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
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First Trust Exchange-Traded Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, Illinois 60187
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(Name and address of agent for service)
Registrant's telephone number, including area code: 630-765-8000
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2008
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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, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Report to Stockholders.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
[LOGO OMITTED] FIRST TRUST
FIRST TRUST EXCHANGE-TRADED FUND
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First Trust Dow Jones Select MicroCap Index(SM) Fund
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
First Trust US IPO Index Fund
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
First Trust Amex(R) Biotechnology Index Fund
First Trust Dow Jones Internet Index(SM) Fund
First Trust DB Strategic Value Index Fund
First Trust Value Line(R) Equity Allocation Index Fund
First Trust Value Line(R) Dividend Index Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
First Trust S&P REIT Index Fund
First Trust ISE Water Index Fund
First Trust ISE-Revere Natural Gas Index Fund
First Trust ISE Chindia Index Fund
First Trust Value Line(R) 100 Exchange-Traded Fund
Annual Report
December 31, 2008
Front Cover
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TABLE OF CONTENTS
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First Trust Exchange-Traded Fund
December 31, 2008
Shareholder Letter 2
Market Overview 3
Fund Performance Overview
First Trust Dow Jones Select MicroCap Index(SM) Fund 4
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 6
First Trust US IPO Index Fund 8
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 10
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 12
First Trust Amex(R) Biotechnology Index Fund 14
First Trust Dow Jones Internet Index(SM) Fund 16
First Trust DB Strategic Value Index Fund 18
First Trust Value Line(R) Equity Allocation Index Fund 20
First Trust Value Line(R) Dividend Index Fund 22
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 24
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 26
First Trust S&P REIT Index Fund 28
First Trust ISE Water Index Fund 30
First Trust ISE-Revere Natural Gas Index Fund 32
First Trust ISE Chindia Index Fund 34
First Trust Value Line(R) 100 Exchange-Traded Fund 36
Notes to Fund Performance Overview 38
Understanding Your Fund Expenses 39
Portfolio of Investments
First Trust Dow Jones Select MicroCap Index(SM) Fund 41
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 45
First Trust US IPO Index Fund 47
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 50
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 52
First Trust Amex(R) Biotechnology Index Fund 53
First Trust Dow Jones Internet Index(SM) Fund 54
First Trust DB Strategic Value Index Fund 55
First Trust Value Line(R) Equity Allocation Index Fund 56
First Trust Value Line(R) Dividend Index Fund 59
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 62
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 64
First Trust S&P REIT Index Fund 66
First Trust ISE Water Index Fund 68
First Trust ISE-Revere Natural Gas Index Fund 69
First Trust ISE Chindia Index Fund 70
First Trust Value Line(R) 100 Exchange-Traded Fund 72
Statements of Assets and Liabilities 74
Statements of Operations 78
Statements of Changes in Net Assets 82
Financial Highlights 88
Notes to Financial Statements 98
Report of Independent Registered Public Accounting Firm 109
Additional Information 110
Board of Trustees and Officers 112
Risk Considerations 114
Privacy Policy 117
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as" anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
First Trust Exchange-Traded Fund (the "Trust") to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. When evaluating the information included in this
report, you are cautioned not to place undue reliance on these forward-looking
statements, which reflect the judgment of the Advisor and its representatives
only as of the date hereof. We undertake no obligation to publicly revise or
update these forward-looking statements to reflect events and circumstances that
arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any series of the Trust described in this report
(individually, each such series is referred to as a "Fund" and collectively, the
"Funds") will achieve its investment objective. Each Fund is subject to market
risk, which is the possibility that the market values of securities owned by the
Fund will decline and that the value of the Fund shares may therefore be less
than what you paid for them. Accordingly, you can lose money investing in a
Fund. See "Risk Considerations" at the end of this report for a discussion of
other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about the portfolios and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the portfolio commentary by Robert F. Carey, Chief Investment Officer
of the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in each Fund are
spelled out in its prospectus, statement of additional information, this report
and other Fund regulatory filings.
Page 1
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SHAREHOLDER LETTER
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FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2008
Dear Shareholders:
The year ended December 31, 2008 brought all sorts of challenges to investors.
Throughout 2008, the financial sector was plagued with failures in banking,
insurance and by brokerage firms. By year's end, after a meltdown in the credit
markets, historically high levels of volatility in the stock market, and the
resulting turmoil to the overall economy, the Dow Jones Industrial Average's
(the "Dow") total return was -31.92% (as of 12/31/08). In fact, 2008 was the
Dow's third worst calendar year since its inception in 1896. For the year, the
negative total return performance of the Dow was surpassed only by 1931 and
1907, two years in which the U.S. was also enduring a major banking crisis. Of
the thirty stocks in the Dow, only two were up in 2008.
Yet, regardless of the market, First Trust Advisors L.P. ("First Trust") has
always believed that in order to be successful in reaching your financial goals,
you should be invested for the long term. A long-term investor understands that
the market, from a historical perspective, has always experienced ups and downs.
But history has shown that the patient investor is typically rewarded over the
long term. While no one has the ability to predict when the markets will
recover, we believe that staying invested in quality products and having a
long-term perspective can help investors reach their financial goals.
The report you hold contains detailed information about the Funds that comprise
First Trust Exchange-Traded Fund for the twelve-month period ended December 31,
2008. It contains each Fund's performance review and financial statements for
the period. I encourage you to read this document and discuss it with your
financial advisor.
First Trust has been through many types of markets and remains committed to
bringing you quality investment solutions regardless of the inevitable ups and
downs experienced in the market. We offer a variety of products that may fit
many financial plans to help those investors seeking long-term investment
success. As well, we are committed to making available up-to-date reports about
your investments so you and your financial advisor have current information on
your portfolio.
We continue to value our relationship with you, and we thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
President of First Trust Exchange-Traded Fund
Page 2
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MARKET OVERVIEW
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FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2008
[PHOTO OMITTED] ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of
research and analysis of the First Trust product line.
Mr. Carey has 21 years of experience as an Equity and
Fixed-Income Analyst and is a recipient of the
Chartered Financial Analyst ("CFA") designation. He is
a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a
member of the Investment Analysts Society of Chicago
and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM
Radio, and has been quoted by several publications,
including The Wall Street Journal, The Wall Street
Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY
The combination of the subprime mortgage meltdown, corresponding credit crunch,
historically low levels of consumer confidence and significant job losses pushed
the U.S. economy, which was already in recession, into a deeper one in the
fourth quarter of 2008. The recession actually commenced in December 2007,
according to the National Bureau of Economic Research (NBER). Perhaps the most
troublesome indicator at year-end was the acceleration in job losses. While the
U.S. lost 2.6 million jobs in 2008, 1.1 million of them came in the last two
months. A close second would be the ongoing deterioration of the housing market,
both in terms of declining home values and record-high foreclosure activity.
Filings surpassed 3 million in 2008, up 81% from 2007, according to
RealtyTrac.com. For the 12-month period ended December 2008, home prices were
down 18.2% nationwide, according to the S&P/Case-Shiller 20-city home price
index. Most economists acknowledge that a recovery cannot begin until home
prices stabilize.
At the present time, the government is in the midst of implementing a
three-pronged approach to addressing the challenges mentioned above. First, the
Federal Reserve Bank (the "Fed") has cut the federal funds target rate to an
all-time low of 0-0.25%. Second, the Treasury Department has already tapped
approximately one-half of the $700 billion appropriated to the Troubled Asset
Relief Program (TARP). It took just 77 days to invest the capital with a little
over half ($168 billion) disseminated across 116 banking institutions. The
incoming Obama Administration has stated that it intends to use some of the
remaining $350 billion from TARP to buy "toxic" securities from these troubled
institutions in an effort to free-up lending. Finally, the Obama Administration
is touting a fiscal stimulus package ("Recovery and Reinvestment Plan") totaling
as much as $825 billion that includes tax cuts and capital earmarked for
infrastructure projects with the goal of creating as many as 3 million new jobs
in the next few years. All in all, the government is throwing an unprecedented
amount of monetary/fiscal stimulus at the problem.
U.S. STOCKS AND BONDS
The major U.S. stock indices posted bear market returns across the board in
2008. The S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were
down 37.0%, 36.2%, and 31.1%, respectively, according to Bloomberg. None of the
10 major sectors in the S&P 500 finished the year in positive territory. The top
performing sector was Consumer Staples (-15.4%), while the poorest performer was
Financials (-55.2%).
If we had to pick one word to sum up 2008 volatile would be as relevant as any.
The VIX Volatility Index ("VIX") reached an all-time high of 80.86 on 11/20/08.
The VIX stood at 40.00 on 12/31, down 50% from the high. So far this decade, the
average reading for the VIX has been 21.02, according to Bloomberg. If the VIX
can manage to work its way down into the 30s we could see higher stock prices,
according to Bespoke Investment Group.
All in all, U.S. stocks lost $6.9 trillion in 2008 and equity markets plunged by
more than $30 trillion globally. About the only securities to make money were
those "backed by the full faith and credit of the U.S. government." If there is
a silver lining for stocks heading into 2009 it very well could be the huge
amount of cash sitting on the sidelines. Americans were holding $8.85 trillion
in cash and equivalents (low-yielding) at the end of November 2008.
In the U.S. bond market, the only two groups that finished up for the year were
Treasuries and GNMAs. The Barclays Capital U.S. Treasury: Intermediate Index and
GNMA 30 Year Index posted total returns of 11.35% and 7.86%, respectively. At
the other end of the spectrum, the Barclays Capital U.S. Corporate High Yield
Index posted the poorest return declining 26.2%. In mid-December, the yield
spread between high yield corporates and Treasuries surpassed 20 percentage
points, an all-time high.
FOREIGN STOCKS AND BONDS
The old adage says that when the U.S. sneezes the rest of the world catches a
cold. This was certainly the case in 2008. The U.S. recession not only derailed
the global growth story but the bull market in foreign stocks and most bonds as
well. As was the case in the U.S., the riskiest securities fared the worst. The
Barclays Capital Global Emerging Markets Index of debt securities fell 16.2%
(USD) in 2008, while on the equities front the MSCI Emerging Markets Index and
MSCI World Index (excluding the U.S.) returned -53.4% (USD) and -43.3% (USD),
respectively. The Barclays Capital Global Aggregate Index of higher quality
debt, however, returned 4.8% (USD).
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FDM - FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
The First Trust Dow Jones Select MicroCap Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Dow Jones Select
MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its total assets in common stocks that comprise the Index. The Index measures
the performance of selected U.S. micro-capitalization companies chosen from all
common stocks traded on the New York Stock Exchange ("NYSE(R)"), NYSE Alternext
US and The NASDAQ Stock Market, Inc. ("NASDAQ(R)") that are comparatively liquid
and have strong fundamentals relative to the micro-capitalization segment as a
whole. The Fund's shares are listed for trading on the NYSE Arca, Inc. ("NYSE
Arca"). The first day of secondary market trading in shares of the Fund was
09/30/05.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (09/27/05) Inception (09/27/05)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -33.33% -24.80% -8.37%
Market Value -33.67% -25.06% -8.47%
INDEX PERFORMANCE
Dow Jones Select MicroCap Index(SM) -32.83% -22.93% -7.67%
Russell 2000 Index -33.79% -20.83% -6.91%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The utilities sector was the biggest positive contributor to portfolio
performance during the period ended December 31, 2008, as investors focused on
the relative safety of the sector during a tumultuous year. Telecommunications
services was the only other sector to post a positive contribution to return for
the year. Industrials, the largest sector in the Fund's portfolio, was the
biggest drag on absolute performance as investment in new capital equipment
slowed due to the global economic downturn. Consumer discretionary stocks also
hurt the Fund's performance due to the retrenchment of consumer spending during
the year.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Shenandoah Telecommunications Co. Flotek Industries, Inc.
Chart Industries, Inc. Callon Petroleum Co.
Emergent Biosolutions, Inc. Oriental Financial Group, Inc.
American Science & Engineering, Inc. Valassis Communications, Inc.
Insituform Technologies, Inc., Class A Calamos Asset Management, Inc., Class A
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Financials 28.34%
Industrials 20.44
Consumer Discretionary 17.43
Information Technology 10.65
Health Care 9.52
Materials 4.18
Energy 3.08
Consumer Staples 2.69
Telecommunication Services 2.15
Utilities 1.52
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Shenandoah Telecom Co. 1.19%
American Science & Engineering, Inc. 1.17
Harleysville National Corp. 1.11
Greatbatch, Inc. 1.09
TowneBank 1.09
Insituform Technologies, Inc., Class A 0.99
Community Trust Bancorp, Inc. 0.89
CastlePoint Holdings Ltd. 0.87
First Merchants Corp. 0.87
Jos. A. Bank Clothiers, Inc. 0.86
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Total 10.13%
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Dow Jones and Dow Jones Select MicroCap Index(SM) are trademarks of Dow Jones &
Company, Inc. and have been licensed for use. The Fund, based on the Dow Jones
Select MicroCap Index(SM), is not sponsored, endorsed, sold or promoted by Dow
Jones, and Dow Jones makes no representation regarding the advisability of
trading in the Fund.
Page 4
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FDM - FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
September 27, 2005 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust The Dow Jones
Dow Jones Select Select MicroCap
MicroCap Index(SM) Fund Index(SM) Russell 2000 Index
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9/27/2005 $10,000 $10,000 $10,000
12/31/2005 10,374 10,397 10,254
12/31/2006 12,002 12,115 12,146
12/31/2007 11,279 11,474 11,956
12/31/2008 7,520 7,707 7,916
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
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 September 30, 2005
(commencement of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
09/30/05 - 12/31/05 31 1 3 0
01/01/06 - 12/31/06 125 8 2 0
01/01/07 - 12/31/07 125 12 5 0
01/01/08 - 12/31/08 139 9 1 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
09/30/05 - 12/31/05 29 0 0 0
01/01/06 - 12/31/06 116 0 0 0
01/01/07 - 12/31/07 100 4 5 0
01/01/08 - 12/31/08 99 5 0 0
Page 5
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
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FDL - FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND
The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the
Morningstar(R) Dividend Leaders(SM) Index (the "Index"). The Fund will normally
invest at least 90% of its total assets in common stocks that comprise the
Index. The objective of the Index is to offer 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 (the New York Stock
Exchange ("NYSE(R)"), NYSE Alternext US or The NASDAQ Stock Market, Inc.
("NASDAQ(R)")) that have been selected through the application of Morningstar,
Inc.'s proprietary multi-step screening process. The Index is rebalanced four
times annually in March, June, September and December. The Fund's shares are
listed for trading on the NYSE Arca. The first day of secondary market trading
in shares of the Fund was 03/15/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (03/09/06) Inception (03/09/06)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -31.71% -26.29% -10.28%
Market Value -31.95% -26.09% -10.19%
INDEX PERFORMANCE
Morningstar(R) Dividend Leaders(SM) Index -31.35% -25.38% -9.87%
S&P 500 Index -37.00% -24.78% -9.62%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The consumer staples and utilities sectors posted the best performance in the
Fund's portfolio as investors sought safety in more defensive sectors amid the
market turmoil over the course of 2008. Financials, the largest sector weighting
at a 45.0% average weight over the period ended December 31, 2008, was the
largest drag in the Fund's portfolio as deteriorating credit market conditions
hurt performance within the sector. Materials stocks also weighed on overall
portfolio performance as falling commodity prices hurt earnings in the sector.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Wells Fargo & Co. Bank of America Corp.
Bristol-Myers Squibb Co. Wachovia Corp.
Philip Morris International, Inc. Dow Chemical Co.
UST, Inc. Citigroup, Inc.
Dominion Resources, Inc. AT&T, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Financials 35.94%
Health Care 22.75
Utilities 17.33
Telecommunication Services 14.60
Consumer Discretionary 3.57
Materials 2.63
Consumer Staples 2.19
Industrials 0.99
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Bank of America Corp. 9.48%
AT&T, Inc. 8.45
Pfizer, Inc. 8.06
Verizon Communications, Inc. 6.15
Wells Fargo & Co. 5.75
Merck & Co., Inc. 5.42
Bristol-Myers Squibb Co. 4.71
U.S. Bancorp 4.63
Eli Lilly & Co. 4.57
Southern Co. 2.98
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Total 60.20%
=======
_________________________
Morningstar is a service mark of Morningstar, Inc. and has been licensed for
use. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund is not
sponsored, endorsed, issued, sold or promoted by Morningstar, Inc., nor does
this company make any representation regarding the advisability of investing in
the Fund.
Page 6
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
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FDL - FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
March 9, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Morningstar(R) Morningstar(R)
Dividend Leaders(SM) Dividend Leaders
Index Fund Index(SM) S&P 500 Index
-------------------------- ---------------- -------------
3/9/2006 $10,000 $10,000 $10,000
12/31/2006 12,080 12,110 11,317
12/31/2007 10,795 10,870 11,938
12/31/2008 7,372 7,462 7,521
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period March 15, 2006 (commencement
of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
03/15/06 - 12/31/06 116 8 3 0
01/01/07 - 12/31/07 122 6 5 0
01/01/08 - 12/31/08 148 8 4 2
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
03/15/06 - 12/31/06 75 0 0 0
01/01/07 - 12/31/07 107 10 1 0
01/01/08 - 12/31/08 84 4 2 1
Page 7
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
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FPX - FIRST TRUST US IPO INDEX FUND
The First Trust US IPO Index Fund (formerly known as First Trust IPOX-100 Index
Fund*) (the "Fund") seeks investment results that correspond generally to the
price and yield (before the Fund's fees and expenses) of an equity index called
the IPOX-100 U.S. Index (the "Index"). The Fund will normally invest at least
90% of its total assets in common stocks that comprise the Index. The Index is a
modified value-weighted price index measuring the performance of the top 100
U.S. companies ranked quarterly by market capitalization in the IPOX Global
Composite Index. The Index utilizes a 10% capping on all constituents and
includes the 100 largest, typically best performing and most liquid initial
public offerings ("IPOs") of the U.S. companies in the IPOX Global Composite
Index. The IPOX Global Composite Index is reconstituted regularly with IPOs
being added to the IPOX Global Composite Index at their seventh trading day upon
"going public" and automatically exiting after 1,000 trading days or
approximately four years thereafter. The Index is reconstituted quarterly to
reflect changes in the stock market values of the IPOX Global Composite Index
constituents and IPO activity during the past quarter, with potential new
companies entering the Index while other companies reach 1,000 days in the Index
and automatically drop out. The Fund's shares are listed for trading on the NYSE
Arca. The first day of secondary market trading in shares of the Fund was
04/13/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (04/12/06) Inception (04/12/06)
12/3108 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -43.88% -28.66% -11.67%
Market Value -44.14% -28.71% -11.70%
INDEX PERFORMANCE
IPOX-100 U.S. Index -43.59% -27.55% -11.16%
Russell 3000 Index -37.30% -26.96% -10.90%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
Utilities stocks were the best performers in the Fund's portfolio over the
period ended December 31, 2008 as investors sought out more defensive sectors
during the market turmoil of 2008. Technology stocks were the biggest drag on
the Fund's portfolio as the economic slowdown adversely impacted IT spending
budgets and the sector had the largest weight in the underlying index. Consumer
discretionary stocks also negatively impacted portfolio results as declines in
forecasts for consumer spending weighed on the sector.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
AECOM Technology Corp. Visa, Inc., Class A
Bucyrus International, Inc. Viacom, Inc., Class B
Validus Holdings Ltd. Google, Inc., Class A
Auxilium Pharmaceuticals, Inc. Covidien Ltd.
Stanley, Inc. Tyco Electronics Ltd.
*See Note 8 in Notes to Financial Statements for information regarding this
Fund's name change.
_________________________
IPOX is a trademark of IPOX Schuster LLC, IPOX IPO Indexes and Derivatives
(patent pending).
Page 8
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FPX - FIRST TRUST US IPO INDEX FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Information Technology 28.27%
Consumer Discretionary 16.03
Consumer Staples 14.74
Health Care 9.30
Industrials 8.83
Energy 7.70
Financials 7.26
Telecommunication Services 3.91
Utilities 2.10
Materials 1.86
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Philip Morris International, Inc. 10.22%
Visa Inc., Class A 9.35
Time Warner Cable Inc., Class A 6.32
MasterCard, Inc., Class A 5.57
Covidien Ltd. 5.50
Viacom, Inc., Class B 3.53
First Solar, Inc. 3.37
Western Union Co. 3.09
Spectra Energy Corp. 2.90
Lorillard, Inc. 2.86
-------
Total 52.71%
=======
Growth of a $10,000 Initial Investment
April 12, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust
US IPO Index Fund IPOX-100 U.S. Index Russell 3000 Index
----------------- ------------------- ------------------
4/12/2006 $10,000 $10,000 $10,000
12/31/2006 11,100 11,154 11,069
12/31/2007 12,713 12,844 11,649
12/31/2008 7,135 7,245 7,304
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period April 13, 2006 (commencement
of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
04/13/06 - 12/31/06 37 0 0 0
01/01/07 - 12/31/07 96 9 4 1
01/01/08 - 12/31/08 133 3 6 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
04/13/06 - 12/31/06 144 0 0 0
01/01/07 - 12/31/07 135 5 1 0
01/01/08 - 12/31/08 108 2 1 0
Page 9
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal
Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its total 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, Inc.
("NASDAQ(R)") based on market capitalization. The Index contains the same
securities as the NASDAQ-100 Index(R) but each of the securities is initially
set at a weight of 1.00% of the Index and is rebalanced quarterly. The Fund's
shares are listed for trading on the NASDAQ(R). The first day of secondary
market trading in shares of the Fund was 04/25/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (04/19/06) Inception (04/19/06)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -43.96% -38.13% -16.28%
Market Value -44.48% -38.18% -16.31%
INDEX PERFORMANCE
NASDAQ-100 Equal Weighted Index(SM) -43.61% -37.17% -15.79%
NASDAQ-100 Index(R) -41.57% -29.16% -11.97%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The consumer discretionary sector had a negative impact on performance of the
Fund as the strength of consumer spending was called into question over the
period ended December 31, 2008. Technology stocks were the biggest drag on the
Fund's portfolio, as the economic slowdown adversely impacted IT spending
budgets and the technology sector was the largest weight in the underlying
index.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Apollo Group, Inc., Class A Focus Media Holding Ltd., ADR
Vertex Pharmaceuticals, Inc. Sirius XM Radio, Inc.
Ryanair Holdings PLC, ADR Liberty Media Corp.-Interactive, Class A
Amgen, Inc. Cadence Design Systems, Inc.
Gilead Sciences, Inc. Garmin Ltd.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Information Technology 46.64%
Health Care 18.23
Consumer Discretionary 17.98
Industrials 11.14
Telecommunication Services 2.01
Materials 2.00
Consumer Staples 2.00
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
FLIR Systems, Inc. 1.14%
Liberty Global, Inc., Class A 1.14
Logitech International S.A. 1.10
Comcast Corp., Class A 1.07
Life Technologies Corp. 1.07
J.B. Hunt Transport Services, Inc. 1.06
C.H. Robinson Worldwide, Inc. 1.06
Autodesk, Inc. 1.06
Henry Schein, Inc. 1.06
Automatic Data Processing, Inc. 1.05
-------
Total 10.81%
=======
_________________________
NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), and NASDAQ-100 Equal Weighted
Index(SM) are trademarks of The NASDAQ Stock Market, Inc. (which with its
affiliates is referred to as the corporations) and are licensed for use by First
Trust Advisors L.P. The Fund has not been passed on by the Corporations as to
its legality or suitability. The Fund is not issued, endorsed, sold, or promoted
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THE FUND.
Page 10
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QQEW - FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
April 19, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust NASDAQ-100
Equal Weighted NASDAQ-100 Equal
Index(SM) Fund Weighted Index(SM) NASDAQ-100 Index(R)
---------------------- -------------------- -------------------
4/19/2006 $10,000 $10,000 $10,000
12/31/2006 10,060 10,097 10,168
12/31/2007 11,040 11,142 12,124
12/31/2008 6,187 6,283 7,084
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period April 25, 2006 (commencement
of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
04/25/06 - 12/31/06 105 0 1 0
01/01/07 - 12/31/07 151 0 3 0
01/01/08 - 12/31/08 152 4 1 1
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
04/25/06 - 12/31/06 68 0 0 0
01/01/07 - 12/31/07 97 0 0 0
01/01/08 - 12/31/08 94 1 0 0
Page 11
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND
The First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology
Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its total 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 Stock
Market, Inc. ("NASDAQ(R)") based on market capitalization. The Fund's shares are
listed for trading on the NASDAQ(R). The first day of secondary market trading
in shares of the Fund was 04/25/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (04/19/06) Inception (04/19/06)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -45.26% -41.15% -17.82%
Market Value -45.89% -41.80% -18.16%
INDEX PERFORMANCE
NASDAQ-100 Technology Sector Index(SM) -45.05% -40.40% -17.42%
S&P 500 Information Technology Index -43.14% -31.91% -13.25%
S&P 500 Index -37.00% -27.05% -11.01%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
BEA Systems, Inc. boosted performance in the Fund's portfolio as the business
software maker was acquired by Oracle Corp. during the period ended December 31,
2008. Cadence Design Systems, Inc. was the biggest drag on performance after the
maker of programs for creating semiconductors reported disappointing results.
Sun Microsystems, Inc. also hurt the Fund's performance as demand for its
enterprise servers slumped as its customers delayed large-scale systems
purchases.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
BEA Systems, Inc. Cadence Design Systems, Inc.
Seagate Technology, Inc. Sun Microsystems, Inc.
IAC/InterActiveCorp. SanDisk Corp.
Maxim Integrated Products, Inc. Baidu.com, Inc., ADR
QUALCOMM, Inc. NVIDIA Corp.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Information Technology 100.00%
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Logitech International S.A. 2.85%
Autodesk, Inc. 2.75
Juniper Networks, Inc. 2.69
Citrix Systems, Inc. 2.68
Xilinx, Inc. 2.67
NetApp, Inc. 2.66
Intuit, Inc. 2.65
QUALCOMM, Inc. 2.65
CA, Inc. 2.65
Check Point Software Technologies Ltd. 2.65
-------
Total 26.90%
=======
_________________________
NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), and NASDAQ-100 Technology Sector
Index(SM) are trademarks of The NASDAQ Stock Market, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust Advisors L.P. The Fund has not been passed on by the Corporations as to
its legality or suitability. The Fund is not issued, endorsed, sold, or promoted
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THE FUND.
Page 12
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QTEC - FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
April 19, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust NASDAQ-100 S&P 500
NASDAQ-100-Technology Technology Information
Sector Index(SM) Fund Sector Index(SM) Technology Index S&P 500 Index
--------------------- ---------------- ---------------- -------------
4/19/2006 $10,000 $10,000 $10,000 $10,000
12/31/2006 9,985 10,020 10,296 10,975
12/31/2007 10,750 10,847 11,974 11,578
12/31/2008 5,885 5,960 6,808 7,294
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period April 25, 2006 (commencement
of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
04/25/06 - 12/31/06 103 1 1 1
01/01/07 - 12/31/07 153 0 0 0
01/01/08 - 12/31/08 138 6 1 1
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
04/25/06 - 12/31/06 68 0 0 0
01/01/07 - 12/31/07 98 0 0 0
01/01/08 - 12/31/08 104 2 1 0
Page 13
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FBT - FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND
The First Trust Amex(R) 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 Amex(R) Biotechnology Index(SM) (the
"Index"). The Fund will normally invest at least 90% of its total assets in
common stocks that comprise the Index. The Index is an equal dollar-weighted
index designed to measure the performance of a cross section of companies in the
biotechnology industry that are primarily involved in the use of biological
processes to develop products or provide services. Such processes include, but
are not limited to, recombinant DNA technology, molecular biology, genetic
engineering, monoclonal antibody-based technology, lipid/liposome technology,
and genomics. This Index is rebalanced quarterly based on closing prices on the
third Friday in January, April, July and October to ensure that each component
stock continues to represent approximately equal weight in the Index. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was 06/23/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (06/19/06) Inception (06/19/06)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -18.33% -0.32% -0.13%
Market Value -19.03% -0.73% -0.29%
INDEX PERFORMANCE
Amex(R) Biotechnology Index(SM) -17.72% 1.37% 0.54%
NASDAQ(R) Biotechnology Index -12.30% 2.00% 0.78%
S&P 500 Index -37.00% -23.21% -9.89%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
Millennium Pharmaceuticals, Inc. was the biggest contributor to the Fund's
portfolio return over the period ended December 31, 2008 as it was acquired by
Takeda Pharmaceuticals, Inc. at a 67% announced premium. ImClone Systems, Inc.
also posted strong returns as it was first targeted for acquisition by
Bristol-Myers Squibb Co. at a 43.5% announced premium and then subsequently sold
for an even higher price to Eli Lilly & Co. Affymetrix, Inc. had the most
negative impact on the Fund's returns after the company reduced revenue
forecasts due to reduced spending by pharmaceutical companies. Human Genome
Sciences, Inc. was also a poor performer due to investor concern over its
pipeline for new gene therapies.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Millennium Pharmaceuticals, Inc. Affymetrix, Inc.
ImClone Systems Human Genome Sciences, Inc.
Vertex Pharmaceuticals, Inc. Amylin Pharmaceuticals, Inc.
Nektar Therapeutics Life Technologies Corp.
Gilead Sciences, Inc. Celera Corp.
________________________________
The Amex(R) Biotechnology Index(SM) is a trademark of the NYSE Euronext or its
affiliates ("NYSE Euronext") and is licensed for use by First Trust Advisors
L.P. The Fund is not sponsored or endorsed by the NYSE Euronext. NYSE Euronext
makes no representation or warranty, express or implied, to the owners of the
Fund or any member of the public regarding the advisability of investing in the
Fund or the ability of the Fund to track the performance of the various sectors
represented in the stock market. NYSE Euronext has no obligation to take the
needs of the owners of the Fund into consideration in determining, composing or
calculating the Index. NYSE Euronext is not responsible for and has not
participated in any determination or calculation made with respect to issuance
or redemption of the Fund.
Page 14
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FBT - FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Health Care 100.00%
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Nektar Therapeutics 8.91%
Gilead Sciences, Inc. 6.08
Vertex Pharmaceuticals, Inc. 6.05
Amgen, Inc. 5.89
Cephalon, Inc. 5.67
Biogen Idec, Inc. 5.36
Genzyme Corp. 5.35
Celera Corp. 5.00
Genentech, Inc. 4.95
OSI Pharmaceuticals, Inc. 4.92
-------
Total 58.18%
=======
Growth of a $10,000 Initial Investment
June 19, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Amex(R) Amex(R)
Biotechnology Biotechnology NASDAQ(R)
Index Fund Index(SM) Biotechnology Index S&P 500 Index
------------------- ------------- ------------------- -------------
6/19/2006 $10,000 $10,000 $10,000 $10,000
12/31/2006 11,775 11,815 11,114 11,554
12/31/2007 12,205 12,321 11,630 12,188
12/31/2008 9,968 10,138 10,200 7,678
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period June 23, 2006 (commencement
of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
06/23/06 - 12/31/06 64 0 0 0
01/01/07 - 12/31/07 162 8 1 0
01/01/08 - 12/31/08 170 9 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
06/23/06 - 12/31/06 68 0 0 0
01/01/07 - 12/31/07 76 3 1 0
01/01/08 - 12/31/08 72 1 1 0
Page 15
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND
The First Trust Dow Jones Internet Index(SM) Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Dow Jones Internet Composite
Index(SM) (the "Index"). The Fund will normally invest at least 90% of its total
assets in common stocks that comprise the Index. The Index represents companies
that generate the majority of their revenues via the Internet. The Index was
designed and is maintained according to a set of rules that were devised with
the goal of providing clear and accurate views of the growing internet market
segment. The Index aims to consistently represent 80% of the float-adjusted
Internet equity universe. The Index contains two sub-indexes, the Dow Jones
Internet Commerce Index and the Dow Jones Internet Services Index. For its stock
to be eligible for the "universe," a company must generate at least 50% of
annual sales/revenues from the Internet, and be currently included in the Dow
Jones U.S. Index. The Fund's shares are listed for trading on the NYSE Arca. The
first day of secondary market trading in shares of the Fund was 06/23/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (06/19/06) Inception (06/19/06)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -44.02% -29.77% -13.02%
Market Value -44.26% -29.77% -13.02%
INDEX PERFORMANCE
Dow Jones Internet Composite Index(SM) -43.77% -28.86% -12.56%
S&P 500 Index -37.00% -23.21% -9.89%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
BEA Systems, Inc. was the biggest contributor to the Fund's portfolio return as
the firm was acquired by Oracle Corp. during the period ended December 31, 2008.
Google, Inc., Class A, had the most negative impact on returns after a broad
economic slowdown put its high revenue growth expectations in doubt. eBay, Inc.
hurt the Fund's performance as declines in consumer spending adversely impacted
the outlook for its core retail business. Amazon.com, Inc. was also a drag on
performance after the internet retailer posted results that did not live up to
lofty expectations.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
BEA Systems, Inc. Google, Inc., Class A
Netflix, Inc. eBay, Inc.
CNET Networks, Inc. Yahoo!, Inc.
Concur Technologies, Inc. Amazon.com, Inc.
HSN, Inc. Salesforce.com, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Information Technology 72.15%
Consumer Discretionary 18.64
Financials 5.25
Health Care 2.04
Industrials 1.92
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Juniper Networks, Inc. 10.01%
Amazon.com, Inc. 9.96
Google, Inc., Class A 9.67
eBay, Inc. 9.41
Yahoo!, Inc. 9.34
TD Ameritrade Holding Corp. 4.58
VeriSign, Inc. 4.49
Check Point Software Technologies Ltd. 4.36
Salesforce.com, Inc. 4.29
Priceline.com, Inc. 3.98
-------
Total 70.09%
=======
______________________________
Dow Jones and Dow Jones Internet Composite Index(SM) are trademarks of Dow Jones
& Company, Inc. and have been licensed for use. The Fund, based on the Dow Jones
Internet Composite Index(SM), is not sponsored, endorsed, sold or promoted by
Dow Jones, and Dow Jones makes no representation regarding the advisability of
trading in the Fund.
Page 16
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FDN - FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (CONTINUED)
Growth of a $10,000 Initial Investment
June 19, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust
Dow Jones Internet Dow Jones Internet
Index(SM) Fund Composite Index(SM) S&P 500 Index
------------------ ------------------- -------------
6/19/2006 $10,000 $10,000 $10,000
12/31/2006 11,285 11,316 11,554
12/31/2007 12,546 12,652 12,188
12/31/2008 7,023 7,114 7,678
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period June 23, 2006 (commencement
of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
06/23/06 - 12/31/06 71 0 0 0
01/01/07 - 12/31/07 130 7 6 0
01/01/08 - 12/31/08 140 4 1 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
06/23/06 - 12/31/06 61 0 0 0
01/01/07 - 12/31/07 101 5 2 0
01/01/08 - 12/31/08 105 2 1 0
Page 17
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FDV - FIRST TRUST DB STRATEGIC VALUE INDEX FUND
The First Trust DB Strategic Value Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Deutsche Bank CROCI(R) US+ IndexTM
(the "Index"). The objective of the Index is to identify companies that may be
undervalued based upon their "economic" price/earnings ratios. The Index is an
equal dollar-weighted index which is intended to reflect the total return
performance of 40 stocks with the lowest CROCI(R) Economic Price Earnings Ratios
determined by taking the 251 stocks with the highest market capitalization in
the S&P 500(R) Index and then excluding any stocks issued by financial
companies. The Fund will normally invest at least 90% of its total assets in
common stocks that comprise the Index. The Fund's shares are listed for trading
on the NYSE Arca. The first day of secondary market trading in shares of the
Fund was 07/11/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (06/19/06) Inception (06/19/06)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -37.23% -23.35% -10.14%
Market Value -37.89% -23.81% -10.36%
INDEX PERFORMANCE
Deutsche Bank CROCI(R) US+ Index(TM) -36.75% -22.38% -9.67%
S&P 500 Value Index -39.21% -29.95% -13.32%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
Health care stocks were the best performers in the Fund's portfolio over the
period ended December 31, 2008 as the sector is perceived as being less impacted
by the slowing economy. The energy sector had the largest negative absolute
impact on Fund performance during 2008 as oil prices experienced a major
downturn in the latter half of the year. Consumer discretionary stocks also hurt
performance, as the broad economic downturn curtailed consumer spending.
Information Technology stocks were also a drag on performance, as IT spending
was cut due to the gloomy economic outlook. The Fund's portfolio had no
financial exposure as the underlying index does not hold stocks issued by
financial companies.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Amgen, Inc. Noble Corp.
Zimmer Holdings, Inc. CBS Corp., Class B
Intel Corp. Ingersoll-Rand Co. Ltd.
Applied Materials, Inc. Freeport-McMoRan Copper & Gold, Inc.
Kohl's Corp. Best Buy Co., Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Energy 33.15%
Information Technology 23.38
Health Care 22.20
Consumer Discretionary 7.84
Industrials 7.44
Materials 5.99
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Freeport-McMoRan Copper &
Gold, Inc. 3.03%
Occidental Petroleum Corp. 2.98
Nucor Corp. 2.96
Hess Corp. 2.94
Halliburton Co. 2.86
Viacom, Inc., Class B 2.83
Marathon Oil Corp. 2.75
Baker Hughes, Inc. 2.67
Merck & Co., Inc. 2.64
Eaton Corp. 2.59
-------
Total 28.25%
=======
_________________________
"Deutsche Bank" and "Deutsche Bank CROCI(R) US+ IndexTM" are service marks of
Deutsche Bank AG ("Deutsche Bank"). Deutsche Bank has no relationship to First
Trust or the Fund, other than the licensing of the Index and its service marks
for use in connection with the Fund.
Page 18
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FDV - FIRST TRUST DB STRATEGIC VALUE INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
July 6, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust The Deutsche
DB Strategic Bank CROCI(R)
Value Index Fund US+ Index(TM) S&P 500 Value Index
---------------- ------------- -------------------
7/6/2006 $10,000 $10,000 $10,000
12/31/2006 11,074 11,072 11,298
12/31/2007 12,210 12,273 11,527
12/31/2008 7,664 7,763 7,007
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period July 11, 2006 (commencement
of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
07/11/06 - 12/31/06 63 1 0 0
01/01/07 - 12/31/07 121 15 4 0
01/01/08 - 12/31/08 115 3 2 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
07/11/06 - 12/31/06 57 0 0 0
01/01/07 - 12/31/07 100 8 2 1
01/01/08 - 12/31/08 126 7 0 0
Page 19
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Value Line(R) Equity
Allocation Index (the "Index"). The Fund will normally invest at least 90% of
its total assets in common stocks that comprise the Index. The Index is designed
to objectively identify and select those stocks from the 1,700-stock Value
Line(R) universe across market capitalizations and investment styles for growth
and value that appear to have the greatest potential for capital appreciation.
The Index is rebalanced on a semi-annual basis in February and August. The
Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was 12/07/06.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (12/05/06) Inception (12/05/06)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -35.45% -33.19% -17.69%
Market Value -36.89% -34.46% -18.46%
INDEX PERFORMANCE
Value Line(R) Equity Allocation Index -34.87% -32.28% -17.13%
Russell 3000 Index -37.30% -33.96% -18.13%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
Utilities and consumer staples posted the best returns in the Fund's portfolio
over the period ended December 31, 2008 as investors sought the safety of more
defensive sectors amid the market turmoil. The technology sector had the largest
negative impact on the Fund's performance as the year's economic pessimism
contributed to lower demand for both consumer and enterprise IT products. The
financials sector was also a drag on the Fund's performance as continued credit
market turmoil sent shares lower.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Bed Bath & Beyond, Inc. Hartford Financial Services Group, Inc.
Fording Canadian Coal Trust Lincoln National Corp.
Alpha Natural Resources, Inc. Alcon, Inc.
Cliffs Natural Resources, Inc. Prudential Financial, Inc.
Millennium Pharmaceuticals, Inc. Baker Hughes, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Consumer Discretionary 25.53%
Information Technology 16.23
Industrials 12.57
Health Care 12.36
Financials 10.98
Utilities 8.64
Consumer Staples 7.01
Energy 4.11
Materials 1.97
Telecommunication Services 0.60
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Bed Bath & Beyond, Inc. 2.26%
Chubb (The) Corp. 1.81
Nationwide Financial Services, Inc., Class A 1.74
Exxon Mobil Corp. 1.73
AutoZone, Inc. 1.72
Clorox (The) Co. 1.61
Consolidated Edison, Inc. 1.60
Kroger (The) Co. 1.55
Progress Energy, Inc. 1.54
Xcel Energy, Inc. 1.54
-------
Total 17.10%
=======
____________________________
"Value Line(R)" and "Value Line(R) Equity Allocation Index" are trademarks of
Value Line(R), Inc. and have been licensed for use for certain purposes by First
Trust on behalf of the Fund. The Fund, based on the Value Line(R) Equity
Allocation Index, is not sponsored, endorsed, sold, or promoted by Value
Line(R), Inc., and Value Line(R) makes no representation regarding the
advisability of investing in the Fund.
Page 20
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FVI - FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
December 5, 2006 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust
Value Line(R) Equity Value Line(R)
Allocation Equity
Index Fund Allocation Index Russell 3000 Index
-------------------- ---------------- ------------------
12/5/2006 $10,000 $10,000 $10,000
12/31/2006 9,890 9,897 10,008
12/31/2007 10,350 10,399 10,532
12/31/2008 6,681 6,773 6,604
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period December 7, 2006
(commencement of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
12/07/06 - 12/31/06 7 0 0 0
01/01/07 - 12/31/07 80 6 2 0
01/01/08 - 12/31/08 110 5 0 1
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
12/07/06 - 12/31/06 9 0 0 0
01/01/07 - 12/31/07 157 5 1 0
01/01/08 - 12/31/08 131 4 2 0
Page 21
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Value Line(R) Dividend Index (the
"Index"). The Fund will normally invest at least 90% of its total assets in
common stocks that comprise the Index. The Index is designed to objectively
identify and select those stocks from the universe of stocks of 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 capital appreciation. The Index is rebalanced on a monthly basis. The Fund's
shares are listed for trading on the NYSE Arca.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (08/19/03) Inception (08/19/03)
12/31/08 12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -24.17% 11.37% 18.18% 3.16%
Market Value -25.00% 20.00% 17.26% 3.01%
INDEX PERFORMANCE
Value Line(R) Dividend Index -23.63% N/A N/A N/A
S&P 500 Index -37.00% -10.48% -0.04% -0.01%
On December 15, 2006, the Fund acquired the assets and adopted the financial
and performance history of First Trust Value Line(R) Dividend Fund (the
"Predecessor FVD Fund," a closed-end fund), which had an inception date of
August 19, 2003. The inception date total returns at NAV include the sales
load of $0.675 per share on the initial offering. The investment goals,
strategies and policies of the Fund are substantially similar to those of the
Predecessor FVD Fund. The inception date of the Index was July 3, 2006.
Returns for the Index are only disclosed for those periods in which the Index
was in existence for the entire period. The cumulative total returns for the
period from the reorganization date (12/15/06) through period end (12/31/08)
were -26.94% and -27.16% at NAV and Market Value, respectively. That compares
to an Index return of -25.84% for the same period. The average annual returns
for the period from the reorganization date (12/15/06) through period end
(12/31/08) were -14.23% and -14.36% at NAV and Market Value, respectively.
That compares to an Index return of -13.59% for the same period.
NAV and Market Value returns assume that all dividend distributions have
been reinvested in the Fund at NAV and Market Value, respectively. Prior to
December 15, 2006, NAV and Market Value returns assumed that all dividend
distributions were reinvested at prices obtained by the Dividend Reinvestment
Plan of the Predecessor FVD Fund and the price used to calculate Market Value
return was the AMEX (now known as the NYSE Alternext US) closing market price
of the Predecessor FVD Fund.
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
Defensive sectors, such as utilities, consumer staples and health care, were the
best performers in the Fund's portfolio and posted returns ahead of the overall
market for the period ended December 31, 2008. Investors sought the relative
safety of those sectors as turmoil in the markets accelerated during the second
half of 2008. Financial stocks were the biggest drag on absolute performance in
the Fund's portfolio as deteriorating credit market conditions weighed on
shares. The financial sector had the largest weight in the portfolio (25.9%
average weight). Industrial stocks also negatively impacted the Fund's
performance due to the slowing global economy.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Snap-On, Inc. Gannett Co., Inc.
Capitol Federal Financial Protective Life Corp.
New Jersey Resources Corp. Manulife Financial Corp.
MetLife, Inc. Hartford Financial Services Group, Inc.
Piedmont Natural Gas Co. Bank of America Corp.
_____________________________
"Value Line(R)" and "Value Line(R) Dividend Index" are trademarks of Value
Line(R), Inc. and have been licensed for use for certain purposes by First Trust
on behalf of the Fund. The Fund, based on the Value Line(R) Dividend Index, is
not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value
Line(R) makes no representation regarding the advisability of investing in the
Fund.
Page 22
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FVD - FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Utilities 23.15%
Financials 20.01
Industrials 14.94
Consumer Discretionary 10.64
Consumer Staples 10.42
Health Care 4.91
Materials 4.71
Energy 4.23
Information Technology 4.20
Telecommunication Services 2.79
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Lincoln National Corp. 0.78%
Bank of Nova Scotia 0.77
Allstate (The) Corp. 0.75
Eaton Corp. 0.75
City National Corp. 0.75
Bank of New York Mellon (The) 0.75
Air Products & Chemicals, Inc. 0.74
Bank of Hawaii Corp. 0.74
Exelon Corp. 0.74
Ingersoll-Rand Co., Ltd., Class A 0.74
-------
Total 7.51%
=======
Growth of a $10,000 Initial Investment
August 19, 2003 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust Value Line(R)
Dividend Index Fund S&P 500 Index
------------------------- -------------
8/19/2003 $10,000 $10,000
12/31/2003 10,612 11,166
12/31/2004 12,605 12,381
12/31/2005 13,436 12,989
12/31/2006 16,137 15,040
12/31/2007 15,586 15,865
12/31/2008 11,819 9,995
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period December 18, 2006
(commencement of trading as an exchange-traded fund) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
12/18/06 - 12/31/06 0 0 0 0
01/01/07 - 12/31/07 56 6 3 0
01/01/08 - 12/31/08 126 6 3 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
12/18/06 - 12/31/06 7 1 1 0
01/01/07 - 12/31/07 176 9 1 0
01/01/08 - 12/31/08 105 11 2 0
Page 23
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND
The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ-100
Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least
90% of its total 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 Stock Market, Inc. ("NASDAQ(R)") based on market
capitalization. The Index is equally-weighted and is rebalanced four times
annually in March, June, September and December. The Fund's shares are listed
for trading on the NASDAQ(R). The first day of secondary market trading in
shares of the Fund was 02/15/07.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (02/08/07) Inception (02/08/07)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -43.09% -39.71% -23.45%
Market Value -43.54% -40.16% -23.75%
INDEX PERFORMANCE
NASDAQ-100 Ex-Tech Sector Index(SM) -42.72% -38.98% -22.93%
Russell 1000 Index -37.60% -35.82% -20.86%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
Health care sector stocks were the best performers in the Fund's portfolio over
the period ended December 31, 2008, outperforming holdings from all other
sectors on an absolute return basis. Consumer discretionary stocks were the
biggest drag on the Fund's performance as the sector had the largest weight in
the portfolio and was among the worst performers on an absolute basis.
Telecommunications stocks also hurt performance as the sector posted returns
that trailed the broader market.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Apollo Group Inc., Class A Focus Media Holding Ltd., ADR
Vertex Pharmaceuticals, Inc. Sirius XM Radio, Inc.
Ryanair Holdings PLC, ADR Liberty Media Corp.-Interactive, Class A
Amgen, Inc. Whole Foods Market, Inc.
Gilead Sciences, Inc. Garmin Ltd.
____________________
NASDAQ, NASDAQ-100, NASDAQ-100 Index(R), and NASDAQ-100 Ex-Tech Sector Index(SM)
are trademarks of the NASDAQ Stock Market, Inc. (which with its affiliates is
referred to as the Corporations) and are licensed for use by First Trust
Advisors L.P. The Fund has not been passed on by the Corporations as to its
legality or suitability. The Fund is not issued, endorsed, sold, or promoted by
the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 24
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QQXT - FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR(1) INVESTMENTS
Health Care 29.70%
Consumer Discretionary 29.30
Industrials 18.15
Information Technology 13.07
Telecommunication Services 3.27
Materials 3.26
Consumer Staples 3.25
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
FLIR Systems, Inc. 1.86%
Liberty Global, Inc., Class A 1.86
Comcast Corp., Class A 1.75
Life Technologies Corp. 1.74
J.B. Hunt Transport Services, Inc. 1.73
C.H. Robinson Worldwide, Inc. 1.73
Henry Schein, Inc. 1.72
Automatic Data Processing, Inc. 1.71
DIRECTV Group (The), Inc. 1.71
DENTSPLY International, Inc. 1.70
-------
Total 17.51%
=======
(1) The above sector allocation is based on Standard & Poor's Global Industry
Classification Standard (GICS), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark (ICB) system, the joint classification system
of Dow Jones Indexes and FTSE Group.
Growth of a $10,000 Initial Investment
February 8, 2007 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust
NASDAQ-100 NASDAQ-100
Ex-Technology Ex-Tech
Sector Index(SM) Fund Sector Index(SM) Russell 1000 Index
--------------------- ---------------- ------------------
02/08/2007 $10,000 $10,000 $10,000
12/31/2007 10,595 10,653 10,284
12/31/2008 6,030 6,102 6,417
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period February 15, 2007
(commencement of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
02/15/07 - 12/31/07 110 0 0 3
01/01/08 - 12/31/08 136 2 0 3
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
02/15/07 - 12/31/07 103 1 2 3
01/01/08 - 12/31/08 110 2 0 0
Page 25
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (formerly known
as First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund*) (the
"Fund") seeks investment results that correspond generally to the price and
yield (before the Fund's fees and expenses) of an equity index called the
NASDAQ(R) Clean Edge(R) Green Energy Index (the "Index"). The Fund will normally
invest at least 90% of its total assets in common stocks that comprise the
Index. The Index is an equity index designed to track the performance of clean
energy companies that are publicly traded in the United States and includes
companies engaged in manufacturing, development, distribution and installation
of emerging clean-energy technologies including, but not limited to, solar
photovoltaics, biofuels and advanced batteries. The Index is a modified market
capitalization weighted index in which larger companies receive a larger Index
weighting. The Index weighting methodology also includes caps to prevent high
concentrations among larger alternative energy stocks. The Index is
reconstituted semi-annually in March and September and rebalanced quarterly. The
Fund's shares are listed for trading on the NASDAQ(R). The first day of
secondary market trading in shares of the Fund was 02/14/07.
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (02/08/07) Inception (02/08/07)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -63.74% -44.05% -26.42%
Market Value -63.80% -44.15% -26.49%
INDEX PERFORMANCE
NASDAQ(R) Clean Edge(R) Green Energy Index -63.44% -43.25% -25.83%
Russell 2000 Index -33.79% -37.17% -21.74%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The Fund's portfolio produced returns that trailed the broader market over the
period ended December 31, 2008 due to falling energy prices and downward
pressure on once high valuations in the sector. Rising energy prices are
generally positive for alternative energy firms as it makes their technologies
more cost competitive with traditional supply sources. Solar-focused companies
were among the biggest drags on the Fund's performance as evidenced by Suntech
Power Holdings Co., Ltd., ADR and SunPower Corp., Class A, two of the worst
performers in the portfolio by contribution to return. Silicon wafer
manufacturer MEMC Electronic Materials, Inc. was another significant contributor
to downside performance.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Ultralife Corp. Suntech Power Holdings Co., Ltd., ADR
Greatbatch, Inc. MEMC Electronic Materials, Inc.
IXYS Corp. SunPower Corp., Class A
Ener1, Inc. ON Semiconductor Corp.
Orion Energy Systems, Inc. Energy Conversion Devices, Inc.
* See Note 8 in Notes to Financial Statements for information regarding this
Fund's name change.
_____________________
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The
NASDAQ Stock Market, Inc. ("NASDAQ(R)") and Clean Edge, Inc. ("Clean Edge(R)")
respectively. NASDAQ(R) and Clean Edge(R) are, collectively with their
affiliates, the "Corporations." The Marks are licensed for use by First Trust
Advisors L.P. The Fund has not been passed on by the Corporations as to its
legality or suitability. The Fund is not issued, endorsed, sold, or promoted by
the Corporations. The Fund should not be construed in any way as investment
advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO
LIABILITY WITH RESPECT TO THE FUND.
Page 26
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
QCLN - FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Information Technology 47.98%
Industrials 43.77
Utilities 3.79
Health Care 2.62
Materials 1.23
Energy 0.34
Consumer Discretionary 0.27
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Linear Technology Corp. 8.03%
First Solar, Inc. 7.71
MEMC Electronic Materials, Inc. 6.72
Itron, Inc. 6.33
SunPower Corp., Class A 4.66
Cree, Inc. 4.09
ON Semiconductor Corp. 4.07
Ormat Technologies, Inc. 3.79
Suntech Power Holdings Co., Ltd., ADR 3.56
AVX Corp. 3.54
-------
Total 52.50%
=======
Growth of a $10,000 Initial Investment
February 8, 2007 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust NASDAQ(R)
NASDAQ(R) Clean Clean Edge(R)
Edge(R) Green Green Energy
Enegy Index Fund Index Russell 2000 Index
--------------------- ---------------- ------------------
02/08/2007 $10,000 $10,000 $10,000
12/31/2007 15,430 15,522 9,490
12/31/2008 5,595 5,675 6,283
Performance figures assume reinvestment of all dividend distributions and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period February 14, 2007
(commencement of trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
02/14/07 - 12/31/07 39 0 4 3
01/01/08 - 12/31/08 87 1 2 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
02/14/07 - 12/31/07 176 0 0 0
01/01/08 - 12/31/08 156 3 4 0
Page 27
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FRI - FIRST TRUST S&P REIT INDEX FUND
The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the S&P United States REIT Index (the
"Index"). The Fund will normally invest at least 90% of its total assets in
common stocks that comprise the Index. The Index measures the securitized U.S.
real estate investment trust ("REIT") market and maintains a constituency that
reflects the composition of the overall REIT market. The Index contains
securities selected for market representation according to geography and
property type. All securities in the Index satisfy the Index's liquidity, price,
and market capitalization requirements. The Standard & Poor's Index Committee, a
team of Standard & Poor's economists and index analysts, maintains the Index.
The S&P Index Committee makes constituent changes on an as-needed basis. Share
adjustments that exceed 5% are made at the time of the change. Share adjustments
of less than 5% are made on a quarterly basis. The Fund's shares are listed for
trading on the NYSE Arca. The first day of secondary market trading in shares of
the Fund was 05/10/07.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -38.87% -50.53% -34.73%
Market Value -39.07% -50.78% -34.94%
INDEX PERFORMANCE
S&P REIT Composite Index -37.96% -49.77% -34.08%
S&P United States REIT Index -38.33% -49.86% -34.16%
Composite Benchmark (1) -38.64% -50.32% -34.52%
Russell 3000 Index -37.30% -38.49% -25.48%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
Specialized REITs were the top performing REIT sub-industry in the period ended
December 31, 2008. The residential and diversified REIT sub-industries also
performed well relative to the other REIT sub-industries. Retail REITs were the
biggest drag on absolute Fund performance as the sub-industry was among the
worst performers and had the largest weight in the underlying index. Industrial
REITs also negatively impacted the Fund's portfolio as the sub-industry was the
second worst performing sub-industry in the underlying index. Mortgage REITs
were the worst performing sub-industry although a small weight (0.7% average
weight) limited their impact on overall portfolio performance.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Public Storage ProLogis
Franklin Street Properties Corp. Simon Property Group, Inc.
Realty Income Corp. General Growth Properties, Inc.
Tanger Factory Outlet Centers, Inc. Macerich (The) Co.
Corporate Office Properties Trust Kimco Realty Corp.
(1) The Composite Benchmark is based on both the S&P REIT Composite Index, the
Fund's prior Index (the "Old Index") and the S&P United States REIT Index, the
Fund's current Index (the "New Index"). FRI changed its underlying index at the
close of business on November 5, 2008 to the New Index. Because of this, the
November 5th closing value of the New Index was divided by the November 5th
closing value of the Old Index to obtain a conversion multiple to make the
performance of the indexes comparable. Using this conversion multiple, the
Composite Benchmark return is calculated using the performance of the Old Index
from Fund inception through November 5, 2008 and the New Index performance from
November 6, 2008 (adjusted by the conversion multiple) through December 31,
2008.
__________________
Standard & Poor's(R), S&P(R) and S&P United States REIT Index are registered
trademarks of The McGraw-Hill Companies, Inc. ("McGraw-Hill") and have been
licensed for use by First Trust Advisors L.P. The Fund is not sponsored,
endorsed, sold or promoted by McGraw-Hill or Citigroup Global Markets and its
affiliates ("Citigroup") and neither McGraw-Hill nor Citigroup make any
representation, warranty or condition regarding the advisability of investing in
the Fund.
Page 28
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FRI - FIRST TRUST S&P REIT INDEX FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Financials 100.00%
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Simon Property Group, Inc. 7.50%
Public Storage 6.23
Vornado Realty Trust 5.19
Equity Residential 5.07
HCP, Inc. 4.39
Boston Properties, Inc. 4.16
Ventas, Inc. 3.01
AvalonBay Communities, Inc. 2.92
Health Care REIT, Inc. 2.73
Kimco Realty Corp. 2.62
-------
Total 43.82%
=======
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust S&P REIT S&P
S&P REIT Composite United States
Index Fund Index REIT Index Russell 3000 Index
--------------------- ---------------- ------------- ------------------
05/08/2007 $10,000 $10,000 $10,000 $10,000
12/31/2007 8,092 8,096 8,130 9,811
12/31/2008 4,947 5,023 5,014 6,151
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 10, 2007 (commencement of
trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/10/07 - 12/31/07 46 13 4 1
01/01/08 - 12/31/08 91 15 9 11
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/10/07 - 12/31/07 85 9 5 0
01/01/08 - 12/31/08 109 12 4 2
Page 29
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FIW - FIRST TRUST ISE WATER INDEX FUND
The First Trust ISE Water Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the ISE Water IndexTM (the "Index"). The
Fund will normally invest at least 90% of its total assets in common stocks that
comprise the Index. The Index is a modified market capitalization weighted index
comprised of 36 stocks that derive a substantial portion of their revenues from
the potable and wastewater industries. The Index is rebalanced on a semi-annual
basis. The Fund's shares are listed for trading on the NYSE Arca. The first day
of secondary market trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -29.40% -20.85% -13.22%
Market Value -29.67% -21.15% -13.42%
INDEX PERFORMANCE
ISE Water Index(TM) -29.06% -20.13% -12.72%
Russell 3000 Index -37.30% -38.49% -25.48%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The Fund's portfolio declined over the period ended December 31, 2008 due to
deteriorating prospects for global macroeconomic growth. Less economically
sensitive water utilities held up well relative to the industrial companies in
the Fund's portfolio. Companies focused on producing the parts and equipment and
technology needed to support the growth of the water industry struggled in 2008.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
California Water Service Group Nalco Holding Co.
Insituform Technologies Inc., Class A Crane Co.
Aqua America, Inc. Veolia Environnement, ADR
Tetra Tech, Inc. Cascal N.V.
Ashland, Inc. Pentair, Inc.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Industrials 57.61%
Utilities 24.24
Materials 8.99
Information Technology 4.12
Health Care 3.84
Financials 1.20
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Veolia Environment, ADR 4.70%
Itron, Inc. 4.12
Roper Industries, Inc. 4.06
ITT Corp. 4.01
Aqua America, Inc. 3.98
Pall Corp. 3.94
Nalco Holding Co. 3.92
Millipore Corp. 3.84
Pentair, Inc. 3.69
Flowserve Corp. 3.67
-------
Total 39.93%
=======
____________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Water Index(TM)" are
trademarks of the International Securities Exchange(TM) and have been licensed
for use for certain purposes by First Trust Advisors L.P. The Fund, based on the
ISE Water Index(TM), is not sponsored, endorsed, sold or promoted by the
International Securities Exchange(TM) and the International Securities
Exchange(TM) makes no representation regarding the advisability of trading in
such products.
Page 30
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FIW - FIRST TRUST ISE WATER INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust
ISE Water ISE Water
Index Fund Index(TM) Russell 3000 Index
--------------------- ---------------- ------------------
05/08/2007 $10,000 $10,000 $10,000
12/31/2007 11,212 11,260 9,811
12/31/2008 7,916 7,988 6,151
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 11, 2007 (commencement of
trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/11/07 - 12/31/07 51 0 0 1
01/01/08 - 12/31/08 129 3 3 1
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/11/07 - 12/31/07 109 0 1 0
01/01/08 - 12/31/08 106 8 3 0
Page 31
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND
The First Trust ISE-Revere Natural Gas Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the ISE-REVERE Natural Gas Index(TM)
(the "Index"). The Fund will normally invest at least 90% of its total assets in
common stocks that comprise the Index. The Index is an equal-weighted index
comprised of exchange-listed companies that derive a substantial portion of
their revenues from the exploration and production of natural gas. The Index is
constructed by establishing the universe of stocks listed in the U.S. of
companies involved in the natural gas exploration and production industries and
then eliminates stocks whose natural gas proven reserves do not meet certain
requirements. The Index then ranks all candidate stocks using four different
methods and, often averaging the rankings, selects the top 30 stocks based on
the final rank. The Index is rebalanced on a quarterly basis. The Fund's shares
are listed for trading on the NYSE Arca. The first day of secondary market
trading in shares of the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -46.57% -40.33% -26.88%
Market Value -47.22% -41.09% -27.44%
INDEX PERFORMANCE
ISE-REVERE Natural Gas IndexTM -46.35% -39.84% -26.48%
Russell 3000 Index -37.30% -38.49% -25.48%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The weak commodity market weighed on the natural gas companies that comprise the
underlying index, hurting the Fund's performance over the period ended December
31, 2008. Natural gas prices fell over 2008, with the front month NYMEX natural
gas contract falling from $7.483/Million British Thermal Units ("MMbtu") at the
beginning of 2008 to $5.622/MMbtu as of 12/31/08. In addition, front month NYMEX
WTI crude oil declined sharply in 2008, falling from $95.98/per barrel to
$44.60/per barrel by the end of the year, which hurt the bottom line of many
natural gas companies that have oil operations.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Brigham Exploration Co. Constellation Energy Partners LLC
Comstock Resources, Inc. Compton Petroleum Corp.
Delta Petroleum Corp. Stone Energy Corp.
Linn Energy LLC BreitBurn Energy Partners L.P.
Contango Oil & Gas Co. Pioneer Natural Resources Co.
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Energy 96.60%
Utilites 3.40
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
PetroQuest Energy, Inc. 3.92%
Linn Energy LLC 3.82
Mariner Energy, Inc. 3.70
Talisman Energy, Inc. 3.57
Quicksilver Resources, Inc. 3.57
W&T Offshore, Inc. 3.50
EnCana Corp. 3.48
Apache Corp. 3.45
Anadarko Petroleum Corp. 3.45
SandRidge Energy, Inc. 3.41
-------
Total 35.87%
=======
__________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE-REVERE Natural Gas
Index(TM)" are trademarks of the International Securities Exchange(TM) and have
been licensed for use for certain purposes by First Trust Advisors L.P. The
Fund, based on the ISE-REVERE Natural Gas Index(TM), is not sponsored, endorsed,
sold or promoted by the International Securities Exchange(TM) and the
International Securities Exchange(TM) makes no representation regarding the
advisability of trading in such products.
Page 32
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FCG - FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust ISE-REVERE
ISE-Revere Natural Natural Gas
Gas Index Fund Index(TM) Russell 3000 Index
--------------------- ---------------- ------------------
05/08/2007 $10,000 $10,000 $10,000
12/31/2007 11,167 11,213 9,811
12/31/2008 5,967 6,016 6,151
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 11, 2007 (commencement of
trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/11/07 - 12/31/07 49 0 0 2
01/01/08 - 12/31/08 131 6 1 2
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/11/07 - 12/31/07 109 2 0 0
01/01/08 - 12/31/08 101 8 4 0
Page 33
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FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FNI - FIRST TRUST ISE CHINDIA INDEX FUND
The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The
Fund will normally invest at least 90% of its total assets in common stocks that
comprise the Index. The Index is a non-market capitalization weighted portfolio
of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs")
and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks
of companies from China and India currently trading on a U.S. exchange. The
Index is rebalanced on a semi-annual basis. The Fund's shares are listed for
trading on the NYSE Arca. The first day of secondary market trading in shares of
the Fund was 05/11/07.
PERFORMANCE AS OF DECEMBER 31, 2007
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -56.98% -40.32% -26.87%
Market Value -56.67% -39.87% -26.54%
INDEX PERFORMANCE
ISE ChIndia Index(TM) -56.77% -39.69% -26.37%
Russell 3000 Index -37.30% -38.49% -25.48%
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The Fund's portfolio produced poor results over the period ended December 31,
2008 as investors took profits, given mounting questions about the
sustainability of economic growth in both countries and uneasiness over equity
valuations. Both countries contributed to the downside results in the Fund's
performance. Chinese stocks were responsible for more of the downside
contribution to the Fund's return than Indian stocks, and underperformed their
Indian peers on average as well.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Shanda Interactive Entertainment Ltd., ADR Baidu.com, Inc., ADR
Nam Tai Electronics, Inc. Suntech Power Holdings Co. Ltd., ADR
Huaneng Power International, Inc., ADR ICICI Bank Ltd., ADR
E-House China Holdings Ltd. Sterlite Industries (India) Ltd., ADR
Netease.com, Inc., ADR Satyam Computer Services Ltd., ADR
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Information Technology 26.18%
Financials 22.37
Energy 15.04
Telecommunication Services 11.99
Industrials 8.90
Materials 6.11
Health Care 4.20
Consumer Discretionary 3.70
Consumer Staples 0.76
Utilities 0.75
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
ICICI Bank Ltd., ADR 7.48%
HDFC Bank Ltd., ADR 7.23
Infosys Technologies Ltd., ADR 6.99
Chine Life Insurance Co., Ltd., ADR 6.89
PetroChina Co., Ltd., ADR 6.83
China Mobile Ltd., ADR 6.78
Baidu.com, Inc., ADR 4.51
Wipro Ltd., ADR 4.18
CNOOC Ltd., ADR 3.92
China Petroleum & Chemical Corp., ADR 3.58
-------
Total 58.39%
=======
___________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia Index(TM)"
are trademarks of the International Securities Exchange(TM) and have been
licensed for use for certain purposes by First Trust Advisors L.P. The Fund,
based on the ISE ChIndia Index(TM), is not sponsored, endorsed, sold or promoted
by the International Securities Exchange(TM) and the International Securities
Exchange(TM) makes no representation regarding the advisability of trading in
such products.
Page 34
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FNI - FIRST TRUST ISE CHINDIA INDEX FUND (CONTINUED)
Growth of a $10,000 Initial Investment
May 8, 2007 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust
ISE Chindia ISE ChIndia
Index Fund Index(TM) Russell 3000 Index
--------------------- ---------------- ------------------
05/08/2007 $10,000 $10,000 $10,000
12/31/2007 13,873 13,952 9,811
12/31/2008 5,968 6,031 6,151
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period May 11, 2007 (commencement of
trading) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/11/07 - 12/31/07 82 2 0 2
01/01/08 - 12/31/08 87 8 2 0
Number of Days Bid/Ask Midpoint Below NAV
Quarter Ended 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
05/11/07 - 12/31/07 76 0 0 0
01/01/08 - 12/31/08 138 11 5 2
Page 35
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND
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 total assets in
common stocks that comprise the Index. The Index is an equal-dollar weighted
index that is designed to objectively identify and select 100 stocks from the
universe of stocks to which Value Line(R) assigns a #1 ranking in the Value
Line(R) Timeliness(TM) Ranking System (the "Ranking System"). At any one time,
only 100 stocks are assigned a #1 ranking in the Ranking System. The Index is
rebalanced quarterly. The Fund's shares are listed for trading on the NYSE Arca.
PERFORMANCE AS OF DECEMBER 31, 2008
AVERAGE ANNUAL
CUMULATIVE TOTAL RETURNS TOTAL RETURNS
1 Year Ended 5 Years Ended Inception (06/12/03) Inception (06/12/03)
12/31/08 12/31/08 to 12/31/08 to 12/31/08
FUND PERFORMANCE
NAV -48.30% -18.00% -9.19% -1.72%
Market Value -48.69% -17.76% -9.59% -1.80%
INDEX PERFORMANCE
Value Line(R) 100 Index -48.07% N/A N/A N/A
Russell 3000 Index -37.30% -9.18% 3.24% 0.57%
- --------------------------------------------------------------------------------
On June 15, 2007, the Fund acquired the assets and adopted the financial and
performance history of First Trust Value Line(R) 100 Fund (the "Predecessor
FVL Fund," a closed-end fund), which had an inception date of June 12, 2003.
The inception date total returns at NAV include the sales load of $0.675 per
share on the initial offering. The investment goals, strategies and policies
of the Fund are substantially similar to those of the Predecessor FVL Fund.
The inception date of the Index was January 16, 2007. Returns for the Index
will only be disclosed for those periods in which the Index was in existence
for the entire period. The cumulative total returns for the period from the
reorganization date (06/15/07) through period end (12/31/08) were -44.88% and
-45.12% at NAV and Market Value, respectively. That compares to an Index
return of -44.42% for that same period. The average annual returns for the
period from the reorganization date (6/15/07) through period end (12/31/08)
were -31.99% and -32.18% at NAV and Market Value, respectively. That compares
to an Index return of -31.58% for the same period.
NAV and Market Value returns assume that all dividend distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to June
15, 2007, NAV and Market Value returns assumed that all dividend
distributions were reinvested at prices obtained by the Dividend Reinvestment
Plan of the Predecessor FVL Fund and the price used to calculate Market Value
return was the AMEX (now known as the NYSE Alternext US) closing market price
of the Predecessor FVL Fund.
(See Notes to Fund Performance Overview on page 38.)
PERFORMANCE REVIEW
The Fund's portfolio produced returns that trailed the broader market during the
period ended December 31, 2008 as the growth-oriented momentum stocks the
portfolio favors trailed the overall market. Energy stocks posted the worst
performance on an absolute basis as the steep sell-off in oil prices adversely
impacted the portfolio's energy sector holdings. Industrial stocks produced the
largest negative contribution to the Fund's performance as the global growth
outlook rapidly deteriorated over the course of 2008. In the health care sector,
weak returns and a large weighting relative to the broader market also hurt
portfolio performance. Information technology stocks were also a significant
drag on the Fund's performance as returns in the sector trailed the overall
market. On the positive side, financial stocks were significantly underweighted
in the Fund's portfolio relative to the broader market during 2008, resulting in
the avoidance of potentially large negative return contributions.
TOP FIVE AND BOTTOM FIVE PERFORMING STOCKS
(by contribution to return over the twelve months ended December 31, 2008)
TOP-PERFORMING STOCKS BOTTOM-PERFORMING STOCKS
Thoratec Corp. PAREXEL International Corp
Axsys Technologies, Inc. Bruker Corp.
Panera Bread Co., Class A Covance, Inc.
ITT Educational Services, Inc. Central European Distribution Corp.
AutoZone, Inc. Energy Conversion Devices, Inc.
________________________
"Value Line(R)" and "Value Line(R) 100 Index" are trademarks of Value Line(R),
Inc. and have been licensed for use for certain purposes by First Trust on
behalf of the Fund. The Fund, based on the Value Line(R) 100 Index, is not
sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value Line(R)
makes no representation regarding the advisability of investing in the Fund.
Page 36
- --------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
FVL - FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (CONTINUED)
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECTOR INVESTMENTS
Health Care 36.40%
Consumer Discretionary 19.04
Industrials 14.32
Information Technology 14.17
Consumer Staples 8.93
Materials 3.03
Financials 2.12
Energy 1.02
Telecommunication Services 0.97
-------
Total 100.00%
=======
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2008
% OF LONG-TERM
SECURITY INVESTMENTS
Axsys Technologies, Inc. 1.23%
Crawford & Co., Class B 1.10
CryoLife, Inc. 1.09
FLIR Systems, Inc. 1.09
Nash Finch Co. 1.06
Interwoven, Inc. 1.06
Synaptics, Inc. 1.06
Endo Pharmaceuticals Holdings, Inc. 1.05
DIRECTV Group (The), Inc. 1.05
Corinthian Colleges, Inc. 1.05
-------
Total 10.84%
=======
Growth of a $10,000 Initial Investment
June 12, 2003 - December 31, 2008
[GRAPHIC OMITTED]
EDGARIZATION OF DATA POINTS
First Trust
Value Line(R) 100
Exchange-Traded Fund Russell 3000 Index
---------------------- ------------------
06/12/2003 $10,000 $10,000
12/31/2003 11,073 11,367
12/31/2004 12,518 12,725
12/31/2005 14,003 13,508
12/31/2006 14,646 15,644
12/31/2007 17,562 16,464
12/31/2008 9,080 10,323
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance is no
guarantee of future results.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2008
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period June 18, 2007 (commencement
of trading as an exchange-traded fund) through December 31, 2008.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
06/18/07 - 12/31/07 39 9 4 0
01/01/08 - 12/31/08 115 4 4 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0-49 Basis Points 50-99 Basis Points 100-199 Basis Points >= 200 Basis Points
06/18/07 - 12/31/07 74 9 2 0
01/01/08 - 12/31/08 122 4 4 0
Page 37
- --------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW
- --------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
The Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Value") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of the Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and Market Value returns assume that all dividend
distributions have been reinvested in the Fund at NAV and Market Value,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike 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. 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 the
Fund will vary with changes in market conditions. Shares of the Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. The Fund's past performance is no guarantee of future results.
Page 38
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2008
As a shareholder of First Trust Dow Jones Select MicroCap Index(SM) Fund, First
Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust US IPO Index
Fund, First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust
NASDAQ-100-Technology Sector Index(SM) Fund, First Trust Amex(R) Biotechnology
Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust DB
Strategic Value Index Fund, First Trust Value Line(R) Equity Allocation Index
Fund, First Trust Value Line(R) Dividend Index Fund, First Trust NASDAQ-100
Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index
Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia
Index Fund, 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, and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Funds and to
compare these costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2008.
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
six-month 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 or creation and redemption transaction fees paid on purchases and
sales of Fund shares. 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
BEGINNING ENDING BASED ON THE EXPENSE PAID
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH DURING THE
JULY 1, 2008 DECEMBER 31, 2008 PERIOD (a) SIX-MONTH PERIOD (b)
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
Actual $1,000.00 $759.80 0.60% $2.65
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND
Actual $1,000.00 $921.90 0.45% $2.17
Hypothetical (5% return before expenses) $1,000.00 $1,022.87 0.45% $2.29
FIRST TRUST US IPO INDEX FUND
Actual $1,000.00 $605.40 0.60% $2.42
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
Actual $1,000.00 $639.60 0.60% $2.47
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND
Actual $1,000.00 $603.30 0.60% $2.42
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
Page 39
Annualized
Expense Ratio
Beginning Ending Based on the Expense Paid
Account Value Account Value Six-Month During the
July 1, 2008 December 31, 2008 Period (a) Six-Month Period (b)
FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND
Actual $1,000.00 $873.60 0.60% $2.82
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND
Actual $1,000.00 $626.80 0.60% $2.45
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST DB STRATEGIC VALUE INDEX FUND
Actual $1,000.00 $681.10 0.65% $2.75
Hypothetical (5% return before expenses) $1,000.00 $1,021.87 0.65% $3.30
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
Actual $1,000.00 $705.50 0.70% $3.00
Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
Actual $1,000.00 $840.10 0.70% $3.24
Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND
Actual $1,000.00 $665.70 0.60% $2.51
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND
Actual $1,000.00 $453.00 0.60% $2.19
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST S&P REIT INDEX FUND
Actual $1,000.00 $639.20 0.50% $2.06
Hypothetical (5% return before expenses) $1,000.00 $1,022.62 0.50% $2.54
FIRST TRUST ISE WATER INDEX FUND
Actual $1,000.00 $720.10 0.60% $2.59
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND
Actual $1,000.00 $378.70 0.60% $2.08
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST ISE CHINDIA INDEX FUND
Actual $1,000.00 $597.70 0.60% $2.41
Hypothetical (5% return before expenses) $1,000.00 $1,022.12 0.60% $3.05
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND
Actual $1,000.00 $565.30 0.70% $2.75
Hypothetical (5% return before expenses) $1,000.00 $1,021.62 0.70% $3.56
(a) These expense ratios reflect expense caps.
(b) Expenses are equal to the annualized expense ratio as indicated in the table
multiplied by the average account value over the period (July 1, 2008 through
December 31, 2008), multiplied by 184/366 (to reflect the one-half year period).
Page 40
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.0%
Aerospace & Defense--2.4%
2,227 American Science & Engineering,
Inc. $ 164,709
3,235 Applied Signal Technology, Inc. 58,036
2,539 Ducommun, Inc. 42,401
13,691 GenCorp, Inc. (b) 50,383
2,289 LMI Aerospace, Inc. (b) 26,026
-------------
341,555
-------------
Air Freight & Logistics--0.2%
2,255 Dynamex, Inc. (b) 33,261
-------------
Auto Components--0.1%
3,935 Stoneridge, Inc. (b) 17,944
-------------
Beverages--0.5%
2,516 Boston Beer (The) Co., Inc.,
Class A (b) 71,454
-------------
Biotechnology--0.6%
3,491 Emergent Biosolutions, Inc. (b) 91,150
-------------
Building Products--2.0%
3,605 AAON, Inc. 75,272
7,301 Apogee Enterprises, Inc. 75,639
7,060 Gibraltar Industries, Inc. 84,297
4,146 Insteel Industries, Inc. 46,808
-------------
282,016
-------------
Capital Markets--0.9%
4,933 Calamos Asset Management, Inc.,
Class A 36,504
5,307 Penson Worldwide, Inc. (b) 40,439
8,640 TradeStation Group, Inc. (b) 55,729
-------------
132,672
-------------
Chemicals--2.9%
4,761 American Vanguard Corp. 55,704
4,584 Balchem Corp. 114,186
5,746 Flotek Industries, Inc. (b) 14,480
6,194 Landec Corp. (b) 40,757
3,859 LSB Industries, Inc. (b) 32,107
2,747 Quaker Chemical Corp. 45,188
5,493 Zep, Inc. 106,070
-------------
408,492
-------------
Commercial Banks--17.1%
3,194 Bank of the Ozarks, Inc. 94,670
3,114 Capital City Bank Group, Inc. 84,825
3,997 Center Financial Corp. 24,661
5,090 CoBiz Financial, Inc. 49,577
3,420 Community Trust Bancorp, Inc. 125,685
2,487 First Community Bancshares Inc. 86,722
9,477 First Financial Bancorp. 117,420
5,512 First Merchants Corp. 122,422
10,828 Harleysville National Corp. 156,355
4,026 Home Bancshares, Inc. 108,501
4,131 Independent Bank Corp. 108,067
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Commercial Banks (Continued)
5,996 Lakeland Bancorp, Inc. $ 67,515
4,473 MainSource Financial Group, Inc. 69,332
5,761 Oriental Financial Group 34,854
5,302 Renasant Corp. 90,293
3,049 S.Y. Bancorp, Inc. 83,848
2,851 SCBT Financial Corp. 98,360
3,225 Simmons First National Corp.,
Class A 95,041
3,200 Southside Bancshares, Inc. 75,200
3,717 Southwest Bancorp, Inc. 48,172
5,649 Stellarone Corp. 95,468
4,569 Sterling Bancorp 64,103
2,437 Suffolk Bancorp 87,561
7,823 Texas Capital Bancshares, Inc. (b) 104,515
1,871 Tompkins Trustco, Inc. 108,424
6,159 TowneBank 152,681
5,845 Wilshire Bancorp, Inc. 53,073
-------------
2,407,345
-------------
Commercial Services &
Supplies--2.0%
6,769 Bowne & Co., Inc. 39,802
2,889 Cornell Cos., Inc. (b) 53,707
6,444 Ennis, Inc. 78,036
3,208 Schawk, Inc. 36,764
2,098 Standard Parking Corp. (b) 40,575
3,930 Standard Register (The) Co. 35,095
-------------
283,979
-------------
Communications Equipment--2.3%
2,230 Bel Fuse, Inc., Class B 47,276
4,191 DG Fastchannel, Inc. (b) 52,304
6,065 Digi International, Inc. (b) 49,187
3,971 EMS Technologies, Inc. (b) 102,730
5,181 Globecomm Systems, Inc. (b) 28,444
6,481 Harris Stratex Networks, Inc.,
Class A (b) 33,442
5,443 Opnext, Inc. (b) 9,525
-------------
322,908
-------------
Computers & Peripherals--0.7%
5,127 Stratasys, Inc. (b) 55,116
6,368 Super Micro Computer, Inc. (b) 40,309
-------------
95,425
-------------
Construction & Engineering--2.5%
9,236 Furmanite Corp. (b) 49,782
7,085 Insituform Technologies, Inc.,
Class A (b) 139,504
2,325 Northwest Pipe Co. (b) 99,068
3,323 Sterling Construction Co., Inc. (b) 61,608
-------------
349,962
-------------
Consumer Finance--0.5%
6,145 Dollar Financial Corp. (b) 63,294
-------------
See Notes to Financial Statements. Page 41
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Containers & Packaging--0.4%
6,907 Myers Industries, Inc. $ 55,256
-------------
Diversified Consumer Services--1.4%
6,548 Jackson Hewitt Tax Service, Inc. 102,738
2,269 Learning Tree International, Inc. (b) 19,332
2,014 Pre-Paid Legal Services, Inc. (b) 75,102
-------------
197,172
-------------
Diversified Financial Services--0.3%
3,546 Asset Acceptance Capital Corp. (b) 18,120
3,508 Encore Capital Group, Inc. (b) 25,258
-------------
43,378
-------------
Diversified Telecommunication
Services--2.1%
2,418 Atlantic Tele-Network, Inc. 64,198
5,973 Consolidated Communications
Holdings, Inc. 70,959
5,968 Shenandoah Telecom Co. 167,403
-------------
302,560
-------------
Electric Utilities--0.4%
2,580 Central Vermont Public Service Corp. 61,559
-------------
Electrical Equipment--0.3%
5,440 LSI Industries, Inc. 37,373
-------------
Electronic Equipment,
Instruments &Components--2.8%
8,529 CTS Corp. 46,995
6,285 Electro Scientific Industries, Inc. (b) 42,675
3,925 FARO Technologies, Inc. (b) 66,176
6,002 Gerber Scientific, Inc. (b) 30,670
3,471 Measurement Specialties, Inc. (b) 24,123
9,656 Methode Electronics, Inc. 65,081
9,119 Newport Corp. (b) 61,827
10,856 TTM Technologies, Inc. (b) 56,560
-------------
394,107
-------------
Energy Equipment & Services--1.2%
1,985 Bolt Technology Corp. (b) 13,816
15,616 Boots & Coots International (b) 18,427
6,799 Bronco Drilling Co., Inc. (b) 43,922
1,868 Dawson Geophysical Co. (b) 33,269
5,325 ENGlobal Corp. (b) 17,306
1,203 OYO Geospace Corp. (b) 21,016
2,931 Union Drilling, Inc. (b) 15,212
-------------
162,968
-------------
Food & Staples Retailing--0.4%
3,158 Ingles Markets, Inc. 55,549
-------------
Food Products--0.4%
9,327 B&G Foods, Inc., Class A 50,366
3,213 Omega Protein Corp. (b) 12,884
-------------
63,250
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Gas Utilities--0.4%
1,726 Chesapeake Utilities Corp. $ 54,334
-------------
Health Care Equipment &
Supplies--2.0%
2,457 Cynosure, Inc., Class A (b) 22,432
5,799 Greatbatch, Inc. (b) 153,442
3,305 ICU Medical, Inc. (b) 109,528
-------------
285,402
-------------
Health Care Providers &
Services--6.2%
1,915 Almost Family, Inc. (b) 86,137
13,367 Assisted Living Concepts, Inc.,
Class A (b) 55,473
3,021 Bio-Reference Laboratories, Inc. (b) 79,241
1,985 Corvel Corp. (b) 43,630
7,236 Cross Country Healthcare, Inc. (b) 63,604
2,417 Emergency Medical Services Corp.,
Class A (b) 88,486
7,810 Hanger Orthopedic Group, Inc. (b) 113,323
4,027 MedCath Corp. (b) 42,042
2,862 MWI Veterinary Supply, Inc. (b) 77,160
8,320 Odyssey HealthCare, Inc. (b) 76,960
4,574 RehabCare Group, Inc. (b) 69,342
5,071 Skilled Healthcare Group, Inc.,
Class A (b) 42,799
3,000 U.S. Physical Therapy, Inc. (b) 39,990
-------------
878,187
-------------
Health Care Technology--0.5%
2,585 Computer Programs & Systems, Inc. 69,278
-------------
Hotels, Restaurants & Leisure--3.3%
6,402 AFC Enterprises, Inc. (b) 30,025
4,851 Ambassadors Group, Inc. 44,629
3,338 Bluegreen Corp. (b) 10,448
6,114 California Pizza Kitchen, Inc. (b) 65,542
24,158 Denny's Corp. (b) 48,074
5,273 Marcus (The) Corp. 85,581
4,742 O'Charley's, Inc. 9,484
3,439 Peet's Coffee & Tea, Inc. (b) 79,957
3,625 Red Robin Gourmet Burgers, Inc. (b) 61,009
13,385 Ruby Tuesday, Inc. (b) 20,881
3,449 Town Sports International Holdings,
Inc. (b) 11,002
-------------
466,632
-------------
Household Durables--0.5%
2,305 Hooker Furniture Corp. 17,656
3,546 Universal Electronics, Inc. (b) 57,516
-------------
75,172
-------------
Household Products--0.5%
11,377 Central Garden & Pet Co., Class A (b) 67,124
-------------
Industrial Conglomerates--0.4%
3,151 Standex International Corp. 62,516
-------------
Page 42 See Notes to Financial Statements.
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Insurance--5.0%
2,172 American Physicians Capital, Inc. $ 104,473
4,766 Amerisafe, Inc. (b) 97,846
9,060 CastlePoint Holdings Ltd. 122,854
2,043 FPIC Insurance Group, Inc. (b) 89,443
14,764 Meadowbrook Insurance Group, Inc. 95,080
8,054 PMA Capital Corp., Class A (b) 57,022
5,460 Presidential Life Corp. 53,999
5,375 Seabright Insurance Holdings, Inc. (b) 63,103
-------------
683,820
-------------
Internet & Catalog Retail--0.9%
3,311 Bidz.com, Inc. (b) 15,231
6,016 PetMed Express, Inc. (b) 106,062
-------------
121,293
-------------
Internet Software & Services--1.2%
3,908 Liquidity Services, Inc. (b) 32,554
8,107 Perficient, Inc. (b) 38,751
12,155 S1 Corp. (b) 95,903
-------------
167,208
-------------
IT Services--1.9%
13,266 Ciber, Inc. (b) 63,809
3,691 ExlService Holdings, Inc. (b) 31,632
5,418 Gevity HR, Inc. 8,181
11,751 Global Cash Access Holdings, Inc. (b) 26,087
9,488 Hackett Group, Inc. (b) 27,705
4,339 Integral Systems, Inc. (b) 52,285
1,668 NCI, Inc., Class A (b) 50,257
-------------
259,956
-------------
Leisure Equipment &
Products--0.7%
4,417 RC2 Corp. (b) 47,129
10,114 Smith & Wesson Holding Corp. (b) 22,959
1,804 Steinway Musical Instruments (b) 31,588
-------------
101,676
-------------
Machinery--4.7%
6,661 Altra Holdings, Inc. (b) 52,689
2,293 American Railcar Industries, Inc. 24,145
2,117 Ampco-Pittsburgh Corp. 45,939
2,411 Cascade Corp. 71,992
4,819 Columbus McKinnon Corp. (b) 65,779
9,787 Flow International Corp. (b) 23,685
3,948 Greenbrier Cos., Inc. 27,123
1,607 Hurco Cos., Inc. (b) 19,284
3,269 Kadant, Inc. (b) 44,066
1,200 Key Technology, Inc. (b) 22,668
664 K-Tron International, Inc. (b) 53,054
2,600 L.B. Foster Co., Class A (b) 81,327
4,206 Lydall, Inc. (b) 24,185
4,125 NN, Inc. 9,446
4,153 Tennant Co. 63,956
2,249 Thermadyne Holdings Corp. (b) 15,451
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Machinery (Continued)
2,277 Twin Disc, Inc. $ 15,689
-------------
660,478
-------------
Marine--0.3%
1,456 International Shipholding Corp. 36,880
-------------
Media--1.2%
4,808 Cox Radio, Inc., Class A (b) 28,896
6,864 E.W. Scripps Co., (The) Class A 15,169
6,546 Martha Stewart Living Omnimedia,
Inc., Class A (b) 17,020
11,832 Sinclair Broadcast Group, Inc., Class A 36,679
12,067 Valassis Communications, Inc. (b) 15,928
5,571 World Wrestling Entertainment, Inc.,
Class A 61,727
-------------
175,419
-------------
Metals & Mining--0.5%
4,566 A.M. Castle & Co. 49,449
1,683 Universal Stainless & Alloy (b) 24,387
-------------
73,836
-------------
Oil, Gas & Consumable Fuels--1.9%
5,463 Callon Petroleum Co. (b) 14,204
9,638 DHT Maritime, Inc. 53,395
3,791 Duncan Energy Partners LP. (c) 51,558
3,169 K-Sea Transportation Partners LP. (c) 40,880
14,770 VAALCO Energy, Inc. (b) 109,888
-------------
269,925
-------------
Paper & Forest Products--0.4%
9,800 Buckeye Technologies, Inc. (b) 35,672
6,092 KapStone Paper & Packaging Corp. (b) 14,499
-------------
50,171
-------------
Personal Products--0.9%
3,581 Inter Parfums, Inc. 27,502
8,895 Prestige Brands Holdings, Inc. (b) 93,842
-------------
121,344
-------------
Pharmaceuticals--0.1%
2,584 Caraco Pharmaceutical Laboratories,
Ltd., Inc. (b) 15,297
-------------
Professional Services--4.0%
1,814 Barrett Business Services, Inc. 19,773
3,334 CDI Corp. 43,142
3,528 COMSYS IT Partners, Inc. (b) 7,903
2,766 CRA International, Inc. (b) 74,487
3,466 Exponent, Inc. (b) 104,256
6,485 Hudson Highland Group, Inc. (b) 21,725
1,776 ICF International, Inc. (b) 43,636
9,289 Kforce, Inc. (b) 71,340
6,067 LECG Corp. (b) 40,710
9,052 On Assignment, Inc. (b) 51,325
13,055 Spherion Corp. (b) 28,852
2,717 Volt Information Sciences, Inc. (b) 19,644
See Notes to Financial Statements. Page 43
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Professional Services (Continued)
964 VSE Corp. $ 37,818
-------------
564,611
-------------
Real Estate Investment Trusts--1.3%
19,500 Anthracite Capital, Inc. 43,485
12,207 Hersha Hospitality Trust 36,621
8,626 Kite Realty Group Trust 47,961
14,531 NorthStar Realty Finance Corp. 56,816
-------------
184,883
-------------
Road & Rail--0.3%
3,389 Saia, Inc. (b) 36,805
-------------
Semiconductors & Semiconductor
Equipment--0.6%
6,381 IXYS Corp. 52,707
6,482 Pericom Semiconductor Corp. (b) 35,521
-------------
88,228
-------------
Software--1.2%
4,016 i2 Technologies, Inc. (b) 25,662
5,034 Kenexa Corp. (b) 40,171
7,063 Radiant Systems, Inc. (b) 23,802
9,373 TeleCommunication Systems, Inc. (b) 80,515
-------------
170,150
-------------
Specialty Retail--7.0%
2,593 America's Car-Mart, Inc. (b) 35,809
8,008 Asbury Automotive Group, Inc. 36,597
4,774 Big 5 Sporting Goods Corp. 24,873
7,011 Cato (The) Corp., Class A 105,866
8,982 Christopher & Banks Corp. 50,299
3,629 Citi Trends, Inc. (b) 53,419
2,917 Conn's, Inc. (b) 24,736
4,101 DSW, Inc., Class A (b) 51,098
5,901 Group 1 Automotive, Inc. 63,554
3,945 hhgregg, Inc. (b) 34,243
11,197 Hot Topic, Inc. (b) 103,796
4,611 Jos. A. Bank Clothiers, Inc. (b) 120,577
3,312 Midas, Inc. (b) 34,743
4,681 Monro Muffler Brake, Inc. 119,366
2,240 Shoe Carnival, Inc. (b) 21,392
22,202 Wet Seal, Inc., Class A (b) 65,940
4,649 Zumiez, Inc. (b) 34,635
-------------
980,943
-------------
Textiles, Apparel & Luxury
Goods--2.3%
6,745 K-Swiss, Inc., Class A 76,893
4,738 Maidenform Brands, Inc. (b) 48,091
4,474 Movado Group, Inc. 42,011
3,160 Perry Ellis International, Inc. (b) 20,034
4,084 Steven Madden Ltd. (b) 87,071
3,867 Volcom, Inc. (b) 42,150
-------------
316,250
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Thrifts & Mortgage Finance--3.4%
3,041 Berkshire Hills Bancorp, Inc. $ 93,846
2,954 First Financial Holdings, Inc. 59,789
4,936 First Financial Northwest, Inc. 46,102
4,304 First Place Financial Corp. 16,484
5,009 Flushing Financial Corp. 59,908
2,147 OceanFirst Financial Corp. 35,640
9,295 Ocwen Financial Corp. (b) 85,328
1,555 WSFS Financial Corp. 74,624
-------------
471,721
-------------
Trading Companies &
Distributors--1.3%
2,159 DXP Enterprises, Inc. (b) 31,543
3,872 H&E Equipment Services, Inc. (b) 29,853
4,181 Houston Wire & Cable Co. 38,925
8,169 Interline Brands, Inc. (b) 86,837
-------------
187,158
-------------
Water Utilities--0.7%
3,291 SJW Corp. 98,533
-------------
Total Investments--100.0%
(Cost $20,325,404) (d) 14,069,859
Net Other Assets and
Liabilities--0.0% 6,834
-------------
Net Assets--100.0% $ 14,076,693
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Master limited partnership ("MLP")
(d) Aggregate cost for federal income tax purposes is $20,560,177. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $416,196
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $6,906,514.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -------------------------------------------------------------
Level 1 - Quoted Prices - Investments $14,069,859
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $14,069,859
===============
Page 44 See Notes to Financial Statements.
FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--99.8%
Auto Components--0.1%
4,134 Cooper Tire & Rubber Co. $ 25,465
-------------
Chemicals--2.6%
75,241 Dow Chemical (The) Co. 1,135,387
-------------
Commercial Banks--23.5%
7,633 Associated Banc-Corp. 159,759
34,934 BB&T Corp. 959,288
1,743 City National Corp. 84,884
20,084 Comerica, Inc. 398,667
6,809 F.N.B. Corp. 89,879
39,711 Fifth Third Bancorp 328,013
1,216 First Busey Corp. 22,180
3,125 First Midwest Bancorp, Inc. 62,406
3,940 FirstMerit Corp. 81,125
9,612 Fulton Financial Corp. 92,467
24,584 Huntington Bancshares, Inc. 188,313
24,306 Marshall & Ilsley Corp. 331,534
3,625 National Penn Bancshares, Inc. 52,599
3,688 Old National Bancorp 66,974
2,409 Pacific Capital Bancorp 40,664
1,228 PacWest Bancorp 33,033
619 Park National Corp. 44,413
18,575 PNC Financial Services Group, Inc. 910,175
989 S&T Bancorp., Inc. 35,110
25,479 SunTrust Banks, Inc. 752,650
6,093 Susquehanna Bancshares, Inc. 96,940
8,223 Synovus Financial Corp. 68,251
9,432 TCF Financial Corp. 128,841
2,240 Trustmark Corp. 48,362
79,770 U.S. Bancorp 1,995,048
3,266 Umpqua Holdings Corp. 47,259
1,503 United Bankshares, Inc. 49,930
6,020 Valley National Bancorp 121,905
4,841 Webster Financial Corp. 66,709
84,101 Wells Fargo & Co. 2,479,296
5,110 Whitney Holding Corp. 81,709
3,924 Wilmington Trust Corp. 87,270
5,461 Zions Bancorp 133,849
-------------
10,139,502
-------------
Commercial Services &
Supplies--0.8%
11,734 Pitney Bowes, Inc. 298,982
6,335 Steelcase, Inc., Class A 35,603
-------------
334,585
-------------
Diversified Financial Services--9.4%
290,240 Bank of America Corp. 4,086,579
-------------
Diversified Telecommunication
Services--14.6%
127,836 AT&T, Inc. 3,643,326
78,247 Verizon Communications, Inc. 2,652,573
-------------
6,295,899
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Electric Utilities--8.7%
21,756 American Electric Power Co., Inc. $ 724,041
5,941 DPL, Inc. 135,692
2,529 Empire District Electric (The) Co. 44,510
10,310 Great Plains Energy, Inc. 199,292
4,913 Hawaiian Electric Industries, Inc. 108,774
13,565 Pepco Holdings, Inc. 240,914
6,747 Pinnacle West Capital Corp. 216,781
15,951 Progress Energy, Inc. 635,647
34,700 Southern Co. 1,283,901
1,312 UIL Holdings Corp. 39,399
6,399 Westar Energy, Inc. 131,243
-------------
3,760,194
-------------
Gas Utilities--1.2%
4,233 AGL Resources, Inc. 132,704
5,071 Atmos Energy Corp. 120,183
669 Laclede Group (The), Inc. 31,336
2,321 Nicor, Inc. 80,632
2,298 Piedmont Natural Gas Co., Inc. 72,778
2,170 WGL Holdings, Inc. 70,937
-------------
508,570
-------------
Hotels, Restaurants &
Leisure--1.6%
29,550 Carnival Corp. 718,656
-------------
Household Durables--0.8%
10,074 Leggett & Platt, Inc. 153,024
17,801 Newell Rubbermaid, Inc. 174,094
-------------
327,118
-------------
Insurance--1.1%
5,003 Arthur J. Gallagher & Co. 129,628
7,479 Cincinnati Financial Corp. 217,414
1,378 Mercury General Corp. 63,374
2,298 Zenith National Insurance Corp. 72,548
-------------
482,964
-------------
Machinery--0.1%
2,731 Briggs & Stratton Corp. 48,038
-------------
Media--0.9%
46,704 Gannett Co., Inc. 373,632
-------------
Multi-Utilities--7.4%
16,114 Ameren Corp. 535,952
2,046 Black Hills Corp. 55,160
17,342 CenterPoint Energy, Inc. 218,856
752 CH Energy Group, Inc. 38,645
16,287 Consolidated Edison, Inc. 634,054
9,844 DTE Energy Co. 351,135
4,817 Integrys Energy Group, Inc. 207,035
4,115 NSTAR 150,156
4,881 OGE Energy Corp. 125,832
5,572 SCANA Corp. 198,363
12,722 TECO Energy, Inc. 157,117
4,147 Vectren Corp. 103,716
See Notes to Financial Statements. Page 45
FIRST TRUST MORNINGSTAR(R) DIVIDEND LEADERS(SM) INDEX FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Multi-Utilities (Continued)
23,031 Xcel Energy, Inc. $ 427,225
-------------
3,203,246
-------------
Pharmaceuticals--22.7%
87,310 Bristol-Myers Squibb Co. 2,029,958
48,902 Eli Lilly & Co. 1,969,284
76,835 Merck & Co., Inc. 2,335,784
196,122 Pfizer, Inc. 3,473,320
-------------
9,808,346
-------------
Real Estate Investment Trusts--0.5%
4,847 Rayonier, Inc. 151,954
5,564 Redwood Trust, Inc. 82,959
-------------
234,913
-------------
Specialty Retail--0.2%
12,550 Foot Locker, Inc. 92,117
-------------
Thrifts & Mortgage Finance--1.3%
5,424 Astoria Financial Corp. 89,388
4,150 First Niagara Financial Group, Inc. 67,106
27,517 New York Community Bancorp, Inc. 329,102
4,326 Washington Federal, Inc. 64,717
-------------
550,313
-------------
Tobacco--2.2%
14,638 Reynolds American, Inc. 590,058
5,134 UST, Inc. 356,197
-------------
946,255
-------------
Trading Companies &
Distributors--0.1%
1,155 Watsco, Inc. 44,352
-------------
Total Investments--99.8%
(Cost $58,251,293) (b) 43,116,131
Net Other Assets and
Liabilities--0.2% 79,912
-------------
Net Assets--100.0% $ 43,196,043
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Aggregate cost for federal income tax purposes is $59,710,111. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $186,944
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $16,780,924.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -------------------------------------------------------------
Level 1 - Quoted Prices - Investments $43,116,131
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
-----------------
Total $43,116,131
=================
Page 46 See Notes to Financial Statements.
FIRST TRUST US IPO INDEX FUND (d)
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.0%
Aerospace & Defense--1.7%
538 Aerovironment Inc. (b) $ 19,804
1,453 DynCorp International, Inc.,
Class A (b) 22,042
3,566 Spirit Aerosystems Holdings, Inc.,
Class A (b) 36,266
599 Stanley, Inc. (b) 21,696
1,240 TransDigm Group, Inc. (b) 41,627
-------------
141,435
-------------
Airlines--0.3%
518 Allegiant Travel Co. (b) 25,159
-------------
Auto Components--0.3%
1,782 WABCO Holdings, Inc. 28,138
-------------
Beverages--1.2%
6,466 Dr. Pepper Snapple Group, Inc. (b) 105,073
-------------
Biotechnology--0.6%
961 Acorda Therapeutics, Inc. (b) 19,710
763 Emergent Biosolutions, Inc. (b) 19,922
811 Osiris Therapeutics, Inc. (b) 15,539
-------------
55,171
-------------
Capital Markets--3.1%
5,521 Ameriprise Financial, Inc. 128,971
3,115 Lazard Ltd., Class A 92,640
1,528 optionsXpress Holdings, Inc. 20,414
1,564 RiskMetrics Group, Inc. (b) 23,288
-------------
265,313
-------------
Chemicals--1.9%
3,655 Celanese Corp., Class A 45,432
1,449 CF Industries Holding, Inc. 71,233
5,975 Huntsman Corp. 20,554
1,888 Rockwood Holdings, Inc. (b) 20,390
-------------
157,609
-------------
Communications Equipment--0.2%
1,786 Starent Networks Corp. (b) 21,307
-------------
Computers & Peripherals--0.8%
4,486 Teradata Corp. (b) 66,527
-------------
Construction & Engineering--1.7%
2,628 Aecom Technology Corp. (b) 80,759
4,117 KBR, Inc. 62,578
-------------
143,337
-------------
Consumer Finance--1.4%
12,232 Discover Financial Services 116,571
-------------
Diversified Consumer Services--0.5%
425 Capella Education Co. (b) 24,973
1,115 Grand Canyon Education, Inc. (b) 20,940
-------------
45,913
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Diversified Financial Services--0.7%
1,035 Interactive Brokers Group, Inc.,
Class A (b) $ 18,516
2,550 MSCI, Inc., Class A (b) 45,288
-------------
63,804
-------------
Diversified Telecommunication
Services--1.9%
3,623 Embarq Corp. 130,283
1,075 NTELOS Holdings Corp. 26,510
-------------
156,793
-------------
Electric Utilities--0.7%
1,265 ITC Holdings Corp. 55,255
-------------
Electrical Equipment--4.3%
2,067 First Solar, Inc. (b) 285,163
2,186 SunPower Corp., Class A (b) 80,882
-------------
366,045
-------------
Electronic Equipment,
Instruments & Components--3.4%
2,879 Dolby Laboratories, Inc., Class A (b) 94,316
11,664 Tyco Electronics Ltd. 189,073
-------------
283,389
-------------
Energy Equipment & Services--1.3%
2,700 Cal Dive International, Inc. (b) 17,577
2,089 Dresser-Rand Group, Inc. (b) 36,035
1,580 IHS, Inc. Class A (b) 59,124
-------------
112,736
-------------
Health Care Equipment &
Supplies--6.8%
12,835 Covidien Ltd. 465,140
2,699 ev3, Inc. (b) 16,464
1,453 Masimo Corp. (b) 43,343
921 NuVasive, Inc. (b) 31,913
1,216 Volcano Corp. (b) 18,240
-------------
575,100
-------------
Health Care Providers &
Services--0.6%
1,492 Healthspring, Inc. (b) 29,795
464 LHC Group, Inc. (b) 16,704
-------------
46,499
-------------
Health Care Technology--0.2%
1,148 MedAssets, Inc. (b) 16,761
-------------
Hotels, Restaurants & Leisure--2.9%
3,432 Burger King Holdings, Inc. 81,956
4,617 Tim Hortons, Inc. 133,154
4,520 Wyndham Worldwide Corp. 29,606
-------------
244,716
-------------
See Notes to Financial Statements. Page 47
FIRST TRUST US IPO INDEX FUND (d)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Independent Power Producers &
Energy Traders--0.4%
1,156 Ormat Technologies, Inc. $ 36,842
-------------
Insurance--2.0%
1,249 Allied World Assurance Holdings Ltd. 50,709
1,245 Employers Holdings, Inc. 20,543
2,158 Flagstone Reinsurance Holdings Ltd. 21,084
2,424 OneBeacon Insurance Group Ltd. 25,307
1,908 Validus Holdings Ltd. 49,913
-------------
167,556
-------------
Internet Software & Services--1.3%
1,268 Gmarket Inc., ADR (b) 21,873
1,859 Omniture, Inc. (b) 19,780
2,978 Rackspace Hosting Inc. (b) 16,022
1,136 VistaPrint Ltd. (b) 21,141
1,471 WebMD Health Corp., Class A (b) 34,700
-------------
113,516
-------------
IT Services--21.5%
3,604 Broadridge Financial Solutions, Inc. 45,194
5,468 Genpact Ltd. (b) 44,947
959 Heartland Payment Systems, Inc. 16,783
3,294 MasterCard, Inc., Class A 470,811
3,050 Metavante Technologies, Inc. (b) 49,136
2,010 NeuStar, Inc., Class A (b) 38,451
5,167 SAIC, Inc. (b) 100,653
15,074 Visa, Inc., Class A 790,631
18,238 Western Union Co. 261,533
-------------
1,818,139
-------------
Machinery--0.1%
754 Mueller Water Products Inc.,
Class A 6,334
-------------
Media--11.7%
2,764 Cinemark Holdings, Inc. 20,537
1,192 Morningstar, Inc. (b) 42,316
4,174 Scripps Networks Interactive Inc.,
Class A 91,828
24,901 Time Warner Cable, Inc., Class A (b) 534,126
15,637 Viacom, Inc., Class B (b) 298,041
-------------
986,848
-------------
Oil, Gas & Consumable
Fuels--6.4%
1,797 Alpha Natural Resources, Inc. (b) 29,093
1,150 Bill Barrett Corp. (b) 24,300
1,937 Concho Resources, Inc. (b) 44,202
4,312 Continental Resources, Inc. (b) 89,302
2,690 EXCO Resources, Inc. (b) 24,371
1,136 Foundation Coal Holdings, Inc. 15,927
1,972 Patriot Coal Corp. (b) 12,325
4,233 SandRidge Energy, Inc. (b) 26,033
15,574 Spectra Energy Corp. 245,134
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Oil, Gas & Consumable
Fuels (Continued)
1,946 W&T Offshore, Inc. $ 27,867
-------------
538,554
-------------
Personal Products--0.4%
1,627 Herbalife Ltd. 35,273
-------------
Pharmaceuticals--1.1%
6,392 Warner Chilcott Ltd., Class A (b) 92,684
-------------
Road & Rail--0.5%
8,232 Hertz Global Holdings, Inc. (b) 41,736
-------------
Semiconductors & Semiconductor
Equipment--0.5%
1,538 Atheros Communications (b) 22,009
776 Hittite Microwave Corp. (b) 22,861
-------------
44,870
-------------
Software--0.5%
1,770 Solera Holdings, Inc. (b) 42,657
-------------
Specialty Retail--0.2%
1,593 J. Crew Group, Inc. (b) 19,435
-------------
Textiles, Apparel & Luxury
Goods--0.4%
2,383 Hanesbrands, Inc. (b) 30,383
-------------
Tobacco--13.1%
4,284 Lorillard, Inc. 241,403
19,855 Philip Morris International, Inc. 863,891
-------------
1,105,294
-------------
Trading Companies &
Distributors--0.3%
2,634 RSC Holdings, Inc. (b) 22,442
-------------
Water Utilities--1.0%
4,078 American Water Works Co., Inc. 85,149
-------------
Wireless Telecommunication
Services--2.1%
4,188 Clearwire Corp., Class A (b) 20,647
8,925 MetroPCS Communications, Inc. (b) 132,536
1,744 Syniverse Holdings, Inc. (b) 20,823
-------------
174,006
-------------
Total Investments--100.0%
(Cost $13,382,525) (c) 8,454,369
Net Other Assets and
Liabilities--(0.0)% (601)
-------------
Net Assets--100.0% $ 8,453,768
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
Page 48 See Notes to Financial Statements.
FIRST TRUST US IPO INDEX FUND (d)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
(c) Aggregate cost for federal income tax purposes is $13,499,390. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $23,752
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $5,068,773.
(d) Formerly known as First Trust IPOX-100 Index Fund. See Note 8 in Notes to
Financial Statements for information on the Fund's name change.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -------------------------------------------------------------
Level 1 - Quoted Prices - Investments $ 8,454,369
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
-----------------
Total $ 8,454,369
=================
See Notes to Financial Statements. Page 49
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.0%
Air Freight & Logistics--2.1%
2,874 C.H. Robinson Worldwide, Inc. $ 158,156
4,641 Expeditors International of
Washington, Inc. 154,406
-------------
312,562
-------------
Airlines--1.0%
4,977 Ryanair Holdings PLC, ADR (b) 144,731
-------------
Beverages--1.0%
4,518 Hansen Natural Corp. (b) 151,489
-------------
Biotechnology--7.1%
2,572 Amgen, Inc. (b) 148,533
3,183 Biogen Idec, Inc. (b) 151,606
2,721 Celgene Corp. (b) 150,417
1,920 Cephalon, Inc. (b) 147,917
2,182 Genzyme Corp. (b) 144,819
2,997 Gilead Sciences, Inc. (b) 153,267
4,989 Vertex Pharmaceuticals, Inc. (b) 151,566
-------------
1,048,125
-------------
Chemicals--1.0%
3,672 Sigma-Aldrich Corp. 155,105
-------------
Commercial Services &
Supplies--2.0%
6,648 Cintas Corp. 154,433
2,814 Stericycle, Inc. (b) 146,553
-------------
300,986
-------------
Communications Equipment--4.0%
8,942 Cisco Systems, Inc. (b) 145,755
8,825 Juniper Networks, Inc. (b) 154,525
4,247 QUALCOMM, Inc. 152,170
3,474 Research In Motion Ltd. (b) 140,975
-------------
593,425
-------------
Computers & Peripherals--5.9%
1,653 Apple Computer, Inc. (b) 141,084
13,416 Dell, Inc. (b) 137,380
10,485 Logitech International S.A. (b) 163,356
10,940 NetApp, Inc. (b) 152,832
32,700 Seagate Technology 144,861
35,764 Sun Microsystems, Inc. (b) 136,618
-------------
876,131
-------------
Construction & Engineering--1.0%
6,245 Foster Wheeler Ltd. (b) 146,008
-------------
Diversified Consumer
Services--1.0%
1,967 Apollo Group, Inc., Class A (b) 150,712
-------------
Electrical Equipment--1.0%
1,057 First Solar, Inc. (b) 145,824
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Electronic Equipment,
Instruments &Components--2.2%
59,751 Flextronics International Ltd. (b) $ 152,963
5,520 FLIR Systems, Inc. (b) 169,353
-------------
322,316
-------------
Food & Staples Retailing--1.0%
2,765 Costco Wholesale Corp. 145,163
-------------
Health Care Equipment &
Supplies--3.1%
5,498 DENTSPLY International, Inc. 155,263
11,437 Hologic, Inc. (b) 149,482
1,185 Intuitive Surgical, Inc. (b) 150,483
-------------
455,228
-------------
Health Care Providers &
Services--3.0%
2,425 Express Scripts, Inc. (b) 133,327
4,274 Henry Schein, Inc. (b) 156,812
8,086 Patterson Cos., Inc. (b) 151,613
-------------
441,752
-------------
Hotels, Restaurants &
Leisure--1.9%
15,058 Starbucks Corp. (b) 142,449
3,456 Wynn Resorts Ltd. (b) 146,050
-------------
288,499
-------------
Household Durables--1.0%
7,650 Garmin Ltd. 146,651
-------------
Internet & Catalog Retail--3.0%
2,885 Amazon.com, Inc. (b) 147,943
18,256 Expedia, Inc. (b) 150,430
47,994 Liberty Media Corp. - Interactive,
Class A (b) 149,741
-------------
448,114
-------------
Internet Software & Services--6.7%
9,550 Akamai Technologies, Inc. (b) 144,110
1,135 Baidu.com, Inc., ADR (b) 148,197
10,296 eBay, Inc. (b) 143,732
480 Google, Inc., Class A (b) 147,672
9,099 IAC/InterActiveCorp (b) 143,127
7,099 VeriSign, Inc. (b) 135,449
11,419 Yahoo!, Inc. (b) 139,312
-------------
1,001,599
-------------
IT Services--5.0%
3,957 Automatic Data Processing, Inc. 155,667
8,265 Cognizant Technology Solutions
Corp., Class A (b) 149,266
4,083 Fiserv, Inc. (b) 148,499
5,822 Infosys Technologies Ltd., ADR 143,047
5,667 Paychex, Inc. 148,929
-------------
745,408
-------------
Page 50 See Notes to Financial Statements.
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Life Sciences Tools & Services--3.1%
5,932 Illumina, Inc. (b) $ 154,529
6,807 Life Technologies Corp. (b) 158,671
5,182 Pharmaceutical Product Development,
Inc. 150,330
-------------
463,530
-------------
Machinery--2.0%
6,262 Joy Global, Inc. 143,337
5,250 PACCAR, Inc. 150,150
-------------
293,487
-------------
Media--5.0%
9,440 Comcast Corp., Class A 159,347
6,791 DIRECTV Group (The), Inc. (b) 155,582
12,685 DISH Network Corp., Class A (b) 140,677
13,551 Focus Media Holding Ltd., ADR (b) 123,179
10,634 Liberty Global, Inc., Class A (b) 169,293
-------------
748,078
-------------
Metals & Mining--1.0%
12,695 Steel Dynamics, Inc. 141,930
-------------
Multiline Retail--1.0%
3,800 Sears Holdings Corp. (b) 147,706
-------------
Pharmaceuticals--2.0%
3,417 Teva Pharmaceutical Industries
Ltd., ADR 145,462
10,641 Warner Chilcott Ltd., Class A (b) 154,294
-------------
299,756
-------------
Road & Rail--1.1%
6,021 J.B. Hunt Transport Services, Inc. 158,172
-------------
Semiconductors & Semiconductor
Equipment--11.8%
9,050 Altera Corp. 151,226
14,687 Applied Materials, Inc. 148,779
8,457 Broadcom Corp., Class A (b) 143,515
10,303 Intel Corp. 151,042
6,922 KLA-Tencor Corp. 150,830
6,744 Lam Research Corp. (b) 143,512
6,725 Linear Technology Corp. 148,757
20,868 Marvell Technology Group Ltd. (b) 139,190
12,087 Maxim Integrated Products, Inc. 138,034
7,587 Microchip Technology, Inc. 148,174
17,463 NVIDIA Corp. (b) 140,926
8,595 Xilinx, Inc. 153,162
-------------
1,757,147
-------------
Software--11.0%
15,662 Activision Blizzard, Inc. (b) 135,320
6,723 Adobe Systems, Inc. (b) 143,133
8,034 Autodesk, Inc. (b) 157,867
8,206 CA, Inc. 152,057
7,990 Check Point Software Technologies
Ltd. (b) 151,730
6,526 Citrix Systems, Inc. (b) 153,817
8,556 Electronic Arts, Inc. (b) 137,238
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Software (Continued)
6,400 Intuit, Inc. (b) $ 152,256
7,781 Microsoft Corp. 151,263
8,368 Oracle Corp. (b) 148,365
11,062 Symantec Corp. (b) 149,558
-------------
1,632,604
-------------
Specialty Retail--5.0%
5,719 Bed Bath & Beyond, Inc. (b) 145,377
4,938 O'Reilly Automotive, Inc. (b) 151,794
5,093 Ross Stores, Inc. 151,415
8,130 Staples, Inc. 145,690
9,834 Urban Outfitters, Inc. (b) 147,313
-------------
741,589
-------------
Trading Companies &
Distributors--1.0%
4,382 Fastenal Co. 152,713
-------------
Wireless Telecommunication
Services--2.0%
3,332 Millicom International Cellular S.A. 149,640
8,188 NII Holdings, Inc. (b) 148,858
-------------
298,498
-------------
Total Investments--100.0%
(Cost $23,149,210) (c) $ 14,855,038
Net Other Assets and
Liabilities--(0.0)% (7,010)
-------------
Net Assets--100.0% $ 14,848,028
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $23,735,887. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $160,253
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $9,041,102.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -------------------------------------------------------------
Level 1 - Quoted Prices - Investments $14,855,038
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
-----------------
Total $14,855,038
=================
See Notes to Financial Statements. Page 51
FIRST TRUST NASDAQ-100 TECHNOLOGY SECTOR INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.0%
Communications Equipment--10.3%
14,675 Cisco Systems, Inc. (b) $ 239,203
14,484 Juniper Networks, Inc. (b) 253,614
6,971 QUALCOMM, Inc. 249,771
5,702 Research In Motion Ltd. (b) 231,387
-------------
973,975
-------------
Computers & Peripherals--15.3%
2,713 Apple Computer, Inc. (b) 231,555
22,019 Dell, Inc. (b) 225,475
17,209 Logitech International S.A. (b) 268,115
17,956 NetApp, Inc. (b) 250,845
53,669 Seagate Technology 237,754
58,701 Sun Microsystems, Inc. (b) 224,238
-------------
1,437,982
-------------
Internet Software & Services--15.0%
15,674 Akamai Technologies, Inc. (b) 236,521
1,863 Baidu.com, Inc., ADR (b) 243,252
787 Google, Inc., Class A (b) 242,121
14,936 IAC/InterActiveCorp (b) 234,943
11,651 VeriSign, Inc. (b) 222,301
18,741 Yahoo!, Inc. (b) 228,640
-------------
1,407,778
-------------
IT Services--5.1%
13,566 Cognizant Technology Solutions
Corp., Class A (b) 245,002
9,554 Infosys Technologies Ltd., ADR 234,742
-------------
479,744
-------------
Semiconductors & Semiconductor
Equipment--30.6%
14,854 Altera Corp. 248,210
24,106 Applied Materials, Inc. 244,194
13,883 Broadcom Corp., Class A (b) 235,595
16,911 Intel Corp. 247,915
11,363 KLA-Tencor Corp. 247,600
11,070 Lam Research Corp. (b) 235,570
11,040 Linear Technology Corp. 244,205
34,249 Marvell Technology Group Ltd. (b) 228,441
19,837 Maxim Integrated Products, Inc. 226,539
12,453 Microchip Technology, Inc. 243,207
28,662 NVIDIA Corp. (b) 231,302
14,107 Xilinx, Inc. 251,386
-------------
2,884,164
-------------
Software--23.7%
11,035 Adobe Systems, Inc. (b) 234,935
13,186 Autodesk, Inc. (b) 259,104
13,469 CA, Inc. 249,581
13,115 Check Point Software Technologies
Ltd. (b) 249,054
10,710 Citrix Systems, Inc. (b) 252,435
10,503 Intuit, Inc. (b) 249,866
12,772 Microsoft Corp. 248,288
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Software (Continued)
13,734 Oracle Corp. (b) $ 243,504
18,156 Symantec Corp. (b) 245,469
-------------
2,232,236
-------------
Total Investments--100.0%
(Cost $16,736,402) (c) 9,415,879
Net Other Assets and
Liabilities--(0.0)% (2,283)
-------------
Net Assets--100.0% $ 9,413,596
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $16,793,266. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $0 and
the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $7,377,387.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -------------------------------------------------------------
Level 1 - Quoted Prices - Investments $ 9,415,879
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
-----------------
Total $ 9,415,879
=================
Page 52 See Notes to Financial Statements.
FIRST TRUST AMEX(R) BIOTECHNOLOGY INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--99.2%
Biotechnology--69.3%
78,270 Alexion Pharmaceuticals, Inc. (b) $ 2,832,591
59,772 Amgen, Inc. (b) 3,451,833
237,831 Amylin Pharmaceuticals, Inc. (b) 2,580,466
65,938 Biogen Idec, Inc. (b) 3,140,627
262,688 Celera Corp. (b) 2,923,717
52,112 Celgene Corp. (b) 2,880,751
43,162 Cephalon, Inc. (b) 3,325,200
35,034 Genentech, Inc. (b) 2,904,669
47,315 Genzyme Corp. (b) 3,140,297
69,714 Gilead Sciences, Inc. (b) 3,565,175
772,889 Human Genome Sciences, Inc. (b) 1,638,525
201,213 InterMune, Inc. (b) 2,128,834
73,848 OSI Pharmaceuticals, Inc. (b) 2,883,764
116,776 Vertex Pharmaceuticals, Inc. (b) 3,547,655
-------------
40,944,104
-------------
Life Sciences Tools &
Services--29.9%
662,027 Affymetrix, Inc. (b) 1,979,461
99,411 Illumina, Inc. (b) 2,589,657
102,431 Life Technologies Corp. (b) 2,387,667
53,355 Millipore Corp. (b) 2,748,849
940,000 Nektar Therapeutics (b) 5,226,399
139,427 Sequenom, Inc. (b) 2,766,232
-------------
17,698,265
-------------
Total Investments--99.2%
(Cost $73,452,552) (c) 58,642,369
Net Other Assets and
Liabilities--0.8% 454,506
-------------
Net Assets--100.0% $ 59,096,875
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $78,280,844. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $762,712
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $20,401,187.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -------------------------------------------------------------
Level 1 - Quoted Prices - Investments $58,642,369
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
-----------------
Total $58,642,369
=================
See Notes to Financial Statements. Page 53
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.1%
Capital Markets--5.3%
86,509 E*TRADE Financial Corp. (b) $ 99,485
47,292 TD Ameritrade Holding Corp. (b) 673,911
-------------
773,396
-------------
Communications Equipment--10.6%
84,153 Juniper Networks, Inc. (b) 1,473,519
53,091 Sonus Networks, Inc. (b) 83,884
-------------
1,557,403
-------------
Health Care Technology--2.0%
11,616 Allscripts-Misys Healthcare
Solutions, Inc. 115,231
17,611 HLTH Corp. (b) 184,211
-------------
299,442
-------------
Internet & Catalog Retail--18.7%
28,605 Amazon.com, Inc. (b) 1,466,865
40,880 Expedia, Inc. (b) 336,851
9,052 NetFlix, Inc. (b) 270,564
3,111 Overstock.com, Inc. (b) 33,537
7,948 Priceline.com, Inc. (b) 585,370
7,872 Ticketmaster Entertainment, Inc. (b) 50,538
-------------
2,743,725
-------------
Internet Software & Services--46.9%
33,072 Akamai Technologies, Inc. (b) 499,056
16,838 Ariba, Inc. (b) 121,402
25,007 Art Technology Group, Inc. (b) 48,264
7,248 DealerTrack Holdings, Inc. (b) 86,179
7,269 Digital River, Inc. (b) 180,271
21,218 EarthLink, Inc. (b) 143,434
99,239 eBay, Inc. (b) 1,385,376
4,628 Google, Inc., Class A (b) 1,423,803
12,720 IAC/InterActiveCorp (b) 200,086
9,873 Internap Network Services Corp. (b) 24,683
8,871 Interwoven, Inc. (b) 111,775
8,578 j2 Global Communications, Inc. (b) 171,903
9,035 ModusLink Global Solutions, Inc. (b) 26,111
17,547 RealNetworks, Inc. (b) 61,941
10,490 SonicWALL, Inc. (b) 41,750
15,906 United Online, Inc. 96,549
16,957 ValueClick, Inc. (b) 115,986
34,677 VeriSign, Inc. (b) 661,637
8,776 Websense, Inc. (b) 131,377
112,684 Yahoo!, Inc. (b) 1,374,745
-------------
6,906,328
-------------
IT Services--1.6%
13,606 CyberSource Corp. (b) 163,136
16,210 Sapient Corp. (b) 71,972
-------------
235,108
-------------
Professional Services--1.9%
23,404 Monster Worldwide, Inc. (b) 282,954
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Software--13.1%
33,769 Check Point Software Technologies
Ltd. (b) $ 641,274
9,669 Concur Technologies, Inc. (b) 317,337
11,853 Quest Software, Inc. (b) 149,229
19,748 Salesforce.com, Inc. (b) 632,133
35,171 TIBCO Software, Inc. (b) 182,537
-------------
1,922,510
-------------
Total Common Stocks--100.1%
(Cost $27,829,538) 14,720,866
Money Market Funds--0.3%
49,049 Morgan Stanley Institutional Treasury
Money Market Fund--0.06% (c)
(Cost $49,049) 49,049
-------------
Total Investments--100.4%
(Cost $27,878,587) (d) 14,769,915
Net Other Assets and
Liabilities--(0.4)% (61,430)
-------------
Net Assets--100.0% $ 14,708,485
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2008.
(d) Aggregate cost for federal income tax purposes is $28,802,290. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $13,548
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $14,045,923.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -------------------------------------------------------------
Level 1 - Quoted Prices - Investments $14,769,915
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
----------------
Total $14,769,915
================
Page 54 See Notes to Financial Statements.
FIRST TRUST DB STRATEGIC VALUE INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--99.9%
Biotechnology--2.5%
18,588 Biogen Idec, Inc. (b) $ 885,346
-------------
Communications Equipment--2.5%
92,942 Corning, Inc. 885,737
-------------
Computers & Peripherals--4.4%
75,476 Dell, Inc. (b) 772,874
75,256 EMC Corp. (b) 787,931
-------------
1,560,805
-------------
Energy Equipment &
Services--10.0%
29,790 Baker Hughes, Inc. 955,365
56,251 Halliburton Co. 1,022,644
37,070 Noble Corp. 818,876
16,155 Transocean Ltd. (b) 763,324
-------------
3,560,209
-------------
Health Care Equipment &
Supplies--2.4%
20,888 Zimmer Holdings, Inc. (b) 844,293
-------------
Health Care Providers &
Services--2.5%
23,482 McKesson Corp. 909,458
-------------
Hotels, Restaurants &
Leisure--2.5%
36,771 Carnival Corp. 894,271
-------------
Internet Software &
Services--4.6%
57,846 eBay, Inc. (b) 807,530
70,148 Yahoo!, Inc. (b) 855,806
-------------
1,663,336
-------------
Machinery--7.4%
18,642 Eaton Corp. 926,694
24,398 Illinois Tool Works, Inc. 855,150
20,670 Parker Hannifin Corp. 879,302
-------------
2,661,146
-------------
Media--5.3%
98,869 News Corp., Class A 898,719
52,983 Viacom, Inc., Class B (b) 1,009,856
-------------
1,908,575
-------------
Metals & Mining--6.0%
44,268 Freeport-McMoRan Copper &
Gold, Inc. 1,081,910
22,919 Nucor Corp. 1,058,858
-------------
2,140,768
-------------
Oil, Gas & Consumable
Fuels--23.1%
23,225 Anadarko Petroleum Corp. 895,324
11,834 Apache Corp. 881,988
10,802 Chevron Corp. 799,024
16,749 ConocoPhillips 867,598
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Oil, Gas & Consumable
Fuels (Continued)
12,495 Devon Energy Corp. $ 821,046
19,568 Hess Corp. 1,049,627
35,936 Marathon Oil Corp. 983,209
18,791 Noble Energy, Inc. 924,893
17,745 Occidental Petroleum Corp. 1,064,522
-------------
8,287,231
-------------
Pharmaceuticals--14.8%
37,446 Bristol-Myers Squibb Co. 870,620
22,872 Eli Lilly & Co. 921,055
33,454 Forest Laboratories, Inc. (b) 852,073
31,005 Merck & Co., Inc. 942,552
47,642 Pfizer, Inc. 843,740
23,056 Wyeth 864,831
-------------
5,294,871
-------------
Semiconductors & Semiconductor
Equipment--9.7%
81,422 Applied Materials, Inc. 824,805
53,643 Broadcom Corp., Class A (b) 910,322
60,700 Intel Corp. 889,862
53,568 Texas Instruments, Inc. 831,375
-------------
3,456,364
-------------
Software--2.2%
40,562 Microsoft Corp. 788,525
-------------
Total Investments--99.9%
(Cost $45,796,478) (c) 35,740,935
Net Other Assets and
Liabilities--0.1% 21,535
-------------
Net Assets--100.0% $ 35,762,470
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $46,881,248. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $638,720
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $11,779,033.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $35,740,935
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $35,740,935
===============
See Notes to Financial Statements. Page 55
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.0%
Aerospace & Defense--3.1%
532 Esterline Technologies Corp. (b) $ 20,157
891 Lockheed Martin Corp. 74,915
1,655 Raytheon Co. 84,472
-------------
179,544
-------------
Air Freight & Logistics--0.3%
705 Forward Air Corp. 17,110
-------------
Airlines--0.9%
6,319 Southwest Airlines Co. 54,470
-------------
Auto Components--1.0%
3,110 Johnson Controls, Inc. 56,478
-------------
Automobiles--1.1%
3,070 Honda Motor Co., Ltd., ADR 65,514
-------------
Biotechnology--2.0%
1,267 Genzyme Corp. (b) 84,091
785 OSI Pharmaceuticals, Inc. (b) 30,654
-------------
114,745
-------------
Building Products--0.3%
1,309 Gibraltar Industries, Inc. 15,629
-------------
Capital Markets--1.0%
955 Franklin Resources, Inc. 60,910
-------------
Chemicals--1.1%
742 CF Industries Holding, Inc. 36,477
396 NewMarket Corp. 13,824
881 Terra Industries, Inc. 14,686
-------------
64,987
-------------
Commercial Banks--0.4%
484 City National Corp. 23,571
-------------
Communications Equipment--1.4%
703 Black Box Corp. 18,362
1,787 QUALCOMM, Inc. 64,029
-------------
82,391
-------------
Computers & Peripherals--1.4%
3,994 Dell, Inc. (b) 40,899
2,122 QLogic Corp. (b) 28,520
740 Synaptics, Inc. (b) 12,254
-------------
81,673
-------------
Construction & Engineering--1.0%
1,276 EMCOR Group, Inc. (b) 28,621
343 Insituform Technologies, Inc.,
Class A (b) 6,754
1,134 Quanta Services, Inc. (b) 22,453
-------------
57,828
-------------
Containers & Packaging--0.3%
477 Rock-Tenn Co., Class A 16,304
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Diversified Consumer
Services--0.7%
461 ITT Educational Services, Inc. (b) $ 43,786
-------------
Diversified Telecommunication
Services--0.6%
628 Alaska Communications Systems
Group, Inc. 5,891
1,064 CenturyTel, Inc. 29,079
-------------
34,970
-------------
Electric Utilities--4.3%
5,492 Duke Energy Corp. 82,435
1,059 El Paso Electric Co. (b) 19,157
1,152 Pinnacle West Capital Corp. 37,014
1,071 Portland General Electric Co. 20,852
2,264 Progress Energy, Inc. 90,221
-------------
249,679
-------------
Electrical Equipment--1.2%
630 A.O. Smith Corp. 18,598
1,006 Brady Corp., Class A 24,093
576 II-VI, Inc. (b) 10,996
833 Woodward Governor Co. 19,176
-------------
72,863
-------------
Electronic Equipment,
Instruments &Components--1.8%
4,766 Celestica, Inc. (b) 21,971
3,128 Ingram Micro, Inc., Class A (b) 41,884
2,185 Jabil Circuit, Inc. 14,749
1,274 L-1 Identity Solutions, Inc. (b) 8,587
630 MTS Systems Corp. 16,783
-------------
103,974
-------------
Energy Equipment &
Services--1.3%
1,293 Baker Hughes, Inc. 41,467
514 CARBO Ceramics, Inc. 18,262
1,551 RPC, Inc. 15,138
-------------
74,867
-------------
Food & Staples Retailing--2.6%
1,101 BJ's Wholesale Club, Inc. (b) 37,720
3,430 Kroger (The) Co. 90,586
1,118 Spartan Stores, Inc. 25,994
-------------
154,300
-------------
Food Products--2.4%
2,076 Cadbury PLC, ADR 74,050
624 Cal-Maine Foods, Inc. 17,909
742 Lancaster Colony Corp. 25,451
911 TreeHouse Foods, Inc. (b) 24,816
-------------
142,226
-------------
Health Care Equipment &
Supplies--1.5%
570 Alcon, Inc. 50,838
Page 56 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Health Care Equipment &
Supplies (Continued)
835 Conmed Corp. (b) $ 19,990
972 Cyberonics, Inc. (b) 16,106
-------------
86,934
-------------
Health Care Providers &
Services--1.2%
413 Amedisys, Inc. (b) 17,073
786 LifePoint Hospitals, Inc. (b) 17,952
1,200 Lincare Holdings, Inc. (b) 32,317
-------------
67,342
-------------
Hotels, Restaurants &
Leisure--1.5%
889 Bob Evans Farms, Inc. 18,162
703 CEC Entertainment, Inc. (b) 17,048
859 McDonald's Corp. 53,421
-------------
88,631
-------------
Household Durables--2.1%
1,225 Helen of Troy Ltd. (b) 21,266
344 National Presto Industries, Inc. 26,488
4,739 Panasonic Corp., ADR 58,953
1,941 Tempur-Pedic International, Inc. 13,762
-------------
120,469
-------------
Household Products--1.6%
1,697 Clorox (The) Co. 94,285
-------------
Industrial Conglomerates--1.3%
1,359 3M Co. 78,197
-------------
Insurance--9.2%
2,071 Chubb (The) Corp. 105,620
710 Hanover Insurance Group, Inc. 30,509
1,496 Hartford Financial Services Group
(The), Inc. 24,564
1,986 Lincoln National Corp. 37,416
2,295 Loews Corp. 64,834
2,545 MBIA, Inc. (b) 10,358
1,952 Nationwide Financial Services, Inc.,
Class A 101,914
386 Odyssey Re Holdings Corp. 19,999
1,323 Prudential Financial, Inc. 40,034
460 RLI Corp. 28,134
4,124 Unum Group 76,706
-------------
540,088
-------------
Internet & Catalog Retail--0.7%
1,286 NetFlix, Inc. (b) 38,439
-------------
Internet Software & Services--0.4%
1,756 Interwoven, Inc. (b) 22,126
-------------
IT Services--2.7%
2,392 Accenture Ltd., Class A 78,434
858 Computer Sciences Corp. (b) 30,150
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
IT Services (Continued)
623 DST Systems, Inc. (b) $ 23,662
1,509 Gartner, Inc. (b) 26,905
-------------
159,151
-------------
Leisure Equipment & Products--0.8%
979 Hasbro, Inc. 28,557
1,132 Pool Corp. 20,342
-------------
48,899
-------------
Life Sciences Tools & Services--1.5%
1,584 Albany Molecular Research, Inc. (b) 15,428
1,354 PerkinElmer, Inc. 18,834
1,637 Thermo Fisher Scientific, Inc. (b) 55,773
-------------
90,035
-------------
Machinery--1.4%
612 Gorman-Rupp (The) Co. 19,045
4,345 Mueller Water Products Inc., Class A 36,499
1,102 Pentair, Inc. 26,084
-------------
81,628
-------------
Media--4.4%
3,530 DIRECTV Group (The), Inc. (b) 80,872
1,280 DreamWorks Animation SKG, Inc.,
Class A (b) 32,333
2,264 McGraw-Hill (The) Cos., Inc. 52,502
3,075 Thomson (The) Corp. 89,636
-------------
255,343
-------------
Metals & Mining--0.3%
808 AMCOL International Corp. 16,928
-------------
Multiline Retail--1.7%
1,212 Big Lots, Inc. (b) 17,562
989 Dollar Tree, Inc. (b) 41,340
1,603 Family Dollar Stores, Inc. 41,790
-------------
100,692
-------------
Multi-Utilities--4.4%
727 CH Energy Group, Inc. 37,361
2,406 Consolidated Edison, Inc. 93,665
788 Integrys Energy Group, Inc. 33,868
4,861 Xcel Energy, Inc. 90,172
-------------
255,066
-------------
Oil, Gas & Consumable Fuels--2.8%
1,234 ConocoPhillips 63,921
1,268 Exxon Mobil Corp. 101,225
-------------
165,146
-------------
Paper & Forest Products--0.3%
1,794 Glatfelter 16,684
-------------
Personal Products--0.3%
878 Herbalife Ltd. 19,035
-------------
See Notes to Financial Statements. Page 57
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Pharmaceuticals--6.2%
2,058 Eli Lilly & Co. $ 82,876
2,061 GlaxoSmithKline PLC, ADR 76,813
1,395 Johnson & Johnson 83,463
2,729 Sanofi-Aventis, ADR 87,764
1,223 Watson Pharmaceuticals, Inc. (b) 32,495
-------------
363,411
-------------
Professional Services--1.2%
405 Dun & Bradstreet (The) Corp. 31,265
1,358 Kelly Services, Inc., Class A 17,668
1,155 Resources Connection, Inc. (b) 18,919
-------------
67,852
-------------
Road & Rail--0.8%
1,000 J.B.Hunt Transport Services, Inc. 26,270
1,114 Kansas City Southern (b) 21,222
-------------
47,492
-------------
Semiconductors & Semiconductor
Equipment--3.6%
9,419 Atmel Corp. (b) 29,481
2,420 Integrated Device Technology, Inc. (b) 13,576
4,121 Intel Corp. 60,414
2,987 Linear Technology Corp. 66,073
6,421 Marvell Technology Group Ltd. (b) 42,828
-------------
212,372
-------------
Software--4.9%
3,410 Compuware Corp. (b) 23,018
1,102 Fair Isaac Corp. 18,580
3,549 Microsoft Corp. 68,992
1,967 Parametric Technology Corp. (b) 24,883
1,729 SAP AG, ADR 62,623
1,105 Sybase, Inc. (b) 27,371
4,542 Symantec Corp. (b) 61,407
-------------
286,874
-------------
Specialty Retail--9.4%
906 Advance Auto Parts, Inc. 30,487
1,161 Aeropostale, Inc. (b) 18,692
722 AutoZone, Inc. (b) 100,697
5,190 Bed Bath & Beyond, Inc. (b) 131,929
885 Buckle (The), Inc. 19,311
2,578 Foot Locker, Inc. 18,923
689 Gymboree (The) Corp. (b) 17,976
1,168 Hibbett Sports, Inc. (b) 18,349
1,061 Jo-Ann Stores, Inc. (b) 16,435
1,680 RadioShack Corp. 20,059
1,009 Ross Stores, Inc. 29,998
695 Sherwin-Williams (The) Co. 41,526
2,708 TJX (The) Cos., Inc. 55,704
637 Tractor Supply Co. (b) 23,021
1,104 Zale Corp. (b) 3,676
-------------
546,783
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Textiles, Apparel & Luxury
Goods--2.2%
1,597 Nike, Inc., Class B $ 81,447
561 Polo Ralph Lauren Corp. 25,475
962 Wolverine World Wide, Inc. 20,240
-------------
127,162
-------------
Thrifts & Mortgage Finance--0.3%
1,137 Washington Federal, Inc. 17,010
-------------
Trading Companies &
Distributors--1.1%
860 GATX Corp. 26,634
445 W.W. Grainger, Inc. 35,084
-------------
61,718
-------------
Total Common Stocks--100.0%
(Cost $7,966,233) 5,843,611
Money Market Fund--0.8%
46,450 Morgan Stanley Institutional Treasury
Money Market Fund -- 0.06% (c)
(Cost $46,450) 46,450
-------------
Total Investments--100.8%
(Cost $8,012,683) (d) 5,890,061
Net Other Assets and
Liabilities--(0.8)% (49,374)
-------------
Net Assets--100.0% $ 5,840,687
=============
(a) All percentages shown in Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2008.
(d) Aggregate cost for federal income tax purposes is $8,050,885. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $99,220
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $2,260,044.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $ 5,890,061
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $ 5,890,061
===============
Page 58 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--99.9%
Aerospace & Defense--2.1%
19,124 Boeing (The) Co. $ 816,021
24,651 Honeywell International, Inc. 809,292
18,224 Northrop Grumman Corp. 820,809
-------------
2,446,122
-------------
Air Freight & Logistics--0.7%
14,785 United Parcel Service, Inc., Class B 815,541
-------------
Auto Components--0.7%
38,267 Autoliv, Inc. 821,210
-------------
Automobiles--1.4%
38,398 Honda Motor Co., Ltd., ADR 819,413
12,917 Toyota Motor Corp., ADR 845,289
-------------
1,664,702
-------------
Beverages--1.4%
17,608 Coca-Cola (The) Co. 797,114
14,630 PepsiCo, Inc. 801,285
-------------
1,598,399
-------------
Capital Markets--1.4%
30,444 Bank of New York Mellon (The) 862,478
47,631 Federated Investors, Inc., Class B 807,822
-------------
1,670,300
-------------
Chemicals--3.4%
17,054 Air Products and Chemicals, Inc. 857,305
40,019 Dow Chemical (The) Co. 603,887
31,468 E.I. du Pont de Nemours & Co. 796,140
27,700 International Flavors & Fragrances,
Inc. 823,244
19,803 PPG Industries, Inc. 840,241
-------------
3,920,817
-------------
Commercial Banks--8.0%
18,895 Bank of Hawaii Corp. 853,487
32,469 Bank of Montreal 834,129
32,469 Bank of Nova Scotia 883,157
17,712 City National Corp. 862,574
16,434 Cullen/Frost Bankers, Inc. 832,875
14,233 M&T Bank Corp. 817,117
28,257 Royal Bank of Canada 838,103
23,383 Toronto-Dominion Bank (The) 838,748
33,364 U.S. Bancorp 834,434
28,680 Wells Fargo & Co. 845,486
34,904 Wilmington Trust Corp. 776,265
-------------
9,216,375
-------------
Commercial Services & Supplies--2.9%
24,567 Avery Dennison Corp. 804,078
32,536 Pitney Bowes, Inc. 829,017
33,578 Republic Services, Inc. 832,399
24,972 Waste Management, Inc. 827,572
-------------
3,293,066
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Communications Equipment--0.7%
51,364 Nokia Oyj, ADR $ 801,278
-------------
Consumer Finance--0.7%
42,692 American Express Co. 791,937
-------------
Containers & Packaging--1.3%
31,632 Bemis Co., Inc. 749,046
32,739 Sonoco Products Co. 758,235
-------------
1,507,281
-------------
Distributors--0.7%
21,676 Genuine Parts Co. 820,653
-------------
Diversified Financial
Services--0.7%
58,122 Bank of America Corp. 818,358
-------------
Diversified Telecommunication
Services--2.8%
27,955 AT&T, Inc. 796,718
30,293 CenturyTel, Inc. 827,907
11,836 Telefonica SA, ADR 797,628
23,531 Verizon Communications, Inc. 797,701
-------------
3,219,954
-------------
Electric Utilities--7.7%
52,991 Duke Energy Corp. 795,395
9,592 Entergy Corp. 797,383
15,297 Exelon Corp. 850,665
16,019 FirstEnergy Corp. 778,203
15,440 FPL Group, Inc. 777,095
35,777 Hawaiian Electric Industries, Inc. 792,103
25,607 Pinnacle West Capital Corp. 822,753
43,327 Portland General Electric Co. 843,577
20,159 Progress Energy, Inc. 803,336
21,771 Southern Co. 805,527
40,766 Westar Energy, Inc. 836,111
-------------
8,902,148
-------------
Electrical Equipment--2.1%
28,462 Cooper Industries Ltd., Class A 831,944
22,813 Emerson Electric Co. 835,184
24,706 Hubbell, Inc., Class B 807,392
-------------
2,474,520
-------------
Food & Staples Retailing--0.7%
34,087 Sysco Corp. 781,956
-------------
Food Products--7.0%
28,288 Campbell Soup Co. 848,923
48,422 ConAgra Foods, Inc. 798,963
20,931 H.J. Heinz Co. 787,006
22,423 Hershey (The) Co. 778,975
19,143 J.M. Smucker (The) Co. 830,040
18,621 Kellogg Co. 816,531
29,278 Kraft Foods, Inc., Class A 786,114
25,156 McCormick & Co., Inc. 801,470
82,001 Sara Lee Corp. 802,790
See Notes to Financial Statements. Page 59
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Food Products (Continued)
34,295 Unilever PLC, ADR $ 789,471
-------------
8,040,283
-------------
Gas Utilities--6.4%
26,748 AGL Resources, Inc. 838,550
33,266 Atmos Energy Corp. 788,404
26,523 National Fuel Gas Co. 830,966
21,236 New Jersey Resources Corp. 835,637
17,480 Northwest Natural Gas Co. 773,140
25,229 Piedmont Natural Gas Co. 799,002
20,943 South Jersey Industries, Inc. 834,579
33,308 UGI Corp. 813,381
25,213 WGL Holdings, Inc. 824,213
-------------
7,337,872
-------------
Hotels, Restaurants & Leisure--0.7%
12,807 McDonald's Corp. 796,467
-------------
Household Durables--2.9%
19,984 Fortune Brands, Inc. 824,940
68,144 Panasonic Corp., ADR 847,711
21,277 Snap-On, Inc. 837,888
24,815 Stanley Works (The) 846,192
-------------
3,356,731
-------------
Household Products--1.4%
14,382 Clorox (The) Co. 799,064
14,996 Kimberly-Clark Corp. 790,889
-------------
1,589,953
-------------
Industrial Conglomerates--2.7%
13,951 3M Co. 802,741
39,280 Carlisle Cos., Inc. 813,095
48,935 General Electric Co. 792,747
51,264 Textron, Inc. 711,032
-------------
3,119,615
-------------
Insurance--5.1%
26,514 Allstate (The) Corp. 868,599
31,864 Arthur J. Gallagher & Co. 825,596
27,154 Cincinnati Financial Corp. 789,367
21,462 Erie Indemnity Co., Class A 807,615
47,689 Lincoln National Corp. 898,460
48,723 Manulife Financial Corp. 829,753
17,938 Mercury General Corp. 824,969
-------------
5,844,359
-------------
IT Services--1.4%
20,815 Automatic Data Processing, Inc. 818,862
30,671 Paychex, Inc. 806,034
-------------
1,624,896
-------------
Machinery--4.4%
18,822 Caterpillar, Inc. 840,779
25,590 Dover Corp. 842,423
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Machinery (Continued)
17,436 Eaton Corp. $ 866,743
35,761 Graco, Inc. 848,609
23,665 Illinois Tool Works, Inc. 829,458
49,027 Ingersoll-Rand Co., Ltd., Class A 850,618
-------------
5,078,630
-------------
Media--2.8%
103,472 Gannett Co., Inc. 827,776
33,592 Interactive Data Corp. 828,379
32,917 McGraw-Hill (The) Cos., Inc. 763,345
28,055 Thomson (The) Corp. 817,803
-------------
3,237,303
-------------
Multi-Utilities--9.0%
28,369 Alliant Energy Corp. 827,807
24,159 Ameren Corp. 803,528
20,164 Consolidated Edison, Inc. 784,985
22,670 Dominion Resources, Inc. 812,493
18,949 Integrys Energy Group, Inc. 814,428
21,856 NSTAR 797,525
31,456 OGE Energy Corp. 810,936
20,159 PG&E Corp. 780,355
22,907 SCANA Corp. 815,489
19,441 Sempra Energy 828,771
31,494 Vectren Corp. 787,665
18,895 Wisconsin Energy Corp. 793,212
42,576 Xcel Energy, Inc. 789,785
-------------
10,446,979
-------------
Office Electronics--0.7%
25,860 CANON, Inc., ADR 812,004
-------------
Oil, Gas & Consumable
Fuels--4.2%
17,514 BP PLC, ADR 818,604
11,333 Chevron Corp. 838,302
15,877 ConocoPhillips 822,429
15,033 Royal Dutch Shell PLC, ADR 795,847
14,579 Total S.A., ADR 806,219
29,256 TransCanada Corp. 794,008
-------------
4,875,409
-------------
Pharmaceuticals--4.9%
34,295 Bristol-Myers Squibb Co. 797,359
21,060 Eli Lilly & Co. 848,086
21,862 GlaxoSmithKline PLC, ADR 814,797
13,345 Johnson & Johnson 798,431
45,773 Pfizer, Inc. 810,640
24,332 Sanofi-Aventis, ADR 782,517
21,568 Wyeth 809,016
-------------
5,660,846
-------------
Real Estate Investment Trusts--2.8%
23,397 Plum Creek Timber Co., Inc. 812,812
15,123 Simon Property Group, Inc. 803,485
27,381 Washington Real Estate Investment
Trust 774,882
Page 60 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Real Estate Investment Trusts
(Continued)
38,873 Weingarten Realty Investors $ 804,282
-------------
3,195,461
-------------
Semiconductors & Semiconductor
Equipment--1.4%
54,839 Intel Corp. 803,939
36,172 Linear Technology Corp. 800,125
-------------
1,604,064
-------------
Specialty Retail--0.7%
33,139 Home Depot (The), Inc. 762,860
-------------
Textiles, Apparel & Luxury
Goods--0.7%
14,665 VF Corp. 803,202
-------------
Thrifts & Mortgage Finance--1.3%
17,748 Capitol Federal Financial 809,309
48,363 Washington Federal, Inc. 723,510
-------------
1,532,819
-------------
Total Investments--99.9%
(Cost $134,966,856) (b) 115,284,370
Net Other Assets and
Liabilities--0.1% 118,417
--------------
Net Assets--100.0% $ 115,402,787
==============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Aggregate cost for federal income tax purposes is $143,731,988. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,366,709 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$29,814,327.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $115,284,370
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $115,284,370
===============
See Notes to Financial Statements. Page 61
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (b)--100.0%
Air Freight & Logistics--3.4%
2,279 C.H. Robinson Worldwide, Inc. $ 125,414
3,682 Expeditors International of
Washington, Inc. 122,500
-------------
247,914
-------------
Airlines--1.6%
3,948 Ryanair Holdings PLC, ADR (c) 114,808
-------------
Beverages--1.7%
3,584 Hansen Natural Corp. (c) 120,172
-------------
Biotechnology--11.5%
2,041 Amgen, Inc. (c) 117,868
2,524 Biogen Idec, Inc. (c) 120,218
2,159 Celgene Corp. (c) 119,350
1,523 Cephalon, Inc. (c) 117,332
1,730 Genzyme Corp. (c) 114,820
2,377 Gilead Sciences, Inc. (c) 121,559
3,958 Vertex Pharmaceuticals, Inc. (c) 120,243
-------------
831,390
-------------
Chemicals--1.7%
2,913 Sigma-Aldrich Corp. 123,045
-------------
Commercial Services &
Supplies--3.3%
5,274 Cintas Corp. 122,515
2,232 Stericycle, Inc. (c) 116,243
-------------
238,758
-------------
Construction & Engineering--1.6%
4,955 Foster Wheeler Ltd. (c) 115,848
-------------
Diversified Consumer
Services--1.6%
1,560 Apollo Group, Inc., Class A (c) 119,527
-------------
Electrical Equipment--1.6%
839 First Solar, Inc. (c) 115,748
-------------
Electronic Equipment,
Instruments &Components--3.5%
47,397 Flextronics International Ltd. (c) 121,336
4,379 FLIR Systems, Inc. (c) 134,348
-------------
255,684
-------------
Food & Staples Retailing--1.6%
2,194 Costco Wholesale Corp. 115,185
-------------
Health Care Equipment &
Supplies--5.0%
4,362 DENTSPLY International, Inc. 123,182
9,071 Hologic, Inc. (c) 118,558
940 Intuitive Surgical, Inc. (c) 119,371
-------------
361,111
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Health Care Providers &
Services--4.8%
1,923 Express Scripts, Inc. (c) $ 105,727
3,391 Henry Schein, Inc. (c) 124,416
6,415 Patterson Cos., Inc. (c) 120,281
-------------
350,424
-------------
Hotels, Restaurants &
Leisure--3.2%
11,946 Starbucks Corp. (c) 113,009
2,742 Wynn Resorts Ltd. (c) 115,877
-------------
228,886
-------------
Household Durables--1.6%
6,068 Garmin Ltd. 116,324
-------------
Internet & Catalog Retail--4.9%
2,289 Amazon.com, Inc. (c) 117,380
14,480 Expedia, Inc. (c) 119,315
38,069 Liberty Media Corp. - Interactive,
Class A (c) 118,775
-------------
355,470
-------------
Internet Software & Services--1.6%
8,168 eBay, Inc. (c) 114,025
-------------
IT Services--5.0%
3,139 Automatic Data Processing, Inc. 123,489
3,239 Fiserv, Inc. (c) 117,802
4,496 Paychex, Inc. 118,155
-------------
359,446
-------------
Life Sciences Tools &
Services--5.1%
4,705 Illumina, Inc. (c) 122,565
5,399 Life Technologies Corp. (c) 125,851
4,111 Pharmaceutical Product
Development, Inc. 119,260
-------------
367,676
-------------
Machinery--3.2%
4,967 Joy Global, Inc. 113,695
4,164 PACCAR, Inc. 119,090
-------------
232,785
-------------
Media--8.2%
7,488 Comcast Corp., Class A 126,397
5,386 DIRECTV Group (The), Inc. (c) 123,393
10,062 DISH Network Corp., Class A (c) 111,588
10,748 Focus Media Holding Ltd., ADR (c) 97,699
8,435 Liberty Global, Inc., Class A (c) 134,286
-------------
593,363
-------------
Metals & Mining--1.6%
10,069 Steel Dynamics, Inc. 112,571
-------------
Multiline Retail--1.6%
3,015 Sears Holdings Corp. (c) 117,193
-------------
Page 62 See Notes to Financial Statements.
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (b) (Continued)
Pharmaceuticals--3.3%
2,711 Teva Pharmaceutical Industries
Ltd., ADR $ 115,407
8,442 Warner Chilcott Ltd., Class A (c) 122,409
-------------
237,816
-------------
Road & Rail--1.7%
4,776 J.B. Hunt Transport Services, Inc. 125,466
-------------
Software--3.0%
12,424 Activision Blizzard, Inc. (c) 107,343
6,787 Electronic Arts, Inc. (c) 108,864
-------------
216,207
-------------
Specialty Retail--8.1%
4,537 Bed Bath & Beyond, Inc. (c) 115,331
3,918 O'Reilly Automotive, Inc. (c) 120,439
4,041 Ross Stores, Inc. 120,139
6,450 Staples, Inc. 115,584
7,800 Urban Outfitters, Inc. (c) 116,844
-------------
588,337
-------------
Trading Companies &
Distributors--1.7%
3,476 Fastenal Co. 121,139
-------------
Wireless Telecommunication
Services--3.3%
2,643 Millicom International Cellular S.A. 118,697
6,494 NII Holdings, Inc. (c) 118,060
-------------
236,757
-------------
Total Common Stocks--100.0%
(Cost $8,906,856) 7,233,075
Money Market Funds--0.6%
42,111 Morgan Stanley Institutional Treasury
Money Market Fund--0.06% (d)
(Cost $42,111) 42,111
-------------
Total Investments--100.6%
(Cost $8,948,967) (e) $ 7,275,186
Net Others Assets and
Liabilities--(0.6)% (43,223)
-------------
Net Assets--100.0% $ 7,231,963
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) The industry allocation is based on Standard & Poor's Global Industry
Classification Standard (GICS), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark (ICB) system, the joint classification
system of Dow Jones Indexes and FTSE Group.
(c) Non-income producing security.
(d) Represents annualized 7-day yield at December 31, 2008.
(e) Aggregate cost for federal income tax purposes is $9,294,397. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $124,418
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $2,143,629.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $ 7,275,186
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $ 7,275,186
===============
See Notes to Financial Statements. Page 63
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (d)
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.1%
Aerospace & Defense--2.3%
14,379 Ascent Solar Technologies, Inc. (b) $ 54,065
66,175 Hexcel Corp. (b) 489,033
-------------
543,098
-------------
Auto Components--0.3%
56,379 Ballard Power Systems, Inc. (b) 63,708
-------------
Biotechnology--0.9%
15,763 Metabolix, Inc. (b) 200,505
-------------
Chemicals--1.2%
63,964 Altair Nanotechnologies, Inc. (b) 78,036
23,627 Zoltek Cos., Inc. (b) 212,407
-------------
290,443
-------------
Commercial Services &
Supplies--0.4%
13,907 EnerNOC, Inc. (b) 103,468
-------------
Electrical Equipment--41.0%
37,620 Advanced Battery Technologies,
Inc. (b) 100,069
29,719 American Superconductor Corp. (b) 484,717
31,757 Baldor Electric Co. 566,862
17,626 C&D Technologies, Inc. (b) 55,169
24,468 Canadian Solar, Inc. (b) 158,063
119,346 Capstone Turbine Corp. (b) 100,251
39,608 China BAK Battery, Inc. (b) 64,165
19,406 China Sunergy Co., Ltd., ADR (b) 76,654
77,513 Ener1, Inc. (b) 554,218
31,386 Energy Conversion Devices, Inc. (b) 791,241
113,225 Evergreen Solar, Inc. (b) 361,188
13,152 First Solar, Inc. (b) 1,814,451
47,241 FuelCell Energy, Inc. (b) 183,295
81,714 GrafTech International Ltd. (b) 679,860
98,109 GT Solar International, Inc. (b) 283,535
85,412 JA Solar Holdings Co., Ltd., ADR (b) 373,250
18,125 Orion Energy Systems, Inc. (b) 98,056
60,698 Plug Power, Inc. (b) 61,912
60,294 Power-One, Inc. (b) 71,750
22,286 Solarfun Power Holdings Co., Ltd.,
ADR (b) 111,653
29,629 SunPower Corp., Class A (b) 1,096,274
71,640 Suntech Power Holdings Co., Ltd.,
ADR (b) 838,188
11,990 Ultralife Batteries, Inc. (b) 160,786
82,500 Valence Technology, Inc. (b) 150,150
20,532 Vicor Corp. 135,717
45,584 Yingli Green Energy Holding Co.,
Ltd., ADR (b) 278,062
-------------
9,649,536
-------------
Electronic Equipment,
Instruments &Components--11.2%
104,745 AVX Corp. 831,675
27,773 Echelon Corp. (b) 226,350
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Electronic Equipment, Instruments
&Components (Continued)
23,346 Itron, Inc. (b) $ 1,488,074
14,998 Maxwell Technologies, Inc. (b) 76,040
-------------
2,622,139
-------------
Health Care Equipment &
Supplies--1.8%
15,734 Greatbatch, Inc. (b) 416,322
-------------
Independent Power Producers &
Energy Traders--3.8%
27,962 Ormat Technologies, Inc. 891,149
-------------
Oil, Gas & Consumable
Fuels--0.3%
29,510 Aventine Renewable Energy
Holdings, Inc. (b) 19,182
33,089 Gushan Enviromental Energy Ltd.,
ADR 60,883
-------------
80,065
-------------
Semiconductors & Semiconductor
Equipment--36.9%
31,458 Advanced Analogic Technologies,
Inc. (b) 95,003
60,658 Cree, Inc. (b) 962,642
53,347 EMCORE Corp. (b) 69,351
85,245 Fairchild Semiconductor International,
Inc. (b) 416,848
50,049 International Rectifier Corp. (b) 675,662
21,356 IXYS Corp. 176,401
28,824 LDK Solar Co., Ltd., ADR (b) 378,171
85,340 Linear Technology Corp. 1,887,721
110,568 MEMC Electronic Materials,
Inc. (b) 1,578,911
55,669 Microsemi Corp. (b) 703,656
25,694 O2Micro International Ltd.,
ADR (b) 50,360
281,765 ON Semiconductor Corp. (b) 958,001
20,134 Power Integrations, Inc. 400,264
21,990 Renesola Ltd., ADR (b) 96,976
14,613 Rubicon Technology, Inc. (b) 62,251
16,263 Trina Solar Ltd., ADR (b) 151,083
-------------
8,663,301
-------------
Total Investments--100.1%
(Cost $48,806,796) (c) 23,523,734
Net Other Assets and
Liabilities--(0.1)% (19,417)
-------------
Net Assets--100.0% $ 23,504,317
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
Page 64 See Notes to Financial Statements.
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (d)
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
(c) Aggregate cost for federal income tax purposes is $50,510,345. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $59,224
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $27,045,835.
(d) Formerly known as First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series
Index Fund. See Note 8 in Notes to Financial Statements for information on
the Fund's name change.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $23,523,734
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $23,523,734
===============
See Notes to Financial Statements. Page 65
FIRST TRUST S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--99.2%
Real Estate Investment Trusts--99.2%
1,042 Acadia Realty Trust $ 14,869
253 Agree Realty Corp. 4,587
66 Alexander's, Inc. 16,823
1,038 Alexandria Real Estate Equities, Inc. 62,633
3,172 AMB Property Corp. 74,288
1,362 American Campus Communities, Inc. 27,894
207 American Land Lease, Inc. 2,861
3,261 Apartment Investment &
Management Co. 37,665
2,987 Ashford Hospitality Trust 3,435
475 Associated Estates Realty Corp. 4,337
2,484 AvalonBay Communities, Inc. 150,481
2,587 BioMed Realty Trust, Inc. 30,320
3,890 Boston Properties, Inc. 213,950
2,839 Brandywine Realty Trust 21,889
1,646 BRE Properties, Inc. 46,055
1,715 Camden Property Trust 53,748
1,526 CapLease, Inc. 2,640
2,136 CBL & Associates Properties, Inc. 13,884
1,433 Cedar Shopping Centers, Inc. 10,146
480 Cogdell Spencer, Inc. 4,493
1,546 Colonial Properties Trust 12,878
1,661 Corporate Office Properties Trust 50,993
1,406 Cousins Properties, Inc. 19,473
5,597 DCT Industrial Trust, Inc. 28,321
3,873 Developers Diversified Realty Corp. 18,900
2,900 DiamondRock Hospitality Co. 14,703
2,350 Digital Realty Trust, Inc. 77,198
3,921 Douglas Emmett, Inc. 51,208
4,745 Duke Realty Corp. 52,005
983 DuPont Fabros Technology, Inc. 2,035
807 EastGroup Properties, Inc. 28,713
918 Education Realty Trust, Inc. 4,792
1,059 Entertainment Properties Trust 31,558
800 Equity Lifestyle Properties, Inc. 30,688
1,062 Equity One, Inc. 18,797
8,760 Equity Residential 261,223
863 Essex Property Trust, Inc. 66,235
2,753 Extra Space Storage, Inc. 28,411
1,899 Federal Realty Investment Trust 117,890
2,042 FelCor Lodging Trust, Inc. 3,757
1,426 First Industrial Realty Trust, Inc. 10,766
881 First Potomac Realty Trust 8,193
1,906 Franklin Street Properties Corp. 28,114
7,344 General Growth Properties, Inc. 9,474
559 Getty Realty Corp. 11,773
276 Gladstone Commercial Corp. 2,346
1,217 Glimcher Realty Trust 3,420
1,397 Gramercy Capital Corp. 1,788
8,136 HCP, Inc. 225,937
3,331 Health Care REIT, Inc. 140,568
1,894 Healthcare Realty Trust, Inc. 44,471
1,555 Hersha Hospitality Trust 4,665
2,047 Highwoods Properties, Inc. 56,006
1,040 Home Properties, Inc. 42,224
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Real Estate Investment Trusts
(Continued)
3,027 Hospitality Properties Trust $ 45,011
16,827 Host Hotels & Resorts, Inc. 127,380
7,332 HRPT Properties Trust 24,709
1,858 Inland Real Estate Corp. 24,117
1,893 Investors Real Estate Trust 20,274
1,065 Kilroy Realty Corp. 35,635
7,375 Kimco Realty Corp. 134,815
1,095 Kite Realty Group Trust 6,088
1,322 LaSalle Hotel Properties 14,608
3,025 Lexington Realty Trust 15,125
3,161 Liberty Property Trust 72,166
745 LTC Properties, Inc. 15,109
2,451 Macerich (The) Co. 44,510
2,122 Mack-Cali Realty Corp. 51,989
1,543 Maguire Properties, Inc. (b) 2,253
2,136 Medical Properties Trust, Inc. 13,478
908 Mid-America Apartment
Communities, Inc. 33,741
636 Mission West Properties, Inc. 4,865
785 Monmouth Real Estate Investment
Corp. 5,495
778 National Health Investors, Inc. 21,341
2,524 National Retail Properties, Inc. 43,388
3,199 Nationwide Health Properties, Inc. 91,875
2,651 Omega Healthcare Investors, Inc. 42,336
256 One Liberty Properties, Inc. 2,253
493 Parkway Properties, Inc. 8,874
1,269 Pennsylvania Real Estate Investment
Trust 9,454
1,423 Post Properties, Inc. 23,480
8,555 ProLogis 118,829
481 PS Business Parks, Inc. 21,481
4,037 Public Storage 320,941
598 Ramco-Gershenson Properties Trust 3,696
3,358 Realty Income Corp. 77,738
2,254 Regency Centers Corp. 105,262
351 Saul Centers, Inc. 13,865
3,689 Senior Housing Properties Trust 66,107
7,272 Simon Property Group, Inc. 386,360
1,837 SL Green Realty Corp. 47,578
708 Sovran Self Storage, Inc. 25,488
2,396 Strategic Hotels & Resorts, Inc. 4,025
528 Sun Communities, Inc. 7,392
1,561 Sunstone Hotel Investors, Inc. 9,663
573 Supertel Hospitality, Inc. 974
1,019 Tanger Factory Outlet Centers, Inc. 38,335
1,707 Taubman Centers, Inc. 43,460
4,386 UDR, Inc. 60,483
382 Universal Health Realty Income Trust 12,572
686 Urstadt Biddle Properties, Inc. 10,928
1,583 U-Store-It Trust 7,044
4,614 Ventas, Inc. 154,892
4,424 Vornado Realty Trust 266,988
1,687 Washington Real Estate Investment
Trust 47,742
2,496 Weingarten Realty Investors 51,642
Page 66 See Notes to Financial Statements.
FIRST TRUST S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Real Estate Investment Trusts
(Continued)
386 Winthrop Realty Trust, Inc. $ 4,184
-------------
Total Common Stocks--99.2%
(Cost $6,750,718) 5,148,559
Money Market Fund--0.6%
30,349 Morgan Stanley Institutional Treasury
Money Market Fund--0.06% (c)
(Cost $30,349) 30,349
-------------
Total Investments--99.8%
(Cost $6,781,067) (d) 5,178,908
Net Other Assets and
Liabilities--0.2% 8,366
-------------
Net Assets--100.0% $ 5,187,274
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2008.
(d) Aggregate cost for federal income tax purposes is $6,964,048. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $19,910
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $1,805,050.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $ 5,178,908
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $ 5,178,908
===============
See Notes to Financial Statements. Page 67
FIRST TRUST ISE WATER INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.0%
Building Products--1.9%
9,521 Ameron International Corp. $ 599,061
-------------
Chemicals--9.0%
24,181 Arch Chemicals, Inc. 630,399
65,088 Calgon Carbon Corp. (b) 999,752
109,237 Nalco Holding Co. 1,260,594
-------------
2,890,745
-------------
Commercial Services &
Supplies--3.6%
48,256 Tetra Tech, Inc. (b) 1,165,382
-------------
Construction & Engineering--6.9%
31,785 Insituform Technologies, Inc.,
Class A (b) 625,847
34,553 Layne Christensen Co. (b) 829,618
17,593 Northwest Pipe Co. (b) 749,637
-------------
2,205,102
-------------
Diversified Financial
Services--1.2%
14,489 PICO Holdings, Inc. (b) 385,118
-------------
Electrical Equipment--6.0%
21,993 Franklin Electric Co., Inc. 618,223
30,075 Roper Industries, Inc. 1,305,556
-------------
1,923,779
-------------
Electronic Equipment,
Instruments &Components--4.1%
20,787 Itron, Inc. (b) 1,324,963
-------------
Life Sciences Tools &
Services--3.8%
23,977 Millipore Corp. (b) 1,235,295
-------------
Machinery--39.3%
19,622 Badger Meter, Inc. 569,430
58,443 Crane Co. 1,007,557
48,895 Energy Recovery, Inc. (b) 370,624
22,885 Flowserve Corp. 1,178,578
12,691 Gorman-Rupp (The) Co. 394,944
47,121 IDEX Corp. 1,137,972
28,029 ITT Corp. 1,289,055
21,232 Lindsay Corp. 674,965
27,652 Mueller Industries, Inc. 693,512
95,868 Mueller Water Products Inc., Class A 805,291
44,511 Pall Corp. 1,265,448
50,155 Pentair, Inc. 1,187,169
18,132 Valmont Industries, Inc. 1,112,580
37,920 Watts Water Technologies, Inc.,
Class A 946,862
-------------
12,633,987
-------------
Multi-Utilities--4.7%
47,665 Veolia Environment, ADR 1,511,457
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Water Utilities--19.5%
19,494 American States Water Co. $ 642,912
51,046 American Water Works Co., Inc. 1,065,840
62,079 Aqua America, Inc. 1,278,208
22,012 California Water Service Group 1,022,017
85,146 Cascal N.V. 342,287
46,099 Companhia de Saneamento Basico
do Estado de Sao Paulo, ADR (b) 1,116,057
31,586 Consolidated Water Co., Ltd. 394,825
14,089 SJW Corp. 421,825
-------------
6,283,971
-------------
Total Common Stocks--100.0%
(Cost $45,566,132) 32,158,860
Money Market Fund--0.0%
2,885 Morgan Stanley Institutional Treasury
Money Market Fund--0.06% (c)
(Cost $2,885) 2,885
-------------
Total Investments--100.0%
(Cost $45,569,017) (d) 32,161,745
Net Other Assets and
Liabilities--(0.0)% (4,504)
-------------
Net Assets--100.0% $32,157,241
=============
(a) All percentages shown in Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2008
(d) Aggregate cost for federal income tax purposes is $46,182,248. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $476,222
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $14,496,725.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $32,161,745
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $32,161,745
===============
Page 68 See Notes to Financial Statements.
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--99.9%
Gas Utilities--3.4%
38,605 Questar Corp. $ 1,261,997
-------------
Oil, Gas & Consumable
Fuels--96.5%
33,215 Anadarko Petroleum Corp. 1,280,438
17,193 Apache Corp. 1,281,394
58,320 Bill Barrett Corp. (b) 1,232,302
26,147 BP PLC, ADR 1,222,111
45,928 Cabot Oil & Gas Corp. 1,194,128
73,916 Chesapeake Energy Corp. 1,195,222
45,673 Cimarex Energy Co. 1,223,123
23,934 ConocoPhillips 1,239,781
256,242 Delta Petroleum Corp. (b) 1,219,712
18,074 Devon Energy Corp. 1,187,643
27,827 EnCana Corp. 1,293,399
60,980 Enerplus Resources Fund 1,193,988
18,096 EOG Resources, Inc. 1,204,832
66,520 Forest Oil Corp. (b) 1,096,915
39,334 Goodrich Petroleum Corp. (b) 1,178,053
94,905 Linn Energy LLC 1,420,728
134,717 Mariner Energy, Inc. (b) 1,374,113
58,822 Newfield Exploration Co. (b) 1,161,735
24,698 Noble Energy, Inc. 1,215,636
69,845 PetroHawk Energy Corp. (b) 1,091,677
215,405 PetroQuest Energy, Inc. (b) 1,456,137
67,655 Pioneer Natural Resources Co. 1,094,658
237,904 Quicksilver Resources, Inc. (b) 1,325,125
23,406 Royal Dutch Shell PLC, ADR 1,239,114
206,024 SandRidge Energy, Inc. (b) 1,267,048
59,190 St. Mary Land & Exploration Co. 1,202,149
132,825 Talisman Energy, Inc. 1,326,922
34,261 Ultra Petroleum Corp. (b) 1,182,347
90,772 W&T Offshore, Inc. 1,299,855
-------------
35,900,285
-------------
Total Common Stocks--99.9%
(Cost $65,603,941) 37,162,282
Money Market Fund--0.1%
30,527 Morgan Stanley Institutional Treasury
Money Market Fund--0.06 % (c)
(Cost $30,527) 30,527
-------------
Total Investments--100.0%
(Cost $65,634,468) (d) 37,192,809
Net Other Assets and
Liabilities--(0.0)% (14,292)
-------------
Net Assets--100.0% $ 37,178,517
=============
(a) All percentages shown in Portfolio of Investments are based on net assets.
(b) Non-income producing security.
(c) Represents annualized 7-day yield at December 31, 2008.
(d) Aggregate cost for federal income tax purposes is $68,014,728. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $396,392
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $31,218,311.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $37,192,809
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $37,192,809
===============
See Notes to Financial Statements. Page 69
FIRST TRUST ISE CHINDIA INDEX FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks--100.0%
Airlines--1.5%
17,575 China Eastern Airlines, ADR (b) $ 268,897
29,534 China Southern Airlines Co., Ltd.,
ADR (b) 250,744
-------------
519,641
-------------
Chemicals--0.7%
10,011 Sinopec Shanghai Petrochemical
Co., Ltd., ADR 261,888
-------------
Commercial Banks--14.7%
36,416 HDFC Bank Ltd., ADR 2,599,374
139,586 ICICI Bank Ltd., ADR 2,687,030
-------------
5,286,404
-------------
Construction & Engineering--0.8%
25,241 KHD Humboldt Wedag International
Ltd. (b) 281,942
-------------
Diversified Consumer
Services--0.7%
4,623 New Oriental Education &
Technology Group, Inc., ADR (b) 253,849
-------------
Diversified Telecommunications--4.6%
6,471 China Telecom Corp., Ltd., ADR 246,222
56,796 China Unicom Ltd., ADR 692,911
32,570 Tata Communications., Ltd., ADR 696,020
-------------
1,635,153
-------------
Electrical Equipment--3.3%
79,956 JA Solar Holdings Co., Ltd.,
ADR (b) 349,407
51,607 Solarfun Power Holdings Co., Ltd.,
ADR (b) 258,551
25,586 Suntech Power Holdings Co., Ltd.,
ADR (b) 299,356
46,035 Yingli Green Energy Holding Co.,
Ltd., ADR (b) 280,814
-------------
1,188,128
-------------
Health Care Equipment &
Supplies--1.3%
11,933 China Medical Technologies, Inc.,
ADR 241,763
13,519 Mindray Medical International Ltd.,
ADR 243,342
-------------
485,105
-------------
Hotels, Restaurants &
Leisure--1.5%
11,358 Ctrip.com International Ltd., ADR 270,320
87,750 Melco PBL Entertainment Ltd.,
ADR (b) 278,168
-------------
548,488
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Independent Power Producers &
Energy Traders--0.8%
9,235 Huaneng Power International, Inc.,
ADR $ 269,477
-------------
Insurance--6.9%
53,407 China Life Insurance Co., Ltd., ADR 2,478,085
-------------
Internet Software & Services--8.6%
19,352 AsiaInfo Holdings, Inc. (b) 229,128
12,405 Baidu.com, Inc., ADR (b) 1,619,721
12,471 NetEase.com, Inc. ADR (b) 275,609
8,865 SINA Corp. (b) 205,225
16,151 Sohu.com, Inc. (b) 764,588
-------------
3,094,271
-------------
IT Services--14.0%
102,183 Infosys Technologies Ltd., ADR 2,510,636
111,707 Satyam Computer Services Ltd., ADR 1,009,831
184,864 Wipro Ltd., ADR 1,502,944
-------------
5,023,411
-------------
Life Sciences Tools & Services--0.8%
37,626 WuXi PharmaTech Cayman, Inc.,
ADR (b) 300,632
-------------
Machinery--2.0%
164,826 Tata Motors Ltd., ADR 733,476
-------------
Marine--0.6%
25,613 Seaspan Corp. 227,700
-------------
Media--1.5%
28,971 Focus Media Holding Ltd., ADR (b) 263,346
48,420 VisionChina Media, Inc., ADR (b) 264,374
-------------
527,720
-------------
Metals & Mining--5.4%
50,220 Aluminum Corp. of China Ltd., ADR 678,472
227,365 Sterlite Industries (India) Ltd., ADR 1,255,055
-------------
1,933,527
-------------
Oil, Gas & Consumable Fuels--15.0%
20,849 China Petroleum & Chemical Corp.,
ADR 1,288,260
14,791 CNOOC Ltd., ADR 1,408,694
27,575 PetroChina Co., Ltd., ADR 2,453,623
33,853 Yanzhou Coal Mining Co., Ltd., ADR 254,575
-------------
5,405,152
-------------
Personal Products--0.8%
40,243 American Oriental Bioengineering,
Inc. (b) 273,250
-------------
Pharmaceuticals--2.0%
73,810 Dr. Reddy's Laboratories Ltd., ADR 723,338
-------------
Real Estate Management &
Development--0.8%
34,235 E-House China Holdings Ltd.,
ADR (b) 277,304
-------------
Page 70 See Notes to Financial Statements.
FIRST TRUST ISE CHINDIA INDEX FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Road & Rail--0.7%
13,153 Guangshen Railway Co., Ltd., ADR $ 247,803
-------------
Semiconductors & Semiconductor
Equipment--0.7%
19,230 LDK Solar Co., Ltd., ADR (b) 252,298
-------------
Software--2.9%
40,715 Giant Interactive Group, Inc.,
ADR (b) 264,240
16,183 Longtop Financial Technologies
Ltd., ADR (b) 244,687
14,451 Perfect World Co., Ltd., ADR (b) 249,280
8,675 Shanda Interactive Entertainment
Ltd., ADR (b) 280,723
-------------
1,038,930
-------------
Wireless Telecommunication
Services--7.4%
47,916 China Mobile Ltd., ADR 2,436,528
58,997 Hutchison Telecommunications
International Ltd., ADR 238,938
-------------
2,675,466
-------------
Total Investments--100.0%
(Cost $68,805,527) (c) 35,942,438
Net Other Assets and
Liabilities--(0.0)% (5,563)
-------------
Net Assets--100.0% $ 35,936,875
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $69,609,985. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $107,160
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $33,774,707.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $35,942,438
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $35,942,438
===============
See Notes to Financial Statements. Page 71
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND
PORTFOLIO OF INVESTMENTS (a)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks --100.3%
Aerospace & Defense--2.2%
8,889 Alliant Techsystems, Inc. (b) $ 762,321
17,066 Axsys Technologies, Inc. (b) 936,240
-------------
1,698,561
-------------
Air Freight & Logistics--2.0%
14,157 C.H. Robinson Worldwide, Inc. 779,060
23,238 Expeditors International of
Washington, Inc. 773,128
-------------
1,552,188
-------------
Biotechnology--6.0%
12,822 Amgen, Inc. (b) 740,471
13,881 Celgene Corp. (b) 767,342
14,562 Gilead Sciences, Inc. (b) 744,701
25,548 Martek Biosciences Corp. (b) 774,359
11,290 Myriad Genetics, Inc. (b) 748,075
19,491 OSI Pharmaceuticals, Inc. (b) 761,124
-------------
4,536,072
-------------
Chemicals--1.0%
47,968 Calgon Carbon Corp. (b) 736,788
-------------
Commercial Services &
Supplies--2.0%
12,272 Clean Harbors, Inc. (b) 778,535
14,245 Stericycle, Inc. (b) 741,880
-------------
1,520,415
-------------
Communications Equipment
--1.0%
32,497 ViaSat, Inc. (b) 782,528
-------------
Computers & Peripherals--1.1%
48,476 Synaptics, Inc. (b) 802,763
-------------
Containers & Packaging--1.0%
22,947 Rock-Tenn Co., Class A 784,328
-------------
Diversified Consumer
Services--6.1%
9,719 Apollo Group, Inc., Class A (b) 744,670
48,638 Corinthian Colleges, Inc. (b) 796,203
12,833 DeVry, Inc. 736,743
34,880 H&R Block, Inc. 792,474
8,354 ITT Educational Services, Inc. (b) 793,463
3,482 Strayer Education, Inc. 746,576
-------------
4,610,129
-------------
Diversified Telecommunication
Services--1.0%
29,922 NTELOS Holdings Corp. 737,877
-------------
Electronic Equipment,
Instruments &Components--3.1%
26,998 FLIR Systems, Inc. (b) 828,298
11,003 Mettler-Toledo International, Inc. (b) 741,602
28,929 MTS Systems Corp. 770,669
-------------
2,340,569
-------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Food & Staples Retailing--4.0%
21,678 BJ's Wholesale Club, Inc. (b) $ 742,688
18,037 Nash Finch Co. 809,681
31,424 Spartan Stores, Inc. 730,608
13,083 Wal-Mart Stores, Inc. 733,433
-------------
3,016,410
-------------
Food Products--4.0%
34,340 Diamond Foods, Inc. 691,951
31,289 Flowers Foods, Inc. 762,200
20,089 Green Mountain Coffee Roasters, Inc. (b) 777,444
28,759 TreeHouse Foods, Inc. (b) 783,396
-------------
3,014,991
-------------
Health Care Equipment &
Supplies--14.0%
13,650 Baxter International, Inc. 731,504
10,862 Becton, Dickinson & Co. 742,852
9,155 C.R. Bard, Inc. 771,400
85,670 CryoLife, Inc. (b) 831,855
45,780 Cyberonics, Inc. (b) 758,575
13,577 Edwards Lifesciences Corp. (b) 746,056
29,183 Greatbatch, Inc. (b) 772,182
13,134 Haemonetics Corp. (b) 742,071
29,631 Meridian Bioscience, Inc. 754,702
20,364 ResMed, Inc. (b) 763,243
22,726 St. Jude Medical, Inc. (b) 749,049
29,848 STERIS Corp. 713,069
23,874 Thoratec Corp. (b) 775,666
21,386 Varian Medical Systems, Inc. (b) 749,365
-------------
10,601,589
-------------
Health Care Providers &
Services--6.7%
17,692 Amedisys, Inc. (b) 731,387
18,539 Chemed Corp. 737,297
14,858 DaVita, Inc. (b) 736,511
12,231 Express Scripts, Inc. (b) 672,460
17,106 Medco Health Solutions, Inc. (b) 716,912
20,369 Owens & Minor, Inc. 766,894
25,737 Psychiatric Solutions, Inc. (b) 716,775
-------------
5,078,236
-------------
Health Care Technology--2.0%
19,455 Cerner Corp. (b) 748,045
28,524 Computer Programs & Systems, Inc. 764,443
-------------
1,512,488
-------------
Hotels, Restaurants &
Leisure--2.9%
11,929 McDonald's Corp. 741,864
14,041 Panera Bread Co., Class A (b) 733,502
31,654 Peet's Coffee & Tea, Inc. (b) 735,956
-------------
2,211,322
-------------
Household Products--1.0%
13,589 Church & Dwight Co., Inc. 762,615
-------------
Page 72 See Notes to Financial Statements.
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND
PORTFOLIO OF INVESTMENTS (a) (CONTINUED)
DECEMBER 31, 2008
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Common Stocks (Continued)
Insurance--1.1%
57,449 Crawford & Co., Class B (b) $ 835,308
-------------
Internet & Catalog Retail--1.0%
26,234 NetFlix, Inc. (b) 784,134
-------------
Internet Software & Services--1.1%
63,860 Interwoven, Inc. (b) 804,636
-------------
IT Services--6.0%
22,890 Accenture Ltd., Class A 750,563
15,868 Alliance Data Systems Corp. (b) 738,338
17,271 CACI International Inc., Class A (b) 778,749
22,413 Global Payments, Inc. 734,922
14,510 ManTech International Corp.,
Class A (b) 786,298
38,552 SAIC, Inc. (b) 750,993
-------------
4,539,863
-------------
Life Sciences Tools & Services--1.0%
11,746 Techne Corp. 757,852
-------------
Machinery--1.0%
18,487 Wabtec Corp. 734,858
-------------
Media--3.1%
46,685 Comcast Corp., Class A 788,043
34,896 DIRECTV Group (The), Inc. (b) 799,467
41,081 Shaw Communications, Inc.,
Class B 726,312
-------------
2,313,822
-------------
Metals & Mining--1.0%
13,315 Compass Minerals International, Inc. 781,058
-------------
Multiline Retail--2.0%
17,251 Dollar Tree, Inc. (b) 721,092
29,678 Family Dollar Stores, Inc. 773,705
-------------
1,494,797
-------------
Oil, Gas & Consumable Fuels--1.0%
26,899 Southwestern Energy Co. (b) 779,264
-------------
Pharmaceuticals--6.9%
31,944 Bristol-Myers Squibb Co. 742,698
30,985 Endo Pharmaceuticals Holdings,
Inc. (b) 801,892
12,430 Johnson & Johnson 743,687
13,738 Novo-Nordisk A/S, ADR 705,996
22,565 Perrigo Co. 729,075
22,663 Sanofi-Aventis, ADR 728,842
17,516 Teva Pharmaceutical Industries
Ltd., ADR 745,656
-------------
5,197,846
-------------
Professional Services--1.0%
10,236 Dun & Bradstreet (The) Corp. 790,219
-------------
Road & Rail--4.0%
9,828 Burlington Northern Santa Fe Corp. 744,078
25,692 Genesee & Wyoming, Inc.,
Class A (b) 783,605
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------
Road & Rail (Continued)
16,412 Norfolk Southern Corp. $ 772,185
15,591 Union Pacific Corp. 745,250
-------------
3,045,118
-------------
Software--2.0%
32,268 Intuit, Inc. (b) 767,656
41,808 Oracle Corp. (b) 741,256
-------------
1,508,912
-------------
Specialty Retail--3.0%
5,694 AutoZone, Inc. (b) 794,142
28,568 Jos. A. Bank Clothiers, Inc. (b) 747,053
21,225 Tractor Supply Co. (b) 767,072
-------------
2,308,267
-------------
Textiles, Apparel & Luxury
Goods--1.0%
14,918 Nike, Inc., Class B 760,818
-------------
Thrifts & Mortgage Finance--1.0%
48,897 Hudson City Bancorp, Inc. 780,396
-------------
Trading Companies &
Distributors--2.0%
21,963 Fastenal Co. 765,411
9,945 W.W. Grainger, Inc. 784,063
-------------
1,549,474
-------------
Total Investments--100.3%
(Cost $80,136,918) (c) 76,066,511
Net Other Assets and
Liabilities--(0.3)% (241,242)
-------------
Net Assets--100.0% $ 75,825,269
=============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Aggregate cost for federal income tax purposes is $80,537,966. As of
December 31, 2008, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$2,570,559 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$7,042,014.
ADR - American Depositary Receipt.
- -------------------------------------
Security Valuation Inputs
A summary of the inputs used to value the Fund's total investments as of
December 31, 2008 is as follows (See Note 2A - Portfolio Valuation in the Notes
to Financial Statements):
Valuation Inputs Investments
- -----------------------------------------------------------
Level 1 - Quoted Prices - Investments $76,066,511
Level 2 - Other Significant Observable Inputs --
Level 3 - Significant Unobservable Inputs --
---------------
Total $76,066,511
===============
See Notes to Financial Statements. Page 73
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2008
First Trust First Trust
Dow Jones Select Morningstar(R) First Trust
MicroCap Dividend Leaders(SM) US IPO
Index(SM) Fund Index Fund Index Fund
----------------- -------------------- -----------
ASSETS:
Investments at value $ 14,069,859 $ 43,116,131 $ 8,454,369
Cash 143,017 -- 39,327
Receivables:
Capital shares sold 712,564 -- --
Investment securities sold 31,205 400,512 --
Dividends 19,245 186,592 12,383
Interest -- -- --
Reclaims -- -- --
From investment advisor 10,678 7,994 6,249
Other assets 557 1,651 635
------------- -------------- --------------
Total Assets 14,987,125 43,712,880 8,512,963
------------- -------------- --------------
LIABILITIES:
Due to Custodian -- 5,024 --
Payables:
Investment securities purchased 834,388 423,351 --
Audit and tax fees 29,300 29,300 29,300
Printing fees 16,108 9,979 4,916
Investment advisory fees -- -- --
Licensing fees 891 27,487 182
Accrued expenses and other liabilities 29,745 21,696 24,797
------------- -------------- --------------
Total Liabilities 910,432 516,837 59,195
------------- -------------- --------------
NET ASSETS $ 14,076,693 $ 43,196,043 $ 8,453,768
============= ============== ==============
NET ASSETS consist of:
Paid-in capital $ 23,970,936 $ 76,357,516 $ 18,040,398
Par value 9,550 33,000 6,000
Accumulated net investment income (loss) -- 70,975 --
Accumulated net realized gain (loss) on investments (3,648,248) (18,130,286) (4,664,474)
Net unrealized appreciation (depreciation) on investments (6,255,545) (15,135,162) (4,928,156)
------------- -------------- --------------
NET ASSETS $ 14,076,693 $ 43,196,043 $ 8,453,768
============= ============== ==============
NET ASSET VALUE, per share $ 14.74 $ 13.09 $ 14.09
============= ============== ==============
Number of shares outstanding
(unlimited number of shares has been authorized, par value $0.01 per share) 955,000 3,300,002 600,002
------------- -------------- --------------
Investments at cost $ 20,325,404 $ 58,251,293 $ 13,382,525
============= ============== ==============
Page 74
First Trust First Trust First Trust First Trust First Trust First Trust First Trust
NASDAQ-100 NASDAQ-100- Amex(R) Dow Jones DB Strategic Value Line(R) Value Line(R)
Equal Weighted Technology Sector Biotechnology Internet Value Equity Allocation Dividend
Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund Index Fund
- ---------------- ------------------- ---------------- ------------------ --------------- -------------------- ----------------
$ 14,855,038 $ 9,415,879 $ 58,642,369 $ 14,769,915 $ 35,740,935 $ 5,890,061 $ 115,284,370
86,763 92,896 54,798 -- 21,153 -- --
1,185,677 -- -- -- -- -- --
-- -- 493,451 -- -- 19,673 --
3,563 1,227 -- -- 59,653 7,308 366,303
-- -- -- 4 -- 1 --
-- -- -- -- -- 246 10,274
736 -- -- -- -- -- --
718 521 2,698 955 1,660 -- 4,600
-------------- -------------- -------------- -------------- -------------- -------------- ----------------
16,132,495 9,510,523 59,193,316 14,770,874 35,823,401 5,917,289 115,665,547
-------------- -------------- -------------- -------------- -------------- -------------- ----------------
-- -- -- 4,243 -- 1,773 58,904
1,186,087 -- -- -- -- 19,945 --
29,223 29,300 29,223 29,223 29,300 29,300 29,300
21,463 17,217 16,611 5,109 10,240 6,152 28,207
-- 21,996 10,514 1,227 2,562 1,450 12,494
3,686 2,488 25,586 3,437 9,095 2,713 41,619
44,008 25,926 14,507 19,150 9,734 15,269 92,236
-------------- -------------- -------------- -------------- -------------- -------------- ----------------
1,284,467 96,927 96,441 62,389 60,931 76,602 262,760
-------------- -------------- -------------- -------------- -------------- -------------- ----------------
$ 14,848,028 $ 9,413,596 $ 59,096,875 $ 14,708,485 $ 35,762,470 $ 5,840,687 $ 115,402,787
============== ============== ============== ============== ============== ============== ================
$ 29,196,554 $ 20,522,667 $ 82,619,841 $ 35,279,215 $ 65,132,021 $ 10,804,138 $ 172,725,522
12,000 8,000 30,000 10,500 24,000 4,500 99,880
-- -- -- -- 16,119 578 48,392
(6,066,354) (3,796,548) (8,742,783) (7,472,558) (19,354,127) (2,845,907) (37,788,521)
(8,294,172) (7,320,523) (14,810,183) (13,108,672) (10,055,543) (2,122,622) (19,682,486)
-------------- -------------- -------------- -------------- -------------- -------------- ----------------
$ 14,848,028 $ 9,413,596 $ 59,096,875 $ 14,708,485 $ 35,762,470 $ 5,840,687 $ 115,402,787
============== ============== ============== ============== ============== ============== ================
$ 12.37 $ 11.77 $ 19.70 $ 14.01 $ 14.90 $ 12.98 $ 11.55
============== ============== ============== ============== ============== ============== ================
1,200,002 800,002 3,000,002 1,050,002 2,400,002 450,002 9,987,986
-------------- -------------- -------------- -------------- -------------- -------------- ----------------
$ 23,149,210 $ 16,736,402 $ 73,452,552 $ 27,878,587 $ 45,796,478 $ 8,012,683 $ 134,966,856
============== ============== ============== ============== ============== ============== ================
See Notes to Financial Statements. Page 75
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2008
First Trust First Trust
NASDAQ-100 NASDAQ(R) Clean Edge(R)
Ex-Technology Sector Green Energy
Index(SM) Fund Index Fund
----------------------- -----------------------
ASSETS:
Investments at value $ 7,275,186 $ 23,523,734
Cash -- 33,451
Receivables:
Capital shares sold -- --
Investment securities sold -- --
Dividends 2,292 5,207
Interest 2 --
Reclaims -- --
From investment advisor -- 4,048
Other assets -- 1,285
-------------- --------------
Total Assets 7,277,480 23,567,725
-------------- --------------
LIABILITIES:
Due to Custodian 1,821 --
Payables:
Investment securities purchased -- --
Audit and tax fees 29,224 29,300
Printing fees 5,270 6,365
Investment advisory fees 273 --
Licensing fees 1,416 6,096
Accrued expenses and other liabilities 7,513 21,647
-------------- --------------
Total Liabilities 45,517 63,408
-------------- --------------
NET ASSETS $ 7,231,963 $ 23,504,317
============== ==============
NET ASSETS consist of:
Paid-in capital $ 10,134,178 $ 56,952,070
Par value 6,000 21,000
Accumulated net investment income (loss) -- --
Accumulated net realized gain (loss) on investments (1,234,434) (8,185,691)
Net unrealized appreciation (depreciation) on investments (1,673,781) (25,283,062)
-------------- --------------
NET ASSETS $ 7,231,963 $ 23,504,317
============== ==============
NET ASSET VALUE, per share $ 12.05 $ 11.19
============== ==============
Number of shares outstanding
(unlimited number of shares has been authorized, par value $0.01 per share) 600,002 2,100,002
-------------- --------------
Investments at cost $ 8,948,967 $ 48,806,796
============== ==============
Page 76 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust
S&P ISE ISE-Revere ISE First Trust
REIT Water Natural Gas Chindia Value Line(R) 100
Index Fund Index Fund Index Fund Index Fund Exchange-Traded Fund
----------------- ----------------- ----------------- ----------------- ----------------------
$ 5,178,908 $ 32,161,745 $ 37,192,809 $ 35,942,438 $ 76,066,511
-- -- 9,707 50,718 --
-- -- -- -- --
-- -- -- -- --
42,392 56,609 16,294 2,699 42,897
2 2 1 -- --
-- 2,338 -- -- 3,509
5,211 1,772 23,491 7,401 5,666
7,551 -- -- 4,031 4,038
-------------- -------------- --------------- -------------- ---------------
5,234,064 32,222,466 37,242,302 36,007,287 76,122,621
-------------- -------------- --------------- -------------- ---------------
721 8,634 -- -- 171,700
-- -- -- -- --
30,050 29,300 29,300 29,300 29,300
4,667 9,650 7,887 21,133 23,732
-- -- -- -- --
-- 4,399 10,784 7,532 32,793
11,352 13,242 15,814 12,447 39,827
-------------- -------------- --------------- -------------- ---------------
46,790 65,225 63,785 70,412 297,352
-------------- -------------- --------------- -------------- ---------------
$ 5,187,274 $ 32,157,241 $ 37,178,517 $ 35,936,875 $ 75,825,269
============== ============== =============== ============== ===============
$ 7,088,578 $ 49,143,847 $ 95,138,883 $ 91,187,018 $ 156,776,434
5,500 20,500 31,500 30,500 81,900
735 272 6,195 -- --
(305,380) (3,600,106) (29,556,402) (22,417,554) (76,962,658)
(1,602,159) (13,407,272) (28,441,659) (32,863,089) (4,070,407)
-------------- -------------- --------------- -------------- ---------------
$ 5,187,274 $ 32,157,241 $ 37,178,517 $ 35,936,875 $ 75,825,269
============== ============== =============== ============== ===============
$ 9.43 $ 15.69 $ 11.80 $ 11.78 $ 9.26
============== ============== =============== ============== ===============
550,002 2,050,002 3,150,002 3,050,002 8,189,982
-------------- -------------- --------------- -------------- ---------------
$ 6,781,067 $ 45,569,017 $ 65,634,468 $ 68,805,527 $ 80,136,918
============== ============== =============== ============== ===============
See Notes to Financial Statements. Page 77
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
First Trust First Trust
Dow Jones Select Morningstar(R) First Trust
MicroCap Dividend Leaders(SM) US IPO
Index(SM) Fund Index Fund Index Fund
-------------------- -------------------- -------------------
INVESTMENT INCOME:
Dividends (a) $ 210,905 $ 2,826,237 $ 209,474
Interest -- -- --
------------- -------------- -------------
Total investment income 210,905 2,826,237 209,474
------------- -------------- -------------
EXPENSES:
Investment advisory fees 76,083 153,642 76,420
Audit and tax fees 26,098 30,582 26,333
Licensing fees 25,067 102,354 65,273
Accounting and administration fees 10,923 28,187 11,738
Listing fees 10,028 10,028 10,028
Printing fees 6,705 13,172 --
Custodian fees 1,902 6,402 2,388
Trustees' fees and expenses 1,361 2,368 149
Transfer agent fees 761 2,561 955
Legal fees -- 9,676 --
Registration and filing fees -- -- --
Other expenses 1,165 10,561 1,477
------------- -------------- -------------
Total expenses 160,093 369,533 194,761
Less fees waived and expenses reimbursed
by the investment advisor (68,793) (139,071) (80,132)
------------- -------------- -------------
Net expenses 91,300 230,462 114,629
------------- -------------- -------------
NET INVESTMENT INCOME (LOSS) 119,605 2,595,775 94,845
------------- -------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (1,118,138) (18,465,968) (3,588,951)
In-kind redemptions (315,800) (823,056) (403,820)
------------- -------------- -------------
Net realized gain (loss) (1,433,938) (19,289,024) (3,992,771)
------------- -------------- -------------
Net change in unrealized appreciation
(depreciation) on investments (4,841,892) (3,052,374) (6,916,703)
------------- -------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (6,275,830) (22,341,398) (10,909,474)
------------- -------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (6,156,225) $ (19,745,623) $ (10,814,629)
============= ============== =============
<FN>
(a) Net of foreign withholding tax of $72 for the First Trust Dow Jones Select
MicroCap Index(SM) Fund, $1,197 for the First Trust Morningstar(R) Dividend
Leaders(SM) Index Fund, $1,408 for the First Trust NASDAQ-100 Equal Weighted
Index(SM) Fund, $214 for the First Trust NASDAQ-100-Technology Sector Index(SM)
Fund and $1,537 for the First Trust Value Line(R) Equity Allocation Index
Fund.
</FN>
Page 78 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust First Trust First Trust
NASDAQ-100 NASDAQ-100- Amex(R) Dow Jones DB Strategic Value Line(R)
Equal Weighted Technology Sector Biotechnology Internet Value Equity Allocation
Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund
- -------------------- -------------------- -------------------- -------------------- -------------------- ---------------------
$ 136,276 $ 87,070 $ 743,278 $ 185,723 $ 1,166,998 $ 189,431
-- -- -- 1,326 -- 308
------------- ------------- ------------- ------------- ------------- -------------
136,276 87,070 743,278 187,049 1,166,998 189,739
------------- ------------- ------------- ------------- ------------- -------------
89,504 59,486 234,511 92,656 298,368 47,698
26,257 26,334 26,264 26,264 26,917 27,647
22,376 14,871 46,902 25,067 20,115 15,025
13,320 8,865 31,653 13,150 31,671 6,619
37,233 16,200 11,701 10,217 12,146 10,356
-- -- 35,974 10,070 14,656 --
2,797 1,859 7,878 3,316 8,008 1,192
100 197 838 73 806 118
1,119 744 2,931 1,158 2,984 477
-- -- 11,943 -- 4,970 --
-- -- -- -- -- --
4,047 2,035 12,541 8,808 8,570 --
------------- ------------- ------------- ------------- ------------- -------------
196,753 130,591 423,136 190,779 429,211 109,132
(62,497) (41,362) (71,442) (51,795) (41,333) (42,356)
------------- ------------- ------------- ------------- ------------- -------------
134,256 89,229 351,694 138,984 387,878 66,776
------------- ------------- ------------- ------------- ------------- -------------
2,020 (2,159) 391,584 48,065 779,120 122,963
------------- ------------- ------------- ------------- ------------- -------------
(5,411,121) (2,848,572) (11,885,464) (2,133,071) (18,748,801) (1,555,700)
(336,299) (782,106) 2,025,678 (4,367,670) 2,289,628 (257,474)
------------- ------------- ------------- ------------- ------------- -------------
(5,747,420) (3,630,678) (9,859,786) (6,500,741) (16,459,173) (1,813,174)
------------- ------------- ------------- ------------- ------------- -------------
(6,647,266) (5,540,626) (8,907,572) (10,241,121) (8,452,355) (2,790,104)
------------- ------------- ------------- ------------- ------------- -------------
(12,394,686) (9,171,304) (18,767,358) (16,741,862) (24,911,528) (4,603,278)
------------- ------------- ------------- ------------- ------------- -------------
$ (12,392,666) $ (9,173,463) $ (18,375,774) $ (16,693,797) $ (24,132,408) $ (4,480,315)
============= ============ ============= ============= ============= =============
See Notes to Financial Statements. Page 79
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS (CONTINUED)
First Trust First Trust First Trust
Value Line(R) NASDAQ-100 NASDAQ(R) Clean Edge(R)
Dividend Ex-Technology Sector Green Energy
Index Fund Index(SM) Fund Index Fund
------------------ -------------------- --------------------------
INVESTMENT INCOME:
Dividends (a) $ 5,439,640 $ 21,743 $ 161,901
Interest -- 624 --
-------------- ------------- --------------
Total investment income 5,439,640 22,367 161,901
-------------- ------------- --------------
EXPENSES:
Investment advisory fees 697,843 14,241 165,607
Audit and tax fees 24,514 29,714 29,807
Licensing fees 213,995 3,560 41,402
Accounting and administration fees 73,387 3,881 22,735
Listing fees 14,678 13,088 39,620
Printing fees 45,182 -- 13,206
Custodian fees 18,115 1,163 6,018
Trustees' fees and expenses 456 186 338
Transfer agent fees 6,978 178 2,070
Legal fees 50,042 -- 14,966
Registration and filing fees -- 43 802
Other expenses 29,976 -- 8,460
-------------- ------------- --------------
Total expenses 1,175,166 66,054 345,031
Less fees waived and expenses reimbursed by
the investment advisor (198,186) (44,692) (96,621)
-------------- ------------- --------------
Net expenses 976,980 21,362 248,410
-------------- ------------- --------------
NET INVESTMENT INCOME (LOSS) 4,462,660 1,005 (86,509)
-------------- ------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments (31,834,943) (1,174,536) (8,111,293)
In-kind redemptions 1,290,920 -- (869,814)
-------------- ------------- --------------
Net realized gain (loss) (30,544,023) (1,174,536) (8,981,107)
-------------- ------------- --------------
Net change in unrealized appreciation (depreciation)
on investments (10,121,962) (1,464,973) (30,855,031)
-------------- ------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (40,665,985) (2,639,509) (39,836,138)
-------------- ------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (36,203,325) $ (2,638,504) $ (39,922,647)
============== ============= ==============
<FN>
(a) Net of foreign withholding tax of $73,425 for the First Trust Value Line(R)
Dividend Index Fund, $210 for the First Trust NASDAQ-100 Ex-Technology
Sector Index(SM) Fund, $6,585 for the First Trust ISE Water Index Fund,
$83,744 for the First Trust ISE-Revere Natural Gas Index Fund, $683 for the
First Trust ISE Chindia Index Fund and $5,932 for the First Trust Value
Line(R) 100 Exchange-Traded Fund.
</FN>
Page 80 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust
S&P ISE ISE-Revere ISE First Trust
REIT Water Natural Gas Chindia Value Line(R) 100
Index Fund Index Fund Index Fund Index Fund Exchange-Traded Fund
---------------------- ---------------------- ---------------------- ---------------------- ------------------------
$ 94,083 $ 421,862 $ 880,069 $ 1,061,915 $ 818,241
885 1,290 2,019 -- --
------------- ------------- -------------- -------------- --------------
94,968 423,152 882,088 1,061,915 818,241
------------- ------------- -------------- -------------- --------------
7,312 124,894 257,309 283,462 688,674
31,339 29,625 29,683 29,625 23,028
75,206 15,612 64,327 56,692 218,850
4,033 17,829 36,176 37,872 72,802
10,120 11,229 11,229 11,229 19,951
-- 14,803 31,893 46,298 43,987
987 5,104 9,848 10,393 17,586
154 2,108 3,134 221 10,402
122 1,561 3,216 3,543 6,887
-- 16,231 42,135 26,360 43,719
-- -- 2,469 -- --
-- 1,537 3,916 10,825 39,639
------------- ------------- -------------- -------------- --------------
129,273 240,533 495,335 516,520 1,185,525
(117,085) (53,268) (109,371) (91,365) (221,381)
------------- ------------- -------------- -------------- --------------
12,188 187,265 385,964 425,155 964,144
------------- ------------- -------------- -------------- --------------
82,780 235,887 496,124 636,760 (145,903)
------------- ------------- -------------- -------------- --------------
(277,460) (3,604,230) (30,205,718) (20,635,148) (66,003,553)
(946,629) (2,140,008) 4,523,736 (3,581,633) 9,843,012
------------- ------------- -------------- -------------- --------------
(1,224,089) (5,744,238) (25,681,982) (24,216,781) (56,160,541)
------------- ------------- -------------- -------------- --------------
(1,217,844) (13,730,526) (28,462,419) (35,314,697) (26,736,162)
------------- ------------- -------------- -------------- --------------
(2,441,933) (19,474,764) (54,144,401) (59,531,478) (82,896,703)
------------- ------------- -------------- -------------- --------------
$ (2,359,153) $ (19,238,877) $ (53,648,277) $ (58,894,718) $ (83,042,606)
============= ============== ============== ============== ==============
See Notes to Financial Statements. Page 81
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
First Trust First Trust
Dow Jones Select Morningstar(R)
MicroCap Dividend Leaders(SM)
Index(SM) Fund Index Fund
--------------------------------------- -------------------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007
------------------ ------------------ ----------------- -----------------
OPERATIONS:
Net investment income (loss) $ 119,605 $ 104,779 $ 2,595,775 $ 3,301,865
Net realized gain (loss) (1,433,938) 1,235,896 (19,289,024) 4,928,844
Net change in unrealized appreciation
(depreciation) (4,841,892) (2,332,891) (3,052,374) (17,025,191)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations (6,156,225) (992,216) (19,745,623) (8,794,482)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (134,425) (101,775) (2,534,302) (3,182,601)
Net realized gain -- -- -- --
Return of capital (4,281) -- -- --
------------- ------------- ------------- -------------
Total distributions to shareholders (138,706) (101,775) (2,534,302) (3,182,601)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 4,065,981 20,378,526 12,711,476 69,676,425
Value of shares repurchased (1,687,158) (18,156,774) (11,885,997) (68,286,075)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions 2,378,823 2,221,752 825,479 1,390,350
------------- ------------- ------------- -------------
Total increase (decrease) in net assets (3,916,108) 1,127,761 (21,454,446) (10,586,733)
NET ASSETS:
Beginning of period 17,992,801 16,865,040 64,650,489 75,237,222
------------- ------------- ------------- -------------
End of period $14,076,693 $17,992,801 $43,196,043 $64,650,489
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period $ -- $ 4,380 $ 70,975 $ 9,502
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period 805,000 705,000 3,200,002 3,200,002
Shares sold 250,000 850,000 850,000 2,950,000
Shares repurchased (100,000) (750,000) (750,000) (2,950,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period 955,000 805,000 3,300,002 3,200,002
============= ============= ============= =============
Page 82 See Notes to Financial Statements.
First Trust First Trust
First Trust NASDAQ-100 NASDAQ-100- First Trust
US IPO Equal Weighted Technology Sector Amex(R) Biotechnology
Index Fund Index(SM) Fund Index(SM) Fund Index Fund
- ------------------------------ ----------------------------- ----------------------------- -------------------------------
For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
2008 2007 2008 2007 2008 2007 2008 2007
- ------------- -------------- ------------ -------------- ------------ -------------- ------------- --------------
$ 94,845 $ 59,250 $ 2,020 $ (19,001) $ (2,159) $ (37,744) $ 391,584 $ (302,002)
(3,992,771) 1,899,376 (5,747,420) 3,268,754 (3,630,678) 3,065,233 (9,859,786) 7,149,648
(6,916,703) 1,187,879 (6,647,266) (1,694,511) (5,540,626) (1,702,778) (8,907,572) (7,597,605)
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
(10,814,629) 3,146,505 (12,392,666) 1,555,242 (9,173,463) 1,324,711 (18,375,774) (749,959)
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
(100,763) (67,725) (2,020) -- -- -- (391,584) --
-- -- -- -- -- -- -- --
(7,057) -- (7,600) -- -- -- (201,756) --
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
(107,820) (67,725) (9,620) -- -- -- (593,340) --
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
9,223,133 22,872,902 5,116,238 26,192,404 1,934,589 21,483,865 64,260,013 90,771,660
(16,479,647) (19,299,601) (8,777,226) (22,994,445) (6,999,081) (27,116,601) (59,435,071) (46,218,394)
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
(7,256,514) 3,573,301 (3,660,988) 3,197,959 (5,064,492) (5,632,736) 4,824,942 44,553,266
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
(18,178,963) 6,652,081 (16,063,274) 4,753,201 (14,237,955) (4,308,025) (14,144,172) 43,803,307
26,632,731 19,980,650 30,911,302 26,158,101 23,651,551 27,959,576 73,241,047 29,437,740
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
$ 8,453,768 $ 26,632,731 $ 14,848,028 $ 30,911,302 $ 9,413,596 $ 23,651,551 $ 59,096,875 $ 73,241,047
============ ============ ============= ============ ============ ============= ============= ============
-- $ 1,158 $ -- $ -- $ -- $ -- $ -- $ --
============ ============ ============= ============ ============ ============= ============= ============
1,050,002 900,002 1,400,002 1,300,002 1,100,002 1,400,002 3,000,002 1,250,002
400,000 950,000 300,000 1,150,000 100,000 950,000 2,750,000 3,600,000
(850,000) (800,000) (500,000) (1,050,000) (400,000) (1,250,000) (2,750,000) (1,850,000)
- ------------ ------------ ------------- ------------ ------------ ------------- ------------- ------------
600,002 1,050,002 1,200,002 1,400,002 800,002 1,100,002 3,000,002 3,000,002
============ ============ ============= ============ ============ ============= ============= ============
See Notes to Financial Statements. Page 83
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
First Trust First Trust
Dow Jones Internet DB Strategic Value
Index(SM) Fund Index Fund
--------------------------------------- ----------------------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007
------------------- ----------------- ------------------ -----------------
OPERATIONS:
Net investment income (loss) $ 48,065 $ (231,090) $ 779,120 $ 399,329
Net realized gain (loss) (6,500,741) 6,875,695 (16,459,173) 4,078,150
Net change in unrealized appreciation
(depreciation) (10,241,121) (4,669,550) (8,452,355) (2,024,723)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations (16,693,797) 1,975,055 (24,132,408) 2,452,756
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (48,065) -- (786,001) (394,875)
Net realized gain -- -- -- --
Return of capital (1,660) -- -- --
------------- ------------- ------------- -------------
Total distributions to shareholders (49,725) -- (786,001) (394,875)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 16,539,332 79,688,355 60,739,339 104,762,439
Value of shares repurchased (21,472,981) (71,230,802) (61,576,153) (62,952,782)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions (4,933,649) 8,457,553 (836,814) 41,809,657
------------- ------------- ------------- -------------
Total increase (decrease) in net assets (21,677,171) 10,432,608 (25,755,223) 43,867,538
NET ASSETS:
Beginning of Period 36,385,656 25,953,048 61,517,693 17,650,155
------------- ------------- ------------- -------------
End of Period $ 14,708,485 $ 36,385,656 $ 35,762,470 $ 61,517,693
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period $ -- $ -- $ 16,119 $ 22,423
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period 1,450,002 1,150,002 2,550,002 800,002
Shares sold 750,000 3,200,000 2,700,000 4,350,000
Shares repurchased (1,150,000) (2,900,000) (2,850,000) (2,600,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period 1,050,002 1,450,002 2,400,002 2,550,002
============= ============= ============= =============
<FN>
(a) Inception date.
</FN>
Page 84 See Notes to Financial Statements.
First Trust
First Trust First Trust NASDAQ-100
Value Line(R) Equity Allocation Value Line(R) Dividend Ex-Technology Sector
Index Fund Index Fund Index(SM) Fund
- ---------------------------------------- --------------------------------------- -----------------------------------------
For the Period
For the Year For the Year For the Year For the Year For the Year February 8, 2007 (a)
Ended Ended Ended Ended Ended through
December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
$ 122,963 $ 156,232 $ 4,462,660 $ 6,133,255 $ 1,005 $ (1,364)
(1,813,174) (403,914) (30,544,023) 55,377,383 (1,174,536) 457,158
(2,790,104) 851,149 (10,121,962) (65,904,350) (1,464,973) (208,808)
--------------- --------------- --------------- --------------- --------------- ---------------
(4,480,315) 603,467 (36,203,325) (4,393,712) (2,638,504) 246,986
--------------- --------------- --------------- --------------- --------------- ---------------
(125,551) (171,605) (4,414,268) (6,533,096) (1,005) --
-- -- -- -- -- --
-- -- -- -- (335) --
--------------- --------------- --------------- --------------- --------------- ---------------
(125,551) (171,605) (4,414,268) (6,533,096) (1,340) --
--------------- --------------- --------------- --------------- --------------- ---------------
9,013,426 25,789,407 13,912,902 177,729,932 7,753,235 8,275,318
(11,858,239) (31,723,062) (38,045,744) (438,291,965) -- (6,403,732)
--------------- --------------- --------------- --------------- --------------- ---------------
(2,844,813) (5,933,655) (24,132,842) (260,562,033) 7,753,235 1,871,586
--------------- --------------- --------------- --------------- --------------- ---------------
(7,450,679) (5,501,793) (64,750,435) (271,488,841) 5,113,391 2,118,572
13,291,366 18,793,159 180,153,222 451,642,063 2,118,572 --
--------------- --------------- --------------- --------------- --------------- ---------------
$ 5,840,687 $ 13,291,366 $ 115,402,787 $ 180,153,222 $ 7,231,963 $ 2,118,572
=============== =============== =============== =============== =============== ===============
$ 578 $ 3,164 $ 48,392 $ -- $ -- $ --
=============== =============== =============== =============== =============== ===============
650,002 950,002 11,437,986 26,938,000 100,002 --
500,000 1,300,000 1,200,000 10,500,000 500,000 400,002
(700,000) (1,600,000) (2,650,000) (26,000,014) -- (300,000)
--------------- --------------- --------------- --------------- --------------- ---------------
450,002 650,002 9,987,986 11,437,986 600,002 100,002
=============== =============== =============== =============== =============== ===============
See Notes to Financial Statements. Page 85
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
First Trust First Trust
NASDAQ(R) S&P
Clean Edge(R) Green REIT
Energy Index Fund Index Fund
--------------------------------------- ---------------------------------------
For the Period For the Period
For the Year February 8, 2007 (a) For the Year May 8, 2007 (a)
Ended through Ended through
December 31, 2008 December 31, 2007 December 31, 2008 December 31, 2007
------------------- ----------------- ----------------- -----------------
OPERATIONS:
Net investment income (loss) $ (86,509) $ (64,652) $ 82,780 $ 37,501
Net realized gain (loss) (8,981,107) 4,547,068 (1,224,089) (64,033)
Net change in unrealized appreciation
(depreciation) (30,855,031) 5,571,969 (1,217,844) (384,315)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations (39,922,647) 10,054,385 (2,359,153) (410,847)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (82,045) (37,501)
Net realized gain -- -- -- --
Return of capital -- -- -- --
------------- ------------- ------------- -------------
Total distributions to shareholders -- -- (82,045) (37,501)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold 18,128,749 57,955,176 7,707,488 3,796,816
Value of shares repurchased (5,614,820) (17,096,526) (1,660,294) (1,767,190)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions 12,513,929 40,858,650 6,047,194 2,029,626
------------- ------------- ------------- -------------
Total increase (decrease) in net assets (27,408,718) 50,913,035 3,605,996 1,581,278
NET ASSETS:
Beginning of Period 50,913,035 -- 1,581,278 --
------------- ------------- ------------- -------------
End of Period $ 23,504,317 $ 50,913,035 $ 5,187,274 $ 1,581,278
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period $ -- $ -- $ 735 $ --
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period 1,650,002 -- 100,002 --
Shares sold 800,000 2,350,002 650,000 200,002
Shares repurchased (350,000) (700,000) (200,000) (100,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period 2,100,002 1,650,002 550,002 100,002
============= ============= ============= =============
<FN>
(a) Inception date.
(b) Results prior to June 18, 2007 are of First Trust Value Line(R) 100 Fund.
</FN>
Page 86 See Notes to Financial Statements.
First Trust First Trust First Trust First Trust
ISE Water ISE-Revere Natural Gas ISE Chindia Value Line(R) 100
Index Fund Index Fund Index Fund Exchange-Traded Fund
- ----------------------------- ------------------------------ ----------------------------- -------------------------------
For the Period For the Period For the Period For the Period
For the Year May 8, 2007 (a) For the Year May 8, 2007 (a) For the Year May 8, 2007 (a) For the Year May 8, 2007 (a)
Ended through Ended through Ended through Ended through
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
2008 2007 2008 2007 2008 2007 2008 2007
- ------------- -------------- ------------- -------------- ------------- --------------- -------------------------------
$ 235,887 $ 24,450 $ 496,124 $ 10,866 $ 636,760 $ 47,735 $ (145,903) $ (497,794)
(5,744,238) 263,879 (25,681,982) 403,859 (24,216,781) 2,084,309 (56,160,541) 52,128,707
(13,730,526) 323,254 (28,462,419) 20,760 (35,314,697) 2,451,608 (26,736,162) (5,434,509)
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
(19,238,877) 611,583 (53,648,277) 435,485 (58,894,718) 4,583,652 (83,042,606) 46,196,404
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
(235,615) (24,475) (496,336) (9,200) (723,411) (58,125) -- --
-- -- -- -- -- -- -- (18,451,951)
-- -- -- -- (7,375) -- -- --
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
(235,615) (24,475) (496,336) (9,200) (730,786) (58,125) -- (18,451,951)
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
60,229,848 18,295,951 165,183,948 17,272,326 13,396,978 119,626,564 59,176,893 219,100,688
(20,907,834) (6,573,340) (85,018,202) (6,541,227) (21,838,899) (20,147,791) (105,222,443) (319,833,579)
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
39,322,014 11,722,611 80,165,746 10,731,099 (8,441,921) 99,478,773 (46,045,550) (100,732,891)
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
19,847,522 12,309,719 26,021,133 11,157,384 (68,067,425) 104,004,300 (129,088,156) (72,988,438)
12,309,719 -- 11,157,384 -- 104,004,300 -- 204,913,425 277,901,863
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
$ 32,157,241 $ 12,309,719 $ 37,178,517 $ 11,157,384 $ 35,936,875 $104,004,300 $ 75,825,269 $ 204,913,425
============= ============ ============= ============ ============ ============ ============ =============
$ 272 $ -- $ 6,195 $ 1,666 $ -- $ 1,096 $ -- $ --
============= ============ ============= ============ ============ ============ ============ =============
550,002 -- 500,002 -- 3,750,002 -- 11,439,982 17,490,000
2,650,000 850,002 6,150,000 800,002 550,000 4,500,002 3,750,000 12,750,000
(1,150,000) (300,000) (3,500,000) (300,000) (1,250,000) (750,000) (7,000,000) (18,800,018)
- ------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
2,050,002 550,002 3,150,002 500,002 3,050,002 3,750,002 8,189,982 11,439,982
============= ============ ============= ============ ============ ============ ============ =============
See Notes to Financial Statements. Page 87
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Dow Jones Select MicroCap Index(SM) Fund
For the Period
For the For the For the September 27, 2005 (a)
Year Ended Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006 December 31, 2005
------------------- ------------------ ------------------ --------------------
Net asset value, beginning of period $ 22.35 $ 23.92 $ 20.73 $ 20.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.17 0.16 0.06 (b) 0.03 (b)
Net realized and unrealized gain (loss) (7.60) (1.60) 3.19 (b) 0.72 (b)
---------- ---------- ---------- ----------
Total from investment operations (7.43) (1.44) 3.25 0.75
---------- ---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.17) (0.13) (0.06) (0.02)
Return of capital (0.01) -- -- --
---------- ---------- ---------- ----------
Total distribution (0.18) (0.13) (0.06) (0.02)
---------- ---------- ---------- ----------
Net asset value, end of period $ 14.74 $ 22.35 $ 23.92 $ 20.73
========== ========== ========== ==========
TOTAL RETURN (c) (33.33)% (6.02)% 15.69% 3.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 14,077 $ 17,993 $ 16,865 $ 39,492
Ratios to average net assets:
Ratio of total expenses to average net assets 1.05% 1.35% 1.18% 1.44 (d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60%(d)
Ratio of net investment income
(loss) to average net assets 0.79% 0.58% 0.24% 0.51%(d)
Portfolio turnover rate (e) 85% 11% 20% 6%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
For the Period
For the For the March 9, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 20.20 $ 23.51 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.83 0.92 0.59 (b)
Net realized and unrealized gain (loss) (7.13) (3.35) 3.52 (b)
---------- ---------- ----------
Total from investment operations (6.30) (2.43) 4.11
---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.81) (0.88) (0.60)
---------- ---------- ----------
Net asset value, end of period $ 13.09 $ 20.20 $ 23.51
========== ========== ==========
TOTAL RETURN (c) (31.71)% (10.64)% 20.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 43,196 $ 64,650 $ 75,237
Ratios to average net assets:
Ratio of total expenses to average net assets 0.72% 0.68% 0.99%(d)
Ratio of net expenses to average net assets 0.45% 0.45% 0.45%(d)
Ratio of net investment income (loss) to average net assets 5.07% 3.87% 3.55%(d)
Portfolio turnover rate (e) 56% 9% 9%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 88 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust US IPO Index Fund
For the Period
For the For the April 12, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 25.36 $ 22.20 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.15 0.05 0.01 (b)
Net realized and unrealized gain (loss) (11.27) 3.17 2.19 (b)
---------- ---------- ----------
Total from investment operations (11.12) 3.22 2.20
---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.14) (0.06) --
Return of capital (0.01) -- --
---------- ---------- ----------
Total distributions (0.15) (0.06) --
---------- ---------- ----------
Net asset value, end of period $ 14.09 $ 25.36 $ 22.20
========== ========== ==========
TOTAL RETURN (c) (43.88)% 14.53% 11.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 8,454 $ 26,633 $ 19,981
Ratios to average net assets:
Ratio of total expenses to average net assets1 .02% 1.06% 1.44%(d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 0.50% 0.24% 0.07%(d)
Portfolio turnover rate (e) 62% 11% 26%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
For the Period
For the For the April 19, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 22.08 $ 20.12 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.00 (f) (0.02) (0.01) (b)
Net realized and unrealized gain (loss) (9.70) 1.98 0.13 (b)
---------- ---------- ----------
Total from investment operations (9.70) 1.96 0.12
---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.00) (f) -- --
Return of capital (0.01) -- --
---------- ---------- ----------
Total distributions (0.01) -- --
---------- ---------- ----------
Net asset value, end of period $ 12.37 $ 22.08 $ 20.12
========== ========== ==========
TOTAL RETURN (c) (43.96)% 9.74% 0.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 14,848 $ 30,911 $ 26,158
Ratios to average net assets:
Ratio of total expenses to average net assets 0.88% 0.95% 1.31%(d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 0.01% (0.08)% (0.07)%(d)
Portfolio turnover rate (e) 39% 15% 1%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(f) Amount represents less than $0.01 per share.
See Notes to Financial Statements Page 89
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
For the Period
For the For the April 19, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 21.50 $ 19.97 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) -- (0.03) (0.03)(b)
Net realized and unrealized gain (loss) (9.73) 1.56 0.00 (b)(f)
---------- ---------- ----------
Total from investment operations (9.73) 1.53 (0.03)
---------- ---------- ----------
Net asset value, end of period $ 11.77 $ 21.50 $ 19.97
========== ========== ==========
TOTAL RETURN (c) (45.26)% 7.66% (0.15)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 9,414 $ 23,652 $ 27,960
Ratios to average net assets:
Ratio of total expenses to average net assets 0.88% 0.92% 1.37% (d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to average net assets (0.01)% (0.16)% (0.20)%(d)
Portfolio turnover rate (e) 33% 10% 7%
First Trust Amex(R) Biotechnology Index Fund
For the Period
For the For the June 19, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 24.41 $ 23.55 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.18 (0.10) (0.07) (b)
Net realized and unrealized gain (loss) (4.62) 0.96 3.62 (b)
---------- ---------- ----------
Total from investment operations (4.44) 0.86 3.55
---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.18) -- --
Return of capital (0.09) -- --
---------- ---------- ----------
Total distributions (0.27) -- --
---------- ---------- ----------
Net asset value, end of period $ 19.70 $ 24.41 $ 23.55
========== ========== ==========
TOTAL RETURN (c) (18.33)% 3.65% 17.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 59,097 $ 73,241 $ 29,438
Ratios to average net assets:
Ratio of total expenses to average net assets 0.72% 0.73% 1.22%(d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 0.67% (0.60)% (0.60)%(d)
Portfolio turnover rate (e) 38% 11% 4%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(f) Amount represents less than $0.01 per share.
Page 90 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Dow Jones Internet Index(SM) Fund
For the Period
For the For the June 19, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 25.09 $ 22.57 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.05 (0.16) (0.07) (b)
Net realized and unrealized gain (loss) (11.08) 2.68 2.64 (b)
---------- ---------- ----------
Total from investment operations (11.03) 2.52 2.57
---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.05) -- --
Return of capital (0.00) (f) -- --
---------- ---------- ----------
Total distributions (0.05) -- --
---------- ---------- ----------
Net asset value, end of period $ 14.01 $ 25.09 $ 22.57
========== ========== ==========
TOTAL RETURN (c) (44.02)% 11.17% 12.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 14,708 $ 36,386 $ 25,953
Ratios to average net assets:
Ratio of total expenses to average net assets 0.82% 0.70% 1.24%(d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 0.21% (0.42)% (0.55)%(d)
Portfolio turnover rate (e) 44% 6% 4%
First Trust DB Strategic Value Index Fund
For the Period
For the For the July 6, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 24.12 $ 22.06 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.28 0.20 0.12 (b)
Net realized and unrealized gain (loss) (9.22) 2.07 2.03 (b)
---------- ---------- ----------
Total from investment operations (8.94) 2.27 2.15
---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.28) (0.21) (0.09)
---------- ---------- ----------
Net asset value, end of period $ 14.90 $ 24.12 $ 22.06
========== ========== ==========
TOTAL RETURN (c) (37.23)% 10.26% 10.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 35,762 $ 61,518 $ 17,650
Ratios to average net assets:
Ratio of total expenses to average net assets 0.72% 1.12% 2.59%(d)
Ratio of net expenses to average net assets 0.65% 0.65% 0.65%(d)
Ratio of net investment income (loss) to average net assets 1.31% 1.09% 1.29%(d)
Portfolio turnover rate (e) 157% 10% 4%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(f) Amount represents less than $0.01 per share.
See Notes to Financial Statements. Page 91
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Value Line(R) Equity Allocation Index Fund
For the Period
For the For the December 5, 2006 (a)
Year Ended Year Ended through
December 31, 2008 December 31, 2007 December 31, 2006
-------------------- ------------------- ---------------------
Net asset value, beginning of period $ 20.45 $ 19.78 $ 20.00
---------- ---------- ----------
Income from investment operations:
Net investment income (loss) 0.25 0.24 0.03 (b)
Net realized and unrealized gain (loss) (7.47) 0.68 (0.25) (b)
---------- ---------- ----------
Total from investment operations (7.22) 0.92 (0.22)
---------- ---------- ----------
Distributions paid to shareholders from:
Net investment income (0.25) (0.25) --
---------- ---------- ----------
Net asset value, end of period $ 12.98 $ 20.45 $ 19.78
========== ========== ==========
TOTAL RETURN (c) (35.45)% 4.65% (1.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,841 $ 13,291 $ 18,793
Ratios to average net assets:
Ratio of total expenses to average net assets 1.14% 1.36% 3.25%(d)
Ratio of net expenses to average net assets 0.70% 0.70% 0.70%(d)
Ratio of net investment income (loss) to average net assets 1.29% 1.04% 1.82%(d)
Portfolio turnover rate (e) 120% 43% 1%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 92 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Value Line(R) Dividend Index Fund
For the Period
For the For the Year June 1, 2006 For the Year For the Year For the Year
Year Ended Ended through Ended Ended Ended
December 31, December 31, December 31, May 31, May 31, May 31,
2008 2007 2006 (a) 2006 (a) 2005 (a) 2004 (a)
------------- -------------- --------------- ------------- ------------- -------------
Net asset value, beginning of period $ 15.75 $ 16.77 $ 16.55 $ 17.24 $ 16.13 $ 14.33(j)
----------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment income gain (loss) 0.45 0.44 0.24(b) 0.43 0.41 0.27
Net realized and unrealized gain (loss) (4.20) (0.99) 2.10(b) 1.00 1.99 1.86
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations (3.75) (0.55) 2.34 1.43 2.40 2.13
----------- ----------- ----------- ----------- ----------- -----------
Distributions paid to shareholders from:
Net investment income (0.45) (0.47) (0.63) (0.42) (0.37) (0.20)
Net realized gains -- -- (1.49) (1.70) (0.92) (0.11)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (0.45) (0.47) (2.12) (2.12) (1.29) (0.31)
----------- ----------- ----------- ----------- ----------- -----------
Common Shares offering costs
charged to paid-in capital -- -- -- -- (0.00)(c) (0.02)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 11.55 $ 15.75 $ 16.77 $ 16.55 $ 17.24 $ 16.13
=========== =========== =========== =========== =========== ===========
TOTAL RETURN, BASED ON
NET ASSET VALUE (24.17)%(e) (3.42)%(e) 14.70%(e)(i) 10.26%(d) 16.05%(d) 15.09%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 115,403 $ 180,153 $ 451,642 $ 536,258 $ 558,705 $ 522,731
Ratios to average net assets:
Ratio of total expenses to average net assets 0.84% 0.85% 0.94%(f) 0.93% 0.93% 0.93%(f)
Ratio of net expenses to average net assets 0.70% 0.70% 0.93%(f)(h) 0.93% 0.93% 0.93%(f)
Ratio of net investment income (loss)
to average net assets 3.20% 2.37% 2.36% (f) 2.51% 2.45% 2.29%(f)
Portfolio turnover rate (g) 109% 5% 28% 58% 57% 46%
(a) The Fund commenced operations on August 19, 2003. Results for periods prior
to December 18, 2006 are of First Trust Value Line(R) Dividend Fund. See
Reorganization History below.
(b) Per share amounts have been calculated using the average share method.
(c) Amount represents less than $0.01 per share.
(d) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in net
asset value per share and does not reflect sales load.
(e) Total return based on net asset value is calculated assuming an initial
investment made at the net asset value at the beginning of the period,
reinvestment of all dividend distributions at net asset value during the
period, and redemption at net asset value on the last day of the period. The
return presented does not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption or sale of Fund shares.
Total return calculated for a period of less than one year is not
annualized. The total return would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
(f) Annualized.
(g) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(h) The annualized expense ratio is capped at 0.70%. This ratio of 0.93%
includes expenses for a portion of the period prior to the reorganization
for the First Trust Value Line(R) Dividend Fund.
(i) Prior to December 18, 2006, total return based on net asset value assumed
that all dividend distributions were reinvested at prices obtained by the
Dividend Reinvestment Plan of First Trust Value Line(R) Dividend Fund. See
Reorganization History below.
(j) Net of sales load of $0.675 per common shares on initial offering.
Reorganization History:
- -----------------------
First Trust Value Line(R) Dividend Fund (the "Predecessor FVD Fund"), a
closed-end fund organized as a Massachusetts business trust on June 11, 2003,
reorganized with and into First Trust Value Line(R) Dividend Index Fund ("FVD"),
an exchange-traded fund and newly created series of the Trust effective Friday,
December 15, 2006. The Predecessor FVD Fund ceased trading on the AMEX(now known
as NYSE Alternext US) on Friday, December 15, 2006, and FVD began trading on the
AMEX on Monday, December 18, 2006 (effective November 6, 2008, FVD began trading
on NYSE Arca), under the ticker symbol "FVD," the same ticker symbol used by the
Predecessor FVD Fund. The assets of the Predecessor FVD Fund were transferred
to, and the liabilities of the Predecessor FVD Fund were assumed by, FVD in
exchange for shares of FVD on a one share for one share basis based upon the net
asset value ("NAV") of the Predecessor FVD Fund on Friday, December 15, 2006.
FVD shares have been distributed to the Predecessor FVD Fund shareholders, on a
tax-free basis for federal income tax purposes, and the Predecessor FVD Fund has
been terminated. The historical results of the Predecessor FVD Fund survive for
financial reporting purposes.
See Notes to Financial Statements. Page 93
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
For the Period
For the February 8, 2007 (a)
Year Ended through
December 31, 2008 December 31, 2007
----------------- ------------------
Net asset value, beginning of period $ 21.19 $ 20.00
---------- ----------
Income from investment operations:
Net investment income (loss) 0.01 (0.01)
Net realized and unrealized gain (loss) (9.14) 1.20
---------- ----------
Total from investment operations (9.13) 1.19
Distributions paid to shareholders from:
Net investment income (0.01) --
Return of capital (0.00)(e) --
---------- ----------
Total distributions (0.01) --
Net asset value, end of period $ 12.05 $ 21.19
========== ==========
TOTAL RETURN (b) (43.09)% 5.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 7,232 $ 2,119
Ratios to average net assets:
Ratio of total expenses to average net assets 1.86% 2.61% (c)
Ratio of net expenses to average net assets 0.60% 0.60% (c)
Ratio of net investment income (loss) to average net assets 0.03% (0.04)%(c)
Portfolio turnover rate (d) 67% 27%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
For the Period
For the February 8, 2007 (a)
Year Ended through
December 31, 2008 December 31, 2007
----------------- ------------------
Net asset value, beginning of period $ 30.86 $ 20.00
---------- ----------
Income from investment operations:
Net investment income (loss) (0.04) (0.04)
Net realized and unrealized gain (loss) (19.63) 10.90
---------- ----------
Total from investment operations (19.67) 10.86
---------- ----------
Net asset value, end of period $ 11.19 $ 30.86
========== ==========
TOTAL RETURN (b) (63.74)% 54.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 23,504 $ 50,913
Ratios to average net assets:
Ratio of total expenses to average net assets 0.83% 1.00% (c)
Ratio of net expenses to average net assets 0.60% 0.60% (c)
Ratio of net investment income (loss) to average net assets (0.21)% (0.33)%(c)
Portfolio turnover rate (d) 32% 4%
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(e) Amount represents less than $0.01 per share.
Page 94 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust S&P REIT Index Fund
For the Period
For the May 8, 2007 (a)
Year Ended through
December 31, 2008 December 31, 2007
----------------- ------------------
Net asset value, beginning of period $ 15.81 $ 20.00
---------- ----------
Income from investment operations:
Net investment income (loss) 0.31 0.32 (b)
Net realized and unrealized gain (loss) (6.38) (4.13)(b)
---------- ----------
Total from investment operations (6.07) (3.81)
---------- ----------
Distributions paid to shareholders from:
Net investment income (0.31) (0.38)
---------- ----------
Net asset value, end of period $ 9.43 $ 15.81
========== ==========
TOTAL RETURN (c) (38.87)% (19.08)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,187 $ 1,581
Ratios to average net assets:
Ratio of total expenses to average net assets 5.30% 8.41%(d)
Ratio of net expenses to average net assets 0.50% 0.50%(d)
Ratio of net investment income (loss) to average net assets 3.40% 2.73%(d)
Portfolio turnover rate (e) 20% 25%
First Trust ISE Water Index Fund
For the Period
For the May 8, 2007 (a)
Year Ended through
December 31, 2008 December 31, 2007
----------------- ------------------
Net asset value, beginning of period $ 22.38 $ 20.00
---------- ----------
Income from investment operations:
Net investment income (loss) 0.12 0.04
Net realized and unrealized gain (loss) (6.69) 2.38
---------- ----------
Total from investment operations (6.57) 2.42
---------- ----------
Distributions paid to shareholders from:
Net investment income (0.12) (0.04)
---------- ----------
Net asset value, end of period $ 15.69 $ 22.38
========== ==========
TOTAL RETURN (c) (29.40)% 12.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 32,157 $ 12,310
Ratios to average net assets:
Ratio of total expenses to average net assets 0.77% 1.68%(d)
Ratio of net expenses to average net assets 0.60% 0.60%(d)
Ratio of net investment income (loss) to average net assets 0.76% 0.46%(d)
Portfolio turnover rate (e) 45% 3%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements. Page 95
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust ISE-Revere Natural Gas Index Fund
For the Period
For the May 8, 2007 (a)
Year Ended through
December 31, 2008 December 31, 2007
----------------- ------------------
Net asset value, beginning of period $ 22.31 $ 20.00
---------- ----------
Income from investment operations:
Net investment income (loss) 0.14 0.03
Net realized and unrealized gain (loss) (10.51) 2.30
---------- ----------
Total from investment operations (10.37) 2.33
---------- ----------
Distributions paid to shareholders from:
Net investment income (0.14) (0.02)
---------- ----------
Net asset value, end of period $ 11.80 $ 22.31
========== ==========
TOTAL RETURN (b) (46.57)% 11.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 37,179 $ 11,157
Ratios to average net assets:
Ratio of total expenses to average net assets 0.77% 2.36%(c)
Ratio of net expenses to average net assets 0.60% 0.60%(c)
Ratio of net investment income (loss) to average net assets 0.77% 0.32%(c)
Portfolio turnover rate (d) 116% 5%
First Trust ISE Chindia Index Fund
For the Period
For the May 8, 2007 (a)
Year Ended through
December 31, 2008 December 31, 2007
----------------- ------------------
Net asset value, beginning of period $ 27.73 $ 20.00
---------- ----------
Income from investment operations:
Net investment income (loss) 0.17 0.02
Net realized and unrealized gain (loss) (15.92) 7.73
---------- ----------
Total from investment operations (15.75) 7.75
---------- ----------
Distributions paid to shareholders from:
Net investment income (0.20) (0.02)
Return of capital (0.00)(e) --
---------- ----------
Total distributions (0.20) (0.02)
---------- ----------
Net asset value, end of period $ 11.78 $ 27.73
========== ==========
TOTAL RETURN (b) (56.98)% 38.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 35,937 $ 104,004
Ratios to average net assets:
Ratio of total expenses to average net assets 0.73% 0.82%(c)
Ratio of net expenses to average net assets 0.60% 0.60%(c)
Ratio of net investment income (loss) to average net assets 0.90% 0.17%(c)
Portfolio turnover rate (d) 39% 2%
(a) Inception date.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The return presented does not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
return would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(e) Amount represents less than $0.01 per share.Trust Value Line(R) 100
Exchange-Traded Fund
Page 96 See Notes to Financial Statements.
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
First Trust Value Line(R) 100 Exchange-Traded Fund
For the For the Year For the Year For the Year For the Year
Year Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31,
2008 2007 (a) 2006 (a) 2005 (a) 2004 (a)
------------- ------------- ------------- ------------- -------------
Net asset value, beginning of period $ 17.91 $ 15.89 $ 17.16 $ 18.05 $ 16.61
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income (loss) (0.02) 1.02 (0.07) (0.08) (0.09)
Net realized and unrealized gain (loss) (8.63) 2.06 0.68 2.00 2.19
----------- ----------- ----------- ----------- -----------
Total from investment operations (8.65) 3.08 0.61 1.92 2.10
Distributions paid to shareholders from:
Net realized gains -- (1.06) (1.88) (2.81) (0.66)
----------- ----------- ----------- ----------- -----------
Common Shares offering costs
charged to paid-in capital -- -- -- -- (0.00)(b)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 9.26 $ 17.91 $ 15.89 $ 17.16 $ 18.05
=========== =========== =========== =========== ===========
TOTAL RETURN, BASED ON
NET ASSET VALUE (48.30)%(d) 19.91%(d)(g) 4.59%(c) 11.86%(c) 13.05%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 75,825 $ 204,913 $ 277,902 $ 300,049 $ 315,632
Ratios to average net assets:
Ratio of total expenses to average net assets 0.86% 0.89% 0.97% 0.95% 0.97%
Ratio of net expenses to average net assets 0.70% 0.83%(f) 0.97% 0.95% 0.97%
Ratio of net investment income (loss)
to average net assets (0.11)% (0.21)% (0.40)% (0.43)% (0.52)%
Portfolio turnover rate (e) 251% 111% 234% 240% 220%
(a) The Fund commenced operations on June 12, 2003. Results for periods prior to
June 18, 2007 are of First Trust Value Line(R) 100 Fund. See Reorganization
History Below.
(b) Amount represents less than $0.01 per share.
(c) Total return based on net asset value is the combination of reinvested
dividend distributions and reinvested capital gains distributions, if any,
at prices obtained by the Dividend Reinvestment Plan and changes in net
asset value per share and does not reflect sales load.
(d) Total return based on net asset value is calculated assuming an initial
investment made at the net asset value at the beginning of the period,
reinvestment of all dividend distributions at net asset value during the
period, and redemption at net asset value on the last day of the period. The
return presented does not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption or sale of Fund shares.
Total return calculated for a period of less than one year is not
annualized. The total return would have been lower if certain fees had not
been waived or expenses reimbursed by the investment advisor.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(f) The annualized expense ratio is capped at 0.70% for the first two years from
the date of the reorganization. This ratio of 0.83% includes expenses for a
portion of the period prior to the reorganization of the First Trust Value
Line(R) 100 Fund.
(g) Prior to June 18, 2007, total return based on net asset value assumed that
all dividend distributions were reinvested at prices obtained by the
Dividend Reinvestment Plan of First Trust Value Line(R) 100 Fund. See
Reorganization History below.
Reorganization History:
- -----------------------
First Trust Value Line(R) 100 Fund (the "Predecessor FVL Fund"), a closed-end
fund organized as a Massachusetts business trust on April 18, 2003, reorganized
with and into First Trust Value Line(R) 100 Exchange-Traded Fund ("FVL"), an
exchange-traded fund and newly created series of the Trust effective Friday,
June 15, 2007. The Predecessor FVL Fund ceased trading on the AMEX (now known as
NYSE Alternext US) on Friday, June 15, 2007 and FVL began trading on the AMEX on
Monday, June 18, 2007 (effective November 6, 2008, FVL began trading on
NYSE Arca), under the ticker symbol "FVL," the same ticker symbol used by the
Predecessor FVL Fund. The assets of the Predecessor FVL Fund were transferred
to, and the liabilities of the Predecessor FVL Fund were assumed by, FVL in
exchange for shares of FVL on a one share for one share basis based upon the net
asset value ("NAV") of the Predecessor FVL Fund on Friday, June 15, 2007. FVL
shares have been distributed to the Predecessor FVL Fund shareholders, on a
tax-free basis for federal income tax purposes, and the Predecessor FVL Fund has
been terminated. The historical results of the Predecessor FVL Fund survive for
financial reporting purposes.
See Notes to Financial Statements. Page 97
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
1. Organization
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of seventeen exchange-traded funds:
First Trust Dow Jones Select MicroCap Index(SM) Fund - (NYSE Arca, Inc.
ticker "FDM")
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -
(NYSE Arca, Inc. ticker "FDL")
First Trust US IPO Index Fund(1) - (NYSE Arca, Inc. ticker "FPX")
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund - (NASDAQ ticker "QQEW")
First Trust NASDAQ-100-Technology Sector Index(SM) Fund - (NASDAQ ticker "QTEC")
First Trust Amex(R) Biotechnology Index Fund - (NYSE Arca, Inc. ticker "FBT")
First Trust Dow Jones Internet Index(SM) Fund - (NYSE Arca, Inc. ticker "FDN")
First Trust DB Strategic Value Index Fund - (NYSE Arca, Inc. ticker "FDV")
First Trust Value Line(R) Equity Allocation Index Fund -
(NYSE Arca, Inc. ticker "FVI")
First Trust Value Line(R) Dividend Index Fund - (NYSE Arca, Inc. ticker "FVD")
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -
(NASDAQ ticker "QQXT")
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund(2) -
(NASDAQ ticker "QCLN")
First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ticker "FRI")
First Trust ISE Water Index Fund - (NYSE Arca, Inc. ticker "FIW")
First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca, Inc. ticker "FCG")
First Trust ISE Chindia Index Fund - (NYSE Arca, Inc. ticker "FNI")
First Trust Value Line(R) 100 Exchange-Traded Fund -
(NYSE Arca, Inc. ticker "FVL")
(1) Formerly First Trust IPOX-100 Index Fund. See Note 8 to Financial Statements
for information regarding this Fund's name change.
(2) Formerly First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund.
See Note 8 to Financial Statements for information regarding this Fund's name
change.
Each fund represents a separate series of beneficial interest in the Trust
(individually, each a "Fund" and collectively, "the Funds"). Each Fund's shares
are listed and traded on NYSE Arca, Inc. ("NYSE Arca") except for the First
Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust
NASDAQ-100-Technology Sector Index(SM) Fund, the First Trust NASDAQ-100
Ex-Technology Sector Index(SM) Fund and the First Trust NASDAQ(R) Clean Edge(R)
Green Energy Index Fund, which are listed and traded on The NASDAQ Stock Market,
Inc. ("NASDAQ(R)"). Unlike conventional mutual funds, each Fund issues and
redeems shares on a continuous basis, at NAV, only in large specified blocks
consisting of 50,000 shares called a "Creation Unit." Creation Units are issued
and redeemed principally in-kind for securities included in a Fund's relevant
index. Except when aggregated in Creation Units, shares are not redeemable
securities of a Fund. The investment objective of each Fund is to seek
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of the following indices:
Fund Index
First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones Select MicroCap Index(SM)
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar(R) Dividend Leaders(SM) Index
First Trust US IPO Index Fund IPOX-100 U.S. Index
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund NASDAQ-100 Equal Weighted Index(SM)
First Trust NASDAQ-100-Technology Sector Index(SM) Fund NASDAQ-100 Technology Sector Index(SM)
First Trust Amex(R) Biotechnology Index Fund Amex(R) Biotechnology Index(SM)
First Trust Dow Jones Internet Index(SM) Fund Dow Jones Internet Composite Index(SM)
First Trust DB Strategic Value Index Fund Deutsche Bank CROCI(R) US+ Index(TM)
First Trust Value Line(R) Equity Allocation Index Fund Value Line(R) Equity Allocation Index
First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund NASDAQ-100 Ex-Tech Sector Index(SM)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index(3)
First Trust S&P REIT Index Fund S&P United States REIT Index(4)
First Trust ISE Water Index Fund ISE Water Index(TM)
First Trust ISE-Revere Natural Gas Index Fund ISE-REVERE Natural Gas Index(TM)
First Trust ISE Chindia Index Fund ISE ChIndia Index(TM)
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index
(3) Formerly NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index. See Note 8 to
Financial Statements for information regarding this Index's name change.
Page 98
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
(4) On November 6, 2008, the Fund's underlying index changed from the S&P REIT
Composite Index to the S&P United States REIT Index. Therefore, the Fund's
performance and historical returns shown for the periods prior to November 6,
2008 are not necessarily indicative of the performance that the Fund, based on
its current index, would have generated.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund's net asset value ("NAV") is determined daily as of the close of
regular trading on the New York Stock Exchange ("NYSE"), normally 4:00 p.m.
Eastern time, on each day the NYSE is open for trading. The NAV is calculated by
dividing the value of all assets of the Fund (including accrued interest and
dividends), less all liabilities (including accrued expenses and dividends
declared but unpaid), by the total number of shares outstanding.
Each Fund's investments are valued at market value or, in the absence of market
value with respect to any portfolio securities, at fair value in accordance with
valuation procedures adopted by the Trust's Board of Trustees and in accordance
with the 1940 Act. Portfolio securities listed on any exchange other than the
NASDAQ National Market ("NASDAQ") and the London Stock Exchange Alternative
Investment Market ("AIM") are valued at the last sale price on the business day
as of which such value is being determined. Securities listed on the NASDAQ or
the AIM are valued at the official closing price on the business day as of which
such value is being determined. If there has been no sale on such day, or no
official closing price in the case of securities traded on the NASDAQ or the
AIM, the securities are valued at the mean of the most recent bid and ask prices
on such day. Portfolio securities traded on more than one securities exchange
are valued at the last sale price or official closing price, as applicable, on
the business day as of which such value is being determined at the close of the
exchange representing the principal market for such securities. Portfolio
securities traded in the over-the-counter market, but excluding securities
trading on the NASDAQ and the AIM, are valued at the closing bid prices.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. The use of fair value pricing by each Fund is governed by
valuation procedures adopted by the Board of Trustees and is in accordance with
the provisions of the 1940 Act. These securities generally include, but are not
limited to, restricted securities (securities which may not be publicly sold
without registration under the Securities Act of 1933) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security with respect to which an event has occurred that
is likely to materially affect the value of the security after the market has
closed but before the calculation of a Fund's NAV or make it difficult or
impossible to obtain a reliable market quotation; and a security whose price, as
provided by the pricing service, does not reflect the security's "fair value."
As a general principle, the current "fair value" of a security would appear to
be the amount which the owner might reasonably expect to receive for the
security upon its current sale. The use of fair value prices by a Fund generally
results in prices that may differ from current market quotations or official
closing sale prices on the applicable exchange. A variety of factors may be
considered in determining the fair value of such securities. In addition, the
use of fair value prices and certain current market quotations or official
closing sale prices could result in a difference between the prices used to
calculate a Fund's NAV and the prices used by such Fund's corresponding Index,
which, in turn, could result in a difference between a Fund's performance and
the performance of its Index.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.157, Fair Value Measurements
("FAS 157"), effective for fiscal years beginning after November 15, 2007. This
standard clarifies the definition of fair value for financial reporting,
establishes a framework for measuring fair value and requires additional
disclosures about the use of fair value measurements. FAS 157 became effective
for the Funds as of January 1, 2008, the beginning of each Fund's current fiscal
year. The three levels of the fair value hierarchy under FAS 157 are as follows:
o Level 1- quoted prices in active markets for identical securities
o Level 2- other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speeds, credit
risk, etc.)
o Level 3- significant unobservable inputs (including a Fund's own
assumption in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. A summary
of the inputs used to value each Fund's investments as of December 31, 2008 is
included with each Fund's Portfolio of Investments.
Page 99
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
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.
A Fund may hold publicly-traded master limited partnerships ("MLPs") and real
estate investment trusts ("REITs"). Distributions from such investments may
include a return of capital component from the MLP or REIT to the extent of the
cost basis of such MLP or REIT investments. The actual character of amounts
received during the year are not known until after the fiscal year end. A Fund
records the character of distributions received from the MLPs or REITs during
the year based on estimates available. A Fund's characterization may be
subsequently revised based on information received from the MLPs or REITs after
their tax reporting periods conclude.
C. Dividends and Distribution to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid
semi-annually, except for First Trust Morningstar(R) Dividend Leaders(SM) Index
Fund and First Trust Value Line(R) Dividend Index Fund, which declare and pay
dividends quarterly, or as the Board of Trustees may determine from time to
time. Distributions of net realized gains earned by each Fund, if any, are
distributed at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from accounting principles generally
accepted in the United States of America. These differences are primarily due to
differing treatments of income and gains on various investment securities held
by a Fund, timing differences and differing characterization of distributions
made by a Fund.
The tax character of distributions paid by each Fund during the period ended
December 31, 2008 were as follows:
Distributions Distributions Distributions
paid from paid paid from
Ordinary from Capital Return of
Income Gains Capital
--------------- -------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 134,425 $ -- $ 4,281
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 2,534,302 -- --
First Trust US IPO Index Fund 100,763 -- 7,057
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 2,020 -- 7,600
First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- -- --
First Trust Amex(R) Biotechnology Index Fund 391,584 -- 201,756
First Trust Dow Jones Internet Index(SM) Fund 48,065 -- 1,660
First Trust DB Strategic Value Index Fund 786,001 -- --
First Trust Value Line(R) Equity Allocation Index Fund 125,551 -- --
First Trust Value Line(R) Dividend Index Fund 4,414,268 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 1,005 -- 335
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- --
First Trust S&P REIT Index Fund 82,045 -- --
First Trust ISE Water Index Fund 235,615 -- --
First Trust ISE-Revere Natural Gas Index Fund 496,336 -- --
First Trust ISE Chindia Index Fund 723,411 -- 7,375
First Trust Value Line(R) 100 Exchange-Traded Fund -- -- --
Page 100
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
The tax character of distributions paid by each Fund during the period ended
December 31, 2007 were as follows:
Distributions Distributions Distributions
paid from paid paid from
Ordinary from Capital Return of
Income Gains Capital
---------------- -------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 101,775 $ -- $ --
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (A) 3,792,601 -- --
First Trust US IPO Index Fund 67,725 -- --
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- -- --
First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- -- --
First Trust Amex(R) Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index(SM) Fund -- -- --
First Trust DB Strategic Value Index Fund 394,875 -- --
First Trust Value Line(R) Equity Allocation Index Fund 171,605 -- --
First Trust Value Line(R) Dividend Index Fund 6,533,096 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- --
First Trust S&P REIT Index Fund 37,501 -- --
First Trust ISE Water Index Fund 24,475 -- --
First Trust ISE-Revere Natural Gas Index Fund 9,200 -- --
First Trust ISE Chindia Index Fund 58,125 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund (B) -- -- --
(A) For the tax year ended November 30, 2007, the Fund distributed $2,951,001
from ordinary income. The Fund changed its tax year to December 31, effective
December 1, 2007, and therefore had a short tax year of December 1 to December
31, 2007. The Fund distributed $841,600 from ordinary income for the period
December 1 through December 31, 2007.
(B) All distributions were paid prior to June 18, 2007 and are of First Trust
Value Line(R) 100 Fund and are reported on the Statement of Changes found on
page 87 of this report.
As of December 31, 2008, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Net Unrealized Capital and
Ordinary Appreciation Other
Income (Depreciation) Gain (Loss)
----------------- -------------------- -----------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ (6,490,318) $ (3,413,475)
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 70,975 (16,593,980) (16,671,468)
First Trust US IPO Index Fund -- (5,045,021) (4,547,609)
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- (8,880,849) (5,479,677)
First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (7,377,387) (3,739,684)
First Trust Amex(R) Biotechnology Index Fund -- (19,638,475) (3,914,491)
First Trust Dow Jones Internet Index(SM) Fund -- (14,032,375) (6,548,840)
First Trust DB Strategic Value Index Fund 16,119 (11,140,313) (18,269,357)
First Trust Value Line(R) Equity Allocation Index Fund 578 (2,160,824) (2,807,705)
First Trust Value Line(R) Dividend Index Fund 48,392 (28,447,618) (29,023,389)
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (2,019,211) (889,004)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (26,986,611) (6,482,142)
First Trust S&P REIT Index Fund 735 (1,785,140) (122,399)
First Trust ISE Water Index Fund 272 (14,020,503) (2,986,875)
First Trust ISE-Revere Natural Gas Index Fund 6,195 (30,821,919) (27,176,142)
First Trust ISE Chindia Index Fund -- (33,667,547) (21,613,096)
First Trust Value Line(R) 100 Exchange-Traded Fund -- (4,471,455) (76,561,610)
Page 101
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
D. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes.
In June 2006, FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes." FIN 48 establishes 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, and is effective for the Funds' current
fiscal year. As of December 31, 2008, management has evaluated the application
of FIN 48 to the Funds, and has determined that no provision for income tax is
required in the Funds' financial statements for uncertain tax positions.
At December 31, 2008 for federal income tax purposes, each Fund has capital loss
carryforwards available that are shown in the table below, to the extent
provided by regulations, to offset future capital gains through the years
indicated. To the extent that these loss carryforwards are used to offset future
capital gains, it is probable that the capital gains so offset will not be
distributed to Fund shareholders. The Funds are subject to certain limitations,
under U.S. tax rules, on the use of capital loss carryforwards and net
unrealized built-in losses. These limitations apply when there has been a 50%
change in ownership.
Capital Loss Capital Loss Capital Loss Capital Loss
Available Available Available Available Total
Through Through Through Through Capital Loss
2013 2014 2015 2016 Available
------------- ------------ ----------- ----------- --------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $ 1,604,481 $ 910,503 $ 893,582 $ 3,408,566
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 52,755 202,279 198,670 14,961,725 15,415,429
First Trust US IPO Index Fund -- 303,759 740,683 2,682,788 3,727,230
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- 15,480 271,083 1,957,170 2,243,733
First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- 95,862 535,229 1,421,664 2,052,755
First Trust Amex(R) Biotechnology Index Fund -- -- -- 2,061,136 2,061,136
First Trust Dow Jones Internet Index(SM) Fund -- -- -- 6,446,426 6,446,426
First Trust DB Strategic Value Index Fund -- 45,432 831,336 11,401,861 12,278,629
First Trust Value Line(R) Equity Allocation Index Fund -- -- 1,439,101 1,167,881 2,606,982
First Trust Value Line(R) Dividend Index Fund -- -- 4,488,019 21,877,186 26,365,205
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- 7,779 143,596 151,375
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- 141,332 4,246,707 4,388,039
First Trust S&P REIT Index Fund -- -- 10,162 11,848 22,010
First Trust ISE Water Index Fund -- -- 592 318,246 318,838
First Trust ISE-Revere Natural Gas Index Fund -- -- 5,274 7,264,703 7,269,977
First Trust ISE Chindia Index Fund -- -- -- 11,202,148 11,202,148
First Trust Value Line(R) 100 Exchange-Traded Fund -- -- 6,804,100 47,805,834 54,609,934
Capital losses incurred after October 31 ("Post-October Losses") within the
taxable year can be deemed to arise on the first business day of each Fund's
next taxable year.
The following Funds incurred and elected to defer net capital losses as follows:
Post-October Losses
--------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 4,909
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 1,256,039
First Trust US IPO Index Fund 820,379
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 3,235,944
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,686,929
First Trust Amex(R) Biotechnology Index Fund 1,853,355
First Trust Dow Jones Internet Index(SM) Fund 102,414
First Trust DB Strategic Value Index Fund 5,990,728
First Trust Value Line(R) Equity Allocation Index Fund 200,723
First Trust Value Line(R) Dividend Index Fund 2,658,184
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 737,629
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 2,094,103
First Trust S&P REIT Index Fund 100,389
First Trust ISE Water Index Fund 2,668,037
First Trust ISE-Revere Natural Gas Index Fund 19,906,165
First Trust ISE Chindia Index Fund 10,410,948
First Trust Value Line(R) 100 Exchange-Traded Fund 21,951,676
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
In order to present paid-in capital and accumulated net realized gains (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
gains (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 period
ended December 31, 2008, the adjustments of each Fund were as follows:
Accumulated Accumulated Net
Net Investment Realized Gain (Loss) Paid-in
Income (Loss) on Investments Capital
------------------- ------------------------ ------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 10,440 $ 338,951 $ (349,391)
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- 2,139,133 (2,139,133)
First Trust US IPO Index Fund 4,760 684,086 (688,846)
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund -- 550,990 (550,590)
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 2,159 782,106 (784,265)
First Trust Amex(R) Biotechnology Index Fund -- 1,483,910 (1,483,910)
First Trust Dow Jones Internet Index(SM) Fund -- 5,139,109 (5,139,109)
First Trust DB Strategic Value Index Fund 577 (1,508,257) 1,507,680
First Trust Value Line(R) Equity Allocation Index Fund 2 406,558 (406,560)
First Trust Value Line(R) Dividend Index Fund -- (101,249) 101,249
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 86,509 1,251,500 (1,338,009)
First Trust S&P REIT Index Fund -- 967,010 (967,010)
First Trust ISE Water Index Fund -- 2,180,132 (2,180,132)
First Trust ISE-Revere Natural Gas Index Fund 4,741 (3,768,534) 3,763,793
First Trust ISE Chindia Index Fund 85,555 3,737,614 (3,823,169)
First Trust Value Line(R) 100 Exchange-Traded Fund 145,903 (9,614,229) 9,468,326
E. Expenses
Expenses that are directly related to one of the Funds are charged directly to
that Fund. General expenses of the Trust are allocated to all the Funds based
upon the average net assets of each Fund. First Trust Advisors L.P. ("First
Trust" or the "Advisor") has entered into licensing agreements with each of the
following "Licensors" for the respective Funds:
Fund Licensor
First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones & Company, Inc.
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund Morningstar, Inc.
First Trust US IPO Index Fund IPOX Schuster LLC
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund The NASDAQ Stock Market, Inc.
First Trust NASDAQ-100-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc.
First Trust Amex(R) Biotechnology Index Fund NYSE Euronext
First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc.
First Trust DB Strategic Value Index Fund Deutsche Bank AG
First Trust Value Line(R) Equity Allocation Index Fund Value Line Publishing, Inc.(R)
First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R)
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc.
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The NASDAQ Stock Market, Inc. / Clean Edge, Inc.
First Trust S&P REIT Index Fund Standard & Poor's / Citigroup
First Trust ISE Water Index Fund International Securities Exchange, LLC
First Trust ISE-Revere Natural Gas Index Fund International Securities Exchange, LLC
First Trust ISE Chindia Index Fund International Securities Exchange, LLC
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R)
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
Page 103
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
F. Accounting Pronouncement
In March 2008, FASB released Statement of Financial Accounting Standards No.
161, "Disclosures about Derivative Instruments and Hedging Activities" ("FAS
161"). FAS 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about credit risk
related contingent features in derivative agreements. The application of FAS 161
is required for fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years. Management is currently evaluating the impact
the adoption of FAS 161 will have on the Funds' financial statement disclosures,
if any.
3. Investment Advisory Fee and Other Affiliated Transactions
First Trust is a limited partnership with one limited partner, Grace Partners of
DuPage L.P., and one general partner, The Charger Corporation. First Trust
serves as investment advisor to the Funds pursuant to an Investment Management
Agreement. First Trust is responsible for the selection and ongoing monitoring
of the securities in each Fund's portfolio and providing certain other services
necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at the following annual rates:
% of Average
Daily Net Assets
--------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 0.50%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.30%
First Trust US IPO Index Fund 0.40%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.40%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.40%
First Trust Amex(R) Biotechnology Index Fund 0.40%
First Trust Dow Jones Internet Index(SM) Fund 0.40%
First Trust DB Strategic Value Index Fund 0.50%
First Trust Value Line(R) Equity Allocation Index Fund 0.50%
First Trust Value Line(R) Dividend Index Fund 0.50%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.40%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40%
First Trust S&P REIT Index Fund 0.30%
First Trust ISE Water Index Fund 0.40%
First Trust ISE-Revere Natural Gas Index Fund 0.40%
First Trust ISE Chindia Index Fund 0.40%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.50%
The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver
and Recovery Agreement in which the Advisor has agreed to waive fees and/or
reimburse the Funds to the extent that the operating expenses of each Fund
(excluding interest expense, brokerage commissions and other trading expenses,
taxes and extraordinary expenses) exceeded the percentage of average daily net
assets per year (the "Expense Cap") as shown below:
Expense Cap
------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 0.60%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 0.45%
First Trust US IPO Index Fund 0.60%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.60%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.60%
First Trust Amex(R) Biotechnology Index Fund 0.60%
First Trust Dow Jones Internet Index(SM) Fund 0.60%
First Trust DB Strategic Value Index Fund 0.65%
First Trust Value Line(R) Equity Allocation Index Fund 0.70%
First Trust Value Line(R) Dividend Index Fund 0.70%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.60%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60%
First Trust S&P REIT Index Fund 0.50%
First Trust ISE Water Index Fund 0.60%
First Trust ISE-Revere Natural Gas Index Fund 0.60%
First Trust ISE Chindia Index Fund 0.60%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.70%
Page 104
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
Except for First Trust Value Line(R) 100 Exchange-Traded Fund's Expense Cap,
which has an Expense Cap Termination Date of June 18, 2009, each Fund's Expense
Cap will be in effect until the Expense Cap Termination Date of May 15, 2009.
Expenses borne by the Advisor are subject to reimbursement by a Fund up to three
years from the date the fee or expense was incurred, but no reimbursement
payment will be made by a Fund if it would result in the Fund exceeding its
Expense Cap.
The advisory fee waivers and expense reimbursements for the period ended
December 31, 2008 and the expenses borne by the Advisor subject to reimbursement
by each Fund from inception through December 31, 2008 were as follows:
Expenses Borne
by Advisor
Advisory Fee Expense Subject to
Waivers Reimbursements Reimbursement
----------------- -------------------- ------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 68,793 $ -- $ 350,298
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 139,071 -- 457,617
First Trust US IPO Index Fund 76,420 3,712 295,841
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 62,497 -- 248,583
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 41,362 -- 210,615
First Trust Amex(R) Biotechnology Index Fund 71,442 -- 217,225
First Trust Dow Jones Internet Index(SM) Fund 51,795 -- 186,538
First Trust DB Strategic Value Index Fund 41,333 -- 294,960
First Trust Value Line(R) Equity Allocation Index Fund 42,356 -- 166,745
First Trust Value Line(R) Dividend Index Fund 198,186 -- 625,616
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 14,241 30,451 105,934
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 96,621 -- 173,854
First Trust S&P REIT Index Fund 7,312 109,773 225,693
First Trust ISE Water Index Fund 53,268 -- 110,932
First Trust ISE-Revere Natural Gas Index Fund 109,371 -- 168,728
First Trust ISE Chindia Index Fund 91,365 -- 152,586
First Trust Value Line(R) 100 Exchange-Traded Fund 221,381 -- 359,956
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM") (formerly known as The Bank of New York). Under the service agreements,
BNYM performs custodial, fund accounting, certain administrative services, and
transfer agency services for the Trust. As custodian, BNYM is responsible for
custody of the Trust's assets. As fund accountant and administrator, BNYM is
responsible for maintaining the books and records of the Trust's securities and
cash. As transfer agent, BNYM is responsible for performing transfer agency
services for the Trust. BNYM is a subsidiary of the Bank of New York Mellon
Corporation, a financial holding company.
PNC Global Investment Servicing (U.S.) Inc. ("PNC"), formerly known as PFPC,
Inc., provides certain administrative services to the Trust and the Funds in
connection with the Trust's Board of Trustees meetings and other related
matters.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid an annual retainer
of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and
an annual retainer of $7,500 per trust for each subsequent trust added to the
First Trust Fund Complex. The annual retainer is allocated equally among each of
the trusts. No additional meeting fees are paid in connection with board or
committee meetings.
Additionally, the Lead Independent Trustee is paid $10,000 annually and the
Audit Committee Chairman is paid $5,000 annually with such compensation paid by
the trusts in the First Trust Fund Complex and divided among those trusts.
Trustees are also reimbursed by the trusts in the First Trust Fund Complex for
travel and out-of-pocket expenses in connection with all meetings. Effective
January 1, 2008, each of the chairmen of the Nominating and Governance Committee
and the Valuation Committee are paid $2,500 annually to serve in such capacities
with such compensation paid by the trusts in the First Trust Fund Complex and
divided among those trusts. Also effective January 1, 2008, the Lead Independent
Trustee and each Committee chairman will serve two-year terms. The officers and
"interested" Trustee receive no compensation from the trusts for serving in such
capacities.
Page 105
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
Purchases and Sales of Securities
For the period ended December 31, 2008, the cost of purchases and proceeds from
sales of investment securities for each Fund, excluding short-term investments
and in-kind transactions, were as follows:
Purchases Sales
----------------- -----------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 13,318,047 $ 13,378,732
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 29,310,898 29,158,740
First Trust US IPO Index Fund 12,008,507 12,073,809
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 8,953,750 9,042,717
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 4,990,180 5,058,812
First Trust Amex(R) Biotechnology Index Fund 22,426,218 24,030,727
First Trust Dow Jones Internet Index(SM) Fund 10,578,864 10,138,747
First Trust DB Strategic Value Index Fund 93,890,444 109,369,540
First Trust Value Line(R) Equity Allocation Index Fund 11,593,388 14,839,586
First Trust Value Line(R) Dividend Index Fund 154,882,480 154,761,280
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 2,593,818 2,607,671
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 13,258,053 13,234,963
First Trust S&P REIT Index Fund 603,020 509,525
First Trust ISE Water Index Fund 13,973,695 14,560,699
First Trust ISE-Revere Natural Gas Index Fund 70,749,407 81,756,450
First Trust ISE Chindia Index Fund 27,794,630 27,994,647
First Trust Value Line(R) 100 Exchange-Traded Fund 351,840,590 362,213,758
For the period ended December 31, 2008, the cost of in-kind purchases and
proceeds from in-kind sales for each Fund were as follows:
Purchases Sales
----------------- -----------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 4,065,374 $ 1,681,916
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 12,610,166 11,807,338
First Trust US IPO Index Fund 9,214,453 16,448,911
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 5,117,620 8,781,146
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,935,066 7,013,304
First Trust Amex(R) Biotechnology Index Fund 63,764,788 57,571,136
First Trust Dow Jones Internet Index(SM) Fund 16,562,713 21,554,518
First Trust DB Strategic Value Index Fund 60,564,169 45,955,596
First Trust Value Line(R) Equity Allocation Index Fund 8,568,556 8,217,060
First Trust Value Line(R) Dividend Index Fund 13,806,381 38,150,223
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 7,767,493 --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 18,155,627 5,630,792
First Trust S&P REIT Index Fund 7,617,131 1,631,449
First Trust ISE Water Index Fund 60,158,902 20,261,084
First Trust ISE-Revere Natural Gas Index Fund 165,166,510 74,009,508
First Trust ISE Chindia Index Fund 13,398,811 21,816,658
First Trust Value Line(R) 100 Exchange-Traded Fund 58,728,655 95,195,210
Page 106
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
5. Creation, Redemption & Transaction Fees
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares. Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as
transfer agent, a standard creation transaction fee (the "Creation Transaction
Fee"), which is based on the number of different securities in a Creation Unit
of each Fund according to the fee schedule set forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable transaction fee of up to three times the Creation
Transaction Fee may be charged to approximate additional expenses incurred by a
Fund with respect to transactions effected outside of the clearing process
(i.e., through a DTC Participant) or to the extent that cash is used in lieu of
securities to purchase Creation Units. The price for each Creation Unit will
equal the daily NAV per Share of a Fund on the transaction date times the number
of Shares in a Creation Unit plus the fees described above and, if applicable,
any transfer taxes.
Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard
redemption transaction fee (the "Redemption Transaction Fee"), which is based on
the number of different securities in a Creation Unit of each Fund according to
the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable transaction fee of up to three times the Redemption
Transaction Fee may be charged to approximate additional expenses incurred by a
Fund with respect to redemptions effected outside of the clearing process or to
the extent that redemptions are for cash. Each Fund reserves the right to effect
redemptions in cash. A shareholder may request cash redemption in lieu of
securities; however, a Fund may, in its discretion, reject any such request.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, the Funds will not pay 12b-1 fees any time before June 30, 2009.
Page 107
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NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008
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
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
Effective January 5, 2009, the Licensor changed the name of "NASDAQ(R) Clean
Edge(R) U.S. Liquid Series Index" to "NASDAQ(R) Clean Edge(R) Green Energy
Index." Accordingly, the Board of Trustees thereafter approved a change in the
name of the Fund from "First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series
Index Fund" to "First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund."
The Board of Trustees also changed the Fund's investment objective to: "The Fund
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ(R)
Clean Edge(R) Green Energy Index."
The changes to the Fund name and the underlying Index name had no effect on the
investment strategies or risks of the Fund or the Index construction or
methodology. The ticker symbol and CUSIP number remain the same.
First Trust US IPO Index Fund
On December 15, 2008, the Board of Trustees approved the name change of this
Fund from "First Trust IPOX-100 Index Fund" to "First Trust US IPO Index Fund."
The change to the Fund name had no effect on the investment strategies or risks
of the Fund. The ticker symbol and CUSIP number remain the same.
Page 108
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of First Trust Exchange-Traded Fund:
We have audited the accompanying statements of assets and liabilities of First
Trust Exchange-Traded Fund, comprised of First Trust Dow Jones Select MicroCap
Index(SM) Fund, First Trust Morningstar(R) Dividend Leaders(SM) Index Fund,
First Trust US IPO Index Fund (formerly, First Trust IPOX-100 Index Fund), First
Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust NASDAQ-100-
Technology Sector Index(SM) Fund, First Trust Amex(R) Biotechnology Index Fund,
First Trust Dow Jones Internet Index(SM) Fund, First Trust DB Strategic Value
Index Fund, First Trust Value Line(R) Equity Allocation Index Fund, First Trust
Value Line(R) Dividend Index Fund, First Trust NASDAQ-100 Ex-Technology Sector
Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
(formerly, First Trust NASDAQ(R) Clean Edge(R) U.S. Liquid Series Index Fund),
First Trust S&P REIT Index Fund, First Trust ISE Water Index Fund, First Trust
ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia Index Fund and First
Trust Value Line(R) 100 Exchange-Traded Fund (collectively, the "Funds"),
including the portfolios of investments, as of December 31, 2008, the related
statements of operations, changes in net assets and the financial highlights for
the periods presented. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Funds are not required to have, nor were we engaged to perform, an audit of
their internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Funds'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2008, by
correspondence with the Funds' custodian and brokers; where replies were not
received, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of First
Trust Exchange-Traded Fund as of December 31, 2008, the results of their
operations, changes in their net assets, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 20, 2009
Page 109
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008 (UNAUDITED)
Proxy Voting Policies and Procedures
A description of the policies and procedures that the Funds use to determine how
to vote proxies and information on how each Fund voted proxies relating to its
portfolio securities during the period ended June 30, 2008 is available (1)
without charge, upon request, by calling (800) 988-5891; (2) on the Trust's
website located at http://www.ftportfolios.com; and (3) on the Securities and
Exchange Commission's website at http://www.sec.gov.
Portfolio Holdings
The Trust files a complete schedule of each Fund's portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. The Trust's Form N-Q is available (1) by calling
(800) 988-5891; (2) on the Trust's website located at
http://www.ftportfolios.com; (3) on the SEC's website at http://www.sec.gov; and
(4) for review and copying at the SEC's Public Reference Room ("PRR") in
Washington, DC. Information regarding the operation of the PRR may be obtained
by calling (800) SEC-0330.
Federal Tax Information
For the taxable year ended December 31, 2008, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 100%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100%
First Trust US IPO Index Fund 100%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund --
First Trust Amex(R) Biotechnology Index Fund 100%
First Trust Dow Jones Internet Index(SM) Fund 100%
First Trust DB Strategic Value Index Fund 100%
First Trust Value Line(R) Equity Allocation Index Fund 100%
First Trust Value Line(R) Dividend Index Fund 99.43%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund --
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100%
First Trust ISE-Revere Natural Gas Index Fund 100%
First Trust ISE Chindia Index Fund --
First Trust Value Line(R) 100 Exchange-Traded Fund --
For the taxable year ended December 31, 2008, the following percentages of
income dividends paid by the Funds is hereby designated as qualified dividend
income:
Qualified Dividend Income
-------------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 100%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100%
First Trust US IPO Index Fund 100%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund --
First Trust Amex(R) Biotechnology Index Fund 100%
First Trust Dow Jones Internet Index(SM) Fund 100%
First Trust DB Strategic Value Index Fund 100%
First Trust Value Line(R) Equity Allocation Index Fund 100%
First Trust Value Line(R) Dividend Index Fund 100%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund --
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100%
First Trust ISE-Revere Natural Gas Index Fund 100%
First Trust ISE Chindia Index Fund 100%
First Trust Value Line(R) 100 Exchange-Traded Fund --
Page 110
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ADDITIONAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
Licensing Information
Dow Jones, Dow Jones Internet Composite Index(SM) and Dow Jones Select MicroCap
Index(SM) are trademarks of Dow Jones & Company, Inc. and have been licensed for
use. The First Trust Dow Jones Select MicroCap Index(SM) Fund, based on the Dow
Jones Select MicroCap Index(SM) and the First Trust Dow Jones Internet Index(SM)
Fund, based on the Dow Jones Internet Composite Index(SM), are not sponsored,
endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation
regarding the advisability of trading in the Funds.
Morningstar is a service mark of Morningstar, Inc. and has been licensed for
use. The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund is not
sponsored, endorsed, issued, sold or promoted by Morningstar, Inc., nor does
this company make any representation regarding the advisability of investing in
the Fund.
IPOX is a trademark of IPOX Schuster LLC. IPOX IPO Indexes and Derivatives
(patent pending).
NASDAQ(R), NASDAQ-100, NASDAQ-100 Index(R), NASDAQ-100 Technology Sector
Index(SM), NASDAQ-100 Equal-Weighted Index(SM), and NASDAQ-100 Ex-Tech Sector
Index(SM), are trademarks of the NASDAQ Stock Market, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust Advisors L.P. The Funds have not been passed on by the Corporations as to
their legality or suitability. The Funds are not issued, endorsed, sold, or
promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO
LIABILITY WITH RESPECT TO THE FUND.
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The
Nasdaq Stock Market, Inc. ("NASDAQ(R)") and Clean Edge, Inc. ("Clean Edge")
respectively. NASDAQ(R) and Clean Edge are, collectively with their affiliates,
the "Corporations." The Marks are licensed for use by First Trust Advisors L.P.
The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. The Fund should not be construed in any way as investment advice
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THE FUND.
The Amex(R) Biotechnology Index(SM) is a trademark of the NYSE Euronext or its
affliliates ("NYSE Euronext") and is licensed for use by First Trust Advisors
L.P. The Fund is not sponsored or endorsed by the NYSE Euronext. NYSE Euronext
makes no representation or warranty, express or implied, to the owners of the
Fund or any member of the public regarding the advisability of investing in the
Fund or the ability of the Fund to track the performance of the various sectors
represented in the stock market. NYSE Euronext has no obligation to take the
needs of the owners of the Fund into consideration in determining, composing or
calculating the Index. NYSE Euronext is not responsible for and has not
participated in any determination or calculation made with respect to issuance
or redemption of the Fund.
"Deutsche Bank" and "Deutsche Bank CROCI(R) US+ Index" are service marks of
Deutsche Bank AG ("Deutsche Bank"). Deutsche Bank has no relationship to First
Trust Advisors L.P. or the First Trust DB Strategic Value Index Fund, other than
the licensing of the Index and its service marks for use in connection with the
Fund.
"Value Line(R)", "Value Line(R) Equity Allocation Index", "Value Line(R)
Dividend Index" and "Value Line(R) 100 Index" are trademarks of Value Line(R),
Inc. and have been licensed for use for certain purposes by First Trust Advisors
L.P. on behalf of the Funds. The First Trust Value Line(R) Equity Allocation
Index Fund, based on the Value Line(R) Equity Allocation Index, the First Trust
Value Line(R) Dividend Index Fund, based on the Value Line(R) Dividend Index and
the First Trust Value Line(R) 100 Exchange-Traded Fund, based on the Value
Line(R) 100 Index, are not sponsored, endorsed, sold, or promoted by Value
Line(R), Inc., and Value Line(R) makes no representation regarding the
advisability of investing in the Funds.
Standard & Poor's(R) and S&P(R) are registered trademarks of The McGraw-Hill
Companies, Inc. ("McGraw-Hill") and have been licensed for use by First Trust
Advisors L.P. The Fund is not sponsored, endorsed, sold or promoted by
McGraw-Hill or Citigroup Global Markets and its affiliates ("Citigroup"), and
neither McGraw-Hill nor Citigroup make any representation, warranty or condition
regarding the advisability of investing in the Fund.
"International Securities ExchangeTM", "ISETM", "ISE Water IndexTM", "ISE
ChIndia IndexTM" and the ISE-Revere Natural Gas IndexTM" are trademarks of the
International Securities ExchangeTM and have been licensed for use for certain
purposes by First Trust Advisors L.P. Each Fund, based on its corresponding
index, is not sponsored, endorsed, sold or promoted by the International
Securities ExchangeTM and the International Securities ExchangeTM makes no
representation regarding the advisability of trading in such products.
Page 111
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BOARD OF TRUSTEES AND OFFICERS (UNAUDITED)
- --------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2008 (UNAUDITED)
Each Fund's respective statement of additional information includes additional
information about the Trustees and is available, without charge, upon request,
by calling (800)988-5891.
NUMBER OF
PORTFOLIOS IN
THE FIRST TRUST OTHER
TERM OF OFFICE FUND COMPLEX TRUSTEESHIPS OR
NAME, ADDRESS AND YEAR FIRST OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH AND ELECTED OR PRINCIPAL OCCUPATIONS TRUSTEE HELD BY TRUSTEE
POSITION WITH THE TRUST APPOINTED DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, 60 None
c/o First Trust Advisors L.P. Wheaton Orthopedics;
120 East Liberty Drive o Since Inception Co-owner and Co-Director
Suite 400 (January 1996 to May
Wheaton, IL 60187 2007), Sports Med Center
D.O.B. : 04/51 for Fitness; Limited
Partner, Gundersen Real
Estate Limited Partnership;
Member, Sportsmed LLC
Thomas R. Kadlec, Trustee o Indefinite Term Senior Vice President and 60 Director of ADM Investor
c/o First Trust Advisors L.P. Chief Financial Officer Services, Inc.
120 East Liberty Drive o Since Inception (May 2007 to Present), and Director of
Suite 400 Vice President and Chief Archer Financial
Wheaton, IL 60187 Financial Officer (1990 to Services, Inc.
D.O.B. : 11/57 May 2007), ADM Investor
Services, Inc. (Futures
Commission Merchant);
President (May 2005 to
Present), ADM Derivatives,
Inc.; Registered
Representative (2000 to
Present), Segerdahl &
Company, Inc., a FINRA
member (Broker-Dealer)
Robert F. Keith, Trustee o Indefinite Term President (2003 to 60 None
c/o First Trust Advisors L.P. Present), Hibs Enterprises
120 East Liberty Drive o Since Inception (Financial and Management
Suite 400 Consulting); President
Wheaton, IL 60187 (2001 to 2003), Aramark
D.O.B. : 11/56 Management Services LP;
President and Chief
Operating Officer (1998 to
2003), Service Master
Management Services, LP
Niel B. Nielson, Trustee o Indefinite Term President (June 2002 to 60 Director of
c/o First Trust Advisors L.P. Present), Covenant College Covenant
120 East Liberty Drive o Since Inception Transport Inc.
Suite 400
Wheaton, IL 60187
D.O.B. : 03/54
- ----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term President, First Trust 60 Trustee of
President, Chairman of the Board Advisors L.P. and First Wheaton College
and CEO o Since Inception Trust Portfolios L.P.;
120 East Liberty Drive Chairman of the Board of
Suite 400 Directors, BondWave
Wheaton, IL 60187 LLC (Software Development
D.O.B. : 09/55 Company/Broker-Dealer/Investment
Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
_______________________
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his position
as President of First Trust Advisors L.P., investment advisor of the Trust.
Page 112
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BOARD OF TRUSTEES AND OFFICERS (UNAUDITED) - (CONTINUED)
- --------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2008
NAME, ADDRESS POSITION AND OFFICES TERM OF OFFICE AND PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST LENGTH OF SERVICE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES (2)
- ----------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley Treasurer, Controller, o Indefinite Term Chief Financial Officer,
120 East Liberty Drive Chief Financial Officer First Trust Advisors L.P. and
Suite 400 and Chief Accounting o 3 years, 6 months First Trust Portfolios L.P.;
Wheaton, IL 60187 Officer served Chief Financial Officer,
D.O.B. : 11/57 BondWave LLC (Software Development
Company/Broker-Dealer/Investment
Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Assistant Treasurer o Indefinite Senior Vice President (April
120 East Liberty Drive Term 2007 to Present), Vice
Suite 400 President (January 2005 to
Wheaton, IL 60187 o 3 years served April 2007), First Trust
D.O.B. : 01/66 Advisors L.P. and First Trust
Portfolios L.P.; Executive
Director (December 2002 to
January 2005), Vice President
(December 2000 to December
2002), Van Kampen Asset
Management and Morgan Stanley
Investment Management
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust
120 East Liberty Drive Compliance Officer Advisors L.P. and First Trust
Suite 400 o 3 years, 6 months Portfolios L.P.; Secretary,
Wheaton, IL 60187 served BondWave LLC (Software Development
D.O.B. : 05/60 Company/Broker-Dealer/Investment
Advisor) and Stonebridge Advisors
LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Senior Vice President
120 East Liberty Drive Term (September 2005 to Present),
Suite 400 Vice President (April 2004 to
Wheaton, IL 60187 o 3 years served September 2005), First Trust
D.O.B. : 02/70 Advisors L.P. and First Trust
Portfolios L.P.; Chief
Operating Officer (January
2004 to April 2004), Mina
Capital Management, LLC;
Chief Operating Officer
(April 2000 to January 2004),
Samaritan Asset Management
Services, Inc.
Kristi A. Maher Assistant Secretary o Indefinite Term Deputy General Counsel (May
120 East Liberty Drive 2007 to Present), Assistant
Suite 400 o 3 years, 6 months General Counsel (March 2004
Wheaton, IL 60187 served to May 2007), First Trust
D.O.B. : 12/66 Advisors L.P. and First Trust
Portfolios L.P.; Associate
(December 1995 to March
2004), Chapman and Cutler LLP
Roger F. Testin Vice President o Indefinite Term Senior Vice President, (November 2003 to
120 East Liberty Drive Present), Vice President (August 2001 to
Suite 400 o 3 years, 6 months November 2003), First Trust Advisors L.P.
Wheaton, IL 60187 served and First Trust Portfolios L.P.; Analyst
D.O.B. : 06/66 (1998-2001), Dolan Capital Management
Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President
120 East Liberty Drive (January 2008 to Present),
Suite 400 o 6 months served First Trust Advisors L.P. and
Wheaton, IL 60187 First Trust Portfolios L.P.;
D.O.B. : 07/58 Vice President (May 1998 to
January 2008), Van Kampen
Asset Management and Morgan
Stanley Investment Management
Stan Ueland Vice President o Indefinite Term Vice President (August 2005
120 East Liberty Drive to Present), First Trust
Suite 400 o 2 years served Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P; Vice President
D.O.B. : 11/70 (May 2004 to August 2005),
BondWave LLC (Software Development
Company/Broker-Dealer/Investment
Advisor); Account Executive
(January 2003 to May 2004),
Mina Capital Management, LLC and
Samaritan Asset Management
Services, Inc.; Sales Consultant
(January 1997 to January 2003),
Oracle Corporation
_______________________
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy
making function.
Page 113
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RISK CONSIDERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Risks are inherent in all investing. You should consider each Fund's investment
objective, risks, charges and expenses carefully before investing. You can
download each Fund's prospectus at http://www.ftportfolios.com or contact First
Trust Portfolios L.P. at 1-800-621-1675 to request a prospectus, which contains
this and other information about each Fund. For additional information about the
risks associated with investing in the Funds, please see the Funds' statement of
additional information, as well as other regulatory filings. Read these
documents carefully before you invest. First Trust Portfolios L.P. is the
distributor of the First Trust Exchange-Traded Fund.
The following summarizes some of the risks that should be considered for the
Funds.
Risk Considerations:
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. In 2008, securities markets
have been significantly negatively affected by the financial crisis that
initially resulted from the downturn in the subprime mortgage market in the
United States. The potential impact of the financial crisis on securities
markets may prove to be significant and long-lasting and may have a substantial
impact on the value of a Fund.
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 mutual funds, investors are generally not able
to purchase 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 stocks 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 more diversified
funds.
With the exception of First Trust Dow Jones Select MicroCap Index(SM) Fund,
First Trust Value Line(R) Dividend Index Fund, First Trust Value Line(R) Equity
Allocation Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund,
each Fund is considered to be non-diversified. As a result, those Funds are
exposed to additional market risk. A non-diversified fund may invest a
relatively high percentage of its assets in a limited number of issuers. As a
result, changes in the market value of a single portfolio security could cause
greater fluctuations in share price than would occur in a diversified fund.
Furthermore, non-diversified funds are more susceptible to any single political,
regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invests in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
Page 114
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RISK CONSIDERATIONS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
The First Trust Dow Jones Select MicroCap Index(SM) Fund invests in
micro-capitalization companies. Such companies may be more vulnerable to adverse
general market or economic developments, may be less liquid, and may experience
greater price volatility than larger, more established companies.
The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, the First Trust
Amex(R) Biotechnology Index Fund and the First Trust Dow Jones Internet
Index(SM) Fund invest in small-cap companies and are subject to additional
risks, as the share prices of small-cap companies may be less liquid and are
often more volatile than those of larger companies.
The First Trust Dow Jones Internet Index(SM) Fund invests in the securities of
Internet companies. Internet companies are subject to rapid changes in
technology, worldwide competition, rapid obsolescence of products and services,
loss of patent protections, cyclical market patterns, evolving industry
standards, frequent new product introductions and the considerable risk of
owning small capitalization companies that have recently begun operations.
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust
NASDAQ-100-Technology Sector Index(SM) Fund and the First Trust Dow Jones
Internet Index(SM) Fund invest in stocks of companies in the technology sector.
You should be aware that an investment in a portfolio which invests in a
particular sector involves additional risks, including limited diversification.
The companies engaged in the technology sector are subject to fierce competition
and high research and development costs, and their products and services may be
subject to rapid obsolescence.
The First Trust Amex(R) Biotechnology Index Fund is concentrated in stocks of
companies in the biotechnology sector. You should be aware that an investment in
a portfolio which is concentrated in a particular sector involves additional
risks, including limited diversification. The companies engaged in the
biotechnology sector are subject to fierce competition, substantial research and
development costs, governmental regulations and pricing constraints, and their
products and services may be subject to rapid obsolescence.
The First Trust Amex(R) Biotechnology Index Fund invests in the securities of
companies in the health care sector. Because companies in the health care sector
are involved in medical services or health care including biotechnology research
and production, drugs and pharmaceuticals and health care facilities and
services, general problems of these companies include extensive competition,
generic drug sales or the loss of patent protection, product liability
litigation and increased government regulations.
The First Trust US IPO Fund invests in companies that have recently conducted an
initial public offering. The stocks of such companies are often subject to
extreme price volatility and speculative trading.
The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust S&P
REIT Index Fund and First Trust Value Line(R) Dividend Index Fund invest in
securities of companies in the financial services industry. 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 US IPO Fund, the First Trust Dow Jones Internet Index(SM) Fund,
the First Trust ISE Chindia Index Fund, the First Trust NASDAQ-100 Equal
Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM)
Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest
in securities of companies in the information technology industry. Information
technology companies are generally subject to the risks of rapidly changing
technologies; short product life cycles; fierce competition; and aggressive
pricing and reduced profit margins.
The First Trust DB Strategic Value Index Fund and the First Trust NASDAQ-100
Ex-Technology Sector Index(SM) Fund invest in the securities of companies in the
consumer discretionary sector. Because companies in the consumer discretionary
sector manufacture products and provide discretionary services directly to the
consumer, the success of these companies is tied closely to the performance of
the overall domestic and international economy, interest rates, competition and
consumer confidence. Success depends heavily on disposable household income and
consumer spending. Changes in demographics and consumer tastes can also affect
the demand for, and success of, consumer discretionary products in the
marketplace.
The First Trust ISE-Revere Natural Gas Index Fund invests in the securities of
companies in the energy sector. General problems of issuers in the energy sector
include volatile fluctuations in price and supply of energy fuels, international
politics, terrorist attacks, reduced demand as a result of increases in energy
efficiency and energy conservation, the success of exploration projects,
clean-up and litigation costs relating to oil spills and environmental damage,
and tax and other regulatory policies of various governments. In addition,
recently oil prices have been at historic highs and extremely volatile.
Page 115
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RISK CONSIDERATIONS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
The First Trust ISE Water Index Fund and the First Trust NASDAQ(R) Clean Edge(R)
Green Energy Index Fund invest in the securities of companies in the industrials
sector. General risks of these companies include the general state of the
economy, intense competition, consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. In addition,
they may also be significantly affected by overall capital spending levels,
economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
The First Trust S&P REIT Index Fund invests in companies in the real estate
industry, including real estate investment trusts ("REITs") and is subject to
the risks associated with investing in real estate (any of which could cause the
value of a REIT's stock price to decline), which may include, but are not
limited to, possible declines in the value of real estate, adverse general and
local economic conditions, possible lack of availability of mortgage funds,
overbuilding in a REIT's market, changes in interest rates and environmental
problems. Furthermore, increases in interest rates typically lower the present
value of a REIT's future earnings stream, and may make financing property
purchases and improvements more costly.
The First Trust Amex(R) Biotechnology Index Fund, the First Trust Dow Jones
Internet Index(SM) Fund, the First Trust Morningstar(R) Dividend Leaders(SM)
Index Fund, the First Trust Value Line(R) Equity Allocation Index Fund, the
First Trust Value Line(R) Dividend Index Fund, the First Trust Value Line(R) 100
Exchange-Traded Fund, the First Trust NASDAQ-100 Equal Weighted Index(SM) Fund,
the First Trust NASDAQ-100-Technology Index(SM) Fund, the First Trust NASDAQ-100
Ex-Technology Sector Index(SM) Fund, the First Trust NASDAQ(R) Clean Edge(R)
Green Energy Index Fund, the First Trust US IPO Index Fund, the First Trust ISE
Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund, the First
Trust ISE Chindia Index Fund and the First Trust S&P REIT Index Fund 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.
The First Trust Value Line(R) 100 Exchange-Traded Fund, the First Trust ISE
Water Index Fund, the First Trust ISE-Revere Natural Gas Index Fund and the
First Trust ISE Chindia Index Fund invest in non-U.S. securities and such
securities may be denominated in currencies other than the U.S. Dollar. 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.
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in
renewable and alternative energy companies. You should be aware that share
prices of renewable and alternative energy companies have been significantly
more volatile than shares of companies operating in other more established
industries and the securities included in the First Trust NASDAQ(R) Clean
Edge(R) Green Energy Index Fund may be subject to sharp price declines. This
industry is relatively nascent and under-researched in comparison to more
established and mature sectors, and should therefore be regarded as having
greater investment risk.
The First Trust ISE Water Index Fund invests in companies in the potable water
and wastewater industries. You should be aware that adverse developments in
these industries may significantly affect the value of the shares of the First
Trust ISE Water Index Fund. Companies involved in the potable water and
wastewater industries are subject to environmental considerations, taxes,
government regulation, price and supply fluctuations, competition and
conservation.
The First Trust ISE-Revere Natural Gas Index Fund invests in companies in the
natural gas industry. You should be aware that one of the natural gas industry's
primary risks is the competitive risk associated with the prices of alternative
fuels, such as coal and oil. Additionally, the natural gas industry is sensitive
to increased interest rates because of the industry's capital intensive nature.
Furthermore, there are additional risks and hazards that are inherent in the
natural gas industry that may cause the price of natural gas to widely
fluctuate.
The First Trust ISE Chindia Index Fund invests in the securities of Chinese and
Indian companies. You should be aware that investments in such companies are
subject to additional risks, which are associated with possible adverse
economic, political and social developments in those countries.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 116
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PRIVACY POLICY
- --------------------------------------------------------------------------------
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") consider your privacy an important priority in maintaining our
relationship. We are committed to protecting the security and confidentiality of
your personal information.
Sources of Information
We may collect nonpublic personal information about you from the following
sources:
o Information we receive from you or your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies."
For example, we may identify the pages on our website that your
browser requests or visits.
Information Collected
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
Disclosure of Information
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. The permitted uses
include the disclosure of such information to unaffiliated companies for the
following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives and
printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information 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.
Confidentiality and Security
With regard to our internal security procedures, the Fund restricts access to
your nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
Policy Updates and Inquiries
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time; however if we do change
it, we will tell you promptly.
For questions about our policy, or for additional copies of this notice, please
contact us at (800) 621-1675.
Page 117
[LOGO OMITTED] FIRST TRUST
FIRST TRUST EXCHANGE-TRADED FUND
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
BOARD ADMINISTRATOR
PNC Global Investment Servicing (U.S.) Inc.
301 Bellevue Parkway
Wilmington, DE 19809
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
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, during the period covered by this report, 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.
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 (Registrant) -- 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 for those fiscal years were
$260,000 for 2007 and $425,000 for 2008.
(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 $1,800 for 2007 and $0 for 2008. These fees were for
additional audit work.
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 $1,800 for 2007 and $0 for 2008.
These fees were for additional audit work.
(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 $35,900 for 2007 and $77,250 for 2008. These fees were for excise tax
review and RIC review.
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 2007 and $0 for 2008.
(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 2007 and $0 for 2008.
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 for 2007 were $25,369 for the registrant's investment
adviser and $0 for the distributor and for 2008 were $0 for the registrant's
adviser and $0 for the distributor. These fees were for tax consulting services.
(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 of this Item that were approved by the audit committee
pursuant to the pre-approval exceptions included in paragraph (c)(7)(i)(c) of
Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
The percentage of services described in each of paragraphs (b) through
(d) for 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)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 46.69%
The percentage of services described in each of paragraphs (b) through
(d) for the Registrant's distributor of this Item that were approved by
the audit committee pursuant to the pre-approval exceptions included in
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X are as follows:
(b) N/A
(c) N/A
(d) N/A
(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 from the
inception of the registrant for 2007 were $35,900 for the registrant, $39,869
for the registrant's investment adviser and $32,225 for the registrant's
distributor, and for 2008 were $77,250 for the registrant, $12,143 for the
registrant's investment adviser and $31,863 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.
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 change to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, 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: /s/ James A. Bowen
-------------------------------
Name: James A. Bowen
Title: Chairman of the Board, President and Chief Executive Officer
Date: February 26, 2009
-----------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ James A. Bowen
-------------------------------
Name: James A. Bowen
Title: Chairman of the Board, President and Chief Executive Officer
Date: February 26, 2009
-----------------------------
By: /s/ Mark R. Bradley
-------------------------------
Name: Mark R. Bradley
Title: Treasurer, Controller, Chief Financial Officer and Chief
Accounting Officer
Date: February 26, 2009
-----------------------------