statements). The aggregate market value of such securities is $10,576,397 and the total market value of the collateral held by the Fund is $10,698,661. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2012. (d) Aggregate cost for federal income tax purposes is $77,312,026. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $8,699,943 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,247,110. ADR - American Depositary Receipt ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 66,066,198 $ -- $ -- Money Market Fund 2,013,410 -- -- Repurchase Agreement -- 8,685,251 -- ----------------------------------------------- Total Investments $ 68,079,608 $ 8,685,251 $ -- =============================================== All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. COUNTRY ALLOCATIONS AS A PERCENTAGE OF NET ASSETS**: --------------------------------------------------------------------- China 45.4% India 34.5 Hong Kong 20.1 Net Other Assets and Liabilities 0.0 ------ 100.0% ====== * See Portfolio of Investments for industry breakout. ** Portfolio securities are categorized based on their country of incorporation. Page 40 See Notes to Financial Statements FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% COMMERCIAL BANKS -- 84.9% 2,191 1st Source Corp. $ 48,399 2,149 Ameris Bancorp (a) 26,841 1,083 Arrow Financial Corp. 27,021 15,489 Associated Banc-Corp. 203,216 1,374 BancFirst Corp. 58,203 2,989 Bancorp (The), Inc. (a) 32,789 3,130 Bank of the Ozarks, Inc. 104,761 1,755 Banner Corp. 53,931 7,042 BBCN Bancorp, Inc. 81,476 6,155 BOK Financial Corp. 335,201 7,123 Boston Private Financial Holdings, Inc. 64,178 1,209 Bryn Mawr Bank Corp. 26,924 688 Camden National Corp. 23,371 2,643 Cardinal Financial Corp. 43,002 7,106 Cathay General Bancorp 138,567 2,481 Chemical Financial Corp. 58,949 1,338 City Holding Co. 46,629 3,585 CoBiz Financial, Inc. 26,780 3,581 Columbia Banking System, Inc. 64,243 8,271 Commerce Bancshares, Inc. 289,981 1,409 Community Trust Bancorp, Inc. 46,187 9,458 CVB Financial Corp. 98,363 2,066 Eagle Bancorp, Inc. (a) 41,258 12,661 East West Bancorp, Inc. 272,085 7,818 First Busey Corp. 36,354 778 First Citizens BancShares, Inc., Class A 127,203 1,812 First Community Bancshares, Inc. 28,938 1,623 First Connecticut Bancorp, Inc. 22,316 5,279 First Financial Bancorp 77,179 2,841 First Financial Bankshares, Inc. 110,827 1,194 First Financial Corp. 36,107 1,536 First Interstate BancSystem, Inc. 23,700 2,587 First Merchants Corp. 38,391 6,753 First Midwest Bancorp, Inc. 84,548 9,894 FirstMerit Corp. 140,396 17,965 Fulton Financial Corp. 172,644 1,140 German American Bancorp, Inc. 24,761 6,491 Glacier Bancorp, Inc. 95,483 1,226 Great Southern Bancorp, Inc. 31,202 7,650 Hancock Holding Co. 242,811 2,841 Hanmi Financial Corp. (a) 38,609 1,490 Heartland Financial USA, Inc. 38,963 2,526 Home BancShares, Inc. 83,408 2,658 IBERIABANK Corp. 130,561 1,956 Independent Bank Corp. 56,626 6,065 International Bancshares Corp. 109,473 10,097 Investors Bancorp, Inc. 179,525 1,475 Lakeland Financial Corp. 38,114 4,943 MB Financial, Inc. 97,624 13,494 National Penn Bancshares, Inc. 125,764 3,045 NBT Bancorp, Inc. 61,722 1,032 OmniAmerican Bancorp, Inc. (a) 23,870 3,221 PacWest Bancorp 79,816 4,022 Park Sterling Corp. (a) 21,035 965 Peoples Bancorp, Inc. 19,715 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMERCIAL BANKS (CONTINUED) 3,130 Pinnacle Financial Partners, Inc. (a) $ 58,969 6,646 PrivateBancorp, Inc. 101,817 2,267 Renasant Corp. 43,390 1,685 Republic Bancorp, Inc., Class A 35,604 2,683 S&T Bancorp, Inc. 48,482 1,254 S.Y. Bancorp, Inc. 28,115 2,247 Sandy Spring Bancorp, Inc. 43,637 1,365 SCBT Financial Corp. 54,846 4,235 Signature Bank (a) 302,125 1,502 Simmons First National Corp., Class A 38,091 1,568 Southside Bancshares, Inc. 33,022 1,755 Southwest Bancorp, Inc. (a) 19,656 2,879 State Bank Financial Corp. 45,718 2,085 StellarOne Corp. 29,482 5,608 Sterling Financial Corp. 117,095 16,824 Susquehanna Bancshares, Inc. 176,316 4,017 SVB Financial Group (a) 224,831 2,597 Taylor Capital Group, Inc. (a) 46,876 3,662 Texas Capital Bancshares, Inc. (a) 164,131 2,831 TowneBank 43,852 1,443 TriCo Bancshares 24,170 5,845 Trustmark Corp. 131,279 3,663 UMB Financial Corp. 160,586 10,099 Umpqua Holdings Corp. 119,067 2,343 Union First Market Bankshares Corp. 36,949 4,536 United Bankshares, Inc. 110,316 3,826 United Community Banks, Inc. (a) 36,041 1,477 Washington Trust Bancorp, Inc. 38,860 2,406 WesBanco, Inc. 53,461 2,471 Westamerica Bancorporation 105,240 6,433 Wilshire Bancorp, Inc. (a) 37,762 3,288 Wintrust Financial Corp. 120,670 16,619 Zions Bancorporation 355,647 ------------ 7,596,143 ------------ IT SERVICES -- 0.5% 1,032 Cass Information Systems, Inc. 43,550 ------------ THRIFTS & MORTGAGE FINANCE -- 14.6% 7,155 Beneficial Mutual Bancorp, Inc. (a) 67,972 1,156 Bofi Holding, Inc. (a) 32,218 6,323 Brookline Bancorp, Inc. 53,746 13,797 Capitol Federal Financial, Inc. 161,287 3,213 Dime Community Bancshares, Inc. 44,629 1,491 First Financial Holdings, Inc. 19,502 2,788 Flushing Financial Corp. 42,768 1,204 Franklin Financial Corp. 19,962 1,293 HomeStreet, Inc. (a) 33,036 8,810 Northwest Bancshares, Inc. 106,953 4,084 Oritani Financial Corp. 62,567 2,574 Rockville Financial, Inc. 33,205 984 Territorial Bancorp, Inc. 22,484 27,882 TFS Financial Corp. (a) 268,225 8,476 TrustCo Bank Corp. 44,753 1,396 United Financial Bancorp, Inc. 21,945 3,571 ViewPoint Financial Group, Inc. 74,777 See Notes to Financial Statements Page 41 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) Thrifts & Mortgage Finance (Continued) 9,585 Washington Federal, Inc. $ 161,699 788 WSFS Financial Corp. 33,293 ------------ 1,305,021 ------------ TOTAL INVESTMENTS -- 100.0% 8,944,714 (Cost $8,936,951) (b) NET OTHER ASSETS AND LIABILITIES -- 0.0% 355 ------------ NET ASSETS -- 100.0% $ 8,945,069 ============ (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $9,072,104. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $330,752 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $458,142. ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 8,944,714 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. Page 42 See Notes to Financial Statements FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND PORTFOLIO OF INVESTMENTS DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 98.2% AEROSPACE & DEFENSE -- 2.3% 153 Boeing (The) Co. $ 11,530 75 General Dynamics Corp. 5,195 177 Honeywell International, Inc. 11,234 21 L-3 Communications Holdings, Inc. 1,609 61 Lockheed Martin Corp. 5,630 55 Northrop Grumman Corp. 3,717 33 Precision Castparts Corp. 6,251 74 Raytheon Co. 4,259 32 Rockwell Collins, Inc. 1,861 64 Textron, Inc. 1,587 190 United Technologies Corp. 15,582 ------------ 68,455 ------------ AIR FREIGHT & LOGISTICS -- 0.8% 36 C.H. Robinson Worldwide, Inc. 2,276 47 Expeditors International of Washington, Inc. 1,859 66 FedEx Corp. 6,054 162 United Parcel Service, Inc., Class B 11,944 ------------ 22,133 ------------ AIRLINES -- 0.1% 167 Southwest Airlines Co. 1,710 ------------ AUTO COMPONENTS -- 0.3% 26 BorgWarner, Inc. (a) 1,862 69 Delphi Automotive PLC (a) 2,639 55 Goodyear Tire & Rubber (The) Co. (a) 760 154 Johnson Controls, Inc. 4,728 ------------ 9,989 ------------ AUTOMOBILES -- 0.5% 861 Ford Motor Co. 11,150 51 Harley-Davidson, Inc. 2,491 ------------ 13,641 ------------ BEVERAGES -- 2.3% 36 Beam, Inc. 2,199 34 Brown-Forman Corp., Class B 2,150 871 Coca-Cola (The) Co. 31,574 61 Coca-Cola Enterprises, Inc. 1,936 34 Constellation Brands, Inc., Class A (a) 1,203 47 Dr. Pepper Snapple Group, Inc. 2,076 35 Molson Coors Brewing Co., Class B 1,498 34 Monster Beverage Corp. (a) 1,798 349 PepsiCo, Inc. 23,882 ------------ 68,316 ------------ BIOTECHNOLOGY -- 1.6% 44 Alexion Pharmaceuticals, Inc. (a) 4,128 173 Amgen, Inc. 14,933 53 Biogen Idec, Inc. (a) 7,774 95 Celgene Corp. (a) 7,478 171 Gilead Sciences, Inc. (a) 12,560 ------------ 46,873 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ BUILDING PRODUCTS -- 0.0% 81 Masco Corp. $ 1,349 ------------ CAPITAL MARKETS -- 1.9% 46 Ameriprise Financial, Inc. 2,881 264 Bank of New York Mellon (The) Corp. 6,785 28 BlackRock, Inc. 5,788 248 Charles Schwab (The) Corp. 3,561 58 E*TRADE Financial Corp. (a) 519 21 Federated Investors, Inc., Class B 425 31 Franklin Resources, Inc. 3,897 100 Goldman Sachs Group (The), Inc. 12,756 100 Invesco Ltd. 2,609 26 Legg Mason, Inc. 669 312 Morgan Stanley 5,965 49 Northern Trust Corp. 2,458 105 State Street Corp. 4,936 58 T. Rowe Price Group, Inc. 3,777 ------------ 57,026 ------------ CHEMICALS -- 2.5% 48 Air Products and Chemicals, Inc. 4,033 16 Airgas, Inc. 1,460 14 CF Industries Holdings, Inc. 2,844 271 Dow Chemical (The) Co. 8,759 211 E.I. du Pont de Nemours & Co. 9,489 35 Eastman Chemical Co. 2,382 60 Ecolab, Inc. 4,314 31 FMC Corp. 1,814 18 International Flavors & Fragrances, Inc. 1,198 86 LyondellBasell Industries N.V., Class A 4,910 121 Monsanto Co. 11,453 62 Mosaic (The) Co. 3,511 35 PPG Industries, Inc. 4,737 67 Praxair, Inc. 7,333 19 Sherwin-Williams (The) Co. 2,922 27 Sigma-Aldrich Corp. 1,987 ------------ 73,146 ------------ COMMERCIAL BANKS -- 2.7% 158 BB&T Corp. 4,599 43 Comerica, Inc. 1,305 203 Fifth Third Bancorp 3,083 56 First Horizon National Corp. 555 193 Huntington Bancshares, Inc. 1,233 211 KeyCorp 1,777 27 M&T Bank Corp. 2,659 119 PNC Financial Services Group, Inc. 6,939 319 Regions Financial Corp. 2,271 122 SunTrust Banks, Inc. 3,459 424 U.S. Bancorp 13,542 1,105 Wells Fargo & Co. 37,769 42 Zions Bancorporation 899 ------------ 80,090 ------------ See Notes to Financial Statements Page 43 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) COMMERCIAL SERVICES & SUPPLIES -- 0.6% 52 ADT (The) Corp. $ 2,418 22 Avery Dennison Corp. 768 24 Cintas Corp. 982 38 Iron Mountain, Inc. 1,180 45 Pitney Bowes, Inc. 479 68 Republic Services, Inc. 1,994 19 Stericycle, Inc. (a) 1,772 105 Tyco International Ltd. 3,071 98 Waste Management, Inc. 3,307 ------------ 15,971 ------------ COMMUNICATIONS EQUIPMENT -- 1.9% 1,199 Cisco Systems, Inc. 23,560 18 F5 Networks, Inc. (a) 1,749 26 Harris Corp. 1,273 53 JDS Uniphase Corp. (a) 717 116 Juniper Networks, Inc. (a) 2,282 63 Motorola Solutions, Inc. 3,508 385 QUALCOMM, Inc. 23,878 ------------ 56,967 ------------ COMPUTERS & PERIPHERALS -- 4.9% 212 Apple, Inc. 113,002 329 Dell, Inc. 3,333 476 EMC Corp. (a) 12,043 444 Hewlett-Packard Co. 6,327 81 NetApp, Inc. (a) 2,718 55 SanDisk Corp. (a) 2,396 76 Seagate Technology PLC 2,316 49 Western Digital Corp. 2,082 ------------ 144,217 ------------ CONSTRUCTION & ENGINEERING -- 0.2% 38 Fluor Corp. 2,232 29 Jacobs Engineering Group, Inc. (a) 1,235 48 Quanta Services, Inc. (a) 1,310 ------------ 4,777 ------------ CONSTRUCTION MATERIALS -- 0.1% 29 Vulcan Materials Co. 1,509 ------------ CONSUMER FINANCE -- 0.9% 220 American Express Co. 12,646 131 Capital One Financial Corp. 7,589 114 Discover Financial Services 4,395 104 SLM Corp. 1,781 ------------ 26,411 ------------ CONTAINERS & PACKAGING -- 0.1% 35 Ball Corp. 1,566 23 Bemis Co., Inc. 770 37 Owens-Illinois, Inc. (a) 787 44 Sealed Air Corp. 770 ------------ 3,893 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ DISTRIBUTORS -- 0.1% 35 Genuine Parts Co. $ 2,225 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.1% 23 Apollo Group, Inc., Class A (a) 481 61 H&R Block, Inc. 1,133 ------------ 1,614 ------------ DIVERSIFIED FINANCIAL SERVICES -- 3.5% 2,433 Bank of America Corp. 28,223 662 Citigroup, Inc. 26,189 69 CME Group, Inc. 3,499 16 IntercontinentalExchange, Inc. (a) 1,981 858 JPMorgan Chase & Co. 37,726 45 Leucadia National Corp. 1,070 44 Moody's Corp. 2,214 26 NASDAQ OMX Group (The), Inc. 650 55 NYSE Euronext 1,735 ------------ 103,287 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.7% 1,282 AT&T, Inc. 43,216 141 CenturyLink, Inc. 5,516 225 Frontier Communications Corp. 963 644 Verizon Communications, Inc. 27,866 133 Windstream Corp. 1,101 ------------ 78,662 ------------ ELECTRIC UTILITIES -- 2.0% 110 American Electric Power Co., Inc. 4,695 159 Duke Energy Corp. 10,144 74 Edison International 3,344 40 Entergy Corp. 2,550 193 Exelon Corp. 5,740 94 FirstEnergy Corp. 3,925 96 NextEra Energy, Inc. 6,642 71 Northeast Utilities 2,775 52 Pepco Holdings, Inc. 1,020 25 Pinnacle West Capital Corp. 1,274 131 PPL Corp. 3,751 197 Southern (The) Co. 8,434 110 Xcel Energy, Inc. 2,938 ------------ 57,232 ------------ ELECTRICAL EQUIPMENT -- 0.7% 104 Eaton Corp. PLC 5,637 163 Emerson Electric Co. 8,632 31 Rockwell Automation, Inc. 2,604 22 Roper Industries, Inc. 2,453 ------------ 19,326 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.4% 36 Amphenol Corp., Class A 2,329 334 Corning, Inc. 4,215 34 FLIR Systems, Inc. 759 42 Jabil Circuit, Inc. 810 Page 44 See Notes to Financial Statements FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS (CONTINUED) 31 Molex, Inc. $ 847 95 TE Connectivity Ltd. 3,527 ------------ 12,487 ------------ ENERGY EQUIPMENT & SERVICES -- 1.8% 99 Baker Hughes, Inc. 4,043 56 Cameron International Corp. (a) 3,162 16 Diamond Offshore Drilling, Inc. 1,087 52 Ensco PLC, Class A 3,082 54 FMC Technologies, Inc. (a) 2,313 209 Halliburton Co. 7,250 24 Helmerich & Payne, Inc. 1,344 66 Nabors Industries Ltd. (a) 954 96 National Oilwell Varco, Inc. 6,562 57 Noble Corp. 1,985 28 Rowan Cos. PLC, Class A (a) 876 300 Schlumberger Ltd. 20,787 ------------ 53,445 ------------ FOOD & STAPLES RETAILING -- 2.3% 98 Costco Wholesale Corp. 9,680 281 CVS Caremark Corp. 13,586 116 Kroger (The) Co. 3,018 54 Safeway, Inc. 977 133 Sysco Corp. 4,211 194 Walgreen Co. 7,180 378 Wal-Mart Stores, Inc. 25,791 39 Whole Foods Market, Inc. 3,562 ------------ 68,005 ------------ FOOD PRODUCTS -- 1.7% 149 Archer-Daniels-Midland Co. 4,081 40 Campbell Soup Co. 1,396 92 ConAgra Foods, Inc. 2,714 42 Dean Foods Co. (a) 693 146 General Mills, Inc. 5,900 72 H. J. Heinz Co. 4,153 34 Hershey (The) Co. 2,455 30 Hormel Foods Corp. 936 24 J.M. Smucker (The) Co. 2,070 56 Kellogg Co. 3,128 134 Kraft Foods Group, Inc. 6,093 30 McCormick & Co., Inc. 1,906 46 Mead Johnson Nutrition Co. 3,031 401 Mondelez International, Inc., Class A 10,213 65 Tyson Foods, Inc., Class A 1,261 ------------ 50,030 ------------ GAS UTILITIES -- 0.1% 27 AGL Resources, Inc. 1,079 46 ONEOK, Inc. 1,967 ------------ 3,046 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.5% 357 Abbott Laboratories $ 23,383 124 Baxter International, Inc. 8,266 44 Becton, Dickinson & Co. 3,440 310 Boston Scientific Corp. (a) 1,776 17 C. R. Bard, Inc. 1,662 50 CareFusion Corp. (a) 1,429 107 Covidien PLC 6,178 32 DENTSPLY International, Inc. 1,268 26 Edwards Lifesciences Corp. (a) 2,344 9 Intuitive Surgical, Inc. (a) 4,413 228 Medtronic, Inc. 9,353 70 St. Jude Medical, Inc. 2,530 65 Stryker Corp. 3,563 25 Varian Medical Systems, Inc. (a) 1,756 39 Zimmer Holdings, Inc. 2,600 ------------ 73,961 ------------ HEALTH CARE PROVIDERS & SERVICES -- 1.9% 76 Aetna, Inc. 3,519 53 AmerisourceBergen Corp. 2,289 77 Cardinal Health, Inc. 3,171 65 Cigna Corp. 3,475 30 Coventry Health Care, Inc. 1,345 19 DaVita HealthCare Partners, Inc. (a) 2,100 184 Express Scripts Holding Co. (a) 9,936 36 Humana, Inc. 2,471 21 Laboratory Corp. of America Holdings (a) 1,819 53 McKesson Corp. 5,139 19 Patterson Cos., Inc. 650 36 Quest Diagnostics, Inc. 2,098 24 Tenet Healthcare Corp. (a) 779 231 UnitedHealth Group, Inc. 12,529 69 WellPoint, Inc. 4,203 ------------ 55,523 ------------ HEALTH CARE TECHNOLOGY -- 0.1% 33 Cerner Corp. (a) 2,562 ------------ HOTELS, RESTAURANTS & LEISURE -- 1.8% 101 Carnival Corp. 3,714 7 Chipotle Mexican Grill, Inc. (a) 2,082 29 Darden Restaurants, Inc. 1,307 60 International Game Technology 850 56 Marriott International, Inc., Class A 2,087 227 McDonald's Corp. 20,023 168 Starbucks Corp. 9,008 44 Starwood Hotels & Resorts Worldwide, Inc. 2,524 32 Wyndham Worldwide Corp. 1,703 18 Wynn Resorts Ltd. 2,025 102 Yum! Brands, Inc. 6,773 ------------ 52,096 ------------ See Notes to Financial Statements Page 45 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) HOUSEHOLD DURABLES -- 0.3% 63 D.R. Horton, Inc. $ 1,246 25 Garmin Ltd. 1,020 15 Harman International Industries, Inc. 670 32 Leggett & Platt, Inc. 871 37 Lennar Corp., Class A 1,431 65 Newell Rubbermaid, Inc. 1,448 77 PulteGroup, Inc. (a) 1,398 18 Whirlpool Corp. 1,831 ------------ 9,915 ------------ HOUSEHOLD PRODUCTS -- 2.1% 29 Clorox (The) Co. 2,123 100 Colgate-Palmolive Co. 10,454 88 Kimberly-Clark Corp. 7,430 617 Procter & Gamble (The) Co. 41,888 ------------ 61,895 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.1% 139 AES (The) Corp. 1,488 73 NRG Energy, Inc. 1,678 ------------ 3,166 ------------ INDUSTRIAL CONGLOMERATES -- 2.4% 144 3M Co. 13,371 131 Danaher Corp. 7,323 2,367 General Electric Co. 49,683 ------------ 70,377 ------------ INSURANCE -- 3.9% 77 ACE Ltd. 6,145 106 Aflac, Inc. 5,631 109 Allstate (The) Corp. 4,378 333 American International Group, Inc. (a) 11,755 72 Aon PLC 4,003 18 Assurant, Inc. 625 412 Berkshire Hathaway, Inc., Class B (a) 36,956 59 Chubb (The) Corp. 4,444 33 Cincinnati Financial Corp. 1,292 111 Genworth Financial, Inc., Class A (a) 834 98 Hartford Financial Services Group (The), Inc. 2,199 62 Lincoln National Corp. 1,606 70 Loews Corp. 2,852 123 Marsh & McLennan Cos., Inc. 4,240 246 MetLife, Inc. 8,103 62 Principal Financial Group, Inc. 1,768 126 Progressive (The) Corp. 2,659 105 Prudential Financial, Inc. 5,600 21 Torchmark Corp. 1,085 86 Travelers (The) Cos., Inc. 6,176 62 Unum Group 1,291 68 XL Group PLC 1,704 ------------ 115,346 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET & CATALOG RETAIL -- 1.1% 82 Amazon.com, Inc. (a) $ 20,594 21 Expedia, Inc. 1,290 13 Netflix, Inc. (a) 1,206 11 priceline.com, Inc. (a) 6,833 25 TripAdvisor, Inc. (a) 1,049 ------------ 30,972 ------------ INTERNET SOFTWARE & SERVICES -- 2.2% 40 Akamai Technologies, Inc. (a) 1,636 263 eBay, Inc. (a) 13,418 60 Google, Inc., Class A (a) 42,562 35 VeriSign, Inc. (a) 1,359 235 Yahoo!, Inc. (a) 4,677 ------------ 63,652 ------------ IT SERVICES -- 3.8% 144 Accenture PLC, Class A 9,576 110 Automatic Data Processing, Inc. 6,271 68 Cognizant Technology Solutions Corp., Class A (a) 5,035 35 Computer Sciences Corp. 1,402 56 Fidelity National Information Services, Inc. 1,949 30 Fiserv, Inc. (a) 2,371 240 International Business Machines Corp. 45,972 24 MasterCard, Inc., Class A 11,791 73 Paychex, Inc. 2,273 64 SAIC, Inc. 725 38 Teradata Corp. (a) 2,352 36 Total System Services, Inc. 771 118 Visa, Inc., Class A 17,887 135 Western Union Co. 1,837 ------------ 110,212 ------------ LEISURE EQUIPMENT & PRODUCTS -- 0.1% 26 Hasbro, Inc. 933 77 Mattel, Inc. 2,820 ------------ 3,753 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.4% 79 Agilent Technologies, Inc. 3,234 39 Life Technologies Corp. (a) 1,914 26 PerkinElmer, Inc. 825 81 Thermo Fisher Scientific, Inc. 5,166 20 Waters Corp. (a) 1,743 ------------ 12,882 ------------ MACHINERY -- 1.9% 148 Caterpillar, Inc. 13,258 40 Cummins, Inc. 4,334 88 Deere & Co. 7,605 40 Dover Corp. 2,628 11 Flowserve Corp. 1,615 96 Illinois Tool Works, Inc. 5,838 63 Ingersoll-Rand PLC 3,021 Page 46 See Notes to Financial Statements FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) MACHINERY (CONTINUED) 24 Joy Global, Inc. $ 1,531 80 PACCAR, Inc. 3,617 25 Pall Corp. 1,506 34 Parker Hannifin Corp. 2,892 47 Pentair Ltd. 2,310 13 Snap-on, Inc. 1,027 38 Stanley Black & Decker, Inc. 2,811 42 Xylem, Inc. 1,138 ------------ 55,131 ------------ MEDIA -- 3.5% 49 Cablevision Systems Corp., Class A 732 133 CBS Corp., Class B 5,061 600 Comcast Corp., Class A 22,428 136 DIRECTV (a) 6,822 54 Discovery Communications, Inc., Class A (a) 3,428 52 Gannett Co., Inc. 936 97 Interpublic Group of Cos. (The), Inc. 1,069 63 McGraw-Hill (The) Cos., Inc. 3,444 455 News Corp., Class A 11,621 60 Omnicom Group, Inc. 2,998 20 Scripps Networks Interactive, Class A 1,158 68 Time Warner Cable, Inc. 6,609 214 Time Warner, Inc. 10,236 104 Viacom, Inc., Class B 5,485 400 Walt Disney (The) Co. 19,916 1 Washington Post (The) Co., Class B 365 ------------ 102,308 ------------ METALS & MINING -- 0.7% 241 Alcoa, Inc. 2,092 24 Allegheny Technologies, Inc. 728 32 Cliffs Natural Resources, Inc. 1,234 214 Freeport-McMoRan Copper & Gold, Inc. 7,319 112 Newmont Mining Corp. 5,201 72 Nucor Corp. 3,109 33 United States Steel Corp. 788 ------------ 20,471 ------------ MULTILINE RETAIL -- 0.8% 13 Big Lots, Inc. (a) 370 59 Dollar General Corp. (a) 2,601 51 Dollar Tree, Inc. (a) 2,068 22 Family Dollar Stores, Inc. 1,395 32 J. C. Penney Co., Inc. 631 48 Kohl's Corp. 2,063 89 Macy's, Inc. 3,473 34 Nordstrom, Inc. 1,819 147 Target Corp. 8,698 ------------ 23,118 ------------ MULTI-UTILITIES -- 1.2% 55 Ameren Corp. 1,690 96 CenterPoint Energy, Inc. 1,848 60 CMS Energy Corp. 1,463 SHARES DESCRIPTION VALUE ------------------------------------------------------------ MULTI-UTILITIES (CONTINUED) 66 Consolidated Edison, Inc. $ 3,666 130 Dominion Resources, Inc. 6,734 39 DTE Energy Co. 2,342 18 Integrys Energy Group, Inc. 940 70 NiSource, Inc. 1,742 97 PG&E Corp. 3,897 114 Public Service Enterprise Group, Inc. 3,488 30 SCANA Corp. 1,369 51 Sempra Energy 3,618 46 TECO Energy, Inc. 771 52 Wisconsin Energy Corp. 1,916 ------------ 35,484 ------------ OFFICE ELECTRONICS -- 0.1% 285 Xerox Corp. 1,944 ------------ OIL, GAS & CONSUMABLE FUELS -- 9.0% 113 Anadarko Petroleum Corp. 8,397 88 Apache Corp. 6,908 47 Cabot Oil & Gas Corp. 2,338 117 Chesapeake Energy Corp. 1,945 442 Chevron Corp. 47,798 274 ConocoPhillips 15,889 51 CONSOL Energy, Inc. 1,637 87 Denbury Resources, Inc. (a) 1,409 85 Devon Energy Corp. 4,423 61 EOG Resources, Inc. 7,368 34 EQT Corp. 2,005 1,029 Exxon Mobil Corp. 89,060 67 Hess Corp. 3,548 143 Kinder Morgan, Inc. 5,052 159 Marathon Oil Corp. 4,875 77 Marathon Petroleum Corp. 4,851 42 Murphy Oil Corp. 2,501 31 Newfield Exploration Co. (a) 830 40 Noble Energy, Inc. 4,070 183 Occidental Petroleum Corp. 14,020 61 Peabody Energy Corp. 1,623 141 Phillips 66 7,487 28 Pioneer Natural Resources Co. 2,985 40 QEP Resources, Inc. 1,211 37 Range Resources Corp. 2,325 79 Southwestern Energy Co. (a) 2,639 150 Spectra Energy Corp. 4,107 32 Tesoro Corp. 1,410 125 Valero Energy Corp. 4,265 152 Williams (The) Cos., Inc. 4,976 45 WPX Energy, Inc. (a) 670 ------------ 262,622 ------------ PAPER & FOREST PRODUCTS -- 0.2% 99 International Paper Co. 3,944 39 MeadWestvaco Corp. 1,243 ------------ 5,187 ------------ See Notes to Financial Statements Page 47 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) PERSONAL PRODUCTS -- 0.2% 98 Avon Products, Inc. $ 1,407 54 Estee Lauder (The) Cos., Inc., Class A 3,233 ------------ 4,640 ------------ PHARMACEUTICALS -- 5.3% 69 Allergan, Inc. 6,329 373 Bristol-Myers Squibb Co. 12,156 231 Eli Lilly & Co. 11,393 53 Forest Laboratories, Inc. (a) 1,872 37 Hospira, Inc. (a) 1,156 626 Johnson & Johnson 43,882 686 Merck & Co., Inc. 28,085 92 Mylan, Inc. (a) 2,528 20 Perrigo Co. 2,081 1,662 Pfizer, Inc. 41,683 29 Watson Pharmaceuticals, Inc. (a) 2,494 ------------ 153,659 ------------ PROFESSIONAL SERVICES -- 0.1% 10 Dun & Bradstreet (The) Corp. 787 27 Equifax, Inc. 1,461 32 Robert Half International, Inc. 1,018 ------------ 3,266 ------------ REAL ESTATE INVESTMENT TRUSTS -- 2.2% 89 American Tower Corp. 6,877 33 Apartment Investment & Management Co., Class A 893 26 AvalonBay Communities, Inc. 3,525 34 Boston Properties, Inc. 3,598 73 Equity Residential 4,137 102 HCP, Inc. 4,608 59 Health Care REIT, Inc. 3,616 164 Host Hotels & Resorts, Inc. 2,570 92 Kimco Realty Corp. 1,778 36 Plum Creek Timber Co., Inc. 1,597 104 Prologis, Inc. 3,795 33 Public Storage 4,784 70 Simon Property Group, Inc. 11,066 67 Ventas, Inc. 4,336 38 Vornado Realty Trust 3,043 122 Weyerhaeuser Co. 3,394 ------------ 63,617 ------------ REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.0% 68 CBRE Group, Inc., Class A (a) 1,353 ------------ ROAD & RAIL -- 0.8% 233 CSX Corp. 4,597 71 Norfolk Southern Corp. 4,391 12 Ryder System, Inc. 599 106 Union Pacific Corp. 13,326 ------------ 22,913 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.0% 137 Advanced Micro Devices, Inc. (a) $ 329 72 Altera Corp. 2,480 68 Analog Devices, Inc. 2,860 270 Applied Materials, Inc. 3,089 117 Broadcom Corp., Class A 3,886 14 First Solar, Inc. (a) 432 1,123 Intel Corp. 23,167 38 KLA-Tencor Corp. 1,815 39 Lam Research Corp. (a) 1,409 52 Linear Technology Corp. 1,784 125 LSI Corp. (a) 885 44 Microchip Technology, Inc. 1,434 230 Micron Technology, Inc. (a) 1,460 141 NVIDIA Corp. 1,733 42 Teradyne, Inc. (a) 709 253 Texas Instruments, Inc. 7,828 59 Xilinx, Inc. 2,118 ------------ 57,418 ------------ SOFTWARE -- 3.4% 112 Adobe Systems, Inc. (a) 4,220 51 Autodesk, Inc. (a) 1,803 32 BMC Software, Inc. (a) 1,269 76 CA, Inc. 1,670 42 Citrix Systems, Inc. (a) 2,762 69 Electronic Arts, Inc. (a) 1,003 63 Intuit, Inc. 3,749 1,710 Microsoft Corp. 45,708 849 Oracle Corp. 28,289 44 Red Hat, Inc. (a) 2,330 29 Salesforce.com, Inc. (a) 4,875 157 Symantec Corp. (a) 2,953 ------------ 100,631 ------------ SPECIALTY RETAIL -- 2.1% 18 Abercrombie & Fitch Co., Class A 864 9 AutoNation, Inc. (a) 357 8 AutoZone, Inc. (a) 2,836 52 Bed Bath & Beyond, Inc. (a) 2,907 60 Best Buy Co., Inc. 711 52 CarMax, Inc. (a) 1,952 27 GameStop Corp., Class A 677 67 Gap (The), Inc. 2,080 338 Home Depot (The), Inc. 20,905 54 Limited Brands, Inc. 2,541 254 Lowe's Cos., Inc. 9,022 26 O'Reilly Automotive, Inc. (a) 2,325 24 PetSmart, Inc. 1,640 50 Ross Stores, Inc. 2,708 152 Staples, Inc. 1,733 27 Tiffany & Co. 1,548 165 TJX (The) Cos., Inc. 7,004 25 Urban Outfitters, Inc. (a) 984 ------------ 62,794 ------------ Page 48 See Notes to Financial Statements FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2012 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) TEXTILES, APPAREL & LUXURY GOODS -- 0.6% 64 Coach, Inc. $ 3,553 12 Fossil, Inc. (a) 1,117 164 NIKE, Inc., Class B 8,463 14 Ralph Lauren Corp. 2,099 20 VF Corp. 3,019 ------------ 18,251 ------------ THRIFTS & MORTGAGE FINANCE -- 0.1% 107 Hudson City Bancorp, Inc. 870 78 People's United Financial, Inc. 943 ------------ 1,813 ------------ TOBACCO -- 1.8% 457 Altria Group, Inc. 14,359 29 Lorillard, Inc. 3,384 377 Philip Morris International, Inc. 31,532 73 Reynolds American, Inc. 3,024 ------------ 52,299 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.2% 61 Fastenal Co. 2,848 13 W.W. Grainger, Inc. 2,631 ------------ 5,479 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.3% 66 Crown Castle International Corp. (a) 4,763 72 MetroPCS Communications, Inc. (a) 716 678 Sprint Nextel Corp. (a) 3,844 ------------ 9,323 ------------ TOTAL COMMON STOCKS -- 98.2% 2,875,865 (Cost $2,828,918) CONTRACTS ---------- OPTION PURCHASED -- 1.7% CALL OPTION 393 VIX US, expiring 01/16/2013, Strike Price $19 (a) 49,125 (Cost $31,810) ------------ TOTAL INVESTMENTS -- 99.9% 2,924,990 (Cost $2,860,728) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 1,751 ------------ NET ASSETS -- 100.0% $ 2,926,741 ============ (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $2,880,881. As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $111,672 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $67,563. ----------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2012 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* $ 2,875,865 $ -- $ -- Option Purchased 49,125 -- -- ----------------------------------------------- Total Investments $ 2,924,990 $ -- $ -- =============================================== * See Portfolio of Investments for industry breakout. All transfers in and out of the Levels during the period are assumed to be transferred on the last day of the period at their current value. There were no transfers between Levels at December 31, 2012. See Notes to Financial Statements Page 49 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2012
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ-100- NASDAQ-100 EQUAL WEIGHTED TECHNOLOGY SECTOR EX-TECHNOLOGY SECTOR INDEX(SM) FUND INDEX(SM) FUND INDEX(SM) FUND ------------------ ------------------ -------------------- ASSETS: Investments, at value................................................ $ 86,206,402 $ 106,002,782 $ 42,428,233 Repurchase Agreement, at value....................................... -- -- -- Cash................................................................. -- 170,882 -- Receivables: Investment securities sold..................................... 1,400,030 -- -- Dividends...................................................... 36,473 18,536 26,008 Securities lending income...................................... 6,698 -- 3,816 Capital shares sold............................................ -- -- -- From investment advisor........................................ -- -- -- Interest....................................................... -- -- 1 Reclaims....................................................... -- -- -- Prepaid expenses..................................................... 1,851 3,138 831 -------------- -------------- -------------- TOTAL ASSETS................................................... 87,651,454 106,195,338 42,458,889 -------------- -------------- -------------- LIABILITIES: Due to Custodian..................................................... 1,304,169 -- 2 Payables: Collateral for securities on loan.............................. 1,397,922 -- 409,448 Licensing fees................................................. 41,069 62,007 19,480 Investment advisory fees....................................... 24,288 35,128 481 Audit and tax fees............................................. 23,750 23,750 23,750 Printing fees.................................................. 7,562 15,646 4,114 Trustees fees.................................................. -- -- 58 Investment securities purchased................................ -- -- -- Capital shares purchased....................................... -- -- -- Other liabilities.................................................... 37,890 50,826 19,831 -------------- -------------- -------------- TOTAL LIABILITIES.............................................. 2,836,650 187,357 477,164 -------------- -------------- -------------- NET ASSETS........................................................... $ 84,814,804 $ 106,007,981 $ 41,981,725 ============== ============== ============== NET ASSETS CONSIST OF: Paid-in capital...................................................... $ 97,178,576 $ 133,363,003 $ 42,704,518 Par value............................................................ 32,500 41,000 17,000 Accumulated net investment income (loss)............................. -- -- -- Accumulated net realized gain (loss) on investments.................. (14,927,765) (23,575,206) (4,391,517) Net unrealized appreciation (depreciation) on investments............ 2,531,493 (3,820,816) 3,651,724 -------------- -------------- -------------- NET ASSETS........................................................... $ 84,814,804 $ 106,007,981 $ 41,981,725 ============== ============== ============== NET ASSET VALUE, per share........................................... $ 26.10 $ 25.86 $ 24.70 ============== ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)..................................... 3,250,002 4,100,002 1,700,002 -------------- -------------- -------------- Investments, at cost................................................. $ 83,674,909 $ 109,823,598 $ 38,776,509 ============== ============== ============== Repurchase Agreement, at cost........................................ $ -- $ -- $ -- ============== ============== ============== Securities on loan, at value......................................... $ 1,107,963$ -- $ 420,218 ============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST NASDAQ(R) FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA CLEAN EDGE(R) S&P ISE ISE-REVERE ISE COMMUNITY GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND --------------- --------------- --------------- --------------- --------------- --------------- $ 14,846,057 $ 401,679,514 $ 72,509,774 $ 433,835,944 $ 68,079,608 $ 8,944,714 -- -- -- -- 8,685,251 -- 14,929 -- -- 59,769 -- 21,232 473,824 1,048,082 289,745 3,491,465 292,671 -- -- 1,421,577 31,296 -- 4,518 6,751 20,632 -- -- 82,980 10,232 -- -- 3,510,968 -- -- -- -- 7,669 -- -- -- -- 4,144 -- 19 3 3 -- -- -- -- 26,875 58,479 -- -- 400 8,207 1,484 9,826 1,795 5,233 --------------- --------------- --------------- --------------- --------------- --------------- 15,363,511 407,668,367 72,859,177 437,538,466 77,074,075 8,982,074 --------------- --------------- --------------- --------------- --------------- --------------- -- 20 4 -- 114,018 -- 1,104,193 -- -- 46,036,067 10,698,661 -- 7,442 65,839 8,768 106,948 13,215 4,925 -- 108,327 21,923 114,937 12,934 -- 23,750 23,750 23,750 23,750 23,750 23,750 3,582 37,120 7,675 33,038 10,116 1,504 -- -- -- 122 -- -- -- 3,499,568 -- -- 84,920 -- 473,789 887,407 -- 3,134,495 -- -- 10,640 158,065 27,670 189,807 50,115 6,826 --------------- --------------- --------------- --------------- --------------- --------------- 1,623,396 4,780,096 89,790 49,639,164 11,007,729 37,005 --------------- --------------- --------------- --------------- --------------- --------------- $ 13,740,115 $ 402,888,271 $ 72,769,387 $ 387,899,302 $ 66,066,346 $ 8,945,069 =============== =============== =============== =============== =============== =============== $ 50,791,117 $ 381,583,044 $ 75,536,808 $ 603,114,107 $ 116,483,060 $ 9,766,219 14,500 227,000 28,000 247,500 31,500 3,500 13,638 262,747 -- 58,081 (9,151) -- (32,298,040) (4,941,613) (12,641,363) (115,658,376) (51,143,442) (832,413) (4,781,100) 25,757,093 9,845,942 (99,862,010) 704,379 7,763 --------------- --------------- --------------- --------------- --------------- --------------- $ 13,740,115 $ 402,888,271 $ 72,769,387 $ 387,899,302 $ 66,066,346 $ 8,945,069 =============== =============== =============== =============== =============== =============== $ 9.48 $ 17.75 $ 25.99 $ 15.67 $ 20.97 $ 25.56 =============== =============== =============== =============== =============== =============== 1,450,002 22,700,002 2,800,002 24,750,002 3,150,002 350,002 --------------- --------------- --------------- --------------- --------------- --------------- $ 19,627,157 $ 375,922,421 $ 62,663,832 $ 533,697,954 $ 67,375,229 $ 8,936,951 =============== =============== =============== =============== =============== =============== $ -- $ -- $ -- $ -- $ 8,685,251 $ -- =============== =============== =============== =============== =============== =============== $ 1,103,560 $ -- $ -- $ 45,608,366 $ 10,576,397 $ -- =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 51 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 2012
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND --------------------- ASSETS: Investments, at value.................................................. $ 2,924,990 Repurchase Agreement, at value......................................... -- Cash................................................................... 50 Receivables: Investment securities sold....................................... -- Dividends........................................................ 3,189 Securities lending income........................................ -- Capital shares sold.............................................. -- From investment advisor.......................................... -- Interest......................................................... -- Reclaims......................................................... -- Prepaid expenses....................................................... -- --------------- TOTAL ASSETS..................................................... 2,928,229 --------------- LIABILITIES: Due to Custodian....................................................... -- Payables: Collateral for securities on loan................................ -- Licensing fees................................................... -- Investment advisory fees......................................... 1,488 Audit and tax fees............................................... -- Printing fees.................................................... -- Trustees fees.................................................... -- Investment securities purchased.................................. -- Capital shares purchased......................................... -- Other liabilities...................................................... -- --------------- TOTAL LIABILITIES................................................ 1,488 --------------- NET ASSETS............................................................. $ 2,926,741 =============== NET ASSETS CONSIST OF: Paid-in capital........................................................ $ 2,943,963 Par value.............................................................. 1,500 Accumulated net investment income (loss)............................... -- Accumulated net realized gain (loss) on investments.................... (82,984) Net unrealized appreciation (depreciation) on investments.............. 64,262 --------------- NET ASSETS............................................................. $ 2,926,741 =============== NET ASSET VALUE, per share............................................. $ 19.51 =============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)....................................... 150,002 --------------- Investments, at cost................................................... $ 2,860,728 =============== Repurchase Agreement, at cost.......................................... $ -- =============== Securities on loan, at value........................................... $ -- ===============
Page 52 See Notes to Financial Statements This page intentionally left blank. Page 53 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2012
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ-100- NASDAQ-100 EQUAL WEIGHTED TECHNOLOGY SECTOR EX-TECHNOLOGY SECTOR INDEX(SM) FUND INDEX(SM) FUND INDEX(SM) FUND ------------------ ------------------ -------------------- INVESTMENT INCOME: Dividends........................................................ $ 1,304,682 $ 1,746,887 $ 669,334 Securities lending income (net of fees).......................... 72,277 -- 44,969 Foreign tax withholding.......................................... (2,657) -- (1,806) Interest......................................................... -- -- 6 -------------- -------------- -------------- Total investment income....................................... 1,374,302 1,746,887 712,503 -------------- -------------- -------------- EXPENSES: Investment advisory fees......................................... 341,030 567,898 146,571 Licensing fees................................................... 85,257 141,975 36,643 Accounting and administration fees............................... 50,563 73,045 23,600 Audit and tax fees............................................... 24,018 24,018 24,018 Listing fees..................................................... 17,147 19,582 15,206 Printing fees.................................................... 17,065 30,584 10,969 Legal fees....................................................... 15,573 22,876 7,062 Custodian fees................................................... 10,657 17,747 4,580 Trustees' fees and expenses...................................... 8,122 10,972 5,814 Transfer agent fees.............................................. 4,263 7,099 1,832 Registration and filing fees..................................... 478 -- 292 Other expenses................................................... 3,781 7,121 1,661 -------------- -------------- -------------- Total expenses................................................ 577,954 922,917 278,248 Less fees waived and expenses reimbursed by the investment advisor (66,409) (71,070) (58,392) -------------- -------------- -------------- Net expenses.................................................. 511,545 851,847 219,856 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)..................................... 862,757 895,040 492,647 -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... (5,916,968) (13,688,272) (1,997,899) Options....................................................... -- -- -- In-kind redemptions........................................... 5,382,909 5,196,001 3,454,804 -------------- -------------- -------------- Net realized gain (loss)......................................... (534,059) (8,492,271) 1,456,905 -------------- -------------- -------------- Net change in unrealized appreciation (depreciation) on: Investments................................................... 9,707,786 17,868,037 4,359,118 Options....................................................... -- -- -- -------------- -------------- -------------- Net change in unrealized appreciation (depreciation)............. 9,707,786 17,868,037 4,359,118 -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 9,173,727 9,375,766 5,816,023 -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $ 10,036,484 $ 10,270,806 $ 6,308,670 ============== ============== ==============
Page 54 See Notes to Financial Statements
FIRST TRUST FIRST TRUST NASDAQ(R) FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA CLEAN EDGE(R) S&P ISE ISE-REVERE ISE COMMUNITY GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND --------------- --------------- --------------- --------------- --------------- --------------- $ 78,160 $ 10,507,663 $ 1,090,283 $ 4,119,821 $ 1,446,327 $ 269,312 222,396 -- -- 90,264 289,020 -- (39) -- (26,875) (280,396) (61,757) -- -- 85 178 120 -- -- --------------- --------------- --------------- --------------- --------------- --------------- 300,517 10,507,748 1,063,586 3,929,809 1,673,590 269,312 --------------- --------------- --------------- --------------- --------------- --------------- 67,113 1,188,420 263,322 1,570,248 303,907 43,073 16,778 316,979 32,915 392,562 60,782 9,691 19,495 200,824 34,767 198,544 97,438 8,072 24,018 24,018 24,018 24,018 24,018 24,018 15,851 7,889 7,889 8,220 8,219 14,378 9,309 84,984 18,501 67,068 21,388 3,899 2,496 73,354 11,979 67,850 11,701 1,803 2,097 49,517 8,229 49,070 9,497 1,346 4,814 23,202 7,184 22,923 7,432 4,465 839 19,807 3,291 19,628 3,799 538 (78) (15,758) (194) 15,198 -- (867) 1,122 11,908 3,059 20,141 4,925 1,055 --------------- --------------- --------------- --------------- --------------- --------------- 163,854 1,985,144 414,960 2,455,470 553,106 111,471 (63,185) (4,444) (19,978) (100,098) (97,245) (46,863) --------------- --------------- --------------- --------------- --------------- --------------- 100,669 1,980,700 394,982 2,355,372 455,861 64,608 --------------- --------------- --------------- --------------- --------------- --------------- 199,848 8,527,048 668,604 1,574,437 1,217,729 204,704 --------------- --------------- --------------- --------------- --------------- --------------- (5,962,274) 196,069 (2,002,738) (36,206,559) (8,374,428) (153,433) -- -- -- -- -- -- 524,169 9,273,689 4,746,573 20,017,474 4,904,136 917,691 --------------- --------------- --------------- --------------- --------------- --------------- (5,438,105) 9,469,758 2,743,835 (16,189,085) (3,470,292) 764,258 --------------- --------------- --------------- --------------- --------------- --------------- 5,063,832 41,021,892 11,704,734 (39,813,093) 14,368,597 426,602 -- -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- 5,063,832 41,021,892 11,704,734 (39,813,093) 14,368,597 426,602 --------------- --------------- --------------- --------------- --------------- --------------- (374,273) 50,491,650 14,448,569 (56,002,178) 10,898,305 1,190,860 --------------- --------------- --------------- --------------- --------------- --------------- $ (174,425) $ 59,018,698 $ 15,117,173 $ (54,427,741) $ 12,116,034 $ 1,395,564 =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 55 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS (CONTINUED) FOR THE PERIOD AUGUST 29, 2012 (a) THROUGH DECEMBER 31, 2012
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND --------------------- INVESTMENT INCOME: Dividends........................................................ $ 19,993 Securities lending income (net of fees).......................... -- Foreign tax withholding.......................................... (24) Interest......................................................... -- --------------- Total investment income....................................... 19,969 --------------- EXPENSES: Investment advisory fees......................................... 4,667 Licensing fees................................................... -- Accounting and administration fees............................... -- Audit and tax fees............................................... -- Listing fees..................................................... -- Printing fees.................................................... -- Legal fees....................................................... -- Custodian fees................................................... -- Trustees' fees and expenses...................................... -- Transfer agent fees.............................................. -- Registration and filing fees..................................... -- Other expenses................................................... -- --------------- Total expenses................................................ 4,667 Less fees waived and expenses reimbursed by the investment advisor -- --------------- Net expenses.................................................. 4,667 --------------- NET INVESTMENT INCOME (LOSS)..................................... 15,302 --------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... 647 Options....................................................... (83,631) In-kind redemptions........................................... -- --------------- Net realized gain (loss)......................................... (82,984) --------------- Net change in unrealized appreciation (depreciation) on: Investments................................................... 46,947 Options....................................................... 17,315 --------------- Net change in unrealized appreciation (depreciation)............. 64,262 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS).......................... (18,722) --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ (3,420) ===============
(a) Inception date is August 29, 2012 which is consistent with the commencement of investment operations and is the date the intial creation units were established. Page 56 See Notes to Financial Statements This page intentionally left blank. Page 57 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ-100- EQUAL WEIGHTED TECHNOLOGY SECTOR INDEX(SM) FUND INDEX(SM) FUND ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, December 31, December 31, December 31, 2012 2011 2012 2011 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)............................... $ 862,757 $ 193,294 $ 895,040 $ (63,396) Net realized gain (loss)................................... (534,059) 6,943,739 (8,492,271) 36,034,195 Net change in unrealized appreciation (depreciation) ...... 9,707,786 (14,365,617) 17,868,037 (68,573,256) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations....................................... 10,036,484 (7,228,584) 10,270,806 (32,602,457) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................... (930,480) (367,180) (991,450) (1,713,900) Net realized gain.......................................... -- -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders........................ (930,480) (367,180) (991,450) (1,713,900) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.................................. 40,706,241 79,966,639 17,786,464 196,450,901 Cost of shares redeemed.................................... (38,536,793) (74,786,704) (70,717,904) (465,889,979) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions......................... 2,169,448 5,179,935 (52,931,440) (269,439,078) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets.................... 11,275,452 (2,415,829) (43,652,084) (303,755,435) NET ASSETS: Beginning of period........................................ 73,539,352 75,955,181 149,660,065 453,415,500 ------------- ------------- ------------- ------------- End of period.............................................. $ 84,814,804 $ 73,539,352 $ 106,007,981 $ 149,660,065 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period...................................... $ -- $ -- $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUSTANDING: Shares outstanding, beginning of period.................... 3,200,002 3,200,002 6,200,002 17,650,002 Shares sold................................................ 1,600,000 3,200,000 650,000 7,300,000 Shares redeemed............................................ (1,550,000) (3,200,000) (2,750,000) (18,750,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.......................... 3,250,002 3,200,002 4,100,002 6,200,002 ============= ============= ============= =============
Page 58 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ(R) S&P FIRST TRUST EX-TECHNOLOGY SECTOR CLEAN EDGE(R) GREEN ENERGY REIT ISE WATER INDEX(SM) FUND INDEX FUND INDEX 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, 2012 2011 2012 2011 2012 2011 2012 2011 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 492,647 $ 86,782 $ 199,848 $ (57,380) $ 8,527,048 $ 3,603,572 $ 668,604 $ 481,476 1,456,905 1,142,380 (5,438,105) (1,932,700) 9,469,758 (3,997,767) 2,743,835 2,261,282 4,359,118 (2,777,822) 5,063,832 (13,448,678) 41,021,892 (21,892,948) 11,704,734 (6,845,222) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 6,308,670 (1,548,660) (174,425) (15,438,758) 59,018,698 (22,287,143) 15,117,173 (4,102,464) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (530,821) (104,225) (186,210) -- (8,264,301) (4,049,501) (716,105) (554,561) -- -- -- -- (771,210) -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (530,821) (104,225) (186,210) -- (9,035,511) (4,049,501) (716,105) (554,561) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 19,895,486 21,526,159 -- 7,115,097 116,759,773 453,173,259 19,286,737 34,659,837 (13,848,505) (11,867,696) (6,638,877) (7,056,700) (88,815,487) (172,941,669) (18,904,444) (25,127,425) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 6,046,981 9,658,463 (6,638,877) 58,397 27,944,286 280,231,590 382,293 9,532,412 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 11,824,830 8,005,578 (6,999,512) (15,380,361) 77,927,473 253,894,946 14,783,361 4,875,387 30,156,895 22,151,317 20,739,627 36,119,988 324,960,798 71,065,852 57,986,026 53,110,639 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 41,981,725 $ 30,156,895 $ 13,740,115 $ 20,739,627 $ 402,888,271 $ 324,960,798 $ 72,769,387 $ 57,986,026 ============= ============= ============= ============= ============= ============= ============= ============= $ -- $ -- $ 13,638 $ -- $ 262,747 $ -- $ -- $ 15,568 ============= ============= ============= ============= ============= ============= ============= ============= 1,450,002 1,050,002 2,150,002 2,200,002 21,000,002 4,850,002 2,800,002 2,400,002 850,000 950,000 -- 450,000 7,000,000 28,200,000 750,000 1,600,000 (600,000) (550,000) (700,000) (500,000) (5,300,000) (12,050,000) (750,000) (1,200,000) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 1,700,002 1,450,002 1,450,002 2,150,002 22,700,002 21,000,002 2,800,002 2,800,002 ============= ============= ============= ============= ============= ============= ============= =============
See Notes to Financial Statements Page 59 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST ISE-REVERE FIRST TRUST NATURAL GAS ISE CHINDIA INDEX FUND INDEX FUND ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended December 31, December 31, December 31, December 31, 2012 2011 2012 2011 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)................... $ 1,574,437 $ 1,929,769 $ 1,217,729 $ 1,374,217 Net realized gain (loss)....................... (16,189,085) 53,827,977 (3,470,292) 4,404,156 Net change in unrealized appreciation (depreciation) (39,813,093) (112,055,233) 14,368,597 (39,977,843) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations........................... (54,427,741) (56,297,487) 12,116,034 (34,199,470) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.......................... (1,601,915) (1,845,855) (1,226,880) (1,488,951) Net realized gain.............................. -- -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders............ (1,601,915) (1,845,855) (1,226,880) (1,488,951) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold...................... 297,966,521 444,624,390 2,017,518 -- Cost of shares redeemed........................ (200,593,951) (436,818,095) (26,127,668) (61,376,060) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions............. 97,372,570 7,806,295 (24,110,150) (61,376,060) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets........ 41,342,914 (50,337,047) (13,220,996) (97,064,481) NET ASSETS: Beginning of period............................ 346,556,388 396,893,435 79,287,342 176,351,823 ------------- ------------- ------------- ------------- End of period.................................. $ 387,899,302 $ 346,556,388 $ 66,066,346 $ 79,287,342 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period.......................... $ 58,081 $ 83,767 $ (9,151) $ -- ============= ============= ============= ============= CHANGES IN SHARES OUSTANDING: Shares outstanding, beginning of period........ 19,050,002 20,250,002 4,350,002 7,050,002 Shares sold.................................... 17,550,000 20,550,000 100,000 -- Shares redeemed................................ (11,850,000) (21,750,000) (1,300,000) (2,700,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.............. 24,750,002 19,050,002 3,150,002 4,350,002 ============= ============= ============= =============
(a) Inception date is August 29, 2012 which is consistent with the commencement of investment operations and is the date the initial creation units were established. Page 60 See Notes to Financial Statements
FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE S&P 500 COMMUNITY BANK VIX TAIL INDEX FUND HEDGE FUND ----------------------------- -------------- For the Period August 29, For the Year For the Year 2012 (a) Ended Ended through December 31, December 31, December 31, 2012 2011 2012 ------------- ------------- -------------- $ 204,704 $ 203,793 $ 15,302 764,258 (354,412) (82,984) 426,602 (788,265) 64,262 ------------- ------------- -------------- 1,395,564 (938,884) (3,420) ------------- ------------- -------------- (217,066) (204,876) (15,480) -- -- -- ------------- ------------- -------------- (217,066) (204,876) (15,480) ------------- ------------- -------------- 5,084,903 6,285,743 2,945,641 (9,952,509) (2,486,580) -- ------------- ------------- -------------- (4,867,606) 3,799,163 2,945,641 ------------- ------------- -------------- (3,689,108) 2,655,403 2,926,741 12,634,177 9,978,774 -- ------------- ------------- -------------- $ 8,945,069 $ 12,634,177 $ 2,926,741 ============= ============= ============== $ -- $ 1,117 $ -- ============= ============= ============== 550,002 400,002 -- 200,000 250,000 150,002 (400,000) (100,000) -- ------------- ------------- -------------- 350,002 550,002 150,002 ============= ============= ==============
See Notes to Financial Statements Page 61 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 22.98 $ 23.74 $ 19.69 $ 12.37 $ 22.08 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.27 0.05 0.15 0.05 0.00 (a) Net realized and unrealized gain (loss) 3.14 (0.70) 4.02 7.32 (9.70) ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.41 (0.65) 4.17 7.37 (9.70) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.29) (0.11) (0.12) (0.05) (0.00) (a) Return of capital -- -- -- -- (0.01) ---------- ---------- ---------- ---------- ---------- Total distributions (0.29) (0.11) (0.12) (0.05) (0.01) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 26.10 $ 22.98 $ 23.74 $ 19.69 $ 12.37 ========== ========== ========== ========== ========== TOTAL RETURN (b) 14.86% (2.77)% 21.25% 59.54% (43.96)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 84,815 $ 73,539 $ 75,955 $ 40,369 $ 14,848 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.68% 0.68% 0.75% 0.67% 0.88% 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 1.01% 0.23% 0.79% 0.35% 0.01% Portfolio turnover rate (c) 34% 27% 24% 36% 39%
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, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 24.14 $ 25.69 $ 21.16 $ 11.77 $ 21.50 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.19 0.00 (a) (d) 0.10 0.01 -- Net realized and unrealized gain (loss) 1.74 (1.47) 4.53 9.39 (9.73) ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.93 (1.47) 4.63 9.40 (9.73) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.21) (0.08) (0.10) (0.01) -- Return of capital -- -- -- (0.00)(a) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.21) (0.08) (0.10) (0.01) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 25.86 $ 24.14 $ 25.69 $ 21.16 $ 11.77 ========== ========== ========== ========== ========== TOTAL RETURN (b) 8.02% (5.75)% 21.92% 79.89% (45.26)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 106,008 $ 149,660 $ 453,416 $ 86,766 $ 9,414 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.65% 0.63% 0.70% 0.67% 0.88% 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 0.63% (0.02)% 0.71% 0.16% (0.01)% Portfolio turnover rate (c) 26% 21% 26% 35% 33%
(a) Amount represents less than $0.01 per share. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (d) Per share amounts have been calculated using the average share method. Page 62 See Notes to Financial Statements 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 FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 20.80 $ 21.10 $ 17.63 $ 12.05 $ 21.19 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.31 0.06 0.17 0.05 0.01 Net realized and unrealized gain (loss) 3.92 (0.28) 3.46 5.58 (9.14) ---------- ---------- ---------- ---------- ---------- Total from investment operations 4.23 (0.22) 3.63 5.63 (9.13) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.33) (0.08) (0.16) (0.05) (0.01) Return of capital -- -- -- (0.00) (a) (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions to shareholders (0.33) (0.08) (0.16) (0.05) (0.01) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 24.70 $ 20.80 $ 21.10 $ 17.63 $ 12.05 ========== ========== ========== ========== ========== TOTAL RETURN (b) 20.31% (1.08)% 20.64% 46.74% (43.09)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 41,982 $ 30,157 $ 22,151 $ 10,579 $ 7,232 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.76% 0.78% 0.94% 1.28% 1.86% 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 1.34% 0.31% 1.02% 0.48% 0.03% Portfolio turnover rate (c) 40% 37% 19% 43% 67%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 9.65 $ 16.42 $ 16.09 $ 11.19 $ 30.86 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.13 (0.03) (0.01) (0.02) (0.04) Net realized and unrealized gain (loss) (0.18) (6.74) 0.34 4.92 (19.63) ---------- ---------- ---------- ---------- ---------- Total from investment operations (0.05) (6.77) 0.33 4.90 (19.67) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.12) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.48 $ 9.65 $ 16.42 $ 16.09 $ 11.19 ========== ========== ========== ========== ========== TOTAL RETURN (b) (0.50)% (41.23)% 2.05% 43.79% (63.74)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 13,740 $ 20,740 $ 36,120 $ 43,449 $ 23,504 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.98% 0.77% 0.78% 0.81% 0.83% 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 1.19% (0.18)% (0.07)% (0.12)% (0.21)% Portfolio turnover rate (c) 24% 22% 22% 40% 32%
(a) Amount represents less than $0.01 per share. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) 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 63 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST S&P REIT INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 15.47 $ 14.65 $ 11.72 $ 9.43 $ 15.81 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.38 0.28 0.29 0.25 0.31 Net realized and unrealized gain (loss) 2.30 0.88 2.94 2.31 (6.38) ---------- ---------- ---------- ---------- ---------- Total from investment operations 2.68 1.16 3.23 2.56 (6.07) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.37) (0.34) (0.30) (0.25) (0.31) Net realized gain (0.03) -- -- -- -- Return of capital -- -- -- (0.02) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.40) (0.34) (0.30) (0.27) (0.31) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.75 $ 15.47 $ 14.65 $ 11.72 $ 9.43 ========== ========== ========== ========== ========== TOTAL RETURN (a) 17.39% 7.90% 27.73% 28.00% (38.87)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 402,888 $ 324,961 $ 71,066 $ 21,087 $ 5,187 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.50% 0.57% 0.69% 1.95% 5.30% Ratio of net expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50% Ratio of net investment income (loss) to average net assets 2.15% 2.03% 2.60% 3.39% 3.40% Portfolio turnover rate (b) 8% 9% 16% 13% 20%
FIRST TRUST ISE WATER INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 20.71 $ 22.13 $ 18.66 $ 15.69 $ 22.38 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.23 0.16 0.18 0.19 0.12 Net realized and unrealized gain (loss) 5.30 (1.39) 3.43 2.97 (6.69) ---------- ---------- ---------- ---------- ---------- Total from investment operations 5.53 (1.23) 3.61 3.16 (6.57) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.25) (0.19) (0.14) (0.19) (0.12) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 25.99 $ 20.71 $ 22.13 $ 18.66 $ 15.69 ========== ========== ========== ========== ========== TOTAL RETURN (a) 26.83% (5.62)% 19.49% 20.29% (29.40)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 72,769 $ 57,986 $ 53,111 $ 37,314 $ 32,157 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.63% 0.64% 0.69% 0.72% 0.77% 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 1.02% 0.79% 0.96% 1.20% 0.76% Portfolio turnover rate (b) 31% 31% 38% 44% 45%
(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. Page 64 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 18.19 $ 19.60 $ 17.52 $ 11.80 $ 22.31 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.07 0.08 0.03 0.07 0.14 Net realized and unrealized gain (loss) (2.52) (1.41) 2.10 5.72 (10.51) ---------- ---------- ---------- ---------- ---------- Total from investment operations (2.45) (1.33) 2.13 5.79 (10.37) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.07) (0.08) (0.05) (0.07) (0.14) Return of capital -- -- (0.00) (a) (0.00) (a) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.07) (0.08) (0.05) (0.07) (0.14) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 15.67 $ 18.19 $ 19.60 $ 17.52 $ 11.80 ========== ========== ========== ========== ========== TOTAL RETURN (b) (13.51)% (6.85)% 12.22% 49.21% (46.57)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 387,899 $ 346,556 $ 396,893 $ 464,339 $ 37,179 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.63% 0.63% 0.65% 0.72% 0.77% 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% 0.39% 0.19% 0.53% 0.77% Portfolio turnover rate (c) 41% 43% 93% 71% 116%
FIRST TRUST ISE CHINDIA INDEX FUND
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 2008 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 18.23 $ 25.01 $ 21.28 $ 11.78 $ 27.73 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.35 0.27 0.17 0.09 0.17 Net realized and unrealized gain (loss) 2.74 (6.75) 3.73 9.50 (15.92) ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.09 (6.48) 3.90 9.59 (15.75) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.35) (0.30) (0.17) (0.09) (0.20) Return of capital -- -- -- (0.00) (a) (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions (0.35) (0.30) (0.17) (0.09) (0.20) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 20.97 $ 18.23 $ 25.01 $ 21.28 $ 11.78 ========== ========== ========== ========== ========== TOTAL RETURN (b) 17.11% (26.02)% 18.46% 81.58% (56.98)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 66,066 $ 79,287 $ 176,352 $ 120,240 $ 35,937 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.73% 0.66% 0.66% 0.73% 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 1.60% 1.00% 0.74% 0.58% 0.90% Portfolio turnover rate (c) 29% 23% 34% 47% 39%
(a) Amount represents less than $0.01 share. (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 tan one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses -reimbursed by the investment advisor. (c) 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 65 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 FOR THE JUNE 29, 2009 (a) YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2012 2011 2010 2009 ------------ ------------ ------------ ----------------- Net asset value, beginning of period $ 22.97 $ 24.95 $ 22.41 $ 20.00 ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.48 0.37 0.30 0.16 Net realized and unrealized gain (loss) 2.62 (1.98) 2.55 2.40 ---------- ---------- ---------- ---------- Total from investment operations 3.10 (1.61) 2.85 2.56 ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.51) (0.37) (0.31) (0.15) ---------- ---------- ---------- ---------- Net asset value, end of period $ 25.56 $ 22.97 $ 24.95 $ 22.41 ========== ========== ========== ========== TOTAL RETURN (b) 13.52% (6.48)% 12.77% 12.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 8,945 $ 12,634 $ 9,979 $ 5,604 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 1.04% 0.96% 1.16% 2.67% (c) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 1.90% 1.62% 1.40% 1.92% (c) Portfolio turnover rate (d) 17% 29% 26% 15%
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND
FOR THE PERIOD AUGUST 29, 2012 (a) THROUGH DECEMBER 31, 2012 ------------------- Net asset value, beginning of period $ 19.89 ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.11 Net realized and unrealized gain (loss) (0.38) ---------- Total from investment operations (0.27) ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.11) ---------- Net asset value, end of period $ 19.51 ========== TOTAL RETURN (b) (1.37)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 2,927 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% (c) Ratio of net expenses to average net assets 0.60% (c) Ratio of net investment income (loss) to average net assets 1.97% (c) Portfolio turnover rate (d) 2%
(a) Inception date is consistent with the commencement of investment operations and is the date the initial creation units were established. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividend distributions at net asset value during the period, and redemption at net asset value on the last day of the period. The returns presented do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. Total return calculated for a period of less than one year is not annualized. The total returns would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is not annualized and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. Page 66 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 nineteen exchange-traded funds. This report covers the ten funds listed below: First Trust NASDAQ-100 Equal Weighted Index(SM) Fund - (The NASDAQ(R) Stock Market, LLC ("NASDAQ") ticker "QQEW") First Trust NASDAQ-100-Technology Sector Index(SM) Fund - (NASDAQ ticker "QTEC") 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. ("NYSE Arca") ticker "FRI") First Trust ISE Water Index Fund - (NYSE Arca ticker "FIW") First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca ticker "FCG") First Trust ISE Chindia Index Fund - (NYSE Arca ticker "FNI") First Trust NASDAQ(R) ABA Community Bank Index Fund - (NASDAQ ticker "QABA") First Trust CBOE S&P 500 VIX Tail Hedge Fund - (NYSE Arca ticker "VIXH") Each fund represents a separate series of shares of beneficial interest in the Trust (each a "Fund" and collectively, the "Funds"). Shares of 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 are currently listed and traded on the NASDAQ. Shares of the First Trust S&P REIT Index Fund, the First Trust ISE Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund, the First Trust ISE Chindia Index Fund and the First Trust CBOE S&P 500 VIX Tail Hedge Fund are currently listed and traded on the NYSE Arca. 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 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 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 NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM) First Trust CBOE S&P 500 VIX Tail Hedge Fund CBOE VIX Tail Hedge Index(SM)
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 ("U.S. GAAP") 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: Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 Common stocks and other equity securities listed on any national or foreign exchange (excluding the NASDAQ and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are principally traded or, for NASDAQ and AIM securities, the official closing price. Securities traded on more than one securities exchange are valued at the last sale price or official closing price, as applicable, at the close of the securities exchange representing the principal market for such securities. 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. Exchange-traded options and futures contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options and futures contracts are valued at the mean between the most recent bid and asked prices. Over-the-counter options and futures contracts are valued at their 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 materially affect the value of the security after the market has closed but before the calculation of a Fund's NAV or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the security's "fair value." As a general principle, the current "fair value" of a security would appear to be the amount which the owner might reasonably expect to receive for the security upon its current sale. The use of fair value prices by a Fund generally results in prices used by the Fund that may differ from current market quotations or official closing prices on the applicable exchange. A variety of factors may be considered in determining the fair value of such securities, including, but not limited to, the following: 1) the type of security; 2) the size of the holding; 3) the initial cost of the security; 4) transactions in comparable securities; 5) price quotes from dealers and/or pricing services; 6) relationships among various securities; 7) information obtained by contacting the issuer, analysts, or the appropriate stock exchange; 8) an analysis of the issuer's financial statements; and 9) the existence of merger proposals or tender offers that might affect the value of the security. 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 investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: O Quoted prices for similar investments in active markets. O Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. O Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). O Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 investment. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used to value each Fund's investments as of December 31, 2012, is included with each Fund's Portfolio of Investments. B. CALL OPTIONS The First Trust CBOE S&P 500 VIX Tail Hedge Fund is subject to equity price risk in the normal course of pursuing its investment objective and may purchase out-of-the-money call options on the Chicago Board Options Exchange Market Volatility Index (the "VIX Index") to hedge against changes in the value of equities. Also, the Fund may sell call options on the VIX Index in order to close out existing positions. The purchase of call options involves the risk of loss of all or a part of the cash paid for the call options (the premium). The market risk associated with purchasing options on the VIX Index is limited to the premium paid. When the Fund purchases a call option, the premium paid represents the cost of the call option. Options are marked-to-market daily and their value will be affected by changes in the market value of the stocks included in the stock index. If the Fund elects to exercise a call option on the VIX Index, settlement does not occur by the delivery of the securities comprising the VIX Index. The Fund, as holder of the stock index option, receives an amount of cash if the closing level of the stock index upon which the option is based is greater than, in the case of a call, or less than in the case of a put, the exercise price of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price of the option expressed in dollars times a specified multiple. If the Fund elects to allow a call option to expire, then the equity price risk for purchased options is limited to the premium initially paid. Gain or loss on options is presented separately as "Net realized gain (loss) on options" on the Statement of Operations. C. 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 real estate investment trusts ("REITs") may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs' fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude. D. SECURITIES LENDING The Funds may lend securities representing up to 20% of the value of their total assets to broker-dealers, banks, and other institutions to generate additional income. When a Fund loans its portfolio securities, it will receive, at the inception of each loan, collateral equal to at least 102% (for domestic securities) or 105% (for international securities) of the market value of the loaned securities. The collateral amount is valued at the beginning of each business day using the market value of the loaned securities from the prior business day. If additional collateral is necessary, a request is sent to the borrower. Securities lending involves the risk that the Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a timely manner or at all. The Fund could also lose money in the event of (i) a decline in the value of the collateral provided for the loaned securities, (ii) a decline in the value of any investments made with cash collateral or (iii) an increase in the value of the loaned securities if the borrower does not increase the collateral accordingly and the borrower fails to return the securities. These events could also trigger adverse tax consequences for the Funds. Under the Funds' securities lending agreement, the securities lending agent will generally bear the risk that a borrower may default on its obligation to return loaned securities. Brown Brothers Harriman & Co. acts as the Funds' securities lending agent and is responsible for executing the lending of the portfolio securities to creditworthy borrowers. The Funds, however, will be responsible for the risks associated with the investment of cash collateral. A Fund may lose money on its investment of cash collateral, which may affect its ability to repay the collateral to the borrower without the use of other Fund assets. Each Fund that engages in securities lending receives compensation (net of any rebate and securities lending agent fees) for lending its securities in the form of fees or interest on the investment of any cash received as collateral. The dividend and interest earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At December 31, 2012, QQEW, QQXT, QCLN, FCG and FNI had securities in the securities lending program. Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 E. DIVIDENDS AND DISTRIBUTION TO SHAREHOLDERS Effective May 1, 2012, dividends from net investment income of each Fund, if any, are declared and paid quarterly or as the Board of Trustees may determine from time to time. Prior to May 1, 2012, dividends from net investment income were declared and paid semiannually. 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 U.S. GAAP. 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 Funds and have no impact on net assets or NAV 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 period ended December 31, 2012 was as follows: Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital ----------------- ---------------- ---------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 930,480 $ -- $ -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 991,450 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 530,821 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 186,210 -- -- First Trust S&P REIT Index Fund 8,264,301 771,210 -- First Trust ISE Water Index Fund 716,105 -- -- First Trust ISE-Revere Natural Gas Index Fund 1,601,915 -- -- First Trust ISE Chindia Index Fund 1,226,880 -- -- First Trust NASDAQ(R) ABA Community Bank Index Fund 217,066 -- -- First Trust CBOE S&P 500 VIX Tail Hedge Fund 15,480 -- --
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 NASDAQ-100 Equal Weighted Index(SM) Fund $ 367,180 $ -- $ -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,713,900 -- -- 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 NASDAQ(R) ABA Community Bank Index Fund 204,876 -- --
Page 70 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 As of December 31, 2012, 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 NASDAQ-100 Equal Weighted Index(SM) Fund $ -- $ (14,173,859) $ 1,777,587 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (22,139,253) (5,256,769) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (4,062,166) 3,322,373 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 13,638 (30,115,977) (6,963,163) First Trust S&P REIT Index Fund 262,747 -- 20,815,480 First Trust ISE Water Index Fund -- (10,667,406) 7,871,985 First Trust ISE-Revere Natural Gas Index Fund 58,081 (105,595,762) (109,924,624) First Trust ISE Chindia Index Fund 2,356 (49,891,896) (547,167) First Trust NASDAQ(R) ABA Community Bank Index Fund -- (697,260) (127,390) First Trust CBOE S&P 500 VIX Tail Hedge Fund -- (62,831) 44,109
F. INCOME TAXES Each Fund intends to qualify or continue to qualify as a regulated investment company by complying with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, which includes distributing substantially all of its net investment income and net realized gains to shareholders. Accordingly, no provision has been made for federal and state income taxes. However, due to the timing and amount of distributions, each Fund may be subject to an excise tax of 4% of the amount by which approximately 98% ofthe 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 ending 2009, 2010, 2011 and 2012 remain open to federal and state audit. As of December 31, 2012, 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 arising in taxable years after December 22, 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, 2012, the Funds, except for First Trust S&P REIT Index 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 Loss Loss Loss Loss Post- Total Available Available Available Available Effective - Capital Through Through Through Through No Loss 2015 2016 2017 2018 Expiration Available ---------- ----------- ----------- ----------- ----------- ------------ First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 54,385 $ 1,957,170 $ 4,681,103 $ -- $ 7,481,201 $ 14,173,859 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 311,155 1,421,664 2,016,911 -- 18,389,523 22,139,253 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 7,779 143,597 1,051,894 80,899 2,777,997 4,062,166 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 141,332 4,246,707 7,483,633 5,884,801 12,359,504 30,115,977 First Trust S&P REIT Index Fund -- -- -- -- -- -- First Trust ISE Water Index Fund 592 318,246 5,768,328 2,198,674 2,381,566 10,667,406 First Trust ISE-Revere Natural Gas Index Fund 5,274 7,364,703 32,569,413 40,089,981 25,666,391 105,695,762 First Trust ISE Chindia Index Fund -- 11,116,593 11,686,955 7,245,147 19,843,201 49,891,896 First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- 4,787 116,604 575,869 697,260 First Trust CBOE S&P 500 VIX Tail Hedge Fund -- -- -- -- 62,831 62,831
Page 71 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 fiscal year or period ended December 31, 2012, 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 NASDAQ-100 Equal Weighted Index(SM) Fund $ 67,723 $ (4,893,979) $ 4,826,256 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 96,410 (3,907,666) 3,811,256 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 38,174 (3,335,515) 3,297,341 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- 368,746 (368,746) First Trust S&P REIT Index Fund -- (9,106,555) 9,106,555 First Trust ISE Water Index Fund 31,933 (4,013,608) 3,981,675 First Trust ISE-Revere Natural Gas Index Fund 1,792 (5,499,315) 5,497,523 First Trust ISE Chindia Index Fund -- (3,932,373) 3,932,373 First Trust NASDAQ(R)ABA Community Bank Index Fund 11,245 (647,870) 636,625 First Trust CBOE S&P 500 VIX Tail Hedge Fund 178 -- (178)
G. EXPENSES General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. Expenses that are directly related to one of the Funds are charged directly to the respective Fund. However, for the First Trust CBOE S&P 500 VIX Tail Hedge Fund, expenses other than specified excluded expenses are paid by First Trust Advisors L.P. ("First Trust" or the "Advisor"). (See Note 3). The Advisor has entered into licensing agreements with each of the following "Licensors" for the respective Funds: FUND LICENSOR First Trust NASDAQ-100 Equal Weighted Index(SM) Fund The NASDAQ Stock Market, LLC First Trust NASDAQ-100-Technology Sector Index(SM) Fund The NASDAQ Stock Market, LLC First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund The NASDAQ Stock Market, LLC First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The NASDAQ Stock Market, LLC /Clean Edge(R), Inc. First Trust S&P REIT Index Fund Standard & Poor's Financial Services, LLC 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 NASDAQ(R)ABA Community Bank Index Fund The NASDAQ Stock Market, LLC First Trust CBOE S&P 500 VIX Tail Hedge Fund Standard & Poor's Financial Services, LLC
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. With the exception of the First Trust CBOE S&P 500 VIX Tail Hedge Fund, the respective Funds are required to pay licensing fees, which are shown on the Statements of Operations. 3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS First Trust, the investment advisor to the Funds, is a limited partnership with one limited partner, Grace Partners of DuPage L.P., and one general partner, The Charger Corporation. The Charger Corporation is an Illinois corporation controlled by James A. Bowen, Chief Executive Officer of First Trust. 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 administrative services necessary for the management of the Funds. For the First Trust CBOE S&P 500 VIX Tail Hedge Fund, First Trust is paid an annual unitary management fee of 0.60% of such Fund's average daily net assets and is responsible for the expenses of such Fund including the cost of transfer agency, custody, fund administration, legal, audit and other services, and excluding distribution and service fees pursuant to a Rule 12b-1 plan, if any, brokerage expenses, taxes, interest, and extraordinary expenses. First Trust is entitled to receive monthly fees from the remaining Funds calculated at the following annual rates: Page 72 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 % of Average Daily Net Assets ---------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.40% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.40% 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 NASDAQ(R) ABA Community Bank Index Fund 0.40%
For such Funds, the Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("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"). The Expense Cap will be in effect until at least April 30, 2013. Expense Cap ---------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.60% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.60% 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 NASDAQ(R)ABA Community Bank Index Fund 0.60%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement are subject to recovery by First Trust for up to three years from the date the fee was waived 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 were reimbursed or fees were 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 period ended December 31, 2012 and the expenses borne by the Advisor subject to recovery from each applicable Fund for the periods indicated were as follows: Expenses Borne by Advisor Subject to Recovery ---------------------------------------------- Year Year Year Advisory Expense Ended Ended Ended Fee Reim- December December December Waivers bursement 31, 2010 31, 2011 31, 2012 Total --------- --------- --------- --------- --------- --------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 66,409 $ -- $ 79,793 $ 65,568 $ 66,409 $ 211,770 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 71,070 -- 206,140 114,729 71,070 391,939 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 58,392 -- 57,769 50,938 58,392 167,099 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 63,185 -- 66,287 54,545 63,185 184,017 First Trust S&P REIT Index Fund 4,444 -- 99,014 130,777 4,444 234,235 First Trust ISE Water Index Fund 19,978 -- 39,351 25,829 19,978 85,158 First Trust ISE-Revere Natural Gas Index Fund 100,098 -- 212,049 139,394 100,098 451,541 First Trust ISE Chindia Index Fund 97,245 -- 83,567 76,490 97,245 257,302 First Trust NASDAQ(R) ABA Community Bank Index Fund 43,073 3,790 44,800 45,663 46,863 137,326
Page 73 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 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 maintaining shareholder records for the Trust. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. 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 of the Trust and James M. Dykas to serve as the Treasurer, Chief Financial Officer and Chief Accounting Officer of the Trust. Effective January 1, 2012, 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 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 is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Prior to January 1, 2012, each Independent Trustee received 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 was allocated equally among each of the trusts. Additionally, the Lead Independent Trustee is paid $15,000 annually, the Chairman of the Audit Committee is paid $10,000 annually, and each of the Chairmen of the Nominating and Governance Committee and Valuation Committee is 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. Prior to January 1, 2012, the annual amounts paid were $10,000, $5,000 and $2,500, respectively. Trustees are 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 until December 31, 2013, before rotating to serve as chairman of another committee or as Lead Independent Trustee. After December 31, 2013, the Lead Independent Trustee and Committee chairmen will rotate every three years. The officers and "Interested" Trustee receive no compensation from the Trust for serving in such capacities. 4. PURCHASES AND SALES OF SECURITIES For the period ended December 31, 2012, 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 NASDAQ-100 Equal Weighted Index(SM) Fund $ 28,832,219 $ 28,736,383 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 36,205,233 36,271,164 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 14,624,794 14,601,107 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 4,059,626 4,051,969 First Trust S&P REIT Index Fund 33,650,763 30,235,802 First Trust ISE Water Index Fund 20,233,534 20,576,550 First Trust ISE-Revere Natural Gas Index Fund 160,391,646 160,593,299 First Trust ISE Chindia Index Fund 21,680,357 21,834,114 First Trust NASDAQ(R) ABA Community Bank Index Fund 1,748,765 1,751,974 First Trust CBOE S&P 500 VIX Tail Hedge Fund 56,303 161,636
For the period ended December 31, 2012, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows: Purchases Sales ------------------ ------------------ First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 40,696,378 $ 38,549,992 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 17,779,940 70,606,156 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 19,887,214 13,859,599 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- 6,636,494 First Trust S&P REIT Index Fund 116,564,595 88,747,870 First Trust ISE Water Index Fund 19,253,592 18,856,185 First Trust ISE-Revere Natural Gas Index Fund 297,931,311 200,558,054 First Trust ISE Chindia Index Fund 2,019,027 26,075,734 First Trust NASDAQ(R) ABA Community Bank Index Fund 5,074,366 9,945,767 First Trust CBOE S&P 500 VIX Tail Hedge Fund 2,934,093 --
Page 74 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 5. CREATION, REDEMPTION & TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares. Such transactions are generally permitted on an in-kind basis, with a balancing cash component to equate the transaction to the daily NAV per Share of each Fund on the transaction date times the number of Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as transfer agent, a standard creation transaction fee (the "Creation Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Number of Securities Creation in a Creation Unit Transaction Fee -------------------- --------------- 1-100 $500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Creation Transaction Fee is applicable to each purchase transaction regardless of the number of Creation Units purchased in the transaction. An additional variable fee of up to three times the Creation Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to transactions effected outside of the clearing process (i.e., through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. The price for each Creation Unit will equal the daily NAV per Share of a Fund on the transaction date times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes. Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard redemption transaction fee (the "Redemption Transaction Fee"), which is based on the number of different securities in a Creation Unit of each Fund according to the fee schedule set forth below: Number of Securities Redemption in a Creation Unit Transaction Fee -------------------- --------------- 1-100 $500 101-200 $1,000 201-300 $1,500 301-400 $2,000 401-500 $2,500 501-600 $3,000 601-700 $3,500 The Redemption Transaction Fee is applicable to each redemption transaction regardless of the number of Creation Units redeemed in the transaction. An additional variable fee of up to three times the Redemption Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to redemptions effected outside of the clearing process or to the extent that redemptions are for cash. Each Fund reserves the right to effect redemptions in cash. A shareholder may request cash redemption in lieu of securities; however, a Fund may, in its discretion, reject any such request. 6. DISTRIBUTION PLAN The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule 12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are authorized to pay an amount up to 0.25% of their average daily net assets each year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the Funds, for amounts expended to finance activities primarily intended to result in the sale of Creation Units or the provision of investor services. FTP may also use this amount to compensate securities dealers or other persons that are Authorized Participants for providing distribution assistance, including broker-dealer and shareholder support and educational and promotional services. No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual arrangement, the Funds will not pay 12b-1 fees any time before April 30, 2013. Page 75 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 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. 8. SUBSEQUENT EVENTS Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements that have not already been disclosed. Page 76 -------------------------------------------------------------------------------- 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 NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-Technology Sector Index(SM) 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 NASDAQ(R) ABA Community Bank Index Fund, and First Trust CBOE S&P 500 VIX Tail Hedge Fund, each a series of the First Trust Exchange-Traded Fund (the "Fund") including the portfolios of investments, as of December 31, 2012, the related statements of operations for the period then ended, and the statements of changes in net assets and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's 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, 2012 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 listed above included in the First Trust Exchange-Traded Fund as of December 31, 2012, the results of their operations for the year then ended, and the changes in their net assets 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 28, 2013 Page 77 ADDITIONAL INFORMATION FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (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 12 months ended June 30, 2012 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, 2012, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations: Dividends Received Deduction ---------------------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00% First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00% First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 85.60% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 38.96% 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 NASDAQ(R) ABA Community Bank Index Fund 100.00% First Trust CBOE S&P 500 VIX Tail Hedge Fund 100.00%
For the taxable year ended December 31, 2012, the following percentages of income dividends paid by the Funds is hereby designated as qualified dividend income: Qualified Dividend Income ---------------------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00% First Trust NASDAQ-100-Technology Sector Index(SM) 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 38.96% 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 NASDAQ(R) ABA Community Bank Index Fund 100.00% First Trust CBOE S&P 500 VIX Tail Hedge Fund 100.00%
The following Fund meets 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 Fund 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 ISE Chindia Index Fund $14,446,327 $ 4.59 $ 26,408 $ 0.01
For the tax year ended December 31, 2012, the First Trust S&P REIT Index Fund designated $1,488,689, 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, $717,479, or amounts necessary, represents long-term capital gain from the Fund. Page 78 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (UNAUDITED) BOARD CONSIDERATIONS REGARDING APPROVAL OF INVESTMENT MANAGEMENT AGREEMENT The Board of Trustees of the First Trust Exchange-Traded Fund (the "Trust"), including the Independent Trustees, approved the Investment Management Agreement (the "Agreement") with First Trust Advisors L.P. ("First Trust") for First Trust CBOE S&P 500 VIX Tail Hedge Index Fund (the "Fund") for an initial two year term at a meeting held on September 19, 2011. The Board of Trustees determined that the Agreement is in the best interests of the Fund in light of the services, expenses and such other matters as the Board considered to be relevant in the exercise of its reasonable business judgment. To reach this determination, the Board considered its duties under the Investment Company Act of 1940, as amended (the "1940 Act"), as well as under the general principles of state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; the fiduciary duty of investment advisors with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards have fulfilled their duties; and the factors to be considered by the Board in voting on such agreements. To assist the Board in its evaluation of the Agreement, the Independent Trustees received a report in advance of the Board meeting responding to a request for information from counsel to the Independent Trustees. The report, among other things, outlined the services to be provided by First Trust to the Fund (including the relevant personnel responsible for these services and their experience); the proposed unitary fee structure for the Fund as compared to fees charged by investment advisors to other relevant exchange-traded funds ("ETFs"), and as compared to fees charged to other First Trust clients with similar investment objectives, including to other ETFs managed by First Trust; the estimated expenses to be incurred in providing services to the Fund and the potential for economies of scale, if any; financial data on First Trust; fall-out benefits to First Trust and First Trust Portfolios L.P.; and a summary of First Trust's compliance program. The Independent Trustees also met separately with their independent legal counsel to discuss the information provided by First Trust. The Board applied its business judgment to determine whether the arrangement between the Trust and First Trust is a reasonable business arrangement from the Fund's perspective as well as from the perspective of shareholders. In evaluating whether to approve the Agreement, the Board considered the nature, extent and quality of services to be provided by First Trust under the Agreement, and noted that First Trust employees provide management services to other ETFs and to other investment companies in the First Trust complex with diligence and care. The Board also considered the efforts expended by First Trust in organizing the Trust and in overseeing other entities that would provide services to the Fund, the compliance program that had been developed by First Trust and the skills of its employees who would be working with the Fund. Since the Fund had yet to commence investment operations, the Board could not consider the historical investment performance of the Fund, but the Board did consider the hypothetical performance of the underlying index. The Board considered reports it receives on a quarterly basis showing the correlation and tracking error between other ETFs for which First Trust serves as investment advisor and their underlying indexes. In light of the information presented and the considerations made, the Board concluded that the nature, quality and extent of services to be provided to the Fund by First Trust under the Agreement are expected to be satisfactory. The Board reviewed information regarding the proposed unitary fee structure for the Fund. The Board noted that under the unitary fee arrangement, the Fund would pay First Trust a fee equal to an annual rate of 0.60% of its average daily net assets and that First Trust would be responsible for the Fund's expenses, including the cost of transfer agency, custody, fund administration, legal, audit, licensing and other services, but excluding interest, taxes, brokerage commissions and other expenses connected with the execution of portfolio transactions, service fees and distribution fees pursuant to a Rule 12b-1 plan, if any, and extraordinary expenses. The Board reviewed information provided by First Trust and Lipper, Inc. ("Lipper") for the Fund on the advisory fees and expense ratios of other relevant ETFs, including other ETFs that pay a unitary fee, but also noted the limitations on the comparability of the Lipper group of ETFs and the First Trust group of ETFs with the Fund. The Board considered information provided by First Trust on certain differences between the Lipper group of ETFs and the First Trust group of ETFs. The Board considered the total expense ratios (after fee waivers) of other First Trust ETFs, including First Trust ETFs that pay a unitary fee, noting that the Fund's proposed unitary fee was within a reasonable range of the total expense ratios (after fee waivers) or unitary fees of the ETFs in both the First Trust and the Lipper peer groups, as well as all the other index-based First Trust ETFs currently in operation. In light of the information considered and the nature, extent and quality of services expected to be provided under the Agreement, the Board determined that the proposed unitary fee for the Fund was fair and reasonable. The Board considered First Trust's representation that the proposed unitary fee for the Fund was not structured to pass the benefits of any economies of scale on to shareholders as the Fund's assets grow, but that First Trust did not believe this was material to the Board's consideration of the proposed unitary fee due to the anticipated asset levels for the Fund. The Trustees noted that any reduction in fixed costs associated with the management of the Fund would benefit First Trust, but that a unitary fee structure provides certainty in expenses for the Fund. The Board noted that First Trust has continued to invest in personnel and infrastructure for the First Trust complex. The Board took the costs to be borne by First Trust in connection with its services to be performed under the Agreement into consideration and noted that First Trust was unable to estimate the profitability of the Agreement for the Fund to Page 79 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (UNAUDITED) First Trust. The Board considered that First Trust had identified as a fall-out benefit to First Trust and First Trust Portfolios L.P. their exposure to investors and brokers who, in the absence of the Fund, may have had no dealings with First Trust. The Board also noted that First Trust would not utilize soft dollars in connection with its management of the Fund's portfolio. After discussion, the Board of Trustees, including the Independent Trustees, concluded that First Trust had the capabilities, resources and personnel necessary to manage the Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Trustees concluded that it was in the best interests of the Fund to approve the Agreement. No single factor was determinative in the Board's analysis. Page 80 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (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 THE FIRST TRUST OTHER NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR DATE OF BIRTH AND AND PRINCIPAL OCCUPATIONS OVERSEEN BY DIRECTORSHIPS POSITION WITH THE TRUST LENGTH OF SERVICE DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 98 None c/o First Trust Advisors L.P. Co-Owner and Co-Director (January 1996 120 East Liberty Drive, o Since Inception to May 2007), Sports Med Center for Suite 400 Fitness; Limited Partner, Gundersen Real Wheaton, IL 60187 Estate Limited Partnership; Member, D.O.B.: 04/51 Sportsmed LLC Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 98 Director of ADM c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services, 120 East Liberty Drive, o Since Inception (May 2007 to March 2010), Vice President Inc. and ADM Suite 400 and Chief Financial Officer (1990 to May Investor Services, Wheaton, IL 60187 2007), ADM Investor Services, Inc. (Futures International D.O.B.: 11/57 Commission Merchant) Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 98 None c/o First Trust Advisors L.P. Enterprises (Financial and Management 120 East Liberty Drive, o Since June 2006 Consulting) Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer 98 Director of c/o First Trust Advisors L.P. (June 2012 to Present), Dew Learning LLC Covenant 120 East Liberty Drive, o Since Inception (Educational Products and Services), Transport Inc. Suite 400 President (June 2002 to June 2012), Wheaton, IL 60187 Covenant College D.O.B.: 03/54 ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee and o Indefinite Term Chief Executive Officer (December 2010 98 None Chairman of the Board to Present), President (until December 120 East Liberty Drive, o Since Inception 2010), First Trust Advisors L.P. and First Suite 400 Trust Portfolios L.P.; Chairman of the Wheaton, IL 60187 Board of Directors, BondWave LLC D.O.B.: 09/55 (Software Development Company/ Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor)
------------------------ (1) Mr. Bowen is deemed an "interested person" of the Trust due to his position as Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust. Page 81 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (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(2) ------------------------------------------------------------------------------------------------------------------------------------ Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present) 120 E. Liberty Drive, Financial Officer and Chief Financial Officer, First Trust Advisors Suite 400 o President and Chief L.P. and First Trust Portfolios L.P.; Chief Financial Wheaton, IL 60187 Executive Officer Officer, BondWave LLC (Software Development D.O.B.: 11/57 Since January 2012 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) o Treasurer, Chief Financial Officer and Chief Accounting Officer from Inception to January 2012 James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice 120 E. Liberty Drive, Financial Officer President (April 2007 to January 2011), Vice Suite 400 and Chief Accounting o Treasurer, Chief President (January 2005 to April 2007), First Trust Wheaton, IL 60187 Officer Financial Officer and Advisors L.P. and First Trust Portfolios L.P. D.O.B.: 01/66 Chief Accounting Officer Since January 2012 o Assistant Treasurer from December 2005 to Janaury 2012 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary, BondWave LLC Suite 400 o Since Inception (Software Development Company/Investment Wheaton, IL 60187 Advisor) and Stonebridge Advisors LLC D.O.B.: 05/60 (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to 120 E. Liberty Drive, Present), First Trust Advisors L.P. and First Trust Suite 400 o Since December 2005 Portfolios L.P. Wheaton, IL 60187 D.O.B.: 02/70 Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present), 120 E. Liberty Drive, Chief Compliance Officer First Trust Advisors L.P. and First Trust Suite 400 o Assistant Secretary Portfolios L.P. Wheaton, IL 60187 Since Inception D.O.B.: 12/66 o Chief Compliance Officer since January 2011 Roger F. Testin Vice President o Indefinite Term Senior Vice President (November 2003 to Present), 120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Suite 400 o Since Inception Portfolios L.P. Wheaton, IL 60187 D.O.B.: 06/66 Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present), 120 E. Liberty Drive, Vice President (August 2005 to September 2012), Suite 400 o Since December 2006 First Trust Advisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P. D.O.B.: 11/70
--------------------- (2) Officers of the Trust have an indefinite term. The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 82 -------------------------------------------------------------------------------- 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. 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 NASDAQ-100 Equal Weighted Index(SM) Fund and the First Trust NASDAQ-100-Technology Sector 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. Page 83 -------------------------------------------------------------------------------- RISK CONSIDERATIONS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- First Trust S&P REIT 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 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 NASDAQ-100 Ex-Technology Sector Index(SM) Fund invests 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. 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 and the First Trust ISE Water Index 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. Page 84 -------------------------------------------------------------------------------- RISK CONSIDERATIONS (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- 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. The First Trust CBOE S&P 500 VIX Tail Hedge Fund's use of options and other derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the First Trust CBOE S&P 500 VIX Tail Hedge Fund's portfolio managers use derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The option positions employed, as dictated by the attempt to replicate the Index, may present additional risk. The value of an option may be adversely affected if the market for the option becomes less liquid or smaller, and will be affected by changes in the value and dividend rates of the stock subject to the option, an increase in interest rates, a change in the actual and perceived volatility of the stock market and the common stock and the remaining time to expiration. Additionally, the value of an option does not increase or decrease at the same rate as the underlying stock (although they generally move in the same direction). Certain of the Funds may engage in securities lending. Securities lending involves the risk that a Fund may lose money because the borrower of the Fund's loaned securities fails to return the securities in a timely manner or at all. A Fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events could also trigger adverse tax consequences for a Fund. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 85 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2012 (UNAUDITED) PRIVACY POLICY First Trust values our relationship with you and considers 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 (a social media sharing service), 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, First Trust restricts access to your nonpublic personal information to those First Trust employees 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 86 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 $369,000 for 2011 and $389,500 for 2012. (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 2011 and $0 for 2012. 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 2011 and $0 for 2012. (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 $67,500 for 2011 and $0 for 2012. The tax fees in 2011 were for review of regulated investment company status. 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 2011 and $0 for 2012. (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 2011 and $0 for 2012. 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 2011 and $0 for 2012. (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 2011 were $67,500 for the registrant, $6,200 for the registrant's investment adviser and $59,063 for the registrant's distributor and for 2012 were $0 for the registrant, $4,120 for the registrant's investment adviser and $65,135 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 28, 2013 --------------------- 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 28, 2013 --------------------- By (Signature and Title)* /s/ James M. Dykas ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: February 28, 2013 --------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 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 28, 2013 /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 28, 2013 /s/ Mark R. Bradley --------------------- ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) EX-99.906 CERT 3 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 28, 2013 /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 28, 2013 /s/ James M. Dykas ---------------------- ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer)