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)
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, 2013
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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:
FIRST TRUST
First Trust Exchange-Traded Fund
Book 1
First Trust Dow Jones Select MicroCap Index(SM) Fund (FDM)
First Trust Morningstar Dividend Leaders(SM) Index Fund (FDL)
First Trust US IPO Index Fund (FPX)
First Trust NYSE Arca Biotechnology Index Fund (FBT)
First Trust Dow Jones Internet Index(SM) Fund (FDN)
First Trust Capital Strength ETF (FTCS)
(formerly known as First Trust Strategic Value Index Fund)
First Trust Value Line(R) Equity Allocation Index Fund (FVI)
First Trust Value Line(R) Dividend Index Fund (FVD)
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL)
Annual Report
December 31, 2013
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TABLE OF CONTENTS
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
Shareholder Letter........................................................... 2
Market Overview.............................................................. 3
Fund Performance Overview
First Trust Dow Jones Select MicroCap Index(SM) Fund (FDM)................ 4
First Trust Morningstar Dividend Leaders(SM) Index Fund (FDL)............. 6
First Trust US IPO Index Fund (FPX)....................................... 8
First Trust NYSE Arca Biotechnology Index Fund (FBT) ..................... 10
First Trust Dow Jones Internet Index(SM) Fund (FDN)....................... 12
First Trust Capital Strength ETF (FTCS)................................... 14
First Trust Value Line(R) Equity Allocation Index Fund (FVI).............. 16
First Trust Value Line(R) Dividend Index Fund (FVD)....................... 18
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL).................. 20
Notes to Fund Performance Overview........................................... 22
Understanding Your Fund Expenses............................................. 23
Portfolio of Investments
First Trust Dow Jones Select MicroCap Index(SM) Fund (FDM)................ 25
First Trust Morningstar Dividend Leaders(SM) Index Fund (FDL)............. 30
First Trust US IPO Index Fund (FPX)....................................... 32
First Trust NYSE Arca Biotechnology Index Fund (FBT)...................... 35
First Trust Dow Jones Internet Index(SM) Fund (FDN)....................... 36
First Trust Capital Strength ETF (FTCS) .................................. 38
First Trust Value Line(R) Equity Allocation Index Fund (FVI).............. 40
First Trust Value Line(R) Dividend Index Fund (FVD)....................... 44
First Trust Value Line(R) 100 Exchange-Traded Fund (FVL).................. 47
Statements of Assets and Liabilities......................................... 50
Statements of Operations .................................................... 52
Statements of Changes in Net Assets.......................................... 54
Financial Highlights......................................................... 58
Notes to Financial Statements................................................ 63
Report of Independent Registered Public Accounting Firm...................... 73
Additional Information....................................................... 74
Board of Trustees and Officers............................................... 77
Privacy Policy............................................................... 79
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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") described in this
report (each such series is referred to as a "Fund" and collectively, as the
"Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money investing in a Fund. See "Risk
Considerations" in the Additional Information section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist, you
may obtain an understanding of how the market environment affected the
performance of each Fund. The statistical information that follows may help you
understand each Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in each Fund are
spelled out in its prospectus, statement of additional information, this report
and other Fund regulatory filings.
Page 1
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SHAREHOLDER LETTER
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FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2013
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Exchange-Traded Fund (the "Trust").
As a shareholder, twice a year you receive a detailed report about your
investment, including a market overview and performance analysis for the period.
Additionally, First Trust Advisors L.P. ("First Trust") compiles the Trust's
financial statements for you to review. These reports are intended to keep you
up-to-date on your investment, and I encourage you to read this document and
discuss it with your financial advisor.
As you are probably aware, the twelve months covered by this report saw
challenging economic and political issues in the U.S. However, the period was
still positive for the markets. In fact, the S&P 500 Index, as measured on a
total return basis, rose 32.39% during the twelve months ended December 31,
2013. Of course, past performance can never be an indicator of future
performance, but First Trust believes that staying invested in quality products
through up and down markets and having a long-term horizon can help investors as
they work toward their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your financial advisor can tell you about the other investments First Trust
offers that might fit your financial goals. We encourage you to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track and help you choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
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MARKET OVERVIEW
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FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2013
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has 23 years of experience as an Equity
and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst
("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
Various surveys of leading economists have shown that expectations for U.S. GDP
growth in 2014 target a growth rate of around 2.8%, up from 2.1% over the past
four quarters through Q3'13. As of the close of 2013, the U.S. economic recovery
turned 54 months old, or 4.5 years. Over the past 4.5 years, we have been
steadfast in our message to investors that the recovery is not only real, but
worth taking a stake in via common stocks. Three major U.S. stock indices (S&P
500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index) all closed 2013 at
or near record highs. From March 9, 2009 (market bottom) through December 31,
2013, the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index posted
cumulative total returns of 202.78%, 256.52% and 288.11%, respectively. With
small-capitalization stocks outperforming both mid- and large capitalization
stocks, it would appear that the traditional risk/reward relationship is in
proper working order. We believe that should be construed as a positive to any
investor who lost confidence in the markets following the financial crisis in
2008.
One of the biggest disappointments in this recovery to date is that too many
people are still out of work in the U.S. U.S. payrolls currently stand about 1.5
million below where they were in 2008, according to Bloomberg. If the labor
situation improves in 2014, there is a potential silver lining. Why is this so?
More workers should lead to greater consumption, in our opinion. Another
potential boost to consumption could come from consumer durable goods. Americans
have been holding onto their consumer durable goods (which typically last at
least three years) longer than at any point in the last 50 years, according to
MSN.com. This suggests there could be pent-up demand for these goods. The
average age of such items as furniture, appliances and jewelry is more than five
years old, the highest since at least 1962, according to the Bureau of Economic
Analysis.
U.S. STOCKS AND BONDS
For the second calendar year in a row, all of the major U.S. stock indices
posted double-digit total returns. The S&P 500 Index, S&P MidCap 400 Index and
S&P SmallCap 600 Index were up 32.39%, 33.50%, and 41.31%, respectively in 2013,
according to Bloomberg. All 10 major sectors in the S&P 500 posted double-digit
total returns as well in 2013. The gains ranged from 11.47% for the S&P 500
Telecommunication Services Index to 43.08% for the S&P 500 Consumer
Discretionary Index. Volatility eased further in 2013. The VIX Index averaged
14.25%, well below 2012's average of 17.82%, and significantly below its 10-year
average of 20.17%. The 2014 estimated earnings growth rates for the S&P 500
Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were 13.31%, 22.57% and
34.92%, respectively, as of January 9, 2014, according to Standard & Poor's.
The S&P 500 Index has not experienced a 10% correction in 819 days, as of
December 31, 2013, and even though we witnessed one in 2011, the market
eventually rebounded and moved on to set new all-time highs. Investors leery of
committing capital to the stock market at current levels should know, however,
that the longest stretch without a 10% correction was 2,553 days (October 11,
1990 - October 7, 1997), according to Bespoke Investment Group. This means that,
while always a possibility, a correction is not imminent, in our opinion.
In the U.S. bond market, the top-performing major debt group in 2013 was
high-yield corporate bonds. The Barclays U.S. Corporate High Yield Index posted
a total return of 7.44%. The next closest domestic category was intermediate
investment-grade corporate bonds, up just 0.08%, as measured by the Barclays
Intermediate Corporate Index. The Barclays Municipal Bond: Long Bond (22+ Yr)
Index posted the weakest total return, down 6.01%. The 127 basis point rise in
the yield on the benchmark 10-year Treasury note in 2013 induced some selling
pressure in bond mutual funds. TrimTabs Investment Research reported that
investors liquidated a record $86 billion from U.S. bond mutual funds and ETFs
in 2013, according to Barron's. It topped the previous record of $62 billion set
in 1994.
FOREIGN STOCKS AND BONDS
Investors shied away from foreign debt securities in 2013. The Barclays Global
Emerging Markets Index of debt securities fell 2.66% (USD), while the Barclays
Global Aggregate Index of higher-quality debt declined by 2.60% (USD). Investors
seemed just as disinterested in emerging markets equities. The MSCI Emerging
Markets Index posted a total return of -2.60% (USD). On the other hand,
investors were attracted to stocks from developed nations. The MSCI World Index
(excluding the U.S.) posted a total return of 21.02% (USD). Over the past 12
months, the U.S. dollar rose just 0.33% against a basket of major currencies, as
measured by the U.S. Dollar Index (DXY). The dollar had little influence on
returns for U.S. investors in 2013, in our opinion.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM)
The First Trust Dow Jones Select MicroCap Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Dow Jones Select
MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index measures the
performance of selected U.S. micro-capitalization companies chosen from all
common stocks traded on the New York Stock Exchange ("NYSE(R)"), NYSE Amex and
The NASDAQ Stock Market, Inc. ("NASDAQ(R)") that are comparatively liquid and
have strong fundamentals relative to the micro-capitalization segment as a
whole. The Fund's shares are listed for trading on the NYSE Arca, Inc. ("NYSE
Arca"). The first day of secondary market trading in shares of the Fund was
September 30, 2005.
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (9/27/05) Ended (9/27/05)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 43.32% 18.17% 6.88% 130.45% 73.29%
Market Value 42.74% 18.14% 6.82% 130.11% 72.45%
INDEX PERFORMANCE
Dow Jones Select MicroCap Index(SM) 44.25% 18.96% 7.63% 138.24% 83.61%
Russell 2000(R) Index 38.82% 20.08% 8.59% 149.69% 97.47%
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(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a net asset value ("NAV") return of 43.32% during the
12-month period covered by this report. During the same period, the benchmark
Russell 2000(R) Index generated a return of 38.82%. The Industrials sector was
the top-performing sector in the Fund with a 54.8% return during the reporting
period. The sector's average weight in the Fund was 20.8%, resulting in an 11.0%
contribution to the Fund's total return. Within the sector, the Machinery
industry was a major driver of return. The Fund's holdings from the industry
returned 59.6% during the reporting period and contributed 3.1% to the Fund's
total return. The Financials sector led all sectors in terms of contribution to
total return with a 12.0% contribution to total return. The Fund's holdings in
the sector comprised an average of 27.6% of the Fund's weight and returned 43.7%
during the reporting period. Commercial banks were the major cause of the
sector's performance as companies from the industry returned 47.0% and
contributed 8.0% to the Fund's return. The Industrials and Financials sectors
were also the main causes of the Fund's outperformance. The Fund's holdings in
the Financials sector outperformed the benchmark's constituents from the sector
(43.7% vs. 30.3%) and the Fund was overweight the sector (27.6% vs. 23.0%
average weight). Similarly, in the Industrials sector the Fund's holdings
outperformed the benchmark's constituents (54.8% vs. 43.1%) and the Fund was
overweight the sector (20.8% vs. 14.7% average weight).
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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 by First Trust on behalf of the Fund. The Fund, based on
the Dow Jones Select MicroCap Index(SM), is not sponsored, endorsed, sold or
promoted by CME, Dow Jones or their respective affiliates, and CME, Dow Jones
and their respective affiliates make no representation regarding the
advisability of trading in the Fund.
Page 4
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM) (CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 25.89%
Industrials 22.49
Consumer Discretionary 15.13
Information Technology 10.35
Health Care 8.79
Materials 4.45
Energy 3.75
Telecommunication Services 3.73
Consumer Staples 3.51
Utilities 1.91
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
First Financial Holdings, Inc. 1.47%
Sterling Bancorp 0.96
FARO Technologies, Inc. 0.91
Renasant Corp. 0.90
Navigant Consulting, Inc. 0.87
Gentherm, Inc. 0.85
Altra Industrial Motion Corp. 0.85
Federal Signal Corp. 0.84
Virtusa Corp. 0.82
Spartan Stores, Inc. 0.81
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Total 9.28%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
SEPTEMBER 27, 2005 - DECEMBER 31, 2013
First Trust Dow Jones Select Dow Jones Select Russell 2000(R)
MicroCap Index(SM) Fund MicroCap Index(SM) Index
09/05 $10000 $10000 $10000
12/05 10374 10397 10252
06/06 10968 11033 11094
12/06 12001 12115 12134
06/07 12746 12910 12917
12/07 11278 11474 11944
06/08 9896 10100 10825
12/08 7520 7707 7909
06/09 7362 7568 8118
12/09 9087 9393 10058
06/10 8833 9153 9862
12/10 11427 11876 12759
06/11 11811 12319 13551
12/11 10435 10907 12227
06/12 11107 11648 13270
12/12 12091 12728 14225
06/13 14055 14840 16481
12/13 17328 18360 19748
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
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NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
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FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 121 6 0 0
01/01/10 - 12/31/10 169 0 0 0
01/01/11 - 12/31/11 87 2 0 0
01/01/12 - 12/31/12 70 0 0 0
01/01/13 - 12/31/13 151 1 0 0
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NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
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FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 120 5 0 0
01/01/10 - 12/31/10 83 0 0 0
01/01/11 - 12/31/11 161 2 0 0
01/01/12 - 12/31/12 179 1 0 0
01/01/13 - 12/31/13 98 2 0 0
Page 5
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL)
The First Trust Morningstar Dividend Leaders(SM) Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Morningstar(R) Dividend
Leaders(SM) Index (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index offers investors
a benchmark for dividend portfolios as well as a means to invest in a portfolio
of stocks that have a consistent record of growing dividends as well as the
ability to sustain them. The Index consists of the top 100 stocks, based on
dividend yield, of the securities listed on one of the three major exchanges
(NYSE(R), NYSE Amex or NASDAQ(R)) that have been selected through the
application of Morningstar, Inc.'s proprietary multi-step screening process. The
Index is rebalanced four times annually in March, June, September and December.
The Fund's shares are listed for trading on the NYSE Arca. The first day of
secondary market trading in shares of the Fund was March 15, 2006.
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PERFORMANCE
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AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (3/9/06) Ended (3/9/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 22.71% 15.23% 5.30% 103.19% 49.76%
Market Value 22.72% 15.16% 5.30% 102.58% 49.72%
INDEX PERFORMANCE
Morningstar(R) Dividend Leaders(SM) Index 23.36% 15.84% 5.83% 108.59% 55.65%
S&P 500(R) Index 32.39% 17.94% 7.16% 128.19% 71.64%
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(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 22.71% during the 12-month period covered by
this report. During the same period, the benchmark S&P 500(R) Index generated a
return of 32.39%. Despite the Fund's solid annual return, it underperformed the
broader market. The Fund underperformed due to its heavy weight in the
Telecommunication Services and Utilities sectors. During the reporting period
the Fund's holdings in the Utilities sector comprised an average of 27.3% of the
Fund's weight and returned 11.8%. The benchmark had an average weight of just
3.3% in the sector. In the Telecommunication Services sector, the Fund's
holdings had an average weight of 19.8% and returned 13.5% for the reporting
period. In the benchmark the Telecommunication Services sector had only a 2.7%
weight. Due to being overweight in Utilities and Telecommunication Services, the
Fund was underweight in other strong-performing sectors relative to the
benchmark. The Fund was underweight in the Consumer Discretionary (1.6% vs.
12.0% average weight), Financials (2.8% vs 16.3%), and Industrials (5.4% vs.
10.3%) sectors; all of which had above-average performance.
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Morningstar(R) is a service mark of Morningstar, Inc. and has been licensed for
use by First Trust on behalf of the Fund. The First Trust Morningstar Dividend
Leaders(SM) Index Fund is not sponsored, endorsed, issued, sold or promoted by
Morningstar, Inc., nor does this company make any representation regarding the
advisability of investing in the Fund.
Page 6
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL) (CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 26.16%
Telecommunication Services 20.73
Energy 15.53
Health Care 10.15
Information Technology 9.82
Materials 5.67
Industrials 4.80
Financials 2.87
Consumer Staples 2.84
Consumer Discretionary 1.43
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
AT&T, Inc. 10.06%
Chevron Corp. 9.36
Verizon Communications, Inc. 8.76
Merck & Co., Inc. 7.33
Intel Corp. 6.79
ConocoPhillips 4.91
Duke Energy Corp. 3.17
Eli Lilly & Co. 2.82
Southern (The) Co. 2.58
E.I. du Pont de Nemours & Co. 2.55
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Total 58.33%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 9, 2006 - DECEMBER 31, 2013
First Trust Morningstar Dividend Morningstar(R) Dividend S&P 500(R)
Leaders(SM) Index FundLeaders(SM) Index Index
03/06 $10000 $10000 $10000
12/06 12077 12110 11317
06/07 12392 12462 12104
12/07 10793 10870 11939
06/08 7995 8069 10516
12/08 7371 7462 7522
06/09 6961 7067 7760
12/09 8420 8567 9512
06/10 8039 8197 8879
12/10 9771 9995 10945
06/11 10535 10806 11604
12/11 11182 11498 11176
06/12 12107 12491 12236
12/12 12204 12620 12964
06/13 13908 14421 14756
12/13 14978 15569 17163
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 135 4 3 2
01/01/10 - 12/31/10 185 0 0 0
01/01/11 - 12/31/11 219 0 0 0
01/01/12 - 12/31/12 171 0 0 0
01/01/13 - 12/31/13 171 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 106 3 1 0
01/01/10 - 12/31/10 66 1 0 0
01/01/11 - 12/31/11 33 0 0 0
01/01/12 - 12/31/12 79 0 0 0
01/01/13 - 12/31/13 81 0 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST US IPO INDEX FUND (FPX)
The First Trust U.S. IPO Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the IPOX(R)-100 U.S. Index (the "Index").
The Fund will normally invest at least 90% of its assets in common stocks that
comprise the Index. The Index is a modified value-weighted price index measuring
the performance of the top 100 U.S. companies ranked quarterly by market
capitalization in the IPOX Global Composite Index. The Index utilizes a 10%
capping on all constituents and includes the 100 largest, typically best
performing and most liquid initial public offerings ("IPOs") of the U.S.
companies in the IPOX Global Composite Index. The IPOX Global Composite Index is
reconstituted regularly with IPOs being added to the IPOX Global Composite Index
at their seventh trading day upon "going public" and automatically exiting after
1,000 trading days or approximately four years thereafter. The Index is
reconstituted quarterly to reflect changes in the stock market values of the
IPOX Global Composite Index constituents and IPO activity during the past
quarter, with potential new companies entering the Index while other companies
reach 1,000 days in the Index and automatically drop out. The Fund's shares are
listed for trading on the NYSE Arca. The first day of secondary market trading
in shares of the Fund was April 25, 2006.
----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (4/12/06) Ended (4/12/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 47.98% 27.73% 12.16% 240.03% 142.58%
Market Value 47.40% 27.76% 12.17% 240.43% 142.69%
INDEX PERFORMANCE
IPOX(R)-100 U.S. Index 48.88% 28.56% 12.86% 251.21% 154.45%
Russell 3000(R) Index 33.55% 18.71% 7.27% 135.71% 71.91%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 47.98% during the 12-month period covered by
this report. During the same period, the benchmark Russell 3000(R) Index
generated a return of 33.55%. Facebook, Inc. was the Fund's best individual
contributor to total return with an 8.5% contribution as the company's stock
appreciated 105.3% during the reporting period. Facebook, Inc. shares started to
rally after the company announced strong mobile ad revenue in their second
quarter earnings announcement. Tesla Motors, Inc. was the best performing stock
in the Fund with a 344.1% return during the reporting period after posting its
first ever profit earlier than analysts expected. The company's relatively small
average weight in the Fund (1.6%) limited its contribution to the Fund's total
return to 2.4%.
-------------------
The Fund is not sponsored, endorsed, sold or promoted by IPOX(R). IPOX(R) makes
no representation or warranty, express or implied, to the owners of the Fund or
any member of the public regarding the advisability of trading in the Fund.
Page 8
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST US IPO INDEX FUND (FPX) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Consumer Discretionary 26.71%
Information Technology 18.80
Energy 17.77
Health Care 15.46
Industrials 9.22
Financials 7.18
Consumer Staples 4.56
Materials 0.30
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Facebook, Inc., Class A 9.73%
AbbVie, Inc. 9.30
General Motors Co. 7.08
Phillips 66 5.12
Kinder Morgan, Inc. 4.13
Kraft Foods Group, Inc. 3.56
Marathon Petroleum Corp. 3.06
HCA Holdings, Inc. 2.36
Dollar General Corp. 2.14
Delphi Automotive PLC 2.05
-------
Total 48.53%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 12, 2006 - DECEMBER 31, 2013
First Trust US IPO IPOX(R)-100 Russell 3000(R)
Index Fund U.S. Index Index
04/06 $10000 $10000 $10000
12/06 11100 11154 11064
06/07 12385 12481 11851
12/07 12712 12844 11633
06/08 11784 11941 10348
12/08 7134 7245 7293
06/09 8087 8248 7599
12/09 10339 10575 9360
06/10 9726 9980 8794
12/10 12228 12594 10945
06/11 13439 13889 11640
12/11 12607 13071 11057
06/12 14314 14885 12088
12/12 16391 17092 12873
06/13 19143 20011 14683
12/13 24256 25446 17192
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 109 3 0 0
01/01/10 - 12/31/10 149 0 0 0
01/01/11 - 12/31/11 135 0 0 0
01/01/12 - 12/31/12 149 2 0 0
01/01/13 - 12/31/13 220 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 135 5 0 0
01/01/10 - 12/31/10 103 0 0 0
01/01/11 - 12/31/11 116 1 0 0
01/01/12 - 12/31/12 97 2 0 0
01/01/13 - 12/31/13 32 0 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
The First Trust NYSE Arca Biotechnology Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the NYSE Arca Biotechnology Index(SM)
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is an equal dollar-weighted
index designed to measure the performance of a cross section of companies in the
biotechnology industry that are primarily involved in the use of biological
processes to develop products or provide services. Such processes include, but
are not limited to, recombinant DNA technology, molecular biology, genetic
engineering, monoclonal antibody-based technology, lipid/liposome technology and
genomics. This Index is rebalanced quarterly based on closing prices on the
third Friday in January, April, July and October to ensure that each component
stock continues to represent approximately equal weight in the Index. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was June 23, 2006.
----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (6/19/06) Ended (6/19/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 50.10% 28.54% 18.08% 250.86% 249.73%
Market Value 50.36% 28.64% 18.08% 252.29% 249.73%
INDEX PERFORMANCE
NYSE Arca Biotechnology Index(SM) 50.80% 29.27% 18.79% 261.03% 266.00%
NASDAQ(R) Biotechnology Index 66.02% 27.07% 17.54% 231.25% 237.87%
S&P 500(R) Index 32.39% 17.94% 7.73% 128.19% 75.23%
S&P Composite 1500 Health Care Index 42.19% 19.06% 11.07% 139.19% 120.50%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 50.10% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Health Care Index
generated a return of 42.19%. Incyte Corp. was the best-performing and
contributing holding in the Fund. For the reporting period the company's stock
returned 204.8% and contributed 7.8% to the Fund's return. The value of Incyte
Corp. jumped when one of its medicines had positive results for patients with
pancreatic cancer. Celgene Corp. was the next best performer with a 115.3%
return and a 5.0% contribution to return. The company's drug Revlimid showed
positive results in elderly patients newly diagnosed with myeloma. A majority of
the holdings in the Fund had strong returns, but some companies did detract from
return. Dendreon Corp. was the worst-performing company in the Fund with return
of -53.9% while held in the Fund this reporting period. One reason for the
negative performance was the lowering of the forecast for the company's prostate
drug, Provenge.
-------------------
The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Euronext or its
affiliates ("NYSE Euronext") and is licensed for use by First Trust on behalf of
the Fund. The Fund is not sponsored or endorsed by NYSE Euronext. NYSE Euronext
makes no representation or warranty, express or implied, to the owners of the
Fund or any member of the public regarding the advisability of investing in the
Fund or the ability of the Fund to track the performance of the various sectors
represented in the stock market. NYSE Euronext has no obligation to take the
needs of the owners of the Fund into consideration in determining, composing or
calculating the Index. NYSE Euronext is not responsible for and has not
participated in any determination or calculation made with respect to issuance
or redemption of the Fund.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
INDUSTRY LONG-TERM INVESTMENTS
Biotechnology 77.96%
Life Sciences Tools & Services 16.83
Pharmaceuticals 5.21
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
United Therapeutics Corp. 6.44%
Illumina, Inc. 6.38
Incyte Corp. 6.25
Alexion Pharmaceuticals, Inc. 5.76
Cepheid, Inc. 5.40
QIAGEN N.V. 5.32
Nektar Therapeutics 5.21
Techne Corp. 5.13
Exact Sciences Corp. 4.88
Gilead Sciences, Inc. 4.83
-------
Total 55.60%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 12, 2006 - DECEMBER 31, 2013
First Trust NYSE Arca NYSE Arca NASDAQ(R) S&P 500(R) S&P Composite 1500
Biotechnology Index Fund Biotechnology Index(SM) Biotechnology Index Index Health Care Index
06/06 $10000 $10000 $10000 $10000 $10000
12/06 11775 11815 11114 11554 11194
06/07 12105 12179 11177 12358 11919
12/07 12205 12320 11630 12189 12092
06/08 11410 11557 11086 10736 10593
12/08 9968 10138 10200 7679 9218
06/09 10722 10921 10491 7922 9305
12/09 14441 14758 11828 9711 11132
06/10 15629 16026 11227 9065 10324
12/10 19768 20327 13726 11174 11712
06/11 22182 22880 15694 11847 13374
12/11 16534 17096 15385 11410 13104
06/12 22185 23013 19204 12493 14610
12/12 23299 24233 20352 13236 15510
06/13 29413 30705 25829 15066 18703
12/13 34975 36600 33787 17523 22049
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 93 3 0 0
01/01/10 - 12/31/10 165 1 0 1
01/01/11 - 12/31/11 151 1 0 0
01/01/12 - 12/31/12 121 0 0 0
01/01/13 - 12/31/13 204 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 152 4 0 0
01/01/10 - 12/31/10 83 1 0 1
01/01/11 - 12/31/11 100 0 0 0
01/01/12 - 12/31/12 128 1 0 0
01/01/13 - 12/31/13 48 0 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN)
The First Trust Dow Jones Internet Index(SM) Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Dow Jones Internet Composite
Index(SM) (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks that comprise the Index. The Index represents companies
that generate the majority of their revenues via the Internet. The Index was
designed and is maintained according to a set of rules that were devised with
the goal of providing clear and accurate views of the growing Internet market
segment. The Index aims to consistently represent 80% of the float-adjusted
Internet equity universe. The Index contains two sub-indexes, the Dow Jones
Internet Commerce Index and the Dow Jones Internet Services Index. For its stock
to be eligible for the "universe," a company must generate at least 50% of
annual sales/revenues from the Internet, and be currently included in the Dow
Jones U.S. Index. The Fund's shares are listed for trading on the NYSE Arca. The
first day of secondary market trading in shares of the Fund was June 23, 2006.
----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (6/19/06) Ended (6/19/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 53.40% 33.74% 15.72% 327.89% 200.49%
Market Value 53.44% 33.75% 15.73% 327.96% 200.54%
INDEX PERFORMANCE
Dow Jones Internet Composite Index(SM) 54.36% 34.54% 16.38% 340.80% 213.59%
S&P 500(R) Index 32.39% 17.94% 7.73% 128.19% 75.23%
S&P Composite 1500 Information Technology Index 28.99% 22.00% 10.08% 170.28% 106.20%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 53.40% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Information
Technology Index generated a return of 28.99%. The Internet & Catalog Retail
industry, which is a part of the Consumer Discretionary sector, was a
significant driver of the Fund's strong returns. The Fund's holdings in the
industry comprised an average of 23.3% of the Fund's weight and returned 95.1%
for the reporting period. Netflix, Inc. (+297.6% return), Groupon, Inc.
(+142.1%), TripAdvisor, Inc. (+97.6%), and priceline.com, Inc. (+87.4%) all were
companies from the industry with robust performance this period. The Internet
Software & Services industry led all industries in the Fund with a 24.2%
contribution to return. The Fund's holdings in the industry returned 44.8% and
comprised an average of 52.3% of the Fund's' weight. Google, Inc. and Facebook,
Inc. were the leading contributors from the industry with contributions to total
return of 5.8% and 4.4%, respectively.
-------------------
Dow Jones and Dow Jones Internet Composite Index(SM) are products of Dow Jones
Indexes, a licensed trademark of CME Group Index Services LLC ("CME") and have
been licensed for use by First Trust on behalf of the Fund. The Fund, based on
the Dow Jones Internet Composite Index(SM), is not sponsored, endorsed, sold or
promoted by CME, Dow Jones or their respective affiliates and CME, Dow Jones and
their respective affiliates make no representation regarding the advisability of
trading in the Fund.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 70.85%
Consumer Discretionary 23.17
Financials 4.49
Health Care 1.49
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Google, Inc., Class A 9.81%
Amazon.com, Inc. 7.54
Facebook, Inc., Class A 6.50
eBay, Inc. 5.55
priceline.com, Inc. 5.15
Yahoo!, Inc. 4.46
Salesforce.com, Inc. 4.18
Netflix, Inc. 3.51
LinkedIn Corp., Class A 3.30
Juniper Networks, Inc. 2.86
-------
Total 52.86%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 19, 2006 - DECEMBER 31, 2013
First Trust Dow Jones Dow Jones Internet S&P 500(R) S&P Composite 1500
Internet Index(SM) Fund Composite Index(SM) Index Information Technology Index
06/06 $10000 $10000 $10000 $10000
12/06 11285 11315 11554 11574
06/07 12975 13044 12358 12716
12/07 12545 12651 12189 13360
06/08 11203 11327 10736 11638
12/08 7023 71147 679 7629
06/09 9374 95247 922 9506
12/09 12587 12825 9711 12286
06/10 11980 12222 9065 11055
12/10 17197 17603 11174 13776
06/11 18186 18661 11847 14115
12/11 16209 16702 11410 13930
06/12 17741 18335 12493 15702
12/12 19590 20315 13236 15985
06/13 22779 23687 15065 17061
12/13 30050 31357 17523 20620
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 134 2 1 0
01/01/10 - 12/31/10 189 0 0 0
01/01/11 - 12/31/11 151 0 0 0
01/01/12 - 12/31/12 122 0 0 0
01/01/13 - 12/31/13 200 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 112 3 0 0
01/01/10 - 12/31/10 63 0 0 0
01/01/11 - 12/31/11 101 0 0 0
01/01/12 - 12/31/12 128 0 0 0
01/01/13 - 12/31/13 52 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
The First Trust Capital Strength ETF (formerly known as First Trust Strategic
Value Index Fund) (the "Fund") seeks investment results that correspond
generally to the price and yield (before the Fund's fees and expenses) of an
equity index called The Capital Strength Index(SM) (the "Index"). The Index is
initially equally-weighted and is made up of the top 50 stocks out of the
universe of the largest 500 U.S. companies included in the NASDAQ US Benchmark
Index, ranked by one and three-year daily volatility. Companies with less than
$1 billion in cash and short term investments, companies with long-term debt
divided by market capitalization greater than 30% and companies with return on
equity less than 15% are excluded from the Index. The Index is reconstituted and
rebalanced on a quarterly basis. The Fund's shares are listed for trading on the
NASDAQ. The first day of secondary market trading in shares of the Fund was July
11, 2006.
----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (7/6/06) Ended (7/6/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 35.90% 19.76% 8.86% 146.33% 88.80%
Market Value 36.15% 19.94% 8.88% 148.20% 89.09%
INDEX PERFORMANCE
The Capital Strength Index(SM)* N/A N/A N/A N/A N/A
S&P 500 Value Index 31.99% 16.61% 5.65% 115.59% 50.94%
S&P 500(R) Index 32.39% 17.94% 7.38% 128.19% 70.39%
----------------------------------------------------------------------------------------------------------------------------
* On June 18, 2010, the Fund's underlying index changed from the Deutsche
Bank CROCI(R) US+ Index(TM) to the Credit Suisse U.S. Value Index, Powered
by HOLT(TM). On June 4, 2013, the Fund's underlying index changed from the
Credit Suisse U.S. Value Index, Powered by HOLT(TM) to The Capital
Strength Index(SM). Since the Fund's new underlying index had an inception
date of March 20, 2013, it was not in existence for any of the periods
disclosed.
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 35.90% during the 12-month period covered by
this report. During the same period, the S&P 500 Value Index (the "Benchmark")
generated a return of 31.99%. In June of 2013 the Fund changed its underlying
index from the Credit Suisse U.S. Value Index, Powered by Holt(TM) (the "HOLT
Index"), to The Capital Strength Index(SM). During the portion of the year when
the Fund tracked the HOLT Index the Fund returned 18.5% versus the Benchmark's
17.5% return. In this period the Fund's outperformance came from being
overweight the strong-performing Information Technology sector (23.6% vs. 8.4%
average weight). From the time the Fund changed underlying indexes (June 4,
2013) through the end of the reporting period the Fund returned 14.8% versus the
Benchmark's 12.3%. During the same period, The Capital Strength Index(SM)
generated a return of 15.23%. In this June 4, 2013 to December 31, 2013 period
the Fund's outperformance came from positive selection and allocation effects in
the Industrials sector. Relative to the Benchmark the Fund was overweight the
sector (18.6% vs. 13.1% average weight) and outperformed within the sector
(+27.8% vs. +22.1%).
-------------------
"Credit Suisse," "HOLT" and "Credit Suisse U.S. Value Index, Powered by
HOLT(TM)," are trademarks of Credit Suisse Group AG, Credit Suisse Securities
(USA) LLC or one of their affiliates (collectively, "Credit Suisse"), and have
been licensed for use for certain purposes by First Trust on behalf of the Fund.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY CREDIT SUISSE, AND
CREDIT SUISSE MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, REGARDING
THE ADVISABILITY OF INVESTING OR TRADING IN THE FUND.
The Capital Strength Index(TM) is the trademark (the "Mark") of NASDAQ OMX. The
Mark is licensed for use by First Trust Portfolios L.P. The Fund has not been
passed on by NASDAQ OMX as to its legality or suitability. The Fund is not
issued, endorsed, sold or promoted by NASDAQ OMX. The Fund should not be
construed in any way as investment advice by NASDAQ OMX. NASDAQ OMX MAKES NO
WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE FUND OR THE CAPITAL
STRENGTH INDEX(TM).
Page 14
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Health Care 19.50%
Industrials 18.82
Information Technology 18.45
Consumer Staples 17.39
Consumer Discretionary 10.12
Financials 7.76
Energy 5.92
Materials 2.04
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Raytheon Co. 2.21%
Linear Technology Corp. 2.17
Exxon Mobil Corp. 2.16
Lockheed Martin Corp. 2.16
3M Co. 2.14
McKesson Corp. 2.14
Omnicom Group, Inc. 2.12
United Parcel Service, Inc., Class B 2.11
Northrop Grumman Corp. 2.11
CA, Inc. 2.09
-------
Total 21.41%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JULY 6, 2006 - DECEMBER 31, 2013
First Trust Capital S&P 500 Value S&P 500(R)
Strength ETF Index Index
07/06 $10000 $10000 $10000
12/06 11074 11294 11235
06/07 12444 12126 12016
12/07 12210 11519 11852
06/08 11253 96711 0440
12/08 7665 70027 467
06/09 8640 69037 703
12/09 10686 84849 443
06/10 9880 80348 815
12/10 12185 97651 0866
06/11 13144 10276 11520
12/11 11827 97181 1095
06/12 12469 10585 12148
12/12 13890 11436 12871
06/13 16203 13235 14650
12/13 18876 15093 17039
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 139 3 0 0
01/01/10 - 12/31/10 152 0 0 0
01/01/11 - 12/31/11 129 0 0 0
01/01/12 - 12/31/12 147 0 0 0
01/01/13 - 12/31/13 134 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 107 3 0 0
01/01/10 - 12/31/10 100 0 0 0
01/01/11 - 12/31/11 123 0 0 0
01/01/12 - 12/31/12 103 0 0 0
01/01/13 - 12/31/13 117 1 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
The First Trust Value Line(R) Equity Allocation Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Value Line(R) Equity
Allocation Index (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index is designed to
objectively identify and select those stocks from the 1,700-stock Value Line(R)
universe across market capitalizations and investment styles for growth and
value that appear to have the greatest potential for capital appreciation. The
Index is rebalanced on a semi-annual basis in February and August. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was December 7, 2006.
----------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (12/5/06) Ended (12/5/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 34.65% 16.31% 5.11% 112.90% 42.24%
Market Value 34.72% 16.77% 5.11% 117.07% 42.26%
INDEX PERFORMANCE
Value Line(R) Equity Allocation Index(TM) 35.74% 17.37% 5.98% 122.70% 50.82%
Russell 3000(R) Index 33.55% 18.71% 6.44% 135.71% 55.49%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 34.65% during the 12-month period covered by
this report. During the same period, the benchmark Russell 3000(R) Index
generated a return of 33.55%. The Financials sector led all sectors in the Fund
in contribution to return with a 9.9% contribution. The Fund's holdings in the
sector comprised an average of 23.6% of the Fund's weight and returned 45.3%.
Almost half of the Fund's Financials exposure was in the strong-performing
Insurance industry, which returned 54.0% during the reporting period. The
Consumer Discretionary sector was the Fund's second-best contributing sector
with a 7.5% contribution to total return. Within the sector, the Fund's holdings
returned 35.4% and comprised an average of 21.2% of the Fund's weight. The
Health Care sector was the top-performing sector in the Fund with a 48.2%
return, but the sector's average Fund weight of 8.2% limited its contribution to
4.0%. The Financials sector was the largest cause of outperformance as the Fund
was overweight the sector (23.6% vs. 17.5% average weight) and achieved better
performance (+45.3% vs. +32.7%) relative to the benchmark.
-------------------
"Value Line(R)" and "Value Line(R) Equity Allocation Index" are trademarks of
Value Line(R), Inc. and have been licensed for use for certain purposes by First
Trust on behalf of the Fund. The Fund, based on the Value Line(R) Equity
Allocation Index, is not sponsored, endorsed, sold, or promoted by Value
Line(R), Inc., and Value Line(R) makes no representation regarding the
advisability of investing in the Fund.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 29.64%
Consumer Discretionary 19.65
Industrials 15.42
Information Technology 14.09
Health Care 8.47
Materials 4.60
Energy 3.93
Consumer Staples 3.03
Telecommunication Services 0.86
Utilities 0.31
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Cognizant Technology Solutions Corp.,
Class A 1.49%
Time Warner Cable, Inc. 1.35
3M Co. 1.33
Xerox Corp. 1.32
AbbVie, Inc. 1.31
Manulife Financial Corp. 1.29
Infosys Ltd., ADR 1.29
St. Jude Medical, Inc. 1.29
Lockheed Martin Corp. 1.28
Intuit, Inc. 1.28
-------
Total 13.23%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 5, 2006 - DECEMBER 31, 2013
First Trust Value Line(R) Equity Value Line(R) Equity Russell 3000(R)
Allocation Index Fund Allocation Index(TM) Index
12/5/06 $10000 $10000 $10000
12/06 9890 9897 10008
06/07 10610 10623 10720
12/07 10350 10398 10522
06/08 9470 9551 9360
12/08 6681 6772 6597
06/09 7037 7177 6874
12/09 8962 9192 8466
06/10 8831 9104 7954
12/10 10741 11125 9900
06/11 10976 11405 10529
12/11 9714 10132 10001
06/12 9883 10350 10933
12/12 10563 11109 11643
06/13 12087 12764 13280
12/13 14223 15078 15550
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 110 3 0 0
01/01/10 - 12/31/10 156 0 0 0
01/01/11 - 12/31/11 146 1 0 0
01/01/12 - 12/31/12 124 1 0 0
01/01/13 - 12/31/13 140 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 138 1 0 0
01/01/10 - 12/31/10 95 1 0 0
01/01/11 - 12/31/11 105 0 0 0
01/01/12 - 12/31/12 122 3 0 0
01/01/13 - 12/31/13 104 8 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
The First Trust Value Line(R) Dividend Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Value Line(R) Dividend Index(TM)
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is designed to objectively
identify and select those stocks from the universe of stocks which Value Line,
Inc(R) gives a Safety(TM) Ranking of #1 or #2 in the Value Line(R) Safety(TM)
Ranking System and have the potential to pay above-average dividends and achieve
capital appreciation. The Index is rebalanced on a monthly basis. The Fund's
shares are listed for trading on the NYSE Arca.
----------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (8/19/03) Ended Ended (8/19/03)
12/31/13 12/31/13 12/31/13 to 12/31/13 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 26.57% 16.32% 9.02% 9.31% 112.98% 137.18% 151.69%
Market Value 26.72% 16.53% 9.93% 9.32% 114.86% 157.82% 151.93%
INDEX PERFORMANCE
Value Line(R) Dividend Index(TM) 27.60% 17.25% N/A N/A 121.58% N/A N/A
S&P 500(R) Index 32.39% 17.94% 7.41% 8.28% 128.19% 104.30% 128.12%
Dow Jones U.S. Select Dividend Index(SM) 29.06% 16.16% N/A N/A 111.45% N/A N/A
----------------------------------------------------------------------------------------------------------------------------------
On December 15, 2006, the Fund acquired the assets and adopted the financial
and performance history of First Trust Value Line(R) Dividend Fund (the
"Predecessor FVD Fund," a closed-end fund), which had an inception date of
August 19, 2003. The inception date total returns at NAV include the sales
load of $0.675 per share on the initial offering. The investment goals,
strategies and policies of the Fund are substantially similar to those of the
Predecessor FVD Fund. The inception date of the Index was July 3, 2006.
Returns for the Index are only disclosed for those periods in which the Index
was in existence for the entire period. The cumulative total returns for the
period from the reorganization date (12/15/06) through period end (12/31/13)
were 10.59% and 11.12% at NAV and Market Value, respectively. That compares to
an Index return of 14.90% for the same period. The average annual total
returns for the period from the reorganization date (12/15/06) through period
end (12/31/13) were 2.01% and 2.11% at NAV and Market Value, respectively.
That compares to an Index return of 2.80% for the same period.
NAV and Market Value returns assume that all dividend distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to
December 15, 2006, NAV and Market Value returns assumed that all dividend
distributions were reinvested at prices obtained by the Dividend Reinvestment
Plan of the Predecessor FVD Fund and the price used to calculate Market Value
return was the AMEX (now known as the NYSE Mkt) closing market price of the
Predecessor FVD Fund.
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 26.57% during the 12-month period covered by
this report. During the same period, the benchmark S&P 500(R) Index generated a
return of 32.39%. The Utilities sector was the top-contributing sector in the
Fund with a 4.7% contribution. The Fund's holdings in the sector lagged the
broader market with a 17.1% return, but the sector had an average weight in the
Fund of 26.0%. The Industrials sector was the top-performing sector in the Fund
with a 42.6% return, but the sector's average Fund weight of 10.9% limited its
contribution to 4.2%. The largest cause of the Fund underperforming its
benchmark was being overweight the weak-performing Utilities sector (26.0% vs.
3.3% average weight). The Fund also suffered from its holdings underperforming
in the Financials (+29.4% vs. +35.7%) and the Health Care (+33.2% vs. +41.2%)
sectors relative to the benchmark.
-------------------
"Value Line(R)" and "Value Line(R) Dividend Index(TM)" are trademarks of Value
Line(R), Inc. and have been licensed for use for certain purposes by First Trust
on behalf of the Fund. The Fund, based on the Value Line(R) Dividend Index(TM),
is not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value
Line(R) makes no representation regarding the advisability of investing in the
Fund.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 25.42%
Consumer Staples 16.70
Industrials 11.35
Financials 10.69
Health Care 10.12
Information Technology 8.95
Consumer Discretionary 6.00
Energy 5.98
Materials 2.40
Telecommunication Services 2.39
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Omnicom Group, Inc. 0.61%
Cisco Systems, Inc. 0.61
E.I. du Pont de Nemours & Co. 0.61
GlaxoSmithKline PLC, ADR 0.61
Mattel, Inc. 0.61
Hasbro, Inc. 0.61
Diageo PLC, ADR 0.61
Sanofi, ADR 0.61
Unilever PLC, ADR 0.61
Fastenal Co. 0.61
-------
Total 6.10%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2003 - DECEMBER 31, 2013
First Trust Value Line(R) S&P 500(R)
Dividend Index Fund Index
12/03 $10000 $10000
06/04 10596 10345
12/04 11878 11089
06/05 12238 10999
12/05 12660 11633
06/06 13388 11948
12/06 15206 13471
06/07 15615 14409
12/07 14687 14211
06/08 13255 12518
12/08 11136 8954
06/09 11002 9237
12/09 13316 11323
06/10 12932 10570
12/10 15456 13030
06/11 16713 13814
12/11 16852 13304
06/12 17919 14567
12/12 18734 15434
06/13 21336 17567
12/13 23711 20432
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the index does not actually hold a portfolio of securities and
therefore does not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 136 6 0 0
01/01/10 - 12/31/10 180 0 0 0
01/01/11 - 12/31/11 218 1 0 0
01/01/12 - 12/31/12 205 0 0 0
01/01/13 - 12/31/13 238 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 107 3 0 0
01/01/10 - 12/31/10 72 0 0 0
01/01/11 - 12/31/11 33 0 0 0
01/01/12 - 12/31/12 44 1 0 0
01/01/13 - 12/31/13 14 0 0 0
Page 19
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
The First Trust Value Line(R) 100 Exchange-Traded Fund seeks investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the Value Line(R) 100 Index(TM) (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks that comprise the Index. The Index is an equal-dollar weighted index that
is designed to objectively identify and select 100 stocks from the universe of
stocks to which Value Line(R) assigns a #1 ranking in the Value Line(R)
Timeliness(TM) Ranking System (the "Ranking System"). At any one time only 100
stocks are assigned a #1 ranking in the Ranking System. The Index is rebalanced
quarterly. The Fund's shares are listed for trading on the NYSE Arca.
----------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years 10 Years Inception 5 Years 10 Years Inception
Ended Ended Ended (6/12/03) Ended Ended (6/12/03)
12/31/13 12/31/13 12/31/13 to 12/31/13 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 39.44% 15.26% 5.25% 5.99% 103.46% 66.85% 84.75%
Market Value 39.68% 15.38% 5.33% 5.99% 104.46% 68.15% 84.86%
INDEX PERFORMANCE
Value Line(R) 100 Index(TM) 40.93% 16.35% N/A N/A 113.26% N/A N/A
Russell 3000(R)- Index 33.55% 18.71% 7.88% 8.77% 135.71% 113.59% 142.78%
----------------------------------------------------------------------------------------------------------------------------------
On June 15, 2007, the Fund acquired the assets and adopted the financial and
performance history of First Trust Value Line(R) 100 Fund (the "Predecessor
FVL Fund," a closed-end fund), which had an inception date of June 12, 2003.
The inception date total returns at NAV include the sales load of $0.675 per
share on the initial offering. The investment goals, strategies and policies
of the Fund are substantially similar to those of the Predecessor FVL Fund.
The inception date of the Index was January 16, 2007. Returns for the Index
are only disclosed for those periods in which the Index was in existence for
the entire period. The cumulative total returns for the period from the
reorganization date (06/15/07) through period end (12/31/13) were -25.89% for
both NAV and Market Value. That compares to an Index return of -23.11% for
that same period. The average annual total returns for the period from the
reorganization date (6/15/07) through period end (12/31/13) were -6.38% for
both NAV and Market Value. That compares to an Index return of -5.63% for the
same period.
NAV and Market Value returns assume that all dividend distributions have been
reinvested in the Fund at NAV and Market Value, respectively. Prior to June
15, 2007, NAV and Market Value returns assumed that all dividend distributions
were reinvested at prices obtained by the Dividend Reinvestment Plan of the
Predecessor FVL Fund and the price used to calculate Market Value return was
the AMEX (now known as the NYSE Mkt) closing market price of the Predecessor
FVL Fund.
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 39.44% during the 12-month period covered by
this report. During the same period, the benchmark Russell 3000(R) Index
generated a return of 33.55%. The Consumer Discretionary sector was the
top-contributing sector in the Fund with a 14.6% contribution to the Fund's
return. The Fund's holdings in the sector comprised an average of 26.6% of the
Fund's weight and had a strong return of 53.3% during the reporting period. Many
industries within the Consumer Discretionary sector had strong returns including
the Diversified Consumer Services (+89.8%), Hotels, Restaurants & Leisure
(+69.7%), and Specialty Retail (+69.3%) industries. The Industrials sector was
the second-best contributing sector in the Fund with an 8.3% contribution to the
Fund's return. The Fund's holdings in the sector returned 51.4% and comprised an
average of 17.8% of the Fund's weight. Like the Consumer Discretionary the
performance in the Industrials sector was spread over multiple industries. The
strongest returns came from the Professional Services (+74.6%), Aerospace &
Defense (+58.4%), and the Building Products (+57.6%) industries. The Consumer
Discretionary and Industrials sectors were also the cause of the Fund
outperforming its benchmark. In both of the sectors the Fund received better
performance than the benchmark, and the Fund was overweight relative to the
benchmark.
-------------------
"Value Line(R)" and "Value Line(R) 100 Index(TM)" are trademarks of Value
Line(R), Inc. and have been licensed for use for certain purposes by First Trust
on behalf of the Fund. The Fund, based on the Value Line(R) 100 Index(TM), is
not sponsored, endorsed, sold, or promoted by Value Line(R), Inc., and Value
Line(R) makes no representation regarding the advisability of investing in the
Fund.
Page 20
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 18.65%
Energy 18.19
Industrials 15.87
Consumer Discretionary 14.81
Financials 13.00
Materials 8.44
Health Care 5.60
Telecommunication Services 3.35
Utilities 2.09
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Goodyear Tire & Rubber (The) Co. 1.38%
Amkor Technology, Inc. 1.35
Global Payments, Inc. 1.25
Southwest Airlines Co. 1.24
AK Steel Holding Corp. 1.22
Alpha Natural Resources, Inc. 1.22
Navigant Consulting, Inc. 1.21
Level 3 Communications, Inc. 1.20
Barrick Gold Corp. 1.18
Elbit Systems Ltd. 1.17
-------
Total 12.42%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2003 - DECEMBER 31, 2013
First Trust Value Line(R) 100 Russell 3000(R)
Exchange-Traded Fund Index
12/03 $10000 $10000
06/04 10320 10359
12/04 11306 11195
06/05 11424 11194
12/05 12646 11880
06/06 12919 12264
12/06 13227 13745
06/07 14772 14722
12/07 15860 14449
06/08 14506 12853
12/08 8201 9059
06/09 7882 9438
12/09 9246 11625
06/10 9166 10922
12/10 11974 13594
06/11 12653 14457
12/11 11026 13733
06/12 11334 15013
12/12 11966 15987
06/13 13749 18235
12/13 16686 21351
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the index does not actually hold a portfolio of securities and
therefore does not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 67 5 0 0
01/01/10 - 12/31/10 149 0 0 0
01/01/11 - 12/31/11 137 2 0 0
01/01/12 - 12/31/12 73 0 0 0
01/01/13 - 12/31/13 100 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 176 4 0 0
01/01/10 - 12/31/10 103 0 0 0
01/01/11 - 12/31/11 111 2 0 0
01/01/12 - 12/31/12 177 0 0 0
01/01/13 - 12/31/13 152 0 0 0
Page 21
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Value") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of the Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and Market Value returns assume that all dividend
distributions have been reinvested in the Fund at NAV and Market Value,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike a Fund, an index does not actually hold a portfolio of securities
and therefore does not incur the expenses incurred by each Fund. These expenses
negatively impact the performance of each Fund. Also, market returns do not
include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future results.
Page 22
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2013 (UNAUDITED)
As a shareholder of First Trust Dow Jones Select MicroCap Index(SM) Fund, First
Trust Morningstar Dividend Leaders(SM) Index Fund, First Trust US IPO Index
Fund, First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones
Internet Index(SM) Fund, First Trust Capital Strength ETF, First Trust Value
Line(R) Equity Allocation Index Fund, First Trust Value Line(R) Dividend Index
Fund and First Trust Value Line(R) 100 Exchange-Traded Fund (each a "Fund" and
collectively, the "Funds"), you incur two types of costs: (1) transaction costs;
and (2) ongoing costs, including management fees, distribution and/or service
fees, if any, and other Fund expenses. This Example is intended to help you
understand your ongoing costs of investing in the Funds and to compare these
costs with the ongoing costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2013.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
------------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSE PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b)
------------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM)
FUND (FDM)
Actual $1,000.00 $1,232.90 0.60% $3.38
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX
FUND (FDL)
Actual $1,000.00 $1,076.90 0.45% $2.36
Hypothetical (5% return before expenses) $1,000.00 $1,022.94 0.45% $2.29
FIRST TRUST US IPO INDEX FUND (FPX)
Actual $1,000.00 $1,267.10 0.60% $3.43
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX
FUND (FBT)
Actual $1,000.00 $1,189.10 0.60% $3.31
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN)
Actual $1,000.00 $1,319.20 0.57% $3.33
Hypothetical (5% return before expenses) $1,000.00 $1,022.33 0.57% $2.91
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
Actual $1,000.00 $1,165.00 0.65% $3.55
Hypothetical (5% return before expenses) $1,000.00 $1,021.93 0.65% $3.31
Page 23
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
DECEMBER 31, 2013 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSE PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b)
------------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX
FUND (FVI)
Actual $1,000.00 $1,176.70 0.70% $3.84
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
Actual $1,000.00 $1,111.30 0.70% $3.73
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED
FUND (FVL)
Actual $1,000.00 $1,213.60 0.70% $3.91
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
(a) These expense ratios reflect expense caps.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2013 through December 31, 2013), multiplied by 184/365 (to reflect the
one-half year period).
Page 24
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 2.6%
12,565 Astronics Corp. (a) $ 640,815
8,349 Ducommun, Inc. (a) 248,884
14,351 Engility Holdings, Inc. (a) 479,323
4,080 National Presto Industries,
Inc. (a) 328,440
43,192 Taser International, Inc. (a) 685,889
--------------
2,383,351
--------------
AIR FREIGHT & LOGISTICS -- 1.1%
42,549 Air Transport Services Group,
Inc. (a) 344,221
11,922 Echo Global Logistics, Inc. (a) 256,085
7,210 Park-Ohio Holdings Corp. (a) 377,804
--------------
978,110
--------------
AIRLINES -- 0.5%
43,628 Hawaiian Holdings, Inc. (a) 420,138
--------------
AUTO COMPONENTS -- 1.2%
28,890 Gentherm, Inc. (a) 774,541
11,728 Remy International, Inc. 273,497
--------------
1,048,038
--------------
AUTOMOBILES -- 0.7%
23,216 Winnebago Industries, Inc. (a) 637,279
--------------
BEVERAGES -- 0.3%
3,852 Coca-Cola Bottling Co.
Consolidated 281,928
--------------
BUILDING PRODUCTS -- 1.1%
36,866 Griffon Corp. 487,000
8,095 Patrick Industries, Inc. (a) 234,188
26,122 PGT, Inc. (a) 264,355
--------------
985,543
--------------
CAPITAL MARKETS -- 1.8%
15,901 Calamos Asset Management, Inc.,
Class A 188,268
2,175 Diamond Hill Investment Group,
Inc. 257,390
7,361 FBR & Co. (a) 194,183
30,073 FXCM, Inc., Class A 536,502
12,021 INTL FCStone, Inc. (a) 222,869
11,354 Manning & Napier, Inc. 200,398
--------------
1,599,610
--------------
CHEMICALS -- 2.0%
6,081 American Pacific Corp. (a) 226,578
18,770 FutureFuel Corp. 296,566
7,861 Hawkins, Inc. 292,351
22,059 Landec Corp. (a) 267,355
39,248 Omnova Solutions, Inc. (a) 357,549
22,340 Zoltek Cos., Inc. (a) 374,195
--------------
1,814,594
--------------
COMMERCIAL BANKS -- 17.0%
11,141 1st Source Corp. 355,844
4,080 Bank of Marin Bancorp 177,031
13,100 City Holding Co. 606,923
29,463 CoBiz Financial, Inc. 352,377
12,371 Community Trust Bancorp, Inc. 558,674
18,694 Eagle Bancorp, Inc. (b) 572,597
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMERCIAL BANKS (CONTINUED)
12,738 Fidelity Southern Corp. $ 211,578
59,973 First Busey Corp. 347,843
12,255 First Community Bancshares, Inc. 204,659
8,644 First Financial Corp. 316,025
20,051 First Financial Holdings, Inc. 1,333,592
29,903 First Merchants Corp. 680,592
24,322 Flushing Financial Corp. 503,465
26,445 Hanmi Financial Corp. 578,881
11,773 Heartland Financial USA, Inc. 338,945
13,749 Hudson Valley Holding Corp. 279,792
27,156 Lakeland Bancorp, Inc. 335,920
13,712 Lakeland Financial Corp. 534,768
10,727 Metro Bancorp, Inc. (a) 231,060
11,369 Pacific Premier Bancorp,
Inc. (a) 178,948
26,118 Renasant Corp. 821,672
10,038 Republic Bancorp, Inc., Class A 246,333
11,403 S.Y. Bancorp, Inc. 363,984
20,809 Sandy Spring Bancorp, Inc. 586,606
13,493 Simmons First National Corp.,
Class A 501,265
13,565 Southside Bancshares, Inc. 370,867
65,654 Sterling Bancorp 877,794
12,703 Taylor Capital Group, Inc. (a) 337,646
9,800 Tompkins Financial Corp. 503,622
11,113 TriCo Bancshares 315,276
17,020 Union First Market Bankshares
Corp. 422,266
23,228 Virginia Commerce Bancorp,
Inc. (a) 394,644
11,751 Washington Trust Bancorp, Inc. 437,372
56,508 Wilshire Bancorp, Inc. 617,632
--------------
15,496,493
--------------
COMMERCIAL SERVICES &
SUPPLIES -- 3.3%
12,782 CECO Environmental Corp. 206,685
6,697 Consolidated Graphics, Inc. (a) 451,646
21,837 Ennis, Inc. 386,515
26,886 Kimball International, Inc.,
Class B 404,097
10,379 Multi-Color Corp. 391,703
22,861 Performant Financial Corp. (a) 235,468
13,687 SP Plus Corp. (a) 356,410
16,544 US Ecology, Inc. 615,271
--------------
3,047,795
--------------
COMMUNICATIONS EQUIPMENT -- 1.7%
9,933 Anaren, Inc. (a) 278,025
13,238 Black Box Corp. 394,492
13,380 Comtech Telecommunications Corp. 421,738
14,969 Oplink Communications, Inc. (a) 278,423
4,729 TESSCO Technologies, Inc. 190,673
--------------
1,563,351
--------------
CONSTRUCTION & ENGINEERING
-- 1.4%
31,221 Furmanite Corp. (a) 331,567
17,621 MYR Group, Inc. (a) 441,935
7,869 Northwest Pipe Co. (a) 297,133
21,185 Pike Electric Corp. (a) 223,926
--------------
1,294,561
--------------
See Notes to Financial Statements Page 25
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CONSTRUCTION MATERIALS -- 0.1%
1,529 United States Lime & Minerals,
Inc. (a) $ 93,529
--------------
CONSUMER FINANCE -- 0.4%
11,872 Consumer Portfolio Services,
Inc. (a) 111,478
8,088 Regional Management Corp. (a) 274,426
--------------
385,904
--------------
CONTAINERS & PACKAGING -- 0.5%
22,281 Myers Industries, Inc. 470,575
--------------
DISTRIBUTORS -- 0.3%
16,379 VOXX International Corp. (a) 273,529
--------------
DIVERSIFIED CONSUMER
SERVICES -- 2.2%
14,591 American Public Education,
Inc. (a) 634,271
9,186 Capella Education Co. 610,318
13,067 Carriage Services, Inc. 255,198
15,181 ITT Educational Services,
Inc. (a) 509,778
--------------
2,009,565
--------------
DIVERSIFIED FINANCIAL
SERVICES -- 0.3%
11,875 Gain Capital Holdings, Inc. 89,181
8,014 Marlin Business Services Corp. 201,953
--------------
291,134
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 2.6%
31,067 Consolidated Communications
Holdings, Inc. 609,845
25,609 General Communication, Inc.,
Class A (a) 285,540
24,930 Inteliquent, Inc. 284,701
14,856 Lumos Networks Corp. 311,976
36,642 Premiere Global Services,
Inc. (a) 424,681
143,542 Vonage Holdings Corp. (a) 477,995
--------------
2,394,738
--------------
ELECTRIC UTILITIES -- 0.4%
10,713 Unitil Corp. 326,639
--------------
ELECTRICAL EQUIPMENT -- 1.0%
7,473 Coleman Cable, Inc. 195,942
7,676 Powell Industries, Inc. 514,215
2,499 Preformed Line Products Co. 182,827
--------------
892,984
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 3.5%
8,021 Audience, Inc. (a) 93,364
11,973 Badger Meter, Inc. 652,529
14,388 Electro Rent Corp. 266,466
21,695 Fabrinet (a) 446,049
14,253 FARO Technologies, Inc. (a) 830,950
17,365 Park Electrochemical Corp. 498,723
14,384 PC Connection, Inc. 357,442
--------------
3,145,523
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
ENERGY EQUIPMENT &
SERVICES -- 3.4%
6,706 Dawson Geophysical Co. (a) $ 226,797
15,636 Era Group, Inc. (a) 482,527
21,813 Matrix Service Co. (a) 533,764
10,691 Mitcham Industries, Inc. (a) 189,338
10,331 Natural Gas Services Group,
Inc. (a) 284,826
10,825 PHI Inc. (a) 469,805
8,606 RigNet, Inc. (a) 412,485
26,055 Tesco Corp. (a) 515,368
--------------
3,114,910
--------------
FOOD & STAPLES RETAILING -- 2.0%
15,208 Chefs' Warehouse (The), Inc. (a) 443,465
8,909 Ingles Markets, Inc., Class A 241,434
23,773 Roundy's, Inc. 234,402
30,525 Spartan Stores, Inc. 741,147
4,151 Village Super Market, Inc.,
Class A 128,722
--------------
1,789,170
--------------
FOOD PRODUCTS -- 0.6%
10,777 Calavo Growers, Inc. 326,112
5,906 Seneca Foods Corp., Class A (a) 188,342
--------------
514,454
--------------
GAS UTILITIES -- 0.5%
8,022 Chesapeake Utilities Corp. 481,480
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.9%
21,138 AngioDynamics, Inc. (a) 363,362
9,442 Anika Therapeutics, Inc. (a) 360,307
16,225 Cynosure, Inc., Class A (a) 432,883
33,819 Merit Medical Systems, Inc. (a) 532,311
23,208 Natus Medical, Inc. (a) 522,180
9,766 PhotoMedex, Inc. (a) 126,470
12,757 Vascular Solutions, Inc. (a) 295,324
--------------
2,632,837
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 4.1%
4,817 Addus HomeCare Corp. (a) 108,142
27,033 Amedisys, Inc. (a) 395,493
38,316 AMN Healthcare Services,
Inc. (a) 563,245
35,377 Five Star Quality Care, Inc. (a) 194,220
23,860 Gentiva Health Services,
Inc. (a) 296,103
10,115 LHC Group, Inc. (a) 243,165
7,262 National Healthcare Corp. 391,494
24,508 PharMerica Corp. (a) 526,922
8,997 Providence Service Corp. (a) 231,403
16,977 Skilled Healthcare Group, Inc.,
Class A (a) 81,659
19,314 Triple-S Management Corp.,
Class B (a) 375,464
10,083 U.S. Physical Therapy, Inc. 355,526
--------------
3,762,836
--------------
HEALTH CARE TECHNOLOGY -- 0.6%
8,736 Computer Programs & Systems,
Inc. 539,972
--------------
Page 26 See Notes to Financial Statements
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOTELS, RESTAURANTS &
LEISURE -- 3.6%
1,218 Biglari Holdings, Inc. (a) $ 617,087
14,858 Bravo Brio Restaurant Group,
Inc. (a) 241,740
19,833 Del Frisco's Restaurant Group,
Inc. (a) 467,464
74,316 Denny's Corp. (a) 534,332
8,781 Einstein Noah Restaurant Group,
Inc. 127,324
5,768 Ignite Restaurant Group,
Inc. (a) 72,100
15,095 Marcus (The) Corp. 202,877
8,095 Monarch Casino & Resort,
Inc. (a) 162,548
2,569 Nathan's Famous, Inc. (a) 129,503
29,648 Ruth's Hospitality Group, Inc. 421,298
18,068 Town Sports International
Holdings, Inc. 266,684
--------------
3,242,957
--------------
HOUSEHOLD DURABLES -- 1.0%
17,737 Libbey, Inc. (a) 372,477
12,952 Universal Electronics, Inc. (a) 493,601
--------------
866,078
--------------
HOUSEHOLD PRODUCTS -- 0.2%
5,153 Orchids Paper Products Co. 169,225
--------------
INSURANCE -- 2.5%
15,410 AMERISAFE, Inc. 650,918
8,424 HCI Group Inc. 450,684
38,637 Meadowbrook Insurance Group,
Inc. 268,913
17,983 United Fire Group, Inc. 515,393
24,016 Universal Insurance Holdings,
Inc. 347,752
--------------
2,233,660
--------------
INTERNET & CATALOG RETAIL -- 0.4%
19,834 1-800-FLOWERS.COM, Inc.,
Class A (a) 107,302
16,814 PetMed Express, Inc. 279,617
--------------
386,919
--------------
INTERNET SOFTWARE &
SERVICES -- 1.2%
27,507 Perficient, Inc. (a) 644,214
6,397 Travelzoo, Inc. (a) 136,384
20,680 XO Group, Inc. (a) 307,305
--------------
1,087,903
--------------
IT SERVICES -- 2.2%
11,769 Computer Task Group, Inc. 222,434
16,615 Datalink Corp. (a) 181,103
54,521 Global Cash Access Holdings,
Inc. (a) 544,665
27,022 Higher One Holdings, Inc. (a) 263,735
19,623 Virtusa Corp. (a) 747,440
--------------
1,959,377
--------------
LEISURE EQUIPMENT &
PRODUCTS -- 0.2%
23,869 Nautilus, Inc. (a) 201,216
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
LIFE SCIENCES TOOLS &
SERVICES -- 0.7%
15,535 Albany Molecular Research,
Inc. (a) $ 156,593
25,189 Cambrex Corp. (a) 449,120
--------------
605,713
--------------
MACHINERY -- 6.0%
6,137 Alamo Group, Inc. 372,455
22,459 Altra Industrial Motion Corp. 768,547
15,088 Columbus McKinnon Corp. (a) 409,488
10,886 Dynamic Materials Corp. 236,662
52,195 Federal Signal Corp. (a) 764,657
8,377 Graham Corp. 304,001
20,105 Greenbrier (The) Cos., Inc. (a) 660,248
22,669 John Bean Technologies Corp. 664,882
9,280 Kadant, Inc. 376,026
8,085 L.B. Foster Co., Class A 382,340
13,983 Lydall, Inc. (a) 246,380
14,534 NN, Inc. 293,441
--------------
5,479,127
--------------
MEDIA -- 1.6%
54,151 Entravision Communications
Corp., Class A 329,779
38,894 Gray Television, Inc. (a) 578,743
36,463 Harte-Hanks, Inc. 285,141
33,083 Journal Communications, Inc.,
Class A (a) 308,003
--------------
1,501,666
--------------
METALS & MINING -- 1.2%
10,271 Haynes International, Inc. 567,370
17,172 Materion Corp. 529,756
--------------
1,097,126
--------------
MULTILINE RETAIL -- 0.6%
28,450 Fred's, Inc., Class A 526,894
7,441 Gordmans Stores, Inc. 57,072
--------------
583,966
--------------
OIL, GAS & CONSUMABLE
FUELS -- 0.3%
1,756 Adams Resources & Energy, Inc. 120,286
57,627 Warren Resources, Inc. (a) 180,949
--------------
301,235
--------------
PAPER & FOREST PRODUCTS -- 0.6%
13,491 Neenah Paper, Inc. 577,010
--------------
PERSONAL PRODUCTS -- 0.5%
97,945 Lifevantage Corp. (a) 161,609
10,638 Medifast, Inc. (a) 277,971
--------------
439,580
--------------
PHARMACEUTICALS -- 0.5%
6,929 Cornerstone Therapeutics,
Inc. (a) 65,756
9,186 Hi-Tech Pharmacal Co., Inc. 398,581
--------------
464,337
--------------
See Notes to Financial Statements Page 27
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PROFESSIONAL SERVICES -- 3.8%
31,182 CBIZ, Inc. (a) $ 284,380
11,665 Franklin Covey Co. (a) 231,900
15,945 GP Strategies Corp. (a) 475,002
16,565 ICF International, Inc. (a) 574,971
23,875 Kforce, Inc. 488,483
41,200 Navigant Consulting, Inc. (a) 791,040
33,083 Resources Connection, Inc. 474,079
3,420 VSE Corp. 164,194
--------------
3,484,049
--------------
ROAD & RAIL -- 0.8%
18,500 Celadon Group, Inc. 360,380
19,659 Marten Transport Ltd. 396,915
--------------
757,295
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 1.2%
37,991 Micrel, Inc. 374,971
51,103 Photronics, Inc. (a) 461,460
23,805 Ultra Clean Holdings, Inc. (a) 238,764
--------------
1,075,195
--------------
SOFTWARE -- 0.7%
25,186 EPIQ Systems, Inc. 408,265
3,266 ePlus Inc. 185,639
--------------
593,904
--------------
SPECIALTY RETAIL -- 2.6%
6,759 America's Car-Mart, Inc. (a) 285,432
14,852 Big 5 Sporting Goods Corp. 294,367
12,899 Body Central Corp. (a) 50,822
10,161 Destination Maternity Corp. 303,611
35,204 Destination XL Group, Inc. (a) 231,290
12,171 hhgregg, Inc. (a) 170,029
12,497 Kirkland's, Inc. (a) 295,804
11,945 Shoe Carnival, Inc. 346,524
23,364 Stein Mart, Inc. 314,246
8,395 Tilly's, Inc., Class A (a) 96,123
--------------
2,388,248
--------------
TEXTILES, APPAREL & LUXURY
GOODS -- 0.7%
6,835 Culp, Inc. 139,776
10,316 Perry Ellis International, Inc. 162,890
12,273 Unifi, Inc. (a) 334,316
--------------
636,982
--------------
THRIFTS & MORTGAGE
FINANCE -- 3.9%
21,031 Berkshire Hills Bancorp, Inc. 573,515
58,535 Brookline Bancorp, Inc. 560,180
24,384 Dime Community Bancshares, Inc. 412,577
8,149 First Defiance Financial Corp. 211,630
19,463 Rockville Financial, Inc. 276,569
7,327 Territorial Bancorp, Inc. 169,987
78,661 TrustCo Bank Corp. 564,786
14,853 United Financial Bancorp, Inc. 280,573
SHARES DESCRIPTION VALUE
------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE
(CONTINUED)
6,707 WSFS Financial Corp. $ 519,994
--------------
3,569,811
--------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.8%
22,025 Aceto Corp. 550,845
14,941 Houston Wire & Cable Co. 199,911
--------------
750,756
--------------
WATER UTILITIES -- 1.0%
9,146 Connecticut Water Service, Inc. 324,774
13,258 Middlesex Water Co. 277,623
10,914 SJW Corp. 325,128
--------------
927,525
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.1%
12,716 NTELOS Holdings Corp. 257,245
18,800 Shenandoah Telecommunications
Co. 482,596
18,032 USA Mobility, Inc. 257,497
--------------
997,338
--------------
TOTAL INVESTMENTS -- 100.0% 91,048,768
(Cost $75,379,511) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 31,288
--------------
NET ASSETS -- 100.0% $ 91,080,056
==============
(a) Non-income producing security.
(b) Non-income producing security which pays in-kind distributions.
(c) Aggregate cost for federal income tax purposes is $75,947,317. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$16,194,189 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,092,738.
Page 28 See Notes to Financial Statements
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 91,048,768 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
See Notes to Financial Statements Page 29
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 3.3%
102,109 Lockheed Martin Corp. $ 15,179,524
81,304 Raytheon Co. 7,374,273
--------------
22,553,797
--------------
CAPITAL MARKETS -- 0.2%
35,918 Federated Investors, Inc.,
Class B 1,034,438
8,215 Greenhill & Co., Inc. 475,977
--------------
1,510,415
--------------
CHEMICALS -- 2.5%
269,812 E.I. du Pont de Nemours & Co. 17,529,686
--------------
COMMERCIAL BANKS -- 0.6%
13,779 Bank of Hawaii Corp. 814,890
11,771 Community Bank System, Inc. 467,073
22,590 Hancock Holding Co. 828,601
5,891 Park National Corp. 501,148
5,148 Sterling Financial Corp. 175,444
22,886 Trustmark Corp. 614,260
17,903 United Bankshares, Inc. 563,049
7,458 Westamerica Bancorporation 421,079
--------------
4,385,544
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.2%
97,231 R.R. Donnelley & Sons Co. 1,971,844
142,348 Waste Management, Inc. 6,387,155
--------------
8,358,999
--------------
COMPUTERS & PERIPHERALS -- 1.0%
22,678 Diebold, Inc. 748,601
110,062 Seagate Technology PLC 6,181,082
--------------
6,929,683
--------------
CONTAINERS & PACKAGING -- 0.3%
9,727 Greif, Inc., Class A 509,695
30,268 Sonoco Products Co. 1,262,781
--------------
1,772,476
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 20.7%
1,965,236 AT&T, Inc. 69,097,698
413,468 CenturyLink, Inc. 13,168,956
1,224,412 Verizon Communications, Inc. 60,167,605
--------------
142,434,259
--------------
ELECTRIC UTILITIES -- 15.6%
14,187 ALLETE, Inc. 707,648
208,118 American Electric Power Co.,
Inc. 9,727,435
315,442 Duke Energy Corp. 21,768,652
95,195 Entergy Corp. 6,022,988
280,247 FirstEnergy Corp. 9,242,546
48,176 Hawaiian Electric Industries,
Inc. 1,255,467
133,152 NextEra Energy, Inc. 11,400,474
110,549 Northeast Utilities 4,686,172
15,101 Otter Tail Corp. 442,006
141,329 Pepco Holdings, Inc. 2,703,624
46,501 Pinnacle West Capital Corp. 2,460,833
SHARES DESCRIPTION VALUE
------------------------------------------------------------
ELECTRIC UTILITIES (CONTINUED)
28,590 Portland General Electric Co. $ 863,418
310,056 PPL Corp. 9,329,585
431,020 Southern (The) Co. 17,719,232
25,746 UIL Holdings Corp. 997,657
15,410 UNS Energy Corp. 922,289
54,065 Westar Energy, Inc. 1,739,271
197,602 Xcel Energy, Inc. 5,521,000
--------------
107,510,297
--------------
FOOD & STAPLES RETAILING -- 0.9%
174,481 Sysco Corp. 6,298,764
--------------
FOOD PRODUCTS -- 0.1%
20,016 B&G Foods, Inc. 678,743
--------------
GAS UTILITIES -- 1.0%
48,294 AGL Resources, Inc. 2,280,926
29,953 Atmos Energy Corp. 1,360,465
11,421 Laclede Group (The), Inc. 520,112
15,601 New Jersey Resources Corp. 721,390
11,691 Northwest Natural Gas Co. 500,609
28,768 Piedmont Natural Gas Co., Inc. 953,947
22,022 WGL Holdings, Inc. 882,201
--------------
7,219,650
--------------
HOTELS, RESTAURANTS &
LEISURE -- 0.5%
54,502 Darden Restaurants, Inc. 2,963,274
5,842 DineEquity, Inc. 488,099
--------------
3,451,373
--------------
HOUSEHOLD DURABLES -- 0.6%
44,971 Garmin Ltd. 2,078,560
57,628 Leggett & Platt, Inc. 1,783,010
--------------
3,861,570
--------------
HOUSEHOLD PRODUCTS -- 1.8%
115,255 Kimberly-Clark Corp. 12,039,537
--------------
INSURANCE -- 1.0%
47,126 Cincinnati Financial Corp. 2,467,988
18,218 Mercury General Corp. 905,617
104,641 Old Republic International Corp. 1,807,150
11,782 OneBeacon Insurance Group Ltd.,
Class A 186,391
66,910 Tower Group International, Ltd. 226,156
31,231 Validus Holdings Ltd. 1,258,297
--------------
6,851,599
--------------
IT SERVICES -- 0.7%
103,658 Paychex, Inc. 4,719,549
--------------
LEISURE EQUIPMENT &
PRODUCTS -- 0.3%
35,029 Hasbro, Inc. 1,926,945
--------------
MACHINERY -- 0.1%
24,623 Harsco Corp. 690,183
--------------
MEDIA -- 0.1%
11,970 Meredith Corp. 620,046
--------------
Page 30 See Notes to Financial Statements
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
METALS & MINING -- 2.9%
37,449 Cliffs Natural Resources, Inc. $ 981,538
368,550 Freeport-McMoRan Copper &
Gold, Inc. 13,909,077
207,516 Newmont Mining Corp. 4,779,094
--------------
19,669,709
--------------
MULTI-UTILITIES -- 9.5%
40,420 Alliant Energy Corp. 2,085,672
26,634 Avista Corp. 750,812
13,322 Black Hills Corp. 699,538
152,368 CenterPoint Energy, Inc. 3,531,890
102,193 CMS Energy Corp. 2,735,707
129,469 Consolidated Edison, Inc. 7,157,046
201,578 Dominion Resources, Inc. 13,040,081
67,971 DTE Energy Co. 4,512,595
40,065 Integrys Energy Group, Inc. 2,179,937
99,321 NiSource, Inc. 3,265,675
13,745 NorthWestern Corp. 595,433
197,011 PG&E Corp. 7,935,603
223,685 Public Service Enterprise Group,
Inc. 7,166,867
60,078 SCANA Corp. 2,819,461
104,591 TECO Energy, Inc. 1,803,149
34,280 Vectren Corp. 1,216,940
84,026 Wisconsin Energy Corp. 3,473,635
--------------
64,970,041
--------------
OIL, GAS & CONSUMABLE FUELS --
15.5%
514,878 Chevron Corp. 64,313,411
477,997 ConocoPhillips 33,770,488
241,219 Spectra Energy Corp. 8,592,221
--------------
106,676,120
--------------
PHARMACEUTICALS -- 10.1%
380,500 Eli Lilly & Co. 19,405,500
1,006,315 Merck & Co., Inc. 50,366,066
--------------
69,771,566
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 7.6%
1,796,919 Intel Corp. 46,648,017
106,108 Maxim Integrated Products, Inc. 2,961,474
64,960 Microchip Technology, Inc. 2,906,960
--------------
52,516,451
--------------
SOFTWARE -- 0.5%
98,754 CA, Inc. 3,323,072
--------------
THRIFTS & MORTGAGE FINANCE --
1.0%
267,822 New York Community Bancorp, Inc. 4,512,800
138,956 People's United Financial, Inc. 2,101,015
16,847 Provident Financial Services,
Inc. 325,484
--------------
6,939,299
--------------
TOBACCO -- 0.1%
8,957 Universal Corp. 489,052
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.2%
17,804 TAL International Group, Inc. $ 1,021,059
8,243 Textainer Group Holdings Ltd. 331,534
--------------
1,352,593
--------------
TOTAL INVESTMENTS -- 99.9% 687,051,018
(Cost $628,398,302) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 385,702
--------------
NET ASSETS -- 100.0% $ 687,436,720
==============
(a) Aggregate cost for federal income tax purposes is $632,638,022. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$63,353,571 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$8,940,575.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 687,051,018 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
See Notes to Financial Statements Page 31
FIRST TRUST US IPO INDEX FUND (FPX)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 0.9%
73,455 Exelis, Inc. $ 1,400,052
19,206 Huntington Ingalls Industries,
Inc. 1,728,732
--------------
3,128,784
--------------
AIRLINES -- 0.4%
28,257 Spirit Airlines, Inc. (a) 1,283,150
--------------
AUTO COMPONENTS -- 2.6%
70,943 Allison Transmission Holdings,
Inc. 1,958,736
119,698 Delphi Automotive PLC 7,197,441
--------------
9,156,177
--------------
AUTOMOBILES -- 9.1%
609,160 General Motors Co. (a) 24,896,369
47,243 Tesla Motors, Inc. (a) (b) 7,104,403
--------------
32,000,772
--------------
BIOTECHNOLOGY -- 0.4%
11,375 Aegerion Pharmaceuticals,
Inc. (a) 807,170
11,737 Clovis Oncology, Inc. (a) 707,389
--------------
1,514,559
--------------
BUILDING PRODUCTS -- 0.8%
64,654 Fortune Brands Home &
Security, Inc. 2,954,688
--------------
CAPITAL MARKETS -- 1.6%
55,901 Apollo Global Management LLC,
Class A (a) (c) 1,767,031
19,173 Carlyle Group L.P. (The) (c) 682,942
19,610 Financial Engines, Inc. 1,362,503
39,566 LPL Financial Holdings, Inc. 1,860,789
--------------
5,673,265
--------------
COMMERCIAL BANKS -- 1.1%
39,258 BankUnited, Inc. 1,292,373
51,417 First Republic Bank 2,691,680
--------------
3,984,053
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.7%
53,697 KAR Auction Services, Inc. 1,586,746
32,525 West Corp. 836,218
--------------
2,422,964
--------------
COMMUNICATIONS EQUIPMENT
-- 0.5%
28,198 Palo Alto Networks, Inc. (a) 1,620,539
--------------
CONTAINERS & PACKAGING -- 0.3%
45,084 Berry Plastics Group, Inc. (a) 1,072,548
--------------
DIVERSIFIED CONSUMER SERVICES --
0.3%
25,338 Bright Horizons Family
Solutions, Inc. (a) 930,918
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
-- 1.5%
33,919 CBOE Holdings, Inc. $ 1,762,431
101,453 ING US, Inc. 3,566,073
--------------
5,328,504
--------------
ELECTRICAL EQUIPMENT -- 0.9%
43,098 Babcock & Wilcox (The) Co. 1,473,521
26,667 Generac Holdings, Inc. 1,510,419
--------------
2,983,940
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 0.5%
66,890 CDW Corp. 1,562,550
--------------
ENERGY EQUIPMENT & SERVICES
-- 0.8%
36,035 Forum Energy Technologies,
Inc. (a) 1,018,349
59,719 Frank's International N.V. 1,612,413
--------------
2,630,762
--------------
FOOD PRODUCTS -- 3.9%
231,785 Kraft Foods Group, Inc. 12,497,847
45,596 Pinnacle Foods, Inc. 1,252,066
--------------
13,749,913
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 0.2%
35,733 Globus Medical, Inc.,
Class A (a) 721,092
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 2.7%
173,955 HCA Holdings, Inc. (a) 8,299,393
27,173 Team Health Holdings, Inc. (a) 1,237,730
--------------
9,537,123
--------------
HOTELS, RESTAURANTS & LEISURE
-- 5.0%
89,404 ARAMARK Holdings Corp. (a) 2,344,173
48,422 Bloomin' Brands, Inc. (a) 1,162,612
136,629 Burger King Worldwide, Inc. 3,123,339
49,127 Caesars Entertainment Corp. (a) 1,058,196
41,495 Dunkin' Brands Group, Inc. 2,000,059
62,800 Hyatt Hotels Corp., Class A (a) 3,106,088
13,780 Marriott Vacations Worldwide
Corp. (a) 727,033
79,775 Norwegian Cruise Line Holdings
Ltd. (a) 2,829,619
36,286 Seaworld Entertainment, Inc. 1,043,948
--------------
17,395,067
--------------
INSURANCE -- 0.8%
41,115 First American Financial Corp. 1,159,443
21,329 Primerica, Inc. 915,228
45,824 Symetra Financial Corp. 868,823
--------------
2,943,494
--------------
Page 32 See Notes to Financial Statements
FIRST TRUST US IPO INDEX FUND (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET & CATALOG RETAIL -- 2.4%
257,954 Groupon, Inc. (a) $ 3,036,119
33,163 HomeAway, Inc. (a) 1,355,703
50,281 TripAdvisor, Inc. (a) 4,164,775
--------------
8,556,597
--------------
INTERNET SOFTWARE & SERVICES
-- 11.8%
29,865 AOL, Inc. (a) 1,392,306
20,241 Cornerstone OnDemand, Inc. (a) 1,079,655
625,366 Facebook, Inc., Class A (a) 34,182,506
68,626 Pandora Media, Inc. (a) 1,825,452
31,313 Twitter, Inc. (a) (b) 1,993,072
12,752 Zillow, Inc., Class A (a) 1,042,221
--------------
41,515,212
--------------
IT SERVICES -- 2.1%
55,349 Booz Allen Hamilton Holding
Corp. 1,059,933
31,994 FleetCor Technologies, Inc. (a) 3,748,737
75,867 Vantiv, Inc., Class A (a) 2,474,023
--------------
7,282,693
--------------
LIFE SCIENCES TOOL & SERVICES
-- 0.7%
50,153 Quintiles Transnational
Holdings, Inc. (a) 2,324,090
--------------
MACHINERY -- 1.0%
38,033 Rexnord Corp. (a) 1,027,271
71,763 Xylem, Inc. 2,483,000
--------------
3,510,271
--------------
MEDIA -- 2.0%
23,651 AMC Networks, Inc., Class A (a) 1,610,870
24,613 Madison Square Garden (The)
Co., Class A (a) 1,417,217
147,501 News Corp., Class A (a) 2,657,968
40,152 Starz, Class A (a) 1,174,044
--------------
6,860,099
--------------
MULTILINE RETAIL -- 2.1%
124,575 Dollar General Corp. (a) 7,514,364
--------------
OIL, GAS & CONSUMABLE FUELS
-- 17.0%
101,935 Antero Resources Corp. (a) 6,466,756
402,931 Kinder Morgan, Inc. 14,505,516
150,756 Kosmos Energy Ltd. (a) 1,685,452
55,477 Laredo Petroleum Holdings,
Inc. (a) 1,536,158
117,095 Marathon Petroleum Corp. 10,741,124
36,386 Oasis Petroleum, Inc. (a) 1,709,051
233,212 Phillips 66 17,987,642
69,738 QEP Resources, Inc. 2,137,470
16,465 Targa Resources Corp. 1,451,719
SHARES DESCRIPTION VALUE
------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
78,111 WPX Energy, Inc. (a) $ 1,591,902
--------------
59,812,790
--------------
PERSONAL PRODUCTS -- 0.7%
148,916 Coty, Inc., Class A 2,270,969
--------------
PHARMACEUTICALS -- 11.4%
618,824 AbbVie, Inc. 32,680,096
22,444 Mallinckrodt PLC (a) 1,172,923
194,493 Zoetis, Inc. 6,357,976
--------------
40,210,995
--------------
PROFESSIONAL SERVICES -- 3.1%
147,144 Nielsen Holdings N.V. 6,752,438
65,317 Verisk Analytics, Inc.,
Class A (a) 4,292,633
--------------
11,045,071
--------------
REAL ESTATE INVESTMENT TRUSTS
-- 0.5%
34,628 Gaming And Leisure Properties,
Inc. (a) 1,759,449
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 1.3%
15,393 Howard Hughes (The) Corp. (a) 1,848,700
56,796 Realogy Holdings Corp. (a) 2,809,698
--------------
4,658,398
--------------
ROAD & RAIL -- 0.2%
34,294 Swift Transportation Co. (a) (b) 761,670
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 1.7%
100,303 Freescale Semiconductor Ltd. (a) 1,609,863
97,928 NXP Semiconductors N.V. (a) 4,497,833
--------------
6,107,696
--------------
SOFTWARE -- 2.3%
22,330 Guidewire Software, Inc. (a) 1,095,733
53,966 ServiceNow, Inc. (a) 3,022,636
41,725 Splunk, Inc. (a) 2,865,256
256,609 Zynga, Inc., Class A (a) 975,114
--------------
7,958,739
--------------
SPECIALTY RETAIL -- 1.4%
29,408 CST Brands, Inc. 1,079,862
36,952 GNC Holdings, Inc., Class A 2,159,844
18,181 Murphy USA, Inc. (a) 755,602
15,135 Restoration Hardware Holdings,
Inc. (a) 1,018,586
--------------
5,013,894
--------------
TEXTILES, APPAREL & LUXURY
GOODS -- 1.8%
79,296 Michael Kors Holdings Ltd. (a) 6,438,042
--------------
See Notes to Financial Statements Page 33
FIRST TRUST US IPO INDEX FUND (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
THRIFTS & MORTGAGE FINANCE
-- 0.3%
47,677 EverBank Financial Corp. $ 874,396
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 1.2%
39,607 Air Lease Corp. 1,230,986
74,716 HD Supply Holdings, Inc. (a) 1,793,931
39,581 MRC Global, Inc. (a) 1,276,883
--------------
4,301,800
--------------
TOTAL COMMON STOCKS -- 100.0% 351,372,097
(Cost $301,517,153)
MONEY MARKET FUNDS -- 2.0%
6,932,352 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (d) (e) 6,932,352
(Cost $6,932,352) --------------
TOTAL INVESTMENTS -- 102.0% 358,304,449
(Cost $308,449,505) (f)
NET OTHER ASSETS AND
LIABILITIES -- (2.0)% (6,928,890)
--------------
NET ASSETS -- 100.0% $ 351,375,559
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan. (See Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $6,790,608 and the total value of the collateral held by the
Fund is $6,932,352.
(c) Master Limited Partnership ("MLP").
(d) Interest rate shown reflects yield as of December 31, 2013.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $309,624,284. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$49,314,527 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$634,362.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 351,372,097 $ -- $ --
Money Market
Funds 6,932,352 -- --
-----------------------------------------------
Total Investments $ 358,304,449 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
--------------------------------------------------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
----------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 6,790,608
Non-cash Collateral(2) (6,790,608)
----------------------------------------------------------
Net Amount $ --
==============
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
Page 34 See Notes to Financial Statements
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 98.6%
BIOTECHNOLOGY -- 76.9%
407,354 Alexion Pharmaceuticals,
Inc. (a) $ 54,202,523
384,498 Amgen, Inc. 43,894,292
161,536 Biogen Idec, Inc. (a) 45,189,696
644,848 BioMarin Pharmaceutical,
Inc. (a) 45,313,469
268,626 Celgene Corp. (a) 45,387,049
1,086,653 Cepheid, Inc. (a) 50,768,428
3,924,417 Exact Sciences Corp. (a) (b) 45,876,435
604,309 Gilead Sciences, Inc. (a) 45,413,821
2,594,948 ImmunoGen, Inc. (a) (b) 38,067,887
1,161,493 Incyte Corp. (a) 58,806,391
3,024,220 InterMune, Inc. (a) 44,546,761
1,768,249 Myriad Genetics, Inc. (a) (b) 37,097,864
334,795 Pharmacyclics, Inc. (a) 35,414,615
145,690 Regeneron Pharmaceuticals,
Inc. (a) 40,099,716
535,906 United Therapeutics Corp. (a) 60,600,250
573,603 Vertex Pharmaceuticals, Inc. (a) 42,618,703
--------------
733,297,900
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 16.6%
542,765 Illumina, Inc. (a) 60,040,664
2,102,473 QIAGEN N.V. (a) 50,059,882
509,612 Techne Corp. 48,244,968
--------------
158,345,514
--------------
PHARMACEUTICALS -- 5.1%
4,315,203 Nektar Therapeutics (a) 48,977,554
--------------
TOTAL COMMON STOCKS -- 98.6% 940,620,968
(Cost $744,347,853)
MONEY MARKET FUNDS -- 3.0%
28,862,685 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (c) (d) 28,862,685
(Cost $28,862,685) --------------
TOTAL INVESTMENTS -- 101.6% 969,483,653
(Cost $773,210,538) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.6)% (15,573,555)
--------------
NET ASSETS -- 100.0% $ 953,910,098
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan. (See Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $28,236,479 and the total value of the collateral held by
the Fund is $28,862,685.
(c) Interest rate shown reflects yield as of December 31, 2013.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $790,323,064. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$209,484,429 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$30,323,840.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 940,620,968 $ -- $ --
Money Market
Funds 28,862,685 -- --
-----------------------------------------------
Total Investments $ 969,483,653 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
--------------------------------------------------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
----------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 28,236,479
Non-cash Collateral(2) (28,236,479)
----------------------------------------------------------
Net Amount $ --
============
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
See Notes to Financial Statements Page 35
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
CAPITAL MARKETS -- 4.5%
2,094,540 E*TRADE Financial Corp. (a) $ 41,136,766
1,483,036 TD Ameritrade Holding Corp. 45,440,223
--------------
86,576,989
--------------
COMMUNICATIONS EQUIPMENT
-- 5.0%
2,448,304 Juniper Networks, Inc. (a) 55,258,221
675,785 NETGEAR, Inc. (a) 22,260,358
6,257,884 Sonus Networks, Inc. (a) 19,712,335
--------------
97,230,914
--------------
HEALTH CARE TECHNOLOGY -- 1.5%
1,857,831 Allscripts Healthcare Solutions,
Inc. (a) 28,722,067
--------------
INTERNET & CATALOG RETAIL
-- 23.2%
365,033 Amazon.com, Inc. (a) 145,571,510
671,941 Expedia, Inc. 46,807,410
3,310,594 Groupon, Inc. (a) 38,965,691
183,776 Netflix, Inc. (a) 67,660,810
85,529 priceline.com, Inc. (a) 99,418,910
589,573 TripAdvisor, Inc. (a) 48,834,332
--------------
447,258,663
--------------
INTERNET SOFTWARE & SERVICES
-- 53.1%
1,033,133 Akamai Technologies, Inc. (a) 48,743,215
554,820 Cornerstone OnDemand, Inc. (a) 29,594,099
587,250 Dealertrack Technologies,
Inc. (a) 28,234,980
831,732 Digital River, Inc. (a) 15,387,042
2,922,259 EarthLink, Inc. 14,815,853
1,951,044 eBay, Inc. (a) 107,092,805
279,536 Equinix, Inc. (a) 49,603,663
2,296,345 Facebook, Inc., Class A (a) 125,518,218
168,849 Google, Inc., Class A (a) 189,230,763
613,977 IAC/InterActiveCorp 42,174,080
571,240 j2 Global, Inc. (b) 28,567,712
293,738 LinkedIn Corp., Class A (a) 63,691,210
1,350,435 LivePerson, Inc. (a) 20,013,447
2,815,884 Monster Worldwide, Inc. (a) 20,077,253
311,051 OpenTable, Inc. (a) 24,688,118
1,004,922 Rackspace Hosting, Inc. (a) 39,322,598
740,563 United Online, Inc. 10,190,147
1,025,785 ValueClick, Inc. (a) 23,972,595
784,070 VeriSign, Inc. (a) 46,871,705
1,044,618 Vocus, Inc. (a) 11,898,199
2,129,918 Yahoo!, Inc. (a) 86,133,884
--------------
1,025,821,586
--------------
IT Services -- 1.4%
1,519,236 Sapient Corp. (a) 26,373,937
--------------
SOFTWARE -- 11.3%
385,346 Concur Technologies, Inc. (a) 39,760,000
1,015,683 Ebix, Inc. (b) 14,950,854
313,698 NetSuite, Inc. (a) 32,317,168
1,459,667 Salesforce.com, Inc. (a) 80,559,022
SHARES DESCRIPTION VALUE
------------------------------------------------------------
SOFTWARE (CONTINUED)
1,393,370 TIBCO Software, Inc. (a) $ 31,322,957
980,898 VirnetX Holding Corp. (a) (b) 19,039,230
--------------
217,949,231
--------------
TOTAL COMMON STOCKS --
100.0% 1,929,933,387
(Cost $1,490,948,390)
MONEY MARKET FUNDS -- 1.5%
28,281,130 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (c) (d) 28,281,130
(Cost $28,281,130) --------------
TOTAL INVESTMENTS -- 101.5% 1,958,214,517
(Cost $1,519,229,520) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.5)% (28,362,238)
--------------
NET ASSETS -- 100.0% $1,929,852,279
==============
(a) Non-income producing security.
(b) All or a portion of this security is on loan. (See Note 2D - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $27,627,746 and the total value of the collateral held by
the Fund is $28,281,130.
(c) Interest rate shown reflects yield as of December 31, 2013.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $1,547,255,123. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$442,145,819 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$31,186,425.
Page 36 See Notes to Financial Statements
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $1,929,933,387 $ -- $ --
Money Market
Funds 28,281,130 -- --
------------------------------------------------
Total Investment $1,958,214,517 $ -- $ --
================================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
--------------------------------------------------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
----------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 27,627,746
Non-cash Collateral(2) (27,627,746)
----------------------------------------------------------
Net Amount $ --
============
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
See Notes to Financial Statements Page 37
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 10.5%
14,528 Honeywell International, Inc. $ 1,327,423
9,533 Lockheed Martin Corp. 1,417,176
12,096 Northrop Grumman Corp. 1,386,322
15,988 Raytheon Co. 1,450,112
11,405 United Technologies Corp. 1,297,889
--------------
6,878,922
--------------
AIR FREIGHT & LOGISTICS -- 2.1%
13,213 United Parcel Service, Inc.,
Class B 1,388,422
--------------
BEVERAGES -- 3.9%
31,687 Coca-Cola (The) Co. 1,308,990
14,803 PepsiCo, Inc. 1,227,761
--------------
2,536,751
--------------
CHEMICALS -- 2.0%
20,611 E.I. du Pont de Nemours & Co. 1,339,097
--------------
COMMERCIAL BANKS -- 2.0%
32,406 U.S. Bancorp 1,309,202
--------------
COMMUNICATIONS EQUIPMENT --
4.1%
20,208 Motorola Solutions, Inc. 1,364,040
17,955 QUALCOMM, Inc. 1,333,159
--------------
2,697,199
--------------
ELECTRONIC EQUIPMENT,
INSTRUMENTS & COMPONENTS
-- 1.9%
22,939 TE Connectivity Ltd. 1,264,168
--------------
FOOD & STAPLES RETAILING -- 3.8%
10,446 Costco Wholesale Corp. 1,243,179
16,231 Wal-Mart Stores, Inc. 1,277,217
--------------
2,520,396
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 9.8%
32,953 Abbott Laboratories 1,263,089
18,618 Baxter International, Inc. 1,294,882
11,724 Becton, Dickinson & Co. 1,295,385
19,422 Covidien PLC 1,322,638
21,714 Medtronic, Inc. 1,246,166
--------------
6,422,160
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 4.2%
19,019 AmerisourceBergen Corp. 1,337,226
8,687 McKesson Corp. 1,402,082
--------------
2,739,308
--------------
HOTELS, RESTAURANTS & LEISURE
-- 1.9%
12,908 McDonald's Corp. 1,252,463
--------------
HOUSEHOLD PRODUCTS -- 5.8%
19,564 Colgate-Palmolive Co. 1,275,769
12,390 Kimberly-Clark Corp. 1,294,259
SHARES DESCRIPTION VALUE
------------------------------------------------------------
HOUSEHOLD PRODUCTS (CONTINUED)
15,474 Procter & Gamble (The) Co. $ 1,259,738
--------------
3,829,766
--------------
INDUSTRIAL CONGLOMERATES --
2.1%
10,003 3M Co. 1,402,921
--------------
INSURANCE -- 5.8%
18,681 Aflac, Inc. 1,247,891
26,989 Marsh & McLennan Cos., Inc. 1,305,188
45,277 Progressive (The) Corp. 1,234,704
--------------
3,787,783
--------------
IT SERVICES -- 4.0%
16,561 Automatic Data Processing, Inc. 1,338,294
7,071 International Business Machines
Corp. 1,326,308
--------------
2,664,602
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.8%
11,540 Waters Corp. (a) 1,154,000
--------------
MACHINERY -- 2.0%
15,872 Illinois Tool Works, Inc. 1,334,518
--------------
MEDIA -- 2.1%
18,715 Omnicom Group, Inc. 1,391,834
--------------
MULTILINE RETAIL -- 2.0%
20,920 Nordstrom, Inc. 1,292,856
--------------
OIL, GAS & CONSUMABLE FUELS
-- 5.9%
10,270 Chevron Corp. 1,282,826
16,735 ConocoPhillips 1,182,328
14,036 Exxon Mobil Corp. 1,420,443
--------------
3,885,597
--------------
PHARMACEUTICALS -- 3.8%
24,795 Eli Lilly & Co. 1,264,545
13,411 Johnson & Johnson 1,228,313
--------------
2,492,858
--------------
ROAD & RAIL -- 2.1%
8,079 Union Pacific Corp. 1,357,272
--------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT --
4.2%
31,292 Linear Technology Corp. 1,425,351
30,177 Texas Instruments, Inc. 1,325,072
--------------
2,750,423
--------------
SOFTWARE -- 4.2%
40,825 CA, Inc. 1,373,761
17,874 Intuit, Inc. 1,364,144
--------------
2,737,905
--------------
Page 38 See Notes to Financial Statements
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL -- 4.1%
16,452 Home Depot (The), Inc. $ 1,354,657
21,271 TJX (The) Cos., Inc. 1,355,601
--------------
2,710,258
--------------
Tobacco -- 3.8%
34,267 Altria Group, Inc. 1,315,510
24,290 Reynolds American, Inc. 1,214,257
--------------
2,529,767
--------------
TOTAL INVESTMENTS -- 99.9% 65,670,448
(Cost $59,528,236) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 35,674
--------------
NET ASSETS -- 100.0% $ 65,706,122
==============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $59,629,714. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$6,146,996 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$106,262.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 65,670,448 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
See Notes to Financial Statements Page 39
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 3.3%
577 AAR Corp. $ 16,162
446 Lockheed Martin Corp. 66,302
725 Raytheon Co. 65,758
310 Rockwell Collins, Inc. 22,915
--------------
171,137
--------------
AIR FREIGHT & LOGISTICS -- 0.8%
310 Atlas Air Worldwide Holdings,
Inc. (a) 12,756
487 C.H. Robinson Worldwide, Inc. 28,412
--------------
41,168
--------------
AUTO COMPONENTS -- 2.7%
1,198 Goodyear Tire & Rubber (The) Co. 28,572
313 Lear Corp. 25,344
693 Magna International, Inc. 56,868
476 Tenneco, Inc. (a) 26,927
--------------
137,711
--------------
AUTOMOBILES -- 1.1%
446 Toyota Motor Corp., ADR 54,376
--------------
BEVERAGES -- 0.3%
70 Boston Beer (The) Co., Inc.,
Class A (a) 16,925
--------------
CAPITAL MARKETS -- 4.5%
1,864 Apollo Investment Corp. 15,807
1,822 Bank of New York Mellon (The)
Corp. 63,661
1,537 E*TRADE Financial Corp. (a) 30,187
354 Goldman Sachs Group (The), Inc. 62,750
845 State Street Corp. 62,014
--------------
234,419
--------------
CHEMICALS -- 1.7%
796 LyondellBasell Industries N.V.,
Class A 63,903
216 Westlake Chemical Corp. 26,367
--------------
90,270
--------------
COMMERCIAL BANKS -- 7.9%
1,330 Associated Banc-Corp. 23,142
727 BancorpSouth, Inc. 18,480
1,569 BB&T Corp. 58,555
1,259 CapitalSource, Inc. 18,092
525 Comerica, Inc. 24,958
1,970 First Commonwealth Financial
Corp. 17,375
947 First Midwest Bancorp, Inc. 16,601
753 PNC Financial Services Group,
Inc. 58,418
679 Popular, Inc. (a) 19,508
635 PrivateBancorp, Inc. 18,371
1,654 SunTrust Banks, Inc. 60,884
1,128 Susquehanna Bancshares, Inc. 14,483
549 Webster Financial Corp. 17,118
367 Wintrust Financial Corp. 16,926
765 Zions Bancorporation 22,919
--------------
405,830
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMERCIAL SERVICES &
SUPPLIES -- 1.8%
441 Cintas Corp. $ 26,279
348 Deluxe Corp. 18,162
1,300 Pitney Bowes, Inc. 30,290
360 United Stationers, Inc. 16,521
--------------
91,252
--------------
COMMUNICATIONS EQUIPMENT
-- 1.0%
2,871 Brocade Communications
Systems, Inc. (a) 25,466
392 Harris Corp. 27,365
--------------
52,831
--------------
COMPUTERS & PERIPHERALS -- 1.2%
111 Apple, Inc. 62,283
--------------
CONSTRUCTION & ENGINEERING
-- 0.7%
663 Aegion Corp. (a) 14,513
442 URS Corp. 23,422
--------------
37,935
--------------
CONSUMER FINANCE -- 1.3%
846 Capital One Financial Corp. 64,812
--------------
CONTAINERS & PACKAGING -- 0.7%
263 Greif, Inc., Class A 13,781
195 Rock Tenn Co., Class A 20,477
--------------
34,258
--------------
DIVERSIFIED CONSUMER SERVICES
-- 0.6%
517 ITT Educational Services,
Inc. (a) 17,361
868 Regis Corp. 12,595
--------------
29,956
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 1.2%
3,854 Bank of America Corp. 60,007
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.5%
5,146 Frontier Communications Corp. 23,929
--------------
ELECTRIC UTILITIES -- 0.3%
657 PNM Resources, Inc. 15,847
--------------
ELECTRICAL EQUIPMENT -- 0.5%
709 Babcock & Wilcox (The) Co. 24,241
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 0.7%
971 Ingram Micro, Inc., Class A (a) 22,780
912 Sanmina Corp. (a) 15,230
--------------
38,010
--------------
ENERGY EQUIPMENT & SERVICES --
2.7%
225 Bristow Group, Inc. 16,889
616 Rowan Cos. PLC, Class A (a) 21,782
Page 40 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ENERGY EQUIPMENT & SERVICES
(CONTINUED)
682 Schlumberger Ltd. $ 61,455
1,243 TETRA Technologies, Inc. (a) 15,363
401 Tidewater, Inc. 23,767
--------------
139,256
--------------
FOOD & STAPLES RETAILING -- 1.2%
1,515 Kroger (The) Co. 59,888
--------------
FOOD PRODUCTS -- 1.0%
701 Darling International, Inc. (a) 14,637
517 Fresh Del Monte Produce, Inc. 14,631
1,444 Pilgrim's Pride Corp. (a) 23,465
--------------
52,733
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 4.1%
684 Alere, Inc. (a) 24,761
194 C. R. Bard, Inc. 25,984
306 Edwards Lifesciences Corp. (a) 20,123
206 IDEXX Laboratories, Inc. (a) 21,912
579 Masimo Corp. (a) 16,924
641 Meridian Bioscience, Inc. 17,006
1,072 St. Jude Medical, Inc. 66,410
238 Varian Medical Systems, Inc. (a) 18,490
--------------
211,610
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 1.2%
645 WellPoint, Inc. 59,592
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.0%
542 Brinker International, Inc. 25,116
350 CEC Entertainment, Inc. 15,498
1,140 International Game Technology 20,702
1,156 Orient-Express Hotels Ltd.,
Class A (a) 17,467
892 Sonic Corp. (a) 18,010
775 Yum! Brands, Inc. 58,598
--------------
155,391
--------------
HOUSEHOLD DURABLES -- 1.5%
332 Harman International Industries,
Inc. 27,174
2,778 Sony Corp., ADR 48,032
--------------
75,206
--------------
INDUSTRIAL CONGLOMERATES -- 2.6%
488 3M Co. 68,442
1,748 Koninklijke Philips NV 64,624
--------------
133,066
--------------
INSURANCE -- 14.2%
622 ACE Ltd. 64,396
1,146 Allstate (The) Corp. 62,503
161 Everest Re Group, Ltd. 25,095
1,840 Genworth Financial, Inc.,
Class A (a) 28,575
266 Hanover Insurance Group, (The),
Inc. 15,883
SHARES DESCRIPTION VALUE
------------------------------------------------------------
INSURANCE (CONTINUED)
1,828 Hartford Financial Services
Group (The), Inc. $ 66,228
1,267 Lincoln National Corp. 65,402
3,372 Manulife Financial Corp. 66,529
1,165 MetLife, Inc. 62,817
1,517 Old Republic International Corp. 26,199
1,325 Principal Financial Group, Inc. 65,336
513 Protective Life Corp. 25,989
717 Prudential Financial, Inc. 66,122
335 Reinsurance Group of America,
Inc. 25,932
256 RenaissanceRe Holdings Ltd. 24,919
629 Selective Insurance Group, Inc. 17,021
725 XL Group PLC 23,084
--------------
732,030
--------------
INTERNET & CATALOG RETAIL -- 0.3%
576 Overstock.com, Inc. (a) 17,735
--------------
IT SERVICES -- 5.4%
759 Cognizant Technology Solutions
Corp., Class A (a) 76,644
435 Computer Sciences Corp. 24,308
303 DST Systems, Inc. 27,494
1,174 Infosys Ltd., ADR 66,448
592 TeleTech Holdings, Inc. (a) 14,173
5,585 Xerox Corp. 67,969
--------------
277,036
--------------
LEISURE EQUIPMENT & PRODUCTS --
0.8%
1,351 Smith & Wesson Holding Corp. (a) 18,225
288 Sturm, Ruger & Co., Inc. 21,050
--------------
39,275
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 0.4%
231 Techne Corp. 21,869
--------------
MACHINERY -- 3.6%
641 Dover Corp. 61,882
765 Illinois Tool Works, Inc. 64,321
186 Lindsay Corp. 15,392
254 Tennant Co. 17,224
516 Trinity Industries, Inc. 28,132
--------------
186,951
--------------
MEDIA -- 2.2%
333 John Wiley & Sons, Inc.,
Class A 18,382
299 Scripps Networks Interactive,
Class A 25,836
516 Time Warner Cable, Inc. 69,918
--------------
114,136
--------------
METALS & MINING -- 2.2%
1,787 Goldcorp, Inc. 38,724
1,678 Newmont Mining Corp. 38,644
1,195 United States Steel Corp. 35,253
--------------
112,621
--------------
See Notes to Financial Statements Page 41
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MULTILINE RETAIL -- 1.5%
1,032 Dollar Tree, Inc. (a) $ 58,225
308 Family Dollar Stores, Inc. 20,011
--------------
78,236
--------------
OIL, GAS & CONSUMABLE FUELS --
1.2%
978 Murphy Oil Corp. 63,453
--------------
PERSONAL PRODUCTS -- 0.5%
344 Herbalife Ltd. 27,073
--------------
PHARMACEUTICALS -- 2.8%
1,285 AbbVie, Inc. 67,861
814 Auxilium Pharmaceuticals,
Inc. (a) 16,882
1,167 Eli Lilly & Co. 59,517
--------------
144,260
--------------
PROFESSIONAL SERVICES -- 0.7%
284 Huron Consulting Group, Inc. (a) 17,812
788 Kelly Services, Inc., Class A 19,653
--------------
37,465
--------------
ROAD & RAIL -- 1.1%
543 Arkansas Best Corp. 18,288
504 Con-way, Inc. 20,014
1,032 Heartland Express, Inc. 20,248
--------------
58,550
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.1%
698 Cirrus Logic, Inc. (a) 14,260
2,943 LSI Corp. 32,432
1,425 Texas Instruments, Inc. 62,572
--------------
109,264
--------------
SOFTWARE -- 3.6%
982 Check Point Software Technologies
Ltd. (a) 63,358
868 Intuit, Inc. 66,246
645 VMware, Inc., Class A (a) 57,863
--------------
187,467
--------------
SPECIALTY RETAIL -- 5.6%
435 ANN, Inc. (a) 15,904
748 Bed Bath & Beyond, Inc. (a) 60,064
663 Brown Shoe Co., Inc. 18,657
269 Children's Place Retail Stores
(The), Inc. (a) 15,325
1,348 Gap (The), Inc. 52,680
809 Ross Stores, Inc. 60,618
1,034 TJX (The) Cos., Inc. 65,897
--------------
289,145
--------------
TEXTILES, APPAREL & LUXURY GOODS
-- 0.4%
192 Fossil Group, Inc. (a) 23,028
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE -- 0.6%
870 Provident Financial Services,
Inc. $ 16,808
668 Washington Federal, Inc. 15,558
--------------
32,366
--------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.3%
283 Applied Industrial Technologies,
Inc. 13,892
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.4%
787 Telephone & Data Systems, Inc. 20,289
--------------
TOTAL COMMON STOCKS -- 100.0% 5,160,080
(Cost $4,371,678)
MONEY MARKET FUNDS -- 0.2%
7,624 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (b) 7,624
(Cost $7,624) --------------
TOTAL INVESTMENTS -- 100.2% 5,167,704
(Cost $4,379,302) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.2)% (8,078)
--------------
NET ASSETS -- 100.0% $ 5,159,626
==============
(a) Non-income producing security.
(b) Interest rate shown reflects yield as of December 31, 2013.
(c) Aggregate cost for federal income tax purposes is $4,382,170. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$830,294 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$44,760.
ADR - American Depositary Receipt
Page 42 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 5,160,080 $ -- $ --
Money Market
Funds 7,624 -- --
-----------------------------------------------
Total Investments $ 5,167,704 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
See Notes to Financial Statements Page 43
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 4.2%
34,378 Boeing (The) Co. $ 4,692,253
50,324 General Dynamics Corp. 4,808,458
44,225 L-3 Communications Holdings,
Inc. 4,725,884
32,325 Lockheed Martin Corp. 4,805,435
41,671 Northrop Grumman Corp. 4,775,913
52,636 Raytheon Co. 4,774,085
42,314 United Technologies Corp. 4,815,333
--------------
33,397,361
--------------
AIR FREIGHT & LOGISTICS -- 1.2%
82,210 C.H. Robinson Worldwide, Inc. 4,796,132
45,105 United Parcel Service, Inc.,
Class B 4,739,633
--------------
9,535,765
--------------
BEVERAGES -- 3.0%
45,238 Anheuser-Busch InBev N.V., ADR 4,816,038
116,765 Coca-Cola (The) Co. 4,823,562
36,560 Diageo PLC, ADR 4,841,275
85,352 Molson Coors Brewing Co.,
Class B 4,792,515
57,284 PepsiCo, Inc. 4,751,135
--------------
24,024,525
--------------
BIOTECHNOLOGY -- 0.6%
41,425 Amgen, Inc. 4,729,078
--------------
CAPITAL MARKETS -- 0.6%
192,577 KKR & Co. L.P. (a) 4,687,324
--------------
CHEMICALS -- 1.2%
41,675 Air Products & Chemicals, Inc. 4,658,431
74,741 E.I. du Pont de Nemours & Co. 4,855,923
--------------
9,514,354
--------------
COMMERCIAL BANKS -- 4.1%
71,017 Bank of Montreal 4,733,993
76,272 Bank of Nova Scotia 4,770,814
71,865 BOK Financial Corp. 4,766,087
54,962 Canadian Imperial Bank of
Commerce 4,694,304
63,557 Cullen/Frost Bankers, Inc. 4,730,548
70,303 Royal Bank of Canada 4,726,471
50,302 Toronto-Dominion (The) Bank 4,740,460
--------------
33,162,677
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.2%
166,168 Healthcare Services Group, Inc. 4,714,186
104,835 Waste Management, Inc. 4,703,947
--------------
9,418,133
--------------
COMMUNICATIONS EQUIPMENT
-- 1.2%
217,398 Cisco Systems, Inc. 4,880,585
67,891 Harris Corp. 4,739,471
--------------
9,620,056
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMPUTERS & PERIPHERALS -- 1.2%
8,225 Apple, Inc. $ 4,615,130
142,444 Diebold, Inc. 4,702,076
--------------
9,317,206
--------------
CONTAINERS & PACKAGING -- 1.2%
117,378 Bemis Co., Inc. 4,807,803
114,680 Sonoco Products Co. 4,784,449
--------------
9,592,252
--------------
DISTRIBUTORS -- 0.6%
56,977 Genuine Parts Co. 4,739,917
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.8%
135,176 AT&T, Inc. 4,752,788
137,313 TELUS Corp. 4,729,060
96,525 Verizon Communications, Inc. 4,743,238
--------------
14,225,086
--------------
ELECTRIC UTILITIES -- 10.0%
93,263 ALLETE, Inc. 4,651,958
100,155 Cleco Corp. 4,669,226
67,911 Duke Energy Corp. 4,686,538
101,631 Edison International 4,705,515
134,943 El Paso Electric Co. 4,737,849
180,218 Hawaiian Electric Industries,
Inc. 4,696,481
89,235 IDACORP, Inc. 4,625,942
82,310 MGE Energy, Inc. 4,765,749
55,363 NextEra Energy, Inc. 4,740,180
111,225 Northeast Utilities 4,714,828
139,148 OGE Energy Corp. 4,717,117
88,342 Pinnacle West Capital Corp. 4,675,059
156,309 Portland General Electric Co. 4,720,532
114,708 Southern (The) Co. 4,715,646
121,201 UIL Holdings Corp. 4,696,539
146,219 Westar Energy, Inc. 4,703,865
166,639 Xcel Energy, Inc. 4,655,894
--------------
79,878,918
--------------
ELECTRICAL EQUIPMENT -- 1.2%
62,158 Eaton Corp. PLC 4,731,467
67,599 Emerson Electric Co. 4,744,098
--------------
9,475,565
--------------
FOOD & STAPLES RETAILING -- 2.3%
128,508 Sysco Corp. 4,639,139
81,495 Walgreen Co. 4,681,073
60,219 Wal-Mart Stores, Inc. 4,738,633
88,494 Weis Markets, Inc. 4,651,244
--------------
18,710,089
--------------
FOOD PRODUCTS -- 6.0%
108,951 Archer-Daniels-Midland Co. 4,728,473
109,588 Campbell Soup Co. 4,742,969
140,777 ConAgra Foods, Inc. 4,744,185
95,388 General Mills, Inc. 4,760,815
49,072 Hershey (The) Co. 4,771,271
46,136 J.M. Smucker (The) Co. 4,780,612
77,714 Kellogg Co. 4,745,994
Page 44 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FOOD PRODUCTS (CONTINUED)
86,920 Kraft Foods Group, Inc. $ 4,686,726
68,577 McCormick & Co., Inc. 4,726,327
117,436 Unilever PLC, ADR 4,838,363
--------------
47,525,735
--------------
GAS UTILITIES -- 5.9%
100,240 AGL Resources, Inc. 4,734,335
104,160 Atmos Energy Corp. 4,730,947
102,363 Laclede Group (The), Inc. 4,661,611
103,173 New Jersey Resources Corp. 4,770,720
108,749 Northwest Natural Gas Co. 4,656,632
141,584 Piedmont Natural Gas Co., Inc. 4,694,925
203,704 Questar Corp. 4,683,155
85,320 South Jersey Industries, Inc. 4,774,507
114,821 UGI Corp. 4,760,479
119,441 WGL Holdings, Inc. 4,784,807
--------------
47,252,118
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.8%
121,990 Abbott Laboratories 4,675,877
68,058 Baxter International, Inc. 4,733,434
100,607 ResMed, Inc. 4,736,577
--------------
14,145,888
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 1.2%
129,144 Owens & Minor, Inc. 4,721,504
86,757 Quest Diagnostics, Inc. 4,644,970
--------------
9,366,474
--------------
HOTELS, RESTAURANTS & LEISURE
-- 0.6%
48,694 McDonald's Corp. 4,724,779
--------------
HOUSEHOLD DURABLES -- 0.6%
151,315 Leggett & Platt, Inc. 4,681,686
--------------
HOUSEHOLD PRODUCTS -- 2.3%
50,700 Clorox (The) Co. 4,702,932
72,555 Colgate-Palmolive Co. 4,731,311
44,856 Kimberly-Clark Corp. 4,685,658
57,671 Procter & Gamble (The) Co. 4,694,996
--------------
18,814,897
--------------
INDUSTRIAL CONGLOMERATES
-- 0.6%
34,279 3M Co. 4,807,630
--------------
INSURANCE -- 4.2%
46,087 ACE Ltd. 4,771,387
101,697 Arthur J. Gallagher & Co. 4,772,640
90,092 Cincinnati Financial Corp. 4,718,118
65,218 Erie Indemnity Co., Class A 4,768,740
78,507 Hanover Insurance Group (The),
Inc. 4,687,653
94,790 Mercury General Corp. 4,712,011
52,595 Travelers (The) Cos., Inc. 4,761,952
--------------
33,192,501
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
IT SERVICES -- 2.4%
57,501 Accenture PLC, Class A $ 4,727,732
58,660 Automatic Data Processing, Inc. 4,740,315
25,734 International Business Machines
Corp. 4,826,926
103,105 Paychex, Inc. 4,694,371
--------------
18,989,344
--------------
LEISURE EQUIPMENT & PRODUCTS
-- 1.2%
88,210 Hasbro, Inc. 4,852,432
102,008 Mattel, Inc. 4,853,541
--------------
9,705,973
--------------
MACHINERY -- 1.8%
51,734 Deere & Co. 4,724,866
56,702 Illinois Tool Works, Inc. 4,767,504
57,929 Stanley Black & Decker, Inc. 4,674,291
--------------
14,166,661
--------------
MEDIA -- 1.2%
65,851 Omnicom Group, Inc. 4,897,339
123,760 Thomson Reuters Corp. 4,680,603
--------------
9,577,942
--------------
MULTILINE RETAIL -- 1.2%
84,415 Kohl's Corp. 4,790,551
75,781 Target Corp. 4,794,664
--------------
9,585,215
--------------
MULTI-UTILITIES -- 8.3%
90,912 Alliant Energy Corp. 4,691,059
167,294 Avista Corp. 4,716,018
203,351 CenterPoint Energy, Inc. 4,713,676
85,618 Consolidated Edison, Inc. 4,732,963
73,132 Dominion Resources, Inc. 4,730,909
70,461 DTE Energy Co. 4,677,906
85,837 Integrys Energy Group, Inc. 4,670,391
154,658 MDU Resources Group, Inc. 4,724,802
147,740 Public Service Enterprise Group,
Inc. 4,733,590
99,537 SCANA Corp. 4,671,271
52,707 Sempra Energy 4,730,980
275,191 TECO Energy, Inc. 4,744,293
132,990 Vectren Corp. 4,721,145
113,294 Wisconsin Energy Corp. 4,683,574
--------------
65,942,577
--------------
OFFICE ELECTRONICS -- 0.6%
145,947 CANON, Inc., ADR 4,670,304
--------------
OIL, GAS & CONSUMABLE FUELS
-- 6.0%
38,186 Chevron Corp. 4,769,813
67,412 ConocoPhillips 4,762,658
109,358 Enbridge, Inc. 4,776,758
47,602 Exxon Mobil Corp. 4,817,323
132,129 Kinder Morgan, Inc. 4,756,644
133,294 Marathon Oil Corp. 4,705,278
50,297 Occidental Petroleum Corp. 4,783,245
66,894 Royal Dutch Shell PLC, ADR 4,767,535
See Notes to Financial Statements Page 45
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
78,116 Total S.A., ADR $ 4,786,167
102,385 TransCanada Corp. 4,674,899
--------------
47,600,320
--------------
PHARMACEUTICALS -- 6.6%
89,184 AbbVie, Inc. 4,709,807
80,075 AstraZeneca PLC, ADR 4,754,053
87,929 Bristol-Myers Squibb Co. 4,673,426
92,764 Eli Lilly & Co. 4,730,964
90,912 GlaxoSmithKline PLC, ADR 4,853,792
50,953 Johnson & Johnson 4,666,785
95,001 Merck & Co., Inc. 4,754,800
59,614 Novartis AG, ADR 4,791,773
154,506 Pfizer, Inc. 4,732,519
90,248 Sanofi, ADR 4,840,000
120,083 Teva Pharmaceutical Industries
Ltd., ADR 4,812,927
--------------
52,320,846
--------------
REAL ESTATE INVESTMENT TRUSTS
-- 1.1%
30,941 Public Storage 4,657,239
123,923 Realty Income Corp. 4,626,046
--------------
9,283,285
--------------
ROAD & RAIL -- 0.6%
50,179 Norfolk Southern Corp. 4,740,178
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.4%
92,636 Analog Devices, Inc. 4,717,952
185,199 Intel Corp. 4,807,766
108,147 Texas Instruments, Inc. 4,748,735
103,882 Xilinx, Inc. 4,770,261
--------------
19,044,714
--------------
SOFTWARE -- 1.2%
141,797 CA, Inc. 4,771,469
128,053 Microsoft Corp. 4,793,024
--------------
9,564,493
--------------
SPECIALTY RETAIL -- 0.6%
121,578 Gap (The), Inc. 4,751,268
--------------
THRIFTS & MORTGAGE FINANCE --
0.6%
315,139 People's United Financial, Inc. 4,764,902
--------------
TOBACCO -- 3.0%
122,949 Altria Group, Inc. 4,720,012
44,779 British American Tobacco PLC,
ADR 4,810,160
93,411 Lorillard, Inc. 4,734,070
55,006 Philip Morris International,
Inc. 4,792,673
95,974 Reynolds American, Inc. 4,797,740
--------------
23,854,655
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.6%
101,631 Fastenal Co. $ 4,828,489
--------------
WATER UTILITIES -- 1.1%
159,716 American States Water Co. 4,588,641
197,192 Aqua America, Inc. 4,651,759
--------------
9,240,400
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.6%
121,672 Vodafone Group PLC, ADR 4,782,926
--------------
TOTAL INVESTMENTS -- 99.9% 795,954,506
(Cost $680,580,184) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 406,924
--------------
NET ASSETS -- 100.0% $ 796,361,430
==============
(a) Master Limited Partnership ("MLP").
(b) Aggregate cost for federal income tax purposes is $692,856,778. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$106,934,067 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$3,836,339.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 795,954,506 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
Page 46 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.1%
AEROSPACE & DEFENSE -- 1.2%
10,826 Elbit Systems Ltd. $ 657,463
--------------
AIRLINES -- 3.0%
61,623 JetBlue Airways Corp. (a) 526,877
31,283 SkyWest, Inc. 463,927
36,981 Southwest Airlines Co. 696,722
--------------
1,687,526
--------------
AUTO COMPONENTS -- 4.6%
63,615 China Automotive Systems,
Inc. (a) 504,467
32,210 Federal-Mogul Corp. (a) 633,893
32,359 Goodyear Tire & Rubber (The) Co. 771,762
31,482 Superior Industries
International, Inc. 649,474
--------------
2,559,596
--------------
BIOTECHNOLOGY -- 1.7%
21,870 Myriad Genetics, Inc. (a) 458,833
62,185 PDL BioPharma, Inc. 524,841
--------------
983,674
--------------
CAPITAL MARKETS -- 1.9%
19,777 AllianceBernstein Holding LP (b) 422,041
32,210 E*TRADE Financial Corp. (a) 632,605
--------------
1,054,646
--------------
COMMERCIAL BANKS -- 2.0%
20,107 Popular, Inc. (a) 577,674
15,148 SunTrust Banks, Inc. 557,598
--------------
1,135,272
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 3.3%
18,481 Brink's (The) Co. 630,941
35,815 EnerNOC, Inc. (a) 616,376
39,323 Kimball International, Inc.,
Class B 591,025
--------------
1,838,342
--------------
COMMUNICATIONS EQUIPMENT --
1.9%
65,158 Brocade Communications Systems,
Inc. (a) 577,951
20,978 Finisar Corp. (a) 501,794
--------------
1,079,745
--------------
COMPUTERS & PERIPHERALS -- 1.0%
19,281 Hewlett-Packard Co. 539,482
--------------
CONSTRUCTION MATERIALS -- 1.1%
61,338 Headwaters, Inc. (a) 600,499
--------------
CONTAINERS & PACKAGING -- 1.0%
11,252 Avery Dennison Corp. 564,738
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 2.0%
37,740 Bank of America Corp. 587,612
10,338 Citigroup, Inc. 538,713
--------------
1,126,325
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 3.3%
30,459 Consolidated Communications
Holdings, Inc. $ 597,910
54,325 General Communication, Inc.,
Class A (a) 605,724
20,298 Level 3 Communications,
Inc. (a) 673,285
--------------
1,876,919
--------------
ELECTRIC UTILITIES -- 1.1%
25,820 Great Plains Energy, Inc. 625,877
--------------
ELECTRICAL EQUIPMENT -- 1.0%
15,737 Babcock & Wilcox (The) Co. 538,048
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 2.1%
39,393 Orbotech Ltd. (a) 532,594
38,493 Sanmina Corp. (a) 642,833
--------------
1,175,427
--------------
ENERGY EQUIPMENT & SERVICES
-- 6.5%
9,229 Ensco PLC, Class A 527,714
12,611 Noble Corp. PLC 472,534
5,950 Schlumberger Ltd. 536,155
44,214 TETRA Technologies, Inc. (a) 546,485
9,633 Tidewater, Inc. 570,948
9,917 Transocean Ltd. 490,098
32,421 Weatherford International
Ltd. (a) 502,201
--------------
3,646,135
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.0%
14,929 Alere, Inc. (a) 540,430
13,323 Haemonetics Corp. (a) 561,298
--------------
1,101,728
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 1.9%
56,424 Select Medical Holdings Corp. 655,083
9,566 Tenet Healthcare Corp. (a) 402,920
--------------
1,058,003
--------------
HOTELS, RESTAURANTS &
LEISURE -- 1.0%
10,894 Hyatt Hotels Corp., Class A (a) 538,817
--------------
HOUSEHOLD DURABLES -- 3.1%
14,855 M.D.C. Holdings, Inc. (a) 478,925
14,536 Ryland Group (The), Inc. 631,008
35,329 Sony Corp., ADR 610,838
--------------
1,720,771
--------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS -- 1.0%
37,629 AES (The) Corp. 545,997
--------------
See Notes to Financial Statements Page 47
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INSURANCE -- 3.2%
28,618 Manulife Financial Corp. $ 564,633
35,411 Old Republic International Corp. 611,548
6,558 Prudential Financial, Inc. 604,779
--------------
1,780,960
--------------
INTERNET SOFTWARE & SERVICES
-- 1.1%
90,539 Monster Worldwide, Inc. (a) 645,543
--------------
IT SERVICES -- 2.4%
11,425 Computer Sciences Corp. 638,429
10,776 Global Payments, Inc. 700,332
--------------
1,338,761
--------------
MACHINERY -- 2.2%
17,663 Greenbrier (The) Cos., Inc. (a) 580,053
27,614 Manitowoc (The) Co., Inc. 643,958
--------------
1,224,011
--------------
MEDIA -- 2.0%
35,731 Cablevision Systems Corp.,
Class A 640,657
26,312 Regal Entertainment Group,
Class A 511,768
--------------
1,152,425
--------------
METALS & MINING -- 6.4%
83,659 AK Steel Holding Corp. (a) 686,004
59,152 Alcoa, Inc. 628,786
37,639 Barrick Gold Corp. 663,576
28,559 Commercial Metals Co. 580,604
116,966 Kinross Gold Corp. 512,311
21,579 Newmont Mining Corp. 496,964
--------------
3,568,245
--------------
OFFICE ELECTRONICS -- 1.1%
19,528 CANON, Inc., ADR 624,896
--------------
OIL, GAS & CONSUMABLE FUELS
-- 11.7%
95,939 Alpha Natural Resources,
Inc. (a) 685,004
13,234 BP PLC, ADR 643,305
22,874 Chesapeake Energy Corp. 620,800
10,318 Devon Energy Corp. 638,375
34,761 Encana Corp. 627,436
17,835 Marathon Oil Corp. 629,576
19,010 Newfield Exploration Co. (a) 468,216
16,781 QEP Resources, Inc. 514,338
14,364 Southwestern Energy Co. (a) 564,936
15,598 Suncor Energy, Inc. 546,710
28,676 Ultra Petroleum Corp. (a) 620,835
--------------
6,559,531
--------------
PROFESSIONAL SERVICES -- 3.4%
24,452 Kelly Services, Inc., Class A 609,833
24,809 Korn/Ferry International (a) 648,011
35,445 Navigant Consulting, Inc. (a) 680,544
--------------
1,938,388
--------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS --
1.8%
18,757 Apartment Investment &
Management Co., Class A $ 485,994
26,331 Host Hotels & Resorts, Inc. 511,875
--------------
997,869
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 1.1%
24,160 CBRE Group, Inc., Class A (a) 635,408
--------------
ROAD & RAIL -- 1.8%
17,210 Arkansas Best Corp. 579,633
10,985 Con-way, Inc. 436,214
--------------
1,015,847
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 5.9%
122,959 Amkor Technology, Inc. (a) 753,739
24,780 Intel Corp. 643,289
44,359 Marvell Technology Group Ltd. 637,882
78,814 ON Semiconductor Corp. (a) 649,427
21,387 Skyworks Solutions, Inc. (a) 610,813
--------------
3,295,150
--------------
SOFTWARE -- 3.1%
45,732 Cadence Design Systems, Inc. (a) 641,163
20,376 Electronic Arts, Inc. (a) 467,425
33,093 Rovi Corp. (a) 651,601
--------------
1,760,189
--------------
SPECIALTY RETAIL -- 4.2%
28,189 Big 5 Sporting Goods Corp. 558,706
11,142 Children's Place Retail Stores
(The), Inc. (a) 634,760
67,831 Christopher & Banks Corp. (a) 579,277
22,914 Sonic Automotive, Inc., Class A 560,934
--------------
2,333,677
--------------
THRIFTS & MORTGAGE FINANCE --
1.0%
24,067 Washington Federal, Inc. 560,520
--------------
TOTAL INVESTMENTS -- 100.1% 56,086,450
(Cost $52,568,630) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (28,503)
--------------
NET ASSETS -- 100.0% $ 56,057,947
==============
(a) Non-income producing security.
(b) Master Limited Partnership ("MLP").
(c) Aggregate cost for federal income tax purposes is $52,844,035. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$3,973,217 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$730,802.
ADR - American Depositary Receipt
Page 48 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 56,086,450 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
See Notes to Financial Statements Page 49
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2013
FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR FIRST TRUST
MICROCAP DIVIDEND LEADERS(SM) US IPO
INDEX(SM) FUND INDEX FUND INDEX FUND
(FDM) (FDL) (FPX)
---------------- ------------------- ---------------
ASSETS:
Investments, at value.................................................. $ 91,048,768 $ 687,051,018 $ 358,304,449
Cash................................................................... 126,004 -- --
Receivables:
Capital shares sold.............................................. -- -- 9,034,740
Investment securities sold....................................... 453,420 261,016 189,472
Dividends........................................................ 53,538 1,097,482 172,305
Interest......................................................... -- -- --
Securities lending income........................................ -- -- 10,415
From investment advisor.......................................... -- -- --
Reclaims......................................................... -- -- --
Prepaid expenses....................................................... 2,195 10,653 2,487
-------------- -------------- --------------
TOTAL ASSETS..................................................... 91,683,925 688,420,169 367,713,868
-------------- -------------- --------------
LIABILITIES:
Due to custodian....................................................... -- 417,338 110,213
Payables:
Investment securities purchased.................................. 455,576 -- 9,037,472
Licensing fees................................................... 42,539 153,783 53,268
Investment advisory fees......................................... 32,336 136,111 79,191
Audit and tax fees............................................... 22,925 22,925 22,925
Printing fees.................................................... 9,402 41,280 6,806
Trustees' fees................................................... 31 71 --
Collateral for securities on loan................................ -- -- 6,932,352
Other liabilities...................................................... 41,060 211,941 96,082
-------------- -------------- --------------
TOTAL LIABILITIES................................................ 603,869 983,449 16,338,309
-------------- -------------- --------------
NET ASSETS............................................................. $ 91,080,056 $ 687,436,720 $ 351,375,559
============== ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital........................................................ $ 100,346,722 $ 671,785,200 $ 309,568,710
Par value.............................................................. 28,050 313,500 77,500
Accumulated net investment income (loss)............................... -- -- --
Accumulated net realized gain (loss) on investments.................... (24,963,973) (43,314,696) (8,125,595)
Net unrealized appreciation (depreciation) on investments.............. 15,669,257 58,652,716 49,854,944
-------------- -------------- --------------
NET ASSETS............................................................. $ 91,080,056 $ 687,436,720 $ 351,375,559
============== ============== ==============
NET ASSET VALUE, per share............................................. $ 32.47 $ 21.93 $ 45.34
============== ============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share).......................................... 2,805,000 31,350,002 7,750,002
-------------- -------------- --------------
Investments, at cost................................................... $ 75,379,511 $ 628,398,302 $ 308,449,505
============== ============== ==============
Securities on loan, at value........................................... $ -- $ -- $ 6,790,608
============== ============== ==============
Page 50 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST
NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) EQUITY VALUE LINE(R) VALUE LINE(R) 100
BIOTECHNOLOGY INTERNET STRENGTH ALLOCATION DIVIDEND EXCHANGE-TRADED
INDEX FUND INDEX(SM) FUND ETF INDEX FUND INDEX FUND FUND
(FBT) (FDN) (FTCS)* (FVI) (FVD) (FVL)
--------------- --------------- --------------- -------------------- --------------- -----------------
$ 969,483,653 $ 1,958,214,517 $ 65,670,448 $ 5,167,704 $ 795,954,506 $ 56,086,450
1,554,207 658,033 -- 102 -- 15,192
-- 14,839,380 -- -- 2,131,586 --
12,488,662 783,164 -- 31,077 -- --
-- -- 123,962 3,610 1,685,603 28,511
-- 31 -- -- -- --
71,184 227,177 -- -- -- --
-- -- -- 4,543 -- --
-- -- -- 496 17,486 501
13,151 25,863 1,758 11,265 12,198 1,103
--------------- --------------- --------------- --------------- --------------- ---------------
983,610,857 1,974,748,165 65,796,168 5,218,797 799,801,379 56,131,757
--------------- --------------- --------------- --------------- --------------- ---------------
-- -- 20,205 -- 437,785 --
-- 14,847,627 -- 31,122 2,129,519 --
175,967 476,886 2,601 1,876 292,548 20,960
290,119 615,802 21,385 -- 274,931 13,047
22,925 22,925 22,925 22,925 22,925 22,925
32,683 70,760 2,809 495 42,295 3,611
9 -- -- -- -- --
28,862,685 28,281,130 -- -- -- --
316,371 580,756 20,121 2,753 239,946 13,267
--------------- --------------- --------------- --------------- --------------- ---------------
29,700,759 44,895,886 90,046 59,171 3,439,949 73,810
--------------- --------------- --------------- --------------- --------------- ---------------
$ 953,910,098 $ 1,929,852,279 $ 65,706,122 $ 5,159,626 $ 796,361,430 $ 56,057,947
=============== =============== =============== =============== =============== ===============
$ 847,429,209 $ 1,544,869,838 $ 83,927,791 $ 9,807,148 $ 735,434,951 $142,835,540
138,000 322,500 19,500 2,000 372,880 30,400
-- -- 13,050 -- 300,846 --
(89,930,226) (54,325,056) (24,396,431) (5,437,924) (55,121,569) (90,325,813)
196,273,115 438,984,997 6,142,212 788,402 115,374,322 3,517,820
--------------- --------------- --------------- --------------- --------------- ---------------
$ 953,910,098 $ 1,929,852,279 $ 65,706,122 $ 5,159,626 $ 796,361,430 $ 56,057,947
=============== =============== =============== =============== =============== ===============
$ 69.12 $ 59.84 $ 33.70 $ 25.80 $ 21.36 $ 18.44
=============== =============== =============== =============== =============== ===============
13,800,002 32,250,002 1,950,002 200,002 37,287,986 3,039,982
--------------- --------------- --------------- --------------- --------------- ---------------
$ 773,210,538 $ 1,519,229,520 $ 59,528,236 $ 4,379,302 $ 680,580,184 $ 52,568,630
=============== =============== =============== =============== =============== ===============
$ 28,236,479 $ 27,627,746 $ -- $ -- $ -- $ --
=============== =============== =============== =============== =============== ===============
* Formerly First Trust Strategic Value Index Fund
See Notes to Financial Statements Page 51
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR FIRST TRUST
MICROCAP DIVIDEND LEADERS(SM) US IPO
INDEX(SM) FUND INDEX FUND INDEX FUND
(FDM) (FDL) (FPX)
---------------- ------------------- ---------------
INVESTMENT INCOME:
Dividends............................................................... $ 1,497,681 $ 25,347,344 $ 1,555,555
Foreign tax withholding................................................. (3,453) -- (7,975)
Interest................................................................ -- -- --
Securities lending income (net of fees)................................. -- -- 72,124
-------------- -------------- --------------
Total investment income.............................................. 1,494,228 25,347,344 1,619,704
-------------- -------------- --------------
EXPENSES:
Investment advisory fees................................................ 489,802 1,872,016 501,170
Licensing fees.......................................................... 67,244 564,419 125,285
Accounting and administration fees...................................... 53,917 315,526 65,233
Audit and tax fees...................................................... 23,196 23,196 23,196
Printing fees........................................................... 18,084 80,123 16,207
Custodian fees.......................................................... 12,667 78,999 23,911
Legal fees.............................................................. 10,670 44,656 10,880
Listing fees............................................................ 8,049 10,551 7,677
Trustees' fees and expenses............................................. 6,875 22,015 7,613
Transfer agent fees..................................................... 4,898 31,200 6,265
Registration and filing fees............................................ 3,138 3,440 30,911
Expenses previously waived or reimbursed................................ -- -- --
Other expenses.......................................................... 4,971 31,426 3,932
-------------- -------------- --------------
Total expenses....................................................... 703,511 3,077,567 822,280
Less fees waived and expenses reimbursed by the investment advisor... (115,749) (269,543) (70,526)
-------------- -------------- --------------
Net expenses......................................................... 587,762 2,808,024 751,754
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)............................................ 906,466 22,539,320 867,950
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments.......................................................... (2,089,326) (9,400,098) (1,467,705)
In-kind redemptions.................................................. 21,765,499 65,431,446 850,395
-------------- -------------- --------------
Net realized gain (loss)................................................ 19,676,173 56,031,348 (617,310)
Net change in unrealized appreciation (depreciation).................... 12,455,819 42,242,896 47,510,415
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)................................. 32,131,992 98,274,244 46,893,105
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS...................................................... $ 33,038,458 $ 120,813,564 $ 47,761,055
============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST
NYSE ARCA DOW JONES CAPITAL VALUE LINE(R) EQUITY VALUE LINE(R) VALUE LINE(R) 100
BIOTECHNOLOGY INTERNET STRENGTH ALLOCATION DIVIDEND EXCHANGE-TRADED
INDEX FUND INDEX(SM) FUND ETF INDEX FUND INDEX FUND FUND
(FBT) (FDN) (FTCS)* (FVI) (FVD) (FVL)
--------------- --------------- --------------- -------------------- --------------- -----------------
$ 634,245 $ 3,164,256 $ 973,103 $ 73,977 $ 22,337,191 $ 522,021
-- -- -- (825) (364,312) (5,507)
-- 209 -- 3 1 --
1,243,242 341,854 -- -- --
--------------- --------------- --------------- --------------- --------------- ---------------
1,877,487 3,506,319 973,103 73,155 21,972,880 516,514
--------------- --------------- --------------- --------------- --------------- ---------------
2,184,017 4,864,568 217,182 22,652 3,354,670 245,926
436,804 760,870 24,594 7,003 1,018,478 77,737
274,583 609,699 23,464 5,340 339,612 26,326
23,196 23,196 23,196 23,196 23,196 23,196
62,648 144,060 8,141 1,548 86,273 6,198
72,502 152,398 5,419 564 84,187 6,131
45,586 120,534 3,295 333 56,053 3,611
8,049 8,049 9,642 22,677 25,177 22,686
19,208 38,806 5,448 4,078 23,426 5,422
27,300 60,807 2,172 226 33,547 2,459
65,903 94,992 2,915 56 13,882 334
37,156 -- -- -- -- --
19,072 35,586 6,404 3,386 29,997 5,516
--------------- --------------- --------------- --------------- --------------- ---------------
3,276,024 6,913,565 331,872 91,059 5,088,498 425,542
-- -- (49,536) (59,346) (391,960) (81,246)
--------------- --------------- --------------- --------------- --------------- ---------------
3,276,024 6,913,565 282,336 31,713 4,696,538 344,296
--------------- --------------- --------------- --------------- --------------- ---------------
(1,398,537) (3,407,246) 690,767 41,442 17,276,342 172,218
--------------- --------------- --------------- --------------- --------------- ---------------
(50,940,682) (14,632,510) 1,516,679 703,502 (354,282) 6,091,302
27,282,012 135,216,497 6,171,750 -- 62,124,977 8,074,019
--------------- --------------- --------------- --------------- --------------- ---------------
(23,658,670) 120,583,987 7,688,429 703,502 61,770,695 14,165,321
214,346,364 401,945,182 4,261,985 589,610 70,064,896 2,221,485
--------------- --------------- --------------- --------------- --------------- ---------------
190,687,694 522,529,169 11,950,414 1,293,112 131,835,591 16,386,806
--------------- --------------- --------------- --------------- --------------- ---------------
$ 189,289,157 $ 519,121,923 $ 12,641,181 $ 1,334,554 $ 149,111,933 $ 16,559,024
=============== =============== =============== =============== =============== ===============
* Formerly First Trust Strategic Value Index Fund
See Notes to Financial Statements Page 53
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR
MICROCAP DIVIDEND LEADERS(SM)
INDEX(SM) FUND INDEX FUND
(FDM) (FDL)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)............................. $ 906,466 $ 686,521 $ 22,539,320 $ 21,556,084
Net realized gain (loss)................................. 19,676,173 7,014,919 56,031,348 36,567,636
Net change in unrealized appreciation (depreciation) .... 12,455,819 (272,013) 42,242,896 (13,133,879)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations....................................... 33,038,458 7,429,427 120,813,564 44,989,841
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................... (986,641) (763,985) (22,580,041) (21,586,886)
------------- ------------- ------------- -------------
Total distributions to shareholders...................... (986,641) (763,985) (22,580,041) (21,586,886)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................ 123,859,631 21,606,716 404,778,385 391,010,969
Cost of shares redeemed.................................. (106,112,766) (39,318,667) (361,092,133) (315,926,513)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions......................... 17,746,865 (17,711,951) 43,686,252 75,084,456
------------- ------------- ------------- -------------
Total increase (decrease) in net assets.................. 49,798,682 (11,046,509) 141,919,775 98,487,411
NET ASSETS:
Beginning of period...................................... 41,281,374 52,327,883 545,516,945 447,029,534
------------- ------------- ------------- -------------
End of period............................................ $ 91,080,056 $ 41,281,374 $ 687,436,720 $ 545,516,945
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period...................................... $ -- $ (60,563) $ -- $ --
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................. 1,805,000 2,605,000 29,550,002 25,450,002
Shares sold.............................................. 4,650,000 1,000,000 19,350,000 21,300,000
Shares redeemed.......................................... (3,650,000) (1,800,000) (17,550,000) (17,200,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period........................ 2,805,000 1,805,000 31,350,002 29,550,002
============= ============= ============= =============
Pag 54 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
FIRST TRUST NYSE ARCA DOW JONES
US IPO BIOTECHNOLOGY INTERNET
INDEX FUND INDEX FUND INDEX(SM) FUND
(FPX) (FBT) (FDN)
----------------------------- ----------------------------- ------------------------------
For the Year For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended Ended
12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- ------------- -------------- -------------
$ 867,950 $ 235,387 $ (1,398,537) $ (1,138,584) $ (3,407,246) $ (1,147,910)
(617,310) 2,888,044 (23,658,670) 3,450,148 120,583,987 2,210,382
47,510,415 1,595,084 214,346,364 69,354,260 401,945,182 87,556,216
------------- ------------- ------------- ------------- -------------- -------------
47,761,055 4,718,515 189,289,157 71,665,824 519,121,923 88,618,688
------------- ------------- ------------- ------------- -------------- -------------
(957,120) (267,146) -- -- -- --
------------- ------------- ------------- ------------- -------------- -------------
(957,120) (267,146) -- -- -- --
------------- ------------- ------------- ------------- -------------- -------------
282,040,963 17,551,471 611,554,944 128,745,653 1,166,724,606 160,053,757
(2,128,720) (12,937,294) (86,379,184) (143,996,259) (313,875,794) (210,474,282)
------------- ------------- ------------- ------------- -------------- -------------
279,912,243 4,614,177 525,175,760 (15,250,606) 852,848,812 (50,420,525)
------------- ------------- ------------- ------------- -------------- -------------
326,716,178 9,065,546 714,464,917 56,415,218 1,371,970,735 38,198,163
24,659,381 15,593,835 239,445,181 183,029,963 557,881,544 519,683,381
------------- ------------- ------------- ------------- -------------- -------------
$ 351,375,559 $ 24,659,381 $ 953,910,098 $ 239,445,181 $1,929,852,279 $ 557,881,544
============= ============= ============= ============= ============== =============
$ -- $ -- $ -- $ -- $ -- $ --
============= ============= ============= ============= ============== =============
800,002 650,002 5,200,002 5,600,002 14,300,002 16,100,002
7,000,000 600,000 10,050,000 3,000,000 24,000,000 4,400,000
(50,000) (450,000) (1,450,000) (3,400,000) (6,050,000) (6,200,000)
------------- ------------- ------------- ------------- -------------- -------------
7,750,002 800,002 13,800,002 5,200,002 32,250,002 14,300,002
============= ============= ============= ============= ============== =============
See Notes to Financial Statements Page 55
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST FIRST TRUST
CAPITAL STRENGTH VALUE LINE(R) EQUITY
ETF ALLOCATION INDEX FUND
(FTCS)* (FVI)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)............................. $ 690,767 $ 599,178 $ 41,442 $ 85,054
Net realized gain (loss)................................. 7,688,429 2,196,767 703,502 195,615
Net change in unrealized appreciation (depreciation) .... 4,261,985 2,281,414 589,610 (10,096)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations....................................... 12,641,181 5,077,359 1,334,554 270,573
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................... (684,781) (591,636) (43,260) (97,326)
------------- ------------- ------------- -------------
Total distributions to shareholders...................... (684,781) (591,636) (43,260) (97,326)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold................................ 67,370,800 14,561,038 -- 4,818,770
Cost of shares redeemed.................................. (46,328,268) (17,982,092) -- (7,480,560)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions......................... 21,042,532 (3,421,054) -- (2,661,790)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets.................. 32,998,932 1,064,669 1,291,294 (2,488,543)
NET ASSETS:
Beginning of period...................................... 32,707,190 31,642,521 3,868,332 6,356,875
------------- ------------- ------------- -------------
End of period............................................ $ 65,706,122 $ 32,707,190 $ 5,159,626 $ 3,868,332
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period...................................... $ 13,050 $ 8,047 $ -- $ (743)
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................. 1,300,002 1,450,002 200,002 350,002
Shares sold.............................................. 2,200,000 600,000 -- 250,000
Shares redeemed.......................................... (1,550,000) (750,000) -- (400,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period........................ 1,950,002 1,300,002 200,002 200,002
============= ============= ============= =============
* Formerly First Trust Strategic Value Index Fund
Page 56 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
VALUE LINE(R) DIVIDEND VALUE LINE(R) 100
INDEX FUND EXCHANGE-TRADED FUND
(FVD) (FVL)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- -------------
$ 17,276,342 $ 13,995,661 $ 172,218 $ 545,050
61,770,695 26,191,709 14,165,321 4,001,661
70,064,896 7,088,311 2,221,485 (396,300)
------------- ------------- ------------- -------------
149,111,933 47,275,681 16,559,024 4,150,411
------------- ------------- ------------- -------------
(16,843,619) (13,920,854) (179,357) (559,524)
------------- ------------- ------------- -------------
(16,843,619) (13,920,854) (179,357) (559,524)
------------- ------------- ------------- -------------
499,922,070 304,870,331 54,675,682 61,932,673
(343,932,195) (196,520,474) (60,632,280) (75,431,362)
------------- ------------- ------------- -------------
155,989,875 108,349,857 (5,956,598) (13,498,689)
------------- ------------- ------------- -------------
288,258,189 141,704,684 10,423,069 (9,907,802)
508,103,241 366,398,557 45,634,878 55,542,680
------------- ------------- ------------- -------------
$ 796,361,430 $ 508,103,241 $ 56,057,947 $ 45,634,878
============= ============= ============= =============
$ 300,846 $ 35,845 $ -- $ 310
============= ============= ============= =============
29,387,986 22,887,986 3,439,982 4,489,982
25,300,000 18,150,000 3,300,000 4,600,000
(17,400,000) (11,650,000) (3,700,000) (5,650,000)
------------- ------------- ------------- -------------
37,287,986 29,387,986 3,039,982 3,439,982
============= ============= ============= =============
See Notes to Financial Statements Page 57
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES SELECT MICROCAP INDEX(SM) FUND (FDM)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 22.87 $ 20.09 $ 22.17 $ 17.70 $ 14.74
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.25 0.35 0.10 0.09 0.09
Net realized and unrealized gain (loss) 9.62 2.83 (2.02) 4.46 2.97
---------- ---------- ---------- ---------- ----------
Total from investment operations 9.87 3.18 (1.92) 4.55 3.06
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.27) (0.40) (0.16) (0.08) (0.10)
Return of capital -- -- -- -- (0.00) (a)
---------- ---------- ---------- ---------- ----------
Total distributions (0.27) (0.40) (0.16) (0.08) (0.10)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 32.47 $ 22.87 $ 20.09 $ 22.17 $ 17.70
========== ========== ========== ========== ==========
TOTAL RETURN (b) 43.32% 15.86% (8.69)% 25.77% 20.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 91,080 $ 41,281 $ 52,328 $ 153,050 $ 18,679
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.72% 0.76% 0.71% 0.86% 0.94%
Ratio of net expenses to average net
assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.93% 1.38% 0.40% 0.94% 0.69%
Portfolio turnover rate (c) 70% 71% 59% 86% 86%
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS(SM) INDEX FUND (FDL)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 18.46 $ 17.57 $ 15.92 $ 14.27 $ 13.09
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.69 0.71 0.61 0.57 0.56
Net realized and unrealized gain (loss) 3.47 0.89 1.65 1.66 1.19
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.16 1.60 2.26 2.23 1.75
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.69) (0.71) (0.61) (0.58) (0.57)
Return of capital -- -- -- (0.00) (a) --
---------- ---------- ---------- ---------- ----------
Total distributions (0.69) (0.71) (0.61) (0.58) (0.57)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.93 $ 18.46 $ 17.57 $ 15.92 $ 14.27
========== ========== ========== ========== ==========
TOTAL RETURN (b) 22.71% 9.14% 14.44% 16.05% 14.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 687,437 $ 545,517 $ 447,030 $ 143,294 $ 48,505
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.49% 0.51% 0.56% 0.66% 0.79%
Ratio of net expenses to average net
assets 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of net investment income (loss) to
average net assets 3.61% 3.88% 3.98% 4.22% 4.64%
Portfolio turnover rate (c) 35% 31% 27% 30% 81%
(a) Amount represents less than $0.01 per share.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 58 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST US IPO INDEX FUND (FPX)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 30.82 $ 23.99 $ 23.51 $ 20.08 $ 14.09
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.22 0.31 0.18 0.20 0.59
Net realized and unrealized gain (loss) 14.53 6.87 0.55 3.45 5.72
---------- ---------- ---------- ---------- ----------
Total from investment operations 14.75 7.18 0.73 3.65 6.31
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.23) (0.35) (0.25) (0.22) (0.32)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 45.34 $ 30.82 $ 23.99 $ 23.51 $ 20.08
========== ========== ========== ========== ==========
TOTAL RETURN (a) 47.98% 30.01% 3.11% 18.28% 44.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 351,376 $ 24,659 $ 15,594 $ 15,283 $ 11,043
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.66% 1.01% 1.01% 1.32% 1.34%
Ratio of net expenses to average net
assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.69% 1.27% 0.70% 1.28% 3.59%
Portfolio turnover rate (b) 30% 48% 44% 43% 30%
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 46.05 $ 32.68 $ 39.07 $ 28.54 $ 19.70
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.10) (0.22) (0.30) (0.17) (0.16)
Net realized and unrealized gain (loss) 23.17 13.59 (6.09) 10.70 9.00
---------- ---------- ---------- ---------- ----------
Total from investment operations 23.07 13.37 (6.39) 10.53 8.84
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 69.12 $ 46.05 $ 32.68 $ 39.07 $ 28.54
========== ========== ========== ========== ==========
TOTAL RETURN (a) 50.10% 40.91% (16.36)% 36.90% 44.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 953,910 $ 239,445 $ 183,030 $ 201,220 $ 67,068
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.60% 0.61% 0.61% 0.66% 0.72%
Ratio of net expenses to average net
assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets (0.26)% (0.48)% (0.54)% (0.60)% (0.60)%
Portfolio turnover rate (b) 48% 39% 44% 35% 44%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 59
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES INTERNET INDEX(SM) FUND (FDN)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 39.01 $ 32.28 $ 34.27 $ 25.11 $ 14.01
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.11) (0.08) (0.10) 0.04 (0.05)
Net realized and unrealized gain (loss) 20.94 6.81 (1.87) 9.16 11.15
---------- ---------- ---------- ---------- ----------
Total from investment operations 20.83 6.73 (1.97) 9.20 11.10
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income -- -- (0.02) (0.04) --
Return of capital -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions -- -- (0.02) (0.04) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 59.84 $ 39.01 $ 32.28 $ 34.27 $ 25.11
========== ========== ========== ========== ==========
TOTAL RETURN (a) 53.40% 20.85% (5.74)% 36.63% 79.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,929,852 $ 557,882 $ 519,683 $ 589,480 $ 86,615
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.57% 0.60% 0.60% 0.66% 0.73%
Ratio of net expenses to average net
assets 0.57% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets (0.28)% (0.23)% (0.25)% 0.26% (0.46)%
Portfolio turnover rate (b) 17% 33% 18% 16% 35%
FIRST TRUST CAPITAL STRENGTH EFT (FTCS)*
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 25.16 $ 21.82 $ 22.90 $ 20.47 $ 14.90
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.45 0.45 0.35 0.39 0.28
Net realized and unrealized gain (loss) 8.54 3.34 (1.01) 2.44 5.57
---------- ---------- ---------- ---------- ----------
Total from investment operations 8.99 3.79 (0.66) 2.83 5.85
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.45) (0.45) (0.42) (0.40) (0.28)
Return of capital -- -- -- (0.00) (c) --
---------- ---------- ---------- ---------- ----------
Total distributions (0.45) (0.45) (0.42) (0.40) (0.28)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 33.70 $ 25.16 $ 21.82 $ 22.90 $ 20.47
========== ========== ========== ========== ==========
TOTAL RETURN (a) 35.90% 17.45% (2.94)% 14.04% 39.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 65,706 $ 32,707 $ 31,643 $ 36,633 $ 51,164
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.76% 0.83% 0.82% 0.86% 0.87%
Ratio of net expenses to average net
assets 0.65% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment income (loss) to
average net assets 1.59% 1.84% 1.51% 1.58% 1.57%
Portfolio turnover rate (b) 156% 84% 114% 197% 171%
* Formerly First Trust Strategic Value Index Fund
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Amount represents less than $0.01 per share.
Page 60 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 19.34 $ 18.16 $ 20.30 $ 17.21 $ 12.98
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.21 0.34 0.21 0.29 0.18
Net realized and unrealized gain (loss) 6.47 1.24 (2.14) 3.09 4.23
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.68 1.58 (1.93) 3.38 4.41
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.22) (0.40) (0.21) (0.29) (0.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 25.80 $ 19.34 $ 18.16 $ 20.30 $ 17.21
========== ========== ========== ========== ==========
TOTAL RETURN (a) 34.65% 8.74% (9.56)% 19.85% 34.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,160 $ 3,868 $ 6,357 $ 7,106 $ 6,885
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 2.01% 1.85% 1.39% 1.35% 1.24%
Ratio of net expenses to average net
assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 0.91% 1.64% 1.05% 1.29% 1.24%
Portfolio turnover rate (b) 186% 203% 184% 205% 191%
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 17.29 $ 16.01 $ 15.08 $ 13.37 $ 11.55
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.50 0.50 0.42 0.41 (c) 0.38
Net realized and unrealized gain (loss) 4.06 1.28 0.93 1.71 1.82
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.56 1.78 1.35 2.12 2.20
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.49) (0.50) (0.42) (0.40) (0.38)
Return of capital -- -- -- (0.01) --
---------- ---------- ---------- ---------- ----------
Total distributions (0.49) (0.50) (0.42) (0.41) (0.38)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.36 $ 17.29 $ 16.01 $ 15.08 $ 13.37
========== ========== ========== ========== ==========
TOTAL RETURN (a) 26.57% 11.17% 9.03% 16.08% 19.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 796,361 $ 508,103 $ 366,399 $ 218,510 $ 153,618
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.76% 0.78% 0.79% 0.84% 0.80%
Ratio of net expenses to average net
assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 2.57% 3.03% 2.84% 2.94% 3.30%
Portfolio turnover rate (b) 71% 54% 53% 55% 101%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Per share amounts have been calculated using the average share method.
See Notes to Financial Statements Page 61
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 13.27 $ 12.37 $ 13.52 $ 10.44 $ 9.26
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.06 0.15 0.08 0.00 (a) (0.01)
Net realized and unrealized gain (loss) 5.17 0.90 (1.15) 3.08 1.19
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.23 1.05 (1.07) 3.08 1.18
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.06) (0.15) (0.08) -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 18.44 $ 13.27 $ 12.37 $ 13.52 $ 10.44
========== ========== ========== ========== ==========
TOTAL RETURN (b) 39.44% 8.53% (7.92)% 29.50% 12.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 56,058 $ 45,635 $ 55,543 $ 88,431 $ 60,433
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.87% 0.87% 0.82% 0.87% 0.85%
Ratio of net expenses to average net
assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 0.35% 1.03% 0.47% 0.01% (0.08)%
Portfolio turnover rate (c) 350% 304% 202% 266% 235%
(a) Amount represents less than $0.01 per share.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived or expenses reimbursed by the investment advisor.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 62 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nineteen exchange-traded funds. This report
covers the nine funds listed below:
First Trust Dow Jones Select MicroCap Index(SM) Fund - (NYSE Arca, Inc.
("NYSE Arca") ticker "FDM")
First Trust Morningstar Dividend Leaders(SM) Index Fund - (NYSE Arca
ticker "FDL")
First Trust US IPO Index Fund - (NYSE Arca ticker "FPX")
First Trust NYSE Arca Biotechnology Index Fund - (NYSE Arca ticker "FBT")
First Trust Dow Jones Internet Index(SM) Fund - (NYSE Arca ticker "FDN")
First Trust Capital Strength ETF(1) - (The NASDAQ(R) Stock Market, LLC
("NASDAQ") ticker "FTCS")(2)
First Trust Value Line(R) Equity Allocation Index Fund - (NYSE Arca ticker
"FVI")
First Trust Value Line(R) Dividend Index Fund - (NYSE Arca ticker "FVD")
First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca ticker
"FVL")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are issued and redeemed principally in-kind
for securities included in a Fund's relevant index. Except when aggregated in
Creation Units, shares are not redeemable securities of a Fund. The investment
objective of each Fund is to seek investment results that correspond generally
to the price and yield (before the Fund's fees and expenses) of the following
indices:
(1) Formerly First Trust Strategic Value Index Fund.
(2) Formerly NYSE Arca ticker "FDV."
FUND INDEX
First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones Select MicroCap Index(SM)
First Trust Morningstar Dividend Leaders(SM) Index Fund Morningstar(R) Dividend Leaders(SM) Index
First Trust US IPO Index Fund IPOX(R)-100 U.S. Index
First Trust NYSE Arca Biotechnology Index Fund NYSE Arca Biotechnology Index(SM)
First Trust Dow Jones Internet Index(SM) Fund Dow Jones Internet Composite Index(SM)
First Trust Capital Strength ETF The Capital Strength Index(TM) (3)
First Trust Value Line(R) Equity Allocation Index Fund Value Line(R) Equity Allocation Index(TM)
First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index(TM)
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index(TM)
(3) Effective June 3, 2013, the Fund's underlying index was changed from Credit
Suisse U.S. Value Index, Powered by HOLT(TM).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. Portfolio Valuation
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined at that time. Domestic securities and foreign securities are
priced using data reflecting the earlier closing of the principal markets for
those securities. The NAV is calculated by dividing the value of all assets of
the Fund (including accrued interest and dividends), less all liabilities
(including accrued expenses and dividends declared but unpaid), by the total
number of shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value in
accordance with valuation procedures adopted by the Trust's Board of Trustees
and in accordance with the 1940 Act. Market quotations and prices used to value
each Fund's investments are primarily obtained from third party pricing
services. Each Fund's securities will be valued as follows:
Common stocks and other equity securities listed on any national or
foreign exchange (excluding NASDAQ and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are
Page 63
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
principally traded or, for NASDAQ and AIM securities, the official closing
price. Securities traded on more than one securities exchange are valued
at the last sale price or official closing price, as applicable, at the
close of the securities exchange representing the principal market for
such securities.
Securities traded in an over-the-counter market are valued at the mean of
the bid and the asked prices, if available, and otherwise at the closing
bid price.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by a Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between the Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2013, is
included with each Fund's Portfolio of Investments.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
B. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from the Fund's investments in Master Limited
Partnerships ("MLPs") generally are comprised of return of capital and
investment income. The Fund records estimated return of capital and investment
income based on historical information available from each MLP. These estimates
may subsequently be revised based on information received from the MLPs after
their tax reporting periods are concluded.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year is not
known until after the REITs' fiscal year end. A Fund records the character of
distributions received from the REITs during the year based on estimates
available. The characterization of distributions received by a Fund may be
subsequently revised based on information received from the REITs after their
tax reporting periods conclude.
C. Offsetting on the Statements of Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help
investors and other financial statement users better assess the effect or
potential effect of offsetting arrangements on a fund's financial position. ASU
2011-11 requires entities to disclose both gross and net information about both
instruments and transactions eligible for offset on the Statements of Assets and
Liabilities, and disclose instruments and transactions subject to master netting
or similar agreements. In addition, in January 2013, FASB issued Accounting
Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and
Liabilities" ("ASU 2013-1"), specifying exactly which transactions are subject
to offsetting disclosures. The scope of the disclosure requirements is limited
to derivative instruments, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions. ASU
2011-11 and ASU 2013-1 are effective for financial statements with fiscal years
beginning on or after January 1, 2013, and interim periods within those fiscal
years.
The Funds adopted the disclosure requirement on netting for the current
reporting period. This disclosure, if applicable, is included within each Fund's
Portfolio of Investments under the heading "Offsetting Assets and Liabilities."
For financial reporting purposes, the Funds do not offset financial assets and
financial liabilities that are subject to master netting arrangements or similar
agreements on the Statements of Assets and Liabilities.
D. Securities Lending
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement , the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities in
the form of fees or interest on the investment of any cash received as
collateral. The dividend and interest earned on the securities loaned is
accounted for in the same manner as other dividend and interest income. At
December 31, 2013, only FPX, FBT and FDN have securities in the securities
lending program.
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
E. Dividends and Distribution to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
The tax character of distributions paid by each Fund during the year ended
December 31, 2013 was as follows:
Distributions Distributions Distributions
paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
--------------- --------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 986,641 $ -- $ --
First Trust Morningstar Dividend Leaders(SM) Index Fund 22,580,041 -- --
First Trust US IPO Index Fund 957,120 -- --
First Trust NYSE Arca Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index(SM) Fund -- -- --
First Trust Capital Strength ETF 684,781 -- --
First Trust Value Line(R) Equity Allocation Index Fund 43,260 -- --
First Trust Value Line(R) Dividend Index Fund 16,843,619 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund 179,357 -- --
The tax character of distributions paid by each Fund during the year ended
December 31, 2012 was as follows:
Distributions Distributions Distributions
paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
--------------- --------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 763,985 $ -- $ --
First Trust Morningstar Dividend Leaders(SM) Index Fund 21,586,886 -- --
First Trust US IPO Index Fund 267,146 -- --
First Trust NYSE Arca Biotechnology Index Fund -- -- --
First Trust Dow Jones Internet Index(SM) Fund -- -- --
First Trust Capital Strength ETF 591,636 -- --
First Trust Value Line(R) Equity Allocation Index Fund 97,326 -- --
First Trust Value Line(R) Dividend Index Fund 13,920,854 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund 559,524 -- --
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
As of December 31, 2013, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
--------------- --------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ -- $(24,396,167) $ 15,101,451
First Trust Morningstar Dividend Leaders(SM) Index Fund -- (39,074,976) 54,412,996
First Trust US IPO Index Fund -- (6,950,816) 48,680,165
First Trust NYSE Arca Biotechnology Index Fund -- (72,817,700) 179,160,589
First Trust Dow Jones Internet Index(SM) Fund -- (26,299,453) 410,959,394
First Trust Capital Strength ETF 13,050 (24,294,953) 6,040,734
First Trust Value Line(R) Equity Allocation Index Fund -- (5,435,056) 785,534
First Trust Value Line(R) Dividend Index Fund 300,846 (42,844,975) 103,097,728
First Trust Value Line(R) 100 Exchange-Traded Fund -- (90,050,408) 3,242,415
F. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2010, 2011,
2012 and 2013 remain open to federal and state audit. As of December 31, 2013,
management has evaluated the application of these standards to the Funds and has
determined that no provision for income tax is required in the Funds' financial
statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2013, the Funds had pre-enactment and
post-enactment net capital losses for federal income tax purposes as shown in
the following table. To the extent that these loss carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to Fund shareholders. The Funds are subject to certain
limitations, under U.S. tax rules, on the use of capital loss carryforwards and
net unrealized built-in losses. These limitations apply when there has been a
50% change in ownership.
Loss Loss Loss Loss Loss Post- Total
Available Available Available Available Available Enactment - Capital
Through Through Through Through Through No Loss
2014 2015 2016 2017 2018 Expiration Available
----------- ----------- ----------- ----------- ----------- ----------- -----------
First Trust Dow Jones Select MicroCap
Index(SM) Fund $ 1,604,481 $ 910,503 $ 902,807 $ 3,227,616 $ 5,096,533 $12,654,227 $24,396,167
First Trust Morningstar Dividend
Leaders(SM) Index Fund 202,279 198,670 14,962,284 16,831,977 473,435 6,406,331 39,074,976
First Trust US IPO Index Fund 303,759 740,683 2,682,788 1,127,563 65,058 2,030,965 6,950,816
First Trust NYSE Arca Biotechnology
Index Fund -- -- 2,061,136 5,787,577 1,039,054 63,929,933 72,817,700
First Trust Dow Jones Internet Index(SM)
Fund -- -- 6,295,170 1,163,966 -- 18,840,317 26,299,453
First Trust Capital Strength ETF -- 189,266 11,401,861 11,336,270 1,367,556 -- 24,294,953
First Trust Value Line(R) Equity
Allocation Index Fund -- 1,392,919 1,168,041 2,421,122 -- 452,974 5,435,056
First Trust Value Line(R) Dividend Index
Fund -- 904,989 21,855,796 19,646,203 437,987 -- 42,844,975
First Trust Value Line(R) 100
Exchange-Traded Fund -- 1,905,072 47,805,834 29,477,928 -- 10,861,574 90,050,408
Page 67
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
During the taxable year ended December 31, 2013, the following Funds utilized
capital loss carryforwards in the following amounts:
Pre-Enactment Capital Loss Post- Enactment Capital
Carryforward Utilized Loss Carryforward Utilized
-------------------------- --------------------------
First Trust Dow Jones Internet Index Fund $ -- $4,701,656
First Trust Capital Strength ETF 687,502 846,086
First Trust Value Line(R) Equity Allocation Index Fund -- 699,054
First Trust Value Line(R) Dividend Index Fund 3,583,030 1,215,368
First Trust Value Line(R) 100 Exchange-Traded Fund -- 6,536,026
During the taxable year ended December 31, 2013, the following Fund capital loss
carryforward expired in the following amount:
Capital Loss Carryforward
Expired
--------------------------
First Trust Morningstar Dividend Leaders(SM) Index Fund $ 52,755
In order to present paid-in capital, accumulated net investment income (loss),
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the fiscal year or period ended December 31, 2013, the
adjustments for each Fund were as follows:
Accumulated Accumulated Net
Net Investment Realized Gain (Loss) Paid-in
Income (Loss) on Investments Capital
--------------- --------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 140,738 $ (20,958,430) $ 20,817,692
First Trust Morningstar Dividend Leaders(SM) Index Fund 40,721 (62,698,810) 62,658,089
First Trust US IPO Index Fund 89,170 (809,473) 720,303
First Trust NYSE Arca Biotechnology Index Fund 1,398,537 (25,337,644) 23,939,107
First Trust Dow Jones Internet Index(SM) Fund 3,407,246 (130,974,812) 127,567,566
First Trust Capital Strength ETF (983) (5,824,505) 5,825,488
First Trust Value Line(R) Equity Allocation Index Fund 2,561 (3,515) 954
First Trust Value Line(R) Dividend Index Fund (167,722) (56,870,725) 57,038,447
First Trust Value Line(R) 100 Exchange-Traded Fund 6,829 (7,877,049) 7,870,220
G. Expenses
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund. General expenses of the Trust are allocated to all the
Funds based upon the net assets of each Fund. First Trust Advisors L.P. ("First
Trust" or the "Advisor") has entered into licensing agreements with each of the
following "Licensors" for the respective Funds:
FUND LICENSOR
First Trust Dow Jones Select MicroCap Index(SM) Fund Dow Jones & Company, Inc.
First Trust Morningstar Dividend Leaders(SM) Index Fund Morningstar, Inc.
First Trust US IPO Index Fund IPOX Schuster LLC
First Trust NYSE Arca Biotechnology Index Fund NYSE Euronext
First Trust Dow Jones Internet Index(SM) Fund Dow Jones & Company, Inc.
First Trust Capital Strength ETF The NASDAQ OMX Group, Inc. (4)
First Trust Value Line(R) Equity Allocation Index Fund Value Line Publishing, Inc.(R)
First Trust Value Line(R) Dividend Index Fund Value Line Publishing, Inc.(R)
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line Publishing, Inc.(R)
(4) Prior to June 3, 2013, the Capital Strength ETF's index provider was
Credit Suisse Securities (USA) LLC and Credit Suisse Group AG.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at the following annual rates:
% of Average
Daily Net Assets
----------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 0.50%
First Trust Morningstar Dividend Leaders(SM) Index Fund 0.30%
First Trust US IPO Index Fund 0.40%
First Trust NYSE Arca Biotechnology Index Fund 0.40%
First Trust Dow Jones Internet Index(SM) Fund 0.40%
First Trust Capital Strength ETF 0.50%
First Trust Value Line(R) Equity Allocation Index Fund 0.50%
First Trust Value Line(R) Dividend Index Fund 0.50%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.50%
The Trust and the Advisor have entered into an Expense Reimbursement, Fee Waiver
and Recovery Agreement ("Recovery Agreement") in which the Advisor has agreed to
waive fees and/or reimburse Fund expenses to the extent that the operating
expenses of each Fund (excluding interest expense, brokerage commissions and
other trading expenses, taxes and extraordinary expenses) exceed the below
amount as a percentage of average daily net assets per year (the "Expense Cap").
The Expense Cap will be in effect until at least April 30, 2014.
Expense Cap
----------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 0.60%
First Trust Morningstar Dividend Leaders(SM) Index Fund 0.45%
First Trust US IPO Index Fund 0.60%
First Trust NYSE Arca Biotechnology Index Fund 0.60%
First Trust Dow Jones Internet Index(SM) Fund 0.60%
First Trust Capital Strength ETF 0.65%
First Trust Value Line(R) Equity Allocation Index Fund 0.70%
First Trust Value Line(R) Dividend Index Fund 0.70%
First Trust Value Line(R) 100 Exchange-Traded Fund 0.70%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was reimbursed, but no reimbursement payment will be
made by the Fund if it results in the Fund exceeding an expense ratio equal to
the Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. These amounts would be included in "Expenses previously
waived or reimbursed" on the Statements of Operations.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
The advisory fee waivers and expense reimbursements for the year ended December
31, 2013 and the fees waived or expenses borne by the Advisor subject to
recovery from each applicable Fund for the periods indicated were as follows:
Fees Waived or Expenses Borne
by Advisor Subject to Recovery
--------------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2011 12/31/2012 12/31/2013 Total
---------- ------------- ------------ ------------ ------------ ------------
First Trust Dow Jones Select MicroCap
Index(SM) Fund $ 115,749 $ -- $ 117,235 $ 79,603 $ 115,749 $ 312,587
First Trust Morningstar Dividend Leaders(SM)
Index Fund 269,543 -- 226,674 322,632 269,543 818,849
First Trust US IPO Index Fund 70,526 -- 73,773 76,150 70,526 220,449
First Trust NYSE Arca Biotechnology Index Fund -- -- 43,660 32,040 -- 75,700
First Trust Dow Jones Internet Index(SM) Fund -- -- -- -- -- --
First Trust Capital Strength ETF 49,536 -- 61,430 59,498 49,536 170,464
First Trust Value Line(R) Equity Allocation
Index Fund 22,652 36,694 47,073 59,245 59,346 165,664
First Trust Value Line(R) Dividend Index Fund 391,960 -- 249,861 350,127 391,960 991,948
First Trust Value Line(R) 100 Exchange Traded
Fund 81,246 -- 99,646 88,774 81,246 269,666
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the servicing agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Funds. As custodian, BNYM is responsible for custody of the Trust's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of the Funds' securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Funds. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman served two-year terms until December 31, 2013, before rotating to serve
as Chairman of another Committee or as Lead Independent Trustee. After December
31, 2013, the Lead Independent Trustee and Committee Chairmen will rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2013, the cost of purchases and proceeds from
sales of investment securities for each Fund, excluding short-term investments
and in-kind transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 67,772,334 $ 68,136,750
First Trust Morningstar Dividend Leaders(SM) Index Fund 216,516,627 213,395,377
First Trust US IPO Index Fund 39,317,848 38,814,433
First Trust NYSE Arca Biotechnology Index Fund 261,507,117 272,246,755
First Trust Dow Jones Internet Index(SM) Fund 201,258,329 203,119,906
First Trust Capital Strength ETF 68,342,071 68,191,733
First Trust Value Line(R) Equity Allocation Index Fund 8,372,620 8,371,745
First Trust Value Line(R) Dividend Index Fund 472,658,009 471,593,522
First Trust Value Line(R) 100 Exchange-Traded Fund 171,271,545 171,316,805
Page 70
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
For the year ended December 31, 2013, the cost of in-kind purchases and proceeds
from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust Dow Jones Select MicroCap Index(SM) Fund $ 123,497,216 $ 105,433,577
First Trust Morningstar Dividend Leaders(SM) Index Fund 403,948,899 363,113,657
First Trust US IPO Index Fund 281,620,573 2,123,853
First Trust NYSE Arca Biotechnology Index Fund 608,548,981 85,851,485
First Trust Dow Jones Internet Index(SM) Fund 1,165,035,936 313,269,910
First Trust Capital Strength ETF 67,282,877 46,364,897
First Trust Value Line(R) Equity Allocation Index Fund -- --
First Trust Value Line(R) Dividend Index Fund 498,931,312 342,980,943
First Trust Value Line(R) 100 Exchange-Traded Fund 54,658,579 60,473,899
5. CREATION, REDEMPTION & TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares. Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as
transfer agent, a standard creation transaction fee (the "Creation Transaction
Fee"), which is based on the number of different securities in a Creation Unit
of each Fund according to the fee schedule set forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
---------------------- -----------------
1-100 $ 500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard
redemption transaction fee (the "Redemption Transaction Fee"), which is based on
the number of different securities in a Creation Unit of each Fund according to
the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
---------------------- -----------------
1-100 $ 500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before May 31, 2014.
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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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 Dow Jones Select MicroCap Index(SM) Fund, First Trust Morningstar Dividend
Leaders(SM) Index Fund, First Trust US IPO Index Fund, First Trust NYSE Arca
Biotechnology Index Fund, First Trust Dow Jones Internet Index(SM) Fund, First
Trust Capital Strength ETF (formerly known as First Trust Strategic Value Index
Fund), First Trust Value Line(R) Equity Allocation Index Fund, First Trust Value
Line(R) Dividend Index Fund, and First Trust Value Line(R) 100 Exchange-Traded
Fund, each a series of the First Trust Exchange-Traded Fund (the "Fund"),
including the portfolios of investments, as of December 31, 2013, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2013 by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds listed above included in the First Trust Exchange-Traded Fund, as
of December 31, 2013, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 26, 2014
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Trust's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the
Trust's website located at http://www.ftportfolios.com; (3) on the SEC's website
at http://www.sec.gov; and (4) for review and copying at the SEC's Public
Reference Room ("PRR") in Washington, DC. Information regarding the operation of
the PRR may be obtained by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2013, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
------------------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 100.00%
First Trust Morningstar Dividend Leaders(SM) Index Fund 100.00%
First Trust US IPO Index Fund 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index(SM) Fund --
First Trust Capital Strength ETF 100.00%
First Trust Value Line(R) Equity Allocation Index Fund 100.00%
First Trust Value Line(R) Dividend Index Fund 100.00%
First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
For the taxable year ended December 31, 2013, the following percentages of
income dividends paid by the Funds is hereby designated as qualified dividend
income:
Qualified Dividend Income
------------------------------
First Trust Dow Jones Select MicroCap Index(SM) Fund 100.00%
First Trust Morningstar Dividend Leaders(SM) Index Fund 100.00%
First Trust US IPO Index Fund 100.00%
First Trust NYSE Arca Biotechnology Index Fund --
First Trust Dow Jones Internet Index(SM) Fund --
First Trust Capital Strength ETF 100.00%
First Trust Value Line(R) Equity Allocation Index Fund 100.00%
First Trust Value Line(R) Dividend Index Fund 100.00%
First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST
TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS
THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS -- THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds. With the exception of First Trust Dow Jones Select MicroCap
Index(SM) Fund, First Trust Value Line(R) Dividend Index Fund, First Trust Value
Line(R) Equity Allocation Index Fund and First Trust Value Line(R) 100
Exchange-Traded Fund, each Fund is considered to be non-diversified. As a
result, those Funds are exposed to additional market risk. A non-diversified
fund may invest a relatively high percentage of its assets in a limited number
of issuers. As a result, changes in the market value of a single portfolio
security could cause greater fluctuations in share price than would occur in a
diversified fund. Furthermore, non-diversified funds are more susceptible to any
single political, regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invests in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
The First Trust Dow Jones Select MicroCap Index(SM) Fund invests in
micro-capitalization companies. Such companies may be more vulnerable to adverse
general market or economic developments, may be less liquid, and may experience
greater price volatility than larger, more established companies.
The First Trust Dow Jones Internet Index(SM) Fund invests in stocks of companies
in the technology sector. You should be aware that an investment in a portfolio
which invests in a particular sector involves additional risks, including
limited diversification. The companies engaged in the technology sector are
subject to fierce competition and high research and development costs, and their
products and services may be subject to rapid obsolescence.
The First Trust NYSE Arca Biotechnology Index Fund is concentrated in stocks of
companies in the biotechnology sector. You should be aware that an investment in
a portfolio which is concentrated in a particular sector involves additional
risks, including limited diversification. The companies engaged in the
biotechnology sector are subject to fierce competition, substantial research and
development costs, governmental regulations and pricing constraints, and their
products and services may be subject to rapid obsolescence.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
The First Trust NYSE Arca Biotechnology Index Fund and First Trust Capital
Strength ETF invest in the securities of companies in the health care sector.
Because companies in the health care sector are involved in medical services or
health care including biotechnology research and production, drugs and
pharmaceuticals and health care facilities and services, general problems of
these companies include extensive competition, generic drug sales or the loss of
patent protection, product liability litigation and increased government
regulations.
The First Trust US IPO Index Fund invests in companies that have recently
conducted an initial public offering. The stocks of such companies are often
subject to extreme price volatility and speculative trading.
The First Trust Value Line(R) Equity Allocation Index Fund and First Trust Dow
Jones Select Micro Cap Index(SM) Fund invest in securities of companies in the
financials sector. Banks, thrifts and their holding companies are especially
subject to the adverse effects of economic recession; volatile interest rates;
portfolio concentrations in geographic markets and in commercial and residential
real estate loans; and competition from new entrants in their fields of
business. Although recently enacted legislation repealed most of the barriers
which separated the banking, insurance and securities industries, these
industries are still extensively regulated at both the federal and state level
and may be adversely affected by increased regulations. The downturn in the U.S.
and world economies has adversely affected banks, thrifts and other companies in
the financials sector.
The First Trust Dow Jones Internet Index(SM) Fund invests in securities of
companies in the information technology industry. Information technology
companies are generally subject to the risks of rapidly changing technologies;
short product life cycles; fierce competition; and aggressive pricing and
reduced profit margins.
The First Trust US IPO Index Fund, First Trust Value Line(R) 100 Exchange Traded
Fund and First Trust Dow Jones Internet Index(SM) Fund invest in the securities
of companies in the consumer discretionary sector. Because companies in the
consumer discretionary sector manufacture products and provide discretionary
services directly to the consumer, the success of these companies is tied
closely to the performance of the overall domestic and international economy,
interest rates, competition and consumer confidence. Success depends heavily on
disposable household income and consumer spending. Changes in demographics and
consumer tastes can also affect the demand for, and success of, consumer
discretionary products in the marketplace.
The First Trust Morningstar Dividend Leaders(SM) Index Fund and First Trust
Value Line(R) Dividend Index Fund invest in the securities of utilities
companies. Utilities companies are subject to the imposition of rate caps,
increased competition due to deregulation, the difficulty in obtaining an
adequate return on invested capital or in financing large construction projects,
the limitations on operations and increased costs and delays attributable to
environmental considerations, and the capital market's ability to absorb utility
debt. In addition, taxes, government regulation, international politics, price
and supply fluctuations, volatile interest rates and energy conservation may
cause difficulties for utilities. Utilities issuers have been experiencing
certain of these problems to varying degrees.
The First Trust Dow Jones Internet Index(SM) Fund invests in the securities of
Internet companies. Internet companies are subject to rapid changes in
technology, worldwide competition, rapid obsolescence of products and services,
loss of patent protections, cyclical market patterns, evolving industry
standards and frequent new product introductions. The Fund's investment in
Internet companies may also be subject to the risk of owning small
capitalization companies that have recently begun operations.
With the exception of First Trust Capital Strength ETF and First Trust Dow Jones
Select MicroCap Index(SM) Fund, the Funds may invest in small capitalization and
mid-capitalization companies. Such companies' securities may be less liquid and
may experience greater price volatility than securities of larger, more
established companies.
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of certain Funds, including but not limited to, the
First Trust Value Line(R) 100 Exchange-Traded Fund, involves risks of investing
in non-U.S. securities that are in addition to the risk associated with domestic
securities. Non-U.S. companies, in general, are not subject to the regulatory
requirements of U.S. companies and, as such, there may be less publicly
available information about these companies. Moreover, non-U.S. accounting,
auditing and financial reporting standards generally are different from those
applicable to U.S. companies. In addition, non-U.S. companies are exposed to
additional economic, political, social or diplomatic events. ADRs and ADSs also
involve substantially identical risks to those associated with investments in
non-U.S. securities. In addition, the issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no
obligation to distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with respect to the
deposited securities.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 76
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, -without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST LENGTH OF SERVICE DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 105 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportsmed
Suite 400 LLC
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 105 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Inception (May 2007 to March 2010), ADM Investor Inc. and ADM
Suite 400 Services, Inc. (Futures Commission Investor Services
Wheaton, IL 60187 Merchant)
International
D.O.B.: 11/57
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 105 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 East Liberty Drive, o Since Inception Consulting) Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer (June 105 Director of
c/o First Trust Advisors L.P. 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Inception (Educational Products and Services); Transport Inc.
Suite 400 President (June 2002 to June 2012), Covenant
Wheaton, IL 60187 College
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 to 105 None
Chairman of the Board Present), President (until December 2010),
120 East Liberty Drive, o Since Inception First Trust Advisors L.P. and First Trust
Suite 400 Portfolios L.P.; Chairman of the Board of
Wheaton, IL 60187 Directors, BondWave LLC (Software
D.O.B.: 09/55 Development Company/Investment Advisor
and Stonebridge Advisors LLC (Investment
Advisor)
-------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 77
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Executive Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since Inception L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Financial Officer and President (April 2007 to January 2011), First Trust
Suite 400 Chief Accounting Officer o Since Inception Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
Suite 400 o Since Inception BondWave LLC (Software Development Company/
Wheaton, IL 60187 Investment Advisor); Secretary of Stonebridge
D.O.B.: 05/60 Advisors LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors
120 E. Liberty Drive, and Assistant Secretary L.P. and First Trust Portfolios L.P.
Suite 400 o Chief Compliance Officer
Wheaton, IL 60187 since January 2011
D.O.B.: 12/66
o Assistant Secretary
since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P.
120 E. Liberty Drive, and First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 11/70
-------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 78
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.
PRIVACY ONLINE
We allow third-party companies, including AddThis, to collect certain anonymous
information when you visit our website. These companies may use non-personally
identifiable information during your visits to this and other websites in order
to provide advertisements about goods and services likely to be of greater
interest to you. These companies typically use a cookie, third party web beacon
or pixel tags, to collect this information. To learn more about this behavioral
advertising practice, you can visit www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 79
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FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
FIRST TRUST
First Trust Exchange-Traded Fund
Book 2
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (QQEW)
First Trust NASDAQ-100-Technology Sector Index(SM) Fund (QTEC)
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (QQXT)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)
First Trust S&P REIT Index Fund (FRI)
First Trust ISE Water Index Fund (FIW)
First Trust ISE-Revere Natural Gas Index Fund (FCG)
First Trust ISE Chindia Index Fund (FNI)
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)
First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH)
Annual Report
December 31, 2013
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
Shareholder Letter........................................................... 2
Market Overview.............................................................. 3
Fund Performance Overview
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (QQEW)............... 4
First Trust NASDAQ-100-Technology Sector Index(SM) Fund (QTEC)............ 6
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (QQXT)......... 8
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 10
First Trust S&P REIT Index Fund (FRI)..................................... 12
First Trust ISE Water Index Fund (FIW).................................... 14
First Trust ISE-Revere Natural Gas Index Fund (FCG)....................... 16
First Trust ISE Chindia Index Fund (FNI).................................. 18
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 20
First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH)....................... 22
Notes to Fund Performance Overview........................................... 24
Understanding Your Fund Expenses............................................. 25
Portfolio of Investments
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (QQEW)............... 27
First Trust NASDAQ-100-Technology Sector Index(SM) Fund (QTEC)............ 30
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (QQXT)......... 31
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 33
First Trust S&P REIT Index Fund (FRI)..................................... 35
First Trust ISE Water Index Fund (FIW).................................... 37
First Trust ISE-Revere Natural Gas Index Fund (FCG)....................... 38
First Trust ISE Chindia Index Fund (FNI).................................. 40
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 42
First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH)....................... 44
Statements of Assets and Liabilities......................................... 51
Statements of Operations..................................................... 54
Statements of Changes in Net Assets.......................................... 58
Financial Highlights......................................................... 62
Notes to Financial Statements................................................ 67
Report of Independent Registered Public Accounting Firm...................... 78
Additional Information ...................................................... 79
Board of Trustees and Officers............................................... 83
Privacy Policy............................................................... 85
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended. Forward-looking statements include statements regarding the goals,
beliefs, plans or current expectations of First Trust Advisors L.P. ("First
Trust" or the "Advisor") and its representatives, taking into account the
information currently available to them. Forward-looking statements include all
statements that do not relate solely to current or historical fact. For example,
forward-looking statements include the use of words such as "anticipate,"
"estimate," "intend," "expect," "believe," "plan," "may," "should," "would" or
other words that convey uncertainty of future events or outcomes.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
any series of First Trust Exchange-Traded Fund (the "Trust") described in this
report (each such series is referred to as a "Fund" and collectively, as the
"Funds") to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. When
evaluating the information included in this report, you are cautioned not to
place undue reliance on these forward-looking statements, which reflect the
judgment of the Advisor and its representatives only as of the date hereof. We
undertake no obligation to publicly revise or update these forward-looking
statements to reflect events and circumstances that arise after the date hereof.
PERFORMANCE AND RISK DISCLOSURE
There is no assurance that any Fund described in this report will achieve its
investment objective. Each Fund is subject to market risk, which is the
possibility that the market values of securities owned by the Fund will decline
and that the value of the Fund shares may therefore be less than what you paid
for them. Accordingly, you can lose money investing in a Fund. See "Risk
Considerations" in the Additional Information section of this report for a
discussion of other risks of investing in the Funds.
Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. For the most recent month-end performance figures, please visit
http://www.ftportfolios.com or speak with your financial advisor. Investment
returns, net asset value and share price will fluctuate and Fund shares, when
sold, may be worth more or less than their original cost.
HOW TO READ THIS REPORT
This report contains information that may help you evaluate your investment. It
includes details about each Fund's portfolio and presents data and analysis that
provide insight into each Fund's performance and investment approach.
By reading the market overview by Robert F. Carey, Chief Market Strategist, you
may obtain an understanding of how the market environment affected the
performance of each Fund. The statistical information that follows may help you
understand each Fund's performance compared to that of relevant market
benchmarks.
It is important to keep in mind that the opinions expressed by personnel of the
Advisor are just that: informed opinions. They should not be considered to be
promises or advice. The opinions, like the statistics, cover the period through
the date on the cover of this report. The risks of investing in each Fund are
spelled out in its prospectus, statement of additional information, this report
and other Fund regulatory filings.
Page 1
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL LETTER FROM THE CHAIRMAN AND CEO
DECEMBER 31, 2013
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Exchange-Traded Fund (the "Trust").
As a shareholder, twice a year you receive a detailed report about your
investment, including a market overview and performance analysis for the period.
Additionally, First Trust Advisors L.P. ("First Trust") compiles the Trust's
financial statements for you to review. These reports are intended to keep you
up-to-date on your investment, and I encourage you to read this document and
discuss it with your financial advisor.
As you are probably aware, the twelve months covered by this report saw
challenging economic and political issues in the U.S. However, the period was
still positive for the markets. In fact, the S&P 500 Index, as measured on a
total return basis, rose 32.39% during the twelve months ended December 31,
2013. Of course, past performance can never be an indicator of future
performance, but First Trust believes that staying invested in quality products
through up and down markets and having a long-term horizon can help investors as
they work toward their financial goals.
First Trust continues to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success.
Your financial advisor can tell you about the other investments First Trust
offers that might fit your financial goals. We encourage you to discuss those
goals with your financial advisor regularly so that he or she can help keep you
on track and help you choose investments that match your goals.
First Trust will continue to make available up-to-date information about your
investments so you and your financial advisor are current on any First Trust
investments you own. We value our relationship with you, and thank you for the
opportunity to assist you in achieving your financial goals.
Sincerely,
/s/ James A. Bowen
James A. Bowen
Chairman of the Board of Trustees
Chief Executive Officer of First Trust Advisors L.P.
Page 2
--------------------------------------------------------------------------------
MARKET OVERVIEW
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
ANNUAL REPORT
DECEMBER 31, 2013
ROBERT F. CAREY, CFA
SENIOR VICE PRESIDENT AND CHIEF MARKET STRATEGIST
FIRST TRUST ADVISORS L.P.
Mr. Carey is responsible for the overall management of research and analysis of
the First Trust product line. Mr. Carey has 23 years of experience as an Equity
and Fixed-Income Analyst and is a recipient of the Chartered Financial Analyst
("CFA") designation. He is a graduate of the University of Illinois at
Champaign-Urbana with a B.S. in Physics. He is also a member of the Investment
Analysts Society of Chicago and the CFA Institute. Mr. Carey has appeared as a
guest on such programs as Bloomberg TV, CNBC, and WBBM Radio, and has been
quoted by several publications, including The Wall Street Journal, The Wall
Street Reporter, Bloomberg News Service, and Registered Rep.
STATE OF THE ECONOMY/INVESTING
Various surveys of leading economists have shown that expectations for U.S. GDP
growth in 2014 target a growth rate of around 2.8%, up from 2.1% over the past
four quarters through Q3'13. As of the close of 2013, the U.S. economic recovery
turned 54 months old, or 4.5 years. Over the past 4.5 years, we have been
steadfast in our message to investors that the recovery is not only real, but
worth taking a stake in via common stocks. Three major U.S. stock indices (S&P
500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index) all closed 2013 at
or near record highs. From March 9, 2009 (market bottom) through December 31,
2013, the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index posted
cumulative total returns of 202.78%, 256.52% and 288.11%, respectively. With
small-capitalization stocks outperforming both mid- and large capitalization
stocks, it would appear that the traditional risk/reward relationship is in
proper working order. We believe that should be construed as a positive to any
investor who lost confidence in the markets following the financial crisis in
2008.
One of the biggest disappointments in this recovery to date is that too many
people are still out of work in the U.S.: U.S. payrolls currently stand about
1.5 million below where they were in 2008, according to Bloomberg. If the labor
situation improves in 2014, there is a potential silver lining. Why is this so?
More workers should lead to greater consumption, in our opinion. Another
potential boost to consumption could come from consumer durable goods. Americans
have been holding onto their consumer durable goods (which typically last at
least three years) longer than at any point in the last 50 years, according to
MSN.com. This suggests there could be pent-up demand for these goods. The
average age of such items as furniture, appliances and jewelry is more than five
years old, the highest since at least 1962, according to the Bureau of Economic
Analysis.
U.S. STOCKS AND BONDS
For the second calendar year in a row, all of the major U.S. stock indices
posted double-digit total returns. The S&P 500 Index, S&P MidCap 400 Index and
S&P SmallCap 600 Index were up 32.39%, 33.50%, and 41.31%, respectively in 2013,
according to Bloomberg. All 10 major sectors in the S&P 500 Index posted
double-digit total returns as well in 2013. The gains ranged from 11.47% for the
S&P 500 Telecommunication Services Index to 43.08% for the S&P 500 Consumer
Discretionary Index. Volatility eased further in 2013. The VIX Index averaged
14.25%, well below 2012's average of 17.82%, and significantly below its 10-year
average of 20.17%. The 2014 estimated earnings growth rates for the S&P 500
Index, S&P MidCap 400 Index and S&P SmallCap 600 Index were 13.31%, 22.57% and
34.92%, respectively, as of January 9, 2014, according to Standard & Poor's.
The S&P 500 Index has not experienced a 10% correction in 819 days, as of
December 31, 2013, and even though we witnessed one in 2011, the market
eventually rebounded and moved on to set new all-time highs. Investors leery of
committing capital to the stock market at current levels should know, however,
that the longest stretch without a 10% correction was 2,553 days (October 11,
1990 - October 7, 1997), according to Bespoke Investment Group. This means that,
while always a possibility, a correction is not imminent, in our opinion.
In the U.S. bond market, the top-performing major debt group in 2013 was
high-yield corporate bonds. The Barclays U.S. Corporate High Yield Index posted
a total return of 7.44%. The next closest domestic category was intermediate
investment-grade corporate bonds, up just 0.08%, as measured by the Barclays
Intermediate Corporate Index. The Barclays Municipal Bond: Long Bond (22+ Yr)
Index posted the weakest total return, down 6.01%. The 127 basis point rise in
the yield on the benchmark 10-year Treasury note in 2013 induced some selling
pressure in bond mutual funds. TrimTabs Investment Research reported that
investors liquidated a record $86 billion from U.S. bond mutual funds and ETFs
in 2013, according to Barron's. It topped the previous record of $62 billion set
in 1994.
FOREIGN STOCKS AND BONDS
Investors shied away from foreign debt securities in 2013. The Barclays Global
Emerging Markets Index of debt securities fell 2.66% (USD), while the Barclays
Global Aggregate Index of higher-quality debt declined by 2.60% (USD). Investors
seemed just as disinterested in emerging markets equities. The MSCI Emerging
Markets Index posted a total return of -2.60% (USD). On the other hand,
investors were attracted to stocks from developed nations. The MSCI World Index
(excluding the U.S.) posted a total return of 21.02% (USD). Over the past 12
months, the U.S. dollar rose just 0.33% against a basket of major currencies, as
measured by the U.S. Dollar Index (DXY). The dollar had little influence on
returns for U.S. investors in 2013, in our opinion.
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED Index(SM) FUND (QQEW)
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal
Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index is the
equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the
largest non-financial securities listed on the NASDAQ(R) based on market
capitalization. The Index contains the same securities as the NASDAQ-100
Index(R), but each of the securities is initially set at a weight of 1.00% of
the Index and is rebalanced quarterly. The Fund's shares are listed for trading
on the NASDAQ(R). The first day of secondary market trading in shares of the
Fund was April 25, 2006.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (04/19/06) Ended (04/19/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 39.95% 24.76% 8.47% 202.31% 87.05%
Market Value 39.96% 24.79% 8.47% 202.63% 87.10%
INDEX PERFORMANCE
NASDAQ-100 Equal Weighted Index(SM) 40.99% 25.56% 9.15% 212.02% 96.33%
S&P 500(R) Index 32.39% 17.94% 6.84% 128.19% 66.46%
NASDAQ-100 Index(R) 36.94% 25.56% 10.85% 212.13% 121.12%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 39.95% during the 12-month period covered by
this report. During the same period, the benchmark NASDAQ-100 Index(R) generated
a return of 36.94%. The Information Technology sector was the leading
contributor to total return with an 18.0% contribution. The Fund's holdings from
the sector returned 40.8% and comprised an average of 44.6% of the Fund's
weight. The Health Care sector was the best performing sector in the Fund with a
50.2% return. Strong returns from the Biotech industry (+77.1%) helped drive the
sector's performance. Most of the Fund's outperformance came from being
significantly underweight in Apple, Inc. relative to the benchmark. The company
had an average weight of 1.0% in the Fund versus 12.7% in benchmark. For the
reporting period Apple Inc.'s performance of 8.1% was a lag relative to the Fund
and benchmark.
-------------------
NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Equal Weighted
Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust on behalf of the Fund. The Fund has not been passed on by the Corporations
as to its legality or suitability. The Fund is not issued, endorsed, sold, or
promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO
LIABILITY WITH RESPECT TO THE FUND.
Page 4
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED Index(SM) FUND (QQEW) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 42.04%
Consumer Discretionary 28.04
Health Care 13.95
Industrials 6.01
Consumer Staples 5.89
Telecommunication Services 3.05
Materials 1.02
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Cisco Systems, Inc. 1.04%
NXP Semiconductors N.V. 1.04
Illumina, Inc. 1.03
Intuitive Surgical, Inc. 1.03
VimpelCom Ltd., ADR 1.03
Charter Communications, Inc., Class A 1.03
Tesla Motors, Inc. 1.03
Wynn Resorts Ltd. 1.03
Symantec Corp. 1.03
Mattel, Inc. 1.03
-------
Total 10.32%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 19, 2006 - DECEMBER 31, 2013
First Trust NASDAQ-100 Equal S&P 500(R) NASDAQ-100 Equal NASDAQ-100
Weighted Index(SM) Fund Index Weighted Index(SM) Index(R)
04/06 $10000 $10000 $10000 $10000
12/06 10060 10975 10097 10168
06/07 11050 11739 11117 11217
12/07 11040 11579 11142 12124
06/08 9673 10199 9785 10708
12/08 6187 7295 6292 7084
06/09 7653 7526 7803 8671
12/09 9871 9225 10100 10954
06/10 9314 8612 9561 10278
12/10 11968 10616 12321 13161
06/11 12867 11254 13288 13849
12/11 11636 10839 12063 13645
06/12 12704 11868 13203 15750
12/12 13365 12574 13927 16145
06/13 15450 14312 16172 17774
12/13 18704 16646 19636 22109
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 144 0 0 0
01/01/10 - 12/31/10 155 1 0 0
01/01/11 - 12/31/11 151 0 0 0
01/01/12 - 12/31/12 157 0 0 0
01/01/13 - 12/31/13 203 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 104 3 1 0
01/01/10 - 12/31/10 95 1 0 0
01/01/11 - 12/31/11 101 0 0 0
01/01/12 - 12/31/12 92 1 0 0
01/01/13 - 12/31/13 49 0 0 0
Page 5
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR Index(SM) FUND (QTEC)
The First Trust NASDAQ-100-Technology Sector Index(SM) Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology
Sector Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index is an
equal-weighted index based on the securities of the NASDAQ-100 Index(R) that are
classified as "technology" according to the Industry Classification Benchmark
classification system. The NASDAQ-100 Index(R), includes 100 of the largest
domestic and international non-financial companies listed on the NASDAQ(R) based
on market capitalization. The Fund's shares are listed for trading on the
NASDAQ(R). The first day of secondary market trading in shares of the Fund was
April 25, 2006.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (4/19/06) Ended (4/19/06)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 38.12% 25.26% 8.05% 208.40% 81.50%
Market Value 38.26% 25.56% 8.06% 212.11% 81.65%
INDEX PERFORMANCE
NASDAQ-100 Technology Sector Index(SM) 39.01% 26.07% 8.73% 218.42% 90.50%
S&P 500 Information Technology Index 28.43% 21.90% 8.18% 169.13% 83.24%
S&P 500(R) Index 32.39% 17.94% 6.84% 128.19% 66.46%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 38.12% during the 12-month period covered by
this report. During the same period, the S&P 500 Information Technology Index
generated a return of 28.43%. The Semiconductor industry led all the industries
in the Fund with a 13.5% contribution to the Fund's return. The Fund's holdings
in the industry comprised 32.5% of the Fund's average weight and returned 41.2%
during the reporting period. Micron Technology, Inc. gave the industry's
performance a boost as the company returned 243.1% during the reporting period.
The Internet Software & Services industry was the best-performing industry in
the Fund with a 58.2% return. Facebook, Inc. was the Fund's top-performing
holding in the industry with a 105.3% return. The Fund's outperformance of the
benchmark was caused by the Fund being underweight Apple, Inc. and overweight
the Semiconductor industry. The Fund held Apple, Inc., at an average weight of
2.3% versus 16.7% in benchmark. For the reporting period the company's
performance of 8.1% was a lag relative to the Fund and benchmark. The
Semiconductor industry had solid performance and the Fund was overweight the
industry relative to the benchmark (32.5% vs. 11.2% average weight).
-------------------
NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Technology Sector
Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust on behalf of the Fund. The Fund has not been passed on by the Corporations
as to its legality or suitability. The Fund is not issued, endorsed, sold, or
promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO
LIABILITY WITH RESPECT TO THE FUND.
Page 6
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR Index(SM) FUND (QTEC) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 92.62%
Health Care 4.92
Consumer Discretionary 2.46
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Cisco Systems, Inc. 2.60%
NXP Semiconductors N.V. 2.58
Symantec Corp. 2.57
Equinix, Inc. 2.55
Broadcom Corp., Class A 2.54
Check Point Software Technologies Ltd. 2.54
Intel Corp. 2.54
Altera Corp. 2.53
F5 Networks, Inc. 2.53
Applied Materials, Inc. 2.52
-------
Total 25.50%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 19, 2006 - DECEMBER 31, 2013
First Trust
NASDAQ-100 Technology NASDAQ-100-Technology S&P 500 Information S&P 500(R)
Sector Index(SM) Fund Sector Index(SM) Technology Index Index
04/06 $10000 $10000 $10000 $10000
12/06 9985 10020 10296 10975
06/07 10925 10989 11256 11739
12/07 10750 10847 11975 11579
06/08 9755 9872 10409 10199
12/08 5885 5983 6809 7295
06/09 7890 8048 8502 7526
12/09 10587 10838 11011 9224
06/10 9782 10041 9847 8611
12/10 12907 13293 12133 10615
06/11 13006 13435 12383 11253
12/11 12165 12606 12426 10839
06/12 12720 13222 14084 11868
12/12 13141 13702 14269 12574
06/13 14681 15357 15175 14312
12/13 18150 19047 18325 16646
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 151 4 0 0
01/01/10 - 12/31/10 188 0 0 0
01/01/11 - 12/31/11 161 0 0 0
01/01/12 - 12/31/12 132 0 0 0
01/01/13 - 12/31/13 170 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 94 3 0 0
01/01/10 - 12/31/10 63 1 0 0
01/01/11 - 12/31/11 91 0 0 0
01/01/12 - 12/31/12 117 1 0 0
01/01/13 - 12/31/13 81 1 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR Index(SM) FUND (QQXT)
The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ-100
Ex-Tech Sector Index(SM) (the "Index"). The Fund will normally invest at least
90% of its assets in common stocks that comprise the Index. The Index contains
securities of the NASDAQ-100 Index(R) that are not classified as "technology"
according to the Industry Classification Benchmark classification system and, as
a result, is a subset of the NASDAQ-100 Index(R). The NASDAQ-100 Index(R)
includes 100 of the largest domestic and international non-financial companies
listed on the NASDAQ(R) based on market capitalization. The Index is
equally-weighted and is rebalanced four times annually in March, June, September
and December. The Fund's shares are listed for trading on the NASDAQ(R). The
first day of secondary market trading in shares of the Fund was February 15,
2007.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (2/8/07) Ended (2/8/07)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 41.24% 24.37% 8.85% 197.58% 79.42%
Market Value 41.07% 24.56% 8.85% 199.82% 79.43%
INDEX PERFORMANCE
NASDAQ-100 Ex-Tech Sector Index(SM) 42.30% 25.16% 9.54% 207.17% 87.45%
Russell 1000(R) Index 33.11% 18.59% 6.11% 134.54% 50.49%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 41.24% during the 12-month period covered by
this report. During the same period, the benchmark Russell 1000(R) Index
generated a return of 33.11%. The Consumer Discretionary sector was the
top-contributing sector in the Fund with a 19.7% contribution. The sector was
the heaviest-weighted in the Fund with a 41.6% average weight and one of the
best-performing with a return of 48.6% for the reporting period. Within the
sector, the Fund's holdings were concentrated in the Media and Internet &
Catalog Retail industries, which had returns of 50.0% and 58.2%, respectively.
The Health Care sector was the best-performing sector in the Fund with a 55.2%
return. The sector had an average weight in the Fund of 23.5% and contributed
12.7% to the Fund's return. Biotechnology stocks helped fuel the Health Care
sector's returns as the Fund's holdings in the industry returned 77.2% and
contributed 9.0% to the Fund's return. The Consumer Discretionary and Health
Care sectors also were the primary causes of the Fund outperforming its
benchmark. In both sectors the Fund holdings outperformed the benchmark's
constituents and the Fund was overweight both sectors relative to the benchmark.
-------------------
NASDAQ(R), NASDAQ-100(R), NASDAQ-100 Index(R), and NASDAQ-100 Ex-Tech Sector
Index(SM) are trademarks of The NASDAQ OMX Group, Inc. (which with its
affiliates is referred to as the Corporations) and are licensed for use by First
Trust on behalf of the Fund. The Fund has not been passed on by the Corporations
as to its legality or suitability. The Fund is not issued, endorsed, sold, or
promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO
LIABILITY WITH RESPECT TO THE FUND.
Page 8
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR Index(SM) FUND (QQXT) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECTOR (1) LONG-TERM INVESTMENTS
Consumer Discretionary 45.13%
Health Care 19.99
Industrials 10.02
Consumer Staples 9.82
Information Technology 8.25
Telecommunication Services 5.09
Materials 1.70
-------
Total 100.00%
=======
-------------------
(1) The above sector allocation is based on Standard & Poor's Global Industry
Classification Standard ("GICS"), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark ("ICB") system, the joint classification
system of Dow Jones Indexes and FTSE Group.
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Illumina, Inc. 1.73%
Intuitive Surgical, Inc. 1.72
VimpelCom Ltd., ADR 1.72
Charter Communications, Inc., Class A 1.72
Tesla Motors, Inc. 1.72
Wynn Resorts Ltd. 1.71
Mattel, Inc. 1.71
DIRECTV 1.71
Liberty Interactive Corp., Class A 1.71
Fastenal Co. 1.70
-------
Total 17.15%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 8, 2007 - DECEMBER 31, 2013
First Trust NASDAQ-100 Ex-Technology NASDAQ-100 Ex-Tech Russell 1000(R)
Sector Index(SM) Fund Sector Index(SM) Index
02/07 $10000 $10000 $10000
12/07 10595 10653 10282
06/08 9057 9126 9131
12/08 6029 6102 6417
06/09 7060 7165 6694
12/09 8848 9009 8241
06/10 8454 8633 7714
12/10 10674 10935 9568
06/11 11961 12294 10177
12/11 10558 10894 9711
06/12 11906 12317 10622
12/12 12703 13172 11306
06/13 15089 15721 12879
12/13 17942 18744 15050
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 137 1 3 1
01/01/10 - 12/31/10 156 0 0 0
01/01/11 - 12/31/11 159 0 0 0
01/01/12 - 12/31/12 127 1 0 0
01/01/13 - 12/31/13 145 13 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 109 1 0 0
01/01/10 - 12/31/10 94 2 0 0
01/01/11 - 12/31/11 93 0 0 0
01/01/12 - 12/31/12 111 11 0 0
01/01/13 - 12/31/13 82 12 0 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ(R)
Clean Edge(R) Green Energy Index (the "Index"). The Fund will normally invest at
least 90% of its assets in common stocks that comprise the Index. The Index is
an equity index designed to track the performance of clean energy companies that
are publicly traded in the United States and includes companies engaged in
manufacturing, development, distribution and installation of emerging
clean-energy technologies including, but not limited to, solar photovoltaics,
biofuels and advanced batteries. The Index is a modified market capitalization
weighted index in which larger companies receive a larger Index weighting. The
Index weighting methodology also includes caps to prevent high concentrations
among larger alternative energy stocks. The Index is reconstituted semi-annually
in March and September and rebalanced quarterly. The Fund's shares are listed
for trading on the NASDAQ(R). The first day of secondary market trading in
shares of the Fund was February 14, 2007.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (2/8/07) Ended (2/8/07)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 89.79% 10.25% -1.34% 62.86% -8.88%
Market Value 90.80% 10.29% -1.34% 63.17% -8.87%
INDEX PERFORMANCE
NASDAQ(R) Clean Edge(R) Green Energy Index 89.34% 10.45% -1.00% 64.37% -6.72%
Russell 2000(R) Index 38.82% 20.08% 6.75% 149.69% 56.87%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 89.79% during the 12-month period covered by
this report. During the same period, the benchmark Russell 2000(R) Index
generated a return of 38.82%. Tesla Motors, Inc. was the largest individual
contributor to total return. The company had an average weight in the Fund of
9.5% and returned 344.1% resulting in a 26.1% contribution to the Fund's return.
The electric vehicle company posted its first profit much earlier than analysts
expected. An increase in solar panel demand, particularly in Japan and China,
helped a much depressed solar industry rebound sharply during the reporting
period. Canadian Solar, Inc. (+777.1%), SunPower Corp. (+430.4%), and SunEdison,
Inc. (+306.5%) were the three best-performing solar companies in the Fund.
Together the companies combined to contribute 17.9% to the Fund's return.
-------------------
NASDAQ(R) and Clean Edge(R) are the registered trademarks (the "Marks") of The
NASDAQ OMX Group, Inc. ("NASDAQ OMX") and Clean Edge, Inc. ("Clean Edge(R)")
respectively. NASDAQ OMX and Clean Edge(R) are, collectively with their
affiliates, the "Corporations." The Marks are licensed for use by First Trust on
behalf of the Fund. The Fund has not been passed on by the Corporations as to
its legality or suitability. The Fund is not issued, endorsed, sold, or promoted
by the Corporations. The Fund should not be construed in any way as investment
advice by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO
LIABILITY WITH RESPECT TO THE FUND.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN) (CONTINUED)
--------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 68.52%
Industrials 11.58
Consumer Discretionary 9.04
Utilities 6.48
Energy 3.20
Materials 0.85
Financials 0.33
-------
Total 100.00%
=======
--------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Tesla Motors, Inc. 9.04%
Cree, Inc. 8.58
Linear Technology Corp. 8.19
First Solar, Inc. 6.99
ITC Holdings Corp. 6.48
ON Semiconductor Corp. 4.45
SolarCity Corp. 4.16
SunEdison, Inc. 3.93
Hexcel Corp. 3.89
SunPower Corp. 3.76
-------
Total 59.47%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 8, 2007 - DECEMBER 31, 2013
First Trust NASDAQ(R)
Clean Edge(R) NASDAQ(R) Clean Edge(R) Russell 2000(R)
Green Energy Index Fund Green Energy Index Fund Index
02/07 $10000 $10000 $10000
12/07 15430 15522 9489
06/08 12350 12472 8599
12/08 5595 5675 6283
06/09 6920 7038 6449
12/09 8045 8213 7990
06/10 6665 6824 7834
12/10 8210 8434 10136
06/11 7640 7879 10765
12/11 4825 4992 9713
06/12 4670 4822 10542
12/12 4801 4927 11301
06/13 7177 7346 13093
12/13 9111 9329 15688
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 92 4 0 0
01/01/10 - 12/31/10 79 0 0 0
01/01/11 - 12/31/11 125 5 0 0
01/01/12 - 12/31/12 37 6 1 0
01/01/13 - 12/31/13 168 5 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 152 3 1 0
01/01/10 - 12/31/10 173 0 0 0
01/01/11 - 12/31/11 116 6 0 0
01/01/12 - 12/31/12 153 52 1 0
01/01/13 - 12/31/13 75 4 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST S&P REIT INDEX FUND (FRI)
The First Trust S&P REIT Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the S&P United States REIT Index (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks that comprise the Index. The Index measures the securitized U.S. real
estate investment trust ("REIT") market and maintains a constituency that
reflects the composition of the overall REIT market. The Index contains
securities selected for market representation according to geography and
property type. All securities in the Index satisfy the Index's liquidity, price
and market capitalization requirements. The Standard & Poor's Index Committee, a
team of Standard & Poor's economists and index analysts, maintains the Index.
The S&P Index Committee makes constituent changes on an as-needed basis. Share
adjustments that exceed 5% are made at the time of the change. Share adjustments
of less than 5% are made on a quarterly basis. The Fund's shares are listed for
trading on the NYSE Arca. The first day of secondary market trading in shares of
the Fund was May 10, 2007.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 1.82% 16.09% 0.64% 110.85% 4.31%
Market Value 1.82% 16.21% 0.64% 111.97% 4.32%
INDEX PERFORMANCE
S&P United States REIT Index* 2.40% 16.71% N/A 116.51% N/A
FTSE EPRA/NAREIT North America Index 1.27% 17.10% 1.06% 120.17% 7.27%
Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88%
---------------------------------------------------------------------------------------------------------------------------
* On November 6, 2008, the Fund's underlying index changed from the S&P REIT
Composite Index to the S&P United States REIT Index. Effective December
31, 2008, the S&P REIT Composite Index was discontinued. Therefore, the
Fund's performance and historical returns shown for the periods prior to
November 6, 2008 are not necessarily indicative of the performance that
the Fund, based on its current Index, would have generated. The inception
date of the Index was June 30, 2008. Returns for the Index are only
disclosed for those periods in which the Index was in existence for the
whole period.
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 1.82% during the 12-month period covered by
this report. During the same period, the benchmark Russell 3000(R) Index
generated a return of 33.55%. Despite strong returns in the equity markets, the
reporting period was a tough time for REITs in general. Many REIT classes
exhibited a negative correlation to the 10-year US Treasury yield, which rose
during the reporting period. Specialized REITs led all other classes of REITs in
the Fund in contribution to the Fund's return with a 1.4% contribution. The
class comprised 29.8% of the Fund's average weight and returned 5.0%.
Residential REITs were the worst-performing class in the Fund with a -5.3%
return. In total the class's average weight in the Fund was 16.1% and
contributed -0.7% to the Fund's return.
-------------------
Standard & Poor's(R), S&P(R) and S&P United States REIT Index are registered
trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been
licensed for use by First Trust on behalf of the Fund. The Fund is not
sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its
affiliates make no representation, warranty or condition regarding the
advisability of buying, selling or holding shares of the Fund.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST S&P REIT INDEX FUND (FRI) (CONTINUED)
--------------------------------------------------------
PORTFOLIO REIT CLASS ALLOCATION AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
REIT CLASS LONG-TERM INVESTMENTS
Specialized 29.10%
Retail 27.09
Residential 15.41
Office 13.48
Diversified 9.75
Industrial 5.17
-------
Total 100.00%
=======
--------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Simon Property Group, Inc. 9.33%
Public Storage 4.30
Prologis, Inc. 3.64
Equity Residential 3.44
Ventas, Inc. 3.33
HCP, Inc. 3.28
Health Care REIT, Inc. 3.06
Vornado Realty Trust 3.05
Boston Properties, Inc. 3.03
Host Hotels & Resorts, Inc. 2.91
-------
Total 39.37%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2013
First Trust S&P FTSE EPRA/NAREIT Russell 3000(R)
REIT Index Fund North America Index Index
05/07 $10000 $10000 $10000
12/07 8093 8206 9811
06/08 7739 7843 8728
12/08 4947 4872 6151
06/09 4319 4381 6405
12/09 6333 6442 7889
06/10 6679 6772 7412
12/10 8090 8287 9225
06/11 8899 9163 9811
12/11 8729 8965 9319
06/12 10007 10276 10188
12/12 10247 10593 10849
06/13 10871 11091 12374
12/13 10434 10728 14489
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 136 16 1 0
01/01/10 - 12/31/10 185 0 0 0
01/01/11 - 12/31/11 149 1 0 0
01/01/12 - 12/31/12 37 6 1 0
01/01/13 - 12/31/13 130 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 84 14 1 0
01/01/10 - 12/31/10 67 0 0 0
01/01/11 - 12/31/11 102 0 0 0
01/01/12 - 12/31/12 153 52 1 0
01/01/13 - 12/31/13 122 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ISE WATER INDEX FUND (FIW)
The First Trust ISE Water Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the ISE Water Index(TM) (the "Index"). The
Fund will normally invest at least 90% of its assets in common stocks that
comprise the Index. The Index is a modified market capitalization weighted index
comprised of 36 stocks that derive a substantial portion of their revenues from
the potable and wastewater industries. The Index is rebalanced on a semi-annual
basis. The Fund's shares are listed for trading on the NYSE Arca. The first day
of secondary market trading in shares of the Fund was May 11, 2007.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 30.91% 17.63% 9.09% 125.24% 78.29%
Market Value 30.92% 17.74% 9.10% 126.29% 78.44%
INDEX PERFORMANCE
ISE Water Index(TM) 31.90% 18.50% 9.84% 133.70% 86.66%
Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24)
PERFORMANCE REVIEW
The Fund generated a NAV return of 30.91% during the 12-month period covered by
this report. During the same period, the benchmark Russell 3000(R) Index
generated a return of 33.55%. The Fund's holdings were concentrated heavily in
the Industrials sector. The Fund's holdings in the sector comprised an average
of 63.3% of the Fund's weight, and returned 39.7% for the reporting period,
resulting in a 24.5% contribution to the Fund's return. Within the sector the
Machinery industry was the heaviest-weighted with an average weight in the Fund
of 43.5%. The Fund's holdings in the industry returned 42.2% and contributed
17.9% to the Fund's return. Three of the Fund's top 5 best-contributing holdings
were from the Machinery industry. Pentair Ltd., Watts Water Technologies, Inc.,
and Energy Recovery, Inc. contributed 2.2%, 1.6%, and 1.5% to the Fund's return,
respectively. The Utilities sector was second heaviest-weighted sector in the
Fund with an average weight of 22.5% and a return of 17.2%, which lagged the
broader market. The overweight position in Utilities is what caused the Fund to
lag its benchmark.
-------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE Water Index(TM)" are
trademarks of the International Securities Exchange, LLC and have been licensed
for use for certain purposes by First Trust on behalf of the Fund. The Fund,
based on the ISE Water Index(TM), is not sponsored, endorsed, sold or promoted
by the International Securities Exchange, LLC and the International Securities
Exchange, LLC makes no representation regarding the advisability of trading in
such product.
Page 14
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ISE WATER INDEX FUND (FIW) (CONTINUED)
--------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 57.02%
Utilities 24.95
Materials 6.76
Information Technology 5.19
Health Care 4.89
Financials 1.19
-------
Total 100.00%
=======
--------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Pentair Ltd. 4.18%
Cia de Saneamento Basico do Estado
de Sao Paulo, ADR 4.17
Rexnord Corp. 4.10
Lindsay Corp. 4.05
Watts Water Technologies, Inc.,Class A 4.00
California Water Service Group 3.98
Badger Meter, Inc. 3.93
American Water Works Co., Inc. 3.90
Aqua America, Inc. 3.86
Xylem, Inc. 3.86
-------
Total 40.03%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2013
First Trust ISE Water ISE Water Russell 3000(R)
Index Fund Index(TM) Index
05/07 $10000 $10000 $10000
12/07 11212 11260 9811
06/08 10992 11056 8728
12/08 7915 7987 6151
06/09 8168 8276 6405
12/09 9522 9681 7889
06/10 8989 9168 7412
12/10 11378 11653 9225
06/11 11910 12243 9811
12/11 10738 11076 9319
06/12 11803 12225 10188
12/12 13619 14153 10849
06/13 14585 15220 12374
12/13 17830 18667 14489
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 103 4 0 0
01/01/10 - 12/31/10 146 0 0 0
01/01/11 - 12/31/11 131 0 0 0
01/01/12 - 12/31/12 121 1 0 0
01/01/13 - 12/31/13 197 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 131 13 1 0
01/01/10 - 12/31/10 105 1 0 0
01/01/11 - 12/31/11 121 0 0 0
01/01/12 - 12/31/12 127 1 0 0
01/01/13 - 12/31/13 55 0 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
The First Trust ISE-Revere Natural Gas Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the ISE-REVERE Natural Gas Index(TM)
(the "Index"). The Fund will normally invest at least 90% of its assets in
common stocks that comprise the Index. The Index is an equal-weighted index
comprised of exchange-listed companies that derive a substantial portion of
their revenues from the exploration and production of natural gas. The Index is
constructed by establishing the universe of stocks listed in the U.S. of
companies involved in the natural gas exploration and production industries and
then eliminates stocks whose natural gas proven reserves do not meet certain
requirements. The Index then ranks all candidate stocks using four different
methods and, often averaging the rankings, selects the top 30 stocks based on
the final rank. The Index is rebalanced on a quarterly basis. The Fund's shares
are listed for trading on the NYSE Arca. The first day of secondary market
trading in shares of the Fund was May 11, 2007.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 25.13% 11.04% 0.11% 68.82% 0.73%
Market Value 24.99% 11.31% 0.10% 70.90% 0.69%
INDEX PERFORMANCE
ISE-REVERE Natural Gas Index(TM) 25.73% 11.85% 0.78% 75.03% 5.30%
Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88%
S&P Composite 1500 Energy Index 25.39% 13.95% 6.29% 92.11% 50.04%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 25.13% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Energy Index
generated a return of 25.39%. Rising natural gas prices partially due to cold
weather helped exploration and production companies during the reporting period,
though the valuation of these companies pulled back in the 4th quarter of 2013
as investors expected weather to normalize. The Oil & Gas Exploration &
Production sub-industry was the heaviest-weighted sub-industry in the Fund with
91.8% of the Fund's average weight. The Fund's Oil & Gas Exploration &
Production holdings returned 27.7% during the reporting period resulting in a
25.0% contribution to the Fund's return. Goodrich Petroleum Corp. was the best
individual contributor in the Fund with a 5.7% contribution to the Fund's return
as the company's stock returned 82.6% for the reporting period. Penn Virginia
Corp. was the best-performing stock in the Fund with a 113.8% return and a 3.8%
contribution to the Fund's return.
-------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE-REVERE Natural Gas
Index(TM)" are trademarks of the International Securities Exchange, LLC and have
been licensed for use for certain purposes by First Trust on behalf of the Fund.
The Fund, based on the ISE-REVERE Natural Gas Index(TM), is not sponsored,
endorsed, sold or promoted by the International Securities Exchange, LLC and the
International Securities Exchange, LLC makes no representation regarding the
advisability of trading in such product.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG) (CONTINUED)
--------------------------------------------------------------------------------
PORTFOLIO SUB-INDUSTRY ALLOCATION AS OF DECEMBER 31, 2013
--------------------------------------------------------------------------------
% OF TOTAL
SUB-INDUSTRY LONG-TERM INVESTMENTS
Oil & Gas Exploration & Production 92.53%
Integrated Oil & Gas 3.82
Gas Utilities 3.65
-------
Total 100.00%
=======
--------------------------------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
--------------------------------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Magnum Hunter Resources Corp. 4.07%
Stone Energy Corp. 3.92
Swift Energy Co. 3.89
Quicksilver Resources, Inc. 3.85
Cimarex Energy Co. 3.84
Cabot Oil & Gas Corp. 3.83
Statoil ASA, ADR 3.82
EXCO Resources, Inc. 3.80
Range Resources Corp. 3.78
Newfield Exploration Co. 3.76
-------
Total 38.56%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2013
S&P
First Trust ISE-Revere ISE-REVERE Natural Russell 3000(R) Composite 1500
Natural Gas Index Fund Gas Index(TM) Index Energy Index
05/07 $10000 $10000 $10000 $10000
12/07 11166 11213 9804 12170
06/08 15755 15942 8721 13578
12/08 5967 6016 6147 7810
06/09 6454 6518 6405 7740
12/09 8903 9017 7889 9092
06/10 7752 7891 7412 8016
12/10 9992 10254 9225 11036
06/11 11012 11342 9811 12304
12/11 9308 9620 9319 11469
06/12 8426 8735 10188 11132
12/12 8051 8375 10849 11967
06/13 8290 8639 12374 13130
12/13 10075 10530 14489 15006
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 174 1 0 0
01/01/10 - 12/31/10 124 0 0 0
01/01/11 - 12/31/11 151 0 0 0
01/01/12 - 12/31/12 151 0 0 0
01/01/13 - 12/31/13 149 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 77 0 0 0
01/01/10 - 12/31/10 127 1 0 0
01/01/11 - 12/31/11 101 0 0 0
01/01/12 - 12/31/12 99 0 0 0
01/01/13 - 12/31/13 103 0 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
The First Trust ISE Chindia Index Fund (the "Fund") seeks investment results
that correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the ISE ChIndia Index(TM) (the "Index"). The
Fund will normally invest at least 90% of its assets in common stocks that
comprise the Index. The Index is a non-market capitalization weighted portfolio
of 50 American Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs")
and/or stocks selected from a universe of all listed ADRs, ADSs, and/or stocks
of companies from China and India currently trading on a U.S. exchange. The
Index is rebalanced on a semi-annual basis. The Fund's shares are listed for
trading on the NYSE Arca. The first day of secondary market trading in shares of
the Fund was 05/11/07.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (5/8/07) Ended (5/8/07)
12/31/13 12/31/13 to 12/31/13 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 35.81% 20.41% 6.40% 153.07% 51.03%
Market Value 36.29% 20.27% 6.43% 151.69% 51.35%
INDEX PERFORMANCE
ISE ChIndia Index(TM) 36.41% 21.03% 6.98% 159.70% 56.64%
Russell 3000(R) Index 33.55% 18.71% 5.73% 135.71% 44.88%
MSCI Emerging Markets Index -2.60% 14.79% 2.56% 99.33% 18.28%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 35.81% during the 12-month period covered by
this report. During the same period, the benchmark MSCI Emerging Markets Index
generated a return of -2.60%. The Information Technology sector was the
heaviest-weighted and best-performing sector in the Fund. The Fund's holdings in
the sector comprised an average of 40.1% of the Fund's average weight and
returned 73.9% for the reporting period, resulting in a contribution to the
Fund's return of 26.6%. Within the Information Technology sector, the Internet
Software & Services industry had particularly strong performance, returning
101.3% and contributing 15.1% to the Fund's return. The industry included the
Fund's best individual contributor, Baidu, Inc., which returned 77.4% and
contributed 5.3% to the Fund's return. The Consumer Discretionary sector was the
second best-performing and contributing sector in the Fund with a 72.0% return
and a contribution of 13.5%. Within the sector the Hotels, Restaurants & Leisure
industry had a standout 5.1% contribution to the Fund's return and appreciated
109.3% during the reporting period. Melco Crown Entertainment Ltd. was the best
individual stock in the industry with a return of 132.9% and a contribution to
the Fund's return of 4.3%. The Fund was able to outperform its broad emerging
markets benchmark because the Fund did not have exposure to South America, was
heavily overweight the Information Technology and Consumer Discretionary
sectors, and was underweight the Energy, Financials and Materials sectors.
-------------------
"International Securities Exchange(TM)", "ISE(TM)" and "ISE ChIndia Index(TM)"
are trademarks of the International Securities Exchange, LLC and have been
licensed for use for certain purposes by First Trust on behalf of the Fund. The
Fund, based on the ISE ChIndia Index(TM), is not sponsored, endorsed, sold or
promoted by the International Securities Exchange, LLC and the International
Securities Exchange, LLC makes no representation regarding the advisability of
trading in such product.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST ISE CHINDIA INDEX FUND (FNI) (CONTINUED)
--------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 48.79%
Consumer Discretionary 22.58
Financials 13.10
Health Care 5.69
Telecommunication Services 5.37
Energy 2.93
Industrials 0.79
Utilities 0.75
-------
Total 100.00%
=======
--------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Wipro Ltd., ADR 7.23%
Infosys Ltd., ADR 6.99
Baidu, Inc., ADR 6.98
ICICI Bank Ltd., ADR 6.97
Qihoo 360 Technology Co., Ltd., ADR 6.81
Michael Kors Holdings Ltd. 6.63
Dr. Reddy's Laboratories Ltd., ADR 4.09
Ctrip.com International Ltd., ADR 4.02
Melco Crown Entertainment Ltd., ADR 3.98
Tata Motors Ltd., ADR 3.92
-------
Total 57.62%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2013
MSCI
First Trust ISE Chindia ISE ChIndia Russell 3000(R) Emerging
Index Fund Index(TM) Index Markets Index
05/07 $10000 $10000 $10000 $10000
12/07 13873 13952 9804 12715
06/08 9985 10059 8721 11220
12/08 5968 6031 6147 5934
06/09 8329 8451 6405 8071
12/09 10836 11031 7889 10593
06/10 10540 10767 7412 9939
12/10 12836 13175 9225 12592
06/11 13047 13466 9811 12703
12/11 9497 9771 9319 10273
06/12 10069 10375 10188 10677
12/12 11121 11483 10849 12145
06/13 11258 11659 12374 10983
12/13 15103 15665 14489 11829
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period January 1, 2009 through
December 31, 2013. Shareholders may pay more than NAV when they buy Fund shares
and receive less than NAV when they sell those shares because shares are bought
and sold at current market price. Data presented represents past performance and
cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 131 15 10 1
01/01/10 - 12/31/10 151 2 0 0
01/01/11 - 12/31/11 65 1 0 0
01/01/12 - 12/31/12 63 1 0 0
01/01/13 - 12/31/13 66 0 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
QUARTER ENDED 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/09 - 12/31/09 95 0 0 0
01/01/10 - 12/31/10 99 0 0 0
01/01/11 - 12/31/11 186 0 0 0
01/01/12 - 12/31/12 175 11 0 0
01/01/13 - 12/31/13 185 1 0 0
Page 19
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
The First Trust NASDAQ(R) ABA Community Bank Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ OMX(R) ABA
Community Bank Index(SM) (the "Index"). The Fund will normally invest at least
90% of its assets in common stocks that comprise the Index. The Index includes a
subset of banks and thrifts or their holding companies listed on NASDAQ(R). The
Index is jointly owned and was developed by NASDAQ OMX(R) and the American
Bankers Association ("ABA"). For the purposes of the Index, a "community bank"
is considered to be all U.S. banks and thrifts or their holding companies listed
on NASDAQ(R) excluding the 50 largest U.S. banks by asset size. Also excluded
are banks that have an international specialization and those banks that have a
credit-card specialization, as screened by the ABA based on the most recent data
from the FDIC. Banks with an international specialization are those institutions
with assets greater than $10 billion and more than 25% of total assets in
foreign offices. Banks with a credit-card specialization are those institutions
with credit-card loans plus securitized receivables in excess of 50% of total
assets plus securitized receivables. Securities in the Index must have a market
capitalization of at least $200 million and a three-month average daily trading
volume of at least $500 thousand. The Index is rebalanced quarterly and
reconstituted semi-annually. The Fund's shares are listed for trading on the
NASDAQ(R). The first day of secondary market trading in shares of the Fund was
July 1, 2009.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (6/29/09) Inception (6/29/09)
12/31/13 to 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 42.89% 15.70% 92.97%
Market Value 44.19% 15.78% 93.52%
INDEX PERFORMANCE
NASDAQ OMX(R) ABA Community Bank Index(SM) 43.83% 16.46% 98.76%
S&P Composite 1500 Financials Sector Index 34.25% 16.47% 98.79%
Russell 3000(R) Index 33.55% 19.66% 124.51%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 42.89% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Financials Sector
Index generated a return of 34.25%. Rising long-term interest rates caused the
yield curve to steepen during the reporting period. This aided the Fund as
regional banks tend to earn more of their income from interest relative to
larger national banks. SVB Financial Group was the top-contributing holding in
the Fund with a 2.3% contribution to the Fund's return. The company returned
87.4% on the year due to loan growth, increases on net interest margin and gains
on venture capital investments. BofI Holding, Inc. was the best-performing stock
in the Fund with a 182.0% return during the period. The company reported record
earnings for the seventh consecutive quarter due to asset growth and margin
expansion. The main driver of the Fund outperforming its benchmark was that the
Fund did not have any REIT exposure. The benchmark had an average weight of
16.9% in REITs, which had relatively flat performance.
-------------------
NASDAQ(R), OMX(R), NASDAQ OMX(R), and NASDAQ OMX(R) ABA Community Bank Index(SM)
are trademarks of The NASDAQ OMX Group, Inc. ("NASDAQ OMX") and American Bankers
Association ("ABA") (NASDAQ OMX and ABA, collectively with their affiliates, are
referred to as the "Corporations") and are licensed for use by First Trust on
behalf of the Fund. The Fund has not been passed on by the Corporations as to
its legality or suitability. The Fund is not issued, endorsed, sold, or promoted
by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY
WITH RESPECT TO THE FUND.
Page 20
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA) (CONTINUED)
--------------------------------------------------------
PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
INDUSTRY LONG-TERM INVESTMENTS
Commercial Banks 87.52%
Thrifts & Mortgage Finance 11.96
IT Services 0.52
-------
Total 100.00%
=======
--------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Zions Bancorporation 3.70%
Signature Bank 3.40
East West Bancorp, Inc. 3.23
SVB Financial Group 3.21
Commerce Bancshares, Inc. 2.88
TFS Financial Corp. 2.49
FirstMerit Corp. 2.46
Hancock Holding Co. 2.02
UMB Financial Corp. 1.94
Investors Bancorp, Inc. 1.92
------
Total 27.25%
======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 29, 2009 - DECEMBER 31, 2013
First Trust NASDAQ(R) ABA NASDAQ OMX(R) ABA Russell 3000(R) S&P Composite 1500
Community Bank Index Fund Community Bank Index(SM) Index Financials Sector Index
06/09 $10000 $10000 $10000 $10000
12/09 11280 11318 12224 12112
06/10 11438 11505 11484 11744
12/10 12721 12846 14293 13722
06/11 12520 12688 15201 13420
12/11 11898 12095 14439 11662
06/12 13081 13343 15785 13227
12/12 13507 13817 16809 14806
06/13 16006 16427 19172 17584
12/13 19302 19873 22448 19879
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period July 1, 2009 (commencement of
trading) through December 31, 2013. Shareholders may pay more than NAV when they
buy Fund shares and receive less than NAV when they sell those shares because
shares are bought and sold at current market price. Data presented represents
past performance and cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
07/01/09 - 12/31/09 60 3 1 0
01/01/10 - 12/31/10 151 1 0 0
01/01/11 - 12/31/11 135 2 0 0
01/01/12 - 12/31/12 100 17 1 0
01/01/13 - 12/31/13 139 24 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
07/01/09 - 12/31/09 62 2 0 0
01/01/10 - 12/31/10 98 1 0 1
01/01/11 - 12/31/11 111 4 0 0
01/01/12 - 12/31/12 114 18 0 0
01/01/13 - 12/31/13 72 17 0 0
Page 21
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
The First Trust CBOE S&P 500 VIX Tail Hedge Fund seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the CBOE VIX Tail Hedge Index(SM) (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks and call options included in the Index. The Index is composed of each of
the equity securities comprising the S&P 500 and an out-of-the-money call option
position on the Chicago Board Options Exchange Market Volatility Index (the "VIX
Index"). The VIX Index is quoted in percentage points, is calculated and
disseminated in real-time by CBOE and is a way of measuring the market's
expectation of volatility in the S&P 500 over the next 30-day period. The Index,
and in turn the Fund, tracks the performance of an S&P 500 stock portfolio (with
dividends reinvested), and call options on the VIX Index. The amount of the
Index allocated to call options on the VIX Index is reevaluated and rebalanced
each month, depending on the level of forward expected volatility in the S&P
500, as measured by the closest to maturity VIX Index futures. The Index is
designed to help cope with extreme downward movements in the market by hedging
its portfolio through purchasing call options on the VIX Index, or "tail
hedging." The Index is reconstituted and rebalanced monthly. The Fund's shares
are listed for trading on the NYSE Arca. The first day of secondary market
trading in shares of the Fund was August 30, 2012.
---------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
---------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year Ended Inception (8/29/12) Inception (8/29/12)
12/31/13 to 12/31/13 to 12/31/13
FUND PERFORMANCE
NAV 19.00% 12.70% 17.37%
Market Value 19.21% 12.81% 17.52%
INDEX PERFORMANCE
CBOE VIX Tail Hedge Index(SM) 19.43% 13.15% 17.99%
S&P 500(R) Index 32.39% 25.07% 34.94%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 19.00% during the 12-month period covered by
this report. During the same period, the benchmark S&P 500(R) Index generated a
return of 32.39%. The Fund is identical to its benchmark except for the Fund's
option overlay. On 9 out of 12 monthly rebalances the Fund allocated 1.0% of its
weight to an out-of-the-money VIX option set to expire about one month from the
purchase date. Each month the option contracts expired as worthless. The Fund's
underperformance was caused by the cost of the option and a compounding effect
of performance due to the strong equity market returns.
Page 22
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH) (CONTINUED)
--------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 18.64%
Financials 16.18
Health Care 12.95
Consumer Discretionary 12.54
Industrials 10.94
Energy 10.27
Consumer Staples 9.76
Materials 3.50
Utilities 2.93
Telecommunication Services 2.29
-------
Total 100.00%
=======
--------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2013
--------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Apple, Inc. 3.06%
Exxon Mobil Corp. 2.68
Google, Inc., Class A 1.91
Microsoft Corp. 1.72
General Electric Co. 1.72
Johnson & Johnson 1.57
Chevron Corp. 1.45
Procter & Gamble (The) Co. 1.34
JPMorgan Chase & Co. 1.33
Wells Fargo & Co. 1.32
------
Total 18.10%
======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 29, 2012 - DECEMBER 31, 2013
First Trust CBOE S&P 500 CBOE VIX Tail S&P 500(R)
VIX Tail Hedge Fund Hdge Index(SM) Index
08/12 $10000 $10000 $10000
12/12 9863 9880 10193
06/13 10686 10719 11602
12/13 11738 11799 13494
Performance figures assume reinvestment of all dividend distributions and do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. An index is a
statistical composite that tracks a specified financial market or sector. Unlike
the Fund, the indices do not actually hold a portfolio of securities and
therefore do not incur the expenses incurred by the Fund. These expenses
negatively impact the performance of the Fund. The Fund's past performance does
not predict future performance.
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2013
The following Frequency Distribution of Discounts and Premiums charts are
provided to show the frequency at which the bid/ask midpoint price for the Fund
was at a discount or premium to the daily NAV. The following tables are for
comparative purposes only and represent the period August 30, 2012 (commencement
of trading) through December 31, 2013. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/30/12 - 12/31/12 57 3 0 0
01/01/13 - 12/31/13 155 5 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/30/12 - 12/31/12 21 1 1 0
01/01/13 - 12/31/13 92 0 0 0
Page 23
--------------------------------------------------------------------------------
NOTES TO FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
Total returns for the periods since inception are calculated from the inception
date of each Fund. "Average annual total returns" represent the average annual
change in value of an investment over the periods indicated. "Cumulative total
returns" represent the total change in value of an investment over the periods
indicated. The total returns would have been lower if certain fees had not been
waived and expenses reimbursed by the Advisor.
Each Fund's per share net asset value ("NAV") is the value of one share of the
Fund and is computed by dividing the value of all assets of the Fund (including
accrued interest and dividends), less all liabilities (including accrued
expenses and dividends declared but unpaid), by the total number of outstanding
shares. The price used to calculate market return ("Market Value") is determined
by using the midpoint between the highest bid and the lowest offer on the stock
exchange on which shares of the Fund are listed for trading as of the time that
the Fund's NAV is calculated. Since shares of the Fund did not trade in the
secondary market until after the Fund's inception, for the period from inception
to the first day of secondary market trading in shares of the Fund, the NAV of
the Fund is used as a proxy for the secondary market trading price to calculate
market returns. NAV and Market Value returns assume that all dividend
distributions have been reinvested in the Fund at NAV and Market Value,
respectively.
An index is a statistical composite that tracks a specified financial market or
sector. Unlike a Fund, an index does not actually hold a portfolio of securities
and therefore does not incur the expenses incurred by each Fund. These expenses
negatively impact the performance of each Fund. Also, market returns do not
include brokerage commissions that may be payable on secondary market
transactions. If brokerage commissions were included, market returns would be
lower. The total returns presented reflect the reinvestment of dividends on
securities in the indices. The returns presented do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption or
sale of Fund shares. The investment return and principal value of shares of each
Fund will vary with changes in market conditions. Shares of each Fund may be
worth more or less than their original cost when they are redeemed or sold in
the market. Each Fund's past performance is no guarantee of future results.
Page 24
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES
DECEMBER 31, 2013 (UNAUDITED)
As a shareholder of First Trust NASDAQ-100 Equal Weighted Index(SM) Fund, First
Trust NASDAQ-100-Technology Sector Index(SM) Fund, First Trust NASDAQ-100
Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index
Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia
Index Fund, First Trust NASDAQ(R) ABA Community Bank Index Fund, or First Trust
CBOE S&P 500 VIX Tail Hedge Fund (each a "Fund" and collectively, the "Funds"),
you incur two types of costs: (1) transaction costs; and (2) ongoing costs,
including management fees, distribution and/or service fees, if any, and other
Fund expenses. This Example is intended to help you understand your ongoing
costs of investing in the Funds and to compare these costs with the ongoing
costs of investing in other funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held through the six-month period ended December 31, 2013.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
------------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSE PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX MONTH SIX MONTH
JULY 1, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b)
------------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED Index(SM) FUND (QQEW)
Actual $1,000.00 $1,210.60 0.60% $3.34
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR Index(SM) FUND (QTEC)
Actual $1,000.00 $1,236.30 0.60% $3.38
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR Index(SM) FUND (QQXT)
Actual $1,000.00 $1,189.10 0.60% $3.31
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
Actual $1,000.00 $1,269.50 0.60% $3.43
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST S&P REIT INDEX FUND (FRI)
Actual $1,000.00 $ 959.80 0.50% $2.47
Hypothetical (5% return before expenses) $1,000.00 $1,022.68 0.50% $2.55
FIRST TRUST ISE WATER INDEX FUND (FIW)
Actual $1,000.00 $1,222.50 0.60% $3.36
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
Actual $1,000.00 $1,215.30 0.60% $3.35
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
Page 25
FIRST TRUST EXCHANGE-TRADED FUND
UNDERSTANDING YOUR FUND EXPENSES (CONTINUED)
DECEMBER 31, 2013 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSE PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX MONTH SIX MONTH
JULY 1, 2013 DECEMBER 31, 2013 PERIOD (a) PERIOD (b)
------------------------------------------------------------------------------------------------------------------------------------
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
Actual $1,000.00 $1,341.50 0.60% $3.54
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
Actual $1,000.00 $1,205.90 0.60% $3.34
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
Actual $1,000.00 $1,098.40 0.60% $3.17
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
------------------
(a) These expense ratios reflect expense caps for all Funds other than VIXH.
See Note 3 in Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2013 through December 31, 2013), multiplied by 184/365 (to reflect the
one-half year period).
Page 26
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (QQEW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AIR FREIGHT & LOGISTICS -- 2.0%
50,128 C.H. Robinson Worldwide, Inc. $ 2,924,468
65,080 Expeditors International of
Washington, Inc. 2,879,790
------------
5,804,258
------------
AUTOMOBILES -- 1.0%
19,762 Tesla Motors, Inc. (a) (b) 2,971,810
------------
BEVERAGES -- 1.0%
42,801 Monster Beverage Corp. (b) 2,900,624
------------
BIOTECHNOLOGY -- 6.9%
21,693 Alexion Pharmaceuticals, Inc. (b) 2,886,471
24,879 Amgen, Inc. 2,840,187
10,041 Biogen Idec, Inc. (b) 2,808,970
16,917 Celgene Corp. (b) 2,858,296
38,023 Gilead Sciences, Inc. (b) 2,857,428
10,170 Regeneron Pharmaceuticals,
Inc. (b) 2,799,191
39,458 Vertex Pharmaceuticals, Inc. (b) 2,931,729
------------
19,982,272
------------
CHEMICALS -- 1.0%
31,299 Sigma-Aldrich Corp. 2,942,419
------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.0%
24,932 Stericycle, Inc. (b) 2,896,350
------------
COMMUNICATIONS EQUIPMENT --
3.1%
134,201 Cisco Systems, Inc. 3,012,812
32,169 F5 Networks, Inc. (b) 2,922,875
38,950 QUALCOMM, Inc. 2,892,038
------------
8,827,725
------------
COMPUTERS & PERIPHERALS -- 5.0%
5,162 Apple, Inc. 2,896,450
69,999 NetApp, Inc. 2,879,759
40,773 SanDisk Corp. 2,876,127
50,903 Seagate Technology PLC 2,858,712
34,284 Western Digital Corp. 2,876,428
------------
14,387,476
------------
FOOD & STAPLES RETAILING -- 2.0%
23,910 Costco Wholesale Corp. 2,845,529
47,822 Whole Foods Market, Inc. 2,765,546
------------
5,611,075
------------
FOOD PRODUCTS -- 2.9%
36,751 Green Mountain Coffee Roasters,
Inc. (a) (b) 2,777,641
52,487 Kraft Foods Group, Inc. 2,830,099
81,751 Mondelez International, Inc.,
Class A 2,885,810
------------
8,493,550
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.0%
7,780 Intuitive Surgical, Inc. (b) 2,988,142
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES
-- 3.0%
59,034 Catamaran Corp. (b) $ 2,802,934
41,128 Express Scripts Holding Co. (b) 2,888,831
25,114 Henry Schein, Inc. (b) 2,869,526
------------
8,561,291
------------
HEALTH CARE TECHNOLOGY -- 1.0%
51,826 Cerner Corp. (b) 2,888,781
------------
HOTELS, RESTAURANTS & LEISURE --
3.0%
58,898 Marriott International, Inc.,
Class A 2,907,205
36,500 Starbucks Corp. 2,861,235
15,291 Wynn Resorts Ltd. 2,969,665
------------
8,738,105
------------
HOUSEHOLD DURABLES -- 1.0%
61,574 Garmin Ltd. (a) 2,845,950
------------
INTERNET & CATALOG RETAIL -- 5.9%
7,045 Amazon.com, Inc. (b) 2,809,476
41,924 Expedia, Inc. 2,920,426
100,685 Liberty Interactive Corp.,
Class A (b) 2,955,105
7,542 Netflix, Inc. (b) 2,776,738
2,380 priceline.com, Inc. (b) 2,766,512
34,092 TripAdvisor, Inc. (b) 2,823,840
------------
17,052,097
------------
INTERNET SOFTWARE & SERVICES --
7.0%
59,422 Akamai Technologies, Inc. (b) 2,803,530
16,351 Baidu, Inc., ADR (b) 2,908,516
51,933 eBay, Inc. (b) 2,850,602
16,602 Equinix, Inc. (b) 2,946,025
51,443 Facebook, Inc., Class A (b) 2,811,874
2,574 Google, Inc., Class A (b) 2,884,708
70,644 Yahoo!, Inc. (b) 2,856,843
------------
20,062,098
------------
IT SERVICES -- 4.0%
35,443 Automatic Data Processing, Inc. 2,864,149
28,869 Cognizant Technology Solutions
Corp., Class A (b) 2,915,192
49,090 Fiserv, Inc. (b) 2,898,764
62,777 Paychex, Inc. 2,858,237
------------
11,536,342
------------
LEISURE EQUIPMENT & PRODUCTS
-- 1.0%
62,269 Mattel, Inc. 2,962,759
------------
LIFE SCIENCES TOOLS & SERVICES --
1.0%
27,030 Illumina, Inc. (b) 2,990,059
------------
MACHINERY -- 1.0%
49,188 PACCAR, Inc. 2,910,454
------------
See Notes to Financial Statements Page 27
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA -- 10.1%
21,792 Charter Communications, Inc.,
Class A (b) $ 2,980,274
55,725 Comcast Corp., Class A 2,895,750
42,801 DIRECTV (b) 2,957,121
32,299 Discovery Communications, Inc.,
Class A (b) 2,920,476
50,177 DISH Network Corp., Class A (b) 2,906,252
32,948 Liberty Global PLC, Class A (b) 2,932,042
19,554 Liberty Media Corp., Class A (b) 2,863,683
805,209 Sirius XM Holdings, Inc. (b) 2,810,179
82,751 Twenty-First Century Fox, Inc.,
Class A 2,911,180
33,679 Viacom, Inc., Class B 2,941,524
------------
29,118,481
------------
MULTILINE RETAIL -- 1.0%
51,112 Dollar Tree, Inc. (b) 2,883,739
------------
PHARMACEUTICALS -- 1.0%
66,672 Mylan, Inc. (b) 2,893,565
------------
PROFESSIONAL SERVICES -- 1.0%
42,584 Verisk Analytics, Inc., 2,798,620
Class A (b) ------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 14.0%
89,980 Altera Corp. 2,927,049
56,672 Analog Devices, Inc. 2,886,305
164,883 Applied Materials, Inc. 2,916,780
54,875 Avago Technologies Ltd. 2,902,339
99,207 Broadcom Corp., Class A 2,941,488
113,100 Intel Corp. 2,936,076
44,901 KLA-Tencor Corp. 2,894,318
63,267 Linear Technology Corp. 2,881,812
100,012 Maxim Integrated Products, Inc. 2,791,335
127,845 Micron Technology, Inc. (b) 2,781,907
180,880 NVIDIA Corp. 2,897,698
65,130 NXP Semiconductors N.V. (b) 2,991,421
66,160 Texas Instruments, Inc. 2,905,086
63,396 Xilinx, Inc. 2,911,144
------------
40,564,758
------------
SOFTWARE -- 9.0%
158,429 Activision Blizzard, Inc. 2,824,789
47,846 Adobe Systems, Inc. (b) 2,865,019
57,618 Autodesk, Inc. (b) 2,899,914
86,019 CA, Inc. 2,894,539
45,564 Check Point Software
Technologies Ltd. (b) 2,939,789
45,917 Citrix Systems, Inc. (b) 2,904,250
37,652 Intuit, Inc. 2,873,601
77,084 Microsoft Corp. 2,885,254
125,915 Symantec Corp. 2,969,076
------------
26,056,231
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
Specialty Retail -- 5.0%
36,613 Bed Bath & Beyond, Inc. (b) $ 2,940,024
22,009 O'Reilly Automotive, Inc. (b) 2,832,778
38,293 Ross Stores, Inc. 2,869,294
180,185 Staples, Inc. 2,863,140
37,827 Tractor Supply Co. 2,934,619
------------
14,439,855
------------
Trading Companies &
Distributors -- 1.0%
62,131 Fastenal Co. 2,951,844
------------
Wireless Telecommunication
Services -- 3.1%
32,558 SBA Communications Corp.,
Class A (b) 2,925,011
230,432 VimpelCom Ltd., ADR 2,981,790
73,964 Vodafone Group PLC, ADR 2,907,525
------------
8,814,326
------------
TOTAL COMMON STOCKS --
100.0% $288,875,056
(Cost $268,500,616)
Money Market Funds -- 1.9%
5,540,470 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (c) (d) 5,540,470
(Cost $5,540,470) ------------
TOTAL INVESTMENTS -- 101.9% 294,415,526
(Cost $274,041,086) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.9)% (5,470,510)
------------
NET ASSETS -- 100.0% $288,945,016
============
--------------------
(a) All or a portion of this security is on loan. (See Note 2E - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $5,430,061 and the total value of the collateral held by the
Fund is $5,540,470.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2013.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $274,359,080. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$24,229,724 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$4,173,278.
ADR - American Depositary Receipt
Page 28 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $288,875,056 $ -- $ --
Money Market Funds 5,540,470 -- --
-----------------------------------------------
Total Investments $294,415,526 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
---------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
------------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 5,430,061
Non-cash Collateral(2) (5,430,061)
---------------------------------------------------------
Net Amount $ --
===========
---------------------
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
See Notes to Financial Statements Page 29
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEXSM FUND (QTEC)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
COMMUNICATIONS EQUIPMENT --
7.6%
205,535 Cisco Systems, Inc. $ 4,614,261
49,272 F5 Networks, Inc. (a) 4,476,854
59,652 QUALCOMM, Inc. 4,429,161
------------
13,520,276
------------
COMPUTERS & PERIPHERALS --
12.4%
7,911 Apple, Inc. 4,438,941
107,209 NetApp, Inc. 4,410,578
62,450 SanDisk Corp. 4,405,223
77,962 Seagate Technology PLC 4,378,346
52,502 Western Digital Corp. 4,404,918
------------
22,038,006
------------
HEALTH CARE PROVIDERS & SERVICES
-- 2.4%
90,417 Catamaran Corp. (a) 4,292,999
------------
HEALTH CARE TECHNOLOGY -- 2.5%
79,373 Cerner Corp. (a) 4,424,251
------------
HOUSEHOLD DURABLES -- 2.5%
94,306 Garmin Ltd. 4,358,823
------------
INTERNET SOFTWARE & SERVICES --
14.9%
91,004 Akamai Technologies, Inc. (a) 4,293,569
25,040 Baidu, Inc., ADR (a) 4,454,115
25,431 Equinix, Inc. (a) 4,512,731
78,782 Facebook, Inc., Class A (a) 4,306,224
3,944 Google, Inc., Class A (a) 4,420,080
108,198 Yahoo!, Inc. (a) 4,375,527
------------
26,362,246
------------
IT Services -- 2.5%
44,209 Cognizant Technology Solutions
Corp., Class A (a) 4,464,225
------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 35.1%
137,806 Altera Corp. 4,482,829
86,801 Analog Devices, Inc. 4,420,775
252,525 Applied Materials, Inc. 4,467,167
84,045 Avago Technologies Ltd. 4,445,140
151,939 Broadcom Corp., Class A 4,504,991
173,220 Intel Corp. 4,496,791
68,772 KLA-Tencor Corp. 4,433,043
96,895 Linear Technology Corp. 4,413,567
153,172 Maxim Integrated Products, Inc. 4,275,031
195,801 Micron Technology, Inc. (a) 4,260,630
277,020 NVIDIA Corp. 4,437,860
99,745 NXP Semiconductors N.V. (a) 4,581,288
101,328 Texas Instruments, Inc. 4,449,313
97,090 Xilinx, Inc. 4,458,373
------------
62,126,798
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
SOFTWARE -- 20.1%
73,277 Adobe Systems, Inc. (a) $ 4,387,827
88,248 Autodesk, Inc. (a) 4,441,522
131,742 CA, Inc. 4,433,118
69,778 Check Point Software
Technologies Ltd. (a) 4,502,077
70,321 Citrix Systems, Inc. (a) 4,447,803
57,663 Intuit, Inc. 4,400,840
118,056 Microsoft Corp. 4,418,836
192,843 Symantec Corp. 4,547,238
------------
35,579,261
------------
TOTAL INVESTMENTS -- 100.0% 177,166,885
(Cost $141,802,324) (b)
NET OTHER ASSETS AND
LIABILITIES -- (0.0)% (2,263)
------------
NET ASSETS -- 100.0% $177,164,622
============
-------------------
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $143,658,518. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$37,268,675 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$3,760,308.
ADR - American Depositary Receipt
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $177,166,885 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
Page 30 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEXSM FUND (QQXT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) -- 99.9%
AIR FREIGHT & LOGISTICS -- 3.4%
26,148 C.H. Robinson Worldwide, Inc. $ 1,525,474
33,947 Expeditors International of
Washington, Inc. 1,502,155
------------
3,027,629
------------
AUTOMOBILES -- 1.7%
10,309 Tesla Motors, Inc. (b) (c) 1,550,267
------------
BEVERAGES -- 1.7%
22,325 Monster Beverage Corp. (c) 1,512,965
------------
BIOTECHNOLOGY -- 11.5%
11,316 Alexion Pharmaceuticals, Inc. (c) 1,505,707
12,979 Amgen, Inc. 1,481,683
5,238 Biogen Idec, Inc. (c) 1,465,330
8,825 Celgene Corp. (c) 1,491,072
19,833 Gilead Sciences, Inc. (c) 1,490,450
5,305 Regeneron Pharmaceuticals,
Inc. (c) 1,460,148
20,582 Vertex Pharmaceuticals, Inc. (c) 1,529,243
------------
10,423,633
------------
CHEMICALS -- 1.7%
16,325 Sigma-Aldrich Corp. 1,534,713
------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.7%
13,004 Stericycle, Inc. (c) 1,510,675
------------
FOOD & STAPLES RETAILING -- 3.2%
12,473 Costco Wholesale Corp. 1,484,412
24,943 Whole Foods Market, Inc. 1,442,453
------------
2,926,865
------------
FOOD PRODUCTS -- 4.9%
19,170 Green Mountain Coffee Roasters,
Inc. (b) (c) 1,448,868
27,378 Kraft Foods Group, Inc. 1,476,222
42,642 Mondelez International, Inc.,
Class A 1,505,263
------------
4,430,353
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.7%
4,058 Intuitive Surgical, Inc. (c) 1,558,597
------------
HEALTH CARE PROVIDERS & SERVICES
-- 3.3%
21,451 Express Scripts Holding Co. (c) 1,506,718
13,099 Henry Schein, Inc. (c) 1,496,692
------------
3,003,410
------------
HOTELS, RESTAURANTS & LEISURE --
5.0%
30,723 Marriott International, Inc.,
Class A1, 516,487
19,037 Starbucks Corp. 1,492,311
7,976 Wynn Resorts Ltd. 1,549,019
------------
4,557,817
------------
INTERNET & CATALOG RETAIL -- 9.8%
3,676 Amazon.com, Inc. (c) 1,465,952
21,866 Expedia, Inc. 1,523,186
SHARES DESCRIPTION VALUE
------------------------------------------------------------
INTERNET & CATALOG RETAIL (Continued)
52,518 Liberty Interactive Corp.,
Class A (c) $ 1,541,403
3,935 Netflix, Inc. (c) 1,448,749
1,241 priceline.com, Inc. (c) 1,442,538
17,784 TripAdvisor, Inc. (c) 1,473,049
------------
8,894,877
------------
INTERNET SOFTWARE & SERVICES --
1.7%
27,087 eBay, Inc. (c) 1,486,805
------------
IT Services -- 5.0%
18,487 Automatic Data Processing, Inc. 1,493,935
25,604 Fiserv, Inc. (c) 1,511,916
32,744 Paychex, Inc. 1,490,834
------------
4,496,685
------------
LEISURE EQUIPMENT & PRODUCTS --
1.7%
32,478 Mattel, Inc. 1,545,303
------------
LIFE SCIENCES TOOLS & SERVICES --
1.7%
14,099 Illumina, Inc. (c) 1,559,631
------------
MACHINERY -- 1.7%
25,658 PACCAR, Inc. 1,518,184
------------
MEDIA -- 16.8%
11,367 Charter Communications, Inc.,
Class A (c) 1,554,551
29,068 Comcast Corp., Class A 1,510,519
22,325 DIRECTV (c) 1,542,434
16,848 Discovery Communications, Inc.,
Class A (c) 1,523,396
26,171 DISH Network Corp., Class A (c) 1,515,824
17,187 Liberty Global PLC, Class A (c) 1,529,471
10,199 Liberty Media Corp., Class A (c) 1,493,644
419,997 Sirius XM Holdings, Inc. (c) 1,465,790
43,165 Twenty-First Century Fox, Inc.,
Class A 1,518,545
17,566 Viacom, Inc., Class B 1,534,214
------------
15,188,388
------------
MULTILINE RETAIL -- 1.7%
26,662 Dollar Tree, Inc. (c) 1,504,270
------------
PHARMACEUTICALS -- 1.7%
34,777 Mylan, Inc. (c) 1,509,322
------------
PROFESSIONAL SERVICES -- 1.6%
22,211 Verisk Analytics, Inc., Class A (c) 1,459,707
------------
SOFTWARE -- 1.6%
82,638 Activision Blizzard, Inc. 1,473,435
------------
SPECIALTY RETAIL -- 8.3%
19,098 Bed Bath & Beyond, Inc. (c) 1,533,570
11,482 O'Reilly Automotive, Inc. (c) 1,477,848
19,973 Ross Stores, Inc. 1,496,577
93,985 Staples, Inc. 1,493,422
19,730 Tractor Supply Co. 1,530,653
------------
7,532,070
------------
See Notes to Financial Statements Page 31
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEXSM FUND (QQXT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS
-- 1.7%
32,407 Fastenal Co. $ 1,539,657
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 5.1%
16,981 SBA Communications Corp.,
Class A (c) 1,525,573
120,194 VimpelCom Ltd., ADR 1,555,310
38,580 Vodafone Group PLC, ADR 1,516,580
------------
4,597,463
------------
TOTAL COMMON STOCKS -- 99.9% 90,342,721
(Cost $72,296,479) ------------
MONEY MARKET FUNDS -- 2.2%
1,863,846 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (d) (e) 1,863,846
(Cost $1,863,846)
52,075 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (d) 52,075
(Cost $52,075) ------------
TOTAL MONEY MARKET FUNDS --
2.2% 1,915,921
(Cost $1,915,921) ------------
TOTAL INVESTMENTS -- 102.1% 92,258,642
(Cost $74,212,400) (f)
NET OTHER ASSETS AND
LIABILITIES -- (2.1)% (1,862,772)
------------
NET ASSETS -- 100.0% $ 90,395,870
============
--------------------
(a) The industry allocation is based on Standard & Poor's Global Industry
Classification Standard (GICS), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark (ICB) system, the joint classification
system of Dow Jones Indexes and FTSE Group.
(b) All or a portion of this security is on loan. (See Note 2E - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $1,826,483 and the total value of the collateral held by the
Fund is $1,863,846.
(c) Non-income producing security.
(d) Interest rate shown reflects yield as of December 31, 2013.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $74,860,782. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$18,009,197 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$611,337.
ADR - American Depositary Receipt
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $90,342,721 $ -- $ --
Money Market Funds 1,915,921 -- --
-----------------------------------------------
Total Investments $92,258,642 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
---------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
------------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 1,826,483
Non-cash Collateral(2) (1,826,483)
---------------------------------------------------------
Net Amount $ --
===========
-------------------
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
Page 32 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
Aerospace & Defense -- 3.9%
84,980 Hexcel Corp. (a) $ 3,797,756
------------
AUTOMOBILES -- 9.0%
58,661 Tesla Motors, Inc. (a) (b) 8,821,441
------------
CHEMICALS -- 0.9%
49,852 Zoltek Cos., Inc. (a) 835,021
------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.8%
43,621 EnerNOC, Inc. (a) 750,717
------------
CONSTRUCTION & ENGINEERING --
0.4%
40,337 Ameresco, Inc., Class A (a) 389,655
------------
ELECTRIC UTILITIES -- 6.5%
65,980 ITC Holdings Corp. 6,322,204
------------
ELECTRICAL EQUIPMENT -- 6.5%
449,243 Capstone Turbine Corp. (a) (b) 579,523
60,941 Enphase Energy, Inc. (a) (b) 386,366
278,401 FuelCell Energy, Inc. (a) (b) 392,545
31,350 PowerSecure International, Inc. (a) 538,280
118,338 Revolution Lighting Technologies,
Inc. (a) (b) 405,308
71,407 SolarCity Corp. (a) (b) 4,057,346
------------
6,359,368
------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 8.6%
244,242 AVX Corp. 3,402,291
56,748 Itron, Inc. (a) 2,351,070
42,966 Maxwell Technologies, Inc. (a) 333,846
67,089 Universal Display Corp. (a) 2,305,178
------------
8,392,385
------------
OIL, GAS & CONSUMABLE FUELS --
3.2%
110,557 Amyris, Inc. (a) (b) 584,847
44,178 Green Plains Renewable Energy,
Inc. 856,611
52,837 Renewable Energy Group, Inc. (a) 605,512
98,791 Solazyme, Inc. (a) (b) 1,075,834
------------
3,122,804
------------
REAL ESTATE INVESTMENT TRUSTS --
0.3%
22,896 Hannon Armstrong Sustainable
Infrastructure Capital, Inc. 319,628
------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 58.4%
57,959 Advanced Energy Industries,
Inc. (a) 1,324,943
12,525 Aixtron SE, ADR (a) 181,863
72,857 Canadian Solar, Inc. (a) (b) 2,172,596
133,805 Cree, Inc. (a) 8,372,179
184,101 Fairchild Semiconductor
International, Inc. (a) 2,457,748
124,813 First Solar, Inc. (a) 6,819,782
SHARES DESCRIPTION VALUE
------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (Continued)
179,496 GT Advanced Technologies,
Inc. (a) (b) $ 1,565,205
103,067 International Rectifier Corp. (a) 2,686,957
46,708 JA Solar Holdings Co., Ltd.,
ADR (a) (b) 428,312
25,465 JinkoSolar Holding Co., Ltd.,
ADR (a) (b) 746,124
175,471 Linear Technology Corp. 7,992,704
136,209 Microsemi Corp. (a) 3,398,415
526,538 ON Semiconductor Corp. (a) 4,338,673
43,380 Power Integrations, Inc. 2,421,472
112,958 ReneSola Ltd., ADR (a) (b) 389,705
32,844 Rubicon Technology, Inc. (a) (b) 326,798
293,718 SunEdison, Inc. (a) 3,833,020
123,044 SunPower Corp. (a) (b) 3,667,942
93,275 Trina Solar Ltd., ADR (a) (b) 1,275,069
56,887 Veeco Instruments, Inc. (a) 1,872,151
149,602 Yingli Green Energy Holding Co.,
Ltd., ADR (a) (b) 755,490
------------
57,027,148
------------
SOFTWARE -- 1.5%
68,316 Silver Spring Networks,
Inc. (a) (b) 1,434,636
------------
TOTAL COMMON STOCKS --
100.0% 97,572,763
(Cost $75,674,128)
MONEY MARKET FUNDS -- 19.1%
18,665,457 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (c) (d) 18,665,457
(Cost $18,665,457) ------------
TOTAL INVESTMENTS -- 119.1% 116,238,220
(Cost $94,339,585) (e)
NET OTHER ASSETS AND
LIABILITIES -- (19.1)% (18,664,535)
------------
NET ASSETS -- 100.0% $ 97,573,685
============
-------------------
(a) Non-income producing security.
(b) All or a portion of this security is on loan. (See Note 2E - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $17,954,269 and the total value of the collateral held by
the Fund is $18,665,457.
(c) Interest rate shown reflects yield as of December 31, 2013.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $99,337,274. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$17,585,275 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$684,329.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 33
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $ 97,572,763 $ -- $ --
Money Market Funds 18,665,457 -- --
-----------------------------------------------
Total Investments $116,238,220 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
---------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
------------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 17,954,269
Non-cash Collateral(2) (17,954,269)
---------------------------------------------------------
Net Amount $ --
===========
-------------------
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
Page 34 See Notes to Financial Statements
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) -- 99.6%
DIVERSIFIED REITS -- 9.7%
10,031 American Assets Trust, Inc. $ 315,274
54,106 American Realty Capital
Properties, Inc. 695,803
5,591 Armada Hoffler Properties, Inc. 51,885
68,990 Chambers Street Properties 527,774
51,463 Cousins Properties, Inc. 530,069
95,052 Duke Realty Corp. 1,429,582
23,299 Empire State Realty Trust, Inc.,
Class A 356,475
17,127 First Potomac Realty Trust 199,187
4,562 Gladstone Commercial Corp. 81,979
30,474 Investors Real Estate Trust 261,467
59,295 Lexington Realty Trust 605,402
42,769 Liberty Property Trust 1,448,586
3,378 One Liberty Properties, Inc. 67,999
5,832 PS Business Parks, Inc. 445,681
8,141 Select Income REIT 217,690
102,651 Spirit Realty Capital, Inc. 1,009,059
50,753 Vornado Realty Trust 4,506,359
19,408 Washington Real Estate
Investment Trust 453,371
6,402 Whitestone REIT 85,595
9,348 Winthrop Realty Trust 103,295
16,329 WP Carey, Inc. 1,001,784
------------
14,394,316
------------
INDUSTRIAL REITS -- 5.1%
92,507 DCT Industrial Trust, Inc. 659,575
8,935 EastGroup Properties, Inc. 517,604
29,199 First Industrial Realty Trust, Inc. 509,523
12,712 Monmouth Real Estate Investment
Corp., Class A 115,552
145,507 Prologis, Inc. 5,376,484
4,721 Rexford Industrial Realty, Inc. 62,317
12,884 STAG Industrial, Inc. 262,705
6,927 Terreno Realty Corp. 122,608
------------
7,626,368
------------
OFFICE REITS -- 13.4%
20,898 Alexandria Real Estate Equities,
Inc. 1,329,531
56,050 BioMed Realty Trust, Inc. 1,015,626
44,604 Boston Properties, Inc. 4,476,903
45,720 Brandywine Realty Trust 644,195
32,468 CommonWealth REIT 756,829
6,239 CoreSite Realty Corp. 200,833
25,494 Corporate Office Properties Trust 603,953
5,454 CyrusOne, Inc. 121,788
37,473 Digital Realty Trust, Inc. 1,840,674
37,860 Douglas Emmett, Inc. 881,759
18,860 DuPont Fabros Technology, Inc. 466,031
25,430 Franklin Street Properties Corp. 303,889
15,966 Government Properties Income
Trust 396,755
13,719 Gramercy Property Trust, Inc. (b) 78,884
26,232 Highwoods Properties, Inc. 948,811
12,575 Hudson Pacific Properties, Inc. 275,015
SHARES DESCRIPTION VALUE
------------------------------------------------------------
OFFICE REITS (Continued)
23,943 Kilroy Realty Corp. $ 1,201,460
25,681 Mack-Cali Realty Corp. 551,628
17,671 Parkway Properties, Inc. 340,874
48,544 Piedmont Office Realty Trust,
Inc., Class A 801,947
3,804 QTS Realty Trust, Inc., Class A 94,263
27,676 SL Green Realty Corp. 2,556,709
------------
19,888,357
------------
RESIDENTIAL REITS -- 15.4%
30,571 American Campus Communities,
Inc. 984,692
13,530 American Homes 4 Rent, Class A 219,186
4,036 American Residential Properties,
Inc. (b) 69,258
42,572 Apartment Investment &
Management Co., Class A 1,103,040
16,777 Associated Estates Realty Corp. 269,271
35,492 AvalonBay Communities, Inc. 4,196,219
22,520 BRE Properties, Inc. 1,232,069
24,889 Camden Property Trust 1,415,686
18,821 Campus Crest Communities, Inc. 177,106
33,499 Education Realty Trust, Inc. 295,461
23,096 Equity Lifestyle Properties, Inc. 836,768
97,792 Equity Residential 5,072,471
11,098 Essex Property Trust, Inc. 1,592,674
16,598 Home Properties, Inc. 889,985
21,817 Mid-America Apartment
Communities, Inc. 1,325,165
15,812 Post Properties, Inc. 715,177
10,898 Silver Bay Realty Trust Corp. 174,259
9,806 Sun Communities, Inc. 418,128
73,155 UDR, Inc. 1,708,169
5,235 UMH Properties, Inc. 49,314
------------
22,744,098
------------
RETAIL REITS -- 27.0%
16,207 Acadia Realty Trust 402,420
4,345 Agree Realty Corp. 126,092
611 Alexander's, Inc. 201,630
5,269 AmREIT, Inc. 88,519
11,737 Brixmor Property Group, Inc. (b) 238,613
49,572 CBL & Associates Properties, Inc. 890,313
18,137 Cedar Realty Trust, Inc. 113,538
121,878 Cole Real Estate Investment, Inc. 1,711,167
84,898 DDR Corp. 1,304,882
18,463 Equity One, Inc. 414,310
14,055 Excel Trust, Inc. 160,086
18,976 Federal Realty Investment Trust 1,924,356
156,849 General Growth Properties, Inc. 3,147,959
7,795 Getty Realty Corp. 143,194
42,323 Glimcher Realty Trust 396,143
24,432 Inland Real Estate Corp. 257,025
119,531 Kimco Realty Corp. 2,360,737
38,120 Kite Realty Group Trust 250,448
41,004 Macerich (The) Co. 2,414,726
35,553 National Retail Properties, Inc. 1,078,323
19,899 Pennsylvania Real Estate
Investment Trust 377,683
See Notes to Financial Statements Page 35
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
RETAIL REITS (Continued)
19,419 Ramco-Gershenson Properties
Trust $ 305,655
60,138 Realty Income Corp. 2,244,952
26,937 Regency Centers Corp. 1,247,183
18,292 Retail Opportunity Investments
Corp. 269,258
54,465 Retail Properties of America, Inc.,
Class A 692,795
7,531 Rouse Properties, Inc. 167,113
3,708 Saul Centers, Inc. 176,983
90,540 Simon Property Group, Inc. 13,776,566
27,565 Tanger Factory Outlet Centers,
Inc. 882,631
18,542 Taubman Centers, Inc. 1,185,205
7,410 Urstadt Biddle Properties, Inc.,
Class A 136,715
32,731 Weingarten Realty Investors 897,484
------------
39,984,704
------------
SPECIALIZED REITS -- 29.0%
4,087 Ashford Hospitality Prime, Inc. 74,383
20,450 Ashford Hospitality Trust 169,326
4,464 Aviv REIT, Inc. 105,797
7,672 Chatham Lodging Trust 156,892
14,471 Chesapeake Lodging Trust 365,972
33,800 Corrections Corp. of America 1,083,966
37,749 CubeSmart 601,719
57,030 DiamondRock Hospitality Co. 658,696
15,070 EPR Properties 740,841
32,083 Extra Space Storage, Inc. 1,351,657
32,231 FelCor Lodging Trust, Inc. (b) 263,005
21,022 Geo Group (The), Inc. 677,329
133,121 HCP, Inc. 4,834,955
84,222 Health Care REIT, Inc. 4,511,773
27,972 Healthcare Realty Trust, Inc. 596,083
50,571 Healthcare Trust of America, Inc.,
Class A 497,619
56,174 Hersha Hospitality Trust 312,889
43,277 Hospitality Properties Trust 1,169,777
220,652 Host Hotels & Resorts, Inc. 4,289,475
30,332 LaSalle Hotel Properties 936,046
10,139 LTC Properties, Inc. 358,819
47,140 Medical Properties Trust, Inc. 576,051
8,312 National Health Investors, Inc. 466,303
35,747 OMEGA Healthcare Investors,
Inc. 1,065,261
17,956 Pebblebrook Hotel Trust 552,327
5,924 Physicians Realty Trust 75,472
42,170 Public Storage 6,347,428
35,795 RLJ Lodging Trust 870,534
14,742 Ryman Hospitality Properties 615,921
11,052 Sabra Health Care REIT, Inc. 288,899
54,900 Senior Housing Properties Trust 1,220,427
9,340 Sovran Self Storage, Inc. 608,688
52,783 Strategic Hotels & Resorts,
Inc. (b) 498,799
24,864 Summit Hotel Properties, Inc. 223,776
SHARES DESCRIPTION VALUE
------------------------------------------------------------
SPECIALIZED REITS (Continued)
53,354 Sunstone Hotel Investors, Inc. $ 714,944
3,706 Universal Health Realty Income
Trust 148,462
85,801 Ventas, Inc. 4,914,681
------------
42,944,992
------------
TOTAL COMMON STOCKS -- 99.6% 147,582,835
(Cost $154,149,739)
MONEY MARKET FUNDS -- 0.1%
182,143 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (c) 182,143
(Cost $182,143) ------------
TOTAL INVESTMENTS -- 99.7% 147,764,978
(Cost $154,331,882) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.3% 445,324
------------
NET ASSETS -- 100.0% $148,210,302
============
-------------------
(a) The industry classification is based upon Standard & Poor's Global
Industry Classification Standard (GICS) Sub-Industry.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2013.
(d) Aggregate cost for federal income tax purposes is $156,211,048. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$3,886,135 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$12,332,205.
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $147,582,835 $ -- $ --
Money Market Funds 182,143 -- --
-----------------------------------------------
Total Investments $147,764,978 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
Page 36 See Notes to Financial Statements
FIRST TRUST ISE WATER INDEX FUND (FIW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
CHEMICALS -- 5.4%
69,469 Ashland, Inc. $ 6,741,272
193,917 Calgon Carbon Corp. (a) 3,988,873
------------
10,730,145
------------
CONSTRUCTION & ENGINEERING --
6.8%
84,755 AECOM Technology Corp. (a) 2,494,340
110,604 Aegion Corp. (a) 2,421,121
154,596 Layne Christensen Co. (a) 2,640,500
156,344 Northwest Pipe Co. (a) 5,903,549
------------
13,459,510
------------
DIVERSIFIED FINANCIAL SERVICES
-- 1.2%
101,891 PICO Holdings, Inc. (a) 2,354,701
------------
ELECTRICAL EQUIPMENT -- 5.0%
88,169 Franklin Electric Co., Inc. 3,935,864
43,016 Roper Industries, Inc. 5,965,459
------------
9,901,323
------------
ELECTRONIC EQUIPMENT,
INSTRUMENTS & COMPONENTS --
5.2%
142,699 Badger Meter, Inc. 7,777,096
60,021 Itron, Inc. (a) 2,486,670
------------
10,263,766
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.0%
36,425 IDEXX Laboratories, Inc. (a) 3,874,527
------------
INDUSTRIAL CONGLOMERATES -- 3.4%
88,083 Danaher Corp. 6,800,008
------------
LIFE SCIENCES TOOLS & SERVICES
-- 2.9%
101,300 AGILENT TECHNOLOGIES, INC. 5,793,347
------------
MACHINERY -- 41.8%
86,044 Crane Co. 5,786,459
1,316,973 Energy Recovery, Inc. (a) 7,322,370
1,633,839 Flow International Corp. (a) 6,600,709
51,481 Flowserve Corp. 4,058,247
92,996 IDEX Corp. 6,867,755
96,657 Lindsay Corp. 7,998,367
446,661 Mueller Water Products, Inc.,
Class A 4,185,213
45,623 Pall Corp. 3,893,923
106,418 Pentair Ltd. 8,265,486
299,932 Rexnord Corp. (a) 8,101,163
26,414 Valmont Industries, Inc. 3,938,856
127,617 Watts Water Technologies, Inc.,
Class A 7,895,664
220,358 Xylem, Inc. 7,624,387
------------
82,538,599
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
METALS & MINING -- 1.3%
77,350 AMCOL International Corp. $ 2,628,353
------------
MULTI-UTILITIES -- 2.0%
241,736 Veolia Environnment, ADR 3,954,801
------------
WATER UTILITIES -- 23.0%
137,055 American States Water Co. 3,937,590
182,605 American Water Works Co., Inc. 7,716,887
323,224 Aqua America, Inc. 7,624,854
341,287 California Water Service Group 7,873,491
726,151 Cia de Saneamento Basico do
Estado de Sao Paulo, ADR 8,234,553
420,763 Consolidated Water Co., Ltd. 5,932,758
135,362 SJW Corp. 4,032,434
------------
45,352,567
------------
TOTAL INVESTMENTS -- 100.0% 197,651,647
(Cost $161,649,229) (b)
NET OTHER ASSETS AND
LIABILITIES -- (0.0)% (8,447)
------------
NET ASSETS -- 100.0% $197,643,200
============
-------------------
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $162,828,072. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$35,076,155 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$252,580.
ADR - American Depositary Receipt
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $197,651,647 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
See Notes to Financial Statements Page 37
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 99.9%
GAS UTILITIES -- 3.6%
736,516 Questar Corp. $ 16,932,503
------------
OIL, GAS & CONSUMABLE FUELS
-- 96.3%
211,640 Anadarko Petroleum Corp. 16,787,285
192,335 Apache Corp. 16,529,270
633,469 Bill Barrett Corp. (a) (b) 16,964,300
458,792 Cabot Oil & Gas Corp. 17,782,778
613,765 Chesapeake Energy Corp. 16,657,582
170,018 Cimarex Energy Co. 17,836,588
954,587 Comstock Resources, Inc. 17,459,396
279,830 Devon Energy Corp. 17,313,082
913,036 EnCana Corp. 16,480,300
189,175 EQT Corp. 16,984,132
3,323,291 EXCO Resources, Inc. (a) 17,646,675
4,694,502 Forest Oil Corp. (b) 16,947,152
992,905 Goodrich Petroleum Corp. (a) (b) 16,899,243
2,585,272 Magnum Hunter Resources
Corp. (a) (b) 18,898,338
709,402 Newfield Exploration Co. (b) 17,472,571
241,286 Noble Energy, Inc. 16,433,990
1,689,254 Penn Virginia Corp. (b) 15,929,665
539,969 QEP Resources, Inc. 16,550,050
5,814,589 Quicksilver Resources, Inc. (a) (b) 17,850,788
207,950 Range Resources Corp. 17,532,265
429,540 Southwestern Energy Co. (b) 16,893,808
735,535 Statoil ASA, ADR 17,748,460
525,914 Stone Energy Corp. (b) 18,191,365
1,338,578 Swift Energy Co. (a) (b) 18,070,803
1,416,373 Talisman Energy, Inc. 16,500,745
784,266 Ultra Petroleum Corp. (a) (b) 16,979,359
------------
447,339,990
------------
TOTAL COMMON STOCKS -- 99.9% 464,272,493
(Cost $461,799,589) ------------
RIGHTS -- 0.1%
Oil, Gas & Consumable Fuels
-- 0.1%
3,340,027 EXCO Resources, Inc., expiring
01/09/14 (a) (b) 534,405
(Cost $0) ------------
WARRANTS -- 0.0%
Oil, Gas & Consumable Fuels
-- 0.0%
468,974 Magnum Hunter Resources Corp.,
expiring 05/15/16 @
$0 (a) (b) (c) 0
(Cost $0) ------------
MONEY MARKET FUNDS -- 17.0%
79,063,669 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (d) (e) 79,063,669
(Cost $79,063,669)
SHARES DESCRIPTION VALUE
------------------------------------------------------------
MONEY MARKET FUNDS (CONTINUED)
61,379 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (d) $ 61,379
(Cost $61,379)
TOTAL MONEY MARKET FUNDS --
17.0% 79,125,048
(Cost $79,125,048) ------------
TOTAL INVESTMENTS -- 117.0% 543,931,946
(Cost $540,924,637) (f)
NET OTHER ASSETS AND
LIABILITIES -- (17.0)% (79,137,137)
------------
NET ASSETS -- 100.0% $464,794,809
============
-------------------
(a) All or a portion of this security is on loan. (See Note 2E - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $76,784,626 and the total value of the collateral held by
the Fund is $79,063,669.
(b) Non-income producing security.
(c) This security is fair valued in accordance with procedures adopted by the
Trust's Board of Trustees and in accordance with the provisions of the
Investment Company Act of 1940, as amended. At December 31, 2013,
securities noted as such amounted to $0, or 0.00% of net assets.
(d) Interest rate shown reflects yield as of December 31, 2013.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $562,515,613. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$46,552,009 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$65,135,676.
ADR - American Depositary Receipt
Page 38 See Notes to Financial Statements
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $464,272,493 $ -- $ --
Money Market Funds 79,125,048 -- --
Rights* 534,405 -- --
Warrants* -- -- ** --
-----------------------------------------------
Total Investments $543,931,946 $ -- ** $ --
===============================================
* See Portfolio of Investments for industry breakout.
** Investment is valued at $0.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
---------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
------------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 76,784,626
Non-cash Collateral(2) (76,784,626)
----------------------------------------------------------
Net Amount $ --
============
-------------------
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
See Notes to Financial Statements Page 39
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AUTOMOBILES -- 3.9%
91,615 Tata Motors Ltd., ADR $ 2,821,742
------------
CAPITAL MARKETS -- 0.7%
27,450 Noah Holdings Ltd., ADR (a) 494,100
------------
COMMERCIAL BANKS -- 10.8%
81,003 HDFC Bank Ltd., ADR 2,789,743
134,910 ICICI Bank Ltd., ADR 5,014,605
------------
7,804,348
------------
DIVERSIFIED CONSUMER SERVICES
-- 1.6%
18,437 New Oriental Education &
Technology Group, Inc., ADR 580,766
27,292 TAL Education Group, ADR (b) 600,151
------------
1,180,917
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.5%
10,894 China Telecom Corp., Ltd., ADR 550,910
36,417 China Unicom (Hong Kong) Ltd.,
ADR 548,440
------------
1,099,350
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 0.7%
14,665 Mindray Medical International
Ltd., ADR (a) 533,219
------------
HOTELS, RESTAURANTS & LEISURE
-- 4.8%
13,025 Home Inns & Hotels
Management, Inc., ADR (b) 568,411
73,016 Melco Crown Entertainment Ltd.,
ADR (b) 2,863,687
------------
3,432,098
------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS -- 0.8%
14,829 Huaneng Power International,
Inc., ADR 537,551
------------
INSURANCE -- 0.8%
11,363 China Life Insurance Co., Ltd.,
ADR 536,902
------------
INTERNET & CATALOG RETAIL -- 5.6%
58,348 Ctrip.com International Ltd.,
ADR (b) 2,895,228
61,200 E-Commerce China Dangdang,
Inc., Class A, ADR (a) (b) 584,460
6,755 Vipshop Holdings Ltd., ADR (b) 565,258
------------
4,044,946
------------
INTERNET SOFTWARE & SERVICES --
24.9%
27,423 21Vianet Group, Inc., ADR (a) (b) 644,989
28,228 Baidu, Inc., ADR (b) 5,021,197
19,218 Bitauto Holdings Ltd., ADR (b) 614,207
19,612 NetEase, Inc., ADR 1,541,503
SHARES DESCRIPTION VALUE
------------------------------------------------------------
INTERNET SOFTWARE & SERVICES
(Continued)
59,707 Qihoo 360 Technology Co. Ltd.,
ADR (b) $ 4,898,959
186,965 Renren, Inc., ADR (a) (b) 570,243
17,618 SINA Corp. (b) 1,484,317
8,085 Sohu.com, Inc. (b) 589,639
7,425 SouFun Holdings Ltd., ADR 611,894
44,725 Youku Tudou, Inc., ADR (b) 1,355,168
10,903 YY, Inc., ADR (b) 548,203
------------
17,880,319
------------
IT SERVICES -- 16.3%
88,906 Infosys Ltd., ADR 5,032,080
413,149 Wipro Ltd., ADR (a) 5,201,546
69,297 WNS Holdings Ltd., ADR (b) 1,518,297
------------
11,751,923
------------
LIFE SCIENCES TOOLS & SERVICES
-- 0.9%
16,082 WuXi PharmaTech Cayman, Inc.,
ADR (b) 617,227
------------
Marine -- 0.8%
24,753 Seaspan Corp. (a) 568,081
------------
OIL, GAS & CONSUMABLE FUELS
-- 2.9%
6,500 China Petroleum & Chemical
Corp., ADR 534,105
2,795 CNOOC Ltd., ADR 524,510
4,857 PetroChina Co., Ltd., ADR 533,007
56,264 Yanzhou Coal Mining Co., Ltd.,
ADR (a) 519,317
------------
2,110,939
------------
PHARMACEUTICALS -- 4.1%
71,745 Dr. Reddy's Laboratories Ltd.,
ADR 2,943,697
------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 0.8%
39,142 E-House China Holdings Ltd.,
ADR 590,261
------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT --
4.4%
63,264 JA Solar Holdings Co., Ltd.,
ADR (a) (b) 580,131
20,942 JinkoSolar Holding Co., Ltd.,
ADR (b) 613,600
196,415 ReneSola Ltd., ADR (a) (b) 677,632
45,264 Trina Solar Ltd., ADR (a) (b) 618,759
129,233 Yingli Green Energy Holding Co.,
Ltd., ADR (a) (b) 652,627
------------
3,142,749
------------
Page 40 See Notes to Financial Statements
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SOFTWARE -- 3.3%
18,227 Changyou.com Ltd., ADR (a) (b) $ 584,175
49,148 Giant Interactive Group, Inc., ADR 552,423
44,964 NQ Mobile, Inc., ADR (a) (b) 660,971
30,293 Perfect World Co., Ltd., ADR 538,610
------------
2,336,179
------------
TEXTILES, APPAREL & LUXURY
GOODS -- 6.6%
58,756 Michael Kors Holdings Ltd. (b) 4,770,400
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 3.8%
52,926 China Mobile Ltd., ADR 2,767,501
------------
TOTAL COMMON STOCKS --
100.0% 71,964,449
(Cost $55,868,753)
MONEY MARKET FUNDS -- 13.3%
9,536,118 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.001% (c) (d) 9,536,118
(Cost $9,536,118) ------------
TOTAL INVESTMENTS -- 113.3% 81,500,567
(Cost $65,404,871) (e)
NET OTHER ASSETS AND
LIABILITIES -- (13.3)% (9,538,608)
------------
NET ASSETS -- 100.0% $ 71,961,959
============
(a) All or a portion of this security is on loan. (See Note 2E - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $9,250,851 and the total value of the collateral held by the
Fund is $9,536,118.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2013.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $66,404,388. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$17,169,540 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,073,361.
ADR - American Depositary Receipt
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $71,964,449 $ -- $ --
Money Market Funds 9,536,118 -- --
-----------------------------------------------
Total Investments $81,500,567 $ -- $ --
===============================================
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
COUNTRY ALLOCATIONS AS A PERCENTAGE OF NET ASSETS**:
------------------------------------------------------------
China 48.8%
India 35.2
Hong Kong 16.0
United States 13.3
Net Other Assets and Liabilities (13.3)
------
100.0%
======
* See Portfolio of Investments for industry breakout.
** Portfolio securities are categorized based on their country of
incorporation.
---------------------------------------
OFFSETTING ASSETS AND LIABILITIES
The Fund's loaned securities were all subject to enforceable Securities Lending
Agency Agreements. Securities lent in accordance with Securities Lending Agency
Agreements on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENTS
------------------------------------------------------------
Total gross amount presented on Statements of
Assets and Liabilities(1) $ 9,250,851
Non-cash Collateral(2) (9,250,851)
----------------------------------------------------------
Net Amount $ --
===========
-------------------
(1) The amounts presented on the Statements of Assets and Liabilities are not
offset and are shown on a gross basis.
(2) At December 31, 2013, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed in the Portfolio of Investments.
See Notes to Financial Statements Page 41
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
COMMERCIAL BANKS -- 87.5%
8,524 1st Source Corp. $ 272,257
8,378 Ameris Bancorp (a) 176,860
4,321 Arrow Financial Corp. 114,766
56,956 Associated Banc-Corp. 991,034
5,363 BancFirst Corp. 300,650
13,219 Bancorp (The), Inc. (a) 236,752
2,639 Bank of Kentucky Financial Corp. 97,379
1,914 Bank of Marin Bancorp 83,048
12,863 Bank of the Ozarks, Inc. 727,917
6,849 Banner Corp. 306,972
27,779 BBCN Bancorp, Inc. 460,854
27,974 Boston Private Financial
Holdings, Inc. 353,032
3,916 Bridge Bancorp, Inc. 101,816
4,761 Bryn Mawr Bank Corp. 143,687
2,679 Camden National Corp. 113,107
11,366 Capital Bank Financial Corp.,
Class A (a) 258,576
10,613 Cardinal Financial Corp. 191,034
27,705 Cathay General Bancorp 740,555
10,553 Centerstate Banks, Inc. 107,113
10,436 Chemical Financial Corp. 330,508
5,512 City Holding Co. 255,371
14,135 CoBiz Financial, Inc. 169,055
17,968 Columbia Banking System, Inc. 494,300
33,592 Commerce Bancshares, Inc. 1,508,617
5,538 Community Trust Bancorp, Inc. 250,096
8,296 Customers Bancorp, Inc. (a) 169,736
36,881 CVB Financial Corp. 629,559
9,042 Eagle Bancorp, Inc. (b) 276,956
48,279 East West Bancorp, Inc. 1,688,317
6,755 Enterprise Financial Services Corp. 137,937
7,445 Fidelity Southern Corp. 123,661
4,840 Financial Institutions, Inc. 119,596
30,405 First Busey Corp. 176,349
3,009 First Citizens BancShares, Inc.,
Class A 669,894
6,611 First Community Bancshares, Inc. 110,404
5,767 First Connecticut Bancorp, Inc. 92,964
20,204 First Financial Bancorp 352,156
11,205 First Financial Bankshares, Inc. 743,116
4,664 First Financial Corp. 170,516
8,437 First Financial Holdings, Inc. 561,145
6,795 First Interstate BancSystem, Inc. 192,774
12,652 First Merchants Corp. 287,960
26,308 First Midwest Bancorp, Inc. 461,179
6,285 First NBC Bank Holding Co. (a) 203,005
3,198 First of Long Island (The) Corp. 137,098
57,839 FirstMerit Corp. 1,285,761
10,548 Flushing Financial Corp. 218,344
67,443 Fulton Financial Corp. 882,154
4,615 German American Bancorp, Inc. 131,527
26,045 Glacier Bancorp, Inc. 775,881
4,789 Great Southern Bancorp, Inc. 145,633
28,774 Hancock Holding Co. 1,055,430
11,129 Hanmi Financial Corp. 243,614
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMERCIAL BANKS (Continued)
6,434 Heartland Financial USA, Inc. $ 185,235
5,681 Heritage Financial Corp. 97,202
22,793 Home BancShares, Inc. 851,319
7,050 HomeTrust Bancshares, Inc. (a) 112,729
3,047 Horizon Bancorp 77,181
10,435 IBERIABANK Corp. 655,840
8,051 Independent Bank Corp./MA 315,519
7,995 Independent Bank Corp./MI (a) 95,940
4,232 Independent Bank Group, Inc. 210,161
23,551 International Bancshares Corp. 621,511
39,374 Investors Bancorp, Inc. 1,007,187
12,557 Lakeland Bancorp, Inc. 155,330
5,770 Lakeland Financial Corp. 225,030
7,151 MainSource Financial Group, Inc. 128,933
19,260 MB Financial, Inc. 618,053
2,212 Merchants Bancshares, Inc. 74,102
4,960 Metro Bancorp, Inc. (a) 106,838
51,072 National Penn Bancshares, Inc. 578,646
15,179 NBT Bancorp, Inc. 393,136
35,287 Old National Bancorp 542,361
4,012 OmniAmerican Bancorp, Inc. (a) 85,777
5,834 Pacific Premier Bancorp, Inc. (a) 91,827
15,531 PacWest Bancorp 655,719
1,688 Penns Woods Bancorp, Inc. 86,088
3,789 Peoples Bancorp, Inc. 85,290
12,318 Pinnacle Financial Partners, Inc. 400,705
26,672 PrivateBancorp, Inc. 771,621
10,990 Renasant Corp. 345,745
6,495 Republic Bancorp, Inc., Class A 159,387
10,421 S&T Bancorp, Inc. 263,756
5,104 S.Y. Bancorp, Inc. 162,920
8,756 Sandy Spring Bancorp, Inc. 246,832
6,651 Seacoast Banking Corp. of
Florida (a) 81,142
16,571 Signature Bank (a) 1,780,057
5,678 Simmons First National Corp.,
Class A 210,938
6,272 Southside Bancshares, Inc. 171,476
6,905 Southwest Bancorp, Inc. (a) 109,928
11,242 State Bank Financial Corp. 204,492
4,056 Suffolk Bancorp (a) 84,365
65,617 Susquehanna Bancshares, Inc. 842,522
16,004 SVB Financial Group (a) 1,678,179
14,361 Texas Capital Bancshares, Inc. (a) 893,254
12,183 TowneBank 187,496
5,633 TriCo Bancshares 159,808
10,055 Tristate Capital Holdings, Inc. (a) 119,252
23,545 Trustmark Corp. 631,948
15,825 UMB Financial Corp. 1,017,231
39,225 Umpqua Holdings Corp. 750,766
8,734 Union First Market Bankshares
Corp. 216,691
17,667 United Bankshares, Inc. 555,627
20,788 United Community Banks, Inc. (a) 368,987
5,707 Univest Corp. of Pennsylvania 118,021
14,001 ViewPoint Financial Group, Inc. 384,327
5,818 Washington Trust Bancorp, Inc. 216,546
Page 42 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL BANKS (Continued)
10,286 WesBanco, Inc. $ 329,152
9,332 Westamerica Bancorporation 526,885
24,804 Wilshire Bancorp, Inc. 271,108
13,995 Wintrust Financial Corp. 645,449
5,041 Yadkin Financial Corp. (a) 85,899
64,696 Zions Bancorporation 1,938,292
------------
45,815,780
------------
IT SERVICES -- 0.5%
4,035 Cass Information Systems, Inc. 271,757
------------
THRIFTS & MORTGAGE FINANCE --
12.0%
6,316 Banc of California, Inc. 84,697
16,271 Bank Mutual Corp. 114,060
27,340 Beneficial Mutual Bancorp,
Inc. (a) 298,553
4,854 BofI Holding, Inc. (a) 380,699
24,587 Brookline Bancorp, Inc. 235,298
51,815 Capitol Federal Financial, Inc. 627,480
7,973 Charter Financial Corp. 85,869
12,825 Dime Community Bancshares, Inc. 216,999
3,428 First Defiance Financial Corp. 89,025
5,055 HomeStreet, Inc. 101,100
2,091 Meta Financial Group, Inc. 84,330
20,304 Northfield Bancorp, Inc. 268,013
33,008 Northwest Bancshares, Inc. 487,858
6,093 OceanFirst Financial Corp. 104,373
16,008 Oritani Financial Corp. 256,928
9,100 Rockville Financial, Inc. 129,311
3,568 Territorial Bancorp, Inc. 82,778
107,645 TFS Financial Corp. (a) 1,304,119
33,100 TrustCo Bank Corp. 237,658
35,669 Washington Federal, Inc. 830,731
3,102 WSFS Financial Corp. 240,498
------------
6,260,377
------------
TOTAL INVESTMENTS -- 100.0% 52,347,914
(Cost $44,859,851) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 14,399
------------
NET ASSETS -- 100.0% $ 52,362,313
============
-------------------
(a) Non-income producing security.
(b) Non-income producing security which pays in-kind distributions.
(c) Aggregate cost for federal income tax purposes is $45,042,112. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$7,363,436 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$57,634.
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $52,347,914 $ -- $ --
===============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
See Notes to Financial Statements Page 43
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 99.7%
AEROSPACE & DEFENSE -- 2.8%
239 Boeing (The) Co. $ 32,621
116 General Dynamics Corp. 11,084
271 Honeywell International, Inc. 24,761
31 L-3 Communications Holdings,
Inc. 3,313
93 Lockheed Martin Corp. 13,825
77 Northrop Grumman Corp. 8,825
50 Precision Castparts Corp. 13,465
110 Raytheon Co. 9,977
47 Rockwell Collins, Inc. 3,474
97 Textron, Inc. 3,566
292 United Technologies Corp. 33,230
------------
158,141
------------
AIR FREIGHT & LOGISTICS -- 0.8%
52 C.H. Robinson Worldwide, Inc. 3,034
71 Expeditors International of
Washington, Inc. 3,142
103 FedEx Corp. 14,808
247 United Parcel Service, Inc.,
Class B 25,955
------------
46,939
------------
AIRLINES -- 0.2%
296 Delta Air Lines, Inc. 8,131
241 Southwest Airlines Co. 4,541
------------
12,672
------------
AUTO COMPONENTS -- 0.4%
79 BorgWarner, Inc. 4,417
97 Delphi Automotive PLC 5,833
85 Goodyear Tire & Rubber (The) Co. 2,027
237 Johnson Controls, Inc. 12,158
------------
24,435
------------
AUTOMOBILES -- 0.7%
1,363 Ford Motor Co. 21,031
393 General Motors Co. (a) 16,062
76 Harley-Davidson, Inc. 5,262
------------
42,355
------------
BEVERAGES -- 2.2%
56 Beam, Inc. 3,811
56 Brown-Forman Corp., Class B 4,232
1,312 Coca-Cola (The) Co. 54,199
83 Coca-Cola Enterprises, Inc. 3,663
58 Constellation Brands, Inc.,
Class A (a) 4,082
69 Dr. Pepper Snapple Group, Inc. 3,362
55 Molson Coors Brewing Co.,
Class B 3,088
47 Monster Beverage Corp. (a) 3,185
530 PepsiCo, Inc. 43,958
------------
123,580
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
BIOTECHNOLOGY -- 2.4%
68 Alexion Pharmaceuticals, Inc. (a) $ 9,048
261 Amgen, Inc. 29,796
82 Biogen Idec, Inc. (a) 22,940
142 Celgene Corp. (a) 23,992
530 Gilead Sciences, Inc. (a) 39,830
27 Regeneron Pharmaceuticals,
Inc. (a) 7,431
81 Vertex Pharmaceuticals, Inc. (a) 6,018
------------
139,055
------------
BUILDING PRODUCTS -- 0.1%
31 Allegion PLC (a) 1,370
123 Masco Corp. 2,801
------------
4,171
------------
CAPITAL MARKETS -- 2.2%
67 Ameriprise Financial, Inc. 7,708
397 Bank of New York Mellon (The)
Corp. 13,871
44 BlackRock, Inc. 13,925
401 Charles Schwab (The) Corp. 10,426
99 E*TRADE Financial Corp. (a) 1,944
139 Franklin Resources, Inc. 8,025
146 Goldman Sachs Group (The), Inc. 25,880
153 Invesco Ltd. 5,569
37 Legg Mason, Inc. 1,609
479 Morgan Stanley 15,022
78 Northern Trust Corp. 4,827
152 State Street Corp. 11,155
90 T. Rowe Price Group, Inc. 7,539
------------
127,500
------------
CHEMICALS -- 2.6%
73 Air Products and Chemicals, Inc. 8,160
23 Airgas, Inc. 2,573
20 CF Industries Holdings, Inc. 4,661
419 Dow Chemical (The) Co. 18,604
320 E.I. du Pont de Nemours & Co. 20,790
53 Eastman Chemical Co. 4,277
94 Ecolab, Inc. 9,801
46 FMC Corp. 3,471
28 International Flavors &
Fragrances, Inc. 2,408
151 LyondellBasell Industries N.V.,
Class A 12,122
182 Monsanto Co. 21,212
118 Mosaic (The) Co. 5,578
49 PPG Industries, Inc. 9,293
102 Praxair, Inc. 13,263
30 Sherwin-Williams (The) Co. 5,505
41 Sigma-Aldrich Corp. 3,854
------------
145,572
------------
COMMERCIAL BANKS -- 2.8%
244 BB&T Corp. 9,106
63 Comerica, Inc. 2,995
305 Fifth Third Bancorp 6,414
287 Huntington Bancshares, Inc. 2,770
310 KeyCorp 4,160
Page 44 See Notes to Financial Statements
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL BANKS (Continued)
45 M&T Bank Corp. $ 5,239
184 PNC Financial Services Group,
Inc. 14,275
476 Regions Financial Corp. 4,708
185 SunTrust Banks, Inc. 6,810
631 U.S. Bancorp 25,492
1,656 Wells Fargo & Co. 75,182
64 Zions Bancorporation 1,917
------------
159,068
------------
COMMERCIAL SERVICES & SUPPLIES
-- 0.5%
69 ADT (The) Corp. 2,792
35 Cintas Corp. 2,086
59 Iron Mountain, Inc. 1,791
70 Pitney Bowes, Inc. 1,631
93 Republic Services, Inc. 3,088
30 Stericycle, Inc. (a) 3,485
161 Tyco International Ltd. 6,607
151 Waste Management, Inc. 6,775
------------
28,255
------------
COMMUNICATIONS EQUIPMENT --
1.7%
1,847 Cisco Systems, Inc. 41,465
27 F5 Networks, Inc. (a) 2,454
37 Harris Corp. 2,583
174 Juniper Networks, Inc. (a) 3,927
80 Motorola Solutions, Inc. 5,400
584 QUALCOMM, Inc. 43,362
------------
99,191
------------
COMPUTERS & PERIPHERALS -- 4.1%
311 Apple, Inc. 174,505
711 EMC Corp. 17,882
664 Hewlett-Packard Co. 18,579
118 NetApp, Inc. 4,854
78 SanDisk Corp. 5,502
113 Seagate Technology PLC 6,346
73 Western Digital Corp. 6,125
------------
233,793
------------
CONSTRUCTION & ENGINEERING --
0.2%
56 Fluor Corp. 4,496
46 Jacobs Engineering Group, Inc. (a) 2,898
75 Quanta Services, Inc. (a) 2,367
------------
9,761
------------
CONSTRUCTION MATERIALS -- 0.1%
45 Vulcan Materials Co. 2,674
------------
CONSUMER FINANCE -- 1.0%
318 American Express Co. 28,852
199 Capital One Financial Corp. 15,246
165 Discover Financial Services 9,232
151 SLM Corp. 3,968
------------
57,298
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
CONTAINERS & PACKAGING -- 0.2%
33 Avery Dennison Corp. $ 1,656
50 Ball Corp. 2,583
36 Bemis Co., Inc. 1,475
61 MeadWestvaco Corp. 2,253
57 Owens-Illinois, Inc. (a) 2,039
68 Sealed Air Corp. 2,315
------------
12,321
------------
DISTRIBUTORS -- 0.1%
53 Genuine Parts Co. 4,409
------------
DIVERSIFIED CONSUMER SERVICES
-- 0.1%
2 Graham Holdings Co., Class B (a) 1,326
94 H&R Block, Inc. 2,730
------------
4,056
------------
DIVERSIFIED FINANCIAL SERVICES
-- 5.2%
3,685 Bank of America Corp. 57,375
622 Berkshire Hathaway, Inc.,
Class B (a) 73,744
1,048 Citigroup, Inc. 54,611
109 CME Group, Inc. 8,552
40 IntercontinentalExchange Group,
Inc. 8,997
1,299 JPMorgan Chase & Co. 75,966
108 Leucadia National Corp. 3,061
94 McGraw Hill Financial, Inc. 7,351
65 Moody's Corp. 5,101
40 NASDAQ OMX Group (The), Inc. 1,592
------------
296,350
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 2.1%
1,820 AT&T, Inc. 63,991
204 CenturyLink, Inc. 6,497
345 Frontier Communications Corp. 1,604
989 Verizon Communications, Inc. 48,600
206 Windstream Holdings, Inc. 1,644
------------
122,336
------------
ELECTRIC UTILITIES -- 1.6%
168 American Electric Power Co., Inc. 7,852
244 Duke Energy Corp. 16,838
113 Edison International 5,232
62 Entergy Corp. 3,923
296 Exelon Corp. 8,107
144 FirstEnergy Corp. 4,749
149 NextEra Energy, Inc. 12,757
109 Northeast Utilities 4,621
86 Pepco Holdings, Inc. 1,645
38 Pinnacle West Capital Corp. 2,011
218 PPL Corp. 6,560
305 Southern (The) Co. 12,539
172 Xcel Energy, Inc. 4,806
------------
91,640
------------
See Notes to Financial Statements Page 45
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRICAL EQUIPMENT -- 0.8%
85 AMETEK, Inc. $ 4,477
164 Eaton Corp. PLC 12,484
243 Emerson Electric Co. 17,054
48 Rockwell Automation, Inc. 5,671
34 Roper Industries, Inc. 4,715
------------
44,401
------------
ELECTRONIC EQUIPMENT,
INSTRUMENTS & COMPONENTS --
0.4%
55 Amphenol Corp., Class A 4,905
500 Corning, Inc. 8,910
49 FLIR Systems, Inc. 1,475
64 Jabil Circuit, Inc. 1,116
142 TE Connectivity Ltd. 7,826
------------
24,232
------------
ENERGY EQUIPMENT & SERVICES
-- 1.9%
153 Baker Hughes, Inc. 8,455
82 Cameron International Corp. (a) 4,881
24 Diamond Offshore Drilling, Inc. 1,366
81 Ensco PLC, Class A 4,632
82 FMC Technologies, Inc. (a) 4,281
293 Halliburton Co. 14,870
37 Helmerich & Payne, Inc. 3,111
90 Nabors Industries Ltd. 1,529
148 National Oilwell Varco, Inc. 11,770
88 Noble Corp. PLC 3,297
43 Rowan Cos. PLC, Class A (a) 1,521
455 Schlumberger Ltd. 41,000
117 Transocean Ltd. 5,782
------------
106,495
------------
FOOD & STAPLES RETAILING -- 2.3%
151 Costco Wholesale Corp. 17,971
411 CVS Caremark Corp. 29,415
180 Kroger (The) Co. 7,115
85 Safeway, Inc. 2,769
201 Sysco Corp. 7,256
301 Walgreen Co. 17,289
559 Wal-Mart Stores, Inc. 43,988
129 Whole Foods Market, Inc. 7,460
------------
133,263
------------
FOOD PRODUCTS -- 1.6%
227 Archer-Daniels-Midland Co. 9,852
62 Campbell Soup Co. 2,684
146 ConAgra Foods, Inc. 4,920
219 General Mills, Inc. 10,930
52 Hershey (The) Co. 5,056
47 Hormel Foods Corp. 2,123
36 J.M. Smucker (The) Co. 3,730
89 Kellogg Co. 5,435
206 Kraft Foods Group, Inc. 11,108
46 McCormick & Co., Inc. 3,170
70 Mead Johnson Nutrition Co. 5,863
SHARES DESCRIPTION VALUE
------------------------------------------------------------
FOOD PRODUCTS (Continued)
606 Mondelez International, Inc.,
Class A $ 21,392
94 Tyson Foods, Inc., Class A 3,145
------------
89,408
------------
GAS UTILITIES -- 0.1%
41 AGL Resources, Inc. 1,936
71 ONEOK, Inc. 4,415
------------
6,351
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.0%
534 Abbott Laboratories 20,468
187 Baxter International, Inc. 13,006
67 Becton, Dickinson & Co. 7,403
461 Boston Scientific Corp. (a) 5,541
27 C. R. Bard, Inc. 3,616
73 CareFusion Corp. (a) 2,907
159 Covidien PLC 10,828
49 DENTSPLY International, Inc. 2,375
38 Edwards Lifesciences Corp. (a) 2,499
13 Intuitive Surgical, Inc. (a) 4,993
345 Medtronic, Inc. 19,800
101 St. Jude Medical, Inc. 6,257
102 Stryker Corp. 7,664
37 Varian Medical Systems, Inc. (a) 2,875
59 Zimmer Holdings, Inc. 5,498
------------
115,730
------------
HEALTH CARE PROVIDERS &
SERVICES -- 2.0%
127 Aetna, Inc. 8,711
79 AmerisourceBergen Corp. 5,554
118 Cardinal Health, Inc. 7,884
95 Cigna Corp. 8,311
61 DaVita HealthCare Partners,
Inc. (a) 3,865
278 Express Scripts Holding Co. (a) 19,527
54 Humana, Inc. 5,574
30 Laboratory Corp. of America
Holdings (a) 2,741
79 McKesson Corp. 12,751
29 Patterson Cos., Inc. 1,195
50 Quest Diagnostics, Inc. 2,677
34 Tenet Healthcare Corp. (a) 1,432
348 UnitedHealth Group, Inc. 26,204
102 WellPoint, Inc. 9,424
------------
115,850
------------
HEALTH CARE TECHNOLOGY -- 0.1%
102 Cerner Corp. (a) 5,685
------------
HOTELS, RESTAURANTS & LEISURE
-- 1.7%
151 Carnival Corp. 6,066
11 Chipotle Mexican Grill, Inc. (a) 5,860
45 Darden Restaurants, Inc. 2,447
86 International Game Technology 1,562
78 Marriott International, Inc.,
Class A 3,850
344 McDonald's Corp. 33,378
Page 46 See Notes to Financial Statements
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOTELS, RESTAURANTS & LEISURE
(Continued)
260 Starbucks Corp. $ 20,381
66 Starwood Hotels & Resorts
Worldwide, Inc. 5,244
45 Wyndham Worldwide Corp. 3,316
28 Wynn Resorts Ltd. 5,438
154 Yum! Brands, Inc. 11,644
------------
99,186
------------
HOUSEHOLD DURABLES -- 0.4%
98 D.R. Horton, Inc. (a) 2,187
42 Garmin Ltd. 1,941
23 Harman International Industries,
Inc. 1,883
49 Leggett & Platt, Inc. 1,516
58 Lennar Corp., Class A 2,294
21 Mohawk Industries, Inc. (a) 3,127
99 Newell Rubbermaid, Inc. 3,209
119 PulteGroup, Inc. 2,424
27 Whirlpool Corp. 4,235
------------
22,816
------------
HOUSEHOLD PRODUCTS -- 2.0%
45 Clorox (The) Co. 4,174
304 Colgate-Palmolive Co. 19,824
132 Kimberly-Clark Corp. 13,789
939 Procter & Gamble (The) Co. 76,444
------------
114,231
------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS -- 0.1%
227 AES (The) Corp. 3,294
112 NRG Energy, Inc. 3,216
------------
6,510
------------
INDUSTRIAL CONGLOMERATES -- 2.5%
221 3M Co. 30,995
207 Danaher Corp. 15,981
3,495 General Electric Co. 97,965
------------
144,941
------------
INSURANCE -- 3.0%
117 ACE Ltd. 12,113
161 Aflac, Inc. 10,755
157 Allstate (The) Corp. 8,563
509 American International Group,
Inc. 25,985
104 Aon PLC 8,725
25 Assurant, Inc. 1,659
87 Chubb (The) Corp. 8,407
51 Cincinnati Financial Corp. 2,671
171 Genworth Financial, Inc.,
Class A (a) 2,656
154 Hartford Financial Services Group
(The), Inc. 5,579
91 Lincoln National Corp. 4,697
106 Loews Corp. 5,113
190 Marsh & McLennan Cos., Inc. 9,188
SHARES DESCRIPTION VALUE
------------------------------------------------------------
INSURANCE (Continued)
387 MetLife, Inc. $ 20,867
95 Principal Financial Group, Inc. 4,684
191 Progressive (The) Corp. 5,209
160 Prudential Financial, Inc. 14,755
31 Torchmark Corp. 2,423
126 Travelers (The) Cos., Inc. 11,408
90 Unum Group 3,157
98 XL Group PLC 3,120
------------
171,734
------------
INTERNET & CATALOG RETAIL -- 1.5%
128 Amazon.com, Inc. (a) 51,045
36 Expedia, Inc. 2,508
20 Netflix, Inc. (a) 7,363
18 priceline.com, Inc. (a) 20,923
38 TripAdvisor, Inc. (a) 3,148
------------
84,987
------------
INTERNET SOFTWARE & SERVICES --
3.2%
62 Akamai Technologies, Inc. (a) 2,925
403 eBay, Inc. (a) 22,121
568 Facebook, Inc., Class A (a) 31,047
97 Google, Inc., Class A (a) 108,709
45 VeriSign, Inc. (a) 2,690
326 Yahoo!, Inc. (a) 13,183
------------
180,675
------------
IT SERVICES -- 3.7%
220 Accenture PLC, Class A 18,088
17 Alliance Data Systems Corp. (a) 4,470
166 Automatic Data Processing, Inc. 13,415
104 Cognizant Technology Solutions
Corp., Class A (a) 10,502
51 Computer Sciences Corp. 2,850
101 Fidelity National Information
Services, Inc. 5,422
89 Fiserv, Inc. (a) 5,255
353 International Business Machines
Corp. 66,212
36 MasterCard, Inc., Class A 30,077
112 Paychex, Inc. 5,099
56 Teradata Corp. (a) 2,547
58 Total System Services, Inc. 1,930
176 Visa, Inc., Class A 39,192
191 Western Union Co. 3,295
400 Xerox Corp. 4,868
------------
213,222
------------
LEISURE EQUIPMENT & PRODUCTS
-- 0.1%
40 Hasbro, Inc. 2,200
117 Mattel, Inc. 5,567
------------
7,767
------------
LIFE SCIENCES TOOLS & SERVICES --
0.5%
114 Agilent Technologies, Inc. 6,519
60 Life Technologies Corp. (a) 4,548
39 PerkinElmer, Inc. 1,608
See Notes to Financial Statements Page 47
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
LIFE SCIENCES TOOLS & SERVICES --
(Continued)
125 Thermo Fisher Scientific, Inc. $ 13,919
29 Waters Corp. (a) 2,900
------------
29,494
------------
MACHINERY -- 1.8%
220 Caterpillar, Inc. 19,978
60 Cummins, Inc. 8,458
132 Deere & Co. 12,056
59 Dover Corp. 5,696
48 Flowserve Corp. 3,784
141 Illinois Tool Works, Inc. 11,855
93 Ingersoll-Rand PLC 5,729
37 Joy Global, Inc. 2,164
122 PACCAR, Inc. 7,219
38 Pall Corp. 3,243
52 Parker Hannifin Corp. 6,689
69 Pentair Ltd. 5,359
20 Snap-on, Inc. 2,191
54 Stanley Black & Decker, Inc. 4,357
64 Xylem, Inc. 2,215
------------
100,993
------------
MEDIA -- 3.7%
74 Cablevision Systems Corp.,
Class A 1,327
193 CBS Corp., Class B 12,302
900 Comcast Corp., Class A 46,768
169 DIRECTV (a) 11,676
78 Discovery Communications, Inc.,
Class A (a) 7,053
79 Gannett Co., Inc. 2,337
144 Interpublic Group of Cos. (The),
Inc. 2,549
172 News Corp., Class A (a) 3,099
89 Omnicom Group, Inc. 6,619
38 Scripps Networks Interactive,
Class A 3,284
97 Time Warner Cable, Inc. 13,143
313 Time Warner, Inc. 21,822
678 Twenty-First Century Fox, Inc.,
Class A 23,852
140 Viacom, Inc., Class B 12,228
565 Walt Disney (The) Co. 43,166
------------
211,225
------------
METALS & MINING -- 0.6%
370 Alcoa, Inc. 3,933
37 Allegheny Technologies, Inc. 1,318
53 Cliffs Natural Resources, Inc. 1,389
359 Freeport-McMoRan Copper &
Gold, Inc. 13,549
172 Newmont Mining Corp. 3,961
110 Nucor Corp. 5,872
50 United States Steel Corp. 1,475
------------
31,497
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
MULTILINE RETAIL -- 0.7%
102 Dollar General Corp. (a) $ 6,153
72 Dollar Tree, Inc. (a) 4,062
33 Family Dollar Stores, Inc. 2,144
70 Kohl's Corp. 3,972
127 Macy's, Inc. 6,782
49 Nordstrom, Inc. 3,028
218 Target Corp. 13,793
------------
39,934
------------
MULTI-UTILITIES -- 1.1%
84 Ameren Corp. 3,037
148 CenterPoint Energy, Inc. 3,431
92 CMS Energy Corp. 2,463
101 Consolidated Edison, Inc. 5,583
201 Dominion Resources, Inc. 13,003
61 DTE Energy Co. 4,050
28 Integrys Energy Group, Inc. 1,523
108 NiSource, Inc. 3,551
155 PG&E Corp. 6,243
175 Public Service Enterprise Group,
Inc. 5,607
49 SCANA Corp. 2,300
79 Sempra Energy 7,091
71 TECO Energy, Inc. 1,224
78 Wisconsin Energy Corp. 3,225
------------
62,331
------------
OIL, GAS & CONSUMABLE FUELS
-- 8.4%
174 Anadarko Petroleum Corp. 13,802
138 Apache Corp. 11,860
145 Cabot Oil & Gas Corp. 5,620
175 Chesapeake Energy Corp. 4,749
664 Chevron Corp. 82,940
423 ConocoPhillips 29,885
79 CONSOL Energy, Inc. 3,005
127 Denbury Resources, Inc. (a) 2,087
132 Devon Energy Corp. 8,167
94 EOG Resources, Inc. 15,777
52 EQT Corp. 4,669
1,509 Exxon Mobil Corp. 152,711
98 Hess Corp. 8,134
233 Kinder Morgan, Inc. 8,388
241 Marathon Oil Corp. 8,507
104 Marathon Petroleum Corp. 9,540
61 Murphy Oil Corp. 3,958
47 Newfield Exploration Co. (a) 1,158
124 Noble Energy, Inc. 8,446
278 Occidental Petroleum Corp. 26,438
93 Peabody Energy Corp. 1,816
207 Phillips 66 15,966
49 Pioneer Natural Resources Co. 9,019
62 QEP Resources, Inc. 1,900
56 Range Resources Corp. 4,721
121 Southwestern Energy Co. (a) 4,759
231 Spectra Energy Corp. 8,228
Page 48 See Notes to Financial Statements
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS
(Continued)
46 Tesoro Corp. $ 2,691
186 Valero Energy Corp. 9,374
236 Williams (The) Cos., Inc. 9,103
69 WPX Energy, Inc. (a) 1,406
------------
478,824
------------
PAPER & FOREST PRODUCTS -- 0.1%
153 International Paper Co. 7,502
------------
PERSONAL PRODUCTS -- 0.2%
150 Avon Products, Inc. 2,583
88 Estee Lauder (The) Cos., Inc.,
Class A 6,628
------------
9,211
------------
PHARMACEUTICALS -- 5.8%
550 AbbVie, Inc. 29,046
60 Actavis PLC (a) 10,080
103 Allergan, Inc. 11,441
569 Bristol-Myers Squibb Co. 30,242
343 Eli Lilly & Co. 17,493
82 Forest Laboratories, Inc. (a) 4,923
57 Hospira, Inc. (a) 2,353
975 Johnson & Johnson 89,300
1,009 Merck & Co., Inc. 50,500
132 Mylan, Inc. (a) 5,729
46 Perrigo Co PLC 7,059
2,239 Pfizer, Inc. 68,581
173 Zoetis, Inc. 5,655
------------
332,402
------------
PROFESSIONAL SERVICES -- 0.2%
13 Dun & Bradstreet (The) Corp. 1,596
42 Equifax, Inc. 2,902
87 Nielsen Holdings N.V. 3,992
48 Robert Half International, Inc. 2,015
------------
10,505
------------
REAL ESTATE INVESTMENT TRUSTS
-- 1.8%
136 American Tower Corp. 10,855
50 Apartment Investment &
Management Co., Class A 1,295
42 AvalonBay Communities, Inc. 4,966
53 Boston Properties, Inc. 5,320
116 Equity Residential 6,017
186 General Growth Properties, Inc. 3,733
158 HCP, Inc. 5,739
100 Health Care REIT, Inc. 5,357
261 Host Hotels & Resorts, Inc. 5,074
142 Kimco Realty Corp. 2,804
49 Macerich (The) Co. 2,886
61 Plum Creek Timber Co., Inc. 2,837
172 Prologis, Inc. 6,355
50 Public Storage 7,526
107 Simon Property Group, Inc. 16,281
102 Ventas, Inc. 5,843
SHARES DESCRIPTION VALUE
------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
(Continued)
60 Vornado Realty Trust $ 5,327
201 Weyerhaeuser Co. 6,346
------------
104,561
------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 0.0%
96 CBRE Group, Inc., Class A (a) 2,525
------------
ROAD & RAIL -- 0.9%
350 CSX Corp. 10,069
38 Kansas City Southern 4,706
107 Norfolk Southern Corp. 9,933
18 Ryder System, Inc. 1,328
159 Union Pacific Corp. 26,712
------------
52,748
------------
SEMICONDUCTORS &
SEMICONDUCTOR EQUIPMENT --
2.0%
111 Altera Corp. 3,611
107 Analog Devices, Inc. 5,449
416 Applied Materials, Inc. 7,359
186 Broadcom Corp., Class A 5,515
24 First Solar, Inc. (a) 1,311
1,717 Intel Corp. 44,573
58 KLA-Tencor Corp. 3,739
56 Lam Research Corp. (a) 3,049
81 Linear Technology Corp. 3,689
188 LSI Corp. 2,072
69 Microchip Technology, Inc. 3,088
363 Micron Technology, Inc. (a) 7,899
200 NVIDIA Corp. 3,204
378 Texas Instruments, Inc. 16,598
93 Xilinx, Inc. 4,271
------------
115,427
------------
SOFTWARE -- 3.4%
161 Adobe Systems, Inc. (a) 9,641
78 Autodesk, Inc. (a) 3,926
112 CA, Inc. 3,769
64 Citrix Systems, Inc. (a) 4,048
107 Electronic Arts, Inc. (a) 2,455
98 Intuit, Inc. 7,479
2,624 Microsoft Corp. 98,216
1,212 Oracle Corp. 46,371
65 Red Hat, Inc. (a) 3,643
192 Salesforce.com, Inc. (a) 10,596
240 Symantec Corp. 5,659
------------
195,803
------------
SPECIALTY RETAIL -- 2.2%
22 AutoNation, Inc. (a) 1,093
12 AutoZone, Inc. (a) 5,735
74 Bed Bath & Beyond, Inc. (a) 5,942
94 Best Buy Co., Inc. 3,749
77 CarMax, Inc. (a) 3,621
40 GameStop Corp., Class A 1,970
92 Gap (The), Inc. 3,595
486 Home Depot (The), Inc. 40,017
See Notes to Financial Statements Page 49
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2013
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL (Continued)
84 L Brands, Inc. $ 5,195
361 Lowe's Cos., Inc. 17,888
37 O'Reilly Automotive, Inc. (a) 4,762
36 PetSmart, Inc. 2,619
75 Ross Stores, Inc. 5,620
228 Staples, Inc. 3,623
38 Tiffany & Co. 3,526
246 TJX (The) Cos., Inc. 15,678
38 Urban Outfitters, Inc. (a) 1,410
------------
126,043
------------
TEXTILES, APPAREL & LUXURY
GOODS -- 0.8%
97 Coach, Inc. 5,445
17 Fossil Group, Inc. (a) 2,039
62 Michael Kors Holdings Ltd. (a) 5,034
258 NIKE, Inc., Class B 20,289
28 PVH Corp. 3,808
21 Ralph Lauren Corp. 3,708
120 VF Corp. 7,481
------------
47,804
------------
THRIFTS & MORTGAGE FINANCE --
0.1%
164 Hudson City Bancorp, Inc. 1,547
110 People's United Financial, Inc. 1,663
------------
3,210
------------
TOBACCO -- 1.5%
691 Altria Group, Inc. 26,528
127 Lorillard, Inc. 6,436
553 Philip Morris International, Inc. 48,183
108 Reynolds American, Inc. 5,399
------------
86,546
------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.2%
94 Fastenal Co. 4,466
21 W.W. Grainger, Inc. 5,364
------------
9,830
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 0.2%
115 Crown Castle International
Corp. (a) 8,444
------------
TOTAL COMMON STOCKS -- 99.7% 5,699,915
(Cost $4,678,123)
CONTRACTS
-----------
OPTIONS PURCHASED -- 0.4%
Call Options
743 VIX US, expiring 01/22/2014,
Strike Price $18 (a) 20,061
(Cost $59,822) ------------
DESCRIPTION VALUE
------------------------------------------------------------
TOTAL INVESTMENTS -- 100.1% $ 5,719,976
(Cost $4,737,945) (b)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (4,190)
------------
NET ASSETS -- 100.0% $ 5,715,786
============
-------------------
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $4,704,027. As of
December 31, 2013, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$1,048,332 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$32,383.
---------------------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2013 is as follows (see Note 2A - Portfolio Valuation in the Notes to Financial
Statements):
Level 1 - Quoted Prices
Level 2 - Other Significant Observable Inputs
Level 3 - Significant Unobservable Inputs
INVESTMENTS LEVEL 1 LEVEL 2 LEVEL 3
---------------------------------------------------------------------
Common Stocks* $5,699,915 $ -- $ --
Options Purchased 20,061 -- --
---------------------------------------------
Total Investments $5,719,976 $ -- $ --
=============================================
* See Portfolio of Investments for industry breakout.
All transfers in and out of the Levels during the period are assumed to be
transferred on the last day of the period at their current value. There were no
transfers between Levels at December 31, 2013.
Page 50 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2013
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ-100- NASDAQ-100
EQUAL WEIGHTED TECHNOLOGY SECTOR EX-TECHNOLOGY SECTOR
INDEX(SM) FUND INDEX(SM) FUND INDEX(SM) FUND
(QQEW) (QTEC) (QQXT)
------------------ ------------------ --------------------
ASSETS:
Investments, at value................................................. $ 294,415,526 $ 177,166,885 $ 92,258,642
Cash.................................................................. 161,159 159,381 --
Receivables:
Capital shares sold............................................. 12,682,588 -- --
Investment securities sold...................................... -- -- --
Dividends....................................................... 176,971 15,751 92,017
Securities lending income....................................... 13,211 -- 6,998
Reclaims........................................................ -- -- --
Interest........................................................ -- -- --
Due from authorized participant................................. -- -- --
From investment advisor......................................... -- -- --
Prepaid expenses...................................................... 7,207 2,411 1,211
-------------- -------------- --------------
TOTAL ASSETS.................................................... 307,456,662 177,344,428 92,358,868
-------------- -------------- --------------
LIABILITIES:
Due to custodian...................................................... -- -- --
Payables:
Capital shares purchased........................................ -- -- --
Investment securities purchased................................. 12,671,785 -- --
Collateral for securities on loan............................... 5,540,470 -- 1,863,846
Investment advisory fees........................................ 89,577 57,601 20,440
Licensing fees.................................................. 71,154 39,871 20,695
Audit and tax fees.............................................. 22,925 22,925 22,925
Printing fees................................................... 7,230 7,296 4,189
Trustees' fees.................................................. 5 29 295
Other liabilities..................................................... 108,500 52,084 30,608
-------------- -------------- --------------
TOTAL LIABILITIES............................................... 18,511,646 179,806 1,962,998
-------------- -------------- --------------
NET ASSETS............................................................ $ 288,945,016 $ 177,164,622 $ 90,395,870
============== ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital....................................................... $ 279,908,744 $ 163,718,704 $ 76,314,483
Par value............................................................. 79,500 50,000 26,000
Accumulated net investment income (loss).............................. -- -- 22,558
Accumulated net realized gain (loss) on investments................... (11,417,668) (21,968,643) (4,013,413)
Net unrealized appreciation (depreciation) on investments............. 20,374,440 35,364,561 18,046,242
-------------- -------------- --------------
NET ASSETS............................................................ $ 288,945,016 $ 177,164,622 $ 90,395,870
============== ============== ==============
NET ASSET VALUE, per share............................................ $ 36.35 $ 35.43 $ 34.77
============== ============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)...................................... 7,950,002 5,000,002 2,600,002
-------------- -------------- --------------
Investments, at cost.................................................. $ 274,041,086 $ 141,802,324 $ 74,212,400
============== ============== ==============
Securities on loan, at value......................................... $ 5,430,061 $ -- $ 1,826,483
============== ============== ==============
See Notes to Financial Statements Page 51
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2013
FIRST TRUST
NASDAQ(R) FIRST TRUST FIRST TRUST
CLEAN EDGE(R) S&P ISE
GREEN ENERGY REIT WATER
INDEX FUND INDEX FUND INDEX FUND
(QCLN) (FRI) (FIW)
------------------ ------------------ --------------------
ASSETS:
Investments, at value................................................. $ 116,238,220 $ 147,764,978 $ 197,651,647
Cash.................................................................. -- -- --
Receivables:
Capital shares sold............................................. -- -- --
Investment securities sold...................................... 85,798 5,015 694,727
Dividends....................................................... 5,042 730,630 61,156
Securities lending income....................................... 36,555 -- --
Reclaims........................................................ -- -- 43,368
Interest........................................................ -- 18 4
Due from authorized participant................................. -- -- --
From investment advisor......................................... -- -- --
Prepaid expenses...................................................... 1,169 2,581 2,259
-------------- -------------- --------------
TOTAL ASSETS.................................................... 116,366,784 148,503,222 198,453,161
-------------- -------------- --------------
LIABILITIES:
Due to custodian...................................................... 26,329 642 619,892
Payables:
Capital shares purchased........................................ -- -- --
Investment securities purchased................................. -- -- --
Collateral for securities on loan............................... 18,665,457 -- --
Investment advisory fees........................................ 16,401 43,017 60,101
Licensing fees.................................................. 22,006 148,738 38,669
Audit and tax fees.............................................. 22,925 22,925 22,925
Printing fees................................................... 4,519 25,615 8,985
Trustees' fees.................................................. 6 -- 237
Other liabilities..................................................... 35,456 51,983 59,152
-------------- -------------- --------------
TOTAL LIABILITIES............................................... 18,793,099 292,920 809,961
-------------- -------------- --------------
NET ASSETS............................................................ $ 97,573,685 $ 148,210,302 $ 197,643,200
============== ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital....................................................... $ 110,690,784 $ 156,571,872 $ 175,213,370
Par value............................................................. 54,500 84,500 58,500
Accumulated net investment income (loss).............................. 29,696 -- --
Accumulated net realized gain (loss) on investments................... (35,099,930) (1,879,166) (13,631,088)
Net unrealized appreciation (depreciation) on investments............. 21,898,635 (6,566,904) 36,002,418
-------------- -------------- --------------
NET ASSETS............................................................ $ 97,573,685 $ 148,210,302 $ 197,643,200
============== ============== ==============
NET ASSET VALUE, per share............................................ $ 17.90 $ 17.54 $ 33.79
============== ============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)...................................... 5,450,002 8,450,002 5,850,002
-------------- -------------- --------------
Investments, at cost.................................................. $ 94,339,585 $ 154,331,882 $ 161,649,229
============== ============== ==============
Securities on loan, at value......................................... $ 17,954,269 $ -- $ --
============== ============== ==============
Page 52 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE
ISE-REVERE ISE COMMUNITY S&P 500
NATURAL GAS CHINDIA BANK VIX
INDEX FUND INDEX FUND INDEX FUND TAIL HEDGE FUND
(FCG) (FNI) (QABA) (VIXH)
--------------- --------------- --------------- ---------------
$ 543,931,946 $ 81,500,567 $ 52,347,914 $ 5,719,976
156,006 -- 19,647 --
-- -- 3,630,694 --
5,199,239 636,528 -- --
-- -- 57,512 7,718
35,134 12,704 -- --
-- -- -- --
8 -- -- --
-- -- 784,453 --
-- 6,150 -- --
7,889 1,035 598 --
--------------- --------------- --------------- ---------------
549,330,222 82,156,984 56,840,818 5,727,694
--------------- --------------- --------------- ---------------
-- 573,250 -- 9,045
4,882,217 -- 784,453 --
-- -- 3,630,882 --
79,063,669 9,536,118 -- --
151,176 -- 11,017 2,863
240,020 25,760 10,074 --
22,925 22,925 22,925 --
24,639 4,376 1,167 --
90 282 -- --
150,677 32,314 17,987 --
--------------- --------------- --------------- ---------------
84,535,413 10,195,025 4,478,505 11,908
--------------- --------------- --------------- ---------------
$ 464,794,809 $ 71,961,959 $ 52,362,313 $ 5,715,786
=============== =============== =============== ===============
$ 616,688,334 $ 106,894,885 $ 45,676,497 $ 5,240,255
238,000 25,500 14,500 2,500
151,483 9,106 7,290 904
(155,290,317) (51,063,228) (824,037) (509,904)
3,007,309 16,095,696 7,488,063 982,031
--------------- --------------- --------------- ---------------
$ 464,794,809 $ 71,961,959 $ 52,362,313 $ 5,715,786
=============== =============== =============== ===============
$ 19.53 $ 28.22 $ 36.11 $ 22.86
=============== =============== =============== ===============
23,800,002 2,550,002 1,450,002 250,002
--------------- --------------- --------------- ---------------
$ 540,924,637 $ 65,404,871 $ 44,859,851 $ 4,737,945
=============== =============== =============== ===============
$ 76,784,626 $ 9,250,851 $ -- $ --
=============== =============== =============== ===============
See Notes to Financial Statements Page 53
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ-100- NASDAQ-100
EQUAL WEIGHTED TECHNOLOGY SECTOR EX-TECHNOLOGY SECTOR
INDEX(SM) FUND INDEX(SM) FUND INDEX(SM) FUND
(QQEW) (QTEC) (QQXT)
------------------ ------------------ --------------------
INVESTMENT INCOME:
Dividends........................................................ $ 2,155,709 $ 1,834,154 $ 590,567
Securities lending income (net of fees).......................... 117,024 -- 49,159
Foreign tax withholding.......................................... (12,342) -- --
Interest......................................................... -- -- 17
-------------- -------------- --------------
Total investment income....................................... 2,260,391 1,834,154 639,743
-------------- -------------- --------------
EXPENSES:
Investment advisory fees......................................... 751,338 523,516 260,874
Licensing fees................................................... 187,834 130,879 65,219
Accounting and administration fees............................... 95,377 67,023 34,182
Custodian fees................................................... 31,903 16,316 11,817
Legal fees....................................................... 23,528 9,421 5,789
Audit and tax fees............................................... 23,196 23,196 23,196
Registration and filing fees..................................... 16,902 4,046 2,792
Printing fees.................................................... 16,566 10,410 10,139
Listing fees..................................................... 10,237 10,615 8,495
Transfer agent fees.............................................. 9,392 6,544 3,261
Trustees' fees and expenses...................................... 8,932 7,770 6,131
Expenses previously waived or reimbursed......................... -- -- --
Other expenses................................................... 8,102 8,047 3,866
-------------- -------------- --------------
Total expenses................................................ 1,183,307 817,783 435,761
Less fees waived and expenses reimbursed by the investment advisor (56,300) (32,509) (44,451)
-------------- -------------- --------------
Net expenses.................................................. 1,127,007 785,274 391,310
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)..................................... 1,133,384 1,048,880 248,433
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... 2,107,603 1,525,098 304,034
Options....................................................... -- -- --
In-kind redemptions........................................... 32,708,090 1,836,943 6,412,643
-------------- -------------- --------------
Net realized gain (loss)......................................... 34,815,693 3,362,041 6,716,677
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... 17,842,947 39,185,377 14,394,518
Options....................................................... -- -- --
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation)............. 17,842,947 39,185,377 14,394,518
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 52,658,640 42,547,418 21,111,195
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS............................................... $ 53,792,024 $ 43,596,298 $ 21,359,628
============== ============== ==============
Page 54 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
NASDAQ(R) FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA
CLEAN EDGE(R) S&P ISE ISE-REVERE ISE COMMUNITY
GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK
INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND
(QCLN) (FRI) (FIW) (FCG) (FNI) (QABA)
--------------- --------------- --------------- --------------- --------------- ---------------
$ 196,556 $ 9,154,318 $ 1,800,727 $ 4,338,931 $ 792,551 $ 513,580
429,906 -- -- 494,293 129,828 --
-- -- (59,821) (327,348) (40,671) --
-- 111 55 87 -- --
--------------- --------------- --------------- --------------- --------------- ---------------
626,462 9,154,429 1,740,961 4,505,963 881,708 513,580
--------------- --------------- --------------- --------------- --------------- ---------------
209,084 979,339 516,793 1,798,365 254,417 103,846
52,271 261,157 64,599 449,592 50,883 23,365
25,951 166,422 66,221 226,398 14,595 15,665
12,832 41,530 16,128 62,980 38,498 3,241
4,707 25,958 11,161 34,196 4,672 1,932
23,196 23,196 23,196 23,196 23,196 23,196
6,899 (1,371) 10,810 (11,957) -- 3,986
9,480 57,072 20,900 55,322 6,789 3,029
8,273 7,677 7,677 8,049 8,049 9,802
2,613 16,322 6,460 22,479 3,180 1,298
5,506 14,020 7,975 17,091 6,371 4,716
-- 21,341 17,509 -- -- --
3,315 19,569 5,760 23,822 6,075 2,468
--------------- --------------- --------------- --------------- --------------- ---------------
364,127 1,632,232 775,189 2,709,533 416,725 196,544
(50,502) -- -- (11,985) (35,100) (40,775)
--------------- --------------- --------------- --------------- --------------- ---------------
313,625 1,632,232 775,189 2,697,548 381,625 155,769
--------------- --------------- --------------- --------------- --------------- ---------------
312,837 7,522,197 965,772 1,808,415 500,083 357,811
--------------- --------------- --------------- --------------- --------------- ---------------
(2,952,689) 155,306 (1,674,973) (41,821,316) (110,688) (60,664)
-- -- -- -- -- --
4,085,628 40,735,169 9,514,725 34,480,310 3,318,599 839,997
--------------- --------------- --------------- --------------- --------------- ---------------
1,132,939 40,890,475 7,839,752 (7,341,006) 3,207,911 779,333
--------------- --------------- --------------- --------------- --------------- ---------------
26,679,735 (32,323,997) 26,156,476 102,869,319 15,391,317 7,480,300
-- -- -- -- -- --
--------------- --------------- --------------- --------------- --------------- ---------------
26,679,735 (32,323,997) 26,156,476 102,869,319 15,391,317 7,480,300
--------------- --------------- --------------- --------------- --------------- ---------------
27,812,674 8,566,478 33,996,228 95,528,313 18,599,228 8,259,633
--------------- --------------- --------------- --------------- --------------- ---------------
$ 28,125,511 $ 16,088,675 $ 34,962,000 $ 97,336,728 $ 19,099,311 $ 8,617,444
=============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 55
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2013
FIRST TRUST
CBOE
S&P 500
VIX
TAIL HEDGE FUND
(VIXH)
---------------------
INVESTMENT INCOME:
Dividends........................................................ $ 120,637
Securities lending income (net of fees).......................... --
Foreign tax withholding.......................................... (27)
Interest......................................................... --
---------------
Total investment income....................................... 120,610
---------------
EXPENSES:
Investment advisory fees......................................... 33,997
Licensing fees................................................... --
Accounting and administration fees............................... --
Custodian fees................................................... --
Legal fees....................................................... --
Audit and tax fees............................................... --
Registration and filing fees..................................... --
Printing fees.................................................... --
Listing fees..................................................... --
Transfer agent fees.............................................. --
Trustees' fees and expenses...................................... --
Expenses previously waived or reimbursed......................... --
Other expenses................................................... --
---------------
Total expenses................................................ 33,997
Less fees waived and expenses reimbursed by the investment
advisor --
---------------
Net expenses.................................................. 33,997
---------------
NET INVESTMENT INCOME (LOSS)..................................... 86,613
---------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... 40,604
Options....................................................... (471,352)
In-kind redemptions........................................... 432,460
---------------
Net realized gain (loss)......................................... 1,712
---------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... 974,845
Options....................................................... (57,076)
---------------
Net change in unrealized appreciation (depreciation)............. 917,769
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 919,481
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS............................................... $ 1,006,094
===============
Page 56 See Notes to Financial Statements
This page intentionally left blank.
Page 57
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS
FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ-100-
EQUAL WEIGHTED TECHNOLOGY SECTOR
INDEX(SM) FUND INDEX(SM) FUND
(QQEW) (QTEC)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)............................... $ 1,133,384 $ 862,757 $ 1,048,880 $ 895,040
Net realized gain (loss)................................... 34,815,693 (534,059) 3,362,041 (8,492,271)
Net change in unrealized appreciation (depreciation) ...... 17,842,947 9,707,786 39,185,377 17,868,037
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations............................................ 53,792,024 10,036,484 43,596,298 10,270,806
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (1,151,465) (930,480) (1,166,616) (991,450)
Net realized gain.......................................... -- -- -- --
------------- ------------- ------------- -------------
Total distributions to shareholders........................ (1,151,465) (930,480) (1,166,616) (991,450)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................. 357,783,254 40,706,241 41,604,720 17,786,464
Cost of shares redeemed.................................... (206,293,601) (38,536,793) (12,877,761) (70,717,904)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions......................... 151,489,653 2,169,448 28,726,959 (52,931,440)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets.................... 204,130,212 11,275,452 71,156,641 (43,652,084)
NET ASSETS:
Beginning of period........................................ 84,814,804 73,539,352 106,007,981 149,660,065
------------- ------------- ------------- -------------
End of period.............................................. $ 288,945,016 $ 84,814,804 $ 177,164,622 $ 106,007,981
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period...................................... $ -- $ -- $ -- $ --
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................... 3,250,002 3,200,002 4,100,002 6,200,002
Shares sold................................................ 11,000,000 1,600,000 1,350,000 650,000
Shares redeemed............................................ (6,300,000) (1,550,000) (450,000) (2,750,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period.......................... 7,950,002 3,250,002 5,000,002 4,100,002
============= ============= ============= =============
Page 58 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ(R) S&P FIRST TRUST
EX-TECHNOLOGY SECTOR CLEAN EDGE(R) GREEN ENERGY REIT ISE WATER
INDEX(SM) FUND INDEX FUND INDEX FUND INDEX FUND
(QQXT) (QCLN) (FRI) (FIW)
----------------------------- ----------------------------- ----------------------------- -----------------------------
For the Year For the Year For the Year For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended Ended Ended Ended
12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 248,433 $ 492,647 $ 312,837 $ 199,848 $ 7,522,197 $ 8,527,048 $ 965,772 $ 668,604
6,716,677 1,456,905 1,132,939 (5,438,105) 40,890,475 9,469,758 7,839,752 2,743,835
14,394,518 4,359,118 26,679,735 5,063,832 (32,323,997) 41,021,892 26,156,476 11,704,734
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
21,359,628 6,308,670 28,125,511 (174,425) 16,088,675 59,018,698 34,962,000 15,117,173
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(225,875) (530,821) (297,165) (186,210) (7,854,961) (8,264,301) (973,210) (716,105)
-- -- -- -- -- (771,210) -- --
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(225,875) (530,821) (297,165) (186,210) (7,854,961) (9,035,511) (973,210) (716,105)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
44,880,011 19,895,486 62,114,258 -- 80,241,468 116,759,773 127,825,752 19,286,737
(17,599,619) (13,848,505) (6,109,034) (6,638,877) (343,153,151) (88,815,487) (36,940,729) (18,904,444)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
27,280,392 6,046,981 56,005,224 (6,638,877) (262,911,683) 27,944,286 90,885,023 382,293
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
48,414,145 11,824,830 83,833,570 (6,999,512) (254,677,969) 77,927,473 124,873,813 14,783,361
41,981,725 30,156,895 13,740,115 20,739,627 402,888,271 324,960,798 72,769,387 57,986,026
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 90,395,870 $ 41,981,725 $ 97,573,685 $ 13,740,115 $ 148,210,302 $ 402,888,271 $ 197,643,200 $ 72,769,387
============= ============= ============= ============= ============= ============= ============= =============
$ 22,558 $ -- $ 29,696 $ 13,638 $ -- $ 262,747 $ -- $ --
============= ============= ============= ============= ============= ============= ============= =============
1,700,002 1,450,002 1,450,002 2,150,002 22,700,002 21,000,002 2,800,002 2,800,002
1,450,000 850,000 4,450,000 -- 4,200,000 7,000,000 4,200,000 750,000
(550,000) (600,000) (450,000) (700,000) (18,450,000) (5,300,000) (1,150,000) (750,000)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,600,002 1,700,002 5,450,002 1,450,002 8,450,002 22,700,002 5,850,002 2,800,002
============= ============= ============= ============= ============= ============= ============= =============
See Notes to Financial Statements Page 59
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FIRST TRUST
ISE-REVERE FIRST TRUST
NATURAL GAS ISE CHINDIA
INDEX FUND INDEX FUND
(FCG) (FNI)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)............................... $ 1,808,415 $ 1,574,437 $ 500,083 $ 1,217,729
Net realized gain (loss)................................... (7,341,006) (16,189,085) 3,207,911 (3,470,292)
Net change in unrealized appreciation (depreciation) ...... 102,869,319 (39,813,093) 15,391,317 14,368,597
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations....................................... 97,336,728 (54,427,741) 19,099,311 12,116,034
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (1,716,075) (1,601,915) (528,875) (1,226,880)
Net realized gain.......................................... -- -- -- --
------------- ------------- ------------- -------------
Total distributions to shareholders........................ (1,716,075) (1,601,915) (528,875) (1,226,880)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................. 195,622,338 297,966,521 2,735,518 2,017,518
Cost of shares redeemed.................................... (214,347,484) (200,593,951) (15,410,341) (26,127,668)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions......................... (18,725,146) 97,372,570 (12,674,823) (24,110,150)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets.................... 76,895,507 41,342,914 5,895,613 (13,220,996)
NET ASSETS:
Beginning of period........................................ 387,899,302 346,556,388 66,066,346 79,287,342
------------- ------------- ------------- -------------
End of period.............................................. $ 464,794,809 $ 387,899,302 $ 71,961,959 $ 66,066,346
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period...................................... $ 151,483 $ 58,081 $ 9,106 $ (9,151)
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................... 24,750,002 19,050,002 3,150,002 4,350,002
Shares sold................................................ 11,150,000 17,550,000 100,000 100,000
Shares redeemed............................................ (12,100,000) (11,850,000) (700,000) (1,300,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period.......................... 23,800,002 24,750,002 2,550,002 3,150,002
============= ============= ============= =============
(a) Inception date is August 29, 2012, which is consistent with the
commencement of investment operations and is the date the initial creation
units were established.
Page 60 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
NASDAQ(R) ABA CBOE S&P 500
COMMUNITY BANK VIX TAIL
INDEX FUND HEDGE FUND
(QABA) (VIXH)
----------------------------- -----------------------------
For the Period
For the Year For the Year For the Year 8/29/2012 (a)
Ended Ended Ended through
12/31/2013 12/31/2012 12/31/2013 12/31/2012
------------- ------------- ------------- -------------
$ 357,811 $ 204,704 $ 86,613 $ 15,302
779,333 764,258 1,712 (82,984)
7,480,300 426,602 917,769 64,262
------------- ------------- ------------- -------------
8,617,444 1,395,564 1,006,094 (3,420)
------------- ------------- ------------- -------------
(350,521) (217,066) (85,676) (15,480)
-- -- -- --
------------- ------------- ------------- -------------
(350,521) (217,066) (85,676) (15,480)
------------- ------------- ------------- -------------
38,405,721 5,084,903 4,048,627 2,945,641
(3,255,400) (9,952,509) (2,180,000) --
------------- ------------- ------------- -------------
35,150,321 (4,867,606) 1,868,627 2,945,641
------------- ------------- ------------- -------------
43,417,244 (3,689,108) 2,789,045 2,926,741
8,945,069 12,634,177 2,926,741 --
------------- ------------- ------------- -------------
$ 52,362,313 $ 8,945,069 $ 5,715,786 $ 2,926,741
============= ============= ============= =============
$ 7,290 $ -- $ 904 $ --
============= ============= ============= =============
350,002 550,002 150,002 --
1,200,000 200,000 200,000 150,002
(100,000) (400,000) (100,000) --
------------- ------------- ------------- -------------
1,450,002 350,002 250,002 150,002
============= ============= ============= =============
See Notes to Financial Statements Page 61
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX(SM) FUND (QQEW)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 26.10 $ 22.98 $ 23.74 $ 19.69 $ 12.37
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.17 0.27 0.05 0.15 0.05
Net realized and unrealized gain (loss) 10.25 3.14 (0.70) 4.02 7.32
---------- ---------- ---------- ---------- ----------
Total from investment operations 10.42 3.41 (0.65) 4.17 7.37
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.17) (0.29) (0.11) (0.12) (0.05)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 36.35 $ 26.10 $ 22.98 $ 23.74 $ 19.69
========== ========== ========== ========== ==========
TOTAL RETURN (a) 39.95% 14.86% (2.77)% 21.25% 59.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 288,945 $ 84,815 $ 73,539 $ 75,955 $ 40,369
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.63% 0.68% 0.68% 0.75% 0.67%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.60% 1.01% 0.23% 0.79% 0.35%
Portfolio turnover rate (b) 38% 34% 27% 24% 36%
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX(SM) FUND (QTEC)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 25.86 $ 24.14 $ 25.69 $ 21.16 $ 11.77
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.24 0.19 0.00 (c) (d) 0.10 0.01
Net realized and unrealized gain (loss) 9.59 1.74 (1.47) 4.53 9.39
---------- ---------- ---------- ---------- ----------
Total from investment operations 9.83 1.93 (1.47) 4.63 9.40
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (loss) (0.26) (0.21) (0.08) (0.10) (0.01)
Return of capital -- -- -- -- (0.00) (c)
---------- ---------- ---------- ---------- ----------
Total distributions (0.26) (0.21) (0.08) (0.10) (0.01)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 35.43 $ 25.86 $ 24.14 $ 25.69 $ 21.16
========== ========== ========== ========== ==========
TOTAL RETURN (a) 38.12% 8.02% (5.75)% 21.92% 79.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 177,165 $ 106,008 $ 149,660 $ 453,416 $ 86,766
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.62% 0.65% 0.63% 0.70% 0.67%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.80% 0.63% (0.02)% 0.71% 0.16%
Portfolio turnover rate (b) 33% 26% 21% 26% 35%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Amount represents less than $0.01 per share.
(d) Per share amounts have been calculated using the average share method.
Page 62 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX(SM) FUND (QQXT)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 24.70 $ 20.80 $ 21.10 $ 17.63 $ 12.05
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.10 0.31 0.06 0.17 0.05
Net realized and unrealized gain (loss) 10.06 3.92 (0.28) 3.46 5.58
---------- ---------- ---------- ---------- ----------
Total from investment operations 10.16 4.23 (0.22) 3.63 5.63
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.09) (0.33) (0.08) (0.16) (0.05)
Return of capital -- -- -- -- (0.00) (a)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (0.09) (0.33) (0.08) (0.16) (0.05)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 34.77 $ 24.70 $ 20.80 $ 21.10 $ 17.63
========== ========== ========== ========== ==========
TOTAL RETURN (b) 41.24% 20.31% (1.08)% 20.64% 46.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 90,396 $ 41,982 $ 30,157 $ 22,151 $ 10,579
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.67% 0.76% 0.78% 0.94% 1.28%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.38% 1.34% 0.31% 1.02% 0.48%
Portfolio turnover rate (c) 33% 40% 37% 19% 43%
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 9.48 $ 9.65 $ 16.42 $ 16.09 $ 11.19
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.07 0.13 (0.03) (0.01) (0.02)
Net realized and unrealized gain (loss) 8.42 (0.18) (6.74) 0.34 4.92
---------- ---------- ---------- ---------- ----------
Total from investment operations 8.49 (0.05) (6.77) 0.33 4.90
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.07) (0.12) -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.90 $ 9.48 $ 9.65 $ 16.42 $ 16.09
========== ========== ========== ========== ==========
TOTAL RETURN (b) 89.79% (0.50)% (41.23)% 2.05% 43.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 97,574 $ 13,740 $ 20,740 $ 36,120 $ 43,449
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.70% 0.98% 0.77% 0.78% 0.81%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.60% 1.19% (0.18)% (0.07)% (0.12)%
Portfolio turnover rate (c) 49% 24% 22% 22% 40%
(a) Amount represents less than $0.01 per share.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 63
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST S&P REIT INDEX FUND (FRI)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 17.75 $ 15.47 $ 14.65 $ 11.72 $ 9.43
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.52 0.38 0.28 0.29 0.25
Net realized and unrealized gain (loss) (0.19) 2.30 0.88 2.94 2.31
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.33 2.68 1.16 3.23 2.56
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.54) (0.37) (0.34) (0.30) (0.25)
Net realized gain -- (0.03) -- -- --
Return of capital -- -- -- -- (0.02)
---------- ---------- ---------- ---------- ----------
Total distributions (0.54) (0.40) (0.34) (0.30) (0.27)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.54 $ 17.75 $ 15.47 $ 14.65 $ 11.72
========== ========== ========== ========== ==========
TOTAL RETURN (a) 1.82% 17.39% 7.90% 27.73% 28.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 148,210 $ 402,888 $ 324,961 $ 71,066 $ 21,087
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.50% 0.50% 0.57% 0.69% 1.95%
Ratio of net expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of net investment income (loss) to
average net assets 2.31% 2.15% 2.03% 2.60% 3.39%
Portfolio turnover rate (b) 11% 8% 9% 16% 13%
FIRST TRUST ISE WATER INDEX FUND (FIW)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 25.99 $ 20.71 $ 22.13 $ 18.66 $ 15.69
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.21 0.23 0.16 0.18 0.19
Net realized and unrealized gain (loss) 7.80 5.30 (1.39) 3.43 2.97
---------- ---------- ---------- ---------- ----------
Total from investment operations 8.01 5.53 (1.23) 3.61 3.16
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.21) (0.25) (0.19) (0.14) (0.19)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 33.79 $ 25.99 $ 20.71 $ 22.13 $ 18.66
========== ========== ========== ========== ==========
TOTAL RETURN (a) 30.91% 26.83% (5.62)% 19.49% 20.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 197,643 $ 72,769 $ 57,986 $ 53,111 $ 37,314
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.60% 0.63% 0.64% 0.69% 0.72%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.75% 1.02% 0.79% 0.96% 1.20%
Portfolio turnover rate (b) 45% 31% 31% 38% 44%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 64 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 15.67 $ 18.19 $ 19.60 $ 17.52 $ 11.80
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.07 0.07 0.08 0.03 0.07
Net realized and unrealized gain (loss) 3.86 (2.52) (1.41) 2.10 5.72
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.93 (2.45) (1.33) 2.13 5.79
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.07) (0.07) (0.08) (0.05) (0.07)
Return of capital -- -- -- (0.00) (a) (0.00) (a)
---------- ---------- ---------- ---------- ----------
Total distributions (0.07) (0.07) (0.08) (0.05) (0.07)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 19.53 $ 15.67 $ 18.19 $ 19.60 $ 17.52
========== ========== ========== ========== ==========
TOTAL RETURN (b) 25.13% (13.51)% (6.85)% 12.22% 49.21%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 464,795 $ 387,899 $ 346,556 $ 396,893 $ 464,339
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.60% 0.63% 0.63% 0.65% 0.72%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.40% 0.40% 0.39% 0.19% 0.53%
Portfolio turnover rate (c) 49% 41% 43% 93% 71%
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 20.97 $ 18.23 $ 25.01 $ 21.28 $ 11.78
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.20 0.35 0.27 0.17 0.09
Net realized and unrealized gain (loss) 7.26 2.74 (6.75) 3.73 9.50
---------- ---------- ---------- ---------- ----------
Total from investment operations 7.46 3.09 (6.48) 3.90 9.59
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.21) (0.35) (0.30) (0.17) (0.09)
Return of capital -- -- -- -- (0.00) (a)
---------- ---------- ---------- ---------- ----------
Total distributions (0.21) (0.35) (0.30) (0.17) (0.09)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 28.22 $ 20.97 $ 18.23 $ 25.01 $ 21.28
========== ========== ========== ========== ==========
TOTAL RETURN (b) 35.81% 17.11% (26.02)% 18.46% 81.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 71,962 $ 66,066 $ 79,287 $ 176,352 $ 120,240
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.66% 0.73% 0.66% 0.66% 0.73%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.79% 1.60% 1.00% 0.74% 0.58%
Portfolio turnover rate (c) 40% 29% 23% 34% 47%
(a) Amount represents less than $0.01 share.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(c) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
See Notes to Financial Statements Page 65
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE 6/29/2009 (a)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009
------------ ------------ ------------ ------------ ----------------
Net asset value, beginning of period $ 25.56 $ 22.97 $ 24.95 $ 22.41 $ 20.00
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.37 0.48 0.37 0.30 0.16
Net realized and unrealized gain (loss) 10.55 2.62 (1.98) 2.55 2.40
---------- ---------- ---------- ---------- ----------
Total from investment operations 10.92 3.10 (1.61) 2.85 2.56
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.37) (0.51) (0.37) (0.31) (0.15)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 36.11 $ 25.56 $ 22.97 $ 24.95 $ 22.41
========== ========== ========== ========== ==========
TOTAL RETURN (b) 42.89% 13.52% (6.48)% 12.77% 12.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 52,362 $ 8,945 $ 12,634 $ 9,979 $ 5,604
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.76% 1.04% 0.96% 1.16% 2.67% (c)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets 1.38% 1.90% 1.62% 1.40% 1.92% (c)
Portfolio turnover rate (d) 29% 17% 29% 26% 15%
FIRST TRUST CBOE S&P 500 VIX TAIL HEDGE FUND (VIXH)
FOR THE PERIOD
FOR THE 8/29/2012 (a)
YEAR ENDED THROUGH
12/31/2013 12/31/2012
------------ ----------------
Net asset value, beginning of period $ 19.51 $ 19.89
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.34 0.11
Net realized and unrealized gain (loss) 3.34 (0.38)
---------- ----------
Total from investment operations 3.68 (0.27)
---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.33) (0.11)
---------- ----------
Net asset value, end of period $ 22.86 $ 19.51
========== ==========
TOTAL RETURN (b) 19.00% (1.37)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,716 $ 2,927
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.60% 0.60% (c)
Ratio of net expenses to average net assets 0.60% 0.60% (c)
Ratio of net investment income (loss) to
average net assets 1.53% 1.97% (c)
Portfolio turnover rate (d) 4% 2%
(a) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
(b) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all dividend
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns for First Trust NASDAQ(R) ABA
Community Bank Index Fund would have been lower if certain fees had not
been waived and expenses reimbursed by the investment advisor.
(c) Annualized.
(d) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
Page 66 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
1. ORGANIZATION
First Trust Exchange-Traded Fund (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on August 8,
2003, and is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act").
The Trust currently consists of nineteen exchange-traded funds. This report
covers the ten funds listed below:
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund - (The NASDAQ(R)
Stock Market, LLC ("NASDAQ") ticker "QQEW")
First Trust NASDAQ-100-Technology Sector Index(SM) Fund - (NASDAQ ticker
"QTEC")
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund - (NASDAQ
ticker "QQXT")
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (NASDAQ
ticker "QCLN")
First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker
"FRI")
First Trust ISE Water Index Fund - (NYSE Arca ticker "FIW")
First Trust ISE-Revere Natural Gas Index Fund - (NYSE Arca ticker "FCG")
First Trust ISE Chindia Index Fund - (NYSE Arca ticker "FNI")
First Trust NASDAQ(R) ABA Community Bank Index Fund - (NASDAQ ticker
"QABA")
First Trust CBOE S&P 500 VIX Tail Hedge Fund - (NYSE Arca ticker "VIXH")
Each fund represents a separate series of shares of beneficial interest in the
Trust (each a "Fund" and collectively, the "Funds"). Unlike conventional mutual
funds, each Fund issues and redeems shares on a continuous basis, at net asset
value ("NAV"), only in large specified blocks consisting of 50,000 shares called
a "Creation Unit." Creation Units are issued and redeemed principally in-kind
for securities included in a Fund's relevant index. Except when aggregated in
Creation Units, shares are not redeemable securities of a Fund. The investment
objective of each Fund is to seek investment results that correspond generally
to the price and yield (before the Fund's fees and expenses) of the following
indices:
FUND INDEX
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund NASDAQ-100 Equal Weighted Index(SM)
First Trust NASDAQ-100-Technology Sector Index(SM) Fund NASDAQ-100 Technology Sector Index(SM)
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund NASDAQ-100 Ex-Tech Sector Index(SM)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index
First Trust S&P REIT Index Fund S&P United States REIT Index
First Trust ISE Water Index Fund ISE Water Index(TM)
First Trust ISE-Revere Natural Gas Index Fund ISE-REVERE Natural Gas Index(TM)
First Trust ISE Chindia Index Fund ISE ChIndia Index(TM)
First Trust NASDAQ(R) ABA Community Bank Index Fund NASDAQ OMX(R) ABA Community Bank Index(SM)
First Trust CBOE S&P 500 VIX Tail Hedge Fund CBOE VIX Tail Hedge Index(SM)
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of the financial statements. The
preparation of the financial statements in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A. Portfolio Valuation
Each Fund's NAV is determined daily as of the close of regular trading on the
New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern time, on each day
the NYSE is open for trading. If the NYSE closes early on a valuation day, the
NAV is determined at that time. Domestic securities and foreign securities are
priced using the data reflecting the earlier closing of the principal markets
for those securities. The NAV is calculated by dividing the value of all assets
of the Fund (including accrued interest and dividends), less all liabilities
(including accrued expenses and dividends declared but unpaid), by the total
number of shares outstanding.
Each Fund's investments are valued daily at market value or, in the absence of
market value with respect to any portfolio securities, at fair value in
accordance with valuation procedures adopted by the Trust's Board of Trustees
and in accordance with the 1940 Act. Market quotations and prices used to value
each Fund's investments are primarily obtained from third party pricing
services. Each Fund's securities will be valued as follows:
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
Common stocks and other equity securities listed on any national or
foreign exchange (excluding NASDAQ and the London Stock Exchange
Alternative Investment Market ("AIM")) are valued at the last sale price
on the exchange on which they are principally traded or, for NASDAQ and
AIM securities, the official closing price. Securities traded on more than
one securities exchange are valued at the last sale price or official
closing price, as applicable, at the close of the securities exchange
representing the principal market for such securities.
Securities traded in an over-the-counter market are valued at the mean of
the bid and the asked prices, if available, and otherwise at the closing
bid price.
Exchange-traded options and futures contracts are valued at the closing
price in the market where such contracts are principally traded.
Short-term investments that mature in less than 60 days when purchased are
valued at amortized cost.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Board of Trustees or its delegate
at fair value. These securities generally include, but are not limited to,
restricted securities (securities which may not be publicly sold without
registration under the Securities Act of 1933, as amended) for which a pricing
service is unable to provide a market price; securities whose trading has been
formally suspended; a security whose market price is not available from a
pre-established pricing source; a security with respect to which an event has
occurred that is likely to materially affect the value of the security after the
market has closed but before the calculation of a Fund's NAV or make it
difficult or impossible to obtain a reliable market quotation; and a security
whose price, as provided by the pricing service, does not reflect the security's
"fair value." As a general principle, the current "fair value" of a security
would appear to be the amount which the owner might reasonably expect to receive
for the security upon its current sale. The use of fair value prices by a Fund
generally results in prices used by the Fund that may differ from current market
quotations or official closing prices on the applicable exchange. A variety of
factors may be considered in determining the fair value of such securities,
including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or pricing services;
6) relationships among various securities;
7) information obtained by contacting the issuer, analysts, or the
appropriate stock exchange;
8) an analysis of the issuer's financial statements; and
9) the existence of merger proposals or tender offers that might affect
the value of the security.
In addition, differences between the prices used to calculate a Fund's NAV and
the prices used by such Fund's corresponding index could result in a difference
between the Fund's performance and the performance of its underlying index.
The Funds are subject to fair value accounting standards that define fair value,
establish the framework for measuring fair value and provide a three-level
hierarchy for fair valuation based upon the inputs to the valuation as of the
measurement date. The three levels of the fair value hierarchy are as follows:
o Level 1 - Level 1 inputs are quoted prices in active markets for
identical investments. An active market is a market in which
transactions for the investment occur with sufficient frequency and
volume to provide pricing information on an ongoing basis.
o Level 2 - Level 2 inputs are observable inputs, either directly or
indirectly, and include the following:
o Quoted prices for similar investments in active markets.
o Quoted prices for identical or similar investments in markets
that are non-active. A non-active market is a market where
there are few transactions for the investment, the prices are
not current, or price quotations vary substantially either
over time or among market makers, or in which little
information is released publicly.
o Inputs other than quoted prices that are observable for the
investment (for example, interest rates and yield curves
observable at commonly quoted intervals, volatilities,
prepayment speeds, loss severities, credit risks, and default
rates).
o Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
o Level 3 - Level 3 inputs are unobservable inputs. Unobservable
inputs may reflect the reporting entity's own assumptions about the
assumptions that market participants would use in pricing the
investment.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
The inputs or methodologies used for valuing investments are not necessarily an
indication of the risk associated with investing in those investments. A summary
of the inputs used to value each Fund's investments as of December 31, 2013, is
included with each Fund's Portfolio of Investments.
B. Call Options
The First Trust CBOE S&P 500 VIX Tail Hedge Fund is subject to equity price risk
in the normal course of pursuing its investment objective and may purchase
out-of-the-money call options on the Chicago Board Options Exchange Market
Volatility Index (the "VIX Index") to hedge against changes in the value of
equities. Also, the Fund may sell call options on the VIX Index in order to
close out existing positions. The purchase of call options involves the risk of
loss of all or a part of the cash paid for the call options (the premium). The
market risk associated with purchasing options on the VIX Index is limited to
the premium paid. When the Fund purchases a call option, the premium paid
represents the cost of the call option, which is included in "Investments, at
cost" on the Statements of Assets and Liabilities. Options are marked-to-market
daily and their value will be affected by changes in the market value of the
stocks included in the stock index.
If the Fund elects to exercise a call option on the VIX Index, settlement does
not occur by the delivery of the securities comprising the VIX Index. The Fund,
as holder of the stock index option, receives an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than in the case of a put, the exercise price of the
option. This amount of cash is equal to the difference between the closing price
of the stock index and the exercise price of the option expressed in dollars
times a specified multiple. If the Fund elects to allow a call option to expire,
then the equity price risk for purchased options is limited to the premium
initially paid. Gain or loss on options is presented separately as "Net realized
gain (loss) on Options" on the Statements of Operations.
For the period ended December 31, 2013, the Fund recorded a change in unrealized
loss of $57,076 on the options, which is included in the "Net change in
unrealized appreciation (depreciation) on options" on the Statements of
Operations. For the period ended December 31, 2013, the Fund recorded a realized
loss on options of $471,352, which is included in "Net realized gain (loss) on
options" on the Statements of Operations.
At December 31, 2013, the Fund held 743 options contracts with a notional value
of $13,374. This is representative of contracts held throughout the year.
C. Securities Transactions and Investment Income
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from a Fund's investments in real estate investment
trusts ("REITs") may be comprised of return of capital, capital gains and
income. The actual character of the amounts received during the year is not
known until after the REITs' fiscal year end. A Fund records the character of
distributions received from REITs during the year based on estimates available.
The characterization of distributions received by a Fund may be subsequently
revised based on information received from the REITs after their tax reporting
periods conclude.
Distributions received from the Fund's investments in Master Limited
Partnerships ("MLP") generally are comprised of return of capital and investment
income. The Fund records estimated return of capital and investment income based
on historical information available from each MLP. These estimates may
subsequently be revised based on information received from the MLPs after their
tax reporting periods are concluded.
D. Offsetting on the Statements of Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11"). This disclosure requirement is intended to help
investors and other financial statement users better assess the effect or
potential effect of offsetting arrangements on a fund's financial position. ASU
2011-11 requires entities to disclose both gross and net information about both
instruments and transactions eligible for offset on the Statements of Assets and
Liabilities, and disclose instruments and transactions subject to master netting
or similar agreements. In addition, in January 2013, FASB issued Accounting
Standards Update No. 2013-1 "Clarifying the Scope of Offsetting Assets and
Liabilities" ("ASU 2013-1"), specifying exactly which transactions are subject
to offsetting disclosures. The scope of the disclosure requirements is limited
to derivative instruments, repurchase agreements and reverse repurchase
agreements, and securities borrowing and securities lending transactions. ASU
2011-11 and ASU 2013-1 are effective for financial statements with fiscal years
beginning on or after January 1, 2013, and interim periods within those fiscal
years.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
The Funds adopted the disclosure requirement on netting for the current
reporting period. This disclosure, if applicable, is included within each Fund's
Portfolio of Investments under the heading "Offsetting Assets and Liabilities."
For financial reporting purposes, the Funds do not offset financial assets and
financial liabilities that are subject to master netting arrangements or similar
agreements on the Statements of Assets and Liabilities.
E. Securities Lending
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities in
the form of fees or interest on the investment of any cash received as
collateral. The dividend and interest earned on the securities loaned is
accounted for in the same manner as other dividend and interest income. At
December 31, 2013, QQEW, QQXT, QCLN, FCG and FNI have securities in the
securities lending program.
In the event of a default by a borrower with respect to any loan, BBH will
exercise any and all remedies provided under the applicable borrower agreement
to make the Funds whole. These remedies include purchasing replacement
securities by applying the collateral held from the defaulting broker against
the purchase cost of the replacement securities. If, despite such efforts by BBH
to exercise these remedies, a Fund sustains losses as a result of a borrower's
default, BBH will indemnify the Fund by purchasing replacement securities at its
own expense, or paying the Fund an amount equal to the market value of the
replacement securities, subject to certain limitations which are set forth in
detail in the Securities Lending Agency Agreement between the Trust on behalf of
the Funds and BBH.
F. Dividends and Distribution to Shareholders
Dividends from net investment income of each Fund, if any, are declared and paid
quarterly, or as the Board of Trustees may determine from time to time.
Distributions of net realized gains earned by each Fund, if any, are distributed
at least annually.
Distributions from income and capital gains are determined in accordance with
income tax regulations, which may differ from U.S. GAAP. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These permanent differences
are primarily due to the varying treatment of income and gain/loss on portfolio
securities held by the Funds and have no impact on net assets or NAV per share.
Temporary differences, which arise from recognizing certain items of income,
expense and gain/loss in different periods for financial statement and tax
purposes, will reverse at some time in the future.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
The tax character of distributions paid by each Fund during the year ended
December 31, 2013 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
----------------- ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 1,151,465 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 1,166,616 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 225,875 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 297,165 -- --
First Trust S&P REIT Index Fund 7,854,961 -- --
First Trust ISE Water Index Fund 973,210 -- --
First Trust ISE-Revere Natural Gas Index Fund 1,716,075 -- --
First Trust ISE Chindia Index Fund 528,875 -- --
First Trust NASDAQ(R)ABA Community Bank Index Fund 350,521 -- --
First Trust CBOE S&P 500 VIX Tail Hedge Fund 85,676 -- --
The tax character of distributions paid by each Fund during the period ended
December 31, 2012 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
----------------- ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 930,480 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 991,450 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 530,821 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 186,210 -- --
First Trust S&P REIT Index Fund 8,264,301 771,210 --
First Trust ISE Water Index Fund 716,105 -- --
First Trust ISE-Revere Natural Gas Index Fund 1,601,915 -- --
First Trust ISE Chindia Index Fund 1,226,880 -- --
First Trust NASDAQ(R) ABA Community Bank Index Fund 217,066 -- --
First Trust CBOE S&P 500 VIX Tail Hedge Fund 15,480 -- --
As of December 31, 2013, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
------------- ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ -- $ (11,099,674) $ 20,056,446
First Trust NASDAQ-100-Technology Sector Index(SM) Fund -- (20,112,449) 33,508,367
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 22,558 (3,365,031) 17,397,860
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 33,429 (30,105,974) 16,900,946
First Trust S&P REIT Index Fund -- -- (8,446,070)
First Trust ISE Water Index Fund -- (12,452,245) 34,823,575
First Trust ISE-Revere Natural Gas Index Fund 151,483 (133,699,341) (18,583,667)
First Trust ISE Chindia Index Fund 168,637 (50,223,242) 15,096,179
First Trust NASDAQ(R) ABA Community Bank Index Fund 7,290 (641,776) 7,305,802
First Trust CBOE S&P 500 VIX Tail Hedge Fund 904 (543,822) 1,015,949
G. Income Taxes
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2010, 2011,
2012 and 2013 remain open to federal and state audit. As of December 31, 2013,
management has evaluated the application of these standards to the Funds, and
has determined that no provision for income tax is required in the Funds'
financial statements for uncertain tax positions.
Under the Regulated Investment Company Modernization Act of 2010 (the "Act"),
net capital losses arising in taxable years after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term
and/or long-term losses. Previously, net capital losses were carried forward for
up to eight years and treated as short-term losses. As a transition rule, the
Act requires that post-enactment net capital losses be used before pre-enactment
net capital losses. At December 31, 2013, the Funds, except for First Trust S&P
REIT Index Fund, had pre-enactment and post-enactment net capital losses for
federal income tax purposes as shown in the following table. To the extent that
these loss carryforwards are used to offset future capital gains, it is probable
that the capital gains so offset will not be distributed to Fund shareholders.
The Funds are subject to certain limitations, under U.S. tax rules, on the use
of capital loss carryforwards and net unrealized built-in losses. These
limitations apply when there has been a 50% change in ownership.
Capital Capital Capital Capital
Loss Loss Loss Loss Post- Total
Available Available Available Available Effective - Capital
Through Through Through Through No Loss
2015 2016 2017 2018 Expiration Available
---------- ----------- ----------- ----------- ----------- ------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 54,385 $ 1,957,170 $ 4,681,103 $ -- $ 4,407,016 $ 11,099,674
First Trust NASDAQ-100-Technology Sector
Index(SM) Fund 311,155 1,421,664 2,016,911 -- 16,362,719 20,112,449
First Trust NASDAQ-100 Ex-Technology Sector
Index(SM) Fund 7,779 143,597 1,051,894 80,899 2,080,862 3,365,031
First Trust NASDAQ(R) Clean Edge(R) Green Energy
Index Fund 141,332 4,246,707 7,483,633 5,884,801 12,349,501 30,105,974
First Trust ISE Water Index Fund 592 318,246 5,768,328 2,198,674 4,166,405 12,452,245
First Trust ISE-Revere Natural Gas Index Fund 5,274 7,264,703 32,569,413 40,089,981 53,769,970 133,699,341
First Trust ISE Chindia Index Fund -- 11,116,593 11,686,955 7,245,147 20,174,547 50,223,242
First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- 4,787 116,604 520,385 641,776
First Trust CBOE S&P 500 VIX Tail Hedge Fund -- -- -- -- 543,822 543,822
During the taxable year ended December 31, 2013, the following Funds utilized
capital loss carryforwards in the following amounts:
Post-Enactment
Capital Loss
Carryforward Utilized
---------------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 3,068,448
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 2,024,625
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 693,176
First Trust NASDAQ(R) ABA Community Bank Index Fund 55,484
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 10,003
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
In order to present paid-in capital, accumulated net investment income (loss),
and accumulated net realized gain (loss) on investments on the Statements of
Assets and Liabilities that more closely represent their tax character, certain
adjustments have been made to paid-in capital, accumulated net investment income
(loss) and accumulated net realized gain (loss) on investments. These
adjustments are primarily due to the difference between book and tax treatments
of income and gains on various investment securities held by the Funds and
in-kind transactions. The results of operations and net assets were not affected
by these adjustments. For the fiscal year ended December 31, 2013, the
adjustments for each Fund were as follows:
Accumulated Accumulated Net
Net Investment Realized Gain (Loss) Paid-in
Income (Loss) on Investments Capital
-------------- -------------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 18,081 $ (31,305,596) $ 31,287,515
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 117,736 (1,755,478) 1,637,742
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund -- (6,338,573) 6,338,573
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 386 (3,934,829) 3,934,443
First Trust S&P REIT Index Fund 70,017 (37,828,028) 37,758,011
First Trust ISE Water Index Fund 7,438 (8,829,477) 8,822,039
First Trust ISE-Revere Natural Gas Index Fund 1,062 (32,290,935) 32,289,873
First Trust ISE Chindia Index Fund 47,049 (3,127,697) 3,080,648
First Trust NASDAQ(R)ABA Community Bank Index Fund -- (770,957) 770,957
First Trust CBOE S&P 500 VIX Tail Hedge Fund (33) (428,632) 428,665
H. Expenses
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund, except for First Trust CBOE S&P 500 VIX Tail Hedge Fund
(the "Unitary Fee Fund"), for which expenses other than excluded expenses
(discussed in Note 3) are paid by First Trust Advisors L.P. ("First Trust" or
the "Advisor"). General expenses of the Trust are allocated to all the Funds
based upon the net assets of each Fund.
The Advisor has entered into licensing agreements with each of the following
"Licensors" for the respective Funds:
FUND LICENSOR
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund The NASDAQ Stock Market, LLC
First Trust NASDAQ-100-Technology Sector Index(SM) Fund The NASDAQ Stock Market, LLC
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund The NASDAQ Stock Market, LLC
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The NASDAQ Stock Market, LLC /Clean Edge(R), Inc.
First Trust S&P REIT Index Fund Standard & Poor's Financial Services, LLC
First Trust ISE Water Index Fund International Securities Exchange, LLC
First Trust ISE-Revere Natural Gas Index Fund International Securities Exchange, LLC
First Trust ISE Chindia Index Fund International Securities Exchange, LLC
First Trust NASDAQ(R) ABA Community Bank Index Fund The NASDAQ Stock Market, LLC
First Trust CBOE S&P 500 VIX Tail Hedge Fund Standard & Poor's Financial Services, LLC
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. With the exception of the
First Trust CBOE S&P 500 VIX Tail Hedge Fund, the respective Funds are required
to pay licensing fees, which are shown on the Statements of Operations.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For the First Trust CBOE S&P 500 VIX Tail Hedge Fund, First Trust is paid an
annual unitary management fee of 0.60% of such Fund's average daily net assets
and is responsible for the expenses of such Fund including the cost of transfer
agency, custody, fund administration, legal, audit and other services, and
excluding distribution and service fees pursuant to a Rule 12b-1 plan, if any,
brokerage expenses, taxes, interest, and extraordinary expenses.
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
First Trust is entitled to receive monthly fees from the remaining Funds
calculated at the following annual rates:
% of Average
Daily Net Assets
----------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.40%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.40%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.40%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40%
First Trust S&P REIT Index Fund 0.30%
First Trust ISE Water Index Fund 0.40%
First Trust ISE-Revere Natural Gas Index Fund 0.40%
First Trust ISE Chindia Index Fund 0.40%
First Trust NASDAQ(R) ABA Community Bank Index Fund 0.40%
For such Funds, the Trust and the Advisor have entered into an Expense
Reimbursement, Fee Waiver and Recovery Agreement ("Recovery Agreement") in which
the Advisor has agreed to waive fees and/or reimburse Fund expenses to the
extent that the operating expenses of each Fund (excluding interest expense,
brokerage commissions and other trading expenses, taxes and extraordinary
expenses) exceed the below amount as a percentage of average daily net assets
per year (the "Expense Cap"). The Expense Cap will be in effect until at least
April 30, 2014.
Expense Cap
----------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 0.60%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 0.60%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 0.60%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60%
First Trust S&P REIT Index Fund 0.50%
First Trust ISE Water Index Fund 0.60%
First Trust ISE-Revere Natural Gas Index Fund 0.60%
First Trust ISE Chindia Index Fund 0.60%
First Trust NASDAQ(R) ABA Community Bank Index Fund 0.60%
Expenses reimbursed and fees waived by First Trust under the Recovery Agreement
are subject to recovery by First Trust for up to three years from the date the
fee was waived or expense was reimbursed, but no reimbursement payment will be
made by the Fund if it results in the Fund exceeding an expense ratio equal to
the Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. These amounts would be included in "Expenses previously
waived or reimbursed" on the Statements of Operations.
The advisory fee waivers and expense reimbursements for the year ended December
31, 2013 and the expenses borne or fees waived by the Advisor subject to
recovery from each applicable Fund for the periods indicated were as follows
Fees Waived or Expenses Borne
by Advisor Subject to Recovery
---------------------------------------------------
Advisory Year Year Year
Fee Expense Ended Ended Ended
Waivers Reimbursement 12/31/2011 12/31/2012 12/31/2013 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust NASDAQ-100 Equal Weighted
Index(SM) Fund $ 56,300 $ -- $ 65,568 $ 66,409 $ 56,300 $ 188,277
First Trust NASDAQ-100-Technology Sector
Index(SM) Fund 32,509 -- 114,729 71,070 32,509 218,308
First Trust NASDAQ-100 Ex-Technology
Sector Index(SM) Fund 44,451 -- 50,938 58,392 44,451 153,781
First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund 50,502 -- 54,545 63,185 50,502 168,232
First Trust S&P REIT Index Fund -- -- 130,777 4,444 -- 135,221
First Trust ISE Water Index Fund -- -- 25,829 19,978 -- 45,807
First Trust ISE-Revere Natural Gas Index Fund 11,985 -- 139,394 100,098 11,985 251,477
First Trust ISE Chindia Index Fund 35,100 -- 76,490 97,245 35,100 208,835
First Trust NASDAQ(R) ABA Community
Bank Index Fund 40,775 -- 45,663 46,863 40,775 133,301
Page 74
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the servicing agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Funds. As custodian, BNYM is responsible for custody of the Funds' assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of the Funds' securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Funds. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer of $125,000 per year and an annual per fund fee of $4,000 for each
closed-end fund or other actively managed fund and $1,000 for each index fund in
the First Trust Fund Complex. The fixed annual retainer is allocated pro rata
among each fund in the First Trust Fund Complex based on net assets.
Additionally, the Lead Independent Trustee is paid $15,000 annually, the
Chairman of the Audit Committee is paid $10,000 annually, and each of the
Chairmen of the Nominating and Governance Committee and the Valuation Committee
is paid $5,000 annually to serve in such capacities, with such compensation
allocated pro rata among each fund in the First Trust Fund Complex based on net
assets. Trustees are reimbursed for travel and out-of-pocket expenses in
connection with all meetings. The Lead Independent Trustee and each Committee
Chairman served two-year terms until December 31, 2013, before rotating to serve
as Chairman of another Committee or as Lead Independent Trustee. After December
31, 2013, the Lead Independent Trustee and Committee Chairmen will rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2013, the cost of purchases and proceeds from
sales of investment securities for each Fund, excluding short-term investments
and in-kind transactions, were as follows:
Purchases Sales
------------------ ------------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 73,767,578 $ 71,099,193
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 42,835,283 42,792,600
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 21,282,225 21,291,844
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 25,646,472 25,625,775
First Trust S&P REIT Index Fund 37,186,486 35,426,167
First Trust ISE Water Index Fund 58,354,641 58,456,544
First Trust ISE-Revere Natural Gas Index Fund 219,714,865 219,504,709
First Trust ISE Chindia Index Fund 25,289,013 25,282,860
First Trust NASDAQ(R) ABA Community Bank Index Fund 7,598,520 7,604,393
First Trust CBOE S&P 500 VIX Tail Hedge Fund 219,707 708,573
For the year ended December 31, 2013, the cost of in-kind purchases and proceeds
from in-kind sales for each Fund were as follows:
Purchases Sales
------------------ ------------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund $ 354,988,493 $ 206,184,064
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 41,558,764 12,869,843
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 44,864,207 17,597,413
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 62,064,139 6,066,610
First Trust S&P REIT Index Fund 80,107,013 341,004,135
First Trust ISE Water Index Fund 127,749,858 36,471,351
First Trust ISE-Revere Natural Gas Index Fund 195,606,333 214,325,739
First Trust ISE Chindia Index Fund 2,735,332 15,390,480
First Trust NASDAQ(R) ABA Community Bank Index Fund 38,406,526 3,257,035
First Trust CBOE S&P 500 VIX Tail Hedge Fund 4,042,243 2,176,014
Page 75
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
5. CREATION, REDEMPTION & TRANSACTION FEES
Shares are created and redeemed by each Fund only in Creation Unit size
aggregations of 50,000 shares. Such transactions are generally permitted on an
in-kind basis, with a balancing cash component to equate the transaction to the
daily NAV per Share of each Fund on the transaction date times the number of
Shares in a Creation Unit. Purchasers of Creation Units must pay to BNYM, as
transfer agent, a standard creation transaction fee (the "Creation Transaction
Fee"), which is based on the number of different securities in a Creation Unit
of each Fund according to the fee schedule set forth below:
Number of Securities Creation
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Creation Transaction Fee is applicable to each purchase transaction
regardless of the number of Creation Units purchased in the transaction. An
additional variable fee of up to three times the Creation Transaction Fee may be
charged to approximate additional expenses incurred by a Fund with respect to
transactions effected outside of the clearing process (i.e., through a DTC
Participant) or to the extent that cash is used in lieu of securities to
purchase Creation Units. The price for each Creation Unit will equal the daily
NAV per Share of a Fund on the transaction date times the number of Shares in a
Creation Unit plus the fees described above and, if applicable, any transfer
taxes.
Parties redeeming Creation Units must pay to BNYM, as transfer agent, a standard
redemption transaction fee (the "Redemption Transaction Fee"), which is based on
the number of different securities in a Creation Unit of each Fund according to
the fee schedule set forth below:
Number of Securities Redemption
in a Creation Unit Transaction Fee
-------------------- ---------------
1-100 $ 500
101-200 $1,000
201-300 $1,500
301-400 $2,000
401-500 $2,500
501-600 $3,000
601-700 $3,500
The Redemption Transaction Fee is applicable to each redemption transaction
regardless of the number of Creation Units redeemed in the transaction. An
additional variable fee of up to three times the Redemption Transaction Fee may
be charged to approximate additional expenses incurred by a Fund with respect to
redemptions effected outside of the clearing process or to the extent that
redemptions are for cash. Each Fund reserves the right to effect redemptions in
cash. A shareholder may request cash redemption in lieu of securities; however,
a Fund may, in its discretion, reject any such request.
6. DISTRIBUTION PLAN
The Board of Trustees adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the 1940 Act. In accordance with the Rule 12b-1 plan, the Funds are
authorized to pay an amount up to 0.25% of their average daily net assets each
year to reimburse First Trust Portfolios L.P. ("FTP"), the distributor of the
Funds, for amounts expended to finance activities primarily intended to result
in the sale of Creation Units or the provision of investor services. FTP may
also use this amount to compensate securities dealers or other persons that are
Authorized Participants for providing distribution assistance, including
broker-dealer and shareholder support and educational and promotional services.
No 12b-1 fees are currently paid by the Funds, and pursuant to a contractual
arrangement, no 12b-1 fees will be paid any time before May 31, 2014.
Page 76
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013
7. INDEMNIFICATION
The Trust, on behalf of the Funds, has a variety of indemnification obligations
under contracts with its service providers. The Trust's maximum exposure under
these arrangements is unknown. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
8. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Funds
through the date the financial statements were issued, and has determined that
there were no subsequent events requiring recognition or disclosure in the
financial statements that have not already been disclosed.
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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 NASDAQ-100 Equal Weighted Index(SM) Fund, First Trust
NASDAQ-100-Technology Sector Index(SM) Fund, First Trust NASDAQ-100
Ex-Technology Sector Index(SM) Fund, First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund, First Trust S&P REIT Index Fund, First Trust ISE Water Index
Fund, First Trust ISE-Revere Natural Gas Index Fund, First Trust ISE Chindia
Index Fund, First Trust NASDAQ(R) ABA Community Bank Index Fund, and First Trust
CBOE S&P 500 VIX Tail Hedge Fund, each a series of the First Trust
Exchange-Traded Fund (the "Fund"), including the portfolios of investments, as
of December 31, 2013, and the related statements of operations for the year then
ended, the statements of changes in net assets and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2013 by correspondence with the Fund's
custodian and brokers; where replies were not received, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds listed above included in the First Trust Exchange-Traded Fund, as
of December 31, 2013, and the results of their operations for the year then
ended, the changes in their net assets and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 26, 2014
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote proxies and information on how each Fund voted proxies relating to
its portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 988-5891; (2) on
the Trust's website located at http://www.ftportfolios.com; and (3) on the
Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Trust files its complete schedule of each Fund's portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Trust's Forms N-Q are available (1) by calling (800) 988-5891; (2) on the
Trust's website located at http://www.ftportfolios.com; (3) on the SEC's website
at http://www.sec.gov; and (4) for review and copying at the SEC's Public
Reference Room ("PRR") in Washington, DC. Information regarding the operation of
the PRR may be obtained by calling (800) SEC-0330.
FEDERAL TAX INFORMATION
For the taxable year ended December 31, 2013, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
----------------------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 61.27%
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100.00%
First Trust ISE-Revere Natural Gas Index Fund 88.91%
First Trust ISE Chindia Index Fund --
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
First Trust CBOE S&P 500 VIX Tail Hedge Fund 100.00%
For the taxable year ended December 31, 2013, the following percentages of
income dividends paid by the Funds is hereby designated as qualified dividend
income:
Qualified Dividend Income
----------------------------
First Trust NASDAQ-100 Equal Weighted Index(SM) Fund 100.00%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 100.00%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 61.82%
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100.00%
First Trust ISE-Revere Natural Gas Index Fund 100.00%
First Trust ISE Chindia Index Fund 100.00%
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
First Trust CBOE S&P 500 VIX Tail Hedge Fund 100.00%
The following Fund meets the requirements of Section 853 of the Internal Revenue
Code and elects to pass through to its shareholders credit for foreign taxes
paid. The total amounts of income received by the Fund from sources within
foreign countries and possessions of the United States and of taxes paid to such
countries are as follows:
GROSS FOREIGN INCOME FOREIGN TAXES PAID
--------------------------- ---------------------------
AMOUNT PER SHARE AMOUNT PER SHARE
----------- ----------- ---------- -----------
First Trust ISE Chindia Index Fund $ 621,451 $ 0.2437 $ 11,543 $ 0.0045
For the tax year ended December 31, 2013, the First Trust S&P REIT Index Fund
designated $1,684,350, or amounts necessary, as long-term capital gain. During
the tax year, Fund shareholders redeemed amounts in excess of the Fund's
long-term capital gains and of these proceeds, $1,684,350, or amounts necessary,
represents long-term capital gain from the Fund.
Page 79
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
RISK CONSIDERATIONS
RISKS ARE INHERENT IN ALL INVESTING. YOU SHOULD CONSIDER EACH FUND'S INVESTMENT
OBJECTIVE, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. YOU CAN
DOWNLOAD EACH FUND'S PROSPECTUS AT HTTP://WWW.FTPORTFOLIOS.COM OR CONTACT FIRST
TRUST PORTFOLIOS L.P. AT (800) 621-1675 TO REQUEST A PROSPECTUS, WHICH CONTAINS
THIS AND OTHER INFORMATION ABOUT EACH FUND. FOR ADDITIONAL INFORMATION ABOUT THE
RISKS ASSOCIATED WITH INVESTING IN THE FUNDS, PLEASE SEE THE FUNDS' STATEMENT OF
ADDITIONAL INFORMATION, AS WELL AS OTHER REGULATORY FILINGS. READ THESE
DOCUMENTS CAREFULLY BEFORE YOU INVEST. FIRST TRUST PORTFOLIOS L.P. IS THE
DISTRIBUTOR OF THE FIRST TRUST EXCHANGE-TRADED FUND.
The following summarizes some of the risks that should be considered for the
Funds.
Each Fund's shares will change in value, and you could lose money by investing
in a Fund. Shares are subject to market fluctuations caused by such factors as
economic, political, regulatory or market developments, changes in interest
rates and perceived trends in stock prices. Overall stock values could decline
generally or could underperform other investments. Overall stock market values
could decline generally or could underperform other investments.
An investment in a Fund involves risks similar to those of investing in any fund
of equity securities traded on an exchange. Investors buying or selling Fund
shares on the secondary market may incur brokerage commissions. In addition,
investors who sell Fund shares may receive less than the Fund shares' net asset
value. Unlike shares of open-end funds, investors are generally not able to
purchase exchange-traded fund ("ETF") shares directly from a Fund and individual
ETF shares are not redeemable. However, specified large blocks of ETF shares
called creation units can be purchased from, or redeemed to, a Fund.
Each Fund is subject to index tracking risk. You should anticipate that the
value of Fund shares will decline, more or less, in correlation with any decline
in the value of the index that the Fund seeks to track.
Each Fund's return may not match the return of the index it seeks to track for a
number of reasons. While First Trust seeks to have a correlation of 0.95 or
better, before expenses, between a Fund's performance and the performance of its
corresponding index, there can be no assurance that a Fund will be able to
achieve such a correlation. Accordingly, each Fund's performance may correlate
to a lesser extent and may possibly vary substantially from the performance of
its corresponding index.
Each Fund is also exposed to additional market risk due to a policy of investing
principally in the securities included in its corresponding index. As a result
of such policies, securities held by each Fund will generally not be bought or
sold in response to market fluctuations and the securities may be issued by
companies concentrated in a particular industry. As a result, each Fund will
generally not sell a stock because the stock's issuer is in financial trouble,
unless that stock is removed or is anticipated to be removed from the index the
Fund seeks to track.
Each Fund relies on a license from an index provider that permits the Fund to
use its corresponding index and associated trade names and trademarks in
connection with the name and investment strategies of the Fund. Such licenses
may be terminated by the respective index provider and, as a result, each Fund
may lose its ability to use such intellectual property. There is also no
guarantee that the index provider has all rights to license the respective
intellectual property to First Trust, on behalf of the Fund. Accordingly, in the
event the license is terminated or the index provider does not have rights to
license the particular intellectual property, it may have a significant effect
on the operation of the related Fund.
Each Fund is subject to issuer specific changes risk. The value of an individual
security or a particular type of security can be more volatile than the market
as a whole and can perform differently from the value of the market as a whole.
Each Fund will be concentrated in the securities of companies of a given
industry if the Fund's corresponding index is concentrated in such industry. A
concentration makes a Fund more susceptible to any single occurrence affecting
the related industry and may subject a Fund to greater market risk than less
concentrated funds.
Each Fund is considered to be non-diversified. As a result, those Funds are
exposed to additional market risk. A non-diversified fund may invest a
relatively high percentage of its assets in a limited number of issuers. As a
result, changes in the market value of a single portfolio security could cause
greater fluctuations in share price than would occur in a diversified fund.
Furthermore, non-diversified funds are more susceptible to any single political,
regulatory or economic occurrence.
The Funds are not actively managed. The Funds may be affected by a general
decline in certain market segments relating to their corresponding index. The
Funds invest in securities included in or representative of their corresponding
index regardless of their investment merit. The Funds generally will not attempt
to take defensive positions in declining markets.
Page 80
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
The First Trust NASDAQ-100 Equal Weighted Index(SM) Fund and the First Trust
NASDAQ-100-Technology Sector Index(SM) Fund invest in stocks of companies in the
technology sector. You should be aware that an investment in a portfolio which
invests in a particular sector involves additional risks, including limited
diversification. The companies engaged in the technology sector are subject to
fierce competition and high research and development costs, and their products
and services may be subject to rapid obsolescence.
First Trust S&P REIT Index Fund and First Trust NASDAQ(R) ABA Community Bank
Index Fund invest in securities of companies in the financials sector. Banks,
thrifts and their holding companies are especially subject to the adverse
effects of economic recession; volatile interest rates; portfolio concentrations
in geographic markets and in commercial and residential real estate loans; and
competition from new entrants in their fields of business. Although recently
enacted legislation repealed most of the barriers which separated the banking,
insurance and securities industries, these industries are still extensively
regulated at both the federal and state level and may be adversely affected by
increased regulations. The downturn in the U.S. and world economies has
adversely affected banks, thrifts and other companies in the financials sector.
The First Trust ISE Chindia Index Fund, the First Trust NASDAQ-100 Equal
Weighted Index(SM) Fund, the First Trust NASDAQ-100-Technology Sector Index(SM)
Fund, the First Trust CBOE S&P 500 VIX Tail Hedge Fund and the First Trust
NASDAQ(R) Clean Edge(R) Green Energy Index Fund invest in securities of
companies in the information technology industry. Information technology
companies are generally subject to the risks of rapidly changing technologies;
short product life cycles; fierce competition; and aggressive pricing and
reduced profit margins.
The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund and First Trust
NASDAQ-100 Equal Weighted Index(SM) Fund invest in the securities of companies
in the consumer discretionary sector. Because companies in the consumer
discretionary sector manufacture products and provide discretionary services
directly to the consumer, the success of these companies is tied closely to the
performance of the overall domestic and international economy, interest rates,
competition and consumer confidence. Success depends heavily on disposable
household income and consumer spending. Changes in demographics and consumer
tastes can also affect the demand for, and success of, consumer discretionary
products in the marketplace.
The First Trust ISE-Revere Natural Gas Index Fund invests in the securities of
companies in the energy sector. General problems of issuers in the energy sector
include volatile fluctuations in price and supply of energy fuels, international
politics, terrorist attacks, reduced demand as a result of increases in energy
efficiency and energy conservation, the success of exploration projects,
clean-up and litigation costs relating to oil spills and environmental damage,
and tax and other regulatory policies of various governments. In addition,
recent oil prices have been at historic highs and extremely volatile.
The First Trust ISE Water Index Fund and the First Trust NASDAQ(R) Clean Edge(R)
Green Energy Index Fund invest in the securities of companies in the industrials
sector. General risks of these companies include the general state of the
economy, intense competition, consolidation, domestic and international
politics, excess capacity and consumer demand and spending trends. In addition,
they may also be significantly affected by overall capital spending levels,
economic cycles, technical obsolescence, delays in modernization, labor
relations, government regulations and e-commerce initiatives.
The First Trust S&P REIT Index Fund invests in companies in the real estate
industry, including real estate investment trusts ("REITs") and is subject to
the risks associated with investing in real estate (any of which could cause the
value of a REIT's stock price to decline), which may include, but are not
limited to, possible declines in the value of real estate, adverse general and
local economic conditions, possible lack of availability of mortgage funds,
overbuilding in a REIT's market, changes in interest rates and environmental
problems. Furthermore, increases in interest rates typically lower the present
value of a REIT's future earnings stream, and may make financing property
purchases and improvements more costly.
The First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund invests in the
securities of companies in the health care sector. Because companies in the
health care sector are involved in medical services or health care including
biotechnology research and production, drugs and pharmaceuticals and health care
facilities and services, general problems of these companies include extensive
competition, generic drug sales or the loss of patent protection, product
liability litigation and increased government regulations.
The First Trust ISE Water Index Fund invests in the securities of utilities
companies. Utilities companies are subject to the imposition of rate caps,
increased competition due to deregulation, the difficulty in obtaining an
adequate return on invested capital or in financing large construction projects,
the limitations on operations and increased costs and delays attributable to
environmental considerations, and the capital market's ability to absorb utility
debt. In addition, taxes, government regulation, international politics, price
and supply fluctuations, volatile interest rates and energy conservation may
cause difficulties for utilities. Utilities issuers have been experiencing
certain of these problems to varying degrees.
The Funds may invest in small capitalization and mid-capitalization companies.
Such companies' securities may be less liquid and may experience greater price
volatility than securities of larger, more established companies.
Page 81
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
Because a Fund's corresponding index may include American Depositary Receipts
("ADRs"), American Depositary Shares ("ADSs") and/or stocks of non-U.S.
companies, the investments of certain Funds, including but not limited to, the
First Trust ISE Chindia Index Fund, the First Trust ISE-Revere Natural Gas Index
Fund and the First Trust ISE Water Index Fund involve risks of investing in
non-U.S. securities that are in addition to the risk associated with domestic
securities. Non-U.S. companies, in general, are not subject to the regulatory
requirements of U.S. companies and, as such, there may be less publicly
available information about these companies. Moreover, non-U.S. accounting,
auditing and financial reporting standards generally are different from those
applicable to U.S. companies. In addition, non-U.S. companies are exposed to
additional economic, political, social or diplomatic events. ADRs and ADSs also
involve substantially identical risks to those associated with investments in
non-U.S. securities. In addition, the issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no
obligation to distribute shareholder communications to the holders of such
receipts, or to pass through to them any voting rights with respect to the
deposited securities.
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund invests in
renewable and alternative energy companies. You should be aware that share
prices of renewable and alternative energy companies have been significantly
more volatile than shares of companies operating in other more established
industries and the securities included in the First Trust NASDAQ(R) Clean
Edge(R) Green Energy Index Fund may be subject to sharp price declines. This
industry is relatively nascent and under-researched in comparison to more
established and mature sectors, and should therefore be regarded as having
greater investment risk.
The First Trust ISE Water Index Fund invests in companies in the potable water
and wastewater industries. You should be aware that adverse developments in
these industries may significantly affect the value of the shares of the First
Trust ISE Water Index Fund. Companies involved in the potable water and
wastewater industries are subject to environmental considerations, taxes,
government regulation, price and supply fluctuations, competition and
conservation.
The First Trust ISE-Revere Natural Gas Index Fund invests in companies in the
natural gas industry. You should be aware that one of the natural gas industry's
primary risks is the competitive risk associated with the prices of alternative
fuels, such as coal and oil. Additionally, the natural gas industry is sensitive
to increased interest rates because of the industry's capital intensive nature.
Furthermore, there are additional risks and hazards that are inherent in the
natural gas industry that may cause the price of natural gas to widely
fluctuate.
The First Trust ISE Chindia Index Fund invests in the securities of Chinese and
Indian companies. You should be aware that investments in such companies are
subject to additional risks, which are associated with possible adverse
economic, political and social developments in those countries.
The First Trust NASDAQ(R) ABA Community Bank Index Fund is concentrated in the
securities of NASDAQ(R) listed community banks as defined by its corresponding
index which involves additional risks, including limited diversification. These
companies are subject to certain risks, including the adverse effects of
volatile interest rates, economic recession, increased competition from new
entrants in the field, and potential increased regulation. The financial
performance of these companies may also be highly dependent upon the business
environment in certain geographic regions of the United States and may be
adversely impacted by any downturn or unfavorable economic or employment
developments in their local markets and the United States as a whole. These
companies may also be subject to interest rate risks and changes in monetary
policy as their earnings are largely dependent upon their net interest income
and lending risks that could further increase because of increases in interest
rates and/or continuing economic weakness.
The First Trust CBOE S&P 500 VIX Tail Hedge Fund's use of options and other
derivatives can lead to losses because of adverse movements in the price or
value of the underlying asset, index or rate, which may be magnified by certain
features of the derivatives. These risks are heightened when the First Trust
CBOE S&P 500 VIX Tail Hedge Fund's portfolio managers use derivatives to enhance
the Fund's return or as a substitute for a position or security, rather than
solely to hedge (or offset) the risk of a position or security held by the Fund.
The option positions employed, as dictated by the attempt to replicate the
Index, may present additional risk. The value of an option may be adversely
affected if the market for the option becomes less liquid or smaller, and will
be affected by changes in the value and dividend rates of the stock subject to
the option, an increase in interest rates, a change in the actual and perceived
volatility of the stock market and the common stock and the remaining time to
expiration. Additionally, the value of an option does not increase or decrease
at the same rate as the underlying stock (although they generally move in the
same direction).
Unlike most exchange-traded funds, the First Trust CBOE S&P 500 VIX Tail Hedge
Fund may effect a portion of creations and redemptions for cash, rather than
in-kind securities. Particularly, the call option portion of the Fund's
portfolio, if applicable, may be redeemed for cash. As a result, an investment
in the Fund may be less tax-efficient than an investment in a more conventional
exchange-traded fund. Because the Fund may effect a portion of redemptions for
cash, rather than in-kind distributions, it may be required to sell portfolio
securities in order to obtain the cash needed to distribute redemption proceeds.
A sale of shares may result in capital gains or losses, and may also result in
higher brokerage costs.
NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
Page 82
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
The Trust's statement of additional information includes additional information
about the Trustees and is available, without charge, upon request, by calling
(800) 988-5891.
NUMBER OF OTHER
PORTFOLIOS IN TRUSTEESHIPS OR
THE FIRST TRUST DIRECTORSHIPS
NAME, ADDRESS, TERM OF OFFICE FUND COMPLEX HELD BY TRUSTEE
DATE OF BIRTH AND AND YEAR FIRST PRINCIPAL OCCUPATIONS OVERSEEN BY DURING PAST
POSITION WITH THE TRUST ELECTED OR APPOINTED DURING PAST 5 YEARS TRUSTEE 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Richard E. Erickson, Trustee o Indefinite Term Physician; President, Wheaton Orthopedics; 105 None
c/o First Trust Advisors L.P. Limited Partner, Gundersen Real Estate
120 East Liberty Drive, o Since Inception Limited Partnership; Member, Sportmed LLC
Suite 400
Wheaton, IL 60187
D.O.B.: 04/51
Thomas R. Kadlec, Trustee o Indefinite Term President (March 2010 to Present), Senior 105 Director of ADM
c/o First Trust Advisors L.P. Vice President and Chief Financial Officer Investor Services,
120 East Liberty Drive, o Since Inception (May 2007 to March 2010), ADM Investor Inc. and ADM
Suite 400 Services, Inc. (Futures Commission Investor Services,
Wheaton, IL 60187 Merchant) International
D.O.B.: 11/57
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 105 Director of Trust
c/o First Trust Advisors L.P. Enterprises (Financial and Management Company of
120 East Liberty Drive, o Since June 2006 Consulting) Illinois
Suite 400
Wheaton, IL 60187
D.O.B.: 11/56
Niel B. Nielson, Trustee o Indefinite Term President and Chief Executive Officer 105 Director of
c/o First Trust Advisors L.P. (June 2012 to Present), Dew Learning LLC Covenant
120 East Liberty Drive, o Since Inception (Educational Products and Services), Transport Inc.
Suite 400 President (June 2002 to June 2012), Covenant
Wheaton, IL 60187 College
D.O.B.: 03/54
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee and o Indefinite Term Chief Executive Officer (December 2010 105 None
Chairman of the Board to Present), President (until December
120 East Liberty Drive, o Since Inception 2010), First Trust Advisors L.P. and First
Suite 400 Trust Portfolios L.P.; Chairman of the
Wheaton, IL 60187 Board of Directors, BondWave LLC
D.O.B.: 09/55 (Software Development Company/
Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
-------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 83
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BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
POSITION AND TERM OF OFFICE
NAME, ADDRESS OFFICES AND LENGTH OF PRINCIPAL OCCUPATIONS
AND DATE OF BIRTH WITH TRUST SERVICE DURING PAST 5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS(2)
------------------------------------------------------------------------------------------------------------------------------------
Mark R. Bradley President and Chief o Indefinite Term Chief Operating Officer (December 2010 to Present)
120 E. Liberty Drive, Financial Officer and Chief Financial Officer, First Trust Advisors
Suite 400 o Since January 2012 L.P. and First Trust Portfolios L.P.; Chief Financial
Wheaton, IL 60187 Officer, BondWave LLC (Software Development
D.O.B.: 11/57 Company/Investment Advisor) and Stonebridge
Advisors LLC (Investment Advisor)
James M. Dykas Treasurer, Chief o Indefinite Term Controller (January 2011 to Present), Senior Vice
120 E. Liberty Drive, Financial Officer and President (April 2007 to January 2011), First Trust
Suite 400 Chief Accounting Officer o Since January 2012 Advisors L.P. and First Trust Portfolios L.P.
Wheaton, IL 60187
D.O.B.: 01/66
W. Scott Jardine Secretary and Chief o Indefinite Term General Counsel, First Trust Advisors L.P., First
120 E. Liberty Drive, Legal Officer Trust Portfolios L.P.; Secretary and General Counsel,
Suite 400 o Since Inception BondWave LLC (Software Development Company/
Wheaton, IL 60187 Investment Advisor); Secretary of Stonebridge
D.O.B.: 05/60 Advisors LLC (Investment Advisor)
Daniel J. Lindquist Vice President o Indefinite Term Managing Director (July 2012 to Present), Senior
120 E. Liberty Drive, Vice President (September 2005 to July 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 02/70
Kristi A. Maher Chief Compliance Officer o Indefinite Term Deputy General Counsel, First Trust Advisors L.P.
120 E. Liberty Drive, and Assistant Secretary and First Trust Portfolios L.P.
Suite 400 o Chief Compliance
Wheaton, IL 60187 Officer since
D.O.B.: 12/66 January 2011
o Assistant Secretary
since Inception
Roger F. Testin Vice President o Indefinite Term Senior Vice President, First Trust Advisors L.P. and
120 E. Liberty Drive, First Trust Portfolios L.P.
Suite 400 o Since Inception
Wheaton, IL 60187
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012),
Suite 400 o Since Inception First TrustAdvisors L.P. and First Trust
Wheaton, IL 60187 Portfolios L.P.
D.O.B.: 11/70
-------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 84
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2013 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.
PRIVACY ONLINE
We allow third-party companies, including AddThis, to collect certain anonymous
information when you visit our website. These companies may use non-personally
identifiable information during your visits to this and other websites in order
to provide advertisements about goods and services likely to be of greater
interest to you. These companies typically use a cookie, third party web beacon
or pixel tags, to collect this information. To learn more about this behavioral
advertising practice, you can visit www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 85
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FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party.
(c) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, and
that relates to any element of the code of ethics description.
(d) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, regardless of whether these
individuals are employed by the registrant or a third party, that
relates to one or more of the items set forth in paragraph (b) of
this item's instructions.
(e) Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees -- The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements were $389,500 for 2012 and $380,000 for 2013.
(b) Audit-Related Fees (Registrant) -- The aggregate fees billed in each
of the last two fiscal years, for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported under paragraph
(a) of this Item were $0 for 2012 and $0 for 2013.
Audit-Related Fees (Investment Adviser and Distributor) -- The aggregate
fees billed in each of the last two fiscal years for assurance and related
services by the principal accountant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item were $0 for 2012 and $0 for 2013.
(c) Tax Fees (Registrant) -- The aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning to the registrant were $58,500
for 2012 and $61,750 for 2013. The tax fees were for review of regulated
investment company status.
Tax Fees (Investment Adviser and Distributor) -- The aggregate fees billed
in each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning to the
registrant's adviser and distributor were $0 for 2012 and $0 for 2013.
(d) All Other Fees (Registrant) -- The aggregate fees billed in each of
the last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraphs (a)
through (c) of this Item were $0 for 2012 and $0 for 2013.
All Other Fees (Investment Adviser and Distributor) -- The aggregate fees
billed in each of the last two fiscal years for products and services provided
by the principal accountant to the registrant's investment adviser and
distributor, other than the services reported in paragraphs (a) through (c) of
this Item were $ 0 for 2012 and $0 for 2013.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
Pursuant to its charter and its Audit and Non-Audit Services Pre-Approval
Policy, the Audit Committee (the "Committee") is responsible for the
pre-approval of all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the registrant by its
independent auditors. The Chairman of the Committee is authorized to give such
pre-approvals on behalf of the Committee up to $25,000 and report any such
pre-approval to the full Committee.
The Committee is also responsible for the pre-approval of the independent
auditor's engagements for non-audit services with the registrant's adviser (not
including a sub-adviser whose role is primarily portfolio management and is
sub-contracted or overseen by another investment adviser) and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the registrant, if the engagement relates
directly to the operations and financial reporting of the registrant, subject to
the de minimis exceptions for non-audit services described in Rule 2-01 of
Regulation S-X. If the independent auditor has provided non-audit services to
the registrant's adviser (other than any sub-adviser whose role is primarily
portfolio management and is sub-contracted with or overseen by another
investment adviser) and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to its policies, the Committee
will consider whether the provision of such non-audit services is compatible
with the auditor's independence.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) for the registrant and the registrant's investment adviser of this
Item that were approved by the audit committee pursuant to the pre-approval
exceptions included in paragraph (c)(7)(i)(c) or paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year that were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees was less than fifty
percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment adviser),
and any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant for 2012 were $58,500
for the registrant, $4,120 for the registrant's investment adviser and $65,135
for the registrant's distributor and for 2013 were $61,750 for the registrant,
$38,000 for the registrant's investment adviser and $58,100 for the registrant's
distributor.
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934
consisting of all the independent directors of the Registrant. The audit
committee of the registrant is comprised of: Richard E. Erickson, Thomas R.
Kadlec, Robert F. Keith and Niel B. Nielson.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a) (2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a) (3) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund
----------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: February 26, 2014
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: February 26, 2014
---------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: February 26, 2014
---------------------
* Print the name and title of each signing officer under his or her signature.