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, IL 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, IL 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, 2010
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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, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
The registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
[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 NYSE Arca Biotechnology Index Fund
First Trust Dow Jones Internet Index(SM) Fund
First Trust Strategic Value Index Fund
First Trust Value Line(R) Equity Allocation Index Fund
First Trust Value Line(R) Dividend Index Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
First Trust S&P REIT Index Fund
First Trust ISE Water Index Fund
First Trust ISE-Revere Natural Gas Index Fund
First Trust ISE Chindia Index Fund
First Trust Value Line(R) 100 Exchange-Traded Fund
First Trust NASDAQ(R) ABA Community Bank Index Fund
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Annual Report
December 31, 2010
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Table of Contents
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First Trust Exchange-Traded Fund
December 31, 2010
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 NYSE Arca Biotechnology Index Fund ....................... 14
First Trust Dow Jones Internet Index(SM) Fund ........................ 16
First Trust Strategic Value Index Fund ............................... 18
First Trust Value Line(R) Equity Allocation Index Fund ............... 20
First Trust Value Line(R) Dividend Index Fund ........................ 22
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund ........... 24
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund .......... 26
First Trust S&P REIT Index Fund ...................................... 28
First Trust ISE Water Index Fund ..................................... 30
First Trust ISE-Revere Natural Gas Index Fund ........................ 32
First Trust ISE Chindia Index Fund ................................... 34
First Trust Value Line(R) 100 Exchange-Traded Fund ................... 36
First Trust NASDAQ(R) ABA Community Bank Index Fund................... 38
Notes to Fund Performance Overview....................................... 40
Understanding Your Fund Expenses......................................... 41
Portfolio of Investments
First Trust Dow Jones Select MicroCap Index(SM) Fund.................. 43
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund............ 47
First Trust US IPO Index Fund......................................... 49
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund ................. 52
First Trust NASDAQ-100-Technology Sector Index(SM) Fund .............. 54
First Trust NYSE Arca Biotechnology Index Fund ....................... 55
First Trust Dow Jones Internet Index(SM) Fund ........................ 56
First Trust Strategic Value Index Fund ............................... 57
First Trust Value Line(R) Equity Allocation Index Fund ............... 59
First Trust Value Line(R) Dividend Index Fund ........................ 62
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund ........... 65
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund .......... 67
First Trust S&P REIT Index Fund ...................................... 68
First Trust ISE Water Index Fund ..................................... 70
First Trust ISE-Revere Natural Gas Index Fund ........................ 71
First Trust ISE Chindia Index Fund ................................... 72
First Trust Value Line(R) 100 Exchange-Traded Fund ................... 74
First Trust NASDAQ(R) ABA Community Bank Index Fund................... 77
Statements of Assets and Liabilities..................................... 80
Statements of Operations................................................. 84
Statements of Changes in Net Assets...................................... 88
Financial Highlights..................................................... 94
Notes to Financial Statements............................................ 105
Report of Independent Registered Public Accounting Firm.................. 117
Additional Information .................................................. 118
Board of Trustees and Officers........................................... 123
Risk Considerations...................................................... 125
Privacy Policy........................................................... 128
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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
any series of First Trust Exchange-Traded Fund (the "Trust") to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. When evaluating the information
included in this report, you are cautioned not to place undue reliance on these
forward-looking statements, which reflect the judgment of the Advisor and its
representatives only as of the date hereof. We undertake no obligation to
publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after the date hereof.
Performance and Risk Disclosure
There is no assurance that any series of the Trust described in this report
(each such series is referred to as a "Fund" and collectively, the "Funds") will
achieve its investment objective. Each Fund is subject to market risk, which is
the possibility that the market values of securities owned by the Fund will
decline and that the value of the Fund shares may therefore be less than what
you paid for them. Accordingly, you can lose money investing in a Fund. See
"Risk Considerations" at the end of this report for a discussion of other risks
of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
How to Read This Report
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the portfolio commentary by Robert F. Carey, Chief Investment Officer
of the Advisor, you may obtain an understanding of how the market environment
affected the performance of each Fund. The statistical information that follows
may help you understand each Fund's performance compared to that of relevant
market benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in each Fund are
spelled out in its prospectus, statement of additional information, this report
and other Fund regulatory filings.
Page 1
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Shareholder Letter
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First Trust Exchange-Traded Fund
Message from the President
December 31, 2010
Dear Shareholders:
I'm pleased to present you with the annual report for your investment in First
Trust Exchange-Traded Fund.
First Trust Advisors L.P. ("First Trust") has always believed that staying
invested in quality products and having a long-term horizon can help investors
reach their financial goals. Successful investors understand that the success
they have achieved is typically because of their long-term investment
perspective through all kinds of markets. While the past two years have been
challenging, during 2010 the markets were recovering from their lows of
2008-2009.
The report you hold gives detailed information for the past twelve months about
the Funds that comprise the First Trust Exchange-Traded Fund. It contains each
Fund's performance review and financial statements for the period. I encourage
you to read this document and discuss it with your financial advisor.
First Trust has been through many types of markets. That's why we remain
committed to being a long-term investor and investment manager and to bringing
you quality investment solutions regardless of the inevitable volatility the
market experiences. We offer a variety of products that may fit many financial
plans to help those investors seeking long-term investment success. You may want
to talk to your advisor about the investments First Trust offers that might also
fit your financial goals.
First Trust is committed to making available up-to-date information 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. I look forward
to 2011 and to the next edition of the Fund's report.
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, 2010
[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 22 years of experience as an Equity and
Fixed-Income Analyst and is a recipient of the Chartered
Financial Analyst ("CFA") designation. He is a graduate of
the University of Illinois at Champaign-Urbana with a B.S.
in Physics. He is also a member of the Investment Analysts
Society of Chicago and the CFA Institute. Mr. Carey has
appeared as a guest on such programs as Bloomberg TV, CNBC,
and WBBM Radio, and has been quoted by several publications,
including The Wall Street Journal, The Wall Street Reporter,
Bloomberg News Service, and Registered Rep.
State of the Economy
There are some distinct signals from the markets and economy that the healing
process in the U.S. has taken hold. Perhaps the best is the plunge in the
default rate of high-yield corporate bonds, which are highly speculative by
design. So they are a good barometer of risk. The U.S. speculative-grade default
rate stood at 3.4% in December, down from 14.1% in the fourth quarter of 2009,
according to Moody's Investors Service. The overall credit situation in the debt
markets continues to improve as well. Only 6.1% of companies with low credit
ratings are considered to be distressed, down from over 80% in late 2008,
according to Standard & Poor's. That would likely not be occurring if confidence
in the economic recovery were not growing.
There was a dramatic drop-off in the number of companies filing for bankruptcy
in 2010. BankruptcyData.com reported that 106 public companies filed, down from
211 in 2009. Nine out of the top 10 filings were banks and financial firms,
which is consistent with the notion that the epicenter of the subprime mortgage
meltdown was the bank and brokerage industries.
The S&P/Experian Consumer Credit Default Indices showed a marked improvement
from November to December and year-over-year, according to Standard & Poor's.
Defaults declined across all major categories of consumer borrowing. The
following shows the (monthly and 12-month) default results as of December 2010:
First Mortgage (-4.34% and -38.57%); Second Mortgage (-3.07% and -50.76%); Bank
Card (-1.77% and -17.68%); and Auto Loans (-4.45% and -36.85%).
The U.S. commercial real estate market performed better than many expected in
2010. Vacancies for apartment buildings, office complexes, retail malls and
self-storage facilities are stabilizing. Commercial real estate prices jumped
sharply from November to December, according to Moody's. The 4.1% rise was the
largest sequential monthly gain on record since the Moody's/REAL Commercial
Property Price Index was started in 2000.
Gross domestic product ("GDP") in the U.S. has expanded for six consecutive
quarters. GDP grew by an annualized 3.2% in the fourth quarter of 2010. The
average quarterly growth rate over the past 20 years was 2.6%. The Blue Chip
Economic Indicators survey revealed that those economists polled expect the U.S.
GDP growth rate to be 3.1% in 2011. Brian Wesbury, Chief Economist at First
Trust Advisors L.P., is more bullish and sees growth coming in at 4.4%.
U.S. Stocks and Bonds
All of the major U.S. stock indices posted double-digit returns in 2010. The S&P
500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were up 15.06%,
26.65%, and 26.32%, respectively, according to Bloomberg. All 10 major sectors
in the S&P 500 posted gains. The top-performing sector was Consumer
Discretionary, up 27.85%, while the poorest showing came from Health Care, up
2.90%. The year-over-year estimated earnings growth rate for the companies in
the S&P 500 Index is expected to be 14.6% in 2010, according to Standard &
Poor's.
The current bull market in the S&P 500 lasted 663 calendar days at the close of
2010, according to Bespoke Investment Group. The bear market that preceded it
lasted 517 calendar days. Since 1928, the average bull market has lasted 915
calendar days, vs. 310 for the average bear market. That is nearly three times
as long. Since 1940, the average bull has lasted 1,600 calendar days, which just
happens to be slightly more than three times the duration (517 days) of the last
bear market.
In the U.S. bond market, for the second consecutive year, the top-performing
major debt group was high-yield corporate bonds. The Barclays Capital U.S.
Corporate High Yield Index posted a total return of 15.12%. The next closest
domestic category was intermediate corporate bonds, up 8.27%, as measured by the
Barclays Capital Intermediate Corporate Index. The Barclays Capital Municipal
Bond: Long Bond (22+) Index posted the worst return, up 1.1%.
Foreign Stocks and Bonds
Riskier asset classes dominated the overseas markets as well. The Barclays
Capital Global Emerging Markets Index of debt securities rose 10.93% (USD) in
2010, while the MSCI Emerging Markets Index of stocks gained 18.88% (USD). The
Barclays Capital Global Aggregate Index of higher quality debt returned 5.54%
(USD), while the MSCI World Index (excluding the U.S.) of stocks from developed
countries gained 11.15% (USD). The U.S. dollar boosted returns for U.S.
investors by declining 1.06% against a basket of major currencies.
Page 3
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Fund Performance Overview
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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 assets in common stocks that comprise the Index. The Index measures the
performance of selected U.S. micro-capitalization companies chosen from all
common stocks traded on the New York Stock Exchange ("NYSE(R)"), NYSE Amex and
The NASDAQ Stock Market, Inc. ("NASDAQ(R)") that are comparatively liquid and
have strong fundamentals relative to the micro-capitalization segment as a
whole. The Fund's shares are listed for trading on the NYSE Arca, Inc. ("NYSE
Arca"). The first day of secondary market trading in shares of the Fund was
09/30/05.
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Performance as of December 31, 2010
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Average Annual Cumulative
Total Returns Total Returns
1 Year 5 Years Inception 5 Years Inception
Ended Ended (09/27/05) Ended (09/27/05)
12/31/10 12/31/10 to 12/31/10 12/31/10 to 12/31/10
Fund Performance
NAV 25.77% 1.95% 2.57% 10.16% 14.29%
Market Value 25.98% 1.98% 2.57% 10.33% 14.29%
Index Performance
Dow Jones Select MicroCap Index(SM) 26.43% 2.70% 3.32% 14.22% 18.76%
Russell 2000(R) Index 26.85% 4.47% 4.74% 24.46% 27.59%
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(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Consumer Discretionary sector led all sectors in the Fund in contribution to
total return over the twelve-month period with a +6.2% contribution. The Fund's
holdings in the sector had an average weight in the portfolio of 16.7% and
returned +35.3%. The top individual contributor from the sector was auto
component company Dorman Products, Inc., which was helped by rebounding auto
sales. The company returned +131.3% during the year as it reported
year-over-year revenue increases of +14.6%, +19.5%, and +21.6% in the first,
second, and third quarters of 2010, respectively. The Financials sector was the
second best contributor to total return with a +6.1% contribution. iStar
Financial, Inc. was the best individual contributor from the sector with a +0.6%
contribution. During the time iStar Financial was in the Fund during 2010, it
returned +106.2% as the company narrowed losses and restructured debt to avoid
bankruptcy. The Materials sector was the best-performing sector in the Fund as
the Fund's holdings from the sector had an annual return of +45.9%. Buckeye
Technologies, Inc. was the Materials sector's best performer (+116.4% annual
return) and contributor (+0.8% contribution). The cellulose-based fiber
manufacturer cited robust demand and favorable pricing for its products as
drivers for its strong sales growth. The Materials sector's small average weight
in the Fund (6.9%) limited its contribution to the Fund's total return to +2.0%.
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Top Five and Bottom Five Performing Stocks
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(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Buckeye Technologies, Inc. TeleCommunication Systems, Inc., Class A
iStar Financial, Inc. Terra Nova Royalty Corp.
Lindsay Corp. ATP Oil & Gas Corp.
Dorman Products, Inc. A-Power Energy Generation Systems, Ltd.
Applied Signal Technology, Inc. Dollar Financial Corp.
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Dow Jones and Dow Jones Select MicroCap Index(SM) are products of Dow Jones
Indexes, a licensed trademark of CME Group Index Services LLC ("CME") and have
been licensed for use. The Fund, based on the Dow Jones Select MicroCap
Index(SM), is not sponsored, endorsed, sold or promoted by CME, Dow Jones or
their respective affiliates, and CME, Dow Jones and their respective affiliates
make no representation regarding the advisability of trading in the Fund.
Page 4
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Fund Performance Overview (Continued)
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FDM - First Trust Dow Jones Select MicroCap Index(SM) Fund (Continued)
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Portfolio Sector Allocation as of December 31, 2010
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% of Long-Term
Sector Investments
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Financials 27.45%
Consumer Discretionary 18.58
Industrials 16.12
Information Technology 14.99
Health Care 7.46
Materials 5.46
Consumer Staples 3.32
Energy 3.24
Telecommunication Services 1.95
Utilities 1.43
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Total 100.00%
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Top Ten Portfolio Holdings as of December 31, 2010
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% of Long-Term
Security Investments
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Buckeye Technologies, Inc. 1.18%
Strategic Hotels & Resorts, Inc. 1.12
Lindsay Corp. 1.04
iStar Financial, Inc. 1.01
Sonic Solutions 1.00
Modine Manufacturing Co. 1.00
First Commonwealth Financial Corp. 0.95
Associated Estates Realty Corp. 0.88
ATMI, Inc. 0.88
Shuffle Master, Inc. 0.86
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Total 9.92%
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Performance of a $10,000 Initial Investment
September 27, 2005 - December 31, 2010
First Trust
Dow Jones Select Dow Jones Select Russell
MicroCap Index(SM) Fund MicroCap Index(SM) 2000(R) Index
9/05 $10,000 $10,000 $10,000
12/05 $10,374 $10,397 $10,252
6/06 $10,968 $11,033 $11,094
12/06 $12,001 $12,115 $12,134
6/07 $12,746 $12,910 $12,917
12/07 $11,278 $11,474 $11,944
6/08 $9,896 $10,100 $10,825
12/08 $7,520 $7,707 $7,909
6/09 $7,362 $7,568 $8,118
12/09 $9,087 $9,393 $10,058
6/10 $8,833 $9,153 $9,862
12/10 $11,427 $11,876 $12,759
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Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2006 through
December 31, 2010. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/06 - 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
01/01/09 - 12/31/09 121 6 0 0
01/01/10 - 12/31/10 169 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/06 - 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
01/01/09 - 12/31/09 120 5 0 0
01/01/10 - 12/31/10 83 0 0 0
Page 5
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Fund Performance Overview (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 assets in common stocks that comprise the Index. The
Index offers investors a benchmark for dividend portfolios as well as a means to
invest in a portfolio of stocks that have a consistent record of growing
dividends as well as the ability to sustain them. The Index consists of the top
100 stocks, based on dividend yield, of the securities listed on one of the
three major exchanges (NYSE(R), NYSE Amex or NASDAQ(R)) that have been selected
through the application of Morningstar, Inc.'s proprietary multi-step screening
process. The Index is rebalanced four times annually in March, June, September
and December. The Fund's shares are listed for trading on the NYSE Arca. The
first day of secondary market trading in shares of the Fund was 03/15/06.
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Performance as of December 31, 2010
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Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (03/09/06) Inception (03/09/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 16.05% -0.48% -2.28%
Market Value 16.27% -0.45% -2.13%
Index Performance
Morningstar(R) Dividend Leaders(SM) Index 16.67% -0.01% -0.06%
S&P 500(R) Index 15.06% 1.89% 9.45%
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(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Telecommunication Services sector led all sectors over the twelve-month
period in terms of contribution with a +4.1% contribution to the Fund's total
return. The sector included Verizon Communications, Inc., which was the Fund's
second largest holding (8.8% average weight) and top contributor (+2.4%). The
wireless communication company returned +23.2% for the year on successful sales
of its DROID smart phones and the announcement of its 4G network. The Energy
sector was the next largest contributor to total return with a +3.4%
contribution. The Fund's holdings in the sector included oil companies Chevron
Corp. and ConocoPhillips. Both companies received most of their positive
performance in the second half of the year as future global growth prospects
improved and fears of a double-dip recession eased. Chevron returned +23.0% for
the year and contributed +2.1% to the Fund's total return. ConocoPhillips
returned +23.9% during the time it was held in the portfolio over the twelve
months and contributed +1.2% to the Fund's total return. The Materials sector
was the best performing sector in the Fund with a +47.5% annual return. E.I. du
Pont de Nemours & Co. was mostly responsible for the sector's performance. The
company returned +54.5% during the period and contributed +1.5% to the Fund's
total return as robust auto sales increased demand for its products used in
paint and electronics. Due to the Materials sector's small average Fund weight
of 4.5%, its contribution to the Fund's total return was limited to +1.8%.
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Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Verizon Communications, Inc. Exelon Corp.
Chevron Corp. FirstEnergy Corp.
E.I. du Pont de Nemours & Co. H&R Block, Inc.
ConocoPhillips PPL Corp.
AT&T, Inc. R.R. Donnelley & Sons Co.
____________________
Morningstar(R) 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 (Continued)
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FDL - First Trust Morningstar(R) Dividend Leaders(SM) Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Utilities 28.34%
Telecommunication Services 21.55
Energy 15.72
Health Care 15.53
Consumer Staples 6.44
Financials 3.63
Materials 3.26
Industrials 2.23
Information Technology 1.78
Consumer Discretionary 1.52
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Chevron Corp. 10.11%
Verizon Communications, Inc. 10.09
AT&T, Inc. 9.90
Merck & Co., Inc. 8.17
ConocoPhillips 5.62
Bristol-Myers Squibb Co. 3.89
Eli Lilly & Co. 3.41
Kraft Foods, Inc., Class A 3.31
Southern Co. 2.68
E.I. du Pont de Nemours & Co. 2.66
______
Total 59.84%
======
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Performance of a $10,000 Initial Investment
March 9, 2006 - December 31, 2010
--------------------------------------------------------------------------------
First Trust
Morningstar(R) Morningstar(R)
Dividend Leaders(SM) Dividend Leaders(SM) S&P 500(R)
Index Fund Index Index
03/06 $10,000 $10,000 $10,000
12/06 $12,077 $12,110 $11,317
06/07 $12,392 $12,462 $12,104
12/07 $10,793 $10,870 $11,939
06/08 $7,995 $8,069 $10,516
12/08 $7,371 $7,462 $7,522
06/09 $6,961 $7,067 $7,760
12/09 $8,420 $8,567 $9,512
06/10 $8,039 $8,197 $8,879
12/10 $9,771 $9,995 $10,945
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 135 4 3 0
01/01/10 - 12/31/10 185 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 106 3 1 0
01/01/10 - 12/31/10 66 1 0 0
Page 7
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FPX - First Trust US IPO Index Fund
The First Trust US IPO Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the IPOX-100 U.S. Index (the "Index"). The
Fund will normally invest at least 90% of its assets in common stocks that
comprise the Index. The Index is a modified value-weighted price index measuring
the performance of the top 100 U.S. companies ranked quarterly by market
capitalization in the IPOX Global Composite Index. The Index utilizes a 10%
capping on all constituents and includes the 100 largest, typically best
performing and most liquid initial public offerings ("IPOs") of the U.S.
companies in the IPOX Global Composite Index. The IPOX Global Composite Index is
reconstituted regularly with IPOs being added to the IPOX Global Composite Index
at their seventh trading day upon "going public" and automatically exiting after
1,000 trading days or approximately four years thereafter. The Index is
reconstituted quarterly to reflect changes in the stock market values of the
IPOX Global Composite Index constituents and IPO activity during the past
quarter, with 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, 2010
--------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (04/12/06) Inception (04/12/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 18.28% 4.36% 22.30%
Market Value 18.44% 4.38% 22.40%
Index Performance
IPOX-100 U.S. Index 19.08% 5.00% 25.93%
Russell 3000(R) Index 16.93% 1.93% 9.45%
------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Consumer Discretionary sector led all sectors over the period with a +6.5%
contribution to the Fund's total return. The sector had an average weight of
17.5% in the Fund, which was second only to the Information Technology sector,
and the Fund's holdings in the sector returned +42.7%, which was best among all
sectors with a greater than 2.0% average weight in the Fund. Time Warner Cable,
Inc. was the top contributor from the sector with a 2.1% contribution to the
Fund's total return. The company had an annual return of +64.4%, citing new
customers and pricier products, such as DVRs, as reasons for the successful
year. The Consumer Staples sector was the next best-contributing sector in the
Fund, with a +5.4% contribution to the Fund's total return. Philip Morris
International, Inc., the Fund's largest individual holding with an average
weight of 10.1%, was the sector and the Fund's best individual contributor
(+3.3%). Despite weakness in some markets, the company was able to raise prices
on its cigarettes and increase its revenue +10% for the first three quarters of
2010 versus the same time period the previous year. Strong performance from
Concho Resources, Inc. helped the Energy sector be the third best contributing
sector with a +3.0% contribution to the Fund's total return. Concho Resources
returned +95.2% for the year and contributed +0.9% to the Fund's total return as
increasing oil prices helped boost revenues.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Philip Morris International, Inc. Visa, Inc., Class A
Time Warner Cable, Inc. MasterCard, Inc., Class A
Tyco Electronics Ltd. Clearwire Corp., Class A
Mead Johnson Nutrition Co. A123 Systems, Inc.
Concho Resources, Inc. Covidien PLC
____________________
The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes
no representation or warranty, express or implied, to the owners of the Fund or
any member of the public regarding the advisability of trading in the Fund.
Page 8
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FPX - First Trust US IPO Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Information Technology 26.83%
Consumer Discretionary 22.00
Consumer Staples 16.24
Energy 9.40
Financials 8.08
Industrials 7.21
Health Care 6.87
Telecommunication Services 1.70
Materials 0.88
Utilities 0.79
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
General Motors Co. 10.32%
Philip Morris International, Inc. 9.78
Visa, Inc., Class A 8.66
Time Warner Cable, Inc. 4.18
Covidien PLC 4.08
Spectra Energy Corp. 2.89
Tyco Electronics Ltd. 2.82
Mead Johnson Nutrition Co. 2.27
Lorillard, Inc. 2.19
Western Union Co. 2.17
_______
Total 49.36%
=======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
April 12, 2006 - December 31, 2010
First Trust US IPOX-100 Russell
IPO Index Fund U.S. Index 3000(R) Index
04/06 $10,000 $10,000 $10,000
12/06 $11,100 $11,154 $11,064
06/07 $12,385 $12,481 $11,851
12/07 $12,712 $12,844 $11,633
06/08 $11,784 $11,941 $10,348
12/08 $7,134 $7,245 $7,293
06/09 $8,087 $8,248 $7,599
12/09 $10,339 $10,575 $9,360
06/10 $9,726 $9,980 $8,794
12/10 $12,228 $12,594 $10,945
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 109 3 0 0
01/01/10 - 12/31/10 149 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 135 5 0 0
01/01/10 - 12/31/10 103 0 0 0
Page 9
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QQEW - First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal
Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index is the
equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the
largest non-financial securities listed on NASDAQ(R) based on market
capitalization. The Index contains the same securities as the NASDAQ-100
Index(R) but each of the securities is initially set at a weight of 1.00% of the
Index and is rebalanced quarterly. The Fund's shares are listed for trading on
the NASDAQ(R). The first day of secondary market trading in shares of the Fund
was 04/25/06.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (04/19/06) Inception (04/19/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 21.25% 3.90% 19.69%
Market Value 21.13% 3.90% 19.69%
Index Performance
NASDAQ-100 Equal Weighted Index(SM) 21.98% 4.54% 23.19%
NASDAQ-100 Index(R) 20.15% 6.02% 31.61%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Information Technology sector was the heaviest-weighted sector in the Fund
with a 46.1% average weight. As a result, the sector was a clear leader in
contribution to total return (+9.0%) over the period even though its performance
(+19.8% annual return) lagged most other sectors in the Fund. Baidu, Inc. led
the sector and Fund in contribution and performance. During 2010, the Chinese
search engine widened its lead over Google as the most used search engine in
China. Baidu had an annual return of +134.7% and contributed +1.1% to the Fund's
total return. The Consumer Discretionary sector was the second best-contributing
sector with a +4.7% contribution to the Fund's total return. priceline.com, Inc.
was the top contributor from the sector. The company returned +82.9% for the
year and contributed +1.0% to the Fund's total return. An increase in market
share for hotel bookings outside the U.S. and acquisition of car-service company
TravelJigsaw helped the company to the solid returns. The Industrials sector was
the best performing (+42.6% annual return) and third best-contributing (+3.5%)
sector in the Fund. Mining equipment manufacturer Joy Global, Inc. led the
sector with a +70.1% annual return and a contribution to total return of +0.7%.
The company benefitted from an increase in commodity demand from emerging
markets which strengthened demand for its mining equipment.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Baidu, Inc., ADR Apollo Group Inc., Class A
priceline.com, Inc. Vertex Pharmaceuticals, Inc.
Illumina, Inc. Adobe Systems, Inc.
Wynn Resorts, Ltd. NVIDIA Corp.
SanDisk Corp. Cisco Systems, Inc.
____________________
NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Equal Weighted
Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 10
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QQEW - First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
Information Technology 48.03%
Consumer Discretionary 22.06
Health Care 17.81
Industrials 6.08
Telecommunication Services 3.02
Consumer Staples 2.00
Materials 1.00
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Sears Holdings Corp. 1.09%
NVIDIA Corp. 1.07
Adobe Systems, Inc. 1.07
FLIR Systems, Inc. 1.05
Virgin Media, Inc. 1.05
Cisco Systems, Inc. 1.04
Millicom International Cellular S.A. 1.04
Applied Materials, Inc. 1.04
Infosys Technologies Ltd., ADR 1.03
Bed Bath & Beyond, Inc. 1.03
______
Total 10.51%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
April 19, 2006 - December 31, 2010
First Trust NASDAQ-100
NASDAQ-100 Equal Equal Weighted NASDAQ-100
Weighted Index(SM) Fund Index(SM) Index(R)
04/06 $10,000 $10,000 $10,000
12/06 $10,060 $10,097 $10,168
06/07 $11,050 $11,117 $11,217
12/07 $11,040 $11,142 $12,124
06/08 $9,673 $9,785 $10,708
12/08 $6,187 $6,292 $7,084
06/09 $7,653 $7,803 $8,671
12/09 $9,871 $10,100 $10,954
06/10 $9,314 $9,561 $10,278
12/10 $11,968 $12,321 $13,161
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 144 0 0 0
01/01/10 - 12/31/10 155 1 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 104 3 1 0
01/01/10 - 12/31/10 95 1 0 0
Page 11
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QTEC - First Trust NASDAQ-100-Technology Sector Index(SM) Fund
The First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology
Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index is an
equal-weighted index based on the securities of the NASDAQ-100 Index(R) that are
classified as "technology" according to the Industry Classification Benchmark
classification system. The NASDAQ-100 Index(R) includes 100 of the largest
domestic and international non-financial companies listed on NASDAQ(R) based on
market capitalization. The Fund's shares are listed for trading on the
NASDAQ(R). The first day of secondary market trading in shares of the Fund was
04/25/06.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (04/19/06) Inception (04/19/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 21.92% 5.58% 29.07%
Market Value 21.83% 5.60% 29.22%
Index Performance
NASDAQ-100 Technology Sector Index(SM) 22.66% 6.24% 32.93%
S&P 500 Information Technology Index 10.19% 4.20% 21.33%
S&P 500(R) Index 15.06% 1.28% 6.15%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Software industry led all industries in the Fund in contribution to total
return over the twelve-month period with a contribution of +6.2%. Citrix
Systems, Inc. was the best performer and contributor from the industry. The
company, which makes software used to control computers remotely, jumped +19.7%
in a single day after receiving upgrades by 5 analysts due to strong demand for
its XenDesktop virtualization program. For the year, the company returned +64.4%
and contributed +1.9% to the Fund's total return. The IT Services industry was
the best-performing industry in the Fund with an annual return of +51.1%.
Cognizant Technology Solutions Corp. led the industry in performance (+61.7%)
and contribution to total return (+1.6%). For the quarter ended September 2010,
the company reported its sixth consecutive revenue increase, including
sequential increases of +15.2% and +10.1% reported in the quarters ending June
and September 2010, respectively. Baidu, Inc. was well ahead of the rest of the
Fund's constituents in performance and contribution. The Chinese search engine
increased its lead over Google as the most used search engine in China, helping
the company return +134.7% and contribute +3.1% to the Fund's total return
during 2010.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Baidu, Inc., ADR Adobe Systems, Inc.
Citrix Systems, Inc. NVIDIA Corp.
SanDisk Corp. Cisco Systems, Inc.
NetApp, Inc. Seagate Technology
Cognizant Technology Solutions Corp., Class A Research In Motion Ltd.
____________________
NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Technology Sector
Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 12
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QTEC - First Trust NASDAQ-100-Technology Sector Index(SM) Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Industry Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Industry Investments
--------------------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment 32.54%
Software 25.04
Computers & Peripherals 12.69
Internet Software & Services 12.23
Communications Equipment 9.93
IT Services 5.12
Health Care Technology 2.45
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
NVIDIA Corp. 2.69%
Adobe Systems, Inc. 2.68
Cisco Systems, Inc. 2.60
Applied Materials, Inc. 2.59
Infosys Technologies Ltd., ADR 2.58
Xilinx, Inc. 2.57
Seagate Technology 2.56
NetApp, Inc. 2.56
SanDisk Corp. 2.56
Yahoo!, Inc. 2.55
______
Total 25.94%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
April 19, 2006 - December 31, 2010
First Trust NASDAQ-100 S&P 500
NASDAQ-100-Technology Technology Information S&P 500(R)
Sector Index(SM) Fund Sector Index(SM) Technology Index Index
04/06 $10,000 $10,000 $10,000 $10,000
12/06 $9,985 $10,020 $10,296 $10,975
06/07 $10,925 $10,989 $11,256 $11,739
12/07 $10,750 $10,847 $11,975 $11,579
06/08 $9,755 $9,872 $10,409 $10,199
12/08 $5,885 $5,983 $6,809 $7,295
06/09 $7,890 $8,048 $8,502 $7,526
12/09 $10,587 $10,838 $11,011 $9,224
06/10 $9,782 $10,041 $9,847 $8,611
12/10 $12,907 $13,293 $12,133 $10,615
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 151 4 0 0
01/01/10 - 12/31/10 188 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 94 3 0 0
01/01/10 - 12/31/10 63 1 0 0
Page 13
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FBT - First Trust NYSE Arca Biotechnology Index Fund
The First Trust NYSE Arca Biotechnology Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the NYSE Arca Biotechnology Index(SM)
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is an equal dollar-weighted
index designed to measure the performance of a cross section of companies in the
biotechnology industry that are primarily involved in the use of biological
processes to develop products or provide services. Such processes include, but
are not limited to, recombinant DNA technology, molecular biology, genetic
engineering, monoclonal antibody-based technology, lipid/liposome technology and
genomics. This Index is rebalanced quarterly based on closing prices on the
third Friday in January, April, July and October to ensure that each component
stock continues to represent approximately equal weight in the Index. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was 06/23/06.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (06/19/06) Inception (06/19/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 36.90% 16.22% 97.69%
Market Value 36.99% 16.24% 97.89%
Index Performance
NYSE Arca Biotechnology Index(SM) 37.73% 16.93% 103.27%
NASDAQ(R) Biotechnology Index 16.04% 7.23% 37.26%
S&P 500(R) Index 15.06% 2.48% 11.74%
S&P Composite 1500 Health Care Index 5.20% 3.54% 17.11%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
InterMune, Inc. was the Fund's leading performer (+179.1% annual return) and
contributor (+15.6%) to the Fund's total return over the period. The company's
stock tripled in March after an advisory panel to the FDA recommended approval
of Intermune's lung drug Pirfenidone. In early May, the company's stock gave
back those gains and more when the FDA did not approve the drug, but instead
asked for a new clinical trial. In December, the company's stock more than
doubled after the European Medicines Agency adopted a positive opinion for the
same drug. Illumina, Inc. was the next best-performing stock in the Fund, with a
+106.5% annual return. Helping the company's performance was the strong revenues
it received from its HiSeq 2000 system, which can sequence a human genome faster
and cheaper than existing methods. For the year, Illumina contributed +4.3% to
the Fund's total return. Some other strong performers from the Fund included
Sequenom, Inc. (+93.6%), OSI Pharmaceuticals (+85.0%), and Alexion
Pharmaceuticals, Inc. (+65.0%).
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
InterMune, Inc. Vertex Pharmaceuticals, Inc.
Sequenom, Inc. Human Genome Sciences, Inc.
OSI Pharmaceuticals Celera Corp.
Illumina, Inc. Gilead Sciences, Inc.
Alexion Pharmaceuticals, Inc. Myriad Genetics, Inc.
____________________
The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Euronext or its
affiliates ("NYSE Euronext") and is licensed for use by First Trust. The Fund is
not sponsored or endorsed by NYSE Euronext. NYSE Euronext makes no
representation or warranty, express or implied, to the owners of the Fund or any
member of the public regarding the advisability of investing in the Fund or the
ability of the Fund to track the performance of the various sectors represented
in the stock market. NYSE Euronext has no obligation to take the needs of the
owners of the Fund into consideration in determining, composing or calculating
the Index. NYSE Euronext is not responsible for and has not participated in any
determination or calculation made with respect to issuance or redemption of the
Fund.
Page 14
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FBT - First Trust NYSE Arca Biotechnology Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Industry Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Industry Investments
--------------------------------------------------------------------------------
Biotechnology 70.15%
Life Sciences Tools & Services 26.09
Pharmaceuticals 3.76
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
InterMune, Inc. 11.31%
Illumina, Inc. 5.90
Alexion Pharmaceuticals, Inc. 5.39
Myriad Genetics, Inc. 5.36
Life Technologies Corp. 5.35
Biogen Idec, Inc. 5.28
Sequenom, Inc. 5.08
Affymetrix, Inc. 4.93
Celera Corp. 4.86
QIAGEN N.V. 4.83
______
Total 58.29%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
June 19, 2006 - December 31, 2010
First Trust
NYSE Arca NYSE Arca NASDAQ(R) S&P S&P Composite
Biotechnology Biotechnology Biotechnology 500(R) 1500 Health
Index Fund Index(SM) Index Index Care Index
06/06 $10,000 $10,000 $10,000 $10,000 $10,000
12/06 $11,775 $11,815 $11,114 $11,554 $11,194
06/07 $12,105 $12,179 $11,177 $12,358 $11,919
12/07 $12,205 $12,320 $11,630 $12,189 $12,092
06/08 $11,410 $11,557 $11,086 $10,736 $10,593
12/08 $9,968 $10,138 $10,200 $7,679 $9,218
06/09 $10,722 $10,921 $10,491 $7,922 $9,305
12/09 $14,441 $14,758 $11,828 $9,711 $11,132
06/10 $15,629 $16,026 $11,227 $9,065 $10,324
12/10 $19,768 $20,327 $13,726 $11,174 $11,712
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
06/23/06 - 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
01/01/09 - 12/31/09 93 3 0 0
01/01/10 - 12/31/10 165 1 0 1
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
06/23/06 - 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
01/01/09 - 12/31/09 152 4 0 0
01/01/10 - 12/31/10 83 1 0 1
Page 15
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FDN - First Trust Dow Jones Internet Index(SM) Fund
The First Trust Dow Jones Internet Index(SM) Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Dow Jones Internet Composite
Index(SM) (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks that comprise the Index. The Index represents companies
that generate the majority of their revenues via the Internet. The Index was
designed and is maintained according to a set of rules that were devised with
the goal of providing clear and accurate views of the growing Internet market
segment. The Index aims to consistently represent 80% of the float-adjusted
Internet equity universe. The Index contains two sub-indexes, the Dow Jones
Internet Commerce Index and the Dow Jones Internet Services Index. For its stock
to be eligible for the "universe," a company must generate at least 50% of
annual sales/revenues from the Internet, and be currently included in the Dow
Jones U.S. Index. The Fund's shares are listed for trading on the NYSE Arca. The
first day of secondary market trading in shares of the Fund was 06/23/06.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (06/19/06) Inception (06/19/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 36.63% 12.70% 71.98%
Market Value 36.74% 12.73% 72.18%
Index Performance
Dow Jones Internet Composite Index(SM) 37.25% 13.28% 76.02%
S&P 500(R) Index 15.06% 2.48% 11.74%
S&P Composite 1500 Information Technology Index 12.13% 7.32% 37.76%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
A majority of the Fund's holdings were a part of the Consumer Discretionary or
Information Technology sectors. The Fund's holdings in the Consumer
Discretionary sector made up an average of 18.8% of the Fund's portfolio, and
had an annual return of +63.3%. The sector contributed +11.7% to the Fund's
total return. The Fund's holdings in the Information Technology sector made up
an average of 74.4% of the Fund, had an annual return of +35.9%, and contributed
+26.5% to the Fund's total return. From the Consumer Discretionary sector,
Netflix, Inc. led all the Fund's holdings with a +218.9% annual return and a
+4.8% contribution to the Fund's total return. The online movie rental service
surpassed 20 million subscribers as it enhanced its online streaming by making
its service available through a multitude of devices. Also from the Consumer
Discretionary sector, priceline.com, Inc. was the Fund's second best contributor
to total return with a +4.1% contribution on an +82.9% annual return. An
increase in market share for hotel bookings outside the U.S. and acquisition of
car-service company TravelJigsaw helped the company to the solid returns. The
leading contributor from the Information Technology sector was Salesforce.com,
Inc. with a +3.1% contribution to total return on an annual return of +78.9%.
The cloud computing company announced in November 2010 that it had increased its
paying customers by +28% from the previous year and expects sales for the fiscal
year 2012 to reach as high as $2 billion.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Netflix, Inc. Google, Inc., Class A
priceline.com, Inc. Ticketmaster Entertainment
Salesforce.com, Inc. E*TRADE Financial Corp.
Akamai Technologies, Inc. Blue Nile, Inc.
Amazon.com, Inc. Yahoo!, Inc.
____________________
Dow Jones and Dow Jones Internet Composite Index(SM) are products of Dow Jones
Indexes, a licensed trademark of CME Group Index Services LLC ("CME") and have
been licensed for use. The Fund, based on the Dow Jones Internet Composite
Index(SM), is not sponsored, endorsed, sold or promoted by CME, Dow Jones or
their respective affiliates and CME, Dow Jones and their respective affiliates
make no representation regarding the advisability of trading in the Fund.
Page 16
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FDN - First Trust Dow Jones Internet Index(SM) Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Information Technology 73.39%
Consumer Discretionary 19.33
Financials 4.85
Health Care 2.43
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Google, Inc., Class A 10.18%
Amazon.com, Inc. 7.65
eBay, Inc. 5.46
Yahoo!, Inc. 4.86
Juniper Networks, Inc. 4.83
priceline.com, Inc. 4.63
Salesforce.com, Inc. 4.01
Check Point Software Technologies Ltd. 3.35
Akamai Technologies, Inc. 3.21
Netflix, Inc. 3.15
______
Total 51.33%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
June 19, 2006 - December 31, 2010
First Trust Dow Jones
Dow Jones Internet S&P Composite 1500
Internet Composite Information
Index(SM) Fund Index(SM) S&P 500(R) Index Technology Index
06/06 $10,000 $10,000 $10,000 $10,000
12/06 $11,285 $11,315 $11,554 $11,574
06/07 $12,975 $13,044 $12,358 $12,716
12/07 $12,545 $12,651 $12,189 $13,360
06/08 $11,203 $11,327 $10,736 $11,638
12/08 $7,023 $7,114 $7,679 $7,629
06/09 $9,374 $9,524 $7,922 $9,506
12/09 $12,587 $12,825 $9,711 $12,286
06/10 $11,980 $12,222 $9,065 $11,055
12/10 $17,197 $17,603 $11,174 $13,776
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
06/23/06 - 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
01/01/09 - 12/31/09 134 2 1 0
01/01/10 - 12/31/10 189 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 112 3 0 0
01/01/10 - 12/31/10 63 0 0 0
Page 17
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FDV - First Trust Strategic Value Index Fund
The First Trust Strategic Value Index Fund (formerly known as First Trust DB
Strategic Value Index Fund) (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the Credit Suisse U.S. Value Index, Powered
by HOLT(TM) (the "Index"). The Index is an equally-weighted index which measures
the performance of fifty stocks which have the highest HOLT valuation score and
meet liquidity and tradeability requirements. The HOLT valuation scoring model
aims to convert accounting data into cash as measured by HOLT's proprietary
CFROI(R) metric. The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Fund's shares are listed for trading
on the NYSE Arca. The first day of secondary market trading in shares of the
Fund was 07/11/06.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (07/06/06) Inception (07/06/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 14.04% 4.51% 21.87%
Market Value 14.09% 4.52% 21.92%
Index Performance
Deutsche Bank CROCI(R) US+ Index(TM) 10.72% 4.25% 20.50%
Credit Suisse U.S. Value Index, Powered by HOLT(TM) * N/A N/A N/A
Composite Benchmark (1) 14.76% 5.16% 24.90%
S&P 500 Value Index 15.10% -0.53% -2.35%
S&P 500(R) Index 15.06% 1.87% 8.65%
------------------------------------------------------------------------------------------------------------------------------------
* On June 19, 2010, the Fund's underlying index changed from the Deutsche
Bank CROCI(R) US+ Index(TM), to the Credit Suisse U.S. Value Index,
Powered by HOLT(TM). Since the Fund's new underlying index had an
inception date of June 14, 2010, it was not in existence for any of the
periods disclosed.
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Financials sector led all the sectors in the Fund for the period with a
+4.1% contribution to total return. Financials companies had an average weight
of 14.9% in the Fund, second only to the Health Care sector, and the Fund's
holdings in the sector returned +14.7% for the year. Ameriprise Financial, Inc.
was the sector's best contributor with a +0.7% contribution. The financial
planning firm increased adviser productivity (operating net revenue per adviser)
and was helped by market appreciation as it returned +50.7% for the year. The
Energy sector was the second best-contributing sector in the Fund with a +3.6%
contribution. The sector had two of the Fund's top five individual contributors:
National Oilwell Varco, Inc. and Chevron Corp. Both companies experienced strong
performance in the second half of the year as global economic prospects improved
and energy prices increased. Chevron had a return of +36.3% during the time it
was in the Fund in 2010 and contributed +0.7% to the Fund's total return.
National Oilwell Varco also contributed +0.7% to the Fund's total return as the
company returned +36.3% during the time it was held in the Fund in 2010.
Materials company Freeport-McMoRan Copper & Gold, Inc. was the Fund's top
individual contributor and performer. During the time it was held in the Fund in
2010, the company returned +83.2% and contributed +1.6% to the Fund's total
return. The company's performance benefitted from favorable metals prices. The
price of copper, for example, increased +48.8% in the second half of the year.
Health Care stocks were a drag on the Fund's performance. The sector was the
most represented sector in the Fund with a +32.3% average weight and it was the
only sector with a negative contribution to the Fund's total return (-0.7%).
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Freeport-McMoRan Copper & Gold, Inc. Boston Scientific Corp.
eBay, Inc. SanDisk Corp.
Ameriprise Financial, Inc. Western Digital Corp.
Chevron Corp. Gilead Sciences, Inc.
National Oilwell Varco, Inc. Pfizer, Inc.
(1) The Composite Benchmark is based on both the Deutsche Bank CROCI(R) US+
Index(TM), the Fund's prior Index (the "Old Index") and the Credit Suisse
U.S. Value Index, Powered by HOLT(TM), the Fund's current Index (the "New
Index"). FDV changed its underlying index at the close of business on June
18, 2010 from the Old Index to the New Index. Because of this, the June
18th closing value of the New Index was divided by the June 18th 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 June 18, 2010 and the New Index
performance from June 19, 2010 (adjusted by the conversion multiple)
through December 31, 2010.
____________________
"Credit Suisse," "HOLT" and "Credit Suisse U.S. Value Index, Powered by
HOLT(TM)," are trademarks of Credit Suisse Group AG, Credit Suisse Securities
(USA) LLC or one of their affiliates (collectively, "Credit Suisse"), and have
been licensed for use for certain purposes by First Trust. THE FUND IS NOT
SPONSORED, ENDORSED, SOLD OR PROMOTED BY CREDIT SUISSE, AND CREDIT SUISSE MAKEs
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING THE ADVISABILITY OF
INVESTING OR TRADING IN THE FUND.
Page 18
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FDV - First Trust Strategic Value Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Health Care 29.41%
Financials 28.26
Energy 10.71
Consumer Discretionary 9.64
Information Technology 7.64
Materials 4.23
Consumer Staples 4.04
Industrials 3.96
Telecommunication Services 2.11
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Valero Energy Corp. 2.40%
Freeport-McMoRan Copper & Gold, Inc. 2.27
St. Jude Medical, Inc. 2.20
Hess Corp. 2.17
CVS Caremark Corp. 2.17
Bank of America Corp. 2.16
Marathon Oil Corp. 2.15
Citigroup, Inc. 2.15
Capital One Financial Corp. 2.13
Biogen Idec, Inc. 2.11
______
Total 21.91%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
July 6, 2006 - December 31, 2010
First Trust Deutsche Bank
Strategic Value CROCI(R) US+ S&P 500 S&P 500(R)
Index Fund Index(TM) Value Index Index
07/06 $10,000 $10,000 $10,000 $10,000
12/06 $11,074 $11,072 $11,294 $11,235
06/07 $12,444 $12,472 $12,126 $12,016
12/07 $12,210 $12,273 $11,519 $11,852
06/08 $11,253 $11,332 $ 9,671 $10,440
12/08 $ 7,665 $ 7,762 $ 7,002 $ 7,467
06/09 $ 8,640 $ 8,775 $ 6,903 $ 7,703
12/09 $10,686 $10,884 $ 8,484 $ 9,443
06/10 $ 9,880 $10,014 $ 8,034 $ 8,815
12/10 $12,185 $12,051 $ 9,765 $10,866
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
07/11/06 - 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
01/01/09 - 12/31/09 139 3 0 0
01/01/10 - 12/31/10 152 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 107 3 0 0
01/01/10 - 12/31/10 100 0 0 0
Page 19
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FVI - First Trust Value Line(R) Equity Allocation Index Fund
The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Value Line(R) Equity
Allocation Index(TM) (the "Index"). The Fund will normally invest at least 90%
of its assets in common stocks that comprise the Index. The Index is designed to
objectively identify and select those stocks from the 1,700-stock Value Line(R)
universe across market capitalizations and investment styles for growth and
value that appear to have the greatest potential for capital appreciation. The
Index is rebalanced on a semi-annual basis in February and August. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was 12/07/06.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (12/05/06) Inception (12/05/06)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 19.85% 1.77% 7.42%
Market Value 20.03% 1.81% 7.59%
Index Performance
Value Line(R) Equity Allocation Index(TM) 21.03% 2.65% 11.26%
Russell 3000(R) Index 16.93% -0.25% -1.00%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Consumer Discretionary sector led all sectors in the Fund for the twelve
months with a contribution to total return of +7.6%. It was the
heaviest-weighted sector in the Fund with an average weight of 21.3% and the
Fund's holdings in the sector returned +37.3%, second only to the Information
Technology sector. From the Consumer Discretionary sector, Netflix, Inc. was the
Fund's best individual performer and the sector's top individual contributor
with an annual return of +218.9% and a +0.8% contribution to the Fund's total
return. The online movie rental service surpassed 20 million subscribers as it
enhanced its online streaming by making its service available through a
multitude of devices. The Information Technology sector was the best performing
sector in the Fund (+38.0%) and the second best contributor to the Fund's total
return with a +5.0% contribution. The sector included the Fund's best individual
contributor, electronics contract manufacturer Sanmina-SCI Corp. Sanmina-SCI was
only held in the Fund from the beginning of 2010 to the second half of February
2010, but during that time the company's stock returned +49.4% and contributed
+2.2% to the Fund's total return. In the fiscal first quarter of 2010,
Sanmina-SCI posted its first quarterly profit in five quarters citing an
increase in sales, a decrease in expenses, and a $35.6 million gain from a legal
settlement. Also of note, the Financials and Health Care sectors had
contributions to the Fund's total return of +2.6% and +2.3%, respectively.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Sanmina-SCI Corp. Potash Corp. of Saskatchewan, Inc.
Novo Nordisk A/S, ADR H&R Block, Inc.
Netflix, Inc. Daimler AG
AutoZone, Inc. ITT Educational Services, Inc.
priceline.com, Inc. L-3 Communications Holdings, Inc.
____________________
"Value Line(R)" and "Value Line(R) Equity Allocation Index" are trademarks of
Value Line(R), Inc. and have been licensed for use for certain purposes by First
Trust on behalf of the Fund. The Fund, based on the Value Line(R) Equity
Allocation Index, is not sponsored, endorsed, sold, or promoted by Value
Line(R), Inc., and Value Line(R) makes no representation regarding the
advisability of investing in the Fund.
Page 20
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FVI - First Trust Value Line(R) Equity Allocation Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Consumer Discretionary 24.10%
Health Care 17.36
Financials 15.13
Information Technology 13.74
Consumer Staples 10.61
Utilities 6.72
Telecommunication Services 3.95
Industrials 3.46
Materials 2.65
Energy 2.28
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Magna International, Inc. 1.40%
priceline.com, Inc. 1.38
Texas Instruments, Inc. 1.37
Tyco Electronics Ltd. 1.36
AutoZone, Inc. 1.34
Novo Nordisk A/S, ADR 1.34
Taiwan Semiconductor Manufacturing Co.,
Ltd., ADR 1.33
CenturyLink, Inc. 1.31
Cognizant Technology Solutions Corp., Class A 1.29
ConocoPhillips 1.27
______
Total 13.39%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
December 5, 2006 - December 31, 2010
--------------------------------------------------------------------------------
First Trust
Value Line(R)
Equity Value Line(R)
Allocation Equity Russell 3000(R)
Index Fund Allocation Index(TM) Index
12/5/06 $10,000 $10,000 $10,000
12/31/06 $9,890 $9,897 $10,008
06/07 $10,610 $10,623 $10,720
12/07 $10,350 $10,398 $10,522
06/08 $9,470 $9,551 $9,360
12/08 $6,681 $6,772 $6,597
06/09 $7,037 $7,177 $6,874
12/09 $8,962 $9,192 $8,466
06/10 $8,831 $9,104 $7,954
12/10 $10,741 $11,125 $9,900
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more
than NAV when they buy Fund shares and receive less than NAV when they sell
those shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 110 3 0 0
01/01/10 - 12/31/10 156 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 138 1 0 0
01/01/10 - 12/31/10 95 1 0 0
Page 21
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FVD - First Trust Value Line(R) Dividend Index Fund
The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Value Line(R) Dividend Index(TM)
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is designed to objectively
identify and select those stocks from the universe of stocks which Value Line,
Inc(R) gives a Safety(TM) Ranking of #1 or #2 in the Value Line(R) Safety(TM)
Ranking System and have the potential to pay above-average dividends and achieve
capital appreciation. The Index is rebalanced on a monthly basis. The Fund's
shares are listed for trading on the NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year 5 Years Inception 5 Years Inception
Ended Ended (08/19/03) Ended (08/19/03)
12/31/10 12/31/10 to 12/31/10 12/31/10 to 12/31/10
Fund Performance
NAV 16.08% 4.07% 6.95% 22.10% 64.05%
Market Value 16.07% 6.95% 6.96% 39.94% 64.17%
Index Performance
Value Line(R) Dividend Index(TM) 17.00% N/A N/A N/A N/A
S&P 500(R) Index 15.06% 2.29% 5.22% 11.99% 45.47%
Dow Jones U.S. Select Dividend Index(SM) 18.32% 0.57% N/A 2.90% N/A
------------------------------------------------------------------------------------------------------------------------------------
On December 15, 2006, the Fund acquired the assets and adopted the financial
and performance history of First Trust Value Line(R) Dividend Fund (the
"Predecessor FVD Fund," a closed-end fund), which had an inception date of
August 19, 2003. The inception date total returns at NAV include the sales
load of $0.675 per share on the initial offering. The investment goals,
strategies and policies of the Fund are substantially similar to those of the
Predecessor FVD Fund. The inception date of the Index was July 3, 2006.
Returns for the Index are only disclosed for those periods in which the Index
was in existence for the entire period. The cumulative total returns for the
period from the reorganization date (12/15/06) through period end (12/31/10)
were 1.42% and 1.98% at NAV and Market Value, respectively. That compares to
an Index return of 4.57% for the same period. The average annual returns for
the period from the reorganization date (12/15/06) through period end
(12/31/10) were 0.35% and 0.49% at NAV and Market Value, respectively. That
compares to an Index return of 1.11% for the same period.
NAV and Market Value returns assume that all dividend distributions have
been reinvested in the Fund at NAV and Market Value, respectively. Prior to
December 15, 2006, NAV and Market Value returns assumed that all dividend
distributions were reinvested at prices obtained by the Dividend Reinvestment
Plan of the Predecessor FVD Fund and the price used to calculate Market Value
return was the AMEX (now known as the NYSE Amex) closing market price of the
Predecessor FVD Fund.
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Utilities sector led all sectors in the Fund with a contribution of +3.0% to
the Fund's total return over the period. The Fund's holdings in the sector had
an annual return of +12.4%, which was below-average compared to the other
sectors, but the Utilities sector was the heaviest weighted sector with an
average portfolio weight of 20.7%. Right behind the Utilities sector was the
Financials sector with a +2.8% contribution to total return. The Fund's holdings
in the sector returned +20.2% for the year and made up an average of 13.7% of
the Fund's weight. Nearly half of the Fund's financial holdings were from the
Insurance industry, and these holdings had an annual return of +25.0%. Erie
Indemnity Co. was a part of the industry and was the Fund's best individual
performer and contributor. In November of 2010, the company announced that in
the third quarter earnings increased +35% versus the same quarter in 2009. The
Materials sector was the best-performing sector in the Fund with an annual
return of +30.8%. E.I. du Pont de Nemours & Co. was the best individual
performer and contributor from the sector. The company returned +54.5% and
contributed +0.3% to the Fund's total return during 2010 as robust auto sales
increased demand for its products used in paint and electronics. Despite strong
performance, the Materials sector's contribution to total return was limited to
+1.5% because of its small average Fund weight of 4.9%.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Erie Indemnity Co., Class A BP PLC, ADR
Eaton Corp. Murphy Oil Corp.
Deere & Co. Elbit Systems, Ltd.
E.I. du Pont de Nemours & Co. Pall Corp.
Hasbro, Inc. Medtronic, Inc.
____________________
"Value Line(R)" and "Value Line(R) Dividend Index(TM)" are trademarks of Value
Line(R), Inc. and have been licensed for use for certain purposes by First Trust
on behalf of the Fund. The Fund, based on the Value Line(R) Dividend Index(TM),
is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value
Line(R) makes no representation regarding the advisability of investing in the
Fund.
Page 22
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FVD - First Trust Value Line(R) Dividend Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Utilities 20.06%
Consumer Staples 18.28
Financials 13.44
Industrials 11.61
Health Care 9.75
Information Technology 7.31
Consumer Discretionary 6.68
Energy 4.93
Materials 4.88
Telecommunication Services 3.06
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Elbit Systems Ltd. 0.64%
Enbridge, Inc. 0.62
Bank of Montreal 0.62
Washington Post (The) Co., Class B 0.62
National Fuel Gas Co. 0.62
Royal Bank of Canada 0.62
Raytheon Co. 0.62
Capitol Federal Financial, Inc. 0.62
Marathon Oil Corp. 0.62
ConocoPhillips 0.62
_____
Total 6.22%
=====
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
August 19, 2003 - December 31, 2010
First Trust Value
Line(R) Dividend Index Fund S&P 500(R) Index
08/03 $10,000 $10,000
12/03 $10,612 $11,166
06/04 $11,244 $11,551
12/04 $12,605 $12,381
06/05 $12,987 $12,281
12/05 $13,435 $12,989
06/06 $14,208 $13,341
12/06 $16,137 $15,041
06/07 $16,571 $16,088
12/07 $15,586 $15,867
06/08 $14,067 $13,977
12/08 $11,818 $ 9,997
06/09 $11,676 $10,313
12/09 $14,132 $12,642
06/10 $13,725 $11,801
12/10 $16,404 $14,547
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the index does not actually hold a portfolio of securities and
therefore does not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010.
Shareholders may pay more than NAV when they buy Fund shares and receive less
than NAV when they sell those shares because shares are bought and sold at
current market price. Data presented represents past performance and cannot be
used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 136 6 0 0
01/01/10 - 12/31/10 180 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/09 - 12/31/09 107 3 0 0
01/01/10 - 12/31/10 72 0 0 0
Page 23
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QQXT - First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ-100
Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least
90% of its assets in common stocks that comprise the Index. The Index contains
securities of the NASDAQ-100 Index(R) that are not classified as "technology"
according to the Industry Classification Benchmark classification system and, as
a result, is a subset of the NASDAQ-100 Index(R). The NASDAQ-100 Index(R)
includes 100 of the largest domestic and international non-financial companies
listed on NASDAQ(R) based on market capitalization. The Index is
equally-weighted and is rebalanced four times annually in March, June, September
and December. The Fund's shares are listed for trading on the NASDAQ(R). The
first day of secondary market trading in shares of the Fund was 02/15/07.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (02/08/07) Inception (02/08/07)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 20.64% 1.69% 6.74%
Market Value 20.77% 1.70% 6.79%
Index Performance
NASDAQ-100 Ex-Tech Sector Index(SM) 21.38% 2.32% 9.36%
Russell 1000(R) Index 16.10% -1.13% -4.32%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Consumer Discretionary sector led all sectors in the Fund with a +7.4%
contribution to the Fund's total return over the twelve months. The Fund's
holdings in the sector had an average Fund weight of 31.0% and an annual return
of +24.4%. priceline.com, Inc., the Fund's leading individual contributor, was a
part of the Consumer Discretionary sector. The company returned +82.9% for the
year and contributed +1.5% to the Fund's total return. priceline.com's strong
returns were aided by an increase in market share for hotel bookings outside the
U.S., and the acquisition of car-service company TravelJigsaw. The Industrials
sector was the best-performing sector in the Fund as the Fund's holdings in the
sector returned +42.4%. Within the sector, the Machinery industry had
particularly good performance. The Fund's holdings in the industry consisted of
Joy Global, Inc. and PACCAR, Inc., which had annual returns of +70.1% and
+60.2%, respectively. Joy Global was one of the Fund's leading contributors with
a +1.1% contribution to total return as increased commodity demand from emerging
markets boosted demand for the company's mining equipment. Health Care company
Illumina, Inc. was the best-performing stock in the Fund with a +106.5% annual
return. Helping the company's performance was the strong revenues it received
from its HiSeq 2000 system, which can sequence a human genome faster and cheaper
than existing methods. For the year, Illumina contributed +1.5% to the Fund's
total return.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
priceline.com, Inc. Apollo Group, Inc., Class A
Illumina, Inc. Vertex Pharmaceuticals, Inc.
Wynn Resorts Ltd. QIAGEN N.V.
Joy Global, Inc. Gilead Sciences, Inc.
Virgin Media, Inc. DISH Network Corp., Class A
____________________
NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Ex-Tech Sector
Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust. The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 24
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QQXT - First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector (1) Investments
--------------------------------------------------------------------------------
Consumer Discretionary 36.76%
Health Care 28.05
Information Technology 15.02
Industrials 10.13
Telecommunication Services 5.03
Consumer Staples 3.34
Materials 1.67
_______
Total 100.00%
=======
____________________
(1) The above sector allocation is based on Standard & Poor's Global Industry
Classification Standard ("GICS"), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark ("ICB") system, the joint classification
system of Dow Jones Indexes and FTSE Group.
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Sears Holdings Corp. 1.82%
FLIR Systems, Inc. 1.75
Virgin Media, Inc. 1.74
Millicom International Cellular S.A. 1.73
Bed Bath & Beyond, Inc. 1.72
Electronic Arts, Inc. 1.72
Stericycle, Inc. 1.72
Apollo Group, Inc., Class A 1.71
Comcast Corp., Class A 1.71
Flextronics International Ltd. 1.71
______
Total 17.33%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
February 8, 2007 - December 31, 2010
First Trust NASDAQ-100
Ex-Technology NASDAQ-100 Ex-Tech Russell 1000(R)
Sector Index(SM) Fund Sector Index(SM) Index
02/07 $10,000 $10,000 $10,000
12/07 $10,595 $10,653 $10,282
06/08 $9,057 $9,126 $9,131
12/08 $6,029 $6,102 $6,417
06/09 $7,060 $7,165 $6,694
12/09 $8,848 $9,009 $8,241
06/10 $8,454 $8,633 $7,714
12/10 $10,674 $10,935 $9,568
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more
than NAV when they buy Fund shares and receive less than NAV when they sell
those shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
02/15/07 - 12/31/07 110 0 0 3
01/01/08 - 12/31/08 136 2 0 3
01/01/09 - 12/31/09 137 1 3 1
01/01/10 - 12/31/10 156 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
02/15/07 - 12/31/07 103 1 2 3
01/01/08 - 12/31/08 110 2 0 0
01/01/09 - 12/31/09 109 1 0 0
01/01/10 - 12/31/10 94 2 0 0
Page 25
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QCLN - First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ(R)
Clean Edge(R) Green Energy Index (the "Index"). The Fund will normally invest at
least 90% of its assets in common stocks that comprise the Index. The Index is
an equity index designed to track the performance of clean energy companies that
are publicly traded in the United States and includes companies engaged in
manufacturing, development, distribution and installation of emerging
clean-energy technologies including, but not limited to, solar photovoltaics,
biofuels and advanced batteries. The Index is a modified market capitalization
weighted index in which larger companies receive a larger Index weighting. The
Index weighting methodology also includes caps to prevent high concentrations
among larger alternative energy stocks. The Index is reconstituted semi-annually
in March and September and rebalanced quarterly. The Fund's shares are listed
for trading on the NASDAQ(R). The first day of secondary market trading in
shares of the Fund was 02/14/07.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (02/08/07) Inception (02/08/07)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 2.05% -4.94% -17.90%
Market Value 2.05% -4.94% -17.90%
Index Performance
NASDAQ(R) Clean Edge(R) Green Energy Index 2.71% -4.28% -15.65%
Russell 2000(R) Index 26.85% 0.35% 1.36%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
Companies involved in solar energy were hit hard during the year. In general,
solar companies derive much of their revenue from Europe where solar power is
heavily subsidized. The debt crisis that centered in Greece caused the Euro to
plunge in value and prompted a push for austerity in European governments.
SunPower Corp. (-45.8% annual return), Canadian Solar, Inc. (-57.0% annual
return), and Suntech Power Holdings Co. Ltd. (-51.8% annual return) were all
solar companies deriving a majority of their revenue from Europe, which had a
tough 2010. The three companies were all among the Fund's five worst individual
contributors as they combined to detract -4.1% from the Fund's total return.
However, it was not a bad year for all clean energy companies. Baldor Electric
Co. was the Fund's top individual contributor to total return. The company,
which specializes in industrial electric motors, agreed to be bought for $4.2
billion by ABB Ltd. For the year, Baldor Electric returned +128.0% and
contributed +2.9% to the Fund's total return. Though yet to have a profitable
quarter, Universal Display Corp. had an annual return of +148.0% and contributed
+1.3% to the Fund's total return. The company is part of the United States
Display Consortium aimed at providing flat panel infrastructure in North
America. Universal Display specializes in developing high-resolution,
lightweight Organic Light Emitting Diode (OLED) technology. Power conversion
company Power-One, Inc. was the Fund's best individual performer as it returned
+184.0% during the time it was held in the Fund over the twelve months. Through
the first three quarters of 2010 the company increased revenue +135% versus the
same three quarters in 2009. The percentage of the Firm's revenue derived from
renewable energy increased to 73% in the third quarter of 2010 versus 31% in the
same quarter of 2009.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Baldor Electric Co. Suntech Power Holdings Co., Ltd., ADR
Cree, Inc. Canadian Solar, Inc.
Linear Technology Corp. American Superconductor Corp.
Universal Display Corp. Broadwind Energy, Inc.
Fairchild Semiconductor International, Inc. SunPower Corp., Class A
____________________
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The
NASDAQ OMX Group, Inc. ("NASDAQ OMX") and Clean Edge, Inc. ("Clean Edge(R)")
respectively. NASDAQ OMX and Clean Edge(R) are, collectively with their
affiliates, the "Corporations." The Marks are licensed for use by First Trust.
The Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. The Fund should not be construed in any way as investment advice
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THE FUND.
Page 26
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QCLN - First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Information Technology 76.58%
Industrials 15.30
Consumer Discretionary 3.46
Utilities 1.90
Materials 1.73
Energy 0.57
Health Care 0.46
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Linear Technology Corp. 8.17%
First Solar, Inc. 8.16
Cree, Inc. 7.78
ON Semiconductor Corp. 5.95
National Semiconductor Corp. 3.97
Baldor Electric Co. 3.83
AVX Corp. 3.71
MEMC Electronic Materials, Inc. 3.62
Tesla Motors, Inc. 3.46
Itron, Inc. 3.17
______
Total 51.82%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
February 8, 2007 - December 31, 2010
First Trust NASDAQ(R)
Clean Edge(R) NASDAQ(R) Clean Edge(R) Russell 2000(R)
Green Energy Index Fund Green Energy Index Index
02/07 $10,000 $10,000 $10,000
12/07 $15,430 $15,522 $9,489
06/08 $12,350 $12,472 $8,599
12/08 $5,595 $5,675 $6,283
06/09 $6,920 $7,038 $6,449
12/09 $8,045 $8,213 $7,990
06/10 $6,665 $6,824 $7,834
12/10 $8,210 $8,434 $10,136
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more
than NAV when they buy Fund shares and receive less than NAV when they sell
those shares because shares are bought and sold at current market price. Data
presented represents past performance and cannot be used to predict future
results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
02/14/07 - 12/31/07 39 0 4 3
01/01/08 - 12/31/08 87 1 2 0
01/01/09 - 12/31/09 92 4 0 0
01/01/10 - 12/31/10 79 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
02/14/07 - 12/31/07 176 0 0 0
01/01/08 - 12/31/08 156 3 4 0
01/01/09 - 12/31/09 152 3 1 0
01/01/10 - 12/31/10 173 0 0 0
Page 27
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FRI - First Trust S&P REIT Index Fund
The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the S&P United States REIT Index (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks that comprise the Index. The Index measures the securitized U.S. real
estate investment trust ("REIT") market and maintains a constituency that
reflects the composition of the overall REIT market. The Index contains
securities selected for market representation according to geography and
property type. All securities in the Index satisfy the Index's liquidity, price,
and market capitalization requirements. The Standard & Poor's Index Committee, a
team of Standard & Poor's economists and index analysts, maintains the Index.
The Standard & Poor's 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, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 27.73% -5.65% -19.11%
Market Value 27.82% -5.63% -19.05%
Index Performance
S&P United States REIT Index* 28.47% N/A N/A
FTSE EPRA/NAREIT North America Index 28.65% -5.02% -17.13%
Russell 3000(R) Index 16.93% -2.19% -7.76%
------------------------------------------------------------------------------------------------------------------------------------
* On November 6, 2008, the Fund's underlying index changed from the S&P REIT
Composite Index to the S&P United States REIT Index. Therefore, the Fund's
performance and historical returns shown for the periods prior to November 6,
2008 are not necessarily indicative of the performance that the Fund, based
on its current Index, would have generated. The inception date of the Index
was June 30, 2008. Returns for the Index are only disclosed for those periods
in which the Index was in existence for the whole period.
(See Notes to Fund Performance Overview on page 40.)
Performance Review
Residential REITs were the best-performing REIT class in the Fund over the
period. The Fund's holdings from the class returned +43.5% and contributed +6.6%
to the Fund's total return. Equity Residential was the top contributor from the
class with a +2.3% contribution to the Fund's total return. Equity Residential,
which is the largest publicly-traded apartment landlord, benefitted as low
homeownership rates and an improving economy drove up rent prices during 2010.
For the year, Equity Residential returned +58.9%. Retail REITs also benefitted
from the recovering economy. The class was the top-contributing class in the
Fund with a +7.9% contribution to the Fund's total return. The Fund's top
individual contributor, Simon Property Group, Inc., was from the Retail REITs
class. The mall operator reported that its tenants' sales increased +10.6% in
the third quarter of 2010 versus the same quarter in 2009. Over the same period,
Simon Property was able to increase occupancy to 93.6% from 92.8% and raise its
average rent per square foot to $38.69 from $38.35. For the year, Simon Property
returned +28.5% and contributed +2.7% to the Fund's total return.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Simon Property Group, Inc. CommonWealth REIT
Equity Residential Parkway Properties, Inc.
Host Hotels & Resorts, Inc. Highwoods Properties, Inc.
Public Storage Mack-Cali Realty Corp.
Boston Properties, Inc. Cedar Shopping Centers, Inc.
____________________
Standard & Poor's(R), S&P(R) and S&P United States REIT Index are registered
trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been
licensed for use by First Trust. The Fund is not sponsored, endorsed, sold or
promoted by S&P or its affiliates, and S&P and its affiliates make no
representation, warranty or condition regarding the advisability of buying,
selling or holding shares of the Fund.
Page 28
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FRI - First Trust S&P REIT Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio REIT Class Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
REIT Class Investments
--------------------------------------------------------------------------------
Retail 27.26%
Specialized 26.91
Residential 16.51
Office 15.92
Diversified 7.55
Industrial 5.85
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Simon Property Group, Inc. 9.01%
Equity Residential 4.57
Public Storage 4.38
Vornado Realty Trust 4.19
HCP, Inc. 4.14
Boston Properties, Inc. 3.73
Host Hotels & Resorts, Inc. 3.68
General Growth Properties, Inc. 3.27
AvalonBay Communities, Inc. 2.97
Ventas, Inc. 2.55
______
Total 42.49%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
May 8, 2007 - December 31, 2010
First Trust
S&P REIT FTSE EPRA/NAREIT Russell
Index Fund North America Index 3000(R) Index
05/07 $10,000 $10,000 $10,000
12/07 $8,093 $8,206 $9,811
06/08 $7,739 $7,843 $8,728
12/08 $4,947 $4,872 $6,151
06/09 $4,319 $4,381 $6,405
12/09 $6,333 $6,442 $7,889
06/10 $6,679 $6,772 $7,412
12/10 $8,090 $8,287 $9,225
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%s
05/10/07 - 12/31/07 46 13 4 1
01/01/08 - 12/31/08 91 15 9 11
01/01/09 - 12/31/09 136 16 1 0
01/01/10 - 12/31/10 185 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
05/10/07 - 12/31/07 85 9 5 0
01/01/08 - 12/31/08 109 12 4 2
01/01/09 - 12/31/09 84 14 1 0
01/01/10 - 12/31/10 67 0 0 0
Page 29
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FIW - First Trust ISE Water Index Fund
The First Trust ISE Water Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the ISE Water Index(TM) (the "Index"). The
Fund will normally invest at least 90% of its assets in common stocks that
comprise the Index. The Index is a modified market capitalization weighted index
comprised of 36 stocks that derive a substantial portion of their revenues from
the potable and wastewater industries. The Index is rebalanced on a semi-annual
basis. The Fund's shares are listed for trading on the NYSE Arca. The first day
of secondary market trading in shares of the Fund was 05/11/07.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 19.49% 3.60% 13.78%
Market Value 19.72% 3.64% 13.93%
Index Performance
ISE Water Index(TM) 20.36% 4.28% 16.53%
Russell 3000(R) Index 16.93% -2.19% -7.76%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40)
Performance Review
The Fund had an average weight of 54.9% in the Industrials sector, which
consequently led all sectors in the Fund with a +10.3% contribution to total
return over the period. Within the sector, the Machinery industry alone had an
average Fund weight of 36.4% and contributed +7.9% to the Fund's total return.
The industry included the Fund's leading individual contributor, irrigation
equipment manufacturer Lindsay Corp. In October, the company reported earnings
for the quarter ended 08/2010 were $0.47/share versus an estimate of
$0.27/share. The upside surprise came from strong sales of the company's Quick
Move Barrier product line and an increase in gross margins. For the year,
Lindsay Corp. returned +50.2% and contributed +2.9% to the Fund's total return.
The Utilities sector was the second best sector with a +4.9% contribution to the
Fund's total return. The sector included the Fund's best individual performer,
water-supply systems company Southwest Water Co. In March of 2010, it was
announced that the company would be acquired by multiple companies for a
significant premium. For the year, Southwest Water returned +87.3% and
contributed +1.4% to the Fund's total return. Health Care company Millipore
Corp., which had a segment of business dedicated to water purification for use
in lab work, also had strong performance due to being acquired. The company
returned +47.8% and contributed +2.1% to the Fund's total return after it was
announced that Merck KGaA would buy Millipore for $107 per share.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Lindsay Corp. Energy Recovery, Inc.
Millipore Corp. Mueller Water Products, Inc., Class A
Companhia de Saneamento Basico do Tetra Tech, Inc.
Estado de Sao Paulo, ADR Itron, Inc.
Aqua America, Inc. Veolia Environment, ADR
Southwest Water Co.
____________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Water Index(TM)" are
trademarks of the International Securities Exchange, LLC and have been licensed
for use for certain purposes by First Trust. The Fund, based on the ISE Water
Index(TM), is not sponsored, endorsed, sold or promoted by the International
Securities Exchange, LLC and the International Securities Exchange, LLC makes no
representation regarding the advisability of trading in such product.
Page 30
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FIW - First Trust ISE Water Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Industrials 59.31%
Utilities 21.88
Materials 13.60
Health Care 1.97
Information Technology 1.97
Financials 1.27
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Companhia de Saneamento
Basico do Estado de Sao Paulo, ADR 4.23%
ITT Corp. 4.17
Watts Water Technologies, Inc., Class A 4.14
Aqua America, Inc. 4.13
Pentair, Inc. 4.08
American Water Works Co., Inc. 4.06
Nalco Holding Co. 3.96
California Water Service Group 3.93
Flow International Corp. 3.68
Energy Recovery, Inc. 3.68
______
Total 40.06%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
May 8, 2007 - December 31, 2010
First Trust ISE ISE Water Russell
Water Index Fund Index(TM) 3000(R) Index
05/07 $10,000 $10,000 $10,000
12/07 $11,212 $11,260 $9,811
06/08 $10,992 $11,056 $8,728
12/08 $7,915 $7,987 $6,151
06/09 $8,168 $8,276 $6,405
12/09 $9,522 $9,681 $7,889
06/10 $8,989 $9,168 $7,412
12/10 $11,378 $11,653 $9,225
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
05/11/07 - 12/31/07 51 0 0 1
01/01/08 - 12/31/08 129 3 3 1
01/01/09 - 12/31/09 103 4 0 0
01/01/10 - 12/31/10 146 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
05/11/07 - 12/31/07 109 0 1 0
01/01/08 - 12/31/08 106 8 3 0
01/01/09 - 12/31/09 131 13 1 0
01/01/10 - 12/31/10 105 1 0 0
Page 31
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FCG - First Trust ISE-Revere Natural Gas Index Fund
The First Trust ISE-Revere Natural Gas Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the ISE-REVERE Natural Gas Index(TM)
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is an equal-weighted index
comprised of exchange-listed companies that derive a substantial portion of
their revenues from the exploration and production of natural gas. The Index is
constructed by establishing the universe of stocks listed in the U.S. of
companies involved in the natural gas exploration and production industries and
then eliminates stocks whose natural gas proven reserves do not meet certain
requirements. The Index then ranks all candidate stocks using four different
methods and, often averaging the rankings, selects the top 30 stocks based on
the final rank. The Index is rebalanced on a quarterly basis. The Fund's shares
are listed for trading on the NYSE Arca. The first day of secondary market
trading in shares of the Fund was 05/11/07.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 12.22% -0.02% -0.09%
Market Value 12.45% 0.05% 0.18%
Index Performance
ISE-REVERE Natural Gas Index(TM) 13.72% 0.69% 2.54%
Russell 3000(R) Index 16.93% -2.19% -7.76%
S&P Composite 1500 Energy Index 21.37% 2.74% 10.35%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
An abundance of natural gas supplies helped push down the price of natural gas
-40.1% for the year, but the natural gas-related equities in the Fund still had
positive returns in general during 2010. Mariner Energy, Inc. was the Fund's top
individual performer and contributor to total return. In April, Apache Corp.
announced it would purchase Mariner Energy for $26.22 per share, causing Mariner
Energy stock to jump +42.0% in a single day. For the year, the company returned
+126.1% and contributed +3.0% to the Fund's total return. Cimarex Energy Co. was
the second best individual contributor in the Fund with an annual return of
+67.9% and a +2.3% contribution. Successful drilling in western Oklahoma, the
Permian Basin, and southeast Texas helped the company increase production
volumes of oil & gas +36% in the third quarter of 2010 versus the third quarter
of 2009. Forest Oil Corp. was another strong performer for the Fund, returning
+70.6% for the year and contributing +2.0% to the Fund's total return. In
November, Forest Oil announced that in the third quarter of 2010 net sales
increased +16% versus the same quarter in 2009, and predicted year-over-year net
sales growth in the fourth quarter would be +20%.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Mariner Energy, Inc. GMX Resources, Inc.
Cimarex Energy Co. Compton Petroleum Corp.
Forest Oil Corp. Petrohawk Energy Corp.
Pioneer Natural Resources Co. Cabot Oil & Gas Corp.
Newfield Exploration Co. PetroQuest Energy, Inc.
____________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE-REVERE Natural Gas
Index(TM)" are trademarks of the International Securities Exchange, LLC and have
been licensed for use for certain purposes by First Trust. The Fund, based on
the ISE-REVERE Natural Gas Index(TM), is not sponsored, endorsed, sold or
promoted by the International Securities Exchange, LLC and the International
Securities Exchange, LLC makes no representation regarding the advisability of
trading in such product.
Page 32
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FCG - First Trust ISE-Revere Natural Gas Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sub-industry Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sub-industry Investments
--------------------------------------------------------------------------------
Oil & Gas Exploration & Production 70.15%
Integrated Oil & Gas 26.69
Gas Utilities 3.16
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
SandRidge Energy, Inc. 3.69%
Chesapeake Energy Corp. 3.62
Talisman Energy, Inc. 3.51
Forest Oil Corp. 3.51
SM Energy Co. 3.48
Devon Energy Corp. 3.43
Cabot Oil & Gas Corp. 3.43
Suncor Energy, Inc. 3.42
Statoilhydro ASA, ADR 3.41
Range Resources Corp. 3.40
______
Total 34.90%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
May 8, 2007 - December 31, 2010
First Trust
ISE-Revere ISE-REVERE
Natural Gas Natural Gas Russell S&P Composite
Index Fund Index(TM) 3000(R) Index 1500 Energy Index
05/07 $10,000 $10,000 $10,000 $10,000
12/07 $11,166 $11,213 $9,804 $12,170
06/08 $15,755 $15,942 $8,721 $13,578
12/08 $5,967 $6,016 $6,147 $7,810
06/09 $6,454 $6,518 $6,405 $7,740
12/09 $8,903 $9,017 $7,889 $9,092
06/10 $7,752 $7,891 $7,412 $8,016
12/10 $9,992 $10,254 $9,225 $11,036
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
05/11/07 - 12/31/07 49 0 0 2
01/01/08 - 12/31/08 131 6 1 2
01/01/09 - 12/31/09 174 1 0 0
01/01/10 - 12/31/10 124 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
05/11/07 - 12/31/07 109 2 0 0
01/01/08 - 12/31/08 101 8 4 0
01/01/09 - 12/31/09 77 0 0 0
01/01/10 - 12/31/10 127 1 0 0
Page 33
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FNI - First Trust ISE Chindia Index Fund
The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The
Fund will normally invest at least 90% of its assets in common stocks that
comprise the Index. The Index is a non-market capitalization weighted portfolio
of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs")
and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks
of companies from China and India currently trading on a U.S. exchange. The
Index is rebalanced on a semi-annual basis. The Fund's shares are listed for
trading on the NYSE Arca. The first day of secondary market trading in shares of
the Fund was 05/11/07.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (05/08/07) Inception (05/08/07)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 18.46% 7.08% 28.36%
Market Value 18.27% 7.10% 28.46%
Index Performance
ISE ChIndia Index(TM) 19.43% 7.85% 31.74%
Russell 3000(R) Index 16.93% -2.19% -7.76%
MSCI Emerging Markets Index 18.88% 6.52% 25.92%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Information Technology sector led all the sectors in the Fund with a +8.5%
contribution to the Fund's total return over the twelve months. The sector was
the heaviest-weighted sector in the Fund with an average weight of 34.6% and was
also one of the better-performing sectors with an annual return of +24.7%.
Baidu, Inc., the Fund's best individual performer and contributor, was part of
the sector. The Chinese search engine returned +134.7% for the year and
contributed +5.6% to the Fund's total return as it widened its lead over Google
as the most used search engine in China. IT consulting and software services
company Infosys Technologies Ltd. was another strong performer from the
Information Technology sector. For the quarter ended September 30, 2010, the
company reported quarter-over-quarter growth in net income of +14.7%, added
7,646 new employees, and added 27 new clients. For the entire year Infosys
Technologies returned +40.2% and contributed +2.7% to the Fund's total return.
The Financials sector was the second best contributor with a +4.1% contribution
to total return. Two large commercial banks were responsible for the
contribution. Strong loan demand helped ICICI Bank Ltd. and HDFC Bank Ltd. to
annual returns of +36.3% and +29.2%, respectively, and a combined contribution
to total return of +4.9%. The rest of the Fund's holdings in the Financials
sector were a net detractor from total return. Robust global auto demand helped
Tata Motors Ltd. be one of the Fund's best performers (+76.6% annual return) and
contributors (+2.7% contribution). In particular, the company announced that it
expects sales of its light commercial vehicles to increase +50% in the fiscal
year 2011 over the fiscal year 2010.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Baidu, Inc., ADR Suntech Power Holdings Co. Ltd., ADR
Tata Motors Ltd., ADR RINO International Corp.
Infosys Technologies Ltd., ADR China Life Insurance Co. Ltd., ADR
ICICI Bank Ltd., ADR NetEase.com, Inc., ADR
HDFC Bank Ltd., ADR Tata Communications Ltd., ADR
____________________
"International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia Index(TM)"
are trademarks of the International Securities Exchange, LLC and have been
licensed for use for certain purposes by First Trust. The Fund, based on the ISE
ChIndia Index(TM), is not sponsored, endorsed, sold or promoted by the
International Securities Exchange, LLC and the International Securities
Exchange, LLC makes no representation regarding the advisability of trading in
such product.
Page 34
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FNI - First Trust ISE Chindia Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Information Technology 33.82%
Financials 19.56
Energy 12.81
Consumer Discretionary 10.67
Telecommunication Services 8.44
Industrials 5.53
Materials 5.21
Health Care 3.26
Utilities 0.70
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
Infosys Technologies Ltd., ADR 7.64%
ICICI Bank Ltd., ADR 7.24
CNOOC Ltd., ADR 7.15
HDFC Bank Ltd., ADR 7.01
China Mobile Ltd., ADR 6.95
Baidu, Inc., ADR 6.28
Sterlite Industries (India) Ltd., ADR 4.48
Wipro Ltd., ADR 4.23
Tata Motors Ltd., ADR 4.14
PetroChina Co., Ltd., ADR 4.13
______
Total 59.25%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
May 8, 2007 - December 31, 2010
--------------------------------------------------------------------------------
First Trust ISE Russell MSCI
ISE Chindia ChIndia 3000(R) Emerging
Index Fund Index(TM) Index Markets Index
05/07 $10,000 $10,000 $10,000 $10,000
12/07 $13,873 $13,952 $9,804 $12,715
06/08 $9,985 $10,059 $8,721 $11,220
12/08 $5,968 $6,031 $6,147 $5,934
06/09 $8,329 $8,451 $6,405 $8,071
12/09 $10,836 $11,031 $7,889 $10,593
06/10 $10,540 $10,767 $7,412 $9,939
12/10 $12,836 $13,175 $9,225 $12,592
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
Number of Days Bid/Ask Midpoint At/Above NAV
Quarter Ended 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
05/11/07 - 12/31/07 82 2 0 2
01/01/08 - 12/31/08 87 8 2 0
01/01/09 - 12/31/09 131 15 10 1
01/01/10 - 12/31/10 151 2 0 0
Number of Days Bid/Ask Midpoint Below NAV
Quarter Ended 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
05/11/07 - 12/31/07 76 0 0 0
01/01/08 - 12/31/08 138 11 5 2
01/01/09 - 12/31/09 95 0 0 0
01/01/10 - 12/31/10 99 0 0 0
Page 35
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FVL - First Trust Value Line(R) 100 Exchange-Traded Fund
The First Trust Value Line(R) 100 Exchange-Traded Fund seeks investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the Value Line(R) 100 Index(TM) (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks that comprise the Index. The Index is an equal-dollar weighted index that
is designed to objectively identify and select 100 stocks from the universe of
stocks to which Value Line(R) assigns a #1 ranking in the Value Line(R)
Timeliness(TM) Ranking System (the "Ranking System"). At any one time, only 100
stocks are assigned a #1 ranking in the Ranking System. The Index is rebalanced
quarterly. The Fund's shares are listed for trading on the NYSE Arca.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year 5 Years Inception 5 Years Inception
Ended Ended (06/12/03) Ended (06/12/03)
12/31/10 12/31/10 to 12/31/10 12/31/10 to 12/31/10
Fund Performance
NAV 29.50% -1.09% 3.80% -5.32% 32.58%
Market Value 29.50% 0.79% 3.80% 4.01% 32.58%
Index Performance
Value Line(R) 100 Index(TM) 30.74% N/A N/A N/A N/A
Russell 3000(R) Index 16.93% 2.74% 5.93% 14.46% 54.57%
------------------------------------------------------------------------------------------------------------------------------------
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
are only disclosed for those periods in which the Index was in existence for
the entire period. The cumulative total returns for the period from the
reorganization date (06/15/07) through period end (12/31/10) were -19.52% for
both NAV and Market Value. That compares to an Index return of -17.28% for
that same period. The average annual returns for the period from the
reorganization date (6/15/07) through period end (12/31/10) were -5.94% for
both NAV and Market Value. That compares to an Index return of -5.22% for the
same period.
NAV and Market Value returns assume that all dividend distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to June
15, 2007, NAV and Market Value returns assumed that all dividend distributions
were reinvested at prices obtained by the Dividend Reinvestment Plan of the
Predecessor FVL Fund and the price used to calculate Market Value return was
the AMEX (now known as the NYSE Amex) closing market price of the Predecessor
FVL Fund.
(See Notes to Fund Performance Overview on page 40.)
Performance Review
The Consumer Discretionary and Information Technology sectors were the main
drivers of Fund performance over the period. Nine of the top ten of the Fund's
leading individual contributors were from these two sectors. The Fund's holdings
in the Consumer Discretionary sector had an annual return of +40.9% and
contributed +12.5% to the Fund's total return. Included in the sector was
Netflix, Inc., which was the Fund's leading individual performer and
contributor. During the time it was held in the Fund during 2010, Netflix
returned +169.6% and contributed +1.4% to the Fund's total return. The online
movie rental service surpassed 20 million subscribers as it enhanced its online
streaming by making its service available through a multitude of devices.
Footwear company Deckers Outdoor Corp. was another leading performer from the
Consumer Discretionary sector. The company had record sales of $277.9 million in
the third quarter of 2010 on strong sales growth from the company's UGG(R) and
Teva(R) brands. For the year, Deckers Outdoor returned +135.2% and contributed
+1.1% to the Fund's total return. The Fund's holdings in the Information
Technology sector returned +28.2% and contributed +8.2% to the Fund's total
return. Cirrus Logic, Inc. was the top contributor from the sector. During the
company's time in the Fund in 2010 it returned +78.7% and contributed +1.1% to
the Fund's total return. The company's performance was driven by the success of
Apple's iPhone and iPod, for which Cirrus supplies parts. Approximately 33% of
Cirrus' revenue comes from Apple products. Industrials company Keithley
Instruments, Inc. was the Fund's only top contributor not from the Consumer
Discretionary or Information Technology sectors. Keithley Instruments returned
+137.9% during the time it was in the Fund in 2010 and contributed +1.3% to the
Fund's total return as it was acquired by Danaher Corp. for a significant
premium.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the year ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Netflix, Inc. FSI International, Inc.
Keithley Instruments, Inc. Sanmina-SCI Corp.
Cirrus Logic, Inc. Overstock.com, Inc.
Deckers Outdoor Corp. Unisys Corp.
F5 Networks, Inc. Skechers USA, Inc., Class A
____________________
"Value Line(R)" and "Value Line(R) 100 Index(TM)" are trademarks of Value
Line(R), Inc. and have been licensed for use for certain purposes by First Trust
on behalf of the Fund. The Fund, based on the Value Line(R) 100 Index(TM), is
not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value
Line(R) makes no representation regarding the advisability of investing in the
Fund.
Page 36
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
FVL - First Trust Value Line(R) 100 Exchange-Traded Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Sector Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Sector Investments
--------------------------------------------------------------------------------
Consumer Discretionary 34.86%
Information Technology 26.02
Industrials 12.13
Materials 9.02
Health Care 6.96
Telecommunication Services 3.98
Consumer Staples 2.05
Energy 2.00
Financials 1.98
Utilities 1.00
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
NN, Inc. 1.08%
Hitachi Ltd., ADR 1.08
China-Biotics, Inc. 1.06
Avis Budget Group, Inc. 1.04
Collective Brands, Inc. 1.04
Community Health Systems, Inc. 1.03
Tollgrade Communications, Inc. 1.03
Cypress Semiconductor Corp. 1.03
Knology, Inc. 1.03
Alliance Resource Partners L.P. 1.03
______
Total 10.45%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
June 12, 2003 - December 31, 2010
--------------------------------------------------------------------------------
First Trust Value Line(R)
100 Exchange-Traded Fund Russell 3000(R) Index
06/03 $10,000 $10,000
12/03 $11,073 $11,367
06/04 $11,427 $11,775
12/04 $12,519 $12,725
06/05 $12,649 $12,724
12/05 $14,003 $13,504
06/06 $14,305 $13,940
12/06 $14,647 $15,626
06/07 $16,357 $16,737
12/07 $17,563 $16,429
06/08 $16,063 $14,614
12/08 $ 9,081 $10,300
06/09 $ 8,728 $10,732
12/09 $10,238 $13,219
06/10 $10,150 $12,419
12/10 $13,259 $15,457
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the index does not actually hold a portfolio of securities and
therefore does not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
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, 2010. Shareholders
may pay more than NAV when they buy Fund shares and receive less than NAV when
they sell those shares because shares are bought and sold at current market
price. Data presented represents past performance and cannot be used to predict
future results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
06/18/07 - 12/31/07 39 9 4 0
01/01/08 - 12/31/08 115 4 4 0
01/01/09 - 12/31/09 67 5 0 0
01/01/10 - 12/31/10 149 0 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
06/18/07 - 12/31/07 74 9 2 0
01/01/08 - 12/31/08 122 4 4 0
01/01/09 - 12/31/09 176 4 0 0
01/01/10 - 12/31/10 103 0 0 0
Page 37
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QABA - First Trust NASDAQ(R) ABA Community Bank Index Fund
The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA
Community Bank Index(SM) (the "Index"). The Fund will normally invest at least
90% of its assets in common stocks that comprise the Index. The Index includes a
subset of banks and thrifts or their holding companies listed on NASDAQ(R). The
Index is jointly owned and was developed by NASDAQ OMX(R) and the American
Bankers Association ("ABA"). For the purposes of the Index, a "community bank"
is considered to be all U.S. banks and thrifts or their holding companies listed
on NASDAQ(R) excluding the 50 largest U.S. banks by asset size. Also excluded
are banks that have an international specialization and those banks that have a
credit-card specialization, as screened by the ABA based on the most recent data
from the FDIC. Banks with an international specialization are those institutions
with assets greater than $10 billion and more than 25% of total assets in
foreign offices. Banks with a credit-card specialization are those institutions
with credit-card loans plus securitized receivables in excess of 50% of total
assets plus securitized receivables. Securities in the Index must have a market
capitalization of at least $200 million and a three-month average daily trading
volume of at least $500 thousand. The Index is rebalanced quarterly and
reconstituted semi-annually. The Fund's shares are listed for trading on the
NASDAQ(R). The first day of secondary market trading in shares of the Fund was
07/01/09.
------------------------------------------------------------------------------------------------------------------------------------
Performance as of December 31, 2010
------------------------------------------------------------------------------------------------------------------------------------
Average Annual Cumulative
Total Returns Total Returns
1 Year Ended Inception (06/29/09) Inception (06/29/09)
12/31/10 to 12/31/10 to 12/31/10
Fund Performance
NAV 12.77% 17.31% 27.20%
Market Value 12.79% 17.47% 27.45%
Index Performance
NASDAQ OMX(R) ABA Community Bank Index(SM) 13.50% 18.08% 28.46%
S&P Composite 1500 Financials Sector Index 13.29% 23.36% 37.21%
Russell 3000(R) Index 16.93% 26.75% 42.94%
------------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 40.)
Performance Review
In general, banks had a positive year over the twelve-month period as the
economy recovered and financial institutions continued to work through the
consequences of the credit crisis. The Fund's holdings in the Commercial Banks
industry returned +19.9% for the year and contributed +14.6% to the Fund's total
return. Within the industry, Zions Bancorporation was the Fund's top individual
contributor to total return. The company's stock price doubled within the first
half of 2010 and at one point the company was the best-performing company in the
S&P 500. Zion Bancorp's success in the early part of 2010 came as the company
reported increasing interest margins and a decrease in bad loan write-offs which
helped it narrow losses dramatically in the first quarter of 2010. For the
entire year, the company returned +89.1% and contributed +1.9% to the Fund's
total return. Also from the Commercial Banks industry, Cathay General Bancorp
was the Fund's best individual performing company with a +121.8% annual return.
The bank reversed five straight quarters of losses by reporting positive
earnings in the third and fourth quarters of 2010. Helping the return to
profitability was a sharp decrease in bad loan write-offs. In the third quarter
of 2010, the bank had bad loan write-offs of $18.0 million, down from $57.0
million in the same quarter in 2009. The Thrifts & Mortgage Finance industry did
not perform as well as sluggish job growth hindered a recovery in the housing
market. Although there were a broad range of performances, in total the Fund's
holdings in the industry returned -5.2% and detracted -1.4% from the Fund's
total return. TFS Financial Corp. was the worst-contributing bank in the Fund as
it detracted -1.0% from the Fund's total return on an annual return of -24.9%.
The company fell -19.2% in one day after it had to suspend new equity loan and
credit line originations over concerns from the Office of Thrift Supervision
about TFS Financial's credit portfolio.
--------------------------------------------------------------------------------
Top Five and Bottom Five Performing Stocks
--------------------------------------------------------------------------------
(by contribution to return over the period ended December 31, 2010)
Top-Performing Stocks Bottom-Performing Stocks
Zions Bancorporation TFS Financial Corp.
Signature Bank People's United Financial, Inc.
Cathay General Bancorp Hancock Holding Co.
Associated Banc-Corp. Washington Federal, Inc.
Whitney Holding Corp. Umpqua Holdings Corp.
____________________
NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM)
are trademarks of The NASDAQ OMX Group, Inc. ("NASDAQ OMX") and American Bankers
Association ("ABA") (NASDAQ OMX and ABA, collectively with their affiliates, are
referred to as the "Corporations") and are licensed for use by First Trust. The
Fund has not been passed on by the Corporations as to its legality or
suitability. The Fund is not issued, endorsed, sold, or promoted by the
Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH
RESPECT TO THE FUND.
Page 38
--------------------------------------------------------------------------------
Fund Performance Overview (Continued)
--------------------------------------------------------------------------------
QABA - First Trust NASDAQ(R) ABA Community Bank Index Fund (Continued)
--------------------------------------------------------------------------------
Portfolio Industry Allocation as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Industry Investments
--------------------------------------------------------------------------------
Commerical Banks 77.53%
Thrifts & Mortgage Finance 22.47
_______
Total 100.00%
=======
--------------------------------------------------------------------------------
Top Ten Portfolio Holdings as of December 31, 2010
--------------------------------------------------------------------------------
% of Long-Term
Security Investments
--------------------------------------------------------------------------------
People's United Financial, Inc. 5.21%
Zions Bancorporation 4.35
BOK Financial Corp. 3.67
Commerce Bancshares, Inc. 3.49
First Niagara Financial Group, Inc. 2.95
East West Bancorp, Inc. 2.92
TFS Financial Corp. 2.80
Associated Banc-Corp. 2.64
SVB Financial Group 2.25
FirstMerit Corp. 2.17
______
Total 32.45%
======
--------------------------------------------------------------------------------
Performance of a $10,000 Initial Investment
June 29, 2009 - December 31, 2010
First Trust
NASDAQ(R) ABA NASDAQ OMX(R) S&P Composite
Community Bank ABA Community Russell 1500 Financials
Index Fund Bank Index(SM) 3000(R) Index Sector Index
06/09 $10,000 $10,000 $10,000 $10,000
12/09 $11,280 $11,318 $12,224 $12,112
06/10 $11,438 $11,505 $11,484 $11,744
12/10 $12,721 $12,846 $14,293 $13,722
--------------------------------------------------------------------------------
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
Frequency Distribution of Discounts and Premiums
Bid/Ask Midpoint vs. NAV as of December 31, 2010
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period July 1, 2009 (commencement of
trading as an exchange-traded fund) through December 31, 2010. Shareholders may
pay more than NAV when they buy Fund shares and receive less than NAV when they
sell those shares because shares are bought and sold at current market price.
Data presented represents past performance and cannot be used to predict future
results.
Number of Days Bid/Ask Midpoint At/Above NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
07/01/09 - 12/31/09 60 3 1 0
01/01/10 - 12/31/10 151 1 0 0
Number of Days Bid/Ask Midpoint Below NAV
For the Period 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
07/01/09 - 12/31/09 62 2 0 0
01/01/10 - 12/31/10 98 1 0 1
Page 39
--------------------------------------------------------------------------------
Notes to Fund Performance Overview
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Value") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of the Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and Market Value returns assume that all dividend
distributions have been reinvested in the Fund at NAV and Market Value,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike a Fund, an index does not actually hold a portfolio of securities
and therefore does not incur the expenses incurred by each Fund. These expenses
negatively impact the performance of each Fund. Also, market returns do not
include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future results.
Page 40
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2010 (UNAUDITED)
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 NYSE Arca Biotechnology
Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First Trust Strategic
Value Index Fund (formerly known as 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, or First Trust NASDAQ(R) ABA
Community Bank Index Fund (each a "Fund" and collectively, the "Funds"), you
incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees, and other Fund
expenses. This Example is intended to help you understand your ongoing costs (in
U.S. 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, 2010.
Actual Expenses
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
Hypothetical Example for Comparison Purposes
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
------------------------------------------------------------------------------------------------------------------------------------
Annualized
Expense Ratio Expense Paid
Beginning Ending Based on the During the
Account Value Account Value Six-Month Six-Month
July 1, 2010 December 31, 2010 Period (a) Period (b)
------------------------------------------------------------------------------------------------------------------------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund
Actual $1,000.00 $1,293.70 0.60% $3.47
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
Actual $1,000.00 $1,215.50 0.45% $2.51
Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29
First Trust US IPO Index Fund
Actual $1,000.00 $1,257.30 0.60% $3.41
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
Actual $1,000.00 $1,284.90 0.60% $3.46
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
Actual $1,000.00 $1,319.50 0.60% $3.51
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust NYSE Arca Biotechnology Index Fund
Actual $1,000.00 $1,264.80 0.60% $3.43
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
Page 41
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
DECEMBER 31, 2010 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
Annualized
Expense Ratio Expense Paid
Beginning Ending Based on the During the
Account Value Account Value Six-Month Six-Month
July 1, 2010 December 31, 2010 Period (a) Period (b)
------------------------------------------------------------------------------------------------------------------------------------
First Trust Dow Jones Internet Index(SM) Fund
Actual $1,000.00 $1,435.50 0.60% $3.68
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust Strategic Value Index Fund
Actual $1,000.00 $1,233.30 0.65% $3.66
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
First Trust Value Line(R) Equity Allocation Index Fund
Actual $1,000.00 $1,216.30 0.70% $3.91
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
First Trust Value Line(R) Dividend Index Fund
Actual $1,000.00 $1,195.20 0.70% $3.87
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
Actual $1,000.00 $1,262.60 0.60% $3.42
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
Actual $1,000.00 $1,231.80 0.60% $3.38
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust S&P REIT Index Fund
Actual $1,000.00 $1,211.20 0.50% $2.79
Hypothetical (5% return before expenses) $1,000.00 $1,022.68 0.50% $2.55
First Trust ISE Water Index Fund
Actual $1,000.00 $1,265.80 0.60% $3.43
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust ISE-Revere Natural Gas Index Fund
Actual $1,000.00 $1,288.90 0.60% $3.46
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust ISE Chindia Index Fund
Actual $1,000.00 $1,217.80 0.60% $3.35
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
First Trust Value Line(R) 100 Exchange-Traded Fund
Actual $1,000.00 $1,306.30 0.70% $4.07
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
First Trust NASDAQ(R) ABA Community Bank Index Fund
Actual $1,000.00 $1,112.20 0.60% $3.19
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
(a) These expense ratios reflect expense caps.
(b) Expenses are equal to the annualized expense ratio as indicated in the table
multiplied by the average account value over the period (July 1, 2010 through
December 31, 2010), multiplied by 184/365 (to reflect the one-half year period).
Page 42
First Trust Dow Jones Select MicroCap Index(SM) Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 99.9%
Aerospace & Defense -- 1.3%
28,443 Applied Signal Technology, Inc. $ 1,077,705
28,992 Herley Industries, Inc. (b) 502,141
21,133 LMI Aerospace, Inc. (b) 337,917
____________
1,917,763
____________
Air Freight & Logistics -- 0.2%
16,729 Park-Ohio Holdings Corp. (b) 349,803
____________
Auto Components -- 3.4%
27,362 Dorman Products, Inc. (b) 991,599
41,445 Drew Industries, Inc. 941,630
98,862 Modine Manufacturing Co. (b) 1,532,361
44,425 Standard Motor Products, Inc. 608,622
49,616 Superior Industries International, Inc. 1,052,852
____________
5,127,064
____________
Beverages -- 0.4%
9,924 Coca-Cola Bottling Co. Consolidated 551,576
____________
Biotechnology -- 0.7%
100,387 PROLOR Biotech, Inc. (b) 649,504
104,382 ZIOPHARM Oncology, Inc. (b) 486,420
____________
1,135,924
____________
Building Products -- 1.3%
29,252 AAON, Inc. 825,199
37,494 Insteel Industries, Inc. 468,300
29,820 Trex Co., Inc. (b) 714,487
____________
2,007,986
____________
Capital Markets -- 0.9%
103,542 BGC Partners, Inc., Class A 860,434
87,329 TradeStation Group, Inc. (b) 589,471
____________
1,449,905
____________
Chemicals -- 1.6%
18,299 Hawkins, Inc. 812,476
23,840 Quaker Chemical Corp. 993,413
64,920 Spartech Corp. (b) 607,651
____________
2,413,540
____________
Commercial Banks -- 15.9%
24,275 Arrow Financial Corp. 667,805
162,540 Boston Private Financial Holdings, Inc. 1,064,637
61,408 Cardinal Financial Corp. 714,175
85,289 Center Financial Corp. (b) 646,491
33,741 City Holding Co. 1,222,436
78,600 CoBiz Financial, Inc. 477,888
29,164 Community Trust Bancorp, Inc. 844,589
41,052 Danvers Bancorp, Inc. 725,389
39,214 Eagle Bancorp, Inc. (b) 565,858
35,526 First Bancorp. 543,903
123,061 First Busey Corp. 578,387
206,168 First Commonwealth Financial Corp. 1,459,669
23,485 First Financial Corp. 825,263
54,254 First Merchants Corp. 480,690
15,583 First of Long Island (The) Corp. 450,505
Shares Description Value
--------- --------------------------------- ---------------
Commercial Banks (Continued)
31,516 Lakeland Financial Corp. $ 676,333
28,706 Metro Bancorp, Inc. (b) 316,053
53,534 Renasant Corp. 905,260
25,707 S.Y. Bancorp, Inc. 631,107
51,276 Sandy Spring Bancorp, Inc. 945,017
27,246 SCBT Financial Corp. 892,306
33,537 Simmons First National Corp., Class A 955,804
41,442 Southwest Bancorp, Inc. 513,881
48,490 StellarOne Corp. 705,045
57,380 Sterling Bancorp 600,769
20,546 Suffolk Bancorp 507,075
17,679 Tompkins Financial Corp. 692,310
61,721 TowneBank 980,747
40,932 Union First Market Bankshares Corp. 604,975
35,150 Univest Corp. of Pennsylvania 673,825
56,756 Virginia Commerce Bancorp, Inc. (b) 350,752
30,076 Washington Trust Bancorp, Inc. 658,063
53,200 WesBanco, Inc. 1,008,672
171,186 West Coast Bancorp (b) 482,745
____________
24,368,424
____________
Commercial Services &
Supplies -- 1.5%
22,008 Consolidated Graphics, Inc. (b) 1,065,847
26,353 Schawk, Inc. 542,345
33,156 Standard Parking Corp. (b) 626,317
____________
2,234,509
____________
Communications Equipment -- 1.4%
31,567 Anaren, Inc. (b) 658,172
48,692 Calix, Inc. (b) 822,895
92,484 Symmetricom, Inc. (b) 655,711
____________
2,136,778
____________
Construction & Engineering -- 1.5%
124,246 Great Lakes Dredge & Dock Corp. 915,693
17,560 Michael Baker Corp. (b) 546,116
39,159 MYR Group, Inc. (b) 822,339
____________
2,284,148
____________
Diversified Consumer Services -- 1.5%
174,961 Stewart Enterprises, Inc., Class A 1,170,489
51,557 Universal Technical Institute, Inc. 1,135,285
____________
2,305,774
____________
Diversified Telecommunication
Services -- 1.3%
94,444 Alaska Communications Systems
Group, Inc. 1,048,328
65,273 Cbeyond, Inc. (b) 997,372
____________
2,045,700
____________
Electronic Equipment, Instruments
& Components -- 3.7%
15,772 CPI International, Inc. (b) 305,188
71,906 CTS Corp. 795,281
28,771 DDi Corp. 338,347
See Notes to Financial Statements Page 43
First Trust Dow Jones Select MicroCap Index(SM) Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Electronic Equipment, Instruments
& Components (Continued)
51,171 Electro Scientific Industries, Inc. (b) $ 820,271
76,416 KEMET Corp. (b) 1,114,145
78,681 Methode Electronics, Inc. 1,020,493
87,438 Pulse Electronics Corp. 465,170
51,670 RadiSys Corp. (b) 459,863
27,384 Spectrum Control, Inc. (b) 410,486
____________
5,729,244
____________
Energy Equipment & Services -- 1.5%
51,340 Basic Energy Services, Inc. (b) 846,083
26,556 Gulf Island Fabrication, Inc. 748,348
57,136 North American Energy Partners,
Inc. (b) 700,488
____________
2,294,919
____________
Food Products -- 1.1%
27,294 Calavo Growers, Inc. 629,127
138,300 SunOpta, Inc. (b) 1,081,506
____________
1,710,633
____________
Gas Utilities -- 0.5%
20,219 Chesapeake Utilities Corp. 839,493
____________
Health Care Equipment &
Supplies -- 3.3%
110,150 Accuray, Inc. (b) 743,512
135,804 Alphatec Holdings, Inc. (b) 366,671
53,105 AngioDynamics, Inc. (b) 816,224
20,800 Kensey Nash Corp. (b) 578,864
34,846 Medical Action Industries, Inc. (b) 333,825
60,258 Merit Medical Systems, Inc. (b) 953,884
60,611 Natus Medical, Inc. (b) 859,464
74,624 STAAR Surgical Co. (b) 455,206
____________
5,107,650
____________
Health Care Providers &
Services -- 3.1%
33,624 American Dental Partners, Inc. (b) 454,260
21,346 Assisted Living Concepts, Inc.,
Class A (b) 694,385
14,805 CorVel Corp. (b) 715,822
26,540 Ensign Group (The), Inc. 660,050
23,048 National Healthcare Corp. 1,066,431
42,276 Rural/Metro Corp. (b) 616,384
24,830 U.S. Physical Therapy, Inc. (b) 492,131
____________
4,699,463
____________
Hotels, Restaurants & Leisure -- 2.6%
54,638 AFC Enterprises, Inc. (b) 759,468
40,895 Ambassadors Group, Inc. 470,293
47,945 Isle of Capri Casinos, Inc. (b) 489,998
44,456 Marcus (The) Corp. 589,931
64,591 Ruth's Hospitality Group, Inc. (b) 299,056
114,672 Shuffle Master, Inc. (b) 1,312,994
____________
3,921,740
____________
Shares Description Value
--------- --------------------------------- ---------------
Household Durables -- 1.8%
11,787 Blyth, Inc. $ 406,416
57,958 Ethan Allen Interiors, Inc. 1,159,739
76,701 Furniture Brands International, Inc. (b) 394,243
34,395 Libbey, Inc. (b) 532,091
18,320 Lifetime Brands, Inc. (b) 257,213
____________
2,749,702
____________
Industrial Conglomerates -- 0.5%
27,097 Standex International Corp. 810,471
____________
Insurance -- 1.4%
91,225 National Financial Partners Corp. (b) 1,222,415
46,028 Presidential Life Corp. 457,058
36,524 Stewart Information Services Corp. 421,122
____________
2,100,595
____________
Internet Software & Services -- 1.5%
110,770 Internap Network Services Corp. (b) 673,482
56,649 QuinStreet, Inc. (b) 1,088,227
11,850 Travelzoo, Inc. (b) 488,457
____________
2,250,166
____________
IT Services -- 0.6%
15,811 NCI, Inc., Class A (b) 363,495
31,779 Virtusa Corp. (b) 519,904
____________
883,399
____________
Leisure Equipment & Products -- 1.4%
59,052 JAKKS Pacific, Inc. (b) 1,075,927
45,715 RC2 Corp. (b) 995,216
____________
2,071,143
____________
Machinery -- 6.1%
17,838 Alamo Group, Inc. 496,253
57,001 Altra Holdings, Inc. (b) 1,132,040
54,297 Commercial Vehicle Group, Inc. (b) 882,326
49,844 Greenbrier (The) Cos., Inc. (b) 1,046,226
60,187 John Bean Technologies Corp. 1,211,564
26,564 Kadant, Inc. (b) 626,114
21,677 L.B. Foster Co., Class A (b) 887,456
26,670 Lindsay Corp. 1,584,998
23,188 Miller Industries, Inc. 329,965
28,651 Tecumseh Products Co., Class A (b) 373,896
34,897 TriMas Corp. (b) 713,993
____________
9,284,831
____________
Media -- 1.2%
66,753 E.W. Scripps (The) Co., Class A (b) 677,543
33,062 Global Sources Ltd. (b) 314,750
91,694 Journal Communications, Inc.,
Class A (b) 463,055
67,153 LIN TV Corp., Class A (b) 355,911
____________
1,811,259
____________
Metals & Mining -- 2.3%
111,290 General Moly, Inc. (b) 721,159
25,962 Haynes International, Inc. 1,085,991
46,059 Noranda Aluminum Holding Corp. (b) 672,461
Page 44 See Notes to Financial Statements
First Trust Dow Jones Select MicroCap Index(SM) Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Metals & Mining (Continued)
20,381 Olympic Steel, Inc. $ 584,527
14,392 Universal Stainless & Alloy
Products, Inc. (b) 450,182
____________
3,514,320
____________
Multiline Retail -- 1.4%
27,023 Bon-Ton Stores (The), Inc. (b) 342,111
78,490 Fred's, Inc., Class A 1,080,023
45,737 Retail Ventures, Inc. (b) 745,513
____________
2,167,647
____________
Oil, Gas & Consumable Fuels -- 1.7%
122,417 Cheniere Energy, Inc. (b) 675,742
99,369 Crosstex Energy, Inc. 880,410
118,500 PetroQuest Energy, Inc. (b) 892,305
115,898 RAM Energy Resources, Inc. (b) 213,252
____________
2,661,709
____________
Paper & Forest Products -- 1.6%
85,941 Buckeye Technologies, Inc. 1,805,621
31,190 Neenah Paper, Inc. 613,819
____________
2,419,440
____________
Personal Products -- 1.8%
55,681 Elizabeth Arden, Inc. (b) 1,281,220
107,005 Prestige Brands Holdings, Inc. (b) 1,278,710
27,246 Schiff Nutrition International, Inc. 247,393
____________
2,807,323
____________
Pharmaceuticals -- 0.3%
39,524 Obagi Medical Products, Inc. (b) 456,502
____________
Professional Services -- 1.6%
84,060 CBIZ, Inc. (b) 524,534
60,134 Dolan (The) Co. (b) 837,065
29,660 Exponent, Inc. (b) 1,113,140
____________
2,474,739
____________
Real Estate Investment Trusts -- 6.3%
88,438 Associated Estates Realty Corp. 1,352,217
122,250 CapLease, Inc. 711,495
35,157 Colony Financial, Inc. 703,843
125,291 Education Realty Trust, Inc. 973,511
124,624 First Industrial Realty Trust, Inc. (b) 1,091,706
197,360 iStar Financial, Inc. (b) 1,543,355
88,582 MPG Office Trust, Inc. (b) 243,601
211,448 RAIT Financial Trust (b) 463,071
120,875 Resource Capital Corp. 892,058
323,414 Strategic Hotels & Resorts, Inc. (b) 1,710,860
____________
9,685,717
____________
Road & Rail -- 0.8%
32,636 Marten Transport Ltd. 697,758
33,921 Saia, Inc. (b) 562,749
____________
1,260,507
____________
Shares Description Value
--------- --------------------------------- ---------------
Semiconductors & Semiconductor
Equipment -- 5.2%
67,075 ATMI, Inc. (b) $ 1,337,476
66,267 AXT, Inc. (b) 691,828
49,484 DSP Group, Inc. (b) 402,800
79,549 Exar Corp. (b) 555,252
39,382 GSI Technology, Inc. (b) 318,994
53,120 IXYS Corp. (b) 617,254
104,646 LTX-Credence Corp. (b) 774,380
68,264 Mindspeed Technologies, Inc. (b) 416,411
53,335 Pericom Semiconductor Corp. (b) 585,618
113,700 Photronics, Inc. (b) 671,967
163,824 Silicon Image, Inc. (b) 1,204,106
46,259 Ultra Clean Holdings, Inc. (b) 430,671
____________
8,006,757
____________
Software -- 2.6%
28,373 Interactive Intelligence, Inc. (b) 742,238
115,950 Magma Design Automation, Inc. (b) 580,909
50,211 Monotype Imaging Holdings, Inc. (b) 557,342
23,421 Rosetta Stone, Inc. (b) 496,994
102,371 Sonic Solutions (b) 1,535,565
____________
3,913,048
____________
Specialty Retail -- 4.1%
70,002 Asbury Automotive Group, Inc. (b) 1,293,637
40,726 Big 5 Sporting Goods Corp. 621,886
90,005 Casual Male Retail Group, Inc. (b) 426,624
31,760 Citi Trends, Inc. (b) 779,708
47,112 Lithia Motors, Inc., Class A 673,230
116,773 Select Comfort Corp. (b) 1,066,137
19,646 Shoe Carnival, Inc. (b) 530,442
58,043 Stein Mart, Inc. 536,898
31,693 West Marine, Inc. (b) 335,312
____________
6,263,874
____________
Textiles, Apparel & Luxury
Goods -- 1.3%
30,692 Oxford Industries, Inc. 786,022
24,113 Perry Ellis International, Inc. (b) 662,384
32,601 Unifi, Inc. (b) 551,935
____________
2,000,341
____________
Thrifts & Mortgage Finance -- 2.9%
29,750 Berkshire Hills Bancorp, Inc. 657,475
66,858 Dime Community Bancshares, Inc. 975,458
62,464 Flushing Financial Corp. 874,496
32,721 OceanFirst Financial Corp. 421,119
164,340 TrustCo Bank Corp. NY 1,041,916
33,575 ViewPoint Financial Group 392,492
____________
4,362,956
____________
Trading Companies &
Distributors -- 1.3%
54,054 Aceto Corp. 486,486
19,532 DXP Enterprises, Inc. (b) 468,768
35,247 Houston Wire & Cable Co. 473,720
See Notes to Financial Statements Page 45
First Trust Dow Jones Select MicroCap Index(SM) Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- --------------
Common Stocks (Continued)
Trading Companies &
Distributors (Continued)
31,183 Titan Machinery, Inc. (b) $ 601,832
____________
2,030,806
____________
Water Utilities -- 0.9%
33,160 Middlesex Water Co. 608,486
28,043 SJW Corp. 742,298
____________
1,350,784
____________
Wireless Telecommunication
Services -- 0.6%
50,313 Shenandoah Telecommunications
Co. 942,362
____________
Total Investments -- 99.9% 152,912,434
(Cost $134,038,261) (c)
Net Other Assets and
Liabilities -- 0.1% 137,716
____________
Net Assets -- 100.0% $153,050,150
============
(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 $134,426,642. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$18,892,804 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$407,012.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
___________________________________________
Common Stocks* $152,912,434 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
Page 46 See Notes to Financial Statements
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 99.9%
Chemicals -- 3.0%
76,240 E.I. du Pont de Nemours & Co. $ 3,802,851
7,128 Olin Corp. 146,267
12,865 RPM International, Inc. 284,316
____________
4,233,434
____________
Commercial Banks -- 0.8%
11,677 BancorpSouth, Inc. 186,248
4,639 Bank of Hawaii Corp. 219,007
3,028 Community Bank System, Inc. 84,088
2,913 NBT Bancorp, Inc. 70,349
1,650 Park National Corp. 119,905
4,838 United Bankshares, Inc. 141,270
21,378 Valley National Bancorp 305,705
____________
1,126,572
____________
Commercial Services &
Supplies -- 2.0%
5,708 Healthcare Services Group, Inc. 92,869
2,550 Mine Safety Appliances Co. 79,382
32,254 Pitney Bowes, Inc. 779,902
30,985 R.R. Donnelley & Sons Co. 541,308
39,227 Waste Management, Inc. 1,446,299
____________
2,939,760
____________
Distributors -- 0.5%
13,089 Genuine Parts Co. 671,989
____________
Diversified Consumer
Services -- 0.3%
35,788 H&R Block, Inc. 426,235
____________
Diversified Telecommunication
Services -- 21.5%
482,590 AT&T, Inc. 14,178,494
48,195 CenturyLink, Inc. 2,225,163
403,895 Verizon Communications, Inc. 14,451,363
____________
30,855,020
____________
Electric Utilities -- 16.2%
3,602 ALLETE, Inc. 134,210
61,767 American Electric Power Co., Inc. 2,222,377
4,966 Cleco Corp. 152,754
14,275 DPL, Inc. 367,010
24,893 Edison International 960,870
6,188 Empire District Electric (The) Co. 137,374
22,283 Entergy Corp. 1,578,305
86,021 Exelon Corp. 3,581,914
47,311 FirstEnergy Corp. 1,751,453
13,092 Hawaiian Electric Industries, Inc. 298,367
2,079 MGE Energy, Inc. 88,898
40,835 NextEra Energy, Inc. 2,123,012
14,336 Northeast Utilities 457,032
4,282 Otter Tail Corp. 96,516
33,455 Pepco Holdings, Inc. 610,554
14,012 Pinnacle West Capital Corp. 580,797
67,147 PPL Corp. 1,767,309
41,941 Progress Energy, Inc. 1,823,595
Shares Description Value
--------- --------------------------------- ---------------
Electric Utilities (Continued)
100,185 Southern Co. $ 3,830,073
6,876 UIL Holdings Corp. 206,005
3,960 Unisource Energy Corp. 141,926
13,776 Westar Energy, Inc. 346,604
____________
23,256,955
____________
Food Products -- 3.3%
289 Cal-Maine Foods, Inc. 9,127
150,307 Kraft Foods, Inc., Class A 4,736,173
____________
4,745,300
____________
Gas Utilities -- 1.6%
9,743 AGL Resources, Inc. 349,286
9,891 Atmos Energy Corp. 308,599
2,296 Laclede Group (The), Inc. 83,896
3,309 New Jersey Resources Corp. 142,651
4,254 Nicor, Inc. 212,360
8,776 ONEOK, Inc. 486,805
6,469 Piedmont Natural Gas Co., Inc. 180,873
8,658 UGI Corp. 273,420
5,314 WGL Holdings, Inc. 190,082
____________
2,227,972
____________
Health Care Equipment &
Supplies -- 0.0%
3,304 Meridian Bioscience, Inc. 76,521
____________
Household Durables -- 0.6%
14,023 Garmin Ltd. 434,573
17,849 Leggett & Platt, Inc. 406,243
____________
840,816
____________
Household Products -- 1.9%
44,269 Kimberly-Clark Corp. 2,790,718
____________
Insurance -- 1.2%
11,561 Arthur J. Gallagher & Co. 336,194
19,299 Cincinnati Financial Corp. 611,585
2,176 Erie Indemnity Co., Class A 142,463
1,224 Harleysville Group, Inc. 44,970
3,629 Mercury General Corp. 156,083
31,444 Old Republic International Corp. 428,582
____________
1,719,877
____________
IT Services -- 0.9%
13,648 CoreLogic, Inc. 252,761
33,416 Paychex, Inc. 1,032,889
____________
1,285,650
____________
Marine -- 0.1%
3,438 Alexander & Baldwin, Inc. 137,623
____________
Multi-Utilities -- 10.5%
11,951 Alliant Energy Corp. 439,438
6,306 Avista Corp. 142,011
4,594 Black Hills Corp. 137,820
48,581 CenterPoint Energy, Inc. 763,693
35,487 Consolidated Edison, Inc. 1,759,091
65,210 Dominion Resources, Inc. 2,785,771
See Notes to Financial Statements Page 47
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Multi-Utilities (Continued)
20,757 DTE Energy Co. $ 940,707
10,690 Integrys Energy Group, Inc. 518,572
37,394 NiSource, Inc. 658,882
4,344 NorthWestern Corp. 125,238
9,999 NSTAR 421,858
7,905 OGE Energy Corp. 359,994
37,899 PG&E Corp. 1,813,088
56,249 Public Service Enterprise Group, Inc. 1,789,281
13,525 SCANA Corp. 549,115
24,555 TECO Energy, Inc. 437,079
11,072 Vectren Corp. 281,007
49,352 Xcel Energy, Inc. 1,162,240
____________
15,084,885
____________
Oil, Gas & Consumable
Fuels -- 15.7%
158,544 Chevron Corp. 14,467,140
118,082 ConocoPhillips 8,041,384
____________
22,508,524
____________
Paper & Forest Products -- 0.3%
16,747 MeadWestvaco Corp. 438,101
____________
Pharmaceuticals -- 15.5%
210,402 Bristol-Myers Squibb Co. 5,571,445
139,320 Eli Lilly & Co. 4,881,773
324,716 Merck & Co., Inc. 11,702,764
____________
22,155,982
____________
Semiconductors & Semiconductor
Equipment -- 0.9%
26,177 Maxim Integrated Products, Inc. 618,301
18,790 Microchip Technology, Inc. 642,806
____________
1,261,107
____________
Specialty Retail -- 0.2%
12,279 Foot Locker, Inc. 240,914
____________
Thrifts & Mortgage Finance -- 1.6%
23,639 First Niagara Financial Group, Inc. 330,473
60,453 Hudson City Bancorp, Inc. 770,171
62,603 New York Community Bancorp, Inc. 1,180,067
4,335 Provident Financial Services, Inc. 65,589
____________
2,346,300
____________
Tobacco -- 1.2%
47,892 Reynolds American, Inc. 1,562,237
2,856 Universal Corp. 116,239
____________
1,678,476
____________
Trading Companies &
Distributors -- 0.1%
3,233 GATX Corp. 114,060
____________
Description Value
--------------------------------- ---------------
Total Investments -- 99.9% $143,162,791
(Cost $131,497,357) (b)
Net Other Assets and
Liabilities -- 0.1% 130,991
____________
Net Assets -- 100.0% $143,293,782
============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Aggregate cost for federal income tax purposes is $133,534,816. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$10,508,967 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$880,992.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
___________________________________________
Common Stocks* $143,162,791 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
Page 48 See Notes to Financial Statements
First Trust US IPO Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 99.9%
Aerospace & Defense -- 0.8%
1,251 DigitalGlobe, Inc. (b) $ 39,669
3,876 Spirit AeroSystems Holdings, Inc.,
Class A (b) 80,660
____________
120,329
____________
Automobiles -- 10.7%
42,750 General Motors Co. (b) 1,575,765
2,537 Tesla Motors, Inc. (b) 67,560
____________
1,643,325
____________
Beverages -- 1.4%
6,177 Dr. Pepper Snapple Group, Inc. 217,183
____________
Biotechnology -- 0.5%
3,409 Talecris Biotherapeutics Holdings
Corp. (b) 79,430
____________
Capital Markets -- 2.1%
1,599 Artio Global Investors, Inc. 23,585
2,957 LPL Investment Holdings, Inc. (b) 107,546
4,437 MF Global Holdings Ltd. (b) 37,093
9,939 Och-Ziff Capital Management
Group LLC, Class A (c) 154,850
____________
323,074
____________
Chemicals -- 0.1%
1,125 STR Holdings, Inc. (b) 22,500
____________
Commercial Banks -- 0.7%
3,488 First Republic Bank (b) 101,571
____________
Commercial Services &
Supplies -- 0.3%
3,681 KAR Auction Services, Inc. (b) 50,798
____________
Communications Equipment -- 0.4%
2,654 Aruba Networks, Inc. (b) 55,416
____________
Computers & Peripherals -- 0.2%
3,367 SMART Technologies, Inc.,
Class A (b) 31,785
____________
Construction & Engineering -- 1.4%
3,224 Aecom Technology Corp. (b) 90,175
4,106 KBR, Inc. 125,110
____________
215,285
____________
Consumer Finance -- 2.4%
14,813 Discover Financial Services 274,485
1,112 Green Dot Corp., Class A (b) 63,095
2,414 Netspend Holdings, Inc. (b) 30,947
____________
368,527
____________
Diversified Consumer
Services -- 0.4%
3,841 Education Management Corp. (b) 69,522
____________
Shares Description Value
--------- --------------------------------- ---------------
Diversified Financial
Services -- 1.2%
2,777 CBOE Holdings, Inc. $ 63,482
3,231 MSCI, Inc., Class A (b) 125,880
____________
189,362
____________
Electrical Equipment -- 1.6%
2,849 A123 Systems, Inc. (b) 27,180
1,837 Generac Holdings, Inc. (b) 29,704
1,212 Polypore International, Inc. (b) 49,365
4,703 Sensata Technologies Holding N.V. (b) 141,607
____________
247,856
____________
Electronic Equipment, Instruments
& Components -- 3.1%
2,237 Aeroflex Holding Corp. (b) 36,798
12,157 Tyco Electronics Ltd. 430,358
____________
467,156
____________
Energy Equipment &
Services -- 0.6%
2,191 Dresser-Rand Group, Inc. (b) 93,315
____________
Food & Staples Retailing -- 0.4%
1,359 Fresh Market (The), Inc. (b) 55,991
____________
Food Products -- 2.5%
2,400 Dole Food Co., Inc. (b) 32,424
5,564 Mead Johnson Nutrition Co. 346,359
____________
378,783
____________
Health Care Equipment &
Supplies -- 4.4%
13,642 Covidien PLC 622,894
1,602 Masimo Corp. 46,570
____________
669,464
____________
Health Care Providers &
Services -- 0.5%
2,477 Accretive Health, Inc. (b) 40,251
4,352 Select Medical Holdings Corp. (b) 31,813
____________
72,064
____________
Health Care Technology -- 0.5%
3,143 Emdeon, Inc., Class A (b) 42,556
1,579 MedAssets, Inc. (b) 31,880
____________
74,436
____________
Hotels, Restaurants &
Leisure -- 1.4%
4,731 Hyatt Hotels Corp., Class A (b) 216,491
____________
Insurance -- 1.4%
2,568 OneBeacon Insurance Group
Ltd., Class A 38,931
1,978 Primerica, Inc. 47,967
3,214 Symetra Financial Corp. 44,032
2,809 Validus Holdings Ltd. 85,983
____________
216,913
____________
See Notes to Financial Statements Page 49
First Trust US IPO Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Internet & Catalog Retail -- 0.3%
1,571 HSN, Inc. (b) $ 48,135
____________
Internet Software & Services -- 1.6%
1,192 Ancestry.com, Inc. (b) 33,758
2,903 AOL, Inc. (b) 68,830
644 LogMeIn, Inc. (b) 28,555
3,430 Rackspace Hosting, Inc. (b) 107,736
____________
238,879
____________
IT Services -- 14.7%
3,755 Booz Allen Hamilton Holding
Corp., Class A (b) 72,960
3,401 Broadridge Financial Solutions, Inc. 74,584
5,992 Genpact Ltd. (b) 91,078
10,110 SAIC, Inc. (b) 160,345
4,556 Teradata Corp. (b) 187,525
18,798 Visa, Inc., Class A 1,323,003
17,839 Western Union Co. 331,270
____________
2,240,765
____________
Machinery -- 0.7%
1,758 WABCO Holdings, Inc. (b) 107,115
____________
Media -- 6.1%
3,085 Cinemark Holdings, Inc. 53,185
4,537 Scripps Networks Interactive, Class A 234,790
9,676 Time Warner Cable, Inc. 638,906
____________
926,881
____________
Metals & Mining -- 0.7%
2,237 Molycorp, Inc. (b) 111,626
____________
Multiline Retail -- 1.9%
9,276 Dollar General Corp. (b) 284,495
____________
Oil, Gas & Consumable
Fuels -- 8.8%
1,880 Clean Energy Fuels Corp. (b) 26,019
9,688 Cobalt International Energy, Inc. (b) 118,290
2,717 Concho Resources, Inc. (b) 238,199
4,623 Continental Resources, Inc. (b) 272,064
1,570 Duncan Energy Partners L.P. (c) 50,381
2,508 Oasis Petroleum, Inc. (b) 68,017
2,475 Patriot Coal Corp. (b) 47,941
11,019 SandRidge Energy, Inc. (b) 80,659
17,631 Spectra Energy Corp. 440,599
____________
1,342,169
____________
Pharmaceuticals -- 1.0%
6,861 Warner Chilcott PLC, Class A 154,784
____________
Professional Services -- 1.0%
4,686 Verisk Analytics, Inc., Class A (b) 159,699
____________
Real Estate Investment
Trusts -- 0.2%
1,622 DuPont Fabros Technology, Inc. 34,500
____________
Road & Rail -- 1.1%
11,220 Hertz Global Holdings, Inc. (b) 162,578
____________
Shares Description Value
--------- --------------------------------- ---------------
Semiconductors & Semiconductor
Equipment -- 3.5%
1,216 Cavium Networks, Inc. (b) $ 45,819
2,332 First Solar, Inc. (b) 303,486
4,079 GT Solar International, Inc. (b) 37,201
6,780 NXP Semiconductor NV (b) 141,905
____________
528,411
____________
Software -- 3.5%
1,171 CommVault Systems, Inc. (b) 33,514
1,941 Fortinet, Inc. (b) 62,791
1,095 Motricity, Inc. (b) 20,334
1,733 NetSuite, Inc. (b) 43,325
2,115 QLIK Technologies, Inc. (b) 54,588
1,320 RealD, Inc. (b) 34,214
1,719 RealPage, Inc. (b) 53,169
1,866 Solarwinds, Inc. (b) 35,921
1,911 Solera Holdings, Inc. 98,073
1,955 SS&C Technologies Holdings, Inc. (b) 40,097
2,066 SuccessFactors, Inc. (b) 59,831
____________
535,857
____________
Specialty Retail -- 0.4%
2,414 Express, Inc. 45,383
1,072 hhgregg, Inc. (b) 22,459
____________
67,842
____________
Textiles, Apparel & Luxury
Goods -- 0.7%
2,605 Hanesbrands, Inc. (b) 66,167
1,102 Vera Bradley, Inc. (b) 36,366
____________
102,533
____________
Tobacco -- 12.0%
4,069 Lorillard, Inc. 333,902
25,525 Philip Morris International, Inc. 1,493,978
____________
1,827,880
____________
Trading Companies &
Distributors -- 0.2%
1,309 Textainer Group Holdings Ltd. 37,293
____________
Water Utilities -- 0.8%
4,757 American Water Works Co., Inc. 120,305
____________
Wireless Telecommunication
Services -- 1.7%
26,839 Clearwire Corp., Class A (b) 138,221
9,640 MetroPCS Communications, Inc. (b) 121,753
____________
259,974
____________
Total Investments -- 99.9% 15,272,297
(Cost $13,490,453) (d)
Net Other Assets and
Liabilities -- 0.1% 10,228
____________
Net Assets -- 100.0% $15,282,525
============
Page 50 See Notes to Financial Statements
First Trust US IPO Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
(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 $13,900,562. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,917,179 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$545,444.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $15,272,297 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 51
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.1%
Air Freight & Logistics -- 2.0%
9,644 C.H. Robinson Worldwide, Inc. $ 773,352
13,763 Expeditors International of
Washington, Inc. 751,460
____________
1,524,812
____________
Biotechnology -- 6.9%
13,266 Amgen, Inc. (b) 728,303
11,181 Biogen Idec, Inc. (b) 749,686
12,854 Celgene Corp. (b) 760,186
11,675 Cephalon, Inc. (b) 720,581
10,917 Genzyme Corp. (b) 777,290
20,484 Gilead Sciences, Inc. (b) 742,340
21,490 Vertex Pharmaceuticals, Inc. (b) 752,795
____________
5,231,181
____________
Chemicals -- 1.0%
11,411 Sigma-Aldrich Corp. 759,516
____________
Commercial Services &
Supplies -- 1.0%
9,673 Stericycle, Inc. (b) 782,739
____________
Communications Equipment -- 4.0%
39,065 Cisco Systems, Inc. (b) 790,285
5,603 F5 Networks, Inc. (b) 729,287
15,445 QUALCOMM, Inc. 764,373
12,655 Research In Motion Ltd. (b) 735,635
____________
3,019,580
____________
Computers & Peripherals -- 5.1%
2,376 Apple, Inc. (b) 766,402
55,851 Dell, Inc. (b) 756,781
14,159 NetApp, Inc. (b) 778,179
15,590 SanDisk Corp. (b) 777,317
51,824 Seagate Technology (b) 778,915
____________
3,857,594
____________
Diversified Consumer
Services -- 1.0%
19,796 Apollo Group, Inc., Class A (b) 781,744
____________
Electronic Equipment, Instruments
& Components -- 2.1%
99,581 Flextronics International Ltd. (b) 781,711
26,775 FLIR Systems, Inc. (b) 796,556
____________
1,578,267
____________
Food & Staples Retailing -- 2.0%
10,605 Costco Wholesale Corp. 765,787
14,986 Whole Foods Market, Inc. (b) 758,142
____________
1,523,929
____________
Health Care Equipment &
Supplies -- 2.0%
22,121 DENTSPLY International, Inc. 755,875
2,867 Intuitive Surgical, Inc. (b) 738,969
____________
1,494,844
____________
Shares Description Value
--------- --------------------------------- ---------------
Health Care Providers &
Services -- 2.0%
13,874 Express Scripts, Inc. (b) $ 749,890
12,270 Henry Schein, Inc. (b) 753,255
____________
1,503,145
____________
Health Care Technology -- 1.0%
7,856 Cerner Corp. (b) 744,278
____________
Hotels, Restaurants &
Leisure -- 3.0%
18,545 Ctrip.com International Ltd., ADR (b) 750,145
23,252 Starbucks Corp. 747,087
7,257 Wynn Resorts Ltd. 753,567
____________
2,250,799
____________
Household Durables -- 1.0%
23,987 Garmin Ltd. 743,357
____________
Internet & Catalog Retail -- 4.9%
4,290 Amazon.com, Inc. (b) 772,200
28,395 Expedia, Inc. 712,430
47,700 Liberty Media Corp. - Interactive,
Class A (b) 752,229
4,231 Netflix, Inc. (b) 743,387
1,903 priceline.com, Inc. (b) 760,344
____________
3,740,590
____________
Internet Software &
Services -- 5.8%
14,975 Akamai Technologies, Inc. (b) 704,574
7,717 Baidu, Inc., ADR (b) 744,922
25,582 eBay, Inc. (b) 711,947
1,289 Google, Inc., Class A (b) 765,627
22,222 VeriSign, Inc. 725,993
46,677 Yahoo!, Inc. (b) 776,238
____________
4,429,301
____________
IT Services -- 5.0%
16,257 Automatic Data Processing, Inc. 752,374
10,520 Cognizant Technology Solutions
Corp., Class A (b) 771,011
12,604 Fiserv, Inc. (b) 738,090
10,327 Infosys Technologies Ltd., ADR 785,678
24,574 Paychex, Inc. 759,583
____________
3,806,736
____________
Leisure Equipment &
Products -- 1.0%
29,688 Mattel, Inc. 754,966
____________
Life Sciences Tools &
Services -- 3.0%
11,949 Illumina, Inc. (b) 756,850
13,735 Life Technologies Corp. (b) 762,292
39,209 QIAGEN N.V. (b) 766,536
____________
2,285,678
____________
Page 52 See Notes to Financial Statements
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Machinery -- 2.0%
8,904 Joy Global, Inc. $ 772,422
13,484 PACCAR, Inc. 774,251
____________
1,546,673
____________
Media -- 4.1%
35,581 Comcast Corp., Class A 781,715
19,403 DIRECTV, Class A (b) 774,762
52,648 News Corp., Class A 766,555
29,177 Virgin Media, Inc. 794,781
____________
3,117,813
____________
Multiline Retail -- 2.1%
13,283 Dollar Tree, Inc. (b) 744,910
11,241 Sears Holdings Corp. (b) 829,024
____________
1,573,934
____________
Pharmaceuticals -- 3.0%
35,597 Mylan, Inc. (b) 752,164
14,669 Teva Pharmaceutical Industries
Ltd., ADR 764,695
33,769 Warner Chilcott PLC, Class A 761,829
____________
2,278,688
____________
Semiconductors & Semiconductor
Equipment -- 14.0%
20,808 Altera Corp. 740,349
55,975 Applied Materials, Inc. 786,449
17,386 Broadcom Corp., Class A 757,160
5,716 First Solar, Inc. (b) 743,880
35,500 Intel Corp. 746,565
19,127 KLA-Tencor Corp. 739,067
14,694 Lam Research Corp. (b) 760,855
21,816 Linear Technology Corp. 754,615
40,392 Marvell Technology Group Ltd. (b) 749,272
31,966 Maxim Integrated Products, Inc. 755,037
22,340 Microchip Technology, Inc. 764,251
92,789 Micron Technology, Inc. (b) 744,168
53,012 NVIDIA Corp. (b) 816,385
27,005 Xilinx, Inc. 782,605
____________
10,640,658
____________
Software -- 12.1%
62,700 Activision Blizzard, Inc. 779,988
26,459 Adobe Systems, Inc. (b) 814,408
19,468 Autodesk, Inc. (b) 743,678
15,787 BMC Software, Inc. (b) 744,199
30,606 CA, Inc. 748,011
16,682 Check Point Software Technologies
Ltd. (b) 771,709
11,007 Citrix Systems, Inc. (b) 752,989
47,881 Electronic Arts, Inc. (b) 784,291
15,424 Intuit, Inc. (b) 760,403
27,411 Microsoft Corp. 765,315
24,268 Oracle Corp. 759,589
44,972 Symantec Corp. (b) 752,831
____________
9,177,411
____________
Shares Description Value
--------- --------------------------------- ---------------
Specialty Retail -- 5.0%
15,962 Bed Bath & Beyond, Inc. (b) $ 784,532
12,138 O'Reilly Automotive, Inc. (b) 733,378
12,099 Ross Stores, Inc. 765,262
33,811 Staples, Inc. 769,876
20,950 Urban Outfitters, Inc. (b) 750,220
____________
3,803,268
____________
Trading Companies &
Distributors -- 1.0%
12,795 Fastenal Co. 766,549
____________
Wireless Telecommunication
Services -- 3.0%
8,240 Millicom International Cellular S.A. 787,744
16,818 NII Holdings, Inc. (b) 751,092
28,547 Vodafone Group PLC, ADR 754,497
____________
2,293,333
____________
Total Investments -- 100.1% 76,011,383
(Cost $68,822,059) (c)
Net Other Assets and
Liabilities -- (0.1)% (56,202)
____________
Net Assets -- 100.0% $75,955,181
============
(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 $70,027,445. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$7,515,755 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,531,817.
ADR -- American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $76,011,383 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 53
First Trust NASDAQ-100-Technology Sector Index(SM) Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Communications Equipment -- 9.9%
582,603 Cisco Systems, Inc. (b) $ 11,786,059
83,531 F5 Networks, Inc. (b) 10,872,395
230,352 QUALCOMM, Inc. 11,400,120
188,720 Research In Motion Ltd. (b) 10,970,294
____________
45,028,868
____________
Computers & Peripherals
-- 12.7%
35,433 Apple, Inc. (b) 11,429,269
832,907 Dell, Inc. (b) 11,285,890
211,166 NetApp, Inc. (b) 11,605,683
232,473 SanDisk Corp. (b) 11,591,104
772,842 Seagate Technology (b) 11,615,815
____________
57,527,761
____________
Health Care Technology -- 2.5%
117,147 Cerner Corp. (b) 11,098,507
____________
Internet Software &
Services -- 12.2%
223,332 Akamai Technologies, Inc. (b) 10,507,770
115,058 Baidu, Inc., ADR (b) 11,106,549
19,227 Google, Inc., Class A (b) 11,420,261
331,413 VeriSign, Inc. 10,827,263
696,128 Yahoo!, Inc. (b) 11,576,609
____________
55,438,452
____________
IT Services -- 5.1%
156,920 Cognizant Technology Solutions
Corp., Class A (b) 11,500,667
154,022 Infosys Technologies Ltd., ADR 11,717,993
____________
23,218,660
____________
Semiconductors & Semiconductor
Equipment -- 32.6%
310,319 Altera Corp. 11,041,150
834,742 Applied Materials, Inc. 11,728,125
259,258 Broadcom Corp., Class A 11,290,686
529,396 Intel Corp. 11,133,198
285,232 KLA-Tencor Corp. 11,021,364
219,111 Lam Research Corp. (b) 11,345,568
325,340 Linear Technology Corp. 11,253,511
602,373 Marvell Technology Group Ltd. (b) 11,174,019
476,747 Maxim Integrated Products, Inc. 11,260,764
333,163 Microchip Technology, Inc. 11,397,506
1,383,777 Micron Technology, Inc. (b) 11,097,892
790,594 NVIDIA Corp. (b) 12,175,148
402,724 Xilinx, Inc. 11,670,941
____________
147,589,872
____________
Software -- 25.0%
394,610 Adobe Systems, Inc. (b) 12,146,096
290,332 Autodesk, Inc. (b) 11,090,682
235,409 BMC Software, Inc. (b) 11,097,180
456,441 CA, Inc. 11,155,418
248,761 Check Point Software
Technologies Ltd. (b) 11,507,684
Shares Description Value
--------- --------------------------------- ---------------
Software (Continued)
164,150 Citrix Systems, Inc. (b) $ 11,229,502
230,025 Intuit, Inc. (b) 11,340,232
408,809 Microsoft Corp. 11,413,947
361,923 Oracle Corp. 11,328,190
670,651 Symantec Corp. (b) 11,226,698
____________
113,535,629
____________
Total Investments -- 100.0%
(Cost $406,553,346) (c) 453,437,749
Net Other Assets and
Liabilities -- 0.0% (22,249)
____________
Net Assets -- 100.0% $453,415,500
============
(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 $410,553,708. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$46,297,785 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$3,413,744.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
___________________________________________
Common Stocks* $453,437,749 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
Page 54 See Notes to Financial Statements
First Trust NYSE Arca Biotechnology Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Biotechnology -- 70.1%
134,751 Alexion Pharmaceuticals,
Inc. (b) $ 10,854,193
160,965 Amgen, Inc. (b) 8,836,978
433,934 Amylin Pharmaceuticals, Inc. (b) 6,383,169
158,366 Biogen Idec, Inc. (b) 10,618,440
1,552,672 Celera Corp. (b) 9,781,833
156,849 Celgene Corp. (b) 9,276,050
142,983 Cephalon, Inc. (b) 8,824,911
241,339 Dendreon Corp. (b) 8,427,558
126,518 Genzyme Corp. (b) 9,008,082
241,772 Gilead Sciences, Inc. (b) 8,761,817
333,628 Human Genome Sciences,
Inc. (b) 7,970,373
625,012 InterMune, Inc. (b) 22,750,437
472,063 Myriad Genetics, Inc. (b) 10,781,919
253,255 Vertex Pharmaceuticals, Inc. (b) 8,871,523
____________
141,147,283
____________
Life Sciences Tools &
Services -- 26.1%
1,973,940 Affymetrix, Inc. (b) 9,928,918
187,395 Illumina, Inc. (b) 11,869,600
193,894 Life Technologies Corp. (b) 10,761,117
496,760 QIAGEN N.V. (b) 9,711,658
1,275,154 Sequenom, Inc. (b) 10,226,735
____________
52,498,028
____________
Pharmaceuticals -- 3.8%
587,965 Nektar Therapeutics (b) 7,555,350
____________
Total Investments -- 100.0% 201,200,661
(Cost $174,194,545) (c)
Net Other Assets and
Liabilities -- 0.0% 19,206
____________
Net Assets -- 100.0% $201,219,867
============
(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 $186,193,337. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$27,798,109 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$12,790,785.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
___________________________________________
Common Stocks* $201,200,661 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 55
First Trust Dow Jones Internet Index(SM) Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Capital Markets -- 4.9%
824,806 E*TRADE Financial Corp. (b) $ 13,196,896
808,974 TD Ameritrade Holding Corp. 15,362,416
____________
28,559,312
____________
Communications
Equipment -- 7.3%
770,318 Juniper Networks, Inc. (b) 28,440,141
251,930 NETGEAR, Inc. (b) 8,485,002
2,286,101 Sonus Networks, Inc. (b) 6,103,890
____________
43,029,033
____________
Health Care Technology -- 2.4%
741,410 Allscripts Healthcare Solutions,
Inc. (b) 14,286,971
____________
Internet & Catalog
Retail -- 19.3%
250,428 Amazon.com, Inc. (b) 45,077,040
130,411 Blue Nile, Inc. (b) 7,441,252
618,844 Expedia, Inc. 15,526,796
105,649 Netflix, Inc. (b) 18,562,529
68,208 priceline.com, Inc. (b) 27,252,506
____________
113,860,123
____________
Internet Software &
Services -- 47.1%
402,017 Akamai Technologies, Inc. (b) 18,914,900
1,288,590 Art Technology Group, Inc. (b) 7,705,768
246,092 Constant Contact, Inc. (b) 7,626,391
359,349 DealerTrack Holdings, Inc. (b) 7,212,134
250,928 Digital River, Inc. (b) 8,636,942
866,002 EarthLink, Inc. 7,447,617
1,154,884 eBay, Inc. (b) 32,140,422
100,978 Google, Inc., Class A (b) 59,977,903
394,355 IAC/InterActiveCorp (b) 11,317,989
818,755 Internap Network Services
Corp. (b) 4,978,030
302,965 j2 Global Communications,
Inc. (b) 8,770,837
541,829 Monster Worldwide, Inc. (b) 12,803,419
637,872 NIC, Inc. 6,193,737
1,293,835 RealNetworks, Inc. (b) 5,434,107
937,077 United Online, Inc. 6,184,708
537,799 ValueClick, Inc. (b) 8,620,918
496,159 VeriSign, Inc. 16,209,515
218,793 Vocus, Inc. (b) 6,051,814
250,019 WebMD Health Corp. (b) 12,765,970
1,719,611 Yahoo!, Inc. (b) 28,597,131
____________
277,590,252
____________
IT Services -- 1.5%
717,986 Sapient Corp. 8,687,630
____________
Software -- 17.5%
468,838 Ariba, Inc. (b) 11,013,005
426,740 Check Point Software
Technologies Ltd. (b) 19,740,992
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.
Software (Continued)
217,157 Concur Technologies, Inc. (b) $ 11,276,963
307,223 Ebix, Inc. (b) 7,271,968
367,424 Quest Software, Inc. (b) 10,192,342
178,946 Salesforce.com, Inc. (b) 23,620,872
655,277 TIBCO Software, Inc. (b) 12,915,510
343,444 Websense, Inc. (b) 6,954,741
____________
102,986,393
____________
Total Common Stocks -- 100.0% 588,999,714
(Cost $510,472,914)
Money Market Fund -- 0.1%
861,706 Morgan Stanley Institutional
Treasury Money Market
Fund - 0.02% (c) 861,706
(Cost $861,706) ____________
Total Investments -- 100.1% 589,861,420
(Cost $511,334,620) (d)
Net Other Assets and
Liabilities -- (0.1)% (381,841)
____________
Net Assets -- 100.0% $589,479,579
============
(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, 2010.
(d) Aggregate cost for federal income tax purposes is $515,161,491. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$75,798,229 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,098,300.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
___________________________________________
Common Stocks* $588,999,714 $ -- $ --
Money Market Fund 861,706 -- --
___________________________________________
Total Investments $589,861,420 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
Page 56 See Notes to Financial Statements
First Trust Strategic Value Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 99.9%
Aerospace & Defense -- 3.9%
10,394 General Dynamics Corp. $ 737,558
11,015 Northrop Grumman Corp. 713,552
____________
1,451,110
____________
Biotechnology -- 5.8%
11,504 Biogen Idec, Inc. (b) 771,344
11,537 Celgene Corp. (b) 682,298
18,138 Gilead Sciences, Inc. (b) 657,321
____________
2,110,963
____________
Capital Markets -- 4.0%
4,321 Goldman Sachs Group (The), Inc. 726,619
27,265 Morgan Stanley 741,881
____________
1,468,500
____________
Computers & Peripherals -- 1.9%
16,314 Hewlett-Packard Co. 686,819
____________
Consumer Finance -- 4.1%
18,295 Capital One Financial Corp. 778,635
38,366 Discover Financial Services 710,922
____________
1,489,557
____________
Diversified Financial
Services -- 6.4%
59,273 Bank of America Corp. 790,702
166,045 Citigroup, Inc. (b) 785,393
18,065 JPMorgan Chase & Co. 766,317
____________
2,342,412
____________
Diversified Telecommunication
Services -- 2.1%
16,701 CenturyLink, Inc. 771,085
____________
Energy Equipment &
Services -- 1.9%
10,311 Diamond Offshore Drilling, Inc. 689,497
____________
Food & Staples Retailing -- 2.2%
22,817 CVS Caremark Corp. 793,347
____________
Food Products -- 1.9%
22,781 Archer-Daniels-Midland Co. 685,253
____________
Health Care Equipment &
Supplies -- 4.3%
18,841 St. Jude Medical, Inc. (b) 805,453
14,164 Zimmer Holdings, Inc. (b) 760,323
____________
1,565,776
____________
Health Care Providers &
Services -- 9.8%
23,283 Aetna, Inc. 710,364
19,239 CIGNA Corp. 705,302
10,723 McKesson Corp. 754,685
19,537 UnitedHealth Group, Inc. 705,481
12,678 WellPoint, Inc. (b) 720,871
____________
3,596,703
____________
Shares Description Value
--------- --------------------------------- ---------------
Insurance -- 11.8%
11,548 ACE Ltd. $ 718,863
23,059 Allstate (The) Corp. 735,121
11,981 Chubb (The) Corp. 714,547
17,943 Loews Corp. 698,162
12,934 Prudential Financial, Inc. 759,355
12,561 Travelers (The) Cos., Inc. 699,773
____________
4,325,821
____________
Media -- 6.1%
34,139 Comcast Corp., Class A 750,034
48,744 News Corp., Class A 709,713
11,535 Time Warner Cable, Inc. 761,656
____________
2,221,403
____________
Metals & Mining -- 4.2%
6,921 Freeport-McMoRan Copper &
Gold, Inc. 831,143
11,687 Newmont Mining Corp. 717,932
____________
1,549,075
____________
Oil, Gas & Consumable
Fuels -- 8.8%
8,445 Chevron Corp. 770,606
10,382 Hess Corp. 794,638
21,253 Marathon Oil Corp. 786,999
37,981 Valero Energy Corp. 878,121
____________
3,230,364
____________
Pharmaceuticals -- 9.5%
14,131 Abbott Laboratories 677,016
26,797 Bristol-Myers Squibb Co. 709,584
20,106 Eli Lilly & Co. 704,514
21,165 Forest Laboratories, Inc. (b) 676,857
41,368 Pfizer, Inc. 724,354
____________
3,492,325
____________
Real Estate Investment
Trusts -- 2.0%
40,121 Annaly Capital Management, Inc. 718,968
____________
Semiconductors & Semiconductor
Equipment -- 3.7%
34,286 Intel Corp. 721,035
35,038 Marvell Technology Group Ltd. (b) 649,955
____________
1,370,990
____________
Software -- 2.0%
26,491 Microsoft Corp. 739,629
____________
Specialty Retail -- 1.5%
16,460 Best Buy Co., Inc. 564,413
____________
Textiles, Apparel & Luxury
Goods -- 2.0%
8,607 VF Corp. 741,751
____________
See Notes to Financial Statements Page 57
First Trust Strategic Value Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Description Value
--------------------------------- ---------------
Total Investments -- 99.9% $ 36,605,761
(Cost $33,296,578) (c)
Net Other Assets and
Liabilities -- 0.1% 26,969
____________
Net Assets -- 100.0% $ 36,632,730
============
(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 $33,728,355. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$3,375,131 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$497,725.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $36,605,761 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
Page 58 See Notes to Financial Statements
First Trust Value Line(R) Equity Allocation Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Aerospace & Defense -- 0.9%
1,334 Ceradyne, Inc. (b) $ 42,061
401 Cubic Corp. 18,907
____________
60,968
____________
Airlines -- 0.9%
570 Alaska Air Group, Inc. (b) 32,313
4,873 JetBlue Airways Corp. (b) 32,211
____________
64,524
____________
Auto Components -- 2.0%
1,914 Magna International, Inc. 99,528
791 TRW Automotive Holdings Corp. (b) 41,686
____________
141,214
____________
Automobiles -- 1.3%
2,272 Honda Motor Co., Ltd., ADR 89,744
____________
Beverages -- 1.4%
486 Brown-Forman Corp., Class B 33,835
658 Hansen Natural Corp. (b) 34,400
639 Molson Coors Brewing Co., Class B 32,072
____________
100,307
____________
Biotechnology -- 1.9%
1,302 Biogen Idec, Inc. (b) 87,299
889 Cubist Pharmaceuticals, Inc. (b) 19,025
1,212 Myriad Genetics, Inc. (b) 27,682
____________
134,006
____________
Building Products -- 0.3%
573 A.O. Smith Corp. 21,820
____________
Capital Markets -- 0.9%
3,981 American Capital Ltd. (b) 30,096
1,426 Federated Investors, Inc., Class B 37,319
____________
67,415
____________
Chemicals -- 2.2%
963 Air Products and Chemicals, Inc. 87,585
601 Cytec Industries, Inc. 31,889
319 Lubrizol (The) Corp. 34,095
____________
153,569
____________
Commercial Banks -- 1.0%
5,149 Huntington Bancshares, Inc. 35,374
3,727 KeyCorp 32,984
____________
68,358
____________
Commercial Services &
Supplies -- 0.4%
1,098 Deluxe Corp. 25,276
____________
Communications Equipment -- 2.5%
984 ADTRAN, Inc. 35,631
666 Black Box Corp. 25,501
751 InterDigital, Inc. (b) 31,272
9,536 Motorola, Inc. (b) 86,491
____________
178,895
____________
Shares Description Value
--------- --------------------------------- ---------------
Computers & Peripherals -- 1.2%
1,754 SanDisk Corp. (b) $ 87,454
____________
Construction & Engineering
-- 0.4%
856 Layne Christensen Co. (b) 29,463
____________
Consumer Finance -- 0.4%
818 First Cash Financial Services, Inc. (b) 25,350
____________
Containers & Packaging -- 0.5%
510 Ball Corp. 34,705
____________
Diversified Financial Services
-- 2.8%
18,777 Citigroup, Inc. (b) 88,815
1,461 NASDAQ OMX Group (The), Inc. (b) 34,640
2,476 NYSE Euronext 74,231
____________
197,686
____________
Diversified Telecommunication
Services -- 3.5%
2,367 BCE, Inc. 83,934
2,021 CenturyLink, Inc. 93,310
1,089 Telefonica S.A., ADR 74,509
____________
251,753
____________
Electric Utilities -- 3.8%
689 Cleco Corp. 21,194
4,283 Duke Energy Corp. 76,280
899 El Paso Electric Co. (b) 24,749
1,027 Otter Tail Corp. 23,149
1,695 PNM Resources, Inc. 22,069
1,706 Progress Energy, Inc. 74,177
1,222 Westar Energy, Inc. 30,745
____________
272,363
____________
Electrical Equipment -- 0.4%
563 II-VI, Inc. (b) 26,101
____________
Electronic Equipment, Instruments
& Components -- 2.1%
1,420 Insight Enterprises, Inc. (b) 18,687
2,726 Tyco Electronics Ltd. 96,501
2,280 Vishay Intertechnology, Inc. (b) 33,470
____________
148,658
____________
Energy Equipment & Services
-- 0.5%
375 Core Laboratories N.V. 33,394
____________
Food & Staples Retailing -- 0.6%
577 Ruddick Corp. 21,257
539 Weis Markets, Inc. 21,738
____________
42,995
____________
Food Products -- 4.3%
2,291 Archer-Daniels-Midland Co. 68,913
2,013 Campbell Soup Co. 69,952
937 Fresh Del Monte Produce, Inc. 23,378
679 Hormel Foods Corp. 34,805
501 J.M. Smucker (The) Co. 32,891
See Notes to Financial Statements Page 59
First Trust Value Line(R) Equity Allocation Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Food Products (Continued)
398 Lancaster Colony Corp. $ 22,766
733 McCormick & Co., Inc. 34,106
452 Sanderson Farms, Inc. 17,696
____________
304,507
____________
Health Care Equipment &
Supplies -- 3.3%
1,027 Becton, Dickinson & Co. 86,802
727 Cooper (The) Cos., Inc. 40,959
865 Cyberonics, Inc. (b) 26,832
563 ICU Medical, Inc. (b) 20,549
1,056 Meridian Bioscience, Inc. 24,457
527 Varian Medical Systems, Inc. (b) 36,511
____________
236,110
____________
Health Care Providers &
Services -- 3.7%
2,183 CIGNA Corp. 80,029
1,477 Humana, Inc. (b) 80,851
617 LifePoint Hospitals, Inc. (b) 22,675
2,275 UnitedHealth Group, Inc. 82,150
____________
265,705
____________
Hotels, Restaurants & Leisure
-- 3.3%
1,013 McDonald's Corp. 77,758
820 Tim Hortons, Inc. 33,809
1,171 Wyndham Worldwide Corp. 35,083
1,783 Yum! Brands, Inc. 87,456
____________
234,106
____________
Household Durables -- 1.6%
823 M.D.C. Holdings, Inc. 23,678
2,428 Sony Corp., ADR 86,704
____________
110,382
____________
Household Products -- 2.3%
1,133 Clorox (The) Co. 71,696
1,124 Kimberly-Clark Corp. 70,857
557 WD-40 Co. 22,436
____________
164,989
____________
Insurance -- 9.2%
1,364 ACE Ltd. 84,909
100 Alleghany Corp. (b) 30,637
959 Axis Capital Holdings Ltd. 34,409
949 Berkshire Hathaway, Inc., Class B (b) 76,024
1,372 Chubb (The) Corp. 81,826
1,056 CNA Financial Corp. (b) 28,565
368 Everest Re Group Ltd. 31,214
668 Hanover Insurance Group, Inc. 31,209
90 Markel Corp. (b) 34,032
402 PartnerRe Ltd. 32,301
624 Reinsurance Group of America, Inc. 33,515
402 RLI Corp. 21,133
1,290 Selective Insurance Group, Inc. 23,413
Shares Description Value
--------- --------------------------------- ---------------
Insurance (Continued)
621 Transatlantic Holdings, Inc. $ 32,056
1,453 Travelers (The) Cos., Inc. 80,947
____________
656,190
____________
Internet & Catalog Retail -- 1.9%
220 Netflix, Inc. (b) 38,654
245 priceline.com, Inc. (b) 97,890
____________
136,544
____________
IT Services -- 3.6%
1,250 Cognizant Technology Solutions
Corp., Class A (b) 91,612
708 DST Systems, Inc. 31,400
570 International Business Machines Corp. 83,653
346 MAXIMUS, Inc. 22,691
598 Wright Express Corp. (b) 27,508
____________
256,864
____________
Leisure Equipment & Products
-- 2.2%
681 Hasbro, Inc. 32,129
3,351 Mattel, Inc. 85,216
535 Polaris Industries, Inc. 41,741
____________
159,086
____________
Life Sciences Tools & Services
-- 0.5%
976 Charles River Laboratories
International, Inc. (b) 34,687
____________
Marine -- 0.2%
1,240 Genco Shipping & Trading Ltd. (b) 17,856
____________
Media -- 3.7%
4,077 Comcast Corp., Class A 89,572
1,889 DIRECTV, Class A (b) 75,428
2,365 Time Warner, Inc. 76,082
623 Valassis Communications, Inc. (b) 20,154
____________
261,236
____________
Multiline Retail -- 1.8%
1,206 99 Cents Only Stores (b) 19,224
979 Dillard's, Inc., Class A 37,143
689 Dollar Tree, Inc. (b) 38,639
679 Family Dollar Stores, Inc. 33,753
____________
128,759
____________
Multi-Utilities -- 2.9%
938 Avista Corp. 21,124
1,532 Consolidated Edison, Inc. 75,941
1,533 MDU Resources Group, Inc. 31,074
3,250 Xcel Energy, Inc. 76,537
____________
204,676
____________
Oil, Gas & Consumable Fuels -- 1.8%
580 Alliance Resource Partners L.P. (c) 38,141
1,324 ConocoPhillips 90,164
____________
128,305
____________
Page 60 See Notes to Financial Statements
First Trust Value Line(R) Equity Allocation Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Personal Products -- 0.8%
534 Herbalife Ltd. $ 36,510
731 Nu Skin Enterprises, Inc., Class A 22,120
____________
58,630
____________
Pharmaceuticals -- 7.9%
1,455 Abbott Laboratories 69,709
2,768 Bristol-Myers Squibb Co. 73,296
2,041 Eli Lilly & Co. 71,517
2,613 Forest Laboratories, Inc. (b) 83,564
1,910 GlaxoSmithKline PLC, ADR 74,910
730 Medicis Pharmaceutical Corp., Class A 19,557
2,082 Merck & Co., Inc. 75,035
844 Novo Nordisk A/S, ADR 95,009
____________
562,597
____________
Semiconductors & Semiconductor
Equipment -- 3.9%
1,041 Cirrus Logic, Inc. (b) 16,635
2,419 Fairchild Semiconductor
International, Inc. (b) 37,761
3,956 Micron Technology, Inc. (b) 31,727
7,511 Taiwan Semiconductor Manufacturing
Co., Ltd., ADR 94,188
3,001 Texas Instruments, Inc. 97,532
____________
277,843
____________
Software -- 0.4%
2,193 Mentor Graphics Corp. (b) 26,316
____________
Specialty Retail -- 4.7%
537 Advance Auto Parts, Inc. 35,523
1,261 Aeropostale, Inc. (b) 31,071
350 AutoZone, Inc. (b) 95,406
482 Children's Place Retail Stores
(The), Inc. (b) 23,926
1,518 Foot Locker, Inc. 29,783
512 Jos. A. Bank Clothiers, Inc. (b) 20,644
1,543 Penske Automotive Group, Inc. (b) 26,879
946 Rent-A-Center, Inc. 30,537
594 Ross Stores, Inc. 37,571
____________
331,340
____________
Textiles, Apparel & Luxury
Goods -- 1.7%
642 Deckers Outdoor Corp. (b) 51,193
667 Fossil, Inc. (b) 47,010
1,074 Iconix Brand Group, Inc. (b) 20,739
____________
118,942
____________
Thrifts & Mortgage Finance -- 0.8%
1,800 New York Community Bancorp, Inc. 33,930
1,719 Provident Financial Services, Inc. 26,008
____________
59,938
____________
Tobacco -- 1.2%
1,401 Philip Morris International, Inc. 82,000
____________
Shares Description Value
--------- --------------------------------- ---------------
Wireless Telecommunication
Services -- 0.4%
940 Syniverse Holdings, Inc. (b) $ 28,999
____________
Total Common Stocks -- 100.0% 7,102,625
(Cost $6,058,379)
Money Market Fund -- 0.3%
21,235 Morgan Stanley Institutional
Treasury Money Market
Fund - 0.02% (d) 21,235
(Cost $21,235) ____________
Total Investments -- 100.3% 7,123,860
(Cost $6,079,614) (e)
Net Other Assets and
Liabilities -- (0.3)% (18,208)
____________
Net Assets -- 100.0% $ 7,105,652
============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Non-income producing security.
(c) Master Limited Partnership ("MLP").
(d) Represents annualized 7-day yield at December 31, 2010.
(e) Aggregate cost for federal income tax purposes is $6,082,365. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,077,485 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was $35,990.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $ 7,102,625 $ -- $ --
Money Market Fund 21,235 -- --
__________________________________________
Total Investments $ 7,123,860 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 61
First Trust Value Line(R) Dividend Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Aerospace & Defense -- 4.9%
20,586 Boeing (The) Co. $ 1,343,442
26,251 Elbit Systems Ltd. 1,389,203
18,746 General Dynamics Corp. 1,330,216
24,965 Honeywell International, Inc. 1,327,139
19,232 Lockheed Martin Corp. 1,344,509
20,620 Northrop Grumman Corp. 1,335,764
29,249 Raytheon Co. 1,355,399
16,814 United Technologies Corp. 1,323,598
____________
10,749,270
____________
Air Freight & Logistics -- 0.6%
18,307 United Parcel Service, Inc., Class B 1,328,722
____________
Beverages -- 2.5%
18,994 Brown-Forman Corp., Class B 1,322,362
20,484 Coca-Cola (The) Co. 1,347,233
26,388 Molson Coors Brewing Co., Class B 1,324,414
20,376 PepsiCo, Inc. 1,331,164
____________
5,325,173
____________
Capital Markets -- 0.6%
50,679 Federated Investors, Inc., Class B 1,326,269
____________
Chemicals -- 3.7%
14,664 Air Products and Chemicals, Inc. 1,333,691
26,856 E.I. du Pont de Nemours & Co. 1,339,577
24,094 International Flavors &
Fragrances, Inc. 1,339,385
16,056 PPG Industries, Inc. 1,349,828
13,975 Praxair, Inc. 1,334,193
15,818 Sherwin-Williams (The) Co. 1,324,758
____________
8,021,432
____________
Commercial Banks -- 5.5%
27,954 Bank of Hawaii Corp. 1,319,708
23,608 Bank of Montreal 1,359,113
23,623 Bank of Nova Scotia 1,351,236
24,541 BOK Financial Corp. 1,310,490
17,125 Canadian Imperial Bank of
Commerce 1,342,600
33,514 Commerce Bancshares, Inc. 1,331,511
21,609 Cullen/Frost Bankers, Inc. 1,320,742
25,937 Royal Bank of Canada 1,358,061
18,156 Toronto-Dominion (The) Bank 1,349,172
____________
12,042,633
____________
Commercial Services &
Supplies -- 1.2%
31,370 Avery Dennison Corp. 1,328,206
36,396 Waste Management, Inc. 1,341,920
____________
2,670,126
____________
Communications Equipment
-- 0.6%
130,418 Nokia Corp., ADR 1,345,914
____________
Shares Description Value
--------- --------------------------------- ---------------
Computers & Peripherals -- 0.6%
41,189 Diebold, Inc. $ 1,320,108
____________
Containers & Packaging -- 1.2%
40,231 Bemis Co., Inc. 1,313,944
39,270 Sonoco Products Co. 1,322,221
____________
2,636,165
____________
Distributors -- 0.6%
25,956 Genuine Parts Co. 1,332,581
____________
Diversified Telecommunication
Services -- 2.5%
45,569 AT&T, Inc. 1,338,817
28,726 CenturyLink, Inc. 1,326,280
19,664 Telefonica S.A., ADR 1,345,411
37,545 Verizon Communications, Inc. 1,343,360
____________
5,353,868
____________
Electric Utilities -- 6.1%
35,629 ALLETE, Inc. 1,327,537
74,880 Duke Energy Corp. 1,333,613
18,658 Entergy Corp. 1,321,546
31,902 Exelon Corp. 1,328,399
35,781 FirstEnergy Corp. 1,324,613
25,559 NextEra Energy, Inc. 1,328,812
30,640 Progress Energy, Inc. 1,332,227
34,819 Southern Co. 1,331,130
44,062 UIL Holdings Corp. 1,320,098
52,661 Westar Energy, Inc. 1,324,951
____________
13,272,926
___________
Electrical Equipment -- 1.8%
22,748 Cooper Industries PLC 1,325,981
23,274 Emerson Electric Co. 1,330,574
21,943 Hubbell, Inc., Class B 1,319,433
____________
3,975,988
____________
Electronic Equipment, Instruments
& Components -- 0.6%
58,052 Molex, Inc. 1,318,942
____________
Food & Staples Retailing -- 2.5%
45,867 Sysco Corp. 1,348,490
34,211 Walgreen Co. 1,332,860
24,881 Wal-Mart Stores, Inc. 1,341,832
32,620 Weis Markets, Inc. 1,315,565
____________
5,338,747
____________
Food Products -- 7.9%
44,296 Archer-Daniels-Midland Co. 1,332,424
38,623 Campbell Soup Co. 1,342,149
59,424 ConAgra Foods, Inc. 1,341,794
37,356 General Mills, Inc. 1,329,500
26,921 H. J. Heinz Co. 1,331,513
27,932 Hershey (The) Co. 1,316,994
20,244 J.M. Smucker (The) Co. 1,329,019
26,099 Kellogg Co. 1,333,137
42,165 Kraft Foods, Inc., Class A 1,328,619
23,017 Lancaster Colony Corp. 1,316,572
Page 62 See Notes to Financial Statements
First Trust Value Line(R) Dividend Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Food Products (Continued)
28,395 McCormick & Co., Inc. $ 1,321,219
76,120 Sara Lee Corp. 1,332,861
43,262 Unilever PLC, ADR 1,335,931
____________
17,291,732
____________
Gas Utilities -- 5.5%
36,588 AGL Resources, Inc. 1,311,680
42,529 Atmos Energy Corp. 1,326,905
20,703 National Fuel Gas Co. 1,358,531
30,473 New Jersey Resources Corp. 1,313,691
28,114 Northwest Natural Gas Co. 1,306,457
47,248 Piedmont Natural Gas Co., Inc. 1,321,054
24,890 South Jersey Industries, Inc. 1,314,690
42,165 UGI Corp. 1,331,571
36,789 WGL Holdings, Inc. 1,315,942
____________
11,900,521
____________
Health Care Equipment &
Supplies -- 3.1%
8,216 Alcon, Inc. 1,342,494
15,846 Becton, Dickinson & Co. 1,339,304
29,033 Covidien PLC 1,325,647
36,117 Medtronic, Inc. 1,339,580
24,287 Teleflex, Inc. 1,306,883
____________
6,653,908
____________
Health Care Providers &
Services -- 1.2%
34,334 Cardinal Health, Inc. 1,315,335
44,311 Owens & Minor, Inc. 1,304,073
____________
2,619,408
____________
Hotels, Restaurants & Leisure
-- 1.2%
17,440 McDonald's Corp. 1,338,694
26,916 Yum! Brands, Inc. 1,320,230
____________
2,658,924
____________
Household Durables -- 1.2%
57,575 Leggett & Platt, Inc. 1,310,407
19,809 Stanley Black & Decker, Inc. 1,324,628
____________
2,635,035
____________
Household Products -- 2.4%
20,892 Clorox (The) Co. 1,322,046
16,576 Colgate-Palmolive Co. 1,332,213
21,106 Kimberly-Clark Corp. 1,330,522
20,611 Procter & Gamble (The) Co. 1,325,906
____________
5,310,687
____________
Industrial Conglomerates -- 0.6%
15,318 3M Co. 1,321,943
____________
Insurance -- 6.1%
21,477 ACE Ltd. 1,336,943
45,319 Arthur J. Gallagher & Co. 1,317,877
22,210 Chubb (The) Corp. 1,324,604
Shares Description Value
--------- --------------------------------- ---------------
Insurance (Continued)
41,549 Cincinnati Financial Corp. $ 1,316,688
20,643 Erie Indemnity Co., Class A 1,351,497
15,581 Everest Re Group Ltd. 1,321,581
30,896 Mercury General Corp. 1,328,837
16,641 PartnerRe Ltd. 1,337,104
25,598 RLI Corp. 1,345,687
23,892 Travelers (The) Cos., Inc. 1,331,023
____________
13,311,841
____________
IT Services -- 1.8%
27,625 Accenture PLC, Class A 1,339,536
28,620 Automatic Data Processing, Inc. 1,324,534
43,402 Paychex, Inc. 1,341,556
____________
4,005,626
____________
Leisure Equipment & Products
-- 0.6%
27,476 Hasbro, Inc. 1,296,318
____________
Machinery -- 2.4%
22,803 Dover Corp. 1,332,835
13,115 Eaton Corp. 1,331,304
24,895 Illinois Tool Works, Inc. 1,329,393
23,245 Snap-on, Inc. 1,315,202
____________
5,308,734
____________
Media -- 1.9%
35,686 Thomson Reuters Corp. 1,330,017
41,303 Time Warner, Inc. 1,328,718
3,092 Washington Post (The) Co., Class B 1,358,934
____________
4,017,669
____________
Multi-Utilities -- 8.5%
36,071 Alliant Energy Corp. 1,326,331
58,664 Avista Corp. 1,321,113
26,845 Consolidated Edison, Inc. 1,330,707
31,077 Dominion Resources, Inc. 1,327,609
66,512 MDU Resources Group, Inc. 1,348,198
31,501 NSTAR 1,329,027
29,280 OGE Energy Corp. 1,333,411
27,631 PG&E Corp. 1,321,867
42,408 Public Service Enterprise Group,
Inc. 1,348,999
32,676 SCANA Corp. 1,326,646
25,534 Sempra Energy 1,340,024
52,312 Vectren Corp. 1,327,679
22,549 Wisconsin Energy Corp. 1,327,234
56,815 Xcel Energy, Inc. 1,337,993
____________
18,646,838
____________
Office Electronics -- 0.6%
25,706 CANON, Inc., ADR 1,319,746
____________
Oil, Gas & Consumable Fuels
-- 4.9%
14,790 Chevron Corp. 1,349,587
19,848 ConocoPhillips 1,351,649
24,125 Enbridge, Inc. 1,360,650
See Notes to Financial Statements Page 63
First Trust Value Line(R) Dividend Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Oil, Gas & Consumable Fuels
(Continued)
18,256 Exxon Mobil Corp. $ 1,334,879
36,507 Marathon Oil Corp. 1,351,854
20,170 Royal Dutch Shell PLC,
Class A, ADR 1,346,953
25,219 Total S.A., ADR 1,348,712
34,885 TransCanada Corp. 1,327,025
____________
10,771,309
____________
Pharmaceuticals -- 5.5%
28,132 Abbott Laboratories 1,347,804
50,296 Bristol-Myers Squibb Co. 1,331,838
38,006 Eli Lilly & Co. 1,331,730
34,046 GlaxoSmithKline PLC, ADR 1,335,284
21,523 Johnson & Johnson 1,331,198
36,789 Merck & Co., Inc. 1,325,876
22,740 Novartis AG, ADR 1,340,523
76,208 Pfizer, Inc. 1,334,402
41,471 Sanofi-Aventis, ADR 1,336,610
____________
12,015,265
____________
Real Estate Investment
Trusts -- 0.6%
13,144 Public Storage 1,333,065
____________
Semiconductors & Semiconductor
Equipment -- 2.4%
34,965 Analog Devices, Inc. 1,317,132
94,663 Applied Materials, Inc. 1,330,015
63,957 Intel Corp. 1,345,016
45,976 Xilinx, Inc. 1,332,384
____________
5,324,547
____________
Software -- 0.6%
47,484 Microsoft Corp. 1,325,753
____________
Specialty Retail -- 0.6%
37,822 Home Depot (The), Inc. 1,326,039
____________
Textiles, Apparel & Luxury
Goods -- 0.6%
15,391 VF Corp. 1,326,396
____________
Thrifts & Mortgage Finance
-- 0.6%
113,723 Capitol Federal Financial, Inc. 1,354,441
____________
Tobacco -- 3.1%
53,963 Altria Group, Inc. 1,328,569
17,278 British American Tobacco PLC, ADR 1,342,501
16,185 Lorillard, Inc. 1,328,141
22,746 Philip Morris International, Inc. 1,331,323
40,835 Reynolds American, Inc. 1,332,038
____________
6,662,572
____________
Wireless Telecommunication
Services -- 0.6%
50,089 Vodafone Group PLC, ADR 1,323,852
____________
Total Investments -- 100.0% $218,421,033
(Cost $183,916,593) (b)
Net Other Assets and
Liabilities -- 0.0% 88,559
____________
Net Assets -- 100.0% $218,509,592
============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) Aggregate cost for federal income tax purposes is $192,945,070. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$28,117,835 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,641,872.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $218,421,033 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
Page 64 See Notes to Financial Statements
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (b) -- 100.1%
Air Freight & Logistics -- 3.4%
4,687 C.H. Robinson Worldwide, Inc. $ 375,851
6,690 Expeditors International of
Washington, Inc. 365,274
____________
741,125
____________
Biotechnology -- 11.5%
6,449 Amgen, Inc. (c) 354,050
5,434 Biogen Idec, Inc. (c) 364,350
6,247 Celgene Corp. (c) 369,448
5,676 Cephalon, Inc. (c) 350,323
5,306 Genzyme Corp. (c) 377,787
9,956 Gilead Sciences, Inc. (c) 360,805
10,445 Vertex Pharmaceuticals, Inc. (c) 365,888
____________
2,542,651
____________
Chemicals -- 1.7%
5,547 Sigma-Aldrich Corp. 369,208
____________
Commercial Services & Supplies
-- 1.7%
4,702 Stericycle, Inc. (c) 380,486
____________
Diversified Consumer Services
-- 1.7%
9,623 Apollo Group, Inc., Class A (c) 380,012
____________
Electronic Equipment, Instruments
& Components -- 3.5%
48,403 Flextronics International Ltd. (c) 379,964
13,015 FLIR Systems, Inc. (c) 387,196
____________
767,160
____________
Food & Staples Retailing -- 3.3%
5,154 Costco Wholesale Corp. 372,170
7,285 Whole Foods Market, Inc. (c) 368,548
____________
740,718
____________
Health Care Equipment & Supplies
-- 3.3%
10,752 DENTSPLY International, Inc. 367,396
1,393 Intuitive Surgical, Inc. (c) 359,046
____________
726,442
____________
Health Care Providers & Services
-- 3.3%
6,743 Express Scripts, Inc. (c) 364,459
5,964 Henry Schein, Inc. (c) 366,130
____________
730,589
____________
Hotels, Restaurants & Leisure
-- 4.9%
9,014 Ctrip.com International Ltd., ADR (c) 364,616
11,303 Starbucks Corp. 363,165
3,528 Wynn Resorts Ltd. 366,348
____________
1,094,129
____________
Household Durables -- 1.6%
11,659 Garmin Ltd. 361,312
____________
Shares Description Value
--------- --------------------------------- ---------------
Internet & Catalog Retail -- 8.2%
2,085 Amazon.com, Inc. (c) $ 375,300
13,801 Expedia, Inc. 346,267
23,186 Liberty Media Corp. - Interactive,
Class A (c) 365,643
2,057 Netflix, Inc. (c) 361,415
924 priceline.com, Inc. (c) 369,184
____________
1,817,809
____________
Internet Software & Services
-- 1.6%
12,434 eBay, Inc. (c) 346,038
____________
IT Services -- 4.9%
7,902 Automatic Data Processing, Inc. 365,705
6,126 Fiserv, Inc. (c) 358,738
11,945 Paychex, Inc. 369,220
____________
1,093,663
____________
Leisure Equipment & Products
-- 1.7%
14,430 Mattel, Inc. 366,955
____________
Life Sciences Tools & Services
-- 5.0%
5,807 Illumina, Inc. (c) 367,815
6,675 Life Technologies Corp. (c) 370,463
19,057 QIAGEN N.V. (c) 372,564
____________
1,110,842
____________
Machinery -- 3.4%
4,328 Joy Global, Inc. 375,454
6,554 PACCAR, Inc. 376,331
____________
751,785
____________
Media -- 6.8%
17,295 Comcast Corp., Class A 379,971
9,432 DIRECTV, Class A (c) 376,620
25,590 News Corp., Class A 372,590
14,182 Virgin Media, Inc. 386,318
____________
1,515,499
____________
Multiline Retail -- 3.5%
6,455 Dollar Tree, Inc. (c) 361,997
5,463 Sears Holdings Corp. (c) 402,896
____________
764,893
____________
Pharmaceuticals -- 5.0%
17,303 Mylan, Inc. (c) 365,613
7,130 Teva Pharmaceutical Industries
Ltd., ADR 371,687
16,413 Warner Chilcott PLC, Class A 370,277
____________
1,107,577
____________
Semiconductors & Semiconductor
Equipment -- 1.6%
2,779 First Solar, Inc. (c) 361,659
____________
See Notes to Financial Statements Page 65
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (b) (Continued)
Software -- 3.4%
30,476 Activision Blizzard, Inc. $ 379,122
23,274 Electronic Arts, Inc. (c) 381,228
____________
760,350
____________
Specialty Retail -- 8.4%
7,759 Bed Bath & Beyond, Inc. (c) 381,355
5,899 O'Reilly Automotive, Inc. (c) 356,418
5,881 Ross Stores, Inc. 371,973
16,435 Staples, Inc. 374,225
10,184 Urban Outfitters, Inc. (c) 364,689
____________
1,848,660
____________
Trading Companies &
Distributors -- 1.7%
6,219 Fastenal Co. 372,580
____________
Wireless Telecommunication
Services -- 5.0%
4,005 Millicom International Cellular S.A. 382,878
8,174 NII Holdings, Inc. (c) 365,051
13,876 Vodafone Group PLC, ADR 366,743
____________
1,114,672
____________
Total Common Stocks -- 100.1% 22,166,814
(Cost $20,096,386)
Money Market Fund -- 0.0%
10,975 Morgan Stanley Institutional
Treasury Money Market
Fund - 0.02% (d) 10,975
(Cost $10,975) ____________
Total Investments -- 100.1% 22,177,789
(Cost $20,107,361) (e)
Net Other Assets and
Liabilities -- (0.1)% (26,472)
____________
Net Assets -- 100.0% $ 22,151,317
============
(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, 2010.
(e) Aggregate cost for federal income tax purposes is $20,447,887. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$2,286,932 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$557,030.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $22,166,814 $ -- $ --
Money Market Fund 10,975 -- --
__________________________________________
Total Investments $22,177,789 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
Page 66 See Notes to Financial Statements
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Aerospace & Defense -- 2.5%
49,688 Hexcel Corp. (b) $ 898,856
____________
Automobiles -- 3.5%
46,888 Tesla Motors, Inc. (b) 1,248,627
____________
Biotechnology -- 0.5%
13,739 Metabolix, Inc. (b) 167,204
____________
Chemicals -- 1.7%
21,135 STR Holdings, Inc. (b) 422,700
17,570 Zoltek Cos., Inc. (b) 202,933
____________
625,633
____________
Commercial Services &
Supplies -- 0.8%
12,737 EnerNOC, Inc. (b) 304,542
____________
Electrical Equipment -- 10.5%
53,636 A123 Systems, Inc. (b) 511,687
35,202 Advanced Battery Technologies, Inc. (b) 135,528
25,878 American Superconductor Corp. (b) 739,852
21,964 Baldor Electric Co. 1,384,611
54,674 Broadwind Energy, Inc. (b) 126,297
83,108 Ener1, Inc. (b) 314,979
9,554 PowerSecure International, Inc. (b) 74,330
59,669 Satcon Technology Corp. (b) 268,511
15,305 Vicor Corp. 251,002
____________
3,806,797
____________
Electronic Equipment, Instruments
& Components -- 11.7%
86,789 AVX Corp. 1,339,154
12,933 Comverge, Inc. (b) 89,367
21,376 Echelon Corp. (b) 217,821
20,643 Itron, Inc. (b) 1,144,654
13,583 Maxwell Technologies, Inc. (b) 256,583
54,498 Power-One, Inc. (b) 555,880
19,681 Universal Display Corp. (b) 603,223
____________
4,206,682
____________
Independent Power Producers &
Energy Traders -- 1.9%
23,210 Ormat Technologies, Inc. 686,552
____________
Machinery -- 1.4%
13,559 ESCO Technologies, Inc. 513,072
____________
Oil, Gas & Consumable Fuels -- 0.6%
18,281 Green Plains Renewable Energy,
Inc. (b) 205,844
____________
Semiconductors & Semiconductor
Equipment -- 64.9%
4,498 Aixtron SE, ADR 167,326
22,201 Canadian Solar, Inc. (b) 275,070
42,668 Cree, Inc. (b) 2,811,395
25,461 Energy Conversion Devices, Inc. (b) 117,121
63,272 Fairchild Semiconductor
International, Inc. (b) 987,676
22,638 First Solar, Inc. (b) 2,946,109
63,622 GT Solar International, Inc. (b) 580,233
35,449 International Rectifier Corp. (b) 1,052,481
Shares Description Value
--------- --------------------------------- ---------------
Semiconductors & Semiconductor
Equipment (Continued)
15,862 IXYS Corp. (b) $ 184,316
67,449 JA Solar Holdings Co., Ltd., ADR (b) 466,747
44,542 LDK Solar Co., Ltd., ADR (b) 450,765
85,310 Linear Technology Corp. 2,950,873
116,192 MEMC Electronic Materials, Inc. (b) 1,308,322
42,679 Microsemi Corp. (b) 977,349
104,162 National Semiconductor Corp. 1,433,269
17,238 O2Micro International Ltd., ADR (b) 106,531
217,497 ON Semiconductor Corp. (b) 2,148,870
14,279 Power Integrations, Inc. 573,159
39,425 Renesola Ltd., ADR (b) 344,574
11,719 Rubicon Technology, Inc. (b) 247,036
21,457 Solarfun Power Holdings Co., Ltd.,
ADR (b) 175,304
28,540 SunPower Corp., Class A (b) 366,168
65,684 Suntech Power Holdings Co., Ltd.,
ADR (b) 526,129
36,573 Trina Solar Ltd., ADR (b) 856,540
20,387 Veeco Instruments, Inc. (b) 875,826
52,855 Yingli Green Energy Holding Co.,
Ltd., ADR (b) 522,208
____________
23,451,397
____________
Total Investments -- 100.0% 36,115,206
(Cost $32,511,460) (c)
Net Other Assets and
Liabilities -- 0.0% 4,782
____________
Net Assets -- 100.0% $ 36,119,988
============
(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 $37,954,558. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$6,476,451 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$8,315,803.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $36,115,206 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 67
First Trust S&P REIT Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (b) -- 99.8%
Diversified REITs -- 7.5%
12,538 CapLease, Inc. $ 72,971
18,413 Colonial Properties Trust 332,355
22,675 Cousins Properties, Inc. 189,109
3,434 Excel Trust, Inc. 41,551
1,873 Gladstone Commercial Corp. 35,269
17,226 Investors Real Estate Trust 154,517
25,040 Liberty Property Trust 799,277
1,762 One Liberty Properties, Inc. 29,425
4,103 PS Business Parks, Inc. 228,619
35,645 Vornado Realty Trust 2,970,298
14,052 Washington Real Estate Investment
Trust 435,471
4,978 Winthrop Realty Trust, Inc. 63,669
____________
5,352,531
____________
Industrial REITs -- 5.8%
36,918 AMB Property Corp. 1,170,670
47,540 DCT Industrial Trust, Inc. 252,437
13,071 DuPont Fabros Technology, Inc. 278,020
5,916 EastGroup Properties, Inc. 250,365
13,982 First Industrial Realty Trust, Inc. (c) 122,482
11,158 First Potomac Realty Trust 187,678
7,444 Monmouth Real Estate Investment
Corp., Class A 63,274
124,759 ProLogis 1,801,520
1,502 Terreno Realty Corp. (c) 26,931
____________
4,153,377
____________
Office REITs -- 15.9%
12,133 Alexandria Real Estate Equities, Inc. 888,864
28,687 BioMed Realty Trust, Inc. 535,013
30,718 Boston Properties, Inc. 2,644,820
29,480 Brandywine Realty Trust 343,442
15,816 CommonWealth REIT 403,466
14,666 Corporate Office Properties Trust 512,577
19,834 Digital Realty Trust, Inc. 1,022,244
27,077 Douglas Emmett, Inc. 449,478
55,278 Duke Realty Corp. 688,764
15,229 Franklin Street Properties Corp. 217,013
15,711 Highwoods Properties, Inc. 500,395
11,478 Kilroy Realty Corp. 418,603
27,275 Lexington Realty Trust 216,836
17,437 Mack-Cali Realty Corp. 576,467
3,909 Mission West Properties, Inc. 26,151
7,385 MPG Office Trust, Inc. (c) 20,309
4,807 Parkway Properties, Inc. 84,219
29,150 Piedmont Office Realty Trust, Inc.,
Class A 587,081
17,159 SL Green Realty Corp. 1,158,404
____________
11,294,146
____________
Residential REITs -- 16.5%
14,638 American Campus Communities, Inc. 464,903
25,660 Apartment Investment &
Management Co., Class A 663,054
9,070 Associated Estates Realty Corp. 138,680
Shares Description Value
--------- --------------------------------- ---------------
Residential REITs (Continued)
18,699 AvalonBay Communities, Inc. $ 2,104,572
14,052 BRE Properties, Inc. 611,262
15,057 Camden Property Trust 812,777
12,793 Education Realty Trust, Inc. 99,402
6,759 Equity Lifestyle Properties, Inc. 378,031
62,365 Equity Residential 3,239,862
6,869 Essex Property Trust, Inc. 784,577
8,251 Home Properties, Inc. 457,848
7,495 Mid-America Apartment
Communities, Inc. 475,858
10,693 Post Properties, Inc. 388,156
3,824 Sun Communities, Inc. 127,377
39,933 UDR, Inc. 939,224
2,479 UMH Properties, Inc. 25,286
____________
11,710,869
____________
Retail REITs -- 27.2%
8,826 Acadia Realty Trust 160,986
1,904 Agree Realty Corp. 49,866
447 Alexander's, Inc. 184,289
30,273 CBL & Associates Properties, Inc. 529,777
10,307 Cedar Shopping Centers, Inc. 64,831
43,246 Developers Diversified Realty Corp. 609,336
10,110 Equity One, Inc. 183,800
13,489 Federal Realty Investment Trust 1,051,198
149,970 General Growth Properties, Inc. (c) 2,321,536
4,989 Getty Realty Corp. 156,056
18,185 Glimcher Realty Trust 152,754
16,610 Inland Real Estate Corp. 146,168
89,004 Kimco Realty Corp. 1,605,632
13,887 Kite Realty Group Trust 75,129
28,527 Macerich (The) Co. 1,351,324
18,303 National Retail Properties, Inc. 485,030
12,141 Pennsylvania Real Estate Investment
Trust 176,409
8,320 Ramco-Gershenson Properties Trust 103,584
25,673 Realty Income Corp. 878,017
17,949 Regency Centers Corp. 758,166
2,512 Saul Centers, Inc. 118,943
64,218 Simon Property Group, Inc. 6,389,049
8,877 Tanger Factory Outlet Centers, Inc. 454,414
11,989 Taubman Centers, Inc. 605,205
5,069 Urstadt Biddle Properties, Inc.,
Class A 98,592
26,401 Weingarten Realty Investors 627,288
____________
19,337,379
____________
Specialized REITs -- 26.9%
8,519 Ashford Hospitality Trust (c) 82,208
4,042 Chesapeake Lodging Trust 76,030
10,968 Cogdell Spencer, Inc. 63,614
33,890 DiamondRock Hospitality Co. (c) 406,680
10,203 Entertainment Properties Trust 471,889
19,195 Extra Space Storage, Inc. 333,993
18,725 FelCor Lodging Trust, Inc. (c) 131,824
79,880 HCP, Inc. 2,938,785
31,819 Health Care REIT, Inc. 1,515,857
Page 68 See Notes to Financial Statements
First Trust S&P REIT Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (b) (Continued)
Specialized REITs (Continued)
14,125 Healthcare Realty Trust, Inc. $ 299,026
33,003 Hersha Hospitality Trust, Class A 217,820
27,065 Hospitality Properties Trust 623,578
146,006 Host Hotels & Resorts, Inc. 2,609,127
16,018 LaSalle Hotel Properties 422,875
5,750 LTC Properties, Inc. 161,460
24,395 Medical Properties Trust, Inc. 264,198
6,071 National Health Investors, Inc. 273,316
27,680 Nationwide Health Properties, Inc. 1,006,998
21,593 OMEGA Healthcare Investors, Inc. 484,547
8,747 Pebblebrook Hotel Trust 177,739
30,622 Public Storage 3,105,683
30,690 Senior Housing Properties Trust 673,339
6,062 Sovran Self Storage, Inc. 223,142
33,169 Strategic Hotels & Resorts, Inc. (c) 175,464
25,874 Sunstone Hotel Investors, Inc. (c) 267,278
2,739 Universal Health Realty Income
Trust 100,056
18,080 U-Store-It Trust 172,302
34,443 Ventas, Inc. 1,807,569
____________
19,086,397
____________
Total Investments -- 99.8% 70,934,699
(Cost $64,306,550) (d)
Net Other Assets and
Liabilities -- 0.2% 131,153
____________
Net Assets -- 100.0% $ 71,065,852
============
(a) All percentages shown in the Portfolio of Investments are based on net
assets.
(b) The industry classification is based upon Standard & Poor's Global Industry
Classification Standard (GICS) Sub-Industry.
(c) Non-income producing security.
(d) Aggregate cost for federal income tax purposes is $64,726,888. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$6,638,025 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$430,214.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $70,934,699 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 69
First Trust ISE Water Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 99.8%
Aerospace & Defense -- 4.2%
42,481 ITT Corp. $ 2,213,685
____________
Building Products -- 1.2%
8,224 Ameron International Corp. 628,067
____________
Chemicals -- 11.5%
18,167 Arch Chemicals, Inc. 689,074
35,371 Ashland, Inc. 1,798,969
102,028 Calgon Carbon Corp. (b) 1,542,664
65,683 Nalco Holding Co. 2,097,915
____________
6,128,622
____________
Commercial Services & Supplies
-- 3.4%
72,899 Tetra Tech, Inc. (b) 1,826,849
____________
Construction & Engineering -- 6.3%
37,527 Aecom Technology Corp. (b) 1,049,630
19,230 Layne Christensen Co. (b) 661,897
68,240 Northwest Pipe Co. (b) 1,639,807
____________
3,351,334
____________
Diversified Financial Services
-- 1.3%
21,249 PICO Holdings, Inc. (b) 675,718
____________
Electrical Equipment -- 3.9%
26,639 Franklin Electric Co., Inc. 1,036,790
13,541 Roper Industries, Inc. 1,034,938
____________
2,071,728
____________
Electronic Equipment, Instruments
& Components -- 2.0%
18,827 Itron, Inc. (b) 1,043,957
____________
Health Care Equipment &
Supplies -- 2.0%
15,088 IDEXX Laboratories, Inc. (b) 1,044,391
____________
Machinery -- 40.2%
23,763 Badger Meter, Inc. 1,050,800
16,470 Crane Co. 676,423
40,144 Danaher Corp. 1,893,592
532,784 Energy Recovery, Inc. (b) 1,949,989
477,056 Flow International Corp. (b) 1,951,159
9,066 Flowserve Corp. 1,080,848
39,939 IDEX Corp. 1,562,414
31,809 Lindsay Corp. 1,890,409
32,327 Mueller Industries, Inc. 1,057,093
393,609 Mueller Water Products, Inc., Class A 1,641,350
31,568 Pall Corp. 1,565,141
59,282 Pentair, Inc. 2,164,386
7,683 Valmont Industries, Inc. 681,713
59,957 Watts Water Technologies, Inc.,
Class A 2,193,827
____________
21,359,144
____________
Metals & Mining -- 2.0%
34,924 AMCOL International Corp. 1,082,644
____________
Shares Description Value
--------- --------------------------------- ---------------
Multi-Utilities -- 3.5%
64,229 Veolia Environment, ADR $ 1,885,763
____________
Water Utilities -- 18.3%
30,368 American States Water Co. 1,046,785
85,134 American Water Works Co., Inc. 2,153,039
97,476 Aqua America, Inc. 2,191,261
55,926 California Water Service Group 2,084,362
42,413 Companhia de Saneamento Basico
do Estado de Sao Paulo, ADR (b) 2,242,799
____________
9,718,246
____________
Total Common Stocks -- 99.8% 53,030,148
(Cost $48,043,718)
Money Market Fund -- 0.1%
40,289 Morgan Stanley Institutional
Treasury Money Market
Fund - 0.02% (c) 40,289
(Cost $40,289) ____________
Total Investments -- 99.9%
(Cost $48,084,007) (d) 53,070,437
Net Other Assets and
Liabilities -- 0.1% 40,202
____________
Net Assets -- 100.0% $ 53,110,639
============
(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, 2010.
(d) Aggregate cost for federal income tax purposes is $50,470,436. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$5,015,307 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,415,306.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $53,030,148 $ -- $ --
Money Market Fund 40,289 -- --
__________________________________________
Total Investments $53,070,437 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
Page 70 See Notes to Financial Statements
First Trust ISE-Revere Natural Gas Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Gas Utilities -- 3.2%
721,525 Questar Corp. $ 12,561,750
____________
Oil, Gas & Consumable
Fuels -- 96.8%
110,690 Apache Corp. 13,197,569
359,742 Cabot Oil & Gas Corp. 13,616,235
554,995 Chesapeake Energy Corp. 14,379,920
148,361 Cimarex Energy Co. 13,134,399
515,208 Comstock Resources, Inc. (b) 12,653,508
196,973 ConocoPhillips 13,413,861
173,564 Devon Energy Corp. 13,626,510
442,760 EnCana Corp. 12,893,171
140,171 EOG Resources, Inc. 12,813,031
687,223 EXCO Resources, Inc. 13,345,871
176,233 Exxon Mobil Corp. 12,886,157
366,479 Forest Oil Corp. (b) 13,915,208
170,699 Hess Corp. 13,065,301
179,592 Murphy Oil Corp. 13,388,584
175,770 Newfield Exploration Co. (b) 12,674,775
668,795 Petrohawk Energy Corp. (b) 12,205,509
1,693,807 PetroQuest Energy, Inc. (b) 12,754,367
871,266 Quicksilver Resources, Inc. (b) 12,842,461
300,295 Range Resources Corp. 13,507,269
195,700 Royal Dutch Shell PLC,
Class A, ADR 13,068,846
2,003,227 SandRidge Energy, Inc. (b) 14,663,622
234,436 SM Energy Co. 13,815,313
356,816 Southwestern Energy Co. (b) 13,355,623
568,641 Statoilhydro ASA, ADR 13,516,596
560,127 Stone Energy Corp. (b) 12,485,231
354,331 Suncor Energy, Inc. 13,567,334
627,862 Talisman Energy, Inc. 13,932,258
243,734 Total S.A., ADR 13,034,894
264,569 Ultra Petroleum Corp. (b) 12,638,461
____________
384,391,884
____________
Total Common Stocks -- 100.0% 396,953,634
(Cost $344,947,318)
Money Market Fund -- 0.1%
197,147 Morgan Stanley Institutional
Treasury Money Market
Fund - 0.02% (c) 197,147
(Cost $197,147) ____________
Total Investments -- 100.1% 397,150,781
(Cost $345,144,465) (d)
Net Other Assets and
Liabilities -- (0.1)% (257,346)
____________
Net Assets -- 100.0% $396,893,435
============
(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, 2010.
(d) Aggregate cost for federal income tax purposes is $348,034,541. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$53,470,995 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$4,354,755.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
___________________________________________
Common Stocks* $396,953,634 $ -- $ --
Money Market Fund 197,147 -- --
___________________________________________
Total Investments $397,150,781 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 71
First Trust ISE Chindia Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Airlines -- 0.7%
42,397 China Southern Airlines Co., Ltd.,
ADR (b) $ 1,293,533
____________
Commercial Banks -- 14.3%
73,979 HDFC Bank Ltd., ADR 12,362,631
252,252 ICICI Bank Ltd., ADR 12,774,041
____________
25,136,672
____________
Diversified Consumer Services
-- 0.7%
12,162 New Oriental Education &
Technology Group, Inc., ADR (b) 1,279,807
____________
Diversified Telecommunication
Services -- 1.5%
25,339 China Telecom Corp., Ltd., ADR 1,324,723
91,859 China Unicom (Hong Kong) Ltd.,
ADR 1,308,991
____________
2,633,714
____________
Health Care Equipment &
Supplies -- 0.7%
48,773 Mindray Medical International Ltd.,
ADR 1,287,607
____________
Hotels, Restaurants & Leisure
-- 5.8%
61,327 China Lodging Group Ltd., ADR (b) 1,336,315
156,435 Ctrip.com International Ltd.,
ADR (b) 6,327,796
29,851 Home Inns & Hotels Management,
Inc., ADR (b) 1,222,697
222,564 Melco Crown Entertainment Ltd.,
ADR (b) 1,415,507
____________
10,302,315
____________
Independent Power Producers &
Energy Traders -- 0.7%
57,794 Huaneng Power International, Inc.,
ADR 1,235,636
____________
Insurance -- 4.5%
110,068 China Life Insurance Co., Ltd., ADR 6,732,859
71,703 CNinsure, Inc., ADR 1,236,877
____________
7,969,736
____________
Internet & Catalog Retail -- 2.2%
141,544 Makemytrip Ltd. (b) 3,825,934
____________
Internet Software & Services
-- 10.5%
114,671 Baidu, Inc., ADR (b) 11,069,192
33,928 NetEase.com, Inc., ADR (b) 1,226,497
47,801 SINA Corp. (b) 3,289,665
45,995 Sohu.com, Inc. (b) 2,920,222
____________
18,505,576
____________
Shares Description Value
--------- --------------------------------- ---------------
IT Services -- 11.9%
177,032 Infosys Technologies Ltd., ADR $ 13,468,595
482,450 Wipro Ltd., ADR 7,463,501
____________
20,932,096
____________
Life Sciences Tools & Services
-- 0.7%
76,258 WuXi PharmaTech Cayman,
Inc., ADR (b) 1,230,804
____________
Machinery -- 4.1%
248,699 Tata Motors Ltd., ADR 7,296,829
____________
Media -- 1.9%
155,643 Focus Media Holding Ltd., ADR (b) 3,413,251
____________
Metals & Mining -- 5.2%
56,473 Aluminum Corp. of China Ltd.,
ADR (b) 1,287,020
477,880 Sterlite Industries (India) Ltd.,
ADR 7,904,135
____________
9,191,155
____________
Oil, Gas & Consumable Fuels
-- 12.8%
13,723 China Petroleum & Chemical
Corp., ADR 1,313,154
52,899 CNOOC Ltd., ADR 12,609,535
55,362 PetroChina Co., Ltd., ADR 7,279,549
45,186 Yanzhou Coal Mining Co., Ltd.,
ADR 1,382,692
____________
22,584,930
____________
Pharmaceuticals -- 1.8%
87,241 Dr. Reddy's Laboratories Ltd., ADR 3,224,427
____________
Professional Services -- 0.7%
23,808 51job, Inc. ADR (b) 1,172,544
____________
Real Estate Management &
Development -- 0.8%
92,923 E-House China Holdings Ltd., ADR 1,390,128
____________
Semiconductors & Semiconductor
Equipment -- 6.4%
182,673 JA Solar Holdings Co., Ltd., ADR (b) 1,264,097
56,349 Jinkosolar Holding Co. Ltd., ADR (b) 1,133,742
123,837 LDK Solar Co., Ltd., ADR (b) 1,253,231
146,765 Renesola Ltd., ADR (b) 1,282,726
147,778 Solarfun Power Holdings Co.,
Ltd., ADR (b) 1,207,346
75,674 Spreadtrum Communications,
Inc., ADR (b) 1,390,131
155,283 Suntech Power Holdings Co.,
Ltd., ADR (b) 1,243,817
52,891 Trina Solar Ltd., ADR (b) 1,238,707
122,188 Yingli Green Energy Holding Co.,
Ltd., ADR (b) 1,207,218
____________
11,221,015
____________
Page 72 See Notes to Financial Statements
First Trust ISE Chindia Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Software -- 5.1%
80,363 AsiaInfo Holdings, Inc. (b) $ 1,331,615
45,831 Changyou.com Ltd., ADR (b) 1,306,642
33,295 Longtop Financial Technologies
Ltd., ADR (b) 1,204,613
54,438 Perfect World Co., Ltd., ADR (b) 1,287,459
205,471 Shanda Games Ltd., ADR (b) 1,323,233
33,115 Shanda Interactive Entertainment
Ltd., ADR (b) 1,312,678
35,261 VanceInfo Technologies, Inc.,
ADR (b) 1,217,915
____________
8,984,155
____________
Wireless Telecommunication
Services -- 7.0%
246,862 China Mobile Ltd., ADR 12,249,292
____________
Total Investments -- 100.0% 176,361,156
(Cost $150,047,531) (c)
Net Other Assets and
Liabilities -- 0.0% (9,333)
____________
Net Assets -- 100.0% $176,351,823
============
(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 $153,041,021. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$28,953,745 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$5,633,610.
ADR - American Depositary Receipt
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
___________________________________________
Common Stocks* $176,361,156 $ -- $ --
===========================================
* See Portfolio of Investments for industry breakout.
See Notes to Financial Statements Page 73
First Trust Value Line(R) 100 Exchange-Traded Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 99.9%
Air Freight & Logistics -- 1.0%
42,589 Park-Ohio Holdings Corp. (b) $ 890,536
____________
Airlines -- 5.0%
15,710 Alaska Air Group, Inc. (b) 890,600
71,359 Delta Air Lines, Inc. (b) 899,124
134,202 JetBlue Airways Corp. (b) 887,075
68,392 Southwest Airlines Co. 887,728
90,012 US Airways Group, Inc. (b) 901,020
____________
4,465,547
____________
Auto Components -- 8.0%
69,083 American Axle & Manufacturing
Holdings, Inc. (b) 888,407
11,223 Autoliv, Inc. 885,944
51,088 Dana Holding Corp. (b) 879,224
17,104 Magna International, Inc. 889,408
62,697 Standard Motor Products, Inc. 858,949
41,054 Superior Industries International,
Inc. 871,166
21,067 Tenneco, Inc. (b) 867,118
16,993 TRW Automotive Holdings
Corp. (b) 895,531
_____________
7,035,747
____________
Automobiles -- 1.0%
52,662 Ford Motor Co. (b) 884,195
____________
Biotechnology -- 1.0%
13,993 Cephalon, Inc. (b) 863,648
____________
Capital Markets -- 2.0%
104,520 BGC Partners, Inc., Class A 868,561
62,170 Blackstone Group (The) L.P. (c) 879,706
____________
1,748,267
____________
Chemicals -- 5.0%
15,850 Albemarle Corp. 884,113
23,281 Cabot Corp. 876,530
10,731 Eastman Chemical Co. 902,262
56,623 Huntsman Corp. 883,885
38,228 Solutia, Inc. (b) 882,302
____________
4,429,092
____________
Commercial Services & Supplies
-- 1.0%
37,250 Deluxe Corp. 857,495
____________
Communications Equipment
-- 3.0%
29,822 Finisar Corp. (b) 885,415
341,698 Powerwave Technologies, Inc. (b) 867,913
97,951 Tollgrade Communications, Inc. (b) 908,985
____________
2,662,313
____________
Computers & Peripherals -- 1.0%
17,471 SanDisk Corp. (b) 871,104
____________
Shares Description Value
--------- --------------------------------- ---------------
Diversified Telecommunication
Services -- 3.0%
25,089 BCE, Inc. $ 889,656
30,912 BT Group PLC, ADR 882,228
67,304 General Communication, Inc.,
Class A (b) 852,069
____________
2,623,953
____________
Electronic Equipment, Instruments
& Components -- 9.0%
25,932 Arrow Electronics, Inc. (b) 888,171
26,808 Avnet, Inc. (b) 885,468
17,811 Hitachi Ltd., ADR 950,217
44,178 Jabil Circuit, Inc. 887,536
49,911 Newport Corp. (b) 866,954
100,385 PC Connection, Inc. (b) 889,411
83,734 Power-One, Inc. (b) 854,087
76,259 Sanmina-SCI Corp. (b) 875,453
59,505 Vishay Intertechnology, Inc. (b) 873,534
____________
7,970,831
____________
Energy Equipment & Services
-- 1.0%
47,206 RPC, Inc. 855,373
____________
Food Products -- 1.0%
42,508 Smithfield Foods, Inc. (b) 876,940
____________
Health Care Equipment &
Supplies -- 2.0%
21,996 Hill-Rom Holdings, Inc. 865,982
21,203 Kinetic Concepts, Inc. (b) 887,982
____________
1,753,964
____________
Health Care Providers &
Services -- 3.0%
24,460 Community Health Systems, Inc. (b) 914,070
93,813 Health Management Associates,
Inc., Class A (b) 894,976
10,076 Laboratory Corp. of America
Holdings (b) 885,882
____________
2,694,928
____________
Hotels, Restaurants & Leisure
-- 1.0%
55,595 Domino's Pizza, Inc. (b) 886,740
____________
IT Services -- 1.0%
19,717 DST Systems, Inc. 874,449
____________
Leisure Equipment & Products
-- 1.0%
156,964 Leapfrog Enterprises, Inc. (b) 871,150
____________
Machinery -- 3.0%
77,186 NN, Inc. (b) 954,019
30,239 Sauer-Danfoss, Inc. (b) 854,252
30,219 Tata Motors Ltd., ADR 886,625
____________
2,694,896
____________
Page 74 See Notes to Financial Statements
First Trust Value Line(R) 100 Exchange-Traded Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks (Continued)
Media -- 7.0%
26,464 Cablevision Systems Corp.,
Class A $ 895,542
22,412 DIRECTV, Class A (b) 894,911
87,270 Global Sources Ltd. (b) 830,810
58,028 Knology, Inc. (b) 906,978
106,780 Sinclair Broadcast Group, Inc.,
Class A 873,460
13,467 Time Warner Cable, Inc. 889,226
27,676 Valassis Communications, Inc. (b) 895,319
____________
6,186,246
____________
Metals & Mining -- 2.0%
22,676 Brush Engineered Materials, Inc. (b) 876,200
11,368 Cliffs Natural Resources, Inc. 886,818
____________
1,763,018
____________
Multiline Retail -- 2.0%
23,166 Dillard's, Inc., Class A 878,918
15,597 Dollar Tree, Inc. (b) 874,680
____________
1,753,598
____________
Oil, Gas & Consumable Fuels
-- 1.0%
13,789 Alliance Resource Partners L.P. (c) 906,765
____________
Paper & Forest Products -- 2.0%
32,795 International Paper Co. 893,336
33,870 MeadWestvaco Corp. 886,039
____________
1,779,375
____________
Personal Products -- 1.1%
63,731 China-Biotics, Inc. (b) 936,846
____________
Pharmaceuticals -- 0.9%
59,307 Medicines (The) Co. (b) 838,008
____________
Road & Rail -- 1.0%
59,267 Avis Budget Group, Inc. (b) 922,195
____________
Semiconductors & Semiconductor
Equipment -- 12.0%
71,936 Atmel Corp. (b) 886,251
94,211 Brooks Automation, Inc. (b) 854,494
48,922 Cypress Semiconductor Corp. (b) 908,971
57,059 Fairchild Semiconductor
International, Inc. (b) 890,691
16,887 Lam Research Corp. (b) 874,409
36,772 MKS Instruments, Inc. (b) 900,546
27,244 Novellus Systems, Inc. (b) 880,526
148,070 Photronics, Inc. (b) 875,094
116,132 RF Micro Devices, Inc. (b) 853,570
86,674 STMicroelectronics NV 904,877
27,437 Texas Instruments, Inc. 891,702
76,194 TriQuint Semiconductor, Inc. (b) 890,708
____________
10,611,839
____________
Shares Description Value
--------- --------------------------------- ---------------
Specialty Retail -- 10.0%
13,376 Advance Auto Parts, Inc. $ 884,822
43,401 Collective Brands, Inc. (b) 915,761
23,660 Dick's Sporting Goods, Inc. (b) 887,250
22,809 DSW, Inc., Class A (b) 891,832
28,548 Limited Brands, Inc. 877,280
64,659 Pep Boys-Manny, Moe & Jack (The) 868,370
21,996 PetSmart, Inc. 875,881
82,874 Pier 1 Imports, Inc. (b) 870,177
61,354 Sally Beauty Holdings, Inc. (b) 891,474
51,146 Stage Stores, Inc. 886,872
____________
8,849,719
____________
Textiles, Apparel & Luxury
Goods -- 4.9%
10,457 Deckers Outdoor Corp. (b) 833,841
12,464 Fossil, Inc. (b) 878,463
13,685 Phillips-Van Heusen Corp. 862,292
35,551 Timberland (The) Co., Class A (b) 874,199
51,985 Unifi, Inc. (b) 880,106
____________
4,328,901
____________
Trading Companies &
Distributors -- 1.0%
39,103 United Rentals, Inc. (b) 889,593
____________
Water Utilities -- 1.0%
34,963 American Water Works Co., Inc. 884,214
____________
Wireless Telecommunication
Services -- 1.0%
70,341 MetroPCS Communications,
Inc. (b) 888,407
____________
Total Investments -- 99.9% 88,349,892
(Cost $82,320,258) (d)
Net Other Assets and
Liabilities -- 0.1% 80,692
____________
Net Assets -- 100.0% $ 88,430,584
============
(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 $82,605,529. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$6,636,910 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$892,547.
ADR- American Depositary Receipt
See Notes to Financial Statements Page 75
First Trust Value Line(R) 100 Exchange-Traded Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
__________________________________________
Common Stocks* $88,349,892 $ -- $ --
==========================================
* See Portfolio of Investments for industry breakout.
Page 76 See Notes to Financial Statements
First Trust NASDAQ(R) ABA Community Bank Index Fund
Portfolio of Investments (a)
December 31, 2010
Shares Description Value
--------- --------------------------------- ---------------
Common Stocks -- 100.0%
Commercial Banks -- 77.5%
2,376 Ameris Bancorp (b) $ 25,043
1,131 Arrow Financial Corp. 31,114
17,404 Associated Banc-Corp. 263,671
1,544 BancFirst Corp. 63,597
2,633 Bancorp (The), Inc. (b) 26,778
1,709 Bank of the Ozarks, Inc. 74,085
6,848 BOK Financial Corp. 365,683
7,691 Boston Private Financial Holdings, Inc. 50,376
2,892 Cardinal Financial Corp. 33,634
7,897 Cathay General Bancorp 131,880
4,013 Center Financial Corp. (b) 30,419
3,018 Centerstate Banks, Inc. 23,903
2,760 Chemical Financial Corp. 61,134
39,934 Citizens Republic Bancorp, Inc. (b) 24,559
1,558 City Holding Co. 56,446
3,955 Columbia Banking System, Inc. 83,292
8,763 Commerce Bancshares, Inc. 348,154
1,534 Community Trust Bancorp, Inc. 44,425
10,652 CVB Financial Corp. 92,353
2,105 Danvers Bancorp, Inc. 37,195
14,884 East West Bancorp, Inc. 290,982
880 First Citizens BancShares, Inc.,
Class A 166,364
1,794 First Community Bancshares, Inc. 26,802
5,838 First Financial Bancorp 107,886
2,097 First Financial Bankshares, Inc. 107,324
1,323 First Financial Corp. 46,490
1,540 First Interstate BancSystem, Inc.,
Class A 23,470
2,572 First Merchants Corp. 22,788
7,448 First Midwest Bancorp, Inc. 85,801
10,942 FirstMerit Corp. 216,542
20,008 Fulton Financial Corp. 206,883
7,232 Glacier Bancorp, Inc. 109,276
3,710 Hancock Holding Co. 129,331
2,860 Home Bancshares, Inc. 63,006
1,773 Hudson Valley Holding Corp. 43,900
2,703 IBERIABANK Corp. 159,828
2,132 Independent Bank Corp. 57,671
6,809 International Bancshares Corp. 136,384
11,406 Investors Bancorp, Inc. (b) 149,647
1,622 Lakeland Financial Corp. 34,808
5,426 MB Financial, Inc. 93,978
3,818 Nara Bancorp, Inc. (b) 37,493
13,741 National Penn Bancshares, Inc. 110,340
3,466 NBT Bancorp, Inc. 83,704
3,260 Pacific Capital Bancorp (b) 92,128
3,555 PacWest Bancorp 76,006
3,385 Pinnacle Financial Partners, Inc. (b) 45,968
7,179 PrivateBancorp, Inc. 103,234
4,693 Prosperity Bancshares, Inc. 184,341
2,518 Renasant Corp. 42,579
1,874 Republic Bancorp, Inc., Class A 44,508
2,801 S&T Bancorp, Inc. 63,275
Shares Description Value
--------- --------------------------------- ---------------
Commercial Banks (Continued)
1,379 S.Y. Bancorp, Inc. $ 33,854
2,414 Sandy Spring Bancorp, Inc. 44,490
1,286 SCBT Financial Corp. 42,117
4,135 Signature Bank (b) 206,750
1,733 Simmons First National Corp.,
Class A 49,391
1,571 Southside Bancshares, Inc. 33,101
1,950 Southwest Bancorp, Inc. 24,180
10,253 Sterling Bancshares, Inc. 71,976
6,218 Sterling Financial Corp. (b) 117,955
974 Suffolk Bancorp 24,038
13,053 Susquehanna Bancshares, Inc. 126,353
4,223 SVB Financial Group (b) 224,030
3,701 Texas Capital Bancshares, Inc. (b) 78,720
2,905 TowneBank 46,160
6,425 Trustmark Corp. 159,597
4,064 UMB Financial Corp. 168,331
11,519 Umpqua Holdings Corp. 140,301
4,385 United Bankshares, Inc. 128,042
1,626 Washington Trust Bancorp, Inc. 35,577
2,674 WesBanco, Inc. 50,699
9,699 West Coast Bancorp (b) 27,351
2,928 Westamerica Bancorporation 162,416
9,719 Whitney Holding Corp. 137,524
2,965 Wilshire Bancorp, Inc. 22,593
3,458 Wintrust Financial Corp. 114,218
17,897 Zions Bancorporation 433,644
____________
7,733,886
____________
Thrifts & Mortgage Finance
-- 22.5%
2,028 Abington Bancorp, Inc. 24,194
4,600 Bank Mutual Corp. 21,988
8,149 Beneficial Mutual Bancorp, Inc. (b) 71,956
1,413 Berkshire Hills Bancorp, Inc. 31,227
5,941 Brookline Bancorp, Inc. 64,460
16,845 Capitol Federal Financial, Inc. 200,624
3,478 Dime Community Bancshares, Inc. 50,744
21,029 First Niagara Financial Group, Inc. 293,985
3,141 Flushing Financial Corp. 43,974
11,144 Northwest Bancshares, Inc. 131,053
5,652 Oritani Financial Corp. 69,181
37,105 People's United Financial, Inc. 519,841
3,848 Provident New York Bancorp 40,366
1,230 Territorial Bancorp, Inc. 24,489
31,015 TFS Financial Corp. 279,755
7,757 TrustCo Bank Corp. NY 49,179
1,622 United Financial Bancorp, Inc. 24,768
3,504 ViewPoint Financial Group 40,962
11,316 Washington Federal, Inc. 191,467
2,844 Westfield Financial, Inc. 26,307
854 WSFS Financial Corp. 40,514
____________
2,241,034
____________
See Notes to Financial Statements Page 77
First Trust NASDAQ(R) ABA Community Bank Index Fund
Portfolio of Investments (a) (Continued)
December 31, 2010
Description Value
--------------------------------- ---------------
Total Investments -- 100.0%
(Cost $9,605,494) (c) $ 9,974,920
Net Other Assets and
Liabilities -- 0.0% 3,854
____________
Net Assets -- 100.0% $ 9,978,774
============
(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 $9,628,715. As of
December 31, 2010, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $506,130
and the aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $159,925.
____________________
Valuation Inputs
A summary of the inputs used to value the Fund's investments as of December 31,
2010 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
Investments Level 1 Level 2 Level 3
_________________________________________
Common Stocks* $ 9,974,920 $ -- $ --
=========================================
* See Portfolio of Investments for industry breakout.
Page 78 See Notes to Financial Statements
This page intentionally left blank.
Page 79
First Trust Exchange-Traded Fund
Statements of Assets and Liabilities
December 31, 2010
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................................................... $ 152,912,434 $ 143,162,791 $ 15,272,297
Cash................................................................... 56,456 37,452 65,725
Receivables:
Capital shares sold.............................................. -- 2,390,950 --
Investment securities sold....................................... 465,436 -- --
Dividends........................................................ 184,306 316,025 21,141
Interest......................................................... -- -- --
From investment advisor.......................................... -- -- 1,385
Reclaims......................................................... -- -- --
Prepaid expenses....................................................... 2,602 3,772 508
______________ ______________ _____________
Total Assets..................................................... 153,621,234 145,910,990 15,361,056
______________ ______________ _____________
LIABILITIES:
Due to Custodian....................................................... -- -- --
Payables:
Capital shares purchased......................................... -- -- --
Investment securities purchased.................................. 467,189 2,506,595 --
Investment advisory fees......................................... 26,961 24,820 --
Audit and tax fees............................................... 24,749 24,749 24,749
Printing fees.................................................... 12,373 11,200 1,207
Licensing fees................................................... 9,213 24,999 50,001
Other liabilities...................................................... 30,599 24,845 2,574
______________ ______________ _____________
Total Liabilities................................................ 571,084 2,617,208 78,531
______________ ______________ _____________
NET ASSETS............................................................. $ 153,050,150 $ 143,293,782 15,282,525
============== ============== =============
NET ASSETS consist of:
Paid-in capital........................................................ $ 146,182,378 $ 166,297,264 $ 18,907,123
Par value.............................................................. 69,050 90,000 6,500
Accumulated net investment income (loss)............................... 31,467 -- 13,751
Accumulated net realized gain (loss) on investments.................... (12,106,918) (34,758,916) (5,426,693)
Net unrealized appreciation (depreciation) on investments.............. 18,874,173 11,665,434 1,781,844
______________ ______________ _____________
NET ASSETS............................................................. $ 153,050,150 $ 143,293,782 $ 15,282,525
============== ============== =============
NET ASSET VALUE, per share............................................. $ 22.17 $ 15.92 $ 23.51
============== ============== =============
Number of shares outstanding
(unlimited number of shares has been authorized, par value $0.01 per share) 6,905,000 9,000,002 650,002
============== ============== =============
Investments at cost.................................................... $ 134,038,261 $ 131,497,357 $ 13,490,453
============== ============== =============
Page 80 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust
NASDAQ-100 NASDAQ-100- NYSE Arca Dow Jones Strategic Value Line(R) Equity
Equal Weighted Technology Sector Biotechnology Internet Value Allocation
Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund
________________ ___________________ _______________ _________________ ______________ ____________________
$ 76,011,383 $ 453,437,749 $ 201,200,661 $ 589,861,420 $ 36,605,761 $ 7,123,860
1,953 329,761 93,606 -- 36,396 --
2,384,909 2,580,939 -- -- -- --
-- -- 2,065,588 -- -- --
23,128 -- -- -- 43,513 8,474
-- -- -- 5 -- --
-- -- -- -- -- 1,993
-- -- -- -- 768 528
2,392 9,117 6,679 9,709 1,729 312
____________ _____________ _____________ _____________ _____________ _____________
78,423,765 456,357,566 203,366,534 589,871,134 36,688,167 7,135,167
____________ _____________ _____________ _____________ _____________ _____________
-- -- -- 15,480 -- --
-- -- 1,966,689 -- -- --
2,387,027 2,580,556 -- -- -- --
22,935 125,156 69,928 79,814 14,082 --
24,749 24,749 24,749 24,749 24,749 24,749
5,716 35,736 16,418 47,343 2,919 571
16,670 92,439 35,654 114,255 9,076 2,618
11,487 83,430 33,229 109,914 4,611 1,577
____________ _____________ _____________ _____________ _____________ _____________
2,468,584 2,942,066 2,146,667 391,555 55,437 29,515
____________ _____________ _____________ _____________ _____________ _____________
$ 75,955,181 $ 453,415,500 $ 201,219,867 $ 589,479,579 $ 36,632,730 $ 7,105,652
============ ============= ============= ============= ============= =============
$ 76,631,959 $ 414,144,896 $ 195,048,811 $ 522,067,470 $ 58,772,977 $ 11,043,085
32,000 176,500 51,500 172,000 16,000 3,500
89,275 -- -- -- -- --
(7,987,377) (7,790,299) (20,886,560) (11,286,691) (25,465,430) (4,985,179)
7,189,324 46,884,403 27,006,116 78,526,800 3,309,183 1,044,246
____________ _____________ _____________ _____________ _____________ _____________
$ 75,955,181 $ 453,415,500 $ 201,219,867 $ 589,479,579 $ 36,632,730 $ 7,105,652
============ ============= ============= ============= ============= =============
$ 23.74 $ 25.69 $ 39.07 $ 34.27 $ 22.90 $ 20.30
============ ============= ============= ============= ============= =============
3,200,002 17,650,002 5,150,002 17,200,002 1,600,002 350,002
============ ============= ============= ============= ============= =============
$ 68,822,059 $ 406,553,346 $ 174,194,545 $ 511,334,620 $ 33,296,578 $ 6,079,614
============ ============= ============= ============= ============= =============
See Notes to Financial Statements Page 81
First Trust Exchange-Traded Fund
Statements of Assets and Liabilities (Continued)
December 31, 2010
First Trust
First Trust First Trust NASDAQ(R)
Value Line(R) NASDAQ-100 Clean Edge(R)
Dividend Ex-Technology Sector Green Energy
Index Fund Index(SM) Fund Index Fund
________________ ____________________ _______________
ASSETS:
Investments at value................................................... $ 218,421,033 $ 22,177,789 $ 36,115,206
Cash................................................................... -- -- 43,996
Receivables:
Capital shares sold.............................................. -- -- --
Investment securities sold....................................... 13,313,415 -- --
Dividends........................................................ 495,442 11,996 12,831
Interest......................................................... -- -- --
From investment advisor.......................................... -- -- --
Reclaims......................................................... 17,251 -- 120
Prepaid expenses....................................................... 7,831 815 1,713
______________ _______________ _____________
Total Assets..................................................... 232,254,972 22,190,600 36,173,866
______________ _______________ _____________
LIABILITIES:
Due to Custodian....................................................... 100,667 -- --
Payables:
Capital shares purchased......................................... 8,312,666 -- --
Investment securities purchased.................................. 5,085,997 -- --
Investment advisory fees......................................... 70,446 2,626 12,123
Audit and tax fees............................................... 24,749 24,749 24,749
Printing fees.................................................... 40,045 1,784 2,888
Licensing fees................................................... 78,325 5,074 9,115
Other liabilities...................................................... 32,485 5,050 5,003
______________ _______________ _____________
Total Liabilities................................................ 13,745,380 39,283 53,878
______________ _______________ _____________
NET ASSETS............................................................. $ 218,509,592 $ 22,151,317 $ 36,119,988
============== =============== =============
NET ASSETS consist of:
Paid-in capital........................................................ $ 239,357,787 $ 21,727,420 $ 55,880,815
Par value.............................................................. 144,880 10,500 22,000
Accumulated net investment income (loss)............................... -- 16,623 --
Accumulated net realized gain (loss) on investments.................... (55,497,515) (1,673,654) (23,386,573)
Net unrealized appreciation (depreciation) on investments.............. 34,504,440 2,070,428 3,603,746
______________ _______________ _____________
NET ASSETS............................................................. $ 218,509,592 $ 22,151,317 $ 36,119,988
============== =============== =============
NET ASSET VALUE, per share............................................. $ 15.08 $ 21.10 $ 16.42
============== =============== =============
Number of shares outstanding
(unlimited number of shares has been authorized, par value $0.01 per share) 14,487,986 1,050,002 2,200,002
============== =============== =============
Investments at cost.................................................... $ 183,916,593 $ 20,107,361 $ 32,511,460
============== =============== =============
Page 82 See Notes to Financial Statements
First Trust
First Trust First Trust First Trust First Trust First Trust NASDAQ(R) ABA
S&P ISE ISE-Revere ISE Value Line(R) 100 Community
REIT Water Natural Gas Chindia Exchange-Traded Bank
Index Fund Index Fund Index Fund Index Fund Fund Index Fund
________________ ______________ _______________ _______________ ___________________ ________________
$ 70,934,699 $ 53,070,437 $ 397,150,781 $ 176,361,156 $ 88,349,892 $ 9,974,920
-- -- -- 519,720 132,597 27,104
-- -- -- -- -- --
-- -- -- -- 35,232,201 --
278,213 104,917 123,340 -- 61,086 9,522
3 3 5 -- -- --
-- -- -- -- -- 905
-- 1,066 -- -- 1,115 --
11,067 2,046 20,589 6,366 2,992 5,428
______________ ____________ _____________ _____________ _____________ _____________
71,223,982 53,178,469 397,294,715 176,887,242 123,779,883 10,017,879
______________ ____________ _____________ _____________ _____________ _____________
17,742 7,110 11,685 -- -- --
-- -- -- -- 16,283,082 --
81,544 -- -- 366,251 18,962,409 9,903
15,667 18,768 196,441 70,633 30,584 --
24,748 24,749 24,749 24,749 24,749 24,749
5,581 4,200 30,872 13,864 7,104 682
-- 5,905 92,756 35,438 29,791 1,558
12,848 7,098 44,777 24,484 11,580 2,213
______________ ____________ _____________ _____________ _____________ _____________
158,130 67,830 401,280 535,419 35,349,299 39,105
______________ ____________ _____________ _____________ _____________ _____________
$ 71,065,852 $ 53,110,639 $ 396,893,435 $ 176,351,823 $ 88,430,584 $ 9,978,774
============== ============ ============= ============= ============= =============
$ 64,809,541 $ 58,717,897 $ 427,460,006 $ 186,434,062 $ 161,805,934 $ 9,762,250
48,500 24,000 202,500 70,500 65,400 4,000
217,284 89,624 -- 707 4,512 2,200
(637,622) (10,707,312) (82,775,387) (36,467,071) (79,474,896) (159,102)
6,628,149 4,986,430 52,006,316 26,313,625 6,029,634 369,426
______________ ____________ _____________ _____________ _____________ _____________
$ 71,065,852 $ 53,110,639 $ 396,893,435 $ 176,351,823 $ 88,430,584 $ 9,978,774
============== ============ ============= ============= ============= =============
$ 14.65 $ 22.13 $ 19.60 $ 25.01 $ 13.52 $ 24.95
============== ============ ============= ============= ============= =============
4,850,002 2,400,002 20,250,002 7,050,002 6,539,982 400,002
============== ============ ============= ============= ============= =============
$ 64,306,550 $ 48,084,007 $ 345,144,465 $ 150,047,531 $ 82,320,258 $ 9,605,494
============== ============ ============= ============= ============= =============
See Notes to Financial Statements Page 83
First Trust Exchange-Traded Fund
Statements of Operations
For the Year Ended December 31, 2010
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........................................................ $ 818,697 $ 3,223,861 $ 217,766
Foreign tax withholding.......................................... (160) -- (303)
Interest......................................................... -- -- --
________________ ______________ _______________
Total investment income....................................... 818,537 3,223,861 217,463
________________ ______________ _______________
EXPENSES:
Investment advisory fees......................................... 266,043 207,010 46,346
Licensing fees................................................... 34,213 99,999 50,001
Accounting and administration fees............................... 31,689 37,302 8,618
Legal fees....................................................... 27,734 27,413 4,549
Audit and tax fees............................................... 24,764 24,764 24,764
Printing fees.................................................... 20,155 18,344 4,217
Registration and filing fees..................................... 12,636 8,689 226
Custodian fees................................................... 9,014 10,268 2,017
Listing fees..................................................... 8,371 8,371 8,371
Transfer agent fees.............................................. 2,660 3,450 579
Trustees' fees and expenses...................................... 1,250 1,511 251
Other expenses................................................... 8,690 10,673 2,937
________________ ______________ _______________
Total expenses................................................ 447,219 457,794 152,876
Less fees waived and expenses reimbursed by the
investment advisor......................................... (127,967) (147,279) (83,357)
________________ ______________ _______________
Net expenses.................................................. 319,252 310,515 69,519
________________ ______________ _______________
NET INVESTMENT INCOME (LOSS)..................................... 499,285 2,913,346 147,944
________________ ______________ _______________
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... (5,521,691) (1,835,870) (529,130)
In-kind redemptions........................................... 3,092,608 3,297,325 1,213,721
Foreign currency transactions................................. -- -- --
________________ ______________ _______________
Net realized gain (loss)......................................... (2,429,083) 1,461,455 684,591
Net change in unrealized appreciation (depreciation)
on investments ............................................... 18,873,114 8,079,545 1,446,294
________________ ______________ _______________
NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 16,444,031 9,541,000 2,130,885
________________ ______________ _______________
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS............................................... $ 16,943,316 $ 12,454,346 $ 2,278,829
================ ============== ===============
Page 84 See Notes to Financial Statements
First Trust First Trust First Trust First Trust First Trust First Trust
NASDAQ-100 NASDAQ-100- NYSE Arca Dow Jones Strategic Value Line(R)
Equal Weighted Technology Sector Biotechnology Internet Value Equity Allocation
Index(SM) Fund Index(SM) Fund Index Fund Index(SM) Fund Index Fund Index Fund
_________________ __________________ ___________________ ________________ _________________ ____________________
$ 765,485 $ 2,844,802 $ -- $ 2,158,732 $ 910,568 $ 157,075
(6,509) -- -- -- (576) (2,495)
-- -- -- 34 -- 7
_____________ ______________ _________________ ______________ _______________ _______________
758,976 2,844,802 -- 2,158,766 909,992 154,587
_____________ ______________ _________________ ______________ _______________ _______________
217,698 866,873 595,834 1,001,867 204,041 38,930
54,430 216,725 119,167 161,911 40,808 12,303
30,037 110,254 76,122 127,175 22,404 7,479
23,330 96,488 61,876 109,178 19,139 3,062
24,764 24,764 24,764 24,734 24,764 24,764
14,904 66,262 42,998 82,727 9,220 2,880
2,668 33,269 10,268 43,864 154 --
8,936 32,303 20,835 36,772 6,170 1,994
17,848 20,188 8,371 8,371 10,871 8,371
2,721 10,836 7,448 12,523 2,040 389
1,184 4,683 3,523 5,408 886 182
7,819 23,804 18,154 28,122 8,468 4,536
_____________ ______________ _________________ ______________ _______________ _______________
406,339 1,506,449 989,360 1,642,652 348,965 104,890
(79,793) (206,140) (95,610) (139,852) (83,712) (50,388)
_____________ ______________ _________________ ______________ _______________ _______________
326,546 1,300,309 893,750 1,502,800 265,253 54,502
_____________ ______________ _________________ ______________ _______________ _______________
432,430 1,544,493 (893,750) 655,966 644,739 100,085
_____________ ______________ _________________ ______________ _______________ _______________
(814,254) (3,723,917) (14,812,232) (3,829,374) (1,870,584) 21,316
8,058,511 20,395,545 29,871,060 28,817,338 8,749,134 1,124,413
-- -- -- -- -- --
_____________ ______________ _________________ ______________ _______________ _______________
7,244,257 16,671,628 15,058,828 24,987,964 6,878,550 1,145,729
2,165,178 37,101,460 25,834,919 64,467,650 (2,858,232) (99,602)
_____________ ______________ _________________ ______________ _______________ _______________
9,409,435 53,773,088 40,893,747 89,455,614 4,020,318 1,046,127
_____________ ______________ _________________ ______________ _______________ _______________
$ 9,841,865 $ 55,317,581 $ 39,999,997 $ 90,111,580 $ 4,665,057 $ 1,146,212
============= ============== ================= ============== =============== ===============
See Notes to Financial Statements Page 85
First Trust Exchange-Traded Fund
Statements of Operations (Continued)
For the Year Ended December 31, 2010
First Trust
First Trust First Trust NASDAQ(R)
Value Line(R) NASDAQ-100 Clean Edge(R)
Dividend Ex-Technology Sector Green Energy
Index Fund Index(SM) Fund Index Fund
_______________ ______________________ _______________
INVESTMENT INCOME:
Dividends........................................................ $ 6,279,689 $ 278,809 $ 194,812
Foreign tax withholding.......................................... (115,184) (3,302) (158)
Interest......................................................... -- 8 --
______________ _______________ _____________
Total investment income....................................... 6,164,505 275,515 194,654
______________ _______________ _____________
EXPENSES:
Investment advisory fees......................................... 845,851 67,973 147,754
Licensing fees................................................... 258,053 16,993 36,938
Accounting and administration fees............................... 88,215 10,766 20,575
Legal fees....................................................... 68,764 7,285 14,794
Audit and tax fees............................................... 24,764 24,764 24,764
Printing fees.................................................... 53,333 6,753 10,028
Registration and filing fees..................................... 4,835 1,657 62
Custodian fees................................................... 22,614 2,935 5,130
Listing fees..................................................... 8,371 16,230 18,548
Transfer agent fees.............................................. 8,458 849 1,847
Trustees' fees and expenses...................................... 3,761 385 792
Other expenses................................................... 26,134 3,138 6,687
______________ _______________ _____________
Total expenses................................................ 1,413,153 159,728 287,919
Less fees waived and expenses reimbursed by the
investment advisor.......................................... (228,962) (57,769) (66,287)
______________ _______________ _____________
Net expenses.................................................. 1,184,191 101,959 221,632
______________ _______________ _____________
NET INVESTMENT INCOME (LOSS)..................................... 4,980,314 173,556 (26,978)
______________ _______________ _____________
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... (1,805,690) (317,823) (3,496,932)
In-kind redemptions........................................... 9,816,900 1,915,261 3,368,775
Foreign currency transactions................................. -- -- --
______________ _______________ _____________
Net realized gain (loss)......................................... 8,011,210 1,597,438 (128,157)
Net change in unrealized appreciation (depreciation)
on investments................................................. 13,888,773 1,230,277 633,094
______________ _______________ _____________
NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 21,899,983 2,827,715 504,937
______________ _______________ _____________
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS............................................... $ 26,880,297 $ 3,001,271 $ 477,959
============== =============== =============
Page 86 See Notes to Financial Statements
First Trust
First Trust First Trust First Trust First Trust First Trust NASDAQ(R) ABA
S&P ISE ISE-Revere ISE Value Line(R) 100 Community
REIT Water Natural Gas Chindia Exchange-Traded Bank
Index Fund Index Fund Index Fund Index Fund Fund Index Fund
_______________ ________________ ___________________ ________________ _________________ _________________
$ 1,634,837 $ 677,798 $ 3,576,104 $ 2,069,361 $ 444,763 $ 160,478
-- (18,393) (337,199) (125,007) (4,722) --
9 39 137 -- -- --
_____________ ______________ _______________ ______________ _______________ _______________
1,634,846 659,444 3,239,042 1,944,354 440,041 160,478
_____________ ______________ _______________ ______________ _______________ _______________
158,039 169,586 1,646,522 580,008 311,092 32,025
75,000 21,198 411,631 116,002 99,446 7,205
29,207 23,080 209,224 74,577 33,934 6,859
24,354 17,862 163,432 60,413 25,598 3,763
24,764 24,764 24,734 24,764 24,764 24,764
17,616 12,391 77,142 33,839 14,421 3,707
4,577 752 4,996 4,693 1,216 341
8,991 5,792 55,162 19,965 8,683 1,673
8,371 8,371 10,871 8,371 8,376 10,898
2,634 2,120 20,582 7,250 3,111 400
1,207 935 8,896 3,231 1,357 181
7,653 6,879 48,641 20,465 11,157 1,021
_____________ ______________ _______________ ______________ _______________ _______________
362,413 293,730 2,681,833 953,578 543,155 92,837
(99,014) (39,351) (212,049) (83,567) (107,626) (44,800)
_____________ ______________ _______________ ______________ _______________ _______________
263,399 254,379 2,469,784 870,011 435,529 48,037
_____________ ______________ _______________ ______________ _______________ _______________
1,371,447 405,065 769,258 1,074,343 4,512 112,441
_____________ ______________ _______________ ______________ _______________ _______________
(409,036) (2,831,974) (46,141,984) (10,139,316) 4,440,299 (136,602)
5,249,084 2,761,688 66,821,501 13,767,019 13,713,636 379,256
-- -- 1,171 -- -- --
_____________ ______________ _______________ ______________ _______________ _______________
4,840,048 (70,286) 20,680,688 3,627,703 18,153,935 242,654
4,804,142 7,533,201 2,466,035 14,801,653 (1,728,785) 1,511
_____________ ______________ _______________ ______________ _______________ _______________
9,644,190 7,462,915 23,146,723 18,429,356 16,425,150 244,165
_____________ ______________ _______________ ______________ _______________ _______________
$ 11,015,637 $ 7,867,980 $ 23,915,981 $ 19,503,699 $ 16,429,662 $ 356,606
============= ============== =============== ============== =============== ===============
See Notes to Financial Statements Page 87
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets
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, 2010 December 31, 2009 December 31, 2010 December 31, 2009
_________________ _________________ _________________ _________________
OPERATIONS:
Net investment income (loss)................... $ 499,285 $ 99,591 $ 2,913,346 $ 1,863,995
Net realized gain (loss)....................... (2,429,083) (3,260,012) 1,461,455 (15,104,759)
Net change in unrealized appreciation
(depreciation)................................ 18,873,114 6,256,604 8,079,545 18,721,051
______________ ______________ _____________ ______________
Net increase (decrease) in net assets resulting
from operations............................. 16,943,316 3,096,183 12,454,346 5,480,287
______________ ______________ _____________ ______________
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................... (470,895) (95,349) (2,936,478) (1,912,571)
Return of capital.............................. -- (3,442) (25,193) --
______________ ______________ _____________ ______________
Total distributions to shareholders............ (470,895) (98,791) (2,961,671) (1,912,571)
______________ ______________ _____________ ______________
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold...................... 137,291,718 1,604,570 99,924,591 3,229,577
Cost of shares redeemed........................ (19,392,644) -- (14,628,087) (1,488,733)
______________ ______________ _____________ ______________
Net increase (decrease) in net assets resulting
from shareholder transactions............... 117,899,074 1,604,570 85,296,504 1,740,844
______________ ______________ _____________ ______________
Total increase (decrease) in net assets........ 134,371,495 4,601,962 94,789,179 5,308,560
NET ASSETS:
Beginning of period............................ 18,678,655 14,076,693 48,504,603 43,196,043
______________ ______________ _____________ ______________
End of period.................................. $ 153,050,150 $ 18,678,655 $ 143,293,782 $ 48,504,603
============== ============== ============= ==============
Accumulated net investment income (loss)
at end of period.......................... $ 31,467 $ -- $ -- $ 23,132
============== ============== ============= ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period........ 1,055,000 955,000 3,400,002 3,300,002
Shares sold.................................... 6,900,000 100,000 6,600,000 250,000
Shares redeemed................................ (1,050,000) -- (1,000,000) (150,000)
______________ ______________ _____________ ______________
Shares outstanding, end of period.............. 6,905,000 1,055,000 9,000,002 3,400,002
============== ============== ============= ==============
Page 88 See Notes to Financial Statements
First Trust First Trust First Trust
First Trust NASDAQ-100 NASDAQ-100- NYSE Arca
US IPO Equal Weighted Technology Sector Biotechnology
Index Fund Index(SM) Fund Index(SM) Fund Index Fund
________________________________ _______________________________ ________________________________ ______________________________
For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
2010 2009 2010 2009 2010 2009 2010 2009
_______________ ______________ ______________ _______________ ______________ ______________ ______________ _______________
$ 147,944 $ 326,659 $ 432,430 $ 84,474 $ 1,544,493 $ 47,396 $ (893,750) $ (366,386)
684,591 (2,107,191) 7,244,257 (2,559,856) 16,671,628 (1,248,014) 15,058,828 6,436,819
1,446,294 5,263,706 2,165,178 13,318,318 37,101,460 17,103,466 25,834,919 15,981,380
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
2,278,829 3,483,174 9,841,865 10,842,936 55,317,581 15,902,848 39,999,997 22,051,813
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
(134,485) (177,486) (346,700) (81,000) (1,556,425) (47,396) -- --
-- -- -- -- -- (4,284) -- --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
(134,485) (177,486) (346,700) (81,000) (1,556,425) (51,680) -- --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
5,506,758 2,399,386 63,221,332 22,078,917 417,327,774 68,935,710 196,944,891 25,101,247
(3,411,585) (3,115,834) (37,130,166) (7,320,031) (104,439,045) (7,434,859) (102,793,389) (39,181,567)
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
2,095,173 (716,448) 26,091,166 14,758,886 312,888,729 61,500,851 94,151,502 (14,080,320)
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
4,239,517 2,589,240 35,586,331 25,520,822 366,649,885 77,352,019 134,151,499 7,971,493
11,043,008 8,453,768 40,368,850 14,848,028 86,765,615 9,413,596 67,068,368 59,096,875
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
$ 15,282,525 $ 11,043,008 $ 75,955,181 $ 40,368,850 $453,415,500 $ 86,765,615 $201,219,867 $ 67,068,368
============ ============ ============ ============= ============ ============ ============ ============
$ 13,751 $ 147,960 $ 89,275 $ 3,474 $ -- $ -- $ -- $ --
============ ============ ============ ============= ============ ============ ============ ============
550,002 600,002 2,050,002 1,200,002 4,100,002 800,002 2,350,002 3,000,002
250,000 200,000 2,950,000 1,250,000 18,300,000 3,700,000 5,850,000 950,000
(150,000) (250,000) (1,800,000) (400,000) (4,750,000) (400,000) (3,050,000) (1,600,000)
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
650,002 550,002 3,200,002 2,050,002 17,650,002 4,100,002 5,150,002 2,350,002
============ ============ ============ ============= ============ ============ ============ ============
See Notes to Financial Statements Page 89
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets (Continued)
First Trust First Trust
Dow Jones Internet Strategic Value
Index(SM) Fund Index Fund
_______________________________________ _______________________________________
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2009
_________________ _________________ _________________ _________________
OPERATIONS:
Net investment income (loss)................ $ 655,966 $ (165,911) $ 644,739 $ 612,384
Net realized gain (loss).................... 24,987,964 (6,700,895) 6,878,550 (3,359,390)
Net change in unrealized appreciation
(depreciation) 64,467,650 27,167,822 (2,858,232) 16,222,958
______________ ______________ _____________ ______________
Net increase (decrease) in net assets resulting
from operations............................. 90,111,580 20,301,016 4,665,057 13,475,952
______________ ______________ _____________ ______________
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................... (659,835) -- (657,855) (615,441)
Return of capital.............................. -- -- (7,885) --
______________ ______________ _____________ ______________
Total distributions to shareholders............ (659,835) -- (665,740) (615,441)
______________ ______________ _____________ ______________
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold...................... 517,361,186 55,632,202 52,387,882 36,080,112
Cost of shares redeemed........................ (103,947,961) (4,027,094) (70,918,017) (33,539,545)
______________ ______________ _____________ ______________
Net increase (decrease) in net assets resulting
from shareholder transactions............... 413,413,225 51,605,108 (18,530,135) 2,540,567
______________ ______________ _____________ ______________
Total increase (decrease) in net assets........ 502,864,970 71,906,124 (14,530,818) 15,401,078
NET ASSETS:
Beginning of period............................ 86,614,609 14,708,485 51,163,548 35,762,470
______________ ______________ _____________ ______________
End of period.................................. $ 589,479,579 $ 86,614,609 $ 36,632,730 $ 51,163,548
============== ============== ============= ==============
Accumulated net investment income (loss)
at end of period........................ $ -- $ -- $ -- $ 13,083
============== ============== ============= ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period........ 3,450,002 1,050,002 2,500,002 2,400,002
Shares sold.................................... 17,650,000 2,650,000 2,500,000 2,100,000
Shares redeemed................................ (3,900,000) (250,000) (3,400,000) (2,000,000)
______________ ______________ _____________ ______________
Shares outstanding, end of period.............. 17,200,002 3,450,002 1,600,002 2,500,002
============== ============== ============= ==============
Page 90 See Notes to Financial Statements
First Trust First Trust
First Trust First Trust NASDAQ-100 NASDAQ(R)
Value Line(R) Equity Allocation Value Line(R) Dividend Ex-Technology Sector Clean Edge(R) Green Energy
Index Fund Index Fund Index(SM) Fund Index Fund
________________________________ _______________________________ ________________________________ _______________________________
For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
2010 2009 2010 2009 2010 2009 2010 2009
_______________ ______________ ______________ _______________ ______________ ______________ ______________ _______________
$ 100,085 $ 71,945 $ 4,980,314 $ 4,171,920 $ 173,556 $ 33,018 $ (26,978) $ (42,039)
1,145,729 (1,566,547) 8,011,210 (19,463,309) 1,597,438 (274,109) (128,157) (15,488,353)
(99,602) 3,266,470 13,888,773 40,298,153 1,230,277 2,513,932 633,094 28,253,714
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
1,146,212 1,771,868 26,880,297 25,006,764 3,001,271 2,272,841 477,959 12,723,322
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
(102,971) (70,920) (5,061,937) (4,139,046) (158,610) (31,380) -- --
-- -- (65,937) -- -- -- -- --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
(102,971) (70,920) (5,127,874) (4,139,046) (158,610) (31,380) -- --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
7,037,546 2,778,637 75,819,232 23,235,060 16,507,613 4,857,161 1,526,157 12,111,351
(7,860,408) (3,434,999) (32,679,842) (5,887,786) (7,777,681) (3,751,861) (9,333,154) (4,889,964)
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
(822,862) (656,362) 43,139,390 17,347,274 8,729,932 1,105,300 (7,806,997) 7,221,387
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
220,379 1,044,586 64,891,813 38,214,992 11,572,593 3,346,761 (7,329,038) 19,944,709
6,885,273 5,840,687 153,617,779 115,402,787 10,578,724 7,231,963 43,449,026 23,504,317
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
$ 7,105,652 $ 6,885,273 $218,509,592 $153,617,779 $ 22,151,317 $ 10,578,724 $ 36,119,988 $ 43,449,026
============ ============ ============ ============= ============ ============ ============ ============
$ -- $ 1,603 $ -- $ 81,266 $ 16,623 $ 1,638 $ -- $ --
============ ============ ============ ============= ============ ============ ============ ============
400,002 450,002 11,487,986 9,987,986 600,002 600,002 2,700,002 2,100,002
400,000 200,000 5,250,000 2,050,000 850,000 300,000 100,000 950,000
(450,000) (250,000) (2,250,000) (550,000) (400,000) (300,000) (600,000) (350,000)
____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________
350,002 400,002 14,487,986 11,487,986 1,050,002 600,002 2,200,002 2,700,002
============ ============ ============ ============= ============ ============ ============ ============
See Notes to Financial Statements Page 91
First Trust Exchange-Traded Fund
Statements of Changes in Net Assets (Continued)
First Trust
S&P First Trust
REIT ISE Water
Index Fund Index Fund
_______________________________________ _______________________________________
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2009
_________________ _________________ _________________ _________________
OPERATIONS:
Net investment income (loss)................... $ 1,371,447 $ 250,761 $ 405,065 $ 398,192
Net realized gain (loss)....................... 4,840,048 (1,510,091) (70,286) (5,300,995)
Net change in unrealized appreciation
(depreciation) 4,804,142 3,426,166 7,533,201 10,860,501
______________ ______________ _____________ ______________
Net increase (decrease) in net assets resulting
from operations............................. 11,015,637 2,166,836 7,867,980 5,957,698
______________ ______________ _____________ ______________
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................... (1,400,636) (251,687) (319,290) (394,615)
Return of capital.............................. -- (22,048) -- --
______________ ______________ _____________ ______________
Total distributions to shareholders............ (1,400,636) (273,735) (319,290) (394,615)
______________ ______________ _____________ ______________
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold...................... 66,628,620 16,004,640 17,153,891 5,354,182
Cost of shares redeemed........................ (26,264,803) (1,997,981) (8,905,590) (5,760,858)
______________ ______________ _____________ ______________
Net increase (decrease) in net assets resulting
from shareholder transactions............... 40,363,817 14,006,659 8,248,301 (406,676)
______________ ______________ _____________ ______________
Total increase (decrease) in net assets........ 49,978,818 15,899,760 15,796,991 5,156,407
NET ASSETS:
Beginning of period............................ 21,087,034 5,187,274 37,313,648 32,157,241
______________ ______________ _____________ ______________
End of period.................................. $ 71,065,852 $ 21,087,034 $ 53,110,639 $ 37,313,648
============== ============== ============= ==============
Accumulated net investment income (loss)
at end of period............................ $ 217,284 $ -- $ 89,624 $ 3,849
============== ============== ============= ==============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period........ 1,800,002 550,002 2,000,002 2,050,002
Shares sold.................................... 5,050,000 1,550,000 850,000 350,000
Shares redeemed................................ (2,000,000) (300,000) (450,000) (400,000)
______________ ______________ _____________ ______________
Shares outstanding, end of period.............. 4,850,002 1,800,002 2,400,002 2,000,002
============== ============== ============= ==============
(a) Inception date.
Page 92 See Notes to Financial Statements
First Trust First Trust
ISE-Revere First Trust First Trust NASDAQ(R) ABA
Natural Gas ISE Chindia Value Line(R) 100 Community Bank
Index Fund Index Fund Exchange-Traded Fund Index Fund
________________________________ _______________________________ ________________________________ _______________________________
For the Period
For the Year For the Year For the Year For the Year For the Year For the Year For the Year June 29, 2009 (a)
Ended Ended Ended Ended Ended Ended Ended through
December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
2010 2009 2010 2009 2010 2009 2010 2009
_______________ ______________ ______________ _______________ ______________ ______________ ____________ _________________
$ 769,258 $ 877,559 $ 1,074,343 $ 393,226 $ 4,512 $ (51,697) $ 112,441 $ 41,248
20,680,688 (16,133,113) 3,627,703 (7,886,218) 18,153,935 (4,969,496) 242,654 (53,829)
2,466,035 77,981,940 14,801,653 44,375,061 (1,728,785) 11,828,826 1,511 367,915
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
23,915,981 62,726,386 19,503,699 36,882,069 16,429,662 6,807,633 356,606 355,334
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
(1,172,607) (942,177) (1,073,636) (393,226) -- -- (114,106) (37,500)
(54,408) (15,658) -- (149) -- -- -- --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
(1,227,015) (957,835) (1,073,636) (393,375) -- -- (114,106) (37,500)
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
441,554,686 430,438,876 91,212,949 53,606,608 81,283,340 6,573,698 8,559,196 5,285,767
(531,689,123) (65,047,038) (53,531,101) (5,792,265) (69,715,177) (28,773,841) (4,426,523) --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
(90,134,437) 365,391,838 37,681,848 47,814,343 11,568,163 (22,200,143) 4,132,673 5,285,767
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
(67,445,471) 427,160,389 56,111,911 84,303,037 27,997,825 (15,392,510) 4,375,173 5,603,601
464,338,906 37,178,517 120,239,912 35,936,875 60,432,759 75,825,269 5,603,601 --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
$396,893,435 $464,338,906 $176,351,823 $120,239,912 $ 88,430,584 $ 60,432,759 $ 9,978,774 $ 5,603,601
============ ============ ============ ============ ============ ============ ============ ==============
$ -- $ -- $ 707 $ -- $ 4,512 $ -- $ 2,200 $ 3,748
============ ============ ============ ============ ============ ============ ============ ==============
26,500,002 3,150,002 5,650,002 3,050,002 5,789,982 8,189,982 250,002 --
24,500,000 27,350,000 3,950,000 2,950,000 6,350,000 700,000 350,000 250,002
(30,750,000) (4,000,000) (2,550,000) (350,000) (5,600,000) (3,100,000) (200,000) --
____________ ____________ ____________ ____________ ____________ ____________ ____________ ______________
20,250,002 26,500,002 7,050,002 5,650,002 6,539,982 5,789,982 400,002 250,002
============ ============ ============ ============ ============ ============ ============ ==============
See Notes to Financial Statements Page 93
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust Dow Jones Select MicroCap Index(SM) Fund
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 17.70 $ 14.74 $ 22.35 $ 23.92 $ 20.73
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.09 0.09 0.17 0.16 0.06 (b)
Net realized and unrealized gain
(loss) 4.46 2.97 (7.60) (1.60) 3.19 (b)
__________ __________ __________ __________ __________
Total from investment operations 4.55 3.06 (7.43) (1.44) 3.25
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.08) (0.10) (0.17) (0.13) (0.06)
Return of capital -- (0.00) (f) (0.01) -- --
__________ __________ __________ __________ __________
Total distributions (0.08) (0.10) (0.18) (0.13) (0.06)
__________ __________ __________ __________ __________
Net asset value, end of period $ 22.17 $ 17.70 $ 14.74 $ 22.35 $ 23.92
========== ========== ========== ========== ==========
TOTAL RETURN (c) 25.77% 20.85% (33.33)% (6.02)% 15.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $153,050 $ 18,679 $ 14,077 $ 17,993 $ 16,865
Ratios to average net assets:
Ratio of total expenses to average
net assets 0.86% 0.94% 1.05% 1.35% 1.18%
Ratio of net expenses to average
net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss)
to average net assets 0.94% 0.69% 0.79% 0.58% 0.24%
Portfolio turnover rate (e) 86% 86% 85% 11% 20%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund
For the Period
For the For the For the For the March 9, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 14.27 $ 13.09 $ 20.20 $ 23.51 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.57 0.56 0.83 0.92 0.59 (b)
Net realized and unrealized gain
(loss) 1.66 1.19 (7.13) (3.35) 3.52 (b)
__________ __________ __________ __________ __________
Total from investment operations 2.23 1.75 (6.30) (2.43) 4.11
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.58) (0.57) (0.81) (0.88) (0.60)
Return of capital (0.00) (f) -- -- -- --
__________ __________ __________ __________ __________
Total distributions (0.58) (0.57) (0.81) (0.88) (0.60)
__________ __________ __________ __________ __________
Net asset value, end of period $ 15.92 $ 14.27 $ 13.09 $ 20.20 $ 23.51
========== ========== ========== ========== ==========
TOTAL RETURN (c) 16.05% 14.24% (31.71)% (10.64)% 20.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $143,294 $ 48,505 $ 43,196 $ 64,650 $ 75,237
Ratios to average net assets:
Ratio of total expenses to average
net assets 0.66% 0.79% 0.72% 0.68% 0.99% (d)
Ratio of net expenses to average
net assets 0.45% 0.45% 0.45% 0.45% 0.45% (d)
Ratio of net investment income (loss)
to average net assets 4.22% 4.64% 5.07% 3.87% 3.55% (d)
Portfolio turnover rate (e) 30% 81% 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 returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(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 94 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 For the For the April 12, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 20.08 $ 14.09 $ 25.36 $ 22.20 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.20 0.59 0.15 0.05 0.01 (b)
Net realized and unrealized gain
(loss) 3.45 5.72 (11.27) 3.17 2.19 (b)
__________ __________ __________ __________ __________
Total from investment operations 3.65 6.31 (11.12) 3.22 2.20
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.22) (0.32) (0.14) (0.06) --
Return of capital -- -- (0.01) -- --
__________ __________ __________ __________ __________
Total distributions (0.22) (0.32) (0.15) (0.06) --
__________ __________ __________ __________ __________
Net asset value, end of period $ 23.51 $ 20.08 $ 14.09 $ 25.36 $ 22.20
========== ========== ========== ========== ==========
TOTAL RETURN (c) 18.28% 44.93% (43.88)% 14.53% 11.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 15,283 $ 11,043 $ 8,454 $ 26,633 $ 19,981
Ratios to average net assets:
Ratio of total expenses to average
net assets 1.32% 1.34% 1.02% 1.06% 1.44% (d)
Ratio of net expenses to average
net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss)
to average net assets 1.28% 3.59% 0.50% 0.24% 0.07% (d)
Portfolio turnover rate (e) 43% 30% 62% 11% 26%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund
For the Period
For the For the For the For the April 19, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 19.69 $ 12.37 $ 22.08 $ 20.12 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.15 0.05 0.00 (f) (0.02) (0.01) (b)
Net realized and unrealized gain
(loss) 4.02 7.32 (9.70) 1.98 0.13 (b)
__________ __________ __________ __________ __________
Total from investment operations 4.17 7.37 (9.70) 1.96 0.12
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.12) (0.05) (0.00) (f) -- --
Return of capital -- -- (0.01) -- --
__________ __________ __________ __________ __________
Total distributions (0.12) (0.05) (0.01) -- --
__________ __________ __________ __________ __________
Net asset value, end of period $ 23.74 $ 19.69 $ 12.37 $ 22.08 $ 20.12
========== ========== ========== ========== ==========
TOTAL RETURN (c) 21.25% 59.54% (43.96)% 9.74% 0.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 75,955 $ 40,369 $ 14,848 $ 30,911 $ 26,158
Ratios to average net assets:
Ratio of total expenses to average
net assets 0.75% 0.67% 0.88% 0.95% 1.31% (d)
Ratio of net expenses to average
net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss)
to average net assets 0.79% 0.35% 0.01% (0.08)% (0.07)% (d)
Portfolio turnover rate (e) 24% 36% 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, reinvestmenof all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return
calculated for a period of less than one year is not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(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 95
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 For the For the April 19, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 21.16 $ 11.77 $ 21.50 $ 19.97 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.10 0.01 -- (0.03) (0.03)(b)
Net realized and unrealized gain
(loss) 4.53 9.39 (9.73) 1.56 0.00 (b)(f)
__________ __________ __________ __________ __________
Total from investment operations 4.63 9.40 (9.73) 1.53 (0.03)
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.10) (0.01) -- -- --
Return of capital -- (0.00)(f) -- -- --
__________ __________ __________ __________ __________
Total distributions (0.10) (0.01) -- -- --
__________ __________ __________ __________ __________
Net asset value, end of period $ 25.69 $ 21.16 $ 11.77 $ 21.50 $ 19.97
========== ========== ========== ========== ==========
TOTAL RETURN (c) 21.92% 79.89% (45.26)% 7.66% (0.15)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 453,416 $ 86,766 $ 9,414 $ 23,652 $ 27,960
Ratios to average net assets:
Ratio of total expenses to average
net assets 0.70% 0.67% 0.88% 0.92% 1.37% (d)
Ratio of net expenses to average
net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss)
to average net assets 0.71% 0.16% (0.01)% (0.16)% (0.20)% (d)
Portfolio turnover rate (e) 26% 35% 33% 10% 7%
First Trust NYSE Arca Biotechnology Index Fund
For the Period
For the For the For the For the April 19, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 28.54 $ 19.70 $ 24.41 $ 23.55 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) (0.17) (0.16) 0.18 (0.10) (0.07)(b)
Net realized and unrealized gain
(loss) 10.70 9.00 (4.62) 0.96 3.62 (b)
__________ __________ __________ __________ __________
Total from investment operations 10.53 8.84 (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 $ 39.07 $ 28.54 $ 19.70 $ 24.41 $ 23.55
========== ========== ========== ========== ==========
TOTAL RETURN (c) 36.90% 44.87% (18.33)% 3.65% 17.75%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 201,220 $ 67,068 $ 59,097 $ 73,241 $ 29,438
Ratios to average net assets:
Ratio of total expenses to average
net assets 0.66% 0.72% 0.72% 0.73% 1.22% (d)
Ratio of net expenses to average
net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss)
to average net assets (0.60)% (0.60)% 0.67% (0.60)% (0.60)% (d)
Portfolio turnover rate (e) 35% 44% 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, reinvestmenof all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total returns
calculated for a period of less than one year are not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(f) Amount represents less than $0.01 per share.
Page 96 See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust Dow Jones Internet Index(SM) Fund
For the Period
For the For the For the For the June 19, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 25.11 $ 14.01 $ 25.09 $ 22.57 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.04 (0.05) 0.05 (0.16) (0.07)(b)
Net realized and unrealized gain
(loss) 9.16 11.15 (11.08) 2.68 2.64 (b)
__________ __________ __________ __________ __________
Total from investment operations 9.20 11.10 (11.03) 2.52 2.57
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.04) -- (0.05) -- --
Return of capital -- -- (0.00) (f) -- --
__________ __________ __________ __________ __________
Total distributions (0.04) -- (0.05) -- --
__________ __________ __________ __________ __________
Net asset value, end of period $ 34.27 $ 25.11 $ 14.01 $ 25.09 $ 22.57
========== ========== ========== ========== ==========
TOTAL RETURN (c) 36.63% 79.23% (44.02)% 11.17% 12.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 589,480 $ 86,615 $ 14,708 $ 36,386 $ 25,953
Ratios to average net assets:
Ratio of total expenses to average
net assets 0.66% 0.73% 0.82% 0.70% 1.24% (d)
Ratio of net expenses to average
net assets 0.60% 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss)
to average net assets 0.26% (0.46)% 0.21% (0.42)% (0.55)% (d)
Portfolio turnover rate (e) 16% 35% 44% 6% 4%
First Trust Strategic Value Index Fund
For the Period
For the For the For the For the July 6, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 20.47 $ 14.90 $ 24.12 $ 22.06 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.39 0.28 0.28 0.20 0.12 (b)
Net realized and unrealized gain
(loss) 2.44 5.57 (9.22) 2.07 2.03 (b)
__________ __________ __________ __________ __________
Total from investment operations 2.83 5.85 (8.94) 2.27 2.15
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.40) (0.28) (0.28) (0.21) (0.09)
Return of capital (0.00) (f) -- -- -- --
__________ __________ __________ __________ __________
Total distributions (0.40) (0.28) (0.28) (0.21) (0.09)
__________ __________ __________ __________ __________
Net asset value, end of period $ 22.90 $ 20.47 $ 14.90 $ 24.12 $ 22.06
========== ========== ========== ========== ==========
TOTAL RETURN (c) 14.04% 39.43% (37.23)% 10.26% 10.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 36,633 $ 51,164 $ 35,762 $ 61,518 $ 17,650
Ratios to average net assets:
Ratio of total expenses to average
net assets 0.86% 0.87% 0.72% 1.12% 2.59% (d)
Ratio of net expenses to average
net assets 0.65% 0.65% 0.65% 0.65% 0.65% (d)
Ratio of net investment income (loss)
to average net assets 1.58% 1.57% 1.31% 1.09% 1.29% (d)
Portfolio turnover rate (e) 197% 171% 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, reinvestmenof all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total returns
calculated for a period of less than one year are not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(f) Amount represents less than $0.01 per share.
See Notes to Financial Statements Page 97
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust Value Line(R) Equity Allocation Index Fund
For the Period
For the For the For the For the December 5, 2006 (a)
Year Ended Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007 December 31, 2006
_________________ _________________ _________________ _________________ _________________
Net asset value, beginning of period $ 17.21 $ 12.98 $ 20.45 $ 19.78 $ 20.00
__________ __________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.29 0.18 0.25 0.24 0.03 (b)
Net realized and unrealized gain
(loss) 3.09 4.23 (7.47) 0.68 (0.25)(b)
__________ __________ __________ __________ __________
Total from investment operations 3.38 4.41 (7.22) 0.92 (0.22)
__________ __________ __________ __________ __________
Distributions paid to shareholders
from:
Net investment income (0.29) (0.18) (0.25) (0.25) --
__________ __________ __________ __________ __________
Net asset value, end of period $ 20.30 $ 17.21 $ 12.98 $ 20.45 $ 19.78
========== ========== ========== ========== ==========
TOTAL RETURN (c) 19.85% 34.15% (35.45)% 4.65% (1.10)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 7,106 $ 6,885 $ 5,841 $ 13,291 $ 18,793
Ratios to average net assets:
Ratio of total expenses to average
net assets 1.35% 1.24% 1.14% 1.36% 3.25% (d)
Ratio of net expenses to average
net assets 0.70% 0.70% 0.70% 0.70% 0.70% (d)
Ratio of net investment income (loss)
to average net assets 1.29% 1.24% 1.29% 1.04% 1.82% (d)
Portfolio turnover rate (e) 205% 191% 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, reinvestmenof all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total returns
calculated for a period of less than one year are not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 98 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 For the For the June 1, 2006 For the
Year Ended Year Ended Year Ended Year Ended through Year Ended
December 31, December 31, December 31, December 31, December 31, May 31,
2010 2009 2008 2007 2006 (a) 2006 (a)
______________ ______________ ______________ ______________ ______________ ____________
Net asset value, beginning of
period $ 13.37 $ 11.55 $ 15.75 $ 16.77 $ 16.55 $ 17.24
__________ __________ __________ __________ __________ _________
Income from investment
operations:
Net investment income (loss) 0.41 (b) 0.38 0.45 0.44 0.24 (b) 0.43
Net realized and unrealized
gain (loss) 1.71 1.82 (4.20) (0.99) 2.10 (b) 1.00
__________ __________ __________ __________ __________ _________
Total from investment operation 2.12 2.20 (3.75) (0.55) 2.34 1.43
__________ __________ __________ __________ __________ _________
Distributions paid to
shareholders from:
Net investment income (0.40) (0.38) (0.45) (0.47) (0.63) (0.42)
Net realized gains -- -- -- -- (1.49) (1.70)
Return of capital (0.01) -- -- -- -- --
__________ __________ __________ __________ __________ _________
Total distributions to
shareholders (0.41) (0.38) (0.45) (0.47) (2.12) (2.12)
__________ __________ __________ __________ __________ _________
Net asset value, end of period $ 15.08 $ 13.37 $ 11.55 $ 15.75 $ 16.77 $ 16.55
========== ========== ========== ========== ========== =========
TOTAL RETURN, BASED ON
NET ASSET VALUE 16.08% (d) 19.58% (d) (24.17)% (d) (3.42)% (d) 14.70% (d)(h) 10.26% (c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in 000's) $ 218,510 $ 153,618 $ 115,403 $ 180,153 $ 451,642 $ 536,258
Ratios to average net assets:
Ratio of total expenses to
average net assets 0.84% 0.80% 0.84% 0.85% 0.94% (e) 0.93%
Ratio of net expenses to
average net assets 0.70% 0.70% 0.70% 0.70% 0.93% (e)(g) 0.93%
Ratio of net investment income
(loss) to average net assets 2.94% 3.30% 3.20% 2.37% 2.36% (e) 2.51%
Portfolio turnover rate (f) 55% 101% 109% 5% 28% 58%
(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) 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 returns presented do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption or sale of
Fund shares. Total returns calculated for a period of less than one year
are not annualized. The total returns would have been lower if certain fees
had not been waived and expenses reimbursed by the investment advisor.
(e) Annualized.
(f) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(g) 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.
(h) 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.
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 Amex) 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 99
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
For the Period
For the For the For the February 8, 2007 (a)
Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007
___________________ ___________________ ___________________ ____________________
Net asset value, beginning of period $ 17.63 $ 12.05 $ 21.19 $ 20.00
__________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.17 0.05 0.01 (0.01)
Net realized and unrealized gain (loss) 3.46 5.58 (9.14) 1.20
__________ __________ __________ __________
Total from investment operations 3.63 5.63 (9.13) 1.19
__________ __________ __________ __________
Distributions paid to shareholders from:
Net investment income (0.16) (0.05) (0.01) --
Return of capital -- (0.00) (e) (0.00) (e) --
__________ __________ __________ __________
Total distributions (0.16) (0.05) (0.01) --
__________ __________ __________ __________
Net asset value, end of period $ 21.10 $ 17.63 $ 12.05 $ 21.19
========== ========== ========== ==========
TOTAL RETURN (b) 20.64% 46.74% (43.09)% 5.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 22,151 $ 10,579 $ 7,232 $ 2,119
Ratios to average net assets:
Ratio of total expenses to average net assets 0.94% 1.28% 1.86% 2.61% (c)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets 1.02% 0.48% 0.03% (0.04)% (c)
Portfolio turnover rate (d) 19% 43% 67% 27%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
For the Period
For the For the For the February 8, 2007 (a)
Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007
___________________ ___________________ ___________________ ____________________
Net asset value, beginning of period $ 16.09 $ 11.19 $ 30.86 $ 20.00
__________ __________ __________ __________
Income from investment operations:
Net investment income (loss) (0.01) (0.02) (0.04) (0.04)
Net realized and unrealized gain (loss) 0.34 4.92 (19.63) 10.90
__________ __________ __________ __________
Total from investment operations 0.33 4.90 (19.67) 10.86
__________ __________ __________ __________
Net asset value, end of period $ 16.42 $ 16.09 $ 11.19 $ 30.86
========== ========== ========== ==========
TOTAL RETURN (b) 2.05% 43.79% (63.74)% 54.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 36,120 $ 43,449 $ 23,504 $ 50,913
Ratios to average net assets:
Ratio of total expenses to average net assets 0.78% 0.81% 0.83% 1.00% (c)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets (0.07)% (0.12)% (0.21)% (0.33)% (c)
Portfolio turnover rate (d) 22% 40% 32% 4%
(a) Inception date.
(b) 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 returns presented do not reflect the
deduction of taxes that a shareholder would pay on Fund distributions
or the redemption or sale of Fund shares. Total returns calculated
for a period of less than one year are not annualized. The total
returns would have been lower if certain fees had not been waived and
expenses reimbursed by the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and
in-kind transactions.
(e) Amount represents less than $0.01 per share.
Page 100 See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust S&P REIT Index Fund
For the Period
For the For the For the May 8, 2007 (a)
Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007
___________________ ___________________ ___________________ ____________________
Net asset value, beginning of period $ 11.72 $ 9.43 $ 15.81 $ 20.00
__________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.29 0.25 0.31 0.32 (b)
Net realized and unrealized gain (loss) 2.94 2.31 (6.38) (4.13) (b)
__________ __________ __________ __________
Total from investment operations 3.23 2.56 (6.07) (3.81)
__________ __________ __________ __________
Distributions paid to shareholders from:
Net investment income (0.30) (0.25) (0.31) (0.38)
Return of capital -- (0.02) -- --
__________ __________ __________ __________
Total distributions (0.30) (0.27) (0.31) (0.38)
__________ __________ __________ __________
Net asset value, end of period $ 14.65 $ 11.72 $ 9.43 $ 15.81
========== ========== ========== ==========
TOTAL RETURN (c) 27.73% 28.00% (38.87)% (19.08)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 71,066 $ 21,087 $ 5,187 $ 1,581
Ratios to average net assets:
Ratio of total expenses to average net assets 0.69% 1.95% 5.30% 8.41% (d)
Ratio of net expenses to average net assets 0.50% 0.50% 0.50% 0.50% (d)
Ratio of net investment income (loss) to
average net assets 2.60% 3.39% 3.40% 2.73% (d)
Portfolio turnover rate (e) 16% 13% 20% 25%
First Trust ISE Water Index Fund
For the Period
For the For the For the May 8, 2007 (a)
Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007
___________________ ___________________ ___________________ ____________________
Net asset value, beginning of period $ 18.66 $ 15.69 $ 22.38 $ 20.00
__________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.18 0.19 0.12 0.04
Net realized and unrealized gain (loss) 3.43 2.97 (6.69) 2.38
__________ __________ __________ __________
Total from investment operations 3.61 3.16 (6.57) 2.42
__________ __________ __________ __________
Distributions paid to shareholders from:
Net investment income (0.14) (0.19) (0.12) (0.04)
__________ __________ __________ __________
Net asset value, end of period $ 22.13 $ 18.66 $ 15.69 $ 22.38
========== ========== ========== ==========
TOTAL RETURN (c) 19.49% 20.29% (29.40)% 12.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 53,111 $ 37,314 $ 32,157 $ 12,310
Ratios to average net assets:
Ratio of total expenses to average net assets 0.69% 0.72% 0.77% 1.68% (d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 0.96% 1.20% 0.76% 0.46% (d)
Portfolio turnover rate (e) 38% 44% 45% 3%
(a) Inception date.
(b) Per share amounts have been calculated using the average share method.
(c) 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 returns presented do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption or sale of
Fund shares. Total returns calculated for a period of less than one year
are not annualized. The total returns would have been lower if certain fees
had not been waived and expenses reimbursed by the investment advisor.
(d) Annualized.
(e) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 101
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust ISE-Revere Natural Gas Index Fund
For the Period
For the For the For the May 8, 2007 (a)
Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007
___________________ ___________________ ___________________ ____________________
Net asset value, beginning of period $ 17.52 $ 11.80 $ 22.31 $ 20.00
__________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.03 0.07 0.14 0.03
Net realized and unrealized gain (loss) 2.10 5.72 (10.51) 2.30
__________ __________ __________ __________
Total from investment operations 2.13 5.79 (10.37) 2.33
__________ __________ __________ __________
Distributions paid to shareholders from:
Net investment income (0.05) (0.07) (0.14) (0.02)
Return of capital (0.00) (e) (0.00) (e) -- --
__________ __________ __________ __________
Total distributions (0.05) (0.07) (0.14) (0.02)
__________ __________ __________ __________
Net asset value, end of period $ 19.60 $ 17.52 $ 11.80 $ 22.31
========== ========== ========== ==========
TOTAL RETURN (b) 12.22% 49.21% (46.57)% 11.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 396,893 $ 464,339 $ 37,179 $ 11,157
Ratios to average net assets:
Ratio of total expenses to average net assets 0.65% 0.72% 0.77% 2.36% (c)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets 0.19% 0.53% 0.77% 0.32% (c)
Portfolio turnover rate (d) 93% 71% 116% 5%
First Trust ISE Chindia Index Fund
For the Period
For the For the For the May 8, 2007 (a)
Year Ended Year Ended Year Ended through
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007
___________________ ___________________ ___________________ ____________________
Net asset value, beginning of period $ 21.28 $ 11.78 $ 27.73 $ 20.00
__________ __________ __________ __________
Income from investment operations:
Net investment income (loss) 0.17 0.09 0.17 0.02
Net realized and unrealized gain (loss) 3.73 9.50 (15.92) 7.73
__________ __________ __________ __________
Total from investment operations 3.90 9.59 (15.75) 7.75
__________ __________ __________ __________
Distributions paid to shareholders from:
Net investment income (0.17) (0.09) (0.20) (0.02)
Return of capital -- (0.00) (e) (0.00) (e) --
__________ __________ __________ __________
Total distributions (0.17) (0.09) (0.20) (0.02)
__________ __________ __________ __________
Net asset value, end of period $ 25.01 $ 21.28 $ 11.78 $ 27.73
========== ========== ========== ==========
TOTAL RETURN (b) 18.46% 81.58% (56.98)% 38.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 176,352 $ 120,240 $ 35,937 $ 104,004
Ratios to average net assets:
Ratio of total expenses to average net assets 0.66% 0.73% 0.73% 0.82% (c)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets 0.74% 0.58% 0.90% 0.17% (c)
Portfolio turnover rate (d) 34% 47% 39% 2%
(a) Inception date.
(b) 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 returns presented do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption or sale of
Fund shares. Total returns calculated for a period of less than one year
are not annualized. The total returns would have been lower if certain fees
had not been waived and expenses reimbursed by the investment advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(e) Amount represents less than $0.01 per share.
Page 102 See Notes to Financial Statements
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust Value Line(R) 100 Exchange-Traded Fund
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007(a) December 31, 2006(a)
_________________ _________________ _________________ ____________________ ____________________
Net asset value, beginning of
period $ 10.44 $ 9.26 $ 17.91 $ 15.89 $ 17.16
___________ ___________ ___________ ___________ ___________
Income from investment
operations:
Net investment income (loss) 0.00 (g) (0.01) (0.02) 1.02 (0.07)
Net realized and unrealized
gain (loss) 3.08 1.19 (8.63) 2.06 0.68
___________ ___________ ___________ ___________ ___________
Total from investment operations 3.08 1.18 (8.65) 3.08 0.61
___________ ___________ ___________ ___________ ___________
Distributions paid to
shareholders from:
Net realized gains -- -- -- (1.06) (1.88)
___________ ___________ ___________ ___________ ___________
Net asset value, end of period $ 13.52 $ 10.44 $ 9.26 $ 17.91 $ 15.89
=========== =========== =========== =========== ===========
TOTAL RETURN, BASED ON
NET ASSET VALUE 29.50% (c) 12.74% (c) (48.30)% (c) 19.91% (c) (f) 4.59% (b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in 000's) $ 88,431 $ 60,433 $ 75,825 $ 204,913 $ 277,902
Ratios to average net assets:
Ratio of total expenses to
average net assets 0.87% 0.85% 0.86% 0.89% 0.97%
Ratio of net expenses to average
net assets 0.70% 0.70% 0.70% 0.83% (e) 0.97%
Ratio of net investment income
(loss) to average net assets 0.01% (0.08)% (0.11)% (0.21)% (0.40)%
Portfolio turnover rate (d) 266% 235% 251% 111% 234%
(a) The Fund commenced operations on June 12, 2003. Results for periods prior
to June 18, 2007 are of First Trust Value Line(R) 100 Fund. See
Reorganization History below.
(b) Total return 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.
(c) 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 returns presented do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption or sale of
Fund shares. Total returns calculated for a period of less than one year
are not annualized. The total returns would have been lower if certain fees
had not been waived or expenses reimbursed by the investment advisor.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(e) The annualized expense ratio is capped at 0.70%. This ratio of 0.83%
includes expenses for a portion of the period prior to the reorganization
of the First Trust Value Line(R) 100 Fund.
(f) 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.
(g) Amount represents less than $0.01 per share.
Reorganization History:
_______________________
First Trust Value Line(R) 100 Fund (the "Predecessor FVL Fund"), a closed-end
fund organized as a Massachusetts business trust on April 18, 2003, reorganized
with and into First Trust Value Line(R) 100 Exchange-Traded Fund ("FVL"), an
exchange-traded fund and newly created series of the Trust effective Friday,
June 15, 2007. The Predecessor FVL Fund ceased trading on the AMEX (now known as
NYSE Amex) on Friday, June 15, 2007 and FVL began trading on the AMEX on Monday,
June 18, 2007 (effective November 6, 2008, FVL began trading on NYSE Arca),
under the ticker symbol "FVL," the same ticker symbol used by the Predecessor
FVL Fund. The assets of the Predecessor FVL Fund were transferred to, and the
liabilities of the Predecessor FVL Fund were assumed by, FVL in exchange for
shares of FVL on a one share for one share basis based upon the net asset value
("NAV") of the Predecessor FVL Fund on Friday, June 15, 2007. FVL shares have
been distributed to the Predecessor FVL Fund shareholders, on a tax-free basis
for federal income tax purposes, and the Predecessor FVL Fund has been
terminated. The historical results of the Predecessor FVL Fund survive for
financial reporting purposes.
See Notes to Financial Statements Page 103
First Trust Exchange-Traded Fund
Financial Highlights
For a Share outstanding throughout each period
First Trust NASDAQ(R) ABA Community Bank Index Fund
For the Period
For the June 29, 2009 (a)
Year Ended through
December 31, 2010 December 31, 2009
____________________ ___________________
Net asset value, beginning of period $ 22.41 $ 20.00
__________ __________
Income from investment operations:
Net investment income (loss) 0.30 0.16
Net realized and unrealized gain (loss) 2.55 2.40
__________ __________
Total from investment operations 2.85 2.56
__________ __________
Distributions paid to shareholders from:
Net investment income (0.31) (0.15)
__________ __________
Net asset value, end of period $ 24.95 $ 22.41
========== ==========
TOTAL RETURN (b) 12.77% 12.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 9,979 $ 5,604
Ratios to average net assets:
Ratio of total expenses to average net assets 1.16% 2.67% (c)
Ratio of net expenses to average net assets 0.60% 0.60% (c)
Ratio of net investment income (loss) to average net assets 1.40% 1.92% (c)
Portfolio turnover rate (d) 26% 15%
(a) Inception date.
(b) 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 returns presented do not reflect the
deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total
returns calculated for a period of less than one year are not
annualized. The total returns would have been lower if certain fees
had not been waived or expenses reimbursed by the investment
advisor.
(c) Annualized.
(d) Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions and
in-kind transactions.
Page 104 See Notes to Financial Statements
--------------------------------------------------------------------------------
Notes to Financial Statements
--------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2010
1. Organization
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of eighteen exchange-traded funds:
First Trust Dow Jones Select MicroCap Index(SM) Fund - (NYSE Arca, Inc.
ticker "FDM")
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund - (NYSE Arca, Inc.
ticker "FDL")
First Trust US IPO Index Fund - (NYSE Arca, Inc. ticker "FPX")
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund - (NASDAQ ticker "QQEW")
First Trust NASDAQ-100-Technology Sector Index(SM) Fund - (NASDAQ
ticker "QTEC")
First Trust NYSE Arca Biotechnology Index Fund - (NYSE Arca, Inc.
ticker "FBT")
First Trust Dow Jones Internet Index(SM) Fund - (NYSE Arca, Inc. ticker "FDN")
First Trust Strategic Value Index Fund(1) - (NYSE Arca, Inc. ticker "FDV")
First Trust Value Line(R) Equity Allocation Index Fund - (NYSE Arca, Inc.
ticker "FVI")
First Trust Value Line(R) Dividend Index Fund - (NYSE Arca, Inc. ticker "FVD")
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund - (NASDAQ
ticker "QQXT")
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (NASDAQ
ticker "QCLN")
First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ticker "FRI")
First Trust ISE Water Index Fund - (NYSE Arca, Inc. ticker "FIW")
First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca, Inc. ticker "FCG")
First Trust ISE Chindia Index Fund - (NYSE Arca, Inc. ticker "FNI")
First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca, Inc.
ticker "FVL")
First Trust NASDAQ(R) ABA Community Bank Index Fund - (NASDAQ ticker "QABA")
(1) Formerly First Trust DB Strategic Value Index Fund.
Each fund represents a separate series of beneficial interest in the Trust (each
a "Fund" and collectively, the "Funds"). Each Fund's shares are listed and
traded on NYSE Arca, Inc. ("NYSE Arca") except for the First Trust NASDAQ-100
Equal Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector
Index(SM) Fund, the First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund,
the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, and the First
Trust NASDAQ(R) ABA Community Bank Index Fund, which are listed and traded on
The NASDAQ Stock Market, Inc. ("NASDAQ(R)"). Unlike conventional mutual funds,
each Fund issues and redeems shares on a continuous basis, at net asset value
("NAV"), only in large specified blocks consisting of 50,000 shares called a
"Creation Unit." Creation Units are issued and redeemed principally in-kind for
securities included in a Fund's relevant index. Except when aggregated in
Creation Units, shares are not redeemable securities of a Fund. The investment
objective of each Fund is to seek investment results that correspond generally
to the price and yield (before the Fund's fees and expenses) of the following
indices:
Fund Index
First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones Select MicroCap Index(SM)
First Trust Morningstar(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 NYSE Arca Biotechnology Index Fund NYSE Arca Biotechnology Index(SM)
First Trust Dow Jones Internet Index(SM) Fund Dow Jones Internet Composite Index(SM)
First Trust Strategic Value Index Fund Credit Suisse U.S. Value Index, Powered by HOLT(TM) (2)
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
First Trust S&P REIT Index Fund S&P United States REIT Index
First Trust ISE Water Index Fund ISE Water Index(TM)
First Trust ISE-Revere Natural Gas Index Fund ISE-REVERE Natural Gas Index(TM)
First Trust ISE Chindia Index Fund ISE ChIndia Index(TM)
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index
First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM)
(2) Effective June 18, 2010, the Fund's underlying index was changed from the
Deutsche Bank CROCI(R) US+ Index(TM).
Page 105
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2010
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
A. Portfolio Valuation
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. The NAV is calculated by dividing the value of all
assets of the Fund (including accrued interest and dividends), less all
liabilities (including accrued expenses and dividends declared but unpaid), by
the total number of shares outstanding.
Each Fund's investments are valued 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
NASDAQ(R) or the London Stock Exchange Alternative Investment Market ("AIM") are
valued at the last sale price on the business day as of which such value is
being determined. Securities listed on the NASDAQ(R) 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(R) or the AIM, the securities are
valued at the mean of the most recent bid and asked 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(R) or the AIM, are valued at the closing bid prices. Short-term
investments that mature in less than 60 days when purchased are valued at
amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. 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, as amended) for which a
pricing service is unable to provide a market price; securities whose trading
has been formally suspended; a security whose market price is not available from
a pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by a Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities. In
addition, the use of fair value prices and certain current market quotations or
official closing prices could result in a difference between the prices used to
calculate a Fund's NAV and the prices used by such Fund's corresponding index,
which, in turn, could result in a difference between a Fund's performance and
the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical securities. An active market is a market in which
transactions for the security occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
- Quoted prices for similar securities in active markets.
- Quoted prices for identical or similar securities in markets
that are non-active. A non-active market is a market where
there are few transactions for the security, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
- Inputs other than quoted prices that are observable for the
security (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
- Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable inputs
may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
security.
Page 106
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2010
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, 2010, is
included with each Fund's Portfolio of Investments.
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in publicly-traded master
limited partnerships ("MLPs") generally are comprised of return of capital from
the MLP to the extent of the cost basis of such MLP investments. Cumulative
distributions received in excess of the Fund's cost basis in an MLP generally
are recorded as capital gain.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") are comprised of return of capital, capital gains and income.
The actual character of the amounts received during the year are not known until
after the fiscal year end. A Fund records the character of distributions
received from the REITs during the year based on estimates available. A Fund's
characterization may be subsequently revised based on information received from
the REITs after their tax reporting periods conclude.
C. Dividends and Distribution to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid
semi-annually, except for First Trust Morningstar(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 year ended
December 31, 2010 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
____________________ ________________ _________________
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 470,895 $ -- $ --
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 2,936,478 -- 25,193
First Trust US IPO Index Fund 134,485 -- --
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 346,700 -- --
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,556,425 -- --
First Trust NYSE Arca Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index(SM) Fund 659,835 -- --
First Trust Strategic Value Index Fund 657,855 -- 7,885
First Trust Value Line(R) Equity Allocation Index Fund 102,971 -- --
First Trust Value Line(R) Dividend Index Fund 5,061,937 -- 65,937
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 158,610 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- --
First Trust S&P REIT Index Fund 1,400,636 -- --
First Trust ISE Water Index Fund 319,290 -- --
First Trust ISE-Revere Natural Gas Index Fund 1,172,607 -- 54,408
First Trust ISE Chindia Index Fund 1,073,636 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund -- -- --
First Trust NASDAQ(R) ABA Community Bank Index Fund 114,106 -- --
Page 107
--------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
--------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2010
The tax character of distributions paid by each Fund during the period ended
December 31, 2009 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 $ 95,349 $ -- $ 3,442
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 1,912,571 -- --
First Trust US IPO Index Fund 177,486 -- --
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 81,000 -- --
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 47,396 -- 4,284
First Trust NYSE Arca Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index(SM) Fund -- -- --
First Trust Strategic Value Index Fund 615,441 -- --
First Trust Value Line(R) Equity Allocation Index Fund 70,920 -- --
First Trust Value Line(R) Dividend Index Fund 4,139,046 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 31,380 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- -- --
First Trust S&P REIT Index Fund 251,687 -- 22,048
First Trust ISE Water Index Fund 394,615 -- --
First Trust ISE-Revere Natural Gas Index Fund 942,177 -- 15,658
First Trust ISE Chindia Index Fund 393,226 -- 149
First Trust Value Line(R) 100 Exchange-Traded Fund -- -- --
First Trust NASDAQ(R) ABA Community Bank Index Fund 37,500 -- --
As of December 31, 2010, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
______________________________________________________________
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 31,467 $ (11,718,537) $ 18,485,792
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- (32,721,457) 9,627,975
First Trust US IPO Index Fund 13,751 (5,016,584) 1,371,735
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 89,275 (6,781,991) 5,983,938
First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (3,789,937) 42,884,041
First Trust NYSE Arca Biotechnology Index Fund -- (8,887,768) 15,007,324
First Trust Dow Jones Internet Index(SM) Fund -- (7,459,820) 74,699,929
First Trust Strategic Value Index Fund -- (25,033,653) 2,877,406
First Trust Value Line(R) Equity Allocation Index Fund -- (4,982,428) 1,041,495
First Trust Value Line(R) Dividend Index Fund -- (46,469,038) 25,475,963
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 16,623 (1,333,128) 1,729,902
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund -- (17,943,475) (1,839,352)
First Trust S&P REIT Index Fund -- -- 6,207,811
First Trust ISE Water Index Fund 89,624 (8,320,883) 2,600,001
First Trust ISE-Revere Natural Gas Index Fund -- (79,885,311) 49,116,240
First Trust ISE Chindia Index Fund 707 (33,473,581) 23,320,135
First Trust Value Line(R) 100 Exchange-Traded Fund 4,512 (79,189,625) 5,744,363
First Trust NASDAQ(R) ABA Community Bank Index Fund 2,200 (135,881) 346,205
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.
Page 108
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ended 2007, 2008,
2009, and 2010 remain open to federal and state audit. As of December 31, 2010,
management has evaluated the application of these standards to the Funds, and
has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
At December 31, 2010 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 Capital Capital Capital Capital Capital
Loss Loss Loss Loss Loss Loss Total
Available Available Available Available Available Available Capital
Through Through Through Through Through Through Loss
2013 2014 2015 2016 2017 2018 Available
___________ ___________ ___________ ___________ ___________ ___________ ___________
First Trust Dow Jones Select
MicroCap Index(SM) Fund $ -- $1,604,481 $ 910,503 $ 902,807 $ 3,227,616 $ 5,073,130 $11,718,537
First Trust Morningstar(R) Dividend
Leaders(SM) Index Fund 52,755 202,279 198,670 14,962,284 16,831,977 473,492 32,721,457
First Trust US IPO Index Fund -- 303,759 740,683 2,682,788 1,127,563 64,368 4,919,161
First Trust NASDAQ-100 Equal
Weighted Index(SM) Fund -- -- 55,981 1,957,170 4,681,103 -- 6,694,254
First Trust NASDAQ-100-Technology
Sector Index(SM) Fund -- -- 351,362 1,421,664 2,016,911 -- 3,789,937
First Trust NYSE Arca Biotechnology
Index Fund -- -- -- 2,061,136 5,787,577 1,039,054 8,887,767
First Trust Dow Jones Internet
Index(SM) Fund -- -- -- 6,295,854 1,163,966 -- 7,459,820
First Trust Strategic Value
Index Fund -- 45,432 831,336 11,401,861 11,336,270 1,372,099 24,986,998
First Trust Value Line(R) Equity
Allocation Index Fund -- -- 1,393,265 1,168,041 2,421,122 -- 4,982,428
First Trust Value Line(R) Dividend
Index Fund -- -- 4,488,019 21,855,796 19,646,203 441,093 46,431,111
First Trust NASDAQ-100 Ex-Technology
Sector Index(SM) Fund -- -- 7,779 143,597 1,051,894 80,899 1,284,169
First Trust NASDAQ(R) Clean Edge(R)
Green Energy Index Fund -- -- 141,332 4,246,707 7,483,633 5,884,801 17,756,473
First Trust S&P REIT Index Fund -- -- -- -- -- -- --
First Trust ISE Water Index Fund -- -- 592 318,246 5,768,328 2,198,674 8,285,840
First Trust ISE-Revere Natural Gas
Index Fund -- -- 5,274 7,264,703 32,569,413 40,045,921 79,885,311
First Trust ISE Chindia Index Fund -- -- -- 11,116,593 11,686,955 7,245,147 30,048,695
First Trust Value Line(R) 100
Exchange-Traded Fund -- -- 1,905,863 47,805,834 29,477,928 -- 79,189,625
First Trust NASDAQ(R) ABA Community
Bank Index Fund -- -- -- -- 4,787 116,604 121,391
During the taxable year ended December 31, 2010, the Funds utilized capital loss
carryforwards in the following amounts:
Capital Loss Carryforward Utilized
__________________________________
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 230,582
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 279,729
First Trust Dow Jones Internet Index(SM) Fund 150,572
First Trust Value Line(R) Equity Allocation Index Fund 45,836
First Trust S&P REIT Index Fund 245,651
First Trust Value Line(R) 100 Exchange-Traded Fund 4,898,237
Page 109
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
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.
During the taxable year ended December 31, 2010, 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 $ --
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund --
First Trust US IPO Index Fund 97,423
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 87,737
First Trust NASDAQ-100-Technology Sector Index(SM) Fund --
First Trust NYSE Arca Biotechnology Index Fund 1
First Trust Dow Jones Internet Index(SM) Fund --
First Trust Strategic Value Index Fund 46,655
First Trust Value Line(R) Equity Allocation Index Fund --
First Trust Value Line(R) Dividend Index Fund 37,927
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 48,959
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 187,002
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 35,043
First Trust ISE-Revere Natural Gas Index Fund --
First Trust ISE Chindia Index Fund 3,424,886
First Trust Value Line(R) 100 Exchange-Traded Fund --
First Trust NASDAQ(R) ABA Community Bank Index Fund 14,490
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
permanent differences are primarily due to the varying treatment of income and
gain/loss on portfolio securities held by the Fund and in-kind transactions and
have no impact on net assets or net asset value per share. Temporary
differences, which arise from recognizing certain items of income, expense and
gain/loss in different periods for financial statement and tax purposes, will
reverse at some time in the future. For the fiscal year ended December 31, 2010,
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 $ 3,077 $ (2,769,349) $ 2,766,272
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund -- (3,262,851) 3,262,851
First Trust US IPO Index Fund (147,668) (1,042,177) 1,189,845
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 71 (6,857,244) 6,857,173
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 11,932 (18,964,253) 18,952,321
First Trust NYSE Arca Biotechnology Index Fund 893,750 (25,261,857) 24,368,107
First Trust Dow Jones Internet Index(SM) Fund 3,869 (23,575,545) 23,571,676
First Trust Strategic Value Index Fund 33 (6,299,504) 6,299,471
First Trust Value Line(R) Equity Allocation Index Fund 1,283 (1,093,608) 1,092,325
First Trust Value Line(R) Dividend Index Fund 357 (6,564,363) 6,564,006
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 39 (1,653,576) 1,653,537
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 26,978 (2,463,772) 2,436,794
First Trust S&P REIT Index Fund 246,473 (4,328,186) 4,081,713
First Trust ISE Water Index Fund -- (2,372,907) 2,372,907
First Trust ISE-Revere Natural Gas Index Fund 403,349 (53,840,093) 53,436,744
First Trust ISE Chindia Index Fund -- (11,533,282) 11,533,282
First Trust Value Line(R) 100 Exchange-Traded Fund -- (13,518,578) 13,518,578
First Trust NASDAQ(R) ABA Community Bank Index Fund 117 (347,927) 347,810
On December 22, 2010, President Obama signed into law the Regulated Investment
Company Modernization Act of 2010 effective for tax years beginning after
December 22, 2010. Management is currently evaluating the impact the Act will
have on future financial statement disclosures.
Page 110
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
E. Expenses
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund. General expenses of the Trust are allocated to all the
Funds based upon the net assets of each Fund. First Trust Advisors L.P. ("First
Trust" or the "Advisor") has entered into licensing agreements with each of the
following "Licensors" for the respective Funds:
Fund Licensor
First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones & Company, Inc.
First Trust Morningstar(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 NYSE Arca Biotechnology Index Fund NYSE Euronext
First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc.
First Trust Strategic Value Index Fund Credit Suisse Securities (USA) LLC and Credit Suisse Group AG
First Trust Value Line(R) Equity Allocation Index Fund Value Line Publishing, Inc.(R)
First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R)
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund The NASDAQ Stock Market, Inc.
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The NASDAQ Stock Market, Inc./Clean Edge, Inc.
First Trust S&P REIT Index Fund Standard & Poor's
First Trust ISE Water Index Fund International Securities Exchange, LLC
First Trust ISE-Revere Natural Gas Index Fund International Securities Exchange, LLC
First Trust ISE Chindia Index Fund International Securities Exchange, LLC
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R)
First Trust NASDAQ(R) ABA Community Bank Index Fund The NASDAQ Stock Market, Inc.
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
3. Investment Advisory Fee, Affiliated Transactions and Other Fee Arrangements
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 NYSE Arca Biotechnology Index Fund 0.40%
First Trust Dow Jones Internet Index(SM) Fund 0.40%
First Trust Strategic Value Index Fund 0.50%
First Trust Value Line(R) Equity Allocation Index Fund 0.50%
First Trust Value Line(R) Dividend Index Fund 0.50%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.40%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40%
First Trust S&P REIT Index Fund 0.30%
First Trust ISE Water Index Fund 0.40%
First Trust ISE-Revere Natural Gas Index Fund 0.40%
First Trust ISE Chindia Index Fund 0.40%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.50%
First Trust NASDAQ(R) ABA Community Bank Index Fund 0.40%
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver
and Recovery Agreement in which the Advisor has agreed to waive fees and/or
reimburse Fund expenses to the extent that the operating expenses of each Fund
(excluding interest expense, brokerage commissions and other trading expenses,
taxes and extraordinary expenses) exceed the below amount as a percentage of
average daily net assets per year (the "Expense Cap").
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 NYSE Arca Biotechnology Index Fund 0.60%
First Trust Dow Jones Internet Index(SM) Fund 0.60%
First Trust Strategic Value Index Fund 0.65%
First Trust Value Line(R) Equity Allocation Index Fund 0.70%
First Trust Value Line(R) Dividend Index Fund 0.70%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.60%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60%
First Trust S&P REIT Index Fund 0.50%
First Trust ISE Water Index Fund 0.60%
First Trust ISE-Revere Natural Gas Index Fund 0.60%
First Trust ISE Chindia Index Fund 0.60%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.70%
First Trust NASDAQ(R) ABA Community Bank Index Fund 0.60%
Each Fund's Expense Cap will be in effect until the Expense Cap Termination Date
listed below:
Fund Name Expense Cap Termination Date
_________ ______________________________
First Trust Dow Jones Select MicroCap Index(SM) Fund 12/6/2012
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 12/6/2012
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 12/6/2012
First Trust Dow Jones Internet Index(SM) Fund 12/6/2012
First Trust Value Line(R) Equity Allocation Index Fund 12/6/2012
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 12/6/2012
First Trust S&P REIT Index Fund 12/6/2012
First Trust ISE Water Index Fund 12/6/2012
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 12/20/2012
First Trust US IPO Index Fund 1/3/2013
First Trust NYSE Arca Biotechnology Index Fund 1/3/2013
First Trust Strategic Value Index Fund 1/3/2013
First Trust Value Line(R) Dividend Index Fund 1/3/2013
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 1/3/2013
First Trust ISE Chindia Index Fund 1/3/2013
First Trust Value Line(R) 100 Exchange-Traded Fund 1/3/2013
First Trust NASDAQ(R) ABA Community Bank Index Fund 1/3/2013
First Trust ISE-Revere Natural Gas Index Fund 1/3/2013
The Expense Reimbursement, Fee Waiver and Recovery Agreement allows First Trust
to recover from the Funds any fees waived or expenses reimbursed during the
three year period after the date of the waiver or reimbursement to the extent
that the actual expense ratio of a particular Fund is less than such Fund's
applicable Expense Cap in place during the fiscal year that the fee was waived
or the expense reimbursed. First Trust may recover a portion of the previously
waived or reimbursed amount equal to the amount that the Expense Cap exceeds the
actual expense ratio in place during the fiscal year that the fee was waived or
the expense reimbursed. These amounts would be included in "Expenses previously
waived or reimbursed" on the Statements of Operations.
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
The advisory fee waivers and expense reimbursements for the year ended December
31, 2010 and the expenses borne by the Advisor subject to reimbursement by each
Fund for the periods indicated were as follows:
Expenses Borne by Advisor Subject to Recovery
_______________________________________________________
Period Period Year
Advisory Ended Ended Ended
Fee Expense December December December
Waivers Reimbursement 31, 2008 31, 2009 31, 2010 Total
______________________________________________________________________________________
First Trust Dow Jones Select MicroCap
Index(SM) Fund $ 127,967 $ -- $ 68,793 $ 48,917 $ 127,967 $ 245,677
First Trust Morningstar(R) Dividend
Leaders(SM) Index Fund 147,279 -- 139,071 137,066 147,279 423,416
First Trust US IPO Index Fund 46,346 37,011 80,132 67,290 83,357 230,779
First Trust NASDAQ-100 Equal Weighted
Index(SM) Fund 79,793 -- 62,497 16,264 79,793 158,554
First Trust NASDAQ-100-Technology Sector
Index(SM) Fund 206,140 -- 41,362 20,687 206,140 268,189
First Trust NYSE Arca Biotechnology Index Fund 95,610 -- 71,442 70,966 95,610 238,018
First Trust Dow Jones Internet Index(SM) Fund 139,852 -- 51,795 46,260 139,852 237,907
First Trust Strategic Value Index Fund 83,712 -- 41,333 86,736 83,712 211,781
First Trust Value Line(R) Equity Allocation
Index Fund 38,930 11,458 42,356 31,276 50,388 124,020
First Trust Value Line(R) Dividend Index Fund 228,962 -- 198,186 125,081 228,962 552,229
First Trust NASDAQ-100 Ex-Technology Sector
Index(SM) Fund 57,769 -- 44,692 46,747 57,769 149,208
First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund 66,287 -- 96,621 74,427 66,287 237,335
First Trust S&P REIT Index Fund 99,014 -- 117,085 107,158 99,014 323,257
First Trust ISE Water Index Fund 39,351 -- 53,268 40,314 39,351 132,933
First Trust ISE-Revere Natural Gas Index Fund 212,049 -- 109,371 195,399 212,049 516,819
First Trust ISE Chindia Index Fund 83,567 -- 91,365 90,414 83,567 265,346
First Trust Value Line(R) 100 Exchange
Traded Fund 107,626 -- 221,381 97,391 107,626 426,398
First Trust NASDAQ(R) ABA Community Bank
Index Fund 32,025 12,775 -- 44,294 44,800 89,094
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the servicing agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Trust. As custodian, BNYM is responsible for custody of the Trust's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of the Trust's securities and cash. As transfer agent, BNYM is
responsible for performing transfer agency services for the Trust. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
BNY Mellon Investment Servicing (US) Inc. (formerly PNC Global Investment
Servicing (U.S.) 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. On July 1, 2010, The PNC Financial Services Group sold the
outstanding stock of PNC Global Investment Servicing (U.S.) Inc. to The Bank of
New York Mellon Corporation. At the closing of the sale, PNC Global Investment
Servicing (U.S.) Inc. changed its name to BNY Mellon Investment Servicing (US)
Inc.
James A. Bowen, the President of First Trust, on October 12, 2010, acquired 100%
of the voting stock of The Charger Corporation, the general partner of First
Trust (the "Transaction"). First Trust is a limited partnership with one limited
partner and one general partner (The Charger Corporation). The Transaction is
not expected to impact the day-to-day operations of the Funds or First Trust.
The consummation of the Transaction was deemed to be an "assignment" (as defined
in the 1940 Act) of the investment management agreement and distribution
agreement for each Fund and resulted in the automatic termination of the
agreements. In addition, the former expense reimbursement, fee waiver and
recovery agreement terminated pursuant to its terms upon the termination of the
investment management agreement.
The Trust's Board of Trustees approved an interim investment management
agreements with First Trust which were entered into effective upon the closing
of the Transaction and would be in effect for a maximum period of 150 days. New
investment management agreements with First Trust have been approved by the
Board of Trustees of the Fund and were submitted to shareholders of each Fund as
of the record date (September 30, 2010) for approval to take effect upon such
shareholder approval. Special meetings of the shareholders of the Funds were
held on December 6, 2010, December 20, 2010, January 3, 2011 and January 20,
2011. A new investment management agreement between the Trust and First Trust
relating to the change in control of First Trust Advisors L.P. was approved at
certain of such meetings. The Trust's Board of Trustees also approved a new
Page 113
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
Distribution Agreement and Recovery Agreement, if applicable, for each Fund
which were entered into effective upon the closing of the Transaction. See
Submission of Matters to a Vote of Shareholders, in the Additional Information
section of this report, for the results.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid an annual retainer
of $10,000 per trust for the first 14 trusts of the First Trust Fund Complex and
an annual retainer of $7,500 per trust for each additional trust in the First
Trust Fund Complex. The annual retainer is allocated equally among each of the
trusts. No additional meeting fees are paid in connection with Board or
Committee meetings.
Additionally, the Lead Independent Trustee is paid $10,000 annually, the
Chairman of the Audit Committee is paid $5,000 annually and each of the Chairmen
of the Nominating and Governance Committee and Valuation Committee is paid
$2,500 annually to serve in such capacities, with such compensation paid by the
trusts in the First Trust Fund Complex and allocated equally among those trusts.
Trustees are also reimbursed by the trusts in the First Trust Fund Complex for
travel and out-of-pocket expenses in connection with all meetings. The Lead
Independent Trustee and each Committee chairman will serve two-year terms ending
December 31, 2011, before rotating to serve as chairman of another Committee or
as Lead Independent Trustee. The officers and "Interested" Trustee receive no
compensation from the trusts for serving in such capacities.
4. Purchases and Sales of Securities
For the year ended December 31, 2010, 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 $ 46,267,796 $ 46,234,807
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 21,208,271 20,983,561
First Trust US IPO Index Fund 4,900,176 5,014,174
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 13,334,359 13,238,112
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 55,795,195 55,887,868
First Trust NYSE Arca Biotechnology Index Fund 51,545,621 53,558,010
First Trust Dow Jones Internet Index(SM) Fund 40,844,628 41,692,216
First Trust Strategic Value Index Fund 79,933,566 79,951,906
First Trust Value Line(R) Equity Allocation Index Fund 15,719,710 15,712,635
First Trust Value Line(R) Dividend Index Fund 92,198,941 92,209,897
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 3,226,609 3,207,506
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 7,992,635 8,005,155
First Trust S&P REIT Index Fund 8,113,847 8,167,831
First Trust ISE Water Index Fund 15,889,014 15,948,987
First Trust ISE-Revere Natural Gas Index Fund 374,127,336 375,886,007
First Trust ISE Chindia Index Fund 48,167,763 48,071,377
First Trust Value Line(R) 100 Exchange-Traded Fund 165,010,014 164,967,105
First Trust NASDAQ(R) ABA Community Bank Index Fund 2,046,879 2,039,276
For the year ended December 31, 2010, 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 $ 137,147,689 $ 19,378,387
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 99,576,522 14,599,375
First Trust US IPO Index Fund 5,499,092 3,279,966
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 63,181,112 37,043,038
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 417,103,873 104,114,319
First Trust NYSE Arca Biotechnology Index Fund 197,368,148 101,971,372
First Trust Dow Jones Internet Index(SM) Fund 517,684,917 103,914,952
First Trust Strategic Value Index Fund 52,137,908 70,660,482
First Trust Value Line(R) Equity Allocation Index Fund 7,022,325 7,854,271
First Trust Value Line(R) Dividend Index Fund 75,697,085 32,619,701
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 16,502,181 7,759,807
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 1,526,519 9,343,624
First Trust S&P REIT Index Fund 66,392,858 26,119,384
First Trust ISE Water Index Fund 17,136,623 8,790,321
First Trust ISE-Revere Natural Gas Index Fund 440,974,925 529,885,465
First Trust ISE Chindia Index Fund 91,154,121 53,458,904
First Trust Value Line(R) 100 Exchange-Traded Fund 81,272,597 69,822,691
First Trust NASDAQ(R) ABA Community Bank Index Fund 8,542,886 4,423,043
Page 114
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
5. Creation, Redemption & Transaction Fees
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares. Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as
transfer agent, a standard creation transaction fee (the "Creation Transaction
Fee"), which is based on the number of different securities in a Creation Unit
of each Fund according to the fee schedule set forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
__________________________ ___________________
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard
redemption transaction fee (the "Redemption Transaction Fee"), which is based on
the number of different securities in a Creation Unit of each Fund according to
the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
__________________________ ___________________
1-100 $500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
6. Distribution Plan
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, the Funds will not pay 12b-1 fees any time before May 15, 2011
(except for First Trust NASDAQ(R) ABA Community Bank Index Fund which will not
pay 12b-1 fees any time before June 30, 2011).
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Notes to Financial Statements (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010
7. Indemnification
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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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, First Trust NASDAQ-100 Equal Weighted Index(SM)
Fund, First Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust NYSE
Arca Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund,
First Trust Strategic Value Index Fund (formerly known as 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 and First Trust
NASDAQ(R) ABA Community Bank Index Fund (collectively, the "Funds"), including
the portfolios of investments, as of December 31, 2010, the related statements
of operations for the year then ended, and the statements of 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, 2010, by
correspondence with the Funds' custodian and brokers. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds constituting the First Trust Exchange-Traded Fund as of December
31, 2010, the results of their operations for the year then ended, and the
changes in their net assets and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 25, 2011
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Additional Information
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First Trust Exchange-Traded Fund
December 31, 2010 (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, 2010 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, 2010, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
____________________________________
First Trust Dow Jones Select MicroCap Index(SM) Fund 100.00%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100.00%
First Trust US IPO Index Fund 100.00%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index(SM) Fund 100.00%
First Trust Strategic Value Index Fund 100.00%
First Trust Value Line(R) Equity Allocation Index Fund 100.00%
First Trust Value Line(R) Dividend Index Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 73.46%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund --
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100.00%
First Trust ISE-Revere Natural Gas Index Fund 100.00%
First Trust ISE Chindia Index Fund --
First Trust Value Line(R) 100 Exchange-Traded Fund --
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the taxable year ended December 31, 2010, the following percentages of
income dividends paid by the Funds is hereby designated as qualified dividend
income:
Qualified Dividend Income
_________________________________
First Trust Dow Jones Select MicroCap Index(SM) Fund 100.00%
First Trust Morningstar(R) Dividend Leaders(SM) Index Fund 100.00%
First Trust US IPO Index Fund 100.00%
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index(SM) Fund 100.00%
First Trust Strategic Value Index Fund 100.00%
First Trust Value Line(R) Equity Allocation Index Fund 100.00%
First Trust Value Line(R) Dividend Index Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund --
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100.00%
First Trust ISE-Revere Natural Gas Index Fund 100.00%
First Trust ISE Chindia Index Fund 100.00%
First Trust Value Line(R) 100 Exchange-Traded Fund --
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
For the tax year ended December 31, 2010, the First Trust S&P REIT Index Fund
designated $45,197, or amounts necessary, as long-term capital gain. During the
tax year, Fund shareholders redeemed amounts in excess of our long-term capital
gain and of these proceeds, $45,197, or amounts necessary, represents long-term
capital gain from the Fund.
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Additional Information (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010 (Unaudited)
Submission of Matters to a Vote of Shareholders
Special meetings of the shareholders of the Funds were held on December 6, 2010,
December 20, 2010, January 3, 2011 and January 20, 2011. A new investment
management agreement between the Trust and First Trust relating to the change in
control of First Trust Advisors L.P. was approved at certain of such meetings as
detailed below. The terms of the new investment management agreement are
substantially similar to the terms of the previous agreements.
Ticker Symbol Date of Vote % of Voted Voted For Voted Against Abstained
_______________ ______________ ____________ ____________ ________________ ____________
FDM 12/6/2010 62.83% 1,840,384 5,371 10,916
QQEW 12/6/2010 51.39% 1,288,109 15,666 6,561
QTEC 12/6/2010 56.42% 6,714,638 36,598 46,797
FDN 12/6/2010 58.54% 6,379,155 19,386 40,541
FVI 12/6/2010 55.63% 192,332 2,000 381
QQXT 12/6/2010 72.00% 646,766 1,008 200
FRI 12/6/2010 70.82% 3,135,275 5,233 10,825
FIW 12/6/2010 51.07% 1,097,967 12,418 13,070
FDL 12/20/2010 50.02% 2,346,778 53,693 200,803
FPX 1/3/2011 53.92% 241,251 7,451 47,867
FBT 1/3/2011 52.31% 2,180,970 29,815 195,518
FDV 1/3/2011 52.42% 744,121 32,622 88,190
FVD 1/3/2011 51.22% 5,539,652 172,812 683,786
QCLN 1/3/2011 50.62% 942,236 34,209 187,722
FNI 1/3/2011 50.31% 2,592,043 60,461 340,950
FVL 1/3/2011 50.87% 2,256,802 112,857 244,798
QABA 1/3/2011 52.45% 181,041 3,160 25,581
FCG 1/20/2011 50.06% 9,111,862 265,456 1,135,890
Advisory Agreement
Board Considerations regarding Approval of Investment Management Agreements
The Board of Trustees of the First Trust Exchange-Traded Fund (the "Trust"),
including the Independent Trustees, approved the Interim Investment Management
Agreement and the New Investment Management Agreement (collectively, the
"Agreements") with First Trust Advisors L.P. (the "Advisor") on behalf of the
following series of the Trust (each a "Fund" and collectively, the "Funds"):
First Trust Value Line(R) 100 Exchange-Traded Fund
First Trust Value Line(R) Dividend Index Fund
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 NYSE Arca Biotechnology Index Fund
First Trust Dow Jones Internet Index(SM) Fund
First Trust Strategic Value Index Fund
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund
First Trust Value Line(R) Equity Allocation Index Fund
First Trust ISE Chindia Index Fund
First Trust ISE Water Index Fund
First Trust ISE-Revere Natural Gas Index Fund
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund
First Trust S&P REIT Index Fund
First Trust NASDAQ(R) ABA Community Bank Index Fund
The Board approved the Agreements at a meeting held on September 20, 2010. The
Board determined that the terms of the Agreements are fair and reasonable and
that the Agreements are in the best interests of the Trust and each Fund. The
Board also determined that it believes that the scope and quality of services to
be provided to the Trust and each Fund under the Agreements will be at least
equivalent to the scope and quality of services provided under the current
Investment Management Agreement with the Advisor (the "Original Agreement").
On August 25, 2010, the Independent Trustees were informed that James A. Bowen,
the President of the Advisor and a Trustee and Chairman of the Board of the
Trust, had entered into an agreement to acquire 100% of the common stock of The
Charger Corporation, the general partner of the Advisor (the "Transaction"), the
consummation of which would constitute a "change of control" of the Advisor and
would result in the "assignment" and termination of the Original Agreement under
its terms and in accordance with Section 15 of the Investment Company Act of
1940, as amended (the "1940 Act"). On August 31, 2010, counsel to the
Independent Trustees forwarded to Mr. Bowen and the Advisor a request for
information regarding the Transaction. In anticipation of the consummation of
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Additional Information (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010 (Unaudited)
the Transaction, the Board at its meeting held on September 20, 2010, considered
the information provided by Mr. Bowen and the Advisor in response to the
Independent Trustees' request for information and considered the approval of the
Agreements.
To reach its determination, the Board considered its duties under the 1940 Act,
as well as under the general principles of state law in reviewing and approving
advisory contracts; the requirements of the 1940 Act in such matters; the
fiduciary duty of investment advisors with respect to advisory agreements and
compensation; the standards used by courts in determining whether investment
company boards have fulfilled their duties; and the factors to be considered by
the Board in voting on such agreements. In connection with its deliberations
regarding the Agreements, the Board noted the Advisor's representation that
apart from their effective and termination dates and any provisions of the
Interim Investment Management Agreement required by Rule 15a-4 under the 1940
Act, the Agreements were the same in all material respects as the Original
Agreement. The Board noted that it had recently considered the Advisor's
capabilities and the terms of the Original Agreement at a meeting held on March
21-22, 2010 and had determined to renew the Original Agreement on behalf of each
Fund, except for First Trust NASDAQ(R) ABA Community Bank Index Fund, for an
additional one-year term (the "2010 Renewal"). The Board noted that it had
approved the Original Agreement on behalf of First Trust NASDAQ(R) ABA Community
Bank Index Fund for an initial two-year term ending July 1, 2011. The Board
considered that in connection with the 2010 Renewal, it had received a report
from the Advisor that, among other things, outlined the services provided by the
Advisor to each Fund (including the relevant personnel responsible for these
services and their experience); the advisory fee for each Fund as compared to
fees charged by investment advisors to comparable funds and as compared to fees
charged to other clients of the Advisor; expenses of each Fund compared to
expense ratios of comparable funds; the nature of expenses incurred in providing
services to each Fund and the potential for economies of scale, if any;
financial data on the Advisor; any fall out benefits to the Advisor and its
affiliate, First Trust Portfolios L.P.; and information on the Advisor's
compliance program. Prior to the September meeting, the Advisor represented to
the Board that there had been no material changes to the information provided in
March 2010 in connection with the 2010 Renewal and that the Board could continue
to rely on such information.
Because the Board determined that any differences between the Original Agreement
and the Agreements were immaterial, the Board determined that much of its
previous analysis in connection with the 2010 Renewal applied to its review and
consideration of the Agreements. The Board considered that the information
presented in connection with the 2010 Renewal was also relevant to First Trust
NASDAQ(R) ABA Community Bank Index Fund. Accordingly, the Board took note of
such prior analysis and supplemented it with the additional considerations noted
below. The Independent Trustees also met separately with their independent legal
counsel to discuss the Transaction and their consideration of the Agreements.
In reviewing the Agreements for each Fund, the Board considered the nature,
quality and extent of services to be provided by the Advisor under the
Agreements. The Board noted that the Transaction was not expected to result in
any changes to the personnel of the Advisor responsible for providing services
to the Trust and each Fund. The Board also considered the representations of the
Advisor that there will be no diminution in services provided under the
Agreements. In light of the information presented and the considerations made at
the September meeting, including the considerations made in connection with the
2010 Renewal, the Board concluded that the nature, quality and extent of
services to be provided to the Trust and each Fund by the Advisor under the
Agreements are expected to be satisfactory.
The Board considered the advisory fees payable by each Fund under the
Agreements, noting that they would be the same as the fees payable by each Fund
under the Original Agreement. The Board considered that the Advisor agreed to
extend the expense cap for each Fund for a two-year period in connection with
the approval of the Agreements. For each Fund, the Board noted that expenses
borne by the Advisor are proposed to be subject to reimbursement by the Fund for
up to three years from the date the fee or expense was incurred, but no
reimbursement payment would be made by the Fund if it would result in the Fund
exceeding an expense ratio equal to the expense cap in place at the time the
expenses were borne by the Advisor. The Board considered that in connection with
the 2010 Renewal it had reviewed the fees charged by the Advisor to other
exchange-traded funds ("ETFs") and other advisory clients with investment
objectives and policies similar to the Funds', noting that those fees generally
were similar to the fees charged to the Funds. The Board also considered
performance information for each Fund, including each Fund's quarterly
performance report, which is part of the process that the Board has established
for monitoring each Fund's performance and portfolio risk on an ongoing basis.
In light of the information presented on the fees and performance of each Fund
and the considerations made at the September meeting, including the
considerations made in connection with the 2010 Renewal, the Board concluded
that the advisory fees for each Fund were reasonable and appropriate in light of
the nature, quality and extent of services expected to be provided by the
Advisor to each Fund under the Agreements.
The Board noted that the Advisor has continued to invest in personnel and
infrastructure and considered whether fee levels reflect any economies of scale
for the benefit of shareholders. The Board concluded that the advisory fee for
each Fund continues to reflect an appropriate level of sharing of any economies
of scale at current asset levels. The Board noted that in connection with the
2010 Renewal it had reviewed the costs of the services provided and profits
realized by the Advisor from serving as investment advisor to each Fund other
than First Trust NASDAQ(R) ABA Community Bank Index Fund for the twelve months
ended December 31, 2009 and had noted that the Advisor estimated that it
incurred a loss in providing services to each such Fund in 2009 except for First
Trust Value Line(R) Dividend Index Fund. The Board considered that the Advisor
had identified as a fall-out benefit to the Advisor and First Trust Portfolios
L.P. their exposure to investors and brokers who, in the absence of the Funds,
may have had no dealings with the Advisor, and noted that the Advisor does not
utilize soft dollars in connection with its management of the Funds' portfolios.
Based on all of the information considered and the conclusions reached, the
Board, including the Independent Trustees, determined that the terms of the
Agreements are fair and reasonable and that the Agreements are in the best
interests of Trust and each Fund. No single factor was determinative in the
Board's analysis.
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Additional Information (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010 (Unaudited)
Licensing Information
Dow Jones, Dow Jones Internet Composite Index(SM) and Dow Jones Select MicroCap
Index(SM) are products of Dow Jones Indexes, a licensed trademark of CME Group
Index Services LLC ("CME") and have been licensed for use. "Dow Jones(R)", "Dow
Jones Internet Composite Index(SM)", "Dow Jones Select MicroCap Index(SM)" and
"Dow Jones Indexes" are service marks of Dow Jones Trademark Holdings, LLC ("Dow
Jones") and have been licensed to CME and have been sublicensed for use for
certain purposes by First Trust on behalf of the Funds. The First Trust Dow
Jones Select MicroCap Index(SM) Fund, based on the Dow Jones Select MicroCap
Index(SM) and the First Trust Dow Jones Internet Index(SM) Fund, based on the
Dow Jones Internet Composite Index(SM), are not sponsored, endorsed, sold or
promoted by CME, Dow Jones or their respective affiliates, and CME, Dow Jones
and their respective affiliates make no representation regarding the
advisability of trading in such Funds.
Morningstar is a service mark of Morningstar, Inc. and has been licensed for
use. The First Trust Morningstar(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.
The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes
no representation or warranty, express or implied, to the owners of the Fund or
any member of the public regarding the advisability of trading in the Fund.
IPOX(R)'s only relationship to First Trust is the licensing of certain
trademarks and trade names of IPOX(R) and of the U.S. IPOX(R) 100 Index, which
is determined, composed and calculated by IPOX(R) without regard to First Trust
or the Fund. IPOX(R) IS A REGISTERED INTERNATIONAL TRADEMARK OF IPOX(R) SCHUSTER
LLC AND IPOX(R) SCHUSTER, IPOX(R)-100 AND IPOX(R)-30 ARE TRADEMARKS AND SERVICE
MARKS OF IPOX(R) SCHUSTER LLC (WWW.IPOXSCHUSTER.COM) AND HAVE BEEN LICENSED FOR
CERTAIN PURPOSES FROM IPOX(R) SCHUSTER LLC TO FIRST TRUST PURSUANT TO THE
PRODUCT LICENSE AGREEMENT. A PATENT WITH RESPECT TO THE IPOX(R) INDEX
METHODOLOGY HAS BEEN ISSUED (U.S. PAT. NO. 7,698,197).
NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), NASDAQ-100 Technology Sector
Index(SM), NASDAQ-100 Equal-Weighted Index(SM), and NASDAQ-100 Ex-Tech Sector
Index(SM), are trademarks of The NASDAQ OMX Group, Inc. ("NASDAQ OMX") or its
affiliates (NASDAQ OMX with its affiliates are referred to as the
"Corporations") and are licensed for use by First Trust Advisors L.P. 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
Fund should not be construed in anyway as investment advice by the Corporations.
THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE
FUNDS.
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The
NASDAQ OMX Group, Inc. ("NASDAQ OMX"), Clean Edge(R) or their affiliates (NASDAQ
OMX and Clean Edge(R), collectively with their affiliates, are referred to
herein as the "Corporations"). The Marks are licensed for use by First Trust
Advisors L.P. The Fund has not been passed on by the Corporations as to its
legality or suitability. The 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.
NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM)
are trademarks of The NASDAQ OMX Group, Inc. ("NASDAQ OMX"), American Bankers
Association ("ABA") or their affiliates (NASDAQ OMX and ABA, collectively with
their affiliates, are referred to as the "Corporations") and are licensed for
use by First Trust Advisors L.P. The Fund has not been passed on by the
Corporations as to its legality or suitability. The Fund is not issued,
endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO
WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE FUND.
The NYSE Arca Biotechnology Index(SM) is a trademark of the NYSE Euronext or its
affiliates ("NYSE Euronext") and is licensed for use by First Trust Advisors
L.P. The 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.
"Credit Suisse", "HOLT" and "Credit Suisse U.S. Value Index, Powered by
HOLT(TM)," are trademarks of Credit Suisse Group, Credit Suisse Securities (USA)
LLC or one of their affiliates (collectively, "Credit Suisse"), and have been
licensed for use for certain purposes by First Trust. THE FUND IS NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY CREDIT SUISSE OR THE INDEX CALCULATION AGENT, AND
CREDIT SUISSE AND THE INDEX CALCULATION AGENT MAKE NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, REGARDING THE ADVISABILITY OF INVESTING OR TRADING
IN SUCH PRODUCT(S) OR IN SECURITIES GENERALLY, THE RESULTS TO BE OBTAINED FROM
THE USE OF THE CREDIT SUISSE US VALUE INDEX, POWERED BY HOLT, THE FIGURE AT
WHICH THE SAID INDEX STANDS AT ANY PARTICULAR TIME ON ANY PARTICULAR DAY OR
OTHERWISE. CREDIT SUISSE MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
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Additional Information (Continued)
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First Trust Exchange-Traded Fund
December 31, 2010 (Unaudited)
OR USE WITH RESPECT TO THE CREDIT SUISSE US VALUE INDEX, POWERED BY HOLT(TM) OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL CREDIT SUISSE OR THE INDEX CALCULATION AGENT HAVE ANY LIABILITY FOR ANY
LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING
LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO
THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN CREDIT
SUISSE AND FIRST TRUST.
"Value Line(R)", "Value Line(R) Equity Allocation Index(TM)", "Value Line(R)
Dividend Index(TM)" and "Value Line(R) 100 Index(TM)" are trademarks of Value
Line(R), Inc. and have been licensed for use for certain purposes by First Trust
Advisors L.P. on behalf of the Funds. The First Trust Value Line(R) Equity
Allocation Index Fund, based on the Value Line(R) Equity Allocation Index(TM),
the First Trust Value Line(R) Dividend Index Fund, based on the Value Line(R)
Dividend Index(TM) and the First Trust Value Line(R) 100 Exchange-Traded Fund,
based on the Value Line(R) 100 Index(TM), are not sponsored, endorsed, sold, or
promoted by Value Line(R), Inc., and Value Line(R) makes no representation
regarding the advisability of investing in the Funds.
Standard & Poor's(R) and S&P(R) are registered trademarks of Standard & Poor's
Financial Services LLC ("S&P") and have been licensed for use by First Trust
Advisors L.P. The First Trust S&P REIT Index Fund is not sponsored, endorsed,
sold or promoted by S&P or its affiliates, and S&P and its affiliates make no
representation, warranty or condition regarding the advisability of buying,
selling or holding shares of the Fund.
"International Securities Exchange(TM)", "ISE(TM)", "ISE Water Index(TM)", "ISE
ChIndia Index(TM)" and the "ISE-REVERE Natural Gas Index(TM)" are trademarks of
the International Securities Exchange, LLC and have been licensed for use for
certain purposes by First Trust Advisors L.P. Each Fund, based on its
corresponding index, is not sponsored, endorsed, sold or promoted by the
International Securities Exchange, LLC and the International Securities
Exchange, LLC makes no representation regarding the advisability of trading in
such Funds.
Page 122
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Board of Trustees and Officers
--------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2010 (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
Term of Office the First Trust Other
Name, Address, and Year First Fund Complex Trusteeships or
Date of Birth and Elected or Principal Occupations Overseen by Directorships
Position with the Trust Appointed During Past 5 Years Trustee Held by Trustee
-----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
-----------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton 67 None
c/o First Trust Advisors L.P. Orthopedics; Co-Owner and Co-Director
120 E. Liberty Drive, o Since Inception (January 1996 to May 2007), Sports Med
Suite 400 Center for Fitness; Limited Partner,
Wheaton, IL 60187 Gundersen Real Estate Limited
D.O.B.: 04/51 Partnership; Member, Sportsmed LLC
Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), 67 Director of ADM
c/o First Trust Advisors L.P. Senior Vice President and Chief Investor Services,
120 E. Liberty Drive, o Since Inception Financial Officer (May 2007 to Inc. and ADM
Suite 400 March 2010), Vice President and Investor Services,
Wheaton, IL 60187 Chief Financial Officer (1990 to International
D.O.B.: 11/57 May 2007), ADM Investor Services,
Inc. (Futures Commission Merchant)
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 67 None
c/o First Trust Advisors L.P. Enterprises (Financial and Management
120 E. Liberty Drive, o Since Inception Consulting)
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term President (June 2002 to Present), Covenant 67 Director of
c/o First Trust Advisors L.P. College Covenant
120 E. Liberty Drive, o Since Inception Transport Inc.
Suite 400
Wheaton, IL 60187
D.O.B.: 03/54
-----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
-----------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 67 Trustee of
President, Chairman of the to Present), President (until Wheaton College
Board and CEO o Since Inception December 2010), First Trust Advisors
120 E. Liberty Drive, L.P. and First Trust Portfolios L.P.;
Suite 400 Chairman of the Board of Directors,
Wheaton, IL 60187 BondWave LLC (Software Development
D.O.B.: 09/55 Company/Investment Advisor) and
Stonebridge Advisors LLC (Investment
Advisor)
<FN>
1 Mr. Bowen is deemed an "interested person" of the Trust due to his position as
Chief Executive Officer of First Trust Advisors L.P., investment advisor of the Trust.
</FN>
Page 123
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Board of Trustees and Officers (Continued)
--------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2010 (Unaudited)
Position and Term of Office
Name, Address Offices and Length of Principal Occupations
and Date of Birth with Trust Service During Past 5 Years
-----------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT TRUSTEES(2)
-----------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley Treasurer, Chief Financial o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Officer and Chief and Chief Financial Officer, First Trust Advisors
Suite 400 Accounting Officer o Since Inception L.P. and First Trust Portfolios L.P.; Chief
Wheaton, IL 60187 Financial Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
Erin E. Chapman Assistant Secretary o Indefinite Term Assistant General Counsel (October 2007 to
120 E. Liberty Drive, Present), Associate Counsel (March 2006 to
Suite 400 o Since June 2009 October 2007), First Trust Advisors L.P. and First
Wheaton, IL 60187 Trust Portfolios L.P.; Associate Attorney
D.O.B.: 08/76 (November 2003 to March 2006), Doyle & Bolotin, Ltd.
James M. Dykas Assistant Treasurer o Indefinite Term Controller (January 2011 to Present) and Senior
120 E. Liberty Drive, Vice President (April 2007 to Present), Vice
Suite 400 o Since Inception President (January 2005 to April 2007), First Trust
Wheaton, IL 60187 Advisors L.P. and First Trust Portfolios L.P.
D.O.B.: 01/66
W. Scott Jardine Secretary o Indefinite Term General Counsel, First Trust Advisors L.P. and First
120 E. Liberty Drive, Trust Portfolios L.P.; Secretary, BondWave LLC
Suite 400 o Since Inception (Software Development Company/Investment
Wheaton, IL 60187 Advisor) and Stonebridge Advisors LLC
D.O.B.: 05/60 (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Senior Vice President (September 2005 to
120 E. Liberty Drive, Present), Vice President (April 2004 to September
Suite 400 o Since Inception 2005), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 02/70
Coleen D. Lynch Assistant Vice President o Indefinite Term Assistant Vice President (January 2008 to Present),
120 E. Liberty Drive, First Trust Advisors L.P. and First Trust Portfolios
Suite 400 o Since July 2008 L.P.; Vice President (May 1998 to January 2008),
Wheaton, IL 60187 Van Kampen Asset Management and Morgan
D.O.B.: 07/58 Stanley Investment Management
Kristi A. Maher Assistant Secretary and o Indefinite Term Deputy General Counsel (May 2007 to Present),
120 E. Liberty Drive, Chief Compliance o Assistant Secretary Assistant General Counsel (March 2004 to May
Suite 400 Officer Since June 2006 2007), First Trust Advisors L.P. and First Trust
Wheaton, IL 60187 o Chief Compliance Portfolios L.P.
D.O.B.: 12/66 Officer since
January 2011
Roger F. Testin Vice President o Indefinite Term Senior Vice President (November 2003 to Present),
120 E. Liberty Drive, Vice President (August 2001 to November 2003),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Vice President (August 2005 to Present), First Trust
120 E. Liberty Drive, Advisors L.P. and First Trust Portfolios L.P; Vice
Suite 400 o Since Inception President (May 2004 to August 2005), BondWave
Wheaton, IL 60187 LLC (Software Development Company/Investment
D.O.B.: 11/70 Advisor)
<FN>
2 The term "officer" means the president, vice president, secretary, treasurer,
controller or any other officer who performs a policy making function.
</FN>
Page 124
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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 (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. Overall stock market values
could decline generally or could underperform other investments.
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
With the exception of First Trust Dow Jones Select MicroCap Index(SM) Fund,
First Trust Value Line(R) Dividend Index Fund, First Trust Value Line(R) Equity
Allocation Index Fund and First Trust Value Line(R) 100 Exchange-Traded Fund,
each Fund is considered to be non-diversified. As a result, those Funds are
exposed to additional market risk. A non-diversified fund may invest a
relatively high percentage of its assets in a limited number of issuers. As a
result, changes in the market value of a single portfolio security could cause
greater fluctuations in share price than would occur in a diversified fund.
Furthermore, non-diversified funds are more susceptible to any single political,
regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invests in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
The First Trust Dow Jones Select MicroCap Index(SM) Fund invests in
micro-capitalization companies. Such companies may be more vulnerable to adverse
general market or economic developments, may be less liquid, and may experience
greater price volatility than larger, more established companies.
Page 125
--------------------------------------------------------------------------------
Risk Considerations (Unaudited) (Continued)
--------------------------------------------------------------------------------
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, the First Trust
NASDAQ-100-Technology Sector Index(SM) Fund and the First Trust Dow Jones
Internet Index(SM) Fund invest in stocks of companies in the technology sector.
You should be aware that an investment in a portfolio which invests in a
particular sector involves additional risks, including limited diversification.
The companies engaged in the technology sector are subject to fierce competition
and high research and development costs, and their products and services may be
subject to rapid obsolescence.
The First Trust NYSE Arca Biotechnology Index Fund is concentrated in stocks of
companies in the biotechnology sector. You should be aware that an investment in
a portfolio which is concentrated in a particular sector involves additional
risks, including limited diversification. The companies engaged in the
biotechnology sector are subject to fierce competition, substantial research and
development costs, governmental regulations and pricing constraints, and their
products and services may be subject to rapid obsolescence.
The First Trust NYSE Arca Biotechnology Index Fund invests in the securities of
companies in the health care sector. Because companies in the health care sector
are involved in medical services or health care including biotechnology research
and production, drugs and pharmaceuticals and health care facilities and
services, general problems of these companies include extensive competition,
generic drug sales or the loss of patent protection, product liability
litigation and increased government regulations.
The First Trust US IPO Fund invests in companies that have recently conducted an
initial public offering. The stocks of such companies are often subject to
extreme price volatility and speculative trading.
The First Trust Morningstar(R) Dividend Leaders(SM) Index Fund, First Trust S&P
REIT Index Fund, First Trust Value Line(R) Dividend Index Fund and First Trust
NASDAQ(R) ABA Community Bank Index Fund invest in securities of companies in the
financials sector. Banks, thrifts and their holding companies are especially
subject to the adverse effects of economic recession; volatile interest rates;
portfolio concentrations in geographic markets and in commercial and residential
real estate loans; and competition from new entrants in their fields of
business. Although recently enacted legislation repealed most of the barriers
which separated the banking, insurance and securities industries, these
industries are still extensively regulated at both the federal and state level
and may be adversely affected by increased regulations. The downturn in the U.S.
and world economies has adversely affected banks, thrifts and other companies in
the financials sector.
The First Trust US IPO Fund, the First Trust Dow Jones Internet Index(SM) Fund,
the First Trust ISE Chindia Index Fund, the First Trust NASDAQ-100 Equal
Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM)
Fund and the First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest
in securities of companies in the information technology industry. Information
technology companies are generally subject to the risks of rapidly changing
technologies; short product life cycles; fierce competition; and aggressive
pricing and reduced profit margins.
The First Trust Strategic Value Index Fund and the First Trust NASDAQ-100
Ex-Technology Sector Index(SM) Fund invest in the securities of companies in the
consumer discretionary sector. Because companies in the consumer discretionary
sector manufacture products and provide discretionary services directly to the
consumer, the success of these companies is tied closely to the performance of
the overall domestic and international economy, interest rates, competition and
consumer confidence. Success depends heavily on disposable household income and
consumer spending. Changes in demographics and consumer tastes can also affect
the demand for, and success of, consumer discretionary products in the
marketplace.
The First Trust ISE-Revere Natural Gas Index Fund invests in the securities of
companies in the energy sector. General problems of issuers in the energy sector
include volatile fluctuations in price and supply of energy fuels, international
politics, terrorist attacks, reduced demand as a result of increases in energy
efficiency and energy conservation, the success of exploration projects,
clean-up and litigation costs relating to oil spills and environmental damage,
and tax and other regulatory policies of various governments. In addition,
recent oil prices have been at historic highs and extremely volatile.
The First Trust ISE Water Index Fund and the First Trust NASDAQ(R) Clean Edge(R)
Green Energy Index Fund invest in the securities of companies in the industrials
sector. General risks of these companies include the general state of the
economy, intense competition, consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. In addition,
they may also be significantly affected by overall capital spending levels,
economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
The First Trust S&P REIT Index Fund invests in companies in the real estate
industry, including real estate investment trusts ("REITs") and is subject to
the risks associated with investing in real estate (any of which could cause the
value of a REIT's stock price to decline), which may include, but are not
limited to, possible declines in the value of real estate, adverse general and
local economic conditions, possible lack of availability of mortgage funds,
overbuilding in a REIT's market, changes in interest rates and environmental
problems. Furthermore, increases in interest rates typically lower the present
value of a REIT's future earnings stream, and may make financing property
purchases and improvements more costly.
Page 126
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Risk Considerations (Unaudited) (Continued)
--------------------------------------------------------------------------------
With the exception of First Trust Strategic Value Index Fund and First Trust Dow
Jones Select MicroCap Index(SM) Fund, the Funds may invest in small
capitalization and mid-capitalization companies. Such companies' securities may
be less liquid and may experience greater price volatility than securities of
larger, more established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of certain Funds, including but not limited to, the
First Trust ISE Chindia Index Fund, the First Trust ISE-Revere Natural Gas Index
Fund, the First Trust ISE Water Index Fund and the First Trust Value Line(R) 100
Exchange-Traded Fund, involve risks of investing in non-U.S. securities that are
in addition to the risk associated with domestic securities. Non-U.S. companies,
in general, are not subject to the regulatory requirements of U.S. companies
and, as such, there may be less publicly available information about these
companies. Moreover, non-U.S. accounting, auditing and financial reporting
standards generally are different from those applicable to U.S. companies. In
addition, non-U.S. companies are exposed to additional economic, political,
social or diplomatic events. ADRs and ADSs also involve substantially identical
risks to those associated with investments in non-U.S. securities. In addition,
the issuers of certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in
renewable and alternative energy companies. You should be aware that share
prices of renewable and alternative energy companies have been significantly
more volatile than shares of companies operating in other more established
industries and the securities included in the First Trust NASDAQ(R) Clean
Edge(R) Green Energy Index Fund may be subject to sharp price declines. This
industry is relatively nascent and under-researched in comparison to more
established and mature sectors, and should therefore be regarded as having
greater investment risk.
The First Trust ISE Water Index Fund invests in companies in the potable water
and wastewater industries. You should be aware that adverse developments in
these industries may significantly affect the value of the shares of the First
Trust ISE Water Index Fund. Companies involved in the potable water and
wastewater industries are subject to environmental considerations, taxes,
government regulation, price and supply fluctuations, competition and
conservation.
The First Trust ISE-Revere Natural Gas Index Fund invests in companies in the
natural gas industry. You should be aware that one of the natural gas industry's
primary risks is the competitive risk associated with the prices of alternative
fuels, such as coal and oil. Additionally, the natural gas industry is sensitive
to increased interest rates because of the industry's capital intensive nature.
Furthermore, there are additional risks and hazards that are inherent in the
natural gas industry that may cause the price of natural gas to widely
fluctuate.
The First Trust ISE Chindia Index Fund invests in the securities of Chinese and
Indian companies. You should be aware that investments in such companies are
subject to additional risks, which are associated with possible adverse
economic, political and social developments in those countries.
The First Trust NASDAQ(R) ABA Community Bank Index Fund is concentrated in the
securities of NASDAQ(R) listed community banks as defined by its corresponding
index which involves additional risks, including limited diversification. These
companies are subject to certain risks, including the adverse effects of
volatile interest rates, economic recession, increased competition from new
entrants in the field, and potential increased regulation. The financial
performance of these companies may also be highly dependent upon the business
environment in certain geographic regions of the United States and may be
adversely impacted by any downturn or unfavorable economic or employment
developments in their local markets and the United States as a whole. These
companies may also be subject to interest rate risks and changes in monetary
policy as their earnings are largely dependent upon their net interest income
and lending risks that could further increase because of increases in interest
rates and/or continuing economic weakness.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 127
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Privacy Policy
--------------------------------------------------------------------------------
First Trust Exchange-Traded Fund
December 31, 2010 (Unaudited)
Privacy Policy
The open-end and closed-end funds advised by First Trust Advisors L.P. (each a
"Fund") value our relationship with you and consider your privacy an important
priority in maintaining 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. In addition to using
this information to verify your identity (as required by law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives and
printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.
Confidentiality and Security
With regard to our internal security procedures, each 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 go to www.ftportfolios.com, or contact us at (800)
621-1675 (First Trust Portfolios) or (800) 222-6822 (First Trust Advisors).
Page 128
[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
BNY Mellon Investment Servicing (US), 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
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or
a third party.
(c) There have been no amendments, during the period covered by this report,
to a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, and that relates to any element of the code
of ethics description.
(d) The registrant has not granted any waivers, including an implicit waiver,
from a provision of the code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party, that relates to one or more of the items set
forth in paragraph (b) of this item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
trustees has determined that Thomas
R. Kadlec and Robert F. Keith are qualified to serve as audit committee
financial experts serving on its audit committee and that each of them is
"independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees -- The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements were $427,500 for 2009 and $415,475 for 2010.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years, for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for 2009 and $0 for 2010.
Audit-Related Fees (Investment Adviser and Distributor) -- The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for 2009 and $0 for 2010.
(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 $73,850
for 2009 and $75,298.20 for 2010.
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 2009 and $0 for 2010.
(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 2009 and $0 for 2010.
All Other Fees (Investment Adviser and Distributor) -- The aggregate
fees billed in each of the last two fiscal years for products and services
provided by the principal accountant to the registrant's investment adviser and
distributor, other than the services reported in paragraphs (a) through (c) of
this Item were $0 for 2009 and $0 for 2010.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for 2009 were $73,850
for the registrant, $36,000 for the registrant's investment adviser and $37,300
for the registrant's distributor, and for 2010 were $75,298.20 for the
registrant, $6,000 for the registrant's investment adviser and $57,145 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.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934
consisting of all the independent directors of the Registrant. The audit
committee of the registrant is comprised of: Richard E. Erickson, Thomas R.
Kadlec, Robert F. Keith and Niel B. Nielson.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund
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By (Signature and Title)* /s/ James A. Bowen
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date February 23, 2011
----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ James A. Bowen
-----------------------------------------------------
James A. Bowen, Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
Date February 23, 2011
----------------------
By (Signature and Title)* /s/ Mark R. Bradley
-----------------------------------------------------
Mark R. Bradley, Treasurer, Chief Financial Officer
and Chief Accounting Officer
(principal financial officer)
Date February 23, 2011
----------------------
* Print the name and title of each signing officer under his or her signature.