0001445546-14-001418.txt : 20140307 0001445546-14-001418.hdr.sgml : 20140307 20140307102353 ACCESSION NUMBER: 0001445546-14-001418 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20131231 FILED AS OF DATE: 20140307 DATE AS OF CHANGE: 20140307 EFFECTIVENESS DATE: 20140307 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: 14675524 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 Capital Strength ETF C000034137 First Trust Capital Strength ETF FTCS 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, 2013 ------------------- 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 (FDM) First Trust Morningstar Dividend Leaders(SM) Index Fund (FDL) First Trust US IPO Index Fund (FPX) First Trust NYSE Arca Biotechnology Index Fund (FBT) First Trust Dow Jones Internet Index(SM) Fund (FDN) First Trust Capital Strength ETF (FTCS) (formerly known as First Trust Strategic Value Index Fund) First Trust Value Line(R) Equity Allocation Index Fund (FVI) First Trust Value Line(R) Dividend Index Fund (FVD) First Trust Value Line(R) 100 Exchange-Traded Fund (FVL) Annual Report December 31, 2013 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 Shareholder Letter........................................................... 2 Market Overview.............................................................. 3 Fund Performance Overview First Trust Dow Jones Select MicroCap Index(SM) Fund (FDM)................ 4 First Trust Morningstar Dividend Leaders(SM) Index Fund (FDL)............. 6 First Trust US IPO Index Fund (FPX)....................................... 8 First Trust NYSE Arca Biotechnology Index Fund (FBT) ..................... 10 First Trust Dow Jones Internet Index(SM) Fund (FDN)....................... 12 First Trust Capital Strength ETF (FTCS)................................... 14 First Trust Value Line(R) Equity Allocation Index Fund (FVI).............. 16 First Trust Value Line(R) Dividend Index Fund (FVD)....................... 18 First Trust Value Line(R) 100 Exchange-Traded Fund (FVL).................. 20 Notes to Fund Performance Overview........................................... 22 Understanding Your Fund Expenses............................................. 23 Portfolio of Investments First Trust Dow Jones Select MicroCap Index(SM) Fund (FDM)................ 25 First Trust Morningstar Dividend Leaders(SM) Index Fund (FDL)............. 30 First Trust US IPO Index Fund (FPX)....................................... 32 First Trust NYSE Arca Biotechnology Index Fund (FBT)...................... 35 First Trust Dow Jones Internet Index(SM) Fund (FDN)....................... 36 First Trust Capital Strength ETF (FTCS) .................................. 38 First Trust Value Line(R) Equity Allocation Index Fund (FVI).............. 40 First Trust Value Line(R) Dividend Index Fund (FVD)....................... 44 First Trust Value Line(R) 100 Exchange-Traded Fund (FVL).................. 47 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...................... 73 Additional Information....................................................... 74 Board of Trustees and Officers............................................... 77 Privacy Policy............................................................... 79 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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" in the Additional Information section 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 market overview 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, 2013 Dear Shareholders: I am pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund (the "Trust"). As a shareholder, twice a year you receive a detailed report about your investment, including a market overview and performance analysis for the period. Additionally, First Trust Advisors L.P. ("First Trust") compiles the Trust's financial statements for you to review. These reports are intended to keep you up-to-date on your investment, and I encourage you to read this document and discuss it with your financial advisor. As you are probably aware, the twelve months covered by this report saw challenging economic and political issues in the U.S. However, the period was still positive for the markets. In fact, the S&P 500 Index, as measured on a total return basis, rose 32.39% during the twelve months ended December 31, 2013. Of course, past performance can never be an indicator of future performance, but First Trust believes that staying invested in quality products through up and down markets and having a long-term horizon can help investors as they work toward their financial goals. First Trust continues to offer a variety of products that we believe could fit the financial plans for many investors seeking long-term investment success. Your financial advisor can tell you about the other investments First Trust offers that might fit your financial goals. We encourage you to discuss those goals with your financial advisor regularly so that he or she can help keep you on track and help you choose investments that match your goals. First Trust will continue to make available up-to-date information about your investments so you and your financial advisor are current on any First Trust investments you own. We value our relationship with you, and thank you for the opportunity to assist you in achieving your financial goals. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 2 -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2013 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 Various surveys of leading economists have shown that expectations for U.S. GDP growth in 2014 target a growth rate of around 2.8%, up from 2.1% over the past four quarters through Q3'13. As of the close of 2013, the U.S. economic recovery turned 54 months old, or 4.5 years. Over the past 4.5 years, we have been steadfast in our message to investors that the recovery is not only real, but worth taking a stake in via common stocks. Three major U.S. stock indices (S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index) all closed 2013 at or near record highs. From March 9, 2009 (market bottom) through December 31, 2013, the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index posted cumulative total returns of 202.78%, 256.52% and 288.11%, respectively. With small-capitalization stocks outperforming both mid- and large capitalization stocks, it would appear that the traditional risk/reward relationship is in proper working order. We believe that should be construed as a positive to any investor who lost confidence in the markets following the financial crisis in 2008. One of the biggest disappointments in this recovery to date is that too many people are still out of work in the U.S. U.S. payrolls currently stand about 1.5 million below where they were in 2008, according to Bloomberg. If the labor situation improves in 2014, there is a potential silver lining. Why is this so? More workers should lead to greater consumption, in our opinion. Another potential boost to consumption could come from consumer durable goods. Americans have been holding onto their consumer durable goods (which typically last at least three years) longer than at any point in the last 50 years, according to MSN.com. This suggests there could be pent-up demand for these goods. The average age of such items as furniture, appliances and jewelry is more than five years old, the highest since at least 1962, according to the Bureau of Economic Analysis. U.S. STOCKS AND BONDS For the second calendar year in a row, all of the major U.S. stock indices posted double-digit total returns. The S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were up 32.39%, 33.50%, and 41.31%, respectively in 2013, according to Bloomberg. All 10 major sectors in the S&P 500 posted double-digit total returns as well in 2013. The gains ranged from 11.47% for the S&P 500 Telecommunication Services Index to 43.08% for the S&P 500 Consumer Discretionary Index. Volatility eased further in 2013. The VIX Index averaged 14.25%, well below 2012's average of 17.82%, and significantly below its 10-year average of 20.17%. The 2014 estimated earnings growth rates for the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were 13.31%, 22.57% and 34.92%, respectively, as of January 9, 2014, according to Standard & Poor's. The S&P 500 Index has not experienced a 10% correction in 819 days, as of December 31, 2013, and even though we witnessed one in 2011, the market eventually rebounded and moved on to set new all-time highs. Investors leery of committing capital to the stock market at current levels should know, however, that the longest stretch without a 10% correction was 2,553 days (October 11, 1990 - October 7, 1997), according to Bespoke Investment Group. This means that, while always a possibility, a correction is not imminent, in our opinion. In the U.S. bond market, the top-performing major debt group in 2013 was high-yield corporate bonds. The Barclays U.S. Corporate High Yield Index posted a total return of 7.44%. The next closest domestic category was intermediate investment-grade corporate bonds, up just 0.08%, as measured by the Barclays Intermediate Corporate Index. The Barclays Municipal Bond: Long Bond (22+ Yr) Index posted the weakest total return, down 6.01%. The 127 basis point rise in the yield on the benchmark 10-year Treasury note in 2013 induced some selling pressure in bond mutual funds. TrimTabs Investment Research reported that investors liquidated a record $86 billion from U.S. bond mutual funds and ETFs in 2013, according to Barron's. It topped the previous record of $62 billion set in 1994. FOREIGN STOCKS AND BONDS Investors shied away from foreign debt securities in 2013. The Barclays Global Emerging Markets Index of debt securities fell 2.66% (USD), while the Barclays Global Aggregate Index of higher-quality debt declined by 2.60% (USD). Investors seemed just as disinterested in emerging markets equities. The MSCI Emerging Markets Index posted a total return of -2.60% (USD). On the other hand, investors were attracted to stocks from developed nations. The MSCI World Index (excluding the U.S.) posted a total return of 21.02% (USD). Over the past 12 months, the U.S. dollar rose just 0.33% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY). The dollar had little influence on returns for U.S. investors in 2013, in our opinion. Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) 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 (9/27/05) Ended (9/27/05) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 43.32% 18.17% 6.88% 130.45% 73.29% Market Value 42.74% 18.14% 6.82% 130.11% 72.45% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) 44.25% 18.96% 7.63% 138.24% 83.61% Russell 2000(R) Index 38.82% 20.08% 8.59% 149.69% 97.47% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of 43.32% during the 12-month period covered by this report. During the same period, the benchmark Russell 2000(R) Index generated a return of 38.82%. The Industrials sector was the top-performing sector in the Fund with a 54.8% return during the reporting period. The sector's average weight in the Fund was 20.8%, resulting in an 11.0% contribution to the Fund's total return. Within the sector, the Machinery industry was a major driver of return. The Fund's holdings from the industry returned 59.6% during the reporting period and contributed 3.1% to the Fund's total return. The Financials sector led all sectors in terms of contribution to total return with a 12.0% contribution to total return. The Fund's holdings in the sector comprised an average of 27.6% of the Fund's weight and returned 43.7% during the reporting period. Commercial banks were the major cause of the sector's performance as companies from the industry returned 47.0% and contributed 8.0% to the Fund's return. The Industrials and Financials sectors were also the main causes of the Fund's outperformance. The Fund's holdings in the Financials sector outperformed the benchmark's constituents from the sector (43.7% vs. 30.3%) and the Fund was overweight the sector (27.6% vs. 23.0% average weight). Similarly, in the Industrials sector the Fund's holdings outperformed the benchmark's constituents (54.8% vs. 43.1%) and the Fund was overweight the sector (20.8% vs. 14.7% average weight). ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Financials 25.89% Industrials 22.49 Consumer Discretionary 15.13 Information Technology 10.35 Health Care 8.79 Materials 4.45 Energy 3.75 Telecommunication Services 3.73 Consumer Staples 3.51 Utilities 1.91 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS First Financial Holdings, Inc. 1.47% Sterling Bancorp 0.96 FARO Technologies, Inc. 0.91 Renasant Corp. 0.90 Navigant Consulting, Inc. 0.87 Gentherm, Inc. 0.85 Altra Industrial Motion Corp. 0.85 Federal Signal Corp. 0.84 Virtusa Corp. 0.82 Spartan Stores, Inc. 0.81 ------- Total 9.28% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT SEPTEMBER 27, 2005 - DECEMBER 31, 2013 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 06/13 14055 14840 16481 12/13 17328 18360 19748 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 151 1 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/09 - 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 01/01/13 - 12/31/13 98 2 0 0 Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL) 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 (3/9/06) Ended (3/9/06) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 22.71% 15.23% 5.30% 103.19% 49.76% Market Value 22.72% 15.16% 5.30% 102.58% 49.72% INDEX PERFORMANCE Morningstar(R) Dividend Leaders(SM) Index 23.36% 15.84% 5.83% 108.59% 55.65% S&P 500(R) Index 32.39% 17.94% 7.16% 128.19% 71.64% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 22.71% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of 32.39%. Despite the Fund's solid annual return, it underperformed the broader market. The Fund underperformed due to its heavy weight in the Telecommunication Services and Utilities sectors. During the reporting period the Fund's holdings in the Utilities sector comprised an average of 27.3% of the Fund's weight and returned 11.8%. The benchmark had an average weight of just 3.3% in the sector. In the Telecommunication Services sector, the Fund's holdings had an average weight of 19.8% and returned 13.5% for the reporting period. In the benchmark the Telecommunication Services sector had only a 2.7% weight. Due to being overweight in Utilities and Telecommunication Services, the Fund was underweight in other strong-performing sectors relative to the benchmark. The Fund was underweight in the Consumer Discretionary (1.6% vs. 12.0% average weight), Financials (2.8% vs 16.3%), and Industrials (5.4% vs. 10.3%) sectors; all of which had above-average performance. ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Utilities 26.16% Telecommunication Services 20.73 Energy 15.53 Health Care 10.15 Information Technology 9.82 Materials 5.67 Industrials 4.80 Financials 2.87 Consumer Staples 2.84 Consumer Discretionary 1.43 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS AT&T, Inc. 10.06% Chevron Corp. 9.36 Verizon Communications, Inc. 8.76 Merck & Co., Inc. 7.33 Intel Corp. 6.79 ConocoPhillips 4.91 Duke Energy Corp. 3.17 Eli Lilly & Co. 2.82 Southern (The) Co. 2.58 E.I. du Pont de Nemours & Co. 2.55 ------- Total 58.33% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MARCH 9, 2006 - DECEMBER 31, 2013 First Trust Morningstar Dividend Morningstar(R) Dividend S&P 500(R) Leaders(SM) Index FundLeaders(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 06/13 13908 14421 14756 12/13 14978 15569 17163 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 12/31/09 135 4 3 2 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 01/01/13 - 12/31/13 171 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% 01/01/09 - 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 01/01/13 - 12/31/13 81 0 0 0 Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST US IPO INDEX FUND (FPX) 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 25, 2006.
---------------------------------------------------------------------------------------------------------------------------- PERFORMANCE ---------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (4/12/06) Ended (4/12/06) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 47.98% 27.73% 12.16% 240.03% 142.58% Market Value 47.40% 27.76% 12.17% 240.43% 142.69% INDEX PERFORMANCE IPOX(R)-100 U.S. Index 48.88% 28.56% 12.86% 251.21% 154.45% Russell 3000(R) Index 33.55% 18.71% 7.27% 135.71% 71.91% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 47.98% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 33.55%. Facebook, Inc. was the Fund's best individual contributor to total return with an 8.5% contribution as the company's stock appreciated 105.3% during the reporting period. Facebook, Inc. shares started to rally after the company announced strong mobile ad revenue in their second quarter earnings announcement. Tesla Motors, Inc. was the best performing stock in the Fund with a 344.1% return during the reporting period after posting its first ever profit earlier than analysts expected. The company's relatively small average weight in the Fund (1.6%) limited its contribution to the Fund's total return to 2.4%. ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST US IPO INDEX FUND (FPX) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Consumer Discretionary 26.71% Information Technology 18.80 Energy 17.77 Health Care 15.46 Industrials 9.22 Financials 7.18 Consumer Staples 4.56 Materials 0.30 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Facebook, Inc., Class A 9.73% AbbVie, Inc. 9.30 General Motors Co. 7.08 Phillips 66 5.12 Kinder Morgan, Inc. 4.13 Kraft Foods Group, Inc. 3.56 Marathon Petroleum Corp. 3.06 HCA Holdings, Inc. 2.36 Dollar General Corp. 2.14 Delphi Automotive PLC 2.05 ------- Total 48.53% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 12, 2006 - DECEMBER 31, 2013 First Trust US IPO IPOX(R)-100 Russell 3000(R) Index Fund U.S. 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 06/13 19143 20011 14683 12/13 24256 25446 17192 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 220 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% 01/01/09 - 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 01/01/13 - 12/31/13 32 0 0 0 Page 9 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) 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 (6/19/06) Ended (6/19/06) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 50.10% 28.54% 18.08% 250.86% 249.73% Market Value 50.36% 28.64% 18.08% 252.29% 249.73% INDEX PERFORMANCE NYSE Arca Biotechnology Index(SM) 50.80% 29.27% 18.79% 261.03% 266.00% NASDAQ(R) Biotechnology Index 66.02% 27.07% 17.54% 231.25% 237.87% S&P 500(R) Index 32.39% 17.94% 7.73% 128.19% 75.23% S&P Composite 1500 Health Care Index 42.19% 19.06% 11.07% 139.19% 120.50% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 50.10% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Health Care Index generated a return of 42.19%. Incyte Corp. was the best-performing and contributing holding in the Fund. For the reporting period the company's stock returned 204.8% and contributed 7.8% to the Fund's return. The value of Incyte Corp. jumped when one of its medicines had positive results for patients with pancreatic cancer. Celgene Corp. was the next best performer with a 115.3% return and a 5.0% contribution to return. The company's drug Revlimid showed positive results in elderly patients newly diagnosed with myeloma. A majority of the holdings in the Fund had strong returns, but some companies did detract from return. Dendreon Corp. was the worst-performing company in the Fund with return of -53.9% while held in the Fund this reporting period. One reason for the negative performance was the lowering of the forecast for the company's prostate drug, Provenge. ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) (CONTINUED) ----------------------------------------------------------- PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL INDUSTRY LONG-TERM INVESTMENTS Biotechnology 77.96% Life Sciences Tools & Services 16.83 Pharmaceuticals 5.21 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS United Therapeutics Corp. 6.44% Illumina, Inc. 6.38 Incyte Corp. 6.25 Alexion Pharmaceuticals, Inc. 5.76 Cepheid, Inc. 5.40 QIAGEN N.V. 5.32 Nektar Therapeutics 5.21 Techne Corp. 5.13 Exact Sciences Corp. 4.88 Gilead Sciences, Inc. 4.83 ------- Total 55.60% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 12, 2006 - DECEMBER 31, 2013 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 06/13 29413 30705 25829 15066 18703 12/13 34975 36600 33787 17523 22049
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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 204 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% 01/01/09 - 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 01/01/13 - 12/31/13 48 0 0 0 Page 11 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN) 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 (6/19/06) Ended (6/19/06) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 53.40% 33.74% 15.72% 327.89% 200.49% Market Value 53.44% 33.75% 15.73% 327.96% 200.54% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) 54.36% 34.54% 16.38% 340.80% 213.59% S&P 500(R) Index 32.39% 17.94% 7.73% 128.19% 75.23% S&P Composite 1500 Information Technology Index 28.99% 22.00% 10.08% 170.28% 106.20% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 53.40% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Information Technology Index generated a return of 28.99%. The Internet & Catalog Retail industry, which is a part of the Consumer Discretionary sector, was a significant driver of the Fund's strong returns. The Fund's holdings in the industry comprised an average of 23.3% of the Fund's weight and returned 95.1% for the reporting period. Netflix, Inc. (+297.6% return), Groupon, Inc. (+142.1%), TripAdvisor, Inc. (+97.6%), and priceline.com, Inc. (+87.4%) all were companies from the industry with robust performance this period. The Internet Software & Services industry led all industries in the Fund with a 24.2% contribution to return. The Fund's holdings in the industry returned 44.8% and comprised an average of 52.3% of the Fund's' weight. Google, Inc. and Facebook, Inc. were the leading contributors from the industry with contributions to total return of 5.8% and 4.4%, respectively. ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 70.85% Consumer Discretionary 23.17 Financials 4.49 Health Care 1.49 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Google, Inc., Class A 9.81% Amazon.com, Inc. 7.54 Facebook, Inc., Class A 6.50 eBay, Inc. 5.55 priceline.com, Inc. 5.15 Yahoo!, Inc. 4.46 Salesforce.com, Inc. 4.18 Netflix, Inc. 3.51 LinkedIn Corp., Class A 3.30 Juniper Networks, Inc. 2.86 ------- Total 52.86% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 19, 2006 - DECEMBER 31, 2013
First Trust Dow Jones Dow Jones Internet S&P 500(R) S&P Composite 1500 Internet Index(SM) Fund Composite Index(SM) Index Information Technology Index 06/06 $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 71147 679 7629 06/09 9374 95247 922 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 06/13 22779 23687 15065 17061 12/13 30050 31357 17523 20620
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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 200 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% 01/01/09 - 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 01/01/13 - 12/31/13 52 0 0 0 Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CAPITAL STRENGTH ETF (FTCS) The First Trust Capital Strength ETF (formerly known as First Trust Strategic Value Index Fund) (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called The Capital Strength Index(SM) (the "Index"). The Index is initially equally-weighted and is made up of the top 50 stocks out of the universe of the largest 500 U.S. companies included in the NASDAQ US Benchmark Index, ranked by one and three-year daily volatility. Companies with less than $1 billion in cash and short term investments, companies with long-term debt divided by market capitalization greater than 30% and companies with return on equity less than 15% are excluded from the Index. The Index is reconstituted and rebalanced on a quarterly basis. The Fund's shares are listed for trading on the NASDAQ. 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 (7/6/06) Ended (7/6/06) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 35.90% 19.76% 8.86% 146.33% 88.80% Market Value 36.15% 19.94% 8.88% 148.20% 89.09% INDEX PERFORMANCE The Capital Strength Index(SM)* N/A N/A N/A N/A N/A S&P 500 Value Index 31.99% 16.61% 5.65% 115.59% 50.94% S&P 500(R) Index 32.39% 17.94% 7.38% 128.19% 70.39% ---------------------------------------------------------------------------------------------------------------------------- * On June 18, 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). On June 4, 2013, the Fund's underlying index changed from the Credit Suisse U.S. Value Index, Powered by HOLT(TM) to The Capital Strength Index(SM). Since the Fund's new underlying index had an inception date of March 20, 2013, it was not in existence for any of the periods disclosed. (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 35.90% during the 12-month period covered by this report. During the same period, the S&P 500 Value Index (the "Benchmark") generated a return of 31.99%. In June of 2013 the Fund changed its underlying index from the Credit Suisse U.S. Value Index, Powered by Holt(TM) (the "HOLT Index"), to The Capital Strength Index(SM). During the portion of the year when the Fund tracked the HOLT Index the Fund returned 18.5% versus the Benchmark's 17.5% return. In this period the Fund's outperformance came from being overweight the strong-performing Information Technology sector (23.6% vs. 8.4% average weight). From the time the Fund changed underlying indexes (June 4, 2013) through the end of the reporting period the Fund returned 14.8% versus the Benchmark's 12.3%. During the same period, The Capital Strength Index(SM) generated a return of 15.23%. In this June 4, 2013 to December 31, 2013 period the Fund's outperformance came from positive selection and allocation effects in the Industrials sector. Relative to the Benchmark the Fund was overweight the sector (18.6% vs. 13.1% average weight) and outperformed within the sector (+27.8% vs. +22.1%). ------------------- "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. The Capital Strength Index(TM) is the trademark (the "Mark") of NASDAQ OMX. The Mark is licensed for use by First Trust Portfolios L.P. The Fund has not been passed on by NASDAQ OMX as to its legality or suitability. The Fund is not issued, endorsed, sold or promoted by NASDAQ OMX. The Fund should not be construed in any way as investment advice by NASDAQ OMX. NASDAQ OMX MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE FUND OR THE CAPITAL STRENGTH INDEX(TM). Page 14 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CAPITAL STRENGTH ETF (FTCS) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Health Care 19.50% Industrials 18.82 Information Technology 18.45 Consumer Staples 17.39 Consumer Discretionary 10.12 Financials 7.76 Energy 5.92 Materials 2.04 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Raytheon Co. 2.21% Linear Technology Corp. 2.17 Exxon Mobil Corp. 2.16 Lockheed Martin Corp. 2.16 3M Co. 2.14 McKesson Corp. 2.14 Omnicom Group, Inc. 2.12 United Parcel Service, Inc., Class B 2.11 Northrop Grumman Corp. 2.11 CA, Inc. 2.09 ------- Total 21.41% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT JULY 6, 2006 - DECEMBER 31, 2013 First Trust Capital S&P 500 Value S&P 500(R) Strength ETF 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 96711 0440 12/08 7665 70027 467 06/09 8640 69037 703 12/09 10686 84849 443 06/10 9880 80348 815 12/10 12185 97651 0866 06/11 13144 10276 11520 12/11 11827 97181 1095 06/12 12469 10585 12148 12/12 13890 11436 12871 06/13 16203 13235 14650 12/13 18876 15093 17039 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 134 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% 01/01/09 - 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 01/01/13 - 12/31/13 117 1 0 0 Page 15 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) Equity Allocation Index (the "Index"). The Fund will normally invest at least 90% of its 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 (12/5/06) Ended (12/5/06) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 34.65% 16.31% 5.11% 112.90% 42.24% Market Value 34.72% 16.77% 5.11% 117.07% 42.26% INDEX PERFORMANCE Value Line(R) Equity Allocation Index(TM) 35.74% 17.37% 5.98% 122.70% 50.82% Russell 3000(R) Index 33.55% 18.71% 6.44% 135.71% 55.49% ---------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 34.65% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 33.55%. The Financials sector led all sectors in the Fund in contribution to return with a 9.9% contribution. The Fund's holdings in the sector comprised an average of 23.6% of the Fund's weight and returned 45.3%. Almost half of the Fund's Financials exposure was in the strong-performing Insurance industry, which returned 54.0% during the reporting period. The Consumer Discretionary sector was the Fund's second-best contributing sector with a 7.5% contribution to total return. Within the sector, the Fund's holdings returned 35.4% and comprised an average of 21.2% of the Fund's weight. The Health Care sector was the top-performing sector in the Fund with a 48.2% return, but the sector's average Fund weight of 8.2% limited its contribution to 4.0%. The Financials sector was the largest cause of outperformance as the Fund was overweight the sector (23.6% vs. 17.5% average weight) and achieved better performance (+45.3% vs. +32.7%) relative to the benchmark. ------------------- "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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Financials 29.64% Consumer Discretionary 19.65 Industrials 15.42 Information Technology 14.09 Health Care 8.47 Materials 4.60 Energy 3.93 Consumer Staples 3.03 Telecommunication Services 0.86 Utilities 0.31 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Cognizant Technology Solutions Corp., Class A 1.49% Time Warner Cable, Inc. 1.35 3M Co. 1.33 Xerox Corp. 1.32 AbbVie, Inc. 1.31 Manulife Financial Corp. 1.29 Infosys Ltd., ADR 1.29 St. Jude Medical, Inc. 1.29 Lockheed Martin Corp. 1.28 Intuit, Inc. 1.28 ------- Total 13.23% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 5, 2006 - DECEMBER 31, 2013 First Trust Value Line(R) Equity Value Line(R) Equity Russell 3000(R) Allocation Index Fund Allocation 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 06/13 12087 12764 13280 12/13 14223 15078 15550
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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 140 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% 01/01/09 - 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 01/01/13 - 12/31/13 104 8 0 0 Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) 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 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (8/19/03) Ended Ended (8/19/03) 12/31/13 12/31/13 12/31/13 to 12/31/13 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 26.57% 16.32% 9.02% 9.31% 112.98% 137.18% 151.69% Market Value 26.72% 16.53% 9.93% 9.32% 114.86% 157.82% 151.93% INDEX PERFORMANCE Value Line(R) Dividend Index(TM) 27.60% 17.25% N/A N/A 121.58% N/A N/A S&P 500(R) Index 32.39% 17.94% 7.41% 8.28% 128.19% 104.30% 128.12% Dow Jones U.S. Select Dividend Index(SM) 29.06% 16.16% N/A N/A 111.45% N/A 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 (12/31/13) 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 (12/31/13) 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 Mkt) closing market price of the Predecessor FVD Fund. (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 26.57% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of 32.39%. The Utilities sector was the top-contributing sector in the Fund with a 4.7% contribution. The Fund's holdings in the sector lagged the broader market with a 17.1% return, but the sector had an average weight in the Fund of 26.0%. The Industrials sector was the top-performing sector in the Fund with a 42.6% return, but the sector's average Fund weight of 10.9% limited its contribution to 4.2%. The largest cause of the Fund underperforming its benchmark was being overweight the weak-performing Utilities sector (26.0% vs. 3.3% average weight). The Fund also suffered from its holdings underperforming in the Financials (+29.4% vs. +35.7%) and the Health Care (+33.2% vs. +41.2%) sectors relative to the benchmark. ------------------- "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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Utilities 25.42% Consumer Staples 16.70 Industrials 11.35 Financials 10.69 Health Care 10.12 Information Technology 8.95 Consumer Discretionary 6.00 Energy 5.98 Materials 2.40 Telecommunication Services 2.39 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Omnicom Group, Inc. 0.61% Cisco Systems, Inc. 0.61 E.I. du Pont de Nemours & Co. 0.61 GlaxoSmithKline PLC, ADR 0.61 Mattel, Inc. 0.61 Hasbro, Inc. 0.61 Diageo PLC, ADR 0.61 Sanofi, ADR 0.61 Unilever PLC, ADR 0.61 Fastenal Co. 0.61 ------- Total 6.10% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2003 - DECEMBER 31, 2013 First Trust Value Line(R) S&P 500(R) Dividend Index Fund Index 12/03 $10000 $10000 06/04 10596 10345 12/04 11878 11089 06/05 12238 10999 12/05 12660 11633 06/06 13388 11948 12/06 15206 13471 06/07 15615 14409 12/07 14687 14211 06/08 13255 12518 12/08 11136 8954 06/09 11002 9237 12/09 13316 11323 06/10 12932 10570 12/10 15456 13030 06/11 16713 13814 12/11 16852 13304 06/12 17919 14567 12/12 18734 15434 06/13 21336 17567 12/13 23711 20432 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 238 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% 01/01/09 - 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 01/01/13 - 12/31/13 14 0 0 0 Page 19 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) 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 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (6/12/03) Ended Ended (6/12/03) 12/31/13 12/31/13 12/31/13 to 12/31/13 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 39.44% 15.26% 5.25% 5.99% 103.46% 66.85% 84.75% Market Value 39.68% 15.38% 5.33% 5.99% 104.46% 68.15% 84.86% INDEX PERFORMANCE Value Line(R) 100 Index(TM) 40.93% 16.35% N/A N/A 113.26% N/A N/A Russell 3000(R)- Index 33.55% 18.71% 7.88% 8.77% 135.71% 113.59% 142.78% ---------------------------------------------------------------------------------------------------------------------------------- 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 (12/31/13) 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 (12/31/13) 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 Mkt) closing market price of the Predecessor FVL Fund. (See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW The Fund generated a NAV return of 39.44% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 33.55%. The Consumer Discretionary sector was the top-contributing sector in the Fund with a 14.6% contribution to the Fund's return. The Fund's holdings in the sector comprised an average of 26.6% of the Fund's weight and had a strong return of 53.3% during the reporting period. Many industries within the Consumer Discretionary sector had strong returns including the Diversified Consumer Services (+89.8%), Hotels, Restaurants & Leisure (+69.7%), and Specialty Retail (+69.3%) industries. The Industrials sector was the second-best contributing sector in the Fund with an 8.3% contribution to the Fund's return. The Fund's holdings in the sector returned 51.4% and comprised an average of 17.8% of the Fund's weight. Like the Consumer Discretionary the performance in the Industrials sector was spread over multiple industries. The strongest returns came from the Professional Services (+74.6%), Aerospace & Defense (+58.4%), and the Building Products (+57.6%) industries. The Consumer Discretionary and Industrials sectors were also the cause of the Fund outperforming its benchmark. In both of the sectors the Fund received better performance than the benchmark, and the Fund was overweight relative to the benchmark. ------------------- "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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 18.65% Energy 18.19 Industrials 15.87 Consumer Discretionary 14.81 Financials 13.00 Materials 8.44 Health Care 5.60 Telecommunication Services 3.35 Utilities 2.09 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Goodyear Tire & Rubber (The) Co. 1.38% Amkor Technology, Inc. 1.35 Global Payments, Inc. 1.25 Southwest Airlines Co. 1.24 AK Steel Holding Corp. 1.22 Alpha Natural Resources, Inc. 1.22 Navigant Consulting, Inc. 1.21 Level 3 Communications, Inc. 1.20 Barrick Gold Corp. 1.18 Elbit Systems Ltd. 1.17 ------- Total 12.42% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2003 - DECEMBER 31, 2013 First Trust Value Line(R) 100 Russell 3000(R) Exchange-Traded Fund Index 12/03 $10000 $10000 06/04 10320 10359 12/04 11306 11195 06/05 11424 11194 12/05 12646 11880 06/06 12919 12264 12/06 13227 13745 06/07 14772 14722 12/07 15860 14449 06/08 14506 12853 12/08 8201 9059 06/09 7882 9438 12/09 9246 11625 06/10 9166 10922 12/10 11974 13594 06/11 12653 14457 12/11 11026 13733 06/12 11334 15013 12/12 11966 15987 06/13 13749 18235 12/13 16686 21351 Performance figures assume reinvestment of all dividend distributions and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption or sale of Fund shares. An index is a statistical composite that tracks a specified financial market or sector. Unlike the Fund, the index does not actually hold a portfolio of securities and therefore does not incur the expenses incurred by the Fund. These expenses negatively impact the performance of the Fund. The Fund's past performance does not predict future performance. FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 100 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% 01/01/09 - 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 01/01/13 - 12/31/13 152 0 0 0 Page 21 -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- 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, 2013 (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 Capital Strength ETF, 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 "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, if any, 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, 2013. 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, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) Actual $1,000.00 $1,232.90 0.60% $3.38 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL) Actual $1,000.00 $1,076.90 0.45% $2.36 Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29 FIRST TRUST US IPO INDEX FUND (FPX) Actual $1,000.00 $1,267.10 0.60% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) Actual $1,000.00 $1,189.10 0.60% $3.31 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN) Actual $1,000.00 $1,319.20 0.57% $3.33 Hypothetical (5% return before expenses) $1,000.00 $1,022.33 0.57% $2.91 FIRST TRUST CAPITAL STRENGTH ETF (FTCS) Actual $1,000.00 $1,165.00 0.65% $3.55 Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
Page 23 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2013 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE RATIO EXPENSE PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) Actual $1,000.00 $1,176.70 0.70% $3.84 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) Actual $1,000.00 $1,111.30 0.70% $3.73 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) Actual $1,000.00 $1,213.60 0.70% $3.91 Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
(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, 2013 through December 31, 2013), multiplied by 184/365 (to reflect the one-half year period). Page 24 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 2.6% 12,565 Astronics Corp. (a) $ 640,815 8,349 Ducommun, Inc. (a) 248,884 14,351 Engility Holdings, Inc. (a) 479,323 4,080 National Presto Industries, Inc. (a) 328,440 43,192 Taser International, Inc. (a) 685,889 -------------- 2,383,351 -------------- AIR FREIGHT & LOGISTICS -- 1.1% 42,549 Air Transport Services Group, Inc. (a) 344,221 11,922 Echo Global Logistics, Inc. (a) 256,085 7,210 Park-Ohio Holdings Corp. (a) 377,804 -------------- 978,110 -------------- AIRLINES -- 0.5% 43,628 Hawaiian Holdings, Inc. (a) 420,138 -------------- AUTO COMPONENTS -- 1.2% 28,890 Gentherm, Inc. (a) 774,541 11,728 Remy International, Inc. 273,497 -------------- 1,048,038 -------------- AUTOMOBILES -- 0.7% 23,216 Winnebago Industries, Inc. (a) 637,279 -------------- BEVERAGES -- 0.3% 3,852 Coca-Cola Bottling Co. Consolidated 281,928 -------------- BUILDING PRODUCTS -- 1.1% 36,866 Griffon Corp. 487,000 8,095 Patrick Industries, Inc. (a) 234,188 26,122 PGT, Inc. (a) 264,355 -------------- 985,543 -------------- CAPITAL MARKETS -- 1.8% 15,901 Calamos Asset Management, Inc., Class A 188,268 2,175 Diamond Hill Investment Group, Inc. 257,390 7,361 FBR & Co. (a) 194,183 30,073 FXCM, Inc., Class A 536,502 12,021 INTL FCStone, Inc. (a) 222,869 11,354 Manning & Napier, Inc. 200,398 -------------- 1,599,610 -------------- CHEMICALS -- 2.0% 6,081 American Pacific Corp. (a) 226,578 18,770 FutureFuel Corp. 296,566 7,861 Hawkins, Inc. 292,351 22,059 Landec Corp. (a) 267,355 39,248 Omnova Solutions, Inc. (a) 357,549 22,340 Zoltek Cos., Inc. (a) 374,195 -------------- 1,814,594 -------------- COMMERCIAL BANKS -- 17.0% 11,141 1st Source Corp. 355,844 4,080 Bank of Marin Bancorp 177,031 13,100 City Holding Co. 606,923 29,463 CoBiz Financial, Inc. 352,377 12,371 Community Trust Bancorp, Inc. 558,674 18,694 Eagle Bancorp, Inc. (b) 572,597 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMERCIAL BANKS (CONTINUED) 12,738 Fidelity Southern Corp. $ 211,578 59,973 First Busey Corp. 347,843 12,255 First Community Bancshares, Inc. 204,659 8,644 First Financial Corp. 316,025 20,051 First Financial Holdings, Inc. 1,333,592 29,903 First Merchants Corp. 680,592 24,322 Flushing Financial Corp. 503,465 26,445 Hanmi Financial Corp. 578,881 11,773 Heartland Financial USA, Inc. 338,945 13,749 Hudson Valley Holding Corp. 279,792 27,156 Lakeland Bancorp, Inc. 335,920 13,712 Lakeland Financial Corp. 534,768 10,727 Metro Bancorp, Inc. (a) 231,060 11,369 Pacific Premier Bancorp, Inc. (a) 178,948 26,118 Renasant Corp. 821,672 10,038 Republic Bancorp, Inc., Class A 246,333 11,403 S.Y. Bancorp, Inc. 363,984 20,809 Sandy Spring Bancorp, Inc. 586,606 13,493 Simmons First National Corp., Class A 501,265 13,565 Southside Bancshares, Inc. 370,867 65,654 Sterling Bancorp 877,794 12,703 Taylor Capital Group, Inc. (a) 337,646 9,800 Tompkins Financial Corp. 503,622 11,113 TriCo Bancshares 315,276 17,020 Union First Market Bankshares Corp. 422,266 23,228 Virginia Commerce Bancorp, Inc. (a) 394,644 11,751 Washington Trust Bancorp, Inc. 437,372 56,508 Wilshire Bancorp, Inc. 617,632 -------------- 15,496,493 -------------- COMMERCIAL SERVICES & SUPPLIES -- 3.3% 12,782 CECO Environmental Corp. 206,685 6,697 Consolidated Graphics, Inc. (a) 451,646 21,837 Ennis, Inc. 386,515 26,886 Kimball International, Inc., Class B 404,097 10,379 Multi-Color Corp. 391,703 22,861 Performant Financial Corp. (a) 235,468 13,687 SP Plus Corp. (a) 356,410 16,544 US Ecology, Inc. 615,271 -------------- 3,047,795 -------------- COMMUNICATIONS EQUIPMENT -- 1.7% 9,933 Anaren, Inc. (a) 278,025 13,238 Black Box Corp. 394,492 13,380 Comtech Telecommunications Corp. 421,738 14,969 Oplink Communications, Inc. (a) 278,423 4,729 TESSCO Technologies, Inc. 190,673 -------------- 1,563,351 -------------- CONSTRUCTION & ENGINEERING -- 1.4% 31,221 Furmanite Corp. (a) 331,567 17,621 MYR Group, Inc. (a) 441,935 7,869 Northwest Pipe Co. (a) 297,133 21,185 Pike Electric Corp. (a) 223,926 -------------- 1,294,561 -------------- See Notes to Financial Statements Page 25 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) CONSTRUCTION MATERIALS -- 0.1% 1,529 United States Lime & Minerals, Inc. (a) $ 93,529 -------------- CONSUMER FINANCE -- 0.4% 11,872 Consumer Portfolio Services, Inc. (a) 111,478 8,088 Regional Management Corp. (a) 274,426 -------------- 385,904 -------------- CONTAINERS & PACKAGING -- 0.5% 22,281 Myers Industries, Inc. 470,575 -------------- DISTRIBUTORS -- 0.3% 16,379 VOXX International Corp. (a) 273,529 -------------- DIVERSIFIED CONSUMER SERVICES -- 2.2% 14,591 American Public Education, Inc. (a) 634,271 9,186 Capella Education Co. 610,318 13,067 Carriage Services, Inc. 255,198 15,181 ITT Educational Services, Inc. (a) 509,778 -------------- 2,009,565 -------------- DIVERSIFIED FINANCIAL SERVICES -- 0.3% 11,875 Gain Capital Holdings, Inc. 89,181 8,014 Marlin Business Services Corp. 201,953 -------------- 291,134 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.6% 31,067 Consolidated Communications Holdings, Inc. 609,845 25,609 General Communication, Inc., Class A (a) 285,540 24,930 Inteliquent, Inc. 284,701 14,856 Lumos Networks Corp. 311,976 36,642 Premiere Global Services, Inc. (a) 424,681 143,542 Vonage Holdings Corp. (a) 477,995 -------------- 2,394,738 -------------- ELECTRIC UTILITIES -- 0.4% 10,713 Unitil Corp. 326,639 -------------- ELECTRICAL EQUIPMENT -- 1.0% 7,473 Coleman Cable, Inc. 195,942 7,676 Powell Industries, Inc. 514,215 2,499 Preformed Line Products Co. 182,827 -------------- 892,984 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 3.5% 8,021 Audience, Inc. (a) 93,364 11,973 Badger Meter, Inc. 652,529 14,388 Electro Rent Corp. 266,466 21,695 Fabrinet (a) 446,049 14,253 FARO Technologies, Inc. (a) 830,950 17,365 Park Electrochemical Corp. 498,723 14,384 PC Connection, Inc. 357,442 -------------- 3,145,523 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ ENERGY EQUIPMENT & SERVICES -- 3.4% 6,706 Dawson Geophysical Co. (a) $ 226,797 15,636 Era Group, Inc. (a) 482,527 21,813 Matrix Service Co. (a) 533,764 10,691 Mitcham Industries, Inc. (a) 189,338 10,331 Natural Gas Services Group, Inc. (a) 284,826 10,825 PHI Inc. (a) 469,805 8,606 RigNet, Inc. (a) 412,485 26,055 Tesco Corp. (a) 515,368 -------------- 3,114,910 -------------- FOOD & STAPLES RETAILING -- 2.0% 15,208 Chefs' Warehouse (The), Inc. (a) 443,465 8,909 Ingles Markets, Inc., Class A 241,434 23,773 Roundy's, Inc. 234,402 30,525 Spartan Stores, Inc. 741,147 4,151 Village Super Market, Inc., Class A 128,722 -------------- 1,789,170 -------------- FOOD PRODUCTS -- 0.6% 10,777 Calavo Growers, Inc. 326,112 5,906 Seneca Foods Corp., Class A (a) 188,342 -------------- 514,454 -------------- GAS UTILITIES -- 0.5% 8,022 Chesapeake Utilities Corp. 481,480 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 2.9% 21,138 AngioDynamics, Inc. (a) 363,362 9,442 Anika Therapeutics, Inc. (a) 360,307 16,225 Cynosure, Inc., Class A (a) 432,883 33,819 Merit Medical Systems, Inc. (a) 532,311 23,208 Natus Medical, Inc. (a) 522,180 9,766 PhotoMedex, Inc. (a) 126,470 12,757 Vascular Solutions, Inc. (a) 295,324 -------------- 2,632,837 -------------- HEALTH CARE PROVIDERS & SERVICES -- 4.1% 4,817 Addus HomeCare Corp. (a) 108,142 27,033 Amedisys, Inc. (a) 395,493 38,316 AMN Healthcare Services, Inc. (a) 563,245 35,377 Five Star Quality Care, Inc. (a) 194,220 23,860 Gentiva Health Services, Inc. (a) 296,103 10,115 LHC Group, Inc. (a) 243,165 7,262 National Healthcare Corp. 391,494 24,508 PharMerica Corp. (a) 526,922 8,997 Providence Service Corp. (a) 231,403 16,977 Skilled Healthcare Group, Inc., Class A (a) 81,659 19,314 Triple-S Management Corp., Class B (a) 375,464 10,083 U.S. Physical Therapy, Inc. 355,526 -------------- 3,762,836 -------------- HEALTH CARE TECHNOLOGY -- 0.6% 8,736 Computer Programs & Systems, Inc. 539,972 -------------- Page 26 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) HOTELS, RESTAURANTS & LEISURE -- 3.6% 1,218 Biglari Holdings, Inc. (a) $ 617,087 14,858 Bravo Brio Restaurant Group, Inc. (a) 241,740 19,833 Del Frisco's Restaurant Group, Inc. (a) 467,464 74,316 Denny's Corp. (a) 534,332 8,781 Einstein Noah Restaurant Group, Inc. 127,324 5,768 Ignite Restaurant Group, Inc. (a) 72,100 15,095 Marcus (The) Corp. 202,877 8,095 Monarch Casino & Resort, Inc. (a) 162,548 2,569 Nathan's Famous, Inc. (a) 129,503 29,648 Ruth's Hospitality Group, Inc. 421,298 18,068 Town Sports International Holdings, Inc. 266,684 -------------- 3,242,957 -------------- HOUSEHOLD DURABLES -- 1.0% 17,737 Libbey, Inc. (a) 372,477 12,952 Universal Electronics, Inc. (a) 493,601 -------------- 866,078 -------------- HOUSEHOLD PRODUCTS -- 0.2% 5,153 Orchids Paper Products Co. 169,225 -------------- INSURANCE -- 2.5% 15,410 AMERISAFE, Inc. 650,918 8,424 HCI Group Inc. 450,684 38,637 Meadowbrook Insurance Group, Inc. 268,913 17,983 United Fire Group, Inc. 515,393 24,016 Universal Insurance Holdings, Inc. 347,752 -------------- 2,233,660 -------------- INTERNET & CATALOG RETAIL -- 0.4% 19,834 1-800-FLOWERS.COM, Inc., Class A (a) 107,302 16,814 PetMed Express, Inc. 279,617 -------------- 386,919 -------------- INTERNET SOFTWARE & SERVICES -- 1.2% 27,507 Perficient, Inc. (a) 644,214 6,397 Travelzoo, Inc. (a) 136,384 20,680 XO Group, Inc. (a) 307,305 -------------- 1,087,903 -------------- IT SERVICES -- 2.2% 11,769 Computer Task Group, Inc. 222,434 16,615 Datalink Corp. (a) 181,103 54,521 Global Cash Access Holdings, Inc. (a) 544,665 27,022 Higher One Holdings, Inc. (a) 263,735 19,623 Virtusa Corp. (a) 747,440 -------------- 1,959,377 -------------- LEISURE EQUIPMENT & PRODUCTS -- 0.2% 23,869 Nautilus, Inc. (a) 201,216 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ LIFE SCIENCES TOOLS & SERVICES -- 0.7% 15,535 Albany Molecular Research, Inc. (a) $ 156,593 25,189 Cambrex Corp. (a) 449,120 -------------- 605,713 -------------- MACHINERY -- 6.0% 6,137 Alamo Group, Inc. 372,455 22,459 Altra Industrial Motion Corp. 768,547 15,088 Columbus McKinnon Corp. (a) 409,488 10,886 Dynamic Materials Corp. 236,662 52,195 Federal Signal Corp. (a) 764,657 8,377 Graham Corp. 304,001 20,105 Greenbrier (The) Cos., Inc. (a) 660,248 22,669 John Bean Technologies Corp. 664,882 9,280 Kadant, Inc. 376,026 8,085 L.B. Foster Co., Class A 382,340 13,983 Lydall, Inc. (a) 246,380 14,534 NN, Inc. 293,441 -------------- 5,479,127 -------------- MEDIA -- 1.6% 54,151 Entravision Communications Corp., Class A 329,779 38,894 Gray Television, Inc. (a) 578,743 36,463 Harte-Hanks, Inc. 285,141 33,083 Journal Communications, Inc., Class A (a) 308,003 -------------- 1,501,666 -------------- METALS & MINING -- 1.2% 10,271 Haynes International, Inc. 567,370 17,172 Materion Corp. 529,756 -------------- 1,097,126 -------------- MULTILINE RETAIL -- 0.6% 28,450 Fred's, Inc., Class A 526,894 7,441 Gordmans Stores, Inc. 57,072 -------------- 583,966 -------------- OIL, GAS & CONSUMABLE FUELS -- 0.3% 1,756 Adams Resources & Energy, Inc. 120,286 57,627 Warren Resources, Inc. (a) 180,949 -------------- 301,235 -------------- PAPER & FOREST PRODUCTS -- 0.6% 13,491 Neenah Paper, Inc. 577,010 -------------- PERSONAL PRODUCTS -- 0.5% 97,945 Lifevantage Corp. (a) 161,609 10,638 Medifast, Inc. (a) 277,971 -------------- 439,580 -------------- PHARMACEUTICALS -- 0.5% 6,929 Cornerstone Therapeutics, Inc. (a) 65,756 9,186 Hi-Tech Pharmacal Co., Inc. 398,581 -------------- 464,337 -------------- See Notes to Financial Statements Page 27 FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) PROFESSIONAL SERVICES -- 3.8% 31,182 CBIZ, Inc. (a) $ 284,380 11,665 Franklin Covey Co. (a) 231,900 15,945 GP Strategies Corp. (a) 475,002 16,565 ICF International, Inc. (a) 574,971 23,875 Kforce, Inc. 488,483 41,200 Navigant Consulting, Inc. (a) 791,040 33,083 Resources Connection, Inc. 474,079 3,420 VSE Corp. 164,194 -------------- 3,484,049 -------------- ROAD & RAIL -- 0.8% 18,500 Celadon Group, Inc. 360,380 19,659 Marten Transport Ltd. 396,915 -------------- 757,295 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.2% 37,991 Micrel, Inc. 374,971 51,103 Photronics, Inc. (a) 461,460 23,805 Ultra Clean Holdings, Inc. (a) 238,764 -------------- 1,075,195 -------------- SOFTWARE -- 0.7% 25,186 EPIQ Systems, Inc. 408,265 3,266 ePlus Inc. 185,639 -------------- 593,904 -------------- SPECIALTY RETAIL -- 2.6% 6,759 America's Car-Mart, Inc. (a) 285,432 14,852 Big 5 Sporting Goods Corp. 294,367 12,899 Body Central Corp. (a) 50,822 10,161 Destination Maternity Corp. 303,611 35,204 Destination XL Group, Inc. (a) 231,290 12,171 hhgregg, Inc. (a) 170,029 12,497 Kirkland's, Inc. (a) 295,804 11,945 Shoe Carnival, Inc. 346,524 23,364 Stein Mart, Inc. 314,246 8,395 Tilly's, Inc., Class A (a) 96,123 -------------- 2,388,248 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.7% 6,835 Culp, Inc. 139,776 10,316 Perry Ellis International, Inc. 162,890 12,273 Unifi, Inc. (a) 334,316 -------------- 636,982 -------------- THRIFTS & MORTGAGE FINANCE -- 3.9% 21,031 Berkshire Hills Bancorp, Inc. 573,515 58,535 Brookline Bancorp, Inc. 560,180 24,384 Dime Community Bancshares, Inc. 412,577 8,149 First Defiance Financial Corp. 211,630 19,463 Rockville Financial, Inc. 276,569 7,327 Territorial Bancorp, Inc. 169,987 78,661 TrustCo Bank Corp. 564,786 14,853 United Financial Bancorp, Inc. 280,573 SHARES DESCRIPTION VALUE ------------------------------------------------------------ THRIFTS & MORTGAGE FINANCE (CONTINUED) 6,707 WSFS Financial Corp. $ 519,994 -------------- 3,569,811 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.8% 22,025 Aceto Corp. 550,845 14,941 Houston Wire & Cable Co. 199,911 -------------- 750,756 -------------- WATER UTILITIES -- 1.0% 9,146 Connecticut Water Service, Inc. 324,774 13,258 Middlesex Water Co. 277,623 10,914 SJW Corp. 325,128 -------------- 927,525 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.1% 12,716 NTELOS Holdings Corp. 257,245 18,800 Shenandoah Telecommunications Co. 482,596 18,032 USA Mobility, Inc. 257,497 -------------- 997,338 -------------- TOTAL INVESTMENTS -- 100.0% 91,048,768 (Cost $75,379,511) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 31,288 -------------- NET ASSETS -- 100.0% $ 91,080,056 ============== (a) Non-income producing security. (b) Non-income producing security which pays in-kind distributions. (c) Aggregate cost for federal income tax purposes is $75,947,317. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $16,194,189 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,092,738. Page 28 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 91,048,768 $ -- $ -- =============================================== * 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, 2013. See Notes to Financial Statements Page 29 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 3.3% 102,109 Lockheed Martin Corp. $ 15,179,524 81,304 Raytheon Co. 7,374,273 -------------- 22,553,797 -------------- CAPITAL MARKETS -- 0.2% 35,918 Federated Investors, Inc., Class B 1,034,438 8,215 Greenhill & Co., Inc. 475,977 -------------- 1,510,415 -------------- CHEMICALS -- 2.5% 269,812 E.I. du Pont de Nemours & Co. 17,529,686 -------------- COMMERCIAL BANKS -- 0.6% 13,779 Bank of Hawaii Corp. 814,890 11,771 Community Bank System, Inc. 467,073 22,590 Hancock Holding Co. 828,601 5,891 Park National Corp. 501,148 5,148 Sterling Financial Corp. 175,444 22,886 Trustmark Corp. 614,260 17,903 United Bankshares, Inc. 563,049 7,458 Westamerica Bancorporation 421,079 -------------- 4,385,544 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.2% 97,231 R.R. Donnelley & Sons Co. 1,971,844 142,348 Waste Management, Inc. 6,387,155 -------------- 8,358,999 -------------- COMPUTERS & PERIPHERALS -- 1.0% 22,678 Diebold, Inc. 748,601 110,062 Seagate Technology PLC 6,181,082 -------------- 6,929,683 -------------- CONTAINERS & PACKAGING -- 0.3% 9,727 Greif, Inc., Class A 509,695 30,268 Sonoco Products Co. 1,262,781 -------------- 1,772,476 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 20.7% 1,965,236 AT&T, Inc. 69,097,698 413,468 CenturyLink, Inc. 13,168,956 1,224,412 Verizon Communications, Inc. 60,167,605 -------------- 142,434,259 -------------- ELECTRIC UTILITIES -- 15.6% 14,187 ALLETE, Inc. 707,648 208,118 American Electric Power Co., Inc. 9,727,435 315,442 Duke Energy Corp. 21,768,652 95,195 Entergy Corp. 6,022,988 280,247 FirstEnergy Corp. 9,242,546 48,176 Hawaiian Electric Industries, Inc. 1,255,467 133,152 NextEra Energy, Inc. 11,400,474 110,549 Northeast Utilities 4,686,172 15,101 Otter Tail Corp. 442,006 141,329 Pepco Holdings, Inc. 2,703,624 46,501 Pinnacle West Capital Corp. 2,460,833 SHARES DESCRIPTION VALUE ------------------------------------------------------------ ELECTRIC UTILITIES (CONTINUED) 28,590 Portland General Electric Co. $ 863,418 310,056 PPL Corp. 9,329,585 431,020 Southern (The) Co. 17,719,232 25,746 UIL Holdings Corp. 997,657 15,410 UNS Energy Corp. 922,289 54,065 Westar Energy, Inc. 1,739,271 197,602 Xcel Energy, Inc. 5,521,000 -------------- 107,510,297 -------------- FOOD & STAPLES RETAILING -- 0.9% 174,481 Sysco Corp. 6,298,764 -------------- FOOD PRODUCTS -- 0.1% 20,016 B&G Foods, Inc. 678,743 -------------- GAS UTILITIES -- 1.0% 48,294 AGL Resources, Inc. 2,280,926 29,953 Atmos Energy Corp. 1,360,465 11,421 Laclede Group (The), Inc. 520,112 15,601 New Jersey Resources Corp. 721,390 11,691 Northwest Natural Gas Co. 500,609 28,768 Piedmont Natural Gas Co., Inc. 953,947 22,022 WGL Holdings, Inc. 882,201 -------------- 7,219,650 -------------- HOTELS, RESTAURANTS & LEISURE -- 0.5% 54,502 Darden Restaurants, Inc. 2,963,274 5,842 DineEquity, Inc. 488,099 -------------- 3,451,373 -------------- HOUSEHOLD DURABLES -- 0.6% 44,971 Garmin Ltd. 2,078,560 57,628 Leggett & Platt, Inc. 1,783,010 -------------- 3,861,570 -------------- HOUSEHOLD PRODUCTS -- 1.8% 115,255 Kimberly-Clark Corp. 12,039,537 -------------- INSURANCE -- 1.0% 47,126 Cincinnati Financial Corp. 2,467,988 18,218 Mercury General Corp. 905,617 104,641 Old Republic International Corp. 1,807,150 11,782 OneBeacon Insurance Group Ltd., Class A 186,391 66,910 Tower Group International, Ltd. 226,156 31,231 Validus Holdings Ltd. 1,258,297 -------------- 6,851,599 -------------- IT SERVICES -- 0.7% 103,658 Paychex, Inc. 4,719,549 -------------- LEISURE EQUIPMENT & PRODUCTS -- 0.3% 35,029 Hasbro, Inc. 1,926,945 -------------- MACHINERY -- 0.1% 24,623 Harsco Corp. 690,183 -------------- MEDIA -- 0.1% 11,970 Meredith Corp. 620,046 -------------- Page 30 See Notes to Financial Statements FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) METALS & MINING -- 2.9% 37,449 Cliffs Natural Resources, Inc. $ 981,538 368,550 Freeport-McMoRan Copper & Gold, Inc. 13,909,077 207,516 Newmont Mining Corp. 4,779,094 -------------- 19,669,709 -------------- MULTI-UTILITIES -- 9.5% 40,420 Alliant Energy Corp. 2,085,672 26,634 Avista Corp. 750,812 13,322 Black Hills Corp. 699,538 152,368 CenterPoint Energy, Inc. 3,531,890 102,193 CMS Energy Corp. 2,735,707 129,469 Consolidated Edison, Inc. 7,157,046 201,578 Dominion Resources, Inc. 13,040,081 67,971 DTE Energy Co. 4,512,595 40,065 Integrys Energy Group, Inc. 2,179,937 99,321 NiSource, Inc. 3,265,675 13,745 NorthWestern Corp. 595,433 197,011 PG&E Corp. 7,935,603 223,685 Public Service Enterprise Group, Inc. 7,166,867 60,078 SCANA Corp. 2,819,461 104,591 TECO Energy, Inc. 1,803,149 34,280 Vectren Corp. 1,216,940 84,026 Wisconsin Energy Corp. 3,473,635 -------------- 64,970,041 -------------- OIL, GAS & CONSUMABLE FUELS -- 15.5% 514,878 Chevron Corp. 64,313,411 477,997 ConocoPhillips 33,770,488 241,219 Spectra Energy Corp. 8,592,221 -------------- 106,676,120 -------------- PHARMACEUTICALS -- 10.1% 380,500 Eli Lilly & Co. 19,405,500 1,006,315 Merck & Co., Inc. 50,366,066 -------------- 69,771,566 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 7.6% 1,796,919 Intel Corp. 46,648,017 106,108 Maxim Integrated Products, Inc. 2,961,474 64,960 Microchip Technology, Inc. 2,906,960 -------------- 52,516,451 -------------- SOFTWARE -- 0.5% 98,754 CA, Inc. 3,323,072 -------------- THRIFTS & MORTGAGE FINANCE -- 1.0% 267,822 New York Community Bancorp, Inc. 4,512,800 138,956 People's United Financial, Inc. 2,101,015 16,847 Provident Financial Services, Inc. 325,484 -------------- 6,939,299 -------------- TOBACCO -- 0.1% 8,957 Universal Corp. 489,052 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ TRADING COMPANIES & DISTRIBUTORS -- 0.2% 17,804 TAL International Group, Inc. $ 1,021,059 8,243 Textainer Group Holdings Ltd. 331,534 -------------- 1,352,593 -------------- TOTAL INVESTMENTS -- 99.9% 687,051,018 (Cost $628,398,302) (a) NET OTHER ASSETS AND LIABILITIES -- 0.1% 385,702 -------------- NET ASSETS -- 100.0% $ 687,436,720 ============== (a) Aggregate cost for federal income tax purposes is $632,638,022. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $63,353,571 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $8,940,575. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 687,051,018 $ -- $ -- =============================================== * 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, 2013. See Notes to Financial Statements Page 31 FIRST TRUST US IPO INDEX FUND (FPX) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 0.9% 73,455 Exelis, Inc. $ 1,400,052 19,206 Huntington Ingalls Industries, Inc. 1,728,732 -------------- 3,128,784 -------------- AIRLINES -- 0.4% 28,257 Spirit Airlines, Inc. (a) 1,283,150 -------------- AUTO COMPONENTS -- 2.6% 70,943 Allison Transmission Holdings, Inc. 1,958,736 119,698 Delphi Automotive PLC 7,197,441 -------------- 9,156,177 -------------- AUTOMOBILES -- 9.1% 609,160 General Motors Co. (a) 24,896,369 47,243 Tesla Motors, Inc. (a) (b) 7,104,403 -------------- 32,000,772 -------------- BIOTECHNOLOGY -- 0.4% 11,375 Aegerion Pharmaceuticals, Inc. (a) 807,170 11,737 Clovis Oncology, Inc. (a) 707,389 -------------- 1,514,559 -------------- BUILDING PRODUCTS -- 0.8% 64,654 Fortune Brands Home & Security, Inc. 2,954,688 -------------- CAPITAL MARKETS -- 1.6% 55,901 Apollo Global Management LLC, Class A (a) (c) 1,767,031 19,173 Carlyle Group L.P. (The) (c) 682,942 19,610 Financial Engines, Inc. 1,362,503 39,566 LPL Financial Holdings, Inc. 1,860,789 -------------- 5,673,265 -------------- COMMERCIAL BANKS -- 1.1% 39,258 BankUnited, Inc. 1,292,373 51,417 First Republic Bank 2,691,680 -------------- 3,984,053 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.7% 53,697 KAR Auction Services, Inc. 1,586,746 32,525 West Corp. 836,218 -------------- 2,422,964 -------------- COMMUNICATIONS EQUIPMENT -- 0.5% 28,198 Palo Alto Networks, Inc. (a) 1,620,539 -------------- CONTAINERS & PACKAGING -- 0.3% 45,084 Berry Plastics Group, Inc. (a) 1,072,548 -------------- DIVERSIFIED CONSUMER SERVICES -- 0.3% 25,338 Bright Horizons Family Solutions, Inc. (a) 930,918 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES -- 1.5% 33,919 CBOE Holdings, Inc. $ 1,762,431 101,453 ING US, Inc. 3,566,073 -------------- 5,328,504 -------------- ELECTRICAL EQUIPMENT -- 0.9% 43,098 Babcock & Wilcox (The) Co. 1,473,521 26,667 Generac Holdings, Inc. 1,510,419 -------------- 2,983,940 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.5% 66,890 CDW Corp. 1,562,550 -------------- ENERGY EQUIPMENT & SERVICES -- 0.8% 36,035 Forum Energy Technologies, Inc. (a) 1,018,349 59,719 Frank's International N.V. 1,612,413 -------------- 2,630,762 -------------- FOOD PRODUCTS -- 3.9% 231,785 Kraft Foods Group, Inc. 12,497,847 45,596 Pinnacle Foods, Inc. 1,252,066 -------------- 13,749,913 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.2% 35,733 Globus Medical, Inc., Class A (a) 721,092 -------------- HEALTH CARE PROVIDERS & SERVICES -- 2.7% 173,955 HCA Holdings, Inc. (a) 8,299,393 27,173 Team Health Holdings, Inc. (a) 1,237,730 -------------- 9,537,123 -------------- HOTELS, RESTAURANTS & LEISURE -- 5.0% 89,404 ARAMARK Holdings Corp. (a) 2,344,173 48,422 Bloomin' Brands, Inc. (a) 1,162,612 136,629 Burger King Worldwide, Inc. 3,123,339 49,127 Caesars Entertainment Corp. (a) 1,058,196 41,495 Dunkin' Brands Group, Inc. 2,000,059 62,800 Hyatt Hotels Corp., Class A (a) 3,106,088 13,780 Marriott Vacations Worldwide Corp. (a) 727,033 79,775 Norwegian Cruise Line Holdings Ltd. (a) 2,829,619 36,286 Seaworld Entertainment, Inc. 1,043,948 -------------- 17,395,067 -------------- INSURANCE -- 0.8% 41,115 First American Financial Corp. 1,159,443 21,329 Primerica, Inc. 915,228 45,824 Symetra Financial Corp. 868,823 -------------- 2,943,494 -------------- Page 32 See Notes to Financial Statements FIRST TRUST US IPO INDEX FUND (FPX) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) INTERNET & CATALOG RETAIL -- 2.4% 257,954 Groupon, Inc. (a) $ 3,036,119 33,163 HomeAway, Inc. (a) 1,355,703 50,281 TripAdvisor, Inc. (a) 4,164,775 -------------- 8,556,597 -------------- INTERNET SOFTWARE & SERVICES -- 11.8% 29,865 AOL, Inc. (a) 1,392,306 20,241 Cornerstone OnDemand, Inc. (a) 1,079,655 625,366 Facebook, Inc., Class A (a) 34,182,506 68,626 Pandora Media, Inc. (a) 1,825,452 31,313 Twitter, Inc. (a) (b) 1,993,072 12,752 Zillow, Inc., Class A (a) 1,042,221 -------------- 41,515,212 -------------- IT SERVICES -- 2.1% 55,349 Booz Allen Hamilton Holding Corp. 1,059,933 31,994 FleetCor Technologies, Inc. (a) 3,748,737 75,867 Vantiv, Inc., Class A (a) 2,474,023 -------------- 7,282,693 -------------- LIFE SCIENCES TOOL & SERVICES -- 0.7% 50,153 Quintiles Transnational Holdings, Inc. (a) 2,324,090 -------------- MACHINERY -- 1.0% 38,033 Rexnord Corp. (a) 1,027,271 71,763 Xylem, Inc. 2,483,000 -------------- 3,510,271 -------------- MEDIA -- 2.0% 23,651 AMC Networks, Inc., Class A (a) 1,610,870 24,613 Madison Square Garden (The) Co., Class A (a) 1,417,217 147,501 News Corp., Class A (a) 2,657,968 40,152 Starz, Class A (a) 1,174,044 -------------- 6,860,099 -------------- MULTILINE RETAIL -- 2.1% 124,575 Dollar General Corp. (a) 7,514,364 -------------- OIL, GAS & CONSUMABLE FUELS -- 17.0% 101,935 Antero Resources Corp. (a) 6,466,756 402,931 Kinder Morgan, Inc. 14,505,516 150,756 Kosmos Energy Ltd. (a) 1,685,452 55,477 Laredo Petroleum Holdings, Inc. (a) 1,536,158 117,095 Marathon Petroleum Corp. 10,741,124 36,386 Oasis Petroleum, Inc. (a) 1,709,051 233,212 Phillips 66 17,987,642 69,738 QEP Resources, Inc. 2,137,470 16,465 Targa Resources Corp. 1,451,719 SHARES DESCRIPTION VALUE ------------------------------------------------------------ OIL, GAS & CONSUMABLE FUELS (CONTINUED) 78,111 WPX Energy, Inc. (a) $ 1,591,902 -------------- 59,812,790 -------------- PERSONAL PRODUCTS -- 0.7% 148,916 Coty, Inc., Class A 2,270,969 -------------- PHARMACEUTICALS -- 11.4% 618,824 AbbVie, Inc. 32,680,096 22,444 Mallinckrodt PLC (a) 1,172,923 194,493 Zoetis, Inc. 6,357,976 -------------- 40,210,995 -------------- PROFESSIONAL SERVICES -- 3.1% 147,144 Nielsen Holdings N.V. 6,752,438 65,317 Verisk Analytics, Inc., Class A (a) 4,292,633 -------------- 11,045,071 -------------- REAL ESTATE INVESTMENT TRUSTS -- 0.5% 34,628 Gaming And Leisure Properties, Inc. (a) 1,759,449 -------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.3% 15,393 Howard Hughes (The) Corp. (a) 1,848,700 56,796 Realogy Holdings Corp. (a) 2,809,698 -------------- 4,658,398 -------------- ROAD & RAIL -- 0.2% 34,294 Swift Transportation Co. (a) (b) 761,670 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 1.7% 100,303 Freescale Semiconductor Ltd. (a) 1,609,863 97,928 NXP Semiconductors N.V. (a) 4,497,833 -------------- 6,107,696 -------------- SOFTWARE -- 2.3% 22,330 Guidewire Software, Inc. (a) 1,095,733 53,966 ServiceNow, Inc. (a) 3,022,636 41,725 Splunk, Inc. (a) 2,865,256 256,609 Zynga, Inc., Class A (a) 975,114 -------------- 7,958,739 -------------- SPECIALTY RETAIL -- 1.4% 29,408 CST Brands, Inc. 1,079,862 36,952 GNC Holdings, Inc., Class A 2,159,844 18,181 Murphy USA, Inc. (a) 755,602 15,135 Restoration Hardware Holdings, Inc. (a) 1,018,586 -------------- 5,013,894 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.8% 79,296 Michael Kors Holdings Ltd. (a) 6,438,042 -------------- See Notes to Financial Statements Page 33 FIRST TRUST US IPO INDEX FUND (FPX) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) THRIFTS & MORTGAGE FINANCE -- 0.3% 47,677 EverBank Financial Corp. $ 874,396 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.2% 39,607 Air Lease Corp. 1,230,986 74,716 HD Supply Holdings, Inc. (a) 1,793,931 39,581 MRC Global, Inc. (a) 1,276,883 -------------- 4,301,800 -------------- TOTAL COMMON STOCKS -- 100.0% 351,372,097 (Cost $301,517,153) MONEY MARKET FUNDS -- 2.0% 6,932,352 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (d) (e) 6,932,352 (Cost $6,932,352) -------------- TOTAL INVESTMENTS -- 102.0% 358,304,449 (Cost $308,449,505) (f) NET OTHER ASSETS AND LIABILITIES -- (2.0)% (6,928,890) -------------- NET ASSETS -- 100.0% $ 351,375,559 ============== (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2D - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $6,790,608 and the total value of the collateral held by the Fund is $6,932,352. (c) Master Limited Partnership ("MLP"). (d) Interest rate shown reflects yield as of December 31, 2013. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $309,624,284. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $49,314,527 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $634,362. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 351,372,097 $ -- $ -- Money Market Funds 6,932,352 -- -- ----------------------------------------------- Total Investments $ 358,304,449 $ -- $ -- =============================================== * 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, 2013. -------------------------------------------------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ---------------------------------------------------------- Total gross amount presented on Statements of Assets and Liabilities(1) $ 6,790,608 Non-cash Collateral(2) (6,790,608) ---------------------------------------------------------- Net Amount $ -- ============== (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. Page 34 See Notes to Financial Statements FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 98.6% BIOTECHNOLOGY -- 76.9% 407,354 Alexion Pharmaceuticals, Inc. (a) $ 54,202,523 384,498 Amgen, Inc. 43,894,292 161,536 Biogen Idec, Inc. (a) 45,189,696 644,848 BioMarin Pharmaceutical, Inc. (a) 45,313,469 268,626 Celgene Corp. (a) 45,387,049 1,086,653 Cepheid, Inc. (a) 50,768,428 3,924,417 Exact Sciences Corp. (a) (b) 45,876,435 604,309 Gilead Sciences, Inc. (a) 45,413,821 2,594,948 ImmunoGen, Inc. (a) (b) 38,067,887 1,161,493 Incyte Corp. (a) 58,806,391 3,024,220 InterMune, Inc. (a) 44,546,761 1,768,249 Myriad Genetics, Inc. (a) (b) 37,097,864 334,795 Pharmacyclics, Inc. (a) 35,414,615 145,690 Regeneron Pharmaceuticals, Inc. (a) 40,099,716 535,906 United Therapeutics Corp. (a) 60,600,250 573,603 Vertex Pharmaceuticals, Inc. (a) 42,618,703 -------------- 733,297,900 -------------- LIFE SCIENCES TOOLS & SERVICES -- 16.6% 542,765 Illumina, Inc. (a) 60,040,664 2,102,473 QIAGEN N.V. (a) 50,059,882 509,612 Techne Corp. 48,244,968 -------------- 158,345,514 -------------- PHARMACEUTICALS -- 5.1% 4,315,203 Nektar Therapeutics (a) 48,977,554 -------------- TOTAL COMMON STOCKS -- 98.6% 940,620,968 (Cost $744,347,853) MONEY MARKET FUNDS -- 3.0% 28,862,685 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) (d) 28,862,685 (Cost $28,862,685) -------------- TOTAL INVESTMENTS -- 101.6% 969,483,653 (Cost $773,210,538) (e) NET OTHER ASSETS AND LIABILITIES -- (1.6)% (15,573,555) -------------- NET ASSETS -- 100.0% $ 953,910,098 ============== (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2D - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $28,236,479 and the total value of the collateral held by the Fund is $28,862,685. (c) Interest rate shown reflects yield as of December 31, 2013. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $790,323,064. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $209,484,429 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $30,323,840. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 940,620,968 $ -- $ -- Money Market Funds 28,862,685 -- -- ----------------------------------------------- Total Investments $ 969,483,653 $ -- $ -- =============================================== * 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, 2013. -------------------------------------------------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ---------------------------------------------------------- Total gross amount presented on Statements of Assets and Liabilities(1) $ 28,236,479 Non-cash Collateral(2) (28,236,479) ---------------------------------------------------------- Net Amount $ -- ============ (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. See Notes to Financial Statements Page 35 FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% CAPITAL MARKETS -- 4.5% 2,094,540 E*TRADE Financial Corp. (a) $ 41,136,766 1,483,036 TD Ameritrade Holding Corp. 45,440,223 -------------- 86,576,989 -------------- COMMUNICATIONS EQUIPMENT -- 5.0% 2,448,304 Juniper Networks, Inc. (a) 55,258,221 675,785 NETGEAR, Inc. (a) 22,260,358 6,257,884 Sonus Networks, Inc. (a) 19,712,335 -------------- 97,230,914 -------------- HEALTH CARE TECHNOLOGY -- 1.5% 1,857,831 Allscripts Healthcare Solutions, Inc. (a) 28,722,067 -------------- INTERNET & CATALOG RETAIL -- 23.2% 365,033 Amazon.com, Inc. (a) 145,571,510 671,941 Expedia, Inc. 46,807,410 3,310,594 Groupon, Inc. (a) 38,965,691 183,776 Netflix, Inc. (a) 67,660,810 85,529 priceline.com, Inc. (a) 99,418,910 589,573 TripAdvisor, Inc. (a) 48,834,332 -------------- 447,258,663 -------------- INTERNET SOFTWARE & SERVICES -- 53.1% 1,033,133 Akamai Technologies, Inc. (a) 48,743,215 554,820 Cornerstone OnDemand, Inc. (a) 29,594,099 587,250 Dealertrack Technologies, Inc. (a) 28,234,980 831,732 Digital River, Inc. (a) 15,387,042 2,922,259 EarthLink, Inc. 14,815,853 1,951,044 eBay, Inc. (a) 107,092,805 279,536 Equinix, Inc. (a) 49,603,663 2,296,345 Facebook, Inc., Class A (a) 125,518,218 168,849 Google, Inc., Class A (a) 189,230,763 613,977 IAC/InterActiveCorp 42,174,080 571,240 j2 Global, Inc. (b) 28,567,712 293,738 LinkedIn Corp., Class A (a) 63,691,210 1,350,435 LivePerson, Inc. (a) 20,013,447 2,815,884 Monster Worldwide, Inc. (a) 20,077,253 311,051 OpenTable, Inc. (a) 24,688,118 1,004,922 Rackspace Hosting, Inc. (a) 39,322,598 740,563 United Online, Inc. 10,190,147 1,025,785 ValueClick, Inc. (a) 23,972,595 784,070 VeriSign, Inc. (a) 46,871,705 1,044,618 Vocus, Inc. (a) 11,898,199 2,129,918 Yahoo!, Inc. (a) 86,133,884 -------------- 1,025,821,586 -------------- IT Services -- 1.4% 1,519,236 Sapient Corp. (a) 26,373,937 -------------- SOFTWARE -- 11.3% 385,346 Concur Technologies, Inc. (a) 39,760,000 1,015,683 Ebix, Inc. (b) 14,950,854 313,698 NetSuite, Inc. (a) 32,317,168 1,459,667 Salesforce.com, Inc. (a) 80,559,022 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SOFTWARE (CONTINUED) 1,393,370 TIBCO Software, Inc. (a) $ 31,322,957 980,898 VirnetX Holding Corp. (a) (b) 19,039,230 -------------- 217,949,231 -------------- TOTAL COMMON STOCKS -- 100.0% 1,929,933,387 (Cost $1,490,948,390) MONEY MARKET FUNDS -- 1.5% 28,281,130 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) (d) 28,281,130 (Cost $28,281,130) -------------- TOTAL INVESTMENTS -- 101.5% 1,958,214,517 (Cost $1,519,229,520) (e) NET OTHER ASSETS AND LIABILITIES -- (1.5)% (28,362,238) -------------- NET ASSETS -- 100.0% $1,929,852,279 ============== (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2D - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $27,627,746 and the total value of the collateral held by the Fund is $28,281,130. (c) Interest rate shown reflects yield as of December 31, 2013. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $1,547,255,123. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $442,145,819 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $31,186,425. Page 36 See Notes to Financial Statements FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $1,929,933,387 $ -- $ -- Money Market Funds 28,281,130 -- -- ------------------------------------------------ Total Investment $1,958,214,517 $ -- $ -- ================================================ * 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, 2013. -------------------------------------------------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ---------------------------------------------------------- Total gross amount presented on Statements of Assets and Liabilities(1) $ 27,627,746 Non-cash Collateral(2) (27,627,746) ---------------------------------------------------------- Net Amount $ -- ============ (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. See Notes to Financial Statements Page 37 FIRST TRUST CAPITAL STRENGTH ETF (FTCS) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 10.5% 14,528 Honeywell International, Inc. $ 1,327,423 9,533 Lockheed Martin Corp. 1,417,176 12,096 Northrop Grumman Corp. 1,386,322 15,988 Raytheon Co. 1,450,112 11,405 United Technologies Corp. 1,297,889 -------------- 6,878,922 -------------- AIR FREIGHT & LOGISTICS -- 2.1% 13,213 United Parcel Service, Inc., Class B 1,388,422 -------------- BEVERAGES -- 3.9% 31,687 Coca-Cola (The) Co. 1,308,990 14,803 PepsiCo, Inc. 1,227,761 -------------- 2,536,751 -------------- CHEMICALS -- 2.0% 20,611 E.I. du Pont de Nemours & Co. 1,339,097 -------------- COMMERCIAL BANKS -- 2.0% 32,406 U.S. Bancorp 1,309,202 -------------- COMMUNICATIONS EQUIPMENT -- 4.1% 20,208 Motorola Solutions, Inc. 1,364,040 17,955 QUALCOMM, Inc. 1,333,159 -------------- 2,697,199 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.9% 22,939 TE Connectivity Ltd. 1,264,168 -------------- FOOD & STAPLES RETAILING -- 3.8% 10,446 Costco Wholesale Corp. 1,243,179 16,231 Wal-Mart Stores, Inc. 1,277,217 -------------- 2,520,396 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 9.8% 32,953 Abbott Laboratories 1,263,089 18,618 Baxter International, Inc. 1,294,882 11,724 Becton, Dickinson & Co. 1,295,385 19,422 Covidien PLC 1,322,638 21,714 Medtronic, Inc. 1,246,166 -------------- 6,422,160 -------------- HEALTH CARE PROVIDERS & SERVICES -- 4.2% 19,019 AmerisourceBergen Corp. 1,337,226 8,687 McKesson Corp. 1,402,082 -------------- 2,739,308 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.9% 12,908 McDonald's Corp. 1,252,463 -------------- HOUSEHOLD PRODUCTS -- 5.8% 19,564 Colgate-Palmolive Co. 1,275,769 12,390 Kimberly-Clark Corp. 1,294,259 SHARES DESCRIPTION VALUE ------------------------------------------------------------ HOUSEHOLD PRODUCTS (CONTINUED) 15,474 Procter & Gamble (The) Co. $ 1,259,738 -------------- 3,829,766 -------------- INDUSTRIAL CONGLOMERATES -- 2.1% 10,003 3M Co. 1,402,921 -------------- INSURANCE -- 5.8% 18,681 Aflac, Inc. 1,247,891 26,989 Marsh & McLennan Cos., Inc. 1,305,188 45,277 Progressive (The) Corp. 1,234,704 -------------- 3,787,783 -------------- IT SERVICES -- 4.0% 16,561 Automatic Data Processing, Inc. 1,338,294 7,071 International Business Machines Corp. 1,326,308 -------------- 2,664,602 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.8% 11,540 Waters Corp. (a) 1,154,000 -------------- MACHINERY -- 2.0% 15,872 Illinois Tool Works, Inc. 1,334,518 -------------- MEDIA -- 2.1% 18,715 Omnicom Group, Inc. 1,391,834 -------------- MULTILINE RETAIL -- 2.0% 20,920 Nordstrom, Inc. 1,292,856 -------------- OIL, GAS & CONSUMABLE FUELS -- 5.9% 10,270 Chevron Corp. 1,282,826 16,735 ConocoPhillips 1,182,328 14,036 Exxon Mobil Corp. 1,420,443 -------------- 3,885,597 -------------- PHARMACEUTICALS -- 3.8% 24,795 Eli Lilly & Co. 1,264,545 13,411 Johnson & Johnson 1,228,313 -------------- 2,492,858 -------------- ROAD & RAIL -- 2.1% 8,079 Union Pacific Corp. 1,357,272 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.2% 31,292 Linear Technology Corp. 1,425,351 30,177 Texas Instruments, Inc. 1,325,072 -------------- 2,750,423 -------------- SOFTWARE -- 4.2% 40,825 CA, Inc. 1,373,761 17,874 Intuit, Inc. 1,364,144 -------------- 2,737,905 -------------- Page 38 See Notes to Financial Statements FIRST TRUST CAPITAL STRENGTH ETF (FTCS) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) SPECIALTY RETAIL -- 4.1% 16,452 Home Depot (The), Inc. $ 1,354,657 21,271 TJX (The) Cos., Inc. 1,355,601 -------------- 2,710,258 -------------- Tobacco -- 3.8% 34,267 Altria Group, Inc. 1,315,510 24,290 Reynolds American, Inc. 1,214,257 -------------- 2,529,767 -------------- TOTAL INVESTMENTS -- 99.9% 65,670,448 (Cost $59,528,236) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 35,674 -------------- NET ASSETS -- 100.0% $ 65,706,122 ============== (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $59,629,714. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $6,146,996 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $106,262. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 65,670,448 $ -- $ -- =============================================== * 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, 2013. See Notes to Financial Statements Page 39 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 3.3% 577 AAR Corp. $ 16,162 446 Lockheed Martin Corp. 66,302 725 Raytheon Co. 65,758 310 Rockwell Collins, Inc. 22,915 -------------- 171,137 -------------- AIR FREIGHT & LOGISTICS -- 0.8% 310 Atlas Air Worldwide Holdings, Inc. (a) 12,756 487 C.H. Robinson Worldwide, Inc. 28,412 -------------- 41,168 -------------- AUTO COMPONENTS -- 2.7% 1,198 Goodyear Tire & Rubber (The) Co. 28,572 313 Lear Corp. 25,344 693 Magna International, Inc. 56,868 476 Tenneco, Inc. (a) 26,927 -------------- 137,711 -------------- AUTOMOBILES -- 1.1% 446 Toyota Motor Corp., ADR 54,376 -------------- BEVERAGES -- 0.3% 70 Boston Beer (The) Co., Inc., Class A (a) 16,925 -------------- CAPITAL MARKETS -- 4.5% 1,864 Apollo Investment Corp. 15,807 1,822 Bank of New York Mellon (The) Corp. 63,661 1,537 E*TRADE Financial Corp. (a) 30,187 354 Goldman Sachs Group (The), Inc. 62,750 845 State Street Corp. 62,014 -------------- 234,419 -------------- CHEMICALS -- 1.7% 796 LyondellBasell Industries N.V., Class A 63,903 216 Westlake Chemical Corp. 26,367 -------------- 90,270 -------------- COMMERCIAL BANKS -- 7.9% 1,330 Associated Banc-Corp. 23,142 727 BancorpSouth, Inc. 18,480 1,569 BB&T Corp. 58,555 1,259 CapitalSource, Inc. 18,092 525 Comerica, Inc. 24,958 1,970 First Commonwealth Financial Corp. 17,375 947 First Midwest Bancorp, Inc. 16,601 753 PNC Financial Services Group, Inc. 58,418 679 Popular, Inc. (a) 19,508 635 PrivateBancorp, Inc. 18,371 1,654 SunTrust Banks, Inc. 60,884 1,128 Susquehanna Bancshares, Inc. 14,483 549 Webster Financial Corp. 17,118 367 Wintrust Financial Corp. 16,926 765 Zions Bancorporation 22,919 -------------- 405,830 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES -- 1.8% 441 Cintas Corp. $ 26,279 348 Deluxe Corp. 18,162 1,300 Pitney Bowes, Inc. 30,290 360 United Stationers, Inc. 16,521 -------------- 91,252 -------------- COMMUNICATIONS EQUIPMENT -- 1.0% 2,871 Brocade Communications Systems, Inc. (a) 25,466 392 Harris Corp. 27,365 -------------- 52,831 -------------- COMPUTERS & PERIPHERALS -- 1.2% 111 Apple, Inc. 62,283 -------------- CONSTRUCTION & ENGINEERING -- 0.7% 663 Aegion Corp. (a) 14,513 442 URS Corp. 23,422 -------------- 37,935 -------------- CONSUMER FINANCE -- 1.3% 846 Capital One Financial Corp. 64,812 -------------- CONTAINERS & PACKAGING -- 0.7% 263 Greif, Inc., Class A 13,781 195 Rock Tenn Co., Class A 20,477 -------------- 34,258 -------------- DIVERSIFIED CONSUMER SERVICES -- 0.6% 517 ITT Educational Services, Inc. (a) 17,361 868 Regis Corp. 12,595 -------------- 29,956 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.2% 3,854 Bank of America Corp. 60,007 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.5% 5,146 Frontier Communications Corp. 23,929 -------------- ELECTRIC UTILITIES -- 0.3% 657 PNM Resources, Inc. 15,847 -------------- ELECTRICAL EQUIPMENT -- 0.5% 709 Babcock & Wilcox (The) Co. 24,241 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.7% 971 Ingram Micro, Inc., Class A (a) 22,780 912 Sanmina Corp. (a) 15,230 -------------- 38,010 -------------- ENERGY EQUIPMENT & SERVICES -- 2.7% 225 Bristow Group, Inc. 16,889 616 Rowan Cos. PLC, Class A (a) 21,782 Page 40 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) ENERGY EQUIPMENT & SERVICES (CONTINUED) 682 Schlumberger Ltd. $ 61,455 1,243 TETRA Technologies, Inc. (a) 15,363 401 Tidewater, Inc. 23,767 -------------- 139,256 -------------- FOOD & STAPLES RETAILING -- 1.2% 1,515 Kroger (The) Co. 59,888 -------------- FOOD PRODUCTS -- 1.0% 701 Darling International, Inc. (a) 14,637 517 Fresh Del Monte Produce, Inc. 14,631 1,444 Pilgrim's Pride Corp. (a) 23,465 -------------- 52,733 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 4.1% 684 Alere, Inc. (a) 24,761 194 C. R. Bard, Inc. 25,984 306 Edwards Lifesciences Corp. (a) 20,123 206 IDEXX Laboratories, Inc. (a) 21,912 579 Masimo Corp. (a) 16,924 641 Meridian Bioscience, Inc. 17,006 1,072 St. Jude Medical, Inc. 66,410 238 Varian Medical Systems, Inc. (a) 18,490 -------------- 211,610 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.2% 645 WellPoint, Inc. 59,592 -------------- HOTELS, RESTAURANTS & LEISURE -- 3.0% 542 Brinker International, Inc. 25,116 350 CEC Entertainment, Inc. 15,498 1,140 International Game Technology 20,702 1,156 Orient-Express Hotels Ltd., Class A (a) 17,467 892 Sonic Corp. (a) 18,010 775 Yum! Brands, Inc. 58,598 -------------- 155,391 -------------- HOUSEHOLD DURABLES -- 1.5% 332 Harman International Industries, Inc. 27,174 2,778 Sony Corp., ADR 48,032 -------------- 75,206 -------------- INDUSTRIAL CONGLOMERATES -- 2.6% 488 3M Co. 68,442 1,748 Koninklijke Philips NV 64,624 -------------- 133,066 -------------- INSURANCE -- 14.2% 622 ACE Ltd. 64,396 1,146 Allstate (The) Corp. 62,503 161 Everest Re Group, Ltd. 25,095 1,840 Genworth Financial, Inc., Class A (a) 28,575 266 Hanover Insurance Group, (The), Inc. 15,883 SHARES DESCRIPTION VALUE ------------------------------------------------------------ INSURANCE (CONTINUED) 1,828 Hartford Financial Services Group (The), Inc. $ 66,228 1,267 Lincoln National Corp. 65,402 3,372 Manulife Financial Corp. 66,529 1,165 MetLife, Inc. 62,817 1,517 Old Republic International Corp. 26,199 1,325 Principal Financial Group, Inc. 65,336 513 Protective Life Corp. 25,989 717 Prudential Financial, Inc. 66,122 335 Reinsurance Group of America, Inc. 25,932 256 RenaissanceRe Holdings Ltd. 24,919 629 Selective Insurance Group, Inc. 17,021 725 XL Group PLC 23,084 -------------- 732,030 -------------- INTERNET & CATALOG RETAIL -- 0.3% 576 Overstock.com, Inc. (a) 17,735 -------------- IT SERVICES -- 5.4% 759 Cognizant Technology Solutions Corp., Class A (a) 76,644 435 Computer Sciences Corp. 24,308 303 DST Systems, Inc. 27,494 1,174 Infosys Ltd., ADR 66,448 592 TeleTech Holdings, Inc. (a) 14,173 5,585 Xerox Corp. 67,969 -------------- 277,036 -------------- LEISURE EQUIPMENT & PRODUCTS -- 0.8% 1,351 Smith & Wesson Holding Corp. (a) 18,225 288 Sturm, Ruger & Co., Inc. 21,050 -------------- 39,275 -------------- LIFE SCIENCES TOOLS & SERVICES -- 0.4% 231 Techne Corp. 21,869 -------------- MACHINERY -- 3.6% 641 Dover Corp. 61,882 765 Illinois Tool Works, Inc. 64,321 186 Lindsay Corp. 15,392 254 Tennant Co. 17,224 516 Trinity Industries, Inc. 28,132 -------------- 186,951 -------------- MEDIA -- 2.2% 333 John Wiley & Sons, Inc., Class A 18,382 299 Scripps Networks Interactive, Class A 25,836 516 Time Warner Cable, Inc. 69,918 -------------- 114,136 -------------- METALS & MINING -- 2.2% 1,787 Goldcorp, Inc. 38,724 1,678 Newmont Mining Corp. 38,644 1,195 United States Steel Corp. 35,253 -------------- 112,621 -------------- See Notes to Financial Statements Page 41 FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) MULTILINE RETAIL -- 1.5% 1,032 Dollar Tree, Inc. (a) $ 58,225 308 Family Dollar Stores, Inc. 20,011 -------------- 78,236 -------------- OIL, GAS & CONSUMABLE FUELS -- 1.2% 978 Murphy Oil Corp. 63,453 -------------- PERSONAL PRODUCTS -- 0.5% 344 Herbalife Ltd. 27,073 -------------- PHARMACEUTICALS -- 2.8% 1,285 AbbVie, Inc. 67,861 814 Auxilium Pharmaceuticals, Inc. (a) 16,882 1,167 Eli Lilly & Co. 59,517 -------------- 144,260 -------------- PROFESSIONAL SERVICES -- 0.7% 284 Huron Consulting Group, Inc. (a) 17,812 788 Kelly Services, Inc., Class A 19,653 -------------- 37,465 -------------- ROAD & RAIL -- 1.1% 543 Arkansas Best Corp. 18,288 504 Con-way, Inc. 20,014 1,032 Heartland Express, Inc. 20,248 -------------- 58,550 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.1% 698 Cirrus Logic, Inc. (a) 14,260 2,943 LSI Corp. 32,432 1,425 Texas Instruments, Inc. 62,572 -------------- 109,264 -------------- SOFTWARE -- 3.6% 982 Check Point Software Technologies Ltd. (a) 63,358 868 Intuit, Inc. 66,246 645 VMware, Inc., Class A (a) 57,863 -------------- 187,467 -------------- SPECIALTY RETAIL -- 5.6% 435 ANN, Inc. (a) 15,904 748 Bed Bath & Beyond, Inc. (a) 60,064 663 Brown Shoe Co., Inc. 18,657 269 Children's Place Retail Stores (The), Inc. (a) 15,325 1,348 Gap (The), Inc. 52,680 809 Ross Stores, Inc. 60,618 1,034 TJX (The) Cos., Inc. 65,897 -------------- 289,145 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.4% 192 Fossil Group, Inc. (a) 23,028 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ THRIFTS & MORTGAGE FINANCE -- 0.6% 870 Provident Financial Services, Inc. $ 16,808 668 Washington Federal, Inc. 15,558 -------------- 32,366 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.3% 283 Applied Industrial Technologies, Inc. 13,892 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.4% 787 Telephone & Data Systems, Inc. 20,289 -------------- TOTAL COMMON STOCKS -- 100.0% 5,160,080 (Cost $4,371,678) MONEY MARKET FUNDS -- 0.2% 7,624 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (b) 7,624 (Cost $7,624) -------------- TOTAL INVESTMENTS -- 100.2% 5,167,704 (Cost $4,379,302) (c) NET OTHER ASSETS AND LIABILITIES -- (0.2)% (8,078) -------------- NET ASSETS -- 100.0% $ 5,159,626 ============== (a) Non-income producing security. (b) Interest rate shown reflects yield as of December 31, 2013. (c) Aggregate cost for federal income tax purposes is $4,382,170. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $830,294 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $44,760. ADR - American Depositary Receipt Page 42 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $ 5,160,080 $ -- $ -- Money Market Funds 7,624 -- -- ----------------------------------------------- Total Investments $ 5,167,704 $ -- $ -- =============================================== * 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, 2013. See Notes to Financial Statements Page 43 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 4.2% 34,378 Boeing (The) Co. $ 4,692,253 50,324 General Dynamics Corp. 4,808,458 44,225 L-3 Communications Holdings, Inc. 4,725,884 32,325 Lockheed Martin Corp. 4,805,435 41,671 Northrop Grumman Corp. 4,775,913 52,636 Raytheon Co. 4,774,085 42,314 United Technologies Corp. 4,815,333 -------------- 33,397,361 -------------- AIR FREIGHT & LOGISTICS -- 1.2% 82,210 C.H. Robinson Worldwide, Inc. 4,796,132 45,105 United Parcel Service, Inc., Class B 4,739,633 -------------- 9,535,765 -------------- BEVERAGES -- 3.0% 45,238 Anheuser-Busch InBev N.V., ADR 4,816,038 116,765 Coca-Cola (The) Co. 4,823,562 36,560 Diageo PLC, ADR 4,841,275 85,352 Molson Coors Brewing Co., Class B 4,792,515 57,284 PepsiCo, Inc. 4,751,135 -------------- 24,024,525 -------------- BIOTECHNOLOGY -- 0.6% 41,425 Amgen, Inc. 4,729,078 -------------- CAPITAL MARKETS -- 0.6% 192,577 KKR & Co. L.P. (a) 4,687,324 -------------- CHEMICALS -- 1.2% 41,675 Air Products & Chemicals, Inc. 4,658,431 74,741 E.I. du Pont de Nemours & Co. 4,855,923 -------------- 9,514,354 -------------- COMMERCIAL BANKS -- 4.1% 71,017 Bank of Montreal 4,733,993 76,272 Bank of Nova Scotia 4,770,814 71,865 BOK Financial Corp. 4,766,087 54,962 Canadian Imperial Bank of Commerce 4,694,304 63,557 Cullen/Frost Bankers, Inc. 4,730,548 70,303 Royal Bank of Canada 4,726,471 50,302 Toronto-Dominion (The) Bank 4,740,460 -------------- 33,162,677 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.2% 166,168 Healthcare Services Group, Inc. 4,714,186 104,835 Waste Management, Inc. 4,703,947 -------------- 9,418,133 -------------- COMMUNICATIONS EQUIPMENT -- 1.2% 217,398 Cisco Systems, Inc. 4,880,585 67,891 Harris Corp. 4,739,471 -------------- 9,620,056 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMPUTERS & PERIPHERALS -- 1.2% 8,225 Apple, Inc. $ 4,615,130 142,444 Diebold, Inc. 4,702,076 -------------- 9,317,206 -------------- CONTAINERS & PACKAGING -- 1.2% 117,378 Bemis Co., Inc. 4,807,803 114,680 Sonoco Products Co. 4,784,449 -------------- 9,592,252 -------------- DISTRIBUTORS -- 0.6% 56,977 Genuine Parts Co. 4,739,917 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.8% 135,176 AT&T, Inc. 4,752,788 137,313 TELUS Corp. 4,729,060 96,525 Verizon Communications, Inc. 4,743,238 -------------- 14,225,086 -------------- ELECTRIC UTILITIES -- 10.0% 93,263 ALLETE, Inc. 4,651,958 100,155 Cleco Corp. 4,669,226 67,911 Duke Energy Corp. 4,686,538 101,631 Edison International 4,705,515 134,943 El Paso Electric Co. 4,737,849 180,218 Hawaiian Electric Industries, Inc. 4,696,481 89,235 IDACORP, Inc. 4,625,942 82,310 MGE Energy, Inc. 4,765,749 55,363 NextEra Energy, Inc. 4,740,180 111,225 Northeast Utilities 4,714,828 139,148 OGE Energy Corp. 4,717,117 88,342 Pinnacle West Capital Corp. 4,675,059 156,309 Portland General Electric Co. 4,720,532 114,708 Southern (The) Co. 4,715,646 121,201 UIL Holdings Corp. 4,696,539 146,219 Westar Energy, Inc. 4,703,865 166,639 Xcel Energy, Inc. 4,655,894 -------------- 79,878,918 -------------- ELECTRICAL EQUIPMENT -- 1.2% 62,158 Eaton Corp. PLC 4,731,467 67,599 Emerson Electric Co. 4,744,098 -------------- 9,475,565 -------------- FOOD & STAPLES RETAILING -- 2.3% 128,508 Sysco Corp. 4,639,139 81,495 Walgreen Co. 4,681,073 60,219 Wal-Mart Stores, Inc. 4,738,633 88,494 Weis Markets, Inc. 4,651,244 -------------- 18,710,089 -------------- FOOD PRODUCTS -- 6.0% 108,951 Archer-Daniels-Midland Co. 4,728,473 109,588 Campbell Soup Co. 4,742,969 140,777 ConAgra Foods, Inc. 4,744,185 95,388 General Mills, Inc. 4,760,815 49,072 Hershey (The) Co. 4,771,271 46,136 J.M. Smucker (The) Co. 4,780,612 77,714 Kellogg Co. 4,745,994 Page 44 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) FOOD PRODUCTS (CONTINUED) 86,920 Kraft Foods Group, Inc. $ 4,686,726 68,577 McCormick & Co., Inc. 4,726,327 117,436 Unilever PLC, ADR 4,838,363 -------------- 47,525,735 -------------- GAS UTILITIES -- 5.9% 100,240 AGL Resources, Inc. 4,734,335 104,160 Atmos Energy Corp. 4,730,947 102,363 Laclede Group (The), Inc. 4,661,611 103,173 New Jersey Resources Corp. 4,770,720 108,749 Northwest Natural Gas Co. 4,656,632 141,584 Piedmont Natural Gas Co., Inc. 4,694,925 203,704 Questar Corp. 4,683,155 85,320 South Jersey Industries, Inc. 4,774,507 114,821 UGI Corp. 4,760,479 119,441 WGL Holdings, Inc. 4,784,807 -------------- 47,252,118 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.8% 121,990 Abbott Laboratories 4,675,877 68,058 Baxter International, Inc. 4,733,434 100,607 ResMed, Inc. 4,736,577 -------------- 14,145,888 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.2% 129,144 Owens & Minor, Inc. 4,721,504 86,757 Quest Diagnostics, Inc. 4,644,970 -------------- 9,366,474 -------------- HOTELS, RESTAURANTS & LEISURE -- 0.6% 48,694 McDonald's Corp. 4,724,779 -------------- HOUSEHOLD DURABLES -- 0.6% 151,315 Leggett & Platt, Inc. 4,681,686 -------------- HOUSEHOLD PRODUCTS -- 2.3% 50,700 Clorox (The) Co. 4,702,932 72,555 Colgate-Palmolive Co. 4,731,311 44,856 Kimberly-Clark Corp. 4,685,658 57,671 Procter & Gamble (The) Co. 4,694,996 -------------- 18,814,897 -------------- INDUSTRIAL CONGLOMERATES -- 0.6% 34,279 3M Co. 4,807,630 -------------- INSURANCE -- 4.2% 46,087 ACE Ltd. 4,771,387 101,697 Arthur J. Gallagher & Co. 4,772,640 90,092 Cincinnati Financial Corp. 4,718,118 65,218 Erie Indemnity Co., Class A 4,768,740 78,507 Hanover Insurance Group (The), Inc. 4,687,653 94,790 Mercury General Corp. 4,712,011 52,595 Travelers (The) Cos., Inc. 4,761,952 -------------- 33,192,501 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ IT SERVICES -- 2.4% 57,501 Accenture PLC, Class A $ 4,727,732 58,660 Automatic Data Processing, Inc. 4,740,315 25,734 International Business Machines Corp. 4,826,926 103,105 Paychex, Inc. 4,694,371 -------------- 18,989,344 -------------- LEISURE EQUIPMENT & PRODUCTS -- 1.2% 88,210 Hasbro, Inc. 4,852,432 102,008 Mattel, Inc. 4,853,541 -------------- 9,705,973 -------------- MACHINERY -- 1.8% 51,734 Deere & Co. 4,724,866 56,702 Illinois Tool Works, Inc. 4,767,504 57,929 Stanley Black & Decker, Inc. 4,674,291 -------------- 14,166,661 -------------- MEDIA -- 1.2% 65,851 Omnicom Group, Inc. 4,897,339 123,760 Thomson Reuters Corp. 4,680,603 -------------- 9,577,942 -------------- MULTILINE RETAIL -- 1.2% 84,415 Kohl's Corp. 4,790,551 75,781 Target Corp. 4,794,664 -------------- 9,585,215 -------------- MULTI-UTILITIES -- 8.3% 90,912 Alliant Energy Corp. 4,691,059 167,294 Avista Corp. 4,716,018 203,351 CenterPoint Energy, Inc. 4,713,676 85,618 Consolidated Edison, Inc. 4,732,963 73,132 Dominion Resources, Inc. 4,730,909 70,461 DTE Energy Co. 4,677,906 85,837 Integrys Energy Group, Inc. 4,670,391 154,658 MDU Resources Group, Inc. 4,724,802 147,740 Public Service Enterprise Group, Inc. 4,733,590 99,537 SCANA Corp. 4,671,271 52,707 Sempra Energy 4,730,980 275,191 TECO Energy, Inc. 4,744,293 132,990 Vectren Corp. 4,721,145 113,294 Wisconsin Energy Corp. 4,683,574 -------------- 65,942,577 -------------- OFFICE ELECTRONICS -- 0.6% 145,947 CANON, Inc., ADR 4,670,304 -------------- OIL, GAS & CONSUMABLE FUELS -- 6.0% 38,186 Chevron Corp. 4,769,813 67,412 ConocoPhillips 4,762,658 109,358 Enbridge, Inc. 4,776,758 47,602 Exxon Mobil Corp. 4,817,323 132,129 Kinder Morgan, Inc. 4,756,644 133,294 Marathon Oil Corp. 4,705,278 50,297 Occidental Petroleum Corp. 4,783,245 66,894 Royal Dutch Shell PLC, ADR 4,767,535 See Notes to Financial Statements Page 45 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) OIL, GAS & CONSUMABLE FUELS (CONTINUED) 78,116 Total S.A., ADR $ 4,786,167 102,385 TransCanada Corp. 4,674,899 -------------- 47,600,320 -------------- PHARMACEUTICALS -- 6.6% 89,184 AbbVie, Inc. 4,709,807 80,075 AstraZeneca PLC, ADR 4,754,053 87,929 Bristol-Myers Squibb Co. 4,673,426 92,764 Eli Lilly & Co. 4,730,964 90,912 GlaxoSmithKline PLC, ADR 4,853,792 50,953 Johnson & Johnson 4,666,785 95,001 Merck & Co., Inc. 4,754,800 59,614 Novartis AG, ADR 4,791,773 154,506 Pfizer, Inc. 4,732,519 90,248 Sanofi, ADR 4,840,000 120,083 Teva Pharmaceutical Industries Ltd., ADR 4,812,927 -------------- 52,320,846 -------------- REAL ESTATE INVESTMENT TRUSTS -- 1.1% 30,941 Public Storage 4,657,239 123,923 Realty Income Corp. 4,626,046 -------------- 9,283,285 -------------- ROAD & RAIL -- 0.6% 50,179 Norfolk Southern Corp. 4,740,178 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.4% 92,636 Analog Devices, Inc. 4,717,952 185,199 Intel Corp. 4,807,766 108,147 Texas Instruments, Inc. 4,748,735 103,882 Xilinx, Inc. 4,770,261 -------------- 19,044,714 -------------- SOFTWARE -- 1.2% 141,797 CA, Inc. 4,771,469 128,053 Microsoft Corp. 4,793,024 -------------- 9,564,493 -------------- SPECIALTY RETAIL -- 0.6% 121,578 Gap (The), Inc. 4,751,268 -------------- THRIFTS & MORTGAGE FINANCE -- 0.6% 315,139 People's United Financial, Inc. 4,764,902 -------------- TOBACCO -- 3.0% 122,949 Altria Group, Inc. 4,720,012 44,779 British American Tobacco PLC, ADR 4,810,160 93,411 Lorillard, Inc. 4,734,070 55,006 Philip Morris International, Inc. 4,792,673 95,974 Reynolds American, Inc. 4,797,740 -------------- 23,854,655 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ TRADING COMPANIES & DISTRIBUTORS -- 0.6% 101,631 Fastenal Co. $ 4,828,489 -------------- WATER UTILITIES -- 1.1% 159,716 American States Water Co. 4,588,641 197,192 Aqua America, Inc. 4,651,759 -------------- 9,240,400 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.6% 121,672 Vodafone Group PLC, ADR 4,782,926 -------------- TOTAL INVESTMENTS -- 99.9% 795,954,506 (Cost $680,580,184) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 406,924 -------------- NET ASSETS -- 100.0% $ 796,361,430 ============== (a) Master Limited Partnership ("MLP"). (b) Aggregate cost for federal income tax purposes is $692,856,778. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $106,934,067 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,836,339. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 795,954,506 $ -- $ -- =============================================== * 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, 2013. Page 46 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.1% AEROSPACE & DEFENSE -- 1.2% 10,826 Elbit Systems Ltd. $ 657,463 -------------- AIRLINES -- 3.0% 61,623 JetBlue Airways Corp. (a) 526,877 31,283 SkyWest, Inc. 463,927 36,981 Southwest Airlines Co. 696,722 -------------- 1,687,526 -------------- AUTO COMPONENTS -- 4.6% 63,615 China Automotive Systems, Inc. (a) 504,467 32,210 Federal-Mogul Corp. (a) 633,893 32,359 Goodyear Tire & Rubber (The) Co. 771,762 31,482 Superior Industries International, Inc. 649,474 -------------- 2,559,596 -------------- BIOTECHNOLOGY -- 1.7% 21,870 Myriad Genetics, Inc. (a) 458,833 62,185 PDL BioPharma, Inc. 524,841 -------------- 983,674 -------------- CAPITAL MARKETS -- 1.9% 19,777 AllianceBernstein Holding LP (b) 422,041 32,210 E*TRADE Financial Corp. (a) 632,605 -------------- 1,054,646 -------------- COMMERCIAL BANKS -- 2.0% 20,107 Popular, Inc. (a) 577,674 15,148 SunTrust Banks, Inc. 557,598 -------------- 1,135,272 -------------- COMMERCIAL SERVICES & SUPPLIES -- 3.3% 18,481 Brink's (The) Co. 630,941 35,815 EnerNOC, Inc. (a) 616,376 39,323 Kimball International, Inc., Class B 591,025 -------------- 1,838,342 -------------- COMMUNICATIONS EQUIPMENT -- 1.9% 65,158 Brocade Communications Systems, Inc. (a) 577,951 20,978 Finisar Corp. (a) 501,794 -------------- 1,079,745 -------------- COMPUTERS & PERIPHERALS -- 1.0% 19,281 Hewlett-Packard Co. 539,482 -------------- CONSTRUCTION MATERIALS -- 1.1% 61,338 Headwaters, Inc. (a) 600,499 -------------- CONTAINERS & PACKAGING -- 1.0% 11,252 Avery Dennison Corp. 564,738 -------------- DIVERSIFIED FINANCIAL SERVICES -- 2.0% 37,740 Bank of America Corp. 587,612 10,338 Citigroup, Inc. 538,713 -------------- 1,126,325 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 3.3% 30,459 Consolidated Communications Holdings, Inc. $ 597,910 54,325 General Communication, Inc., Class A (a) 605,724 20,298 Level 3 Communications, Inc. (a) 673,285 -------------- 1,876,919 -------------- ELECTRIC UTILITIES -- 1.1% 25,820 Great Plains Energy, Inc. 625,877 -------------- ELECTRICAL EQUIPMENT -- 1.0% 15,737 Babcock & Wilcox (The) Co. 538,048 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 2.1% 39,393 Orbotech Ltd. (a) 532,594 38,493 Sanmina Corp. (a) 642,833 -------------- 1,175,427 -------------- ENERGY EQUIPMENT & SERVICES -- 6.5% 9,229 Ensco PLC, Class A 527,714 12,611 Noble Corp. PLC 472,534 5,950 Schlumberger Ltd. 536,155 44,214 TETRA Technologies, Inc. (a) 546,485 9,633 Tidewater, Inc. 570,948 9,917 Transocean Ltd. 490,098 32,421 Weatherford International Ltd. (a) 502,201 -------------- 3,646,135 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 2.0% 14,929 Alere, Inc. (a) 540,430 13,323 Haemonetics Corp. (a) 561,298 -------------- 1,101,728 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.9% 56,424 Select Medical Holdings Corp. 655,083 9,566 Tenet Healthcare Corp. (a) 402,920 -------------- 1,058,003 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.0% 10,894 Hyatt Hotels Corp., Class A (a) 538,817 -------------- HOUSEHOLD DURABLES -- 3.1% 14,855 M.D.C. Holdings, Inc. (a) 478,925 14,536 Ryland Group (The), Inc. 631,008 35,329 Sony Corp., ADR 610,838 -------------- 1,720,771 -------------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 1.0% 37,629 AES (The) Corp. 545,997 -------------- See Notes to Financial Statements Page 47 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) INSURANCE -- 3.2% 28,618 Manulife Financial Corp. $ 564,633 35,411 Old Republic International Corp. 611,548 6,558 Prudential Financial, Inc. 604,779 -------------- 1,780,960 -------------- INTERNET SOFTWARE & SERVICES -- 1.1% 90,539 Monster Worldwide, Inc. (a) 645,543 -------------- IT SERVICES -- 2.4% 11,425 Computer Sciences Corp. 638,429 10,776 Global Payments, Inc. 700,332 -------------- 1,338,761 -------------- MACHINERY -- 2.2% 17,663 Greenbrier (The) Cos., Inc. (a) 580,053 27,614 Manitowoc (The) Co., Inc. 643,958 -------------- 1,224,011 -------------- MEDIA -- 2.0% 35,731 Cablevision Systems Corp., Class A 640,657 26,312 Regal Entertainment Group, Class A 511,768 -------------- 1,152,425 -------------- METALS & MINING -- 6.4% 83,659 AK Steel Holding Corp. (a) 686,004 59,152 Alcoa, Inc. 628,786 37,639 Barrick Gold Corp. 663,576 28,559 Commercial Metals Co. 580,604 116,966 Kinross Gold Corp. 512,311 21,579 Newmont Mining Corp. 496,964 -------------- 3,568,245 -------------- OFFICE ELECTRONICS -- 1.1% 19,528 CANON, Inc., ADR 624,896 -------------- OIL, GAS & CONSUMABLE FUELS -- 11.7% 95,939 Alpha Natural Resources, Inc. (a) 685,004 13,234 BP PLC, ADR 643,305 22,874 Chesapeake Energy Corp. 620,800 10,318 Devon Energy Corp. 638,375 34,761 Encana Corp. 627,436 17,835 Marathon Oil Corp. 629,576 19,010 Newfield Exploration Co. (a) 468,216 16,781 QEP Resources, Inc. 514,338 14,364 Southwestern Energy Co. (a) 564,936 15,598 Suncor Energy, Inc. 546,710 28,676 Ultra Petroleum Corp. (a) 620,835 -------------- 6,559,531 -------------- PROFESSIONAL SERVICES -- 3.4% 24,452 Kelly Services, Inc., Class A 609,833 24,809 Korn/Ferry International (a) 648,011 35,445 Navigant Consulting, Inc. (a) 680,544 -------------- 1,938,388 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS -- 1.8% 18,757 Apartment Investment & Management Co., Class A $ 485,994 26,331 Host Hotels & Resorts, Inc. 511,875 -------------- 997,869 -------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 1.1% 24,160 CBRE Group, Inc., Class A (a) 635,408 -------------- ROAD & RAIL -- 1.8% 17,210 Arkansas Best Corp. 579,633 10,985 Con-way, Inc. 436,214 -------------- 1,015,847 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 5.9% 122,959 Amkor Technology, Inc. (a) 753,739 24,780 Intel Corp. 643,289 44,359 Marvell Technology Group Ltd. 637,882 78,814 ON Semiconductor Corp. (a) 649,427 21,387 Skyworks Solutions, Inc. (a) 610,813 -------------- 3,295,150 -------------- SOFTWARE -- 3.1% 45,732 Cadence Design Systems, Inc. (a) 641,163 20,376 Electronic Arts, Inc. (a) 467,425 33,093 Rovi Corp. (a) 651,601 -------------- 1,760,189 -------------- SPECIALTY RETAIL -- 4.2% 28,189 Big 5 Sporting Goods Corp. 558,706 11,142 Children's Place Retail Stores (The), Inc. (a) 634,760 67,831 Christopher & Banks Corp. (a) 579,277 22,914 Sonic Automotive, Inc., Class A 560,934 -------------- 2,333,677 -------------- THRIFTS & MORTGAGE FINANCE -- 1.0% 24,067 Washington Federal, Inc. 560,520 -------------- TOTAL INVESTMENTS -- 100.1% 56,086,450 (Cost $52,568,630) (c) NET OTHER ASSETS AND LIABILITIES -- (0.1)% (28,503) -------------- NET ASSETS -- 100.0% $ 56,057,947 ============== (a) Non-income producing security. (b) Master Limited Partnership ("MLP"). (c) Aggregate cost for federal income tax purposes is $52,844,035. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $3,973,217 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $730,802. ADR - American Depositary Receipt Page 48 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 56,086,450 $ -- $ -- =============================================== * 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, 2013. See Notes to Financial Statements Page 49 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2013
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR FIRST TRUST MICROCAP DIVIDEND LEADERS(SM) US IPO INDEX(SM) FUND INDEX FUND INDEX FUND (FDM) (FDL) (FPX) ---------------- ------------------- --------------- ASSETS: Investments, at value.................................................. $ 91,048,768 $ 687,051,018 $ 358,304,449 Cash................................................................... 126,004 -- -- Receivables: Capital shares sold.............................................. -- -- 9,034,740 Investment securities sold....................................... 453,420 261,016 189,472 Dividends........................................................ 53,538 1,097,482 172,305 Interest......................................................... -- -- -- Securities lending income........................................ -- -- 10,415 From investment advisor.......................................... -- -- -- Reclaims......................................................... -- -- -- Prepaid expenses....................................................... 2,195 10,653 2,487 -------------- -------------- -------------- TOTAL ASSETS..................................................... 91,683,925 688,420,169 367,713,868 -------------- -------------- -------------- LIABILITIES: Due to custodian....................................................... -- 417,338 110,213 Payables: Investment securities purchased.................................. 455,576 -- 9,037,472 Licensing fees................................................... 42,539 153,783 53,268 Investment advisory fees......................................... 32,336 136,111 79,191 Audit and tax fees............................................... 22,925 22,925 22,925 Printing fees.................................................... 9,402 41,280 6,806 Trustees' fees................................................... 31 71 -- Collateral for securities on loan................................ -- -- 6,932,352 Other liabilities...................................................... 41,060 211,941 96,082 -------------- -------------- -------------- TOTAL LIABILITIES................................................ 603,869 983,449 16,338,309 -------------- -------------- -------------- NET ASSETS............................................................. $ 91,080,056 $ 687,436,720 $ 351,375,559 ============== ============== ============== NET ASSETS CONSIST OF: Paid-in capital........................................................ $ 100,346,722 $ 671,785,200 $ 309,568,710 Par value.............................................................. 28,050 313,500 77,500 Accumulated net investment income (loss)............................... -- -- -- Accumulated net realized gain (loss) on investments.................... (24,963,973) (43,314,696) (8,125,595) Net unrealized appreciation (depreciation) on investments.............. 15,669,257 58,652,716 49,854,944 -------------- -------------- -------------- NET ASSETS............................................................. $ 91,080,056 $ 687,436,720 $ 351,375,559 ============== ============== ============== NET ASSET VALUE, per share............................................. $ 32.47 $ 21.93 $ 45.34 ============== ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share).......................................... 2,805,000 31,350,002 7,750,002 -------------- -------------- -------------- Investments, at cost................................................... $ 75,379,511 $ 628,398,302 $ 308,449,505 ============== ============== ============== Securities on loan, at value........................................... $ -- $ -- $ 6,790,608 ============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) EQUITY VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET STRENGTH ALLOCATION DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX(SM) FUND ETF INDEX FUND INDEX FUND FUND (FBT) (FDN) (FTCS)* (FVI) (FVD) (FVL) --------------- --------------- --------------- -------------------- --------------- ----------------- $ 969,483,653 $ 1,958,214,517 $ 65,670,448 $ 5,167,704 $ 795,954,506 $ 56,086,450 1,554,207 658,033 -- 102 -- 15,192 -- 14,839,380 -- -- 2,131,586 -- 12,488,662 783,164 -- 31,077 -- -- -- -- 123,962 3,610 1,685,603 28,511 -- 31 -- -- -- -- 71,184 227,177 -- -- -- -- -- -- -- 4,543 -- -- -- -- -- 496 17,486 501 13,151 25,863 1,758 11,265 12,198 1,103 --------------- --------------- --------------- --------------- --------------- --------------- 983,610,857 1,974,748,165 65,796,168 5,218,797 799,801,379 56,131,757 --------------- --------------- --------------- --------------- --------------- --------------- -- -- 20,205 -- 437,785 -- -- 14,847,627 -- 31,122 2,129,519 -- 175,967 476,886 2,601 1,876 292,548 20,960 290,119 615,802 21,385 -- 274,931 13,047 22,925 22,925 22,925 22,925 22,925 22,925 32,683 70,760 2,809 495 42,295 3,611 9 -- -- -- -- -- 28,862,685 28,281,130 -- -- -- -- 316,371 580,756 20,121 2,753 239,946 13,267 --------------- --------------- --------------- --------------- --------------- --------------- 29,700,759 44,895,886 90,046 59,171 3,439,949 73,810 --------------- --------------- --------------- --------------- --------------- --------------- $ 953,910,098 $ 1,929,852,279 $ 65,706,122 $ 5,159,626 $ 796,361,430 $ 56,057,947 =============== =============== =============== =============== =============== =============== $ 847,429,209 $ 1,544,869,838 $ 83,927,791 $ 9,807,148 $ 735,434,951 $142,835,540 138,000 322,500 19,500 2,000 372,880 30,400 -- -- 13,050 -- 300,846 -- (89,930,226) (54,325,056) (24,396,431) (5,437,924) (55,121,569) (90,325,813) 196,273,115 438,984,997 6,142,212 788,402 115,374,322 3,517,820 --------------- --------------- --------------- --------------- --------------- --------------- $ 953,910,098 $ 1,929,852,279 $ 65,706,122 $ 5,159,626 $ 796,361,430 $ 56,057,947 =============== =============== =============== =============== =============== =============== $ 69.12 $ 59.84 $ 33.70 $ 25.80 $ 21.36 $ 18.44 =============== =============== =============== =============== =============== =============== 13,800,002 32,250,002 1,950,002 200,002 37,287,986 3,039,982 --------------- --------------- --------------- --------------- --------------- --------------- $ 773,210,538 $ 1,519,229,520 $ 59,528,236 $ 4,379,302 $ 680,580,184 $ 52,568,630 =============== =============== =============== =============== =============== =============== $ 28,236,479 $ 27,627,746 $ -- $ -- $ -- $ -- =============== =============== =============== =============== =============== ===============
* Formerly First Trust Strategic Value Index Fund See Notes to Financial Statements Page 51 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2013
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR FIRST TRUST MICROCAP DIVIDEND LEADERS(SM) US IPO INDEX(SM) FUND INDEX FUND INDEX FUND (FDM) (FDL) (FPX) ---------------- ------------------- --------------- INVESTMENT INCOME: Dividends............................................................... $ 1,497,681 $ 25,347,344 $ 1,555,555 Foreign tax withholding................................................. (3,453) -- (7,975) Interest................................................................ -- -- -- Securities lending income (net of fees)................................. -- -- 72,124 -------------- -------------- -------------- Total investment income.............................................. 1,494,228 25,347,344 1,619,704 -------------- -------------- -------------- EXPENSES: Investment advisory fees................................................ 489,802 1,872,016 501,170 Licensing fees.......................................................... 67,244 564,419 125,285 Accounting and administration fees...................................... 53,917 315,526 65,233 Audit and tax fees...................................................... 23,196 23,196 23,196 Printing fees........................................................... 18,084 80,123 16,207 Custodian fees.......................................................... 12,667 78,999 23,911 Legal fees.............................................................. 10,670 44,656 10,880 Listing fees............................................................ 8,049 10,551 7,677 Trustees' fees and expenses............................................. 6,875 22,015 7,613 Transfer agent fees..................................................... 4,898 31,200 6,265 Registration and filing fees............................................ 3,138 3,440 30,911 Expenses previously waived or reimbursed................................ -- -- -- Other expenses.......................................................... 4,971 31,426 3,932 -------------- -------------- -------------- Total expenses....................................................... 703,511 3,077,567 822,280 Less fees waived and expenses reimbursed by the investment advisor... (115,749) (269,543) (70,526) -------------- -------------- -------------- Net expenses......................................................... 587,762 2,808,024 751,754 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)............................................ 906,466 22,539,320 867,950 -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments.......................................................... (2,089,326) (9,400,098) (1,467,705) In-kind redemptions.................................................. 21,765,499 65,431,446 850,395 -------------- -------------- -------------- Net realized gain (loss)................................................ 19,676,173 56,031,348 (617,310) Net change in unrealized appreciation (depreciation).................... 12,455,819 42,242,896 47,510,415 -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS)................................. 32,131,992 98,274,244 46,893,105 -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...................................................... $ 33,038,458 $ 120,813,564 $ 47,761,055 ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) EQUITY VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET STRENGTH ALLOCATION DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX(SM) FUND ETF INDEX FUND INDEX FUND FUND (FBT) (FDN) (FTCS)* (FVI) (FVD) (FVL) --------------- --------------- --------------- -------------------- --------------- ----------------- $ 634,245 $ 3,164,256 $ 973,103 $ 73,977 $ 22,337,191 $ 522,021 -- -- -- (825) (364,312) (5,507) -- 209 -- 3 1 -- 1,243,242 341,854 -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- 1,877,487 3,506,319 973,103 73,155 21,972,880 516,514 --------------- --------------- --------------- --------------- --------------- --------------- 2,184,017 4,864,568 217,182 22,652 3,354,670 245,926 436,804 760,870 24,594 7,003 1,018,478 77,737 274,583 609,699 23,464 5,340 339,612 26,326 23,196 23,196 23,196 23,196 23,196 23,196 62,648 144,060 8,141 1,548 86,273 6,198 72,502 152,398 5,419 564 84,187 6,131 45,586 120,534 3,295 333 56,053 3,611 8,049 8,049 9,642 22,677 25,177 22,686 19,208 38,806 5,448 4,078 23,426 5,422 27,300 60,807 2,172 226 33,547 2,459 65,903 94,992 2,915 56 13,882 334 37,156 -- -- -- -- -- 19,072 35,586 6,404 3,386 29,997 5,516 --------------- --------------- --------------- --------------- --------------- --------------- 3,276,024 6,913,565 331,872 91,059 5,088,498 425,542 -- -- (49,536) (59,346) (391,960) (81,246) --------------- --------------- --------------- --------------- --------------- --------------- 3,276,024 6,913,565 282,336 31,713 4,696,538 344,296 --------------- --------------- --------------- --------------- --------------- --------------- (1,398,537) (3,407,246) 690,767 41,442 17,276,342 172,218 --------------- --------------- --------------- --------------- --------------- --------------- (50,940,682) (14,632,510) 1,516,679 703,502 (354,282) 6,091,302 27,282,012 135,216,497 6,171,750 -- 62,124,977 8,074,019 --------------- --------------- --------------- --------------- --------------- --------------- (23,658,670) 120,583,987 7,688,429 703,502 61,770,695 14,165,321 214,346,364 401,945,182 4,261,985 589,610 70,064,896 2,221,485 --------------- --------------- --------------- --------------- --------------- --------------- 190,687,694 522,529,169 11,950,414 1,293,112 131,835,591 16,386,806 --------------- --------------- --------------- --------------- --------------- --------------- $ 189,289,157 $ 519,121,923 $ 12,641,181 $ 1,334,554 $ 149,111,933 $ 16,559,024 =============== =============== =============== =============== =============== ===============
* Formerly First Trust Strategic Value Index Fund 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 (FDM) (FDL) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)............................. $ 906,466 $ 686,521 $ 22,539,320 $ 21,556,084 Net realized gain (loss)................................. 19,676,173 7,014,919 56,031,348 36,567,636 Net change in unrealized appreciation (depreciation) .... 12,455,819 (272,013) 42,242,896 (13,133,879) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations....................................... 33,038,458 7,429,427 120,813,564 44,989,841 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................... (986,641) (763,985) (22,580,041) (21,586,886) ------------- ------------- ------------- ------------- Total distributions to shareholders...................... (986,641) (763,985) (22,580,041) (21,586,886) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold................................ 123,859,631 21,606,716 404,778,385 391,010,969 Cost of shares redeemed.................................. (106,112,766) (39,318,667) (361,092,133) (315,926,513) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions......................... 17,746,865 (17,711,951) 43,686,252 75,084,456 ------------- ------------- ------------- ------------- Total increase (decrease) in net assets.................. 49,798,682 (11,046,509) 141,919,775 98,487,411 NET ASSETS: Beginning of period...................................... 41,281,374 52,327,883 545,516,945 447,029,534 ------------- ------------- ------------- ------------- End of period............................................ $ 91,080,056 $ 41,281,374 $ 687,436,720 $ 545,516,945 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period...................................... $ -- $ (60,563) $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period.................. 1,805,000 2,605,000 29,550,002 25,450,002 Shares sold.............................................. 4,650,000 1,000,000 19,350,000 21,300,000 Shares redeemed.......................................... (3,650,000) (1,800,000) (17,550,000) (17,200,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period........................ 2,805,000 1,805,000 31,350,002 29,550,002 ============= ============= ============= =============
Pag 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 (FPX) (FBT) (FDN) ----------------------------- ----------------------------- ------------------------------ For the Year For the Year For the Year For the Year For the Year For the Year Ended Ended Ended Ended Ended Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- -------------- ------------- $ 867,950 $ 235,387 $ (1,398,537) $ (1,138,584) $ (3,407,246) $ (1,147,910) (617,310) 2,888,044 (23,658,670) 3,450,148 120,583,987 2,210,382 47,510,415 1,595,084 214,346,364 69,354,260 401,945,182 87,556,216 ------------- ------------- ------------- ------------- -------------- ------------- 47,761,055 4,718,515 189,289,157 71,665,824 519,121,923 88,618,688 ------------- ------------- ------------- ------------- -------------- ------------- (957,120) (267,146) -- -- -- -- ------------- ------------- ------------- ------------- -------------- ------------- (957,120) (267,146) -- -- -- -- ------------- ------------- ------------- ------------- -------------- ------------- 282,040,963 17,551,471 611,554,944 128,745,653 1,166,724,606 160,053,757 (2,128,720) (12,937,294) (86,379,184) (143,996,259) (313,875,794) (210,474,282) ------------- ------------- ------------- ------------- -------------- ------------- 279,912,243 4,614,177 525,175,760 (15,250,606) 852,848,812 (50,420,525) ------------- ------------- ------------- ------------- -------------- ------------- 326,716,178 9,065,546 714,464,917 56,415,218 1,371,970,735 38,198,163 24,659,381 15,593,835 239,445,181 183,029,963 557,881,544 519,683,381 ------------- ------------- ------------- ------------- -------------- ------------- $ 351,375,559 $ 24,659,381 $ 953,910,098 $ 239,445,181 $1,929,852,279 $ 557,881,544 ============= ============= ============= ============= ============== ============= $ -- $ -- $ -- $ -- $ -- $ -- ============= ============= ============= ============= ============== ============= 800,002 650,002 5,200,002 5,600,002 14,300,002 16,100,002 7,000,000 600,000 10,050,000 3,000,000 24,000,000 4,400,000 (50,000) (450,000) (1,450,000) (3,400,000) (6,050,000) (6,200,000) ------------- ------------- ------------- ------------- -------------- ------------- 7,750,002 800,002 13,800,002 5,200,002 32,250,002 14,300,002 ============= ============= ============= ============= ============== =============
See Notes to Financial Statements Page 55 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST CAPITAL STRENGTH VALUE LINE(R) EQUITY ETF ALLOCATION INDEX FUND (FTCS)* (FVI) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)............................. $ 690,767 $ 599,178 $ 41,442 $ 85,054 Net realized gain (loss)................................. 7,688,429 2,196,767 703,502 195,615 Net change in unrealized appreciation (depreciation) .... 4,261,985 2,281,414 589,610 (10,096) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations....................................... 12,641,181 5,077,359 1,334,554 270,573 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................... (684,781) (591,636) (43,260) (97,326) ------------- ------------- ------------- ------------- Total distributions to shareholders...................... (684,781) (591,636) (43,260) (97,326) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold................................ 67,370,800 14,561,038 -- 4,818,770 Cost of shares redeemed.................................. (46,328,268) (17,982,092) -- (7,480,560) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions......................... 21,042,532 (3,421,054) -- (2,661,790) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets.................. 32,998,932 1,064,669 1,291,294 (2,488,543) NET ASSETS: Beginning of period...................................... 32,707,190 31,642,521 3,868,332 6,356,875 ------------- ------------- ------------- ------------- End of period............................................ $ 65,706,122 $ 32,707,190 $ 5,159,626 $ 3,868,332 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period...................................... $ 13,050 $ 8,047 $ -- $ (743) ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period.................. 1,300,002 1,450,002 200,002 350,002 Shares sold.............................................. 2,200,000 600,000 -- 250,000 Shares redeemed.......................................... (1,550,000) (750,000) -- (400,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period........................ 1,950,002 1,300,002 200,002 200,002 ============= ============= ============= =============
* Formerly First Trust Strategic Value Index Fund Page 56 See Notes to Financial Statements
FIRST TRUST FIRST TRUST VALUE LINE(R) DIVIDEND VALUE LINE(R) 100 INDEX FUND EXCHANGE-TRADED FUND (FVD) (FVL) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- $ 17,276,342 $ 13,995,661 $ 172,218 $ 545,050 61,770,695 26,191,709 14,165,321 4,001,661 70,064,896 7,088,311 2,221,485 (396,300) ------------- ------------- ------------- ------------- 149,111,933 47,275,681 16,559,024 4,150,411 ------------- ------------- ------------- ------------- (16,843,619) (13,920,854) (179,357) (559,524) ------------- ------------- ------------- ------------- (16,843,619) (13,920,854) (179,357) (559,524) ------------- ------------- ------------- ------------- 499,922,070 304,870,331 54,675,682 61,932,673 (343,932,195) (196,520,474) (60,632,280) (75,431,362) ------------- ------------- ------------- ------------- 155,989,875 108,349,857 (5,956,598) (13,498,689) ------------- ------------- ------------- ------------- 288,258,189 141,704,684 10,423,069 (9,907,802) 508,103,241 366,398,557 45,634,878 55,542,680 ------------- ------------- ------------- ------------- $ 796,361,430 $ 508,103,241 $ 56,057,947 $ 45,634,878 ============= ============= ============= ============= $ 300,846 $ 35,845 $ -- $ 310 ============= ============= ============= ============= 29,387,986 22,887,986 3,439,982 4,489,982 25,300,000 18,150,000 3,300,000 4,600,000 (17,400,000) (11,650,000) (3,700,000) (5,650,000) ------------- ------------- ------------- ------------- 37,287,986 29,387,986 3,039,982 3,439,982 ============= ============= ============= =============
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 (FDM) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 22.87 $ 20.09 $ 22.17 $ 17.70 $ 14.74 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.25 0.35 0.10 0.09 0.09 Net realized and unrealized gain (loss) 9.62 2.83 (2.02) 4.46 2.97 ---------- ---------- ---------- ---------- ---------- Total from investment operations 9.87 3.18 (1.92) 4.55 3.06 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.27) (0.40) (0.16) (0.08) (0.10) Return of capital -- -- -- -- (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions (0.27) (0.40) (0.16) (0.08) (0.10) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 32.47 $ 22.87 $ 20.09 $ 22.17 $ 17.70 ========== ========== ========== ========== ========== TOTAL RETURN (b) 43.32% 15.86% (8.69)% 25.77% 20.85% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 91,080 $ 41,281 $ 52,328 $ 153,050 $ 18,679 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.72% 0.76% 0.71% 0.86% 0.94% 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 0.93% 1.38% 0.40% 0.94% 0.69% Portfolio turnover rate (c) 70% 71% 59% 86% 86%
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 18.46 $ 17.57 $ 15.92 $ 14.27 $ 13.09 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.69 0.71 0.61 0.57 0.56 Net realized and unrealized gain (loss) 3.47 0.89 1.65 1.66 1.19 ---------- ---------- ---------- ---------- ---------- Total from investment operations 4.16 1.60 2.26 2.23 1.75 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.69) (0.71) (0.61) (0.58) (0.57) Return of capital -- -- -- (0.00) (a) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.69) (0.71) (0.61) (0.58) (0.57) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 21.93 $ 18.46 $ 17.57 $ 15.92 $ 14.27 ========== ========== ========== ========== ========== TOTAL RETURN (b) 22.71% 9.14% 14.44% 16.05% 14.24% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 687,437 $ 545,517 $ 447,030 $ 143,294 $ 48,505 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.49% 0.51% 0.56% 0.66% 0.79% 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 3.61% 3.88% 3.98% 4.22% 4.64% Portfolio turnover rate (c) 35% 31% 27% 30% 81%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year 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 (FPX) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 30.82 $ 23.99 $ 23.51 $ 20.08 $ 14.09 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.22 0.31 0.18 0.20 0.59 Net realized and unrealized gain (loss) 14.53 6.87 0.55 3.45 5.72 ---------- ---------- ---------- ---------- ---------- Total from investment operations 14.75 7.18 0.73 3.65 6.31 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.23) (0.35) (0.25) (0.22) (0.32) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 45.34 $ 30.82 $ 23.99 $ 23.51 $ 20.08 ========== ========== ========== ========== ========== TOTAL RETURN (a) 47.98% 30.01% 3.11% 18.28% 44.93% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 351,376 $ 24,659 $ 15,594 $ 15,283 $ 11,043 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.66% 1.01% 1.01% 1.32% 1.34% 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 0.69% 1.27% 0.70% 1.28% 3.59% Portfolio turnover rate (b) 30% 48% 44% 43% 30%
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 46.05 $ 32.68 $ 39.07 $ 28.54 $ 19.70 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.10) (0.22) (0.30) (0.17) (0.16) Net realized and unrealized gain (loss) 23.17 13.59 (6.09) 10.70 9.00 ---------- ---------- ---------- ---------- ---------- Total from investment operations 23.07 13.37 (6.39) 10.53 8.84 ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 69.12 $ 46.05 $ 32.68 $ 39.07 $ 28.54 ========== ========== ========== ========== ========== TOTAL RETURN (a) 50.10% 40.91% (16.36)% 36.90% 44.87% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 953,910 $ 239,445 $ 183,030 $ 201,220 $ 67,068 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.61% 0.61% 0.66% 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 (0.26)% (0.48)% (0.54)% (0.60)% (0.60)% Portfolio turnover rate (b) 48% 39% 44% 35% 44%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year 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 (FDN) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 39.01 $ 32.28 $ 34.27 $ 25.11 $ 14.01 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.11) (0.08) (0.10) 0.04 (0.05) Net realized and unrealized gain (loss) 20.94 6.81 (1.87) 9.16 11.15 ---------- ---------- ---------- ---------- ---------- Total from investment operations 20.83 6.73 (1.97) 9.20 11.10 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income -- -- (0.02) (0.04) -- Return of capital -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Total distributions -- -- (0.02) (0.04) -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 59.84 $ 39.01 $ 32.28 $ 34.27 $ 25.11 ========== ========== ========== ========== ========== TOTAL RETURN (a) 53.40% 20.85% (5.74)% 36.63% 79.23% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,929,852 $ 557,882 $ 519,683 $ 589,480 $ 86,615 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.57% 0.60% 0.60% 0.66% 0.73% Ratio of net expenses to average net assets 0.57% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets (0.28)% (0.23)% (0.25)% 0.26% (0.46)% Portfolio turnover rate (b) 17% 33% 18% 16% 35%
FIRST TRUST CAPITAL STRENGTH EFT (FTCS)* FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 25.16 $ 21.82 $ 22.90 $ 20.47 $ 14.90 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.45 0.45 0.35 0.39 0.28 Net realized and unrealized gain (loss) 8.54 3.34 (1.01) 2.44 5.57 ---------- ---------- ---------- ---------- ---------- Total from investment operations 8.99 3.79 (0.66) 2.83 5.85 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.45) (0.45) (0.42) (0.40) (0.28) Return of capital -- -- -- (0.00) (c) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.45) (0.45) (0.42) (0.40) (0.28) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 33.70 $ 25.16 $ 21.82 $ 22.90 $ 20.47 ========== ========== ========== ========== ========== TOTAL RETURN (a) 35.90% 17.45% (2.94)% 14.04% 39.43% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 65,706 $ 32,707 $ 31,643 $ 36,633 $ 51,164 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.76% 0.83% 0.82% 0.86% 0.87% 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 1.59% 1.84% 1.51% 1.58% 1.57% Portfolio turnover rate (b) 156% 84% 114% 197% 171%
* Formerly First Trust Strategic Value Index Fund (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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Amount represents less than $0.01 per share. Page 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 (FVI) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 19.34 $ 18.16 $ 20.30 $ 17.21 $ 12.98 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.21 0.34 0.21 0.29 0.18 Net realized and unrealized gain (loss) 6.47 1.24 (2.14) 3.09 4.23 ---------- ---------- ---------- ---------- ---------- Total from investment operations 6.68 1.58 (1.93) 3.38 4.41 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.22) (0.40) (0.21) (0.29) (0.18) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 25.80 $ 19.34 $ 18.16 $ 20.30 $ 17.21 ========== ========== ========== ========== ========== TOTAL RETURN (a) 34.65% 8.74% (9.56)% 19.85% 34.15% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 5,160 $ 3,868 $ 6,357 $ 7,106 $ 6,885 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 2.01% 1.85% 1.39% 1.35% 1.24% 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 0.91% 1.64% 1.05% 1.29% 1.24% Portfolio turnover rate (b) 186% 203% 184% 205% 191%
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 17.29 $ 16.01 $ 15.08 $ 13.37 $ 11.55 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.50 0.50 0.42 0.41 (c) 0.38 Net realized and unrealized gain (loss) 4.06 1.28 0.93 1.71 1.82 ---------- ---------- ---------- ---------- ---------- Total from investment operations 4.56 1.78 1.35 2.12 2.20 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.49) (0.50) (0.42) (0.40) (0.38) Return of capital -- -- -- (0.01) -- ---------- ---------- ---------- ---------- ---------- Total distributions (0.49) (0.50) (0.42) (0.41) (0.38) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 21.36 $ 17.29 $ 16.01 $ 15.08 $ 13.37 ========== ========== ========== ========== ========== TOTAL RETURN (a) 26.57% 11.17% 9.03% 16.08% 19.58% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 796,361 $ 508,103 $ 366,399 $ 218,510 $ 153,618 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.76% 0.78% 0.79% 0.84% 0.80% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 2.57% 3.03% 2.84% 2.94% 3.30% Portfolio turnover rate (b) 71% 54% 53% 55% 101%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year 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 (FVL) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 13.27 $ 12.37 $ 13.52 $ 10.44 $ 9.26 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.06 0.15 0.08 0.00 (a) (0.01) Net realized and unrealized gain (loss) 5.17 0.90 (1.15) 3.08 1.19 ---------- ---------- ---------- ---------- ---------- Total from investment operations 5.23 1.05 (1.07) 3.08 1.18 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.06) (0.15) (0.08) -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 18.44 $ 13.27 $ 12.37 $ 13.52 $ 10.44 ========== ========== ========== ========== ========== TOTAL RETURN (b) 39.44% 8.53% (7.92)% 29.50% 12.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 56,058 $ 45,635 $ 55,543 $ 88,431 $ 60,433 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.87% 0.87% 0.82% 0.87% 0.85% Ratio of net expenses to average net assets 0.70% 0.70% 0.70% 0.70% 0.70% Ratio of net investment income (loss) to average net assets 0.35% 1.03% 0.47% 0.01% (0.08)% Portfolio turnover rate (c) 350% 304% 202% 266% 235%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year 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, 2013 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 Capital Strength ETF(1) - (The NASDAQ(R) Stock Market, LLC ("NASDAQ") ticker "FTCS")(2) 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"). 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: (1) Formerly First Trust Strategic Value Index Fund. (2) Formerly NYSE Arca ticker "FDV."
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 Capital Strength ETF The Capital Strength Index(TM) (3) 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)
(3) Effective June 3, 2013, the Fund's underlying index was changed from Credit Suisse U.S. Value Index, Powered by HOLT(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. If the NYSE closes early on a valuation day, the NAV is determined at that time. Domestic securities and foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. 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. Market quotations and prices used to value each Fund's investments are primarily obtained from third party pricing services. Each Fund's securities will be valued as follows: Common stocks and other equity securities listed on any national or foreign exchange (excluding NASDAQ and the London Stock Exchange Alternative Investment Market ("AIM")) are valued at the last sale price on the exchange on which they are Page 63 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 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 an over-the-counter market are valued at the mean of the bid and the asked prices, if available, and otherwise at the closing bid price. 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, differences between the prices used to calculate a Fund's NAV and the prices used by such Fund's corresponding index could result in a difference between the 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. 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 methodologies 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, 2013, is included with each Fund's Portfolio of Investments. Page 64 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 B. Securities Transactions and Investment Income Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Distributions received from the Fund's investments in Master Limited Partnerships ("MLPs") generally are comprised of return of capital and investment income. The Fund records estimated return of capital and investment income based on historical information available from each MLP. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded. 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. C. Offsetting on the Statements of Assets and Liabilities In December 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a fund's financial position. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset on the Statements of Assets and Liabilities, and disclose instruments and transactions subject to master netting or similar agreements. In addition, in January 2013, FASB issued Accounting Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and Liabilities" ("ASU 2013-1"), specifying exactly which transactions are subject to offsetting disclosures. The scope of the disclosure requirements is limited to derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. ASU 2011-11 and ASU 2013-1 are effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. The Funds adopted the disclosure requirement on netting for the current reporting period. This disclosure, if applicable, is included within each Fund's Portfolio of Investments under the heading "Offsetting Assets and Liabilities." For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements or similar agreements on the Statements of Assets and Liabilities. D. Securities Lending The Funds may lend securities representing up to 33 1/3% 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 and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, 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 Agency 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. ("BBH") 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, 2013, only FPX, FBT and FDN have securities in the securities lending program. In the event of a default by a borrower with respect to any loan, BBH will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH Page 65 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 to exercise these remedies, a Fund sustains losses as a result of a borrower's default, BBH will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH. E. Dividends and Distribution to Shareholders 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. 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, 2013 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 $ 986,641 $ -- $ -- First Trust Morningstar Dividend Leaders(SM) Index Fund 22,580,041 -- -- First Trust US IPO Index Fund 957,120 -- -- First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index(SM) Fund -- -- -- First Trust Capital Strength ETF 684,781 -- -- First Trust Value Line(R) Equity Allocation Index Fund 43,260 -- -- First Trust Value Line(R) Dividend Index Fund 16,843,619 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund 179,357 -- --
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 Capital Strength ETF 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 66 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 As of December 31, 2013, 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 $ -- $(24,396,167) $ 15,101,451 First Trust Morningstar Dividend Leaders(SM) Index Fund -- (39,074,976) 54,412,996 First Trust US IPO Index Fund -- (6,950,816) 48,680,165 First Trust NYSE Arca Biotechnology Index Fund -- (72,817,700) 179,160,589 First Trust Dow Jones Internet Index(SM) Fund -- (26,299,453) 410,959,394 First Trust Capital Strength ETF 13,050 (24,294,953) 6,040,734 First Trust Value Line(R) Equity Allocation Index Fund -- (5,435,056) 785,534 First Trust Value Line(R) Dividend Index Fund 300,846 (42,844,975) 103,097,728 First Trust Value Line(R) 100 Exchange-Traded Fund -- (90,050,408) 3,242,415
F. 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 2010, 2011, 2012 and 2013 remain open to federal and state audit. As of December 31, 2013, 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 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, 2013, the Funds 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.
Loss Loss Loss Loss Loss Post- Total Available Available Available Available Available Enactment - Capital Through Through Through Through Through No Loss 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 $12,654,227 $24,396,167 First Trust Morningstar Dividend Leaders(SM) Index Fund 202,279 198,670 14,962,284 16,831,977 473,435 6,406,331 39,074,976 First Trust US IPO Index Fund 303,759 740,683 2,682,788 1,127,563 65,058 2,030,965 6,950,816 First Trust NYSE Arca Biotechnology Index Fund -- -- 2,061,136 5,787,577 1,039,054 63,929,933 72,817,700 First Trust Dow Jones Internet Index(SM) Fund -- -- 6,295,170 1,163,966 -- 18,840,317 26,299,453 First Trust Capital Strength ETF -- 189,266 11,401,861 11,336,270 1,367,556 -- 24,294,953 First Trust Value Line(R) Equity Allocation Index Fund -- 1,392,919 1,168,041 2,421,122 -- 452,974 5,435,056 First Trust Value Line(R) Dividend Index Fund -- 904,989 21,855,796 19,646,203 437,987 -- 42,844,975 First Trust Value Line(R) 100 Exchange-Traded Fund -- 1,905,072 47,805,834 29,477,928 -- 10,861,574 90,050,408
Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 During the taxable year ended December 31, 2013, the following Funds utilized capital loss carryforwards in the following amounts:
Pre-Enactment Capital Loss Post- Enactment Capital Carryforward Utilized Loss Carryforward Utilized -------------------------- -------------------------- First Trust Dow Jones Internet Index Fund $ -- $4,701,656 First Trust Capital Strength ETF 687,502 846,086 First Trust Value Line(R) Equity Allocation Index Fund -- 699,054 First Trust Value Line(R) Dividend Index Fund 3,583,030 1,215,368 First Trust Value Line(R) 100 Exchange-Traded Fund -- 6,536,026
During the taxable year ended December 31, 2013, the following Fund capital loss carryforward expired in the following amount:
Capital Loss Carryforward Expired -------------------------- First Trust Morningstar Dividend Leaders(SM) Index Fund $ 52,755
In order to present paid-in capital, accumulated net investment income (loss), 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, 2013, 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 $ 140,738 $ (20,958,430) $ 20,817,692 First Trust Morningstar Dividend Leaders(SM) Index Fund 40,721 (62,698,810) 62,658,089 First Trust US IPO Index Fund 89,170 (809,473) 720,303 First Trust NYSE Arca Biotechnology Index Fund 1,398,537 (25,337,644) 23,939,107 First Trust Dow Jones Internet Index(SM) Fund 3,407,246 (130,974,812) 127,567,566 First Trust Capital Strength ETF (983) (5,824,505) 5,825,488 First Trust Value Line(R) Equity Allocation Index Fund 2,561 (3,515) 954 First Trust Value Line(R) Dividend Index Fund (167,722) (56,870,725) 57,038,447 First Trust Value Line(R) 100 Exchange-Traded Fund 6,829 (7,877,049) 7,870,220
G. Expenses Expenses that are directly related to one of the Funds are charged directly to the respective Fund. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. First Trust Advisors L.P. ("First Trust" or the "Advisor") has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
FUND LICENSOR First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones & Company, Inc. First Trust Morningstar Dividend Leaders(SM) Index Fund Morningstar, Inc. First Trust US IPO Index Fund IPOX Schuster LLC First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc. First Trust Capital Strength ETF The NASDAQ OMX Group, Inc. (4) 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)
(4) Prior to June 3, 2013, the Capital Strength ETF's index provider was Credit Suisse Securities (USA) LLC and Credit Suisse Group AG. Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 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 Capital Strength ETF 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, 2014. 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 Capital Strength ETF 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% 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 reimbursed, 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. Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 The advisory fee waivers and expense reimbursements for the year ended December 31, 2013 and the fees waived or expenses borne by the Advisor subject to recovery from each applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by Advisor Subject to Recovery -------------------------------------------------------- Advisory Year Year Year Fee Expense Ended Ended Ended Waivers Reimbursement 12/31/2011 12/31/2012 12/31/2013 Total ---------- ------------- ------------ ------------ ------------ ------------ First Trust Dow Jones Select MicroCap Index(SM) Fund $ 115,749 $ -- $ 117,235 $ 79,603 $ 115,749 $ 312,587 First Trust Morningstar Dividend Leaders(SM) Index Fund 269,543 -- 226,674 322,632 269,543 818,849 First Trust US IPO Index Fund 70,526 -- 73,773 76,150 70,526 220,449 First Trust NYSE Arca Biotechnology Index Fund -- -- 43,660 32,040 -- 75,700 First Trust Dow Jones Internet Index(SM) Fund -- -- -- -- -- -- First Trust Capital Strength ETF 49,536 -- 61,430 59,498 49,536 170,464 First Trust Value Line(R) Equity Allocation Index Fund 22,652 36,694 47,073 59,245 59,346 165,664 First Trust Value Line(R) Dividend Index Fund 391,960 -- 249,861 350,127 391,960 991,948 First Trust Value Line(R) 100 Exchange Traded Fund 81,246 -- 99,646 88,774 81,246 269,666
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 Funds. 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 Funds' securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Funds. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer of $125,000 per year and an annual per fund fee of $4,000 for each closed-end fund or other actively managed fund and $1,000 for each index fund in the First Trust Fund Complex. The fixed annual retainer is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. 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 the 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. Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and each Committee Chairman served 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 acting in such capacities. 4. PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2013, 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 $ 67,772,334 $ 68,136,750 First Trust Morningstar Dividend Leaders(SM) Index Fund 216,516,627 213,395,377 First Trust US IPO Index Fund 39,317,848 38,814,433 First Trust NYSE Arca Biotechnology Index Fund 261,507,117 272,246,755 First Trust Dow Jones Internet Index(SM) Fund 201,258,329 203,119,906 First Trust Capital Strength ETF 68,342,071 68,191,733 First Trust Value Line(R) Equity Allocation Index Fund 8,372,620 8,371,745 First Trust Value Line(R) Dividend Index Fund 472,658,009 471,593,522 First Trust Value Line(R) 100 Exchange-Traded Fund 171,271,545 171,316,805
Page 70 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 For the year ended December 31, 2013, 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 $ 123,497,216 $ 105,433,577 First Trust Morningstar Dividend Leaders(SM) Index Fund 403,948,899 363,113,657 First Trust US IPO Index Fund 281,620,573 2,123,853 First Trust NYSE Arca Biotechnology Index Fund 608,548,981 85,851,485 First Trust Dow Jones Internet Index(SM) Fund 1,165,035,936 313,269,910 First Trust Capital Strength ETF 67,282,877 46,364,897 First Trust Value Line(R) Equity Allocation Index Fund -- -- First Trust Value Line(R) Dividend Index Fund 498,931,312 342,980,943 First Trust Value Line(R) 100 Exchange-Traded Fund 54,658,579 60,473,899
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. Page 71 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 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, no 12b-1 fees will be paid any time before May 31, 2014. 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 72 -------------------------------------------------------------------------------- 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 Capital Strength ETF (formerly known as 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, 2013, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the 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 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, 2013 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, 2013, 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/ Deloitte & Touche LLP Chicago, Illinois February 26, 2014 Page 73 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 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 ("SEC") website at http://www.sec.gov. PORTFOLIO HOLDINGS The Trust files its complete schedule of each Fund's portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330. FEDERAL TAX INFORMATION For the taxable year ended December 31, 2013, 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 Capital Strength ETF 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, 2013, 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 Capital Strength ETF 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%
RISK CONSIDERATIONS 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. Page 74 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) 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. 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. Page 75 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) The First Trust NYSE Arca Biotechnology Index Fund and First Trust Capital Strength ETF invest 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 Index 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 Value Line(R) Equity Allocation Index Fund and First Trust Dow Jones Select Micro Cap Index(SM) 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 Dow Jones Internet Index(SM) Fund invests 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 US IPO Index Fund, First Trust Value Line(R) 100 Exchange Traded Fund and First Trust Dow Jones Internet Index(SM) Fund invest in the securities of companies in the consumer discretionary sector. Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer discretionary products in the marketplace. The First Trust Morningstar Dividend Leaders(SM) Index Fund and First Trust Value Line(R) Dividend Index Fund invest in the securities of utilities companies. Utilities companies are subject to the imposition of rate caps, increased competition due to deregulation, the difficulty in obtaining an adequate return on invested capital or in financing large construction projects, the limitations on operations and increased costs and delays attributable to environmental considerations, and the capital market's ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations, volatile interest rates and energy conservation may cause difficulties for utilities. Utilities issuers have been experiencing certain of these problems to varying degrees. The First Trust Dow Jones Internet Index(SM) Fund invests in the securities of Internet companies. Internet companies are subject to rapid changes in technology, worldwide competition, rapid obsolescence of products and services, loss of patent protections, cyclical market patterns, evolving industry standards and frequent new product introductions. The Fund's investment in Internet companies may also be subject to the risk of owning small capitalization companies that have recently begun operations. With the exception of First Trust Capital Strength ETF 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 76 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) The Trust's statement of additional information includes additional information about the Trustees and is available, -without charge, upon request, by calling (800) 988-5891.
NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR THE FIRST TRUST DIRECTORSHIPS NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE DATE OF BIRTH AND AND PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST LENGTH OF SERVICE DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 105 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportsmed Suite 400 LLC Wheaton, IL 60187 D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 105 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), ADM Investor Inc. and ADM Suite 400 Services, Inc. (Futures Commission Investor Services Wheaton, IL 60187 Merchant) International D.O.B.: 11/57 Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 105 Director of Trust c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of 120 East Liberty Drive, o Since Inception Consulting) Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer (June 105 Director of c/o First Trust Advisors L.P. 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), Covenant Wheaton, IL 60187 College D.O.B.: 03/54 ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 to 105 None Chairman of the Board Present), President (until December 2010), 120 East Liberty Drive, o Since Inception First Trust Advisors L.P. and First Trust Suite 400 Portfolios L.P.; Chairman of the Board of Wheaton, IL 60187 Directors, BondWave LLC (Software D.O.B.: 09/55 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 77 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (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, Executive Officer and Chief Financial Officer, First Trust Advisors Suite 400 o Since Inception L.P. and First Trust Portfolios L.P.; Chief Financial Wheaton, IL 60187 Officer, BondWave LLC (Software Development D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice 120 E. Liberty Drive, Financial Officer and President (April 2007 to January 2011), First Trust Suite 400 Chief Accounting Officer o Since Inception Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 D.O.B.: 01/66 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel, Suite 400 o Since Inception BondWave LLC (Software Development Company/ Wheaton, IL 60187 Investment Advisor); Secretary of Stonebridge D.O.B.: 05/60 Advisors LLC (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior 120 E. Liberty Drive, Vice President (September 2005 to July 2012), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 02/70 Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors 120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P. Suite 400 o Chief Compliance Officer Wheaton, IL 60187 since January 2011 D.O.B.: 12/66 o Assistant Secretary since Inception Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. 120 E. Liberty Drive, and First Trust Portfolios L.P. Suite 400 o Since Inception 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 Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 11/70
------------------- (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 78 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (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, to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, we restrict access to your nonpublic personal information to those individuals who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. POLICY UPDATES AND INQUIRIES As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). Page 79 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 (QQEW) First Trust NASDAQ-100-Technology Sector Index(SM) Fund (QTEC) First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (QQXT) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN) First Trust S&P REIT Index Fund (FRI) First Trust ISE Water Index Fund (FIW) First Trust ISE-Revere Natural Gas Index Fund (FCG) First Trust ISE Chindia Index Fund (FNI) First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA) First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH) Annual Report December 31, 2013 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 Shareholder Letter........................................................... 2 Market Overview.............................................................. 3 Fund Performance Overview First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (QQEW)............... 4 First Trust NASDAQ-100-Technology Sector Index(SM) Fund (QTEC)............ 6 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (QQXT)......... 8 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 10 First Trust S&P REIT Index Fund (FRI)..................................... 12 First Trust ISE Water Index Fund (FIW).................................... 14 First Trust ISE-Revere Natural Gas Index Fund (FCG)....................... 16 First Trust ISE Chindia Index Fund (FNI).................................. 18 First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 20 First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH)....................... 22 Notes to Fund Performance Overview........................................... 24 Understanding Your Fund Expenses............................................. 25 Portfolio of Investments First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (QQEW)............... 27 First Trust NASDAQ-100-Technology Sector Index(SM) Fund (QTEC)............ 30 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (QQXT)......... 31 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 33 First Trust S&P REIT Index Fund (FRI)..................................... 35 First Trust ISE Water Index Fund (FIW).................................... 37 First Trust ISE-Revere Natural Gas Index Fund (FCG)....................... 38 First Trust ISE Chindia Index Fund (FNI).................................. 40 First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 42 First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH)....................... 44 Statements of Assets and Liabilities......................................... 51 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...................... 78 Additional Information ...................................................... 79 Board of Trustees and Officers............................................... 83 Privacy Policy............................................................... 85 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" in the Additional Information section 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 market overview 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, 2013 Dear Shareholders: I am pleased to present you with the annual report for your investment in First Trust Exchange-Traded Fund (the "Trust"). As a shareholder, twice a year you receive a detailed report about your investment, including a market overview and performance analysis for the period. Additionally, First Trust Advisors L.P. ("First Trust") compiles the Trust's financial statements for you to review. These reports are intended to keep you up-to-date on your investment, and I encourage you to read this document and discuss it with your financial advisor. As you are probably aware, the twelve months covered by this report saw challenging economic and political issues in the U.S. However, the period was still positive for the markets. In fact, the S&P 500 Index, as measured on a total return basis, rose 32.39% during the twelve months ended December 31, 2013. Of course, past performance can never be an indicator of future performance, but First Trust believes that staying invested in quality products through up and down markets and having a long-term horizon can help investors as they work toward their financial goals. First Trust continues to offer a variety of products that we believe could fit the financial plans for many investors seeking long-term investment success. Your financial advisor can tell you about the other investments First Trust offers that might fit your financial goals. We encourage you to discuss those goals with your financial advisor regularly so that he or she can help keep you on track and help you choose investments that match your goals. First Trust will continue to make available up-to-date information about your investments so you and your financial advisor are current on any First Trust investments you own. We value our relationship with you, and thank you for the opportunity to assist you in achieving your financial goals. Sincerely, /s/ James A. Bowen James A. Bowen Chairman of the Board of Trustees Chief Executive Officer of First Trust Advisors L.P. Page 2 -------------------------------------------------------------------------------- MARKET OVERVIEW -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2013 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 Various surveys of leading economists have shown that expectations for U.S. GDP growth in 2014 target a growth rate of around 2.8%, up from 2.1% over the past four quarters through Q3'13. As of the close of 2013, the U.S. economic recovery turned 54 months old, or 4.5 years. Over the past 4.5 years, we have been steadfast in our message to investors that the recovery is not only real, but worth taking a stake in via common stocks. Three major U.S. stock indices (S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index) all closed 2013 at or near record highs. From March 9, 2009 (market bottom) through December 31, 2013, the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index posted cumulative total returns of 202.78%, 256.52% and 288.11%, respectively. With small-capitalization stocks outperforming both mid- and large capitalization stocks, it would appear that the traditional risk/reward relationship is in proper working order. We believe that should be construed as a positive to any investor who lost confidence in the markets following the financial crisis in 2008. One of the biggest disappointments in this recovery to date is that too many people are still out of work in the U.S.: U.S. payrolls currently stand about 1.5 million below where they were in 2008, according to Bloomberg. If the labor situation improves in 2014, there is a potential silver lining. Why is this so? More workers should lead to greater consumption, in our opinion. Another potential boost to consumption could come from consumer durable goods. Americans have been holding onto their consumer durable goods (which typically last at least three years) longer than at any point in the last 50 years, according to MSN.com. This suggests there could be pent-up demand for these goods. The average age of such items as furniture, appliances and jewelry is more than five years old, the highest since at least 1962, according to the Bureau of Economic Analysis. U.S. STOCKS AND BONDS For the second calendar year in a row, all of the major U.S. stock indices posted double-digit total returns. The S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were up 32.39%, 33.50%, and 41.31%, respectively in 2013, according to Bloomberg. All 10 major sectors in the S&P 500 Index posted double-digit total returns as well in 2013. The gains ranged from 11.47% for the S&P 500 Telecommunication Services Index to 43.08% for the S&P 500 Consumer Discretionary Index. Volatility eased further in 2013. The VIX Index averaged 14.25%, well below 2012's average of 17.82%, and significantly below its 10-year average of 20.17%. The 2014 estimated earnings growth rates for the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were 13.31%, 22.57% and 34.92%, respectively, as of January 9, 2014, according to Standard & Poor's. The S&P 500 Index has not experienced a 10% correction in 819 days, as of December 31, 2013, and even though we witnessed one in 2011, the market eventually rebounded and moved on to set new all-time highs. Investors leery of committing capital to the stock market at current levels should know, however, that the longest stretch without a 10% correction was 2,553 days (October 11, 1990 - October 7, 1997), according to Bespoke Investment Group. This means that, while always a possibility, a correction is not imminent, in our opinion. In the U.S. bond market, the top-performing major debt group in 2013 was high-yield corporate bonds. The Barclays U.S. Corporate High Yield Index posted a total return of 7.44%. The next closest domestic category was intermediate investment-grade corporate bonds, up just 0.08%, as measured by the Barclays Intermediate Corporate Index. The Barclays Municipal Bond: Long Bond (22+ Yr) Index posted the weakest total return, down 6.01%. The 127 basis point rise in the yield on the benchmark 10-year Treasury note in 2013 induced some selling pressure in bond mutual funds. TrimTabs Investment Research reported that investors liquidated a record $86 billion from U.S. bond mutual funds and ETFs in 2013, according to Barron's. It topped the previous record of $62 billion set in 1994. FOREIGN STOCKS AND BONDS Investors shied away from foreign debt securities in 2013. The Barclays Global Emerging Markets Index of debt securities fell 2.66% (USD), while the Barclays Global Aggregate Index of higher-quality debt declined by 2.60% (USD). Investors seemed just as disinterested in emerging markets equities. The MSCI Emerging Markets Index posted a total return of -2.60% (USD). On the other hand, investors were attracted to stocks from developed nations. The MSCI World Index (excluding the U.S.) posted a total return of 21.02% (USD). Over the past 12 months, the U.S. dollar rose just 0.33% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY). The dollar had little influence on returns for U.S. investors in 2013, in our opinion. Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EQUAL WEIGHTED Index(SM) FUND (QQEW) The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is the equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the largest non-financial securities listed on the NASDAQ(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) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 39.95% 24.76% 8.47% 202.31% 87.05% Market Value 39.96% 24.79% 8.47% 202.63% 87.10% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) 40.99% 25.56% 9.15% 212.02% 96.33% S&P 500(R) Index 32.39% 17.94% 6.84% 128.19% 66.46% NASDAQ-100 Index(R) 36.94% 25.56% 10.85% 212.13% 121.12% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 39.95% during the 12-month period covered by this report. During the same period, the benchmark NASDAQ-100 Index(R) generated a return of 36.94%. The Information Technology sector was the leading contributor to total return with an 18.0% contribution. The Fund's holdings from the sector returned 40.8% and comprised an average of 44.6% of the Fund's weight. The Health Care sector was the best performing sector in the Fund with a 50.2% return. Strong returns from the Biotech industry (+77.1%) helped drive the sector's performance. Most of the Fund's outperformance came from being significantly underweight in Apple, Inc. relative to the benchmark. The company had an average weight of 1.0% in the Fund versus 12.7% in benchmark. For the reporting period Apple Inc.'s performance of 8.1% was a lag relative to the Fund and 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EQUAL WEIGHTED Index(SM) FUND (QQEW) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 42.04% Consumer Discretionary 28.04 Health Care 13.95 Industrials 6.01 Consumer Staples 5.89 Telecommunication Services 3.05 Materials 1.02 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Cisco Systems, Inc. 1.04% NXP Semiconductors N.V. 1.04 Illumina, Inc. 1.03 Intuitive Surgical, Inc. 1.03 VimpelCom Ltd., ADR 1.03 Charter Communications, Inc., Class A 1.03 Tesla Motors, Inc. 1.03 Wynn Resorts Ltd. 1.03 Symantec Corp. 1.03 Mattel, Inc. 1.03 ------- Total 10.32% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2013 First Trust NASDAQ-100 Equal S&P 500(R) NASDAQ-100 Equal NASDAQ-100 Weighted Index(SM) Fund Index Weighted Index(SM) Index(R) 04/06 $10000 $10000 $10000 $10000 12/06 10060 10975 10097 10168 06/07 11050 11739 11117 11217 12/07 11040 11579 11142 12124 06/08 9673 10199 9785 10708 12/08 6187 7295 6292 7084 06/09 7653 7526 7803 8671 12/09 9871 9225 10100 10954 06/10 9314 8612 9561 10278 12/10 11968 10616 12321 13161 06/11 12867 11254 13288 13849 12/11 11636 10839 12063 13645 06/12 12704 11868 13203 15750 12/12 13365 12574 13927 16145 06/13 15450 14312 16172 17774 12/13 18704 16646 19636 22109 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 203 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% 01/01/09 - 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 01/01/13 - 12/31/13 49 0 0 0 Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR Index(SM) FUND (QTEC) The First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is an equal-weighted index based on the securities of the NASDAQ-100 Index(R) that are classified as "technology" according to the Industry Classification Benchmark classification system. The NASDAQ-100 Index(R), includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ(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 (4/19/06) Ended (4/19/06) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 38.12% 25.26% 8.05% 208.40% 81.50% Market Value 38.26% 25.56% 8.06% 212.11% 81.65% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) 39.01% 26.07% 8.73% 218.42% 90.50% S&P 500 Information Technology Index 28.43% 21.90% 8.18% 169.13% 83.24% S&P 500(R) Index 32.39% 17.94% 6.84% 128.19% 66.46% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 38.12% during the 12-month period covered by this report. During the same period, the S&P 500 Information Technology Index generated a return of 28.43%. The Semiconductor industry led all the industries in the Fund with a 13.5% contribution to the Fund's return. The Fund's holdings in the industry comprised 32.5% of the Fund's average weight and returned 41.2% during the reporting period. Micron Technology, Inc. gave the industry's performance a boost as the company returned 243.1% during the reporting period. The Internet Software & Services industry was the best-performing industry in the Fund with a 58.2% return. Facebook, Inc. was the Fund's top-performing holding in the industry with a 105.3% return. The Fund's outperformance of the benchmark was caused by the Fund being underweight Apple, Inc. and overweight the Semiconductor industry. The Fund held Apple, Inc., at an average weight of 2.3% versus 16.7% in benchmark. For the reporting period the company's performance of 8.1% was a lag relative to the Fund and benchmark. The Semiconductor industry had solid performance and the Fund was overweight the industry relative to the benchmark (32.5% vs. 11.2% average weight). ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR Index(SM) FUND (QTEC) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 92.62% Health Care 4.92 Consumer Discretionary 2.46 ------- Total 100.00% ======= ----------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Cisco Systems, Inc. 2.60% NXP Semiconductors N.V. 2.58 Symantec Corp. 2.57 Equinix, Inc. 2.55 Broadcom Corp., Class A 2.54 Check Point Software Technologies Ltd. 2.54 Intel Corp. 2.54 Altera Corp. 2.53 F5 Networks, Inc. 2.53 Applied Materials, Inc. 2.52 ------- Total 25.50% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT APRIL 19, 2006 - DECEMBER 31, 2013 First Trust NASDAQ-100 Technology NASDAQ-100-Technology S&P 500 Information S&P 500(R) Sector Index(SM) Fund Sector Index(SM) Technology Index Index 04/06 $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 06/13 14681 15357 15175 14312 12/13 18150 19047 18325 16646
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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 170 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% 01/01/09 - 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 01/01/13 - 12/31/13 81 1 0 0 Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR Index(SM) FUND (QQXT) The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index contains securities of the NASDAQ-100 Index(R) that are not classified as "technology" according to the Industry Classification Benchmark classification system and, as a result, is a subset of the NASDAQ-100 Index(R). The NASDAQ-100 Index(R) includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ(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 (2/8/07) Ended (2/8/07) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 41.24% 24.37% 8.85% 197.58% 79.42% Market Value 41.07% 24.56% 8.85% 199.82% 79.43% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) 42.30% 25.16% 9.54% 207.17% 87.45% Russell 1000(R) Index 33.11% 18.59% 6.11% 134.54% 50.49% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 41.24% during the 12-month period covered by this report. During the same period, the benchmark Russell 1000(R) Index generated a return of 33.11%. The Consumer Discretionary sector was the top-contributing sector in the Fund with a 19.7% contribution. The sector was the heaviest-weighted in the Fund with a 41.6% average weight and one of the best-performing with a return of 48.6% for the reporting period. Within the sector, the Fund's holdings were concentrated in the Media and Internet & Catalog Retail industries, which had returns of 50.0% and 58.2%, respectively. The Health Care sector was the best-performing sector in the Fund with a 55.2% return. The sector had an average weight in the Fund of 23.5% and contributed 12.7% to the Fund's return. Biotechnology stocks helped fuel the Health Care sector's returns as the Fund's holdings in the industry returned 77.2% and contributed 9.0% to the Fund's return. The Consumer Discretionary and Health Care sectors also were the primary causes of the Fund outperforming its benchmark. In both sectors the Fund holdings outperformed the benchmark's constituents and the Fund was overweight both 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR Index(SM) FUND (QQXT) (CONTINUED) ----------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 ----------------------------------------------------------- % OF TOTAL SECTOR (1) LONG-TERM INVESTMENTS Consumer Discretionary 45.13% Health Care 19.99 Industrials 10.02 Consumer Staples 9.82 Information Technology 8.25 Telecommunication Services 5.09 Materials 1.70 ------- 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, 2013 ----------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Illumina, Inc. 1.73% Intuitive Surgical, Inc. 1.72 VimpelCom Ltd., ADR 1.72 Charter Communications, Inc., Class A 1.72 Tesla Motors, Inc. 1.72 Wynn Resorts Ltd. 1.71 Mattel, Inc. 1.71 DIRECTV 1.71 Liberty Interactive Corp., Class A 1.71 Fastenal Co. 1.70 ------- Total 17.15% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2013 First Trust NASDAQ-100 Ex-Technology NASDAQ-100 Ex-Tech Russell 1000(R) Sector 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 06/13 15089 15721 12879 12/13 17942 18744 15050 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 145 13 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% 01/01/09 - 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 01/01/13 - 12/31/13 82 12 0 0 Page 9 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) 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 (2/8/07) Ended (2/8/07) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 89.79% 10.25% -1.34% 62.86% -8.88% Market Value 90.80% 10.29% -1.34% 63.17% -8.87% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) Green Energy Index 89.34% 10.45% -1.00% 64.37% -6.72% Russell 2000(R) Index 38.82% 20.08% 6.75% 149.69% 56.87% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 89.79% during the 12-month period covered by this report. During the same period, the benchmark Russell 2000(R) Index generated a return of 38.82%. Tesla Motors, Inc. was the largest individual contributor to total return. The company had an average weight in the Fund of 9.5% and returned 344.1% resulting in a 26.1% contribution to the Fund's return. The electric vehicle company posted its first profit much earlier than analysts expected. An increase in solar panel demand, particularly in Japan and China, helped a much depressed solar industry rebound sharply during the reporting period. Canadian Solar, Inc. (+777.1%), SunPower Corp. (+430.4%), and SunEdison, Inc. (+306.5%) were the three best-performing solar companies in the Fund. Together the companies combined to contribute 17.9% to the Fund's return. ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) (CONTINUED) -------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 68.52% Industrials 11.58 Consumer Discretionary 9.04 Utilities 6.48 Energy 3.20 Materials 0.85 Financials 0.33 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Tesla Motors, Inc. 9.04% Cree, Inc. 8.58 Linear Technology Corp. 8.19 First Solar, Inc. 6.99 ITC Holdings Corp. 6.48 ON Semiconductor Corp. 4.45 SolarCity Corp. 4.16 SunEdison, Inc. 3.93 Hexcel Corp. 3.89 SunPower Corp. 3.76 ------- Total 59.47% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2013 First Trust NASDAQ(R) Clean Edge(R) NASDAQ(R) Clean Edge(R) Russell 2000(R) Green Energy Index Fund Green Energy Index Fund 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 06/13 7177 7346 13093 12/13 9111 9329 15688 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 168 5 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 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 01/01/13 - 12/31/13 75 4 0 0 Page 11 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST S&P REIT INDEX FUND (FRI) 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 (5/8/07) Ended (5/8/07) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 1.82% 16.09% 0.64% 110.85% 4.31% Market Value 1.82% 16.21% 0.64% 111.97% 4.32% INDEX PERFORMANCE S&P United States REIT Index* 2.40% 16.71% N/A 116.51% N/A FTSE EPRA/NAREIT North America Index 1.27% 17.10% 1.06% 120.17% 7.27% Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88% ---------------------------------------------------------------------------------------------------------------------------
* 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 a NAV return of 1.82% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 33.55%. Despite strong returns in the equity markets, the reporting period was a tough time for REITs in general. Many REIT classes exhibited a negative correlation to the 10-year US Treasury yield, which rose during the reporting period. Specialized REITs led all other classes of REITs in the Fund in contribution to the Fund's return with a 1.4% contribution. The class comprised 29.8% of the Fund's average weight and returned 5.0%. Residential REITs were the worst-performing class in the Fund with a -5.3% return. In total the class's average weight in the Fund was 16.1% and contributed -0.7% to the Fund's return. ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST S&P REIT INDEX FUND (FRI) (CONTINUED) -------------------------------------------------------- PORTFOLIO REIT CLASS ALLOCATION AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL REIT CLASS LONG-TERM INVESTMENTS Specialized 29.10% Retail 27.09 Residential 15.41 Office 13.48 Diversified 9.75 Industrial 5.17 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Simon Property Group, Inc. 9.33% Public Storage 4.30 Prologis, Inc. 3.64 Equity Residential 3.44 Ventas, Inc. 3.33 HCP, Inc. 3.28 Health Care REIT, Inc. 3.06 Vornado Realty Trust 3.05 Boston Properties, Inc. 3.03 Host Hotels & Resorts, Inc. 2.91 ------- Total 39.37% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2013 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 06/13 10871 11091 12374 12/13 10434 10728 14489 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 130 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% 01/01/09 - 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 01/01/13 - 12/31/13 122 0 0 0 Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE WATER INDEX FUND (FIW) 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 (5/8/07) Ended (5/8/07) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 30.91% 17.63% 9.09% 125.24% 78.29% Market Value 30.92% 17.74% 9.10% 126.29% 78.44% INDEX PERFORMANCE ISE Water Index(TM) 31.90% 18.50% 9.84% 133.70% 86.66% Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24)
PERFORMANCE REVIEW The Fund generated a NAV return of 30.91% during the 12-month period covered by this report. During the same period, the benchmark Russell 3000(R) Index generated a return of 33.55%. The Fund's holdings were concentrated heavily in the Industrials sector. The Fund's holdings in the sector comprised an average of 63.3% of the Fund's weight, and returned 39.7% for the reporting period, resulting in a 24.5% contribution to the Fund's return. Within the sector the Machinery industry was the heaviest-weighted with an average weight in the Fund of 43.5%. The Fund's holdings in the industry returned 42.2% and contributed 17.9% to the Fund's return. Three of the Fund's top 5 best-contributing holdings were from the Machinery industry. Pentair Ltd., Watts Water Technologies, Inc., and Energy Recovery, Inc. contributed 2.2%, 1.6%, and 1.5% to the Fund's return, respectively. The Utilities sector was second heaviest-weighted sector in the Fund with an average weight of 22.5% and a return of 17.2%, which lagged the broader market. The overweight position in Utilities is what caused the Fund to lag its benchmark. ------------------- "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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE WATER INDEX FUND (FIW) (CONTINUED) -------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Industrials 57.02% Utilities 24.95 Materials 6.76 Information Technology 5.19 Health Care 4.89 Financials 1.19 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Pentair Ltd. 4.18% Cia de Saneamento Basico do Estado de Sao Paulo, ADR 4.17 Rexnord Corp. 4.10 Lindsay Corp. 4.05 Watts Water Technologies, Inc.,Class A 4.00 California Water Service Group 3.98 Badger Meter, Inc. 3.93 American Water Works Co., Inc. 3.90 Aqua America, Inc. 3.86 Xylem, Inc. 3.86 ------- Total 40.03% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2013 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 06/13 14585 15220 12374 12/13 17830 18667 14489 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 197 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% 01/01/09 - 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 01/01/13 - 12/31/13 55 0 0 0 Page 15 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) 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 (5/8/07) Ended (5/8/07) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 25.13% 11.04% 0.11% 68.82% 0.73% Market Value 24.99% 11.31% 0.10% 70.90% 0.69% INDEX PERFORMANCE ISE-REVERE Natural Gas Index(TM) 25.73% 11.85% 0.78% 75.03% 5.30% Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88% S&P Composite 1500 Energy Index 25.39% 13.95% 6.29% 92.11% 50.04% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 25.13% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Energy Index generated a return of 25.39%. Rising natural gas prices partially due to cold weather helped exploration and production companies during the reporting period, though the valuation of these companies pulled back in the 4th quarter of 2013 as investors expected weather to normalize. The Oil & Gas Exploration & Production sub-industry was the heaviest-weighted sub-industry in the Fund with 91.8% of the Fund's average weight. The Fund's Oil & Gas Exploration & Production holdings returned 27.7% during the reporting period resulting in a 25.0% contribution to the Fund's return. Goodrich Petroleum Corp. was the best individual contributor in the Fund with a 5.7% contribution to the Fund's return as the company's stock returned 82.6% for the reporting period. Penn Virginia Corp. was the best-performing stock in the Fund with a 113.8% return and a 3.8% contribution to the Fund's return. ------------------- "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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) (CONTINUED) -------------------------------------------------------------------------------- PORTFOLIO SUB-INDUSTRY ALLOCATION AS OF DECEMBER 31, 2013 -------------------------------------------------------------------------------- % OF TOTAL SUB-INDUSTRY LONG-TERM INVESTMENTS Oil & Gas Exploration & Production 92.53% Integrated Oil & Gas 3.82 Gas Utilities 3.65 ------- Total 100.00% ======= -------------------------------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 -------------------------------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Magnum Hunter Resources Corp. 4.07% Stone Energy Corp. 3.92 Swift Energy Co. 3.89 Quicksilver Resources, Inc. 3.85 Cimarex Energy Co. 3.84 Cabot Oil & Gas Corp. 3.83 Statoil ASA, ADR 3.82 EXCO Resources, Inc. 3.80 Range Resources Corp. 3.78 Newfield Exploration Co. 3.76 ------- Total 38.56% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2013
S&P First Trust ISE-Revere ISE-REVERE Natural Russell 3000(R) Composite 1500 Natural Gas Index Fund Gas Index(TM) Index Energy 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 06/13 8290 8639 12374 13130 12/13 10075 10530 14489 15006
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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 149 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 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 01/01/13 - 12/31/13 103 0 0 0 Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE CHINDIA INDEX FUND (FNI) The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index is a non-market capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks of companies from China and India currently trading on a U.S. exchange. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was 05/11/07.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 35.81% 20.41% 6.40% 153.07% 51.03% Market Value 36.29% 20.27% 6.43% 151.69% 51.35% INDEX PERFORMANCE ISE ChIndia Index(TM) 36.41% 21.03% 6.98% 159.70% 56.64% Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88% MSCI Emerging Markets Index -2.60% 14.79% 2.56% 99.33% 18.28% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 35.81% during the 12-month period covered by this report. During the same period, the benchmark MSCI Emerging Markets Index generated a return of -2.60%. The Information Technology sector was the heaviest-weighted and best-performing sector in the Fund. The Fund's holdings in the sector comprised an average of 40.1% of the Fund's average weight and returned 73.9% for the reporting period, resulting in a contribution to the Fund's return of 26.6%. Within the Information Technology sector, the Internet Software & Services industry had particularly strong performance, returning 101.3% and contributing 15.1% to the Fund's return. The industry included the Fund's best individual contributor, Baidu, Inc., which returned 77.4% and contributed 5.3% to the Fund's return. The Consumer Discretionary sector was the second best-performing and contributing sector in the Fund with a 72.0% return and a contribution of 13.5%. Within the sector the Hotels, Restaurants & Leisure industry had a standout 5.1% contribution to the Fund's return and appreciated 109.3% during the reporting period. Melco Crown Entertainment Ltd. was the best individual stock in the industry with a return of 132.9% and a contribution to the Fund's return of 4.3%. The Fund was able to outperform its broad emerging markets benchmark because the Fund did not have exposure to South America, was heavily overweight the Information Technology and Consumer Discretionary sectors, and was underweight the Energy, Financials and Materials sectors. ------------------- "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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST ISE CHINDIA INDEX FUND (FNI) (CONTINUED) -------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 48.79% Consumer Discretionary 22.58 Financials 13.10 Health Care 5.69 Telecommunication Services 5.37 Energy 2.93 Industrials 0.79 Utilities 0.75 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Wipro Ltd., ADR 7.23% Infosys Ltd., ADR 6.99 Baidu, Inc., ADR 6.98 ICICI Bank Ltd., ADR 6.97 Qihoo 360 Technology Co., Ltd., ADR 6.81 Michael Kors Holdings Ltd. 6.63 Dr. Reddy's Laboratories Ltd., ADR 4.09 Ctrip.com International Ltd., ADR 4.02 Melco Crown Entertainment Ltd., ADR 3.98 Tata Motors Ltd., ADR 3.92 ------- Total 57.62% ======= PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2013 MSCI First Trust ISE Chindia ISE ChIndia Russell 3000(R) Emerging Index 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 06/13 11258 11659 12374 10983 12/13 15103 15665 14489 11829 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, 2013 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, 2009 through December 31, 2013. 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% 01/01/09 - 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 01/01/13 - 12/31/13 66 0 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% 01/01/09 - 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 01/01/13 - 12/31/13 185 1 0 0 Page 19 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA Community Bank Index(SM) (the "Index"). The Fund will normally invest at least 90% of its assets in common stocks that comprise the Index. The Index includes a subset of banks and thrifts or their holding companies listed on NASDAQ(R). The Index is jointly owned and was developed by NASDAQ OMX(R) and the American Bankers Association ("ABA"). For the purposes of the Index, a "community bank" is considered to be all U.S. banks and thrifts or their holding companies listed on NASDAQ(R) excluding the 50 largest U.S. banks by asset size. Also excluded are banks that have an international specialization and those banks that have a credit-card specialization, as screened by the ABA based on the most recent data from the FDIC. Banks with an international specialization are those institutions with assets greater than $10 billion and more than 25% of total assets in foreign offices. Banks with a credit-card specialization are those institutions with credit-card loans plus securitized receivables in excess of 50% of total assets plus securitized receivables. Securities in the Index must have a market capitalization of at least $200 million and a three-month average daily trading volume of at least $500 thousand. The Index is rebalanced quarterly and reconstituted semi-annually. The Fund's shares are listed for trading on the NASDAQ(R). The first day of secondary market trading in shares of the Fund was July 1, 2009.
--------------------------------------------------------------------------------------------------------------------------- PERFORMANCE --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (6/29/09) Inception (6/29/09) 12/31/13 to 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 42.89% 15.70% 92.97% Market Value 44.19% 15.78% 93.52% INDEX PERFORMANCE NASDAQ OMX(R) ABA Community Bank Index(SM) 43.83% 16.46% 98.76% S&P Composite 1500 Financials Sector Index 34.25% 16.47% 98.79% Russell 3000(R) Index 33.55% 19.66% 124.51% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 42.89% during the 12-month period covered by this report. During the same period, the S&P Composite 1500 Financials Sector Index generated a return of 34.25%. Rising long-term interest rates caused the yield curve to steepen during the reporting period. This aided the Fund as regional banks tend to earn more of their income from interest relative to larger national banks. SVB Financial Group was the top-contributing holding in the Fund with a 2.3% contribution to the Fund's return. The company returned 87.4% on the year due to loan growth, increases on net interest margin and gains on venture capital investments. BofI Holding, Inc. was the best-performing stock in the Fund with a 182.0% return during the period. The company reported record earnings for the seventh consecutive quarter due to asset growth and margin expansion. The main driver of the Fund outperforming its benchmark was that the Fund did not have any REIT exposure. The benchmark had an average weight of 16.9% in REITs, which had relatively flat performance. ------------------- 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 (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) (CONTINUED) -------------------------------------------------------- PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL INDUSTRY LONG-TERM INVESTMENTS Commercial Banks 87.52% Thrifts & Mortgage Finance 11.96 IT Services 0.52 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Zions Bancorporation 3.70% Signature Bank 3.40 East West Bancorp, Inc. 3.23 SVB Financial Group 3.21 Commerce Bancshares, Inc. 2.88 TFS Financial Corp. 2.49 FirstMerit Corp. 2.46 Hancock Holding Co. 2.02 UMB Financial Corp. 1.94 Investors Bancorp, Inc. 1.92 ------ Total 27.25% ======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 29, 2009 - DECEMBER 31, 2013 First Trust NASDAQ(R) ABA NASDAQ OMX(R) ABA Russell 3000(R) S&P Composite 1500 Community Bank Index Fund Community Bank Index(SM) Index Financials Sector Index 06/09 $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 06/13 16006 16427 19172 17584 12/13 19302 19873 22448 19879
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, 2013 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, 2013. 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 01/01/13 - 12/31/13 139 24 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 07/01/09 - 12/31/09 62 2 0 0 01/01/10 - 12/31/10 98 1 0 1 01/01/11 - 12/31/11 111 4 0 0 01/01/12 - 12/31/12 114 18 0 0 01/01/13 - 12/31/13 72 17 0 0 Page 21 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) The First Trust CBOE S&P 500 VIX Tail Hedge 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 --------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year Ended Inception (8/29/12) Inception (8/29/12) 12/31/13 to 12/31/13 to 12/31/13 FUND PERFORMANCE NAV 19.00% 12.70% 17.37% Market Value 19.21% 12.81% 17.52% INDEX PERFORMANCE CBOE VIX Tail Hedge Index(SM) 19.43% 13.15% 17.99% S&P 500(R) Index 32.39% 25.07% 34.94% --------------------------------------------------------------------------------------------------------------------------- (See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW The Fund generated a NAV return of 19.00% during the 12-month period covered by this report. During the same period, the benchmark S&P 500(R) Index generated a return of 32.39%. The Fund is identical to its benchmark except for the Fund's option overlay. On 9 out of 12 monthly rebalances the Fund allocated 1.0% of its weight to an out-of-the-money VIX option set to expire about one month from the purchase date. Each month the option contracts expired as worthless. The Fund's underperformance was caused by the cost of the option and a compounding effect of performance due to the strong equity market returns. Page 22 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) (CONTINUED) -------------------------------------------------------- PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECTOR LONG-TERM INVESTMENTS Information Technology 18.64% Financials 16.18 Health Care 12.95 Consumer Discretionary 12.54 Industrials 10.94 Energy 10.27 Consumer Staples 9.76 Materials 3.50 Utilities 2.93 Telecommunication Services 2.29 ------- Total 100.00% ======= -------------------------------------------------------- TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013 -------------------------------------------------------- % OF TOTAL SECURITY LONG-TERM INVESTMENTS Apple, Inc. 3.06% Exxon Mobil Corp. 2.68 Google, Inc., Class A 1.91 Microsoft Corp. 1.72 General Electric Co. 1.72 Johnson & Johnson 1.57 Chevron Corp. 1.45 Procter & Gamble (The) Co. 1.34 JPMorgan Chase & Co. 1.33 Wells Fargo & Co. 1.32 ------ Total 18.10% ====== PERFORMANCE OF A $10,000 INITIAL INVESTMENT AUGUST 29, 2012 - DECEMBER 31, 2013 First Trust CBOE S&P 500 CBOE VIX Tail S&P 500(R) VIX Tail Hedge Fund Hdge Index(SM) Index 08/12 $10000 $10000 $10000 12/12 9863 9880 10193 06/13 10686 10719 11602 12/13 11738 11799 13494 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, 2013 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 30, 2012 (commencement of trading) through December 31, 2013. 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% 08/30/12 - 12/31/12 57 3 0 0 01/01/13 - 12/31/13 155 5 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 08/30/12 - 12/31/12 21 1 1 0 01/01/13 - 12/31/13 92 0 0 0 Page 23 -------------------------------------------------------------------------------- NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- 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, 2013 (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, if any, 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, 2013. 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, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST NASDAQ-100 EQUAL WEIGHTED Index(SM) FUND (QQEW) Actual $1,000.00 $1,210.60 0.60% $3.34 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR Index(SM) FUND (QTEC) Actual $1,000.00 $1,236.30 0.60% $3.38 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR Index(SM) FUND (QQXT) Actual $1,000.00 $1,189.10 0.60% $3.31 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) Actual $1,000.00 $1,269.50 0.60% $3.43 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST S&P REIT INDEX FUND (FRI) Actual $1,000.00 $ 959.80 0.50% $2.47 Hypothetical (5% return before expenses) $1,000.00 $1,022.68 0.50% $2.55 FIRST TRUST ISE WATER INDEX FUND (FIW) Actual $1,000.00 $1,222.50 0.60% $3.36 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) Actual $1,000.00 $1,215.30 0.60% $3.35 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
Page 25 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2013 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE RATIO EXPENSE PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX MONTH SIX MONTH JULY 1, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------------------ FIRST TRUST ISE CHINDIA INDEX FUND (FNI) Actual $1,000.00 $1,341.50 0.60% $3.54 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) Actual $1,000.00 $1,205.90 0.60% $3.34 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) Actual $1,000.00 $1,098.40 0.60% $3.17 Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
------------------ (a) These expense ratios reflect expense caps for all Funds other than VIXH. 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, 2013 through December 31, 2013), multiplied by 184/365 (to reflect the one-half year period). Page 26 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (QQEW) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AIR FREIGHT & LOGISTICS -- 2.0% 50,128 C.H. Robinson Worldwide, Inc. $ 2,924,468 65,080 Expeditors International of Washington, Inc. 2,879,790 ------------ 5,804,258 ------------ AUTOMOBILES -- 1.0% 19,762 Tesla Motors, Inc. (a) (b) 2,971,810 ------------ BEVERAGES -- 1.0% 42,801 Monster Beverage Corp. (b) 2,900,624 ------------ BIOTECHNOLOGY -- 6.9% 21,693 Alexion Pharmaceuticals, Inc. (b) 2,886,471 24,879 Amgen, Inc. 2,840,187 10,041 Biogen Idec, Inc. (b) 2,808,970 16,917 Celgene Corp. (b) 2,858,296 38,023 Gilead Sciences, Inc. (b) 2,857,428 10,170 Regeneron Pharmaceuticals, Inc. (b) 2,799,191 39,458 Vertex Pharmaceuticals, Inc. (b) 2,931,729 ------------ 19,982,272 ------------ CHEMICALS -- 1.0% 31,299 Sigma-Aldrich Corp. 2,942,419 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.0% 24,932 Stericycle, Inc. (b) 2,896,350 ------------ COMMUNICATIONS EQUIPMENT -- 3.1% 134,201 Cisco Systems, Inc. 3,012,812 32,169 F5 Networks, Inc. (b) 2,922,875 38,950 QUALCOMM, Inc. 2,892,038 ------------ 8,827,725 ------------ COMPUTERS & PERIPHERALS -- 5.0% 5,162 Apple, Inc. 2,896,450 69,999 NetApp, Inc. 2,879,759 40,773 SanDisk Corp. 2,876,127 50,903 Seagate Technology PLC 2,858,712 34,284 Western Digital Corp. 2,876,428 ------------ 14,387,476 ------------ FOOD & STAPLES RETAILING -- 2.0% 23,910 Costco Wholesale Corp. 2,845,529 47,822 Whole Foods Market, Inc. 2,765,546 ------------ 5,611,075 ------------ FOOD PRODUCTS -- 2.9% 36,751 Green Mountain Coffee Roasters, Inc. (a) (b) 2,777,641 52,487 Kraft Foods Group, Inc. 2,830,099 81,751 Mondelez International, Inc., Class A 2,885,810 ------------ 8,493,550 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.0% 7,780 Intuitive Surgical, Inc. (b) 2,988,142 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ HEALTH CARE PROVIDERS & SERVICES -- 3.0% 59,034 Catamaran Corp. (b) $ 2,802,934 41,128 Express Scripts Holding Co. (b) 2,888,831 25,114 Henry Schein, Inc. (b) 2,869,526 ------------ 8,561,291 ------------ HEALTH CARE TECHNOLOGY -- 1.0% 51,826 Cerner Corp. (b) 2,888,781 ------------ HOTELS, RESTAURANTS & LEISURE -- 3.0% 58,898 Marriott International, Inc., Class A 2,907,205 36,500 Starbucks Corp. 2,861,235 15,291 Wynn Resorts Ltd. 2,969,665 ------------ 8,738,105 ------------ HOUSEHOLD DURABLES -- 1.0% 61,574 Garmin Ltd. (a) 2,845,950 ------------ INTERNET & CATALOG RETAIL -- 5.9% 7,045 Amazon.com, Inc. (b) 2,809,476 41,924 Expedia, Inc. 2,920,426 100,685 Liberty Interactive Corp., Class A (b) 2,955,105 7,542 Netflix, Inc. (b) 2,776,738 2,380 priceline.com, Inc. (b) 2,766,512 34,092 TripAdvisor, Inc. (b) 2,823,840 ------------ 17,052,097 ------------ INTERNET SOFTWARE & SERVICES -- 7.0% 59,422 Akamai Technologies, Inc. (b) 2,803,530 16,351 Baidu, Inc., ADR (b) 2,908,516 51,933 eBay, Inc. (b) 2,850,602 16,602 Equinix, Inc. (b) 2,946,025 51,443 Facebook, Inc., Class A (b) 2,811,874 2,574 Google, Inc., Class A (b) 2,884,708 70,644 Yahoo!, Inc. (b) 2,856,843 ------------ 20,062,098 ------------ IT SERVICES -- 4.0% 35,443 Automatic Data Processing, Inc. 2,864,149 28,869 Cognizant Technology Solutions Corp., Class A (b) 2,915,192 49,090 Fiserv, Inc. (b) 2,898,764 62,777 Paychex, Inc. 2,858,237 ------------ 11,536,342 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.0% 62,269 Mattel, Inc. 2,962,759 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.0% 27,030 Illumina, Inc. (b) 2,990,059 ------------ MACHINERY -- 1.0% 49,188 PACCAR, Inc. 2,910,454 ------------ See Notes to Financial Statements Page 27 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (QQEW) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) MEDIA -- 10.1% 21,792 Charter Communications, Inc., Class A (b) $ 2,980,274 55,725 Comcast Corp., Class A 2,895,750 42,801 DIRECTV (b) 2,957,121 32,299 Discovery Communications, Inc., Class A (b) 2,920,476 50,177 DISH Network Corp., Class A (b) 2,906,252 32,948 Liberty Global PLC, Class A (b) 2,932,042 19,554 Liberty Media Corp., Class A (b) 2,863,683 805,209 Sirius XM Holdings, Inc. (b) 2,810,179 82,751 Twenty-First Century Fox, Inc., Class A 2,911,180 33,679 Viacom, Inc., Class B 2,941,524 ------------ 29,118,481 ------------ MULTILINE RETAIL -- 1.0% 51,112 Dollar Tree, Inc. (b) 2,883,739 ------------ PHARMACEUTICALS -- 1.0% 66,672 Mylan, Inc. (b) 2,893,565 ------------ PROFESSIONAL SERVICES -- 1.0% 42,584 Verisk Analytics, Inc., 2,798,620 Class A (b) ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 14.0% 89,980 Altera Corp. 2,927,049 56,672 Analog Devices, Inc. 2,886,305 164,883 Applied Materials, Inc. 2,916,780 54,875 Avago Technologies Ltd. 2,902,339 99,207 Broadcom Corp., Class A 2,941,488 113,100 Intel Corp. 2,936,076 44,901 KLA-Tencor Corp. 2,894,318 63,267 Linear Technology Corp. 2,881,812 100,012 Maxim Integrated Products, Inc. 2,791,335 127,845 Micron Technology, Inc. (b) 2,781,907 180,880 NVIDIA Corp. 2,897,698 65,130 NXP Semiconductors N.V. (b) 2,991,421 66,160 Texas Instruments, Inc. 2,905,086 63,396 Xilinx, Inc. 2,911,144 ------------ 40,564,758 ------------ SOFTWARE -- 9.0% 158,429 Activision Blizzard, Inc. 2,824,789 47,846 Adobe Systems, Inc. (b) 2,865,019 57,618 Autodesk, Inc. (b) 2,899,914 86,019 CA, Inc. 2,894,539 45,564 Check Point Software Technologies Ltd. (b) 2,939,789 45,917 Citrix Systems, Inc. (b) 2,904,250 37,652 Intuit, Inc. 2,873,601 77,084 Microsoft Corp. 2,885,254 125,915 Symantec Corp. 2,969,076 ------------ 26,056,231 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ Specialty Retail -- 5.0% 36,613 Bed Bath & Beyond, Inc. (b) $ 2,940,024 22,009 O'Reilly Automotive, Inc. (b) 2,832,778 38,293 Ross Stores, Inc. 2,869,294 180,185 Staples, Inc. 2,863,140 37,827 Tractor Supply Co. 2,934,619 ------------ 14,439,855 ------------ Trading Companies & Distributors -- 1.0% 62,131 Fastenal Co. 2,951,844 ------------ Wireless Telecommunication Services -- 3.1% 32,558 SBA Communications Corp., Class A (b) 2,925,011 230,432 VimpelCom Ltd., ADR 2,981,790 73,964 Vodafone Group PLC, ADR 2,907,525 ------------ 8,814,326 ------------ TOTAL COMMON STOCKS -- 100.0% $288,875,056 (Cost $268,500,616) Money Market Funds -- 1.9% 5,540,470 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) (d) 5,540,470 (Cost $5,540,470) ------------ TOTAL INVESTMENTS -- 101.9% 294,415,526 (Cost $274,041,086) (e) NET OTHER ASSETS AND LIABILITIES -- (1.9)% (5,470,510) ------------ NET ASSETS -- 100.0% $288,945,016 ============ -------------------- (a) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $5,430,061 and the total value of the collateral held by the Fund is $5,540,470. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2013. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $274,359,080. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $24,229,724 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $4,173,278. ADR - American Depositary Receipt Page 28 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (QQEW) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $288,875,056 $ -- $ -- Money Market Funds 5,540,470 -- -- ----------------------------------------------- Total Investments $294,415,526 $ -- $ -- =============================================== * 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, 2013. --------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ------------------------------------------------------------ Total gross amount presented on Statements of Assets and Liabilities(1) $ 5,430,061 Non-cash Collateral(2) (5,430,061) --------------------------------------------------------- Net Amount $ -- =========== --------------------- (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. See Notes to Financial Statements Page 29 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEXSM FUND (QTEC) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% COMMUNICATIONS EQUIPMENT -- 7.6% 205,535 Cisco Systems, Inc. $ 4,614,261 49,272 F5 Networks, Inc. (a) 4,476,854 59,652 QUALCOMM, Inc. 4,429,161 ------------ 13,520,276 ------------ COMPUTERS & PERIPHERALS -- 12.4% 7,911 Apple, Inc. 4,438,941 107,209 NetApp, Inc. 4,410,578 62,450 SanDisk Corp. 4,405,223 77,962 Seagate Technology PLC 4,378,346 52,502 Western Digital Corp. 4,404,918 ------------ 22,038,006 ------------ HEALTH CARE PROVIDERS & SERVICES -- 2.4% 90,417 Catamaran Corp. (a) 4,292,999 ------------ HEALTH CARE TECHNOLOGY -- 2.5% 79,373 Cerner Corp. (a) 4,424,251 ------------ HOUSEHOLD DURABLES -- 2.5% 94,306 Garmin Ltd. 4,358,823 ------------ INTERNET SOFTWARE & SERVICES -- 14.9% 91,004 Akamai Technologies, Inc. (a) 4,293,569 25,040 Baidu, Inc., ADR (a) 4,454,115 25,431 Equinix, Inc. (a) 4,512,731 78,782 Facebook, Inc., Class A (a) 4,306,224 3,944 Google, Inc., Class A (a) 4,420,080 108,198 Yahoo!, Inc. (a) 4,375,527 ------------ 26,362,246 ------------ IT Services -- 2.5% 44,209 Cognizant Technology Solutions Corp., Class A (a) 4,464,225 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 35.1% 137,806 Altera Corp. 4,482,829 86,801 Analog Devices, Inc. 4,420,775 252,525 Applied Materials, Inc. 4,467,167 84,045 Avago Technologies Ltd. 4,445,140 151,939 Broadcom Corp., Class A 4,504,991 173,220 Intel Corp. 4,496,791 68,772 KLA-Tencor Corp. 4,433,043 96,895 Linear Technology Corp. 4,413,567 153,172 Maxim Integrated Products, Inc. 4,275,031 195,801 Micron Technology, Inc. (a) 4,260,630 277,020 NVIDIA Corp. 4,437,860 99,745 NXP Semiconductors N.V. (a) 4,581,288 101,328 Texas Instruments, Inc. 4,449,313 97,090 Xilinx, Inc. 4,458,373 ------------ 62,126,798 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ SOFTWARE -- 20.1% 73,277 Adobe Systems, Inc. (a) $ 4,387,827 88,248 Autodesk, Inc. (a) 4,441,522 131,742 CA, Inc. 4,433,118 69,778 Check Point Software Technologies Ltd. (a) 4,502,077 70,321 Citrix Systems, Inc. (a) 4,447,803 57,663 Intuit, Inc. 4,400,840 118,056 Microsoft Corp. 4,418,836 192,843 Symantec Corp. 4,547,238 ------------ 35,579,261 ------------ TOTAL INVESTMENTS -- 100.0% 177,166,885 (Cost $141,802,324) (b) NET OTHER ASSETS AND LIABILITIES -- (0.0)% (2,263) ------------ NET ASSETS -- 100.0% $177,164,622 ============ ------------------- (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $143,658,518. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $37,268,675 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,760,308. ADR - American Depositary Receipt --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $177,166,885 $ -- $ -- =============================================== * 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, 2013. Page 30 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEXSM FUND (QQXT) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) -- 99.9% AIR FREIGHT & LOGISTICS -- 3.4% 26,148 C.H. Robinson Worldwide, Inc. $ 1,525,474 33,947 Expeditors International of Washington, Inc. 1,502,155 ------------ 3,027,629 ------------ AUTOMOBILES -- 1.7% 10,309 Tesla Motors, Inc. (b) (c) 1,550,267 ------------ BEVERAGES -- 1.7% 22,325 Monster Beverage Corp. (c) 1,512,965 ------------ BIOTECHNOLOGY -- 11.5% 11,316 Alexion Pharmaceuticals, Inc. (c) 1,505,707 12,979 Amgen, Inc. 1,481,683 5,238 Biogen Idec, Inc. (c) 1,465,330 8,825 Celgene Corp. (c) 1,491,072 19,833 Gilead Sciences, Inc. (c) 1,490,450 5,305 Regeneron Pharmaceuticals, Inc. (c) 1,460,148 20,582 Vertex Pharmaceuticals, Inc. (c) 1,529,243 ------------ 10,423,633 ------------ CHEMICALS -- 1.7% 16,325 Sigma-Aldrich Corp. 1,534,713 ------------ COMMERCIAL SERVICES & SUPPLIES -- 1.7% 13,004 Stericycle, Inc. (c) 1,510,675 ------------ FOOD & STAPLES RETAILING -- 3.2% 12,473 Costco Wholesale Corp. 1,484,412 24,943 Whole Foods Market, Inc. 1,442,453 ------------ 2,926,865 ------------ FOOD PRODUCTS -- 4.9% 19,170 Green Mountain Coffee Roasters, Inc. (b) (c) 1,448,868 27,378 Kraft Foods Group, Inc. 1,476,222 42,642 Mondelez International, Inc., Class A 1,505,263 ------------ 4,430,353 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 1.7% 4,058 Intuitive Surgical, Inc. (c) 1,558,597 ------------ HEALTH CARE PROVIDERS & SERVICES -- 3.3% 21,451 Express Scripts Holding Co. (c) 1,506,718 13,099 Henry Schein, Inc. (c) 1,496,692 ------------ 3,003,410 ------------ HOTELS, RESTAURANTS & LEISURE -- 5.0% 30,723 Marriott International, Inc., Class A1, 516,487 19,037 Starbucks Corp. 1,492,311 7,976 Wynn Resorts Ltd. 1,549,019 ------------ 4,557,817 ------------ INTERNET & CATALOG RETAIL -- 9.8% 3,676 Amazon.com, Inc. (c) 1,465,952 21,866 Expedia, Inc. 1,523,186 SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET & CATALOG RETAIL (Continued) 52,518 Liberty Interactive Corp., Class A (c) $ 1,541,403 3,935 Netflix, Inc. (c) 1,448,749 1,241 priceline.com, Inc. (c) 1,442,538 17,784 TripAdvisor, Inc. (c) 1,473,049 ------------ 8,894,877 ------------ INTERNET SOFTWARE & SERVICES -- 1.7% 27,087 eBay, Inc. (c) 1,486,805 ------------ IT Services -- 5.0% 18,487 Automatic Data Processing, Inc. 1,493,935 25,604 Fiserv, Inc. (c) 1,511,916 32,744 Paychex, Inc. 1,490,834 ------------ 4,496,685 ------------ LEISURE EQUIPMENT & PRODUCTS -- 1.7% 32,478 Mattel, Inc. 1,545,303 ------------ LIFE SCIENCES TOOLS & SERVICES -- 1.7% 14,099 Illumina, Inc. (c) 1,559,631 ------------ MACHINERY -- 1.7% 25,658 PACCAR, Inc. 1,518,184 ------------ MEDIA -- 16.8% 11,367 Charter Communications, Inc., Class A (c) 1,554,551 29,068 Comcast Corp., Class A 1,510,519 22,325 DIRECTV (c) 1,542,434 16,848 Discovery Communications, Inc., Class A (c) 1,523,396 26,171 DISH Network Corp., Class A (c) 1,515,824 17,187 Liberty Global PLC, Class A (c) 1,529,471 10,199 Liberty Media Corp., Class A (c) 1,493,644 419,997 Sirius XM Holdings, Inc. (c) 1,465,790 43,165 Twenty-First Century Fox, Inc., Class A 1,518,545 17,566 Viacom, Inc., Class B 1,534,214 ------------ 15,188,388 ------------ MULTILINE RETAIL -- 1.7% 26,662 Dollar Tree, Inc. (c) 1,504,270 ------------ PHARMACEUTICALS -- 1.7% 34,777 Mylan, Inc. (c) 1,509,322 ------------ PROFESSIONAL SERVICES -- 1.6% 22,211 Verisk Analytics, Inc., Class A (c) 1,459,707 ------------ SOFTWARE -- 1.6% 82,638 Activision Blizzard, Inc. 1,473,435 ------------ SPECIALTY RETAIL -- 8.3% 19,098 Bed Bath & Beyond, Inc. (c) 1,533,570 11,482 O'Reilly Automotive, Inc. (c) 1,477,848 19,973 Ross Stores, Inc. 1,496,577 93,985 Staples, Inc. 1,493,422 19,730 Tractor Supply Co. 1,530,653 ------------ 7,532,070 ------------ See Notes to Financial Statements Page 31 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEXSM FUND (QQXT) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) (CONTINUED) TRADING COMPANIES & DISTRIBUTORS -- 1.7% 32,407 Fastenal Co. $ 1,539,657 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 5.1% 16,981 SBA Communications Corp., Class A (c) 1,525,573 120,194 VimpelCom Ltd., ADR 1,555,310 38,580 Vodafone Group PLC, ADR 1,516,580 ------------ 4,597,463 ------------ TOTAL COMMON STOCKS -- 99.9% 90,342,721 (Cost $72,296,479) ------------ MONEY MARKET FUNDS -- 2.2% 1,863,846 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (d) (e) 1,863,846 (Cost $1,863,846) 52,075 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (d) 52,075 (Cost $52,075) ------------ TOTAL MONEY MARKET FUNDS -- 2.2% 1,915,921 (Cost $1,915,921) ------------ TOTAL INVESTMENTS -- 102.1% 92,258,642 (Cost $74,212,400) (f) NET OTHER ASSETS AND LIABILITIES -- (2.1)% (1,862,772) ------------ NET ASSETS -- 100.0% $ 90,395,870 ============ -------------------- (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) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $1,826,483 and the total value of the collateral held by the Fund is $1,863,846. (c) Non-income producing security. (d) Interest rate shown reflects yield as of December 31, 2013. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $74,860,782. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $18,009,197 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $611,337. ADR - American Depositary Receipt --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $90,342,721 $ -- $ -- Money Market Funds 1,915,921 -- -- ----------------------------------------------- Total Investments $92,258,642 $ -- $ -- =============================================== * 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, 2013. --------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ------------------------------------------------------------ Total gross amount presented on Statements of Assets and Liabilities(1) $ 1,826,483 Non-cash Collateral(2) (1,826,483) --------------------------------------------------------- Net Amount $ -- =========== ------------------- (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. Page 32 See Notes to Financial Statements FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% Aerospace & Defense -- 3.9% 84,980 Hexcel Corp. (a) $ 3,797,756 ------------ AUTOMOBILES -- 9.0% 58,661 Tesla Motors, Inc. (a) (b) 8,821,441 ------------ CHEMICALS -- 0.9% 49,852 Zoltek Cos., Inc. (a) 835,021 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.8% 43,621 EnerNOC, Inc. (a) 750,717 ------------ CONSTRUCTION & ENGINEERING -- 0.4% 40,337 Ameresco, Inc., Class A (a) 389,655 ------------ ELECTRIC UTILITIES -- 6.5% 65,980 ITC Holdings Corp. 6,322,204 ------------ ELECTRICAL EQUIPMENT -- 6.5% 449,243 Capstone Turbine Corp. (a) (b) 579,523 60,941 Enphase Energy, Inc. (a) (b) 386,366 278,401 FuelCell Energy, Inc. (a) (b) 392,545 31,350 PowerSecure International, Inc. (a) 538,280 118,338 Revolution Lighting Technologies, Inc. (a) (b) 405,308 71,407 SolarCity Corp. (a) (b) 4,057,346 ------------ 6,359,368 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 8.6% 244,242 AVX Corp. 3,402,291 56,748 Itron, Inc. (a) 2,351,070 42,966 Maxwell Technologies, Inc. (a) 333,846 67,089 Universal Display Corp. (a) 2,305,178 ------------ 8,392,385 ------------ OIL, GAS & CONSUMABLE FUELS -- 3.2% 110,557 Amyris, Inc. (a) (b) 584,847 44,178 Green Plains Renewable Energy, Inc. 856,611 52,837 Renewable Energy Group, Inc. (a) 605,512 98,791 Solazyme, Inc. (a) (b) 1,075,834 ------------ 3,122,804 ------------ REAL ESTATE INVESTMENT TRUSTS -- 0.3% 22,896 Hannon Armstrong Sustainable Infrastructure Capital, Inc. 319,628 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 58.4% 57,959 Advanced Energy Industries, Inc. (a) 1,324,943 12,525 Aixtron SE, ADR (a) 181,863 72,857 Canadian Solar, Inc. (a) (b) 2,172,596 133,805 Cree, Inc. (a) 8,372,179 184,101 Fairchild Semiconductor International, Inc. (a) 2,457,748 124,813 First Solar, Inc. (a) 6,819,782 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (Continued) 179,496 GT Advanced Technologies, Inc. (a) (b) $ 1,565,205 103,067 International Rectifier Corp. (a) 2,686,957 46,708 JA Solar Holdings Co., Ltd., ADR (a) (b) 428,312 25,465 JinkoSolar Holding Co., Ltd., ADR (a) (b) 746,124 175,471 Linear Technology Corp. 7,992,704 136,209 Microsemi Corp. (a) 3,398,415 526,538 ON Semiconductor Corp. (a) 4,338,673 43,380 Power Integrations, Inc. 2,421,472 112,958 ReneSola Ltd., ADR (a) (b) 389,705 32,844 Rubicon Technology, Inc. (a) (b) 326,798 293,718 SunEdison, Inc. (a) 3,833,020 123,044 SunPower Corp. (a) (b) 3,667,942 93,275 Trina Solar Ltd., ADR (a) (b) 1,275,069 56,887 Veeco Instruments, Inc. (a) 1,872,151 149,602 Yingli Green Energy Holding Co., Ltd., ADR (a) (b) 755,490 ------------ 57,027,148 ------------ SOFTWARE -- 1.5% 68,316 Silver Spring Networks, Inc. (a) (b) 1,434,636 ------------ TOTAL COMMON STOCKS -- 100.0% 97,572,763 (Cost $75,674,128) MONEY MARKET FUNDS -- 19.1% 18,665,457 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) (d) 18,665,457 (Cost $18,665,457) ------------ TOTAL INVESTMENTS -- 119.1% 116,238,220 (Cost $94,339,585) (e) NET OTHER ASSETS AND LIABILITIES -- (19.1)% (18,664,535) ------------ NET ASSETS -- 100.0% $ 97,573,685 ============ ------------------- (a) Non-income producing security. (b) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $17,954,269 and the total value of the collateral held by the Fund is $18,665,457. (c) Interest rate shown reflects yield as of December 31, 2013. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $99,337,274. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $17,585,275 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $684,329. ADR - American Depositary Receipt See Notes to Financial Statements Page 33 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $ 97,572,763 $ -- $ -- Money Market Funds 18,665,457 -- -- ----------------------------------------------- Total Investments $116,238,220 $ -- $ -- =============================================== * 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, 2013. --------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ------------------------------------------------------------ Total gross amount presented on Statements of Assets and Liabilities(1) $ 17,954,269 Non-cash Collateral(2) (17,954,269) --------------------------------------------------------- Net Amount $ -- =========== ------------------- (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. Page 34 See Notes to Financial Statements FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) -- 99.6% DIVERSIFIED REITS -- 9.7% 10,031 American Assets Trust, Inc. $ 315,274 54,106 American Realty Capital Properties, Inc. 695,803 5,591 Armada Hoffler Properties, Inc. 51,885 68,990 Chambers Street Properties 527,774 51,463 Cousins Properties, Inc. 530,069 95,052 Duke Realty Corp. 1,429,582 23,299 Empire State Realty Trust, Inc., Class A 356,475 17,127 First Potomac Realty Trust 199,187 4,562 Gladstone Commercial Corp. 81,979 30,474 Investors Real Estate Trust 261,467 59,295 Lexington Realty Trust 605,402 42,769 Liberty Property Trust 1,448,586 3,378 One Liberty Properties, Inc. 67,999 5,832 PS Business Parks, Inc. 445,681 8,141 Select Income REIT 217,690 102,651 Spirit Realty Capital, Inc. 1,009,059 50,753 Vornado Realty Trust 4,506,359 19,408 Washington Real Estate Investment Trust 453,371 6,402 Whitestone REIT 85,595 9,348 Winthrop Realty Trust 103,295 16,329 WP Carey, Inc. 1,001,784 ------------ 14,394,316 ------------ INDUSTRIAL REITS -- 5.1% 92,507 DCT Industrial Trust, Inc. 659,575 8,935 EastGroup Properties, Inc. 517,604 29,199 First Industrial Realty Trust, Inc. 509,523 12,712 Monmouth Real Estate Investment Corp., Class A 115,552 145,507 Prologis, Inc. 5,376,484 4,721 Rexford Industrial Realty, Inc. 62,317 12,884 STAG Industrial, Inc. 262,705 6,927 Terreno Realty Corp. 122,608 ------------ 7,626,368 ------------ OFFICE REITS -- 13.4% 20,898 Alexandria Real Estate Equities, Inc. 1,329,531 56,050 BioMed Realty Trust, Inc. 1,015,626 44,604 Boston Properties, Inc. 4,476,903 45,720 Brandywine Realty Trust 644,195 32,468 CommonWealth REIT 756,829 6,239 CoreSite Realty Corp. 200,833 25,494 Corporate Office Properties Trust 603,953 5,454 CyrusOne, Inc. 121,788 37,473 Digital Realty Trust, Inc. 1,840,674 37,860 Douglas Emmett, Inc. 881,759 18,860 DuPont Fabros Technology, Inc. 466,031 25,430 Franklin Street Properties Corp. 303,889 15,966 Government Properties Income Trust 396,755 13,719 Gramercy Property Trust, Inc. (b) 78,884 26,232 Highwoods Properties, Inc. 948,811 12,575 Hudson Pacific Properties, Inc. 275,015 SHARES DESCRIPTION VALUE ------------------------------------------------------------ OFFICE REITS (Continued) 23,943 Kilroy Realty Corp. $ 1,201,460 25,681 Mack-Cali Realty Corp. 551,628 17,671 Parkway Properties, Inc. 340,874 48,544 Piedmont Office Realty Trust, Inc., Class A 801,947 3,804 QTS Realty Trust, Inc., Class A 94,263 27,676 SL Green Realty Corp. 2,556,709 ------------ 19,888,357 ------------ RESIDENTIAL REITS -- 15.4% 30,571 American Campus Communities, Inc. 984,692 13,530 American Homes 4 Rent, Class A 219,186 4,036 American Residential Properties, Inc. (b) 69,258 42,572 Apartment Investment & Management Co., Class A 1,103,040 16,777 Associated Estates Realty Corp. 269,271 35,492 AvalonBay Communities, Inc. 4,196,219 22,520 BRE Properties, Inc. 1,232,069 24,889 Camden Property Trust 1,415,686 18,821 Campus Crest Communities, Inc. 177,106 33,499 Education Realty Trust, Inc. 295,461 23,096 Equity Lifestyle Properties, Inc. 836,768 97,792 Equity Residential 5,072,471 11,098 Essex Property Trust, Inc. 1,592,674 16,598 Home Properties, Inc. 889,985 21,817 Mid-America Apartment Communities, Inc. 1,325,165 15,812 Post Properties, Inc. 715,177 10,898 Silver Bay Realty Trust Corp. 174,259 9,806 Sun Communities, Inc. 418,128 73,155 UDR, Inc. 1,708,169 5,235 UMH Properties, Inc. 49,314 ------------ 22,744,098 ------------ RETAIL REITS -- 27.0% 16,207 Acadia Realty Trust 402,420 4,345 Agree Realty Corp. 126,092 611 Alexander's, Inc. 201,630 5,269 AmREIT, Inc. 88,519 11,737 Brixmor Property Group, Inc. (b) 238,613 49,572 CBL & Associates Properties, Inc. 890,313 18,137 Cedar Realty Trust, Inc. 113,538 121,878 Cole Real Estate Investment, Inc. 1,711,167 84,898 DDR Corp. 1,304,882 18,463 Equity One, Inc. 414,310 14,055 Excel Trust, Inc. 160,086 18,976 Federal Realty Investment Trust 1,924,356 156,849 General Growth Properties, Inc. 3,147,959 7,795 Getty Realty Corp. 143,194 42,323 Glimcher Realty Trust 396,143 24,432 Inland Real Estate Corp. 257,025 119,531 Kimco Realty Corp. 2,360,737 38,120 Kite Realty Group Trust 250,448 41,004 Macerich (The) Co. 2,414,726 35,553 National Retail Properties, Inc. 1,078,323 19,899 Pennsylvania Real Estate Investment Trust 377,683 See Notes to Financial Statements Page 35 FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (a) (CONTINUED) RETAIL REITS (Continued) 19,419 Ramco-Gershenson Properties Trust $ 305,655 60,138 Realty Income Corp. 2,244,952 26,937 Regency Centers Corp. 1,247,183 18,292 Retail Opportunity Investments Corp. 269,258 54,465 Retail Properties of America, Inc., Class A 692,795 7,531 Rouse Properties, Inc. 167,113 3,708 Saul Centers, Inc. 176,983 90,540 Simon Property Group, Inc. 13,776,566 27,565 Tanger Factory Outlet Centers, Inc. 882,631 18,542 Taubman Centers, Inc. 1,185,205 7,410 Urstadt Biddle Properties, Inc., Class A 136,715 32,731 Weingarten Realty Investors 897,484 ------------ 39,984,704 ------------ SPECIALIZED REITS -- 29.0% 4,087 Ashford Hospitality Prime, Inc. 74,383 20,450 Ashford Hospitality Trust 169,326 4,464 Aviv REIT, Inc. 105,797 7,672 Chatham Lodging Trust 156,892 14,471 Chesapeake Lodging Trust 365,972 33,800 Corrections Corp. of America 1,083,966 37,749 CubeSmart 601,719 57,030 DiamondRock Hospitality Co. 658,696 15,070 EPR Properties 740,841 32,083 Extra Space Storage, Inc. 1,351,657 32,231 FelCor Lodging Trust, Inc. (b) 263,005 21,022 Geo Group (The), Inc. 677,329 133,121 HCP, Inc. 4,834,955 84,222 Health Care REIT, Inc. 4,511,773 27,972 Healthcare Realty Trust, Inc. 596,083 50,571 Healthcare Trust of America, Inc., Class A 497,619 56,174 Hersha Hospitality Trust 312,889 43,277 Hospitality Properties Trust 1,169,777 220,652 Host Hotels & Resorts, Inc. 4,289,475 30,332 LaSalle Hotel Properties 936,046 10,139 LTC Properties, Inc. 358,819 47,140 Medical Properties Trust, Inc. 576,051 8,312 National Health Investors, Inc. 466,303 35,747 OMEGA Healthcare Investors, Inc. 1,065,261 17,956 Pebblebrook Hotel Trust 552,327 5,924 Physicians Realty Trust 75,472 42,170 Public Storage 6,347,428 35,795 RLJ Lodging Trust 870,534 14,742 Ryman Hospitality Properties 615,921 11,052 Sabra Health Care REIT, Inc. 288,899 54,900 Senior Housing Properties Trust 1,220,427 9,340 Sovran Self Storage, Inc. 608,688 52,783 Strategic Hotels & Resorts, Inc. (b) 498,799 24,864 Summit Hotel Properties, Inc. 223,776 SHARES DESCRIPTION VALUE ------------------------------------------------------------ SPECIALIZED REITS (Continued) 53,354 Sunstone Hotel Investors, Inc. $ 714,944 3,706 Universal Health Realty Income Trust 148,462 85,801 Ventas, Inc. 4,914,681 ------------ 42,944,992 ------------ TOTAL COMMON STOCKS -- 99.6% 147,582,835 (Cost $154,149,739) MONEY MARKET FUNDS -- 0.1% 182,143 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (c) 182,143 (Cost $182,143) ------------ TOTAL INVESTMENTS -- 99.7% 147,764,978 (Cost $154,331,882) (d) NET OTHER ASSETS AND LIABILITIES -- 0.3% 445,324 ------------ NET ASSETS -- 100.0% $148,210,302 ============ ------------------- (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, 2013. (d) Aggregate cost for federal income tax purposes is $156,211,048. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $3,886,135 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $12,332,205. --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $147,582,835 $ -- $ -- Money Market Funds 182,143 -- -- ----------------------------------------------- Total Investments $147,764,978 $ -- $ -- =============================================== * 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, 2013. Page 36 See Notes to Financial Statements FIRST TRUST ISE WATER INDEX FUND (FIW) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% CHEMICALS -- 5.4% 69,469 Ashland, Inc. $ 6,741,272 193,917 Calgon Carbon Corp. (a) 3,988,873 ------------ 10,730,145 ------------ CONSTRUCTION & ENGINEERING -- 6.8% 84,755 AECOM Technology Corp. (a) 2,494,340 110,604 Aegion Corp. (a) 2,421,121 154,596 Layne Christensen Co. (a) 2,640,500 156,344 Northwest Pipe Co. (a) 5,903,549 ------------ 13,459,510 ------------ DIVERSIFIED FINANCIAL SERVICES -- 1.2% 101,891 PICO Holdings, Inc. (a) 2,354,701 ------------ ELECTRICAL EQUIPMENT -- 5.0% 88,169 Franklin Electric Co., Inc. 3,935,864 43,016 Roper Industries, Inc. 5,965,459 ------------ 9,901,323 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 5.2% 142,699 Badger Meter, Inc. 7,777,096 60,021 Itron, Inc. (a) 2,486,670 ------------ 10,263,766 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.0% 36,425 IDEXX Laboratories, Inc. (a) 3,874,527 ------------ INDUSTRIAL CONGLOMERATES -- 3.4% 88,083 Danaher Corp. 6,800,008 ------------ LIFE SCIENCES TOOLS & SERVICES -- 2.9% 101,300 AGILENT TECHNOLOGIES, INC. 5,793,347 ------------ MACHINERY -- 41.8% 86,044 Crane Co. 5,786,459 1,316,973 Energy Recovery, Inc. (a) 7,322,370 1,633,839 Flow International Corp. (a) 6,600,709 51,481 Flowserve Corp. 4,058,247 92,996 IDEX Corp. 6,867,755 96,657 Lindsay Corp. 7,998,367 446,661 Mueller Water Products, Inc., Class A 4,185,213 45,623 Pall Corp. 3,893,923 106,418 Pentair Ltd. 8,265,486 299,932 Rexnord Corp. (a) 8,101,163 26,414 Valmont Industries, Inc. 3,938,856 127,617 Watts Water Technologies, Inc., Class A 7,895,664 220,358 Xylem, Inc. 7,624,387 ------------ 82,538,599 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ METALS & MINING -- 1.3% 77,350 AMCOL International Corp. $ 2,628,353 ------------ MULTI-UTILITIES -- 2.0% 241,736 Veolia Environnment, ADR 3,954,801 ------------ WATER UTILITIES -- 23.0% 137,055 American States Water Co. 3,937,590 182,605 American Water Works Co., Inc. 7,716,887 323,224 Aqua America, Inc. 7,624,854 341,287 California Water Service Group 7,873,491 726,151 Cia de Saneamento Basico do Estado de Sao Paulo, ADR 8,234,553 420,763 Consolidated Water Co., Ltd. 5,932,758 135,362 SJW Corp. 4,032,434 ------------ 45,352,567 ------------ TOTAL INVESTMENTS -- 100.0% 197,651,647 (Cost $161,649,229) (b) NET OTHER ASSETS AND LIABILITIES -- (0.0)% (8,447) ------------ NET ASSETS -- 100.0% $197,643,200 ============ ------------------- (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $162,828,072. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $35,076,155 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $252,580. ADR - American Depositary Receipt --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $197,651,647 $ -- $ -- =============================================== * 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, 2013. See Notes to Financial Statements Page 37 FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.9% GAS UTILITIES -- 3.6% 736,516 Questar Corp. $ 16,932,503 ------------ OIL, GAS & CONSUMABLE FUELS -- 96.3% 211,640 Anadarko Petroleum Corp. 16,787,285 192,335 Apache Corp. 16,529,270 633,469 Bill Barrett Corp. (a) (b) 16,964,300 458,792 Cabot Oil & Gas Corp. 17,782,778 613,765 Chesapeake Energy Corp. 16,657,582 170,018 Cimarex Energy Co. 17,836,588 954,587 Comstock Resources, Inc. 17,459,396 279,830 Devon Energy Corp. 17,313,082 913,036 EnCana Corp. 16,480,300 189,175 EQT Corp. 16,984,132 3,323,291 EXCO Resources, Inc. (a) 17,646,675 4,694,502 Forest Oil Corp. (b) 16,947,152 992,905 Goodrich Petroleum Corp. (a) (b) 16,899,243 2,585,272 Magnum Hunter Resources Corp. (a) (b) 18,898,338 709,402 Newfield Exploration Co. (b) 17,472,571 241,286 Noble Energy, Inc. 16,433,990 1,689,254 Penn Virginia Corp. (b) 15,929,665 539,969 QEP Resources, Inc. 16,550,050 5,814,589 Quicksilver Resources, Inc. (a) (b) 17,850,788 207,950 Range Resources Corp. 17,532,265 429,540 Southwestern Energy Co. (b) 16,893,808 735,535 Statoil ASA, ADR 17,748,460 525,914 Stone Energy Corp. (b) 18,191,365 1,338,578 Swift Energy Co. (a) (b) 18,070,803 1,416,373 Talisman Energy, Inc. 16,500,745 784,266 Ultra Petroleum Corp. (a) (b) 16,979,359 ------------ 447,339,990 ------------ TOTAL COMMON STOCKS -- 99.9% 464,272,493 (Cost $461,799,589) ------------ RIGHTS -- 0.1% Oil, Gas & Consumable Fuels -- 0.1% 3,340,027 EXCO Resources, Inc., expiring 01/09/14 (a) (b) 534,405 (Cost $0) ------------ WARRANTS -- 0.0% Oil, Gas & Consumable Fuels -- 0.0% 468,974 Magnum Hunter Resources Corp., expiring 05/15/16 @ $0 (a) (b) (c) 0 (Cost $0) ------------ MONEY MARKET FUNDS -- 17.0% 79,063,669 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (d) (e) 79,063,669 (Cost $79,063,669) SHARES DESCRIPTION VALUE ------------------------------------------------------------ MONEY MARKET FUNDS (CONTINUED) 61,379 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.03% (d) $ 61,379 (Cost $61,379) TOTAL MONEY MARKET FUNDS -- 17.0% 79,125,048 (Cost $79,125,048) ------------ TOTAL INVESTMENTS -- 117.0% 543,931,946 (Cost $540,924,637) (f) NET OTHER ASSETS AND LIABILITIES -- (17.0)% (79,137,137) ------------ NET ASSETS -- 100.0% $464,794,809 ============ ------------------- (a) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $76,784,626 and the total value of the collateral held by the Fund is $79,063,669. (b) Non-income producing security. (c) This security is fair valued in accordance with procedures adopted by the Trust's Board of Trustees and in accordance with the provisions of the Investment Company Act of 1940, as amended. At December 31, 2013, securities noted as such amounted to $0, or 0.00% of net assets. (d) Interest rate shown reflects yield as of December 31, 2013. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $562,515,613. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $46,552,009 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $65,135,676. ADR - American Depositary Receipt Page 38 See Notes to Financial Statements FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $464,272,493 $ -- $ -- Money Market Funds 79,125,048 -- -- Rights* 534,405 -- -- Warrants* -- -- ** -- ----------------------------------------------- Total Investments $543,931,946 $ -- ** $ -- =============================================== * See Portfolio of Investments for industry breakout. ** Investment is valued at $0. 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, 2013. --------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ------------------------------------------------------------ Total gross amount presented on Statements of Assets and Liabilities(1) $ 76,784,626 Non-cash Collateral(2) (76,784,626) ---------------------------------------------------------- Net Amount $ -- ============ ------------------- (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. See Notes to Financial Statements Page 39 FIRST TRUST ISE CHINDIA INDEX FUND (FNI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% AUTOMOBILES -- 3.9% 91,615 Tata Motors Ltd., ADR $ 2,821,742 ------------ CAPITAL MARKETS -- 0.7% 27,450 Noah Holdings Ltd., ADR (a) 494,100 ------------ COMMERCIAL BANKS -- 10.8% 81,003 HDFC Bank Ltd., ADR 2,789,743 134,910 ICICI Bank Ltd., ADR 5,014,605 ------------ 7,804,348 ------------ DIVERSIFIED CONSUMER SERVICES -- 1.6% 18,437 New Oriental Education & Technology Group, Inc., ADR 580,766 27,292 TAL Education Group, ADR (b) 600,151 ------------ 1,180,917 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.5% 10,894 China Telecom Corp., Ltd., ADR 550,910 36,417 China Unicom (Hong Kong) Ltd., ADR 548,440 ------------ 1,099,350 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 0.7% 14,665 Mindray Medical International Ltd., ADR (a) 533,219 ------------ HOTELS, RESTAURANTS & LEISURE -- 4.8% 13,025 Home Inns & Hotels Management, Inc., ADR (b) 568,411 73,016 Melco Crown Entertainment Ltd., ADR (b) 2,863,687 ------------ 3,432,098 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.8% 14,829 Huaneng Power International, Inc., ADR 537,551 ------------ INSURANCE -- 0.8% 11,363 China Life Insurance Co., Ltd., ADR 536,902 ------------ INTERNET & CATALOG RETAIL -- 5.6% 58,348 Ctrip.com International Ltd., ADR (b) 2,895,228 61,200 E-Commerce China Dangdang, Inc., Class A, ADR (a) (b) 584,460 6,755 Vipshop Holdings Ltd., ADR (b) 565,258 ------------ 4,044,946 ------------ INTERNET SOFTWARE & SERVICES -- 24.9% 27,423 21Vianet Group, Inc., ADR (a) (b) 644,989 28,228 Baidu, Inc., ADR (b) 5,021,197 19,218 Bitauto Holdings Ltd., ADR (b) 614,207 19,612 NetEase, Inc., ADR 1,541,503 SHARES DESCRIPTION VALUE ------------------------------------------------------------ INTERNET SOFTWARE & SERVICES (Continued) 59,707 Qihoo 360 Technology Co. Ltd., ADR (b) $ 4,898,959 186,965 Renren, Inc., ADR (a) (b) 570,243 17,618 SINA Corp. (b) 1,484,317 8,085 Sohu.com, Inc. (b) 589,639 7,425 SouFun Holdings Ltd., ADR 611,894 44,725 Youku Tudou, Inc., ADR (b) 1,355,168 10,903 YY, Inc., ADR (b) 548,203 ------------ 17,880,319 ------------ IT SERVICES -- 16.3% 88,906 Infosys Ltd., ADR 5,032,080 413,149 Wipro Ltd., ADR (a) 5,201,546 69,297 WNS Holdings Ltd., ADR (b) 1,518,297 ------------ 11,751,923 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.9% 16,082 WuXi PharmaTech Cayman, Inc., ADR (b) 617,227 ------------ Marine -- 0.8% 24,753 Seaspan Corp. (a) 568,081 ------------ OIL, GAS & CONSUMABLE FUELS -- 2.9% 6,500 China Petroleum & Chemical Corp., ADR 534,105 2,795 CNOOC Ltd., ADR 524,510 4,857 PetroChina Co., Ltd., ADR 533,007 56,264 Yanzhou Coal Mining Co., Ltd., ADR (a) 519,317 ------------ 2,110,939 ------------ PHARMACEUTICALS -- 4.1% 71,745 Dr. Reddy's Laboratories Ltd., ADR 2,943,697 ------------ REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.8% 39,142 E-House China Holdings Ltd., ADR 590,261 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.4% 63,264 JA Solar Holdings Co., Ltd., ADR (a) (b) 580,131 20,942 JinkoSolar Holding Co., Ltd., ADR (b) 613,600 196,415 ReneSola Ltd., ADR (a) (b) 677,632 45,264 Trina Solar Ltd., ADR (a) (b) 618,759 129,233 Yingli Green Energy Holding Co., Ltd., ADR (a) (b) 652,627 ------------ 3,142,749 ------------ Page 40 See Notes to Financial Statements FIRST TRUST ISE CHINDIA INDEX FUND (FNI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) SOFTWARE -- 3.3% 18,227 Changyou.com Ltd., ADR (a) (b) $ 584,175 49,148 Giant Interactive Group, Inc., ADR 552,423 44,964 NQ Mobile, Inc., ADR (a) (b) 660,971 30,293 Perfect World Co., Ltd., ADR 538,610 ------------ 2,336,179 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 6.6% 58,756 Michael Kors Holdings Ltd. (b) 4,770,400 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 3.8% 52,926 China Mobile Ltd., ADR 2,767,501 ------------ TOTAL COMMON STOCKS -- 100.0% 71,964,449 (Cost $55,868,753) MONEY MARKET FUNDS -- 13.3% 9,536,118 Goldman Sachs Financial Square Treasury Instruments Fund - Institutional Class - 0.001% (c) (d) 9,536,118 (Cost $9,536,118) ------------ TOTAL INVESTMENTS -- 113.3% 81,500,567 (Cost $65,404,871) (e) NET OTHER ASSETS AND LIABILITIES -- (13.3)% (9,538,608) ------------ NET ASSETS -- 100.0% $ 71,961,959 ============ (a) All or a portion of this security is on loan. (See Note 2E - Securities Lending in the Notes to Financial Statements). The aggregate value of such securities is $9,250,851 and the total value of the collateral held by the Fund is $9,536,118. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2013. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $66,404,388. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $17,169,540 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $2,073,361. ADR - American Depositary Receipt --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 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* $71,964,449 $ -- $ -- Money Market Funds 9,536,118 -- -- ----------------------------------------------- Total Investments $81,500,567 $ -- $ -- =============================================== 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, 2013. COUNTRY ALLOCATIONS AS A PERCENTAGE OF NET ASSETS**: ------------------------------------------------------------ China 48.8% India 35.2 Hong Kong 16.0 United States 13.3 Net Other Assets and Liabilities (13.3) ------ 100.0% ====== * See Portfolio of Investments for industry breakout. ** Portfolio securities are categorized based on their country of incorporation. --------------------------------------- OFFSETTING ASSETS AND LIABILITIES The Fund's loaned securities were all subject to enforceable Securities Lending Agency Agreements. Securities lent in accordance with Securities Lending Agency Agreements on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENTS ------------------------------------------------------------ Total gross amount presented on Statements of Assets and Liabilities(1) $ 9,250,851 Non-cash Collateral(2) (9,250,851) ---------------------------------------------------------- Net Amount $ -- =========== ------------------- (1) The amounts presented on the Statements of Assets and Liabilities are not offset and are shown on a gross basis. (2) At December 31, 2013, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed in the Portfolio of Investments. See Notes to Financial Statements Page 41 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 100.0% COMMERCIAL BANKS -- 87.5% 8,524 1st Source Corp. $ 272,257 8,378 Ameris Bancorp (a) 176,860 4,321 Arrow Financial Corp. 114,766 56,956 Associated Banc-Corp. 991,034 5,363 BancFirst Corp. 300,650 13,219 Bancorp (The), Inc. (a) 236,752 2,639 Bank of Kentucky Financial Corp. 97,379 1,914 Bank of Marin Bancorp 83,048 12,863 Bank of the Ozarks, Inc. 727,917 6,849 Banner Corp. 306,972 27,779 BBCN Bancorp, Inc. 460,854 27,974 Boston Private Financial Holdings, Inc. 353,032 3,916 Bridge Bancorp, Inc. 101,816 4,761 Bryn Mawr Bank Corp. 143,687 2,679 Camden National Corp. 113,107 11,366 Capital Bank Financial Corp., Class A (a) 258,576 10,613 Cardinal Financial Corp. 191,034 27,705 Cathay General Bancorp 740,555 10,553 Centerstate Banks, Inc. 107,113 10,436 Chemical Financial Corp. 330,508 5,512 City Holding Co. 255,371 14,135 CoBiz Financial, Inc. 169,055 17,968 Columbia Banking System, Inc. 494,300 33,592 Commerce Bancshares, Inc. 1,508,617 5,538 Community Trust Bancorp, Inc. 250,096 8,296 Customers Bancorp, Inc. (a) 169,736 36,881 CVB Financial Corp. 629,559 9,042 Eagle Bancorp, Inc. (b) 276,956 48,279 East West Bancorp, Inc. 1,688,317 6,755 Enterprise Financial Services Corp. 137,937 7,445 Fidelity Southern Corp. 123,661 4,840 Financial Institutions, Inc. 119,596 30,405 First Busey Corp. 176,349 3,009 First Citizens BancShares, Inc., Class A 669,894 6,611 First Community Bancshares, Inc. 110,404 5,767 First Connecticut Bancorp, Inc. 92,964 20,204 First Financial Bancorp 352,156 11,205 First Financial Bankshares, Inc. 743,116 4,664 First Financial Corp. 170,516 8,437 First Financial Holdings, Inc. 561,145 6,795 First Interstate BancSystem, Inc. 192,774 12,652 First Merchants Corp. 287,960 26,308 First Midwest Bancorp, Inc. 461,179 6,285 First NBC Bank Holding Co. (a) 203,005 3,198 First of Long Island (The) Corp. 137,098 57,839 FirstMerit Corp. 1,285,761 10,548 Flushing Financial Corp. 218,344 67,443 Fulton Financial Corp. 882,154 4,615 German American Bancorp, Inc. 131,527 26,045 Glacier Bancorp, Inc. 775,881 4,789 Great Southern Bancorp, Inc. 145,633 28,774 Hancock Holding Co. 1,055,430 11,129 Hanmi Financial Corp. 243,614 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMERCIAL BANKS (Continued) 6,434 Heartland Financial USA, Inc. $ 185,235 5,681 Heritage Financial Corp. 97,202 22,793 Home BancShares, Inc. 851,319 7,050 HomeTrust Bancshares, Inc. (a) 112,729 3,047 Horizon Bancorp 77,181 10,435 IBERIABANK Corp. 655,840 8,051 Independent Bank Corp./MA 315,519 7,995 Independent Bank Corp./MI (a) 95,940 4,232 Independent Bank Group, Inc. 210,161 23,551 International Bancshares Corp. 621,511 39,374 Investors Bancorp, Inc. 1,007,187 12,557 Lakeland Bancorp, Inc. 155,330 5,770 Lakeland Financial Corp. 225,030 7,151 MainSource Financial Group, Inc. 128,933 19,260 MB Financial, Inc. 618,053 2,212 Merchants Bancshares, Inc. 74,102 4,960 Metro Bancorp, Inc. (a) 106,838 51,072 National Penn Bancshares, Inc. 578,646 15,179 NBT Bancorp, Inc. 393,136 35,287 Old National Bancorp 542,361 4,012 OmniAmerican Bancorp, Inc. (a) 85,777 5,834 Pacific Premier Bancorp, Inc. (a) 91,827 15,531 PacWest Bancorp 655,719 1,688 Penns Woods Bancorp, Inc. 86,088 3,789 Peoples Bancorp, Inc. 85,290 12,318 Pinnacle Financial Partners, Inc. 400,705 26,672 PrivateBancorp, Inc. 771,621 10,990 Renasant Corp. 345,745 6,495 Republic Bancorp, Inc., Class A 159,387 10,421 S&T Bancorp, Inc. 263,756 5,104 S.Y. Bancorp, Inc. 162,920 8,756 Sandy Spring Bancorp, Inc. 246,832 6,651 Seacoast Banking Corp. of Florida (a) 81,142 16,571 Signature Bank (a) 1,780,057 5,678 Simmons First National Corp., Class A 210,938 6,272 Southside Bancshares, Inc. 171,476 6,905 Southwest Bancorp, Inc. (a) 109,928 11,242 State Bank Financial Corp. 204,492 4,056 Suffolk Bancorp (a) 84,365 65,617 Susquehanna Bancshares, Inc. 842,522 16,004 SVB Financial Group (a) 1,678,179 14,361 Texas Capital Bancshares, Inc. (a) 893,254 12,183 TowneBank 187,496 5,633 TriCo Bancshares 159,808 10,055 Tristate Capital Holdings, Inc. (a) 119,252 23,545 Trustmark Corp. 631,948 15,825 UMB Financial Corp. 1,017,231 39,225 Umpqua Holdings Corp. 750,766 8,734 Union First Market Bankshares Corp. 216,691 17,667 United Bankshares, Inc. 555,627 20,788 United Community Banks, Inc. (a) 368,987 5,707 Univest Corp. of Pennsylvania 118,021 14,001 ViewPoint Financial Group, Inc. 384,327 5,818 Washington Trust Bancorp, Inc. 216,546 Page 42 See Notes to Financial Statements FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) COMMERCIAL BANKS (Continued) 10,286 WesBanco, Inc. $ 329,152 9,332 Westamerica Bancorporation 526,885 24,804 Wilshire Bancorp, Inc. 271,108 13,995 Wintrust Financial Corp. 645,449 5,041 Yadkin Financial Corp. (a) 85,899 64,696 Zions Bancorporation 1,938,292 ------------ 45,815,780 ------------ IT SERVICES -- 0.5% 4,035 Cass Information Systems, Inc. 271,757 ------------ THRIFTS & MORTGAGE FINANCE -- 12.0% 6,316 Banc of California, Inc. 84,697 16,271 Bank Mutual Corp. 114,060 27,340 Beneficial Mutual Bancorp, Inc. (a) 298,553 4,854 BofI Holding, Inc. (a) 380,699 24,587 Brookline Bancorp, Inc. 235,298 51,815 Capitol Federal Financial, Inc. 627,480 7,973 Charter Financial Corp. 85,869 12,825 Dime Community Bancshares, Inc. 216,999 3,428 First Defiance Financial Corp. 89,025 5,055 HomeStreet, Inc. 101,100 2,091 Meta Financial Group, Inc. 84,330 20,304 Northfield Bancorp, Inc. 268,013 33,008 Northwest Bancshares, Inc. 487,858 6,093 OceanFirst Financial Corp. 104,373 16,008 Oritani Financial Corp. 256,928 9,100 Rockville Financial, Inc. 129,311 3,568 Territorial Bancorp, Inc. 82,778 107,645 TFS Financial Corp. (a) 1,304,119 33,100 TrustCo Bank Corp. 237,658 35,669 Washington Federal, Inc. 830,731 3,102 WSFS Financial Corp. 240,498 ------------ 6,260,377 ------------ TOTAL INVESTMENTS -- 100.0% 52,347,914 (Cost $44,859,851) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 14,399 ------------ NET ASSETS -- 100.0% $ 52,362,313 ============ ------------------- (a) Non-income producing security. (b) Non-income producing security which pays in-kind distributions. (c) Aggregate cost for federal income tax purposes is $45,042,112. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $7,363,436 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $57,634. --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $52,347,914 $ -- $ -- =============================================== * 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, 2013. See Notes to Financial Statements Page 43 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS -- 99.7% AEROSPACE & DEFENSE -- 2.8% 239 Boeing (The) Co. $ 32,621 116 General Dynamics Corp. 11,084 271 Honeywell International, Inc. 24,761 31 L-3 Communications Holdings, Inc. 3,313 93 Lockheed Martin Corp. 13,825 77 Northrop Grumman Corp. 8,825 50 Precision Castparts Corp. 13,465 110 Raytheon Co. 9,977 47 Rockwell Collins, Inc. 3,474 97 Textron, Inc. 3,566 292 United Technologies Corp. 33,230 ------------ 158,141 ------------ AIR FREIGHT & LOGISTICS -- 0.8% 52 C.H. Robinson Worldwide, Inc. 3,034 71 Expeditors International of Washington, Inc. 3,142 103 FedEx Corp. 14,808 247 United Parcel Service, Inc., Class B 25,955 ------------ 46,939 ------------ AIRLINES -- 0.2% 296 Delta Air Lines, Inc. 8,131 241 Southwest Airlines Co. 4,541 ------------ 12,672 ------------ AUTO COMPONENTS -- 0.4% 79 BorgWarner, Inc. 4,417 97 Delphi Automotive PLC 5,833 85 Goodyear Tire & Rubber (The) Co. 2,027 237 Johnson Controls, Inc. 12,158 ------------ 24,435 ------------ AUTOMOBILES -- 0.7% 1,363 Ford Motor Co. 21,031 393 General Motors Co. (a) 16,062 76 Harley-Davidson, Inc. 5,262 ------------ 42,355 ------------ BEVERAGES -- 2.2% 56 Beam, Inc. 3,811 56 Brown-Forman Corp., Class B 4,232 1,312 Coca-Cola (The) Co. 54,199 83 Coca-Cola Enterprises, Inc. 3,663 58 Constellation Brands, Inc., Class A (a) 4,082 69 Dr. Pepper Snapple Group, Inc. 3,362 55 Molson Coors Brewing Co., Class B 3,088 47 Monster Beverage Corp. (a) 3,185 530 PepsiCo, Inc. 43,958 ------------ 123,580 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ BIOTECHNOLOGY -- 2.4% 68 Alexion Pharmaceuticals, Inc. (a) $ 9,048 261 Amgen, Inc. 29,796 82 Biogen Idec, Inc. (a) 22,940 142 Celgene Corp. (a) 23,992 530 Gilead Sciences, Inc. (a) 39,830 27 Regeneron Pharmaceuticals, Inc. (a) 7,431 81 Vertex Pharmaceuticals, Inc. (a) 6,018 ------------ 139,055 ------------ BUILDING PRODUCTS -- 0.1% 31 Allegion PLC (a) 1,370 123 Masco Corp. 2,801 ------------ 4,171 ------------ CAPITAL MARKETS -- 2.2% 67 Ameriprise Financial, Inc. 7,708 397 Bank of New York Mellon (The) Corp. 13,871 44 BlackRock, Inc. 13,925 401 Charles Schwab (The) Corp. 10,426 99 E*TRADE Financial Corp. (a) 1,944 139 Franklin Resources, Inc. 8,025 146 Goldman Sachs Group (The), Inc. 25,880 153 Invesco Ltd. 5,569 37 Legg Mason, Inc. 1,609 479 Morgan Stanley 15,022 78 Northern Trust Corp. 4,827 152 State Street Corp. 11,155 90 T. Rowe Price Group, Inc. 7,539 ------------ 127,500 ------------ CHEMICALS -- 2.6% 73 Air Products and Chemicals, Inc. 8,160 23 Airgas, Inc. 2,573 20 CF Industries Holdings, Inc. 4,661 419 Dow Chemical (The) Co. 18,604 320 E.I. du Pont de Nemours & Co. 20,790 53 Eastman Chemical Co. 4,277 94 Ecolab, Inc. 9,801 46 FMC Corp. 3,471 28 International Flavors & Fragrances, Inc. 2,408 151 LyondellBasell Industries N.V., Class A 12,122 182 Monsanto Co. 21,212 118 Mosaic (The) Co. 5,578 49 PPG Industries, Inc. 9,293 102 Praxair, Inc. 13,263 30 Sherwin-Williams (The) Co. 5,505 41 Sigma-Aldrich Corp. 3,854 ------------ 145,572 ------------ COMMERCIAL BANKS -- 2.8% 244 BB&T Corp. 9,106 63 Comerica, Inc. 2,995 305 Fifth Third Bancorp 6,414 287 Huntington Bancshares, Inc. 2,770 310 KeyCorp 4,160 Page 44 See Notes to Financial Statements FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) COMMERCIAL BANKS (Continued) 45 M&T Bank Corp. $ 5,239 184 PNC Financial Services Group, Inc. 14,275 476 Regions Financial Corp. 4,708 185 SunTrust Banks, Inc. 6,810 631 U.S. Bancorp 25,492 1,656 Wells Fargo & Co. 75,182 64 Zions Bancorporation 1,917 ------------ 159,068 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.5% 69 ADT (The) Corp. 2,792 35 Cintas Corp. 2,086 59 Iron Mountain, Inc. 1,791 70 Pitney Bowes, Inc. 1,631 93 Republic Services, Inc. 3,088 30 Stericycle, Inc. (a) 3,485 161 Tyco International Ltd. 6,607 151 Waste Management, Inc. 6,775 ------------ 28,255 ------------ COMMUNICATIONS EQUIPMENT -- 1.7% 1,847 Cisco Systems, Inc. 41,465 27 F5 Networks, Inc. (a) 2,454 37 Harris Corp. 2,583 174 Juniper Networks, Inc. (a) 3,927 80 Motorola Solutions, Inc. 5,400 584 QUALCOMM, Inc. 43,362 ------------ 99,191 ------------ COMPUTERS & PERIPHERALS -- 4.1% 311 Apple, Inc. 174,505 711 EMC Corp. 17,882 664 Hewlett-Packard Co. 18,579 118 NetApp, Inc. 4,854 78 SanDisk Corp. 5,502 113 Seagate Technology PLC 6,346 73 Western Digital Corp. 6,125 ------------ 233,793 ------------ CONSTRUCTION & ENGINEERING -- 0.2% 56 Fluor Corp. 4,496 46 Jacobs Engineering Group, Inc. (a) 2,898 75 Quanta Services, Inc. (a) 2,367 ------------ 9,761 ------------ CONSTRUCTION MATERIALS -- 0.1% 45 Vulcan Materials Co. 2,674 ------------ CONSUMER FINANCE -- 1.0% 318 American Express Co. 28,852 199 Capital One Financial Corp. 15,246 165 Discover Financial Services 9,232 151 SLM Corp. 3,968 ------------ 57,298 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ CONTAINERS & PACKAGING -- 0.2% 33 Avery Dennison Corp. $ 1,656 50 Ball Corp. 2,583 36 Bemis Co., Inc. 1,475 61 MeadWestvaco Corp. 2,253 57 Owens-Illinois, Inc. (a) 2,039 68 Sealed Air Corp. 2,315 ------------ 12,321 ------------ DISTRIBUTORS -- 0.1% 53 Genuine Parts Co. 4,409 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.1% 2 Graham Holdings Co., Class B (a) 1,326 94 H&R Block, Inc. 2,730 ------------ 4,056 ------------ DIVERSIFIED FINANCIAL SERVICES -- 5.2% 3,685 Bank of America Corp. 57,375 622 Berkshire Hathaway, Inc., Class B (a) 73,744 1,048 Citigroup, Inc. 54,611 109 CME Group, Inc. 8,552 40 IntercontinentalExchange Group, Inc. 8,997 1,299 JPMorgan Chase & Co. 75,966 108 Leucadia National Corp. 3,061 94 McGraw Hill Financial, Inc. 7,351 65 Moody's Corp. 5,101 40 NASDAQ OMX Group (The), Inc. 1,592 ------------ 296,350 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.1% 1,820 AT&T, Inc. 63,991 204 CenturyLink, Inc. 6,497 345 Frontier Communications Corp. 1,604 989 Verizon Communications, Inc. 48,600 206 Windstream Holdings, Inc. 1,644 ------------ 122,336 ------------ ELECTRIC UTILITIES -- 1.6% 168 American Electric Power Co., Inc. 7,852 244 Duke Energy Corp. 16,838 113 Edison International 5,232 62 Entergy Corp. 3,923 296 Exelon Corp. 8,107 144 FirstEnergy Corp. 4,749 149 NextEra Energy, Inc. 12,757 109 Northeast Utilities 4,621 86 Pepco Holdings, Inc. 1,645 38 Pinnacle West Capital Corp. 2,011 218 PPL Corp. 6,560 305 Southern (The) Co. 12,539 172 Xcel Energy, Inc. 4,806 ------------ 91,640 ------------ See Notes to Financial Statements Page 45 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) ELECTRICAL EQUIPMENT -- 0.8% 85 AMETEK, Inc. $ 4,477 164 Eaton Corp. PLC 12,484 243 Emerson Electric Co. 17,054 48 Rockwell Automation, Inc. 5,671 34 Roper Industries, Inc. 4,715 ------------ 44,401 ------------ ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.4% 55 Amphenol Corp., Class A 4,905 500 Corning, Inc. 8,910 49 FLIR Systems, Inc. 1,475 64 Jabil Circuit, Inc. 1,116 142 TE Connectivity Ltd. 7,826 ------------ 24,232 ------------ ENERGY EQUIPMENT & SERVICES -- 1.9% 153 Baker Hughes, Inc. 8,455 82 Cameron International Corp. (a) 4,881 24 Diamond Offshore Drilling, Inc. 1,366 81 Ensco PLC, Class A 4,632 82 FMC Technologies, Inc. (a) 4,281 293 Halliburton Co. 14,870 37 Helmerich & Payne, Inc. 3,111 90 Nabors Industries Ltd. 1,529 148 National Oilwell Varco, Inc. 11,770 88 Noble Corp. PLC 3,297 43 Rowan Cos. PLC, Class A (a) 1,521 455 Schlumberger Ltd. 41,000 117 Transocean Ltd. 5,782 ------------ 106,495 ------------ FOOD & STAPLES RETAILING -- 2.3% 151 Costco Wholesale Corp. 17,971 411 CVS Caremark Corp. 29,415 180 Kroger (The) Co. 7,115 85 Safeway, Inc. 2,769 201 Sysco Corp. 7,256 301 Walgreen Co. 17,289 559 Wal-Mart Stores, Inc. 43,988 129 Whole Foods Market, Inc. 7,460 ------------ 133,263 ------------ FOOD PRODUCTS -- 1.6% 227 Archer-Daniels-Midland Co. 9,852 62 Campbell Soup Co. 2,684 146 ConAgra Foods, Inc. 4,920 219 General Mills, Inc. 10,930 52 Hershey (The) Co. 5,056 47 Hormel Foods Corp. 2,123 36 J.M. Smucker (The) Co. 3,730 89 Kellogg Co. 5,435 206 Kraft Foods Group, Inc. 11,108 46 McCormick & Co., Inc. 3,170 70 Mead Johnson Nutrition Co. 5,863 SHARES DESCRIPTION VALUE ------------------------------------------------------------ FOOD PRODUCTS (Continued) 606 Mondelez International, Inc., Class A $ 21,392 94 Tyson Foods, Inc., Class A 3,145 ------------ 89,408 ------------ GAS UTILITIES -- 0.1% 41 AGL Resources, Inc. 1,936 71 ONEOK, Inc. 4,415 ------------ 6,351 ------------ HEALTH CARE EQUIPMENT & SUPPLIES -- 2.0% 534 Abbott Laboratories 20,468 187 Baxter International, Inc. 13,006 67 Becton, Dickinson & Co. 7,403 461 Boston Scientific Corp. (a) 5,541 27 C. R. Bard, Inc. 3,616 73 CareFusion Corp. (a) 2,907 159 Covidien PLC 10,828 49 DENTSPLY International, Inc. 2,375 38 Edwards Lifesciences Corp. (a) 2,499 13 Intuitive Surgical, Inc. (a) 4,993 345 Medtronic, Inc. 19,800 101 St. Jude Medical, Inc. 6,257 102 Stryker Corp. 7,664 37 Varian Medical Systems, Inc. (a) 2,875 59 Zimmer Holdings, Inc. 5,498 ------------ 115,730 ------------ HEALTH CARE PROVIDERS & SERVICES -- 2.0% 127 Aetna, Inc. 8,711 79 AmerisourceBergen Corp. 5,554 118 Cardinal Health, Inc. 7,884 95 Cigna Corp. 8,311 61 DaVita HealthCare Partners, Inc. (a) 3,865 278 Express Scripts Holding Co. (a) 19,527 54 Humana, Inc. 5,574 30 Laboratory Corp. of America Holdings (a) 2,741 79 McKesson Corp. 12,751 29 Patterson Cos., Inc. 1,195 50 Quest Diagnostics, Inc. 2,677 34 Tenet Healthcare Corp. (a) 1,432 348 UnitedHealth Group, Inc. 26,204 102 WellPoint, Inc. 9,424 ------------ 115,850 ------------ HEALTH CARE TECHNOLOGY -- 0.1% 102 Cerner Corp. (a) 5,685 ------------ HOTELS, RESTAURANTS & LEISURE -- 1.7% 151 Carnival Corp. 6,066 11 Chipotle Mexican Grill, Inc. (a) 5,860 45 Darden Restaurants, Inc. 2,447 86 International Game Technology 1,562 78 Marriott International, Inc., Class A 3,850 344 McDonald's Corp. 33,378 Page 46 See Notes to Financial Statements FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) HOTELS, RESTAURANTS & LEISURE (Continued) 260 Starbucks Corp. $ 20,381 66 Starwood Hotels & Resorts Worldwide, Inc. 5,244 45 Wyndham Worldwide Corp. 3,316 28 Wynn Resorts Ltd. 5,438 154 Yum! Brands, Inc. 11,644 ------------ 99,186 ------------ HOUSEHOLD DURABLES -- 0.4% 98 D.R. Horton, Inc. (a) 2,187 42 Garmin Ltd. 1,941 23 Harman International Industries, Inc. 1,883 49 Leggett & Platt, Inc. 1,516 58 Lennar Corp., Class A 2,294 21 Mohawk Industries, Inc. (a) 3,127 99 Newell Rubbermaid, Inc. 3,209 119 PulteGroup, Inc. 2,424 27 Whirlpool Corp. 4,235 ------------ 22,816 ------------ HOUSEHOLD PRODUCTS -- 2.0% 45 Clorox (The) Co. 4,174 304 Colgate-Palmolive Co. 19,824 132 Kimberly-Clark Corp. 13,789 939 Procter & Gamble (The) Co. 76,444 ------------ 114,231 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.1% 227 AES (The) Corp. 3,294 112 NRG Energy, Inc. 3,216 ------------ 6,510 ------------ INDUSTRIAL CONGLOMERATES -- 2.5% 221 3M Co. 30,995 207 Danaher Corp. 15,981 3,495 General Electric Co. 97,965 ------------ 144,941 ------------ INSURANCE -- 3.0% 117 ACE Ltd. 12,113 161 Aflac, Inc. 10,755 157 Allstate (The) Corp. 8,563 509 American International Group, Inc. 25,985 104 Aon PLC 8,725 25 Assurant, Inc. 1,659 87 Chubb (The) Corp. 8,407 51 Cincinnati Financial Corp. 2,671 171 Genworth Financial, Inc., Class A (a) 2,656 154 Hartford Financial Services Group (The), Inc. 5,579 91 Lincoln National Corp. 4,697 106 Loews Corp. 5,113 190 Marsh & McLennan Cos., Inc. 9,188 SHARES DESCRIPTION VALUE ------------------------------------------------------------ INSURANCE (Continued) 387 MetLife, Inc. $ 20,867 95 Principal Financial Group, Inc. 4,684 191 Progressive (The) Corp. 5,209 160 Prudential Financial, Inc. 14,755 31 Torchmark Corp. 2,423 126 Travelers (The) Cos., Inc. 11,408 90 Unum Group 3,157 98 XL Group PLC 3,120 ------------ 171,734 ------------ INTERNET & CATALOG RETAIL -- 1.5% 128 Amazon.com, Inc. (a) 51,045 36 Expedia, Inc. 2,508 20 Netflix, Inc. (a) 7,363 18 priceline.com, Inc. (a) 20,923 38 TripAdvisor, Inc. (a) 3,148 ------------ 84,987 ------------ INTERNET SOFTWARE & SERVICES -- 3.2% 62 Akamai Technologies, Inc. (a) 2,925 403 eBay, Inc. (a) 22,121 568 Facebook, Inc., Class A (a) 31,047 97 Google, Inc., Class A (a) 108,709 45 VeriSign, Inc. (a) 2,690 326 Yahoo!, Inc. (a) 13,183 ------------ 180,675 ------------ IT SERVICES -- 3.7% 220 Accenture PLC, Class A 18,088 17 Alliance Data Systems Corp. (a) 4,470 166 Automatic Data Processing, Inc. 13,415 104 Cognizant Technology Solutions Corp., Class A (a) 10,502 51 Computer Sciences Corp. 2,850 101 Fidelity National Information Services, Inc. 5,422 89 Fiserv, Inc. (a) 5,255 353 International Business Machines Corp. 66,212 36 MasterCard, Inc., Class A 30,077 112 Paychex, Inc. 5,099 56 Teradata Corp. (a) 2,547 58 Total System Services, Inc. 1,930 176 Visa, Inc., Class A 39,192 191 Western Union Co. 3,295 400 Xerox Corp. 4,868 ------------ 213,222 ------------ LEISURE EQUIPMENT & PRODUCTS -- 0.1% 40 Hasbro, Inc. 2,200 117 Mattel, Inc. 5,567 ------------ 7,767 ------------ LIFE SCIENCES TOOLS & SERVICES -- 0.5% 114 Agilent Technologies, Inc. 6,519 60 Life Technologies Corp. (a) 4,548 39 PerkinElmer, Inc. 1,608 See Notes to Financial Statements Page 47 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) LIFE SCIENCES TOOLS & SERVICES -- (Continued) 125 Thermo Fisher Scientific, Inc. $ 13,919 29 Waters Corp. (a) 2,900 ------------ 29,494 ------------ MACHINERY -- 1.8% 220 Caterpillar, Inc. 19,978 60 Cummins, Inc. 8,458 132 Deere & Co. 12,056 59 Dover Corp. 5,696 48 Flowserve Corp. 3,784 141 Illinois Tool Works, Inc. 11,855 93 Ingersoll-Rand PLC 5,729 37 Joy Global, Inc. 2,164 122 PACCAR, Inc. 7,219 38 Pall Corp. 3,243 52 Parker Hannifin Corp. 6,689 69 Pentair Ltd. 5,359 20 Snap-on, Inc. 2,191 54 Stanley Black & Decker, Inc. 4,357 64 Xylem, Inc. 2,215 ------------ 100,993 ------------ MEDIA -- 3.7% 74 Cablevision Systems Corp., Class A 1,327 193 CBS Corp., Class B 12,302 900 Comcast Corp., Class A 46,768 169 DIRECTV (a) 11,676 78 Discovery Communications, Inc., Class A (a) 7,053 79 Gannett Co., Inc. 2,337 144 Interpublic Group of Cos. (The), Inc. 2,549 172 News Corp., Class A (a) 3,099 89 Omnicom Group, Inc. 6,619 38 Scripps Networks Interactive, Class A 3,284 97 Time Warner Cable, Inc. 13,143 313 Time Warner, Inc. 21,822 678 Twenty-First Century Fox, Inc., Class A 23,852 140 Viacom, Inc., Class B 12,228 565 Walt Disney (The) Co. 43,166 ------------ 211,225 ------------ METALS & MINING -- 0.6% 370 Alcoa, Inc. 3,933 37 Allegheny Technologies, Inc. 1,318 53 Cliffs Natural Resources, Inc. 1,389 359 Freeport-McMoRan Copper & Gold, Inc. 13,549 172 Newmont Mining Corp. 3,961 110 Nucor Corp. 5,872 50 United States Steel Corp. 1,475 ------------ 31,497 ------------ SHARES DESCRIPTION VALUE ------------------------------------------------------------ MULTILINE RETAIL -- 0.7% 102 Dollar General Corp. (a) $ 6,153 72 Dollar Tree, Inc. (a) 4,062 33 Family Dollar Stores, Inc. 2,144 70 Kohl's Corp. 3,972 127 Macy's, Inc. 6,782 49 Nordstrom, Inc. 3,028 218 Target Corp. 13,793 ------------ 39,934 ------------ MULTI-UTILITIES -- 1.1% 84 Ameren Corp. 3,037 148 CenterPoint Energy, Inc. 3,431 92 CMS Energy Corp. 2,463 101 Consolidated Edison, Inc. 5,583 201 Dominion Resources, Inc. 13,003 61 DTE Energy Co. 4,050 28 Integrys Energy Group, Inc. 1,523 108 NiSource, Inc. 3,551 155 PG&E Corp. 6,243 175 Public Service Enterprise Group, Inc. 5,607 49 SCANA Corp. 2,300 79 Sempra Energy 7,091 71 TECO Energy, Inc. 1,224 78 Wisconsin Energy Corp. 3,225 ------------ 62,331 ------------ OIL, GAS & CONSUMABLE FUELS -- 8.4% 174 Anadarko Petroleum Corp. 13,802 138 Apache Corp. 11,860 145 Cabot Oil & Gas Corp. 5,620 175 Chesapeake Energy Corp. 4,749 664 Chevron Corp. 82,940 423 ConocoPhillips 29,885 79 CONSOL Energy, Inc. 3,005 127 Denbury Resources, Inc. (a) 2,087 132 Devon Energy Corp. 8,167 94 EOG Resources, Inc. 15,777 52 EQT Corp. 4,669 1,509 Exxon Mobil Corp. 152,711 98 Hess Corp. 8,134 233 Kinder Morgan, Inc. 8,388 241 Marathon Oil Corp. 8,507 104 Marathon Petroleum Corp. 9,540 61 Murphy Oil Corp. 3,958 47 Newfield Exploration Co. (a) 1,158 124 Noble Energy, Inc. 8,446 278 Occidental Petroleum Corp. 26,438 93 Peabody Energy Corp. 1,816 207 Phillips 66 15,966 49 Pioneer Natural Resources Co. 9,019 62 QEP Resources, Inc. 1,900 56 Range Resources Corp. 4,721 121 Southwestern Energy Co. (a) 4,759 231 Spectra Energy Corp. 8,228 Page 48 See Notes to Financial Statements FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) OIL, GAS & CONSUMABLE FUELS (Continued) 46 Tesoro Corp. $ 2,691 186 Valero Energy Corp. 9,374 236 Williams (The) Cos., Inc. 9,103 69 WPX Energy, Inc. (a) 1,406 ------------ 478,824 ------------ PAPER & FOREST PRODUCTS -- 0.1% 153 International Paper Co. 7,502 ------------ PERSONAL PRODUCTS -- 0.2% 150 Avon Products, Inc. 2,583 88 Estee Lauder (The) Cos., Inc., Class A 6,628 ------------ 9,211 ------------ PHARMACEUTICALS -- 5.8% 550 AbbVie, Inc. 29,046 60 Actavis PLC (a) 10,080 103 Allergan, Inc. 11,441 569 Bristol-Myers Squibb Co. 30,242 343 Eli Lilly & Co. 17,493 82 Forest Laboratories, Inc. (a) 4,923 57 Hospira, Inc. (a) 2,353 975 Johnson & Johnson 89,300 1,009 Merck & Co., Inc. 50,500 132 Mylan, Inc. (a) 5,729 46 Perrigo Co PLC 7,059 2,239 Pfizer, Inc. 68,581 173 Zoetis, Inc. 5,655 ------------ 332,402 ------------ PROFESSIONAL SERVICES -- 0.2% 13 Dun & Bradstreet (The) Corp. 1,596 42 Equifax, Inc. 2,902 87 Nielsen Holdings N.V. 3,992 48 Robert Half International, Inc. 2,015 ------------ 10,505 ------------ REAL ESTATE INVESTMENT TRUSTS -- 1.8% 136 American Tower Corp. 10,855 50 Apartment Investment & Management Co., Class A 1,295 42 AvalonBay Communities, Inc. 4,966 53 Boston Properties, Inc. 5,320 116 Equity Residential 6,017 186 General Growth Properties, Inc. 3,733 158 HCP, Inc. 5,739 100 Health Care REIT, Inc. 5,357 261 Host Hotels & Resorts, Inc. 5,074 142 Kimco Realty Corp. 2,804 49 Macerich (The) Co. 2,886 61 Plum Creek Timber Co., Inc. 2,837 172 Prologis, Inc. 6,355 50 Public Storage 7,526 107 Simon Property Group, Inc. 16,281 102 Ventas, Inc. 5,843 SHARES DESCRIPTION VALUE ------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS (Continued) 60 Vornado Realty Trust $ 5,327 201 Weyerhaeuser Co. 6,346 ------------ 104,561 ------------ REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.0% 96 CBRE Group, Inc., Class A (a) 2,525 ------------ ROAD & RAIL -- 0.9% 350 CSX Corp. 10,069 38 Kansas City Southern 4,706 107 Norfolk Southern Corp. 9,933 18 Ryder System, Inc. 1,328 159 Union Pacific Corp. 26,712 ------------ 52,748 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 2.0% 111 Altera Corp. 3,611 107 Analog Devices, Inc. 5,449 416 Applied Materials, Inc. 7,359 186 Broadcom Corp., Class A 5,515 24 First Solar, Inc. (a) 1,311 1,717 Intel Corp. 44,573 58 KLA-Tencor Corp. 3,739 56 Lam Research Corp. (a) 3,049 81 Linear Technology Corp. 3,689 188 LSI Corp. 2,072 69 Microchip Technology, Inc. 3,088 363 Micron Technology, Inc. (a) 7,899 200 NVIDIA Corp. 3,204 378 Texas Instruments, Inc. 16,598 93 Xilinx, Inc. 4,271 ------------ 115,427 ------------ SOFTWARE -- 3.4% 161 Adobe Systems, Inc. (a) 9,641 78 Autodesk, Inc. (a) 3,926 112 CA, Inc. 3,769 64 Citrix Systems, Inc. (a) 4,048 107 Electronic Arts, Inc. (a) 2,455 98 Intuit, Inc. 7,479 2,624 Microsoft Corp. 98,216 1,212 Oracle Corp. 46,371 65 Red Hat, Inc. (a) 3,643 192 Salesforce.com, Inc. (a) 10,596 240 Symantec Corp. 5,659 ------------ 195,803 ------------ SPECIALTY RETAIL -- 2.2% 22 AutoNation, Inc. (a) 1,093 12 AutoZone, Inc. (a) 5,735 74 Bed Bath & Beyond, Inc. (a) 5,942 94 Best Buy Co., Inc. 3,749 77 CarMax, Inc. (a) 3,621 40 GameStop Corp., Class A 1,970 92 Gap (The), Inc. 3,595 486 Home Depot (The), Inc. 40,017 See Notes to Financial Statements Page 49 FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2013 SHARES DESCRIPTION VALUE ------------------------------------------------------------ COMMON STOCKS (CONTINUED) SPECIALTY RETAIL (Continued) 84 L Brands, Inc. $ 5,195 361 Lowe's Cos., Inc. 17,888 37 O'Reilly Automotive, Inc. (a) 4,762 36 PetSmart, Inc. 2,619 75 Ross Stores, Inc. 5,620 228 Staples, Inc. 3,623 38 Tiffany & Co. 3,526 246 TJX (The) Cos., Inc. 15,678 38 Urban Outfitters, Inc. (a) 1,410 ------------ 126,043 ------------ TEXTILES, APPAREL & LUXURY GOODS -- 0.8% 97 Coach, Inc. 5,445 17 Fossil Group, Inc. (a) 2,039 62 Michael Kors Holdings Ltd. (a) 5,034 258 NIKE, Inc., Class B 20,289 28 PVH Corp. 3,808 21 Ralph Lauren Corp. 3,708 120 VF Corp. 7,481 ------------ 47,804 ------------ THRIFTS & MORTGAGE FINANCE -- 0.1% 164 Hudson City Bancorp, Inc. 1,547 110 People's United Financial, Inc. 1,663 ------------ 3,210 ------------ TOBACCO -- 1.5% 691 Altria Group, Inc. 26,528 127 Lorillard, Inc. 6,436 553 Philip Morris International, Inc. 48,183 108 Reynolds American, Inc. 5,399 ------------ 86,546 ------------ TRADING COMPANIES & DISTRIBUTORS -- 0.2% 94 Fastenal Co. 4,466 21 W.W. Grainger, Inc. 5,364 ------------ 9,830 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.2% 115 Crown Castle International Corp. (a) 8,444 ------------ TOTAL COMMON STOCKS -- 99.7% 5,699,915 (Cost $4,678,123) CONTRACTS ----------- OPTIONS PURCHASED -- 0.4% Call Options 743 VIX US, expiring 01/22/2014, Strike Price $18 (a) 20,061 (Cost $59,822) ------------ DESCRIPTION VALUE ------------------------------------------------------------ TOTAL INVESTMENTS -- 100.1% $ 5,719,976 (Cost $4,737,945) (b) NET OTHER ASSETS AND LIABILITIES -- (0.1)% (4,190) ------------ NET ASSETS -- 100.0% $ 5,715,786 ============ ------------------- (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $4,704,027. As of December 31, 2013, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,048,332 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $32,383. --------------------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial Statements): Level 1 - Quoted Prices Level 2 - Other Significant Observable Inputs Level 3 - Significant Unobservable Inputs INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3 --------------------------------------------------------------------- Common Stocks* $5,699,915 $ -- $ -- Options Purchased 20,061 -- -- --------------------------------------------- Total Investments $5,719,976 $ -- $ -- ============================================= * 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, 2013. Page 50 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2013
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 (QQEW) (QTEC) (QQXT) ------------------ ------------------ -------------------- ASSETS: Investments, at value................................................. $ 294,415,526 $ 177,166,885 $ 92,258,642 Cash.................................................................. 161,159 159,381 -- Receivables: Capital shares sold............................................. 12,682,588 -- -- Investment securities sold...................................... -- -- -- Dividends....................................................... 176,971 15,751 92,017 Securities lending income....................................... 13,211 -- 6,998 Reclaims........................................................ -- -- -- Interest........................................................ -- -- -- Due from authorized participant................................. -- -- -- From investment advisor......................................... -- -- -- Prepaid expenses...................................................... 7,207 2,411 1,211 -------------- -------------- -------------- TOTAL ASSETS.................................................... 307,456,662 177,344,428 92,358,868 -------------- -------------- -------------- LIABILITIES: Due to custodian...................................................... -- -- -- Payables: Capital shares purchased........................................ -- -- -- Investment securities purchased................................. 12,671,785 -- -- Collateral for securities on loan............................... 5,540,470 -- 1,863,846 Investment advisory fees........................................ 89,577 57,601 20,440 Licensing fees.................................................. 71,154 39,871 20,695 Audit and tax fees.............................................. 22,925 22,925 22,925 Printing fees................................................... 7,230 7,296 4,189 Trustees' fees.................................................. 5 29 295 Other liabilities..................................................... 108,500 52,084 30,608 -------------- -------------- -------------- TOTAL LIABILITIES............................................... 18,511,646 179,806 1,962,998 -------------- -------------- -------------- NET ASSETS............................................................ $ 288,945,016 $ 177,164,622 $ 90,395,870 ============== ============== ============== NET ASSETS CONSIST OF: Paid-in capital....................................................... $ 279,908,744 $ 163,718,704 $ 76,314,483 Par value............................................................. 79,500 50,000 26,000 Accumulated net investment income (loss).............................. -- -- 22,558 Accumulated net realized gain (loss) on investments................... (11,417,668) (21,968,643) (4,013,413) Net unrealized appreciation (depreciation) on investments............. 20,374,440 35,364,561 18,046,242 -------------- -------------- -------------- NET ASSETS............................................................ $ 288,945,016 $ 177,164,622 $ 90,395,870 ============== ============== ============== NET ASSET VALUE, per share............................................ $ 36.35 $ 35.43 $ 34.77 ============== ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)...................................... 7,950,002 5,000,002 2,600,002 -------------- -------------- -------------- Investments, at cost.................................................. $ 274,041,086 $ 141,802,324 $ 74,212,400 ============== ============== ============== Securities on loan, at value......................................... $ 5,430,061 $ -- $ 1,826,483 ============== ============== ==============
See Notes to Financial Statements Page 51 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) DECEMBER 31, 2013
FIRST TRUST NASDAQ(R) FIRST TRUST FIRST TRUST CLEAN EDGE(R) S&P ISE GREEN ENERGY REIT WATER INDEX FUND INDEX FUND INDEX FUND (QCLN) (FRI) (FIW) ------------------ ------------------ -------------------- ASSETS: Investments, at value................................................. $ 116,238,220 $ 147,764,978 $ 197,651,647 Cash.................................................................. -- -- -- Receivables: Capital shares sold............................................. -- -- -- Investment securities sold...................................... 85,798 5,015 694,727 Dividends....................................................... 5,042 730,630 61,156 Securities lending income....................................... 36,555 -- -- Reclaims........................................................ -- -- 43,368 Interest........................................................ -- 18 4 Due from authorized participant................................. -- -- -- From investment advisor......................................... -- -- -- Prepaid expenses...................................................... 1,169 2,581 2,259 -------------- -------------- -------------- TOTAL ASSETS.................................................... 116,366,784 148,503,222 198,453,161 -------------- -------------- -------------- LIABILITIES: Due to custodian...................................................... 26,329 642 619,892 Payables: Capital shares purchased........................................ -- -- -- Investment securities purchased................................. -- -- -- Collateral for securities on loan............................... 18,665,457 -- -- Investment advisory fees........................................ 16,401 43,017 60,101 Licensing fees.................................................. 22,006 148,738 38,669 Audit and tax fees.............................................. 22,925 22,925 22,925 Printing fees................................................... 4,519 25,615 8,985 Trustees' fees.................................................. 6 -- 237 Other liabilities..................................................... 35,456 51,983 59,152 -------------- -------------- -------------- TOTAL LIABILITIES............................................... 18,793,099 292,920 809,961 -------------- -------------- -------------- NET ASSETS............................................................ $ 97,573,685 $ 148,210,302 $ 197,643,200 ============== ============== ============== NET ASSETS CONSIST OF: Paid-in capital....................................................... $ 110,690,784 $ 156,571,872 $ 175,213,370 Par value............................................................. 54,500 84,500 58,500 Accumulated net investment income (loss).............................. 29,696 -- -- Accumulated net realized gain (loss) on investments................... (35,099,930) (1,879,166) (13,631,088) Net unrealized appreciation (depreciation) on investments............. 21,898,635 (6,566,904) 36,002,418 -------------- -------------- -------------- NET ASSETS............................................................ $ 97,573,685 $ 148,210,302 $ 197,643,200 ============== ============== ============== NET ASSET VALUE, per share............................................ $ 17.90 $ 17.54 $ 33.79 ============== ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)...................................... 5,450,002 8,450,002 5,850,002 -------------- -------------- -------------- Investments, at cost.................................................. $ 94,339,585 $ 154,331,882 $ 161,649,229 ============== ============== ============== Securities on loan, at value......................................... $ 17,954,269 $ -- $ -- ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE ISE-REVERE ISE COMMUNITY S&P 500 NATURAL GAS CHINDIA BANK VIX INDEX FUND INDEX FUND INDEX FUND TAIL HEDGE FUND (FCG) (FNI) (QABA) (VIXH) --------------- --------------- --------------- --------------- $ 543,931,946 $ 81,500,567 $ 52,347,914 $ 5,719,976 156,006 -- 19,647 -- -- -- 3,630,694 -- 5,199,239 636,528 -- -- -- -- 57,512 7,718 35,134 12,704 -- -- -- -- -- -- 8 -- -- -- -- -- 784,453 -- -- 6,150 -- -- 7,889 1,035 598 -- --------------- --------------- --------------- --------------- 549,330,222 82,156,984 56,840,818 5,727,694 --------------- --------------- --------------- --------------- -- 573,250 -- 9,045 4,882,217 -- 784,453 -- -- -- 3,630,882 -- 79,063,669 9,536,118 -- -- 151,176 -- 11,017 2,863 240,020 25,760 10,074 -- 22,925 22,925 22,925 -- 24,639 4,376 1,167 -- 90 282 -- -- 150,677 32,314 17,987 -- --------------- --------------- --------------- --------------- 84,535,413 10,195,025 4,478,505 11,908 --------------- --------------- --------------- --------------- $ 464,794,809 $ 71,961,959 $ 52,362,313 $ 5,715,786 =============== =============== =============== =============== $ 616,688,334 $ 106,894,885 $ 45,676,497 $ 5,240,255 238,000 25,500 14,500 2,500 151,483 9,106 7,290 904 (155,290,317) (51,063,228) (824,037) (509,904) 3,007,309 16,095,696 7,488,063 982,031 --------------- --------------- --------------- --------------- $ 464,794,809 $ 71,961,959 $ 52,362,313 $ 5,715,786 =============== =============== =============== =============== $ 19.53 $ 28.22 $ 36.11 $ 22.86 =============== =============== =============== =============== 23,800,002 2,550,002 1,450,002 250,002 --------------- --------------- --------------- --------------- $ 540,924,637 $ 65,404,871 $ 44,859,851 $ 4,737,945 =============== =============== =============== =============== $ 76,784,626 $ 9,250,851 $ -- $ -- =============== =============== =============== ===============
See Notes to Financial Statements Page 53 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2013
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 (QQEW) (QTEC) (QQXT) ------------------ ------------------ -------------------- INVESTMENT INCOME: Dividends........................................................ $ 2,155,709 $ 1,834,154 $ 590,567 Securities lending income (net of fees).......................... 117,024 -- 49,159 Foreign tax withholding.......................................... (12,342) -- -- Interest......................................................... -- -- 17 -------------- -------------- -------------- Total investment income....................................... 2,260,391 1,834,154 639,743 -------------- -------------- -------------- EXPENSES: Investment advisory fees......................................... 751,338 523,516 260,874 Licensing fees................................................... 187,834 130,879 65,219 Accounting and administration fees............................... 95,377 67,023 34,182 Custodian fees................................................... 31,903 16,316 11,817 Legal fees....................................................... 23,528 9,421 5,789 Audit and tax fees............................................... 23,196 23,196 23,196 Registration and filing fees..................................... 16,902 4,046 2,792 Printing fees.................................................... 16,566 10,410 10,139 Listing fees..................................................... 10,237 10,615 8,495 Transfer agent fees.............................................. 9,392 6,544 3,261 Trustees' fees and expenses...................................... 8,932 7,770 6,131 Expenses previously waived or reimbursed......................... -- -- -- Other expenses................................................... 8,102 8,047 3,866 -------------- -------------- -------------- Total expenses................................................ 1,183,307 817,783 435,761 Less fees waived and expenses reimbursed by the investment advisor (56,300) (32,509) (44,451) -------------- -------------- -------------- Net expenses.................................................. 1,127,007 785,274 391,310 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)..................................... 1,133,384 1,048,880 248,433 -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... 2,107,603 1,525,098 304,034 Options....................................................... -- -- -- In-kind redemptions........................................... 32,708,090 1,836,943 6,412,643 -------------- -------------- -------------- Net realized gain (loss)......................................... 34,815,693 3,362,041 6,716,677 -------------- -------------- -------------- Net change in unrealized appreciation (depreciation) on: Investments................................................... 17,842,947 39,185,377 14,394,518 Options....................................................... -- -- -- -------------- -------------- -------------- Net change in unrealized appreciation (depreciation)............. 17,842,947 39,185,377 14,394,518 -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 52,658,640 42,547,418 21,111,195 -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 53,792,024 $ 43,596,298 $ 21,359,628 ============== ============== ==============
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 (QCLN) (FRI) (FIW) (FCG) (FNI) (QABA) --------------- --------------- --------------- --------------- --------------- --------------- $ 196,556 $ 9,154,318 $ 1,800,727 $ 4,338,931 $ 792,551 $ 513,580 429,906 -- -- 494,293 129,828 -- -- -- (59,821) (327,348) (40,671) -- -- 111 55 87 -- -- --------------- --------------- --------------- --------------- --------------- --------------- 626,462 9,154,429 1,740,961 4,505,963 881,708 513,580 --------------- --------------- --------------- --------------- --------------- --------------- 209,084 979,339 516,793 1,798,365 254,417 103,846 52,271 261,157 64,599 449,592 50,883 23,365 25,951 166,422 66,221 226,398 14,595 15,665 12,832 41,530 16,128 62,980 38,498 3,241 4,707 25,958 11,161 34,196 4,672 1,932 23,196 23,196 23,196 23,196 23,196 23,196 6,899 (1,371) 10,810 (11,957) -- 3,986 9,480 57,072 20,900 55,322 6,789 3,029 8,273 7,677 7,677 8,049 8,049 9,802 2,613 16,322 6,460 22,479 3,180 1,298 5,506 14,020 7,975 17,091 6,371 4,716 -- 21,341 17,509 -- -- -- 3,315 19,569 5,760 23,822 6,075 2,468 --------------- --------------- --------------- --------------- --------------- --------------- 364,127 1,632,232 775,189 2,709,533 416,725 196,544 (50,502) -- -- (11,985) (35,100) (40,775) --------------- --------------- --------------- --------------- --------------- --------------- 313,625 1,632,232 775,189 2,697,548 381,625 155,769 --------------- --------------- --------------- --------------- --------------- --------------- 312,837 7,522,197 965,772 1,808,415 500,083 357,811 --------------- --------------- --------------- --------------- --------------- --------------- (2,952,689) 155,306 (1,674,973) (41,821,316) (110,688) (60,664) -- -- -- -- -- -- 4,085,628 40,735,169 9,514,725 34,480,310 3,318,599 839,997 --------------- --------------- --------------- --------------- --------------- --------------- 1,132,939 40,890,475 7,839,752 (7,341,006) 3,207,911 779,333 --------------- --------------- --------------- --------------- --------------- --------------- 26,679,735 (32,323,997) 26,156,476 102,869,319 15,391,317 7,480,300 -- -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- --------------- 26,679,735 (32,323,997) 26,156,476 102,869,319 15,391,317 7,480,300 --------------- --------------- --------------- --------------- --------------- --------------- 27,812,674 8,566,478 33,996,228 95,528,313 18,599,228 8,259,633 --------------- --------------- --------------- --------------- --------------- --------------- $ 28,125,511 $ 16,088,675 $ 34,962,000 $ 97,336,728 $ 19,099,311 $ 8,617,444 =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 55 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2013
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) --------------------- INVESTMENT INCOME: Dividends........................................................ $ 120,637 Securities lending income (net of fees).......................... -- Foreign tax withholding.......................................... (27) Interest......................................................... -- --------------- Total investment income....................................... 120,610 --------------- EXPENSES: Investment advisory fees......................................... 33,997 Licensing fees................................................... -- Accounting and administration fees............................... -- Custodian fees................................................... -- Legal fees....................................................... -- Audit and tax fees............................................... -- Registration and filing fees..................................... -- Printing fees.................................................... -- Listing fees..................................................... -- Transfer agent fees.............................................. -- Trustees' fees and expenses...................................... -- Expenses previously waived or reimbursed......................... -- Other expenses................................................... -- --------------- Total expenses................................................ 33,997 Less fees waived and expenses reimbursed by the investment advisor -- --------------- Net expenses.................................................. 33,997 --------------- NET INVESTMENT INCOME (LOSS)..................................... 86,613 --------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... 40,604 Options....................................................... (471,352) In-kind redemptions........................................... 432,460 --------------- Net realized gain (loss)......................................... 1,712 --------------- Net change in unrealized appreciation (depreciation) on: Investments................................................... 974,845 Options....................................................... (57,076) --------------- Net change in unrealized appreciation (depreciation)............. 917,769 --------------- NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 919,481 --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $ 1,006,094 ===============
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 (QQEW) (QTEC) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)............................... $ 1,133,384 $ 862,757 $ 1,048,880 $ 895,040 Net realized gain (loss)................................... 34,815,693 (534,059) 3,362,041 (8,492,271) Net change in unrealized appreciation (depreciation) ...... 17,842,947 9,707,786 39,185,377 17,868,037 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations............................................ 53,792,024 10,036,484 43,596,298 10,270,806 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................... (1,151,465) (930,480) (1,166,616) (991,450) Net realized gain.......................................... -- -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders........................ (1,151,465) (930,480) (1,166,616) (991,450) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.................................. 357,783,254 40,706,241 41,604,720 17,786,464 Cost of shares redeemed.................................... (206,293,601) (38,536,793) (12,877,761) (70,717,904) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions......................... 151,489,653 2,169,448 28,726,959 (52,931,440) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets.................... 204,130,212 11,275,452 71,156,641 (43,652,084) NET ASSETS: Beginning of period........................................ 84,814,804 73,539,352 106,007,981 149,660,065 ------------- ------------- ------------- ------------- End of period.............................................. $ 288,945,016 $ 84,814,804 $ 177,164,622 $ 106,007,981 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period...................................... $ -- $ -- $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period.................... 3,250,002 3,200,002 4,100,002 6,200,002 Shares sold................................................ 11,000,000 1,600,000 1,350,000 650,000 Shares redeemed............................................ (6,300,000) (1,550,000) (450,000) (2,750,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.......................... 7,950,002 3,250,002 5,000,002 4,100,002 ============= ============= ============= =============
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 (QQXT) (QCLN) (FRI) (FIW) ----------------------------- ----------------------------- ----------------------------- ----------------------------- 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 12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 248,433 $ 492,647 $ 312,837 $ 199,848 $ 7,522,197 $ 8,527,048 $ 965,772 $ 668,604 6,716,677 1,456,905 1,132,939 (5,438,105) 40,890,475 9,469,758 7,839,752 2,743,835 14,394,518 4,359,118 26,679,735 5,063,832 (32,323,997) 41,021,892 26,156,476 11,704,734 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 21,359,628 6,308,670 28,125,511 (174,425) 16,088,675 59,018,698 34,962,000 15,117,173 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (225,875) (530,821) (297,165) (186,210) (7,854,961) (8,264,301) (973,210) (716,105) -- -- -- -- -- (771,210) -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (225,875) (530,821) (297,165) (186,210) (7,854,961) (9,035,511) (973,210) (716,105) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 44,880,011 19,895,486 62,114,258 -- 80,241,468 116,759,773 127,825,752 19,286,737 (17,599,619) (13,848,505) (6,109,034) (6,638,877) (343,153,151) (88,815,487) (36,940,729) (18,904,444) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 27,280,392 6,046,981 56,005,224 (6,638,877) (262,911,683) 27,944,286 90,885,023 382,293 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 48,414,145 11,824,830 83,833,570 (6,999,512) (254,677,969) 77,927,473 124,873,813 14,783,361 41,981,725 30,156,895 13,740,115 20,739,627 402,888,271 324,960,798 72,769,387 57,986,026 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 90,395,870 $ 41,981,725 $ 97,573,685 $ 13,740,115 $ 148,210,302 $ 402,888,271 $ 197,643,200 $ 72,769,387 ============= ============= ============= ============= ============= ============= ============= ============= $ 22,558 $ -- $ 29,696 $ 13,638 $ -- $ 262,747 $ -- $ -- ============= ============= ============= ============= ============= ============= ============= ============= 1,700,002 1,450,002 1,450,002 2,150,002 22,700,002 21,000,002 2,800,002 2,800,002 1,450,000 850,000 4,450,000 -- 4,200,000 7,000,000 4,200,000 750,000 (550,000) (600,000) (450,000) (700,000) (18,450,000) (5,300,000) (1,150,000) (750,000) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 2,600,002 1,700,002 5,450,002 1,450,002 8,450,002 22,700,002 5,850,002 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 (FCG) (FNI) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)............................... $ 1,808,415 $ 1,574,437 $ 500,083 $ 1,217,729 Net realized gain (loss)................................... (7,341,006) (16,189,085) 3,207,911 (3,470,292) Net change in unrealized appreciation (depreciation) ...... 102,869,319 (39,813,093) 15,391,317 14,368,597 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations....................................... 97,336,728 (54,427,741) 19,099,311 12,116,034 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income...................................... (1,716,075) (1,601,915) (528,875) (1,226,880) Net realized gain.......................................... -- -- -- -- ------------- ------------- ------------- ------------- Total distributions to shareholders........................ (1,716,075) (1,601,915) (528,875) (1,226,880) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.................................. 195,622,338 297,966,521 2,735,518 2,017,518 Cost of shares redeemed.................................... (214,347,484) (200,593,951) (15,410,341) (26,127,668) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions......................... (18,725,146) 97,372,570 (12,674,823) (24,110,150) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets.................... 76,895,507 41,342,914 5,895,613 (13,220,996) NET ASSETS: Beginning of period........................................ 387,899,302 346,556,388 66,066,346 79,287,342 ------------- ------------- ------------- ------------- End of period.............................................. $ 464,794,809 $ 387,899,302 $ 71,961,959 $ 66,066,346 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period...................................... $ 151,483 $ 58,081 $ 9,106 $ (9,151) ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period.................... 24,750,002 19,050,002 3,150,002 4,350,002 Shares sold................................................ 11,150,000 17,550,000 100,000 100,000 Shares redeemed............................................ (12,100,000) (11,850,000) (700,000) (1,300,000) ------------- ------------- ------------- ------------- Shares outstanding, end of period.......................... 23,800,002 24,750,002 2,550,002 3,150,002 ============= ============= ============= =============
(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 (QABA) (VIXH) ----------------------------- ----------------------------- For the Period For the Year For the Year For the Year 8/29/2012 (a) Ended Ended Ended through 12/31/2013 12/31/2012 12/31/2013 12/31/2012 ------------- ------------- ------------- ------------- $ 357,811 $ 204,704 $ 86,613 $ 15,302 779,333 764,258 1,712 (82,984) 7,480,300 426,602 917,769 64,262 ------------- ------------- ------------- ------------- 8,617,444 1,395,564 1,006,094 (3,420) ------------- ------------- ------------- ------------- (350,521) (217,066) (85,676) (15,480) -- -- -- -- ------------- ------------- ------------- ------------- (350,521) (217,066) (85,676) (15,480) ------------- ------------- ------------- ------------- 38,405,721 5,084,903 4,048,627 2,945,641 (3,255,400) (9,952,509) (2,180,000) -- ------------- ------------- ------------- ------------- 35,150,321 (4,867,606) 1,868,627 2,945,641 ------------- ------------- ------------- ------------- 43,417,244 (3,689,108) 2,789,045 2,926,741 8,945,069 12,634,177 2,926,741 -- ------------- ------------- ------------- ------------- $ 52,362,313 $ 8,945,069 $ 5,715,786 $ 2,926,741 ============= ============= ============= ============= $ 7,290 $ -- $ 904 $ -- ============= ============= ============= ============= 350,002 550,002 150,002 -- 1,200,000 200,000 200,000 150,002 (100,000) (400,000) (100,000) -- ------------- ------------- ------------- ------------- 1,450,002 350,002 250,002 150,002 ============= ============= ============= =============
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 (QQEW) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 26.10 $ 22.98 $ 23.74 $ 19.69 $ 12.37 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.17 0.27 0.05 0.15 0.05 Net realized and unrealized gain (loss) 10.25 3.14 (0.70) 4.02 7.32 ---------- ---------- ---------- ---------- ---------- Total from investment operations 10.42 3.41 (0.65) 4.17 7.37 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.17) (0.29) (0.11) (0.12) (0.05) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 36.35 $ 26.10 $ 22.98 $ 23.74 $ 19.69 ========== ========== ========== ========== ========== TOTAL RETURN (a) 39.95% 14.86% (2.77)% 21.25% 59.54% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 288,945 $ 84,815 $ 73,539 $ 75,955 $ 40,369 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.63% 0.68% 0.68% 0.75% 0.67% 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 0.60% 1.01% 0.23% 0.79% 0.35% Portfolio turnover rate (b) 38% 34% 27% 24% 36%
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND (QTEC) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 25.86 $ 24.14 $ 25.69 $ 21.16 $ 11.77 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.24 0.19 0.00 (c) (d) 0.10 0.01 Net realized and unrealized gain (loss) 9.59 1.74 (1.47) 4.53 9.39 ---------- ---------- ---------- ---------- ---------- Total from investment operations 9.83 1.93 (1.47) 4.63 9.40 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (loss) (0.26) (0.21) (0.08) (0.10) (0.01) Return of capital -- -- -- -- (0.00) (c) ---------- ---------- ---------- ---------- ---------- Total distributions (0.26) (0.21) (0.08) (0.10) (0.01) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 35.43 $ 25.86 $ 24.14 $ 25.69 $ 21.16 ========== ========== ========== ========== ========== TOTAL RETURN (a) 38.12% 8.02% (5.75)% 21.92% 79.89% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 177,165 $ 106,008 $ 149,660 $ 453,416 $ 86,766 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.62% 0.65% 0.63% 0.70% 0.67% 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 0.80% 0.63% (0.02)% 0.71% 0.16% Portfolio turnover rate (b) 33% 26% 21% 26% 35%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year and does not include securities received or delivered from processing creations or redemptions and in-kind transactions. (c) Amount represents less than $0.01 per share. (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 (QQXT) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 24.70 $ 20.80 $ 21.10 $ 17.63 $ 12.05 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.10 0.31 0.06 0.17 0.05 Net realized and unrealized gain (loss) 10.06 3.92 (0.28) 3.46 5.58 ---------- ---------- ---------- ---------- ---------- Total from investment operations 10.16 4.23 (0.22) 3.63 5.63 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.09) (0.33) (0.08) (0.16) (0.05) Return of capital -- -- -- -- (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions to shareholders (0.09) (0.33) (0.08) (0.16) (0.05) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 34.77 $ 24.70 $ 20.80 $ 21.10 $ 17.63 ========== ========== ========== ========== ========== TOTAL RETURN (b) 41.24% 20.31% (1.08)% 20.64% 46.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 90,396 $ 41,982 $ 30,157 $ 22,151 $ 10,579 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.67% 0.76% 0.78% 0.94% 1.28% 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 0.38% 1.34% 0.31% 1.02% 0.48% Portfolio turnover rate (c) 33% 40% 37% 19% 43%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 9.48 $ 9.65 $ 16.42 $ 16.09 $ 11.19 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.07 0.13 (0.03) (0.01) (0.02) Net realized and unrealized gain (loss) 8.42 (0.18) (6.74) 0.34 4.92 ---------- ---------- ---------- ---------- ---------- Total from investment operations 8.49 (0.05) (6.77) 0.33 4.90 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.07) (0.12) -- -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.90 $ 9.48 $ 9.65 $ 16.42 $ 16.09 ========== ========== ========== ========== ========== TOTAL RETURN (b) 89.79% (0.50)% (41.23)% 2.05% 43.79% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 97,574 $ 13,740 $ 20,740 $ 36,120 $ 43,449 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.70% 0.98% 0.77% 0.78% 0.81% 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 0.60% 1.19% (0.18)% (0.07)% (0.12)% Portfolio turnover rate (c) 49% 24% 22% 22% 40%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year 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 (FRI) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 17.75 $ 15.47 $ 14.65 $ 11.72 $ 9.43 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.52 0.38 0.28 0.29 0.25 Net realized and unrealized gain (loss) (0.19) 2.30 0.88 2.94 2.31 ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.33 2.68 1.16 3.23 2.56 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.54) (0.37) (0.34) (0.30) (0.25) Net realized gain -- (0.03) -- -- -- Return of capital -- -- -- -- (0.02) ---------- ---------- ---------- ---------- ---------- Total distributions (0.54) (0.40) (0.34) (0.30) (0.27) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 17.54 $ 17.75 $ 15.47 $ 14.65 $ 11.72 ========== ========== ========== ========== ========== TOTAL RETURN (a) 1.82% 17.39% 7.90% 27.73% 28.00% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 148,210 $ 402,888 $ 324,961 $ 71,066 $ 21,087 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.50% 0.50% 0.57% 0.69% 1.95% 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 2.31% 2.15% 2.03% 2.60% 3.39% Portfolio turnover rate (b) 11% 8% 9% 16% 13%
FIRST TRUST ISE WATER INDEX FUND (FIW) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 25.99 $ 20.71 $ 22.13 $ 18.66 $ 15.69 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.21 0.23 0.16 0.18 0.19 Net realized and unrealized gain (loss) 7.80 5.30 (1.39) 3.43 2.97 ---------- ---------- ---------- ---------- ---------- Total from investment operations 8.01 5.53 (1.23) 3.61 3.16 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.21) (0.25) (0.19) (0.14) (0.19) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 33.79 $ 25.99 $ 20.71 $ 22.13 $ 18.66 ========== ========== ========== ========== ========== TOTAL RETURN (a) 30.91% 26.83% (5.62)% 19.49% 20.29% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 197,643 $ 72,769 $ 57,986 $ 53,111 $ 37,314 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.63% 0.64% 0.69% 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 0.75% 1.02% 0.79% 0.96% 1.20% Portfolio turnover rate (b) 45% 31% 31% 38% 44%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year 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 (FCG) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 15.67 $ 18.19 $ 19.60 $ 17.52 $ 11.80 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.07 0.07 0.08 0.03 0.07 Net realized and unrealized gain (loss) 3.86 (2.52) (1.41) 2.10 5.72 ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.93 (2.45) (1.33) 2.13 5.79 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.07) (0.07) (0.08) (0.05) (0.07) Return of capital -- -- -- (0.00) (a) (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions (0.07) (0.07) (0.08) (0.05) (0.07) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 19.53 $ 15.67 $ 18.19 $ 19.60 $ 17.52 ========== ========== ========== ========== ========== TOTAL RETURN (b) 25.13% (13.51)% (6.85)% 12.22% 49.21% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 464,795 $ 387,899 $ 346,556 $ 396,893 $ 464,339 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.63% 0.63% 0.65% 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 0.40% 0.40% 0.39% 0.19% 0.53% Portfolio turnover rate (c) 49% 41% 43% 93% 71%
FIRST TRUST ISE CHINDIA INDEX FUND (FNI) FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 20.97 $ 18.23 $ 25.01 $ 21.28 $ 11.78 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.20 0.35 0.27 0.17 0.09 Net realized and unrealized gain (loss) 7.26 2.74 (6.75) 3.73 9.50 ---------- ---------- ---------- ---------- ---------- Total from investment operations 7.46 3.09 (6.48) 3.90 9.59 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.21) (0.35) (0.30) (0.17) (0.09) Return of capital -- -- -- -- (0.00) (a) ---------- ---------- ---------- ---------- ---------- Total distributions (0.21) (0.35) (0.30) (0.17) (0.09) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 28.22 $ 20.97 $ 18.23 $ 25.01 $ 21.28 ========== ========== ========== ========== ========== TOTAL RETURN (b) 35.81% 17.11% (26.02)% 18.46% 81.58% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 71,962 $ 66,066 $ 79,287 $ 176,352 $ 120,240 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.66% 0.73% 0.66% 0.66% 0.73% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.79% 1.60% 1.00% 0.74% 0.58% Portfolio turnover rate (c) 40% 29% 23% 34% 47%
(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 is calculated for the time period presented and is not annualized for periods of less than a year. 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 calculated for the time period presented and is not annualized for periods of less than a year 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 (QABA) FOR THE PERIOD FOR THE FOR THE FOR THE FOR THE 6/29/2009 (a) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 ------------ ------------ ------------ ------------ ---------------- Net asset value, beginning of period $ 25.56 $ 22.97 $ 24.95 $ 22.41 $ 20.00 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.37 0.48 0.37 0.30 0.16 Net realized and unrealized gain (loss) 10.55 2.62 (1.98) 2.55 2.40 ---------- ---------- ---------- ---------- ---------- Total from investment operations 10.92 3.10 (1.61) 2.85 2.56 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.37) (0.51) (0.37) (0.31) (0.15) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 36.11 $ 25.56 $ 22.97 $ 24.95 $ 22.41 ========== ========== ========== ========== ========== TOTAL RETURN (b) 42.89% 13.52% (6.48)% 12.77% 12.80% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 52,362 $ 8,945 $ 12,634 $ 9,979 $ 5,604 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.76% 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% 0.60% (c) Ratio of net investment income (loss) to average net assets 1.38% 1.90% 1.62% 1.40% 1.92% (c) Portfolio turnover rate (d) 29% 17% 29% 26% 15%
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) FOR THE PERIOD FOR THE 8/29/2012 (a) YEAR ENDED THROUGH 12/31/2013 12/31/2012 ------------ ---------------- Net asset value, beginning of period $ 19.51 $ 19.89 ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.34 0.11 Net realized and unrealized gain (loss) 3.34 (0.38) ---------- ---------- Total from investment operations 3.68 (0.27) ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.33) (0.11) ---------- ---------- Net asset value, end of period $ 22.86 $ 19.51 ========== ========== TOTAL RETURN (b) 19.00% (1.37)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 5,716 $ 2,927 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% (c) Ratio of net expenses to average net assets 0.60% 0.60% (c) Ratio of net investment income (loss) to average net assets 1.53% 1.97% (c) Portfolio turnover rate (d) 4% 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 is calculated for the time period presented and is not annualized for periods of less than a year. The total returns for First Trust NASDAQ(R) ABA Community Bank Index Fund would have been lower if certain fees had not been waived and expenses reimbursed by the investment advisor. (c) Annualized. (d) Portfolio turnover is calculated for the time period presented and is not annualized for periods of less than a year 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, 2013 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"). 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. If the NYSE closes early on a valuation day, the NAV is determined at that time. Domestic securities and foreign securities are priced using the data reflecting the earlier closing of the principal markets for those securities. 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. Market quotations and prices used to value each Fund's investments are primarily obtained from third party pricing services. Each Fund's securities will be valued as follows: Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 Common stocks and other equity securities listed on any national or foreign exchange (excluding 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 an over-the-counter market are valued at the mean of the bid and the asked prices, if available, and otherwise at the closing bid price. Exchange-traded options and futures contracts are valued at the closing price in the market where such contracts are principally traded. 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, differences between the prices used to calculate a Fund's NAV and the prices used by such Fund's corresponding index could result in a difference between the 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. 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. Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 The inputs or methodologies 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, 2013, 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, which is included in "Investments, at cost" on the Statements of Assets and Liabilities. 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 Statements of Operations. For the period ended December 31, 2013, the Fund recorded a change in unrealized loss of $57,076 on the options, which is included in the "Net change in unrealized appreciation (depreciation) on options" on the Statements of Operations. For the period ended December 31, 2013, the Fund recorded a realized loss on options of $471,352, which is included in "Net realized gain (loss) on options" on the Statements of Operations. At December 31, 2013, the Fund held 743 options contracts with a notional value of $13,374. This is representative of contracts held throughout the year. 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 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. Distributions received from the Fund's investments in Master Limited Partnerships ("MLP") generally are comprised of return of capital and investment income. The Fund records estimated return of capital and investment income based on historical information available from each MLP. These estimates may subsequently be revised based on information received from the MLPs after their tax reporting periods are concluded. D. Offsetting on the Statements of Assets and Liabilities In December 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help investors and other financial statement users better assess the effect or potential effect of offsetting arrangements on a fund's financial position. ASU 2011-11 requires entities to disclose both gross and net information about both instruments and transactions eligible for offset on the Statements of Assets and Liabilities, and disclose instruments and transactions subject to master netting or similar agreements. In addition, in January 2013, FASB issued Accounting Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and Liabilities" ("ASU 2013-1"), specifying exactly which transactions are subject to offsetting disclosures. The scope of the disclosure requirements is limited to derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. ASU 2011-11 and ASU 2013-1 are effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 The Funds adopted the disclosure requirement on netting for the current reporting period. This disclosure, if applicable, is included within each Fund's Portfolio of Investments under the heading "Offsetting Assets and Liabilities." For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting arrangements or similar agreements on the Statements of Assets and Liabilities. E. Securities Lending The Funds may lend securities representing up to 33 1/3% 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 and is compared to the market value of the loaned securities from the prior business day to determine if additional collateral is required. If additional collateral is required, 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 Agency 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. ("BBH") 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, 2013, QQEW, QQXT, QCLN, FCG and FNI have securities in the securities lending program. In the event of a default by a borrower with respect to any loan, BBH will exercise any and all remedies provided under the applicable borrower agreement to make the Funds whole. These remedies include purchasing replacement securities by applying the collateral held from the defaulting broker against the purchase cost of the replacement securities. If, despite such efforts by BBH to exercise these remedies, a Fund sustains losses as a result of a borrower's default, BBH will indemnify the Fund by purchasing replacement securities at its own expense, or paying the Fund an amount equal to the market value of the replacement securities, subject to certain limitations which are set forth in detail in the Securities Lending Agency Agreement between the Trust on behalf of the Funds and BBH. F. Dividends and Distribution to Shareholders 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. 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. Page 70 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 The tax character of distributions paid by each Fund during the year ended December 31, 2013 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 $ 1,151,465 $ -- $ -- First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,166,616 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 225,875 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 297,165 -- -- First Trust S&P REIT Index Fund 7,854,961 -- -- First Trust ISE Water Index Fund 973,210 -- -- First Trust ISE-Revere Natural Gas Index Fund 1,716,075 -- -- First Trust ISE Chindia Index Fund 528,875 -- -- First Trust NASDAQ(R)ABA Community Bank Index Fund 350,521 -- -- First Trust CBOE S&P 500 VIX Tail Hedge Fund 85,676 -- --
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 -- --
As of December 31, 2013, 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 $ -- $ (11,099,674) $ 20,056,446 First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (20,112,449) 33,508,367 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 22,558 (3,365,031) 17,397,860 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 33,429 (30,105,974) 16,900,946 First Trust S&P REIT Index Fund -- -- (8,446,070) First Trust ISE Water Index Fund -- (12,452,245) 34,823,575 First Trust ISE-Revere Natural Gas Index Fund 151,483 (133,699,341) (18,583,667) First Trust ISE Chindia Index Fund 168,637 (50,223,242) 15,096,179 First Trust NASDAQ(R) ABA Community Bank Index Fund 7,290 (641,776) 7,305,802 First Trust CBOE S&P 500 VIX Tail Hedge Fund 904 (543,822) 1,015,949
G. 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. Page 71 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 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 2010, 2011, 2012 and 2013 remain open to federal and state audit. As of December 31, 2013, 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 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, 2013, 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 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.
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 $ -- $ 4,407,016 $ 11,099,674 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 311,155 1,421,664 2,016,911 -- 16,362,719 20,112,449 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 7,779 143,597 1,051,894 80,899 2,080,862 3,365,031 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 141,332 4,246,707 7,483,633 5,884,801 12,349,501 30,105,974 First Trust ISE Water Index Fund 592 318,246 5,768,328 2,198,674 4,166,405 12,452,245 First Trust ISE-Revere Natural Gas Index Fund 5,274 7,264,703 32,569,413 40,089,981 53,769,970 133,699,341 First Trust ISE Chindia Index Fund -- 11,116,593 11,686,955 7,245,147 20,174,547 50,223,242 First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- 4,787 116,604 520,385 641,776 First Trust CBOE S&P 500 VIX Tail Hedge Fund -- -- -- -- 543,822 543,822
During the taxable year ended December 31, 2013, the following Funds utilized capital loss carryforwards in the following amounts:
Post-Enactment Capital Loss Carryforward Utilized --------------------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 3,068,448 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 2,024,625 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 693,176 First Trust NASDAQ(R) ABA Community Bank Index Fund 55,484 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 10,003
Page 72 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 In order to present paid-in capital, accumulated net investment income (loss), 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, 2013, 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 $ 18,081 $ (31,305,596) $ 31,287,515 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 117,736 (1,755,478) 1,637,742 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (6,338,573) 6,338,573 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 386 (3,934,829) 3,934,443 First Trust S&P REIT Index Fund 70,017 (37,828,028) 37,758,011 First Trust ISE Water Index Fund 7,438 (8,829,477) 8,822,039 First Trust ISE-Revere Natural Gas Index Fund 1,062 (32,290,935) 32,289,873 First Trust ISE Chindia Index Fund 47,049 (3,127,697) 3,080,648 First Trust NASDAQ(R)ABA Community Bank Index Fund -- (770,957) 770,957 First Trust CBOE S&P 500 VIX Tail Hedge Fund (33) (428,632) 428,665
H. Expenses Expenses that are directly related to one of the Funds are charged directly to the respective Fund, except for First Trust CBOE S&P 500 VIX Tail Hedge Fund (the "Unitary Fee Fund"), for which expenses other than excluded expenses (discussed in Note 3) are paid by First Trust Advisors L.P. ("First Trust" or the "Advisor"). General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. 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. Page 73 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 First Trust is entitled to receive monthly fees from the remaining Funds calculated at the following annual rates:
% 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, 2014.
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 reimbursed, 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, 2013 and the expenses borne or fees waived by the Advisor subject to recovery from each applicable Fund for the periods indicated were as follows
Fees Waived or Expenses Borne by Advisor Subject to Recovery --------------------------------------------------- Advisory Year Year Year Fee Expense Ended Ended Ended Waivers Reimbursement 12/31/2011 12/31/2012 12/31/2013 Total --------- ------------- ---------- ---------- ---------- --------- First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 56,300 $ -- $ 65,568 $ 66,409 $ 56,300 $ 188,277 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 32,509 -- 114,729 71,070 32,509 218,308 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 44,451 -- 50,938 58,392 44,451 153,781 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 50,502 -- 54,545 63,185 50,502 168,232 First Trust S&P REIT Index Fund -- -- 130,777 4,444 -- 135,221 First Trust ISE Water Index Fund -- -- 25,829 19,978 -- 45,807 First Trust ISE-Revere Natural Gas Index Fund 11,985 -- 139,394 100,098 11,985 251,477 First Trust ISE Chindia Index Fund 35,100 -- 76,490 97,245 35,100 208,835 First Trust NASDAQ(R) ABA Community Bank Index Fund 40,775 -- 45,663 46,863 40,775 133,301
Page 74 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 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 Funds. As custodian, BNYM is responsible for custody of the Funds' assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of the Funds' securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for the Funds. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Each Trustee who is not an officer or employee of First Trust, any sub-advisor or any of their affiliates ("Independent Trustees") is paid a fixed annual retainer of $125,000 per year and an annual per fund fee of $4,000 for each closed-end fund or other actively managed fund and $1,000 for each index fund in the First Trust Fund Complex. The fixed annual retainer is allocated pro rata among each fund in the First Trust Fund Complex based on net assets. 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 the 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. Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and each Committee Chairman served 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 acting in such capacities. 4. PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2013, 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 $ 73,767,578 $ 71,099,193 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 42,835,283 42,792,600 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 21,282,225 21,291,844 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 25,646,472 25,625,775 First Trust S&P REIT Index Fund 37,186,486 35,426,167 First Trust ISE Water Index Fund 58,354,641 58,456,544 First Trust ISE-Revere Natural Gas Index Fund 219,714,865 219,504,709 First Trust ISE Chindia Index Fund 25,289,013 25,282,860 First Trust NASDAQ(R) ABA Community Bank Index Fund 7,598,520 7,604,393 First Trust CBOE S&P 500 VIX Tail Hedge Fund 219,707 708,573
For the year ended December 31, 2013, 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 $ 354,988,493 $ 206,184,064 First Trust NASDAQ-100-Technology Sector Index(SM) Fund 41,558,764 12,869,843 First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 44,864,207 17,597,413 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 62,064,139 6,066,610 First Trust S&P REIT Index Fund 80,107,013 341,004,135 First Trust ISE Water Index Fund 127,749,858 36,471,351 First Trust ISE-Revere Natural Gas Index Fund 195,606,333 214,325,739 First Trust ISE Chindia Index Fund 2,735,332 15,390,480 First Trust NASDAQ(R) ABA Community Bank Index Fund 38,406,526 3,257,035 First Trust CBOE S&P 500 VIX Tail Hedge Fund 4,042,243 2,176,014
Page 75 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 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, no 12b-1 fees will be paid any time before May 31, 2014. Page 76 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 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 77 -------------------------------------------------------------------------------- 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, 2013, and the related statements of operations for the year then ended, 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 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, 2013 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, 2013, and the results of their operations for the year then ended, the changes in their net assets and the financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Chicago, Illinois February 26, 2014 Page 78 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that the Trust uses to determine how to vote proxies and information on how each Fund voted proxies relating to its portfolio securities during the most recent 12-month period ended June 30 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 ("SEC") website at http://www.sec.gov. PORTFOLIO HOLDINGS The Trust files its complete schedule of each Fund's portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the Trust's website located at http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and (4) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling (800) SEC-0330. FEDERAL TAX INFORMATION For the taxable year ended December 31, 2013, 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 100.00% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 61.27% First Trust S&P REIT Index Fund -- First Trust ISE Water Index Fund 100.00% First Trust ISE-Revere Natural Gas Index Fund 88.91% 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, 2013, 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 61.82% 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 $ 621,451 $ 0.2437 $ 11,543 $ 0.0045
For the tax year ended December 31, 2013, the First Trust S&P REIT Index Fund designated $1,684,350, or amounts necessary, as long-term capital gain. During the tax year, Fund shareholders redeemed amounts in excess of the Fund's long-term capital gains and of these proceeds, $1,684,350, or amounts necessary, represents long-term capital gain from the Fund. Page 79 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) RISK CONSIDERATIONS 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 invest in securities included in or representative of their corresponding index regardless of their investment merit. The Funds generally will not attempt to take defensive positions in declining markets. Page 80 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) 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. 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, the First Trust CBOE S&P 500 VIX Tail Hedge 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 and First Trust NASDAQ-100 Equal Weighted Index(SM) Fund invest in the securities of companies in the consumer discretionary sector. Because companies in the consumer discretionary sector manufacture products and provide discretionary services directly to the consumer, the success of these companies is tied closely to the performance of the overall domestic and international economy, interest rates, competition and consumer confidence. Success depends heavily on disposable household income and consumer spending. Changes in demographics and consumer tastes can also affect the demand for, and success of, consumer discretionary products in the marketplace. The First Trust ISE-Revere Natural Gas Index Fund invests in the securities of companies in the energy sector. General problems of issuers in the energy sector include volatile fluctuations in price and supply of energy fuels, international politics, terrorist attacks, reduced demand as a result of increases in energy efficiency and energy conservation, the success of exploration projects, clean-up and litigation costs relating to oil spills and environmental damage, and tax and other regulatory policies of various governments. In addition, recent oil prices have been at historic highs and extremely volatile. The First Trust ISE Water Index Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in the securities of companies in the industrials sector. General risks of these companies include the general state of the economy, intense competition, consolidation, domestic and international politics, excess capacity and consumer demand and spending trends. In addition, they may also be significantly affected by overall capital spending levels, economic cycles, technical obsolescence, delays in modernization, labor relations, government regulations and e-commerce initiatives. The First Trust S&P REIT Index Fund invests in companies in the real estate industry, including real estate investment trusts ("REITs") and is subject to the risks associated with investing in real estate (any of which could cause the value of a REIT's stock price to decline), which may include, but are not limited to, possible declines in the value of real estate, adverse general and local economic conditions, possible lack of availability of mortgage funds, overbuilding in a REIT's market, changes in interest rates and environmental problems. Furthermore, increases in interest rates typically lower the present value of a REIT's future earnings stream, and may make financing property purchases and improvements more costly. The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) 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 ISE Water Index Fund invests in the securities of utilities companies. Utilities companies are subject to the imposition of rate caps, increased competition due to deregulation, the difficulty in obtaining an adequate return on invested capital or in financing large construction projects, the limitations on operations and increased costs and delays attributable to environmental considerations, and the capital market's ability to absorb utility debt. In addition, taxes, government regulation, international politics, price and supply fluctuations, volatile interest rates and energy conservation may cause difficulties for utilities. Utilities issuers have been experiencing certain of these problems to varying degrees. 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. Page 81 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) 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. 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). Unlike most exchange-traded funds, the First Trust CBOE S&P 500 VIX Tail Hedge Fund may effect a portion of creations and redemptions for cash, rather than in-kind securities. Particularly, the call option portion of the Fund's portfolio, if applicable, may be redeemed for cash. As a result, an investment in the Fund may be less tax-efficient than an investment in a more conventional exchange-traded fund. Because the Fund may effect a portion of redemptions for cash, rather than in-kind distributions, it may be required to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. A sale of shares may result in capital gains or losses, and may also result in higher brokerage costs. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 82 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (UNAUDITED) The Trust's statement of additional information includes additional information about the Trustees and is available, without charge, upon request, by calling (800) 988-5891.
NUMBER OF OTHER PORTFOLIOS IN TRUSTEESHIPS OR THE FIRST TRUST DIRECTORSHIPS NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE DATE OF BIRTH AND AND YEAR FIRST PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST ELECTED OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 105 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportmed LLC Suite 400 Wheaton, IL 60187 D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 105 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), ADM Investor Inc. and ADM Suite 400 Services, Inc. (Futures Commission Investor Services, Wheaton, IL 60187 Merchant) International D.O.B.: 11/57 Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 105 Director of Trust c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of 120 East Liberty Drive, o Since June 2006 Consulting) Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer 105 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), Covenant Wheaton, IL 60187 College D.O.B.: 03/54 ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee and o Indefinite Term Chief Executive Officer (December 2010 105 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 83 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (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 Since January 2012 L.P. and First Trust Portfolios L.P.; Chief Financial Wheaton, IL 60187 Officer, BondWave LLC (Software Development D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge Advisors LLC (Investment Advisor) James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice 120 E. Liberty Drive, Financial Officer and President (April 2007 to January 2011), First Trust Suite 400 Chief Accounting Officer o Since January 2012 Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 D.O.B.: 01/66 W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel, Suite 400 o Since Inception BondWave LLC (Software Development Company/ Wheaton, IL 60187 Investment Advisor); Secretary of Stonebridge D.O.B.: 05/60 Advisors LLC (Investment Advisor) Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior 120 E. Liberty Drive, Vice President (September 2005 to July 2012), Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios Wheaton, IL 60187 L.P. D.O.B.: 02/70 Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P. 120 E. Liberty Drive, and Assistant Secretary and First Trust Portfolios L.P. Suite 400 o Chief Compliance Wheaton, IL 60187 Officer since D.O.B.: 12/66 January 2011 o Assistant Secretary since Inception Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and 120 E. Liberty Drive, First Trust Portfolios L.P. Suite 400 o Since Inception 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 Inception First TrustAdvisors L.P. and First Trust Wheaton, IL 60187 Portfolios L.P. D.O.B.: 11/70
------------------- (2) The term "officer" means the president, vice president, secretary, treasurer, controller or any other officer who performs a policy making function. Page 84 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2013 (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, to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, we restrict access to your nonpublic personal information to those individuals who need to know that information to provide products or services to you. We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. POLICY UPDATES AND INQUIRIES As required by federal law, we will notify you of our privacy policy annually. We reserve the right to modify this policy at any time, however, if we do change it, we will tell you promptly. For questions about our policy, or for additional copies of this notice, please go to www.ftportfolios.com, or contact us at 1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust Advisors). Page 85 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. FIRST TRUST First Trust Exchange-Traded Fund INVESTMENT ADVISOR First Trust Advisors L.P. 120 East Liberty Drive, Suite 400 Wheaton, IL 60187 ADMINISTRATOR, CUSTODIAN, FUND ACCOUNTANT & TRANSFER AGENT The Bank of New York Mellon 101 Barclay Street New York, NY 10286 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP 111 S. Wacker Drive Chicago, IL 60606 LEGAL COUNSEL Chapman and Cutler LLP 111 W. Monroe Street Chicago, IL 60603 [BLANK BACK COVER] ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (d) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. (e) Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. As of the end of the period covered by the report, the registrant's board of trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified to serve as audit committee financial experts serving on its audit committee and that each of them is "independent," as defined by Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees -- The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $389,500 for 2012 and $380,000 for 2013. (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 2012 and $0 for 2013. 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 2012 and $0 for 2013. (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 $58,500 for 2012 and $61,750 for 2013. The tax fees 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 2012 and $0 for 2013. (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 2012 and $0 for 2013. 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 2012 and $0 for 2013. (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 2012 were $58,500 for the registrant, $4,120 for the registrant's investment adviser and $65,135 for the registrant's distributor and for 2013 were $61,750 for the registrant, $38,000 for the registrant's investment adviser and $58,100 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 26, 2014 --------------------- 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 26, 2014 --------------------- By (Signature and Title)* /s/ James M. Dykas ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: February 26, 2014 --------------------- * 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 26, 2024 /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 26, 2024 /s/ James M. Dykas ---------------------- ---------------------------------------- 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 26, 2014 /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 26, 2014 /s/ James M. Dykas ----------------------- ---------------------------------------- James M. Dykas, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer)