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, 2016 ----------------- 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 Fund (FDM) First Trust Morningstar Dividend Leaders Index Fund (FDL) First Trust US Equity Opportunities ETF (FPX) (formerly known as First Trust US IPO Index Fund) First Trust NYSE Arca Biotechnology Index Fund (FBT) First Trust Dow Jones Internet Index Fund (FDN) First Trust Capital Strength ETF (FTCS) First Trust Value Line(R) Dividend Index Fund (FVD) First Trust Value Line(R) 100 Exchange-Traded Fund (FVL) Annual Report December 31, 2016 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2016 Shareholder Letter.......................................................... 2 Market Overview............................................................. 3 Fund Performance Overview First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 4 First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 6 First Trust US Equity Opportunities ETF (FPX)............................ 8 First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 10 First Trust Dow Jones Internet Index Fund (FDN).......................... 12 First Trust Capital Strength ETF (FTCS).................................. 14 First Trust Value Line(R) Dividend Index Fund (FVD)...................... 16 First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 18 Notes to Fund Performance Overview.......................................... 20 Understanding Your Fund Expenses............................................ 21 Portfolio of Investments First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 23 First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 28 First Trust US Equity Opportunities ETF (FPX)............................ 30 First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 33 First Trust Dow Jones Internet Index Fund (FDN).......................... 35 First Trust Capital Strength ETF (FTCS).................................. 37 First Trust Value Line(R) Dividend Index Fund (FVD)...................... 39 First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)................. 43 Statements of Assets and Liabilities........................................ 46 Statements of Operations.................................................... 48 Statements of Changes in Net Assets......................................... 50 Financial Highlights........................................................ 54 Notes to Financial Statements............................................... 58 Report of Independent Registered Public Accounting Firm..................... 68 Additional Information...................................................... 69 Board of Trustees and Officers.............................................. 73 Privacy Policy.............................................................. 75 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 by 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. The Advisor may also periodically provide additional information on Fund performance on each Fund's webpage at http://www.ftportfolios.com. 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 of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material 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, 2016 Dear Shareholders: Now that 2016 is over, many will remember some of the historic events that occurred during the year: from the Brexit vote in the UK to leave the European Union, to the results of the U.S. Presidential Election which seemed unlikely at the beginning of the year, to the first World Series Championship for the Chicago Cubs in 108 years! First Trust Advisors L.P. ("First Trust") is pleased to provide you with this annual report which contains detailed information about your investment for the 12 months ended December 31, 2016, including a market overview and a performance analysis for the period. Additionally, First Trust has compiled the Funds' financial statements for you to review. We encourage you to read this report and discuss it with your financial advisor. On November 8, Donald J. Trump was elected to become the 45th president in our country's history. While no one has a crystal ball and the ability to predict how his presidency will shape the United States (and the world), there is no doubt that his populist message resonated for many Americans. And his message of improving lives for the "average" American, while reducing the size and scope of the federal government, also won him millions of votes. Many of his supporters believe that with his background in business, President Trump will make policy changes that will continue to grow the economy and spur stock markets even higher. Many analysts predicted the Dow Jones Industrial Average would hit a new benchmark, 20,000, in the first days of the New Year. As with all change and a new administration, only time will tell. As of December 31, 2016, the S&P 500(R) Index was up 11.96% calendar year-to-date, on a total return basis, as measured by Bloomberg. The current bull market (measuring from March 9, 2009 through December 31, 2016) is the second longest in history. We remain bullish on the economy, but continue to have a long-term perspective. We believe investors should think long-term as well, since no one can predict volatility and the inevitable ups and downs that occur in the market. Thank you for your investment in First Trust Exchange-Traded Fund and for giving First Trust the opportunity to be a part of your investment plan. We value our relationship with you and will continue our relentless focus on bringing the types of investments that we believe could help you reach 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, 2016 (UNAUDITED) 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 over 25 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 For the second consecutive year, at its December Federal Open Market Committee meeting, the Federal Reserve (the "Fed") initiated a 25 basis point increase to the federal funds target rate trading range, which now stands at 0.50% to 0.75%. The Fed commented in December that inflation expectations have increased "considerably" and noted that the labor market is tightening, according to Bloomberg. The Fed is forecasting three quarter-point increases in 2017. For the 30-year period ended December 31, 2016, the federal funds target rate (upper bound) averaged 3.54%, according to Bloomberg. Consumer confidence levels continued to rise in 2016. The Conference Board's Consumer Confidence Index reading stood at 113.70 in December, up from 96.30 in December 2015, according to Bloomberg. The index reached as low as 25.30 in February 2009, just prior to the end of the last bear market in stocks in March 2009. While confidence levels are higher than at any point since 2001, the index has room to run. The highest reading so far in this millennium was 144.71, set in January 2000. Confidence levels have been bolstered by gains in the labor force, in our opinion. U.S. nonfarm payrolls expanded by an average of 180,000 per month in 2016, above the 159,000 per month average posted so far in the current economic recovery (July 2009-December 2016), according to data from the Bureau of Labor Statistics. ETFGI, an industry research group, reported that total assets invested in exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs") reached a record high of $3.55 trillion globally in 2016, according to its own release. Total assets invested in U.S. ETFs/ETPs reached a record high $2.59 trillion in 2016. U.S. STOCKS AND BONDS In 2016, three of the major U.S. stock indices posted double-digit returns. The S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted total returns of 11.96%, 20.74%, and 26.56%, respectively, according to Bloomberg. Ten of the 11 major S&P 500(R) Index sectors (Real Estate was added in September 2016) posted positive total returns. The top-performing sectors were Energy, Telecommunication Services and Financials, up 27.36%, 23.49% and 22.75%, respectively, on a total return basis. The only sector that posted a loss was Health Care, down 2.69%. Health Care stocks, particularly the drug makers, came under increased scrutiny during the election cycle from some of the political candidates, including Hillary Clinton. It is not unusual for candidates to use rising prescription drug prices as a wedge issue in an effort to garner votes, in our opinion. The S&P 500(R) Index closed 1.45% below its all-time closing high (2,271.72 on December 13, 2016) on December 31, 2016, according to Bloomberg. The consensus estimated earnings growth rates for 2017 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 12.02%, 11.49% and 17.64%, respectively, as of December 31, 2016 according to Bloomberg. The consensus estimated earnings growth rates for 2018 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 11.20%, 12.00% and 15.95%, respectively. We are encouraged by level of those earnings growth rate estimates at this stage of the bull market. In the U.S. bond market, the top-performing major debt group was high yield corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a total return of 17.13%. The worst-performing debt group that we track was municipal bonds, though the group still generated a positive return. The Bloomberg Barclays Municipal Bond: Long Bond (22+) Index posted a total return of 0.88%. The yield on the benchmark 10-Year Treasury note (T-note) increased by 18 basis points in 2016, from 2.27% on December 31, 2015 to 2.45% on December 31, 2016. A yield of 2.45% is low by historical standards. For the 30-year period ended December 31, 2016, the average yield on the 10-year T-note was 5.11%, according to Bloomberg. FOREIGN STOCKS AND BONDS The U.S. dollar appreciated by 3.63% against a basket of major currencies in 2016, as measured by the U.S. Dollar Index. With respect to U.S. investors, a stronger U.S. dollar can negatively impact returns on foreign securities. The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt posted a total return of 9.00% in U.S. dollar ("USD") terms, while the Bloomberg Barclays Global Aggregate Index of higher quality debt rose 2.09% (USD) for the same period. The MSCI Emerging Markets Index of stocks posted a total return of 11.19% (USD), while the MSCI Net World Index (excluding the U.S.) posted a total return of 2.75% (USD). Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) The First Trust Dow Jones Select MicroCap 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 Dow Jones Select MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 80% of its net assets (including investment borrowings) in common stocks of U.S. micro-capitalization companies which are publicly traded in the United States. 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"), NYSE MKT and The Nasdaq Stock Market LLC ("Nasdaq") 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 TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (9/27/05) Ended Ended (9/27/05) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 35.45% 18.44% 7.32% 8.22% 133.12% 102.72% 143.28% Market Value 35.87% 18.65% 7.33% 8.23% 135.14% 102.89% 143.69% INDEX PERFORMANCE Dow Jones Select MicroCap Index(SM) 36.19% 19.19% 8.03% 8.94% 140.52% 116.55% 162.35% Russell 2000(R) Index 21.31% 14.46% 7.07% 8.09% 96.45% 97.93% 140.18% ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of 35.45% during the 12-month period covered by this report. During the same period, the Russell 2000(R) Index ("benchmark") generated a return of 21.31%. The Financials sector was given the heaviest weighting in the Fund over the period at 39% and contributed 19.2% to the Fund's performance due to the sector having a 47.4% return over the period. The Banking industry in particular was the highest allocated industry among the Financial industries, with a 48.3% return. The Health Care sector was the worst performing sector in the Fund over the period with a 1.0% return. The contribution was minimized to 0.2% as the sector was only given a 4.0% allocation. On a relative basis, the Fund outperformed the benchmark. The outperformance is mainly attributable to the Financials sector where the Fund over allocated the benchmark by 21.5% and outperformed the benchmark by 12.7%, leading to 8.1% of relative outperformance. The Information Technology sector, which returned 28.9%, slightly tempered the relative outperformance by -0.47% due to the Fund under allocating by 9.0%. ----------------------------- Dow Jones and Dow Jones Select MicroCap Index(SM) are products of S&P Dow Jones Indices LLC ("SPDJI"), 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 SPDJI, Dow Jones Trademark Holdings LLC ("Dow Jones") or their respective affiliates, and SPDJI, 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 FUND (FDM) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Financials 48.49% Consumer Discretionary 17.24 Industrials 15.17 Materials 4.99 Information Technology 4.67 Consumer Staples 2.80 Health Care 2.77 Energy 1.09 Telecommunication Services 1.09 Utilities 1.02 Real Estate 0.67 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Piper Jaffray Cos. 0.99% United Financial Bancorp, Inc. 0.88 Meta Financial Group, Inc. 0.88 Enterprise Financial Services Corp. 0.83 OceanFirst Financial Corp. 0.82 TrustCo Bank Corp. NY 0.80 Winnebago Industries, Inc. 0.80 Washington Trust Bancorp, Inc. 0.79 Community Trust Bancorp, Inc. 0.79 Univest Corp. of Pennsylvania 0.79 ------- Total 8.37% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust Dow Jones Dow Jones Select MicroCap Select MicroCap Russell 2000(R) Index Fund Index(SM) Index 12/06 $10,000 $10,000 $10,000 06/07 10,621 10,656 10,645 12/07 9,397 9,471 9,843 06/08 8,246 8,336 8,921 12/08 6,266 6,362 6,518 06/09 6,134 6,247 6,690 12/09 7,571 7,754 8,289 06/10 7,360 7,555 8,127 12/10 9,522 9,803 10,515 06/11 9,842 1,0169 11,168 12/11 8,695 9,004 10,077 06/12 9,255 9,615 10,937 12/12 10,075 10,506 11,724 06/13 11,711 12,249 13,583 12/13 14,438 15,154 16,275 06/14 14,341 15,099 16,794 12/14 14,882 15,709 17,071 06/15 15,656 16,573 17,882 12/15 14,966 15,898 16,317 06/16 15,340 16,340 16,679 12/16 20,272 21,651 19,795
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 70 0 0 0 01/01/13 - 12/31/13 151 1 0 0 01/01/14 - 12/31/14 93 1 0 0 01/01/15 - 12/31/15 112 0 0 0 01/01/16 - 12/31/16 133 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% 01/01/12 - 12/31/12 179 1 0 0 01/01/13 - 12/31/13 98 2 0 0 01/01/14 - 12/31/14 158 0 0 0 01/01/15 - 12/31/15 140 0 0 0 01/01/16 - 12/31/16 119 0 0 0 Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) The First Trust Morningstar Dividend Leaders 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 Index(SM) (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, NYSE MKT or Nasdaq) 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 TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (3/9/06) Ended Ended (3/9/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 20.72% 13.41% 5.68% 7.09% 87.62% 73.71% 109.79% Market Value 20.85% 13.43% 5.69% 7.10% 85.75% 73.86% 109.88% INDEX PERFORMANCE Morningstar(R) Dividend Leaders Index(SM) 21.34% 13.99% 6.21% 7.62% 92.48% 82.71% 121.27% S&P 500(R) Index 11.96% 14.66% 6.95% 7.63% 98.18% 95.72% 121.49% ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a NAV return of 20.72% during the 12-month period covered by this report. During the same period, the S&P 500(R) Index ("benchmark") generated a return of 11.96%. The Telecommunication Services sector was the top contributing sector over the period in the Fund. The Fund's holdings in the sector comprised an average weighting of 17.7%, returned 25.7%, and contributed 4.6% to the Fund's return. The top performing sector in the Fund was the Energy sector with a 58.4% return. The sector's contribution was limited to 2.4% due to the sector having a low allocation of 5.9% over the period. The Health Care sector was the worst contributing and performing sector in the Fund with a 0.6% contribution and 9.2% return. On a relative basis, the Fund outperformed the benchmark. The Telecommunication Services sector created 2.1% of outperformance relative to the benchmark as the Fund had a 15.1% greater allocation to the well-performing sector. The Financials sector was the only sector that created relative underperformance due to the Fund under allocating compared to the benchmark by -8.4%. The Financials sector was the second highest returning sector over the period at 31.5%, leading to -0.2% of drag on 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 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 INDEX FUND (FDL) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Telecommunication Services 19.20% Consumer Staples 18.40 Information Technology 17.39 Utilities 13.76 Health Care 11.28 Industrials 6.50 Financials 4.64 Materials 4.51 Consumer Discretionary 3.12 Energy 1.20 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- AT&T, Inc. 10.41% Verizon Communications, Inc. 8.79 Pfizer, Inc. 6.81 Procter & Gamble (The) Co. 6.43 Philip Morris International, Inc. 5.90 Cisco Systems, Inc. 4.73 Intel Corp. 4.53 Merck & Co., Inc. 4.47 Altria Group, Inc. 4.42 International Business Machines Corp. 4.39 ------- Total 60.88% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust Morningstar Morningstar(R) Dividend Leaders Dividend Leaders S&P 500(R) Index Fund Index(SM) Index 12/06 $10,000 $10,000 $10,000 06/07 10,261 10,291 10,695 12/07 8,937 8,976 10,550 06/08 6,621 6,663 9,291 12/08 6,103 6,162 6,647 06/09 5,763 5,835 6,857 12/09 6,971 7,074 8,405 06/10 6,655 6,768 7,846 12/10 8,089 8,252 9,672 06/11 8,722 8,921 10,253 12/11 9,258 9,492 9,875 06/12 10,024 10,312 10,812 12/12 10,104 10,418 11,455 06/13 11,515 11,905 13,038 12/13 12,401 12,853 15,164 06/14 13,677 14,217 16,247 12/14 14,008 14,595 17,241 06/15 13,584 14,183 17,453 12/15 14,391 15,058 17,479 06/16 16,509 17,326 18,150 12/16 17,372 18,270 19,572
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 171 0 0 0 01/01/13 - 12/31/13 171 0 0 0 01/01/14 - 12/31/14 190 0 0 0 01/01/15 - 12/31/15 151 0 0 0 01/01/16 - 12/31/16 161 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/12 - 12/31/12 79 0 0 0 01/01/13 - 12/31/13 81 0 0 0 01/01/14 - 12/31/14 62 0 0 0 01/01/15 - 12/31/15 101 0 0 0 01/01/16 - 12/31/16 91 0 0 0 Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) The First Trust US Equity Opportunities ETF (the "Fund"), formerly First Trust US IPO Index 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(R) 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(R) Global Composite Index. The IPOX(R) Global Composite Index is reconstituted regularly with IPOs being added to the IPOX(R) 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(R) Global Composite Index constituents and IPO activity during the past quarter, with potential new companies entering the Index while other companies reaching 1,000 days in the Index automatically drop out. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was April 13, 2006.
------------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (4/12/06) Ended Ended (4/12/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 6.70% 18.61% 10.31% 10.65% 134.75% 166.68% 196.01% Market Value 6.86% 18.65% 10.33% 10.67% 135.15% 167.27% 196.40% INDEX PERFORMANCE IPOX(R)-100 U.S. Index 7.24% 19.30% 10.97% 11.32% 141.66% 183.16% 215.84% S&P 500(R) Index 11.96% 14.66% 6.95% 7.56% 98.18% 95.72% 118.47% Russell 3000(R) Index 12.74% 14.67% 7.07% 7.59% 98.23% 98.10% 119.18% ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a NAV return of 6.70% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.74%. The Fund generated 2.3% of its relative over performance through Consumer Staples sector securities, which were given an average weighting of 12.1% and had a 19.4% return. The Food Products industry made up 10.5% of the Consumer Staples sector and had a 24.6% return. The Consumer Discretionary sector was the only detracting sector from the Fund's performance over the period. This sector was given a 16.1% allocation and returned -0.6% over the period, leading to a -0.8% contribution. On a relative basis, the Fund underperformed the benchmark. The Information Technology sector, which was the sector with the highest allocation in the Fund at 30.4%, created -2.6% of the relative underperformance as the Fund over allocated (+10.5%) and underperformed (-9.9%). Due to the Fund outperforming the benchmark by 13.4% within the Consumer Staples sector, 1.0% of drag was reversed. ----------------------------- 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 EQUITY OPPORTUNITIES ETF (FPX) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 22.89% Health Care 21.32 Consumer Discretionary 15.83 Consumer Staples 14.16 Financials 8.80 Industrials 7.84 Energy 3.21 Materials 2.72 Real Estate 2.14 Telecommunication Services 0.77 Utilities 0.32 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Kraft Heinz (The) Co. 10.19% AbbVie, Inc. 9.76 Shire PLC, ADR 4.92 PayPal Holdings, Inc. 4.57 Hewlett Packard Enterprise Co. 3.70 Facebook, Inc., Class A 3.25 Synchrony Financial 2.87 Hilton Worldwide Holdings, Inc. 2.58 Zoetis, Inc. 2.54 Restaurant Brands International, Inc. 2.11 ------- Total 46.49% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust US Equity IPOX(R)-100 S&P 500(R) Russell 3000(R) Opportunities ETF U.S. Index Index Index 12/06 $10,000 $10,000 $10,000 $10,000 06/07 11,158 11,190 11,939 10,711 12/07 11,452 11,515 11,776 10,513 06/08 10,616 10,705 10,373 9,351 12/08 6,427 6,496 7,419 6,591 06/09 7,286 7,396 7,654 6,868 12/09 9,315 9,482 9,382 8,459 06/10 8,763 8,948 8,758 7,947 12/10 11,018 11,291 10,796 9,891 06/11 12,109 12,452 11,446 10,519 12/11 11,359 11,719 11,023 9,992 06/12 12,897 13,346 12,069 10,923 12/12 14,768 15,325 12,788 11,632 06/13 17,248 17,943 14,555 13,267 12/13 21,855 22,816 16,929 15,534 06/14 23,300 24,402 18,137 16,612 12/14 24,458 25,690 19,247 17,484 06/15 26,571 27,992 19,484 17,823 12/15 24,993 26,408 19,513 17,568 06/16 24,831 26,297 20,262 18,204 12/16 26,668 28,319 19,572 19,810
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 149 2 0 0 01/01/13 - 12/31/13 220 0 0 0 01/01/14 - 12/31/14 158 0 0 0 01/01/15 - 12/31/15 172 0 0 0 01/01/16 - 12/31/16 118 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% 01/01/12 - 12/31/12 97 2 0 0 01/01/13 - 12/31/13 32 0 0 0 01/01/14 - 12/31/14 94 0 0 0 01/01/15 - 12/31/15 80 0 0 0 01/01/16 - 12/31/16 134 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 TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (6/19/06) Ended Ended (6/19/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV -19.60% 22.74% 14.61% 15.60% 178.58% 291.20% 360.64% Market Value -19.51% 22.77% 14.61% 15.61% 178.88% 291.00% 360.99% INDEX PERFORMANCE NYSE Arca Biotechnology Index(SM) -19.15% 23.30% 15.23% 16.23% 185.03% 312.67% 387.57% S&P Composite 1500(R) Health Care Index -2.05% 17.18% 9.97% 10.62% 120.94% 158.60% 189.49% NASDAQ(R) Biotechnology Index -21.35% 21.00% 13.51% 13.92% 159.41% 255.15% 294.72% S&P 500(R) Index 11.96% 14.66% 6.95% 8.05% 98.18% 95.72% 126.13% ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a NAV return of -19.60% during the 12-month period covered by this report. During the same period, the S&P Composite 1500(R) Health Care Index ("benchmark") generated a return of -2.05%. Biotechnology companies were hit hard during January and February of 2016 and continued to be very volatile throughout the year. The worst contributing securities within the Fund were Celldex Therapeutics, Inc. (-70.4%), Myriad Genetics, Inc. (-61.4%), and Alnylam Pharmaceuticals, Inc. (-60.2%), which contributed a combined -8.3% to the Fund's return. The top contributing securities within the Fund were Medivation, Inc. (+68.5%), Cepheid (+45.2%), and Seattle Genetics, Inc. (+17.6%), which contributed a combined 4.5% to the Fund's return. On a relative basis, the Fund underperformed the benchmark. The primary cause of the underperformance was the Fund's over allocation of 59.1% to pure play biotechnology companies (-22.3% return), which led to -14.0% of underperformance. The benchmark was mostly comprised of Pharmaceutical companies, which had a more neutral return of -1.9%. Medivation, Inc. (as mentioned above) alone reversed 2.1% of the Fund's underperformance as the Fund held this well-performing security at an average 2.8% weighting versus the benchmark's 0% weighting. ----------------------------- 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. Page 10 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) (CONTINUED) ----------------------------------------------------------- % OF TOTAL INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Biotechnology 80.62% Life Sciences Tools & Services 16.33 Pharmaceuticals 3.05 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Ionis Pharmaceuticals, Inc. 5.65% United Therapeutics Corp. 4.26 Celgene Corp. 3.88 Incyte Corp. 3.79 ACADIA Pharmaceuticals, Inc. 3.77 QIAGEN N.V. 3.60 Grifols S.A., ADR 3.52 Ultragenyx Pharmaceutical, Inc. 3.51 Seattle Genetics, Inc. 3.44 Quintiles IMS Holdings, Inc. 3.41 ------- Total 38.83% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust NYSE NYSE Arca NASDAQ(R) S&P Composite Arca Biotechnology Biotechnology Biotechnology S&P 500(R) 1500(R) Health Index Fund Index(SM) Index Index Care Index 12/06 $10,000 $10,000 $10,000 $10,000 $10,000 06/07 10,280 10,308 10,056 10,696 10,648 12/07 10,365 10,428 10,464 10,549 10,802 06/08 9,690 9,781 9,947 9,292 9,463 12/08 8,465 8,580 9,150 6,646 8,235 06/09 9,105 9,243 9,411 6,856 8,312 12/09 12,264 12,491 10,600 8,405 9,944 06/10 13,273 13,564 10,061 7,846 9,222 12/10 16,788 17,205 12,216 9,672 10,461 06/11 18,838 19,366 13,968 10,254 11,945 12/11 14,042 14,470 13,692 9,876 11,704 06/12 18,842 19,478 17,090 10,813 13,049 12/12 19,788 20,510 18,113 11,456 13,853 06/13 24,978 25,947 22,982 13,039 16,708 12/13 29,701 30,929 30,063 15,166 19,697 06/14 35,374 36,877 34,125 16,249 21,706 12/14 43,850 45,750 40,406 17,243 24,580 06/15 53,357 55,760 49,211 17,455 27,087 12/15 48,656 50,959 45,160 17,481 26,402 06/16 38,526 40,472 34,435 18,152 26,555 12/16 39,120 41,267 35,515 19,572 25,860
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 121 0 0 0 01/01/13 - 12/31/13 204 0 0 0 01/01/14 - 12/31/14 183 0 0 0 01/01/15 - 12/31/15 159 0 0 0 01/01/16 - 12/31/16 129 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% 01/01/12 - 12/31/12 128 1 0 0 01/01/13 - 12/31/13 48 0 0 0 01/01/14 - 12/31/14 69 0 0 0 01/01/15 - 12/31/15 93 0 0 0 01/01/16 - 12/31/16 122 0 0 0 Page 11 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) The First Trust Dow Jones Internet 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 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. 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 TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (6/19/06) Ended Ended (6/19/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 6.91% 19.84% 13.51% 14.08% 147.18% 255.05% 300.67% Market Value 6.98% 19.85% 13.50% 14.09% 147.30% 254.91% 300.87% INDEX PERFORMANCE Dow Jones Internet Composite Index(SM) 7.45% 20.48% 14.12% 14.70% 153.84% 274.72% 323.98% S&P 500(R) Index 11.96% 14.66% 6.95% 8.05% 98.18% 95.72% 126.13% S&P Composite 1500(R) Information Technology Index 14.78% 16.37% 9.89% 10.90% 113.43% 156.86% 197.31% ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a NAV return of 6.91% during the 12-month period covered by this report. During the same period, the S&P Composite 1500(R) Information Technology Index ("benchmark") generated a return of 14.78%. Over the period, the Internet Software & Services industry had the highest allocation of 51.1% in the Fund. This industry had a 6.9% return leading to a contribution of 3.3% to the Fund's performance. Amazon.com, Inc. and Facebook, Inc. were the top two contributing securities to the Fund's return, with a 1.6% and 1.5% contribution, respectively. Each of these securities were given an average weighting of 10.3% over the period, that had a 10.0% return. TripAdvisor, Inc., which is in the Internet & Direct Marketing Retail industry, contributed -1.3% to the Fund's performance, due to its -45.6% return. On a relative basis, the Fund underperformed the benchmark. The Internet Software & Services industry, where the Fund over allocated to the benchmark by 31.4%, created -2.5% of the underperformance. Another -2.3% of underperformance was created by the Semiconductors & Semiconductor Equipment industry, where the benchmark gave an average 14.4% allocation versus the Fund's 0% allocation. This industry returned 32.9% over the period. The IT Services and Software industries were the only industries that created relative outperformance. Both industries, which posted average returns, were given a smaller weighting in the Fund over the period, creating the outperformance. ----------------------------- Dow Jones and Dow Jones Internet Composite IndexSM are products of S&P Dow Jones Indices ("SPDJI") 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 SPDJI, Dow Jones Trademark Holdings LLC ("Dow Jones") or their respective affiliates and SPDJI, 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 FUND (FDN) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 69.66% Consumer Discretionary 20.46 Financials 4.93 Health Care 2.76 Telecommunication Services 2.19 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Facebook, Inc., Class A 9.92% Amazon.com, Inc. 9.90 Alphabet, Inc., Class A 5.15 Netflix, Inc. 5.11 Alphabet, Inc., Class C 5.03 PayPal Holdings, Inc. 4.75 salesforce.com, Inc. 4.60 Yahoo!, Inc. 4.11 eBay, Inc. 4.11 Citrix Systems, Inc. 2.86 ------- Total 55.54% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust Dow Jones S&P Composite 1500(R) Dow Jones Internet Internet Composite S&P 500(R) Information Technology Index Fund Index(SM) Index Index 12/06 $10,000 $10,000 $10,000 $10,000 06/07 11,498 11,528 10,696 10,987 12/07 11,116 11,181 10,550 11,543 06/08 9,927 10,010 9,292 10,055 12/08 6,223 6,287 6,647 6,591 06/09 8,306 8,417 6,857 8,212 12/09 11,153 11,334 8,405 10,613 06/10 10,615 10,801 7,846 9,550 12/10 15,238 15,556 9,672 11,900 06/11 16,114 16,491 10,254 12,193 12/11 14,362 14,760 9,876 12,033 06/12 15,719 16,204 10,813 13,564 12/12 17,357 17,953 11,456 13,808 06/13 20,183 20,934 13,039 14,737 12/13 26,625 27,712 15,166 17,811 06/14 26,497 27,627 16,249 19,316 12/14 27,271 28,486 17,243 21,186 06/15 29,886 31,304 17,455 21,461 12/15 33,206 34,868 17,481 22,371 06/16 32,084 33,773 18,152 22,384 12/16 35,501 37,464 19,572 25,686
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 122 0 0 0 01/01/13 - 12/31/13 200 0 0 0 01/01/14 - 12/31/14 148 0 0 0 01/01/15 - 12/31/15 201 0 0 0 01/01/16 - 12/31/16 124 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/12 - 12/31/12 128 0 0 0 01/01/13 - 12/31/13 52 0 0 0 01/01/14 - 12/31/14 104 0 0 0 01/01/15 - 12/31/15 51 0 0 0 01/01/16 - 12/31/16 128 0 0 0 Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CAPITAL STRENGTH ETF (FTCS) The First Trust Capital Strength ETF (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(TM) (the "Index"). The Fund will normally invest at least 90% of its net assets (including investment borrowings) in common stocks that comprise 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 TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (7/6/06) Ended Ended (7/6/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 8.57% 15.25% 8.07% 8.73% 103.37% 117.23% 140.56% Market Value 8.63% 15.29% 8.06% 8.74% 103.65% 117.04% 140.68% INDEX PERFORMANCE The Capital Strength Index(TM)* 9.31% N/A N/A N/A N/A N/A N/A S&P 500 Value Index** 17.40% 14.69% 5.50% 6.46% 98.46% 70.75% 92.86% S&P 500(R) Index 11.96% 14.66% 6.95% 7.80% 98.18% 95.72% 119.88% ------------------------------------------------------------------------------------------------------------------------------------
* 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(TM). 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). Since the Fund's new underlying index had an inception date of March 20, 2013, it was not in existence for some of the periods disclosed. ** The Fund no longer uses the S&P 500 Value Index as a comparative index for the Fund as the Advisor has determined that this index is no longer representative of the Fund's investment strategy and portfolio holdings. The S&P 500 Value Index will be represented in performance comparisons of the Fund until May 1, 2018. (See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a NAV return of 8.57% during the 12-month period covered by this report. During the same period, the S&P 500 Value Index ("benchmark") generated a return of 17.40%. The Information Technology sector generated 4.3% of the Fund's performance, as the sector was given a 20.9% allocation and had a return of 17.9%. The top returning sector was Industrials with a 22.8% return. The Health Care sector was the worst contributing sector over the period with a -0.5% contribution to performance. This sector was given an average 14.2% weighting and had a 3.8% return. The only returning sector with negative returns was Materials with a -13.1% return. The sector's contribution was minimized to -0.3% due to its low average weighting of 2.0% of the Fund. On a relative basis, the Fund underperformed the benchmark. The relative underperformance is primarily attributed to the Fund's holdings within the Consumer Discretionary sector where the Fund over allocated the benchmark by 10.4% and underperformed by -9.5%; this led to -2.4% of drag. The Industrials sector, where the Fund over allocated the benchmark by 11.1%, reversed -0.5% of underperformance. ----------------------------- "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. The Capital Strength Index(TM) is the trademark (the "Mark") of the Nasdaq OMX Group ("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) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Health Care 22.65% Information Technology 22.60 Industrials 18.88 Consumer Staples 15.75 Consumer Discretionary 14.26 Financials 3.88 Materials 1.98 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Xilinx, Inc. 2.34% Automatic Data Processing, Inc. 2.29 Sysco Corp. 2.25 General Dynamics Corp. 2.22 Boeing (The) Co. 2.22 T. Rowe Price Group, Inc. 2.21 Walt Disney (The) Co. 2.17 International Business Machines Corp. 2.14 UnitedHealth Group, Inc. 2.13 Western Union (The) Co. 2.10 ------- Total 22.07% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust Capital S&P 500(R) S&P 500 Strength ETF Index Value Index 12/06 $10,000 $10,000 $10,000 06/07 11,237 10,695 10,737 12/07 11,026 10,549 10,199 06/08 10,162 9,293 8,563 12/08 6,922 6,646 6,200 06/09 7,802 6,856 6,113 12/09 9,649 8,405 7,513 06/10 8,921 7,846 7,115 12/10 11,002 9,672 8,648 06/11 11,868 10,254 9,100 12/11 10,679 9,876 8,606 06/12 11,259 10,813 9,374 12/12 12,543 11,456 10,128 06/13 14,631 13,039 11,721 12/13 17,045 15,166 13,367 06/14 17,996 16,249 14,297 12/14 19,680 17,243 15,018 06/15 19,647 17,455 14,950 12/15 20,005 17,481 14,546 06/16 21,073 18,152 15,454 12/16 21,720 19,572 17,077
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 147 0 0 0 01/01/13 - 12/31/13 134 0 0 0 01/01/14 - 12/31/14 108 9 0 0 01/01/15 - 12/31/15 190 2 0 0 01/01/16 - 12/31/16 194 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% 01/01/12 - 12/31/12 103 0 0 0 01/01/13 - 12/31/13 117 1 0 0 01/01/14 - 12/31/14 131 4 0 0 01/01/15 - 12/31/15 57 3 0 0 01/01/16 - 12/31/16 58 0 0 0 Page 15 -------------------------------------------------------------------------------- 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 (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 TOTAL RETURNS CUMULATIVE 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) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 19.94% 14.66% 8.19% 9.93% 98.14% 119.63% 254.41% Market Value 20.07% 14.68% 8.20% 9.94% 98.35% 120.00% 254.79% INDEX PERFORMANCE Value Line(R) Dividend Index* 20.92% 15.60% 9.04% N/A 106.43% 137.70% N/A S&P 500(R) Index 11.96% 14.66% 6.95% 8.41% 98.18% 95.72% 194.38% Dow Jones U.S. Select Dividend Index(SM)* 21.98% 14.64% 6.72% N/A 98.00% 91.59% 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 net asset value ("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 (December 15, 2006) through period end (December 31, 2016) were 119.11% and 120.39% at NAV and Market Value, respectively. That compares to an Index return of 137.92% for the same period. The average annual total returns for the period from the reorganization date (December 15, 2006) through period end (December 31, 2016) were 8.12% and 8.19% at NAV and Market Value, respectively. That compares to an Index return of 9.02% for the same period. NAV and Market Value returns assume that all 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 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. * Performance data is not available for all the periods shown in the table because performance data does not exist for the periods shown. (See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a NAV return of 19.94% during the 12-month period covered by this report. During the same period, the S&P 500(R) Index ("benchmark") generated a return of 11.96%. The majority of the Fund's return came from the Utilities sector. The Fund had a 22.8% average allocation to the Utilities sector and had a 24.5% return, which lead to a 5.8% contribution. The Industrials and Financials sectors were the top returning sectors in the Fund, each having a 28.0% return. The Health Care sector was the only negative returning sector over the period, with a -0.3% contribution stemming from the Fund's 7.6% weighting in the sector and -3.5% return. The Fund's holdings in the Pharmaceuticals industry in particular led to the negative contribution. The industry was given an average weighting of 5.1% and had a return of -4.2%, which led to a -0.2% contribution. On a relative basis, the Fund outperformed the benchmark. The Fund's outperformance is primarily attributable to the Utilities sector, where the Fund had a 19.5% greater allocation and 7.9% higher return, resulting in 3.0% of outperformance. The Energy sector reversed -0.44% of the Fund's outperformance due to the Fund allocating 3.0% less to the well-performing sector and having a -1.9% lower return. ----------------------------- Value Line is a registered trademark of Value Line, Inc. that is licensed to First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold, or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their affiliates. Page 16 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Utilities 21.07% Financials 16.39 Consumer Staples 14.46 Industrials 11.20 Information Technology 9.68 Health Care 8.75 Consumer Discretionary 6.63 Energy 3.59 Materials 3.55 Real Estate 3.13 Telecommunication Services 1.55 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Weis Markets, Inc. 0.57% Sanofi, ADR 0.53 Realty Income Corp. 0.53 Public Storage 0.52 Anheuser-Busch InBev S.A/N.V., ADR 0.52 Federal Realty Investment Trust 0.52 Fortis, Inc. 0.52 Novartis AG, ADR 0.52 TOTAL S.A., ADR 0.52 Simon Property Group, Inc. 0.52 ------- Total 5.27% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust Value Line(R) Value Line(R) S&P 500(R) Dow Jones U.S. Select Dividend Index Fund Dividend Index Index Dividend Index(SM) 12/06 $10,000 $10,000 $10,000 $10,000 06/07 10,269 10,303 10,696 10,419 12/07 9,658 9,732 10,549 9,484 06/08 8,717 8,812 9,293 7,454 12/08 7,323 7,431 6,647 6,547 06/09 7,235 7,364 6,857 5,726 12/09 8,757 8,955 8,405 7,276 06/10 8,505 8,728 7,846 7,182 12/10 10,165 10,477 9,672 8,609 06/11 10,992 11,375 10,254 9,331 12/11 11,084 11,513 9,876 9,678 06/12 11,786 12,302 10,813 10,311 12/12 12,323 12,905 11,456 10,727 06/13 14,035 14,762 13,039 12,213 12/13 15,597 16,466 15,166 13,844 06/14 16,926 17,951 16,249 15,209 12/14 18,084 19,252 17,243 15,969 06/15 17,708 18,925 17,455 15,399 12/15 18,310 19,656 17,481 15,709 06/16 20,888 22,522 18,152 18,152 12/16 21,962 23,770 19,572 19,163
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 205 0 0 0 01/01/13 - 12/31/13 238 0 0 0 01/01/14 - 12/31/14 223 0 0 0 01/01/15 - 12/31/15 179 0 0 0 01/01/16 - 12/31/16 182 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% 01/01/12 - 12/31/12 44 1 0 0 01/01/13 - 12/31/13 14 0 0 0 01/01/14 - 12/31/14 29 0 0 0 01/01/15 - 12/31/15 73 0 0 0 01/01/16 - 12/31/16 70 0 0 0 Page 17 -------------------------------------------------------------------------------- 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 (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the Value Line(R) 100 Index (the "Index"). The Fund will normally invest at least 90% of its 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 TOTAL RETURNS CUMULATIVE 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) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 10.14% 12.44% 4.13% 5.97% 79.76% 49.83% 119.46% Market Value 10.24% 12.45% 4.99% 5.97% 79.84% 62.70% 119.56% INDEX PERFORMANCE Value Line(R) 100 Index* 11.29% 13.49% N/A N/A 88.29% N/A N/A Russell 3000(R) Index 12.74% 14.67% 7.07% 8.69% 98.23% 98.10% 209.54% ------------------------------------------------------------------------------------------------------------------------------------
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 (June 15, 2007) through period end (December 31, 2016) were 33.15% and 33.27% at NAV and Market Value, respectively. That compares to an Index return of 45.39% for that same period. The average annual total returns for the period from the reorganization date (June 15, 2007) through period end (December 31, 2016) were 3.04% and 3.05% at NAV and Market Value, respectively. That compares to an Index return of 4.00% for the same period. NAV and Market Value returns assume that all 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 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. * Performance data is not available for all the periods shown in the table for the index because performance data does not exist for each of the entire periods. (See Notes to Fund Performance Overview on page 20.) PERFORMANCE REVIEW The Fund generated a NAV return of 10.14% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.74%. 2.9% of the Fund's return stemmed from the Energy sector, where the Fund saw a 23.7% return, which was the highest sector return amongst the Fund, and was given an average weighting of 5.4%. The highest weighted sector over the period was the Information Technology sector, with an average weighting of 20.3%. This sector had a 7.6% return, which led to a 1.2% contribution to performance. The Consumer Discretionary sector, with a -1.0% contribution, was the only sector with negative impact to performance. This sector was given an average weighting of 11.4% and had a -12.0% return. The only other sector to have a negative return was the Consumer Staples sector, with a -1.3% return. On a relative basis, the Fund underperformed the benchmark. Although the returns of the Fund and benchmark were similar, slightly more underperformance was created by the Fund's holdings in the Consumer Discretionary sector. Several names within this sector, such as Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings, which had fairly poor returns of -27.7% and -22.8%, respectively, were given higher allocations in the Fund. The Consumer Discretionary sector as a whole created -1.5% of underperformance. The Fund's allocation to the Energy sector reversed 1.3% of underperformance. Although the Fund underperformed the benchmark within the Energy sector, the Fund had an average 1.0% lower allocation, which allowed the Fund to allocate more weighting to sectors that could outperform the benchmark. ----------------------------- Value Line is a registered trademark of Value Line, Inc. that is licensed to First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold, or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their affiliates. Page 18 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Energy 25.86% Consumer Discretionary 17.68 Information Technology 14.16 Financials 9.48 Health Care 7.41 Industrials 7.16 Materials 7.05 Utilities 5.01 Telecommunication Services 3.28 Consumer Staples 2.91 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Bristow Group, Inc. 1.73% Anixter International, Inc. 1.26 Aegon N.V. 1.21 Pandora Media, Inc. 1.20 Tesla Motors, Inc. 1.18 Kemper Corp. 1.14 CVR Energy, Inc. 1.13 America Movil S.A.B. de C.V., Class L, ADR 1.12 Speedway Motorsports, Inc. 1.12 Telefonica S.A., ADR 1.12 ------- Total 12.21% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust Value Line(R) 100 Russell 3000(R) Exchange-Traded Fund Index 12/06 $10,000 $10,000 06/07 11,168 10,711 12/07 11,991 10,514 06/08 10,967 9,352 12/08 6,200 6,591 06/09 5,959 6,867 12/09 6,990 8,458 06/10 6,930 7,946 12/10 9,053 9,889 06/11 9,566 10,517 12/11 8,336 9,990 06/12 8,569 10,921 12/12 9,047 11,630 06/13 10,395 13,265 12/13 12,615 15,532 06/14 13,980 16,610 12/14 14,046 17,482 06/15 14,418 17,821 12/15 13,606 17,565 06/16 14,074 18,201 12/16 14,985 19,810
Performance figures assume reinvestment of all 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 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 73 0 0 0 01/01/13 - 12/31/13 100 0 0 0 01/01/14 - 12/31/14 165 0 0 0 01/01/15 - 12/31/15 130 0 0 0 01/01/16 - 12/31/16 140 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% 01/01/12 - 12/31/12 177 0 0 0 01/01/13 - 12/31/13 152 0 0 0 01/01/14 - 12/31/14 87 0 0 0 01/01/15 - 12/31/15 122 0 0 0 01/01/16 - 12/31/16 111 0 0 0 Page 19 -------------------------------------------------------------------------------- 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 Price") 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 each 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 each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do 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 performance. Page 20 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2016 (UNAUDITED) As a shareholder of First Trust Dow Jones Select MicroCap Index Fund, First Trust Morningstar Dividend Leaders Index Fund, First Trust US Equity Opportunities ETF, First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index Fund, First Trust Capital Strength ETF, First Trust Value Line(R) Dividend Index Fund or First Trust Value Line(R) 100 Exchange-Traded Fund (each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, 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, 2016. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
----------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b) ----------------------------------------------------------------------------------------------------------------------- FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) Actual $1,000.00 $1,321.50 0.60% $3.50 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) Actual $1,000.00 $1,052.30 0.45% $2.32 Hypothetical (5% return before expenses) $1,000.00 $1,022.87 0.45% $2.29 FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) Actual $1,000.00 $1,074.00 0.60% $3.13 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) Actual $1,000.00 $1,015.40 0.56% $2.84 Hypothetical (5% return before expenses) $1,000.00 $1,022.32 0.56% $2.85 FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) Actual $1,000.00 $1,106.50 0.53% $2.81 Hypothetical (5% return before expenses) $1,000.00 $1,022.47 0.53% $2.69 FIRST TRUST CAPITAL STRENGTH ETF (FTCS) Actual $1,000.00 $1,030.70 0.63% $3.22 Hypothetical (5% return before expenses) $1,000.00 $1,021.97 0.63% $3.20
Page 21 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2016 (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b) ----------------------------------------------------------------------------------------------------------------------- FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) Actual $1,000.00 $1,051.40 0.70% $3.61 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) Actual $1,000.00 $1,064.70 0.70% $3.63 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56
(a) These expense ratios reflect an expense cap for certain Funds. See Note 3 in Notes to Financial Statements. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2016 through December 31, 2016), multiplied by 184/366 (to reflect the one-half year period). Page 22 FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 1.0% 5,532 National Presto Industries, Inc. $ 588,605 10,349 Sparton Corp. (a) 246,823 12,082 Vectrus, Inc. (a) 288,156 -------------- 1,123,584 -------------- AIR FREIGHT & LOGISTICS -- 0.3% 9,584 Park-Ohio Holdings Corp. 408,278 -------------- AUTO COMPONENTS -- 2.2% 20,855 Horizon Global Corp. (a) 500,520 53,571 Modine Manufacturing Co. (a) 798,208 29,346 Stoneridge, Inc. (a) 519,131 4,023 Strattec Security Corp. 162,127 22,804 Tower International, Inc. 646,493 -------------- 2,626,479 -------------- AUTOMOBILES -- 0.8% 29,657 Winnebago Industries, Inc. 938,644 -------------- BANKS -- 31.6% 6,796 ACNB Corp. 212,375 12,733 Allegiance Bancshares, Inc. (a) 460,298 9,080 American National Bankshares, Inc. 315,984 6,178 Bank of Marin Bancorp 430,915 6,537 Bankwell Financial Group, Inc. 212,452 6,790 Bar Harbor Bankshares 321,371 20,125 Bridge Bancorp, Inc. 762,737 18,963 Bryn Mawr Bank Corp. 799,290 3,608 C&F Financial Corp. 179,859 17,313 Camden National Corp. 769,563 11,820 Carolina Financial Corp. 363,938 35,913 Cascade Bancorp (a) 291,614 9,937 Central Valley Community Bancorp 198,343 4,165 Chemung Financial Corp. 151,398 15,084 CNB Financial Corp. 403,346 41,406 CoBiz Financial, Inc. 699,347 9,397 Codorus Valley Bancorp, Inc. 268,754 18,570 Community Trust Bancorp, Inc. 921,072 31,558 ConnectOne Bancorp, Inc. 818,930 18,038 CU Bancorp (a) 645,760 22,437 Enterprise Financial Services Corp. 964,791 5,174 Equity Bancshares, Inc., Class A (a) 174,053 27,598 Farmers National Banc Corp. 391,892 23,739 Fidelity Southern Corp. 561,902 15,312 Financial Institutions, Inc. 523,670 22,558 First Bancorp 612,224 16,763 First Community Bancshares, Inc. 505,237 15,421 First Connecticut Bancorp, Inc. 349,286 12,571 First Financial Corp. 663,749 14,829 First Foundation, Inc. (a) 422,626 30,162 Flushing Financial Corp. 886,461 13,265 Franklin Financial Network, Inc. (a) 555,140 12,024 Great Southern Bancorp, Inc. 657,112 23,558 Green Bancorp, Inc. (a) 358,082 19,071 Guaranty Bancorp 461,518 30,618 Heritage Commerce Corp. 441,818 33,577 Heritage Financial Corp. 864,608 22,278 Heritage Oaks Bancorp 274,688 SHARES DESCRIPTION VALUE ------------------------------------------------------------- BANKS (CONTINUED) 18,165 HomeTrust Bancshares, Inc. (a) $ 470,473 22,623 Horizon Bancorp 633,444 23,822 Independent Bank Corp. 516,937 43,352 Lakeland Bancorp, Inc. 845,364 9,851 LCNB Corp. 229,036 29,287 Macatawa Bank Corp. 304,878 25,600 MainSource Financial Group, Inc. 880,640 21,925 MBT Financial Corp. 248,849 18,278 Mercantile Bank Corp. 689,081 6,563 Merchants Bancshares, Inc. 355,715 5,333 Middleburg Financial Corp. 185,322 8,719 MidWestOne Financial Group, Inc. 327,834 6,980 MutualFirst Financial, Inc. 231,038 9,680 National Commerce Corp. (a) 359,612 7,735 Northrim BanCorp, Inc. 244,426 49,238 OFG Bancorp 645,018 8,888 Old Line Bancshares, Inc. 213,134 8,266 Orrstown Financial Services, Inc. 185,158 56,776 Park Sterling Corp. 612,613 16,722 Peapack-Gladstone Financial Corp. 516,375 20,402 Peoples Bancorp, Inc. 662,249 9,291 Premier Financial Bancorp, Inc. 186,749 13,196 QCR Holdings, Inc. 571,387 9,811 Republic Bancorp, Inc., Class A 387,927 33,681 Seacoast Banking Corp. of Florida (a) 743,003 14,200 Shore Bancshares, Inc. 216,550 12,061 Sierra Bancorp 320,702 6,370 Southern First Bancshares, Inc. (a) 229,320 12,648 Southern National Bancorp of Virginia, Inc. 206,668 19,692 Southwest Bancorp, Inc. 571,068 14,161 Stonegate Bank 590,939 9,602 Summit Financial Group, Inc. 264,343 22,523 TriCo Bancshares 769,836 24,470 TriState Capital Holdings, Inc. (a) 540,787 18,473 Triumph Bancorp, Inc. (a) 483,069 29,797 Univest Corp. of Pennsylvania 920,727 14,570 Veritex Holdings, Inc. (a) 389,165 16,510 Washington Trust Bancorp, Inc. 925,386 9,828 WashingtonFirst Bankshares, Inc. 284,914 -------------- 36,855,939 -------------- BIOTECHNOLOGY -- 0.3% 185,610 PDL BioPharma, Inc. 393,493 -------------- BUILDING PRODUCTS -- 1.7% 17,730 CSW Industrials, Inc. (a) 653,351 19,575 Insteel Industries, Inc. 697,653 54,938 PGT Innovations, Inc. (a) 629,040 -------------- 1,980,044 -------------- CAPITAL MARKETS -- 3.5% 26,743 GAIN Capital Holdings, Inc. 175,969 16,724 INTL FCStone, Inc. (a) 662,270 16,822 Manning & Napier, Inc. 127,006 20,775 Moelis & Co., Class A 704,272 15,946 Piper Jaffray Cos. (a) 1,156,085 18,369 PJT Partners, Inc., Class A (b) 567,235 See Notes to Financial Statements Page 23 FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) CAPITAL MARKETS (CONTINUED) 16,269 Pzena Investment Management, Inc., Class A $ 180,749 8,880 Westwood Holdings Group, Inc. 532,711 -------------- 4,106,297 -------------- CHEMICALS -- 2.8% 7,839 Chase Corp. 654,948 8,212 Core Molding Technologies, Inc. (a) 140,507 10,710 Hawkins, Inc. 577,805 8,177 KMG Chemicals, Inc. 318,004 47,562 OMNOVA Solutions, Inc. (a) 475,620 48,514 Rayonier Advanced Materials, Inc. 750,026 21,983 Trecora Resources (a) 304,465 -------------- 3,221,375 -------------- COMMERCIAL SERVICES & SUPPLIES -- 3.0% 42,270 ARC Document Solutions, Inc. (a) 214,732 29,493 CECO Environmental Corp. 411,427 29,107 Ennis, Inc. 505,006 39,479 Hudson Technologies, Inc. (a) 316,227 43,673 InnerWorkings, Inc. (a) 430,179 41,814 Kimball International, Inc., Class B 734,254 20,555 SP Plus Corp. (a) 578,623 8,597 VSE Corp. 333,908 -------------- 3,524,356 -------------- COMMUNICATIONS EQUIPMENT -- 0.6% 9,738 Bel Fuse, Inc., Class B 300,904 29,109 Digi International, Inc. (a) 400,249 -------------- 701,153 -------------- CONSTRUCTION & ENGINEERING -- 1.0% 8,659 IES Holdings, Inc. (a) 165,820 18,012 MYR Group, Inc. (a) 678,692 8,508 NV5 Global, Inc. (a) 284,167 -------------- 1,128,679 -------------- CONSTRUCTION MATERIALS -- 0.1% 2,246 United States Lime & Minerals, Inc. 170,135 -------------- CONSUMER FINANCE -- 1.5% 26,337 Encore Capital Group, Inc. (a) (b) 754,555 26,069 Enova International, Inc. (a) 327,166 10,266 Regional Management Corp. (a) 269,790 6,714 World Acceptance Corp. (a) 431,576 -------------- 1,783,087 -------------- CONTAINERS & PACKAGING -- 0.9% 4,358 AEP Industries, Inc. 505,964 24,491 Myers Industries, Inc. 350,221 7,051 UFP Technologies, Inc. (a) 179,448 -------------- 1,035,633 -------------- DIVERSIFIED CONSUMER SERVICES -- 1.7% 18,048 American Public Education, Inc. (a) 443,078 19,223 Bridgepoint Education, Inc. (a) 194,729 SHARES DESCRIPTION VALUE ------------------------------------------------------------- DIVERSIFIED CONSUMER SERVICES (CONTINUED) 72,185 Career Education Corp. (a) $ 728,347 16,390 Carriage Services, Inc. 469,409 7,881 Collectors Universe, Inc. 167,314 -------------- 2,002,877 -------------- DIVERSIFIED FINANCIAL SERVICES -- 0.1% 4,257 A-Mark Precious Metals, Inc. 83,012 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.7% 23,374 FairPoint Communications, Inc. (a) 437,094 19,276 IDT Corp., Class B 357,377 -------------- 794,471 -------------- ELECTRIC UTILITIES -- 0.2% 6,483 Spark Energy, Inc., Class A (b) 196,435 -------------- ELECTRICAL EQUIPMENT -- 1.3% 7,670 Allied Motion Technologies, Inc. 164,062 28,046 LSI Industries, Inc. 273,168 9,580 Powell Industries, Inc. 373,620 36,247 Thermon Group Holdings, Inc. (a) 691,955 -------------- 1,502,805 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 2.4% 36,732 CTS Corp. 822,797 30,815 Kimball Electronics, Inc. (a) 560,833 35,144 Novanta, Inc. (a) 738,024 21,327 Park Electrochemical Corp. 397,748 13,642 Vishay Precision Group, Inc. (a) 257,834 -------------- 2,777,236 -------------- ENERGY EQUIPMENT & SERVICES -- 0.4% 13,708 Natural Gas Services Group, Inc. (a) 440,712 -------------- EQUITY REAL ESTATE INVESTMENT TRUSTS -- 0.5% 40,688 Armada Hoffler Properties, Inc. 592,824 -------------- FOOD & STAPLES RETAILING -- 0.5% 21,489 Chefs' Warehouse (The), Inc. (a) 339,526 8,499 Village Super Market, Inc., Class A 262,619 -------------- 602,145 -------------- FOOD PRODUCTS -- 1.2% 2,704 Alico, Inc. 73,414 10,545 Farmer Brothers Co. (a) 387,001 25,158 Omega Protein Corp. (a) 630,208 6,985 Seneca Foods Corp., Class A (a) 279,749 -------------- 1,370,372 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.6% 11,770 Exactech, Inc. (a) 321,321 7,334 FONAR Corp. (a) 140,446 23,058 Lantheus Holdings, Inc. (a) 198,299 -------------- 660,066 -------------- Page 24 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) HEALTH CARE PROVIDERS & SERVICES -- 1.0% 10,002 Almost Family, Inc. (a) $ 441,088 10,769 Landauer, Inc. 517,989 35,428 RadNet, Inc. (a) 228,511 -------------- 1,187,588 -------------- HOTELS, RESTAURANTS & LEISURE -- 3.5% 18,814 Bojangles', Inc. (a) 350,881 15,355 Bravo Brio Restaurant Group, Inc. (a) 58,349 24,393 Century Casinos, Inc. (a) 200,754 26,381 Del Frisco's Restaurant Group, Inc. (a) 448,477 37,315 Del Taco Restaurants, Inc. (a) 526,888 24,158 El Pollo Loco Holdings, Inc. (a) (b) 297,143 5,992 Fogo De Chao, Inc. (a) (b) 85,985 10,967 Golden Entertainment, Inc. 132,810 14,270 Intrawest Resorts Holdings, Inc. (a) 254,720 20,182 Lindblad Expeditions Holdings, Inc. (a) 190,720 21,227 Marcus (The) Corp. 668,651 12,269 Monarch Casino & Resort, Inc. (a) 316,295 33,251 Ruth's Hospitality Group, Inc. 608,493 -------------- 4,140,166 -------------- HOUSEHOLD DURABLES -- 2.5% 12,147 AV Homes, Inc. (a) 191,923 37,080 Beazer Homes USA, Inc. (a) 493,164 17,218 Century Communities, Inc. (a) 361,578 9,466 CSS Industries, Inc. 256,245 7,409 Flexsteel Industries, Inc. 456,913 16,461 Green Brick Partners, Inc. (a) (b) 165,433 24,492 Libbey, Inc. 476,614 26,264 William Lyon Homes, Class A (a) 499,804 -------------- 2,901,674 -------------- HOUSEHOLD PRODUCTS -- 0.2% 10,276 Orchids Paper Products Co. (b) 269,026 -------------- INSURANCE -- 2.1% 12,537 Atlas Financial Holdings, Inc. (a) 226,293 10,059 Baldwin & Lyons, Inc., Class B 253,487 13,288 Crawford & Co., Class B 166,897 11,426 Donegal Group, Inc., Class A 199,726 9,662 Global Indemnity Ltd. (a) 369,185 15,234 Hallmark Financial Services, Inc. (a) 177,171 1,627 Investors Title Co. 257,359 10,841 Patriot National, Inc. (a) (b) 50,411 33,375 State National Cos., Inc. 462,578 19,900 United Insurance Holdings Corp. 301,286 -------------- 2,464,393 -------------- INTERNET & DIRECT MARKETING RETAIL -- 0.5% 23,015 PetMed Express, Inc. (b) 530,956 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 0.3% 37,806 Angie's List, Inc. (a) $ 311,143 -------------- IT SERVICES -- 0.7% 61,374 Lionbridge Technologies, Inc. (a) 355,969 32,134 MoneyGram International, Inc. (a) 379,503 7,699 NCI, Inc., Class A 107,401 -------------- 842,873 -------------- LEISURE PRODUCTS -- 1.3% 6,470 Johnson Outdoors, Inc., Class A 256,794 19,870 Malibu Boats, Inc., Class A (a) 379,120 18,379 MCBC Holdings, Inc. 267,966 34,903 Nautilus, Inc. (a) 645,705 -------------- 1,549,585 -------------- MACHINERY -- 2.9% 10,017 Blue Bird Corp. (a) 154,763 22,687 Columbus McKinnon Corp. 613,456 27,223 Commercial Vehicle Group, Inc. (a) 150,543 24,235 Global Brass & Copper Holdings, Inc. 831,260 14,459 Hardinge, Inc. 160,206 7,370 Hurco Cos., Inc. 243,947 12,238 Kadant, Inc. 748,966 12,722 Miller Industries, Inc. 336,497 12,562 Supreme Industries, Inc., Class A 197,223 -------------- 3,436,861 -------------- MEDIA -- 1.0% 28,472 Entercom Communications Corp., Class A 435,622 16,995 Reading International, Inc., Class A (a) 282,117 11,819 Salem Media Group, Inc. 73,869 27,365 tronc, Inc. 379,552 -------------- 1,171,160 -------------- METALS & MINING -- 0.8% 22,355 Materion Corp. 885,258 -------------- MORTGAGE REAL ESTATE INVESTMENT TRUSTS -- 1.1% 45,529 Arbor Realty Trust, Inc. 339,646 31,936 Ares Commercial Real Estate Corp. 438,481 68,838 Drive Shack, Inc. 258,831 18,494 Great Ajax Corp. 245,416 -------------- 1,282,374 -------------- MULTI-UTILITIES -- 0.6% 15,765 Unitil Corp. 714,785 -------------- OIL, GAS & CONSUMABLE FUELS -- 0.7% 22,972 Hallador Energy Co. 208,816 6,347 REX American Resources Corp. (a) 626,766 -------------- 835,582 -------------- PAPER & FOREST PRODUCTS -- 0.4% 47,875 Mercer International, Inc. 509,869 -------------- See Notes to Financial Statements Page 25 FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) PERSONAL PRODUCTS -- 0.9% 12,487 Medifast, Inc. $ 519,834 7,467 Natural Health Trends Corp. (b) 185,555 9,081 Nutraceutical International Corp. 317,381 -------------- 1,022,770 -------------- PHARMACEUTICALS -- 0.9% 57,244 SciClone Pharmaceuticals, Inc. (a) 618,235 27,753 Sucampo Pharmaceuticals, Inc., Class A (a) 376,053 -------------- 994,288 -------------- PROFESSIONAL SERVICES -- 1.7% 60,135 CBIZ, Inc. (a) 823,849 9,277 CRA International, Inc. 339,538 44,693 Hill International, Inc. (a) 194,415 33,102 Resources Connection, Inc. 637,214 -------------- 1,995,016 -------------- ROAD & RAIL -- 1.2% 31,629 Celadon Group, Inc. 226,147 12,968 Covenant Transportation Group, Inc., Class A (a) 250,801 33,961 Roadrunner Transportation Systems, Inc. (a) 352,855 7,901 USA Truck, Inc. (a) 68,818 37,308 YRC Worldwide, Inc. (a) 495,450 -------------- 1,394,071 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.7% 34,781 Rudolph Technologies, Inc. (a) 812,136 -------------- SPECIALTY RETAIL -- 1.8% 15,818 Build-A-Bear Workshop, Inc. (a) 217,497 21,404 Haverty Furniture Cos., Inc. 507,275 16,392 Kirkland's, Inc. (a) 254,240 27,677 MarineMax, Inc. (a) 535,550 14,872 Shoe Carnival, Inc. 401,247 34,705 Stein Mart, Inc. 190,183 -------------- 2,105,992 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 2.0% 12,005 Culp, Inc. 445,986 7,093 Delta Apparel, Inc. (a) 147,038 62,934 Iconix Brand Group, Inc. (a) 587,804 13,554 Perry Ellis International, Inc. (a) 337,630 16,996 Unifi, Inc. (a) 554,579 21,925 Vera Bradley, Inc. (a) 256,961 -------------- 2,329,998 -------------- THRIFTS & MORTGAGE FINANCE -- 8.6% 47,112 Bank Mutual Corp. 445,208 15,842 Charter Financial Corp. 264,086 34,939 Dime Community Bancshares, Inc. 702,274 10,348 ESSA Bancorp, Inc. 162,671 10,037 Federal Agricultural Mortgage Corp., Class C 574,819 SHARES DESCRIPTION VALUE ------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE (CONTINUED) 10,070 First Defiance Financial Corp. $ 510,952 6,404 Home Bancorp, Inc. 247,258 26,176 HomeStreet, Inc. (a) 827,162 13,288 Impac Mortgage Holdings, Inc. (a) (b) 186,298 9,971 Meta Financial Group, Inc. 1,026,016 32,015 OceanFirst Financial Corp. 961,411 6,988 Provident Financial Holdings, Inc. 141,297 12,321 SI Financial Group, Inc. 189,743 6,336 Southern Missouri Bancorp, Inc. 224,168 9,087 Territorial Bancorp, Inc. 298,417 107,308 TrustCo Bank Corp. NY 938,945 52,194 United Community Financial Corp. 466,614 56,636 United Financial Bancorp, Inc. 1,028,510 28,336 Waterstone Financial, Inc. 521,382 29,169 Western New England Bancorp, Inc. 272,730 -------------- 9,989,961 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.0% 17,308 CAI International, Inc. (a) 150,060 35,085 H&E Equipment Services, Inc. 815,726 20,558 Huttig Building Products, Inc. (a) 135,889 4,148 Willis Lease Finance Corp. (a) 106,106 -------------- 1,207,781 -------------- WATER UTILITIES -- 0.2% 8,586 Artesian Resources Corp., Class A 274,237 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.4% 23,028 Spok Holdings, Inc. 477,831 -------------- TOTAL COMMON STOCKS -- 99.9% 116,657,505 (Cost $101,694,201) -------------- MONEY MARKET FUNDS -- 1.3% 1,477,617 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class, - 0.39% (c) (d) 1,477,617 (Cost $1,477,617) -------------- TOTAL INVESTMENTS -- 101.2% 118,135,122 (Cost $103,171,818) (e) NET OTHER ASSETS AND LIABILITIES -- (1.2)% (1,359,456) -------------- NET ASSETS -- 100.0% $ 116,775,666 ============== (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 $1,420,483 and the total value of the collateral held by the Fund is $1,477,617. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. Page 26 See Notes to Financial Statements FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 (e) Aggregate cost for federal income tax purposes is $104,095,559. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $15,412,555 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,372,992. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $ 116,657,505 $ -- $ -- Money Market Funds 1,477,617 -- -- ---------------------------------------------------- Total Investments $ 118,135,122 $ -- $ -- ==================================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT -------------------------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 1,420,483 Non-cash Collateral(2) (1,420,483) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. See Notes to Financial Statements Page 27 FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 2.3% 259,124 Boeing (The) Co. $ 40,340,424 -------------- BANKS -- 0.9% 100,546 F.N.B. Corp. 1,611,752 26,952 Hancock Holding Co. 1,161,631 62,939 Old National Bancorp 1,142,343 69,927 PacWest Bancorp 3,806,826 6,743 Park National Corp. 806,867 171,816 People's United Financial, Inc. 3,326,358 27,880 Trustmark Corp. 993,922 119,142 Umpqua Holdings Corp. 2,237,487 29,623 United Bankshares, Inc. 1,370,064 -------------- 16,457,250 -------------- CAPITAL MARKETS -- 0.5% 223,128 Invesco Ltd. 6,769,704 114,443 Waddell & Reed Financial, Inc., Class A 2,232,783 -------------- 9,002,487 -------------- CHEMICALS -- 3.3% 150,228 CF Industries Holdings, Inc. 4,729,178 578,774 Dow Chemical (The) Co. 33,117,448 79,155 Huntsman Corp. 1,510,277 202,819 LyondellBasell Industries N.V., Class A 17,397,814 79,276 Olin Corp. 2,030,258 -------------- 58,784,975 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.0% 37,401 R.R. Donnelley & Sons Co. 610,384 -------------- COMMUNICATIONS EQUIPMENT -- 4.7% 2,782,096 Cisco Systems, Inc. 84,074,941 -------------- CONTAINERS & PACKAGING -- 1.0% 228,053 International Paper Co. 12,100,492 121,472 WestRock Co. 6,167,134 -------------- 18,267,626 -------------- DIVERSIFIED CONSUMER SERVICES -- 0.2% 131,846 H&R Block, Inc. 3,031,140 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 19.2% 4,346,200 AT&T, Inc. 184,843,886 2,925,315 Verizon Communications, Inc. 156,153,315 -------------- 340,997,201 -------------- ELECTRIC UTILITIES -- 8.5% 25,942 ALLETE, Inc. 1,665,217 307,412 American Electric Power Co., Inc. 19,354,660 503,635 Duke Energy Corp. 39,092,149 141,245 Entergy Corp. 10,377,270 139,943 Great Plains Energy, Inc. 3,827,441 68,602 Hawaiian Electric Industries, Inc. 2,268,668 119,000 OGE Energy Corp. 3,980,550 61,967 Pinnacle West Capital Corp. 4,835,285 SHARES DESCRIPTION VALUE ------------------------------------------------------------- ELECTRIC UTILITIES (CONTINUED) 498,129 PPL Corp. $ 16,961,292 743,098 Southern (The) Co. 36,552,991 280,205 Xcel Energy, Inc. 11,404,343 -------------- 150,319,866 -------------- ELECTRICAL EQUIPMENT -- 2.0% 238,571 Eaton Corp. PLC 16,005,728 338,101 Emerson Electric Co. 18,849,131 -------------- 34,854,859 -------------- FOOD PRODUCTS -- 0.1% 39,616 B&G Foods, Inc. 1,735,181 20,723 Cal-Maine Foods, Inc. 915,438 -------------- 2,650,619 -------------- GAS UTILITIES -- 0.1% 14,589 Northwest Natural Gas Co. 872,422 39,881 South Jersey Industries, Inc. 1,343,591 -------------- 2,216,013 -------------- HOUSEHOLD DURABLES -- 0.3% 72,455 Garmin Ltd. 3,513,343 23,283 M.D.C. Holdings, Inc. 597,442 39,360 Tupperware Brands Corp. 2,071,123 -------------- 6,181,908 -------------- HOUSEHOLD PRODUCTS -- 6.4% 1,358,751 Procter & Gamble (The) Co. 114,243,784 -------------- INSURANCE -- 3.1% 494,519 MetLife, Inc. 26,649,629 160,188 Old Republic International Corp. 3,043,572 115,391 Principal Financial Group, Inc. 6,676,523 182,200 Prudential Financial, Inc. 18,959,732 -------------- 55,329,456 -------------- IT SERVICES -- 4.7% 469,316 International Business Machines Corp. 77,901,763 223,805 Western Union (The) Co. 4,861,045 -------------- 82,762,808 -------------- MACHINERY -- 2.1% 295,510 Caterpillar, Inc. 27,405,597 68,887 Cummins, Inc. 9,414,786 29,972 Kennametal, Inc. 936,925 -------------- 37,757,308 -------------- MEDIA -- 0.4% 20,576 Meredith Corp. 1,217,071 66,493 Regal Entertainment Group, Class A 1,369,756 2,844 Viacom, Inc., Class A 109,494 116,694 Viacom, Inc., Class B 4,095,959 -------------- 6,792,280 -------------- METALS & MINING -- 0.1% 19,014 Compass Minerals International, Inc. 1,489,747 -------------- MULTILINE RETAIL -- 0.7% 97,428 Kohl's Corp. 4,810,995 170,608 Macy's, Inc. 6,109,472 Page 28 See Notes to Financial Statements FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) MULTILINE RETAIL (CONTINUED) 45,658 Nordstrom, Inc. $ 2,188,388 -------------- 13,108,855 -------------- MULTI-UTILITIES -- 5.2% 131,987 Ameren Corp. 6,924,038 34,092 Avista Corp. 1,363,339 293,905 CenterPoint Energy, Inc. 7,241,819 185,122 Consolidated Edison, Inc. 13,639,789 381,080 Dominion Resources, Inc. 29,186,917 79,574 MDU Resources Group, Inc. 2,289,344 27,699 NorthWestern Corp. 1,575,242 317,787 Public Service Enterprise Group, Inc. 13,944,494 71,967 SCANA Corp. 5,273,742 177,129 WEC Energy Group, Inc. 10,388,616 -------------- 91,827,340 -------------- OIL, GAS & CONSUMABLE FUELS -- 1.2% 112,168 HollyFrontier Corp. 3,674,624 256,730 Valero Energy Corp. 17,539,793 -------------- 21,214,417 -------------- PAPER & FOREST PRODUCTS -- 0.1% 40,683 Domtar Corp. 1,587,858 -------------- PERSONAL PRODUCTS -- 0.1% 24,244 Nu Skin Enterprises, Inc., Class A 1,158,378 -------------- PHARMACEUTICALS -- 11.3% 1,348,170 Merck & Co., Inc. 79,366,768 3,726,405 Pfizer, Inc. 121,033,634 -------------- 200,400,402 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 7.3% 2,215,869 Intel Corp. 80,369,569 47,238 Intersil Corp., Class A 1,053,407 731,239 QUALCOMM, Inc. 47,676,783 -------------- 129,099,759 -------------- SPECIALTY RETAIL -- 1.2% 54,820 Abercrombie & Fitch Co., Class A 657,840 100,588 Best Buy Co., Inc. 4,292,090 16,835 Buckle (The), Inc. 383,838 121,564 Gap (The), Inc. 2,727,896 123,322 L Brands, Inc. 8,119,521 500,903 Staples, Inc. 4,533,172 -------------- 20,714,357 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 0.7% 19,991 Diebold Nixdorf, Inc. 502,774 838,648 HP, Inc. 12,445,536 -------------- 12,948,310 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.3% 158,057 Coach, Inc. 5,535,156 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE -- 0.1% 51,937 Northwest Bancshares, Inc. $ 936,424 24,336 Provident Financial Services, Inc. 688,709 -------------- 1,625,133 -------------- TOBACCO -- 11.7% 1,161,166 Altria Group, Inc. 78,518,045 1,146,149 Philip Morris International, Inc. 104,861,172 438,374 Reynolds American, Inc. 24,566,479 12,956 Universal Corp. 825,945 -------------- 208,771,641 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.1% 42,240 Aircastle Ltd. 880,704 16,704 GATX Corp. 1,028,632 -------------- 1,909,336 -------------- TOTAL INVESTMENTS -- 99.9% 1,776,066,018 (Cost $1,610,308,775) (a) NET OTHER ASSETS AND LIABILITIES -- 0.1% 2,397,900 -------------- NET ASSETS -- 100.0% $1,778,463,918 ============== (a) Aggregate cost for federal income tax purposes is $1,620,355,524. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $162,302,044 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $6,591,550. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $1,776,066,018 $ -- $ -- ==================================================== * 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, 2016. See Notes to Financial Statements Page 29 FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% AIRLINES -- 1.0% 72,553 Alaska Air Group, Inc. $ 6,437,628 -------------- AUTO COMPONENTS -- 0.5% 55,132 Adient PLC (a) 3,230,735 -------------- AUTOMOBILES -- 1.5% 999,395 Fiat Chrysler Automobiles N.V. 9,114,482 -------------- BANKS -- 3.8% 301,274 Citizens Financial Group, Inc. 10,734,393 24,109 FCB Financial Holdings, Inc., Class A (a) 1,149,999 82,123 First Hawaiian, Inc. 2,859,523 90,417 First Republic Bank 8,331,022 -------------- 23,074,937 -------------- BIOTECHNOLOGY -- 14.7% 956,477 AbbVie, Inc. 59,894,590 177,357 Shire PLC, ADR 30,218,085 -------------- 90,112,675 -------------- BUILDING PRODUCTS -- 0.6% 56,511 Allegion PLC 3,616,704 -------------- CAPITAL MARKETS -- 0.6% 56,734 Bats Global Markets, Inc. 1,901,156 111,206 NorthStar Asset Management Group, Inc. 1,659,194 -------------- 3,560,350 -------------- CHEMICALS -- 1.7% 141,528 Axalta Coating Systems Ltd. (a) 3,849,561 107,021 Chemours (The) Co. 2,364,094 24,788 Ingevity Corp. (a) 1,359,870 120,362 Valvoline, Inc. (b) 2,587,783 -------------- 10,161,308 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.2% 51,629 Advanced Disposal Services, Inc. (a) 1,147,196 -------------- COMMUNICATIONS EQUIPMENT -- 1.8% 22,026 Acacia Communications, Inc. (a) (b) 1,360,105 41,323 Arista Networks, Inc. (a) 3,998,827 113,552 CommScope Holding Co., Inc. (a) 4,224,134 35,392 Lumentum Holdings, Inc. (a) 1,367,901 -------------- 10,950,967 -------------- CONSUMER FINANCE -- 3.7% 277,566 Ally Financial, Inc. 5,279,305 485,841 Synchrony Financial 17,621,453 -------------- 22,900,758 -------------- CONTAINERS & PACKAGING -- 0.6% 71,805 Berry Plastics Group, Inc. (a) 3,499,058 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- DIVERSIFIED CONSUMER SERVICES -- 0.9% 34,994 Bright Horizons Family Solutions, Inc. (a) $ 2,450,280 79,314 ServiceMaster Global Holdings, Inc. (a) 2,987,758 -------------- 5,438,038 -------------- DIVERSIFIED FINANCIAL SERVICES -- 0.7% 114,548 Voya Financial, Inc. 4,492,573 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.8% 143,092 Zayo Group Holdings, Inc. (a) 4,702,003 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 1.4% 94,469 CDW Corp. 4,920,890 100,019 Keysight Technologies, Inc. (a) 3,657,695 -------------- 8,578,585 -------------- EQUITY REAL ESTATE INVESTMENT TRUSTS -- 2.1% 91,692 Communications Sales & Leasing, Inc. 2,329,894 121,907 Gaming and Leisure Properties, Inc. 3,732,793 126,878 MGM Growth Properties LLC, Class A (b) 3,211,282 91,751 STORE Capital Corp. 2,267,167 58,706 Urban Edge Properties 1,615,002 -------------- 13,156,138 -------------- FOOD & STAPLES RETAILING -- 0.6% 129,843 US Foods Holding Corp. (a) 3,568,086 -------------- FOOD PRODUCTS -- 12.0% 45,499 AdvancePierre Foods Holdings, Inc. 1,354,960 115,662 Blue Buffalo Pet Products, Inc. (a) 2,780,515 716,443 Kraft Heinz (The) Co. 62,559,803 85,931 Lamb Weston Holdings, Inc. (a) 3,252,488 69,492 Pinnacle Foods, Inc. 3,714,347 -------------- 73,662,113 -------------- GAS UTILITIES -- 0.3% 30,750 ONE Gas, Inc. 1,966,770 -------------- HEALTH CARE PROVIDERS & SERVICES -- 0.7% 69,079 Envision Healthcare Corp. (a) 4,372,010 -------------- HEALTH CARE TECHNOLOGY -- 0.5% 80,729 Veeva Systems, Inc., Class A (a) 3,285,670 -------------- HOTELS, RESTAURANTS & LEISURE -- 7.2% 144,054 Aramark 5,145,609 116,293 Extended Stay America, Inc. 1,878,132 582,552 Hilton Worldwide Holdings, Inc. 15,845,415 133,710 Norwegian Cruise Line Holdings Ltd. (a) 5,686,686 58,021 Planet Fitness, Inc., Class A 1,166,222 Page 30 See Notes to Financial Statements FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) HOTELS, RESTAURANTS & LEISURE (CONTINUED) 68,212 Red Rock Resorts, Inc., Class A $ 1,581,836 271,423 Restaurant Brands International, Inc. 12,936,020 -------------- 44,239,920 -------------- HOUSEHOLD PRODUCTS -- 0.3% 36,452 Energizer Holdings, Inc. 1,626,124 -------------- INTERNET & DIRECT MARKETING RETAIL -- 0.3% 50,347 Wayfair, Inc., Class A (a) (b) 1,764,662 -------------- INTERNET SOFTWARE & SERVICES -- 6.5% 76,308 Box, Inc., Class A (a) (b) 1,057,629 173,221 Facebook, Inc., Class A (a) 19,929,076 97,736 GoDaddy, Inc., Class A (a) 3,415,873 149,837 Match Group, Inc. (a) (b) 2,562,213 83,728 Nutanix, Inc., Class A (a) (b) 2,223,816 420,767 Twitter, Inc. (a) 6,858,502 106,678 Zillow Group, Inc., Class C (a) (b) 3,890,546 -------------- 39,937,655 -------------- IT SERVICES -- 8.3% 90,592 Black Knight Financial Services, Inc., Class A (a) (b) 3,424,378 96,187 CSRA, Inc. 3,062,594 536,174 First Data Corp., Class A (a) 7,608,309 710,190 PayPal Holdings, Inc. (a) 28,031,199 164,932 Sabre Corp. 4,115,053 25,827 Science Applications International Corp. 2,190,130 207,257 Square, Inc., Class A (a) 2,824,913 -------------- 51,256,576 -------------- LIFE SCIENCES TOOLS & SERVICES -- 2.8% 31,557 INC Research Holdings, Inc., Class A (a) 1,659,898 23,966 Medpace Holdings, Inc. (a) 864,453 36,143 PRA Health Sciences, Inc. (a) 1,992,202 144,894 Quintiles IMS Holdings, Inc. (a) 11,019,189 77,424 VWR Corp. (a) 1,937,923 -------------- 17,473,665 -------------- MACHINERY -- 2.6% 203,490 Fortive Corp. 10,913,168 105,586 Xylem, Inc. 5,228,619 -------------- 16,141,787 -------------- MEDIA -- 4.1% 60,020 AMC Entertainment Holdings, Inc., Class A (b) 2,019,673 3,362 Cable One, Inc. 2,090,256 106,933 Liberty Broadband Corp., Class A (a) 7,748,365 197,175 Liberty Media Corp-Liberty SiriusXM, Class A (a) 6,806,481 SHARES DESCRIPTION VALUE ------------------------------------------------------------- MEDIA (CONTINUED) 14,103 Madison Square Garden (The) Co., Class A (a) $ 2,418,806 342,160 News Corp., Class A 3,921,154 -------------- 25,004,735 -------------- METALS & MINING -- 0.5% 107,631 Alcoa Corp. 3,022,279 -------------- OIL, GAS & CONSUMABLE FUELS -- 3.2% 184,773 Antero Resources Corp. (a) 4,369,882 136,371 Cheniere Energy Partners LP Holdings LLC 3,050,619 45,947 Diamondback Energy, Inc. (a) 4,643,404 122,186 Parsley Energy, Inc., Class A (a) 4,305,835 74,715 RSP Permian, Inc. (a) 3,333,783 -------------- 19,703,523 -------------- PERSONAL PRODUCTS -- 1.3% 439,260 Coty, Inc., Class A 8,042,851 -------------- PHARMACEUTICALS -- 2.5% 290,653 Zoetis, Inc. 15,558,655 -------------- PROFESSIONAL SERVICES -- 2.0% 248,343 IHS Markit Ltd. (a) 8,793,826 107,683 TransUnion (a) 3,330,635 -------------- 12,124,461 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.3% 63,780 Versum Materials, Inc. (a) 1,790,305 -------------- SOFTWARE -- 0.9% 87,992 CDK Global, Inc. 5,252,242 -------------- SPECIALTY RETAIL -- 1.4% 41,551 Burlington Stores, Inc. (a) 3,521,447 120,425 Michaels (The) Cos., Inc. (a) 2,462,691 22,718 Murphy USA, Inc. (a) 1,396,476 70,333 Party City Holdco, Inc. (a) 998,729 -------------- 8,379,343 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 3.7% 980,278 Hewlett Packard Enterprise Co. 22,683,633 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.4% 118,072 HD Supply Holdings, Inc. (a) 5,019,241 63,255 NOW, Inc. (a) 1,294,830 81,399 Univar, Inc. (a) 2,309,289 -------------- 8,623,360 -------------- TOTAL COMMON STOCKS -- 100.0% 613,654,560 (Cost $556,170,502) -------------- MONEY MARKET FUNDS -- 2.1% 13,048,247 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (c) (d) 13,048,247 (Cost $13,048,247) -------------- See Notes to Financial Statements Page 31 FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 DESCRIPTION VALUE ------------------------------------------------ TOTAL INVESTMENTS -- 102.1% $ 626,702,807 (Cost $569,218,749) (e) NET OTHER ASSETS AND LIABILITIES -- (2.1)% (12,678,641) -------------- NET ASSETS -- 100.0% $ 614,024,166 ============== (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 $12,693,526 and the total value of the collateral held by the Fund is $13,048,247. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $572,341,148. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $71,387,817 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $17,026,158. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $ 613,654,560 $ -- $ -- Money Market Funds 13,048,247 -- -- ---------------------------------------------------- Total Investments $ 626,702,807 $ -- $ -- ==================================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT -------------------------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 12,693,526 Non-cash Collateral(2) (12,693,526) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. Page 32 See Notes to Financial Statements FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% BIOTECHNOLOGY -- 80.6% 1,052,124 ACADIA Pharmaceuticals, Inc. (a) (b) $ 30,343,256 542,867 Agios Pharmaceuticals, Inc. (a) (b) 22,653,840 221,751 Alexion Pharmaceuticals, Inc. (b) 27,131,235 479,302 Alkermes PLC (b) 26,639,605 726,988 Alnylam Pharmaceuticals, Inc. (b) 27,218,431 168,046 Amgen, Inc. 24,570,006 91,695 Biogen, Inc. (b) 26,002,868 324,041 BioMarin Pharmaceutical, Inc. (b) 26,843,556 269,606 Celgene Corp. (b) 31,206,895 358,746 Gilead Sciences, Inc. 25,689,801 1,762,312 Grifols S.A., ADR 28,320,354 303,946 Incyte Corp. (b) 30,476,665 193,986 Intercept Pharmaceuticals, Inc. (a) (b) 21,076,579 1,001,344 Intrexon Corp. (a) (b) 24,332,659 949,834 Ionis Pharmaceuticals, Inc. (b) 45,430,560 936,683 Juno Therapeutics, Inc. (a) (b) 17,656,474 581,204 Kite Pharma, Inc. (a) (b) 26,061,187 1,352,055 Myriad Genetics, Inc. (b) 22,538,757 584,147 Neurocrine Biosciences, Inc. (b) 22,606,489 73,430 Regeneron Pharmaceuticals, Inc. (b) 26,955,419 524,602 Seattle Genetics, Inc. (b) 27,683,248 401,487 Ultragenyx Pharmaceutical, Inc. (b) 28,228,551 238,921 United Therapeutics Corp. (b) 34,268,439 330,251 Vertex Pharmaceuticals, Inc. (b) 24,329,591 -------------- 648,264,465 -------------- LIFE SCIENCES TOOLS & SERVICES -- 16.3% 254,266 Bio-Techne Corp. 26,146,173 324,771 Charles River Laboratories International, Inc. (b) 24,744,302 188,141 Illumina, Inc. (b) 24,089,574 1,033,493 QIAGEN N.V. (b) 28,958,474 360,206 Quintiles IMS Holdings, Inc. (b) 27,393,666 -------------- 131,332,189 -------------- PHARMACEUTICALS -- 3.1% 1,998,672 Nektar Therapeutics (b) 24,523,706 -------------- TOTAL COMMON STOCKS -- 100.0% 804,120,360 (Cost $991,454,372) -------------- MONEY MARKET FUNDS -- 10.2% 82,414,165 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class, - 0.39% (c) (d) 82,414,165 (Cost $82,414,165) -------------- TOTAL INVESTMENTS -- 110.2% 886,534,525 (Cost $1,073,868,537) (e) NET OTHER ASSETS AND LIABILITIES -- (10.2)% (82,149,726) -------------- NET ASSETS -- 100.0% $ 804,384,799 ============== (a) 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 $79,813,163 and the total value of the collateral held by the Fund is $82,414,165. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $1,087,699,208. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $21,617,908 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $222,782,591. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $ 804,120,360 $ -- $ -- Money Market Funds 82,414,165 -- -- ---------------------------------------------------- Total Investments $ 886,534,525 $ -- $ -- ==================================================== * 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, 2016. See Notes to Financial Statements Page 33 FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 --------------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT -------------------------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 79,813,163 Non-cash Collateral(2) (79,813,163) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. Page 34 See Notes to Financial Statements FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% CAPITAL MARKETS -- 4.9% 2,392,109 E*TRADE Financial Corp. (a) $ 82,886,577 2,042,878 TD Ameritrade Holding Corp. 89,069,480 -------------- 171,956,057 -------------- COMMUNICATIONS EQUIPMENT -- 5.9% 590,606 Arista Networks, Inc. (a) 57,152,943 3,173,327 Juniper Networks, Inc. 89,678,221 737,209 NETGEAR, Inc. (a) 40,067,309 2,925,010 Sonus Networks, Inc. (a) 18,427,563 -------------- 205,326,036 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.2% 988,564 Cogent Communications Holdings, Inc. 40,877,121 5,156,655 Vonage Holdings Corp. (a) 35,323,087 -------------- 76,200,208 -------------- HEALTH CARE TECHNOLOGY -- 2.8% 3,921,082 Allscripts Healthcare Solutions, Inc. (a) 40,034,247 1,384,668 Veeva Systems, Inc., Class A (a) 56,355,988 -------------- 96,390,235 -------------- INTERNET & DIRECT MARKETING RETAIL -- 20.5% 460,278 Amazon.com, Inc. (a) 345,148,664 830,028 Expedia, Inc. 94,025,572 9,669,057 Groupon, Inc. (a) 32,101,269 1,438,123 Netflix, Inc. (a) 178,039,627 1,382,124 TripAdvisor, Inc. (a) 64,089,090 -------------- 713,404,222 -------------- INTERNET SOFTWARE & SERVICES -- 49.6% 1,094,494 2U, Inc. (a) 32,998,994 1,380,543 Akamai Technologies, Inc. (a) 92,054,607 226,663 Alphabet, Inc., Class A (a) 179,619,094 227,194 Alphabet, Inc., Class C (a) 175,352,873 1,651,181 Blucora, Inc. (a) 24,354,920 2,124,133 Box, Inc., Class A (a) (b) 29,440,483 1,104,035 Cornerstone OnDemand, Inc. (a) 46,711,721 4,396,626 EarthLink Holdings Corp. 24,796,971 4,827,499 eBay, Inc. (a) 143,328,445 2,898,607 Endurance International Group Holdings, Inc. (a) 26,957,045 3,006,416 Facebook, Inc., Class A (a) 345,888,161 1,121,183 GoDaddy, Inc., Class A (a) 39,185,346 936,138 IAC/InterActiveCorp (a) 60,652,381 713,849 j2 Global, Inc. 58,392,848 473,779 LogMeIn, Inc. 45,743,363 3,744,597 Pandora Media, Inc. (a) (b) 48,829,545 2,108,296 TrueCar, Inc. (a) (b) 26,353,700 4,729,953 Twitter, Inc. (a) 77,098,234 933,668 VeriSign, Inc. (a) 71,024,125 1,722,734 Web.com Group, Inc. (a) 36,435,824 SHARES DESCRIPTION VALUE ------------------------------------------------------------- INTERNET SOFTWARE & SERVICES (CONTINUED) 3,709,136 Yahoo!, Inc. (a) $ 143,432,289 -------------- 1,728,650,969 -------------- IT SERVICES -- 4.7% 4,194,849 PayPal Holdings, Inc. (a) 165,570,690 -------------- SOFTWARE -- 9.4% 2,495,615 8x8, Inc. (a) 35,687,295 1,115,658 Citrix Systems, Inc. (a) 99,639,416 591,185 Ebix, Inc. (b) 33,727,104 2,340,661 salesforce.com, Inc. (a) 160,241,652 -------------- 329,295,467 -------------- TOTAL COMMON STOCKS -- 100.0% 3,486,793,884 (Cost $3,304,606,612) -------------- MONEY MARKET FUNDS -- 2.5% 85,987,348 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (c) (d) 85,987,348 (Cost $85,987,348) -------------- TOTAL INVESTMENTS -- 102.5% 3,572,781,232 (Cost $3,390,593,960) (e) NET OTHER ASSETS AND LIABILITIES -- (2.5)% (86,047,303) -------------- NET ASSETS -- 100.0% $3,486,733,929 ============== (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 $83,125,060 and the total value of the collateral held by the Fund is $85,987,348. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $3,462,836,050. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $367,606,354 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $257,661,172. See Notes to Financial Statements Page 35 FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $3,486,793,884 $ -- $ -- Money Market Funds 85,987,348 -- -- ---------------------------------------------------- Total Investments $3,572,781,232 $ -- $ -- ==================================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT -------------------------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 83,125,060 Non-cash Collateral(2) (83,125,060) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. Page 36 See Notes to Financial Statements FIRST TRUST CAPITAL STRENGTH ETF (FTCS) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 10.6% 45,617 Boeing (The) Co. $ 7,101,655 41,197 General Dynamics Corp. 7,113,074 26,839 Lockheed Martin Corp. 6,708,140 28,663 Northrop Grumman Corp. 6,666,440 45,250 Raytheon Co. 6,425,500 -------------- 34,014,809 -------------- AIR FREIGHT & LOGISTICS -- 2.1% 57,737 United Parcel Service, Inc., Class B 6,618,970 -------------- BEVERAGES -- 3.8% 146,855 Coca-Cola (The) Co. 6,088,608 58,578 PepsiCo, Inc. 6,129,016 -------------- 12,217,624 -------------- BIOTECHNOLOGY -- 1.8% 39,033 Amgen, Inc. 5,707,015 -------------- CAPITAL MARKETS -- 3.9% 49,900 S&P Global, Inc. 5,366,246 93,799 T. Rowe Price Group, Inc. 7,059,313 -------------- 12,425,559 -------------- CHEMICALS -- 2.0% 66,974 PPG Industries, Inc. 6,346,456 -------------- COMMUNICATIONS EQUIPMENT -- 1.9% 205,208 Cisco Systems, Inc. 6,201,386 -------------- FOOD & STAPLES RETAILING -- 6.3% 41,532 Costco Wholesale Corp. 6,649,688 130,281 Sysco Corp. 7,213,659 90,533 Wal-Mart Stores, Inc. 6,257,641 -------------- 20,120,988 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 7.6% 128,415 Baxter International, Inc. 5,693,921 35,905 Becton, Dickinson and Co. 5,944,073 28,203 C. R. Bard, Inc. 6,336,086 54,411 Stryker Corp. 6,518,982 -------------- 24,493,062 -------------- HEALTH CARE PROVIDERS & SERVICES -- 7.8% 77,318 AmerisourceBergen Corp. 6,045,495 82,329 Cardinal Health, Inc. 5,925,218 88,881 Express Scripts Holding Co. (a) 6,114,124 42,560 UnitedHealth Group, Inc. 6,811,302 -------------- 24,896,139 -------------- HOTELS, RESTAURANTS & LEISURE -- 4.1% 54,306 McDonald's Corp. 6,610,126 115,365 Starbucks Corp. 6,405,065 -------------- 13,015,191 -------------- HOUSEHOLD PRODUCTS -- 1.9% 73,367 Procter & Gamble (The) Co. 6,168,697 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- INDUSTRIAL CONGLOMERATES -- 4.1% 36,501 3M Co. $ 6,517,984 56,783 Honeywell International, Inc. 6,578,310 -------------- 13,096,294 -------------- IT SERVICES -- 12.3% 53,526 Accenture PLC, Class A 6,269,500 71,344 Automatic Data Processing, Inc. 7,332,736 41,348 International Business Machines Corp. 6,863,355 60,156 Mastercard, Inc., Class A 6,211,107 75,131 Visa, Inc., Class A 5,861,721 309,351 Western Union (The) Co. 6,719,104 -------------- 39,257,523 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.7% 39,614 Waters Corp. (a) 5,323,725 -------------- MACHINERY -- 2.1% 54,724 Illinois Tool Works, Inc. 6,701,501 -------------- MEDIA -- 4.2% 77,580 Omnicom Group, Inc. 6,602,834 66,506 Walt Disney (The) Co. 6,931,255 -------------- 13,534,089 -------------- PERSONAL PRODUCTS -- 1.7% 71,518 Estee Lauder (The) Cos., Inc., Class A 5,470,412 -------------- PHARMACEUTICALS -- 3.8% 79,068 Eli Lilly and Co. 5,815,451 54,540 Johnson & Johnson 6,283,554 -------------- 12,099,005 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.3% 176,018 Intel Corp. 6,384,173 124,288 Xilinx, Inc. 7,503,266 -------------- 13,887,439 -------------- SOFTWARE -- 4.0% 57,049 Intuit, Inc. 6,538,386 103,705 Microsoft Corp. 6,444,229 -------------- 12,982,615 -------------- SPECIALTY RETAIL -- 6.0% 48,870 Home Depot (The), Inc. 6,552,490 87,573 Lowe's Cos., Inc. 6,228,192 84,188 TJX (The) Cos., Inc. 6,325,044 -------------- 19,105,726 -------------- TOBACCO -- 2.0% 115,043 Reynolds American, Inc. 6,447,010 -------------- TOTAL INVESTMENTS -- 100.0% 320,131,235 (Cost $302,570,634) (b) NET OTHER ASSETS AND LIABILITIES -- 0.0% 58,807 -------------- NET ASSETS -- 100.0% $ 320,190,042 ============== See Notes to Financial Statements Page 37 FIRST TRUST CAPITAL STRENGTH ETF (FTCS) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $304,646,799. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $21,510,329 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $6,025,893. ------------------------------ VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $ 320,131,235 $ -- $ -- ==================================================== * 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, 2016. Page 38 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 2.1% 94,788 Boeing (The) Co. $ 14,756,596 59,504 Lockheed Martin Corp. 14,872,429 104,327 Raytheon Co. 14,814,434 134,503 United Technologies Corp. 14,744,219 -------------- 59,187,678 -------------- AIR FREIGHT & LOGISTICS -- 1.0% 200,417 C.H. Robinson Worldwide, Inc. 14,682,549 128,539 United Parcel Service, Inc., Class B 14,735,711 -------------- 29,418,260 -------------- AUTOMOBILES -- 0.5% 125,028 Toyota Motor Corp., ADR 14,653,282 -------------- BANKS -- 6.2% 168,173 Bank of Hawaii Corp. 14,915,263 207,435 Bank of Montreal 14,918,725 265,135 Bank of Nova Scotia (The) 14,762,717 312,871 BB&T Corp. 14,711,195 182,104 Canadian Imperial Bank of Commerce 14,859,686 168,193 Cullen/Frost Bankers, Inc. 14,839,668 123,141 Park National Corp. 14,735,052 766,279 People's United Financial, Inc. 14,835,162 219,839 Royal Bank of Canada 14,885,299 300,767 Toronto-Dominion (The) Bank 14,839,844 285,359 U.S. Bancorp 14,658,892 266,794 Wells Fargo & Co. 14,703,017 -------------- 177,664,520 -------------- BEVERAGES -- 2.6% 143,640 Anheuser-Busch InBev S.A/N.V., ADR 15,145,401 358,739 Coca-Cola (The) Co. 14,873,319 144,280 Diageo PLC, ADR 14,996,463 164,270 Dr Pepper Snapple Group, Inc. 14,894,361 141,987 PepsiCo, Inc. 14,856,100 -------------- 74,765,644 -------------- BIOTECHNOLOGY -- 0.5% 100,613 Amgen, Inc. 14,710,627 -------------- CAPITAL MARKETS -- 2.0% 38,522 BlackRock, Inc. 14,659,162 127,921 CME Group, Inc. 14,755,687 194,111 T. Rowe Price Group, Inc. 14,608,794 338,944 Thomson Reuters Corp. 14,838,968 -------------- 58,862,611 -------------- CHEMICALS -- 2.6% 101,284 Air Products and Chemicals, Inc. 14,566,665 199,135 E.I. du Pont de Nemours and Co. 14,616,509 125,417 International Flavors & Fragrances, Inc. 14,777,885 141,234 Monsanto Co. 14,859,229 125,914 Praxair, Inc. 14,755,862 -------------- 73,576,150 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 1.0% 260,009 Republic Services, Inc. $ 14,833,513 210,360 Waste Management, Inc. 14,916,628 -------------- 29,750,141 -------------- COMMUNICATIONS EQUIPMENT -- 1.5% 486,541 Cisco Systems, Inc. 14,703,269 144,322 Harris Corp. 14,788,676 178,725 Motorola Solutions, Inc. 14,814,515 -------------- 44,306,460 -------------- CONTAINERS & PACKAGING -- 1.0% 305,696 Bemis Co., Inc. 14,618,383 277,403 Sonoco Products Co. 14,619,138 -------------- 29,237,521 -------------- DISTRIBUTORS -- 0.5% 152,973 Genuine Parts Co. 14,615,040 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.6% 349,991 AT&T, Inc. 14,885,117 472,976 TELUS Corp. 15,064,286 278,284 Verizon Communications, Inc. 14,854,800 -------------- 44,804,203 -------------- ELECTRIC UTILITIES -- 9.8% 232,800 ALLETE, Inc. 14,943,432 392,818 Alliant Energy Corp. 14,883,874 236,450 American Electric Power Co., Inc. 14,886,892 192,657 Duke Energy Corp. 14,954,036 207,494 Edison International 14,937,493 317,937 El Paso Electric Co. 14,784,071 269,539 Eversource Energy 14,886,639 489,734 Fortis, Inc. 15,122,986 445,586 Hawaiian Electric Industries, Inc. 14,735,529 183,945 IDACORP, Inc. 14,816,770 125,176 NextEra Energy, Inc. 14,953,525 442,285 OGE Energy Corp. 14,794,433 362,749 Otter Tail Corp. 14,800,159 191,742 Pinnacle West Capital Corp. 14,961,628 345,055 Portland General Electric Co. 14,951,233 436,337 PPL Corp. 14,857,275 302,780 Southern (The) Co. 14,893,748 265,465 Westar Energy, Inc. 14,958,953 366,490 Xcel Energy, Inc. 14,916,143 -------------- 283,038,819 -------------- ELECTRICAL EQUIPMENT -- 1.5% 217,947 Eaton Corp. PLC 14,622,064 261,100 Emerson Electric Co. 14,556,325 125,988 Hubbell, Inc. 14,702,800 -------------- 43,881,189 -------------- ENERGY EQUIPMENT & SERVICES -- 0.5% 174,709 Schlumberger Ltd. 14,666,821 -------------- See Notes to Financial Statements Page 39 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) EQUITY REAL ESTATE INVESTMENT TRUSTS -- 3.1% 140,438 American Tower Corp. $ 14,841,488 84,900 AvalonBay Communities, Inc. 15,040,035 106,546 Federal Realty Investment Trust 15,141,252 67,807 Public Storage 15,154,865 264,525 Realty Income Corp. 15,204,897 84,832 Simon Property Group, Inc. 15,072,101 -------------- 90,454,638 -------------- FOOD & STAPLES RETAILING -- 2.1% 188,260 CVS Health Corp. 14,855,597 265,749 Sysco Corp. 14,714,522 214,162 Wal-Mart Stores, Inc. 14,802,877 246,688 Weis Markets, Inc. 16,488,626 -------------- 60,861,622 -------------- FOOD PRODUCTS -- 5.1% 326,990 Archer-Daniels-Midland Co. 14,927,094 246,769 Campbell Soup Co. 14,922,121 374,582 Conagra Brands, Inc. 14,814,718 239,986 General Mills, Inc. 14,823,935 143,806 Hershey (The) Co. 14,873,855 115,821 J.M. Smucker (The) Co. 14,832,037 202,127 Kellogg Co. 14,898,781 170,440 Kraft Heinz (The) Co. 14,882,821 160,421 McCormick & Co., Inc. 14,972,092 207,697 Mead Johnson Nutrition Co. 14,696,640 -------------- 148,644,094 -------------- GAS UTILITIES -- 3.6% 199,747 Atmos Energy Corp. 14,811,240 412,350 New Jersey Resources Corp. 14,638,425 248,371 Northwest Natural Gas Co. 14,852,586 433,423 South Jersey Industries, Inc. 14,602,021 230,357 Spire, Inc. 14,869,544 325,280 UGI Corp. 14,988,902 191,177 WGL Holdings, Inc. 14,582,982 -------------- 103,345,700 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.0% 386,712 Abbott Laboratories 14,853,608 207,985 Medtronic PLC 14,814,771 -------------- 29,668,379 -------------- HEALTH CARE PROVIDERS & SERVICES -- 1.5% 204,284 Cardinal Health, Inc. 14,702,319 417,308 Owens & Minor, Inc. 14,726,799 364,787 Patterson Cos., Inc. 14,967,211 -------------- 44,396,329 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.0% 87,817 Cracker Barrel Old Country Store, Inc. 14,663,682 121,290 McDonald's Corp. 14,763,419 -------------- 29,427,101 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- HOUSEHOLD DURABLES -- 0.5% 299,081 Leggett & Platt, Inc. $ 14,619,079 -------------- HOUSEHOLD PRODUCTS -- 2.1% 122,423 Clorox (The) Co. 14,693,209 226,134 Colgate-Palmolive Co. 14,798,209 129,677 Kimberly-Clark Corp. 14,798,739 176,443 Procter & Gamble (The) Co. 14,835,327 -------------- 59,125,484 -------------- INDUSTRIAL CONGLOMERATES -- 1.0% 83,429 3M Co. 14,897,916 127,548 Honeywell International, Inc. 14,776,436 -------------- 29,674,352 -------------- INSURANCE -- 7.2% 287,335 Arthur J. Gallagher & Co. 14,929,927 159,239 Assurant, Inc. 14,786,934 226,960 Axis Capital Holdings Ltd. 14,813,679 112,505 Chubb Ltd. 14,864,161 194,948 Cincinnati Financial Corp. 14,767,311 355,323 CNA Financial Corp. 14,745,904 131,620 Erie Indemnity Co., Class A 14,800,669 68,658 Everest Re Group, Ltd. 14,857,591 437,104 FNF Group 14,844,052 163,245 Hanover Insurance Group (The), Inc. 14,856,927 247,342 Mercury General Corp. 14,892,462 417,775 Progressive (The) Corp. 14,831,012 122,373 Travelers (The) Cos., Inc. 14,980,903 270,321 Validus Holdings Ltd. 14,870,358 -------------- 207,841,890 -------------- IT SERVICES -- 3.1% 126,986 Accenture PLC, Class A 14,873,870 144,488 Automatic Data Processing, Inc. 14,850,476 225,179 Broadridge Financial Solutions, Inc. 14,929,368 1,007,907 Infosys Ltd., ADR 14,947,261 89,309 International Business Machines Corp. 14,824,401 242,127 Paychex, Inc. 14,740,692 -------------- 89,166,068 -------------- LEISURE PRODUCTS -- 0.5% 536,367 Mattel, Inc. 14,776,911 -------------- MACHINERY -- 2.0% 157,876 Caterpillar, Inc. 14,641,420 143,668 Deere & Co. 14,803,551 195,585 Dover Corp. 14,655,184 119,217 Illinois Tool Works, Inc. 14,599,314 -------------- 58,699,469 -------------- MEDIA -- 1.5% 171,872 Omnicom Group, Inc. 14,628,026 745,237 Shaw Communications, Inc., Class B 14,949,454 135,392 WPP PLC, ADR 14,982,479 -------------- 44,559,959 -------------- Page 40 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) MULTILINE RETAIL -- 1.0% 299,741 Kohl's Corp. $ 14,801,210 202,538 Target Corp. 14,629,320 -------------- 29,430,530 -------------- MULTI-UTILITIES -- 6.7% 284,001 Ameren Corp. 14,898,693 373,271 Avista Corp. 14,927,107 242,677 Black Hills Corp. 14,885,807 358,050 CMS Energy Corp. 14,902,041 202,401 Consolidated Edison, Inc. 14,912,906 194,692 Dominion Resources, Inc. 14,911,460 151,314 DTE Energy Co. 14,905,942 508,243 MDU Resources Group, Inc. 14,622,151 340,802 Public Service Enterprise Group, Inc. 14,954,392 200,552 SCANA Corp. 14,696,451 147,458 Sempra Energy 14,840,173 283,408 Vectren Corp. 14,779,727 254,859 WEC Energy Group, Inc. 14,947,480 -------------- 193,184,330 -------------- OIL, GAS & CONSUMABLE FUELS -- 3.1% 126,266 Chevron Corp. 14,861,508 348,845 Enbridge, Inc. 14,693,352 164,485 Exxon Mobil Corp. 14,846,416 257,720 Royal Dutch Shell PLC, Class B, ADR 14,940,028 295,762 TOTAL S.A., ADR 15,074,989 323,658 TransCanada Corp. 14,613,159 -------------- 89,029,452 -------------- PERSONAL PRODUCTS -- 0.5% 368,388 Unilever PLC, ADR 14,993,392 -------------- PHARMACEUTICALS -- 5.7% 547,582 AstraZeneca PLC, ADR 14,959,940 251,595 Bristol-Myers Squibb Co. 14,703,212 202,237 Eli Lilly and Co. 14,874,531 389,945 GlaxoSmithKline PLC, ADR 15,016,782 128,782 Johnson & Johnson 14,836,974 249,659 Merck & Co., Inc. 14,697,425 207,205 Novartis AG, ADR 15,092,812 419,653 Novo Nordisk A/S, ADR 15,048,757 458,872 Pfizer, Inc. 14,904,163 376,093 Sanofi, ADR 15,209,201 410,763 Teva Pharmaceutical Industries Ltd., ADR 14,890,159 -------------- 164,233,956 -------------- PROFESSIONAL SERVICES -- 0.5% 349,581 Nielsen Holdings PLC 14,664,923 -------------- ROAD & RAIL -- 0.5% 141,209 Union Pacific Corp. 14,640,549 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.6% 200,876 Analog Devices, Inc. 14,587,615 402,674 Intel Corp. 14,604,986 238,223 Linear Technology Corp. 14,853,204 228,244 Microchip Technology, Inc. 14,641,852 SHARES DESCRIPTION VALUE ------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 221,964 QUALCOMM, Inc. $ 14,472,053 512,960 Taiwan Semiconductor Manufacturing Co., Ltd., ADR 14,747,600 199,374 Texas Instruments, Inc. 14,548,321 -------------- 102,455,631 -------------- SOFTWARE -- 1.0% 463,143 CA, Inc. 14,714,053 235,891 Microsoft Corp. 14,658,267 -------------- 29,372,320 -------------- SPECIALTY RETAIL -- 0.5% 110,359 Home Depot (The), Inc. 14,796,935 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 0.5% 518,663 Canon, Inc., ADR 14,595,177 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.5% 277,559 VF Corp. 14,807,773 -------------- THRIFTS & MORTGAGE FINANCE -- 1.0% 895,985 Capitol Federal Financial, Inc. 14,747,913 817,923 Northwest Bancshares, Inc. 14,747,152 -------------- 29,495,065 -------------- TOBACCO -- 2.1% 220,098 Altria Group, Inc. 14,883,027 132,545 British American Tobacco PLC, ADR 14,933,845 163,442 Philip Morris International, Inc. 14,953,309 265,701 Reynolds American, Inc. 14,889,884 -------------- 59,660,065 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.5% 308,858 Fastenal Co. 14,510,149 62,710 W.W. Grainger, Inc. 14,564,397 99,707 Watsco, Inc. 14,768,601 -------------- 43,843,147 -------------- WATER UTILITIES -- 1.0% 324,150 American States Water Co. 14,768,274 495,094 Aqua America, Inc. 14,872,624 -------------- 29,640,898 -------------- TOTAL INVESTMENTS -- 99.9% 2,891,244,184 (Cost $2,692,628,416) (a) NET OTHER ASSETS AND LIABILITIES -- 0.1% 1,737,399 -------------- NET ASSETS -- 100.0% $2,892,981,583 ============== (a) Aggregate cost for federal income tax purposes is $2,744,006,759. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $185,746,204 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $38,508,779. ADR - American Depositary Receipt See Notes to Financial Statements Page 41 FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $2,891,244,184 $ -- $ -- ==================================================== * 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, 2016. Page 42 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 4.2% 21,816 Aerovironment, Inc. (a) $ 585,323 29,156 Embraer S.A., ADR 561,253 19,749 Triumph Group, Inc. 523,349 4,998 United Technologies Corp. 547,881 -------------- 2,217,806 -------------- AUTOMOBILES -- 1.2% 2,918 Tesla Motors, Inc. (a) 623,547 -------------- BIOTECHNOLOGY -- 0.8% 11,420 Alnylam Pharmaceuticals, Inc. (a) 427,565 -------------- CAPITAL MARKETS -- 4.0% 13,022 Eaton Vance Corp. 545,362 14,323 Franklin Resources, Inc. 566,904 34,352 KKR & Co. L.P. (b) 528,677 15,549 Legg Mason, Inc. 465,071 -------------- 2,106,014 -------------- CHEMICALS -- 2.1% 89,930 CVR Partners L.P. (b) 540,479 18,441 Mosaic (The) Co. 540,875 -------------- 1,081,354 -------------- COMMERCIAL SERVICES & SUPPLIES -- 2.1% 25,947 Essendant, Inc. 542,292 35,511 Pitney Bowes, Inc. 539,412 -------------- 1,081,704 -------------- COMMUNICATIONS EQUIPMENT -- 4.3% 25,840 ADTRAN, Inc. 577,524 35,660 Black Box Corp. 543,815 48,013 Comtech Telecommunications Corp. 568,954 95,512 Telefonaktiebolaget LM Ericsson, ADR 556,835 -------------- 2,247,128 -------------- DIVERSIFIED CONSUMER SERVICES -- 2.4% 37,005 Regis Corp. (a) 537,313 20,073 StoneMor Partners L.P. (b) 178,850 47,066 Weight Watchers International, Inc. (a) 538,906 -------------- 1,255,069 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.2% 161,978 Frontier Communications Corp. 547,485 63,799 Telefonica S.A., ADR 586,951 -------------- 1,134,436 -------------- ELECTRIC UTILITIES -- 3.1% 7,234 Duke Energy Corp. 561,503 15,649 Exelon Corp. 555,383 19,760 Great Plains Energy, Inc. 540,436 -------------- 1,657,322 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- ELECTRICAL EQUIPMENT -- 0.9% 22,316 ABB Ltd., ADR $ 470,198 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 2.3% 8,188 Anixter International, Inc. (a) 663,638 17,937 National Instruments Corp. 552,818 -------------- 1,216,456 -------------- ENERGY EQUIPMENT & SERVICES -- 14.6% 44,492 Bristow Group, Inc. 911,196 49,298 CARBO Ceramics, Inc. (a) 515,657 4,728 Core Laboratories N.V. 567,549 29,896 Diamond Offshore Drilling, Inc. (a) 529,159 9,015 Dril-Quip, Inc. (a) 541,351 55,066 Ensco PLC, Class A 535,242 54,117 Helix Energy Solutions Group, Inc. (a) 477,312 13,531 National Oilwell Varco, Inc. 506,601 89,062 Noble Corp. PLC 527,247 19,017 Oceaneering International, Inc. 536,470 6,194 Schlumberger Ltd. 519,986 156,047 Seadrill Ltd. (a) 532,120 112,139 TETRA Technologies, Inc. (a) 562,938 80,881 Weatherford International PLC (a) 403,596 -------------- 7,666,424 -------------- FOOD PRODUCTS -- 1.9% 7,337 Kellogg Co. 540,811 6,274 Mead Johnson Nutrition Co. 443,948 -------------- 984,759 -------------- GAS UTILITIES -- 1.9% 9,579 National Fuel Gas Co. 542,554 14,515 Suburban Propane Partners, L.P. (b) 436,321 -------------- 978,875 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 1.0% 29,433 Meridian Bioscience, Inc. 520,964 -------------- HEALTH CARE PROVIDERS & SERVICES -- 0.7% 31,784 Brookdale Senior Living, Inc. (a) 394,757 -------------- HEALTH CARE TECHNOLOGY -- 1.9% 18,665 Computer Programs & Systems, Inc. 440,494 41,041 Quality Systems, Inc. (a) 539,689 -------------- 980,183 -------------- HOTELS, RESTAURANTS & LEISURE -- 2.1% 1,306 Chipotle Mexican Grill, Inc. (a) 492,780 27,086 Speedway Motorsports, Inc. 586,954 -------------- 1,079,734 -------------- HOUSEHOLD PRODUCTS -- 1.0% 6,516 Procter & Gamble (The) Co. 547,865 -------------- See Notes to Financial Statements Page 43 FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) INSURANCE -- 4.4% 115,143 Aegon N.V. $ 636,741 13,495 Kemper Corp. 597,828 9,588 Mercury General Corp. 577,293 9,830 MetLife, Inc. 529,739 -------------- 2,341,601 -------------- INTERNET & DIRECT MARKETING RETAIL -- 0.9% 10,419 TripAdvisor, Inc. (a) 483,129 -------------- INTERNET SOFTWARE & SERVICES -- 2.0% 48,336 Pandora Media, Inc. (a) 630,302 12,552 Sohu.com, Inc. (a) 425,387 -------------- 1,055,689 -------------- MEDIA -- 1.0% 15,478 Viacom, Inc., Class B 543,278 -------------- METALS & MINING -- 5.0% 27,945 Allegheny Technologies, Inc. 445,164 139,332 Eldorado Gold Corp. (a) 448,649 43,077 Goldcorp, Inc. 585,847 182,226 Kinross Gold Corp. (a) 566,723 207,478 Yamana Gold, Inc. 583,013 -------------- 2,629,396 -------------- MORTGAGE REAL ESTATE INVESTMENT TRUSTS -- 1.0% 54,204 Annaly Capital Management, Inc. 540,414 -------------- MULTILINE RETAIL -- 1.0% 11,315 Nordstrom, Inc. 542,328 -------------- OIL, GAS & CONSUMABLE FUELS -- 11.3% 23,930 Cabot Oil & Gas Corp. 559,005 52,608 Cameco Corp. 550,806 36,662 Cenovus Energy, Inc. 554,696 23,335 CVR Energy, Inc. 592,476 7,657 EQT Corp. 500,768 16,527 HollyFrontier Corp. 541,424 15,037 Imperial Oil Ltd. 522,686 14,059 Noble Energy, Inc. 535,086 14,793 Range Resources Corp. 508,287 48,120 Southwestern Energy Co. (a) 520,658 10,976 TOTAL S.A., ADR 559,447 -------------- 5,945,339 -------------- PHARMACEUTICALS -- 3.0% 34,841 Endo International PLC (a) 573,831 12,228 GlaxoSmithKline PLC, ADR 470,901 13,173 Sanofi, ADR 532,716 -------------- 1,577,448 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.7% 57,705 SunPower Corp. (a) 381,430 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- SOFTWARE -- 2.7% 90,112 EnerNOC, Inc. (a) $ 540,672 40,342 FireEye, Inc. (a) 480,070 14,184 Fortinet, Inc. (a) 427,222 -------------- 1,447,964 -------------- SPECIALTY RETAIL -- 7.2% 46,164 Abercrombie & Fitch Co., Class A 553,968 86,693 Ascena Retail Group, Inc. (a) 536,630 24,138 Buckle (The), Inc. 550,347 42,288 Conn's, Inc. (a) 534,943 45,222 Guess?, Inc. 547,186 47,469 Rent-A-Center, Inc. 534,026 59,824 Staples, Inc. 541,407 -------------- 3,798,507 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 2.1% 78,244 BlackBerry Ltd. (a) 539,101 22,406 Diebold Nixdorf, Inc. 563,511 -------------- 1,102,612 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 1.9% 63,124 Crocs, Inc. (a) 433,030 21,023 Fossil Group, Inc. (a) 543,655 -------------- 976,685 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 1.1% 46,864 America Movil S.A.B. de C.V., Class L, ADR 589,080 -------------- TOTAL INVESTMENTS -- 100.0% 52,627,060 (Cost $52,322,808) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 16,150 -------------- NET ASSETS -- 100.0% $ 52,643,210 ============== (a) Non-income producing security. (b) Security is a Master Limited Partnership ("MLP"). (c) Aggregate cost for federal income tax purposes is $52,418,358. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,142,711 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,934,009. ADR - American Depositary Receipt Page 44 See Notes to Financial Statements FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ---------------------------------------------------- Common Stocks* $ 52,627,060 $ -- $ -- ==================================================== * 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, 2016. See Notes to Financial Statements Page 45 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2016
FIRST TRUST FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR US EQUITY MICROCAP DIVIDEND LEADERS OPPORTUNITIES INDEX FUND INDEX FUND ETF (FDM) (FDL) (FPX) ---------------- ----------------- ---------------- ASSETS: Investments, at value............................................... $ 118,135,122 $ 1,776,066,018 $ 626,702,807 Cash................................................................ 54,698 -- 553,013 Receivables: Capital shares sold........................................... -- 6,951,487 -- Investment securities sold.................................... 576 -- -- Dividends..................................................... 144,141 3,832,265 257,250 Securities lending income..................................... 3,137 -- 54,017 Interest...................................................... -- -- -- Reclaims...................................................... -- -- 7,290 Prepaid expenses.................................................... 17,438 17,538 5,835 -------------- --------------- -------------- Total Assets.................................................. 118,355,112 1,786,867,308 627,580,212 -------------- --------------- -------------- LIABILITIES: Due to custodian.................................................... -- 383,950 -- Payables: Capital shares redeemed....................................... -- -- -- Investment securities purchased............................... 27,371 6,943,419 -- Investment advisory fees...................................... 35,144 348,206 228,842 Collateral for securities on loan............................. 1,477,617 -- 13,048,247 Audit and tax fees............................................ 22,925 22,925 22,925 Printing fees................................................. 3,367 65,475 29,624 Trustees' fees................................................ 156 69 170 Licensing fees................................................ -- 392,720 136,091 Other liabilities................................................... 12,866 246,626 90,147 -------------- --------------- -------------- Total Liabilities............................................. 1,579,446 8,403,390 13,556,046 -------------- --------------- -------------- NET ASSETS.......................................................... $ 116,775,666 $ 1,778,463,918 $ 614,024,166 ============== =============== ============== NET ASSETS CONSIST OF: Paid-in capital..................................................... $ 125,021,552 $ 1,669,725,531 $ 631,936,349 Par value........................................................... 26,550 641,000 113,500 Accumulated net investment income (loss)............................ 13,856 6,393 -- Accumulated net realized gain (loss) on investments................. (23,249,596) (57,666,249) (75,509,741) Net unrealized appreciation (depreciation) on investments........... 14,963,304 165,757,243 57,484,058 -------------- --------------- -------------- NET ASSETS.......................................................... $ 116,775,666 $ 1,778,463,918 $ 614,024,166 ============== =============== ============== NET ASSET VALUE, per share.......................................... $ 43.98 $ 27.75 $ 54.10 ============== =============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)....................................... 2,655,000 64,100,002 11,350,002 ============== =============== ============== Investments, at cost................................................ $ 103,171,818 $ 1,610,308,775 $ 569,218,749 ============== =============== ============== Securities on loan, at value........................................ $ 1,420,483 $ -- $ 12,693,526 ============== =============== ==============
Page 46 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET STRENGTH DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX FUND ETF INDEX FUND FUND (FBT) (FDN) (FTCS) (FVD) (FVL) ---------------- ----------------- ---------------- ----------------- ---------------- $ 886,534,525 $3,572,781,232 $ 320,131,235 $ 2,891,244,184 $ 52,627,060 778,327 -- -- -- 67,604 -- -- 2,045,796 179,170,410 -- 4,543,115 27,244,308 -- 376,372,986 21,527,038 -- 221,773 414,601 5,117,700 37,563 52,493 38,667 -- -- -- -- 4,607 -- -- -- 70,583 -- -- 240,010 912 8,852 37,225 2,640 25,288 538 -------------- --------------- -------------- --------------- -------------- 891,987,895 3,600,327,812 322,594,272 3,452,170,578 74,260,715 -------------- --------------- -------------- --------------- -------------- -- 267,348 137,900 1,130,410 -- 4,544,401 19,983,750 -- 179,905,078 -- -- 5,047,305 2,046,076 375,645,893 21,517,007 279,440 1,210,960 134,070 1,039,580 17,588 82,414,165 85,987,348 -- -- -- 22,925 22,925 22,925 22,925 22,925 41,159 125,264 10,722 81,128 3,636 212 111 121 -- 161 164,822 519,363 7,324 1,007,706 21,495 135,972 429,509 45,092 356,275 34,693 -------------- --------------- -------------- --------------- -------------- 87,603,096 113,593,883 2,404,230 559,188,995 21,617,505 -------------- --------------- -------------- --------------- -------------- $ 804,384,799 $ 3,486,733,929 $ 320,190,042 $ 2,892,981,583 $ 52,643,210 ============== =============== ============== =============== ============== $1,244,270,725 $ 3,464,081,586 $ 324,756,263 $ 2,764,795,968 $ 85,843,637 88,500 437,000 78,500 1,032,380 24,400 -- -- -- -- (54) (252,640,414) (159,971,929) (22,205,322) (71,462,533) (33,529,025) (187,334,012) 182,187,272 17,560,601 198,615,768 304,252 -------------- --------------- -------------- --------------- -------------- $ 804,384,799 $ 3,486,733,929 $ 320,190,042 $ 2,892,981,583 $ 52,643,210 ============== =============== ============== =============== ============== $ 90.89 $ 79.79 $ 40.79 $ 28.02 $ 21.58 ============== =============== ============== =============== ============== 8,850,002 43,700,002 7,850,002 103,237,986 2,439,982 ============== =============== ============== =============== ============== $1,073,868,537 $ 3,390,593,960 $ 302,570,634 $ 2,692,628,416 $ 52,322,808 ============== =============== ============== =============== ============== $ 79,813,163 $ 83,125,060 $ -- $ -- $ -- ============== =============== ============== =============== ==============
See Notes to Financial Statements Page 47 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016
FIRST TRUST FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR US EQUITY MICROCAP DIVIDEND LEADERS OPPORTUNITIES INDEX FUND INDEX FUND ETF (FDM) (FDL) (FPX) ---------------- ----------------- ---------------- INVESTMENT INCOME: Dividends........................................................... $ 1,094,530 $ 54,960,412 $ 6,212,161 Securities lending income (net of fees)............................. 16,133 -- 805,336 Interest............................................................ -- -- -- Foreign tax withholding............................................. (439) -- (37,010) -------------- --------------- -------------- Total investment income....................................... 1,110,224 54,960,412 6,980,487 -------------- --------------- -------------- EXPENSES: Investment advisory fees............................................ 261,289 4,433,462 2,373,228 Licensing fees...................................................... 32,984 1,337,741 593,307 Accounting and administration fees.................................. 28,233 677,402 283,941 Audit and tax fees.................................................. 21,228 21,228 21,228 Custodian fees...................................................... 13,315 175,109 84,381 Trustees' fees and expenses......................................... 8,498 11,262 9,410 Listing fees........................................................ 7,381 9,881 8,413 Printing fees....................................................... 5,876 128,543 60,750 Legal fees.......................................................... 4,229 138,816 49,639 Transfer agent fees................................................. 2,613 61,670 29,665 Registration and filing fees........................................ 643 17,894 2,300 Expenses previously waived or reimbursed............................ -- -- 22,946 Other expenses...................................................... 3,681 27,964 20,633 -------------- --------------- -------------- Total expenses................................................ 389,970 7,040,972 3,559,841 Less fees waived and expenses reimbursed by the investment advisor.................................................... (76,424) (390,779) -- -------------- --------------- -------------- Net expenses.................................................. 313,546 6,650,193 3,559,841 -------------- --------------- -------------- NET INVESTMENT INCOME (LOSS)........................................ 796,678 48,310,219 3,420,646 -------------- --------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... (1,573,042) (15,662,289) (33,923,808) In-kind redemptions........................................... 3,599,300 99,252,279 56,677,705 -------------- --------------- -------------- Net realized gain (loss)............................................ 2,026,258 83,589,990 22,753,897 -------------- --------------- -------------- Net change in unrealized appreciation (depreciation) on investments. 14,044,138 126,628,833 (6,902,011) -------------- --------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS)............................. 16,070,396 210,218,823 15,851,886 -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $ 16,867,074 $ 258,529,042 $ 19,272,532 ============== =============== ==============
Page 48 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) VALUE LINE(R) 100 BIOTECHNOLOGY INTERNET STRENGTH DIVIDEND EXCHANGE-TRADED INDEX FUND INDEX FUND ETF INDEX FUND FUND (FBT) (FDN) (FTCS) (FVD) (FVL) ---------------- ----------------- ---------------- ----------------- ---------------- $ 2,412,970 $ 5,599,913 $ 4,978,724 $ 61,779,410 $ 650,864 855,694 824,607 -- -- -- -- 8,898 -- -- -- (133,285) -- -- (1,084,788) (4,454) -------------- --------------- -------------- --------------- -------------- 3,135,379 6,433,418 4,978,724 60,694,622 646,410 -------------- --------------- -------------- --------------- -------------- 4,211,383 13,531,765 1,140,317 10,094,304 250,535 842,277 1,999,351 30,286 3,055,913 81,009 460,615 1,322,923 113,397 886,819 25,600 21,228 21,228 21,228 21,228 21,228 135,011 415,979 30,002 228,906 8,750 9,279 18,291 8,907 12,145 8,492 9,880 12,380 753 25,913 21,999 74,355 307,322 23,243 162,152 6,579 53,177 279,994 19,978 177,698 4,373 48,183 109,574 11,403 75,471 2,505 5,564 36,333 5,087 33,567 -- -- -- 41,092 -- -- 68,200 77,032 5,714 37,735 4,918 -------------- --------------- -------------- --------------- -------------- 5,939,152 18,132,172 1,451,407 14,811,851 435,988 -- -- -- (679,825) (85,239) -------------- --------------- -------------- --------------- -------------- 5,939,152 18,132,172 1,451,407 14,132,026 350,749 -------------- --------------- -------------- --------------- -------------- (2,803,773) (11,698,754) 3,527,317 46,562,596 295,661 -------------- --------------- -------------- --------------- -------------- (168,290,552) (83,570,307) (9,048,488) (26,833,244) 2,647,198 (204,952,642) 366,966,438 9,661,507 174,569,446 2,302,412 -------------- --------------- -------------- --------------- -------------- (373,243,194) 283,396,131 613,019 147,736,202 4,949,610 -------------- --------------- -------------- --------------- -------------- (454,566,123) (286,737,424) 14,122,275 148,113,774 (715,003) -------------- --------------- -------------- --------------- -------------- (827,809,317) (3,341,293) 14,735,294 295,849,976 4,234,607 -------------- --------------- -------------- --------------- -------------- $ (830,613,090) $ (15,040,047) $ 18,262,611 $ 342,412,572 $ 4,530,268 ============== =============== ============== =============== ==============
See Notes to Financial Statements Page 49 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST DOW JONES SELECT MORNINGSTAR MICROCAP DIVIDEND LEADERS INDEX FUND INDEX FUND (FDM) (FDL) ------------------------------- ------------------------------- Year Ended Year Ended Year Ended Year Ended 12/31/2016 12/31/2015 12/31/2016 12/31/2015 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)........................... $ 796,678 $ 759,114 $ 48,310,219 $ 31,928,966 Net realized gain (loss)............................... 2,026,258 3,694,341 83,589,990 11,749,117 Net increase from payment by the advisor............... -- -- -- -- Net change in unrealized appreciation (depreciation)... 14,044,138 (4,419,000) 126,628,833 (26,130,013) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations..................................... 16,867,074 34,455 258,529,042 17,548,070 -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (828,593) (743,446) (48,261,512) (32,145,837) -------------- -------------- -------------- -------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................. 70,348,426 31,352,476 1,442,870,317 141,457,821 Cost of shares redeemed................................ (19,162,623) (32,739,987) (749,967,524) (236,717,928) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from shareholder transactions....................... 51,185,803 (1,387,511) 692,902,793 (95,260,107) -------------- -------------- -------------- -------------- Total increase (decrease) in net assets................ 67,224,284 (2,096,502) 903,170,323 (109,857,874) NET ASSETS: Beginning of period.................................... 49,551,382 51,647,884 875,293,595 985,151,469 -------------- -------------- -------------- -------------- End of period.......................................... $ 116,775,666 $ 49,551,382 $1,778,463,918 $ 875,293,595 ============== ============== ============== ============== Accumulated net investment income (loss) at end of period.................................... $ 13,856 $ -- $ 6,393 $ (62,027) ============== ============== ============== ============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................ 1,505,000 1,555,000 36,950,002 41,150,002 Shares sold............................................ 1,700,000 950,000 55,400,000 6,000,000 Shares redeemed........................................ (550,000) (1,000,000) (28,250,000) (10,200,000) -------------- -------------- -------------- -------------- Shares outstanding, end of period...................... 2,655,000 1,505,000 64,100,002 36,950,002 ============== ============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST US EQUITY NYSE ARCA DOW JONES OPPORTUNITIES BIOTECHNOLOGY INTERNET ETF INDEX FUND INDEX FUND (FPX) (FBT) (FDN) ------------------------------- ------------------------------- ------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015 -------------- -------------- -------------- -------------- -------------- -------------- $ 3,420,646 $ 4,415,039 $ (2,803,773) $ 2,588,933 $ (11,698,754) $ (9,194,381) 22,753,897 (3,584,153) (373,243,194) 326,617,811 283,396,131 189,050,659 -- -- -- -- -- -- (6,902,011) (7,795,816) (454,566,123) (147,075,543) (286,737,424) 375,900,470 -------------- -------------- -------------- -------------- -------------- -------------- 19,272,532 (6,964,930) (830,613,090) 182,131,201 (15,040,047) 555,756,748 -------------- -------------- -------------- -------------- -------------- -------------- (4,684,081) (4,530,346) -- (3,747,095) -- -- -------------- -------------- -------------- -------------- -------------- -------------- 117,937,765 372,941,483 428,122,566 2,367,869,339 913,770,456 3,428,956,816 (308,194,899) (107,696,610) (2,230,149,092) (1,235,810,318) (2,326,817,875) (1,046,685,047) -------------- -------------- -------------- -------------- -------------- -------------- (190,257,134) 265,244,873 (1,802,026,526) 1,132,059,021 (1,413,047,419) 2,382,271,769 -------------- -------------- -------------- -------------- -------------- -------------- (175,668,683) 253,749,597 (2,632,639,616) 1,310,443,127 (1,428,087,466) 2,938,028,517 789,692,849 535,943,252 3,437,024,415 2,126,581,288 4,914,821,395 1,976,792,878 -------------- -------------- -------------- -------------- -------------- -------------- $ 614,024,166 $ 789,692,849 $ 804,384,799 $3,437,024,415 $3,486,733,929 $4,914,821,395 ============== ============== ============== ============== ============== ============== $ -- $ -- $ -- $ -- $ -- $ -- ============== ============== ============== ============== ============== ============== 15,450,002 10,650,002 30,400,002 20,850,002 65,850,002 32,250,002 2,200,000 6,900,000 4,850,000 20,350,000 12,200,000 49,100,000 (6,300,000) (2,100,000) (26,400,000) (10,800,000) (34,350,000) (15,500,000) -------------- -------------- -------------- -------------- -------------- -------------- 11,350,002 15,450,002 8,850,002 30,400,002 43,700,002 65,850,002 ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 51 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST CAPITAL STRENGTH VALUE LINE(R) DIVIDEND ETF INDEX FUND (FTCS) (FVD) ------------------------------- ------------------------------- Year Ended Year Ended Year Ended Year Ended 12/31/2016 12/31/2015 12/31/2016 12/31/2015 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)........................... $ 3,527,317 $ 1,863,793 $ 46,562,596 $ 27,999,971 Net realized gain (loss)............................... 613,019 7,692,653 147,736,202 70,182,866 Net increase from payment by the advisor............... -- -- -- -- Net change in unrealized appreciation (depreciation)... 14,122,275 (7,484,967) 148,113,774 (85,527,963) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations..................................... 18,262,611 2,071,479 342,412,572 12,654,874 -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (3,539,946) (1,868,316) (47,522,750) (28,470,161) -------------- -------------- -------------- -------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................. 220,814,366 146,883,652 2,392,736,109 703,563,120 Cost of shares redeemed................................ (81,161,652) (66,958,092) (982,675,414) (589,015,540) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from shareholder transactions....................... 139,652,714 79,925,560 1,410,060,695 114,547,580 -------------- -------------- -------------- -------------- Total increase (decrease) in net assets................ 154,375,379 80,128,723 1,704,950,517 98,732,293 NET ASSETS: Beginning of period.................................... 165,814,663 85,685,940 1,188,031,066 1,089,298,773 -------------- -------------- -------------- -------------- End of period.......................................... $ 320,190,042 $ 165,814,663 $2,892,981,583 $1,188,031,066 ============== ============== ============== ============== Accumulated net investment income (loss) at end of period.................................... $ -- $ -- $ -- $ -- ============== ============== ============== ============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................ 4,350,002 2,250,002 49,787,986 45,137,986 Shares sold............................................ 5,550,000 3,850,000 89,750,000 29,150,000 Shares redeemed........................................ (2,050,000) (1,750,000) (36,300,000) (24,500,000) -------------- -------------- -------------- -------------- Shares outstanding, end of period...................... 7,850,002 4,350,002 103,237,986 49,787,986 ============== ============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) ------------------------------- Year Ended Year Ended 12/31/2016 12/31/2015 -------------- -------------- $ 295,661 $ 188,382 4,949,610 (464,240) -- 95,996 (715,003) (1,386,028) -------------- -------------- 4,530,268 (1,565,890) -------------- -------------- (303,697) (184,307) -------------- -------------- 26,089,617 5,252,525 (30,685,938) (10,497,440) -------------- -------------- (4,596,321) (5,244,915) -------------- -------------- (369,750) (6,995,112) 53,012,960 60,008,072 -------------- -------------- $ 52,643,210 $ 53,012,960 ============== ============== $ (54) $ -- ============== ============== 2,689,982 2,939,982 1,250,000 250,000 (1,500,000) (500,000) -------------- -------------- 2,439,982 2,689,982 ============== ==============
See Notes to Financial Statements Page 53 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 32.92 $ 33.21 $ 32.47 $ 22.87 $ 20.09 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.49 0.49 0.23 0.25 0.35 Net realized and unrealized gain (loss) 11.07 (0.30) 0.76 9.62 2.83 ---------- ---------- ---------- ---------- ---------- Total from investment operations 11.56 0.19 0.99 9.87 3.18 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.50) (0.48) (0.25) (0.27) (0.40) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 43.98 $ 32.92 $ 33.21 $ 32.47 $ 22.87 ========== ========== ========== ========== ========== TOTAL RETURN (a) 35.45% 0.55% 3.08% 43.32% 15.86% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 116,776 $ 49,551 $ 51,648 $ 91,080 $ 41,281 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.75% 0.73% 0.70% 0.72% 0.76% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 1.52% 1.46% 0.71% 0.93% 1.38% Portfolio turnover rate (b) 48% 63% 49% 70% 71% FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 23.69 $ 23.94 $ 21.93 $ 18.46 $ 17.57 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.82 0.86 0.80 0.69 0.71 Net realized and unrealized gain (loss) 4.05 (0.25) 2.01 3.47 0.89 ---------- ---------- ---------- ---------- ---------- Total from investment operations 4.87 0.61 2.81 4.16 1.60 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.81) (0.86) (0.80) (0.69) (0.71) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 27.75 $ 23.69 $ 23.94 $ 21.93 $ 18.46 ========== ========== ========== ========== ========== TOTAL RETURN (a) 20.72% 2.73% 12.96% 22.71% 9.14% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $1,778,464 $ 875,294 $ 985,151 $ 687,437 $ 545,517 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.48% 0.48% 0.49% 0.49% 0.51% 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 3.27% 3.59% 3.55% 3.61% 3.88% Portfolio turnover rate (b) 50% 61% 40% 35% 31% (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 54 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST US EQUITY OPPORTUNITIES ETF (FPX) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 51.11 $ 50.32 $ 45.34 $ 30.82 $ 23.99 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.31 0.31 0.41 0.22 0.31 Net realized and unrealized gain (loss) 3.10 0.80 4.97 14.53 6.87 ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.41 1.11 5.38 14.75 7.18 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.42) (0.32) (0.40) (0.23) (0.35) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 54.10 $ 51.11 $ 50.32 $ 45.34 $ 30.82 ========== ========== ========== ========== ========== TOTAL RETURN (a) 6.70% 2.19% 11.91% 47.98% 30.01% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 614,024 $ 789,693 $ 535,943 $ 351,376 $ 24,659 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.66% 1.01% 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 0.58% 0.61% 0.89% 0.69% 1.27% Portfolio turnover rate (b) 41% 41% 46% 30% 48% FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 113.06 $ 101.99 $ 69.12 $ 46.05 $ 32.68 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.32) 0.09 0.04 (0.10) (0.22) Net realized and unrealized gain (loss) (21.85) 11.11 32.88 23.17 13.59 ---------- ---------- ---------- ---------- ---------- Total from investment operations (22.17) 11.20 32.92 23.07 13.37 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income -- (0.13) (0.05) -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 90.89 $ 113.06 $ 101.99 $ 69.12 $ 46.05 ========== ========== ========== ========== ========== TOTAL RETURN (a) (19.60)% 10.97% 47.63% 50.10% 40.91% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 804,385 $3,437,024 $2,126,581 $ 953,910 $ 239,445 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.56% 0.55% 0.58% 0.60% 0.61% Ratio of net expenses to average net assets 0.56% 0.55% 0.58% 0.60% 0.60% Ratio of net investment income (loss) to average net assets (0.27)% 0.08% 0.06% (0.26)% (0.48)% Portfolio turnover rate (b) 42% 30% 58% 48% 39% (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 55 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 74.64 $ 61.30 $ 59.84 $ 39.01 $ 32.28 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) (0.27) (0.14) (0.08) (0.11) (0.08) Net realized and unrealized gain (loss) 5.42 13.48 1.54 20.94 6.81 ---------- ---------- ---------- ---------- ---------- Total from investment operations 5.15 13.34 1.46 20.83 6.73 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 79.79 $ 74.64 $ 61.30 $ 59.84 $ 39.01 ========== ========== ========== ========== ========== TOTAL RETURN (a) 6.91% 21.77% 2.42% 53.40% 20.85% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $3,486,734 $4,914,821 $1,976,793 $1,929,852 $ 557,882 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.54% 0.54% 0.54% 0.57% 0.60% Ratio of net expenses to average net assets 0.54% 0.54% 0.54% 0.57% 0.60% Ratio of net investment income (loss) to average net assets (0.35)% (0.29)% (0.13)% (0.28)% (0.23)% Portfolio turnover rate (b) 21% 28% 27% 17% 33% FIRST TRUST CAPITAL STRENGTH ETF (FTCS) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 38.12 $ 38.08 $ 33.70 $ 25.16 $ 21.82 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.58 0.57 0.72 0.45 0.45 Net realized and unrealized gain (loss) 2.67 0.04 4.43 8.54 3.34 ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.25 0.61 5.15 8.99 3.79 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.58) (0.57) (0.77) (0.45) (0.45) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 40.79 $ 38.12 $ 38.08 $ 33.70 $ 25.16 ========== ========== ========== ========== ========== TOTAL RETURN (a) 8.57% 1.64% 15.46% 35.90% 17.45% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 320,190 $ 165,815 $ 85,686 $ 65,706 $ 32,707 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% 0.65% 0.66% 0.76% 0.83% Ratio of net expenses to average net assets 0.64% 0.65% 0.65% 0.65% 0.65% Ratio of net investment income (loss) to average net assets 1.55% 1.59% 2.07% 1.59% 1.84% Portfolio turnover rate (b) 85% 96% 89% 156% 84% (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 56 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 23.86 $ 24.13 $ 21.36 $ 17.29 $ 16.01 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.56 0.55 0.58 0.50 0.50 Net realized and unrealized gain (loss) 4.17 (0.26) 2.78 4.06 1.28 ---------- ---------- ---------- ---------- ---------- Total from investment operations 4.73 0.29 3.36 4.56 1.78 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.57) (0.56) (0.59) (0.49) (0.50) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 28.02 $ 23.86 $ 24.13 $ 21.36 $ 17.29 ========== ========== ========== ========== ========== TOTAL RETURN (a) 19.94% 1.26% 15.94% 26.57% 11.17% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $2,892,982 $1,188,031 $1,089,299 $ 796,361 $ 508,103 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.73% 0.74% 0.75% 0.76% 0.78% 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 2.31% 2.40% 2.63% 2.57% 3.03% Portfolio turnover rate (b) 60% 82% 63% 71% 54% FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 19.71 $ 20.41 $ 18.44 $ 13.27 $ 12.37 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.12 0.07 0.11 0.06 0.15 Net realized and unrealized gain (loss) 1.87 (0.71) (c) 1.98 5.17 0.90 ---------- ---------- ---------- ---------- ---------- Total from investment operations 1.99 (0.64) 2.09 5.23 1.05 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.12) (0.06) (0.12) (0.06) (0.15) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 21.58 $ 19.71 $ 20.41 $ 18.44 $ 13.27 ========== ========== ========== ========== ========== TOTAL RETURN (a) 10.14% (3.13)%(c) 11.33% 39.44% 8.53% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 52,643 $ 53,013 $ 60,008 $ 56,058 $ 45,635 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.87% 0.84% 0.84% 0.87% 0.87% 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 0.59% 0.32% 0.57% 0.35% 1.03% Portfolio turnover rate (b) 491% 404% 325% 350% 304% (a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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) The Fund received a payment from the Advisor in the amount of $95,996 in connection with a trade error, which represents $0.03 per share. Since the Advisor reimbursed the Fund, there was no effect on the Fund's total return.
See Notes to Financial Statements Page 57 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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 (the "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 eight funds listed below: First Trust Dow Jones Select MicroCap Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker "FDM") First Trust Morningstar Dividend Leaders Index Fund - (NYSE Arca ticker "FDL") First Trust US Equity Opportunities ETF - (NYSE Arca ticker "FPX")(1) First Trust NYSE Arca Biotechnology Index Fund - (NYSE Arca ticker "FBT") First Trust Dow Jones Internet Index Fund - (NYSE Arca ticker "FDN") First Trust Capital Strength ETF - (The Nasdaq Stock Market LLC ("Nasdaq") ticker "FTCS") 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") (1) Effective on December 13, 2016, First Trust US IPO Index Fund changed its name to First Trust US Equity Opportunities ETF. The Fund's ticker symbol was not changed. 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, each Fund's shares are not redeemable securities. The investment objective of each Fund is to seek investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of the following indices:
FUND INDEX First Trust Dow Jones Select MicroCap Index Fund Dow Jones Select MicroCap Index(SM) First Trust Morningstar Dividend Leaders Index Fund Morningstar(R) Dividend Leaders Index(SM) First Trust US Equity Opportunities ETF IPOX(R)-100 U.S. Index First Trust NYSE Arca Biotechnology Index Fund NYSE Arca Biotechnology Index(SM) First Trust Dow Jones Internet Index Fund Dow Jones Internet Composite Index(SM) First Trust Capital Strength ETF The Capital Strength Index(TM) First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index
2. SIGNIFICANT ACCOUNTING POLICIES The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946, "Financial Services-Investment Companies." 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 as of that time. Foreign securities are priced using data reflecting the earlier closing of the principal markets for those securities. Each Fund's NAV is calculated by dividing the value of all assets of each 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. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds' Page 58 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"), in accordance with valuation procedures adopted by the Trust's Board of Trustees, and in accordance with provisions of the 1940 Act. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund's investments are 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 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. Shares of open-end funds are valued at fair value which is based on NAV per share. Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Overnight repurchase agreements are valued at amortized cost when it represents the best estimate of fair value. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust's Board of Trustees or its delegate, the Advisor's Pricing Committee, 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 third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. 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 third-party 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 a Fund's performance and the performance of its underlying index. The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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 59 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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, 2016, is included with each Fund's Portfolio of Investments. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Distributions received from a Fund's investments in 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. C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES Offsetting Assets and Liabilities require entities to disclose both gross and net information about 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. These disclosure requirements are 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. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. 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 ("MNAs") or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral. 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. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash 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, 2016, only FDM, 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 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. Page 60 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 E. REPURCHASE AGREEMENTS Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement ("MRA"). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds' custodian or designated sub-custodians under tri-party repurchase agreements. MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements. Repurchase agreements received for lending securities are collateralized by U.S. Treasury securities. The U.S. Treasury securities are held in a joint custody account at BBH on behalf of the Funds participating in the securities lending program. In the event the counterparty defaults on the repurchase agreement, the U.S. Treasury securities can either be maintained as part of a Fund's portfolio or sold for cash. A Fund could suffer a loss to the extent that the proceeds from the sale of the underlying collateral held by the Fund is less than the repurchase price and the Fund's costs associated with the delay and enforcement of the MRA. While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the fiscal year ended December 31, 2016, were received as collateral for lending securities. There were no repurchase agreements held by the Funds as of December 31, 2016. F. DIVIDENDS AND DISTRIBUTIONS 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 significantly modified 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 fiscal year ended December 31, 2016 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 Fund $ 828,593 $ -- $ -- First Trust Morningstar Dividend Leaders Index Fund 48,261,512 -- -- First Trust US Equity Opportunities ETF 4,684,081 -- -- First Trust NYSE Arca Biotechnology Index Fund -- -- -- First Trust Dow Jones Internet Index Fund -- -- -- First Trust Capital Strength ETF 3,539,946 -- -- First Trust Value Line(R) Dividend Index Fund 47,522,750 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund 303,697 -- --
Page 61 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2015 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 Fund $ 743,446 $ -- $ -- First Trust Morningstar Dividend Leaders Index Fund 32,145,837 -- -- First Trust US Equity Opportunities ETF 4,530,346 -- -- First Trust NYSE Arca Biotechnology Index Fund 3,747,095 -- -- First Trust Dow Jones Internet Index Fund -- -- -- First Trust Capital Strength ETF 1,868,316 -- -- First Trust Value Line(R) Dividend Index Fund 28,470,161 -- -- First Trust Value Line(R) 100 Exchange-Traded Fund 184,307 -- --
As of December 31, 2016, 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 Fund $ 13,856 $ (22,325,855) $ 14,039,563 First Trust Morningstar Dividend Leaders Index Fund 42,718 (47,655,825) 155,710,494 First Trust US Equity Opportunities ETF -- (72,387,342) 54,361,659 First Trust NYSE Arca Biotechnology Index Fund -- (238,809,743) (201,164,683) First Trust Dow Jones Internet Index Fund -- (87,729,839) 109,945,182 First Trust Capital Strength ETF -- (20,129,157) 15,484,436 First Trust Value Line(R) Dividend Index Fund -- (20,084,190) 147,237,425 First Trust Value Line(R) 100 Exchange-Traded Fund -- (33,433,529) 208,702
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. 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 2013, 2014, 2015 and 2016 remain open to federal and state audit. As of December 31, 2016, 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, 2016, 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. Page 62 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016
Capital Capital Loss Loss Post- Total Available Available Enactment - Capital Through Through No Loss 2017 2018 Expiration Available ---------- ----------- ----------- ----------- First Trust Dow Jones Select MicroCap Index Fund $3,227,616 $ 5,096,533 $14,001,706 $22,325,855 First Trust Morningstar Dividend Leaders Index Fund 16,831,977 473,435 30,350,413 47,655,825 First Trust US Equity Opportunities ETF 1,127,563 65,058 71,194,721 72,387,342 First Trust NYSE Arca Biotechnology Index Fund 5,787,577 1,039,054 231,983,112 238,809,743 First Trust Dow Jones Internet Index Fund 1,163,966 -- 86,565,873 87,729,839 First Trust Capital Strength ETF 11,336,270 1,367,556 7,425,331 20,129,157 First Trust Value Line(R) Dividend Index Fund 19,646,203 437,987 -- 20,084,190 First Trust Value Line(R) 100 Exchange-Traded Fund 29,477,928 -- 3,957,526 33,435,454
During the taxable year ended December 31, 2016, the following Funds utilized capital loss carryforwards in the following amounts:
Pre-Enactment Post-Enactment Capital Loss Capital Loss Carryforward Utilized Carryforward Utilized --------------------- --------------------- First Trust Value Line(R) Dividend Index Fund $ 8,033,574 $ -- First Trust Value Line(R) 100 Exchange-Traded Fund -- 2,718,287
At the taxable year ended December 31, 2016, the following Funds' capital loss carryforwards expired in the following amounts:
Capital Loss Carryforward Expired --------------------- First Trust Dow Jones Select MicroCap Index Fund $ 902,807 First Trust Morningstar Dividend Leaders Index Fund 14,962,284 First Trust US Equity Opportunities ETF 2,682,788 First Trust NYSE Arca Biotechnology Index Fund 2,061,136 First Trust Dow Jones Internet Index Fund 6,295,170 First Trust Capital Strength ETF 11,401,861 First Trust Value Line(R) Dividend Index Fund 8,806,024 First Trust Value Line(R) 100 Exchange-Traded Fund 47,805,834
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, 2016, the adjustments for each Fund were as follows:
Accumulated Accumulated Net Realized Net Investment Gain (Loss) Paid-in Income (Loss) on Investments Capital -------------- -------------------- ---------------- First Trust Dow Jones Select MicroCap Index Fund $ 45,771 $ (2,460,280) $ 2,414,509 First Trust Morningstar Dividend Leaders Index Fund 19,713 (80,792,579) 80,772,866 First Trust US Equity Opportunities ETF 1,263,435 (52,663,782) 51,400,347 First Trust NYSE Arca Biotechnology Index Fund 2,803,773 291,431,485 (294,235,258) First Trust Dow Jones Internet Index Fund 11,698,754 (330,208,919) 318,510,165 First Trust Capital Strength ETF 12,629 2,064,727 (2,077,356) First Trust Value Line(R) Dividend Index Fund 960,154 (147,401,790) 146,441,636 First Trust Value Line(R) 100 Exchange-Traded Fund 7,982 45,545,739 (45,553,721)
Page 63 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 H. 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 has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
FUND LICENSOR First Trust Dow Jones Select MicroCap Index Fund Dow Jones & Company, Inc. First Trust Morningstar Dividend Leaders Index Fund Morningstar, Inc. First Trust US Equity Opportunities ETF IPOX(R) Schuster LLC First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext First Trust Dow Jones Internet Index Fund Dow Jones & Company, Inc. First Trust Capital Strength ETF Nasdaq, Inc. First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R) First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R)
The respective license agreements allow for the use by First Trust of certain trademarks and trade names of the respective Licensors. The Funds are sub-licensees to the applicable license agreement. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations. I. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS On October 13, 2016, the SEC adopted new rules and forms, and amended existing rules and forms. The new and amended rules and forms are intended to modernize the reporting of information provided by funds and to improve the quality and type of information that funds provide to the SEC and investors. The new and amended rules and forms will be effective for the First Trust funds, including the Funds, from reporting periods beginning on and after June 1, 2018. Management is evaluating the new and amended rules and forms to determine the impact to the Funds. J. NEW ACCOUNTING PRONOUNCEMENT In December 2016, FASB released Accounting Standards Update ("ASU") 2016-19 that makes technical changes to various sections of the ASC, including Topic 820, Fair Value Measurement. The changes to Topic 820 are intended to clarify the difference between a valuation approach and a valuation technique. The changes to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level 3 fair value measurements, a change in either or both a valuation approach and a valuation technique and the reason(s) for the change. The changes to Topic 820 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. At this time, management is evaluating the implications of the ASU and has not yet determined its impact on the financial statements and disclosures. 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 Fund 0.50% First Trust Morningstar Dividend Leaders Index Fund 0.30% First Trust US Equity Opportunities ETF 0.40% First Trust NYSE Arca Biotechnology Index Fund 0.40% First Trust Dow Jones Internet Index Fund 0.40% First Trust Capital Strength ETF 0.50% First Trust Value Line(R) Dividend Index Fund 0.50% First Trust Value Line(R) 100 Exchange-Traded Fund 0.50%
Page 64 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 The Trust and First Trust have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which First Trust 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, acquired fund fees and 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, 2018.
Expense Cap ---------------- First Trust Dow Jones Select MicroCap Index Fund 0.60% First Trust Morningstar Dividend Leaders Index Fund 0.45% First Trust US Equity Opportunities ETF 0.60% First Trust NYSE Arca Biotechnology Index Fund 0.60% First Trust Dow Jones Internet Index Fund 0.60% First Trust Capital Strength ETF 0.65% 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 incurred, but no reimbursement payment will be made by a 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 waived by First Trust. These amounts are included in "Expenses previously waived or reimbursed" on the Statements of Operations. The advisory fee waivers and expense reimbursements for the fiscal year ended December 31, 2016 and the fees waived or expenses borne by First Trust subject to recovery from the applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by First Trust Subject to Recovery ------------------------------------------------ Advisory Year Year Year Fee Expense Ended Ended Ended Waivers Reimbursement 12/31/2014 12/31/2015 12/31/2016 Total --------- ------------- ---------- ---------- ---------- --------- First Trust Dow Jones Select MicroCap Index Fund $ 76,424 $ -- $ 66,284 $ 69,191 $ 76,424 $ 211,899 First Trust Morningstar Dividend Leaders Index Fund 390,779 -- 273,147 260,965 390,779 924,891 First Trust US Equity Opportunities ETF -- -- 23,043 -- -- 23,043 First Trust NYSE Arca Biotechnology Index Fund -- -- -- -- -- -- First Trust Dow Jones Internet Index Fund -- -- -- -- -- -- First Trust Capital Strength ETF -- -- -- -- -- -- First Trust Value Line(R) Dividend Index Fund 679,825 -- 408,933 464,054 679,825 1,552,812 First Trust Value Line(R) 100 Exchange-Traded Fund 85,239 -- 85,675 83,472 85,239 254,386
During the fiscal year ended December 31, 2016, First Trust recovered fees that were previously waived from First Trust US Equity Opportunities ETF and First Trust Capital Strength ETF of $22,946 and $41,092, respectively. During the fiscal year ended December 31, 2015, the First Trust Value Line(R) 100 Exchange-Traded Fund received a payment from the Advisor of $95,996 in connection with a trade error. The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund's securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. BNYM is a subsidiary of The Bank of New York Mellon Corporation, a financial holding company. Page 65 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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 that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, or is an index fund. Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairmen 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 fiscal year ended December 31, 2016, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
Purchases Sales --------------- --------------- First Trust Dow Jones Select MicroCap Index Fund $ 25,923,604 $ 25,734,796 First Trust Morningstar Dividend Leaders Index Fund 738,614,436 735,451,454 First Trust US Equity Opportunities ETF 250,543,842 251,093,925 First Trust NYSE Arca Biotechnology Index Fund 487,380,545 487,411,199 First Trust Dow Jones Internet Index Fund 743,035,189 754,523,771 First Trust Capital Strength ETF 194,340,040 193,594,363 First Trust Value Line(R) Dividend Index Fund 1,206,292,969 1,202,682,884 First Trust Value Line(R) 100 Exchange-Traded Fund 247,315,901 247,350,239
For the fiscal year ended December 31, 2016, 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 Fund $ 70,268,593 $ 19,160,380 First Trust Morningstar Dividend Leaders Index Fund 1,437,021,693 746,099,477 First Trust US Equity Opportunities ETF 117,679,576 307,662,875 First Trust NYSE Arca Biotechnology Index Fund 428,227,573 2,233,312,744 First Trust Dow Jones Internet Index Fund 912,194,699 2,323,911,829 First Trust Capital Strength ETF 220,348,918 81,514,515 First Trust Value Line(R) Dividend Index Fund 2,387,593,096 981,597,610 First Trust Value Line(R) 100 Exchange-Traded Fund 26,102,114 30,668,897
5. CREATION, REDEMPTION AND TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares in transactions with broker-dealers or large institutional investors that have entered into a participation agreement (an "Authorized Participant"). 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. Authorized Participants purchasing 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 $ 500 101-499 $1,000 500 or more $1,500 The Creation Transaction Fee is applicable to each purchase transaction regardless of the number of Creation Units purchased in the transaction. An additional variable fee of up to three times the Creation Transaction Fee may be charged to approximate additional expenses incurred by a Fund with respect to transactions effected outside of the clearing process (i.e., through a DTC Participant) or to the extent that cash is used in lieu of securities to purchase Creation Units. The price for each Creation Unit will equal the daily NAV per Share of a Fund on the transaction date times the number of Shares in a Creation Unit plus the fees described above and, if applicable, any transfer taxes. Page 66 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 Authorized Participants 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 $ 500 101-499 $1,000 500 or more $1,500 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 April 30, 2018. 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 67 -------------------------------------------------------------------------------- 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 Fund, First Trust Morningstar Dividend Leaders Index Fund, First Trust US Equity Opportunities ETF (formerly known as First Trust US IPO Index Fund), First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index Fund, First Trust Capital Strength ETF, First Trust Value Line(R) Dividend Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund (collectively, the "Funds"), each a series of the First Trust Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as of December 31, 2016, 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 Trust'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 audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust'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, 2016 by correspondence with the Trust's custodian and brokers; when replies were not received from brokers, 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, 2016, 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 23, 2017 Page 68 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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 Funds' 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 Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds' 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, 2016, 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 Fund 95.29% First Trust Morningstar Dividend Leaders Index Fund 100.00% First Trust US Equity Opportunities ETF 100.00% First Trust NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index Fund -- First Trust Capital Strength ETF 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, 2016, the following percentages of income dividends paid by the Funds are hereby designated as qualified dividend income:
Qualified Dividend Income ---------------------------- First Trust Dow Jones Select MicroCap Index Fund 100.00% First Trust Morningstar Dividend Leaders Index Fund 100.00% First Trust US Equity Opportunities ETF 100.00% First Trust NYSE Arca Biotechnology Index Fund -- First Trust Dow Jones Internet Index Fund -- First Trust Capital Strength ETF 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 69 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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 Capital Strength ETF, First Trust Dow Jones Select MicroCap Index Fund, First Trust Value Line(R) Dividend 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 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. The First Trust Dow Jones Select MicroCap Index 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 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 70 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (UNAUDITED) The First Trust NYSE Arca Biotechnology Index Fund invests in the securities of companies in the health care sector. Because companies in the health care sector are involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals and health care facilities and services, general problems of these companies include extensive competition, generic drug sales or the loss of patent protection, product liability litigation and increased government regulations. The First Trust US Equity Opportunities ETF 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 Dow Jones Select Micro Cap Index Fund and First Trust Capital Strength ETF 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 Fund, First Trust US Equity Opportunities ETF and First Trust Value Line(R) 100 Exchange-Traded 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 Dow Jones Internet Index 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. The First Trust US Equity Opportunities ETF First Trust Value Line(R) 100 Exchange-Traded Fund and First Trust Dow Jones Internet Index 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 Capital Strength ETF and First Trust Value Line(R) 100 Exchange-Traded 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 Capital Strength ETF invests in the securities of companies in the consumer staples sector. Consumer staples companies provide products directly to the consumer that are typically considered non-discretionary items based on consumer purchasing habits. The success of these companies is affected by a variety of factors, such as government regulations, which may affect the permissibility of using various food additives and the production methods of companies that manufacture food products. The First Trust Morningstar Dividend Leaders 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. With the exception of First Trust Capital Strength ETF and First Trust Dow Jones Select MicroCap Index 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 Page 71 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (UNAUDITED) 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 REMUNERATION First Trust Advisors L.P. ("First Trust") is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of the First Trust Exchange-Traded Funds it manages (the "Funds") in the United Kingdom in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the "Directive"). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust's interpretation of currently available regulatory guidance on remuneration disclosures. During the year ended December 31, 2016, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Funds is $5,672,759. This figure is comprised of $239,218 paid (or to be paid) in fixed compensation and $5,433,541 paid (or to be paid) in variable compensation. There were a total of 13 beneficiaries of the remuneration described above. Those amounts include $3,984,992 paid (or to be paid) to senior management of First Trust Advisors L.P. and $1,687,767 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Funds (collectively, "Code Staff"). Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust's remuneration policy (the "Remuneration Policy") which is determined and implemented by First Trust's senior management. The Remuneration Policy reflects First Trust's ethos of good governance and encapsulates the following principal objectives: i. to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure; ii. to promote sound and effective risk management consistent with the risk profiles of the Funds managed by First Trust; and iii. to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the Funds managed by First Trust in a manner that avoids conflicts of interest. First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff. First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Funds. The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking. No individual is involved in setting his or her own remuneration. Page 72 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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 TERM OF OFFICE THE FIRST TRUST DIRECTORSHIPS NAME, ADDRESS, AND YEAR FIRST FUND COMPLEX HELD BY TRUSTEE DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Erickson, Trustee o Indefinite Term Physician, Officer, Wheaton Orthopedics; 138 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 E. Liberty Drive, o Since Inception Limited Partnership (June 1992 to Suite 400 December 2016); Member, Sportsmed LLC Wheaton, IL 60187 (April 2007 to November 2015) D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 138 Director of ADM c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services, 120 E. Liberty Drive, o Since Inception Inc., ADM Suite 400 Investor Services Wheaton, IL 60187 International and D.O.B.: 11/57 Futures Industry Association Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial 138 Director of Trust c/o First Trust Advisors L.P. and Management Consulting) Company of 120 E. Liberty Drive, o Since Inception Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 138 Director of c/o First Trust Advisors L.P. Officer (January 2015 to Present), Covenant 120 E. Liberty Drive, o Since Inception Pelita Harapan Educational Foundation Transport Inc. Suite 400 (Educational Products and Services); (May 2003 to President and Chief Executive Officer May 2014) Wheaton, IL 60187 (June 2012 to September 2014), Servant D.O.B.: 03/54 Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services); President (June 2002 to June 2012), Covenant College ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 138 None Chairman of the Board Advisors L.P. and First Trust 120 E. Liberty Drive, o Since Inception Portfolios L.P.; Chairman of the Suite 400 Board of Directors, BondWave LLC Wheaton, IL 60187 (Software Development Company) D.O.B.: 09/55 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 73 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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) ------------------------------------------------------------------------------------------------------------------------------------ James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Executive 120 E. Liberty Drive, Executive Officer Officer (January 2016 to Present), Controller (January Suite 400 o Since January 2016 2011 to January 2016), Senior Vice President (April Wheaton, IL 60187 2007 to January 2016), First Trust Advisors L.P. and D.O.B: 01/66 First Trust Portfolios L.P.; Chief Financial Officer, (January 2016 to Present) BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice 120 E. Liberty Drive, Officer and Chief President (April 2012 to July 2016), First Trust Suite 400 Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.; Vice Wheaton, IL 60187 President (September 2006 to April 2012), Guggenheim D.O.B.: 08/72 Funds Investment Advisors, LLC and Claymore Securities, Inc. W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel, Suite 400 o Since Inception BondWave LLC; Secretary Stonebridge Wheaton, IL 60187 Advisors LLC D.O.B.: 05/60 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 Since Inception Wheaton, IL 60187 D.O.B.: 12/66 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), First Suite 400 o Since Inception Trust Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 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 74 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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 within First Trust. PRIVACY ONLINE We allow third-party companies, including AddThis (a social media sharing service), to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, 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). March 2016 Page 75 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 Fund (QQEW) First Trust NASDAQ-100-Technology Sector Index Fund (QTEC) First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN) First Trust S&P REIT Index Fund (FRI) First Trust Water ETF (FIW) (formerly known as First Trust ISE Water Index Fund) First Trust Natural Gas ETF (FCG) (formerly known as First Trust ISE-Revere Natural Gas Index Fund) First Trust Chindia ETF (FNI) (formerly known as First Trust ISE Chindia Index Fund) First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA) Annual Report December 31, 2016 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2016 Shareholder Letter........................................................... 2 Market Overview.............................................................. 3 Fund Performance Overview First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)................... 4 First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 6 First Trust NASDAQ-100 Ex-Technology Sector Index 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 Water ETF (FIW)............................................... 14 First Trust Natural Gas ETF (FCG)......................................... 16 First Trust Chindia ETF (FNI)............................................. 18 First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 20 Notes to Fund Performance Overview........................................... 22 Understanding Your Fund Expenses............................................. 23 Portfolio of Investments First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)................... 25 First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 28 First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............. 29 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 32 First Trust S&P REIT Index Fund (FRI)..................................... 34 First Trust Water ETF (FIW)............................................... 37 First Trust Natural Gas ETF (FCG)......................................... 39 First Trust Chindia ETF (FNI)............................................. 41 First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 44 Statements of Assets and Liabilities......................................... 48 Statements of Operations..................................................... 50 Statements of Changes in Net Assets.......................................... 52 Financial Highlights......................................................... 56 Notes to Financial Statements................................................ 61 Report of Independent Registered Public Accounting Firm...................... 71 Additional Information....................................................... 72 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 by 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. The Advisor may also periodically provide additional information on Fund performance on each Fund's webpage at http://www.ftportfolios.com. 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 of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material 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, 2016 Dear Shareholders: Now that 2016 is over, many will remember some of the historic events that occurred during the year: from the Brexit vote in the UK to leave the European Union, to the results of the U.S. Presidential Election which seemed unlikely at the beginning of the year, to the first World Series Championship for the Chicago Cubs in 108 years! First Trust Advisors L.P. ("First Trust") is pleased to provide you with this annual report which contains detailed information about your investment for the 12 months ended December 31, 2016, including a market overview and a performance analysis for the period. Additionally, First Trust has compiled the Funds' financial statements for you to review. We encourage you to read this report and discuss it with your financial advisor. On November 8, Donald J. Trump was elected to become the 45th president in our country's history. While no one has a crystal ball and the ability to predict how his presidency will shape the United States (and the world), there is no doubt that his populist message resonated for many Americans. And his message of improving lives for the "average" American, while reducing the size and scope of the federal government, also won him millions of votes. Many of his supporters believe that with his background in business, President Trump will make policy changes that will continue to grow the economy and spur stock markets even higher. Many analysts predicted the Dow Jones Industrial Average would hit a new benchmark, 20,000, in the first days of the New Year. As with all change and a new administration, only time will tell. As of December 31, 2016, the S&P 500(R) Index was up 11.96% calendar year-to-date, on a total return basis, as measured by Bloomberg. The current bull market (measuring from March 9, 2009 through December 31, 2016) is the second longest in history. We remain bullish on the economy, but continue to have a long-term perspective. We believe investors should think long-term as well, since no one can predict volatility and the inevitable ups and downs that occur in the market. Thank you for your investment in First Trust Exchange-Traded Fund and for giving First Trust the opportunity to be a part of your investment plan. We value our relationship with you and will continue our relentless focus on bringing the types of investments that we believe could help you reach 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, 2016 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 over 25 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 For the second consecutive year, at its December Federal Open Market Committee meeting, the Federal Reserve (the "Fed") initiated a 25 basis point increase to the federal funds target rate trading range, which now stands at 0.50% to 0.75%. The Fed commented in December that inflation expectations have increased "considerably" and noted that the labor market is tightening, according to Bloomberg. The Fed is forecasting three quarter-point increases in 2017. For the 30-year period ended December 31, 2016, the federal funds target rate (upper bound) averaged 3.54%, according to Bloomberg. Consumer confidence levels continued to rise in 2016. The Conference Board's Consumer Confidence Index reading stood at 113.70 in December, up from 96.30 in December 2015, according to Bloomberg. The index reached as low as 25.30 in February 2009, just prior to the end of the last bear market in stocks in March 2009. While confidence levels are higher than at any point since 2001, the index has room to run. The highest reading so far in this millennium was 144.71, set in January 2000. Confidence levels have been bolstered by gains in the labor force, in our opinion. U.S. nonfarm payrolls expanded by an average of 180,000 per month in 2016, above the 159,000 per month average posted so far in the current economic recovery (July 2009-December 2016), according to data from the Bureau of Labor Statistics. ETFGI, an industry research group, reported that total assets invested in exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs") reached a record high of $3.55 trillion globally in 2016, according to its own release. Total assets invested in U.S. ETFs/ETPs reached a record high $2.59 trillion in 2016. U.S. STOCKS AND BONDS In 2016, three of the major U.S. stock indices posted double-digit returns. The S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted total returns of 11.96%, 20.74%, and 26.56%, respectively, according to Bloomberg. Ten of the 11 major S&P 500(R) Index sectors (Real Estate was added in September 2016) posted positive total returns. The top-performing sectors were Energy, Telecommunication Services and Financials, up 27.36%, 23.49% and 22.75%, respectively, on a total return basis. The only sector that posted a loss was Health Care, down 2.69%. Health Care stocks, particularly the drug makers, came under increased scrutiny during the election cycle from some of the political candidates, including Hillary Clinton. It is not unusual for candidates to use rising prescription drug prices as a wedge issue in an effort to garner votes, in our opinion. The S&P 500(R) Index closed 1.45% below its all-time closing high (2,271.72 on December 13, 2016) on December 31, 2016, according to Bloomberg. The consensus estimated earnings growth rates for 2017 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 12.02%, 11.49% and 17.64%, respectively, as of December 31, 2016 according to Bloomberg. The consensus estimated earnings growth rates for 2018 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 11.20%, 12.00% and 15.95%, respectively. We are encouraged by level of those earnings growth rate estimates at this stage of the bull market. In the U.S. bond market, the top-performing major debt group was high yield corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a total return of 17.13%. The worst-performing debt group that we track was municipal bonds, though the group still generated a positive return. The Bloomberg Barclays Municipal Bond: Long Bond (22+) Index posted a total return of 0.88%. The yield on the benchmark 10-Year Treasury note (T-note) increased by 18 basis points in 2016, from 2.27% on December 31, 2015 to 2.45% on December 31, 2016. A yield of 2.45% is low by historical standards. For the 30-year period ended December 31, 2016, the average yield on the 10-year T-note was 5.11%, according to Bloomberg. FOREIGN STOCKS AND BONDS The U.S. dollar appreciated by 3.63% against a basket of major currencies in 2016, as measured by the U.S. Dollar Index. With respect to U.S. investors, a stronger U.S. dollar can negatively impact returns on foreign securities. The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt posted a total return of 9.00% in U.S. dollar ("USD") terms, while the Bloomberg Barclays Global Aggregate Index of higher quality debt rose 2.09% (USD) for the same period. The MSCI Emerging Markets Index of stocks posted a total return of 11.19% (USD), while the MSCI World Index (excluding the U.S.) posted a total return of 2.75% (USD). Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) The First Trust NASDAQ-100 Equal Weighted 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-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 Stock Market LLC ("Nasdaq") 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 which is rebalanced quarterly. The Fund's shares are listed for trading on the Nasdaq. The first day of secondary market trading in shares of the Fund was April 25, 2006.
------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (4/19/06) Ended Ended (4/19/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 7.02% 15.94% 9.25% 8.68% 109.48% 142.31% 143.77% Market Value 7.09% 15.96% 9.27% 8.69% 109.66% 142.66% 143.87% INDEX PERFORMANCE NASDAQ-100 Equal Weighted Index(SM) 7.65% 16.66% 9.95% 9.36% 116.06% 158.09% 160.59% S&P 500(R) Index 11.96% 14.66% 6.95% 7.41% 98.18% 95.72% 114.81% NASDAQ-100 Index(R) 7.27% 17.90% 11.82% 11.18% 127.80% 205.58% 210.71% ---------------------------------------------------------------------------------- ------------ --------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of 7.02% during the 12-month period covered by this report. During the same period, the NASDAQ-100 Index(R) ("benchmark") generated a return of 7.27%. The Fund generated 10.2% of its performance from Information Technology securities, which were given an average weighting of 41.7% and had a 25.4% return, making this sector the highest weighted and top performing sector within the Fund. Within this sector, NVIDIA Corp. notably had a 226.9% return over the period, contributing 1.5% to the Fund's return. The Health Care sector was the worst performing sector in the Fund with a -22.5% return and was the third highest allocated sector in the Fund over the period at 16.0%. These two factors led to a contribution of -4.3% to the Fund's return. On a relative basis, the Fund underperformed the benchmark. The primary source of the Fund's underperformance was the Fund's holdings in the Consumer Discretionary sector. Due to the Fund's -6.4% lower return than the benchmark in this sector, -1.2% of underperformance was created. In particular, the Fund had a -14.0% lower return than the benchmark within the Internet & Direct Marketing Retail industry, where the benchmark held well performing names such as Amazon.com, Inc. at a higher weighting as the benchmark is not equally weighted. The Information Technology sector reversed 3.3% of underperformance as the Fund outperformed the benchmark by 11.4% within this sector. ----------------------------- Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Equal Weighted Index(SM) are trademarks of Nasdaq, 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 FUND (QQEW) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 41.38% Consumer Discretionary 26.75 Health Care 17.87 Industrials 5.96 Consumer Staples 5.02 Telecommunication Services 3.02 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Micron Technology, Inc. 1.09% NVIDIA Corp. 1.07 Tesla Motors, Inc. 1.07 Xilinx, Inc. 1.04 Alexion Pharmaceuticals, Inc. 1.03 Automatic Data Processing, Inc. 1.03 SBA Communications Corp., Class A 1.03 Lam Research Corp. 1.02 Western Digital Corp. 1.02 NetEase, Inc., ADR 1.02 ------- Total 10.42% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust NASDAQ-100 Equal NASDAQ-100 Equal S&P 500(R) NASDAQ-100 Weighted Index Fund Weighted Index(SM) Index Index(R) 12/06 $10,000 $10,000 $10,000 $10,000 06/07 10,984 11,010 10,696 11,032 12/07 10,974 11,035 10,550 11,924 06/08 9,615 9,691 9,292 10,531 12/08 6,150 6,231 6,647 6,967 06/09 7,607 7,727 6,857 8,528 12/09 9,811 10,002 8,405 10,773 06/10 9,258 9,468 7,846 10,108 12/10 11,896 12,201 9,672 12,943 06/11 12,789 13,159 10,253 13,620 12/11 11,565 11,946 9,875 13,417 06/12 12,627 13,075 10,812 15,487 12/12 13,284 13,792 11,455 15,876 06/13 15,356 16,015 13,038 17,478 12/13 18,590 19,445 15,164 21,741 06/14 20,073 21,061 16,247 23,452 12/14 22,147 23,302 17,241 25,961 06/15 22,672 23,924 17,453 27,108 12/15 22,640 23,974 17,479 28,493 06/16 21,988 23,343 18,150 27,590 12/16 24,231 25,809 19,572 30,558
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 157 0 0 0 01/01/13 - 12/31/13 203 0 0 0 01/01/14 - 12/31/14 161 3 0 0 01/01/15 - 12/31/15 126 1 0 0 01/01/16 - 12/31/16 107 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% 01/01/12 - 12/31/12 92 1 0 0 01/01/13 - 12/31/13 49 0 0 0 01/01/14 - 12/31/14 87 1 0 0 01/01/15 - 12/31/15 122 3 0 0 01/01/16 - 12/31/16 145 0 0 0 Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) The First Trust NASDAQ-100-Technology Sector 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-100 Technology Sector IndexSM (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 based on market capitalization. The NASDAQ-100 Index(R) is rebalanced four times annually in March, June, September and December. The Fund's shares are listed for trading on the Nasdaq. The first day of secondary market trading in shares of the Fund was April 25, 2006.
------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (4/19/06) Ended Ended (4/19/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 25.27% 18.14% 10.86% 10.10% 130.10% 180.34% 179.92% Market Value 25.31% 18.16% 10.88% 10.10% 130.37% 180.83% 180.13% INDEX PERFORMANCE NASDAQ-100 Technology Sector Index(SM) 26.18% 18.90% 11.57% 10.80% 137.64% 198.99% 199.60% S&P 500(R) Index 11.96% 14.66% 6.95% 7.41% 98.18% 95.72% 114.81% S&P 500 Information Technology Index 13.85% 16.39% 9.93% 9.55% 113.61% 157.81% 165.43% ------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a NAV return of 25.27% during the 12-month period covered by this report. During the same period, the S&P 500 Information Technology Index ("benchmark") generated a return of 13.85%. The majority of the Fund was comprised of Semiconductors & Semiconductor Equipment securities at 40.8%. This industry returned 42.0%, leading to a contribution to the Fund's return of 15.9%. Within the Semiconductors & Semiconductor Equipment industry, NVIDIA Corp. notably had a 226.9% return over the period, contributing 0.7% to the Fund's return. The Health Care Technology industry was represented in the Fund solely by Cerner Corp., and although it was only given a 2.8% allocation, it contributed -0.6% to the Fund's performance as the industry had a -21.3% return. On a relative basis, the Fund outperformed the benchmark. The majority of the relative outperformance is attributable to the Semiconductors & Semiconductor Equipment industry, where the Fund over allocated the benchmark by 26.5% and outperformed by 9.7%. The performance difference in this industry is due to the benchmark holding First Solar, Inc., which had a -51.3% return. The Fund did not have any allocation to this security. The Health Care Technology industry reversed close to 1.0% of outperformance as the Fund did not hold the prior mentioned Cerner Corp., which returned -21.3% over the period. ----------------------------- Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Technology Sector Index(SM) are trademarks of Nasdaq, 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 FUND (QTEC) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION (1) LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 97.23% Health Care 2.77 ------- Total 100.00% ======= (1) The above sector classification 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. ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Micron Technology, Inc. 3.10% NVIDIA Corp. 3.05 Xilinx, Inc. 2.96 Lam Research Corp. 2.90 Western Digital Corp. 2.90 NetEase, Inc., ADR 2.90 NXP Semiconductors N.V. 2.89 Analog Devices, Inc. 2.89 KLA-Tencor Corp. 2.88 Yahoo!, Inc. 2.87 ------- Total 29.34% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust NASDAQ-100- NASDAQ-100 Technology Sector Technology Sector S&P 500 Information S&P 500(R) Index Fund Index(SM) Technology Index Index 12/06 $10,000 $10,000 $10,000 $10,000 06/07 10,941 10,967 10,932 10,696 12/07 10,766 10,825 11,631 10,550 06/08 9,769 9,852 10,110 9,292 12/08 5,893 5,971 6,613 6,647 06/09 7,901 8,032 8,257 6,857 12/09 10,602 10,817 10,693 8,405 06/10 9,796 10,022 9,563 7,846 12/10 12,926 13,268 11,784 9,672 06/11 13,026 13,410 12,027 10,253 12/11 12,183 12,583 12,069 9,875 06/12 12,739 13,198 13,679 10,812 12/12 13,161 13,677 13,858 11,455 06/13 14,703 15,329 14,738 13,038 12/13 18,177 19,013 17,798 15,164 06/14 20,562 21,576 19,389 16,247 12/14 22,690 23,887 21,378 17,241 06/15 22,130 23,361 21,540 17,453 12/15 22,378 23,697 22,645 17,479 06/16 23,034 24,479 22,573 18,150 12/16 28,034 29,899 25,781 19,571
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 132 0 0 0 01/01/13 - 12/31/13 170 0 0 0 01/01/14 - 12/31/14 171 4 0 0 01/01/15 - 12/31/15 164 2 0 0 01/01/16 - 12/31/16 147 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/12 - 12/31/12 117 1 0 0 01/01/13 - 12/31/13 81 1 0 0 01/01/14 - 12/31/14 76 1 0 0 01/01/15 - 12/31/15 85 1 0 0 01/01/16 - 12/31/16 105 0 0 0 Page 7 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) The First Trust NASDAQ-100 Ex-Technology Sector 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-100 Ex-Tech Sector IndexSM (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 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. 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) 12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV -2.13% 14.98% 7.90% 100.95% 112.18% Market Value -2.04% 14.98% 7.89% 100.95% 112.07% INDEX PERFORMANCE NASDAQ-100 Ex-Tech Sector Index(SM) -1.66% 15.67% 8.57% 107.05% 125.66% Russell 1000(R) Index 12.05% 14.69% 6.86% 98.44% 92.71% ------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a NAV return of -2.13% during the 12-month period covered by this report. During the same period, the Russell 1000(R) Index ("benchmark") generated a return of 12.05%. Over the period, it was the Fund's holdings in the Information Technology sector that contributed the most to the Fund's return. This attribution uses classifications according to GICS and not ICB. GICS classifies certain securities as Information Technology that ICB would not classify as Technology. The Information Technology sector was given a 10.9% allocation over the period, had a 13.8% return, and a 1.6% contribution. The majority of the Fund's holdings were comprised of Consumer Discretionary holdings at a 42.6% weighting. This sector's contribution to the Fund's return was minimized to only 0.8% due to the sector's low return of 1.4%. The Health Care sector was the only sector negatively impacting the Fund's return due to its -22.3% return and 23.2% allocation. These two factors led to the sector having a -5.8% contribution to return. On a relative basis, the Fund underperformed the benchmark. The primary cause of the relative underperformance is due to the Health Care sector where the Fund over allocated and underperformed the benchmark, which created a -6.2% drag on performance. Because the Fund did not have a position in Real Estate Investment Trusts ("REITs"), which the benchmark held at a 3.8% allocation, 0.2% of underperformance was reversed. ----------------------------- Nasdaq(R), Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq-100 Ex-Tech Sector Index(SM) are trademarks of Nasdaq, 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 FUND (QQXT) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Consumer Discretionary 41.34% Health Care 26.11 Information Technology 10.92 Industrials 9.21 Consumer Staples 7.75 Telecommunication Services 4.67 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Tesla Motors, Inc. 1.65% Alexion Pharmaceuticals, Inc. 1.59 Automatic Data Processing, Inc. 1.59 SBA Communications Corp., Class A 1.58 Kraft Heinz (The) Co. 1.58 T-Mobile US, Inc. 1.58 Mylan N.V. 1.58 PayPal Holdings, Inc. 1.57 eBay, Inc. 1.57 Hologic, Inc. 1.56 ------- Total 15.85% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2016 First Trust NASDAQ-100 NASDAQ-100 Ex-Technology Sector Ex-Tech Sector Russell 1000(R) Index Fund Index(SM) Index 02/07 $10,000 $10,000 $10,000 12/07 10,595 10,653 10,282 06/08 9,057 9,126 9,131 12/08 6,029 6,102 6,417 06/09 7,060 7,165 6,694 12/09 8,848 9,009 8,241 06/10 8,454 8,633 7,714 12/10 10,674 10,935 9,568 06/11 11,961 12,294 10,177 12/11 10,558 10,894 9,711 06/12 11,906 12,317 10,622 12/12 12,703 13,172 11,306 06/13 15,089 15,721 12,879 12/13 17,942 18,744 15,050 06/14 18,764 19,668 16,144 12/14 20,697 21,749 17,043 06/15 21,821 23,016 17,334 12/15 21,679 22,947 17,199 06/16 20,367 21,602 17,842 12/16 21,216 22,565 19,271
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 127 1 0 0 01/01/13 - 12/31/13 145 13 0 0 01/01/14 - 12/31/14 151 14 0 0 01/01/15 - 12/31/15 201 6 0 0 01/01/16 - 12/31/16 80 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% 01/01/12 - 12/31/12 111 11 0 0 01/01/13 - 12/31/13 82 12 0 0 01/01/14 - 12/31/14 79 7 1 0 01/01/15 - 12/31/15 42 3 0 0 01/01/16 - 12/31/16 172 0 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(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 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. 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) 12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV -2.12% 10.89% -2.12% 67.68% -19.10% Market Value -2.06% 10.98% -2.11% 68.33% -19.03% INDEX PERFORMANCE NASDAQ(R) Clean Edge(R) Green Energy Index(SM) -2.65% 10.53% -1.94% 64.96% -17.65% Russell 2000(R) Index 21.31% 14.46% 6.75% 94.45% 90.80% ------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a NAV return of -2.12% during the 12-month period covered by this report. During the same period, the Russell 2000(R) Index generated a return of 21.31%. The Utilities and the Information Technology sectors each contributed about 1.36% to the Fund's return. The Utilities sector's contribution stems from its 13.1% return and 15.8% allocation, while the Information Technologies sector's contribution stems from its high 55.4% allocation and 1.1% return. The Industrials sector contributed -4.6% to the Fund's return. SolarCity Corp, held within this sector, was the primary cause of the negative contribution as the security had a -65.7% return over the period and was held at an average 2.8% allocation. On a relative basis, the Fund underperformed the benchmark. The Information Technology and Industrials sectors contributed -10.7% and -9.6%, respectively, to the underperformance. Within the Information Technology sector, the underperformance was created by the Fund having a 42.9% greater allocation and -48.4% lower return among Semiconductors & Semiconductor Equipment industry. First Solar, Inc., within this industry, had a -51.4% return and was held at a 6.3% weighting compared to a 0% weighting in the benchmark, which led to -5.3% of relative drag on performance. Another -5.6% of relative drag was created by SolarCity Corp, mentioned above, as the benchmark had a 0% allocation to this name. The Fund did not have any exposure to the Health Care sector, which led to 3.9% of relative outperformance as the benchmark had a -7.3% return among Health Care sector securities. ----------------------------- Nasdaq(R) and Clean Edge(R) are the registered trademarks (the "Marks") of Nasdaq, Inc. ("Nasdaq") and Clean Edge, Inc. ("Clean Edge(R)") respectively. Nasdaq 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) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 52.72% Utilities 16.99 Industrials 16.86 Consumer Discretionary 8.84 Energy 3.16 Financials 1.43 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Tesla Motors, Inc. 8.84% ON Semiconductor Corp. 8.49 Hexcel Corp. 7.73 Microsemi Corp. 7.73 Acuity Brands, Inc. 7.20 Ormat Technologies, Inc. 4.39 First Solar, Inc. 4.15 Cree, Inc. 4.08 Universal Display Corp. 4.04 AVX Corp. 4.03 ------- Total 60.68% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT FEBRUARY 8, 2007 - DECEMBER 31, 2016 First Trust NASDAQ(R) NASDAQ(R) Clean Edge(R) Green Clean Edge(R) Russell 2000(R) Energy Index Fund Green Energy Index Index 02/07 $10,000 $10,000 $10,000 12/07 15,430 15,522 9,489 06/08 12,350 12,472 8,599 12/08 5,595 5,675 6,283 06/09 6,920 7,038 6,449 12/09 8,045 8,213 7,990 06/10 6,665 6,824 7,834 12/10 8,210 8,434 10,136 06/11 7,640 7,879 10,765 12/11 4,825 4,992 9,713 06/12 4,670 4,822 10,542 12/12 4,801 4,927 11,301 06/13 7,177 7,346 13,093 12/13 9,111 9,329 15,688 06/14 10,479 10,732 16,188 12/14 8,834 9,037 16,455 06/15 9,481 9,700 17,237 12/15 8,266 8,460 15,729 06/16 7,456 7,611 16,078 12/16 8,091 8,235 19,081
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 37 6 1 0 01/01/13 - 12/31/13 168 5 0 0 01/01/14 - 12/31/14 122 3 0 0 01/01/15 - 12/31/15 160 1 0 0 01/01/16 - 12/31/16 68 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% 01/01/12 - 12/31/12 153 52 1 0 01/01/13 - 12/31/13 75 4 0 0 01/01/14 - 12/31/14 124 3 0 0 01/01/15 - 12/31/15 89 2 0 0 01/01/16 - 12/31/16 184 0 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 is a subset of the S&P Developed REIT Index, which measures the performance of more than 200 REITs or REIT-like structures in 15 developed markets. The S&P Developed REIT Index is a sub-index of the S&P Global REIT Index. The S&P Developed REIT Index aims to represent an accurate measure of the REIT developed equity market, reflecting the risk and return characteristics of this broad universe on an on-going basis. The Index contains those constituents of the S&P Developed REIT Index that are domiciled in the United States. As of December 31, 2016, the Index is comprised of 155 companies. The Index includes the securities of small and mid cap companies. 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) 12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 7.92% 11.26% 4.20% 70.48% 48.79% Market Value 7.86% 11.27% 4.21% 70.55% 48.86% INDEX PERFORMANCE S&P United States REIT Index* 8.49% 11.85% N/A 75.08% N/A FTSE EPRA/NAREIT North America Index 8.18% 11.05% 4.39% 68.86% 51.40% Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72% ------------------------------------------------------------------------------------------------------------------------------
* 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 22.) PERFORMANCE REVIEW The Fund generated a NAV return of 7.92% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.74%. Retail Real Estate Investment Trusts ("REITs") were given the highest weighting at 26.1%, but their contribution to the Fund's return was limited to 0.6% due to the groupings lower 0.95% return. Industrial REITs had the best return of 29.9% and contributed 1.3% with its 5.2% weighting. Self Storage REITs were the worst performing industry over the period with a -8.5% return and -0.4% contribution. On a relative basis, the Fund underperformed the benchmark. The Retail REITs contributed to -2.7% of the relative underperformance by allocating 25.2% more weighting to the relatively low returning REIT industry (0.95%). The Lodging & Resort REITs reversed 0.66% of underperformance by having a 5.3% greater allocation and the third best performing REIT industry (24.5%). ----------------------------- 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) ----------------------------------------------------------- % OF TOTAL REIT CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Retail 23.12% Residential 16.56 Office 13.69 Specialized 13.51 Health Care 12.57 Diversified 7.55 Industrial 6.80 Hotel & Resort 6.20 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Simon Property Group, Inc. 7.15% Public Storage 4.27 Prologis, Inc. 3.57 AvalonBay Communities, Inc. 3.12 Welltower, Inc. 3.11 Equity Residential 3.01 Ventas, Inc. 2.84 Boston Properties, Inc. 2.48 Vornado Realty Trust 2.30 Digital Realty Trust, Inc. 2.00 ------- Total 33.85% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2016 First Trust FTSE EPRA/NAREIT Russell 3000(R) S&P REIT Index Fund North America Index Index 05/07 $10,000 $10,000 $10,000 12/07 8,093 8,206 9,811 06/08 7,739 7,843 8,728 12/08 4,947 4,872 6,151 06/09 4,319 4,381 6,405 12/09 6,333 6,442 7,889 06/10 6,679 6,772 7,412 12/10 8,090 8,287 9,225 06/11 8,899 9,163 9,811 12/11 8,729 8,965 9,319 06/12 10,007 10,276 10,188 12/12 10,247 10,593 10,849 06/13 10,871 11,091 12,374 12/13 10,434 10,728 14,489 06/14 12,245 12,560 15,495 12/14 13,523 13,748 16,308 06/15 12,667 12,915 16,624 12/15 13,789 13,997 16,386 06/16 15,576 15,833 16,979 12/16 14,881 15,141 18,471
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 159 0 0 0 01/01/13 - 12/31/13 130 0 0 0 01/01/14 - 12/31/14 193 0 0 0 01/01/15 - 12/31/15 130 0 0 0 01/01/16 - 12/31/16 156 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/12 - 12/31/12 91 0 0 0 01/01/13 - 12/31/13 122 0 0 0 01/01/14 - 12/31/14 59 0 0 0 01/01/15 - 12/31/15 122 0 0 0 01/01/16 - 12/31/16 96 0 0 0 Page 13 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST WATER ETF (FIW) The First Trust Water ETF (the "Fund"), formerly First Trust ISE Water Index 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(TM) 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 market capitalization weighted index comprised of 34 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) 12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 32.21% 14.72% 8.17% 98.69% 113.37% Market Value 32.36% 14.78% 8.18% 99.26% 113.46% INDEX PERFORMANCE ISE Water(TM) Index 33.03% 15.49% 8.89% 105.42% 127.52% Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72% ------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a NAV return of 32.21% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.74%. The Fund had an average 55.9% allocation to the Industrials sector over the period. This sector had a 30.2% return, which led to a 17.1% contribution to the Fund's return. Within this sector, it was primarily the Machinery industry which had such a significant contribution as the Fund held an average 37.9% allocation in the industry. The Materials sector was the only sector that had a negative contribution over the period. The sector's contribution of -0.06% is due to two holdings which each had a slightly negative return and had a combined 1.96% weighting. On a relative basis, the Fund outperformed the benchmark. The outperformance is almost entirely due to the Fund's holdings within the Industrials sector where the Fund had a 45.4% greater allocation and 10.0% higher return. These two factors created 9.3% of relative outperformance. The Fund's holdings in the Materials sector, where the Fund had a -18.2% lower return, created -1.0% of relative drag on performance. ----------------------------- "International Securities Exchange(TM)", "ISE(TM)" and "ISE Water(TM) Index" 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(TM) Index, is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 14 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST WATER ETF (FIW) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Industrials 52.37% Utilities 19.23 Health Care 12.31 Materials 9.82 Information Technology 5.02 Financials 1.25 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Danaher Corp. 4.13% IDEXX Laboratories, Inc. 4.11 American Water Works Co., Inc. 4.10 Roper Technologies, Inc. 4.08 Agilent Technologies, Inc. 4.07 Ecolab, Inc. 4.03 Xylem, Inc. 3.98 IDEX Corp. 3.98 Ashland Global Holdings, Inc. 3.87 Pentair PLC 3.85 ------- Total 40.20% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2016 First Trust Water ETF ISE Water(TM) Index Russell 3000(R) Index 05/07 $10,000 $10,000 $10,000 12/07 11,212 11,260 9,811 06/08 10,992 11,056 8,728 12/08 7,915 7,987 6,151 06/09 8,168 8,276 6,405 12/09 9,522 9,681 7,889 06/10 8,989 9,168 7,412 12/10 11,378 11,653 9,225 06/11 11,910 12,243 9,811 12/11 10,738 11,076 9,319 06/12 11,803 12,225 10,188 12/12 13,619 14,153 10,849 06/13 14,585 15,220 12,374 12/13 17,830 18,667 14,489 06/14 18,338 19,251 15,495 12/14 17,894 18,847 16,308 06/15 16,709 17,652 16,624 12/15 16,138 17,103 16,386 06/16 18,944 20,147 16,979 12/16 21,335 22,750 18,471
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 121 1 0 0 01/01/13 - 12/31/13 197 0 0 0 01/01/14 - 12/31/14 195 0 0 0 01/01/15 - 12/31/15 133 0 0 0 01/01/16 - 12/31/16 152 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/12 - 12/31/12 127 1 0 0 01/01/13 - 12/31/13 55 0 0 0 01/01/14 - 12/31/14 56 1 0 0 01/01/15 - 12/31/15 119 0 0 0 01/01/16 - 12/31/16 100 0 0 0 Page 15 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NATURAL GAS ETF (FCG) The First Trust Natural Gas ETF (the "Fund"), formerly First Trust ISE-Revere Natural Gas Index 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(TM) 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 take advantage of both event-driven news and long term trends in the natural gas industry. Equity securities are selected for inclusion in the Index using a quantitative ranking and screening system that begins with the universe of equity securities of issuers that are involved in the exploration and production of natural gas and that satisfy market capitalization, liquidity and weighting concentration requirements. After application of the screens, the remaining equity securities are divided into two groups, one for equity securities issued by master limited partnerships ("MLPs") and one for equity securities issued by entities that are not master limited partnerships ("non-MLPs"). The Index is allocated 85% to equity securities issued by non-MLPs, and the remaining 15% consists of equity securities issued by MLPs. The Index uses a linear-based capitalization-weighted methodology for each of the MLP and non-MLP group of constituents that initially ranks the equity securities based on market capitalization and average daily trading volume, and then adjusts the combined rankings of each equity security by a factor relating to its market capitalization. The resulting linear weight distribution prevents a few large component stocks from dominating the Index while allowing smaller companies to adequately influence Index performance. 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) 12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 19.48% -21.05% -12.18% -69.33% -71.46% Market Value 19.26% -21.04% -12.18% -69.30% -71.44% INDEX PERFORMANCE ISE-Revere Natural Gas(TM) Index 19.78% -21.07% -11.89% -69.36% -70.52% S&P Composite 1500(R) Energy Index 27.31% 3.35% 3.18% 17.91% 35.22% Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72% ------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a NAV return of 19.48% during the 12-month period covered by this report. During the same period, the S&P Composite 1500(R) Energy Index ("benchmark") generated a return of 27.31%. Crude Oil Futures rose roughly 31.0% and Natural Gas Futures rose roughly 68.5% during the period covered by this report. During 2016, Crude Oil and Natural Gas had rebounded after two years of declining prices. Within the Fund, WPX Energy, Inc. had a notable return of 153.8% and had a 1.8% contribution to return, as this security was held at an average allocation of 2.2%. Devon Energy Corp. was given the largest allocation in the Fund over the period at 5.6% and had a 44.7% return. Ultra Petroleum Co. was the worst performing security in the Fund over the period with a -77.5% return. On a relative basis, the Fund underperformed the benchmark. Ultra Petroleum Co. (mentioned above), which had a -77.5% return over the period, caused -3.7% of relative underperformance, as this company filed for bankruptcy in April of 2016. The benchmark did not have a position in Ultra Petroleum Co. Likewise, Stone Energy Co. was not a position in the benchmark over the period, but had a -66.7% return as this company also filed for bankruptcy in December of 2016. The Fund's position in Encana Corp., which returned 71.8%, reversed 2.2% of underperformance as the benchmark did not have any exposure to the security. ----------------------------- "International Securities Exchange(TM)", "ISE(TM)" and "ISE-Revere Natural Gas(TM) Index" 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(TM) Index, is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 16 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST NATURAL GAS ETF (FCG) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SUB-INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Oil & Gas Exploration & Production 76.96% Oil & Gas Storage & Transportation 16.06 Integrated Oil & Gas 3.92 Gas Utilities 2.09 Oil & Gas Drilling 0.67 Oil & Gas Refining & Marketing 0.30 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Anadarko Petroleum Corp. 6.25% Devon Energy Corp. 5.78 Concho Resources, Inc. 5.45 Noble Energy, Inc. 5.43 Cimarex Energy Co. 5.16 Cabot Oil & Gas Corp. 4.56 EQT Corp. 4.50 Encana Corp. 4.47 Range Resources Corp. 3.93 Statoil ASA, ADR 3.92 ------- Total 49.45% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2016 First Trust ISE-Revere Natural Russell 3000(R) S&P Composite 1500(R) Natural Gas ETF Gas(TM) Index Index Energy Index 05/07 $10,000 $10,000 $10,000 $10,000 12/07 11,166 11,213 9,804 12,170 06/08 15,755 15,942 8,721 13,578 12/08 5,967 6,016 6,147 7,810 06/09 6,454 6,518 6,405 7,740 12/09 8,903 9,017 7,889 9,092 06/10 7,752 7,891 7,412 8,016 12/10 9,992 10,254 9,225 11,036 06/11 11,012 11,342 9,811 12,304 12/11 9,308 9,620 9,319 11,469 06/12 8,426 8,735 10,188 11,132 12/12 8,051 8,375 10,849 11,967 06/13 8,290 8,639 12,374 13,130 12/13 10,075 10,530 14,489 15,006 06/14 12,210 12,790 15,495 16,951 12/14 5,842 6,105 16,308 13,630 06/15 4,980 5,159 16,624 12,991 12/15 2,389 2,461 16,386 10,621 06/16 2,650 2,723 16,979 12,275 12/16 2,855 2,948 18,471 13,521
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 151 0 0 0 01/01/13 - 12/31/13 149 0 0 0 01/01/14 - 12/31/14 140 1 0 0 01/01/15 - 12/31/15 155 1 0 0 01/01/16 - 12/31/16 156 6 1 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/12 - 12/31/12 99 0 0 0 01/01/13 - 12/31/13 103 0 0 0 01/01/14 - 12/31/14 111 0 0 0 01/01/15 - 12/31/15 93 3 0 0 01/01/16 - 12/31/16 88 1 0 0 Page 17 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CHINDIA ETF (FNI) The First Trust Chindia ETF (the "Fund"), formerly First Trust ISE Chindia Index 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(TM) 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 non-market capitalization weighted portfolio of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks of companies from China and India currently trading on a U.S. exchange. The Index is rebalanced on a semi-annual basis. The Fund's shares are listed for trading on the NYSE Arca. The first day of secondary market trading in shares of the Fund was May 11, 2007.
------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL CUMULATIVE TOTAL RETURNS TOTAL RETURNS 1 Year 5 Years Inception 5 Years Inception Ended Ended (5/8/07) Ended (5/8/07) 12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV -2.15% 9.69% 4.35% 58.80% 50.80% Market Value -2.22% 9.71% 4.34% 58.97% 50.64% INDEX PERFORMANCE ISE ChIndia(TM) Index -1.53% 10.19% 4.90% 62.45% 58.70% Russell 3000(R) Index 12.74% 14.67% 6.57% 98.23% 84.72% MSCI Emerging Markets Index 11.19% 1.28% 0.94% 6.55% 9.46% ------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a NAV return of -2.15% during the 12-month period covered by this report. During the same period, the MSCI Emerging Markets Index ("benchmark") generated a return of 11.19%. Indian domiciled securities were the top performing, top contributing, and highest-weighted country over the period with a 8.3% return, 2.9% contribution, and 38.7% weighting. The Materials sector amongst Indian securities, represented solely by Vedanta Ltd. Sponsored ADR, had a particularly good return of 124.9% and contribution of 2.1%. Chinese securities were the worst performing securities over the period with a -11.1% return. Throughout the period covered in the report, Chinese securities were given an average 60.4% allocation, which led to the country's -4.7% contribution to the Fund's return. On a relative basis, the Fund underperformed the benchmark. The primary cause of the underperformance is due to the Fund's holdings in Chinese securities. The Fund over allocated to this country relative to the benchmark by 33.1% and it underperformed by -11.6%, leading to -8.4% of underperformance. Further underperformance was due to the benchmark having allocations to well-performing countries such as Brazil (67.3%), Russia (55.7%), and Taiwan (19.6%). Similarly, some underperformance was reversed due to the benchmark having allocations to poor performing countries such as Turkey (-10.5%), Mexico (-9%), and Philippines (-6.1%). ----------------------------- "International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia(TM) Index" 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(TM) Index, is not sponsored, endorsed, sold or promoted by the International Securities Exchange, LLC and the International Securities Exchange, LLC makes no representation regarding the advisability of trading in such product. Page 18 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CHINDIA ETF (FNI) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 44.64% Consumer Discretionary 23.10 Financials 15.23 Health Care 5.54 Telecommunication Services 5.40 Energy 2.14 Materials 1.84 Industrials 1.38 Utilities 0.73 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Infosys Ltd., ADR 7.38% Baidu, Inc., ADR 7.06 HDFC Bank Ltd., ADR 7.01 JD.com, Inc., ADR 6.95 Alibaba Group Holding Ltd., ADR 6.91 ICICI Bank Ltd., ADR 6.89 Wipro Ltd., ADR 4.34 Tata Motors Ltd., ADR 4.24 Dr. Reddy's Laboratories Ltd., ADR 4.07 China Mobile Ltd., ADR 4.05 ------- Total 58.90% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT MAY 8, 2007 - DECEMBER 31, 2016 First Trust ISE ChIndia(TM) Russell 3000(R) MSCI Emerging Chindia ETF Index Index Markets Index 05/07 $10,000 $10,000 $10,000 $10,000 12/07 13,873 13,952 9,804 12,715 06/08 9,985 10,059 8,721 11,220 12/08 5,968 6,031 6,147 5,934 06/09 8,329 8,451 6,405 8,071 12/09 10,836 11,031 7,889 10,593 06/10 10,540 10,767 7,412 9,939 12/10 12,836 13,175 9,225 12,592 06/11 13,047 13,466 9,811 12,703 12/11 9,497 9,771 9,319 10,273 06/12 10,069 10,375 10,188 10,677 12/12 11,121 11,483 10,849 12,145 06/13 11,258 11,659 12,374 10,983 12/13 15,103 15,665 14,489 11,829 06/14 16,047 16,680 15,495 12,555 12/14 15,461 16,096 16,308 11,571 06/15 16,560 17,273 16,624 11,912 12/15 15,411 16,121 16,386 9,844 06/16 14,850 15,576 16,979 10,475 12/16 15,080 15,875 18,471 10,945
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 63 1 0 0 01/01/13 - 12/31/13 66 0 0 0 01/01/14 - 12/31/14 96 0 0 0 01/01/15 - 12/31/15 147 0 0 0 01/01/16 - 12/31/16 132 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% 01/01/12 - 12/31/12 175 11 0 0 01/01/13 - 12/31/13 185 1 0 0 01/01/14 - 12/31/14 155 1 0 0 01/01/15 - 12/31/15 105 0 0 0 01/01/16 - 12/31/16 120 0 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. The Index is jointly owned and was developed by Nasdaq 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 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 Federal Deposit Insurance Company. 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. 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 5 Years Inception 5 Years Inception Ended Ended (6/29/09) Ended (6/29/09) 12/31/16 12/31/16 to 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 37.57% 19.85% 15.46% 147.29% 194.19% Market Value 37.71% 20.05% 15.48% 149.31% 194.66% INDEX PERFORMANCE NASDAQ OMX(R) ABA Community Bank Index(SM) 38.47% 20.61% 16.20% 155.20% 208.70% S&P Composite 1500(R) Financials Index 24.28% 19.30% 14.80% 141.65% 181.81% Russell 3000(R) Index 12.74% 14.67% 15.04% 98.23% 186.25% ------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.) PERFORMANCE REVIEW The Fund generated a NAV return of 37.57% during the 12-month period covered by this report. During the same period, the S&P Composite 1500(R) Financials Index ("benchmark") generated a return of 24.28%. The Financials sector was the third highest returning sector amongst S&P 500(R) stocks over the period covered in this report, behind the Energy and Telecommunication Services sectors. Regional Banks from California were the top contributing banks over the period, with a 3.2% contribution and 32.5% return. Regional Banks from Ohio were the top performing holdings with a 71.4% return. Regional Banks from Vermont (represented solely by Merchants Bancshares, Inc.) were the worst performing holdings with a 1.6% return. The top returning banks were Independent Bank Group, Inc. (96.8%), Stock Yards Bancorp, Inc. (90.6%), and Carolina Financial Corp. (80.0%). The lowest returning banks were First NBC Bank Holding Co. (-81.6%), Opus Bank (-17.4%), and Heritage Commerce Corp. (-9.3%). On a relative basis, the Fund outperformed the benchmark, primarily due to the Fund's concentration in regional banks, which caused the Fund to outperform the benchmark by 13.6% within the Banking industry. The Fund lost -2.3% of relative outperformance due to lack of Real Estate Investment Trust (REIT) exposure, while the benchmark held REITs at an average 16.6% and a return of 10.8%. ----------------------------- Nasdaq(R), OMX(R), Nasdaq OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM) are trademarks of Nasdaq, Inc. ("Nasdaq") and American Bankers Association ("ABA") (Nasdaq 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) ----------------------------------------------------------- % OF TOTAL INDUSTRY CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Banks 87.40% Thrifts & Mortgage Finance 12.26 IT Services 0.34 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- East West Bancorp, Inc. 3.06% PacWest Bancorp 2.74 Bank of the Ozarks, Inc. 2.66 Commerce Bancshares, Inc. 2.45 BOK Financial Corp. 2.29 TFS Financial Corp. 2.25 Popular, Inc. 1.90 Investors Bancorp, Inc. 1.80 Umpqua Holdings Corp. 1.73 MB Financial, Inc. 1.65 ------- Total 22.53% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT JUNE 29, 2009 - DECEMBER 31, 2016 First Trust N ASDAQ(R) ABA NASDAQ OMX(R) Community Bank ABA Community S&P Composite 1500(R) Russell 3000(R) Index Fund Bank Index(SM) Financials Index Index 06/09 $10,000 $10,000 $10,000 $10,000 12/09 11,280 11,318 12,112 12,224 06/10 11,438 11,505 11,744 11,484 12/10 12,721 12,846 13,722 14,293 06/11 12,520 12,688 13,420 15,201 12/11 11,898 12,095 11,662 14,439 06/12 13,081 13,343 13,227 15,785 12/12 13,507 13,817 14,806 16,809 06/13 16,006 16,427 17,584 19,172 12/13 19,302 19,873 19,879 22,448 06/14 19,296 19,929 20,907 24,006 12/14 19,827 20,537 22,839 25,266 06/15 21,637 22,484 22,892 25,761 12/15 21,390 22,288 22,677 25,388 06/16 21,026 21,976 22,310 26,307 12/16 29,426 30,865 28,184 28,619
Performance figures assume reinvestment of all 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 100 17 1 0 01/01/13 - 12/31/13 139 24 0 0 01/01/14 - 12/31/14 115 9 0 0 01/01/15 - 12/31/15 137 5 0 0 01/01/16 - 12/31/16 133 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% 01/01/12 - 12/31/12 114 18 0 0 01/01/13 - 12/31/13 72 17 0 0 01/01/14 - 12/31/14 116 12 0 0 01/01/15 - 12/31/15 110 0 0 0 01/01/16 - 12/31/16 119 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 Price") 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 each 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 each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do 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 performance. Page 22 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2016 (UNAUDITED) As a shareholder of First Trust NASDAQ-100 Equal Weighted Index Fund, First Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust Water ETF, First Trust Natural Gas ETF, First Trust Chindia ETF or First Trust NASDAQ(R) ABA Community Bank Index Fund (each a "Fund" and collectively, the "Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, distribution and/or service fees, 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, 2016. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------ FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) Actual $1,000.00 $1,101.90 0.60% $3.17 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) Actual $1,000.00 $1,217.00 0.60% $3.34 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) Actual $1,000.00 $1,041.70 0.60% $3.08 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) Actual $1,000.00 $1,085.10 0.60% $3.14 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST S&P REIT INDEX FUND (FRI) Actual $1,000.00 $ 955.40 0.49% $2.41 Hypothetical (5% return before expenses) $1,000.00 $1,022.67 0.49% $2.49 FIRST TRUST WATER ETF (FIW) Actual $1,000.00 $1,126.20 0.57% $3.05 Hypothetical (5% return before expenses) $1,000.00 $1,022.27 0.57% $2.90
Page 23 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES (CONTINUED) DECEMBER 31, 2016 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------ ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b) ------------------------------------------------------------------------------------------------------------------------ FIRST TRUST NATURAL GAS ETF (FCG) Actual $1,000.00 $1,077.30 0.60% $3.13 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST CHINDIA ETF (FNI) Actual $1,000.00 $1,015.50 0.60% $3.04 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) Actual $1,000.00 $1,399.50 0.60% $3.62 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
(a) These expense ratios reflect an expense cap for certain Funds. See Note 3 in Notes to Financial Statements. (b) Expenses are equal to the annualized expense ratio as indicated in the table multiplied by the average account value over the period (July 1, 2016 through December 31, 2016), multiplied by 184/366 (to reflect the one-half year period). Page 24 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% AIRLINES -- 1.0% 85,713 American Airlines Group, Inc. $ 4,001,940 -------------- AUTOMOBILES -- 1.1% 20,167 Tesla Motors, Inc. (a) (b) 4,309,486 -------------- BEVERAGES -- 1.0% 91,752 Monster Beverage Corp. (b) 4,068,284 -------------- BIOTECHNOLOGY -- 9.9% 34,016 Alexion Pharmaceuticals, Inc. (b) 4,161,858 27,336 Amgen, Inc. 3,996,796 14,255 Biogen, Inc. (b) 4,042,433 47,833 BioMarin Pharmaceutical, Inc. (b) 3,962,486 35,010 Celgene Corp. (b) 4,052,407 55,098 Gilead Sciences, Inc. 3,945,568 39,627 Incyte Corp. (b) 3,973,399 10,776 Regeneron Pharmaceuticals, Inc. (b) 3,955,762 23,729 Shire PLC, ADR 4,042,947 53,163 Vertex Pharmaceuticals, Inc. (b) 3,916,518 -------------- 40,050,174 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.0% 34,112 Cintas Corp. 3,941,983 -------------- COMMUNICATIONS EQUIPMENT -- 1.0% 133,484 Cisco Systems, Inc. 4,033,887 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.0% 40,114 SBA Communications Corp., Class A (b) 4,142,172 -------------- FOOD & STAPLES RETAILING -- 2.0% 25,454 Costco Wholesale Corp. 4,075,440 47,431 Walgreens Boots Alliance, Inc. 3,925,389 -------------- 8,000,829 -------------- FOOD PRODUCTS -- 2.0% 47,229 Kraft Heinz (The) Co. 4,124,036 92,019 Mondelez International, Inc., Class A 4,079,202 -------------- 8,203,238 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 3.0% 67,959 DENTSPLY SIRONA, Inc. 3,923,273 101,841 Hologic, Inc. (b) 4,085,861 6,367 Intuitive Surgical, Inc. (b) 4,037,760 -------------- 12,046,894 -------------- HEALTH CARE PROVIDERS & SERVICES -- 2.0% 58,398 Express Scripts Holding Co. (b) 4,017,199 26,554 Henry Schein, Inc. (b) 4,028,507 -------------- 8,045,706 -------------- HEALTH CARE TECHNOLOGY -- 1.0% 83,465 Cerner Corp. (b) 3,953,737 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE -- 2.9% 47,457 Marriott International, Inc., Class A $ 3,923,745 92,514 Norwegian Cruise Line Holdings Ltd. (b) 3,934,620 70,812 Starbucks Corp. 3,931,482 -------------- 11,789,847 -------------- INTERNET & DIRECT MARKETING RETAIL -- 7.9% 5,388 Amazon.com, Inc. (b) 4,040,300 99,584 Ctrip.com International Ltd., ADR (b) 3,983,360 34,998 Expedia, Inc. 3,964,574 159,407 JD.com, Inc., ADR (b) 4,055,314 101,263 Liberty Interactive Corp. QVC Group, Class A (b) 2,023,235 52,738 Liberty Ventures, Series A (b) 1,944,450 32,868 Netflix, Inc. (b) 4,069,058 2,751 Priceline Group (The), Inc. (b) 4,033,131 86,190 TripAdvisor, Inc. (b) 3,996,630 -------------- 32,110,052 -------------- INTERNET SOFTWARE & SERVICES -- 7.0% 60,772 Akamai Technologies, Inc. (b) 4,052,277 2,520 Alphabet, Inc., Class A (b) 1,996,974 2,582 Alphabet, Inc., Class C (b) 1,992,839 24,756 Baidu, Inc., ADR (b) 4,070,134 137,889 eBay, Inc. (b) 4,093,924 34,062 Facebook, Inc., Class A (b) 3,918,833 19,163 NetEase, Inc., ADR 4,126,561 105,746 Yahoo!, Inc. (b) 4,089,198 -------------- 28,340,740 -------------- IT SERVICES -- 5.1% 40,488 Automatic Data Processing, Inc. 4,161,357 72,576 Cognizant Technology Solutions Corp., Class A (b) 4,066,433 38,147 Fiserv, Inc. (b) 4,054,263 66,674 Paychex, Inc. 4,059,113 103,837 PayPal Holdings, Inc. (b) 4,098,447 -------------- 20,439,613 -------------- LEISURE PRODUCTS -- 1.9% 50,480 Hasbro, Inc. 3,926,839 141,714 Mattel, Inc. 3,904,221 -------------- 7,831,060 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.0% 31,168 Illumina, Inc. (b) 3,990,751 -------------- MACHINERY -- 1.0% 62,716 PACCAR, Inc. 4,007,552 -------------- MEDIA -- 8.0% 14,155 Charter Communications, Inc., Class A (b) 4,075,508 58,446 Comcast Corp., Class A 4,035,696 71,895 Discovery Communications, Inc., Class A (b) 1,970,642 See Notes to Financial Statements Page 25 FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) MEDIA (CONTINUED) 74,170 Discovery Communications, Inc., Class C (b) $ 1,986,273 69,911 DISH Network Corp., Class A (b) 4,049,944 33,873 Liberty Global PLC, Class A (b) 1,036,175 34,884 Liberty Global PLC, Series C (b) 1,036,055 45,741 Liberty Global PLC LiLAC, Class A (b) 1,004,473 47,507 Liberty Global PLC LiLAC, Class C (b) 1,005,723 903,365 Sirius XM Holdings, Inc. (a) 4,019,974 72,826 Twenty-First Century Fox, Inc., Class A 2,042,041 73,617 Twenty-First Century Fox, Inc., Class B 2,006,063 115,910 Viacom, Inc., Class B 4,068,441 -------------- 32,337,008 -------------- MULTILINE RETAIL -- 0.9% 48,486 Dollar Tree, Inc. (b) 3,742,149 -------------- PHARMACEUTICALS -- 1.0% 107,952 Mylan N.V. (b) 4,118,369 -------------- PROFESSIONAL SERVICES -- 1.0% 49,927 Verisk Analytics, Inc. (b) 4,052,575 -------------- ROAD & RAIL -- 1.0% 113,291 CSX Corp. 4,070,546 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 15.3% 56,635 Analog Devices, Inc. 4,112,834 125,583 Applied Materials, Inc. 4,052,563 22,884 Broadcom Ltd. 4,045,205 112,450 Intel Corp. 4,078,561 52,211 KLA-Tencor Corp. 4,107,961 39,087 Lam Research Corp. 4,132,669 105,150 Maxim Integrated Products, Inc. 4,055,636 63,268 Microchip Technology, Inc. 4,058,642 201,397 Micron Technology, Inc. (b) 4,414,622 40,669 NVIDIA Corp. 4,341,009 42,009 NXP Semiconductors N.V. (b) 4,117,302 61,430 QUALCOMM, Inc. 4,005,236 53,154 Skyworks Solutions, Inc. 3,968,478 56,014 Texas Instruments, Inc. 4,087,342 69,830 Xilinx, Inc. 4,215,637 -------------- 61,793,697 -------------- SOFTWARE -- 10.0% 111,944 Activision Blizzard, Inc. 4,042,298 39,430 Adobe Systems, Inc. (b) 4,059,318 53,379 Autodesk, Inc. (b) 3,950,580 127,501 CA, Inc. 4,050,707 48,041 Check Point Software Technologies Ltd. (b) 4,057,543 45,020 Citrix Systems, Inc. (b) 4,020,736 51,346 Electronic Arts, Inc. (b) 4,044,011 34,804 Intuit, Inc. 3,988,886 65,537 Microsoft Corp. 4,072,469 SHARES DESCRIPTION VALUE ------------------------------------------------------------- SOFTWARE (CONTINUED) 169,549 Symantec Corp. $ 4,050,526 -------------- 40,337,074 -------------- SPECIALTY RETAIL -- 4.0% 14,619 O'Reilly Automotive, Inc. (b) 4,070,076 58,736 Ross Stores, Inc. 3,853,081 53,486 Tractor Supply Co. 4,054,774 15,576 Ulta Beauty, Inc. (b) 3,970,945 -------------- 15,948,876 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 3.0% 35,208 Apple, Inc. 4,077,791 104,404 Seagate Technology PLC 3,985,101 60,769 Western Digital Corp. 4,129,253 -------------- 12,192,145 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.0% 84,966 Fastenal Co. 3,991,703 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 2.0% 71,618 T-Mobile US, Inc. (b) 4,118,751 161,780 Vodafone Group PLC, ADR 3,952,285 -------------- 8,071,036 -------------- TOTAL COMMON STOCKS -- 100.0% 403,963,123 (Cost $382,019,393) MONEY MARKET FUNDS -- 1.7% 7,144,407 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class, - 0.39% (c) (d) 7,144,407 (Cost $7,144,407) -------------- TOTAL INVESTMENTS -- 101.7% 411,107,530 (Cost $389,163,800) (e) NET OTHER ASSETS AND LIABILITIES -- (1.7)% (7,063,221) -------------- NET ASSETS -- 100.0% $ 404,044,309 ============== (a) 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 $6,847,380 and the total value of the collateral held by the Fund is $7,144,407. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $394,934,653. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $46,593,704 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $30,420,827. ADR - American Depositary Receipt Page 26 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $403,963,123 $ -- $ -- Money Market Funds 7,144,407 -- -- ------------------------------------------ Total Investments $411,107,530 $ -- $ -- ========================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 6,847,380 Non-cash Collateral(2) (6,847,380) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. See Notes to Financial Statements Page 27 FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% COMMUNICATIONS EQUIPMENT -- 2.8% 1,469,641 Cisco Systems, Inc. $ 44,412,551 -------------- HEALTH CARE TECHNOLOGY -- 2.8% 918,956 Cerner Corp. (a) 43,530,946 -------------- INTERNET SOFTWARE & SERVICES -- 17.0% 669,091 Akamai Technologies, Inc. (a) 44,614,988 27,757 Alphabet, Inc., Class A (a) 21,996,035 28,424 Alphabet, Inc., Class C (a) 21,938,212 272,567 Baidu, Inc., ADR (a) 44,812,740 375,033 Facebook, Inc., Class A (a) 43,147,547 211,001 NetEase, Inc., ADR 45,436,955 1,164,319 Yahoo!, Inc. (a) 45,024,216 -------------- 266,970,693 -------------- IT SERVICES -- 2.9% 799,066 Cognizant Technology Solutions Corp., Class A (a) 44,771,668 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 43.3% 623,579 Analog Devices, Inc. 45,284,307 1,382,755 Applied Materials, Inc. 44,621,504 251,957 Broadcom Ltd. 44,538,439 1,238,099 Intel Corp. 44,905,851 574,899 KLA-Tencor Corp. 45,233,053 430,378 Lam Research Corp. 45,503,866 1,157,732 Maxim Integrated Products, Inc. 44,653,723 696,622 Microchip Technology, Inc. 44,688,301 2,217,664 Micron Technology, Inc. (a) 48,611,195 447,751 NVIDIA Corp. 47,792,942 462,540 NXP Semiconductors N.V. (a) 45,333,545 676,394 QUALCOMM, Inc. 44,100,889 585,255 Skyworks Solutions, Inc. 43,695,138 616,746 Texas Instruments, Inc. 45,003,956 768,946 Xilinx, Inc. 46,421,270 -------------- 680,387,979 -------------- SOFTWARE -- 22.6% 434,144 Adobe Systems, Inc. (a) 44,695,125 587,755 Autodesk, Inc. (a) 43,499,748 1,403,914 CA, Inc. 44,602,348 528,947 Check Point Software Technologies Ltd. (a) 44,674,864 495,692 Citrix Systems, Inc. (a) 44,270,252 383,215 Intuit, Inc. 43,920,271 721,589 Microsoft Corp. 44,839,540 1,866,852 Symantec Corp. 44,599,094 -------------- 355,101,242 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 8.5% 387,641 Apple, Inc. 44,896,581 1,149,649 Seagate Technology PLC 43,882,102 669,133 Western Digital Corp. 45,467,587 -------------- 134,246,270 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- TOTAL INVESTMENTS -- 99.9% $1,569,421,349 (Cost $1,489,529,150) (b) NET OTHER ASSETS AND LIABILITIES -- 0.1% 1,433,368 -------------- NET ASSETS -- 100.0% $1,570,854,717 ============== (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $1,498,057,351. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $81,012,157 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,648,159. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------- Common Stocks* $1,569,421,349 $ -- $ -- =========================================== * 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, 2016. Page 28 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) -- 100.0% AIRLINES -- 1.5% 33,803 American Airlines Group, Inc. $ 1,578,262 -------------- AUTOMOBILES -- 1.6% 7,951 Tesla Motors, Inc. (b) (c) 1,699,049 -------------- BEVERAGES -- 1.6% 36,181 Monster Beverage Corp. (c) 1,604,265 -------------- BIOTECHNOLOGY -- 15.3% 13,413 Alexion Pharmaceuticals, Inc. (c) 1,641,080 10,779 Amgen, Inc. 1,575,998 5,622 Biogen, Inc. (c) 1,594,287 18,862 BioMarin Pharmaceutical, Inc. (c) 1,562,528 13,806 Celgene Corp. (c) 1,598,044 21,728 Gilead Sciences, Inc. 1,555,942 15,632 Incyte Corp. (c) 1,567,421 4,250 Regeneron Pharmaceuticals, Inc. (c) 1,560,132 9,357 Shire PLC, ADR 1,594,246 20,964 Vertex Pharmaceuticals, Inc. (c) 1,544,418 -------------- 15,794,096 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.5% 13,452 Cintas Corp. 1,554,513 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.6% 15,819 SBA Communications Corp., Class A (c) 1,633,470 -------------- FOOD & STAPLES RETAILING -- 3.1% 10,037 Costco Wholesale Corp. 1,607,024 18,704 Walgreens Boots Alliance, Inc. 1,547,943 -------------- 3,154,967 -------------- FOOD PRODUCTS -- 3.1% 18,622 Kraft Heinz (The) Co. 1,626,073 36,287 Mondelez International, Inc., Class A 1,608,603 -------------- 3,234,676 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 4.6% 26,799 DENTSPLY SIRONA, Inc. 1,547,106 40,161 Hologic, Inc. (c) 1,611,259 2,510 Intuitive Surgical, Inc. (c) 1,591,767 -------------- 4,750,132 -------------- HEALTH CARE PROVIDERS & SERVICES -- 3.1% 23,027 Express Scripts Holding Co. (c) 1,584,027 10,471 Henry Schein, Inc. (c) 1,588,556 -------------- 3,172,583 -------------- HOTELS, RESTAURANTS & LEISURE -- 4.5% 18,710 Marriott International, Inc., Class A 1,546,943 36,485 Norwegian Cruise Line Holdings Ltd. (c) 1,551,707 27,923 Starbucks Corp. 1,550,285 -------------- 4,648,935 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- INTERNET & DIRECT MARKETING RETAIL -- 12.3% 2,124 Amazon.com, Inc. (c) $ 1,592,724 39,269 Ctrip.com International Ltd., ADR (c) 1,570,760 13,801 Expedia, Inc. 1,563,377 62,868 JD.com, Inc., ADR (c) 1,599,362 39,932 Liberty Interactive Corp. QVC Group, Class A (c) 797,841 20,801 Liberty Ventures, Series A (c) 766,933 12,961 Netflix, Inc. (c) 1,604,572 1,085 Priceline Group (The), Inc. (c) 1,590,675 33,989 TripAdvisor, Inc. (c) 1,576,070 -------------- 12,662,314 -------------- INTERNET SOFTWARE & SERVICES -- 1.6% 54,375 eBay, Inc. (c) 1,614,394 -------------- IT SERVICES -- 6.3% 15,965 Automatic Data Processing, Inc. 1,640,883 15,043 Fiserv, Inc. (c) 1,598,770 26,291 Paychex, Inc. 1,600,596 40,947 PayPal Holdings, Inc. (c) 1,616,178 -------------- 6,456,427 -------------- LEISURE PRODUCTS -- 3.0% 19,909 Hasbro, Inc. 1,548,721 55,885 Mattel, Inc. 1,539,632 -------------- 3,088,353 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.5% 12,289 Illumina, Inc. (c) 1,573,483 -------------- MACHINERY -- 1.5% 24,732 PACCAR, Inc. 1,580,375 -------------- MEDIA -- 12.4% 5,582 Charter Communications, Inc., Class A (c) 1,607,169 23,047 Comcast Corp., Class A 1,591,395 28,356 Discovery Communications, Inc., Class A (c) 777,238 29,252 Discovery Communications, Inc., Class C (c) 783,369 27,569 DISH Network Corp., Class A (c) 1,597,072 13,206 Liberty Global PLC, Class A (c) 403,972 13,598 Liberty Global PLC, Series C (c) 403,861 18,246 Liberty Global PLC LiLAC, Class A (c) 400,682 18,950 Liberty Global PLC LiLAC, Class C (c) 401,171 356,205 Sirius XM Holdings, Inc. (b) 1,585,112 28,720 Twenty-First Century Fox, Inc., Class A 805,309 29,031 Twenty-First Century Fox, Inc., Class B 791,095 45,714 Viacom, Inc., Class B 1,604,561 -------------- 12,752,006 -------------- See Notes to Financial Statements Page 29 FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (a) (CONTINUED) MULTILINE RETAIL -- 1.4% 19,122 Dollar Tree, Inc. (c) $ 1,475,836 -------------- PHARMACEUTICALS -- 1.6% 42,571 Mylan N.V. (c) 1,624,084 -------------- PROFESSIONAL SERVICES -- 1.5% 19,688 Verisk Analytics, Inc. (c) 1,598,075 -------------- ROAD & RAIL -- 1.6% 44,674 CSX Corp. 1,605,137 -------------- SOFTWARE -- 3.1% 44,147 Activision Blizzard, Inc. 1,594,148 20,250 Electronic Arts, Inc. (c) 1,594,890 -------------- 3,189,038 -------------- SPECIALTY RETAIL -- 6.1% 5,765 O'Reilly Automotive, Inc. (c) 1,605,034 23,156 Ross Stores, Inc. 1,519,034 21,090 Tractor Supply Co. 1,598,833 6,143 Ulta Beauty, Inc. (c) 1,566,096 -------------- 6,288,997 -------------- TRADING COMPANIES & DISTRIBUTORS -- 1.5% 33,508 Fastenal Co. 1,574,206 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 3.1% 28,241 T-Mobile US, Inc. (c) 1,624,140 63,789 Vodafone Group PLC, ADR 1,558,365 -------------- 3,182,505 -------------- TOTAL COMMON STOCKS -- 100.0% 103,090,178 (Cost $102,459,563) -------------- MONEY MARKET FUNDS -- 2.7% 2,755,604 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (d) (e) 2,755,604 60,959 Morgan Stanley Institutional Liquidity Fund - Treasury Portfolio - Institutional Class - 0.38% (d) 60,959 -------------- TOTAL MONEY MARKET FUNDS -- 2.7% 2,816,563 (Cost $2,816,563) -------------- TOTAL INVESTMENTS -- 102.7% 105,906,741 (Cost $105,276,126) (f) NET OTHER ASSETS AND LIABILITIES -- (2.7)% (2,788,979) -------------- NET ASSETS -- 100.0% $ 103,117,762 ============== (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, which is maintained by FTSE International Limited. (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 $2,639,470 and the total value of the collateral held by the Fund is $2,755,604. (c) Non-income producing security. (d) Interest rate shown reflects yield as of December 31, 2016. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $106,246,410. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $9,609,237 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $9,948,906. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $103,090,178 $ -- $ -- Money Market Funds 2,816,563 -- -- ------------------------------------------ Total Investments $105,906,741 $ -- $ -- ========================================== * 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, 2016. Page 30 See Notes to Financial Statements FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 2,639,470 Non-cash Collateral(2) (2,639,470) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. See Notes to Financial Statements Page 31 FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 7.7% 77,791 Hexcel Corp. $ 4,001,569 -------------- AUTOMOBILES -- 8.8% 21,433 Tesla Motors, Inc. (a) (b) 4,580,018 -------------- ELECTRICAL EQUIPMENT -- 9.1% 16,146 Acuity Brands, Inc. 3,727,466 157,114 Ballard Power Systems, Inc. (a) (b) 259,238 30,179 FuelCell Energy, Inc. (a) (b) 52,813 162,505 Plug Power, Inc. (a) (b) 195,006 93,409 Sunrun, Inc. (a) (b) 496,002 -------------- 4,730,525 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 12.2% 133,621 AVX Corp. 2,088,496 31,615 Itron, Inc. (b) 1,987,003 28,873 Maxwell Technologies, Inc. (a) (b) 147,830 37,140 Universal Display Corp. (b) 2,090,982 -------------- 6,314,311 -------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 17.0% 25,254 8point3 Energy Partners L.P. (a) (c) 327,797 90,170 Atlantica Yield PLC (a) 1,744,789 48,800 NextEra Energy Partners, L.P. (c) 1,246,352 42,436 Ormat Technologies, Inc. 2,275,418 78,700 Pattern Energy Group, Inc. 1,494,513 101,816 TerraForm Global, Inc., Class A 402,173 82,353 TerraForm Power, Inc., Class A (a) (b) 1,054,942 99,081 Vivint Solar, Inc. (a) (b) 252,657 -------------- 8,798,641 -------------- MORTGAGE REAL ESTATE INVESTMENT TRUSTS -- 1.4% 38,970 Hannon Armstrong Sustainable Infrastructure Capital, Inc. 740,040 -------------- OIL, GAS & CONSUMABLE FUELS -- 3.2% 34,523 Green Plains, Inc. 961,466 35,661 Pacific Ethanol, Inc. (b) 338,779 34,688 Renewable Energy Group, Inc. (b) 336,474 -------------- 1,636,719 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 39.0% 35,710 Advanced Energy Industries, Inc. (b) 1,955,123 51,994 Canadian Solar, Inc. (a) (b) 633,287 80,162 Cree, Inc. (b) 2,115,475 66,943 First Solar, Inc. (a) (b) 2,148,201 28,374 IXYS Corp. 337,651 36,248 JA Solar Holdings Co., Ltd., ADR (b) 172,540 20,506 JinkoSolar Holding Co., Ltd., ADR (a) (b) 312,306 SHARES DESCRIPTION VALUE ------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 74,143 Microsemi Corp. (b) $ 4,001,498 344,600 ON Semiconductor Corp. (b) 4,397,096 26,219 Power Integrations, Inc. 1,778,959 36,948 SolarEdge Technologies, Inc. (a) (b) 458,155 124,541 SunPower Corp. (a) (b) 823,216 36,539 Veeco Instruments, Inc. (b) 1,065,112 -------------- 20,198,619 -------------- SOFTWARE -- 1.5% 27,808 EnerNOC, Inc. (b) 166,848 46,692 Silver Spring Networks, Inc. (b) 621,470 -------------- 788,318 -------------- TOTAL COMMON STOCKS -- 99.9% 51,788,760 (Cost $56,746,464) MONEY MARKET FUNDS -- 17.2% 8,918,137 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class, - 0.39% (d) (e) 8,918,137 (Cost $8,918,137) -------------- TOTAL INVESTMENTS -- 117.1% 60,706,897 (Cost $65,664,601) (f) NET OTHER ASSETS AND LIABILITIES -- (17.1)% (8,869,689) -------------- NET ASSETS -- 100.0% $ 51,837,208 ============== (a) 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 $8,628,800 and the total value of the collateral held by the Fund is $8,918,137. (b) Non-income producing security. (c) Security is a Master Limited Partnership ("MLP"). (d) Interest rate shown reflects yield as of December 31, 2016. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $66,345,460. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $8,007,675 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $13,646,238. ADR - American Depositary Receipt Page 32 See Notes to Financial Statements FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $ 51,788,760 $ -- $ -- Money Market Funds 8,918,137 -- -- ------------------------------------------ Total Investments $ 60,706,897 $ -- $ -- ========================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 8,628,800 Non-cash Collateral(2) (8,628,800) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. See Notes to Financial Statements Page 33 FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.6% DIVERSIFIED REITS -- 7.5% 12,112 American Assets Trust, Inc. $ 521,785 10,946 Armada Hoffler Properties, Inc. 159,483 37,137 Empire State Realty Trust, Inc., Class A 749,796 17,583 First Potomac Realty Trust 192,886 65,554 Forest City Realty Trust, Inc., Class A 1,366,145 7,161 Gladstone Commercial Corp. 143,936 51,339 Global Net Lease, Inc. 401,984 127,245 Gramercy Property Trust 1,168,109 36,683 Investors Real Estate Trust 261,550 21,461 iStar, Inc. (a) 265,473 64,344 Lexington Realty Trust 694,915 44,327 Liberty Property Trust 1,750,916 54,504 NorthStar Realty Finance Corp. 825,736 4,490 One Liberty Properties, Inc. 112,789 5,886 PS Business Parks, Inc. 685,837 19,149 Select Income REIT 482,555 145,820 Spirit Realty Capital, Inc. 1,583,605 47,010 STORE Capital Corp. 1,161,617 293,759 VEREIT, Inc. 2,485,201 22,487 Washington Real Estate Investment Trust 735,100 8,821 Whitestone REIT 126,846 32,051 WP Carey, Inc. 1,893,894 -------------- 17,770,158 -------------- HEALTH CARE REITS -- 12.5% 25,321 Care Capital Properties, Inc. 633,025 19,419 CareTrust REIT, Inc. 297,499 3,917 Community Healthcare Trust, Inc. 90,208 140,997 HCP, Inc. 4,190,431 34,946 Healthcare Realty Trust, Inc. 1,059,563 42,741 Healthcare Trust of America, Inc., Class A 1,244,191 11,825 LTC Properties, Inc. 555,538 6,304 MedEquities Realty Trust, Inc. 69,974 96,570 Medical Properties Trust, Inc. 1,187,811 12,013 National Health Investors, Inc. 891,004 24,764 New Senior Investment Group, Inc. 242,440 58,845 Omega Healthcare Investors, Inc. 1,839,495 40,884 Physicians Realty Trust 775,161 28,221 Quality Care Properties, Inc. (a) 437,425 19,679 Sabra Health Care REIT, Inc. 480,561 71,634 Senior Housing Properties Trust 1,356,032 3,775 Universal Health Realty Income Trust 247,602 106,780 Ventas, Inc. 6,675,886 109,322 Welltower, Inc. 7,316,921 -------------- 29,590,767 -------------- HOTEL & RESORT REITS -- 6.2% 47,149 Apple Hospitality REIT, Inc. 942,037 7,832 Ashford Hospitality Prime, Inc. 106,907 24,075 Ashford Hospitality Trust, Inc. 186,822 11,571 Chatham Lodging Trust 237,784 SHARES DESCRIPTION VALUE ------------------------------------------------------------- HOTEL & RESORT REITS (CONTINUED) 18,126 Chesapeake Lodging Trust $ 468,738 60,402 DiamondRock Hospitality Co. 696,435 38,645 FelCor Lodging Trust, Inc. 309,546 12,614 Hersha Hospitality Trust 271,201 49,532 Hospitality Properties Trust 1,572,146 223,106 Host Hotels & Resorts, Inc. 4,203,317 34,103 LaSalle Hotel Properties 1,039,118 21,729 Pebblebrook Hotel Trust 646,438 37,481 RLJ Lodging Trust 917,910 15,381 Ryman Hospitality Properties, Inc. 969,157 26,345 Summit Hotel Properties, Inc. 422,310 65,291 Sunstone Hotel Investors, Inc. 995,688 32,235 Xenia Hotels & Resorts, Inc. 626,004 -------------- 14,611,558 -------------- INDUSTRIAL REITS -- 6.8% 27,448 DCT Industrial Trust, Inc. 1,314,210 106,955 Duke Realty Corp. 2,840,725 9,874 EastGroup Properties, Inc. 729,096 35,256 First Industrial Realty Trust, Inc. 988,931 21,078 Monmouth Real Estate Investment Corp. 321,229 159,399 Prologis, Inc. 8,414,673 19,915 Rexford Industrial Realty, Inc. 461,829 22,795 STAG Industrial, Inc. 544,117 13,998 Terreno Realty Corp. 398,803 -------------- 16,013,613 -------------- OFFICE REITS -- 13.6% 23,946 Alexandria Real Estate Equities, Inc. 2,661,119 46,371 Boston Properties, Inc. 5,832,544 52,811 Brandywine Realty Trust 871,910 6,177 City Office REIT, Inc. 81,351 37,232 Columbia Property Trust, Inc. 804,211 28,578 Corporate Office Properties Trust 892,205 103,205 Cousins Properties, Inc. 878,275 43,406 Douglas Emmett, Inc. 1,586,923 7,256 Easterly Government Properties, Inc. 145,265 37,852 Equity Commonwealth (a) 1,144,644 32,333 Franklin Street Properties Corp. 419,036 21,462 Government Properties Income Trust 409,173 30,222 Highwoods Properties, Inc. 1,541,624 36,782 Hudson Pacific Properties, Inc. 1,279,278 27,803 Kilroy Realty Corp. 2,035,736 27,045 Mack-Cali Realty Corp. 784,846 50,013 New York REIT, Inc. 506,132 16,899 NorthStar Realty Europe Corp. 212,420 12,883 Parkway, Inc. (a) 286,647 43,791 Piedmont Office Realty Trust, Inc., Class A 915,670 30,554 SL Green Realty Corp. 3,286,083 14,398 Tier REIT, Inc. 250,381 51,860 Vornado Realty Trust 5,412,628 -------------- 32,238,101 -------------- Page 34 See Notes to Financial Statements FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) RESIDENTIAL REITS -- 16.5% 39,837 American Campus Communities, Inc. $ 1,982,687 65,256 American Homes 4 Rent, Class A 1,369,071 47,308 Apartment Investment & Management Co., Class A 2,150,149 41,410 AvalonBay Communities, Inc. 7,335,781 5,899 Bluerock Residential Growth REIT, Inc. 80,934 26,377 Camden Property Trust 2,217,514 14,997 Colony Starwood Homes 432,064 22,030 Education Realty Trust, Inc. 931,869 24,180 Equity LifeStyle Properties, Inc. 1,743,378 110,264 Equity Residential 7,096,591 19,759 Essex Property Trust, Inc. 4,593,967 17,895 Independence Realty Trust, Inc. 159,623 34,233 Mid-America Apartment Communities, Inc. 3,352,095 50,311 Monogram Residential Trust, Inc. 544,365 5,269 NexPoint Residential Trust, Inc. 117,709 7,450 Preferred Apartment Communities, Inc., Class A 111,080 10,669 Silver Bay Realty Trust Corp. 182,867 20,037 Sun Communities, Inc. 1,535,035 80,589 UDR, Inc. 2,939,887 7,870 UMH Properties, Inc. 118,444 -------------- 38,995,110 -------------- RETAIL REITS -- 23.0% 24,384 Acadia Realty Trust 796,869 7,890 Agree Realty Corp. 363,335 1,064 Alexander's, Inc. 454,190 78,920 Brixmor Property Group, Inc. 1,927,226 51,504 CBL & Associates Properties, Inc. 592,296 22,894 Cedar Realty Trust, Inc. 149,498 92,772 DDR Corp. 1,416,628 28,008 Equity One, Inc. 859,566 21,644 Federal Realty Investment Trust 3,075,829 176,081 General Growth Properties, Inc. 4,398,503 7,982 Getty Realty Corp. 203,461 128,167 Kimco Realty Corp. 3,224,682 25,192 Kite Realty Group Trust 591,508 36,403 Macerich (The) Co. 2,578,789 44,368 National Retail Properties, Inc. 1,961,066 20,971 Pennsylvania Real Estate Investment Trust 397,610 23,899 Ramco-Gershenson Properties Trust 396,245 77,983 Realty Income Corp. 4,482,463 31,508 Regency Centers Corp. 2,172,477 32,957 Retail Opportunity Investments Corp. 696,381 71,583 Retail Properties of America, Inc., Class A 1,097,367 3,551 Saul Centers, Inc. 236,532 6,856 Seritage Growth Properties, Class A 292,820 94,757 Simon Property Group, Inc. 16,835,476 SHARES DESCRIPTION VALUE ------------------------------------------------------------- RETAIL REITS (CONTINUED) 28,972 Tanger Factory Outlet Centers, Inc. $ 1,036,618 18,222 Taubman Centers, Inc. 1,347,152 27,671 Urban Edge Properties 761,229 8,699 Urstadt Biddle Properties, Inc., Class A 209,733 55,913 Washington Prime Group, Inc. 582,054 35,530 Weingarten Realty Investors 1,271,619 20,494 Wheeler Real Estate Investment Trust, Inc. 34,840 -------------- 54,444,062 -------------- SPECIALIZED REITS -- 13.5% 35,447 CoreCivic, Inc. 867,034 10,220 CoreSite Realty Corp. 811,161 54,289 CubeSmart 1,453,317 22,411 CyrusOne, Inc. 1,002,444 47,926 Digital Realty Trust, Inc. 4,709,209 22,791 DuPont Fabros Technology, Inc. 1,001,209 19,184 EPR Properties 1,376,836 37,938 Extra Space Storage, Inc. 2,930,331 5,229 Farmland Partners, Inc. 58,356 18,060 Four Corners Property Trust, Inc. 370,591 58,714 Gaming and Leisure Properties, Inc. 1,797,823 22,622 GEO Group (The), Inc. 812,808 73,884 Iron Mountain, Inc. 2,399,752 13,994 Life Storage, Inc. 1,193,128 12,185 National Storage Affiliates Trust 268,923 44,981 Public Storage 10,053,253 14,387 QTS Realty Trust, Inc., Class A 714,315 -------------- 31,820,490 -------------- TOTAL INVESTMENTS -- 99.6% 235,483,859 (Cost $251,198,444) (b) NET OTHER ASSETS AND LIABILITIES -- 0.4% 941,861 -------------- NET ASSETS -- 100.0% $ 236,425,720 ============== (a) Non-income producing security. (b) Aggregate cost for federal income tax purposes is $253,109,805. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $4,482,927 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $22,108,873. See Notes to Financial Statements Page 35 FIRST TRUST S&P REIT INDEX FUND (FRI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $235,483,859 $ -- $ -- ========================================== * 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, 2016. Page 36 See Notes to Financial Statements FIRST TRUST WATER ETF (FIW) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.7% BUILDING PRODUCTS -- 2.0% 214,470 Advanced Drainage Systems, Inc. $ 4,418,082 -------------- CHEMICALS -- 9.8% 78,420 Ashland Global Holdings, Inc. 8,570,522 250,215 Calgon Carbon Corp. 4,253,655 75,999 Ecolab, Inc. 8,908,603 -------------- 21,732,780 -------------- COMMERCIAL SERVICES & SUPPLIES -- 3.0% 157,352 Tetra Tech, Inc. 6,789,739 -------------- CONSTRUCTION & ENGINEERING -- 8.6% 199,730 AECOM (a) 7,262,183 110,710 Aegion Corp. (a) 2,623,827 272,816 Layne Christensen Co. (a) 2,965,510 44,198 Valmont Industries, Inc. 6,227,498 -------------- 19,079,018 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.2% 182,865 PICO Holdings, Inc. (a) 2,770,405 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 5.0% 118,933 Badger Meter, Inc. 4,394,574 106,902 Itron, Inc. (a) 6,718,791 -------------- 11,113,365 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 8.2% 117,258 Danaher Corp. 9,127,362 77,451 IDEXX Laboratories, Inc. (a) 9,082,679 -------------- 18,210,041 -------------- INDUSTRIAL CONGLOMERATES -- 4.1% 49,289 Roper Technologies, Inc. 9,023,830 -------------- LIFE SCIENCES TOOLS & SERVICES -- 4.1% 197,795 Agilent Technologies, Inc. 9,011,540 -------------- MACHINERY -- 34.5% 104,897 Crane Co. 7,565,172 264,007 Energy Recovery, Inc. (a) (b) 2,732,472 154,934 Flowserve Corp. 7,444,579 108,506 Franklin Electric Co., Inc. 4,220,883 88,247 Gorman-Rupp (The) Co. 2,731,245 97,705 IDEX Corp. 8,799,312 51,815 Lindsay Corp. (b) 3,865,917 171,710 Mueller Industries, Inc. 6,861,532 325,903 Mueller Water Products, Inc., Class A 4,337,769 152,024 Pentair PLC 8,523,986 219,719 Rexnord Corp. (a) 4,304,295 97,286 Watts Water Technologies, Inc., Class A 6,343,047 177,892 Xylem, Inc. 8,809,212 -------------- 76,539,421 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- WATER UTILITIES -- 19.2% 100,547 American States Water Co. $ 4,580,921 125,416 American Water Works Co., Inc. 9,075,102 266,218 Aqua America, Inc. 7,997,189 279,204 Cadiz, Inc. (a) (b) 3,490,050 131,202 California Water Service Group 4,447,748 971,291 Cia de Saneamento Basico do Estado de Sao Paulo, ADR 8,430,806 80,772 SJW Group 4,521,616 -------------- 42,543,432 -------------- TOTAL COMMON STOCKS -- 99.7% 221,231,653 (Cost $196,363,310) -------------- MONEY MARKET FUNDS -- 2.5% 4,881,399 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (c) (d) 4,881,399 628,071 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 0.38% (c) 628,071 -------------- TOTAL MONEY MARKET FUNDS -- 2.5% 5,509,470 (Cost $5,509,470) -------------- TOTAL INVESTMENTS -- 102.2% 226,741,123 (Cost $201,872,780) (e) NET OTHER ASSETS AND LIABILITIES -- (2.2)% (4,949,964) -------------- NET ASSETS -- 100.0% $ 221,791,159 ============== (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 $4,759,859 and the total value of the collateral held by the Fund is $4,881,399. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $203,979,383. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $26,335,111 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,573,371. ADR - American Depositary Receipt See Notes to Financial Statements Page 37 FIRST TRUST WATER ETF (FIW) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $221,231,653 $ -- $ -- Money Market Funds 5,509,470 -- -- ------------------------------------------ Total Investments $226,741,123 $ -- $ -- ========================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 4,759,859 Non-cash Collateral(2) (4,759,859) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. Page 38 See Notes to Financial Statements FIRST TRUST NATURAL GAS ETF (FCG) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% ENERGY EQUIPMENT & SERVICES -- 0.7% 62,928 Unit Corp. (a) $ 1,690,875 -------------- GAS UTILITIES -- 2.1% 92,605 National Fuel Gas Co. 5,245,147 -------------- OIL, GAS & CONSUMABLE FUELS -- 97.2% 225,027 Anadarko Petroleum Corp. 15,691,133 328,143 Antero Resources Corp. (a) 7,760,582 490,253 Cabot Oil & Gas Corp. 11,452,310 1,288,801 Chesapeake Energy Corp. (a) 9,047,383 95,306 Cimarex Energy Co. 12,952,085 103,090 Concho Resources, Inc. (a) 13,669,734 139,659 Continental Resources, Inc. (a) 7,198,025 317,596 Devon Energy Corp. 14,504,609 182,707 Enbridge Energy Partners, L.P. (b) 4,655,374 955,960 Encana Corp. 11,222,970 210,857 Enerplus Corp. 1,998,924 172,739 EQT Corp. 11,297,131 39,835 EQT Midstream Partners, L.P. (b) 3,054,548 152,064 Golar LNG Ltd. (c) 3,488,348 136,910 Gulfport Energy Corp. (a) 2,962,732 343,349 Kinder Morgan, Inc. 7,110,758 132,875 Matador Resources Co. (a) 3,422,860 220,417 Newfield Exploration Co. (a) 8,926,889 358,402 Noble Energy, Inc. 13,640,780 15,047 NuStar Energy, L.P. (b) 749,341 120,804 ONEOK Partners, L.P. (b) 5,195,780 65,676 PDC Energy, Inc. (a) 4,766,764 349,953 QEP Resources, Inc. (a) 6,442,635 287,033 Range Resources Corp. 9,862,454 187,620 Rice Energy, Inc. (a) 4,005,687 94,231 SM Energy Co. 3,249,085 742,170 Southwestern Energy Co. (a) 8,030,279 159,422 Spectra Energy Corp. 6,550,650 31,829 Spectra Energy Partners, L.P. (b) 1,459,041 539,995 Statoil ASA, ADR 9,849,509 231,072 Synergy Resources Corp. (a) 2,058,852 23,642 Vermilion Energy, Inc. (c) 996,983 40,402 Western Gas Partners, L.P. (b) 2,374,022 168,696 Williams Partners, L.P. (b) 6,415,509 551,765 WPX Energy, Inc. (a) 8,039,216 -------------- 244,102,982 -------------- TOTAL COMMON STOCKS -- 100.0% 251,039,004 (Cost $239,912,124) -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- MONEY MARKET FUNDS -- 1.0% 2,273,810 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (d) (e) $ 2,273,810 142,544 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio -Institutional Class - 0.38% (d) 142,544 -------------- TOTAL MONEY MARKET FUNDS -- 1.0% 2,416,354 (Cost $2,416,354) -------------- TOTAL INVESTMENTS -- 101.0% 253,455,358 (Cost $242,328,478) (f) NET OTHER ASSETS AND LIABILITIES -- (1.0)% (2,431,360) -------------- NET ASSETS -- 100.0% $ 251,023,998 ============== (a) Non-income producing security. (b) Security is a Master Limited Partnership ("MLP"). (c) 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 $2,188,314 and the total value of the collateral held by the Fund is $2,273,810. (d) Interest rate shown reflects yield as of December 31, 2016. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $251,500,515. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $17,095,249 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $15,140,406. ADR - American Depositary Receipt See Notes to Financial Statements Page 39 FIRST TRUST NATURAL GAS ETF (FCG) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $251,039,004 $ -- $ -- Money Market Funds 2,416,354 -- -- ------------------------------------------ Total Investments $253,455,358 $ -- $ -- ========================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 2,188,314 Non-cash Collateral(2) (2,188,314) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. Page 40 See Notes to Financial Statements FIRST TRUST CHINDIA ETF (FNI) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% AUTOMOBILES -- 4.2% 162,209 Tata Motors Ltd., ADR $ 5,578,367 -------------- BANKS -- 13.9% 151,903 HDFC Bank Ltd., ADR 9,217,474 1,208,749 ICICI Bank Ltd., ADR 9,053,530 -------------- 18,271,004 -------------- BIOTECHNOLOGY -- 1.5% 34,829 BeiGene Ltd., ADR (a) 1,057,409 8,143 China Biologic Products, Inc. (a) 875,535 -------------- 1,932,944 -------------- CAPITAL MARKETS -- 0.7% 40,817 Noah Holdings Ltd., ADR (a) (b) 895,117 -------------- DIVERSIFIED CONSUMER SERVICES -- 2.1% 21,809 New Oriental Education & Technology Group, Inc., ADR (a) 918,159 39,821 Nord Anglia Education, Inc. (a) (b) 927,829 13,041 TAL Education Group, ADR (a) 914,826 -------------- 2,760,814 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.4% 19,439 China Telecom Corp., Ltd., ADR 896,721 76,399 China Unicom (Hong Kong) Ltd., ADR (b) 882,408 -------------- 1,779,129 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.7% 47,156 Hollysys Automation Technologies Ltd. 863,898 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.4% 18,375 China Lodging Group Ltd., ADR (a) 952,560 55,630 Melco Crown Entertainment Ltd., ADR 884,517 -------------- 1,837,077 -------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.7% 36,806 Huaneng Power International, Inc., ADR (b) 958,428 -------------- INSURANCE -- 0.6% 66,387 China Life Insurance Co., Ltd., ADR (b) 854,401 -------------- INTERNET & DIRECT MARKETING RETAIL -- 15.4% 126,914 Ctrip.com International Ltd., ADR (a) 5,076,560 359,381 JD.com, Inc., ADR (a) 9,142,653 111,802 MakeMyTrip Ltd. (a) (b) 2,482,005 31,578 Qunar Cayman Islands Ltd., ADR (a) (b) 951,445 230,239 Vipshop Holdings Ltd., ADR (a) 2,534,931 -------------- 20,187,594 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 28.1% 111,849 21Vianet Group, Inc., ADR (a) (b) $ 784,061 28,389 58.com, Inc., ADR (a) 794,892 103,408 Alibaba Group Holding Ltd., ADR (a) 9,080,256 34,400 Autohome, Inc., ADR (a) 869,632 56,468 Baidu, Inc., ADR (a) 9,283,904 77,461 Baozun, Inc., ADR (a) (b) 934,954 47,894 Bitauto Holdings Ltd., ADR (a) (b) 907,112 320,052 Fang Holdings Ltd., ADR (a) (b) 1,049,771 46,214 Momo, Inc., ADR (a) (b) 849,413 24,656 NetEase, Inc., ADR 5,309,423 38,192 SINA Corp. (a) 2,321,692 25,777 Sohu.com, Inc. (a) 873,583 56,881 Weibo Corp., ADR (a) (b) 2,309,369 33,714 Yirendai Ltd., ADR (a) 698,554 21,222 YY, Inc., ADR (a) 836,571 -------------- 36,903,187 -------------- IT SERVICES -- 13.9% 654,396 Infosys Ltd., ADR 9,704,693 590,139 Wipro Ltd., ADR (b) 5,712,545 103,103 WNS (Holdings) Ltd., ADR (a) 2,840,488 -------------- 18,257,726 -------------- MARINE -- 0.7% 97,265 Seaspan Corp. 889,002 -------------- METALS & MINING -- 1.8% 194,905 Vedanta Ltd., ADR 2,420,720 -------------- OIL, GAS & CONSUMABLE FUELS -- 2.1% 13,201 China Petroleum & Chemical Corp., ADR 937,535 7,152 CNOOC Ltd., ADR 886,562 13,408 PetroChina Co., Ltd., ADR 988,170 -------------- 2,812,267 -------------- PHARMACEUTICALS -- 4.1% 118,229 Dr. Reddy's Laboratories Ltd., ADR 5,353,409 -------------- PROFESSIONAL SERVICES -- 0.7% 27,468 51job, Inc., ADR (a) (b) 928,418 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 0.7% 96,472 Trina Solar Ltd., ADR (a) 897,190 -------------- SOFTWARE -- 1.3% 40,993 Changyou.com Ltd., ADR (a) 869,871 94,358 Cheetah Mobile, Inc., ADR (a) 902,063 -------------- 1,771,934 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 4.0% 101,583 China Mobile Ltd., ADR 5,325,997 -------------- TOTAL COMMON STOCKS -- 100.0% 131,478,623 (Cost $142,014,959) -------------- See Notes to Financial Statements Page 41 FIRST TRUST CHINDIA ETF (FNI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- MONEY MARKET FUNDS -- 9.6% 12,642,507 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (c) (d) $ 12,642,507 (Cost $12,642,507) -------------- TOTAL INVESTMENTS -- 109.6% 144,121,130 (Cost $154,657,466) (e) NET OTHER ASSETS AND LIABILITIES -- (9.6)% (12,655,283) -------------- NET ASSETS -- 100.0% $ 131,465,847 ============== (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 $12,367,307 and the total value of the collateral held by the Fund is $12,642,507. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $155,886,271. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $7,752,714 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $19,517,855. ADR - American Depositary Receipt ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $131,478,623 $ -- $ -- Money Market Funds 12,642,507 -- -- ------------------------------------------ Total Investments $144,121,130 $ -- $ -- ========================================== * 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, 2016. COUNTRY ALLOCATION AS A PERCENTAGE OF NET ASSETS**: ---------------------------------------------------- Cayman Islands 48.6% India 35.8 United States 10.9 Hong Kong 5.4 China 3.5 Jersey 2.2 Mauritius 1.9 Marshall Islands 0.7 Virgin Islands 0.6 Net Other Assets and Liabilities (9.6) ------- 100.0% ======= ** Portfolio securities are categorized based upon their country of incorporation, which can be different from the country categorization of the Fund's underlying index. Page 42 See Notes to Financial Statements FIRST TRUST CHINDIA ETF (FNI) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 12,367,307 Non-cash Collateral(2) (12,367,307) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at Value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. See Notes to Financial Statements Page 43 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% BANKS -- 87.4% 43,645 1st Source Corp. $ 1,949,186 17,901 Access National Corp. (a) 496,932 21,776 Allegiance Bancshares, Inc. (b) 787,202 58,921 Ameris Bancorp 2,568,956 22,726 Arrow Financial Corp. 920,403 42,213 Atlantic Capital Bancshares, Inc. (b) 802,047 26,507 BancFirst Corp. 2,466,476 93,337 Bancorp (The), Inc. (b) 733,629 10,336 Bank of Marin Bancorp 720,936 204,406 Bank of the Ozarks, Inc. 10,749,712 56,396 Banner Corp. 3,147,461 45,187 Blue Hills Bancorp, Inc. 847,256 87,988 BNC Bancorp 2,806,817 111,208 BOK Financial Corp. 9,234,712 140,257 Boston Private Financial Holdings, Inc. 2,321,253 32,220 Bridge Bancorp, Inc. 1,221,138 119,007 Brookline Bancorp, Inc. 1,951,715 28,540 Bryn Mawr Bank Corp. 1,202,961 26,055 Camden National Corp. 1,158,145 44,516 Capital Bank Financial Corp., Class A 1,747,253 21,175 Carolina Financial Corp. 651,978 133,105 Cathay General Bancorp 5,061,983 81,018 CenterState Banks, Inc. 2,039,223 20,484 Central Valley Community Bancorp 408,861 119,029 Chemical Financial Corp. 6,447,801 25,325 City Holding Co. 1,711,970 70,008 CoBiz Financial, Inc. 1,182,435 97,931 Columbia Banking System, Inc. 4,375,557 171,074 Commerce Bancshares, Inc. 9,889,788 29,729 Community Trust Bancorp, Inc. 1,474,558 51,064 ConnectOne Bancorp, Inc. 1,325,111 29,826 CU Bancorp (b) 1,067,771 182,448 CVB Financial Corp. 4,183,533 56,744 Eagle Bancorp, Inc. (b) 3,458,547 243,240 East West Bancorp, Inc. 12,363,889 33,765 Enterprise Financial Services Corp. 1,451,895 12,669 Farmers Capital Bank Corp. 532,731 45,637 Farmers National Banc Corp. 648,045 44,105 Fidelity Southern Corp. 1,043,965 24,508 Financial Institutions, Inc. 838,174 33,946 First Bancorp 921,294 64,464 First Busey Corp. 1,984,202 18,570 First Citizens BancShares, Inc., Class A 6,592,350 28,666 First Community Bancshares, Inc. 863,993 104,532 First Financial Bancorp 2,973,935 111,470 First Financial Bankshares, Inc. (a) 5,038,444 20,562 First Financial Corp. 1,085,674 27,546 First Foundation, Inc. (b) 785,061 36,209 First Interstate BancSystem, Inc., Class A 1,540,693 68,854 First Merchants Corp. 2,592,353 21,020 First MID-Illinois Bancshares, Inc. 714,680 SHARES DESCRIPTION VALUE ------------------------------------------------------------- BANKS (CONTINUED) 137,216 First Midwest Bancorp, Inc. $ 3,461,960 39,661 First of Long Island (The) Corp. 1,132,322 48,288 Flushing Financial Corp. 1,419,184 292,354 Fulton Financial Corp. 5,496,255 25,746 German American Bancorp, Inc. 1,354,497 129,117 Glacier Bancorp, Inc. 4,677,909 23,502 Great Southern Bancorp, Inc. 1,284,384 62,192 Green Bancorp, Inc. (b) 945,318 47,833 Guaranty Bancorp 1,157,559 130,887 Hancock Holding Co. 5,641,230 54,451 Hanmi Financial Corp. 1,900,340 43,974 Heartland Financial USA, Inc. 2,110,752 63,991 Heritage Commerce Corp. 923,390 50,529 Heritage Financial Corp. 1,301,122 236,960 Home BancShares, Inc. 6,580,379 30,375 HomeTrust Bancshares, Inc. (b) 786,713 228,176 Hope Bancorp, Inc. 4,994,773 37,398 Horizon Bancorp 1,047,144 69,305 IBERIABANK Corp. 5,804,294 44,424 Independent Bank Corp./MA 3,129,671 35,848 Independent Bank Corp./MI 777,902 31,164 Independent Bank Group, Inc. 1,944,634 111,299 International Bancshares Corp. 4,540,999 521,857 Investors Bancorp, Inc. 7,279,905 74,986 Lakeland Bancorp, Inc. 1,462,227 42,320 Lakeland Financial Corp. 2,004,275 80,608 LegacyTexas Financial Group, Inc. 3,470,981 49,789 Live Oak Bancshares, Inc. 921,097 40,548 MainSource Financial Group, Inc. 1,394,851 141,016 MB Financial, Inc. 6,660,186 38,364 MBT Financial Corp. 435,431 27,506 Mercantile Bank Corp. 1,036,976 11,618 Merchants Bancshares, Inc. 629,696 26,008 Midland States Bancorp, Inc. 940,969 19,293 MidWestOne Financial Group, Inc. 725,417 18,444 National Commerce Corp. (b) 685,195 72,825 NBT Bancorp, Inc. 3,049,911 14,417 Nicolet Bankshares, Inc. (b) 687,547 227,756 Old National Bancorp 4,133,771 49,864 Old Second Bancorp, Inc. 550,997 54,465 Opus Bank 1,636,673 38,139 Pacific Continental Corp. 833,337 46,660 Pacific Premier Bancorp, Inc. (b) 1,649,431 202,944 PacWest Bancorp 11,048,271 89,936 Park Sterling Corp. 970,409 28,594 Peapack-Gladstone Financial Corp. 882,983 30,702 Peoples Bancorp, Inc. 996,587 30,020 People's Utah Bancorp 806,037 77,915 Pinnacle Financial Partners, Inc. 5,399,510 175,098 Popular, Inc. 7,672,794 23,947 Preferred Bank 1,255,302 22,058 QCR Holdings, Inc. 955,111 71,036 Renasant Corp. 2,999,140 31,413 Republic Bancorp, Inc., Class A 1,242,070 58,910 S&T Bancorp, Inc. 2,299,846 40,307 Sandy Spring Bancorp, Inc. 1,611,877 Page 44 See Notes to Financial Statements FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) BANKS (CONTINUED) 64,157 Seacoast Banking Corp. of Florida (b) $ 1,415,303 88,774 ServisFirst Bancshares, Inc. 3,323,699 23,266 Sierra Bancorp 618,643 52,759 Simmons First National Corp., Class A 3,278,972 40,866 South State Corp. 3,571,688 44,349 Southside Bancshares, Inc. 1,670,627 31,522 Southwest Bancorp, Inc. 914,138 62,234 State Bank Financial Corp. 1,671,605 38,089 Stock Yards Bancorp, Inc. 1,788,279 23,942 Stonegate Bank 999,100 31,885 Sun Bancorp, Inc. 829,010 82,687 Texas Capital Bancshares, Inc. (b) 6,482,661 105,264 TowneBank 3,500,028 38,516 TriCo Bancshares 1,316,477 47,823 TriState Capital Holdings, Inc. (b) 1,056,888 30,549 Triumph Bancorp, Inc. (b) 798,856 114,106 Trustmark Corp. 4,067,879 83,622 UMB Financial Corp. 6,448,929 371,544 Umpqua Holdings Corp. 6,977,596 73,492 Union Bankshares Corp. 2,626,604 128,995 United Bankshares, Inc. 5,966,019 119,565 United Community Banks, Inc. 3,541,515 44,841 Univest Corp. of Pennsylvania 1,385,587 28,888 Washington Trust Bancorp, Inc. 1,619,172 74,003 WesBanco, Inc. 3,186,569 43,317 Westamerica Bancorporation 2,725,939 87,353 Wintrust Financial Corp. 6,339,207 38,961 Xenith Bankshares, Inc. (b) 1,098,700 -------------- 353,045,915 -------------- IT SERVICES -- 0.3% 18,853 Cass Information Systems, Inc. 1,387,015 -------------- THRIFTS & MORTGAGE FINANCE -- 12.3% 77,058 Bank Mutual Corp. 728,198 128,089 Beneficial Bancorp, Inc. 2,356,838 106,801 BofI Holding, Inc. (a) (b) 3,049,168 232,647 Capitol Federal Financial, Inc. 3,829,370 38,888 Clifton Bancorp, Inc. 657,985 63,348 Dime Community Bancshares, Inc. 1,273,295 15,152 First Defiance Financial Corp. 768,812 3,600 Hingham Institution for Savings 708,408 41,903 HomeStreet, Inc. (b) 1,324,135 149,359 Kearny Financial Corp. 2,322,532 90,626 Meridian Bancorp, Inc. 1,712,831 14,381 Meta Financial Group, Inc. 1,479,805 81,551 Northfield Bancorp, Inc. 1,628,573 170,924 Northwest Bancshares, Inc. 3,081,760 43,620 OceanFirst Financial Corp. 1,309,909 76,339 Oritani Financial Corp. 1,431,356 16,477 Territorial Bancorp, Inc. 541,105 478,285 TFS Financial Corp. 9,106,546 161,477 TrustCo Bank Corp. NY 1,412,924 78,540 United Community Financial Corp. 702,148 SHARES DESCRIPTION VALUE ------------------------------------------------------------- THRIFTS & MORTGAGE FINANCE (CONTINUED) 85,227 United Financial Bancorp, Inc. $ 1,547,722 150,302 Washington Federal, Inc. 5,162,874 49,584 Waterstone Financial, Inc. 912,346 52,851 WSFS Financial Corp. 2,449,644 -------------- 49,498,284 -------------- TOTAL COMMON STOCKS -- 100.0% 403,931,214 (Cost $343,053,244) MONEY MARKET FUNDS -- 1.2% 4,968,211 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (c) (d) 4,968,211 (Cost $4,968,211) -------------- TOTAL INVESTMENTS -- 101.2% 408,899,425 (Cost $348,021,455) (e) NET OTHER ASSETS AND LIABILITIES -- (1.2)% (4,876,551) -------------- NET ASSETS -- 100.0% $ 404,022,874 ============== (a) 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 $4,823,735 and the total value of the collateral held by the Fund is $4,968,211. (b) Non-income producing security. (c) Interest rate shown reflects yield as of December 31, 2016. (d) This security serves as collateral for securities on loan. (e) Aggregate cost for federal income tax purposes is $349,873,996. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $59,356,527 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $331,098. See Notes to Financial Statements Page 45 FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------ Common Stocks* $403,931,214 $ -- $ -- Money Market Funds 4,968,211 -- -- ------------------------------------------ Total Investments $408,899,425 $ -- $ -- ========================================== * 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, 2016. --------------------------------- OFFSETTING ASSETS AND LIABILITIES ------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2C - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 4,823,735 Non-cash Collateral(2) (4,823,735) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included in "Investments, at value", is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. Page 46 See Notes to Financial Statements This page intentionally left blank. FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2016
FIRST TRUST FIRST TRUST NASDAQ-100 FIRST TRUST NASDAQ-100 EQUAL NASDAQ-100- EX-TECHNOLOGY WEIGHTED TECHNOLOGY SECTOR SECTOR INDEX FUND INDEX FUND INDEX FUND (QQEW) (QTEC) (QQXT) ---------------- ------------------ ---------------- ASSETS: Investments, at value............................................... $ 411,107,530 $1,569,421,349 $ 105,906,741 Cash................................................................ 119,998 1,200,964 -- Receivables: Capital shares sold........................................... -- 7,985,724 -- Investment securities sold.................................... -- 4,094,839 -- Dividends..................................................... 313,730 1,240,666 85,819 Securities lending income..................................... 4,687 -- 1,922 Interest...................................................... -- -- 15 Prepaid expenses.................................................... 3,779 3,500 1,180 -------------- -------------- -------------- TOTAL ASSETS.................................................. 411,549,724 1,583,947,042 105,995,677 -------------- -------------- -------------- LIABILITIES: Due to custodian.................................................... -- -- -- Payables: Capital shares redeemed....................................... -- -- -- Investment securities purchased............................... -- 12,074,095 -- Investment advisory fees...................................... 145,210 548,804 43,129 Collateral for securities on loan............................. 7,144,407 -- 2,755,604 Licensing fees................................................ 97,622 249,063 27,724 Audit and tax fees............................................ 22,925 22,925 22,925 Printing fees................................................. 20,915 16,819 10,096 Trustees' fees................................................ 170 -- 181 Other liabilities................................................... 74,166 180,619 18,256 -------------- -------------- -------------- TOTAL LIABILITIES............................................. 7,505,415 13,092,325 2,877,915 -------------- -------------- -------------- NET ASSETS.......................................................... $ 404,044,309 $1,570,854,717 $ 103,117,762 ============== ============== ============== NET ASSETS CONSIST OF: Paid-in capital..................................................... $ 416,985,318 $1,517,202,713 $ 114,051,298 Par value........................................................... 87,500 298,500 25,500 Accumulated net investment income (loss)............................ -- -- -- Accumulated net realized gain (loss) on investments................. (34,972,239) (26,538,695) (11,589,651) Net unrealized appreciation (depreciation) on investments and foreign currency translation..................................... 21,943,730 79,892,199 630,615 -------------- -------------- -------------- NET ASSETS.......................................................... $ 404,044,309 $1,570,854,717 $ 103,117,762 ============== ============== ============== NET ASSET VALUE, per share.......................................... $ 46.18 $ 52.62 $ 40.44 ============== ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)........................... 8,750,002 29,850,002 2,550,002 ============== ============== ============== Investments, at cost................................................ $ 389,163,800 $1,489,529,150 $ 105,276,126 ============== ============== ============== Securities on loan, at value........................................ $ 6,847,380 $ -- $ 2,639,470 ============== ============== ==============
Page 48 See Notes to Financial Statements
FIRST TRUST FIRST TRUST NASDAQ(R) FIRST TRUST NASDAQ(R) ABA CLEAN EDGE(R) S&P FIRST TRUST FIRST TRUST FIRST TRUST COMMUNITY GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK INDEX FUND INDEX FUND ETF ETF ETF INDEX FUND (QCLN) (FRI) (FIW) (FCG) (FNI) (QABA) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- $ 60,706,897 $ 235,483,859 $ 226,741,123 $ 253,455,358 $ 144,121,130 $ 408,899,425 51,326 -- 3,644 12,243 64,745 -- -- -- -- -- -- -- -- 7,849,169 -- -- -- -- 51,258 1,222,016 86,878 65,001 -- 404,863 18,317 -- 3,788 493 63,209 3,250 -- 32 41 47 -- -- 530 3,822 1,534 2,570 1,639 1,762 -------------- -------------- -------------- -------------- -------------- -------------- 60,828,328 244,558,898 226,837,008 253,535,712 144,250,723 409,309,300 -------------- -------------- -------------- -------------- -------------- -------------- -- 27 -- -- -- 32,578 -- 7,878,482 -- -- -- -- -- -- -- -- -- -- 20,180 61,940 76,598 91,252 55,308 145,650 8,918,137 -- 4,881,399 2,273,810 12,642,507 4,968,211 13,101 106,173 23,539 63,655 30,443 60,045 22,925 22,925 22,925 22,925 22,925 22,925 6,851 20,210 10,475 21,239 9,697 13,006 165 190 121 133 176 95 9,761 43,231 30,792 38,700 23,820 43,916 -------------- -------------- -------------- -------------- -------------- -------------- 8,991,120 8,133,178 5,045,849 2,511,714 12,784,876 5,286,426 -------------- -------------- -------------- -------------- -------------- -------------- $ 51,837,208 $ 236,425,720 $ 221,791,159 $ 251,023,998 $ 131,465,847 $ 404,022,874 ============== ============== ============== ============== ============== ============== $ 101,299,278 $ 253,949,166 $ 215,212,963 $ 747,576,815 $ 213,175,545 $ 346,961,974 33,500 102,500 56,000 95,984 48,000 76,500 -- -- -- -- (518,720) -- (44,537,866) (1,911,361) (18,346,147) (507,775,666) (70,702,642) (3,893,570) (4,957,704) (15,714,585) 24,868,343 11,126,865 (10,536,336) 60,877,970 -------------- -------------- -------------- -------------- -------------- -------------- $ 51,837,208 $ 236,425,720 $ 221,791,159 $ 251,023,998 $ 131,465,847 $ 404,022,874 ============== ============== ============== ============== ============== ============== $ 15.47 $ 23.07 $ 39.61 $ 26.15 $ 27.39 $ 52.81 ============== ============== ============== ============== ============== ============== 3,350,002 10,250,002 5,600,002 9,598,365 4,800,002 7,650,002 ============== ============== ============== ============== ============== ============== $ 65,664,601 $ 251,198,444 $ 201,872,780 $ 242,328,478 $ 154,657,466 $ 348,021,455 ============== ============== ============== ============== ============== ============== $ 8,628,800 $ -- $ 4,759,859 $ 2,188,314 $ 12,367,307 $ 4,823,735 ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 49 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016
FIRST TRUST FIRST TRUST NASDAQ-100 FIRST TRUST NASDAQ-100 EQUAL NASDAQ-100- EX-TECHNOLOGY WEIGHTED TECHNOLOGY SECTOR SECTOR INDEX FUND INDEX FUND INDEX FUND (QQEW) (QTEC) (QQXT) ---------------- ------------------ ---------------- INVESTMENT INCOME: Dividends........................................................... $ 4,998,343 $ 9,157,571 $ 1,032,192 Securities lending income (net of fees)............................. 190,027 -- 103,976 Interest............................................................ -- -- 341 Foreign tax withholding............................................. (11,164) -- -- -------------- -------------- -------------- Total investment income....................................... 5,177,206 9,157,571 1,136,509 -------------- -------------- -------------- EXPENSES: Investment advisory fees............................................ 1,571,141 1,829,117 549,682 Licensing fees...................................................... 392,785 457,279 137,421 Accounting and administration fees.................................. 187,948 219,587 67,491 Custodian fees...................................................... 98,703 57,784 33,524 Printing fees....................................................... 37,335 32,306 22,441 Legal fees.......................................................... 33,052 24,428 13,041 Audit and tax fees.................................................. 21,228 21,228 21,228 Transfer agent fees................................................. 19,639 21,607 6,871 Trustees' fees and expenses......................................... 9,049 8,943 8,740 Listing fees........................................................ 6,662 7,533 6,036 Excise tax.......................................................... -- -- -- Registration and filing fees........................................ -- 30,262 799 Expenses previously waived or reimbursed............................ -- 23,113 -- Other expenses...................................................... 16,217 10,488 6,377 -------------- -------------- -------------- Total expenses................................................ 2,393,759 2,743,675 873,651 Less fees waived and expenses reimbursed by the investment advisor ................................................... (37,048) -- (49,128) -------------- -------------- -------------- Net expenses.................................................. 2,356,711 2,743,675 824,523 -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS)........................................ 2,820,495 6,413,896 311,986 -------------- -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments................................................... (15,015,295) (10,714,441) (5,772,198) In-kind redemptions........................................... 20,860,327 54,358,081 17,365,903 -------------- -------------- -------------- Net realized gain (loss)............................................ 5,845,032 43,643,640 11,593,705 -------------- -------------- -------------- Net change in unrealized appreciation (depreciation) on: Investments................................................... 4,631,267 59,587,597 (18,610,059) Foreign currency translation.................................. -- -- -- -------------- -------------- -------------- Net change in unrealized appreciation (depreciation)................ 4,631,267 59,587,597 (18,610,059) -------------- -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS)............................. 10,476,299 103,231,237 (7,016,354) -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................................................. $ 13,296,794 $ 109,645,133 $ (6,704,368) ============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST NASDAQ(R) FIRST TRUST NASDAQ(R) ABA CLEAN EDGE(R) S&P FIRST TRUST FIRST TRUST FIRST TRUST COMMUNITY GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK INDEX FUND INDEX FUND ETF ETF ETF INDEX FUND (QCLN) (FRI) (FIW) (FCG) (FNI) (QABA) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- $ 313,991 $ 8,616,900 $ 1,600,124 $ 1,598,807 $ 1,937,797 $ 4,202,857 713,444 -- 29,796 1,023,112 686,578 15,576 -- 694 296 587 -- -- -- -- (34,832) (158,933) (78,304) (6,727) -------------- -------------- -------------- -------------- -------------- -------------- 1,027,435 8,617,594 1,595,384 2,463,573 2,546,071 4,211,706 -------------- -------------- -------------- -------------- -------------- -------------- 230,526 859,967 554,255 856,871 672,837 786,656 57,632 229,324 69,282 214,218 134,567 176,998 28,846 141,720 68,505 105,436 80,990 98,395 12,129 41,249 18,442 41,283 38,804 28,394 12,289 41,692 15,478 40,892 13,467 39,571 5,082 28,291 10,877 18,949 14,479 15,931 21,228 21,228 21,228 21,228 21,228 21,228 2,882 14,333 6,928 10,711 8,411 9,833 8,482 9,039 8,636 8,818 8,724 9,127 6,033 9,000 10,999 13,880 11,381 6,077 -- -- -- 31,110 -- -- (607) 1,183 2,422 (1,029) 1,306 3,044 -- -- -- -- -- -- 5,431 8,832 5,828 8,786 9,032 6,347 -------------- -------------- -------------- -------------- -------------- -------------- 389,953 1,405,858 792,880 1,371,153 1,015,226 1,201,601 (44,163) -- -- (54,736) (5,970) (21,616) -------------- -------------- -------------- -------------- -------------- -------------- 345,790 1,405,858 792,880 1,316,417 1,009,256 1,179,985 -------------- -------------- -------------- -------------- -------------- -------------- 681,645 7,211,736 802,504 1,147,156 1,536,815 3,031,721 -------------- -------------- -------------- -------------- -------------- -------------- (10,096,419) 807,756 (6,126,882) (173,444,882) (13,896,708) (1,420,487) 2,399,383 13,141,925 6,105,930 43,514,651 2,330,213 1,598,460 -------------- -------------- -------------- -------------- -------------- -------------- (7,697,036) 13,949,681 (20,952) (129,930,231) (11,566,495) 177,973 -------------- -------------- -------------- -------------- -------------- -------------- 5,128,516 (9,738,996) 33,980,246 177,660,257 2,877,754 65,114,595 -- -- -- (15) -- -- -------------- -------------- -------------- -------------- -------------- -------------- 5,128,516 (9,738,996) 33,980,246 177,660,242 2,877,754 65,114,595 -------------- -------------- -------------- -------------- -------------- -------------- (2,568,520) 4,210,685 33,959,294 47,730,011 (8,688,741) 65,292,568 -------------- -------------- -------------- -------------- -------------- -------------- $ (1,886,875) $ 11,422,421 $ 34,761,798 $ 48,877,167 $ (7,151,926) $ 68,324,289 ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 51 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST NASDAQ-100 NASDAQ-100- EQUAL WEIGHTED TECHNOLOGY SECTOR INDEX FUND INDEX FUND (QQEW) (QTEC) ------------------------------- ------------------------------- Year Ended Year Ended Year Ended Year Ended 12/31/2016 12/31/2015 12/31/2016 12/31/2015 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)........................... $ 2,820,495 $ 3,082,310 $ 6,413,896 $ 2,766,046 Net realized gain (loss)............................... 5,845,032 41,765,707 43,643,640 44,818,868 Net change in unrealized appreciation (depreciation)... 4,631,267 (34,310,836) 59,587,597 (55,092,351) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations..................................... 13,296,794 10,537,181 109,645,133 (7,507,437) -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (3,070,171) (3,678,500) (6,834,167) (3,154,776) -------------- -------------- -------------- -------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................. 53,443,431 195,067,101 1,382,978,541 76,107,779 Cost of shares redeemed................................ (192,304,559) (247,074,977) (217,669,917) (129,579,619) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from shareholder transactions....................... (138,861,128) (52,007,876) 1,165,308,624 (53,471,840) -------------- -------------- -------------- -------------- Total increase (decrease) in net assets................ (128,634,505) (45,149,195) 1,268,119,590 (64,134,053) NET ASSETS: Beginning of period.................................... 532,678,814 577,828,009 302,735,127 366,869,180 -------------- -------------- -------------- -------------- End of period.......................................... $ 404,044,309 $ 532,678,814 $1,570,854,717 $ 302,735,127 ============== ============== ============== ============== Accumulated net investment income (loss) at end of period.................................... $ -- $ -- $ -- $ -- ============== ============== ============== ============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................ 12,250,002 13,500,002 7,100,002 8,400,002 Shares sold............................................ 1,200,000 4,450,000 27,350,000 1,750,000 Shares redeemed as a result of reverse share split (See Note 4)........................................ -- -- -- -- Shares redeemed........................................ (4,700,000) (5,700,000) (4,600,000) (3,050,000) ============== ============== ============== ============== Shares outstanding, end of period...................... 8,750,002 12,250,002 29,850,002 7,100,002 ============== ============== ============== ==============
Page 52 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 WATER INDEX FUND INDEX FUND INDEX FUND ETF (QQXT) (QCLN) (FRI) (FIW) ----------------------------- ------------------------------- ------------------------------- ------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended 12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015 12/31/2016 12/31/2015 ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 311,986 $ 497,186 $ 681,645 $ 523,436 $ 7,211,736 $ 5,848,521 $ 802,504 $ 1,102,605 11,593,705 5,502,730 (7,697,036) (4,852,254) 13,949,681 23,006,725 (20,952) 9,174,441 (18,610,059) (186,256) 5,128,516 (1,381,171) (9,738,996) (22,518,489) 33,980,246 (30,704,492) ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- (6,704,368) 5,813,660 (1,886,875) (5,709,989) 11,422,421 6,336,757 34,761,798 (20,427,446) ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- (399,080) (636,390) (738,910) (527,840) (8,613,812) (6,276,431) (827,655) (1,094,946) ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- 22,735,602 80,613,411 2,142,506 4,544,831 166,972,713 119,979,221 111,623,834 9,558,341 (96,961,872) (18,537,885) (17,334,393) (18,268,019) (159,605,559) (232,919,287) (26,198,610) (84,154,350) ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- (74,226,270) 62,075,526 (15,191,887) (13,723,188) 7,367,154 (112,940,066) 85,425,224 (74,596,009) ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- (81,329,718) 67,252,796 (17,817,672) (19,961,017) 10,175,763 (112,879,740) 119,359,367 (96,118,401) 184,447,480 117,194,684 69,654,880 89,615,897 226,249,957 339,129,697 102,431,792 198,550,193 ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 103,117,762 $ 184,447,480 $ 51,837,208 $ 69,654,880 $ 236,425,720 $ 226,249,957 $ 221,791,159 $ 102,431,792 ============= ============= ============== ============== ============== ============== ============== ============== $ -- $ -- $ -- $ 12,316 $ -- $ -- $ -- $ 7,659 ============= ============= ============== ============== ============== ============== ============== ============== 4,450,002 2,950,002 4,350,002 5,200,002 10,250,002 15,250,002 3,400,002 5,900,002 600,000 1,950,000 150,000 250,000 6,950,000 5,250,000 2,950,000 300,000 -- -- -- -- -- -- -- -- (2,500,000) (450,000) (1,150,000) (1,100,000) (6,950,000) (10,250,000) (750,000) (2,800,000) ------------- ------------- -------------- -------------- -------------- -------------- -------------- -------------- 2,550,002 4,450,002 3,350,002 4,350,002 10,250,002 10,250,002 5,600,002 3,400,002 ============= ============= ============== ============== ============== ============== ============== ==============
See Notes to Financial Statements Page 53 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST NATURAL GAS CHINDIA ETF ETF (FCG) (FNI) ------------------------------- ------------------------------- Year Ended Year Ended Year Ended Year Ended 12/31/2016 12/31/2015 12/31/2016 12/31/2015 -------------- -------------- -------------- -------------- OPERATIONS: Net investment income (loss)........................... $ 1,147,156 $ 5,401,247 $ 1,536,815 $ 1,407,972 Net realized gain (loss)............................... (129,930,231) (182,923,218) (11,566,495) (5,169,003) Net change in unrealized appreciation (depreciation)... 177,660,242 (5,578,141) 2,877,754 (22,242,010) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations..................................... 48,877,167 (183,100,112) (7,151,926) (26,003,041) -------------- -------------- -------------- -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (4,197,410) (5,545,080) (2,037,296) (1,676,190) -------------- -------------- -------------- -------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................. 400,163,152 248,375,073 2,725,776 248,313,891 Cost of shares redeemed................................ (346,861,336) (153,633,016) (83,258,296) (111,110,415) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from shareholder transactions....................... 53,301,816 94,742,057 (80,532,520) 137,203,476 -------------- -------------- -------------- -------------- Total increase (decrease) in net assets................ 97,981,573 (93,903,135) (89,721,742) 109,524,245 NET ASSETS: Beginning of period.................................... 153,042,425 246,945,560 221,187,589 111,663,344 -------------- -------------- -------------- -------------- End of period.......................................... $ 251,023,998 $ 153,042,425 $ 131,465,847 $ 221,187,589 ============== ============== ============== ============== Accumulated net investment income (loss) at end of period.................................... $ -- $ -- $ (518,720) $ (206,457) ============== ============== ============== ============== CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................ 6,860,000 4,400,000 (a) 7,800,002 3,900,002 Shares sold............................................ 45,050,000 7,080,000 (a) 100,000 7,950,000 Shares redeemed as a result of reverse share split (See Note 4)........................................ (9,561,635) -- -- -- Shares redeemed........................................ (32,750,000) (4,620,000) (a) (3,100,000) (4,050,000) -------------- -------------- -------------- -------------- Shares outstanding, end of period...................... 9,598,365 6,860,000 4,800,002 7,800,002 ============== ============== ============== ==============
(a) Share amounts have been adjusted to reflect the 1-for-5 reverse share split that was effective May 2, 2016. Page 54 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) ----------------------------- Year Ended Year Ended 12/31/2016 12/31/2015 ------------- ------------- $ 3,031,721 $ 1,745,776 177,973 6,013,312 65,114,595 (10,201,193) ------------- ------------- 68,324,289 (2,442,105) ------------- ------------- (3,108,936) (1,652,931) ------------- ------------- 202,615,894 198,934,541 (87,710,500) (80,755,559) ------------- ------------- 114,905,394 118,178,982 ------------- ------------- 180,120,747 114,083,946 223,902,127 109,818,181 ------------- ------------- $ 404,022,874 $ 223,902,127 ============= ============= $ -- $ 112,770 ============= ============= 5,750,002 3,000,002 4,150,000 4,950,000 -- -- (2,250,000) (2,200,000) ------------- ------------- 7,650,002 5,750,002 ============= =============
See Notes to Financial Statements Page 55 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 43.48 $ 42.80 $ 36.35 $ 26.10 $ 22.98 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.31 0.22 0.41 0.17 0.27 Net realized and unrealized gain (loss) 2.73 0.73 6.49 10.25 3.14 ------------ ------------ ------------ ------------ ------------ Total from investment operations 3.04 0.95 6.90 10.42 3.41 ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.34) (0.27) (0.45) (0.17) (0.29) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 46.18 $ 43.48 $ 42.80 $ 36.35 $ 26.10 ============ ============ ============ ============ ============ TOTAL RETURN (a) 7.02% 2.22% 19.13% 39.95% 14.86% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 404,044 $ 532,679 $ 577,828 $ 288,945 $ 84,815 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.61% 0.60% 0.61% 0.63% 0.68% 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 0.72% 0.51% 1.10% 0.60% 1.01% Portfolio turnover rate (b) 29% 31% 27% 38% 34% FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 42.64 $ 43.67 $ 35.43 $ 25.86 $ 24.14 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.67 0.37 0.45 0.24 0.19 Net realized and unrealized gain (loss) 9.99 (0.98) 8.32 9.59 1.74 ------------ ------------ ------------ ------------ ------------ Total from investment operations 10.66 (0.61) 8.77 9.83 1.93 ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.68) (0.42) (0.53) (0.26) (0.21) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 52.62 $ 42.64 $ 43.67 $ 35.43 $ 25.86 ============ ============ ============ ============ ============ TOTAL RETURN (a) 25.27% (1.37)% 24.83% 38.12% 8.02% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 1,570,855 $ 302,735 $ 366,869 $ 177,165 $ 106,008 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% 0.61% 0.62% 0.65% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 1.40% 0.83% 1.32% 0.80% 0.63% Portfolio turnover rate (b) 27% 23% 20% 33% 26%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 56 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 41.45 $ 39.73 $ 34.77 $ 24.70 $ 20.80 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.09 0.13 0.32 0.10 0.31 Net realized and unrealized gain (loss) (0.98) 1.75 4.97 10.06 3.92 ------------ ------------ ------------ ------------ ------------ Total from investment operations (0.89) 1.88 5.29 10.16 4.23 ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.12) (0.16) (0.33) (0.09) (0.33) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 40.44 $ 41.45 $ 39.73 $ 34.77 $ 24.70 ============ ============ ============ ============ ============ TOTAL RETURN (a) (2.13)% 4.75% 15.35% 41.24% 20.31% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 103,118 $ 184,447 $ 117,195 $ 90,396 $ 41,982 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% 0.63% 0.64% 0.67% 0.76% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.23% 0.33% 0.90% 0.38% 1.34% Portfolio turnover rate (b) 30% 39% 23% 33% 40% FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 16.01 $ 17.23 $ 17.90 $ 9.48 $ 9.65 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.17 0.11 0.13 0.07 0.13 Net realized and unrealized gain (loss) (0.52) (1.21) (0.66) 8.42 (0.18) ------------ ------------ ------------ ------------ ------------ Total from investment operations (0.35) (1.10) (0.53) 8.49 (0.05) ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.19) (0.12) (0.14) (0.07) (0.12) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 15.47 $ 16.01 $ 17.23 $ 17.90 $ 9.48 ============ ============ ============ ============ ============ TOTAL RETURN (a) (2.12)% (6.43)% (3.05)% 89.79% (0.50)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 51,837 $ 69,655 $ 89,616 $ 97,574 $ 13,740 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.68% 0.65% 0.64% 0.70% 0.98% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 1.18% 0.65% 0.61% 0.60% 1.19% Portfolio turnover rate (b) 49% 35% 37% 49% 24%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 57 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST S&P REIT INDEX FUND (FRI)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 22.07 $ 22.24 $ 17.54 $ 17.75 $ 15.47 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.62 0.55 0.41 0.52 0.38 Net realized and unrealized gain (loss) 1.13 (0.13) 4.75 (0.19) 2.30 ------------ ------------ ------------ ------------ ------------ Total from investment operations 1.75 0.42 5.16 0.33 2.68 ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.75) (0.59) (0.46) (0.54) (0.37) Net realized gain -- -- -- -- (0.03) ------------ ------------ ------------ ------------ ------------ Total distributions (0.75) (0.59) (0.46) (0.54) (0.40) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 23.07 $ 22.07 $ 22.24 $ 17.54 $ 17.75 ============ ============ ============ ============ ============ TOTAL RETURN (a) 7.92% 1.97% 29.61% 1.82% 17.39% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 236,426 $ 226,250 $ 339,130 $ 148,210 $ 402,888 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.49% 0.48% 0.50% 0.50% 0.50% Ratio of net expenses to average net assets 0.49% 0.48% 0.50% 0.50% 0.50% Ratio of net investment income (loss) to average net assets 2.52% 2.30% 2.35% 2.31% 2.15% Portfolio turnover rate (b) 6% 8% 11% 11% 8% FIRST TRUST WATER ETF (FIW) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 30.13 $ 33.65 $ 33.79 $ 25.99 $ 20.71 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.20 0.23 0.25 0.21 0.23 Net realized and unrealized gain (loss) 9.48 (3.52) (0.14) 7.80 5.30 ------------ ------------ ------------ ------------ ------------ Total from investment operations 9.68 (3.29) 0.11 8.01 5.53 ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.20) (0.23) (0.25) (0.21) (0.25) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 39.61 $ 30.13 $ 33.65 $ 33.79 $ 25.99 ============ ============ ============ ============ ============ TOTAL RETURN (a) 32.21% (9.81)% 0.36% 30.91% 26.83% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 221,791 $ 102,432 $ 198,550 $ 197,643 $ 72,769 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.57% 0.57% 0.59% 0.60% 0.63% Ratio of net expenses to average net assets 0.57% 0.57% 0.59% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.58% 0.70% 0.75% 0.75% 1.02% Portfolio turnover rate (b) 42% 17% 24% 45% 31%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 58 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST NATURAL GAS ETF (FCG)
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------- 2016 2015 (a) 2014 (a) 2013 (a) 2012 (a) ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 22.30 $ 56.10 $ 97.65 $ 78.35 $ 90.95 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.13 1.00 0.70 0.35 0.35 Net realized and unrealized gain (loss) 4.16 (33.75) (41.50) 19.30 (12.60) ------------ ------------ ------------ ------------ ------------ Total from investment operations 4.29 (32.75) (40.80) 19.65 (12.25) ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.44) (1.05) (0.75) (0.35) (0.35) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 26.15 $ 22.30 $ 56.10 $ 97.65 $ 78.35 ============ ============ ============ ============ ============ TOTAL RETURN (b) 19.48% (59.10)% (42.02)% 25.13% (13.51)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 251,024 $ 153,042 $ 246,946 $ 464,795 $ 387,899 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.64% (c) 0.62% 0.61% 0.60% 0.63% Ratio of net expenses to average net assets 0.61% (c) 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 0.54% 2.44% 0.74% 0.40% 0.40% Portfolio turnover rate (d) 103% 67% 42% 49% 41% FIRST TRUST CHINDIA ETF (FNI) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 28.36 $ 28.63 $ 28.22 $ 20.97 $ 18.23 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.25 0.15 0.20 0.20 0.35 Net realized and unrealized gain (loss) (0.85) (0.24) 0.48 7.26 2.74 ------------ ------------ ------------ ------------ ------------ Total from investment operations (0.60) (0.09) 0.68 7.46 3.09 ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.37) (0.18) (0.27) (0.21) (0.35) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 27.39 $ 28.36 $ 28.63 $ 28.22 $ 20.97 ============ ============ ============ ============ ============ TOTAL RETURN (b) (2.15)% (0.32)% 2.37% 35.81% 17.11% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 131,466 $ 221,188 $ 111,663 $ 71,962 $ 66,066 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.62% 0.65% 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 0.91% 0.64% 0.54% 0.79% 1.60% Portfolio turnover rate (d) 47% 68% 40% 40% 29%
(a) All per share amounts and net asset values have been adjusted to reflect the impact of the 1-for-5 reverse share split on May 2, 2016. The net asset values reported on December 31, 2015, 2014, 2013 and 2012 prior to the reverse share split restatement were $4.46, $11.22, $19.53 and $15.67, respectively. (b) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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) Includes excise tax. If this excise tax expense was not included, the total and net expense ratios would have been 0.63% and 0.60%, respectively. (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. See Notes to Financial Statements Page 59 FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 38.94 $ 36.61 $ 36.11 $ 25.56 $ 22.97 ------------ ------------ ------------ ------------ ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.58 0.56 0.47 0.37 0.48 Net realized and unrealized gain (loss) 13.89 2.31 0.50 10.55 2.62 ------------ ------------ ------------ ------------ ------------ Total from investment operations 14.47 2.87 0.97 10.92 3.10 ------------ ------------ ------------ ------------ ------------ DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.60) (0.54) (0.47) (0.37) (0.51) ------------ ------------ ------------ ------------ ------------ Net asset value, end of period $ 52.81 $ 38.94 $ 36.61 $ 36.11 $ 25.56 ============ ============ ============ ============ ============ TOTAL RETURN (a) 37.57% 7.88% 2.72% 42.89% 13.52% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 404,023 $ 223,902 $ 109,818 $ 52,362 $ 8,945 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.61% 0.62% 0.64% 0.76% 1.04% Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% Ratio of net investment income (loss) to average net assets 1.54% 1.52% 1.41% 1.38% 1.90% Portfolio turnover rate (b) 16% 19% 26% 29% 17%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 60 See Notes to Financial Statements -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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 (the "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 NASDAQ-100 Equal Weighted Index Fund - (The Nasdaq Stock Market LLC ("Nasdaq") ticker "QQEW") First Trust NASDAQ-100-Technology Sector Index Fund - (Nasdaq ticker "QTEC") First Trust NASDAQ-100 Ex-Technology Sector Index 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 Water ETF - (NYSE Arca ticker "FIW")1 First Trust Natural Gas ETF - (NYSE Arca ticker "FCG")1 First Trust Chindia ETF - (NYSE Arca ticker "FNI")1 First Trust NASDAQ(R) ABA Community Bank Index Fund - (Nasdaq ticker "QABA") 1 Effective on December 13, 2016, First Trust ISE Water Index Fund changed its name to First Trust Water ETF, First Trust ISE-Revere Natural Gas Index Fund changed its name to First Trust Natural Gas ETF, and First Trust ISE Chindia Index Fund changed its name to First Trust Chindia ETF. The Funds' ticker symbols were not changed. 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, each Fund's shares are not redeemable securities. 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 Fund NASDAQ-100 Equal Weighted Index(SM) First Trust NASDAQ-100-Technology Sector Index Fund NASDAQ-100 Technology Sector Index(SM) First Trust NASDAQ-100 Ex-Technology Sector Index 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(SM) First Trust S&P REIT Index Fund S&P United States REIT Index First Trust Water ETF ISE Water(TM) Index First Trust Natural Gas ETF ISE-Revere Natural Gas(TM) Index First Trust Chindia ETF ISE ChIndia(TM) Index First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM)
2. SIGNIFICANT ACCOUNTING POLICIES The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946, "Financial Services-Investment Companies." 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 as of that time. Foreign securities are priced using the data reflecting the earlier closing of the principal markets for those securities. Each Fund's NAV is calculated by dividing the value of all assets of each 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. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not Page 61 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds' investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"), in accordance with valuation procedures adopted by the Trust's Board of Trustees, and in accordance with the 1940 Act. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund's investments are valued as follows: Common stocks, real estate investment trusts ("REITs"), master limited partnerships ("MLPs") 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. Shares of open-end funds are valued at fair value which is based on NAV per share. Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Overnight repurchase agreements are valued at amortized cost when it represents the best estimate of fair value. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust's Board of Trustees or its delegate, the Advisor's Pricing Committee, 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 third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. 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 third-party 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 a Fund's performance and the performance of its underlying index. The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. Page 62 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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, 2016, is included with each Fund's Portfolio of Investments. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Distributions received from a Fund's investments in MLPs generally are comprised of return of capital and investment income. A 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 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 Offsetting Assets and Liabilities requires entities to disclose both gross and net information about 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. These disclosure requirements are 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. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. 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 ("MNAs") or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral. 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. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash 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, 2016, QQEW, QQXT, QCLN, FIW, FCG, FNI and QABA have securities in the securities lending program. Page 63 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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. E. REPURCHASE AGREEMENTS Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement ("MRA"). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds' custodian or designated sub-custodians under tri-party repurchase agreements. MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements. Repurchase agreements received for lending securities are collateralized by U.S. Treasury securities. The U.S. Treasury securities are held in a joint custody account at BBH on behalf of the Funds participating in the securities lending program. In the event the counterparty defaults on the repurchase agreement, the U.S. Treasury securities can either be maintained as part of a Fund's portfolio or sold for cash. A Fund could suffer a loss to the extent that the proceeds from the sale of the underlying collateral held by the Fund are less than the repurchase price and the Fund's costs associated with the delay and enforcement of the MRA. While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the fiscal year ended December 31, 2016, were received as collateral for lending securities. There were no repurchase agreements held by the Funds as of December 31, 2016. F. DIVIDENDS AND DISTRIBUTIONS 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 significantly modified 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 fiscal year ended December 31, 2016 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 Fund $ 3,070,171 $ -- $ -- First Trust NASDAQ-100-Technology Sector Index Fund 6,834,167 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index Fund 399,080 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 738,910 -- -- First Trust S&P REIT Index Fund 8,613,812 -- -- First Trust Water ETF 827,655 -- -- First Trust Natural Gas ETF 4,197,410 -- -- First Trust Chindia ETF 2,037,296 -- -- First Trust NASDAQ(R)ABA Community Bank Index Fund 3,108,936 -- --
Page 64 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2015 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 Fund $ 3,678,500 $ -- $ -- First Trust NASDAQ-100-Technology Sector Index Fund 3,154,776 -- -- First Trust NASDAQ-100 Ex-Technology Sector Index Fund 636,390 -- -- First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 527,840 -- -- First Trust S&P REIT Index Fund 6,276,431 -- -- First Trust Water ETF 1,094,946 -- -- First Trust Natural Gas ETF 5,545,080 -- -- First Trust Chindia ETF 1,676,190 -- -- First Trust NASDAQ(R)ABA Community Bank Index Fund 1,652,931 -- --
As of December 31, 2016, 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 Fund $ -- $(29,201,386) $ 16,172,877 First Trust NASDAQ-100-Technology Sector Index Fund -- (18,010,494) 71,363,998 First Trust NASDAQ-100 Ex-Technology Sector Index Fund -- (10,619,367) (339,669) First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (43,857,007) (5,638,563) First Trust S&P REIT Index Fund -- -- (17,625,946) First Trust Water ETF -- (16,239,544) 22,761,740 First Trust Natural Gas ETF -- (498,603,629) 1,954,828 First Trust Chindia ETF (215,841) (69,776,716) (11,765,141) First Trust NASDAQ(R) ABA Community Bank Index Fund -- (2,041,029) 59,025,429
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. 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 2013, 2014, 2015 and 2016 remain open to federal and state audit. As of December 31, 2016, 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, 2016, 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. Page 65 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016
Capital Capital Loss Loss Post- Total Available Available Enactment - Capital Through Through No Loss 2017 2018 Expiration Available ------------ ------------ ------------ ------------ First Trust NASDAQ-100 Equal Weighted Index Fund $ 4,681,103 $ -- $ 24,520,283 $ 29,201,386 First Trust NASDAQ-100-Technology Sector Index Fund 2,016,911 -- 15,993,583 18,010,494 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 1,051,894 80,899 9,486,574 10,619,367 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 7,483,633 5,884,801 30,488,573 43,857,007 First Trust Water ETF 5,768,328 2,198,674 8,272,542 16,239,544 First Trust Natural Gas ETF 32,569,413 40,089,981 425,944,235 498,603,629 First Trust Chindia ETF 11,686,955 7,245,147 50,844,614 69,776,716 First Trust NASDAQ(R) ABA Community Bank Index Fund 4,787 116,604 1,919,638 2,041,029
At the taxable year ended December 31, 2016, the following Funds' capital loss carryforwards expired in the following amounts:
Capital Loss Carryforward Expired ------------ First Trust NASDAQ-100 Equal Weighted Index Fund $ 1,957,170 First Trust NASDAQ-100-Technology Sector Index Fund 1,421,664 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 143,597 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 4,246,707 First Trust Water ETF 318,246 First Trust Natural Gas ETF 7,264,703 First Trust Chindia ETF 11,116,593
Certain losses realized during the current fiscal year may be deferred and treated as occurring on the first day of the following fiscal year for federal income tax purposes. For the fiscal year ended December 31, 2016, the following Funds incurred and elected to defer net ordinary losses as follows: Qualified Late Year Losses -------------------------- Ordinary Losses Capital Losses --------------- -------------- First Trust Chindia ETF $ 215,841 $ -- 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, 2016, the adjustments for each Fund were as follows:
Accumulated Accumulated Net Realized Net Investment Gain (Loss) Paid-in Income (Loss) on Investments Capital -------------- ------------------ ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 249,676 $ (15,838,431) $ 15,588,755 First Trust NASDAQ-100-Technology Sector Index Fund 420,271 (47,696,858) 47,276,587 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 87,094 (16,417,896) 16,330,802 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 44,949 3,116,967 (3,161,916) First Trust S&P REIT Index Fund 1,402,076 (14,595,894) 13,193,818 First Trust Water ETF 17,492 (5,708,566) 5,691,074 First Trust Natural Gas ETF 3,050,254 19,416,240 (22,466,494) First Trust Chindia ETF 188,218 10,532,526 (10,720,744) First Trust NASDAQ(R)ABA Community Bank Index Fund (35,555) (964,347) 999,902
Page 66 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 H. 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 has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
FUND LICENSOR First Trust NASDAQ-100 Equal Weighted Index Fund The Nasdaq Stock Market LLC First Trust NASDAQ-100-Technology Sector Index Fund The Nasdaq Stock Market LLC First Trust NASDAQ-100 Ex-Technology Sector Index 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 S&P Dow Jones Indices LLC First Trust Water ETF International Securities Exchange, LLC First Trust Natural Gas ETF International Securities Exchange, LLC First Trust Chindia ETF International Securities Exchange, LLC First Trust NASDAQ(R)ABA Community Bank Index Fund The Nasdaq Stock Market 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. The respective Funds are required to pay licensing fees, which are shown on the Statements of Operations. I. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS On October 13, 2016, the SEC adopted new rules and forms, and amended existing rules and forms. The new and amended rules and forms are intended to modernize the reporting of information provided by funds and to improve the quality and type of information that funds provide to the SEC and investors. The new and amended rules and forms will be effective for the First Trust funds, including the Funds, for reporting periods beginning on and after June 1, 2018. Management is evaluating the new and amended rules and forms to determine the impact to the Funds. J. NEW ACCOUNTING PRONOUNCEMENT In December 2016, FASB released Accounting Standards Update ("ASU") 2016-19 that makes technical changes to various sections of the ASC, including Topic 820, Fair Value Measurement. The changes to Topic 820 are intended to clarify the difference between a valuation approach and a valuation technique. The changes to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level 3 fair value measurements, a change in either or both a valuation approach and a valuation technique and the reason(s) for the change. The changes to Topic 820 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. At this time, management is evaluating the implications of the ASU and has not yet determined its impact on the financial statements and disclosures. 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 NASDAQ-100 Equal Weighted Index Fund 0.40% First Trust NASDAQ-100-Technology Sector Index Fund 0.40% First Trust NASDAQ-100 Ex-Technology Sector Index 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 Water ETF 0.40% First Trust Natural Gas ETF 0.40% First Trust Chindia ETF 0.40% First Trust NASDAQ(R)ABA Community Bank Index Fund 0.40%
Page 67 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which First Trust 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, acquired fund fees and 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, 2018.
Expense Cap ---------------- First Trust NASDAQ-100 Equal Weighted Index Fund 0.60% First Trust NASDAQ-100-Technology Sector Index Fund 0.60% First Trust NASDAQ-100 Ex-Technology Sector Index 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 Water ETF 0.60% First Trust Natural Gas ETF 0.60% First Trust Chindia ETF 0.60% First Trust NASDAQ(R)ABA Community Bank Index Fund 0.60%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement are subject to recovery by First Trust for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by a 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 are included in "Expenses previously waived or reimbursed" on the Statements of Operations. The advisory fee waivers and expense reimbursements for the fiscal year ended December 31, 2016 and fees waived or expenses borne by First Trust subject to recovery from the applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by First Trust Subject to Recovery ------------------------------------------------ Advisory Year Year Year Fee Expense Ended Ended Ended Waivers Reimbursement 12/31/2014 12/31/2015 12/31/2016 Total --------- ------------- ---------- ---------- ---------- --------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 37,048 $ -- $ 41,566 $ -- $ 37,048 $ 78,614 First Trust NASDAQ-100-Technology Sector Index Fund -- -- 10,480 10,215 -- 20,695 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 49,128 -- 40,262 38,410 49,128 127,800 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 44,163 -- 50,372 38,617 44,163 133,152 First Trust S&P REIT Index Fund -- -- -- -- -- -- First Trust Water ETF -- -- -- -- -- -- First Trust Natural Gas ETF 54,736 -- 42,386 37,153 54,736 134,275 First Trust Chindia ETF 5,970 -- 33,734 38,142 5,970 77,846 First Trust NASDAQ(R) ABA Community Bank Index Fund 21,616 -- 37,176 22,638 21,616 81,430
During the fiscal year ended December 31, 2016, First Trust recovered fees that were previously waived from First Trust NASDAQ-100-Technology Sector Index Fund of $23,113. The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund's securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. 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 that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, or is an index fund. Page 68 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairmen rotate every three years. The officers and "Interested" Trustee receive no compensation from the Trust for acting in such capacities. 4. REVERSE SHARE SPLIT On April 22, 2016, the Trust's Board of Trustees approved a one-for-five reverse share split, whereby every five outstanding shares of the First Trust Natural Gas ETF ("FCG") as of the close of business on April 29, 2016 automatically converted to one share as of the opening of business on May 2, 2016. In addition, at the opening of business on May 2, 2016, FCG's shares no longer traded under the CUSIP number 33734J102, and instead began trading under the new CUSIP number 33733E807. For the fiscal year ended December 31, 2015, all share transactions on the Statements of Changes in Net Assets, and all prior years' per share data on the Financial Highlights have been adjusted to reflect the reverse share split. For the fiscal year ended December 31, 2016, the share transactions on the Statements of Changes in Net Assets reflect the actual transactions, including the impact of the reverse share split. As a result of the reverse share split, fractional shares totaling 1,635 shares were redeemed and paid out to shareholders. The reverse share split had no impact on the overall value of a shareholder's investment in FCG. 5. PURCHASES AND SALES OF SECURITIES For the fiscal year ended December 31, 2016, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
Purchases Sales --------------- --------------- First Trust NASDAQ-100 Equal Weighted Index Fund $ 115,149,110 $ 115,117,093 First Trust NASDAQ-100-Technology Sector Index Fund 132,728,250 133,673,701 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 41,772,280 41,698,212 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 28,402,579 28,264,323 First Trust S&P REIT Index Fund 21,763,309 17,781,643 First Trust Water ETF 59,771,842 60,280,223 First Trust Natural Gas ETF 220,346,382 219,452,875 First Trust Chindia ETF 79,675,533 81,592,384 First Trust NASDAQ(R)ABA Community Bank Index Fund 32,582,898 32,377,851
For the fiscal year ended December 31, 2016, 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 Fund $ 53,379,427 $ 192,071,439 First Trust NASDAQ-100-Technology Sector Index Fund 1,381,725,626 217,101,079 First Trust NASDAQ-100 Ex-Technology Sector Index Fund 22,701,705 96,866,644 First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 2,136,171 17,304,813 First Trust S&P REIT Index Fund 166,591,160 159,251,779 First Trust Water ETF 111,526,363 26,156,089 First Trust Natural Gas ETF 397,035,423 346,220,016 First Trust Chindia ETF 2,724,674 83,169,894 First Trust NASDAQ(R)ABA Community Bank Index Fund 202,374,572 87,692,001
6. CREATION, REDEMPTION AND TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares in transactions with broker-dealers or large institutional investors that have entered into a participation agreement (an "Authorized Participant"). 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 Page 69 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 Shares in a Creation Unit. Authorized Participants purchasing 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 $ 500 101-499 $1,000 500 or more $1,500 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. Authorized Participants 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 $ 500 101-499 $1,000 500 or more $1,500 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. 7. 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 April 30, 2018. 8. 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. 9. 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 70 -------------------------------------------------------------------------------- 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 Fund, First Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT Index Fund, First Trust Water ETF (formerly known as First Trust ISE Water Index Fund), First Trust Natural Gas Index ETF (formerly known as First Trust ISE-Revere Natural Gas Index Fund), First Trust Chindia ETF (formerly known as First Trust ISE Chindia Index Fund), and First Trust NASDAQ(R) ABA Community Bank Index Fund (collectively, the "Funds"), each a series of the First Trust Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as of December 31, 2016, 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 Trust'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 audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust'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, 2016 by correspondence with the Trust's custodian and brokers; when replies were not received from brokers, 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, 2016, 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 23, 2017 Page 71 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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 Funds' 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 Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds' 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, 2016, 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 Fund 100.00% First Trust NASDAQ-100-Technology Sector Index Fund 100.00% First Trust NASDAQ-100 Ex-Technology Sector Index Fund 100.00% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 41.26% First Trust S&P REIT Index Fund -- First Trust Water ETF 100.00% First Trust Natural Gas ETF 28.36% First Trust Chindia ETF -- First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the taxable year ended December 31, 2016, the following percentages of income dividends paid by the Funds are hereby designated as qualified dividend income:
Qualified Dividend Income ---------------------------- First Trust NASDAQ-100 Equal Weighted Index Fund 100.00% First Trust NASDAQ-100-Technology Sector Index Fund 100.00% First Trust NASDAQ-100 Ex-Technology Sector Index Fund 100.00% First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 42.67% First Trust S&P REIT Index Fund -- First Trust Water ETF 100.00% First Trust Natural Gas ETF 48.37% First Trust Chindia ETF 69.69% First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the tax year ended December 31, 2016, the First Trust S&P REIT Index Fund designated $3,784,301, 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 gain and of these proceeds, $3,784,301, or amounts necessary, represents long-term capital gain from the Fund. Page 72 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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. First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund and First Trust Chindia ETF are 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. First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in the securities of companies in the consumer staples sector. Consumer staples companies provide products directly to the consumer that are typically considered non-discretionary items based on consumer purchasing habits. The success of these companies is affected by a variety of factors, such as government regulations, which may affect the permissibility of using various food additives and the production methods of companies that manufacture food products. Page 73 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (UNAUDITED) 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. The First Trust NASDAQ-100 Equal Weighted Index Fund and the First Trust NASDAQ-100-Technology Sector Index 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 and real estate sectors. Banks, thrifts and their holding companies are especially subject to the adverse effects of economic recession; volatile interest rates; portfolio concentrations in geographic markets and in commercial and residential real estate loans; and competition from new entrants in their fields of business. Although recently enacted legislation repealed most of the barriers which separated the banking, insurance and securities industries, these industries are still extensively regulated at both the federal and state level and may be adversely affected by increased regulations. The First Trust Chindia ETF, the First Trust NASDAQ-100 Equal Weighted Index Fund, the First Trust NASDAQ-100-Technology Sector Index 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 Chindia ETF, First Trust NASDAQ-100 Ex-Technology Sector Index Fund and First Trust NASDAQ-100 Equal Weighted Index 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 Natural Gas ETF 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 Water ETF 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 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 Water ETF 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. Page 74 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (UNAUDITED) 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 Chindia ETF, the First Trust Natural Gas ETF and the First Trust Water ETF 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 Water ETF 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 Natural Gas ETF 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 Chindia ETF 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. First Trust NASDAQ-100-Technology Sector Index Fund and First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in semiconductor companies. Semiconductor companies are primarily involved in the design, distribution, manufacture and sale of semiconductors. Semiconductor companies are significantly affected by rapid obsolescence, intense competition and global demand. The Fund is also subject to the risk that the securities of such issuers will underperform the market as a whole due to legislative or regulatory changes. The prices of the securities of semiconductor companies may fluctuate widely in response to such events. First Trust Natural Gas ETF invests in MLPs. An investment in MLP units involves risks which differ from an investment in common stock of a corporation. Holders of MLP units have limited control and voting rights on matters affecting the partnership. In addition, there are certain tax risks associated with an investment in MLP units and conflicts of interest may exist between common unit holders and the general partner, including those arising from incentive distribution payments. In addition, there is the risk that an MLP could be, contrary to its intention, taxed as a corporation, resulting in decreased returns from such MLP. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 75 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (UNAUDITED) REMUNERATION First Trust Advisors L.P. ("First Trust") is authorised and regulated by the U.S. Securities and Exchange Commission and is entitled to market shares of the First Trust Exchange-Traded Funds it manages (the "Funds") in the United Kingdom in accordance with the cooperation arrangements in Article 42 of the Alternative Investment Fund Managers Directive (the "Directive"). First Trust is required under the Directive to make disclosures in respect of remuneration. The following disclosures are made in line with First Trust's interpretation of currently available regulatory guidance on remuneration disclosures. During the year ended December 31, 2016, the amount of remuneration paid (or to be paid) by First Trust Advisors L.P. in respect of the Funds is $5,672,759. This figure is comprised of $239,218 paid (or to be paid) in fixed compensation and $5,433,541 paid (or to be paid) in variable compensation. There were a total of 13 beneficiaries of the remuneration described above. Those amounts include $3,984,992 paid (or to be paid) to senior management of First Trust Advisors L.P. and $1,687,767 paid (or to be paid) to other employees whose professional activities have a material impact on the risk profiles of First Trust Advisors L.P. or the Funds (collectively, "Code Staff"). Code Staff included in the aggregated figures disclosed above are rewarded in line with First Trust's remuneration policy (the "Remuneration Policy") which is determined and implemented by First Trust's senior management. The Remuneration Policy reflects First Trust's ethos of good governance and encapsulates the following principal objectives: i. to provide a clear link between remuneration and performance of First Trust and to avoid rewarding for failure; ii. to promote sound and effective risk management consistent with the risk profiles of the Funds managed by First Trust; and iii. to remunerate staff in line with the business strategy, objectives, values and interests of First Trust and the Funds managed by First Trust in a manner that avoids conflicts of interest. First Trust assesses various risk factors which it is exposed to when considering and implementing remuneration for Code Staff and considers whether any potential award to such person(s) would give rise to a conflict of interest. First Trust does not reward failure, or consider the taking of risk or failure to take risk in its remuneration of Code Staff. First Trust assesses performance for the purposes of determining payments in respect of performance-related remuneration of Code Staff by reference to a broad range of measures including (i) individual performance (using financial and non-financial criteria), and (ii) the overall performance of First Trust. Remuneration is not based upon the performance of the Funds. The elements of remuneration are balanced between fixed and variable and the senior management sets fixed salaries at a level sufficient to ensure that variable remuneration incentivises and rewards strong individual performance but does not encourage excessive risk taking. No individual is involved in setting his or her own remuneration. Page 76 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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, Officer, Wheaton Orthopedics; 138 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 E. Liberty Drive, o Since Inception Limited Partnership (June 1992 to Suite 400 December 2016); Member, Sportsmed LLC Wheaton, IL 60187 (April 2007 to November 2015) D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 138 Director of ADM c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services, 120 E. Liberty Drive, o Since Inception Inc., ADM Suite 400 Investor Services Wheaton, IL 60187 International and D.O.B.: 11/57 Futures Industry Association Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 138 Director of Trust c/o First Trust Advisors L.P. Management Consulting) Company of 120 E. Liberty Drive, o Since Inception Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 138 Director of c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant 120 E. Liberty Drive, o Since Inception Harapan Educational Foundation (Educational Transport Inc. Suite 400 Products and Services); President and Chief (May 2003 to Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014) D.O.B.: 03/54 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services); President (June 2002 to June 2012), Covenant College ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 138 None Chairman of the Board Advisors L.P. and First Trust 120 E. Liberty Drive, o Since Inception Portfolios L.P.; Chairman of the Suite 400 Board of Directors, BondWave LLC Wheaton, IL 60187 (Software Development Company) D.O.B.: 09/55 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, 2016 (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) ------------------------------------------------------------------------------------------------------------------------------------ James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Executive 120 E. Liberty Drive, Executive Officer Officer (January 2016 to Present), Controller (January Suite 400 o Since January 2016 2011 to January 2016), Senior Vice President (April Wheaton, IL 60187 2007 to January 2016), First Trust Advisors L.P. and D.O.B: 01/66 First Trust Portfolios L.P.; Chief Financial Officer, (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice 120 E. Liberty Drive, Officer and Chief President (April 2012 to July 2016), First Trust Suite 400 Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.; Vice Wheaton, IL 60187 President (September 2006 to April 2012), Guggenheim D.O.B.: 08/72 Funds Investment Advisors, LLC and Claymore Securities, Inc. W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel, Suite 400 o Since Inception BondWave LLC; Secretary, Stonebridge Wheaton, IL 60187 Advisors LLC D.O.B.: 05/60 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 Wheaton, IL 60187 Portfolios 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 Since Inception Wheaton, IL 60187 D.O.B.: 12/66 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), First Suite 400 o Since Inception Trust Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 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, 2016 (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 within First Trust. PRIVACY ONLINE We allow third-party companies, including AddThis (a social media sharing service), to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, 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). March 2016 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 3 First Trust Total US Market AlphaDEX(R) ETF (TUSA) First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH) Annual Report December 31, 2016 -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND ANNUAL REPORT DECEMBER 31, 2016 Shareholder Letter........................................................... 2 Market Overview.............................................................. 3 Fund Performance Overview First Trust Total US Market AlphaDEX(R) ETF (TUSA)........................ 4 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH).............. 6 Notes to Fund Performance Overview........................................... 8 Understanding Your Fund Expenses............................................. 9 Portfolio of Investments First Trust Total US Market AlphaDEX(R) ETF (TUSA)........................ 10 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH).............. 25 Statements of Assets and Liabilities......................................... 32 Statements of Operations..................................................... 33 Statements of Changes in Net Assets.......................................... 34 Financial Highlights......................................................... 35 Notes to Financial Statements................................................ 36 Report of Independent Registered Public Accounting Firm...................... 44 Additional Information....................................................... 45 Board of Trustees and Officers............................................... 48 Privacy Policy............................................................... 50 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 by 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. The Advisor may also periodically provide additional information on Fund performance on each Fund's webpage at http://www.ftportfolios.com. 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 of the Advisor, you may obtain an understanding of how the market environment affected the performance of each Fund. The statistical information that follows may help you understand each Fund's performance compared to that of relevant market benchmarks. It is important to keep in mind that the opinions expressed by personnel of the Advisor are just that: informed opinions. They should not be considered to be promises or advice. The opinions, like the statistics, cover the period through the date on the cover of this report. The material 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, 2016 Dear Shareholders: Now that 2016 is over, many will remember some of the historic events that occurred during the year: from the Brexit vote in the UK to leave the European Union, to the results of the U.S. Presidential Election which seemed unlikely at the beginning of the year, to the first World Series Championship for the Chicago Cubs in 108 years! First Trust Advisors L.P. ("First Trust") is pleased to provide you with this annual report which contains detailed information about your investment for the 12 months ended December 31, 2016, including a market overview and a performance analysis for the period. Additionally, First Trust has compiled the Funds' financial statements for you to review. We encourage you to read this report and discuss it with your financial advisor. On November 8, Donald J. Trump was elected to become the 45th president in our country's history. While no one has a crystal ball and the ability to predict how his presidency will shape the United States (and the world), there is no doubt that his populist message resonated for many Americans. And his message of improving lives for the "average" American, while reducing the size and scope of the federal government, also won him millions of votes. Many of his supporters believe that with his background in business, President Trump will make policy changes that will continue to grow the economy and spur stock markets even higher. Many analysts predicted the Dow Jones Industrial Average would hit a new benchmark, 20,000, in the first days of the New Year. As with all change and a new administration, only time will tell. As of December 31, 2016, the S&P 500(R) Index was up 11.96% calendar year-to-date, on a total return basis, as measured by Bloomberg. The current bull market (measuring from March 9, 2009 through December 31, 2016) is the second longest in history. We remain bullish on the economy, but continue to have a long-term perspective. We believe investors should think long-term as well, since no one can predict volatility and the inevitable ups and downs that occur in the market. Thank you for your investment in First Trust Exchange-Traded Fund and for giving First Trust the opportunity to be a part of your investment plan. We value our relationship with you and will continue our relentless focus on bringing the types of investments that we believe could help you reach 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, 2016 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 over 25 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 For the second consecutive year, at its December Federal Open Market Committee meeting, the Federal Reserve (the "Fed") initiated a 25 basis point increase to the federal funds target rate trading range, which now stands at 0.50% to 0.75%. The Fed commented in December that inflation expectations have increased "considerably" and noted that the labor market is tightening, according to Bloomberg. The Fed is forecasting three quarter-point increases in 2017. For the 30-year period ended December 31, 2016, the federal funds target rate (upper bound) averaged 3.54%, according to Bloomberg. Consumer confidence levels continued to rise in 2016. The Conference Board's Consumer Confidence Index reading stood at 113.70 in December, up from 96.30 in December 2015, according to Bloomberg. The index reached as low as 25.30 in February 2009, just prior to the end of the last bear market in stocks in March 2009. While confidence levels are higher than at any point since 2001, the index has room to run. The highest reading so far in this millennium was 144.71, set in January 2000. Confidence levels have been bolstered by gains in the labor force, in our opinion. U.S. nonfarm payrolls expanded by an average of 180,000 per month in 2016, above the 159,000 per month average posted so far in the current economic recovery (July 2009-December 2016), according to data from the Bureau of Labor Statistics. ETFGI, an industry research group, reported that total assets invested in exchange-traded funds ("ETFs") and other exchange-traded products ("ETPs") reached a record high of $3.55 trillion globally in 2016, according to its own release. Total assets invested in U.S. ETFs/ETPs reached a record high $2.59 trillion in 2016. U.S. STOCKS AND BONDS In 2016, three of the major U.S. stock indices posted double-digit returns. The S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index posted total returns of 11.96%, 20.74%, and 26.56%, respectively, according to Bloomberg. Ten of the 11 major S&P 500(R) Index sectors (Real Estate was added in September 2016) posted positive total returns. The top-performing sectors were Energy, Telecommunication Services and Financials, up 27.36%, 23.49% and 22.75%, respectively, on a total return basis. The only sector that posted a loss was Health Care, down 2.69%. Health Care stocks, particularly the drug makers, came under increased scrutiny during the election cycle from some of the political candidates, including Hillary Clinton. It is not unusual for candidates to use rising prescription drug prices as a wedge issue in an effort to garner votes, in our opinion. The S&P 500(R) Index closed 1.45% below its all-time closing high (2,271.72 on December 13, 2016) on December 31, 2016, according to Bloomberg. The consensus estimated earnings growth rates for 2017 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 12.02%, 11.49% and 17.64%, respectively, as of December 31, 2016 according to Bloomberg. The consensus estimated earnings growth rates for 2018 for the S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were 11.20%, 12.00% and 15.95%, respectively. We are encouraged by level of those earnings growth rate estimates at this stage of the bull market. In the U.S. bond market, the top-performing major debt group was high yield corporate bonds. The Bloomberg Barclays U.S. Corporate High Yield Index posted a total return of 17.13%. The worst-performing debt group that we track was municipal bonds, though the group still generated a positive return. The Bloomberg Barclays Municipal Bond: Long Bond (22+) Index posted a total return of 0.88%. The yield on the benchmark 10-Year Treasury note (T-note) increased by 18 basis points in 2016, from 2.27% on December 31, 2015 to 2.45% on December 31, 2016. A yield of 2.45% is low by historical standards. For the 30-year period ended December 31, 2016, the average yield on the 10-year T-note was 5.11%, according to Bloomberg. FOREIGN STOCKS AND BONDS The U.S. dollar appreciated by 3.63% against a basket of major currencies in 2016, as measured by the U.S. Dollar Index. With respect to U.S. investors, a stronger U.S. dollar can negatively impact returns on foreign securities. The Bloomberg Barclays EM Hard Currency Aggregate Index of emerging markets debt posted a total return of 9.00% in U.S. dollar ("USD") terms, while the Bloomberg Barclays Global Aggregate Index of higher quality debt rose 2.09% (USD) for the same period. The MSCI Emerging Markets Index of stocks posted a total return of 11.19% (USD), while the MSCI World Index (excluding the U.S.) posted a total return of 2.75% (USD). Page 3 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) -------------------------------------------------------------------------------- FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) The First Trust Total US Market AlphaDEX(R) ETF (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 AlphaDEX(R) Total US Market 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 quantitatively identify and select stocks across market capitalizations (including large-cap, mid-cap and small-cap companies) that exhibit growth and value factors and appear to have the greatest potential for capital appreciation. The Index is a modified equal-dollar weighted index. The Index is reconstituted and balanced on a quarterly basis. The Fund's shares are listed for trading on The Nasdaq Stock Market LLC. The first day of secondary market trading in shares of the Fund was December 7, 2006.
------------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS 1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception Ended Ended Ended (12/5/06) Ended Ended (12/5/06) 12/31/16 12/31/16 12/31/16 to 12/31/16 12/31/16 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 15.48% 10.22% 4.80% 4.65% 62.70% 59.81% 58.06% Market Value 15.70% 10.24% 4.80% 4.66% 62.79% 59.77% 58.25% INDEX PERFORMANCE NASDAQ AlphaDEX(R) Total US Market Index* 16.42% N/A N/A N/A N/A N/A N/A Russell 3000(R) Index 12.74% 14.67% 7.07% 7.03% 98.23% 98.10% 98.25% ------------------------------------------------------------------------------------------------------------------------------------
* On January 9, 2015, the Fund's underlying index changed from the Value Line(R) Equity Allocation Index to the NASDAQ AlphaDEX(R) Total US Market Index. Therefore, the Fund's performance and total returns shown for the periods prior to January 9, 2015, are not necessarily indicative of the performance the Fund, based on its current index, would have generated. Since the Fund's new underlying index had an inception date of September 8, 2014, it was not in existence for all of the periods disclosed. The Value Line(R) Equity Allocation Index is not shown above as the index terminated on January 9, 2015 and information on this index is no longer available. (See Notes to Fund Performance Overview on page 8.) PERFORMANCE REVIEW The Fund generated a net asset value ("NAV") return of 15.48% during the 12-month period covered by this report. During the same period, the Russell 3000(R) Index ("benchmark") generated a return of 12.74%. The Financials and Industrials sectors were the top two contributing and performing sectors with 4.8% and 4.3% contributions and 30.0% and 27.8% returns, respectively. The Health Care sector was the only negative returning sector over the period with a -0.9% contribution, stemming from the Fund's 8.6% weighting in the sector and -5.3% return. The Biotechnology industry in particular contributed -0.7% to the Fund's return as the industry had a -19.4% return. On a relative basis, the Fund outperformed the benchmark. The Financials sector, where the Fund over weighted the benchmark by 1.7%, is responsible for 1.4% of outperformance. Similarly, the Industrials sector created 1.4% of outperformance by the Fund over weighting the benchmark by 4.6% this well-performing sector. The Energy sector reversed 1.0% of outperformance. The Fund had a -2.0% lower allocation than the benchmark within this sector and had -10.1% lower return. The NASDAQ AlphaDEX(R) Total US Market Index (the "Index") is a trademark of The Nasdaq OMX Group and has been licensed for use by First Trust Portfolios L.P. AlphaDEX(R) is a trademark owned by First Trust Portfolios L.P. and has been licensed to The Nasdaq OMX Group for use in the name of the Index. The First Trust Total US Market AlphaDEX(R) ETF is not sponsored, endorsed, sold or promoted by The Nasdaq OMX Group and The Nasdaq OMX Group makes no representation or warranty regarding the advisability of investing in the First Trust Total US Market AlphaDEX(R) ETF or as to the result to be obtained by any person from use of the Index in connection with the trading of the First Trust Total US Market AlphaDEX(R) ETF. Page 4 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS Information Technology 18.45% Financials 17.72 Consumer Discretionary 16.96 Industrials 15.44 Health Care 9.63 Materials 4.46 Energy 4.26 Consumer Staples 4.03 Real Estate 3.98 Utilities 3.43 Telecommunication Services 1.64 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- NVIDIA Corp. 0.61% United Continental Holdings, Inc. 0.55 Valero Energy Corp. 0.51 American Airlines Group, Inc. 0.50 Marathon Petroleum Corp. 0.49 Level 3 Communications, Inc. 0.48 Host Hotels & Resorts, Inc. 0.48 Regions Financial Corp. 0.46 Harris Corp. 0.44 Best Buy Co., Inc. 0.44 ------- Total 4.96% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT DECEMBER 31, 2006 - DECEMBER 31, 2016 First Trust Total US Market Russell 3000(R) AlphaDEX(R) ETF Index 12/06 $10,000 $10,000 06/07 10,728 10,711 12/07 10,465 10,514 06/08 9,575 9,353 12/08 6,755 6,592 06/09 7,115 6,869 12/09 9,062 8,461 06/10 8,930 7,949 12/10 10,862 9,893 06/11 11,100 10,521 12/11 9,824 9,994 06/12 9,995 10,925 12/12 10,683 11,634 06/13 12,225 13,270 12/13 14,385 15,538 06/14 15,110 16,616 12/14 14,725 17,488 06/15 14,899 17,827 12/15 13,844 17,572 06/16 14,295 18,208 12/16 15,986 19,808
Performance figures assume reinvestment of all 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 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, 2016 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, 2012 through December 31, 2016. 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% 01/01/12 - 12/31/12 124 1 0 0 01/01/13 - 12/31/13 140 0 0 0 01/01/14 - 12/31/14 178 0 0 0 01/01/15 - 12/31/15 115 15 0 0 01/01/16 - 12/31/16 121 0 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 01/01/12 - 12/31/12 122 3 0 0 01/01/13 - 12/31/13 104 8 0 0 01/01/14 - 12/31/14 68 6 0 0 01/01/15 - 12/31/15 110 12 0 0 01/01/16 - 12/31/16 131 0 0 0 Page 5 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (the "Fund") seeks investment results that correspond generally to the price and yield (before the Fund's fees and expenses) of an equity index called the CBOE(R) VIX(R) Tail Hedge Index (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(R) Index and an out-of-the-money call option position on the Chicago Board Options Exchange Volatility Index(R) (the "VIX Index"). The VIX Index is quoted in percentage points, is calculated and disseminated in real-time by The Chicago Board Options Exchange ("CBOE(R)") and is a way of measuring the market's expectation of volatility in the S&P 500(R) over the next 30-day period. The Index, and in turn the Fund, tracks the performance of an S&P 500(R) 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(R) Index, as measured by the closest to maturity VIX Index futures. The Index is designed to help address 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, Inc. 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) 12/31/16 to 12/31/16 to 12/31/16 FUND PERFORMANCE NAV 0.54% 5.85% 27.97% Market Value 0.67% 5.88% 28.13% INDEX PERFORMANCE CBOE(R) VIX(R) Tail Hedge Index 1.02% 6.31% 30.42% S&P 500(R) Index 11.96% 13.63% 74.14% ------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 8.) PERFORMANCE REVIEW The Fund generated a NAV return of 0.54% during the 12-month period covered by this report. During the same period, the S&P 500(R) Index ("benchmark") generated a return of 11.96%. Greater volatility, as measured by the Index, through much of the year, had the Fund invested in VIX options. During 11 of the 12 months throughout 2016, the Fund acquired a VIX option at a 1.0% weighting of the Fund's NAV at the time of rebalance. The January 20th option expired in the money and created 0.12% of relative outperformance against the benchmark. During the other 10 months, the options expired out of the money creating roughly -11.0% of relative underperformance. S&P(R) and S&P 500(R) are registered trademarks of Standard & Poor's Financial Services LLC ("SPFS"); and CBOE(R), Chicago Board Options Exchange(R), CBOE Volatility Index(R) and VIX(R) are registered trademarks of Chicago Board Options Exchange, Incorporated ("CBOE(R)"); and these trademarks have been licensed for use by the S&P Dow Jones Indices LLC and sublicensed for certain purposes by First Trust. Page 6 -------------------------------------------------------------------------------- FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) (CONTINUED) ----------------------------------------------------------- % OF TOTAL SECTOR CLASSIFICATION LONG-TERM INVESTMENTS ----------------------------------------------------------- Information Technology 20.77% Financials 14.82 Health Care 13.64 Consumer Discretionary 12.02 Industrials 10.27 Consumer Staples 9.37 Energy 7.56 Utilities 3.17 Real Estate 2.88 Materials 2.84 Telecommunication Services 2.66 ------- Total 100.00% ======= ----------------------------------------------------------- % OF TOTAL TOP TEN HOLDINGS LONG-TERM INVESTMENTS ----------------------------------------------------------- Apple, Inc. 3.20% Microsoft Corp. 2.51 Exxon Mobil Corp. 1.94 Johnson & Johnson 1.63 Berkshire Hathaway, Inc., Class B 1.61 JPMorgan Chase & Co. 1.60 Amazon.com, Inc. 1.53 General Electric Co. 1.45 Facebook, Inc., Class A 1.40 AT&T, Inc. 1.36 ------- Total 18.23% =======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT AUGUST 29, 2012 - DECEMBER 31, 2016 First Trust CBOE(R) S&P 500(R) CBOE(R) VIX(R) S&P 500(R) VIX(R) Tail Hedge Fund Tail Hdge Index Index 08/12 $10,000 $10,000 $10,000 12/12 9,863 9,880 10,193 06/13 10,686 10,719 11,602 12/13 11,738 11,799 13,494 06/14 12,251 12,345 14,457 12/14 13,525 13,666 15,342 06/15 13,175 13,320 15,531 12/15 12,730 12,910 15,554 06/16 12,551 12,752 16,151 12/16 12,800 13,041 17,414
Performance figures assume reinvestment of all 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, 2016 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, 2016. 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 01/01/14 - 12/31/14 152 2 0 1 01/01/15 - 12/31/15 98 1 0 1 01/01/16 - 12/31/16 76 3 0 0 -------------------------------------------------------------------------------- NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV -------------------------------------------------------------------------------- FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00% 08/30/12 - 12/31/12 21 1 1 0 01/01/13 - 12/31/13 92 0 0 0 01/01/14 - 12/31/14 95 2 0 0 01/01/15 - 12/31/15 148 1 1 2 01/01/16 - 12/31/16 168 4 1 0 Page 7 -------------------------------------------------------------------------------- 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 Price") 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 each 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 each Fund is used as a proxy for the secondary market trading price to calculate market returns. NAV and market returns assume that all distributions have been reinvested in each Fund at NAV and Market Price, respectively. An index is a statistical composite that tracks a specified financial market or sector. Unlike each Fund, the indices do not actually hold a portfolio of securities and therefore do 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 performance. Page 8 FIRST TRUST EXCHANGE-TRADED FUND UNDERSTANDING YOUR FUND EXPENSES DECEMBER 31, 2016 (UNAUDITED) As a shareholder of First Trust Total US Market AlphaDEX(R) ETF or First Trust CBOE(R) S&P 500(R) VIX(R) 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, 2016. ACTUAL EXPENSES The first line in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Six-Month Period" to estimate the expenses you paid on your account during this six-month period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line in the following table provides information about hypothetical account values and hypothetical expenses based on each Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as brokerage commissions. Therefore, the second line in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
----------------------------------------------------------------------------------------------------------------------- ANNUALIZED EXPENSE RATIO EXPENSES PAID BEGINNING ENDING BASED ON THE DURING THE ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH JULY 1, 2016 DECEMBER 31, 2016 PERIOD (a) PERIOD (b) ----------------------------------------------------------------------------------------------------------------------- FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) Actual $1,000.00 $1,118.30 0.70% (a) $3.73 Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% (a) $3.56 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) Actual $1,000.00 $1,019.80 0.60% $3.05 Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
(a) These expense ratios reflect an expense cap. 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, 2016 through December 31, 2016), multiplied by 184/366 (to reflect the one-half year period). Page 9 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 99.9% AEROSPACE & DEFENSE -- 2.0% 83 AAR Corp. $ 2,743 39 Astronics Corp. (a) 1,320 38 B/E Aerospace, Inc. 2,287 102 BWX Technologies, Inc. 4,049 19 Cubic Corp. 911 86 Curtiss-Wright Corp. 8,459 158 DigitalGlobe, Inc. (a) 4,527 11 Esterline Technologies Corp. (a) 981 42 General Dynamics Corp. 7,252 113 HEICO Corp. 8,718 177 Hexcel Corp. 9,105 38 Huntington Ingalls Industries, Inc. 6,999 54 Lockheed Martin Corp. 13,497 44 Moog, Inc., Class A (a) 2,890 40 National Presto Industries, Inc. 4,256 31 Northrop Grumman Corp. 7,210 77 Rockwell Collins, Inc. 7,143 44 Spirit AeroSystems Holdings, Inc., Class A 2,567 91 TASER International, Inc. (a) 2,206 54 Teledyne Technologies, Inc. (a) 6,642 657 Textron, Inc. 31,904 123 TransDigm Group, Inc. 30,622 -------------- 166,288 -------------- AIR FREIGHT & LOGISTICS -- 0.4% 182 Air Transport Services Group, Inc. (a) 2,905 61 Atlas Air Worldwide Holdings, Inc. (a) 3,181 76 Expeditors International of Washington, Inc. 4,025 37 FedEx Corp. 6,889 20 Forward Air Corp. 948 64 Hub Group, Inc., Class A (a) 2,800 267 XPO Logistics, Inc. (a) 11,524 -------------- 32,272 -------------- AIRLINES -- 1.6% 149 Alaska Air Group, Inc. 13,221 892 American Airlines Group, Inc. 41,647 72 Hawaiian Holdings, Inc. (a) 4,104 568 JetBlue Airways Corp. (a) 12,735 165 SkyWest, Inc. 6,014 230 Spirit Airlines, Inc. (a) 13,308 622 United Continental Holdings, Inc. (a) 45,331 -------------- 136,360 -------------- AUTO COMPONENTS -- 1.0% 202 American Axle & Manufacturing Holdings, Inc. (a) 3,898 279 BorgWarner, Inc. 11,004 115 Cooper Tire & Rubber Co. 4,468 44 Cooper-Standard Holdings, Inc. (a) 4,549 112 Dana, Inc. 2,126 27 Dorman Products, Inc. (a) 1,973 SHARES DESCRIPTION VALUE ------------------------------------------------------------- AUTO COMPONENTS (CONTINUED) 190 Fox Factory Holding Corp. (a) $ 5,272 446 Gentex Corp. 8,782 182 Goodyear Tire & Rubber (The) Co. 5,618 44 LCI Industries (a) 4,741 81 Lear Corp. 10,722 275 Metaldyne Performance Group, Inc. 6,311 36 Standard Motor Products, Inc. 1,916 119 Superior Industries International, Inc. 3,136 101 Tenneco, Inc. (a) 6,309 -------------- 80,825 -------------- AUTOMOBILES -- 1.0% 2,706 Ford Motor Co. 32,824 1,028 General Motors Co. 35,816 124 Harley-Davidson, Inc. 7,234 69 Thor Industries, Inc. 6,903 111 Winnebago Industries, Inc. 3,513 -------------- 86,290 -------------- BANKS -- 6.9% 49 1st Source Corp. 2,188 75 Ameris Bancorp 3,270 89 Associated Banc-Corp. 2,198 12 BancFirst Corp. 1,117 38 BancorpSouth, Inc. 1,180 1,252 Bank of America Corp. 27,669 27 Bank of Hawaii Corp. 2,395 195 BankUnited, Inc. 7,350 346 BB&T Corp. 16,269 94 Berkshire Hills Bancorp, Inc. 3,464 57 BOK Financial Corp. 4,733 68 Boston Private Financial Holdings, Inc. 1,125 71 Brookline Bancorp, Inc. 1,164 57 Cathay General Bancorp 2,168 49 CenterState Banks, Inc. 1,233 35 Central Pacific Financial Corp. 1,100 59 Chemical Financial Corp. 3,196 270 CIT Group, Inc. 11,524 553 Citigroup, Inc. 32,865 793 Citizens Financial Group, Inc. 28,255 17 City Holding Co. 1,149 27 Columbia Banking System, Inc. 1,206 83 Comerica, Inc. 5,653 42 Commerce Bancshares, Inc. 2,428 47 Community Trust Bancorp, Inc. 2,331 54 Cullen/Frost Bankers, Inc. 4,764 160 East West Bancorp, Inc. 8,133 28 Enterprise Financial Services Corp. 1,204 142 F.N.B. Corp. 2,276 45 FCB Financial Holdings, Inc., Class A (a) 2,147 1,277 Fifth Third Bancorp 34,441 502 First BanCorp (a) 3,318 9 First Citizens BancShares, Inc., Class A 3,195 Page 10 See Notes to Financial Statements FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) BANKS (CONTINUED) 86 First Commonwealth Financial Corp. $ 1,219 40 First Financial Bancorp 1,138 24 First Financial Bankshares, Inc. 1,085 257 First Horizon National Corp. 5,143 28 First Interstate BancSystem, Inc., Class A 1,191 65 First Merchants Corp. 2,447 254 First Republic Bank 23,404 110 Flushing Financial Corp. 3,233 120 Fulton Financial Corp. 2,256 22 German American Bancorp, Inc. 1,157 64 Great Southern Bancorp, Inc. 3,498 26 Great Western Bancorp, Inc. 1,133 27 Hancock Holding Co. 1,164 66 Hanmi Financial Corp. 2,303 72 Heartland Financial USA, Inc. 3,456 116 Hilltop Holdings, Inc. 3,457 94 Home BancShares, Inc. 2,610 596 Huntington Bancshares, Inc. 7,879 13 IBERIABANK Corp. 1,089 20 Independent Bank Group, Inc. 1,248 88 International Bancshares Corp. 3,590 326 Investors Bancorp, Inc. 4,548 294 JPMorgan Chase & Co. 25,369 537 KeyCorp 9,811 83 LegacyTexas Financial Group, Inc. 3,574 75 National Bank Holdings Corp., Class A 2,392 186 Old National Bancorp 3,376 49 Opus Bank 1,472 33 Pacific Premier Bancorp, Inc. (a) 1,167 46 PacWest Bancorp 2,504 248 People's United Financial, Inc. 4,801 218 PNC Financial Services Group (The), Inc. 25,497 205 Popular, Inc. 8,983 107 Prosperity Bancshares, Inc. 7,680 2,647 Regions Financial Corp. 38,011 60 S&T Bancorp, Inc. 2,342 28 Sandy Spring Bancorp, Inc. 1,120 34 ServisFirst Bancshares, Inc. 1,273 17 Simmons First National Corp., Class A 1,057 54 Southside Bancshares, Inc. 2,034 38 State Bank Financial Corp. 1,021 53 Stock Yards Bancorp, Inc. 2,488 447 SunTrust Banks, Inc. 24,518 35 SVB Financial Group (a) 6,008 120 Synovus Financial Corp. 4,930 240 TCF Financial Corp. 4,702 23 Tompkins Financial Corp. 2,174 65 TriCo Bancshares 2,222 63 Trustmark Corp. 2,246 152 U.S. Bancorp 7,808 521 Umpqua Holdings Corp. 9,784 SHARES DESCRIPTION VALUE ------------------------------------------------------------- BANKS (CONTINUED) 65 Union Bankshares Corp. $ 2,323 52 United Bankshares, Inc. 2,405 41 United Community Banks, Inc. 1,214 90 Valley National Bancorp 1,048 22 Washington Trust Bancorp, Inc. 1,233 103 Webster Financial Corp. 5,591 443 Wells Fargo & Co. 24,414 26 WesBanco, Inc. 1,120 209 Western Alliance Bancorp (a) 10,180 31 Wintrust Financial Corp. 2,250 190 Zions Bancorporation 8,178 -------------- 575,276 -------------- BEVERAGES -- 0.1% 39 Constellation Brands, Inc., Class A 5,979 86 MGP Ingredients, Inc. 4,298 -------------- 10,277 -------------- BIOTECHNOLOGY -- 1.8% 104 AbbVie, Inc. 6,512 72 Acceleron Pharma, Inc. (a) 1,837 606 Agenus, Inc. (a) 2,497 42 Alkermes PLC (a) 2,334 78 Amgen, Inc. 11,404 318 ARIAD Pharmaceuticals, Inc. (a) 3,956 645 Array BioPharma, Inc. (a) 5,670 63 Biogen, Inc. (a) 17,866 98 Coherus Biosciences, Inc. (a) 2,759 37 Eagle Pharmaceuticals, Inc. (a) 2,936 28 Emergent BioSolutions, Inc. (a) 920 188 Exact Sciences Corp. (a) 2,512 340 Exelixis, Inc. (a) 5,069 83 Five Prime Therapeutics, Inc. (a) 4,159 149 Foundation Medicine, Inc. (a) (b) 2,637 60 Genomic Health, Inc. (a) 1,763 144 Halozyme Therapeutics, Inc. (a) 1,423 69 Incyte Corp. (a) 6,919 93 Inovio Pharmaceuticals, Inc. (a) 645 36 Intercept Pharmaceuticals, Inc. (a) (b) 3,911 219 Ironwood Pharmaceuticals, Inc. (a) 3,349 16 Kite Pharma, Inc. (a) 717 241 Lexicon Pharmaceuticals, Inc. (a) 3,333 29 MacroGenics, Inc. (a) 593 212 Myriad Genetics, Inc. (a) 3,534 77 Neurocrine Biosciences, Inc. (a) 2,980 555 OPKO Health, Inc. (a) 5,161 15 Prothena Corp. PLC (a) 738 156 Retrophin, Inc. (a) 2,953 57 Sarepta Therapeutics, Inc. (a) 1,564 181 Seattle Genetics, Inc. (a) 9,551 58 Spark Therapeutics, Inc. (a) 2,894 83 United Therapeutics Corp. (a) 11,905 262 Vanda Pharmaceuticals, Inc. (a) 4,179 178 Xencor, Inc. (a) 4,685 -------------- 145,865 -------------- See Notes to Financial Statements Page 11 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) BUILDING PRODUCTS -- 1.2% 159 A.O. Smith Corp. $ 7,529 30 AAON, Inc. 991 28 Allegion PLC 1,792 32 American Woodmark Corp. (a) 2,408 151 Builders FirstSource, Inc. (a) 1,656 225 Fortune Brands Home & Security, Inc. 12,029 117 Gibraltar Industries, Inc. (a) 4,873 51 Griffon Corp. 1,336 74 Insteel Industries, Inc. 2,637 50 Lennox International, Inc. 7,659 571 Masco Corp. 18,055 119 NCI Building Systems, Inc. (a) 1,862 147 Owens Corning 7,579 70 Patrick Industries, Inc. (a) 5,341 50 Quanex Building Products Corp. 1,015 40 Simpson Manufacturing Co., Inc. 1,750 59 Trex Co., Inc. (a) 3,800 35 Universal Forest Products, Inc. 3,576 379 USG Corp. (a) 10,946 -------------- 96,834 -------------- CAPITAL MARKETS -- 2.5% 65 Ameriprise Financial, Inc. 7,211 328 Bank of New York Mellon (The) Corp. 15,541 67 E*TRADE Financial Corp. (a) 2,322 100 Eaton Vance Corp. 4,188 17 Evercore Partners, Inc., Class A 1,168 12 FactSet Research Systems, Inc. 1,961 138 Federated Investors, Inc., Class B 3,903 918 Franklin Resources, Inc. 36,334 81 Goldman Sachs Group (The), Inc. 19,396 37 Greenhill & Co., Inc. 1,025 35 Houlihan Lokey, Inc. 1,089 121 Intercontinental Exchange, Inc. 6,827 45 INTL FCStone, Inc. (a) 1,782 418 Invesco Ltd. 12,682 186 Janus Capital Group, Inc. 2,468 224 KCG Holdings, Inc., Class A (a) 2,968 58 LPL Financial Holdings, Inc. 2,042 59 MarketAxess Holdings, Inc. 8,668 407 Morgan Stanley 17,196 93 MSCI, Inc. 7,327 18 Piper Jaffray Cos. (a) 1,305 67 Raymond James Financial, Inc. 4,641 258 S&P Global, Inc. 27,745 188 State Street Corp. 14,611 9 Virtus Investment Partners, Inc. 1,063 240 Waddell & Reed Financial, Inc., Class A 4,682 -------------- 210,145 -------------- CHEMICALS -- 2.9% 90 A. Schulman, Inc. 3,011 382 Albemarle Corp. 32,883 17 Ashland Global Holdings, Inc. 1,858 SHARES DESCRIPTION VALUE ------------------------------------------------------------- CHEMICALS (CONTINUED) 11 Balchem Corp. $ 923 112 Cabot Corp. 5,660 172 Calgon Carbon Corp. 2,924 59 Celanese Corp., Series A 4,646 322 CF Industries Holdings, Inc. 10,137 38 Chase Corp. 3,175 483 Eastman Chemical Co. 36,326 63 Ferro Corp. (a) 903 37 H.B. Fuller Co. 1,787 361 Huntsman Corp. 6,888 45 Innophos Holdings, Inc. 2,352 57 Innospec, Inc. 3,904 183 International Flavors & Fragrances, Inc. 21,563 81 Koppers Holdings, Inc. (a) 3,264 124 Kraton Corp. (a) 3,532 405 LyondellBasell Industries N.V., Class A 34,741 37 Minerals Technologies, Inc. 2,858 401 Mosaic (The) Co. 11,761 5 NewMarket Corp. 2,119 286 Olin Corp. 7,324 116 PolyOne Corp. 3,717 146 RPM International, Inc. 7,859 94 Scotts Miracle-Gro (The) Co., Class A 8,982 26 Sensient Technologies Corp. 2,043 36 Stepan Co. 2,933 77 Trinseo S.A. 4,566 183 Westlake Chemical Corp. 10,246 -------------- 244,885 -------------- COMMERCIAL SERVICES & SUPPLIES -- 1.3% 22 ABM Industries, Inc. 899 75 Brady Corp., Class A 2,816 290 Cintas Corp. 33,512 82 Clean Harbors, Inc. (a) 4,563 183 Copart, Inc. (a) 10,140 117 Deluxe Corp. 8,378 157 Interface, Inc. 2,912 182 KAR Auction Services, Inc. 7,757 43 Matthews International Corp., Class A 3,305 110 McGrath RentCorp 4,311 30 MSA Safety, Inc. 2,080 13 Multi-Color Corp. 1,009 216 Pitney Bowes, Inc. 3,281 163 Quad/Graphics, Inc. 4,381 83 R.R. Donnelley & Sons Co. 1,355 67 Rollins, Inc. 2,263 68 SP Plus Corp. (a) 1,914 314 Steelcase, Inc., Class A 5,621 49 Stericycle, Inc. (a) 3,775 20 UniFirst Corp. 2,873 71 Viad Corp. 3,131 -------------- 110,276 -------------- Page 12 See Notes to Financial Statements FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) COMMUNICATIONS EQUIPMENT -- 1.7% 46 ADTRAN, Inc. $ 1,028 115 Arista Networks, Inc. (a) 11,128 1,061 Brocade Communications Systems, Inc. 13,252 40 Ciena Corp. (a) 976 824 Cisco Systems, Inc. 24,901 99 EchoStar Corp., Class A (a) 5,088 47 F5 Networks, Inc. (a) 6,802 146 Finisar Corp. (a) 4,419 357 Harris Corp. 36,582 289 Infinera Corp. (a) 2,454 326 Juniper Networks, Inc. 9,213 104 Lumentum Holdings, Inc. (a) 4,020 72 NETGEAR, Inc. (a) 3,913 509 Oclaro, Inc. (a) 4,556 183 Ubiquiti Networks, Inc. (a) 10,577 26 ViaSat, Inc. (a) 1,722 -------------- 140,631 -------------- CONSTRUCTION & ENGINEERING -- 0.8% 264 AECOM (a) 9,599 74 Argan, Inc. 5,221 96 Dycom Industries, Inc. (a) 7,708 99 EMCOR Group, Inc. 7,005 115 Fluor Corp. 6,040 53 Granite Construction, Inc. 2,915 76 Jacobs Engineering Group, Inc. (a) 4,332 230 KBR, Inc. 3,839 127 Primoris Services Corp. 2,893 350 Quanta Services, Inc. (a) 12,197 162 Tutor Perini Corp. (a) 4,536 -------------- 66,285 -------------- CONSTRUCTION MATERIALS -- 0.1% 51 Eagle Materials, Inc. 5,025 206 Headwaters, Inc. (a) 4,845 94 Summit Materials, Inc., Class A (c) 2,236 -------------- 12,106 -------------- CONSUMER FINANCE -- 1.8% 503 Ally Financial, Inc. 9,567 204 American Express Co. 15,112 364 Capital One Financial Corp. 31,755 19 Credit Acceptance Corp. (a) (b) 4,133 231 Discover Financial Services 16,653 155 Encore Capital Group, Inc. (a) (b) 4,441 76 Green Dot Corp., Class A (a) 1,790 542 Navient Corp. 8,905 86 Nelnet, Inc., Class A 4,364 190 OneMain Holdings, Inc. (a) 4,207 76 PRA Group, Inc. (a) 2,972 806 Santander Consumer USA Holdings, Inc. (a) 10,881 525 SLM Corp. (a) 5,785 700 Synchrony Financial 25,389 -------------- 145,954 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- CONTAINERS & PACKAGING -- 0.6% 51 AptarGroup, Inc. $ 3,746 76 Avery Dennison Corp. 5,337 77 Bemis Co., Inc. 3,682 223 Berry Plastics Group, Inc. (a) 10,867 34 Crown Holdings, Inc. (a) 1,787 420 Graphic Packaging Holding Co. 5,242 18 Greif, Inc., Class A 923 107 Owens-Illinois, Inc. (a) 1,863 121 Packaging Corp. of America 10,263 74 Sonoco Products Co. 3,900 -------------- 47,610 -------------- DISTRIBUTORS -- 0.4% 921 LKQ Corp. (a) 28,229 62 Pool Corp. 6,469 -------------- 34,698 -------------- DIVERSIFIED CONSUMER SERVICES -- 0.3% 29 Bright Horizons Family Solutions, Inc. (a) 2,031 45 Capella Education Co. 3,951 38 DeVry Education Group, Inc. 1,186 254 H&R Block, Inc. 5,839 243 K12, Inc. (a) 4,170 206 LifeLock, Inc. (a) 4,927 69 Regis Corp. (a) 1,002 74 Service Corp. International 2,102 -------------- 25,208 -------------- DIVERSIFIED FINANCIAL SERVICES -- 0.4% 181 Berkshire Hathaway, Inc., Class B (a) 29,499 68 Voya Financial, Inc. 2,667 -------------- 32,166 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.1% 13 ATN International, Inc. 1,042 1,191 CenturyLink, Inc. 28,322 1,884 Frontier Communications Corp. 6,368 322 Iridium Communications, Inc. (a) (b) 3,091 704 Level 3 Communications, Inc. (a) 39,677 85 ORBCOMM, Inc. (a) 703 87 Windstream Holdings, Inc. (b) 638 264 Zayo Group Holdings, Inc. (a) 8,675 -------------- 88,516 -------------- ELECTRIC UTILITIES -- 2.3% 66 ALLETE, Inc. 4,237 51 Alliant Energy Corp. 1,932 305 American Electric Power Co., Inc. 19,203 245 Duke Energy Corp. 19,017 255 Entergy Corp. 18,735 785 Exelon Corp. 27,860 197 FirstEnergy Corp. 6,101 287 Great Plains Energy, Inc. 7,849 See Notes to Financial Statements Page 13 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) ELECTRIC UTILITIES (CONTINUED) 197 Hawaiian Electric Industries, Inc. $ 6,515 186 OGE Energy Corp. 6,222 214 PG&E Corp. 13,005 103 Pinnacle West Capital Corp. 8,037 27 PNM Resources, Inc. 926 184 Portland General Electric Co. 7,973 567 PPL Corp. 19,306 127 Southern (The) Co. 6,247 476 Xcel Energy, Inc. 19,373 -------------- 192,538 -------------- ELECTRICAL EQUIPMENT -- 1.1% 123 Acuity Brands, Inc. 28,396 137 AMETEK, Inc. 6,658 27 AZZ, Inc. 1,725 398 Eaton Corp. PLC 26,702 120 Emerson Electric Co. 6,690 95 Encore Wire Corp. 4,118 13 EnerSys 1,015 36 Hubbell, Inc. 4,201 59 Regal Beloit Corp. 4,086 51 Sensata Technologies Holding N.V. (a) 1,987 553 Sunrun, Inc. (a) 2,936 44 Thermon Group Holdings, Inc. (a) 840 -------------- 89,354 -------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 3.0% 402 Amphenol Corp., Class A 27,014 27 Anixter International, Inc. (a) 2,188 153 Arrow Electronics, Inc. (a) 10,909 239 Avnet, Inc. 11,379 189 AVX Corp. 2,954 114 Belden, Inc. 8,524 175 Benchmark Electronics, Inc. (a) 5,338 86 CDW Corp. 4,480 111 Cognex Corp. 7,062 24 Coherent, Inc. (a) 3,297 1,381 Corning, Inc. 33,517 48 Dolby Laboratories, Inc., Class A 2,169 37 ePlus, Inc. (a) 4,262 98 Fabrinet (a) 3,949 125 FLIR Systems, Inc. 4,524 107 II-VI, Inc. (a) 3,173 107 Insight Enterprises, Inc. (a) 4,327 78 Itron, Inc. (a) 4,902 359 Jabil Circuit, Inc. 8,498 309 Keysight Technologies, Inc. (a) 11,300 7 Littelfuse, Inc. 1,062 57 MTS Systems Corp. 3,232 69 National Instruments Corp. 2,127 13 OSI Systems, Inc. (a) 990 132 PC Connection, Inc. 3,708 56 Plexus Corp. (a) 3,026 29 Rogers Corp. (a) 2,228 153 Sanmina Corp. (a) 5,607 SHARES DESCRIPTION VALUE ------------------------------------------------------------- ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS (CONTINUED) 95 ScanSource, Inc. (a) $ 3,833 52 SYNNEX Corp. 6,293 507 TE Connectivity Ltd. 35,125 41 Tech Data Corp. (a) 3,472 274 Trimble, Inc. (a) 8,261 380 TTM Technologies, Inc. (a) 5,179 111 VeriFone Systems, Inc. (a) 1,968 25 Zebra Technologies Corp., Class A (a) 2,144 -------------- 252,021 -------------- ENERGY EQUIPMENT & SERVICES -- 0.6% 133 Archrock, Inc. 1,756 78 Dril-Quip, Inc. (a) 4,684 205 Fairmount Santrol Holdings, Inc. (a) 2,417 66 FMC Technologies, Inc. (a) 2,345 58 Helmerich & Payne, Inc. 4,489 522 McDermott International, Inc. (a) 3,857 127 Oceaneering International, Inc. 3,583 39 Patterson-UTI Energy, Inc. 1,050 233 RPC, Inc. 4,616 49 Superior Energy Services, Inc. 827 919 Transocean Ltd. (a) 13,546 56 U.S. Silica Holdings, Inc. 3,174 -------------- 46,344 -------------- EQUITY REAL ESTATE INVESTMENT TRUSTS -- 3.6% 36 Alexandria Real Estate Equities, Inc. 4,001 362 American Homes 4 Rent, Class A 7,595 58 American Tower Corp. 6,129 43 Apartment Investment & Management Co., Class A 1,954 212 Apple Hospitality REIT, Inc. 4,236 591 Ashford Hospitality Trust, Inc. 4,586 125 Brandywine Realty Trust 2,064 71 Brixmor Property Group, Inc. 1,734 92 Care Capital Properties, Inc. 2,300 287 CBL & Associates Properties, Inc. 3,300 190 Chesapeake Lodging Trust 4,913 187 Communications Sales & Leasing, Inc. 4,752 706 CoreCivic, Inc. 17,269 41 CyrusOne, Inc. 1,834 81 DCT Industrial Trust, Inc. 3,878 479 DiamondRock Hospitality Co. 5,523 160 Douglas Emmett, Inc. 5,850 50 EPR Properties 3,588 324 Equity Commonwealth (a) 9,798 139 First Industrial Realty Trust, Inc. 3,899 85 Forest City Realty Trust, Inc., Class A 1,771 146 GEO Group (The), Inc. 5,246 73 Getty Realty Corp. 1,861 203 Gramercy Property Trust 1,864 Page 14 See Notes to Financial Statements FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) EQUITY REAL ESTATE INVESTMENT TRUSTS (CONTINUED) 60 Healthcare Trust of America, Inc., Class A $ 1,747 38 Highwoods Properties, Inc. 1,938 198 Hospitality Properties Trust 6,284 2,098 Host Hotels & Resorts, Inc. 39,526 179 Hudson Pacific Properties, Inc. 6,226 96 InfraREIT, Inc. 1,719 30 Lamar Advertising Co., Class A 2,017 410 LaSalle Hotel Properties 12,493 49 Liberty Property Trust 1,935 265 Medical Properties Trust, Inc. 3,259 61 Monmouth Real Estate Investment Corp. 929 100 National Health Investors, Inc. 7,417 39 National Retail Properties, Inc. 1,724 42 National Storage Affiliates Trust 927 151 New Senior Investment Group, Inc. 1,478 55 Omega Healthcare Investors, Inc. 1,719 182 Physicians Realty Trust 3,451 90 Piedmont Office Realty Trust, Inc., Class A 1,882 45 Potlatch Corp. 1,874 488 Prologis, Inc. 25,762 35 PS Business Parks, Inc. 4,078 295 Rayonier, Inc. 7,847 76 Rexford Industrial Realty, Inc. 1,762 466 RLJ Lodging Trust 11,412 69 Sabra Health Care REIT, Inc. 1,685 65 Select Income REIT 1,638 345 Senior Housing Properties Trust 6,531 50 Silver Bay Realty Trust Corp. 857 294 Spirit Realty Capital, Inc. 3,193 36 STAG Industrial, Inc. 859 331 Summit Hotel Properties, Inc. 5,306 340 Sunstone Hotel Investors, Inc. 5,185 32 Terreno Realty Corp. 912 56 Tier REIT, Inc. 974 70 Urban Edge Properties 1,926 70 Washington Prime Group, Inc. 729 287 Xenia Hotels & Resorts, Inc. 5,574 -------------- 294,720 -------------- FOOD & STAPLES RETAILING -- 1.1% 49 Casey's General Stores, Inc. 5,825 73 CVS Health Corp. 5,760 88 Ingles Markets, Inc., Class A 4,233 440 Kroger (The) Co. 15,184 95 Sprouts Farmers Market, Inc. (a) 1,797 175 SUPERVALU, Inc. (a) 817 87 United Natural Foods, Inc. (a) 4,152 362 Wal-Mart Stores, Inc. 25,022 66 Weis Markets, Inc. 4,412 922 Whole Foods Market, Inc. 28,361 -------------- 95,563 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- FOOD PRODUCTS -- 2.3% 108 Amplify Snack Brands, Inc. (a) (b) $ 951 620 Archer-Daniels-Midland Co. 28,303 199 B&G Foods, Inc. 8,716 165 Blue Buffalo Pet Products, Inc. (a) 3,967 165 Bunge Ltd. 11,920 13 Calavo Growers, Inc. 798 90 Cal-Maine Foods, Inc. 3,976 322 Darling Ingredients, Inc. (a) 4,157 98 Farmer Brothers Co. (a) 3,597 518 Flowers Foods, Inc. 10,344 44 Fresh Del Monte Produce, Inc. 2,668 220 Hain Celestial Group (The), Inc. (a) 8,587 196 Ingredion, Inc. 24,492 53 John B. Sanfilippo & Son, Inc. 3,731 45 Lancaster Colony Corp. 6,362 744 Mondelez International, Inc., Class A 32,981 117 Pinnacle Foods, Inc. 6,254 51 Post Holdings, Inc. (a) 4,100 18 Sanderson Farms, Inc. 1,696 437 Tyson Foods, Inc., Class A 26,954 -------------- 194,554 -------------- GAS UTILITIES -- 0.2% 28 Southwest Gas Holdings, Inc. 2,146 87 UGI Corp. 4,009 94 WGL Holdings, Inc. 7,170 -------------- 13,325 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 3.1% 76 ABIOMED, Inc. (a) 8,564 105 Align Technology, Inc. (a) 10,094 686 Baxter International, Inc. 30,417 182 Becton, Dickinson and Co. 30,130 823 Boston Scientific Corp. (a) 17,801 22 Cantel Medical Corp. 1,733 110 Cardiovascular Systems, Inc. (a) 2,663 22 Cooper (The) Cos., Inc. 3,848 198 CryoLife, Inc. (a) 3,792 51 Cynosure, Inc., Class A (a) 2,326 167 Danaher Corp. 12,999 67 DexCom, Inc. (a) 4,000 271 Edwards Lifesciences Corp. (a) 25,393 115 Glaukos Corp. (a) 3,945 7 ICU Medical, Inc. (a) 1,031 87 IDEXX Laboratories, Inc. (a) 10,202 44 Inogen, Inc. (a) 2,955 85 Insulet Corp. (a) 3,203 27 Intuitive Surgical, Inc. (a) 17,123 44 Masimo Corp. (a) 2,966 227 Medtronic PLC 16,169 42 Nevro Corp. (a) 3,052 118 NuVasive, Inc. (a) 7,948 139 NxStage Medical, Inc. (a) 3,643 57 Penumbra, Inc. (a) 3,637 39 Quidel Corp. (a) 835 202 ResMed, Inc. 12,534 See Notes to Financial Statements Page 15 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) HEALTH CARE EQUIPMENT & SUPPLIES (CONTINUED) 174 Spectranetics (The) Corp. (a) $ 4,263 12 Teleflex, Inc. 1,934 20 Varian Medical Systems, Inc. (a) 1,796 72 Vascular Solutions, Inc. (a) 4,039 26 West Pharmaceutical Services, Inc. 2,206 36 Wright Medical Group N.V. (a) 827 89 Zeltiq Aesthetics, Inc. (a) 3,873 -------------- 261,941 -------------- HEALTH CARE PROVIDERS & SERVICES -- 2.3% 138 Aceto Corp. 3,032 57 Aetna, Inc. 7,069 138 Air Methods Corp. (a) 4,395 156 Anthem, Inc. 22,428 112 Brookdale Senior Living, Inc. (a) 1,391 195 Centene Corp. (a) 11,019 6 Chemed Corp. 962 87 Ensign Group (The), Inc. 1,932 278 Express Scripts Holding Co. (a) 19,124 92 HealthEquity, Inc. (a) 3,728 97 HealthSouth Corp. 4,000 165 Healthways, Inc. (a) 3,754 426 Kindred Healthcare, Inc. 3,344 48 Laboratory Corp. of America Holdings (a) 6,162 71 LHC Group, Inc. (a) 3,245 74 LifePoint Health, Inc. (a) 4,203 65 Magellan Health, Inc. (a) 4,891 89 MEDNAX, Inc. (a) 5,933 101 Molina Healthcare, Inc. (a) 5,480 53 National HealthCare Corp. 4,017 50 Owens & Minor, Inc. 1,765 43 Patterson Cos., Inc. 1,764 93 PharMerica Corp. (a) 2,339 72 Providence Service (The) Corp. (a) 2,740 309 Quest Diagnostics, Inc. 28,397 258 Select Medical Holdings Corp. (a) 3,419 36 Surgical Care Affiliates, Inc. (a) 1,666 86 Tenet Healthcare Corp. (a) 1,276 28 U.S. Physical Therapy, Inc. 1,966 159 Universal Health Services, Inc., Class B 16,914 112 VCA, Inc. (a) 7,689 17 WellCare Health Plans, Inc. (a) 2,330 -------------- 192,374 -------------- HEALTH CARE TECHNOLOGY -- 0.4% 106 Cerner Corp. (a) 5,021 63 HealthStream, Inc. (a) 1,578 196 HMS Holdings Corp. (a) 3,559 176 Medidata Solutions, Inc. (a) 8,742 91 Omnicell, Inc. (a) 3,085 237 Veeva Systems, Inc., Class A (a) 9,646 -------------- 31,631 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- HOTELS, RESTAURANTS & LEISURE -- 3.0% 206 Aramark $ 7,358 137 Belmond Ltd., Class A (a) 1,829 8 Biglari Holdings, Inc. (a) 3,786 98 BJ's Restaurants, Inc. (a) 3,851 45 Bob Evans Farms, Inc. 2,395 109 Bojangles', Inc. (a) 2,033 35 Brinker International, Inc. 1,734 56 Buffalo Wild Wings, Inc. (a) 8,646 669 Carnival Corp. 34,828 35 Cheesecake Factory (The), Inc. 2,096 12 Churchill Downs, Inc. 1,805 44 Cracker Barrel Old Country Store, Inc. 7,347 96 Darden Restaurants, Inc. 6,981 65 Domino's Pizza, Inc. 10,351 75 Dunkin' Brands Group, Inc. 3,933 248 Eldorado Resorts, Inc. (a) 4,204 145 Fiesta Restaurant Group, Inc. (a) 4,328 570 Hilton Worldwide Holdings, Inc. 15,504 35 Hyatt Hotels Corp., Class A (a) 1,934 254 ILG, Inc. 4,615 130 International Speedway Corp., Class A 4,784 268 Intrawest Resorts Holdings, Inc. (a) 4,784 36 Jack in the Box, Inc. 4,019 78 La Quinta Holdings, Inc. (a) 1,108 24 Marriott Vacations Worldwide Corp. 2,036 1,004 MGM Resorts International (a) 28,945 693 Norwegian Cruise Line Holdings Ltd. (a) 29,473 33 Papa John's International, Inc. 2,824 99 Planet Fitness, Inc., Class A 1,990 97 Red Robin Gourmet Burgers, Inc. (a) 5,471 309 Scientific Games Corp., Class A (a) 4,326 65 SeaWorld Entertainment, Inc. 1,231 62 Vail Resorts, Inc. 10,001 161 Wendy's (The) Co. 2,177 30 Wingstop, Inc. 888 200 Yum! Brands, Inc. 12,666 -------------- 246,281 -------------- HOUSEHOLD DURABLES -- 2.4% 293 CalAtlantic Group, Inc. 9,965 26 Cavco Industries, Inc. (a) 2,596 865 D.R. Horton, Inc. 23,641 111 Ethan Allen Interiors, Inc. 4,090 272 Garmin Ltd. 13,189 93 Harman International Industries, Inc. 10,338 10 Helen of Troy Ltd. (a) 845 97 Installed Building Products, Inc. (a) 4,006 99 iRobot Corp. (a) 5,787 216 KB Home 3,415 142 La-Z-Boy, Inc. 4,409 771 Lennar Corp., Class A 33,099 118 LGI Homes, Inc. (a) 3,390 106 M.D.C. Holdings, Inc. 2,720 Page 16 See Notes to Financial Statements FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) HOUSEHOLD DURABLES (CONTINUED) 185 M/I Homes, Inc. (a) $ 4,658 125 Meritage Homes Corp. (a) 4,350 33 Mohawk Industries, Inc. (a) 6,589 1 NVR, Inc. (a) 1,669 489 PulteGroup, Inc. 8,988 35 Tempur Sealy International, Inc. (a) 2,390 328 Toll Brothers, Inc. (a) 10,168 131 TopBuild Corp. (a) 4,664 198 TRI Pointe Group, Inc. (a) 2,273 60 Tupperware Brands Corp. 3,157 47 Universal Electronics, Inc. (a) 3,034 121 Whirlpool Corp. 21,994 235 William Lyon Homes, Class A (a) 4,472 -------------- 199,896 -------------- HOUSEHOLD PRODUCTS -- 0.3% 176 Central Garden & Pet Co., Class A (a) 5,438 499 HRG Group, Inc. (a) 7,765 71 Spectrum Brands Holdings, Inc. 8,685 -------------- 21,888 -------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.1% 152 AES (The) Corp. 1,766 205 NRG Yield, Inc., Class C 3,239 54 Ormat Technologies, Inc. 2,896 -------------- 7,901 -------------- INDUSTRIAL CONGLOMERATES -- 0.1% 76 Carlisle Cos., Inc. 8,382 -------------- INSURANCE -- 5.2% 182 Aflac, Inc. 12,667 15 Alleghany Corp. (a) 9,122 97 Allied World Assurance Co. Holdings AG 5,210 94 Allstate (The) Corp. 6,967 189 Ambac Financial Group, Inc. (a) 4,252 98 American Equity Investment Life Holding Co. 2,209 53 American Financial Group, Inc. 4,670 32 American National Insurance Co. 3,988 292 AmTrust Financial Services, Inc. 7,995 25 Arch Capital Group Ltd. (a) 2,157 62 Argo Group International Holdings Ltd. 4,086 116 Arthur J. Gallagher & Co. 6,027 93 Aspen Insurance Holdings Ltd. 5,115 64 Assurant, Inc. 5,943 353 Assured Guaranty Ltd. 13,333 180 Axis Capital Holdings Ltd. 11,749 52 Brown & Brown, Inc. 2,333 642 CNO Financial Group, Inc. 12,294 117 Employers Holdings, Inc. 4,633 150 Endurance Specialty Holdings Ltd. 13,860 19 Erie Indemnity Co., Class A 2,137 52 Everest Re Group, Ltd. 11,253 SHARES DESCRIPTION VALUE ------------------------------------------------------------- INSURANCE (CONTINUED) 27 FBL Financial Group, Inc., Class A $ 2,110 200 First American Financial Corp. 7,326 354 FNF Group 12,022 104 Hanover Insurance Group (The), Inc. 9,465 305 Hartford Financial Services Group (The), Inc. 14,533 24 Horace Mann Educators Corp. 1,027 32 Infinity Property & Casualty Corp. 2,813 50 James River Group Holdings Ltd. 2,078 278 Lincoln National Corp. 18,423 343 Maiden Holdings Ltd. 5,985 97 Marsh & McLennan Cos., Inc. 6,556 36 Mercury General Corp. 2,168 294 MetLife, Inc. 15,844 78 National General Holdings Corp. 1,949 18 Navigators Group (The), Inc. 2,120 445 Old Republic International Corp. 8,455 122 OneBeacon Insurance Group Ltd., Class A 1,958 16 Primerica, Inc. 1,106 127 Principal Financial Group, Inc. 7,348 17 ProAssurance Corp. 955 320 Prudential Financial, Inc. 33,299 54 Reinsurance Group of America, Inc. 6,795 82 RenaissanceRe Holdings Ltd. 11,170 30 RLI Corp. 1,894 26 Safety Insurance Group, Inc. 1,916 66 Selective Insurance Group, Inc. 2,841 92 Torchmark Corp. 6,786 228 Travelers (The) Cos., Inc. 27,912 62 United Fire Group, Inc. 3,049 139 Universal Insurance Holdings, Inc. 3,948 222 Unum Group 9,752 197 Validus Holdings Ltd. 10,837 103 W. R. Berkley Corp. 6,851 5 White Mountains Insurance Group Ltd. 4,180 777 XL Group Ltd. 28,951 -------------- 436,422 -------------- INTERNET & DIRECT MARKETING RETAIL -- 1.0% 95 1-800-Flowers.com, Inc., Class A (a) 1,016 39 Amazon.com, Inc. (a) 29,245 244 Etsy, Inc. (a) 2,874 22 HSN, Inc. 755 1,306 Liberty Interactive Corp. QVC Group, Class A (a) 26,094 117 Nutrisystem, Inc. 4,054 13 Priceline Group (The), Inc. (a) 19,059 20 Shutterfly, Inc. (a) 1,004 22 Wayfair, Inc., Class A (a) 771 -------------- 84,872 -------------- See Notes to Financial Statements Page 17 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) INTERNET SOFTWARE & SERVICES -- 1.7% 68 2U, Inc. (a) $ 2,050 111 Akamai Technologies, Inc. (a) 7,402 121 Alarm.com Holdings, Inc. (a) 3,367 16 Alphabet, Inc., Class A (a) 12,679 44 Benefitfocus, Inc. (a) 1,307 221 Box, Inc., Class A (a) 3,063 97 Cimpress N.V. (a) 8,886 76 Cornerstone OnDemand, Inc. (a) 3,216 18 CoStar Group, Inc. (a) 3,393 48 Envestnet, Inc. (a) 1,692 204 Facebook, Inc., Class A (a) 23,470 278 Five9, Inc. (a) 3,945 79 Gogo, Inc. (a) 728 228 GrubHub, Inc. (a) 8,577 148 GTT Communications, Inc. (a) 4,255 59 j2 Global, Inc. 4,826 39 LogMeIn, Inc. 3,766 177 MINDBODY, Inc., Class A (a) 3,770 68 New Relic, Inc. (a) 1,921 38 NIC, Inc. 908 410 Pandora Media, Inc. (a) (b) 5,346 65 Quotient Technology, Inc. (a) 699 68 Shutterstock, Inc. (a) 3,231 36 SPS Commerce, Inc. (a) 2,516 461 TrueCar, Inc. (a) (b) 5,763 850 Twitter, Inc. (a) 13,855 151 Web.com Group, Inc. (a) 3,194 104 Yelp, Inc. (a) 3,966 -------------- 141,791 -------------- IT SERVICES -- 2.3% 160 Accenture PLC, Class A 18,741 43 Black Knight Financial Services, Inc., Class A (a) 1,625 124 Booz Allen Hamilton Holding Corp. 4,473 87 Broadridge Financial Solutions, Inc. 5,768 26 CACI International, Inc., Class A (a) 3,232 137 Cognizant Technology Solutions Corp., Class A (a) 7,676 38 Computer Sciences Corp. 2,258 115 Convergys Corp. 2,824 100 CoreLogic, Inc. (a) 3,683 66 DST Systems, Inc. 7,072 28 EPAM Systems, Inc. (a) 1,801 72 Euronet Worldwide, Inc. (a) 5,215 170 Fidelity National Information Services, Inc. 12,859 150 FleetCor Technologies, Inc. (a) 21,228 22 Forrester Research, Inc. 945 85 Global Payments, Inc. 5,900 41 International Business Machines Corp. 6,806 23 Jack Henry & Associates, Inc. 2,042 69 ManTech International Corp., Class A 2,915 SHARES DESCRIPTION VALUE ------------------------------------------------------------- IT SERVICES (CONTINUED) 69 MAXIMUS, Inc. $ 3,849 164 NeuStar, Inc., Class A (a) 5,478 478 PayPal Holdings, Inc. (a) 18,867 70 Sabre Corp. 1,746 63 Science Applications International Corp. 5,342 124 Sykes Enterprises, Inc. (a) 3,579 187 Syntel, Inc. 3,701 60 TeleTech Holdings, Inc. 1,830 126 Teradata Corp. (a) 3,423 104 Vantiv, Inc., Class A (a) 6,200 71 Virtusa Corp. (a) 1,783 314 Western Union (The) Co. 6,820 73 WEX, Inc. (a) 8,147 -------------- 187,828 -------------- LEISURE PRODUCTS -- 0.4% 66 American Outdoor Brands Corp. (a) 1,391 121 Brunswick Corp. 6,599 150 Callaway Golf Co. 1,644 192 Nautilus, Inc. (a) 3,552 101 Polaris Industries, Inc. (b) 8,321 45 Sturm Ruger & Co., Inc. (b) 2,372 246 Vista Outdoor, Inc. (a) 9,078 -------------- 32,957 -------------- LIFE SCIENCES TOOLS & SERVICES -- 1.3% 160 Accelerate Diagnostics, Inc. (a) 3,320 106 Albany Molecular Research, Inc. (a) 1,989 12 Bio-Rad Laboratories, Inc., Class A (a) 2,187 71 Charles River Laboratories International, Inc. (a) 5,410 59 INC Research Holdings, Inc., Class A (a) 3,103 77 Luminex Corp. (a) 1,558 62 Mettler-Toledo International, Inc. (a) 25,951 318 NeoGenomics, Inc. (a) 2,725 97 Pacific Biosciences of California, Inc. (a) 369 56 PAREXEL International Corp. (a) 3,680 105 PerkinElmer, Inc. 5,476 77 PRA Health Sciences, Inc. (a) 4,244 121 Quintiles IMS Holdings, Inc. (a) 9,202 123 Thermo Fisher Scientific, Inc. 17,355 138 VWR Corp. (a) 3,454 124 Waters Corp. (a) 16,664 -------------- 106,687 -------------- MACHINERY -- 3.4% 159 AGCO Corp. 9,200 26 Alamo Group, Inc. 1,979 21 Albany International Corp., Class A 972 68 Allison Transmission Holdings, Inc. 2,291 60 Altra Industrial Motion Corp. 2,214 Page 18 See Notes to Financial Statements FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) MACHINERY (CONTINUED) 105 American Railcar Industries, Inc. (b) $ 4,755 44 Astec Industries, Inc. 2,968 86 Barnes Group, Inc. 4,078 140 Briggs & Stratton Corp. 3,116 90 CLARCOR, Inc. 7,422 125 Colfax Corp. (a) 4,491 124 Crane Co. 8,943 153 Cummins, Inc. 20,911 52 Donaldson Co., Inc. 2,188 136 Douglas Dynamics, Inc. 4,576 177 Dover Corp. 13,263 272 Energy Recovery, Inc. (a) 2,815 19 ESCO Technologies, Inc. 1,076 41 Flowserve Corp. 1,970 64 Franklin Electric Co., Inc. 2,490 60 Global Brass & Copper Holdings, Inc. 2,058 68 Gorman-Rupp (The) Co. 2,105 123 Greenbrier (The) Cos., Inc. (b) 5,111 43 Hyster-Yale Materials Handling, Inc. 2,742 63 IDEX Corp. 5,674 218 Illinois Tool Works, Inc. 26,696 385 Ingersoll-Rand PLC 28,890 97 ITT, Inc. 3,741 62 John Bean Technologies Corp. 5,329 50 Kadant, Inc. 3,060 85 Lydall, Inc. (a) 5,257 63 Middleby (The) Corp. (a) 8,115 55 Milacron Holdings Corp. (a) 1,025 54 Mueller Industries, Inc. 2,158 208 Mueller Water Products, Inc., Class A 2,769 190 Navistar International Corp. (a) 5,960 98 Nordson Corp. 10,981 105 Oshkosh Corp. 6,784 11 RBC Bearings, Inc. (a) 1,021 39 Snap-on, Inc. 6,680 9 Standex International Corp. 791 34 Terex Corp. 1,072 74 Timken (The) Co. 2,938 126 Toro (The) Co. 7,050 405 Trinity Industries, Inc. 11,243 306 Wabash National Corp. (a) 4,841 48 Wabtec Corp. 3,985 125 Woodward, Inc. 8,631 149 Xylem, Inc. 7,378 -------------- 285,803 -------------- MARINE -- 0.1% 158 Kirby Corp. (a) 10,507 44 Matson, Inc. 1,557 -------------- 12,064 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- MEDIA -- 2.2% 84 AMC Entertainment Holdings, Inc., Class A $ 2,827 10 Cable One, Inc. 6,217 24 Charter Communications, Inc., Class A (a) 6,910 154 Cinemark Holdings, Inc. 5,907 197 Comcast Corp., Class A 13,603 1,213 Discovery Communications, Inc., Class A (a) 33,248 374 Gannett Co., Inc. 3,632 175 Interpublic Group of Cos. (The), Inc. 4,097 34 John Wiley & Sons, Inc., Class A 1,853 55 Liberty Broadband Corp., Class C (a) 4,074 281 New Media Investment Group, Inc. 4,493 561 News Corp., Class A 6,429 75 Nexstar Broadcasting Group, Inc., Class A (b) 4,747 180 Regal Entertainment Group, Class A 3,708 89 Scholastic Corp. 4,227 62 Scripps Networks Interactive, Inc., Class A 4,425 359 TEGNA, Inc. 7,679 164 Time Warner, Inc. 15,831 686 Viacom, Inc., Class B 24,079 211 Walt Disney (The) Co. 21,990 164 World Wrestling Entertainment, Inc., Class A 3,018 -------------- 182,994 -------------- METALS & MINING -- 0.5% 361 AK Steel Holding Corp. (a) 3,686 447 Cliffs Natural Resources, Inc. (a) 3,759 221 Coeur Mining, Inc. (a) 2,009 161 Commercial Metals Co. 3,507 611 Hecla Mining Co. 3,202 30 Kaiser Aluminum Corp. 2,331 113 Materion Corp. 4,475 136 Reliance Steel & Aluminum Co. 10,817 127 Royal Gold, Inc. 8,045 65 Stillwater Mining Co. (a) 1,047 54 Worthington Industries, Inc. 2,562 -------------- 45,440 -------------- MORTGAGE REAL ESTATE INVESTMENT TRUSTS -- 0.5% 118 Blackstone Mortgage Trust, Inc., Class A 3,548 369 Capstead Mortgage Corp. 3,760 369 Chimera Investment Corp. 6,280 37 Hannon Armstrong Sustainable Infrastructure Capital, Inc. 703 582 MFA Financial, Inc. 4,441 426 New Residential Investment Corp. 6,697 168 PennyMac Mortgage Investment Trust 2,750 See Notes to Financial Statements Page 19 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) MORTGAGE REAL ESTATE INVESTMENT TRUSTS (CONTINUED) 246 Redwood Trust, Inc. $ 3,742 174 Starwood Property Trust, Inc. 3,819 230 Two Harbors Investment Corp. 2,005 -------------- 37,745 -------------- MULTILINE RETAIL -- 0.9% 55 Big Lots, Inc. 2,762 69 Dillard's, Inc., Class A 4,326 213 J.C. Penney Co., Inc. (a) 1,770 224 Kohl's Corp. 11,061 529 Macy's, Inc. 18,943 76 Nordstrom, Inc. 3,643 100 Ollie's Bargain Outlet Holdings, Inc. (a) 2,845 380 Target Corp. 27,447 -------------- 72,797 -------------- MULTI-UTILITIES -- 0.8% 173 Consolidated Edison, Inc. 12,747 139 DTE Energy Co. 13,693 308 MDU Resources Group, Inc. 8,861 136 NorthWestern Corp. 7,734 624 Public Service Enterprise Group, Inc. 27,381 -------------- 70,416 -------------- OIL, GAS & CONSUMABLE FUELS -- 3.7% 73 Antero Resources Corp. (a) 1,726 111 Callon Petroleum Co. (a) 1,706 150 Cheniere Energy, Inc. (a) 6,214 938 Chesapeake Energy Corp. (a) 6,585 127 Chevron Corp. 14,948 102 CONSOL Energy, Inc. 1,859 251 Continental Resources, Inc. (a) 12,937 190 CVR Energy, Inc. (b) 4,824 101 Delek US Holdings, Inc. 2,431 444 Devon Energy Corp. 20,277 41 Diamondback Energy, Inc. (a) 4,143 794 Eclipse Resources Corp. (a) 2,120 68 EOG Resources, Inc. 6,875 75 Exxon Mobil Corp. 6,769 68 Laredo Petroleum, Inc. (a) 962 826 Marathon Oil Corp. 14,298 805 Marathon Petroleum Corp. 40,532 45 Newfield Exploration Co. (a) 1,823 304 Oasis Petroleum, Inc. (a) 4,603 153 ONEOK, Inc. 8,784 1,166 Overseas Shipholding Group, Inc., Class A 4,466 175 Parsley Energy, Inc., Class A (a) 6,167 77 PBF Energy, Inc., Class A 2,147 324 Phillips 66 27,997 70 Pioneer Natural Resources Co. 12,605 375 Rice Energy, Inc. (a) 8,006 152 RSP Permian, Inc. (a) 6,782 SHARES DESCRIPTION VALUE ------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS (CONTINUED) 296 Sanchez Energy Corp. (a) $ 2,673 283 Southwestern Energy Co. (a) 3,062 80 Targa Resources Corp. 4,486 123 Tesoro Corp. 10,756 616 Valero Energy Corp. 42,085 165 Western Refining, Inc. 6,245 127 World Fuel Services Corp. 5,831 -------------- 307,724 -------------- PAPER & FOREST PRODUCTS -- 0.2% 137 Boise Cascade Co. (a) 3,082 40 Clearwater Paper Corp. (a) 2,622 138 KapStone Paper and Packaging Corp. 3,043 33 Neenah Paper, Inc. 2,812 201 P.H. Glatfelter Co. 4,802 90 Schweitzer-Mauduit International, Inc. 4,098 -------------- 20,459 -------------- PERSONAL PRODUCTS -- 0.1% 615 Avon Products, Inc. (a) 3,100 32 Herbalife Ltd. (a) 1,540 30 Nu Skin Enterprises, Inc., Class A 1,433 47 Revlon, Inc., Class A (a) 1,370 13 USANA Health Sciences, Inc. (a) 796 -------------- 8,239 -------------- PHARMACEUTICALS -- 0.8% 144 Akorn, Inc. (a) 3,144 230 Amphastar Pharmaceuticals, Inc. (a) 4,237 52 ANI Pharmaceuticals, Inc. (a) 3,152 76 Catalent, Inc. (a) 2,049 536 Corcept Therapeutics, Inc. (a) 3,891 139 Depomed, Inc. (a) 2,505 26 Dermira, Inc. (a) 789 324 Horizon Pharma PLC (a) 5,242 37 Impax Laboratories, Inc. (a) 490 66 Lannett Co., Inc. (a) 1,455 105 Merck & Co., Inc. 6,181 343 Mylan N.V. (a) 13,086 51 Nektar Therapeutics (a) 626 64 Phibro Animal Health Corp., Class A 1,875 71 Sucampo Pharmaceuticals, Inc., Class A (a) 962 141 Supernus Pharmaceuticals, Inc. (a) 3,560 72 Theravance Biopharma Inc. (a) 2,295 126 Zoetis, Inc. 6,745 -------------- 62,284 -------------- PROFESSIONAL SERVICES -- 1.0% 78 Advisory Board (The) Co. (a) 2,593 311 CBIZ, Inc. (a) 4,261 57 Dun & Bradstreet (The) Corp. 6,915 146 Equifax, Inc. 17,262 39 FTI Consulting, Inc. (a) 1,758 44 Huron Consulting Group, Inc. (a) 2,229 Page 20 See Notes to Financial Statements FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) PROFESSIONAL SERVICES (CONTINUED) 59 ICF International, Inc. (a) $ 3,257 60 Insperity, Inc. 4,257 227 Kelly Services, Inc., Class A 5,203 136 ManpowerGroup, Inc. 12,086 172 Navigant Consulting, Inc. (a) 4,503 207 Robert Half International, Inc. 10,097 227 TransUnion (a) 7,021 201 TriNet Group, Inc. (a) 5,150 -------------- 86,592 -------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.4% 27 Altisource Portfolio Solutions S.A. (a) 718 467 CBRE Group, Inc., Class A (a) 14,706 17 Howard Hughes (The) Corp. (a) 1,940 86 Jones Lang LaSalle, Inc. 8,689 39 Kennedy-Wilson Holdings, Inc. 800 67 Marcus & Millichap, Inc. (a) 1,790 303 Realogy Holdings Corp. 7,796 -------------- 36,439 -------------- ROAD & RAIL -- 1.4% 24 AMERCO 8,870 57 Avis Budget Group, Inc. (a) 2,091 642 CSX Corp. 23,067 85 Genesee & Wyoming, Inc., Class A (a) 5,900 138 Heartland Express, Inc. 2,810 24 J.B. Hunt Transport Services, Inc. 2,330 58 Landstar System, Inc. 4,947 207 Marten Transport Ltd. 4,823 202 Norfolk Southern Corp. 21,830 114 Old Dominion Freight Line, Inc. (a) 9,780 119 Ryder System, Inc. 8,858 145 Saia, Inc. (a) 6,402 122 Swift Transportation Co. (a) 2,972 67 Union Pacific Corp. 6,946 187 Werner Enterprises, Inc. 5,040 -------------- 116,666 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 4.8% 37 Advanced Energy Industries, Inc. (a) 2,026 1,418 Advanced Micro Devices, Inc. (a) 16,080 24 Ambarella, Inc. (a) 1,299 179 Amkor Technology, Inc. (a) 1,888 1,083 Applied Materials, Inc. 34,948 16 Cabot Microelectronics Corp. 1,011 99 CEVA, Inc. (a) 3,321 184 Cirrus Logic, Inc. (a) 10,403 806 Cypress Semiconductor Corp. 9,221 82 Diodes, Inc. (a) 2,105 150 Entegris, Inc. (a) 2,685 248 First Solar, Inc. (a) 7,958 241 FormFactor, Inc. (a) 2,699 SHARES DESCRIPTION VALUE ------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 80 Inphi Corp. (a) $ 3,570 339 Integrated Device Technology, Inc. (a) 7,987 692 Intel Corp. 25,099 345 Lam Research Corp. 36,477 537 Lattice Semiconductor Corp. (a) 3,952 21 MACOM Technology Solutions Holdings, Inc. (a) 972 172 MaxLinear, Inc., Class A (a) 3,750 526 Microchip Technology, Inc. 33,743 1,469 Micron Technology, Inc. (a) 32,200 187 Microsemi Corp. (a) 10,092 70 MKS Instruments, Inc. 4,158 122 Monolithic Power Systems, Inc. 9,995 266 NeoPhotonics Corp. (a) 2,875 477 NVIDIA Corp. 50,915 477 ON Semiconductor Corp. (a) 6,087 422 Photronics, Inc. (a) 4,769 41 Power Integrations, Inc. 2,782 105 Qorvo, Inc. (a) 5,537 191 QUALCOMM, Inc. 12,453 348 Rambus, Inc. (a) 4,792 63 Semtech Corp. (a) 1,988 30 Synaptics, Inc. (a) 1,607 279 Texas Instruments, Inc. 20,359 240 Xilinx, Inc. 14,489 -------------- 396,292 -------------- SOFTWARE -- 3.8% 226 8x8, Inc. (a) 3,232 407 A10 Networks, Inc. (a) 3,382 737 Activision Blizzard, Inc. 26,613 241 Adobe Systems, Inc. (a) 24,811 168 Aspen Technology, Inc. (a) 9,186 271 Autodesk, Inc. (a) 20,057 171 Barracuda Networks, Inc. (a) 3,665 30 Blackbaud, Inc. 1,920 56 BroadSoft, Inc. (a) 2,310 592 CA, Inc. 18,808 154 Cadence Design Systems, Inc. (a) 3,884 102 CDK Global, Inc. 6,088 153 Citrix Systems, Inc. (a) 13,664 61 Ebix, Inc. 3,480 229 Electronic Arts, Inc. (a) 18,036 25 Ellie Mae, Inc. (a) 2,092 63 Fair Isaac Corp. 7,511 79 Gigamon, Inc. (a) 3,598 33 Guidewire Software, Inc. (a) 1,628 60 HubSpot, Inc. (a) 2,820 166 Oracle Corp. 6,383 69 Paycom Software, Inc. (a) 3,139 59 Paylocity Holding Corp. (a) 1,771 59 Pegasystems, Inc. 2,124 131 Proofpoint, Inc. (a) 9,255 39 PROS Holdings, Inc. (a) 839 133 PTC, Inc. (a) 6,154 91 Qualys, Inc. (a) 2,880 See Notes to Financial Statements Page 21 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) SOFTWARE (CONTINUED) 99 Rapid7, Inc. (a) $ 1,205 81 Red Hat, Inc. (a) 5,646 147 RingCentral, Inc., Class A (a) 3,028 330 ServiceNow, Inc. (a) 24,532 123 Silver Spring Networks, Inc. (a) 1,637 100 Splunk, Inc. (a) 5,115 122 SS&C Technologies Holdings, Inc. 3,489 85 Synchronoss Technologies, Inc. (a) 3,255 132 Synopsys, Inc. (a) 7,770 71 Tableau Software, Inc., Class A (a) 2,993 217 Take-Two Interactive Software, Inc. (a) 10,696 45 TiVo Corp. (a) 940 34 Tyler Technologies, Inc. (a) 4,854 10 Ultimate Software Group (The), Inc. (a) 1,823 27 VMware, Inc., Class A (a) (b) 2,126 356 Workday, Inc., Class A (a) 23,528 192 Workiva, Inc. (a) 2,621 113 Zendesk, Inc. (a) 2,396 -------------- 316,984 -------------- SPECIALTY RETAIL -- 3.9% 171 Aaron's, Inc. 5,470 274 Abercrombie & Fitch Co., Class A 3,288 549 American Eagle Outfitters, Inc. 8,328 31 Asbury Automotive Group, Inc. (a) 1,913 623 Ascena Retail Group, Inc. (a) 3,856 161 AutoNation, Inc. (a) 7,833 231 Barnes & Noble, Inc. 2,576 227 Bed Bath & Beyond, Inc. 9,225 855 Best Buy Co., Inc. 36,483 181 Buckle (The), Inc. (b) 4,127 121 Burlington Stores, Inc. (a) 10,255 107 Cabela's, Inc. (a) 6,265 172 Caleres, Inc. 5,645 132 Cato (The) Corp., Class A 3,971 11 Children's Place (The), Inc. 1,110 104 Dick's Sporting Goods, Inc. 5,522 170 DSW, Inc., Class A 3,850 369 Express, Inc. (a) 3,970 116 Foot Locker, Inc. 8,223 169 Francesca's Holdings Corp. (a) 3,047 355 GameStop Corp., Class A 8,967 1,468 Gap (The), Inc. 32,942 80 Genesco, Inc. (a) 4,968 128 GNC Holdings, Inc., Class A 1,413 41 Group 1 Automotive, Inc. 3,196 298 Guess?, Inc. 3,606 87 Hibbett Sports, Inc. (a) 3,245 18 Lithia Motors, Inc., Class A 1,743 110 Murphy USA, Inc. (a) 6,762 1,220 Office Depot, Inc. 5,514 51 Party City Holdco, Inc. (a) 724 163 Penske Automotive Group, Inc. 8,450 50 RH (a) 1,535 SHARES DESCRIPTION VALUE ------------------------------------------------------------- SPECIALTY RETAIL (CONTINUED) 508 Ross Stores, Inc. $ 33,325 131 Signet Jewelers Ltd. 12,348 232 Sonic Automotive, Inc., Class A 5,313 81 Tiffany & Co. 6,272 110 Ulta Salon, Cosmetics & Fragrance, Inc. (a) 28,043 227 Urban Outfitters, Inc. (a) 6,465 162 Vitamin Shoppe, Inc. (a) 3,848 153 Williams-Sonoma, Inc. 7,404 -------------- 321,040 -------------- TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 1.2% 97 3D Systems Corp. (a) 1,289 173 Apple, Inc. 20,037 105 Diebold Nixdorf, Inc. 2,641 1,436 Hewlett Packard Enterprise Co. 33,229 122 NCR Corp. (a) 4,948 55 NetApp, Inc. 1,940 149 Super Micro Computer, Inc. (a) 4,179 112 Western Digital Corp. 7,610 2,579 Xerox Corp. 22,515 -------------- 98,388 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.5% 179 Coach, Inc. 6,269 104 Columbia Sportswear Co. 6,063 58 Deckers Outdoor Corp. (a) 3,213 157 Fossil Group, Inc. (a) 4,060 149 G-III Apparel Group Ltd. (a) 4,404 39 Oxford Industries, Inc. 2,345 89 PVH Corp. 8,031 58 Ralph Lauren Corp. 5,239 50 Steven Madden Ltd. (a) 1,787 38 Wolverine World Wide, Inc. 834 -------------- 42,245 -------------- THRIFTS & MORTGAGE FINANCE -- 0.4% 39 BofI Holding, Inc. (a) (b) 1,114 208 Dime Community Bancshares, Inc. 4,181 98 Essent Group Ltd. (a) 3,172 126 Flagstar Bancorp, Inc. (a) 3,394 104 HomeStreet, Inc. (a) 3,286 64 Kearny Financial Corp. 995 544 MGIC Investment Corp. (a) 5,543 82 Provident Financial Services, Inc. 2,321 321 Radian Group, Inc. 5,772 123 TrustCo Bank Corp. NY 1,076 34 Walker & Dunlop, Inc. (a) 1,061 65 Washington Federal, Inc. 2,233 24 WSFS Financial Corp. 1,112 -------------- 35,260 -------------- TOBACCO -- 0.1% 75 Universal Corp. 4,781 -------------- Page 22 See Notes to Financial Statements FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) TRADING COMPANIES & DISTRIBUTORS -- 0.9% 343 Air Lease Corp. $ 11,775 41 Beacon Roofing Supply, Inc. (a) 1,889 98 GATX Corp. (b) 6,035 104 H&E Equipment Services, Inc. 2,418 245 HD Supply Holdings, Inc. (a) 10,415 52 Herc Holdings, Inc. (a) 2,088 40 Kaman Corp. 1,957 80 MSC Industrial Direct Co., Inc., Class A 7,391 178 Rush Enterprises, Inc., Class A (a) 5,678 198 Triton International Ltd. 3,129 125 United Rentals, Inc. (a) 13,198 52 Veritiv Corp. (a) 2,795 57 WESCO International, Inc. (a) 3,793 -------------- 72,561 -------------- TRANSPORTATION INFRASTRUCTURE -- 0.0% 47 Macquarie Infrastructure Corp. 3,840 -------------- WATER UTILITIES -- 0.0% 20 SJW Group 1,120 -------------- WIRELESS TELECOMMUNICATION SERVICES -- 0.6% 360 Telephone and Data Systems, Inc. 10,393 559 T-Mobile US, Inc. (a) 32,148 120 United States Cellular Corp. (a) 5,247 -------------- 47,788 -------------- TOTAL COMMON STOCKS -- 99.9% 8,313,998 -------------- (Cost $7,832,610) MONEY MARKET FUNDS -- 1.0% 54,293 Goldman Sachs Financial Square Treasury Obligations Fund - Institutional Class - 0.39% (d) (e) 54,293 31,840 Morgan Stanley Institutional Liquidity Funds - Treasury Portfolio - Institutional Class - 0.38% (d) 31,840 -------------- TOTAL MONEY MARKET FUNDS -- 1.0% 86,133 (Cost $86,133) -------------- TOTAL INVESTMENTS -- 100.9% 8,400,131 (Cost $7,918,743) (f) NET OTHER ASSETS AND LIABILITIES -- (0.9)% (78,745) -------------- NET ASSETS -- 100.0% $ 8,321,386 ============== (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 $52,733 and the total value of the collateral held by the Fund is $54,293. (c) Non-income producing security which makes payment-in-kind ("PIK") distributions. For the year ended December 31, 2016, the Fund received 1 PIK share of Summit Materials, Inc., Class A. (d) Interest rate shown reflects yield as of December 31, 2016. (e) This security serves as collateral for securities on loan. (f) Aggregate cost for federal income tax purposes is $7,976,178. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $708,281 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $284,328. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------------ Common Stocks* $ 8,313,998 $ -- $ -- Money Market Funds 86,133 -- -- ------------------------------------------------ Total Investments $ 8,400,131 $ -- $ -- ================================================ * 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, 2016. See Notes to Financial Statements Page 23 FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 201 ----------------------------- OFFSETTING ASSETS AND LIABILITIES -------------------------------------------------------------------------------- Offsetting assets and liabilities requires entities to disclose both gross and net information about instruments and transactions eligible for offset, and to disclose instruments and transactions subject to master netting or similar agreements (see Note 2D - Offsetting on the Statements of Assets and Liabilities in the Notes to Financial Statements). The Fund's loaned securities were all subject to an enforceable Securities Lending Agency Agreement. Securities lent in accordance with the Securities Lending Agency Agreement on a gross basis were as follows: SECURITIES LENDING AGENCY AGREEMENT ------------------------------------------------------------- Total gross amount presented on the Statements of Assets and Liabilities(1) $ 52,733 Non-cash Collateral(2) (52,733) -------------- Net Amount $ -- ============== (1) The amount presented on the Statements of Assets and Liabilities, which is included "Investments, at value," is not offset and is shown on a gross basis. (2) At December 31, 2016, the value of the collateral received from each borrower exceeded the value of the related securities loaned. This amount is disclosed on the Portfolio of Investments. Page 24 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS -- 100.0% AEROSPACE & DEFENSE -- 2.2% 81 Arconic, Inc. $ 1,502 106 Boeing (The) Co. 16,502 53 General Dynamics Corp. 9,151 14 L-3 Technologies, Inc. 2,130 47 Lockheed Martin Corp. 11,747 33 Northrop Grumman Corp. 7,675 54 Raytheon Co. 7,668 24 Rockwell Collins, Inc. 2,226 50 Textron, Inc. 2,428 9 TransDigm Group, Inc. 2,241 142 United Technologies Corp. 15,566 -------------- 78,836 -------------- AIR FREIGHT & LOGISTICS -- 0.7% 26 C.H. Robinson Worldwide, Inc. 1,905 33 Expeditors International of Washington, Inc. 1,747 45 FedEx Corp. 8,379 128 United Parcel Service, Inc., Class B 14,674 -------------- 26,705 -------------- AIRLINES -- 0.6% 23 Alaska Air Group, Inc. 2,041 96 American Airlines Group, Inc. 4,482 136 Delta Air Lines, Inc. 6,690 114 Southwest Airlines Co. 5,682 53 United Continental Holdings, Inc. (a) 3,862 -------------- 22,757 -------------- AUTO COMPONENTS -- 0.2% 37 BorgWarner, Inc. 1,459 50 Delphi Automotive PLC 3,368 48 Goodyear Tire & Rubber (The) Co. 1,482 -------------- 6,309 -------------- AUTOMOBILES -- 0.6% 723 Ford Motor Co. 8,770 257 General Motors Co. 8,954 33 Harley-Davidson, Inc. 1,925 -------------- 19,649 -------------- BANKS -- 6.7% 1,871 Bank of America Corp. 41,349 150 BB&T Corp. 7,053 528 Citigroup, Inc. 31,379 95 Citizens Financial Group, Inc. 3,385 32 Comerica, Inc. 2,180 140 Fifth Third Bancorp 3,776 201 Huntington Bancshares, Inc. 2,657 663 JPMorgan Chase & Co. 57,210 200 KeyCorp 3,654 29 M&T Bank Corp. 4,536 58 People's United Financial, Inc. 1,123 90 PNC Financial Services Group (The), Inc. 10,526 228 Regions Financial Corp. 3,274 91 SunTrust Banks, Inc. 4,991 SHARES DESCRIPTION VALUE ------------------------------------------------------------- BANKS (CONTINUED) 296 U.S. Bancorp $ 15,206 837 Wells Fargo & Co. 46,127 38 Zions Bancorporation 1,636 -------------- 240,062 -------------- BEVERAGES -- 2.1% 34 Brown-Forman Corp., Class B 1,527 719 Coca-Cola (The) Co. 29,810 33 Constellation Brands, Inc., Class A 5,059 34 Dr Pepper Snapple Group, Inc. 3,083 34 Molson Coors Brewing Co., Class B 3,309 75 Monster Beverage Corp. (a) 3,325 266 PepsiCo, Inc. 27,832 -------------- 73,945 -------------- BIOTECHNOLOGY -- 2.8% 301 AbbVie, Inc. 18,848 42 Alexion Pharmaceuticals, Inc. (a) 5,139 138 Amgen, Inc. 20,177 40 Biogen, Inc. (a) 11,343 144 Celgene Corp. (a) 16,668 244 Gilead Sciences, Inc. 17,473 14 Regeneron Pharmaceuticals, Inc. (a) 5,139 46 Vertex Pharmaceuticals, Inc. (a) 3,389 -------------- 98,176 -------------- BUILDING PRODUCTS -- 0.3% 18 Allegion PLC 1,152 29 Fortune Brands Home & Security, Inc. 1,550 173 Johnson Controls International PLC 7,126 61 Masco Corp. 1,929 -------------- 11,757 -------------- CAPITAL MARKETS -- 2.8% 10 Affiliated Managers Group, Inc. (a) 1,453 29 Ameriprise Financial, Inc. 3,217 196 Bank of New York Mellon (The) Corp. 9,286 23 BlackRock, Inc. 8,752 223 Charles Schwab (The) Corp. 8,802 63 CME Group, Inc. 7,267 51 E*TRADE Financial Corp. (a) 1,767 64 Franklin Resources, Inc. 2,533 68 Goldman Sachs Group (The), Inc. 16,283 110 Intercontinental Exchange, Inc. 6,206 76 Invesco Ltd. 2,306 31 Moody's Corp. 2,922 267 Morgan Stanley 11,281 21 Nasdaq, Inc. 1,410 39 Northern Trust Corp. 3,473 48 S&P Global, Inc. 5,162 67 State Street Corp. 5,207 45 T. Rowe Price Group, Inc. 3,387 -------------- 100,714 -------------- See Notes to Financial Statements Page 25 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) CHEMICALS -- 2.1% 40 Air Products and Chemicals, Inc. $ 5,753 21 Albemarle Corp. 1,808 43 CF Industries Holdings, Inc. 1,354 208 Dow Chemical (The) Co. 11,902 161 E.I. du Pont de Nemours and Co. 11,817 27 Eastman Chemical Co. 2,031 49 Ecolab, Inc. 5,744 25 FMC Corp. 1,414 15 International Flavors & Fragrances, Inc. 1,767 62 LyondellBasell Industries N.V., Class A 5,318 81 Monsanto Co. 8,522 65 Mosaic (The) Co. 1,906 49 PPG Industries, Inc. 4,643 53 Praxair, Inc. 6,211 15 Sherwin-Williams (The) Co. 4,031 -------------- 74,221 -------------- COMMERCIAL SERVICES & SUPPLIES -- 0.3% 16 Cintas Corp. 1,849 34 Pitney Bowes, Inc. 516 43 Republic Services, Inc. 2,453 16 Stericycle, Inc. (a) 1,233 75 Waste Management, Inc. 5,318 -------------- 11,369 -------------- COMMUNICATIONS EQUIPMENT -- 1.0% 929 Cisco Systems, Inc. 28,074 12 F5 Networks, Inc. (a) 1,737 23 Harris Corp. 2,357 70 Juniper Networks, Inc. 1,978 31 Motorola Solutions, Inc. 2,570 -------------- 36,716 -------------- CONSTRUCTION & ENGINEERING -- 0.1% 26 Fluor Corp. 1,365 22 Jacobs Engineering Group, Inc. (a) 1,254 28 Quanta Services, Inc. (a) 976 -------------- 3,595 -------------- CONSTRUCTION MATERIALS -- 0.2% 12 Martin Marietta Materials, Inc. 2,658 24 Vulcan Materials Co. 3,004 -------------- 5,662 -------------- CONSUMER FINANCE -- 0.8% 142 American Express Co. 10,520 89 Capital One Financial Corp. 7,764 73 Discover Financial Services 5,263 56 Navient Corp. 920 145 Synchrony Financial 5,259 -------------- 29,726 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- CONTAINERS & PACKAGING -- 0.3% 16 Avery Dennison Corp. $ 1,124 32 Ball Corp. 2,402 76 International Paper Co. 4,033 36 Sealed Air Corp. 1,632 46 WestRock Co. 2,335 -------------- 11,526 -------------- DISTRIBUTORS -- 0.1% 28 Genuine Parts Co. 2,675 57 LKQ Corp. (a) 1,747 -------------- 4,422 -------------- DIVERSIFIED CONSUMER SERVICES -- 0.0% 41 H&R Block, Inc. 943 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.6% 352 Berkshire Hathaway, Inc., Class B (a) 57,369 60 Leucadia National Corp. 1,395 -------------- 58,764 -------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.7% 1,137 AT&T, Inc. 48,357 101 CenturyLink, Inc. 2,402 217 Frontier Communications Corp. 733 54 Level 3 Communications, Inc. (a) 3,043 755 Verizon Communications, Inc. 40,302 -------------- 94,837 -------------- ELECTRIC UTILITIES -- 2.0% 42 Alliant Energy Corp. 1,591 91 American Electric Power Co., Inc. 5,729 128 Duke Energy Corp. 9,935 60 Edison International 4,320 33 Entergy Corp. 2,425 59 Eversource Energy 3,259 171 Exelon Corp. 6,069 79 FirstEnergy Corp. 2,447 87 NextEra Energy, Inc. 10,393 94 PG&E Corp. 5,712 21 Pinnacle West Capital Corp. 1,639 126 PPL Corp. 4,290 181 Southern (The) Co. 8,903 94 Xcel Energy, Inc. 3,826 -------------- 70,538 -------------- ELECTRICAL EQUIPMENT -- 0.5% 8 Acuity Brands, Inc. 1,847 43 AMETEK, Inc. 2,090 84 Eaton Corp. PLC 5,635 119 Emerson Electric Co. 6,634 24 Rockwell Automation, Inc. 3,226 -------------- 19,432 -------------- Page 26 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS -- 0.4% 57 Amphenol Corp., Class A $ 3,830 176 Corning, Inc. 4,272 25 FLIR Systems, Inc. 905 66 TE Connectivity Ltd. 4,572 -------------- 13,579 -------------- ENERGY EQUIPMENT & SERVICES -- 1.2% 78 Baker Hughes, Inc. 5,068 42 FMC Technologies, Inc. (a) 1,492 160 Halliburton Co. 8,655 20 Helmerich & Payne, Inc. 1,548 70 National Oilwell Varco, Inc. 2,621 258 Schlumberger Ltd. 21,659 72 Transocean Ltd. (a) 1,061 -------------- 42,104 -------------- EQUITY REAL ESTATE INVESTMENT TRUSTS -- 2.8% 79 American Tower Corp. 8,349 29 Apartment Investment & Management Co., Class A 1,318 25 AvalonBay Communities, Inc. 4,429 28 Boston Properties, Inc. 3,522 67 Crown Castle International Corp. 5,814 29 Digital Realty Trust, Inc. 2,850 13 Equinix, Inc. 4,646 68 Equity Residential 4,376 12 Essex Property Trust, Inc. 2,790 23 Extra Space Storage, Inc. 1,777 13 Federal Realty Investment Trust 1,847 108 General Growth Properties, Inc. 2,698 87 HCP, Inc. 2,586 137 Host Hotels & Resorts, Inc. 2,581 45 Iron Mountain, Inc. 1,462 79 Kimco Realty Corp. 1,988 22 Macerich (The) Co. 1,558 21 Mid-America Apartment Communities, Inc. 2,056 98 Prologis, Inc. 5,173 28 Public Storage 6,258 48 Realty Income Corp. 2,759 58 Simon Property Group, Inc. 10,305 19 SL Green Realty Corp. 2,043 49 UDR, Inc. 1,788 66 Ventas, Inc. 4,126 32 Vornado Realty Trust 3,340 67 Welltower, Inc. 4,484 139 Weyerhaeuser Co. 4,182 -------------- 101,105 -------------- FOOD & STAPLES RETAILING -- 2.1% 81 Costco Wholesale Corp. 12,969 197 CVS Health Corp. 15,545 175 Kroger (The) Co. 6,039 93 Sysco Corp. 5,149 SHARES DESCRIPTION VALUE ------------------------------------------------------------- FOOD & STAPLES RETAILING (CONTINUED) 158 Walgreens Boots Alliance, Inc. $ 13,076 279 Wal-Mart Stores, Inc. 19,285 59 Whole Foods Market, Inc. 1,815 -------------- 73,878 -------------- FOOD PRODUCTS -- 1.6% 107 Archer-Daniels-Midland Co. 4,885 36 Campbell Soup Co. 2,177 77 Conagra Brands, Inc. 3,045 109 General Mills, Inc. 6,733 26 Hershey (The) Co. 2,689 50 Hormel Foods Corp. 1,741 22 J.M. Smucker (The) Co. 2,817 47 Kellogg Co. 3,464 110 Kraft Heinz (The) Co. 9,605 21 McCormick & Co., Inc. 1,960 34 Mead Johnson Nutrition Co. 2,406 286 Mondelez International, Inc., Class A 12,678 54 Tyson Foods, Inc., Class A 3,331 -------------- 57,531 -------------- HEALTH CARE EQUIPMENT & SUPPLIES -- 2.4% 273 Abbott Laboratories 10,486 91 Baxter International, Inc. 4,035 39 Becton, Dickinson and Co. 6,457 252 Boston Scientific Corp. (a) 5,451 14 C. R. Bard, Inc. 3,145 9 Cooper (The) Cos., Inc. 1,574 113 Danaher Corp. 8,796 43 DENTSPLY SIRONA, Inc. 2,482 40 Edwards Lifesciences Corp. (a) 3,748 52 Hologic, Inc. (a) 2,086 7 Intuitive Surgical, Inc. (a) 4,439 254 Medtronic PLC 18,093 53 St. Jude Medical, Inc. 4,250 58 Stryker Corp. 6,949 17 Varian Medical Systems, Inc. (a) 1,526 37 Zimmer Biomet Holdings, Inc. 3,819 -------------- 87,336 -------------- HEALTH CARE PROVIDERS & SERVICES -- 2.6% 65 Aetna, Inc. 8,061 31 AmerisourceBergen Corp. 2,424 49 Anthem, Inc. 7,045 59 Cardinal Health, Inc. 4,246 32 Centene Corp. (a) 1,808 48 Cigna Corp. 6,403 29 DaVita, Inc. (a) 1,862 22 Envision Healthcare Corp. (a) 1,392 114 Express Scripts Holding Co. (a) 7,842 54 HCA Holdings, Inc. (a) 3,997 15 Henry Schein, Inc. (a) 2,276 28 Humana, Inc. 5,713 19 Laboratory Corp. of America Holdings (a) 2,439 See Notes to Financial Statements Page 27 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) HEALTH CARE PROVIDERS & SERVICES (CONTINUED) 42 McKesson Corp. $ 5,899 15 Patterson Cos., Inc. 615 26 Quest Diagnostics, Inc. 2,389 176 UnitedHealth Group, Inc. 28,167 17 Universal Health Services, Inc., Class B 1,809 -------------- 94,387 -------------- HEALTH CARE TECHNOLOGY -- 0.1% 56 Cerner Corp. (a) 2,653 -------------- HOTELS, RESTAURANTS & LEISURE -- 1.6% 78 Carnival Corp. 4,061 5 Chipotle Mexican Grill, Inc. (a) 1,887 23 Darden Restaurants, Inc. 1,672 59 Marriott International, Inc., Class A 4,878 154 McDonald's Corp. 18,745 31 Royal Caribbean Cruises Ltd. 2,543 269 Starbucks Corp. 14,935 20 Wyndham Worldwide Corp. 1,527 15 Wynn Resorts Ltd. 1,298 65 Yum! Brands, Inc. 4,116 -------------- 55,662 -------------- HOUSEHOLD DURABLES -- 0.5% 63 D.R. Horton, Inc. 1,722 21 Garmin Ltd. 1,018 13 Harman International Industries, Inc. 1,445 25 Leggett & Platt, Inc. 1,222 36 Lennar Corp., Class A 1,545 12 Mohawk Industries, Inc. (a) 2,396 89 Newell Brands, Inc. 3,974 55 PulteGroup, Inc. 1,011 14 Whirlpool Corp. 2,545 -------------- 16,878 -------------- HOUSEHOLD PRODUCTS -- 1.8% 48 Church & Dwight Co., Inc. 2,121 24 Clorox (The) Co. 2,880 165 Colgate-Palmolive Co. 10,798 66 Kimberly-Clark Corp. 7,532 495 Procter & Gamble (The) Co. 41,620 -------------- 64,951 -------------- INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS -- 0.1% 122 AES (The) Corp. 1,418 58 NRG Energy, Inc. 711 -------------- 2,129 -------------- INDUSTRIAL CONGLOMERATES -- 2.6% 111 3M Co. 19,821 1,638 General Electric Co. 51,761 141 Honeywell International, Inc. 16,335 19 Roper Technologies, Inc. 3,478 -------------- 91,395 -------------- SHARES DESCRIPTION VALUE ------------------------------------------------------------- INSURANCE -- 2.8% 76 Aflac, Inc. $ 5,290 68 Allstate (The) Corp. 5,040 181 American International Group, Inc. 11,821 49 Aon PLC 5,465 33 Arthur J. Gallagher & Co. 1,715 11 Assurant, Inc. 1,021 86 Chubb Ltd. 11,362 28 Cincinnati Financial Corp. 2,121 70 Hartford Financial Services Group (The), Inc. 3,336 42 Lincoln National Corp. 2,783 51 Loews Corp. 2,388 95 Marsh & McLennan Cos., Inc. 6,421 204 MetLife, Inc. 10,994 50 Principal Financial Group, Inc. 2,893 107 Progressive (The) Corp. 3,799 80 Prudential Financial, Inc. 8,325 20 Torchmark Corp. 1,475 53 Travelers (The) Cos., Inc. 6,488 43 Unum Group 1,889 24 Willis Towers Watson PLC 2,935 50 XL Group Ltd. 1,863 -------------- 99,424 -------------- INTERNET & DIRECT MARKETING RETAIL -- 2.3% 73 Amazon.com, Inc. (a) 54,740 22 Expedia, Inc. 2,492 79 Netflix, Inc. (a) 9,780 9 Priceline Group (The), Inc. (a) 13,195 21 TripAdvisor, Inc. (a) 974 -------------- 81,181 -------------- INTERNET SOFTWARE & SERVICES -- 4.2% 32 Akamai Technologies, Inc. (a) 2,134 55 Alphabet, Inc., Class A (a) 43,585 55 Alphabet, Inc., Class C (a) 42,450 192 eBay, Inc. (a) 5,700 433 Facebook, Inc., Class A (a) 49,817 17 VeriSign, Inc. (a) 1,293 163 Yahoo!, Inc. (a) 6,303 -------------- 151,282 -------------- IT SERVICES -- 3.6% 115 Accenture PLC, Class A 13,470 11 Alliance Data Systems Corp. 2,513 84 Automatic Data Processing, Inc. 8,634 112 Cognizant Technology Solutions Corp., Class A (a) 6,275 27 CSRA, Inc. 860 61 Fidelity National Information Services, Inc. 4,614 40 Fiserv, Inc. (a) 4,251 28 Global Payments, Inc. 1,943 160 International Business Machines Corp. 26,558 176 Mastercard, Inc., Class A 18,172 60 Paychex, Inc. 3,653 Page 28 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) IT SERVICES (CONTINUED) 208 PayPal Holdings, Inc. (a) $ 8,210 24 Teradata Corp. (a) 652 31 Total System Services, Inc. 1,520 346 Visa, Inc., Class A 26,995 90 Western Union (The) Co. 1,955 -------------- 130,275 -------------- LEISURE PRODUCTS -- 0.1% 21 Hasbro, Inc. 1,633 63 Mattel, Inc. 1,736 -------------- 3,369 -------------- LIFE SCIENCES TOOLS & SERVICES -- 0.6% 60 Agilent Technologies, Inc. 2,734 27 Illumina, Inc. (a) 3,457 5 Mettler-Toledo International, Inc. (a) 2,093 20 PerkinElmer, Inc. 1,043 73 Thermo Fisher Scientific, Inc. 10,300 15 Waters Corp. (a) 2,016 -------------- 21,643 -------------- MACHINERY -- 1.5% 108 Caterpillar, Inc. 10,016 29 Cummins, Inc. 3,964 54 Deere & Co. 5,564 29 Dover Corp. 2,173 24 Flowserve Corp. 1,153 56 Fortive Corp. 3,003 58 Illinois Tool Works, Inc. 7,103 48 Ingersoll-Rand PLC 3,602 65 PACCAR, Inc. 4,154 25 Parker-Hannifin Corp. 3,500 31 Pentair PLC 1,738 11 Snap-on, Inc. 1,884 28 Stanley Black & Decker, Inc. 3,211 33 Xylem, Inc. 1,634 -------------- 52,699 -------------- MEDIA -- 3.1% 73 CBS Corp., Class B 4,644 40 Charter Communications, Inc., Class A (a) 11,517 441 Comcast Corp., Class A 30,451 28 Discovery Communications, Inc., Class A (a) 767 41 Discovery Communications, Inc., Class C (a) 1,098 74 Interpublic Group of Cos. (The), Inc. 1,732 71 News Corp., Class A 814 22 News Corp., Class B 259 44 Omnicom Group, Inc. 3,745 18 Scripps Networks Interactive, Inc., Class A 1,285 40 TEGNA, Inc. 856 143 Time Warner, Inc. 13,804 SHARES DESCRIPTION VALUE ------------------------------------------------------------- MEDIA (CONTINUED) 196 Twenty-First Century Fox, Inc., Class A $ 5,496 90 Twenty-First Century Fox, Inc., Class B 2,452 64 Viacom, Inc., Class B 2,246 271 Walt Disney (The) Co. 28,244 -------------- 109,410 -------------- METALS & MINING -- 0.3% 232 Freeport-McMoRan, Inc. (a) 3,060 98 Newmont Mining Corp. 3,339 59 Nucor Corp. 3,512 -------------- 9,911 -------------- MULTILINE RETAIL -- 0.5% 47 Dollar General Corp. 3,481 44 Dollar Tree, Inc. (a) 3,396 33 Kohl's Corp. 1,630 57 Macy's, Inc. 2,041 22 Nordstrom, Inc. 1,054 104 Target Corp. 7,512 -------------- 19,114 -------------- MULTI-UTILITIES -- 1.1% 45 Ameren Corp. 2,361 80 CenterPoint Energy, Inc. 1,971 52 CMS Energy Corp. 2,164 56 Consolidated Edison, Inc. 4,126 116 Dominion Resources, Inc. 8,885 33 DTE Energy Co. 3,251 60 NiSource, Inc. 1,328 94 Public Service Enterprise Group, Inc. 4,125 26 SCANA Corp. 1,905 46 Sempra Energy 4,629 58 WEC Energy Group, Inc. 3,402 -------------- 38,147 -------------- OIL, GAS & CONSUMABLE FUELS -- 6.4% 103 Anadarko Petroleum Corp. 7,182 70 Apache Corp. 4,443 86 Cabot Oil & Gas Corp. 2,009 138 Chesapeake Energy Corp. (a) 969 350 Chevron Corp. 41,195 18 Cimarex Energy Co. 2,446 27 Concho Resources, Inc. (a) 3,580 229 ConocoPhillips 11,482 97 Devon Energy Corp. 4,430 107 EOG Resources, Inc. 10,818 32 EQT Corp. 2,093 768 Exxon Mobil Corp. 69,320 49 Hess Corp. 3,052 355 Kinder Morgan, Inc. 7,352 157 Marathon Oil Corp. 2,718 98 Marathon Petroleum Corp. 4,934 30 Murphy Oil Corp. 934 37 Newfield Exploration Co. (a) 1,498 79 Noble Energy, Inc. 3,007 See Notes to Financial Statements Page 29 FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) OIL, GAS & CONSUMABLE FUELS (CONTINUED) 141 Occidental Petroleum Corp. $ 10,043 39 ONEOK, Inc. 2,239 82 Phillips 66 7,085 31 Pioneer Natural Resources Co. 5,582 35 Range Resources Corp. 1,202 91 Southwestern Energy Co. (a) 985 130 Spectra Energy Corp. 5,342 22 Tesoro Corp. 1,924 84 Valero Energy Corp. 5,739 127 Williams (The) Cos., Inc. 3,955 -------------- 227,558 -------------- PERSONAL PRODUCTS -- 0.1% 87 Coty, Inc., Class A 1,593 41 Estee Lauder (The) Cos., Inc., Class A 3,136 -------------- 4,729 -------------- PHARMACEUTICALS -- 5.1% 69 Allergan PLC (a) 14,491 309 Bristol-Myers Squibb Co. 18,058 180 Eli Lilly and Co. 13,239 37 Endo International PLC (a) 609 504 Johnson & Johnson 58,066 20 Mallinckrodt PLC (a) 996 510 Merck & Co., Inc. 30,024 85 Mylan N.V. (a) 3,243 27 Perrigo Co. PLC 2,247 1,124 Pfizer, Inc. 36,508 91 Zoetis, Inc. 4,871 -------------- 182,352 -------------- PROFESSIONAL SERVICES -- 0.3% 7 Dun & Bradstreet (The) Corp. 849 22 Equifax, Inc. 2,601 62 Nielsen Holdings PLC 2,601 24 Robert Half International, Inc. 1,171 29 Verisk Analytics, Inc. (a) 2,354 -------------- 9,576 -------------- REAL ESTATE MANAGEMENT & DEVELOPMENT -- 0.0% 56 CBRE Group, Inc., Class A (a) 1,763 -------------- ROAD & RAIL -- 0.9% 173 CSX Corp. 6,216 16 J.B. Hunt Transport Services, Inc. 1,553 20 Kansas City Southern 1,697 54 Norfolk Southern Corp. 5,836 10 Ryder System, Inc. 744 153 Union Pacific Corp. 15,863 -------------- 31,909 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -- 3.4% 57 Analog Devices, Inc. 4,139 200 Applied Materials, Inc. 6,454 74 Broadcom Ltd. 13,081 SHARES DESCRIPTION VALUE ------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT (CONTINUED) 14 First Solar, Inc. (a) $ 449 877 Intel Corp. 31,809 29 KLA-Tencor Corp. 2,282 30 Lam Research Corp. 3,172 45 Linear Technology Corp. 2,806 40 Microchip Technology, Inc. 2,566 193 Micron Technology, Inc. (a) 4,231 100 NVIDIA Corp. 10,674 24 Qorvo, Inc. (a) 1,266 273 QUALCOMM, Inc. 17,800 34 Skyworks Solutions, Inc. 2,538 185 Texas Instruments, Inc. 13,499 47 Xilinx, Inc. 2,837 -------------- 119,603 -------------- SOFTWARE -- 4.3% 127 Activision Blizzard, Inc. 4,586 92 Adobe Systems, Inc. (a) 9,471 36 Autodesk, Inc. (a) 2,664 58 CA, Inc. 1,843 29 Citrix Systems, Inc. (a) 2,590 56 Electronic Arts, Inc. (a) 4,411 45 Intuit, Inc. 5,157 1,440 Microsoft Corp. 89,482 555 Oracle Corp. 21,340 33 Red Hat, Inc. (a) 2,300 118 salesforce.com, Inc. (a) 8,078 115 Symantec Corp. 2,747 -------------- 154,669 -------------- SPECIALTY RETAIL -- 2.4% 14 Advance Auto Parts, Inc. 2,368 12 AutoNation, Inc. (a) 584 5 AutoZone, Inc. (a) 3,949 28 Bed Bath & Beyond, Inc. 1,138 51 Best Buy Co., Inc. 2,176 35 CarMax, Inc. (a) 2,254 25 Foot Locker, Inc. 1,772 41 Gap (The), Inc. 920 226 Home Depot (The), Inc. 30,302 44 L Brands, Inc. 2,897 161 Lowe's Cos., Inc. 11,450 17 O'Reilly Automotive, Inc. (a) 4,733 73 Ross Stores, Inc. 4,789 13 Signet Jewelers Ltd. 1,225 120 Staples, Inc. 1,086 20 Tiffany & Co. 1,549 121 TJX (The) Cos., Inc. 9,091 24 Tractor Supply Co. 1,819 11 Ulta Salon, Cosmetics & Fragrance, Inc. (a) 2,804 16 Urban Outfitters, Inc. (a) 456 -------------- 87,362 -------------- Page 30 See Notes to Financial Statements FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 2016 SHARES DESCRIPTION VALUE ------------------------------------------------------------- COMMON STOCKS (CONTINUED) TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS -- 3.8% 987 Apple, Inc. $ 114,314 308 Hewlett Packard Enterprise Co. 7,127 317 HP, Inc. 4,704 51 NetApp, Inc. 1,799 55 Seagate Technology PLC 2,100 53 Western Digital Corp. 3,602 158 Xerox Corp. 1,379 -------------- 135,025 -------------- TEXTILES, APPAREL & LUXURY GOODS -- 0.7% 52 Coach, Inc. 1,821 70 Hanesbrands, Inc. 1,510 30 Michael Kors Holdings Ltd. (a) 1,289 247 NIKE, Inc., Class B 12,555 15 PVH Corp. 1,354 10 Ralph Lauren Corp. 903 34 Under Armour, Inc., Class A (a) 988 34 Under Armour, Inc., Class C (b) 856 61 VF Corp. 3,254 -------------- 24,530 -------------- TOBACCO -- 1.7% 361 Altria Group, Inc. 24,411 287 Philip Morris International, Inc. 26,258 153 Reynolds American, Inc. 8,574 -------------- 59,243 -------------- TRADING COMPANIES & DISTRIBUTORS -- 0.2% 54 Fastenal Co. 2,537 16 United Rentals, Inc. (a) 1,689 10 W.W. Grainger, Inc. 2,323 -------------- 6,549 -------------- WATER UTILITIES -- 0.1% 33 American Water Works Co., Inc. 2,388 -------------- TOTAL INVESTMENTS -- 100.0% 3,567,960 (Cost $2,728,325) (c) NET OTHER ASSETS AND LIABILITIES -- 0.0% 1,441 -------------- NET ASSETS -- 100.0% $ 3,569,401 ============== (a) Non-income producing security. (b) Non-income producing security which makes PIK distributions. For the year ended December 31, 2016, the Fund received fractional PIK shares of Under Armour, Inc., Class C. (c) Aggregate cost for federal income tax purposes is $2,737,740. As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $918,725 and the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $88,505. ----------------------------- VALUATION INPUTS A summary of the inputs used to value the Fund's investments as of December 31, 2016 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 LEVEL 1 LEVEL 2 LEVEL 3 ------------------------------------------------ Common Stocks* $ 3,567,960 $ -- $ -- ================================================ * 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, 2016. See Notes to Financial Statements Page 31 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2016
FIRST TRUST FIRST TRUST CBOE(R) TOTAL US MARKET S&P 500(R) ALPHADEX(R) VIX(R) ETF TAIL HEDGE FUND (TUSA) (VIXH) ------------------ ------------------ ASSETS: Investments, at value................................................................ $ 8,400,131 $ 3,567,960 Receivables: From investment advisor........................................................ 15,768 -- Dividends...................................................................... 10,761 4,549 Securities lending income...................................................... 57 -- Interest....................................................................... 5 -- Prepaid expenses..................................................................... 7,592 -- -------------- -------------- TOTAL ASSETS................................................................... 8,434,314 3,572,509 -------------- -------------- LIABILITIES: Due to custodian..................................................................... -- 1,281 Payables: Investment advisory fees....................................................... -- 1,827 Collateral for securities on loan.............................................. 54,293 -- Audit and tax fees............................................................. 22,925 -- Printing fees.................................................................. 8,623 -- Licensing fees................................................................. 1,658 -- Trustees' fees................................................................. 159 -- Other liabilities.................................................................... 25,270 -- -------------- -------------- TOTAL LIABILITIES.............................................................. 112,928 3,108 -------------- -------------- NET ASSETS........................................................................... $ 8,321,386 $ 3,569,401 ============== ============== NET ASSETS CONSIST OF: Paid-in capital...................................................................... $ 11,121,473 $ 3,799,037 Par value............................................................................ 3,000 1,500 Accumulated net investment income (loss)............................................. -- -- Accumulated net realized gain (loss) on investments and options...................... (3,284,475) (1,070,771) Net unrealized appreciation (depreciation) on investments............................ 481,388 839,635 -------------- -------------- NET ASSETS........................................................................... $ 8,321,386 $ 3,569,401 ============== ============== NET ASSET VALUE, per share........................................................... $ 27.74 $ 23.80 ============== ============== Number of shares outstanding (unlimited number of shares authorized, par value $0.01 per share)........................................................ 300,002 150,002 ============== ============== Investments, at cost................................................................. $ 7,918,743 $ 2,728,325 ============== ============== Securities on loan, at value......................................................... $ 52,733 $ -- ============== ==============
Page 32 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016
FIRST TRUST FIRST TRUST CBOE(R) TOTAL US MARKET S&P 500(R) ALPHADEX(R) VIX(R) ETF TAIL HEDGE FUND (TUSA) (VIXH) ------------------ ------------------ INVESTMENT INCOME: Dividends............................................................................ $ 167,061 $ 77,469 Securities lending income (net of fees).............................................. 256 -- Interest............................................................................. 100 -- Foreign tax withholding.............................................................. (37) -- -------------- -------------- Total investment income........................................................ 167,380 77,469 -------------- -------------- EXPENSES: Investment advisory fees............................................................. 44,812 21,199 (a) Custodian fees....................................................................... 28,960 -- Accounting and administration fees................................................... 21,344 -- Audit and tax fees................................................................... 21,228 -- Listing fees......................................................................... 17,377 -- Printing fees........................................................................ 17,053 -- Licensing fees....................................................................... 10,422 -- Trustees' fees and expenses.......................................................... 8,431 -- Legal fees........................................................................... 833 -- Transfer agent fees.................................................................. 448 -- Registration and filing fees......................................................... (72) -- Other expenses....................................................................... 4,411 -- -------------- -------------- Total expenses................................................................. 175,247 21,199 Less fees waived and expenses reimbursed by the investment advisor............. (112,511) -- -------------- -------------- Net expenses................................................................... 62,736 21,199 -------------- -------------- NET INVESTMENT INCOME (LOSS)......................................................... 104,644 56,270 -------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments.................................................................... (904,502) 23,880 Options........................................................................ -- (377,263) In-kind redemptions............................................................ 1,586,716 -- -------------- -------------- Net realized gain (loss)............................................................. 682,214 (353,383) -------------- -------------- Net change in unrealized appreciation (depreciation) on: Investments.................................................................... 785,988 296,601 Options........................................................................ -- 19,165 -------------- -------------- Net change in unrealized appreciation (depreciation)................................. 785,988 315,766 -------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS).............................................. 1,468,202 (37,617) -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................................................... $ 1,572,846 $ 18,653 ============== ==============
(a) Fund is subject to a Unitary Fee (see Note 3 in the Notes to Financial Statements). See Notes to Financial Statements Page 33 FIRST TRUST EXCHANGE-TRADED FUND STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST CBOE(R) TOTAL US MARKET S&P 500(R) ALPHADEX(R) VIX(R) ETF TAIL HEDGE FUND (TUSA) (VIXH) ----------------------------- ----------------------------- For the Year For the Year For the Year For the Year Ended Ended Ended Ended 12/31/2015 12/31/2014 12/31/2015 12/31/2014 ------------- ------------- ------------- ------------- OPERATIONS: Net investment income (loss)........................... $ 104,644 $ 62,257 $ 56,270 $ 55,327 Net realized gain (loss)............................... 682,214 69,168 (353,383) (244,840) Net change in unrealized appreciation (depreciation)... 785,988 (496,144) 315,766 (38,707) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations..................................... 1,572,846 (364,719) 18,653 (228,220) ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income.................................. (113,796) (65,921) (59,491) (56,416) ------------- ------------- ------------- ------------- SHAREHOLDER TRANSACTIONS: Proceeds from shares sold.............................. 10,272,574 4,949,444 -- -- Cost of shares redeemed................................ (11,927,907) (1,226,230) -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from shareholder transactions....................... (1,655,333) 3,723,214 -- -- ------------- ------------- ------------- ------------- Total increase (decrease) in net assets................ (196,283) 3,292,574 (40,838) (284,636) NET ASSETS: Beginning of period.................................... 8,517,669 5,225,095 3,610,239 3,894,875 ------------- ------------- ------------- ------------- End of period.......................................... $ 8,321,386 $ 8,517,669 $ 3,569,401 $ 3,610,239 ============= ============= ============= ============= Accumulated net investment income (loss) at end of period.................................... $ -- $ (392) $ -- $ -- ============= ============= ============= ============= CHANGES IN SHARES OUTSTANDING: Shares outstanding, beginning of period................ 350,002 200,002 150,002 150,002 Shares sold............................................ 400,000 200,000 -- -- Shares redeemed........................................ (450,000) (50,000) -- -- ------------- ------------- ------------- ------------- Shares outstanding, end of period...................... 300,002 350,002 150,002 150,002 ============= ============= ============= =============
Page 34 See Notes to Financial Statements FIRST TRUST EXCHANGE-TRADED FUND FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST TOTAL US MARKET ALPHADEX(R) ETF (TUSA) YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2016 2015 2014 2013 2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 24.34 $ 26.13 $ 25.80 $ 19.34 $ 18.16 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.32 0.22 0.27 0.21 0.34 Net realized and unrealized gain (loss) 3.43 (1.78) 0.34 6.47 1.24 ---------- ---------- ---------- ---------- ---------- Total from investment operations 3.75 (1.56) 0.61 6.68 1.58 ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.35) (0.23) (0.28) (0.22) (0.40) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 27.74 $ 24.34 $ 26.13 $ 25.80 $ 19.34 ========== ========== ========== ========== ========== TOTAL RETURN (a) 15.48% (5.99)% 2.36% 34.65% 8.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 8,321 $ 8,518 $ 5,225 $ 5,160 $ 3,868 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 1.96% 1.97% 3.17% 2.01% 1.85% 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 1.17% 0.96% 1.05% 0.91% 1.64% Portfolio turnover rate (b) 113% 170% 183% 186% 203% FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) FOR THE PERIOD YEAR ENDED DECEMBER 31, 8/29/2012 (c) --------------------------------------------------------- THROUGH 2016 2015 2014 2013 12/31/2012 ------------ ------------ ------------ ------------ ------------ Net asset value, beginning of period $ 24.07 $ 25.97 $ 22.86 $ 19.51 $ 19.89 ---------- ---------- ---------- ---------- ---------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss) 0.38 0.37 0.34 0.34 0.11 Net realized and unrealized gain (loss) (0.25) (1.89) 3.11 3.34 (0.38) ---------- ---------- ---------- ---------- ---------- Total from investment operations 0.13 (1.52) 3.45 3.68 (0.27) ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS PAID TO SHAREHOLDERS FROM: Net investment income (0.40) (0.38) (0.34) (0.33) (0.11) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 23.80 $ 24.07 $ 25.97 $ 22.86 $ 19.51 ========== ========== ========== ========== ========== TOTAL RETURN (a) 0.54% (5.88)% 15.22% 19.00% (1.37)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in 000's) $ 3,569 $ 3,610 $ 3,895 $ 5,716 $ 2,927 RATIOS TO AVERAGE NET ASSETS: Ratio of total expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d) Ratio of net investment income (loss) to average net assets 1.59% 1.46% 1.42% 1.53% 1.97% (d) Portfolio turnover rate (b) 4% 7% 7% 4% 2%
(a) Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all 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 Total US Market AlphaDEX(R) ETF 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) Inception date is consistent with the commencement of investment operations and is the date the initial creation units were established. (d) Annualized. See Notes to Financial Statements Page 35 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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 (the "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 two funds listed below: First Trust Total US Market AlphaDEX(R) ETF - (The Nasdaq Stock Market LLC ("Nasdaq") ticker "TUSA") First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund - (NYSE Arca, Inc. ("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, each Fund's shares are not redeemable securities. 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 Total US Market AlphaDEX(R) ETF NASDAQ AlphaDEX(R) Total US Market Index First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund CBOE(R) VIX(R) Tail Hedge Index
2. SIGNIFICANT ACCOUNTING POLICIES The Funds are each considered an investment company and follow accounting and reporting guidance under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946, "Financial Services-Investment Companies." 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 as of that time. Each Fund's NAV is calculated by dividing the value of all assets of each 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. Market value prices represent last sale or official closing prices from a national or foreign exchange (i.e., a regulated market) and are primarily obtained from third-party pricing services. Fair value prices represent any prices not considered market value prices and are either obtained from a third-party pricing service or are determined by the Pricing Committee of the Funds' investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor"), in accordance with valuation procedures adopted by the Trust's Board of Trustees, and in accordance with the 1940 Act. Investments valued by the Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to the Portfolio of Investments. Each Fund's investments are 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 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. Shares of open-end funds are valued at fair value which is based on NAV per share. Securities traded in an over-the-counter market are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at their closing bid price. Exchange-traded options contracts are valued at the closing price in the market where such contracts are principally traded. If no closing price is available, exchange-traded options contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at Page 36 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 their closing bid price. Over-the-counter options contracts are fair valued at the mean of their most recent bid and asked price, if available, and otherwise at closing bid price. Overnight repurchase agreements are valued at amortized cost when it represents the best estimate of fair value. Certain securities may not be able to be priced by pre-established pricing methods. Such securities may be valued by the Trust's Board of Trustees or its delegate, the Advisor's Pricing Committee, 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 third-party pricing service is unable to provide a market price; securities whose trading has been formally suspended; a security whose market or fair value 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 third-party 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. When fair value prices are used, generally they will differ from market quotations or official closing prices on the applicable exchanges. 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 third-party 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 a Fund's performance and the performance of its underlying index. The Funds are subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows: o Level 1 - Level 1 inputs are quoted prices in active markets for identical investments. An active market is a market in which transactions for the investment occur with sufficient frequency and volume to provide pricing information on an ongoing basis. o Level 2 - Level 2 inputs are observable inputs, either directly or indirectly, and include the following: o Quoted prices for similar investments in active markets. o Quoted prices for identical or similar investments in markets that are non-active. A non-active market is a market where there are few transactions for the investment, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. o Inputs other than quoted prices that are observable for the investment (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). o Inputs that are derived principally from or corroborated by observable market data by correlation or other means. 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, 2016, is included with each Fund's Portfolio of Investments. B. CALL OPTIONS The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund ("VIXH") 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 Volatility Index(R) (the "VIX Index") to hedge against changes in the value of equities. Also, VIXH 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 Page 37 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 premium paid. When VIXH 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 VIXH elects to exercise a call option on the VIX Index, settlement does not occur by the delivery of the securities comprising the VIX Index. VIXH, 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 VIXH 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 fiscal year ended December 31, 2016, VIXH recorded a change in unrealized gain of $19,165 on the options, which is included in the "Net change in unrealized appreciation (depreciation) on options" on the Statements of Operations. For the fiscal year ended December 31, 2016, VIXH recorded a realized loss on options of $377,263, which is included in "Net realized gain (loss) on options" on the Statements of Operations. At December 31, 2016, VIXH had no open options contracts. During the fiscal year ended December 31, 2016, the number of purchased options contracts opened, expired and closed were 4,217, 4,217 and 304, respectively. C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions are recorded as of the trade date. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date. Interest income, if any, is recorded on the accrual basis. Distributions received from a Fund's investments in real estate investment trusts ("REITs") may be comprised of return of capital, capital gains and income. The actual character of the amounts received during the year is not known until after the REITs' fiscal year end. A Fund records the character of distributions received from the REITs during the year based on estimates available. The characterization of distributions received by a Fund may be subsequently revised based on information received from the REITs after their tax reporting periods conclude. D. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES Offsetting Assets and Liabilities requires entities to disclose both gross and net information about 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. These disclosure requirements are 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. The transactions subject to offsetting disclosures are derivative instruments, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions. 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 ("MNAs") or similar agreements on the Statements of Assets and Liabilities. MNAs provide the right, in the event of default (including bankruptcy and insolvency), for the non-defaulting counterparty to liquidate the collateral and calculate the net exposure to the defaulting party or request additional collateral. 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. Page 38 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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. Compensation can be in the form of fees received from the securities lending agent or dividends or interest earned from the investment of cash 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, 2016, only TUSA has 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. REPURCHASE AGREEMENTS Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase the securities at a mutually agreed upon date and price, under the terms of a Master Repurchase Agreement ("MRA"). During the term of a repurchase agreement, the value of the underlying securities held as collateral on behalf of a Fund, including accrued interest, is required to exceed the value of the repurchase agreement, including accrued interest. The underlying securities for all repurchase agreements are held at the Funds' custodian or designated sub-custodians under tri-party repurchase agreements. MRAs govern transactions between a Fund and select counterparties. The MRAs contain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase agreements. Repurchase agreements received for lending securities are collateralized by U.S. Treasury securities. The U.S. Treasury securities are held in a joint custody account at BBH on behalf of the Funds participating in the securities lending program. In the event the counterparty defaults on the repurchase agreement, the U.S. Treasury securities can either be maintained as part of a Fund's portfolio or sold for cash. A Fund could suffer a loss to the extent that the proceeds from the sale of the underlying collateral held by the Fund are less than the repurchase price and the Fund's costs associated with the delay and enforcement of the MRA. While the Funds may invest in repurchase agreements, any repurchase agreements held by the Funds during the fiscal year ended December 31, 2016, were received as collateral for lending securities. There were no repurchase agreements held by the Funds as of December 31, 2016. G. DIVIDENDS AND DISTRIBUTIONS 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 fiscal year ended December 31, 2016 was as follows:
Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital ------------------ ---------------- ---------------- First Trust Total US Market AlphaDEX(R) ETF $ 113,796 $ -- $ -- First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 59,491 -- --
Page 39 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 The tax character of distributions paid by each Fund during the fiscal year ended December 31, 2015 was as follows:
Distributions Distributions Distributions paid paid paid from Ordinary from Capital from Return Income Gains of Capital ------------------ ---------------- ---------------- First Trust Total US Market AlphaDEX(R) ETF $ 65,921 $ -- $ -- First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 56,416 -- --
As of December 31, 2016, 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 Total US Market AlphaDEX(R) ETF $ -- $ (3,227,040) $ 423,953 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- (1,061,356) 830,220
H. 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 2013, 2014, 2015 and 2016 remain open to federal and state audit. As of December 31, 2016, 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, 2016, 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.
Capital Loss Post- Total Available Enactment - Capital Through No Loss 2017 Expiration Available ------------------ ---------------- ---------------- First Trust Total US Market AlphaDEX(R) ETF $ 2,421,122 $ 805,918 $ 3,227,040 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- 1,061,356 1,061,356
At the taxable year ended December 31, 2016, the following Fund's capital loss carryforwards expired in the following amount:
Capital Loss Carryforward Expired ------------------------- First Trust Total US Market AlphaDEX(R) ETF $ 1,168,041
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 Page 40 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 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, 2016, the adjustments for each Fund were as follows:
Accumulated Accumulated Net Realized Net Investment Gain (Loss) Paid-in Income (Loss) on Investments Capital ------------------ ---------------- ---------------- First Trust Total US Market AlphaDEX(R) ETF $ 9,544 $ (272,431) $ 262,887 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 3,221 393 (3,614)
I. EXPENSES Expenses that are directly related to First Trust Total US Market AlphaDEX(R) ETF are charged directly to the Fund. Expenses for First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (the "Unitary Fee Fund"), other than excluded expenses (discussed in Note 3), are paid by the Advisor. General expenses of the Trust are allocated to all the Funds based upon the net assets of each Fund. First Trust has entered into licensing agreements with each of the following "Licensors" for the respective Funds:
FUND LICENSOR First Trust Total US Market AlphaDEX(R) ETF Nasdaq, Inc. First Trust CBOE(R) S&P 500(R) VIX(R) 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. The First Trust Total US Market AlphaDEX(R) ETF is required to pay licensing fees, which are shown on the Statements of Operations. J. NEW AND AMENDED FINANCIAL REPORTING RULES AND FORMS On October 13, 2016, the SEC adopted new rules and forms, and amended existing rules and forms. The new and amended rules and forms are intended to modernize the reporting of information provided by funds and to improve the quality and type of information that funds provide to the SEC and investors. The new and amended rules and forms will be effective for the First Trust funds, including the Funds, for reporting periods beginning on and after June 1, 2018. Management is evaluating the new and amended rules and forms to determine the impact to the Funds. K. NEW ACCOUNTING PRONOUNCEMENT In December 2016, FASB released Accounting Standards Update ("ASU") 2016-19 that makes technical changes to various sections of the ASC, including Topic 820, Fair Value Measurement. The changes to Topic 820 are intended to clarify the difference between a valuation approach and a valuation technique. The changes to ASC 820-10-50-2 require a reporting entity to disclose, for Level 2 and Level 3 fair value measurements, a change in either or both a valuation approach and a valuation technique and the reason(s) for the change. The changes to Topic 820 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. At this time, management is evaluating the implications of the ASU and has not yet determined its impact on the financial statements and disclosures. 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 Total US Market AlphaDEX(R) ETF, First Trust is paid an annual management fee of 0.50% of the Fund's average daily net assets. For such Fund, the Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which First Trust has agreed to waive fees and/or reimburse Fund expenses to the extent that the operating expenses of the Fund (excluding interest expense, brokerage commissions and other trading expenses, acquired fund fees and expenses, taxes and extraordinary expenses) exceed 0.70% of average daily net assets per year (the "Expense Cap"). The Expense Cap will be in effect until at least April 30, 2018. Page 41 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 Expenses reimbursed and fees waived by First Trust under the Recovery Agreement are subject to recovery by First Trust for up to three years from the date the fee was waived or expense was incurred, but no reimbursement payment will be made by the Fund if it results in the Fund exceeding an expense ratio equal to the Expense Cap in place at the time the expenses were reimbursed or fees were waived by First Trust. This amount would be included in "Expenses previously waived or reimbursed" on the Statements of Operations. The advisory fee waivers and expense reimbursements for the fiscal year ended December 31, 2016 and fees waived and expenses borne by First Trust subject to recovery from the Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne by First Trust Subject to Recovery ------------------------------------------------ Advisory Year Year Year Fee Expense Ended Ended Ended Waivers Reimbursement 12/31/2014 12/31/2015 12/31/2016 Total --------- ------------- ---------- ---------- ---------- --------- First Trust Total US Market AlphaDEX(R) ETF $ 44,812 $ 67,699 $ 128,690 $ 81,875 $ 112,511 $ 323,076
For the First Trust CBOE(R) S&P 500(R) VIX(R) 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. The Trust has multiple service agreements with The Bank of New York Mellon ("BNYM"). Under the service agreements, BNYM performs custodial, fund accounting, certain administrative services, and transfer agency services for each Fund. As custodian, BNYM is responsible for custody of each Fund's assets. As fund accountant and administrator, BNYM is responsible for maintaining the books and records of each Fund's securities and cash. As transfer agent, BNYM is responsible for maintaining shareholder records for each Fund. 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 that is allocated equally among each fund in the First Trust Fund Complex. Each Independent Trustee is also paid an annual per fund fee that varies based on whether the fund is a closed-end or other actively managed fund, or is an index fund. Additionally, the Lead Independent Trustee and the Chairmen of the Audit Committee, Nominating and Governance Committee and Valuation Committee are paid annual fees to serve in such capacities, with such compensation allocated pro rata among each fund in the First Trust Fund Complex based on net assets. Independent Trustees are reimbursed for travel and out-of-pocket expenses in connection with all meetings. The Lead Independent Trustee and Committee Chairmen 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 fiscal year ended December 31, 2016, the cost of purchases and proceeds from sales of investments for each Fund, excluding short-term investments and in-kind transactions, were as follows:
Purchases Sales --------------- --------------- First Trust Total US Market AlphaDEX(R) ETF $ 10,128,957 $ 10,082,972 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 130,254 468,628
For the fiscal year ended December 31, 2016, the cost of in-kind purchases and proceeds from in-kind sales for each Fund were as follows:
Purchases Sales --------------- --------------- First Trust Total US Market AlphaDEX(R) ETF $ 10,209,780 $ 11,894,602 First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- --
5. CREATION, REDEMPTION AND TRANSACTION FEES Shares are created and redeemed by each Fund only in Creation Unit size aggregations of 50,000 shares in transactions with broker-dealers or large institutional investors that have entered into a participation agreement (an "Authorized Participant"). 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. Authorized Participants purchasing First Trust Total Page 42 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 US Market AlphaDEX(R) ETF 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 the Fund, according to the fee schedule set forth below: Number of Securities Creation in a Creation Unit Transaction Fee -------------------- --------------- 1-100 $ 500 101-499 $1,000 500 or more $1,500 The standard creation transaction fee for First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund is currently $1,500. 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. Authorized Participants redeeming First Trust Total US Market AlphaDEX(R) ETF 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 a Fund, according to the fee schedule set forth below: Number of Securities Redemption in a Creation Unit Transaction Fee -------------------- --------------- 1-100 $ 500 101-499 $1,000 500 or more $1,500 The standard redemption transaction fee for First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund is currently $1,500. 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 April 30, 2018. 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 43 -------------------------------------------------------------------------------- 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 Total US Market AlphaDEX(R) ETF and First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (collectively, the "Funds"), each a series of the First Trust Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as of December 31, 2016, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Trust'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 audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust'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, 2016 by correspondence with the Trust's custodian and brokers; when replies were not received from brokers, 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, 2016, 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 periods presented, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Chicago, Illinois February 23, 2017 Page 44 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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 Funds' 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 Form N-Qs are available (1) by calling (800) 988-5891; (2) on the Funds' 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, 2016, the following percentages of income dividends paid by the Funds qualify for the dividends received deduction available to corporations:
Dividends Received Deduction ---------------------------- First Trust Total US Market AlphaDEX(R) ETF 100.00% First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 100.00%
For the taxable year ended December 31, 2016, the following percentages of income dividends paid by the Funds are hereby designated as qualified dividend income:
Qualified Dividend Income ---------------------------- First Trust Total US Market AlphaDEX(R) ETF 100.00% First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge 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. 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. Page 45 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (UNAUDITED) 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. The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund is considered to be non-diversified. As a result, the Fund is 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. The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge 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 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 the Funds 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. Each Fund currently has fewer assets than larger funds and large inflows and outflows may have a positive or negative impact on the Fund's market exposure for limited periods of time. The First Trust Total US Market AlphaDEX(R) ETF invests in consumer discretionary companies that 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 economies, interest rates, competition, consumer confidence, disposable household income and consumer spending. Changes in demographics and consumer tastes can affect the demand for and success of these products. The First Trust CBOE(R) S&P 500(R) VIX(R) 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(R) S&P 500(R) VIX(R) 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 Page 46 -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (UNAUDITED) 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(R) S&P 500(R) VIX(R) 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. The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund invests in information technology companies that are generally subject to risks from rapidly changing technologies, short product life cycles, fierce competition, aggressive pricing, reduced profit margins, the loss of patent, copyright and trademark protections, cyclical market patterns, evolving industry standards; and frequent new product introductions. These companies may be smaller and less experienced, with limited product lines, markets or financial resources and fewer experienced management or marketing personnel. Internet related information technology companies, have experienced extreme price and volume fluctuations that are often unrelated to their operating performance. NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE Page 47 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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, Officer, Wheaton Orthopedics; 138 None c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate 120 E. Liberty Drive, o Since Inception Limited Partnership (June 1992 to Suite 400 December 2016); Member, Sportsmed LLC Wheaton, IL 60187 (April 2007 to November 2015) D.O.B.: 04/51 Thomas R. Kadlec, Trustee o Indefinite Term President, ADM Investor Services, Inc. 138 Director of ADM c/o First Trust Advisors L.P. (Futures Commission Merchant) Investor Services, 120 E. Liberty Drive, o Since Inception Inc., ADM Suite 400 Investor Services Wheaton, IL 60187 International and D.O.B.: 11/57 Futures Industry Association Robert F. Keith, Trustee o Indefinite Term President, Hibs Enterprises (Financial and 138 Director of Trust c/o First Trust Advisors L.P. Management Consulting) Company of 120 E. Liberty Drive, o Since Inception Illinois Suite 400 Wheaton, IL 60187 D.O.B.: 11/56 Niel B. Nielson, Trustee o Indefinite Term Managing Director and Chief Operating 138 Director of c/o First Trust Advisors L.P. Officer (January 2015 to Present), Pelita Covenant 120 E. Liberty Drive, o Since Inception Harapan Educational Foundation (Educational Transport Inc. Suite 400 Products and Services); President and Chief (May 2003 to Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014) D.O.B.: 03/54 2014), Servant Interactive LLC (Educational Products and Services); President and Chief Executive Officer (June 2012 to September 2014), Dew Learning LLC (Educational Products and Services); President (June 2002 to June 2012), Covenant College ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer, First Trust 138 None Chairman of the Board Advisors L.P. and First Trust 120 E. Liberty Drive, o Since Inception Portfolios L.P.; Chairman of the Suite 400 Board of Directors, BondWave LLC Wheaton, IL 60187 (Software Development Company) D.O.B.: 09/55 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 48 -------------------------------------------------------------------------------- BOARD OF TRUSTEES AND OFFICERS (CONTINUED) -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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) ------------------------------------------------------------------------------------------------------------------------------------ James M. Dykas President and Chief o Indefinite Term Managing Director and Chief Financial Executive 120 E. Liberty Drive, Executive Officer Officer (January 2016 to Present), Controller (January Suite 400 o Since January 2016 2011 to January 2016), Senior Vice President (April Wheaton, IL 60187 2007 to January 2016), First Trust Advisors L.P. and D.O.B: 01/66 First Trust Portfolios L.P.; Chief Financial Officer (January 2016 to Present), BondWave LLC (Software Development Company) and Stonebridge Advisors LLC (Investment Advisor) Donald P. Swade Treasurer, Chief Financial o Indefinite Term Senior Vice President (July 2016 to Present), Vice 120 E. Liberty Drive, Officer and Chief President (April 2012 to July 2016), First Trust Suite 400 Accounting Officer o Since January 2016 Advisors L.P. and First Trust Portfolios L.P.; Vice Wheaton, IL 60187 President (September 2006 to April 2012), D.O.B.: 08/72 Guggenheim Funds Investment Advisors, LLC and Claymore Securities, Inc. W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P. and First 120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel, Suite 400 o Since Inception BondWave LLC; Secretary, Stonebridge Advisors LLC Wheaton, IL 60187 D.O.B.: 05/60 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 Wheaton, IL 60187 Portfolios 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 Since Inception Wheaton, IL 60187 D.O.B.: 12/66 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), First Suite 400 o Since Inception Trust Advisors L.P. and First Trust Portfolios L.P. Wheaton, IL 60187 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 49 -------------------------------------------------------------------------------- PRIVACY POLICY -------------------------------------------------------------------------------- FIRST TRUST EXCHANGE-TRADED FUND DECEMBER 31, 2016 (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 within First Trust. PRIVACY ONLINE We allow third-party companies, including AddThis (a social media sharing service), to collect certain anonymous information when you visit our website. These companies may use non-personally identifiable information during your visits to this and other websites in order to provide advertisements about goods and services likely to be of greater interest to you. These companies typically use a cookie, third party web beacon or pixel tags, to collect this information. To learn more about this behavioral advertising practice, you can visit www.networkadvertising.org. CONFIDENTIALITY AND SECURITY With regard to our internal security procedures, 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). March 2016 Page 50 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. (f) The code of ethics is filed as an exhibit to the Registrant's annual report on this Form N-CSR. 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 $380,000 for 2015 and $380,000 for 2016. (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 2015 and $1,746 for 2016. 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 2015 and $0 for 2016. (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 $55,575 for 2015 and $55,575 for 2016. 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 2015 and $0 for 2016. (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 2015 and $0 for 2016. 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 2015 and $0 for 2016. (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 2015 were $55,575 for the registrant, $12,500 for the registrant's investment adviser and $29,000 for the registrant's distributor and for 2016 were $55,575 for the registrant, $13,000 for the registrant's investment adviser and $32,500 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/ James M. Dykas ---------------------------------------- James M. Dykas, President and Chief Executive Officer (principal executive officer) Date: February 23, 2017 ------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ James M. Dykas ---------------------------------------- James M. Dykas, President and Chief Executive Officer (principal executive officer) Date: February 23, 2017 ------------------- By (Signature and Title)* /s/ Donald P. Swade ---------------------------------------- Donald P. Swade, Treasurer, Chief Financial Officer and Chief Accounting Officer (principal financial officer) Date: February 23, 2017 ------------------- * Print the name and title of each signing officer under his or her signature.