UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-21774
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First Trust Exchange-Traded Fund
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(Exact name of registrant as specified in charter)
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Address of principal executive offices) (Zip code)
W. Scott Jardine, Esq.
First Trust Portfolios L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
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(Name and address of agent for service)
registrant's telephone number, including area code: (630) 765-8000
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2014
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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 Fund (FDM) First Trust Morningstar
Dividend Leaders Index Fund (FDL) First Trust US IPO Index Fund (FPX) First
Trust NYSE Arca Biotechnology Index Fund (FBT) First Trust Dow Jones Internet
Index Fund (FDN) First Trust Capital Strength ETF (FTCS) First Trust Value
Line(R) 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, 2014
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TABLE OF CONTENTS
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
Shareholder Letter.......................................................... 2
Market Overview............................................................. 3
Fund Performance Overview
First Trust Dow Jones Select MicroCap Index Fund (FDM)................... 4
First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 6
First Trust US IPO Index Fund (FPX)...................................... 8
First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 10
First Trust Dow Jones Internet Index Fund (FDN).......................... 12
First Trust Capital Strength ETF (FTCS).................................. 14
First Trust Value Line(R) 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 Fund (FDM)................... 25
First Trust Morningstar Dividend Leaders Index Fund (FDL)................ 29
First Trust US IPO Index Fund (FPX)...................................... 31
First Trust NYSE Arca Biotechnology Index Fund (FBT)..................... 35
First Trust Dow Jones Internet Index Fund (FDN).......................... 37
First Trust Capital Strength ETF (FTCS).................................. 39
First Trust Value Line(R) Equity Allocation Index Fund (FVI)............. 41
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, 2014
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Exchange-Traded Fund (the "Trust"). This report provides detailed
information about the Trust, including a performance review and the financial
statements for the 12 months ended December 31, 2014. I encourage you to read
this document and discuss it with your financial advisor.
Although markets have seemed choppy over the past 12 months, the U.S. has shown
sustained growth over the period. In fact, the S&P 500(R) Index, as measured on
a total return basis, rose 13.69% in the time covered by this report. First
Trust Advisors L.P. ("First Trust") believes that staying invested in quality
products through different types of markets can benefit investors over the long
term.
First Trust is pleased to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success. We
invite you to look at our investment products with your financial advisor to
determine if any of them might fit your financial goals. We believe that
regularly discussing your financial objectives and investment options with your
financial advisor can help keep you on track.
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, 2014
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 24 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
The current U.S. economic recovery is 66 months old (June 2009 - December 2014).
From June 2009 - December 2014, GDP growth averaged 2.2%, according to the
Bureau of Economic Analysis. Following what had been characterized as a
weather-induced slowdown in the first quarter of 2014 (GDP was -2.1%
annualized), the rate of GDP growth bounced back markedly in the second quarter
(GDP was 4.6% annualized) and in the third quarter (GDP was 5.0% annualized).
The U.S. GDP forecast for 2015 from the International Monetary Fund (IMF) calls
for a 3.1% growth rate, which is stronger than the 2.2% growth rate posted so
far in the current economic recovery. The last time U.S. GDP growth was 3.0% or
higher was in 2005 (3.3%). The IMF sees the global economy growing by 3.8% in
2015.
In 2014, the combination of a pickup in job growth (nonfarm payrolls) and GDP
growth in the U.S. failed to ignite any meaningful inflationary pressures.
Nonfarm payrolls grew by an average of 233,540 per month in 2014, up from an
average of 195,770 in 2013 and 187,080 in 2012, according to data from the
Bureau of Labor Statistics. At the beginning of the recovery in 2009, many
economists stated that the U.S. would need to create roughly 250,000 new jobs
per month to make a serious dent in unemployment. While the 233,540 average
posted in 2014 falls a bit short of that demarcation line, the number of jobs
created in each the last four months of the year did eclipse that mark.
One of the areas of the U.S. economy to monitor in 2015 is manufacturing. While
it has helped drive the U.S. economic recovery to date, one key indicator,
capacity utilization, has yet to ascend to the levels maintained in 2006 and
2007, when it averaged 80.4% for the year, according to data from the Federal
Reserve. Only once in this 66-month recovery has it topped 80%, and that was in
November 2014.
U.S. STOCKS AND BONDS
In 2014, all of the major U.S. stock indices posted positive total returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were up
13.69%, 9.77% and 5.76%, respectively, according to Bloomberg. All but one of
the 10 major S&P 500(R) Index sectors posted positive total returns. The
top-performing sector indices were the S&P 500(R) Utilities Index, S&P 500(R)
Health Care Index and the S&P 500(R) Information Technology Index, up 28.98%,
25.34% and 20.12%, respectively. The only sector index down in 2014 was the S&P
500(R) Energy Index, which posted a total return of -7.79%. Volatility in the
equities markets, which has been relatively subdued over the past couple of
years, did spike a bit in the second half of 2014. The Chicago Board Options
Exchange Market Volatility Index (the "VIX Index"), which tracks the S&P 500(R)
Index, rose from a reading of 11.57 on June 30, 2014 to 19.20 on December 31,
2014. Over the past 25 years, the VIX Index has averaged 19.97, according to
data from Bloomberg.
The estimated earnings growth rates for 2015 for the S&P 500(R) Index, S&P
MidCap 400(R) Index and S&P SmallCap 600(R) Index were 12.19%, 29.78% and
30.90%, respectively, as of December 31, 2014, according to S&P Dow Jones
Indices. We believe that corporate earnings drive the direction of stock prices
over time, especially when the market is setting record highs. The all-time high
(2090.57) for the S&P 500(R) Index was set on December 29, 2014. The potential
for higher corporate earnings and GDP growth in 2015 are reasons to be
optimistic, in our opinion.
In the U.S. bond market, the top-performing major debt group in 2014 was
municipal bonds. The Barclays Municipal Bond: Long Bond 22+ Index posted a total
return of 15.39%. The next closest domestic category was mortgages, up 6.03%, as
measured by the Barclays GNMA (30 Year) Index. Fixed-income securities benefited
from the retrenchment in interest rates in 2014. The yield on the benchmark
10-Year Treasury note, which had spiked 127 basis points in 2013, declined by 86
basis points in 2014, from 3.03% to 2.17%. Investors should take note that many
economists believe the Federal Reserve could begin raising interest rates in
2015, perhaps by midyear.
FOREIGN STOCKS AND BONDS
The U.S. dollar ("USD") rose 12.79% against a basket of major currencies in
2014, as measured by the U.S. Dollar Index. The entire move up came in the
second half of the year. That strong of a move certainly had a major impact on
the returns for those U.S. investors holding foreign securities. Foreign bond
indices generated modest returns in 2014. The Barclays EM Hard Currency
Aggregate Index of emerging markets debt posted a total return of 3.13% (USD),
while the Barclays Global Aggregate Index of higher quality debt rose by 0.59%
(USD). Foreign equities did not perform as well. The MSCI Emerging Markets Index
of stocks posted a total return of -2.19% (USD), while the MSCI World Index
(excluding the U.S.) posted a total return of -4.32% (USD).
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
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FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
The First Trust Dow Jones Select MicroCap Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Dow Jones Select
MicroCap Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index measures the
performance of selected U.S. micro-capitalization companies chosen from all
common stocks traded on the New York Stock Exchange ("NYSE"), NYSE 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 3.08% 14.47% 6.46% 96.57% 78.62%
Market Value 3.59% 14.51% 6.47% 96.92% 78.64%
INDEX PERFORMANCE
Dow Jones Select MicroCap Index(SM) 3.67% 15.17% 7.20% 102.64% 90.34%
Russell 2000(R) Index 4.89% 15.55% 8.18% 105.95% 107.14%
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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 3.08% during the 12-month
period covered by this report. During the same period, the Russell 2000(R) Index
("benchmark") generated a return of 4.89%. The Health Care sector was the
top-performing and top-contributing sector in the Fund. The Fund's holdings in
the sector comprised 8.4% of the Fund's average weight and returned 28.7%,
resulting in a 2.2% contribution. The Health Care Providers & Services industry
was the main driver of performance. About half of the Health Care sector's
weight was allocated to the industry, which returned 29.8%. The Industrials
sector was second-best in terms of contribution. The Fund's holdings returned
10.4% and comprised 21.9% of the Fund's average weight, resulting in a 2.1%
contribution. The Energy sector was a large drag on the Fund's absolute
performance. For the year, the Fund's holdings in the sector returned -24.4% and
detracted -1.5% from the Fund's return. Falling energy prices were the main
headwinds against the Energy sector's return. Relative to its benchmark, the
Fund underperformed. The major source of the underperformance was from the
Financials sector where the Fund's holdings returned 1.8% vs. 8.9% for the
Financials holdings in the benchmark. The reason for the performance difference
came from the Index not holding real estate investment trusts ("REITs"). The
benchmark had an 8.4% allocation to REITs, which returned 23.3%.
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Dow Jones and Dow Jones Select MicroCap Index(SM) are products of S&P Dow Jones
Indices LLC ("SPDJI"), and have been licensed for use by First Trust on behalf
of the Fund. The Fund, based on the Dow Jones Select MicroCap Index(SM), is not
sponsored, endorsed, sold or promoted by SPDJI, Dow Jones Trademark Holdings LLC
("Dow Jones") or their respective affiliates, and SPDJI, Dow Jones and their
respective affiliates make no representation regarding the advisability of
trading in the Fund.
Page 4
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM) (CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 28.49%
Industrials 19.56
Consumer Discretionary 16.54
Information Technology 12.37
Health Care 7.49
Materials 4.37
Energy 3.86
Consumer Staples 2.68
Telecommunication Services 2.52
Utilities 2.12
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Depomed, Inc. 0.95%
AMN Healthcare Services, Inc. 0.92
Denny's Corp. 0.88
Blount International, Inc. 0.87
Strayer Education, Inc. 0.82
Rofin-Sinar Technologies, Inc. 0.81
Ethan Allen Interiors, Inc. 0.81
AMERISAFE, Inc. 0.80
ICF International, Inc. 0.80
Newport Corp. 0.77
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Total 8.43%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
SEPTEMBER 27, 2005 - DECEMBER 31, 2014
First Trust Dow Jones Select Dow Jones Select Russell 2000(R)
MicroCap Index Fund MicroCap Index(SM) Index
09/05 $10,000 $10,000 $10,000
12/05 10,374 10,397 10,252
06/06 10,968 11,033 11,094
12/06 12,001 12,115 12,134
06/07 12,746 12,910 12,917
12/07 11,278 11,474 11,944
06/08 9,896 10,100 10,825
12/08 7,520 7,707 7,909
06/09 7,362 7,568 8,118
12/09 9,087 9,393 10,058
06/10 8,833 9,153 9,862
12/10 11,427 11,876 12,759
06/11 11,811 12,319 13,551
12/11 10,435 10,907 12,227
06/12 11,107 11,648 13,270
12/12 12,091 12,728 14,225
06/13 14,055 14,840 16,481
12/13 17,328 18,360 19,748
06/14 17,212 18,294 20,378
12/14 17,861 19,033 20,714
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 93 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%
01/01/10 - 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
01/01/14 - 12/31/14 158 0 0 0
Page 5
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
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FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
The First Trust Morningstar Dividend Leaders Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the Morningstar(R) Dividend
Leaders Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index offers investors
a benchmark for dividend portfolios as well as a means to invest in a portfolio
of stocks that have a consistent record of growing dividends as well as the
ability to sustain them. The Index consists of the top 100 stocks, based on
dividend yield, of the securities listed on one of the three major exchanges
(NYSE, NYSE 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 12.96% 14.97% 6.15% 100.91% 69.18%
Market Value 12.96% 14.97% 6.14% 100.91% 69.12%
INDEX PERFORMANCE
Morningstar(R) Dividend Leaders Index(SM) 13.55% 15.59% 6.68% 106.31% 76.74%
S&P 500(R) Index 13.69% 15.45% 7.88% 105.14% 95.13%
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(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 12.96% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 13.69%. The Utilities sector separated itself as the
leading contributor to the Fund's return. Strong dividend yields in a low-rate
environment along with some large M&A activity helped the sector return 29.9%.
Since the Fund is dividend-yield focused, the Utilities sector comprised 24.9%
of the Fund's average weight, resulting in a 7.2% contribution to return. The
Health Care sector was second-best in terms of contribution with 3.0%. Strong
performance from large Pharmaceutical companies boosted the sector's return to
30.6%, and the sector's average weight in the Fund was 10.3%. On a relative
basis, the Fund slightly underperformed its benchmark. The Fund's overweight
position in the weak-performing Telecommunication Services sector relative to
the benchmark (20.0% vs. 2.4%) caused the most underperformance. Additional
underperformance was caused by the Fund's overweight position in the Energy
sector (15.3% vs. 10.0%). In the Materials sector, the Fund's overweight
position in Freeport-McMoRan, Inc., which returned -35.8%, added even more
underperformance. The previously mentioned Utilities sector reversed much of the
Fund's underperformance. Relative to the benchmark, the Fund was overweight the
strong-performing sector 24.9% vs. 3.1%.
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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 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 INDEX FUND (FDL) (CONTINUED)
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PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
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% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 23.29%
Telecommunication Services 19.66
Energy 16.63
Consumer Staples 13.55
Health Care 9.37
Information Technology 6.15
Industrials 3.57
Financials 3.17
Consumer Discretionary 2.82
Materials 1.79
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Total 100.00%
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TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
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% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
AT&T, Inc. 10.13%
Verizon Communications, Inc. 9.53
Chevron Corp. 9.04
Pfizer, Inc. 6.86
Philip Morris International, Inc. 6.38
Intel Corp. 4.96
Altria Group, Inc. 4.69
ConocoPhillips 4.65
Duke Energy Corp. 3.08
Southern (The) Co. 2.61
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Total 61.93%
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PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MARCH 9, 2006 - DECEMBER 31, 2014
First Trust Morningstar Morningstar(R) Dividend S&P 500(R)
Dividend Leaders Index Fund Leaders Index(SM) Index
03/06 $10,000 $10,000 $10,000
12/06 12,077 12,110 11,317
06/07 12,392 12,462 12,104
12/07 10,793 10,870 11,939
06/08 7,995 8,069 10,516
12/08 7,371 7,462 7,522
06/09 6,961 7,067 7,760
12/09 8,420 8,567 9,512
06/10 8,039 8,197 8,879
12/10 9,771 9,995 10,945
06/11 10,535 10,806 11,604
12/11 11,182 11,498 11,176
06/12 12,107 12,491 12,236
12/12 12,204 12,620 12,964
06/13 13,908 14,421 14,756
12/13 14,978 15,569 17,163
06/14 16,519 17,221 18,388
12/14 16,919 17,679 19,513
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 190 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%
01/01/10 - 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
01/01/14 - 12/31/14 62 0 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST US IPO INDEX FUND (FPX)
The First Trust US IPO Index Fund (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called the IPOX(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
reaching 1,000 days in the Index and automatically dropping out. The Fund's
shares are listed for trading on the NYSE Arca. The first day of secondary
market trading in shares of the Fund was April 13, 2006.
----------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURNS TOTAL RETURNS
1 Year 5 Years Inception 5 Years Inception
Ended Ended (4/12/06) Ended (4/12/06)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 11.91% 21.30% 12.13% 162.56% 171.47%
Market Value 11.86% 21.31% 12.13% 162.69% 171.47%
INDEX PERFORMANCE
IPOX(R)-100 U.S. Index 12.60% 22.06% 12.83% 170.93% 186.51%
Russell 3000(R) Index 12.56% 15.63% 7.86% 106.72% 93.49%
----------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 11.91% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.56%. The Information Technology sector led all other
sectors in contribution to the Fund's return with 6.0%. The Fund allocated 22.0%
of its average weight to the sector, which returned 28.2%. Much of the
performance came from Facebook, Inc. which had an average Fund weight of 10.4%,
returned 42.7% and individually contributed 4.4% to the Fund's return. The
Health Care sector was the second-best contributor with 4.5%. No other sector in
the Fund topped Health Care's performance of 28.6%, and the Fund allocated an
average of 16.8% of its weight to the sector. Pharmaceutical company AbbVie,
Inc. was responsible for much of the sector's performance. The company had an
average Fund weight of 9.2% and returned 28.0%, resulting in a 2.4% contribution
to the Fund's return. Relative to its benchmark, the Fund underperformed. The
underperformance came from the Fund being overweight the Consumer Discretionary
(23.7% vs. 12.7% average weight) and Energy (15.1% vs. 9.1% average weight)
sectors, as both sectors had below-average returns. Within the Energy sector,
Antero Resources Corp. was the Fund's worst individual contributor with a -36.0%
return and a -0.6% contribution. Further underperformance came from the
Financials sector where the Fund's holdings returned 1.1% vs. 14.4% for the
benchmark's constituents from the sector. A majority of the Financials
underperformance came from the Fund being underweight the strong-performing REIT
industry. Most of the previously mentioned underperformance was reversed by the
Fund's strong performance in the Information Technology sector. Within the
sector the Fund returned 28.2% vs. 17.8% for the benchmark.
-------------------
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, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Consumer Discretionary 22.15%
Information Technology 21.43
Health Care 19.40
Energy 11.67
Financials 9.80
Industrials 8.02
Consumer Staples 5.63
Materials 0.96
Telecommunication Services 0.73
Utilities 0.21
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Facebook, Inc., Class A 9.98%
AbbVie, Inc. 9.58
Phillips 66 3.98
Kraft Foods Group, Inc. 3.69
General Motors Co. 3.33
HCA Holdings, Inc. 3.16
Kinder Morgan, Inc. 2.91
Hilton Worldwide Holdings, Inc. 2.55
Marathon Petroleum Corp. 2.54
Synchrony Financial 2.46
-------
Total 44.18%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 12, 2006 - DECEMBER 31, 2014
First Trust US IPO IPOX(R)-100 Russell 3000(R)
Index Fund U.S. Index Index
04/06 $10,000 $10,000 $10,000
12/06 11,100 11,154 11,064
06/07 12,385 12,481 11,851
12/07 12,712 12,844 11,633
06/08 11,784 11,941 10,348
12/08 7,134 7,245 7,293
06/09 8,087 8,248 7,599
12/09 10,339 10,575 9,360
06/10 9,726 9,980 8,794
12/10 12,228 12,594 10,945
06/11 13,439 13,889 11,640
12/11 12,607 13,071 11,057
06/12 14,314 14,885 12,088
12/12 16,391 17,092 12,873
06/13 19,143 20,011 14,683
12/13 24,256 25,446 17,192
06/14 25,859 27,214 18,385
12/14 27,144 28,651 19,350
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 158 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%
01/01/10 - 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
01/01/14 - 12/31/14 94 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 47.63% 29.02% 21.21% 257.54% 416.31%
Market Value 47.66% 29.02% 21.21% 257.49% 416.41%
INDEX PERFORMANCE
NYSE Arca Biotechnology Index(SM) 47.91% 29.69% 21.88% 266.83% 441.37%
NASDAQ(R) Biotechnology Index 34.40% 30.69% 19.24% 281.20% 349.02%
S&P 500(R) Index 13.69% 15.45% 8.41% 105.14% 99.22%
S&P Composite 1500 Health Care Index 24.79% 19.84% 12.59% 147.18% 175.16%
----------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 47.63% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Health Care Index
("benchmark") generated a return of 24.79%. InterMune, Inc. was the standout
performer in the Fund this reporting period. From the beginning of the period
through the date the company was acquired by Roche Holding AG, InterMune
returned 401.6%, resulting in an 11.3% contribution to the Fund's return. Exact
Sciences Corp. was the second-best performing stock in the Fund. The company
returned 134.7% and contributed 5.2% to the Fund's return. The company's strong
return was partially aided by a ruling stating that its Cologuard DNA test will
be covered by Medicare Part B for certain beneficiaries. Relative to its
benchmark, the Fund outperformed. The Fund's heavy concentration in pure
Biotechnology companies, along with its overweight position in stocks with
exceptional performance, caused the outperformance.
-------------------
The NYSE Arca Biotechnology Index(SM) is a trademark of NYSE Euronext or its
affiliates ("NYSE Euronext") and is licensed for use by First Trust on behalf of
the Fund. The Fund is not sponsored or endorsed by NYSE Euronext. NYSE Euronext
makes no representation or warranty, express or implied, to the owners of the
Fund or any member of the public regarding the advisability of investing in the
Fund or the ability of the Fund to track the performance of the various sectors
represented in the stock market.
Page 10
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO INDUSTRY ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
INDUSTRY LONG-TERM INVESTMENTS
Biotechnology 80.82%
Life Sciences Tools & Services 15.53
Pharmaceuticals 3.65
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Isis Pharmaceuticals, Inc. 4.53%
Cubist Pharmaceuticals, Inc. 4.47
Incyte Corp. 4.27
NPS Pharmaceuticals, Inc. 4.00
Alkermes PLC 3.97
BioMarin Pharmaceutical, Inc. 3.75
Celgene Corp. 3.71
Nektar Therapeutics 3.66
Amgen, Inc. 3.49
Cepheid, Inc. 3.41
-------
Total 39.26%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 19, 2006 - DECEMBER 31, 2014
First Trust NYSE Arca NYSE Arca Biotechnology NASDAQ(R) S&P 500(R) S&P Composite 1500
Biotechnology Index Fund Index(SM) Biotechnology Index Index Health Care Index
06/06 $10,000 $10,000 $10,000 $10,000 $10,000
12/06 11,775 11,815 11,114 11,554 11,194
06/07 12,105 12,179 11,177 12,358 11,919
12/07 12,205 12,320 11,630 12,189 12,092
06/08 11,410 11,557 11,086 10,736 10,593
12/08 9,968 10,138 10,200 7,679 9,218
06/09 10,722 10,921 10,491 7,922 9,305
12/09 14,441 14,758 11,828 9,711 11,132
06/10 15,629 16,026 11,227 9,065 10,324
12/10 19,768 20,327 13,726 11,174 11,712
06/11 22,182 22,880 15,694 11,847 13,374
12/11 16,534 17,096 15,385 11,410 13,104
06/12 22,185 23,013 19,204 12,493 14,610
12/12 23,299 24,233 20,352 13,236 15,510
06/13 29,413 30,705 25,829 15,066 18,703
12/13 34,975 36,600 33,787 17,523 22,049
06/14 41,655 43,638 38,352 18,774 24,298
12/14 51,636 54,137 44,902 19,923 27,515
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 183 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%
01/01/10 - 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
01/01/14 - 12/31/14 69 0 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
The First Trust Dow Jones Internet Index Fund (the "Fund") seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the Dow Jones Internet Composite
Index(SM) (the "Index"). The Fund will normally invest at least 90% of its
assets in common stocks that comprise the Index. The Index represents companies
that generate the majority of their revenues via the Internet. The Index was
designed and is maintained according to a set of rules that were devised with
the goal of providing clear and accurate views of the growing Internet market
segment. The Index aims to consistently represent 80% of the float-adjusted
Internet equity universe. The Index contains two sub-indices, 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 2.42% 19.58% 14.08% 144.52% 207.77%
Market Value 2.44% 19.58% 14.08% 144.50% 207.87%
INDEX PERFORMANCE
Dow Jones Internet Composite Index(SM) 2.79% 20.24% 14.70% 151.35% 222.36%
S&P 500(R) Index 13.69% 15.45% 8.41% 105.14% 99.22%
S&P Composite 1500 Information Technology Index 18.95% 14.83% 11.09% 99.64% 145.28%
----------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 2.42% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Information
Technology Index ("benchmark") generated a return of 18.95%. The Internet
Software & Services industry was the top-contributing industry in the Fund with
a 4.1% contribution. The industry did not have strong performance (7.3%) but it
was by far the heaviest-weighted industry at 55.7% of the Fund's average weight.
Allocations to Twitter, Inc. (-29.6% return) and Pandora Media, Inc. (-47.6%)
tempered the industry's return. The Internet & Catalog Retail industry was the
worst-contributing industry of the Consumer Discretionary sector with a
contribution to the Fund's return of -2.4%. The Fund's holdings in the industry
comprised 23.4% of the Fund's weight and returned -9.8%. Groupon, Inc. (-29.8%
return) and Amazon.com, Inc. (-22.2%) were the largest drags on the industry's
return. Relative to its benchmark, the Fund underperformed. The Fund's focus on
the Internet Software & Services industry was the primary cause of
underperformance, as other Information Technology industries performed much
better. Additionally, the Fund underperformed because the benchmark did not have
any exposure to the previously mentioned Internet & Catalog Retail industry,
which is classified as being part of the Consumer Discretionary sector by the
Global Industry Classification Standard ("GICS(R)").
-------------------
Dow Jones and Dow Jones Internet Composite Index(SM) are products of S&P Dow
Jones Indices ("SPDJI") and have been licensed for use by First Trust on behalf
of the Fund. The Fund, based on the Dow Jones Internet Composite Index(SM), is
not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones Trademark Holdings
LLC ("Dow Jones") or their respective affiliates and SPDJI, Dow Jones and their
respective affiliates make no representation regarding the advisability of
trading in the Fund.
Page 12
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 70.85%
Consumer Discretionary 22.33
Financials 4.61
Health Care 2.21
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Facebook, Inc., Class A 8.34%
Amazon.com, Inc. 7.21
eBay, Inc. 5.53
Priceline Group (The), Inc. 5.41
Google, Inc., Class A 4.91
Google, Inc., Class C 4.86
Yahoo!, Inc. 4.78
salesforce.com, Inc. 4.40
LinkedIn Corp., Class A 3.76
Netflix, Inc. 3.42
-------
Total 52.62%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 19, 2006 - DECEMBER 31, 2014
First Trust Dow Jones Dow Jones Internet S&P 500(R) S&P Composite 1500
Internet Index Fund Composite Index(SM) Index Information Technology Index
06/06 $10,000 $10,000 $10,000 $10,000
12/06 11,285 11,315 11,554 11,574
06/07 12,975 13,044 12,358 12,716
12/07 12,545 12,651 12,189 13,360
06/08 11,203 11,327 10,736 11,638
12/08 7,023 7,114 7,679 7,629
06/09 9,374 9,524 7,922 9,506
12/09 12,587 12,825 9,711 12,286
06/10 11,980 12,222 9,065 11,055
12/10 17,197 17,603 11,174 13,776
06/11 18,186 18,661 11,847 14,115
12/11 16,209 16,702 11,410 13,930
06/12 17,741 18,335 12,493 15,702
12/12 19,590 20,315 13,236 15,985
06/13 22,779 23,687 15,065 17,061
12/13 30,050 31,357 17,523 20,620
06/14 29,906 31,260 18,773 22,362
12/14 30,779 32,232 19,922 24,527
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 148 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%
01/01/10 - 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
01/01/14 - 12/31/14 104 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
The First Trust Capital Strength ETF (the "Fund") seeks investment results that
correspond generally to the price and yield (before the Fund's fees and
expenses) of an equity index called The Capital Strength Index(TM) (the
"Index"). The 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 15.46% 15.32% 9.62% 103.98% 117.99%
Market Value 15.44% 15.35% 9.63% 104.25% 118.28%
INDEX PERFORMANCE
The Capital Strength Index(TM)* 16.25% N/A N/A N/A N/A
S&P 500 Value Index 12.36% 14.86% 6.42% 99.90% 69.59%
S&P 500(R) Index 13.69% 15.45% 8.10% 105.14% 93.71%
----------------------------------------------------------------------------------------------------------------------------------
<FN>
* 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(TM). Therefore, the Fund's performance and total returns shown for
the period prior to June 4, 2013, are not necessarily indicative of the performance of the Fund based on its current index,
would have generated. 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, other than for the one-year period.
</FN>
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 15.46% during the 12-month period covered by
this report. During the same period, the S&P 500 Value Index ("benchmark")
generated a return of 12.36%. The Industrials sector was the top-contributing
sector with a 4.1% contribution to the Fund's return. The Fund's holdings from
the sector returned 18.0% and comprised an average of 20.8% of the Fund's
weight. The sector's strong performance came partially from the Aerospace &
Defense industry which returned 22.3%. The Health Care sector was the
second-best contributing, and best-performing, sector in the Fund. The Fund's
holdings in the sector comprised 14.0% of the Fund's average weight and returned
25.0%, resulting in a 3.6% contribution. Eli Lilly & Co. and Covidien Plc were
the Fund's top individual performers from the industry with returns of 39.8% and
31.2%, respectively. Relative to its benchmark, the Fund outperformed. The
largest source of outperformance was the Fund's underweight position in the
weak-performing Energy sector (5.1% vs. 14.7% average weight). Additional
outperformance came from the previously mentioned Industrials sector where the
Fund was overweight (20.8% vs. 9.1% average weight) and outperformed (18.0% vs.
3.0% return) relative to the benchmark.
-------------------
"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 the NASDAQ OMX
Group ("NASDAQ OMX"). The Mark is licensed for use by First Trust Portfolios
L.P. The Fund has not been passed on by NASDAQ OMX as to its legality or
suitability. The Fund is not issued, endorsed, sold or promoted by NASDAQ OMX.
The Fund should not be construed in any way as investment advice by NASDAQ OMX.
NASDAQ OMX MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO THE FUND
OR THE CAPITAL STRENGTH INDEX(TM).
Page 14
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CAPITAL STRENGTH ETF (FTCS) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 24.01%
Consumer Staples 17.52
Information Technology 16.25
Health Care 12.03
Financials 11.84
Consumer Discretionary 10.41
Materials 6.12
Energy 1.82
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Lowe's Cos., Inc. 2.35%
KLA-Tencor Corp. 2.29
PPG Industries, Inc. 2.21
Texas Instruments, Inc. 2.20
3M Co. 2.15
Ralph Lauren Corp. 2.13
Northrop Grumman Corp. 2.13
Accenture PLC, Class A 2.09
Medtronic, Inc. 2.09
Wal-Mart Stores, Inc. 2.08
-------
Total 21.72%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JULY 6, 2006 - DECEMBER 31, 2014
First Trust Capital S&P 500 Value S&P 500(R)
Strength ETF Index Index
07/06 $10,000 $10,000 $10,000
12/06 11,074 11,294 11,235
06/07 12,444 12,126 12,016
12/07 12,210 11,519 11,852
06/08 11,253 9,671 10,440
12/08 7,665 7,002 7,467
06/09 8,640 6,903 7,703
12/09 10,686 8,484 9,443
06/10 9,880 8,034 8,815
12/10 12,185 9,765 10,866
06/11 13,144 10,276 11,520
12/11 11,827 9,718 11,095
06/12 12,469 10,585 12,148
12/12 13,890 11,436 12,871
06/13 16,203 13,235 14,650
12/13 18,876 15,093 17,039
06/14 19,929 16,143 18,256
12/14 21,794 16,957 19,373
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 108 9 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%
01/01/10 - 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
01/01/14 - 12/31/14 131 4 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. Effective January 9,
2015, the Fund changed its name to First Trust Total US Market AlphaDEX(R) ETF
(TUSA). See Subsequent Events in the Notes to Financial Statements.
----------------------------------------------------------------------------------------------------------------------------------
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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 2.36% 10.19% 4.76% 62.45% 45.59%
Market Value 2.36% 10.19% 4.77% 62.45% 45.62%
INDEX PERFORMANCE
Value Line(R) Equity Allocation Index 3.25% 11.11% 5.64% 69.38% 55.70%
Russell 3000(R) Index 12.56% 15.63% 7.18% 106.72% 75.02%
----------------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 2.36% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.56%. The Information Technology sector was the
best-contributing sector in the Fund, adding 3.5% to the Fund's return. The
Fund's holdings in the sector comprised 20.0% of the Fund's average weight and
returned 18.6%. Within the Information Technology sector, the Semiconductor
industry stood out with a 41.0% return. The Utilities sector was the
best-performing sector in the Fund. High dividend yields attracted investors and
helped the Fund's holdings in the sector return 38.5%. However, the sector had a
low allocation of 4.1% of the Fund's average weight, resulting in only a 0.8%
contribution to return. The Energy sector was the largest drag on the Fund's
performance. The Fund's holdings in the sector comprised 7.6% of the Fund's
average weight and returned -35.4%, resulting in a -5.5% contribution to return.
Relative to its benchmark, the Fund underperformed. The Energy sector caused the
most underperformance as the Fund's holdings returned -35.4% vs. -8.4% for the
benchmark's Energy constituents. Some of the performance difference is due to
the Fund not holding large Energy companies ExxonMobil Corp. (-6.1% return) and
Chevron Corp. (-7.0%). These companies were the benchmark's largest Energy
holdings and the companies outperformed the broader Energy sector. The Fund also
suffered underperformance from being underweight the strong-performing Heath
Care sector (7.8% vs. 13.3% average weight), and from underperforming in the
Financials sector (8.3% vs. 14.5% return). Much of the underperformance in the
Financials sector came from the Fund being underweight the strong-performing
REIT industry relative to the benchmark.
-------------------
Value Line is a registered trademark of Value Line, Inc. that is licensed to
First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold,
or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their
affiliates.
Page 16
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Financials 19.49%
Consumer Discretionary 18.32
Information Technology 18.27
Industrials 10.90
Energy 9.68
Health Care 7.28
Consumer Staples 6.77
Materials 4.67
Utilities 3.13
Telecommunication Services 1.49
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Southwest Airlines Co. 1.78%
Royal Caribbean Cruises Ltd. 1.64
Kroger (The) Co. 1.56
Dollar Tree, Inc. 1.54
Bed Bath & Beyond, Inc. 1.47
NetApp, Inc. 1.41
Travelers (The) Cos., Inc. 1.41
Apple, Inc. 1.39
ACE Ltd. 1.38
Hewlett-Packard Co. 1.38
-------
Total 14.96%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 5, 2006 - DECEMBER 31, 2014
First Trust Value Line(R) Value Line(R) Equity Russell 3000(R)
Equity Allocation Index Fund Allocation Index Index
12/5/06 $10,000 $10,000 $10,000
12/06 9,890 9,897 10,008
06/07 10,610 10,623 10,720
12/07 10,350 10,398 10,522
06/08 9,470 9,551 9,360
12/08 6,681 6,772 6,597
06/09 7,037 7,177 6,874
12/09 8,962 9,192 8,466
06/10 8,831 9,104 7,954
12/10 10,741 11,125 9,900
06/11 10,976 11,405 10,529
12/11 9,714 10,132 10,001
06/12 9,883 10,350 10,933
12/12 10,563 11,109 11,643
06/13 12,087 12,764 13,280
12/13 14,223 15,078 15,550
06/14 14,940 15,906 16,629
12/14 14,559 15,569 17,502
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 178 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%
01/01/10 - 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
01/01/14 - 12/31/14 68 6 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 (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)
12/31/14 12/31/14 12/31/14 to 12/31/14 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 15.94% 15.61% 8.76% 9.88% 106.50% 131.52% 191.82%
Market Value 15.83% 15.59% 9.90% 9.88% 106.34% 157.02% 191.82%
INDEX PERFORMANCE
Value Line(R) Dividend Index 16.92% 16.54% N/A N/A 143.75% N/A N/A
S&P 500(R) Index 13.69% 15.45% 7.67% 8.75% 105.14% 109.47% 159.34%
Dow Jones U.S. Select Dividend Index(SM) 15.36% 17.03% 7.08% N/A 119.49% 98.10% N/A
----------------------------------------------------------------------------------------------------------------------------------
<FN>
On December 15, 2006, the Fund acquired the assets and adopted the financial and performance history of First Trust Value
Line(R) Dividend Fund (the "Predecessor FVD Fund," a closed-end fund), which had an inception date of August 19, 2003. The
inception date total returns at net asset value ("NAV") include the sales load of $0.675 per share on the initial offering.
The investment goals, strategies and policies of the Fund are substantially similar to those of the Predecessor FVD Fund. The
inception date of the Index was July 3, 2006. Returns for the Index are only disclosed for those periods in which the Index
was in existence for the entire period. The cumulative total returns for the period from the reorganization date (12/15/06)
through period end (12/31/14) were 80.42% and 81.28% at NAV and Market Value, respectively. That compares to an Index return
of 92.13% for the same period. The average annual total returns for the period from the reorganization date (12/15/06) through
period end (12/31/14) were 7.61% and 7.68% at NAV and Market Value, respectively. That compares to an Index return of 8.46%
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.
</FN>
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 15.94% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 13.69%. The Utilities sector topped all other sectors in
the Fund in average weight (24.7%), performance (26.6%), and contribution to the
Fund's return (6.6%). Strong dividend yields in a low-rate environment along
with some large mergers and acquisitions activity helped boost the sector's
returns. The Consumer Discretionary sector was the second-best performer with a
19.8% return, but its low average weight of 7.1% limited its contribution to
return to 1.5%. Relative to its benchmark, the Fund outperformed. The main
driver of the Fund's excess return was its overweight position in the previously
mentioned Utilities sector. The Fund had an average weight of 24.7% in the
sector compared to 3.1% for the benchmark.
-------------------
Value Line is a registered trademark of Value Line, Inc. that is licensed to
First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold,
or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their
affiliates.
Page 18
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Utilities 26.38%
Financials 14.11
Consumer Staples 13.90
Industrials 11.81
Information Technology 9.05
Health Care 7.44
Consumer Discretionary 7.13
Energy 4.90
Materials 2.68
Telecommunication Services 2.60
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Mattel, Inc. 0.57%
American States Water Co. 0.57
New Jersey Resources Corp. 0.57
AGL Resources, Inc. 0.56
Vectren Corp. 0.56
WGL Holdings, Inc. 0.56
TransCanada Corp. 0.56
MGE Energy, Inc. 0.56
Enbridge, Inc. 0.56
TECO Energy, Inc. 0.56
-------
Total 5.63%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2004 - DECEMBER 31, 2014
First Trust Value Line(R) S&P 500(R) Dow Jones U.S. Select
Dividend Index Fund Index Dividend Index(SM)
12/04 $10,000 $10,000 $10,000
06/05 10,304 9,919 10,222
12/05 10,659 10,491 10,379
06/06 11,272 10,775 10,899
12/06 12,802 12,149 12,408
06/07 13,146 12,995 12,927
12/07 12,364 12,816 11,767
06/08 11,160 11,290 9,248
12/08 9,376 8,075 8,122
06/09 9,263 8,330 7,104
12/09 11,212 10,211 9,026
06/10 10,889 9,532 8,909
12/10 13,015 11,750 10,679
06/11 14,073 12,457 11,575
12/11 14,190 11,997 12,005
06/12 15,089 13,136 12,790
12/12 15,776 13,918 13,306
06/13 17,967 15,841 15,149
12/13 19,967 18,425 17,173
06/14 21,669 19,741 18,867
12/14 23,151 20,949 19,810
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 223 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%
01/01/10 - 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
01/01/14 - 12/31/14 29 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 (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)
12/31/14 12/31/14 12/31/14 to 12/31/14 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 11.33% 14.98% 5.09% 6.44% 100.92% 64.31% 105.70%
Market Value 11.22% 14.96% 5.66% 6.43% 100.82% 73.35% 105.60%
INDEX PERFORMANCE
Value Line(R) 100 Index 12.35% 16.05% N/A N/A 110.49% N/A N/A
Russell 3000(R)- Index 12.56% 15.63% 7.94% 9.09% 106.72% 114.75% 173.27%
----------------------------------------------------------------------------------------------------------------------------------
<FN>
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
(12/31/14) were 24.86% and 24.80% at NAV and Market Value, respectively. That compares to an Index return of 33.17% for that
same period. The average annual total returns for the period from the reorganization date (6/15/07) through period end
(12/31/14) were 2.99% and 2.98% at NAV and Market Value, respectively. That compares to an Index return of 3.87% 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.
</FN>
(See Notes to Fund Performance Overview on page 22.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 11.33% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.56%. The Industrials sector led all sectors in
contribution to the Fund's return with 4.8%. The Fund's holdings in the sector
returned 27.2% and comprised 18.8% of the Fund's average weight. The sector's
strong performance came particularly from the Fund's 6.6% allocation to the
Airlines industry, which returned 64.5%. Southwest Airlines Co. (126.3% return)
and JetBlue Airways Corp. (85.5%) were the top performers from the industry. The
Information Technology sector was the second-best contributing sector at 3.5%.
The Fund's holdings from the sector returned 18.2% and comprised 17.0% of the
Fund's weight. The Financials sector was the best-performing sector in the Fund
with a return of 32.7%, however the sector's low average Fund weight of 6.6%
limited the sector's contribution to 1.5%. The Energy sector was the largest
detractor from the Fund's return with a contribution of -3.8%. The Fund's Energy
holdings returned -33.9% and comprised an average of 11.9% of the Fund's weight.
Relative to its benchmark, the Fund underperformed. Most of the underperformance
came from the Energy sector where the Fund's holdings underperformed the
benchmark's constituents -33.9% vs. -10.0%. Additional underperformance came
from the Fund being underweight the strong-performing Health Care sector (5.7%
vs. 13.3% average weight). The Fund was able to reverse much of the previously
mentioned underperformance in the Industrials sector where the Fund's holdings
outperformed the benchmark's constituents 27.2% vs. 8.0%. The Fund's overweight
position in the Airlines industry was the primary cause of the performance
difference in the sector.
-------------------
Value Line is a registered trademark of Value Line, Inc. that is licensed to
First Trust on behalf of the Fund. The Fund is not sponsored, recommended, sold,
or promoted by Value Line Publishing LLC, Value Line, Inc. or any of their
affiliates.
Page 20
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Consumer Discretionary 27.57%
Industrials 26.94
Information Technology 10.51
Materials 9.12
Energy 7.38
Health Care 7.35
Consumer Staples 4.28
Financials 2.90
Telecommunication Services 1.99
Utilities 1.96
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
JetBlue Airways Corp. 1.56%
United Continental Holdings, Inc. 1.52
Goodyear Tire & Rubber (The) Co. 1.48
Sanmina Corp. 1.45
Avis Budget Group, Inc. 1.34
Kroger (The) Co. 1.29
Actavis PLC 1.27
Alaska Air Group, Inc. 1.26
Micron Technology, Inc. 1.24
Outerwall, Inc. 1.24
-------
Total 13.65%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
DECEMBER 31, 2004 - DECEMBER 31, 2014
First Trust Value Line(R) 100 Russell 3000(R)
Exchange-Traded Fund Index
12/04 $10,000 $10,000
06/05 10,104 9,999
12/05 11,185 10,613
06/06 11,426 10,956
12/06 11,699 12,281
06/07 13,065 13,155
12/07 14,028 12,913
06/08 12,830 11,486
12/08 7,253 8,095
06/09 6,971 8,434
12/09 8,177 10,388
06/10 8,107 9,760
12/10 10,590 12,147
06/11 11,190 12,918
12/11 9,751 12,271
06/12 10,023 13,415
12/12 10,582 14,286
06/13 12,159 16,295
12/13 14,756 19,080
06/14 16,353 20,404
12/14 16,430 21,475
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 165 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%
01/01/10 - 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
01/01/14 - 12/31/14 87 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, 2014 (UNAUDITED)
As a shareholder of First Trust Dow Jones Select MicroCap Index Fund, First
Trust Morningstar Dividend Leaders Index Fund, First Trust US IPO Index Fund,
First Trust NYSE Arca Biotechnology Index Fund, First Trust Dow Jones Internet
Index Fund, First Trust Capital Strength ETF, First Trust Value Line(R) 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, 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, 2014.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b)
---------------------------------------------------------------------------------------------------------------------------
FIRST TRUST DOW JONES SELECT MICROCAP INDEX
FUND (FDM)
Actual $1,000.00 $1,037.70 0.60% $3.08
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX
FUND (FDL)
Actual $1,000.00 $1,024.20 0.45% $2.30
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 $1,049.70 0.60% $3.10
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 $1,239.60 0.57% $3.22
Hypothetical (5% return before expenses) $1,000.00 $1,022.33 0.57% $2.91
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
Actual $1,000.00 $1,029.20 0.55% $2.81
Hypothetical (5% return before expenses) $1,000.00 $1,022.43 0.55% $2.80
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
Actual $1,000.00 $1,093.60 0.65% $3.43
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, 2014 (UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b)
---------------------------------------------------------------------------------------------------------------------------
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX
FUND (FVI)
Actual $1,000.00 $ 974.50 0.70% $3.48
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 $1,068.40 0.70% $3.65
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 $1,004.70 0.70% $3.54
Hypothetical (5% return before expenses) $1,000.00 $1,021.68 0.70% $3.57
(a) These expense ratios reflect expense caps for certain Funds. See Note 3
in Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2014 through December 31, 2014), multiplied by 184/365 (to reflect the
one-half year period).
Page 24
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 1.6%
5,235 Ducommun, Inc. (a) $ 132,341
9,145 Engility Holdings, Inc. (a) 391,406
2,552 National Presto Industries, Inc. 148,118
4,498 Sparton Corp. (a) 127,473
--------------
799,338
--------------
AIR FREIGHT & LOGISTICS -- 0.5%
27,010 Air Transport Services Group,
Inc. (a) 231,206
--------------
AIRLINES -- 0.7%
25,881 Republic Airways Holdings,
Inc. (a) 377,604
--------------
AUTO COMPONENTS -- 3.1%
4,675 China Automotive Systems, Inc. 33,146
9,247 Fox Factory Holding Corp. (a) 150,079
24,888 Modine Manufacturing Co. (a) 338,477
7,485 Remy International, Inc. 156,586
4,291 Shiloh Industries, Inc. (a) 67,497
13,497 Stoneridge, Inc. (a) 173,571
1,864 Strattec Security Corp. 153,929
12,044 Superior Industries
International, Inc. 238,351
10,787 Tower International, Inc. (a) 275,608
--------------
1,587,244
--------------
AUTOMOBILES -- 0.6%
14,013 Winnebago Industries, Inc. 304,923
--------------
BANKS -- 16.3%
6,822 1st Source Corp. 234,063
14,639 Ameris Bancorp 375,344
6,639 Bryn Mawr Bank Corp. 207,801
23,506 Centerstate Banks, Inc. 279,956
14,185 Central Pacific Financial Corp. 304,977
7,911 City Holding Co. 368,099
8,521 Community Trust Bancorp, Inc. 311,954
12,029 ConnectOne Bancorp, Inc. 228,551
13,061 Customers Bancorp, Inc. (a) 254,167
6,816 Financial Institutions, Inc. 171,422
37,474 First Busey Corp. 243,956
8,208 First NBC Bank Holding Co. (a) 288,922
14,643 Flushing Financial Corp. 296,814
16,580 Hanmi Financial Corp. 361,610
15,728 Heritage Financial Corp. 276,026
10,658 HomeTrust Bancshares, Inc. (a) 177,562
11,931 Independent Bank Corp. 155,700
18,131 Lakeland Bancorp, Inc. 212,133
8,602 Lakeland Financial Corp. 373,929
8,240 Mercantile Bank Corp. 173,205
6,795 Metro Bancorp, Inc. (a) 176,126
8,782 Pacific Premier Bancorp, Inc. (a) 152,192
13,017 Sandy Spring Bancorp, Inc. 339,483
8,244 Simmons First National Corp.,
Class A 335,119
11,455 Southside Bancshares, Inc. 331,164
9,103 Southwest Bancorp, Inc. 158,028
16,776 State Bank Financial Corp. 335,184
7,189 Stock Yards Bancorp, Inc. 239,681
5,234 Stonegate Bank 155,031
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
BANKS (CONTINUED)
6,140 Tompkins Financial Corp. $ 339,542
10,391 TriCo Bancshares 256,658
7,390 Washington Trust Bancorp, Inc. 296,930
--------------
8,411,329
--------------
BEVERAGES -- 0.4%
2,404 Coca-Cola Bottling Co.
Consolidated 211,624
--------------
BUILDING PRODUCTS -- 1.8%
6,501 American Woodmark Corp. (a) 262,900
8,884 Insteel Industries, Inc. 209,485
5,019 Patrick Industries, Inc. (a) 220,735
24,755 PGT, Inc. (a) 238,391
--------------
931,511
--------------
CAPITAL MARKETS -- 3.0%
8,859 Calamos Asset Management,
Inc., Class A 118,002
54,937 Cowen Group, Inc., Class A (a) 263,697
3,924 FBR & Co. (a) 96,491
7,950 INTL FCStone, Inc. (a) 163,531
18,085 Investment Technology Group,
Inc. (a) 376,530
7,124 Manning & Napier, Inc. 98,454
17,428 RCS Capital Corp., Class A 213,319
3,791 Westwood Holdings Group, Inc. 234,360
--------------
1,564,384
--------------
CHEMICALS -- 2.8%
11,592 FutureFuel Corp. 150,928
4,914 Hawkins, Inc. 212,924
17,066 Kraton Performance Polymers,
Inc. (a) 354,802
2,599 OCI Resources, L.P. (b) 66,794
24,652 OMNOVA Solutions, Inc. (a) 200,667
13,301 Tredegar Corp. 299,140
12,002 Zep, Inc. 181,830
--------------
1,467,085
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 2.4%
9,950 CECO Environmental Corp. 154,623
13,548 Ennis, Inc. 182,491
14,985 Kimball International, Inc.,
Class B 136,663
6,540 Multi-Color Corp. 362,447
14,872 Performant Financial Corp. (a) 98,899
10,433 Viad Corp. 278,144
--------------
1,213,267
--------------
COMMUNICATIONS EQUIPMENT -- 0.5%
7,369 Alliance Fiber Optic Products,
Inc. 106,924
5,558 Bel Fuse, Inc., Class B 151,956
--------------
258,880
--------------
CONSTRUCTION & ENGINEERING
-- 1.3%
6,306 Argan, Inc. 212,134
19,585 Furmanite Corp. (a) 153,154
10,802 MYR Group, Inc. (a) 295,975
--------------
661,263
--------------
See Notes to Financial Statements Page 25
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CONSUMER FINANCE -- 0.7%
9,892 Consumer Portfolio Services,
Inc. (a) $ 72,805
25,348 EZCORP, Inc., Class A (a) 297,839
--------------
370,644
--------------
CONTAINERS & PACKAGING
-- 0.4%
12,941 Myers Industries, Inc. 227,762
--------------
DIVERSIFIED CONSUMER SERVICES
-- 2.2%
8,975 American Public Education,
Inc. (a) 330,908
2,845 Liberty Tax, Inc. (a) 101,680
6,488 Steiner Leisure Ltd. (a) 299,811
5,668 Strayer Education, Inc. (a) 421,019
--------------
1,153,418
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.4%
17,215 Inteliquent, Inc. 337,930
9,813 Lumos Networks Corp. 165,055
22,272 Premiere Global Services,
Inc. (a) 236,529
--------------
739,514
--------------
ELECTRIC UTILITIES -- 0.5%
6,724 Unitil Corp. 246,569
--------------
ELECTRICAL EQUIPMENT -- 0.5%
4,816 Powell Industries, Inc. 236,321
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 5.8%
21,728 Checkpoint Systems, Inc. (a) 298,325
17,401 CTS Corp. 310,260
8,934 DTS, Inc. (a) 274,721
15,424 Fabrinet (a) 273,622
15,828 GSI Group, Inc. (a) 232,988
20,714 Newport Corp. (a) 395,845
19,203 Orbotech Ltd. (a) 284,204
10,891 Park Electrochemical Corp. 271,513
9,024 PC Connection, Inc. 221,539
14,582 Rofin-Sinar Technologies,
Inc. (a) 419,524
--------------
2,982,541
--------------
ENERGY EQUIPMENT & SERVICES
-- 1.2%
10,061 Era Group, Inc. (a) 212,790
6,508 Natural Gas Services Group,
Inc. (a) 149,944
6,761 PHI, Inc. (a) 252,862
--------------
615,596
--------------
FOOD & STAPLES RETAILING -- 0.5%
6,389 Ingles Markets, Inc., Class A 236,968
--------------
FOOD PRODUCTS -- 1.6%
9,090 Amira Nature Foods Ltd. (a) 130,442
8,001 Calavo Growers, Inc. 378,447
13,966 Landec Corp. (a) 192,870
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
FOOD PRODUCTS (CONTINUED)
11,218 Omega Protein Corp. (a) $ 118,574
--------------
820,333
--------------
GAS UTILITIES -- 0.7%
7,581 Chesapeake Utilities Corp. 376,472
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.4%
800 Atrion Corp. 272,008
11,254 Cynosure, Inc., Class A (a) 308,585
5,168 Exactech, Inc. (a) 121,810
22,563 Merit Medical Systems, Inc. (a) 391,017
6,684 SurModics, Inc. (a) 147,716
--------------
1,241,136
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 3.7%
3,085 Addus HomeCare Corp. (a) 74,873
5,580 Alliance HealthCare Services,
Inc. (a) 117,124
24,241 AMN Healthcare Services,
Inc. (a) 475,123
4,965 Landauer, Inc. 169,505
6,384 LHC Group, Inc. (a) 199,053
6,181 Providence Service (The) Corp. (a) 225,236
10,638 Skilled Healthcare Group, Inc.,
Class A (a) 91,168
12,614 Triple-S Management Corp.,
Class B (a) 301,601
6,378 U.S. Physical Therapy, Inc. 267,621
--------------
1,921,304
--------------
HOTELS, RESTAURANTS & LEISURE
-- 2.3%
12,173 Del Frisco's Restaurant Group,
Inc. (a) 288,987
44,045 Denny's Corp. (a) 454,104
9,541 Marcus (The) Corp. 176,604
18,380 Ruth's Hospitality Group, Inc. 275,700
--------------
1,195,395
--------------
HOUSEHOLD DURABLES -- 2.9%
13,534 Ethan Allen Interiors, Inc. 419,148
2,848 Flexsteel Industries, Inc. 91,848
7,663 LGI Homes, Inc. (a) 114,332
11,237 Libbey, Inc. (a) 353,291
12,723 M/I Homes, Inc. (a) 292,120
10,916 SodaStream International Ltd. (a) 219,630
--------------
1,490,369
--------------
HOUSEHOLD PRODUCTS -- 0.2%
3,825 Orchids Paper Products Co. 111,346
--------------
INSURANCE -- 3.2%
9,785 AMERISAFE, Inc. 414,493
16,369 Employers Holdings, Inc. 384,835
6,700 Federated National Holding Co. 161,872
4,741 HCI Group, Inc. 205,001
8,368 United Insurance Holdings Corp. 183,678
15,139 Universal Insurance Holdings, Inc. 309,592
--------------
1,659,471
--------------
Page 26 See Notes to Financial Statements
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET & CATALOG RETAIL -- 1.0%
9,871 FTD Cos., Inc. (a) $ 343,708
10,536 PetMed Express, Inc. 151,402
--------------
495,110
--------------
INTERNET SOFTWARE & SERVICES
-- 1.7%
19,340 Dice Holdings, Inc. (a) 193,593
17,895 Perficient, Inc. (a) 333,384
7,610 Stamps.com, Inc. (a) 365,204
--------------
892,181
--------------
IT SERVICES -- 1.9%
4,789 Cass Information Systems, Inc. 255,014
7,330 Computer Task Group, Inc. 69,855
34,076 Global Cash Access Holdings,
Inc. (a) 243,643
29,841 Lionbridge Technologies, Inc. (a) 171,586
21,652 Net 1 UEPS Technologies, Inc. (a) 246,833
--------------
986,931
--------------
LEISURE PRODUCTS -- 0.5%
27,781 Smith & Wesson Holding Corp. (a) 263,086
--------------
MACHINERY -- 4.8%
4,822 Alamo Group, Inc. 233,578
25,688 Blount International, Inc. (a) 451,338
10,377 Columbus McKinnon Corp. 290,971
11,584 Douglas Dynamics, Inc. 248,245
6,904 Dynamic Materials Corp. 110,602
5,264 Graham Corp. 151,445
5,660 Kadant, Inc. 241,625
5,112 L.B. Foster Co., Class A 248,290
8,918 Lydall, Inc. (a) 292,689
9,855 NN, Inc. 202,619
--------------
2,471,402
--------------
MEDIA -- 1.5%
10,006 A. H. Belo Corp., Class A 103,862
10,770 Entercom Communications Corp.,
Class A (a) 130,963
22,263 Harte-Hanks, Inc. 172,316
22,232 Journal Communications, Inc.,
Class A (a) 254,112
32,468 McClatchy (The) Co., Class A (a) 107,794
--------------
769,047
--------------
METALS & MINING -- 0.7%
10,477 Materion Corp. 369,105
--------------
MULTILINE RETAIL -- 0.6%
18,023 Fred's, Inc., Class A 313,780
--------------
OIL, GAS & CONSUMABLE FUELS
-- 2.7%
49,853 Abraxas Petroleum Corp. (a) 146,568
6,982 Crossamerica Partners, L.P. (b) 281,305
30,545 PetroQuest Energy, Inc. (a) 114,238
2,637 REX American Resources Corp. (a) 163,415
4,413 Sprague Resources, L.P. (b) 103,485
19,901 StealthGas, Inc. (a) 125,575
32,624 Teekay Tankers Ltd., Class A 165,078
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
6,622 TransMontaigne Partners, L.P. (b) $ 208,659
41,976 Warren Resources, Inc. (a) 67,581
--------------
1,375,904
--------------
PERSONAL PRODUCTS -- 0.4%
5,831 Medifast, Inc. (a) 195,630
--------------
PHARMACEUTICALS -- 1.4%
30,536 Depomed, Inc. (a) 491,935
24,019 SciClone Pharmaceuticals, Inc. (a) 210,406
--------------
702,341
--------------
PROFESSIONAL SERVICES -- 4.2%
22,307 CBIZ, Inc. (a) 190,948
6,228 Franklin Covey Co. (a) 120,574
8,886 GP Strategies Corp. (a) 301,502
8,536 Heidrick & Struggles
International,Inc. 196,755
10,084 ICF International, Inc. (a) 413,242
13,993 Kforce, Inc. 337,651
8,480 Mistras Group, Inc. (a) 155,438
19,797 Resources Connection, Inc. 325,661
2,144 VSE Corp. 141,290
--------------
2,183,061
--------------
ROAD & RAIL -- 1.3%
11,433 Celadon Group, Inc. 259,415
12,330 Marten Transport Ltd. 269,534
14,586 Quality Distribution, Inc. (a) 155,195
--------------
684,144
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 1.3%
15,964 Integrated Silicon Solution, Inc. 264,524
14,182 Nova Measuring Instruments
Ltd. (a) 147,351
32,110 Photronics, Inc. (a) 266,834
--------------
678,709
--------------
SOFTWARE -- 1.1%
15,253 Ebix, Inc. 259,148
3,077 ePlus, Inc. (a) 232,898
12,586 Sapiens International Corp.
N.V. (a) 92,759
--------------
584,805
--------------
SPECIALTY RETAIL -- 1.4%
19,197 Christopher & Banks Corp. (a) 109,615
10,732 Haverty Furniture Cos., Inc. 236,211
7,732 Kirkland's, Inc. (a) 182,785
14,718 Stein Mart, Inc. 215,177
--------------
743,788
--------------
TEXTILES, APPAREL & LUXURY
GOODS -- 0.4%
7,468 Unifi, Inc. (a) 222,024
--------------
THRIFTS & MORTGAGE FINANCE
-- 5.2%
4,492 BBX Capital Corp., Class A (a) 73,893
13,091 Berkshire Hills Bancorp, Inc. 349,006
36,265 Brookline Bancorp, Inc. 363,738
15,709 Dime Community Bancshares, Inc. 255,742
See Notes to Financial Statements Page 27
FIRST TRUST DOW JONES SELECT MICROCAP INDEX FUND (FDM)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
THRIFTS & MORTGAGE FINANCE
(CONTINUED)
6,951 HomeStreet, Inc. $ 121,017
49,330 TrustCo Bank Corp. 358,136
26,550 United Financial Bancorp, Inc. 381,258
10,632 Walker & Dunlop, Inc. (a) 186,485
17,893 Waterstone Financial, Inc. 235,293
4,886 WSFS Financial Corp. 375,685
--------------
2,700,253
--------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.6%
8,535 CAI International, Inc. (a) 198,012
9,109 Houston Wire & Cable Co. 108,853
--------------
306,865
--------------
WATER UTILITIES -- 0.9%
5,777 Connecticut Water Service, Inc. 209,647
8,206 SJW Corp. 263,577
--------------
473,224
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.1%
11,783 Shenandoah Telecommunications
Co. 368,219
11,272 Spok Holdings, Inc. 195,682
--------------
563,901
--------------
TOTAL INVESTMENTS -- 99.9% 51,620,108
(Cost $46,281,942) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 27,776
--------------
NET ASSETS -- 100.0% $ 51,647,884
==============
(a) Non-income producing security.
(b) Master Limited Partnership ("MLP").
(c) Aggregate cost for federal income tax purposes is $46,489,760. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$7,280,977 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,150,629.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 51,620,108 $ -- $ --
===============================================
* 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, 2014.
Page 28 See Notes to Financial Statements
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.8%
AEROSPACE & DEFENSE -- 2.2%
113,548 Lockheed Martin Corp. $ 21,865,938
--------------
BANKS -- 1.1%
18,141 Bank of Hawaii Corp. 1,075,943
87,876 F.N.B. Corp. 1,170,508
77,794 FirstMerit Corp. 1,469,529
71,271 National Penn Bancshares, Inc. 750,127
43,705 Old National Bancorp 650,330
7,569 Park National Corp. 669,705
65,521 Susquehanna Bancshares, Inc. 879,947
35,130 Trustmark Corp. 862,090
101,788 Umpqua Holdings Corp. 1,731,414
30,640 United Bankshares, Inc. 1,147,468
--------------
10,407,061
--------------
CAPITAL MARKETS -- 0.1%
38,819 Federated Investors, Inc.,
Class B 1,278,310
--------------
CHEMICALS -- 0.0%
13,547 Kronos Worldwide, Inc. 176,382
--------------
COMMERCIAL SERVICES &
SUPPLIES -- 1.2%
175,379 R.R. Donnelley & Sons Co. 2,947,244
173,881 Waste Management, Inc. 8,923,573
--------------
11,870,817
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 19.6%
2,965,798 AT&T, Inc. 99,621,155
2,004,641 Verizon Communications, Inc. 93,777,106
--------------
193,398,261
--------------
ELECTRIC UTILITIES -- 12.7%
19,045 ALLETE, Inc. 1,050,141
235,880 American Electric Power Co.,
Inc. 14,322,634
362,129 Duke Energy Corp. 30,252,257
95,498 Entergy Corp. 8,354,165
74,730 Great Plains Energy, Inc. 2,123,079
51,189 Hawaiian Electric Industries,
Inc. 1,713,808
127,684 Northeast Utilities 6,833,648
19,899 Otter Tail Corp. 616,073
133,934 Pepco Holdings, Inc. 3,606,843
53,335 Pinnacle West Capital Corp. 3,643,314
30,856 Portland General Electric Co. 1,167,282
375,155 PPL Corp. 13,629,381
522,187 Southern (The) Co. 25,644,603
30,340 UIL Holdings Corp. 1,321,004
61,521 Westar Energy, Inc. 2,537,126
231,786 Xcel Energy, Inc 8,325,753
--------------
125,141,111
--------------
ENERGY EQUIPMENT &
SERVICES -- 1.6%
331,028 Ensco PLC, Class A 9,914,289
329,500 Noble Corp. PLC 5,459,815
--------------
15,374,104
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
FOOD PRODUCTS -- 0.1%
33,572 B&G Foods, Inc. $ 1,003,803
7,233 Cal-Maine Foods, Inc. 282,304
--------------
1,286,107
--------------
GAS UTILITIES -- 0.9%
59,240 AGL Resources, Inc. 3,229,173
19,676 Laclede Group (The), Inc. 1,046,763
14,166 Northwest Natural Gas Co. 706,883
34,724 Piedmont Natural Gas Co., Inc. 1,368,473
14,362 South Jersey Industries, Inc. 846,353
21,718 WGL Holdings, Inc. 1,186,237
--------------
8,383,882
--------------
HOTELS, RESTAURANTS &
LEISURE -- 0.5%
67,211 Darden Restaurants, Inc. 3,940,581
84,846 International Game Technology 1,463,593
--------------
5,404,174
--------------
HOUSEHOLD DURABLES -- 0.5%
54,507 Leggett & Platt, Inc. 2,322,543
20,300 M.D.C. Holdings, Inc. 537,341
28,281 Tupperware Brands Corp. 1,781,703
--------------
4,641,587
--------------
INSURANCE -- 1.0%
66,540 Cincinnati Financial Corp. 3,448,768
9,007 Erie Indemnity Co., Class A 817,565
21,295 Mercury General Corp. 1,206,788
162,771 Old Republic International Corp. 2,381,340
16,225 OneBeacon Insurance Group
Ltd., Class A 262,845
35,067 Validus Holdings Ltd. 1,457,384
--------------
9,574,690
--------------
IT SERVICES -- 0.7%
141,018 Paychex, Inc. 6,510,801
--------------
LEISURE PRODUCTS -- 0.7%
225,387 Mattel, Inc. 6,974,601
4,011 Sturm, Ruger & Co., Inc. 138,901
--------------
7,113,502
--------------
MEDIA -- 0.4%
85,174 Cablevision Systems Corp.,
Class A 1,757,992
15,826 Meredith Corp. 859,668
44,475 Regal Entertainment Group,
Class A 949,986
--------------
3,567,646
--------------
METALS & MINING -- 1.7%
717,895 Freeport-McMoRan, Inc. 16,770,027
--------------
MULTI-UTILITIES -- 9.7%
47,003 Alliant Energy Corp. 3,121,939
119,364 Ameren Corp. 5,506,261
28,100 Avista Corp. 993,335
238,721 CenterPoint Energy, Inc. 5,593,233
117,606 CMS Energy Corp. 4,086,809
154,115 Consolidated Edison, Inc. 10,173,131
258,183 Dominion Resources, Inc. 19,854,273
78,910 DTE Energy Co. 6,815,457
38,107 Integrys Energy Group, Inc. 2,966,630
See Notes to Financial Statements Page 29
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MULTI-UTILITIES (CONTINUED)
18,149 NorthWestern Corp. $ 1,026,870
220,834 PG&E Corp. 11,757,202
242,254 Public Service Enterprise Group,
Inc. 10,031,738
69,941 SCANA Corp. 4,224,436
140,977 TECO Energy, Inc. 2,888,619
37,415 Vectren Corp. 1,729,696
91,492 Wisconsin Energy Corp. 4,825,288
--------------
95,594,917
--------------
OIL, GAS & CONSUMABLE
FUELS -- 15.0%
792,466 Chevron Corp. 88,898,836
661,949 ConocoPhillips 45,714,198
374,247 Spectra Energy Corp. 13,585,166
--------------
148,198,200
--------------
PAPER & FOREST PRODUCTS -- 0.1%
14,974 Schweitzer-Mauduit
International, Inc. 633,400
--------------
PHARMACEUTICALS -- 9.4%
357,942 Eli Lilly & Co. 24,694,418
2,167,580 Pfizer, Inc. 67,520,117
--------------
92,214,535
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 5.0%
1,344,618 Intel Corp. 48,796,187
62,699 Intersil Corp., Class A 907,255
--------------
49,703,442
--------------
SOFTWARE -- 0.4%
140,930 CA, Inc. 4,291,318
--------------
SPECIALTY RETAIL -- 0.7%
89,364 American Eagle Outfitters, Inc. 1,240,372
37,198 Guess?, Inc. 784,134
274,514 Staples, Inc. 4,974,194
--------------
6,998,700
--------------
THRIFTS & MORTGAGE FINANCE
-- 1.0%
375,038 New York Community Bancorp, Inc. 6,000,608
52,306 Northwest Bancshares, Inc. 655,394
184,614 People's United Financial, Inc. 2,802,441
24,469 Provident Financial Services,
Inc. 441,910
--------------
9,900,353
--------------
TOBACCO -- 13.4%
935,721 Altria Group, Inc. 46,102,974
186,104 Lorillard, Inc. 11,713,386
770,752 Philip Morris International, Inc. 62,777,750
166,529 Reynolds American, Inc. 10,702,819
15,034 Universal Corp. 661,195
--------------
131,958,124
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.1%
32,105 TAL International Group, Inc. $ 1,398,815
--------------
TOTAL INVESTMENTS -- 99.8% 983,656,204
(Cost $918,397,781) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 1,495,265
--------------
NET ASSETS -- 100.0% $ 985,151,469
==============
(a) Aggregate cost for federal income tax purposes is $923,654,789. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$89,060,058 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$29,058,643.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 983,656,204 $ -- $ --
===============================================
* 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, 2014.
Page 30 See Notes to Financial Statements
FIRST TRUST US IPO INDEX FUND (FPX)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.1%
AEROSPACE & DEFENSE -- 0.9%
99,336 Exelis, Inc. $ 1,741,360
25,686 Huntington Ingalls Industries,
Inc. 2,888,648
--------------
4,630,008
--------------
AIRLINES -- 0.5%
38,696 Spirit Airlines, Inc. (a) 2,924,644
--------------
AUTO COMPONENTS -- 2.1%
157,492 Delphi Automotive PLC 11,452,818
--------------
AUTOMOBILES -- 5.3%
901,007 Fiat Chrysler Automobiles
NV (a) (b) 10,433,661
512,142 General Motors Co. 17,878,877
--------------
28,312,538
--------------
BANKS -- 2.4%
54,072 BankUnited, Inc. 1,566,466
290,272 Citizens Financial Group, Inc. 7,216,162
73,442 First Republic Bank 3,827,797
--------------
12,610,425
--------------
BUILDING PRODUCTS -- 0.5%
50,920 Allegion PLC 2,824,023
--------------
CHEMICALS -- 0.6%
121,848 Axalta Coating Systems Ltd. (a) 3,170,485
--------------
COMMERCIAL SERVICES &
SUPPLIES -- 1.4%
92,559 ADT (The) Corp. (b) 3,353,413
74,757 KAR Auction Services, Inc. 2,590,330
44,776 West Corp. 1,477,608
--------------
7,421,351
--------------
COMMUNICATIONS EQUIPMENT
-- 1.8%
34,269 Arista Networks, Inc. (a) (b) 2,082,184
99,832 CommScope Holding Co., Inc. (a) 2,279,165
42,844 Palo Alto Networks, Inc. (a) 5,251,389
--------------
9,612,738
--------------
CONSUMER FINANCE -- 4.9%
255,227 Ally Financial, Inc. (a) 6,028,462
223,110 Navient Corp. 4,821,407
61,082 Springleaf Holdings, Inc. (a) 2,209,336
443,500 Synchrony Financial (a) 13,194,125
--------------
26,253,330
--------------
CONTAINERS & PACKAGING -- 0.4%
62,874 Berry Plastics Group, Inc. (a) 1,983,675
--------------
DIVERSIFIED CONSUMER SERVICES
-- 1.0%
35,118 Bright Horizons Family Solutions,
Inc. (a) 1,650,897
75,257 Houghton Mifflin Harcourt Co. (a) 1,558,572
71,062 ServiceMaster Global Holdings,
Inc. (a) 1,902,330
--------------
5,111,799
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
-- 1.6%
45,325 CBOE Holdings, Inc. $ 2,874,511
135,083 Voya Financial, Inc. 5,724,818
--------------
8,599,329
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.7%
127,135 Zayo Group Holdings, Inc. (a) (b) 3,886,517
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 1.2%
91,604 CDW Corp. 3,221,713
88,831 Keysight Technologies, Inc. (a) 2,999,823
--------------
6,221,536
--------------
FOOD & STAPLES RETAILING -- 0.1%
27,341 Diplomat Pharmacy, Inc. (a) 748,323
--------------
FOOD PRODUCTS -- 4.7%
315,948 Kraft Foods Group, Inc. 19,797,302
62,379 Pinnacle Foods, Inc. 2,201,979
92,745 WhiteWave Foods (The) Co. (a) 3,245,147
--------------
25,244,428
--------------
GAS UTILITIES -- 0.2%
27,689 ONE Gas, Inc. 1,141,341
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 3.8%
97,621 Envision Healthcare Holdings,
Inc. (a) 3,386,472
230,623 HCA Holdings, Inc. (a) 16,925,422
--------------
20,311,894
--------------
HEALTH CARE TECHNOLOGY -- 0.8%
177,252 IMS Health Holdings, Inc. (a) 4,544,741
--------------
HOTELS, RESTAURANTS & LEISURE
-- 7.1%
124,716 Aramark 3,884,903
55,631 Dunkin' Brands Group, Inc. 2,372,662
523,742 Hilton Worldwide Holdings,
Inc. (a) 13,664,429
69,535 La Quinta Holdings, Inc. (a) 1,533,942
17,347 Marriott Vacations Worldwide
Corp. 1,293,045
118,938 Norwegian Cruise Line Holdings
Ltd. (a) 5,561,541
248,568 Restaurant Brands International,
Inc. (a) (b) 9,704,095
--------------
38,014,617
--------------
INSURANCE -- 0.4%
57,057 First American Financial Corp 1,934,232
--------------
INTERNET & CATALOG RETAIL -- 1.7%
355,835 Groupon, Inc. (a) 2,939,197
16,998 Lands' End, Inc. (a) 917,212
69,142 TripAdvisor, Inc. (a) 5,162,142
--------------
9,018,551
--------------
See Notes to Financial Statements Page 31
FIRST TRUST US IPO INDEX FUND (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE &
SERVICES -- 12.3%
686,017 Facebook, Inc., Class A (a) $ 53,523,046
42,597 GrubHub, Inc. (a) 1,547,123
196,845 LendingClub Corp. (a) 4,980,179
53,192 Twitter, Inc. (a) 1,907,997
32,817 Yelp, Inc. (a) 1,796,074
18,321 Zillow, Inc., Class A (a) (b) 1,940,011
--------------
65,694,430
--------------
IT SERVICES -- 1.4%
76,939 Booz Allen Hamilton Holding
Corp. 2,041,192
141,154 Sabre Corp. (b) 2,861,191
77,730 Vantiv, Inc., Class A (a) 2,636,602
--------------
7,538,985
--------------
LIFE SCIENCES TOOLS &
SERVICES -- 1.2%
69,226 Quintiles Transnational Holdings,
Inc. (a) 4,075,335
31,809 PRA Health Sciences, Inc. (a) 770,414
69,873 VWR Corp. (a) 1,807,615
--------------
6,653,364
--------------
MACHINERY -- 1.6%
94,431 Allison Transmission Holdings, Inc. 3,201,211
54,093 Rexnord Corp. (a) 1,525,964
96,744 Xylem, Inc. 3,683,044
--------------
8,410,219
--------------
MEDIA -- 1.6%
32,248 AMC Networks, Inc., Class A (a) 2,056,455
55,572 Liberty Media Corp., Class A (a) 1,960,025
201,815 News Corp., Class A (a) 3,166,477
57,994 Time, Inc. 1,427,232
--------------
8,610,189
--------------
MULTILINE RETAIL -- 0.4%
39,676 Burlington Stores, Inc. (a) 1,875,088
--------------
OIL, GAS & CONSUMABLE
FUELS -- 11.7%
139,391 Antero Resources Corp. (a) (b) 5,656,487
123,247 Cheniere Energy Partners, L.P.
Holdings LLC 2,776,755
369,156 Kinder Morgan, Inc. 15,618,990
150,708 Marathon Petroleum Corp. 13,602,904
102,959 Memorial Resource Development
Corp. (a) 1,856,351
297,287 Phillips 66 21,315,478
83,130 Rice Energy, Inc. (a) 1,743,236
--------------
62,570,201
--------------
PERSONAL PRODUCTS -- 0.8%
201,827 Coty, Inc., Class A 4,169,746
--------------
PHARMACEUTICALS -- 13.5%
785,265 AbbVie, Inc 51,387,742
65,860 Catalent, Inc. (a) 1,836,177
61,852 Mallinckrodt PLC (a) 6,125,203
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
PHARMACEUTICALS (CONTINUED)
19,179 Pacira Pharmaceuticals, Inc. (a) $ 1,700,410
266,667 Zoetis, Inc. 11,474,681
--------------
72,524,213
--------------
PROFESSIONAL SERVICES -- 1.9%
199,853 Nielsen N.V. 8,939,425
37,020 TriNet Group, Inc. (a) 1,157,985
--------------
10,097,410
--------------
REAL ESTATE INVESTMENT
TRUSTS -- 0.4%
71,197 Outfront Media, Inc. 1,910,928
--------------
ROAD & RAIL -- 0.4%
75,383 Swift Transportation Co. (a) 2,158,215
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.2%
161,693 Freescale Semiconductor
Ltd. (a) (b) 4,079,514
100,435 NXP Semiconductors N.V. (a) 7,673,234
--------------
11,752,748
--------------
SOFTWARE -- 2.6%
37,016 Guidewire Software, Inc. (a) 1,874,120
77,501 ServiceNow, Inc. (a) 5,258,443
64,503 Splunk, Inc. (a) 3,802,452
36,881 Tableau Software, Inc.,
Class A (a) 3,126,033
--------------
14,061,048
--------------
SPECIALTY RETAIL -- 1.5%
41,311 CST Brands, Inc. 1,801,573
108,665 Michaels Cos., (The), Inc. (a) 2,687,285
24,324 Murphy USA, Inc. (a) 1,674,951
21,052 Restoration Hardware Holdings,
Inc. (a) 2,021,202
--------------
8,185,011
--------------
TEXTILES, APPAREL & LUXURY
GOODS -- 1.5%
109,282 Michael Kors Holdings Ltd. (a) 8,207,078
--------------
THRIFTS & MORTGAGE FINANCE
-- 0.2%
65,390 EverBank Financial Corp. 1,246,333
--------------
TRADING COMPANIES & DISTRIBUTORS
-- 0.8%
104,144 HD Supply Holdings, Inc. (a) 3,071,207
56,947 NOW, Inc. (a) (b) 1,465,246
--------------
4,536,453
--------------
TOTAL COMMON STOCKS -- 100.1% 536,175,002
(Cost $463,993,063) --------------
Page 32 See Notes to Financial Statements
FIRST TRUST US IPO INDEX FUND (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
MONEY MARKET FUNDS -- 0.3%
1,742,450 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class -
0.01% (c) (d) $ 1,742,450
(Cost $1,742,450) --------------
PRINCIPAL
VALUE
------------
REPURCHASE AGREEMENTS -- 3.8%
$ 3,825,573 JPMorgan Chase & Co., 0.06% (c),
dated 12/31/14, due 01/02/15,
with a maturity value of
$3,825,585. Collateralized by
U.S. Treasury Notes, interest
rates of 0.750% to 1.250%, due
01/15/17 to 11/30/18. The value
of the collateral including
accrued interest is
$3,914,410. (d) 3,825,573
16,622,094 RBC Capital Markets LLC,
0.06% (c), dated 12/31/14, due
01/02/15, with a maturity value
of $16,622,150. Collateralized
by U.S. Treasury Notes, interest
rates of 0.250% to 1.750%, due
12/31/15 to 09/30/19. The value
of the collateral including
accrued interest is
$17,003,759. (d) 16,622,094
--------------
TOTAL REPURCHASE AGREEMENTS
--3.8% 20,447,667
(Cost $20,447,667) --------------
TOTAL INVESTMENTS -- 104.2% 558,365,119
(Cost $486,183,180) (e)
NET OTHER ASSETS AND
LIABILITIES -- (4.2)% (22,421,867)
--------------
NET ASSETS -- 100.0% $ 535,943,252
==============
(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 $21,492,229 and the total value of the collateral held by
the Fund is $22,190,117.
(c) Interest rate shown reflects yield as of December 31, 2014.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $488,089,848. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$81,601,936 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$11,326,665.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 536,175,002 $ -- $ --
Money Market
Funds 1,742,450 -- --
Repurchase
Agreements -- 20,447,667 --
-----------------------------------------------
Total Investments $ 537,917,452 $ 20,447,667 $ --
===============================================
* 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, 2014.
See Notes to Financial Statements Page 33
FIRST TRUST US IPO INDEX FUND (FPX)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and
Liabilities).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 21,492,229
Non-cash Collateral(2) (21,492,229)
-------------------------------------------------------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At December 31, 2014, 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.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(3) $ 20,447,667
Non-cash Collateral(4) (20,447,667)
-------------------------------------------------------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2014, the value of collateral received from the seller
exceeded the value of the repurchase agreements.
Page 34 See Notes to Financial Statements
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
BIOTECHNOLOGY -- 80.8%
377,308 Alexion Pharmaceuticals,
Inc. (a) $ 69,813,299
1,442,735 Alkermes PLC (a) 84,486,562
721,787 Alnylam Pharmaceuticals,
Inc. (a) 70,013,339
465,381 Amgen, Inc 74,130,539
202,928 Biogen Idec, Inc. (a) 68,883,910
882,394 BioMarin Pharmaceutical,
Inc. (a) 79,768,418
705,417 Celgene Corp. (a) 78,907,946
1,338,221 Cepheid, Inc. (a) 72,451,285
943,702 Cubist Pharmaceuticals,
Inc. (a) (b) 94,983,606
2,615,338 Exact Sciences Corp. (a) (b) 71,764,875
617,288 Gilead Sciences, Inc. (a) 58,185,567
1,886,618 Grifols SA, ADR 64,126,146
1,241,508 Incyte Corp. (a) 90,766,650
277,185 Intercept Pharmaceuticals,
Inc. (a) (b) 43,240,860
1,559,143 Isis Pharmaceuticals, Inc. (a) 96,261,489
659,653 Medivation, Inc. (a) 65,708,035
1,775,189 Myriad Genetics, Inc. (a) (b) 60,462,937
2,375,580 NPS Pharmaceuticals, Inc. (a) 84,974,497
7,531,412 PDL BioPharma, Inc. (b) 58,067,186
554,284 Pharmacyclics, Inc. (a) 67,766,762
168,381 Regeneron Pharmaceuticals,
Inc. (a) 69,078,305
1,794,046 Seattle Genetics, Inc. (a) (b) 57,642,698
499,055 United Therapeutics Corp. (a) 64,622,632
607,874 Vertex Pharmaceuticals,
Inc. (a) 72,215,431
--------------
1,718,322,974
--------------
LIFE SCIENCES TOOLS & SERVICES
-- 15.5%
684,694 Bio-Techne Corp. 63,265,725
1,013,656 Charles River Laboratories
International, Inc. (a) 64,509,068
377,319 Illumina, Inc. (a) 69,645,541
2,836,350 QIAGEN N.V. (a) 66,540,771
1,124,169 Quintiles Transnational Holdings,
Inc. (a) 66,179,829
--------------
330,140,934
--------------
PHARMACEUTICALS -- 3.7%
5,013,721 Nektar Therapeutics (a) 77,712,676
--------------
TOTAL COMMON STOCKS
-- 100.0% 2,126,176,584
(Cost $1,711,868,930) --------------
MONEY MARKET FUNDS -- 0.7%
15,240,579 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class - 0.01%
(c) (d) 15,240,579
(Cost $15,240,579) --------------
PRINCIPAL
VALUE DESCRIPTION VALUE
-------------------------------------------------------------
REPURCHASE AGREEMENTS -- 8.4%
$ 33,460,903 JPMorgan Chase & Co., 0.06%
(c), dated 12/31/14, due
01/02/15, with a maturity value
of $33,461,015. Collateralized
by U.S. Treasury Notes, interest
rates of 0.750% to 1.250%, due
01/15/17 to 11/30/18. The value
of the collateral including
accrued interest is
$34,237,936. (d) $ 33,460,903
145,387,461 RBC Capital Markets LLC,
0.06% (c), dated 12/31/14,
due 01/02/15, with a maturity
value of $145,387,946.
Collateralized by U.S. Treasury
Notes, interest rates of
0.250% to 1.750%, due
12/31/15 to 09/30/19. The
value of the collateral
including accrued interest is
$148,725,742. (d) 145,387,461
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $178,848,364) 178,848,364
--------------
TOTAL INVESTMENTS -- 109.1% 2,320,265,527
(Cost $1,905,957,873) (e)
NET OTHER ASSETS AND
LIABILITIES -- (9.1)% (193,684,239)
--------------
NET ASSETS -- 100.0% $2,126,581,288
==============
(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 $186,131,568 and the total value of the collateral held by
the Fund is $194,088,943.
(c) Interest rate shown reflects yield as of December 31, 2014.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $1,924,793,872. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$422,833,666 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$27,362,011.
ADR - American Depositary Receipt
See Notes to Financial Statements Page 35
FIRST TRUST NYSE ARCA BIOTECHNOLOGY INDEX FUND (FBT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 2,126,176,584 $ -- $ --
Money Market
Funds 15,240,579 -- --
Repurchase
Agreements -- 178,848,364 --
------------------------------------------------
Total Investments $ 2,141,417,163 $178,848,364 $ --
================================================
* 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, 2014.
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and
Liabilities).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 186,131,568
Non-cash Collateral(2) (186,131,568)
-------------------------------------------------------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At December 31, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(3) $ 178,848,364
Non-cash Collateral(4) (178,848,364)
-------------------------------------------------------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2014, the value of collateral received from the seller
exceeded the value of the repurchase agreements.
Page 36 See Notes to Financial Statements
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
CAPITAL MARKETS -- 4.6%
1,769,192 E*TRADE Financial Corp. (a) $ 42,911,752
1,348,327 TD Ameritrade Holding Corp. 48,243,140
--------------
91,154,892
--------------
COMMUNICATIONS EQUIPMENT
-- 4.3%
2,102,801 Juniper Networks, Inc. 46,934,518
559,374 NETGEAR, Inc. (a) 19,902,527
4,729,536 Sonus Networks, Inc. (a) 18,776,258
--------------
85,613,303
--------------
HEALTH CARE TECHNOLOGY -- 2.2%
2,072,109 Allscripts Healthcare Solutions,
Inc. (a) 26,460,832
652,819 Veeva Systems, Inc., Class A (a) 17,240,950
--------------
43,701,782
--------------
INTERNET & CATALOG RETAIL
-- 22.3%
459,356 Amazon.com, Inc. (a) 142,561,135
524,293 Expedia, Inc. 44,753,650
4,078,414 Groupon, Inc. (a) (b) 33,687,700
197,850 Netflix, Inc. (a) 67,587,538
93,720 Priceline Group (The), Inc. (a) 106,860,481
616,379 TripAdvisor, Inc. (a) 46,018,856
--------------
441,469,360
--------------
INTERNET SOFTWARE & SERVICES
-- 57.7%
830,636 Akamai Technologies, Inc. (a) 52,296,843
1,047,279 Blucora, Inc. (a) 14,504,814
661,129 Cornerstone OnDemand, Inc. (a) 23,271,741
542,048 Dealertrack Technologies,
Inc. (a) 24,018,147
427,525 Demandware, Inc. (a) 24,599,789
809,895 Digital River, Inc. (a) 20,028,703
2,955,962 EarthLink Holdings Corp. 12,976,673
1,947,312 eBay, Inc. (a) 109,283,150
235,249 Equinix, Inc. 53,338,006
2,112,672 Facebook, Inc., Class A (a) 164,830,669
182,850 Google, Inc., Class A (a) 97,031,181
182,681 Google, Inc., Class C (a) 96,163,278
570,388 IAC/InterActiveCorp 34,673,887
466,170 j2 Global, Inc. 28,902,540
323,785 LinkedIn Corp., Class A (a) 74,376,652
1,144,247 LivePerson, Inc. (a) 16,133,883
1,706,348 Pandora Media, Inc. (a) 30,424,185
825,236 Rackspace Hosting, Inc. (a) 38,629,297
1,761,770 Twitter, Inc. (a) 63,194,690
652,182 United Online, Inc. (a) 9,489,248
702,225 VeriSign, Inc. (a) (b) 40,026,825
987,857 Web.com Group, Inc. (a) 18,759,404
1,869,138 Yahoo!, Inc. (a) 94,410,160
--------------
1,141,363,765
--------------
IT SERVICES -- 1.5%
1,144,201 Sapient Corp. (a) (b) 28,467,721
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SOFTWARE -- 7.4%
813,624 Ebix, Inc. (b) $ 13,823,472
304,546 NetSuite, Inc. (a) 33,247,287
1,468,104 salesforce.com, Inc. (a) 87,073,248
2,002,558 VirnetX Holding Corp. (a) (b) 10,994,043
--------------
145,138,050
--------------
TOTAL COMMON STOCKS --
100.0% 1,976,908,873
(Cost $1,883,884,647) --------------
MONEY MARKET FUNDS -- 0.2%
2,149,789 Goldman Sachs Financial Square
Treasury Instruments Fund -
Institutional Class - 0.01%
(c) (d) 2,149,789
1,395,155 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional Class
- 0.03% (c) 1,395,155
--------------
TOTAL MONEY MARKET FUNDS
-- 0.2% 3,544,944
(Cost $3,544,944) --------------
PRINCIPAL
VALUE
------------
REPURCHASE AGREEMENTS -- 1.3%
$ 4,719,892 JPMorgan Chase & Co., 0.06%
(c), dated 12/31/14, due
01/02/15, with a maturity value
of $4,719,908. Collateralized by
U.S. Treasury Notes, interest
rates of 0.750% to 1.250%, due
01/15/17 to 11/30/18. The value
of the collateral including
accrued interest is
$4,829,498. (d) 4,719,892
20,507,907 RBC Capital Markets LLC,
0.06% (c), dated 12/31/14,
due 01/02/15, with a maturity
value of $20,507,976.
Collateralized by U.S. Treasury
Notes, interest rates of
0.250% to 1.750%, due
12/31/15 to 09/30/19. The value
of the collateral including
accrued interest is
$21,004,258. (d) 20,507,907
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $25,227,799) 25,227,799
--------------
TOTAL INVESTMENTS -- 101.5% 2,005,681,616
(Cost $1,912,657,390) (e)
NET OTHER ASSETS AND
LIABILITIES -- (1.5)% (28,888,738)
--------------
NET ASSETS -- 100.0% $1,976,792,878
==============
See Notes to Financial Statements Page 37
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
(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 $26,760,969 and the total value of the collateral held by
the Fund is $27,377,588.
(c) Interest rate shown reflects yield as of December 31, 2014.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $1,949,722,333. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$162,220,772 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$106,261,489.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 1,976,908,873 $ -- $ --
Money Market
Funds 3,544,944 -- --
Repurchase
Agreements -- 25,227,799 --
------------------------------------------------
Total Investment $ 1,980,453,817 $ 25,227,799 $ --
================================================
* 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, 2014.
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2C - Offsetting on the Statements of Assets and
Liabilities).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
-------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(1) $ 26,760,969
Non-cash Collateral(2) (26,760,969)
-------------------------------------------------------------
Net Amount $ --
==============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At December 31, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
-------------------------------------------------------------
Total gross amount presented on the Statements
of Assets and Liabilities(3) $ 25,227,799
Non-cash Collateral(4) (25,227,799)
-------------------------------------------------------------
Net Amount $ --
==============
(3) The amount is included in "Investments, at value" on the Statements of
Assets and Liabilities.
(4) At December 31, 2014, the value of collateral received from the seller
exceeded the value of the repurchase agreements.
Page 38 See Notes to Financial Statements
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 10.2%
12,716 General Dynamics Corp. $ 1,749,976
17,066 Honeywell International, Inc. 1,705,235
8,721 Lockheed Martin Corp. 1,679,403
12,351 Northrop Grumman Corp. 1,820,414
15,138 United Technologies Corp. 1,740,870
--------------
8,695,898
--------------
AIR FREIGHT & LOGISTICS -- 2.1%
15,803 United Parcel Service, Inc.,
Class B 1,756,820
--------------
BEVERAGES -- 3.6%
35,844 Coca-Cola (The) Co. 1,513,333
16,796 PepsiCo, Inc. 1,588,230
--------------
3,101,563
--------------
CAPITAL MARKETS -- 2.0%
20,120 T. Rowe Price Group, Inc. 1,727,503
--------------
CHEMICALS -- 6.1%
22,947 E.I. du Pont de Nemours & Co. 1,696,701
13,812 Monsanto Co. 1,650,120
8,208 PPG Industries, Inc. 1,897,279
--------------
5,244,100
--------------
COMMERCIAL SERVICES &
SUPPLIES -- 2.0%
38,243 Tyco International PLC 1,677,338
--------------
COMMUNICATIONS EQUIPMENT
-- 2.0%
25,283 Motorola Solutions, Inc. 1,695,984
--------------
DIVERSIFIED FINANCIAL SERVICES
-- 2.0%
19,321 McGraw Hill Financial, Inc. 1,719,183
--------------
ELECTRICAL EQUIPMENT -- 1.8%
25,106 Emerson Electric Co. 1,549,793
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 2.0%
32,000 Amphenol Corp., Class A 1,721,920
--------------
FOOD & STAPLES RETAILING
-- 4.1%
12,330 Costco Wholesale Corp. 1,747,777
20,742 Wal-Mart Stores, Inc. 1,781,323
--------------
3,529,100
--------------
HEALTH CARE EQUIPMENT
& SUPPLIES -- 8.2%
22,858 Baxter International, Inc. 1,675,263
12,626 Becton, Dickinson and Co. 1,757,034
10,580 C. R. Bard, Inc. 1,762,839
24,794 Medtronic, Inc. 1,790,127
--------------
6,985,263
--------------
HOTELS, RESTAURANTS & LEISURE
-- 1.9%
16,882 McDonald's Corp. 1,581,843
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
HOUSEHOLD PRODUCTS -- 5.9%
24,117 Colgate-Palmolive Co. $ 1,668,655
15,092 Kimberly-Clark Corp. 1,743,730
18,458 Procter & Gamble (The) Co. 1,681,339
--------------
5,093,724
--------------
INDUSTRIAL CONGLOMERATES
-- 2.1%
11,186 3M Co. 1,838,084
--------------
INSURANCE -- 7.8%
26,960 Aflac, Inc. 1,646,986
9,600 Everest Re Group, Ltd. 1,634,880
30,357 Marsh & McLennan Cos., Inc. 1,737,635
62,075 Progressive (The) Corp. 1,675,404
--------------
6,694,905
--------------
IT SERVICES -- 5.7%
20,060 Accenture PLC, Class A 1,791,559
21,147 Automatic Data Processing, Inc. 1,763,025
8,443 International Business Machines
Corp. 1,354,595
--------------
4,909,179
--------------
MACHINERY -- 2.0%
18,431 Illinois Tool Works, Inc. 1,745,416
--------------
MEDIA -- 4.1%
22,902 Omnicom Group, Inc. 1,774,218
18,334 Walt Disney (The) Co. 1,726,879
--------------
3,501,097
--------------
OIL, GAS & CONSUMABLE FUELS
-- 1.8%
16,851 Exxon Mobil Corp. 1,557,875
--------------
PERSONAL PRODUCTS -- 1.9%
21,294 Estee Lauder (The) Cos., Inc.,
Class A 1,622,603
--------------
PHARMACEUTICALS -- 3.9%
24,560 Eli Lilly & Co. 1,694,394
15,572 Johnson & Johnson 1,628,364
--------------
3,322,758
--------------
ROAD & RAIL -- 3.9%
14,426 Norfolk Southern Corp. 1,581,234
14,445 Union Pacific Corp. 1,720,833
--------------
3,302,067
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 4.5%
27,932 KLA-Tencor Corp. 1,964,178
35,195 Texas Instruments, Inc. 1,881,701
--------------
3,845,879
--------------
SOFTWARE -- 2.0%
18,968 Intuit, Inc. 1,748,660
--------------
SPECIALTY RETAIL -- 2.4%
29,270 Lowe's Cos., Inc. 2,013,776
--------------
See Notes to Financial Statements Page 39
FIRST TRUST CAPITAL STRENGTH ETF (FTCS)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TEXTILES, APPAREL & LUXURY
GOODS -- 2.1%
9,837 Ralph Lauren Corp. $ 1,821,419
--------------
TOBACCO -- 1.9%
33,661 Altria Group, Inc. 1,658,478
--------------
TOTAL INVESTMENTS -- 100.0% 85,662,228
(Cost $74,738,935) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 23,712
--------------
NET ASSETS -- 100.0% $ 85,685,940
==============
(a) Aggregate cost for federal income tax purposes is $74,957,826. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$11,174,607 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$470,205.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 85,662,228 $ -- $ --
===============================================
* 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, 2014.
Page 40 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.7%
AEROSPACE & DEFENSE -- 0.3%
600 AAR Corp. $ 16,668
--------------
AIR FREIGHT & LOGISTICS -- 0.9%
351 C.H. Robinson Worldwide, Inc. 26,286
325 Park-Ohio Holdings Corp. 20,485
--------------
46,771
--------------
AIRLINES -- 3.2%
139 Allegiant Travel Co. 20,896
197 Copa Holdings S.A., Class A 20,417
2,144 JetBlue Airways Corp. (a) 34,004
2,197 Southwest Airlines Co. 92,977
--------------
168,294
--------------
AUTO COMPONENTS -- 0.6%
771 American Axle & Manufacturing
Holdings, Inc. (a) 17,417
1,021 Federal-Mogul Holdings Corp. (a) 16,428
--------------
33,845
--------------
AUTOMOBILES -- 1.0%
1,849 Honda Motor Co., Ltd., ADR 54,582
--------------
BANKS -- 0.5%
820 Popular, Inc. (a) 27,921
--------------
BEVERAGES -- 1.2%
875 Molson Coors Brewing Co.,
Class B 65,205
--------------
BIOTECHNOLOGY -- 2.8%
198 Biogen Idec, Inc. (a) 67,211
677 Gilead Sciences, Inc. (a) 63,814
1,775 PDL BioPharma, Inc. 13,685
--------------
144,710
--------------
BUILDING PRODUCTS -- 0.5%
718 Owens Corning 25,711
--------------
CAPITAL MARKETS -- 2.5%
1,944 Apollo Investment Corp. (b) 14,425
365 Goldman Sachs Group (The), Inc. 70,748
314 Piper Jaffray Cos. (a) 18,240
702 SEI Investments Co. 28,108
--------------
131,521
--------------
CHEMICALS -- 2.5%
425 Celanese Corp., Series A 25,483
415 Innospec, Inc. 17,720
581 LyondellBasell Industries N.V.,
Class A 46,126
717 Westlake Chemical Corp. 43,802
--------------
133,131
--------------
COMMERCIAL SERVICES & SUPPLIES
-- 2.2%
428 Cintas Corp. 33,572
1,635 Republic Services, Inc. 65,809
412 United Stationers, Inc. 17,370
--------------
116,751
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMUNICATIONS EQUIPMENT -- 1.0%
2,715 Brocade Communications
Systems, Inc. $ 32,146
339 EchoStar Corp., Class A (a) 17,797
--------------
49,943
--------------
CONSTRUCTION & ENGINEERING
-- 0.6%
721 AECOM (a) 21,897
587 Aegion Corp. (a) 10,924
--------------
32,821
--------------
CONTAINERS & PACKAGING
-- 0.6%
379 Packaging Corp. of America 29,581
--------------
DIVERSIFIED CONSUMER
SERVICES -- 0.4%
1,142 Regis Corp. (a) 19,140
--------------
DIVERSIFIED FINANCIAL
SERVICES -- 1.9%
466 Berkshire Hathaway, Inc.,
Class B (a) 69,970
600 NASDAQ OMX Group (The), Inc. 28,776
--------------
98,746
--------------
ELECTRIC UTILITIES -- 1.3%
673 Empire District Electric
(The) Co. 20,015
493 Hawaiian Electric Industries,
Inc. 16,506
721 Pepco Holdings, Inc. 19,416
274 UIL Holdings Corp. 11,930
--------------
67,867
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 1.6%
689 Benchmark Electronics, Inc. (a) 17,528
2,359 Flextronics International Ltd. (a) 26,374
904 Ingram Micro, Inc., Class A (a) 24,987
1,122 Vishay Intertechnology, Inc. 15,876
--------------
84,765
--------------
ENERGY EQUIPMENT & SERVICES
-- 2.2%
906 Halliburton Co. 35,633
576 Schlumberger Ltd. 49,196
1,590 Transocean Ltd. 29,145
--------------
113,974
--------------
FOOD & STAPLES RETAILING
-- 1.6%
1,269 Kroger (The) Co. 81,482
--------------
FOOD PRODUCTS -- 2.5%
1,263 Archer-Daniels-Midland Co. 65,676
441 Cal-Maine Foods, Inc. 17,212
533 Fresh Del Monte Produce, Inc. 17,882
132 Lancaster Colony Corp. 12,360
182 Sanderson Farms, Inc. 15,293
--------------
128,423
--------------
See Notes to Financial Statements Page 41
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
GAS UTILITIES -- 0.7%
347 Laclede Group (The), Inc. $ 18,461
326 New Jersey Resources Corp. 19,951
--------------
38,412
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.3%
422 C. R. Bard, Inc. 70,314
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 3.1%
660 Cigna Corp. 67,921
201 Laboratory Corp. of America
Holdings (a) 21,688
412 Quest Diagnostics, Inc. 27,629
408 Tenet Healthcare Corp. (a) 20,673
235 Universal Health Services, Inc.,
Class B 26,146
--------------
164,057
--------------
HOTELS, RESTAURANTS &
LEISURE -- 2.4%
143 Cracker Barrel Old Country Store,
Inc. 20,129
1,035 Royal Caribbean Cruises Ltd. 85,315
560 Texas Roadhouse, Inc. 18,905
--------------
124,349
--------------
INSURANCE -- 11.7%
626 ACE Ltd. 71,915
60 Alleghany Corp. (a) 27,810
386 Aspen Insurance Holdings Ltd. 16,895
297 Endurance Specialty Holdings Ltd. 17,772
157 Everest Re Group, Ltd. 26,737
509 Greenlight Capital Re, Ltd.,
Class A (a) 16,619
408 Hanover Insurance Group
(The), Inc. 29,098
1,146 Lincoln National Corp. 66,090
495 Mercury General Corp. 28,052
1,246 Principal Financial Group, Inc. 64,717
722 Prudential Financial, Inc. 65,312
306 Reinsurance Group of America, Inc. 26,812
256 RenaissanceRe Holdings Ltd. 24,888
694 Travelers (The) Cos., Inc. 73,460
557 W. R. Berkley Corp. 28,552
783 XL Group PLC 26,912
--------------
611,641
--------------
INTERNET & CATALOG RETAIL -- 0.9%
139 Netflix, Inc. (a) 47,484
--------------
INTERNET SOFTWARE & SERVICES
-- 1.1%
111 Google, Inc., Class C (a) 58,430
--------------
IT SERVICES -- 3.9%
279 DST Systems, Inc. 26,268
2,152 Infosys Ltd., ADR 67,702
336 International Business Machines
Corp. 53,908
590 NeuStar, Inc., Class A (a) 16,402
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
IT SERVICES (CONTINUED)
584 TeleTech Holdings, Inc. (a) $ 13,829
590 Teradata Corp. (a) 25,771
--------------
203,880
--------------
LEISURE PRODUCTS -- 0.2%
330 Sturm, Ruger & Co., Inc. 11,428
--------------
MACHINERY -- 1.1%
227 American Railcar Industries, Inc. 11,691
535 ITT Corp. 21,646
820 Trinity Industries, Inc. 22,968
--------------
56,305
--------------
MEDIA -- 1.1%
321 Scripps Networks Interactive,
Inc., Class A 24,162
520 Sinclair Broadcast Group, Inc.,
Class A 14,227
234 Time Warner, Inc. 19,988
--------------
58,377
--------------
METALS & MINING -- 0.8%
923 Cliffs Natural Resources, Inc. 6,590
1,725 Silver Wheaton Corp. 35,069
--------------
41,659
--------------
MULTILINE RETAIL -- 3.4%
1,142 Dollar Tree, Inc. (a) 80,374
327 Family Dollar Stores, Inc. 25,902
1,047 Macy's, Inc. 68,840
--------------
175,116
--------------
MULTI-UTILITIES -- 0.8%
502 Ameren Corp. 23,157
451 Avista Corp. 15,943
--------------
39,100
--------------
OIL, GAS & CONSUMABLE FUELS
-- 7.5%
4,184 Alpha Natural Resources, Inc. (a) 6,987
1,154 Canadian Natural Resources Ltd. 35,635
779 ConocoPhillips 53,798
848 Devon Energy Corp. 51,906
581 EOG Resources, Inc. 53,493
1,609 Marathon Oil Corp. 45,519
426 Murphy Oil Corp. 21,522
624 Newfield Exploration Co. (a) 16,923
525 Oasis Petroleum, Inc. (a) 8,683
657 Occidental Petroleum Corp. 52,961
3,823 Petroleo Brasileiro S.A., ADR 27,908
733 QEP Resources, Inc. 14,821
--------------
390,156
--------------
PAPER & FOREST PRODUCTS -- 0.7%
308 Neenah Paper, Inc. 18,563
483 Schweitzer-Mauduit International,
Inc. 20,431
--------------
38,994
--------------
Page 42 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) EQUITY ALLOCATION INDEX FUND (FVI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PERSONAL PRODUCTS -- 1.2%
833 Estee Lauder (The) Cos., Inc.,
Class A $ 63,475
--------------
PROFESSIONAL SERVICES -- 0.7%
595 Robert Half International, Inc. 34,736
--------------
REAL ESTATE INVESTMENT TRUSTS
-- 0.6%
477 Digital Realty Trust, Inc. 31,625
--------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT -- 1.3%
1,348 Brookfield Asset Management,
Inc., Class A 67,575
--------------
ROAD & RAIL -- 0.9%
399 Avis Budget Group, Inc. (a) 26,466
737 Heartland Express, Inc. 19,906
--------------
46,372
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 3.1%
2,047 Micron Technology, Inc. (a) 71,666
698 OmniVision Technologies, Inc. (a) 18,148
3,138 Taiwan Semiconductor
Manufacturing Co., Ltd., ADR 70,228
--------------
160,042
--------------
SOFTWARE -- 1.9%
206 FactSet Research Systems, Inc. 28,995
1,456 Microsoft Corp. 67,631
--------------
96,626
--------------
SPECIALTY RETAIL -- 6.4%
466 ANN, Inc. (a) 16,999
1,005 Bed Bath & Beyond, Inc. (a) 76,551
1,177 Express, Inc. (a) 17,290
506 Foot Locker, Inc. 28,427
1,488 Gap (The), Inc. 62,660
282 Outerwall, Inc. (a) 21,212
367 PetSmart, Inc. 29,835
1,337 Pier 1 Imports, Inc. 20,590
2,206 Staples, Inc. 39,973
554 Zumiez, Inc. (a) 21,401
--------------
334,938
--------------
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS -- 5.7%
655 Apple, Inc. 72,299
1,902 CANON, Inc., ADR 60,218
1,787 Hewlett-Packard Co. 71,712
501 Lexmark International, Inc.,
Class A 20,676
1,774 NetApp, Inc. 73,532
--------------
298,437
--------------
TEXTILES, APPAREL & LUXURY
GOODS -- 1.8%
694 NIKE, Inc., Class B 66,728
155 Ralph Lauren Corp. 28,700
--------------
95,428
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE
-- 0.9%
1,392 Capitol Federal Financial, Inc. $ 17,790
1,872 People's United Financial, Inc. 28,417
--------------
46,207
--------------
TOBACCO -- 0.3%
320 Universal Corp. 14,074
--------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.5%
230 United Rentals, Inc. (a) 23,462
--------------
WATER UTILITIES -- 0.3%
465 American States Water Co. 17,512
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.5%
2,681 America Movil SAB de C.V.,
Class L, ADR 59,464
461 United States Cellular Corp. (a) 18,362
--------------
77,826
--------------
TOTAL INVESTMENTS -- 99.7% 5,209,889
(Cost $5,018,345) (c)
NET OTHER ASSETS AND
LIABILITIES -- 0.3% 15,206
--------------
NET ASSETS -- 100.0% $ 5,225,095
==============
(a) Non-income producing security.
(b) Business Development Company.
(c) Aggregate cost for federal income tax purposes is $5,023,242. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$516,893 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$330,246.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 5,209,889 $ -- $ --
===============================================
* 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, 2014.
See Notes to Financial Statements Page 43
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 99.9%
AEROSPACE & DEFENSE -- 2.7%
46,103 Boeing (The) Co. $ 5,992,468
58,408 Honeywell International, Inc. 5,836,127
30,089 Lockheed Martin Corp. 5,794,239
53,790 Raytheon Co. 5,818,464
50,464 United Technologies Corp. 5,803,360
--------------
29,244,658
--------------
AIR FREIGHT & LOGISTICS -- 1.1%
76,959 C.H. Robinson Worldwide, Inc. 5,763,460
52,778 United Parcel Service, Inc.,
Class B 5,867,330
--------------
11,630,790
--------------
AUTOMOBILES -- 0.5%
195,740 Honda Motor Co., Ltd., ADR 5,778,245
--------------
BANKS -- 3.8%
85,127 Bank of Montreal 6,021,033
105,088 Bank of Nova Scotia 5,998,423
97,354 BOK Financial Corp. 5,845,134
68,340 Canadian Imperial Bank of
Commerce 5,873,823
84,205 Cullen/Frost Bankers, Inc. 5,948,241
86,626 Royal Bank of Canada 5,983,258
126,472 Toronto-Dominion (The) Bank 6,042,832
--------------
41,712,744
--------------
BEVERAGES -- 2.7%
51,617 Anheuser-Busch InBev N.V., ADR 5,797,621
139,585 Coca-Cola (The) Co. 5,893,279
51,028 Diageo PLC, ADR 5,821,784
81,244 Dr Pepper Snapple Group, Inc. 5,823,570
61,182 PepsiCo, Inc. 5,785,370
--------------
29,121,624
--------------
CHEMICALS -- 1.6%
39,986 Air Products & Chemicals, Inc. 5,767,181
79,730 E.I. du Pont de Nemours & Co. 5,895,236
45,009 Praxair, Inc. 5,831,366
--------------
17,493,783
--------------
COMMERCIAL SERVICES &
SUPPLIES -- 1.6%
188,739 Healthcare Services Group, Inc. 5,837,697
145,925 Republic Services, Inc. 5,873,481
115,636 Waste Management, Inc. 5,934,440
--------------
17,645,618
--------------
COMMUNICATIONS EQUIPMENT
-- 2.1%
209,472 Cisco Systems, Inc. 5,826,464
80,219 Harris Corp. 5,761,328
88,850 Motorola Solutions, Inc. 5,960,058
79,284 QUALCOMM, Inc. 5,893,180
--------------
23,441,030
--------------
CONTAINERS & PACKAGING -- 1.1%
130,090 Bemis Co., Inc. 5,881,369
133,290 Sonoco Products Co. 5,824,773
--------------
11,706,142
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
DISTRIBUTORS -- 0.5%
55,530 Genuine Parts Co. $ 5,917,832
--------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.6%
174,630 AT&T, Inc. 5,865,822
163,792 TELUS Corp. 5,903,063
124,424 Verizon Communications, Inc. 5,820,555
--------------
17,589,440
--------------
ELECTRIC UTILITIES -- 10.9%
107,052 ALLETE, Inc. 5,902,847
98,277 American Electric Power Co., Inc. 5,967,379
107,537 Cleco Corp. 5,865,068
70,699 Duke Energy Corp. 5,906,194
90,607 Edison International 5,932,946
150,260 El Paso Electric Co. 6,019,416
202,303 Empire District Electric (The) Co. 6,016,491
178,644 Hawaiian Electric Industries,
Inc. 5,981,001
90,003 IDACORP, Inc. 5,957,299
133,380 MGE Energy, Inc. 6,083,462
55,800 NextEra Energy, Inc. 5,930,982
111,406 Northeast Utilities 5,962,449
168,942 OGE Energy Corp. 5,994,062
86,942 Pinnacle West Capital Corp. 5,939,008
153,501 Portland General Electric Co. 5,806,943
164,113 PPL Corp. 5,962,225
119,761 Southern (The) Co. 5,881,463
136,144 UIL Holdings Corp. 5,927,710
145,348 Westar Energy, Inc. 5,994,152
165,817 Xcel Energy, Inc. 5,956,147
--------------
118,987,244
--------------
ELECTRICAL EQUIPMENT -- 1.6%
85,586 Eaton Corp. PLC 5,816,425
94,432 Emerson Electric Co. 5,829,287
54,681 Hubbell, Inc., Class B 5,841,571
--------------
17,487,283
--------------
FOOD & STAPLES RETAILING -- 1.6%
144,495 Sysco Corp. 5,735,007
68,435 Wal-Mart Stores, Inc. 5,877,198
125,109 Weis Markets, Inc. 5,982,712
--------------
17,594,917
--------------
FOOD PRODUCTS -- 4.8%
132,838 Campbell Soup Co. 5,844,872
160,374 ConAgra Foods, Inc. 5,818,369
108,702 General Mills, Inc. 5,797,078
56,291 Hershey (The) Co. 5,850,323
57,306 JM Smucker (The) Co. 5,786,760
88,427 Kellogg Co. 5,786,663
91,920 Kraft Foods Group, Inc. 5,759,707
77,206 McCormick & Co., Inc. 5,736,406
142,648 Unilever PLC, ADR 5,774,391
--------------
52,154,569
--------------
GAS UTILITIES -- 5.6%
112,598 AGL Resources, Inc. 6,137,717
108,345 Atmos Energy Corp. 6,039,150
113,484 Laclede Group (The), Inc. 6,037,349
100,599 New Jersey Resources Corp. 6,156,659
Page 44 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
GAS UTILITIES (CONTINUED)
119,882 Northwest Natural Gas Co. $ 5,982,112
153,224 Piedmont Natural Gas Co., Inc. 6,038,558
236,453 Questar Corp. 5,977,532
102,522 South Jersey Industries, Inc. 6,041,621
157,090 UGI Corp. 5,966,278
111,957 WGL Holdings, Inc. 6,115,091
--------------
60,492,067
--------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.1%
127,481 Abbott Laboratories 5,739,195
79,136 Baxter International, Inc. 5,799,877
--------------
11,539,072
--------------
HEALTH CARE PROVIDERS & SERVICES
-- 1.1%
168,416 Owens & Minor, Inc. 5,913,086
87,523 Quest Diagnostics, Inc. 5,869,292
--------------
11,782,378
--------------
HOTELS, RESTAURANTS & LEISURE
-- 1.1%
62,962 McDonald's Corp. 5,899,540
81,578 Yum! Brands, Inc. 5,942,957
--------------
11,842,497
--------------
HOUSEHOLD DURABLES -- 0.6%
142,206 Leggett & Platt, Inc. 6,059,398
--------------
HOUSEHOLD PRODUCTS -- 2.1%
56,688 Clorox (The) Co. 5,907,457
84,134 Colgate-Palmolive Co. 5,821,231
50,762 Kimberly-Clark Corp. 5,865,041
63,839 Procter & Gamble (The) Co. 5,815,095
--------------
23,408,824
--------------
INDUSTRIAL CONGLOMERATES -- 0.5%
35,339 3M Co. 5,806,904
--------------
INSURANCE -- 7.1%
51,252 ACE Ltd. 5,887,830
124,215 Arthur J. Gallagher & Co. 5,848,042
115,143 Axis Capital Holdings Ltd. 5,882,656
113,701 Cincinnati Financial Corp. 5,893,123
100,514 Endurance Specialty Holdings Ltd. 6,014,758
66,033 Erie Indemnity Co., Class A 5,993,815
34,648 Everest Re Group, Ltd. 5,900,554
84,039 Hanover Insurance Group (The),
Inc. 5,993,661
109,999 HCC Insurance Holdings, Inc. 5,887,147
107,071 Mercury General Corp. 6,067,714
51,988 PartnerRe Ltd. 5,933,390
55,607 Travelers (The) Cos., Inc. 5,886,001
131,273 Willis Group Holdings PLC 5,882,343
--------------
77,071,034
--------------
IT SERVICES -- 2.1%
64,832 Accenture PLC, Class A 5,790,146
68,975 Automatic Data Processing, Inc. 5,750,446
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
IT SERVICES (CONTINUED)
36,618 International Business Machines
Corp. $ 5,874,992
125,691 Paychex, Inc. 5,803,153
--------------
23,218,737
--------------
LEISURE PRODUCTS -- 1.1%
108,808 Hasbro, Inc. 5,983,352
199,981 Mattel, Inc. 6,188,412
--------------
12,171,764
--------------
MACHINERY -- 2.7%
64,031 Caterpillar, Inc. 5,860,757
65,509 Deere & Co. 5,795,581
80,090 Dover Corp. 5,744,055
61,088 Illinois Tool Works, Inc. 5,785,034
60,895 Stanley Black & Decker, Inc. 5,850,792
--------------
29,036,219
--------------
MEDIA -- 1.6%
76,770 Omnicom Group, Inc. 5,947,372
222,395 Shaw Communications, Inc.,
Class B 6,002,441
146,247 Thomson Reuters Corp. 5,899,604
--------------
17,849,417
--------------
MULTILINE RETAIL -- 1.1%
97,594 Kohl's Corp. 5,957,138
79,347 Target Corp. 6,023,231
--------------
11,980,369
--------------
MULTI-UTILITIES -- 8.8%
89,429 Alliant Energy Corp. 5,939,874
130,175 Ameren Corp. 6,004,973
169,134 Avista Corp. 5,978,887
254,029 CenterPoint Energy, Inc. 5,951,899
169,913 CMS Energy Corp. 5,904,477
89,645 Consolidated Edison, Inc. 5,917,466
77,264 Dominion Resources, Inc. 5,941,602
68,553 DTE Energy Co. 5,920,923
76,573 Integrys Energy Group, Inc. 5,961,208
257,126 MDU Resources Group, Inc. 6,042,461
140,947 Public Service Enterprise Group,
Inc. 5,836,615
98,887 SCANA Corp. 5,972,775
53,452 Sempra Energy 5,952,415
296,453 TECO Energy, Inc. 6,074,322
132,630 Vectren Corp. 6,131,485
113,048 Wisconsin Energy Corp. 5,962,151
--------------
95,493,533
--------------
OIL, GAS & CONSUMABLE FUELS
-- 4.9%
52,763 Chevron Corp. 5,918,953
85,029 ConocoPhillips 5,872,103
118,226 Enbridge, Inc. 6,077,999
63,337 Exxon Mobil Corp. 5,855,506
142,272 Kinder Morgan, Inc. 6,019,528
73,169 Occidental Petroleum Corp. 5,898,153
83,589 Royal Dutch Shell PLC, Class B,
ADR 5,814,451
See Notes to Financial Statements Page 45
FIRST TRUST VALUE LINE(R) DIVIDEND INDEX FUND (FVD)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS
(CONTINUED)
112,598 Total S.A., ADR $ 5,765,017
124,166 TransCanada Corp. 6,096,551
--------------
53,318,261
--------------
PHARMACEUTICALS -- 5.3%
88,269 AbbVie, Inc. 5,776,323
82,000 AstraZeneca PLC, ADR 5,771,160
96,810 Bristol-Myers Squibb Co. 5,714,694
82,770 Eli Lilly & Co. 5,710,302
136,081 GlaxoSmithKline PLC, ADR 5,816,102
55,379 Johnson & Johnson 5,790,982
100,260 Merck & Co., Inc. 5,693,766
62,030 Novartis AG, ADR 5,747,700
184,211 Pfizer, Inc. 5,738,173
128,616 Sanofi, ADR 5,866,176
--------------
57,625,378
--------------
PROFESSIONAL SERVICES -- 0.5%
132,512 Nielsen N.V. 5,927,262
--------------
REAL ESTATE INVESTMENT TRUSTS
-- 2.1%
43,171 Federal Realty Investment Trust 5,761,601
31,361 Public Storage 5,797,081
120,003 Realty Income Corp. 5,725,343
31,534 Simon Property Group, Inc. 5,742,657
--------------
23,026,682
--------------
ROAD & RAIL -- 0.5%
53,732 Norfolk Southern Corp. 5,889,565
--------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.7%
102,824 Analog Devices, Inc. 5,708,788
158,864 Intel Corp. 5,765,175
129,518 Microchip Technology, Inc. 5,842,557
107,829 Texas Instruments, Inc. 5,765,078
134,745 Xilinx, Inc. 5,833,111
--------------
28,914,709
--------------
SOFTWARE -- 1.6%
189,587 CA, Inc. 5,772,924
123,202 Microsoft Corp. 5,722,733
83,625 SAP SE, ADR 5,824,481
--------------
17,320,138
--------------
SPECIALTY RETAIL -- 0.6%
143,861 Gap (The), Inc. 6,057,987
--------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 0.5%
177,143 CANON, Inc., ADR 5,608,347
--------------
THRIFTS & MORTGAGE FINANCE
-- 1.1%
461,281 Capitol Federal Financial, Inc. 5,895,171
389,929 People's United Financial, Inc. 5,919,122
--------------
11,814,293
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
TOBACCO -- 2.7%
117,753 Altria Group, Inc. $ 5,801,690
53,553 British American Tobacco
PLC, ADR 5,774,084
93,756 Lorillard, Inc. 5,901,003
71,247 Philip Morris International, Inc. 5,803,068
90,373 Reynolds American, Inc. 5,808,273
--------------
29,088,118
--------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.5%
123,925 Fastenal Co. 5,893,873
--------------
WATER UTILITIES -- 1.1%
164,295 American States Water Co. 6,187,350
225,709 Aqua America, Inc. 6,026,430
--------------
12,213,780
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.0%
697,088 Mobile TeleSystems OJSC, ADR 5,005,092
168,655 Vodafone Group PLC, ADR 5,762,941
--------------
10,768,033
--------------
TOTAL INVESTMENTS -- 99.9% 1,088,724,558
(Cost $952,694,601) (a)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 574,215
--------------
NET ASSETS -- 100.0% $1,089,298,773
==============
(a) Aggregate cost for federal income tax purposes is $965,988,769. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$133,436,381 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$10,700,592.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $1,088,724,558 $ -- $ --
================================================
* 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, 2014.
Page 46 See Notes to Financial Statements
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS -- 100.1%
AEROSPACE & DEFENSE -- 4.1%
4,946 Boeing (The) Co. $ 642,881
15,383 Hexcel Corp. (a) 638,241
6,267 Honeywell International, Inc. 626,199
5,199 Huntington Ingalls Industries,
Inc. 584,679
--------------
2,492,000
--------------
AIRLINES -- 4.3%
12,685 Alaska Air Group, Inc. 758,055
59,250 JetBlue Airways Corp. (a) 939,705
13,684 United Continental Holdings,
Inc. (a) 915,323
--------------
2,613,083
--------------
AUTO COMPONENTS -- 10.5%
31,392 American Axle & Manufacturing
Holdings, Inc. (a) 709,145
11,561 BorgWarner, Inc. 635,277
27,054 Dana Holding Corp. 588,154
8,627 Delphi Automotive PLC 627,355
16,225 Gentherm, Inc. (a) 594,160
31,113 Goodyear Tire & Rubber (The) Co. 888,898
11,149 Johnson Controls, Inc. 538,943
5,549 Lear Corp. 544,246
5,452 Magna International, Inc. 592,578
9,817 Tenneco, Inc. (a) 555,740
--------------
6,274,496
--------------
AUTOMOBILES -- 1.0%
14,230 Tata Motors Ltd., ADR 601,644
--------------
CAPITAL MARKETS -- 1.0%
17,034 Blackstone Group (The) LP (b) 576,260
--------------
CHEMICALS -- 7.2%
16,101 A. Schulman, Inc. 652,574
10,491 Cabot Corp. 460,135
8,081 Celanese Corp., Series A 484,537
6,735 Eastman Chemical Co. 510,917
5,937 Ecolab, Inc. 620,535
21,231 Huntsman Corp. 483,642
5,955 LyondellBasell Industries N.V.,
Class A 472,767
16,695 PolyOne Corp. 632,908
--------------
4,318,015
--------------
COMMUNICATIONS EQUIPMENT
-- 1.9%
18,998 ARRIS Group, Inc. (a) 573,550
11,123 EchoStar Corp., Class A (a) 583,957
--------------
1,157,507
--------------
CONSTRUCTION & ENGINEERING
-- 2.9%
9,380 Chicago Bridge & Iron Co. N.V. 393,772
19,395 Dycom Industries, Inc. (a) 680,571
23,113 Quanta Services, Inc. (a) 656,178
--------------
1,730,521
--------------
CONTAINERS & PACKAGING -- 1.0%
7,924 Packaging Corp. of America 618,468
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 0.9%
8,733 BT Group PLC, ADR $ 541,359
--------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 5.6%
10,101 Arrow Electronics, Inc. (a) 584,747
20,754 Ingram Micro, Inc., Class A (a) 573,640
25,951 PC Connection, Inc. 637,097
37,011 Sanmina Corp. (a) 870,869
8,561 SYNNEX Corp. 669,128
--------------
3,335,481
--------------
ENERGY EQUIPMENT & SERVICES
-- 4.2%
12,828 Cameron International Corp. (a) 640,759
10,514 Halliburton Co. 413,516
5,710 Helmerich & Payne, Inc. 384,968
10,755 Oceaneering International, Inc. 632,501
34,598 RPC, Inc. 451,158
--------------
2,522,902
--------------
FOOD & STAPLES RETAILING -- 2.4%
12,088 Kroger (The) Co. 776,170
88,703 Rite Aid Corp. (a) 667,047
--------------
1,443,217
--------------
FOOD PRODUCTS -- 1.9%
6,358 Sanderson Farms, Inc. 534,231
14,810 Tyson Foods, Inc., Class A 593,733
--------------
1,127,964
--------------
HEALTH CARE PROVIDERS &
SERVICES -- 3.2%
5,922 Cigna Corp. 609,433
9,988 HCA Holdings, Inc. (a) 733,020
4,955 Universal Health Services, Inc.,
Class B 551,293
--------------
1,893,746
--------------
HEALTH CARE TECHNOLOGY -- 1.1%
32,896 MedAssets, Inc. (a) 650,025
--------------
HOTELS, RESTAURANTS & LEISURE
-- 3.1%
11,106 Brinker International, Inc. 651,811
8,265 Red Robin Gourmet Burgers,
Inc. (a) 636,198
6,927 Wyndham Worldwide Corp. 594,060
--------------
1,882,069
--------------
HOUSEHOLD DURABLES -- 1.1%
4,104 Mohawk Industries, Inc. (a) 637,597
--------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.9%
24,236 Calpine Corp. (a) 536,343
--------------
INSURANCE -- 1.9%
6,536 Aon PLC 619,809
3,212 Everest Re Group, Ltd. 547,003
--------------
1,166,812
--------------
See Notes to Financial Statements Page 47
FIRST TRUST VALUE LINE(R) 100 EXCHANGE-TRADED FUND (FVL)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
COMMON STOCKS (CONTINUED)
IT SERVICES -- 0.9%
26,694 Convergys Corp. $ 543,757
--------------
LIFE SCIENCES TOOLS &
SERVICES -- 1.8%
24,394 Cambrex Corp. (a) 527,398
4,604 Thermo Fisher Scientific, Inc. 576,835
--------------
1,104,233
--------------
MACHINERY -- 8.3%
17,073 Barnes Group, Inc. 631,872
10,908 Crane Co. 640,300
13,031 Greenbrier (The) Cos., Inc. 700,156
15,753 ITT Corp. 637,366
9,486 Pentair PLC 630,060
7,481 SPX Corp. 642,767
15,186 Trinity Industries, Inc. 425,360
52,589 Wabash National Corp. (a) 650,000
--------------
4,957,881
--------------
MEDIA -- 4.2%
33,858 Cablevision Systems Corp.,
Class A 698,829
10,836 Comcast Corp., Class A 628,597
21,398 Sinclair Broadcast Group, Inc.,
Class A 585,449
8,304 Viacom, Inc., Class B 624,876
--------------
2,537,751
--------------
MULTILINE RETAIL -- 1.0%
4,946 Dillard's, Inc., Class A 619,140
--------------
MULTI-UTILITIES -- 1.1%
12,067 Black Hills Corp. 640,034
--------------
OIL, GAS & CONSUMABLE
FUELS -- 3.2%
11,026 Alliance Resource Partners LP (b) 474,669
10,149 Continental Resources, Inc. (a) 389,316
5,512 EOG Resources, Inc. 507,490
7,236 Tesoro Corp. 537,996
--------------
1,909,471
--------------
PAPER & FOREST PRODUCTS -- 0.9%
13,357 Domtar Corp. 537,219
--------------
PHARMACEUTICALS -- 1.3%
2,968 Actavis PLC (a) 763,993
--------------
PROFESSIONAL SERVICES -- 2.0%
21,698 Korn/Ferry International (a) 624,035
12,533 Nielsen N.V. 560,601
--------------
1,184,636
--------------
ROAD & RAIL -- 2.4%
12,130 Avis Budget Group, Inc. (a) 804,583
6,686 Ryder System, Inc. 620,795
--------------
1,425,378
--------------
SHARES DESCRIPTION VALUE
-------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.1%
21,346 Micron Technology, Inc. (a) $ 747,324
23,677 Taiwan Semiconductor
Manufacturing Co., Ltd., ADR 529,891
--------------
1,277,215
--------------
SPECIALTY RETAIL -- 4.5%
10,817 AutoNation, Inc. (a) 653,455
20,973 Brown Shoe Co., Inc. 674,282
9,886 Outerwall, Inc. (a) 743,625
13,107 Penske Automotive Group, Inc. 643,160
--------------
2,714,522
--------------
TEXTILES, APPAREL & LUXURY
GOODS -- 2.1%
5,835 Fossil Group, Inc. (a) 646,168
8,529 Michael Kors Holdings Ltd. (a) 640,528
--------------
1,286,696
--------------
TRADING COMPANIES &
DISTRIBUTORS -- 3.0%
8,891 GATX Corp. 511,588
6,249 United Rentals, Inc. (a) 637,461
8,214 WESCO International, Inc. (a) 625,989
--------------
1,775,038
--------------
WIRELESS TELECOMMUNICATION
SERVICES -- 1.1%
20,841 Shenandoah Telecommunications
Co. 651,281
--------------
TOTAL INVESTMENTS -- 100.1% 60,047,754
(Cost $57,642,471) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.1)% (39,682)
--------------
NET ASSETS -- 100.0% $ 60,008,072
==============
(a) Non-income producing security.
(b) Master Limited Partnership ("MLP").
(c) Aggregate cost for federal income tax purposes is $57,837,880. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$4,178,899 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,969,025.
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, 2014
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $ 60,047,754 $ -- $ --
===============================================
* 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, 2014.
See Notes to Financial Statements Page 49
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2014
FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR FIRST TRUST
MICROCAP DIVIDEND LEADERS US IPO
INDEX FUND INDEX FUND INDEX FUND
(FDM) (FDL) (FPX)
---------------- ------------------- ---------------
ASSETS:
Investments, at value............................................... $ 51,620,108 $ 983,656,204 $ 558,365,119
Cash................................................................ 23,558 247,510 --
Due from custodian.................................................. -- -- --
Receivables:
Capital shares sold........................................... -- 6,108,419 --
Investment securities sold.................................... -- -- 67,598
Dividends..................................................... 54,733 2,017,618 237,427
Currency...................................................... -- -- 63
Interest...................................................... -- -- --
Securities lending income..................................... -- -- 41,609
From investment advisor....................................... -- -- --
Reclaims...................................................... -- -- --
Prepaid expenses.................................................... 18,731 14,004 8,674
-------------- -------------- --------------
TOTAL ASSETS.................................................. 51,717,130 992,043,755 558,720,490
-------------- -------------- --------------
LIABILITIES:
Due to custodian.................................................... -- -- 48,391
Payables:
Investment securities purchased............................... -- 6,098,595 --
Audit and tax fees............................................ 22,925 22,925 22,925
Investment advisory fees...................................... 18,434 194,589 172,117
Printing fees................................................. 5,349 38,351 26,194
Trustees' fees................................................ 1 103 --
Collateral for securities on loan............................. -- -- 22,190,117
Licensing fees................................................ -- 204,529 118,146
Other liabilities................................................... 22,537 333,194 199,348
-------------- -------------- --------------
TOTAL LIABILITIES............................................. 69,246 6,892,286 22,777,238
-------------- -------------- --------------
NET ASSETS.......................................................... $ 51,647,884 $ 985,151,469 $ 535,943,252
============== ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital..................................................... $ 65,413,652 $ 964,096,168 $ 479,295,151
Par value........................................................... 15,550 411,500 106,500
Accumulated net investment income (loss)............................ 2,224 -- 32,444
Accumulated net realized gain (loss) on investments and foreign
currency transactions......................................... (19,121,708) (44,614,622) (15,672,728)
Net unrealized appreciation (depreciation) on investments and
foreign currency translations................................. 5,338,166 65,258,423 72,181,885
-------------- -------------- --------------
NET ASSETS.......................................................... $ 51,647,884 $ 985,151,469 $ 535,943,252
============== ============== ==============
NET ASSET VALUE, per share.......................................... $ 33.21 $ 23.94 $ 50.32
============== ============== ==============
Number of shares outstanding (unlimited number of shares authorized,
par value $0.01 per share)....................................... 1,555,000 41,150,002 10,650,002
-------------- -------------- --------------
Investments, at cost................................................ $ 46,281,942 $ 918,397,781 $ 486,183,180
============== ============== ==============
Securities on loan, at value........................................ $ -- $ -- $ 21,492,229
============== ============== ==============
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 FUND ETF INDEX FUND INDEX FUND FUND
(FBT) (FDN) (FTCS) (FVI) (FVD) (FVL)
--------------- --------------- --------------- -------------------- --------------- -----------------
$ 2,320,265,527 $ 2,005,681,616 $ 85,662,228 $ 5,209,889 $ 1,088,724,558 $ 60,047,754
1,299,905 -- -- -- -- 29,698
-- -- -- -- 3,227,400 --
25,581,836 -- -- -- 8,607,220 --
-- -- -- 53,989 -- --
-- 118,349 145,088 6,559 2,261,075 32,301
-- -- -- -- -- --
-- 8 -- -- -- --
795,760 80,248 -- -- -- --
-- -- -- 71,293 -- --
33,096 -- -- 437 55,512 --
24,944 34,276 1,355 97 16,299 1,112
--------------- --------------- --------------- --------------- --------------- ---------------
2,348,001,068 2,005,914,497 85,808,671 5,342,264 1,102,892,064 60,110,865
--------------- --------------- --------------- --------------- --------------- ---------------
-- 99,726 22,706 36,172 3,787,916 --
25,579,115 -- -- 53,942 8,606,249 --
22,925 22,925 22,925 22,925 22,925 22,925
699,458 662,390 38,919 -- 399,118 17,320
67,604 83,556 4,851 1,462 39,922 4,361
-- -- 5 -- 57 --
194,088,943 27,377,588 -- -- -- --
371,187 265,211 2,041 1,972 382,702 23,226
590,548 610,223 31,284 696 354,402 34,961
--------------- --------------- --------------- --------------- --------------- ---------------
221,419,780 29,121,619 122,731 117,169 13,593,291 102,793
--------------- --------------- --------------- --------------- --------------- ---------------
$ 2,126,581,288 $1,976,792,878 $ 85,685,940 $ 5,225,095 $ 1,089,298,773 $ 60,008,072
=============== =============== =============== =============== =============== ===============
$ 1,743,731,337 $1,944,418,037 $ 99,413,863 $ 10,101,279 $ 1,005,110,932 $ 141,720,611
208,500 322,500 22,500 2,000 451,380 29,400
-- -- -- -- -- --
(31,666,203) (60,971,885) (24,673,716) (5,069,728) (52,293,496) (84,147,222)
414,307,654 93,024,226 10,923,293 191,544 136,029,957 2,405,283
--------------- --------------- --------------- --------------- --------------- ---------------
$ 2,126,581,288 $ 1,976,792,878 $ 85,685,940 $ 5,225,095 $ 1,089,298,773 $ 60,008,072
=============== =============== =============== =============== =============== ===============
$ 101.99 $ 61.30 $ 38.08 $ 26.13 $ 24.13 $ 20.41
=============== =============== =============== =============== =============== ===============
20,850,002 32,250,002 2,250,002 200,002 45,137,986 2,939,982
--------------- --------------- --------------- --------------- --------------- ---------------
$ 1,905,957,873 $ 1,912,657,390 $ 74,738,935 $ 5,018,345 $ 952,694,601 $ 57,642,471
=============== =============== =============== =============== =============== ===============
$ 186,131,568 $ 26,760,969 $ -- $ -- $ -- $ --
=============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 51
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
FIRST TRUST FIRST TRUST
DOW JONES SELECT MORNINGSTAR FIRST TRUST
MICROCAP DIVIDEND LEADERS US IPO
INDEX FUND INDEX FUND INDEX FUND
(FDM) (FDL) (FPX)
---------------- ------------------- ---------------
INVESTMENT INCOME:
Dividends........................................................... $ 903,735 $ 30,740,582 $ 6,972,831
Foreign tax withholding............................................. (202) -- (28,278)
Securities lending income (net of fees)............................. -- -- 250,866
Interest............................................................ -- -- --
-------------- -------------- --------------
Total investment income....................................... 903,533 30,740,582 7,195,419
-------------- -------------- --------------
EXPENSES:
Investment advisory fees............................................ 346,164 2,307,048 1,931,677
Accounting and administration fees.................................. 39,262 387,065 243,943
Licensing fees...................................................... 34,218 695,604 482,919
Audit and tax fees.................................................. 23,082 24,114 23,532
Custodian fees...................................................... 9,257 96,776 75,804
Listing fees........................................................ 8,044 10,544 7,645
Printing fees....................................................... 6,202 63,008 64,027
Trustees' fees and expenses......................................... 5,134 16,384 11,916
Transfer agent fees................................................. 3,455 38,363 24,143
Legal fees.......................................................... 2,618 39,316 28,523
Expenses previously waived or reimbursed............................ -- -- --
Registration and filing fees........................................ (1,153) 29,075 18,524
Other expenses...................................................... 5,398 26,422 7,905
-------------- -------------- --------------
Total expenses................................................ 481,681 3,733,719 2,920,558
Less fees waived and expenses reimbursed by the investment
advisor.................................................... (66,284) (273,147) (23,043)
-------------- -------------- --------------
Net expenses.................................................. 415,397 3,460,572 2,897,515
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)........................................ 488,136 27,280,010 4,297,904
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... 3,982,588 (2,128,539) (9,065,905)
In-kind redemptions........................................... 5,792,097 57,230,569 31,073,291
Foreign currency transactions................................. -- -- --
-------------- -------------- --------------
Net realized gain (loss)............................................ 9,774,685 55,102,030 22,007,386
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation) on.............
Investments................................................... (10,331,091) 6,605,707 22,326,995
Foreign currency transactions................................. -- -- (54)
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation)................ (10,331,091) 6,605,707 22,326,941
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)............................. (556,406) 61,707,737 44,334,327
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS............................................... $ (68,270) $ 88,987,747 $ 48,632,231
============== ============== ==============
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) VALUE LINE(R) VALUE LINE(R) 100
BIOTECHNOLOGY INTERNET STRENGTH EQUITY ALLOCATION DIVIDEND EXCHANGE-TRADED
INDEX FUND INDEX FUND ETF INDEX FUND INDEX FUND FUND
(FBT) (FDN) (FTCS) (FVI) (FVD) (FVL)
--------------- --------------- --------------- -------------------- --------------- -----------------
$ 3,552,270 $ 4,680,764 $ 2,072,378 $ 92,602 $ 30,122,283 $ 768,538
(82,741) -- -- (1,345) (456,716) (15,733)
5,453,529 3,196,776 -- -- -- --
-- 211 -- 3 -- --
--------------- --------------- --------------- --------------- --------------- ---------------
8,923,058 7,877,751 2,072,378 91,260 29,665,567 752,805
--------------- --------------- --------------- --------------- --------------- ---------------
5,567,678 7,589,073 380,466 26,091 4,459,329 296,647
658,208 834,176 39,845 5,707 448,248 32,088
1,113,536 1,146,252 15,105 8,041 1,351,785 93,280
24,574 26,262 23,038 22,933 24,302 23,021
167,940 254,515 9,518 652 111,624 7,416
8,044 10,544 2,627 22,645 25,145 22,645
151,066 180,840 10,200 7,195 71,809 8,208
26,712 34,658 5,260 4,139 18,434 4,969
59,764 65,755 3,800 260 44,395 2,960
76,557 98,173 4,231 63,389 46,206 3,044
75,700 -- -- -- -- --
66,612 16,805 1,245 (56) 21,971 652
28,326 49,864 3,340 4,221 28,746 6,049
--------------- --------------- --------------- --------------- --------------- ---------------
8,024,717 10,306,917 498,675 165,217 6,651,994 500,979
-- -- (4,069) (128,690) (408,933) (85,675)
--------------- --------------- --------------- --------------- --------------- ---------------
8,024,717 10,306,917 494,606 36,527 6,243,061 415,304
--------------- --------------- --------------- --------------- --------------- ---------------
898,341 (2,429,166) 1,577,772 54,733 23,422,506 337,501
--------------- --------------- --------------- --------------- --------------- ---------------
42,305,355 (32,034,034) (387,250) 362,938 (3,038,320) 6,154,537
265,295,393 373,734,802 5,778,656 309,500 95,623,685 605,009
-- -- -- -- (752) --
--------------- --------------- --------------- --------------- --------------- ---------------
307,600,748 341,700,768 5,391,406 672,438 92,584,613 6,759,546
--------------- --------------- --------------- --------------- --------------- ---------------
218,034,539 (345,960,771) 4,781,081 (596,858) 20,655,635 (1,112,537)
-- -- -- -- -- --
--------------- --------------- --------------- --------------- --------------- ---------------
218,034,539 (345,960,771) 4,781,081 (596,858) 20,655,635 (1,112,537)
--------------- --------------- --------------- --------------- --------------- ---------------
525,635,287 (4,260,003) 10,172,487 75,580 113,240,248 5,647,009
--------------- --------------- --------------- --------------- --------------- ---------------
$ 526,533,628 $ (6,689,169) $ 11,750,259 $ 130,313 $ 136,662,754 $ 5,984,510
=============== =============== =============== =============== =============== ===============
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
INDEX FUND INDEX FUND
(FDM) (FDL)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2014 12/31/2013 12/31/2014 12/31/2013
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)........................... $ 488,136 $ 906,466 $ 27,280,010 $ 22,539,320
Net realized gain (loss)............................... 9,774,685 19,676,173 55,102,030 56,031,348
Net change in unrealized appreciation (depreciation)... (10,331,091) 12,455,819 6,605,707 42,242,896
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations..................................... (68,270) 33,038,458 88,987,747 120,813,564
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (512,148) (986,641) (27,604,717) (22,580,041)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. -- 123,859,631 494,651,004 404,778,385
Cost of shares redeemed................................ (38,851,754) (106,112,766) (258,319,285) (361,092,133)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... (38,851,754) 17,746,865 236,331,719 43,686,252
------------- ------------- ------------- -------------
Total increase (decrease) in net assets................ (39,432,172) 49,798,682 297,714,749 141,919,775
NET ASSETS:
Beginning of period.................................... 91,080,056 41,281,374 687,436,720 545,516,945
------------- ------------- ------------- -------------
End of period.......................................... $ 51,647,884 $ 91,080,056 $ 985,151,469 $ 687,436,720
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period.................................... $ 2,224 $ -- $ -- $ --
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 2,805,000 1,805,000 31,350,002 29,550,002
Shares sold............................................ -- 4,650,000 20,700,000 19,350,000
Shares redeemed........................................ (1,250,000) (3,650,000) (10,900,000) (17,550,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period...................... 1,555,000 2,805,000 41,150,002 31,350,002
============= ============= ============= =============
Page 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 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
12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013
------------- ------------- -------------- ------------- -------------- --------------
$ 4,297,904 $ 867,950 $ 898,341 $ (1,398,537) $ (2,429,166) $ (3,407,246)
22,007,386 (617,310) 307,600,748 (23,658,670) 341,700,768 120,583,987
22,326,941 47,510,415 218,034,539 214,346,364 (345,960,771) 401,945,182
------------- ------------- -------------- ------------- -------------- --------------
48,632,231 47,761,055 526,533,628 189,289,157 (6,689,169) 519,121,923
------------- ------------- -------------- ------------- -------------- --------------
(4,268,031) (957,120) (1,076,820) -- -- --
------------- ------------- -------------- ------------- -------------- --------------
267,156,832 282,040,963 1,228,321,602 611,554,944 1,280,119,495 1,166,724,606
(126,953,339) (2,128,720) (581,107,220) (86,379,184) (1,226,489,727) (313,875,794)
------------- ------------- -------------- ------------- -------------- --------------
140,203,493 279,912,243 647,214,382 525,175,760 53,629,768 852,848,812
------------- ------------- -------------- ------------- -------------- --------------
184,567,693 326,716,178 1,172,671,190 714,464,917 46,940,599 1,371,970,735
351,375,559 24,659,381 953,910,098 239,445,181 1,929,852,279 557,881,544
------------- ------------- -------------- ------------- -------------- --------------
$ 535,943,252 $ 351,375,559 $2,126,581,288 $ 953,910,098 $1,976,792,878 $1,929,852,279
============= ============= ============== ============= ============== ==============
$ 32,444 $ -- $ -- $ -- $ -- $ --
============= ============= ============== ============= ============== ==============
7,750,002 800,002 13,800,002 5,200,002 32,250,002 14,300,002
5,650,000 7,000,000 14,150,000 10,050,000 21,250,000 24,000,000
(2,750,000) (50,000) (7,100,000) (1,450,000) (21,250,000) (6,050,000)
------------- ------------- -------------- ------------- -------------- --------------
10,650,002 7,750,002 20,850,002 13,800,002 32,250,002 32,250,002
============= ============= ============== ============= ============== ==============
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
12/31/2014 12/31/2013 12/31/2014 12/31/2013
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)........................... $ 1,577,772 $ 690,767 $ 54,733 $ 41,442
Net realized gain (loss)............................... 5,391,406 7,688,429 672,438 703,502
Net change in unrealized appreciation (depreciation)... 4,781,081 4,261,985 (596,858) 589,610
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations..................................... 11,750,259 12,641,181 130,313 1,334,554
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (1,680,216) (684,781) (55,881) (43,260)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.............................. 53,160,607 67,370,800 1,262,594 --
Cost of shares redeemed................................ (43,250,832) (46,328,268) (1,271,557) --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions....................... 9,909,775 21,042,532 (8,963) --
------------- ------------- ------------- -------------
Total increase (decrease) in net assets................ 19,979,818 32,998,932 65,469 1,291,294
NET ASSETS:
Beginning of period.................................... 65,706,122 32,707,190 5,159,626 3,868,332
------------- ------------- ------------- -------------
End of period.......................................... $ 85,685,940 $ 65,706,122 $ 5,225,095 $ 5,159,626
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period.................................... $ -- $ 13,050 $ -- $ --
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period................ 1,950,002 1,300,002 200,002 200,002
Shares sold............................................ 1,550,000 2,200,000 50,000 --
Shares redeemed........................................ (1,250,000) (1,550,000) (50,000) --
------------- ------------- ------------- -------------
Shares outstanding, end of period...................... 2,250,002 1,950,002 200,002 200,002
============= ============= ============= =============
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
12/31/2014 12/31/2013 12/31/2014 12/31/2013
-------------- ------------- ------------- -------------
$ 23,422,506 $ 17,276,342 $ 337,501 $ 172,218
92,584,613 61,770,695 6,759,546 14,165,321
20,655,635 70,064,896 (1,112,537) 2,221,485
-------------- ------------- ------------- -------------
136,662,754 149,111,933 5,984,510 16,559,024
-------------- ------------- ------------- -------------
(24,031,395) (16,843,619) (352,430) (179,357)
-------------- ------------- ------------- -------------
722,167,468 499,922,070 8,785,008 54,675,682
(541,861,484) (343,932,195) (10,466,963) (60,632,280)
-------------- ------------- ------------- -------------
180,305,984 155,989,875 (1,681,955) (5,956,598)
-------------- ------------- ------------- -------------
292,937,343 288,258,189 3,950,125 10,423,069
796,361,430 508,103,241 56,057,947 45,634,878
-------------- ------------- ------------- -------------
$1,089,298,773 $ 796,361,430 $ 60,008,072 $ 56,057,947
============== ============= ============= =============
$ -- $ 300,846 $ -- $ --
============== ============= ============= =============
37,287,986 29,387,986 3,039,982 3,439,982
31,750,000 25,300,000 450,000 3,300,000
(23,900,000) (17,400,000) (550,000) (3,700,000)
-------------- ------------- ------------- -------------
45,137,986 37,287,986 2,939,982 3,039,982
============== ============= ============= =============
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 FUND (FDM)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 32.47 $ 22.87 $ 20.09 $ 22.17 $ 17.70
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.23 0.25 0.35 0.10 0.09
Net realized and unrealized gain (loss) 0.76 9.62 2.83 (2.02) 4.46
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.99 9.87 3.18 (1.92) 4.55
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.25) (0.27) (0.40) (0.16) (0.08)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 33.21 $ 32.47 $ 22.87 $ 20.09 $ 22.17
========== ========== ========== ========== ==========
TOTAL RETURN (a) 3.08% 43.32% 15.86% (8.69)% 25.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 51,648 $ 91,080 $ 41,281 $ 52,328 $ 153,050
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.70% 0.72% 0.76% 0.71% 0.86%
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 0.71% 0.93% 1.38% 0.40% 0.94%
Portfolio turnover rate (b) 49% 70% 71% 59% 86%
FIRST TRUST MORNINGSTAR DIVIDEND LEADERS INDEX FUND (FDL)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 21.93 $ 18.46 $ 17.57 $ 15.92 $ 14.27
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.80 0.69 0.71 0.61 0.57
Net realized and unrealized gain (loss) 2.01 3.47 0.89 1.65 1.66
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.81 4.16 1.60 2.26 2.23
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.80) (0.69) (0.71) (0.61) (0.58)
Return of capital -- -- -- -- (0.00) (c)
---------- ---------- ---------- ---------- ----------
Total distributions (0.80) (0.69) (0.71) (0.61) (0.58)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 23.94 $ 21.93 $ 18.46 $ 17.57 $ 15.92
========== ========== ========== ========== ==========
TOTAL RETURN (a) 12.96% 22.71% 9.14% 14.44% 16.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 985,151 $ 687,437 $ 545,517 $ 447,030 $ 143,294
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.49% 0.49% 0.51% 0.56% 0.66%
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 3.55% 3.61% 3.88% 3.98% 4.22%
Portfolio turnover rate (b) 40% 35% 31% 27% 30%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Amount represents less than $0.01 per share.
Page 58 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 45.34 $ 30.82 $ 23.99 $ 23.51 $ 20.08
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.41 0.22 0.31 0.18 0.20
Net realized and unrealized gain (loss) 4.97 14.53 6.87 0.55 3.45
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.38 14.75 7.18 0.73 3.65
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.40) (0.23) (0.35) (0.25) (0.22)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 50.32 $ 45.34 $ 30.82 $ 23.99 $ 23.51
========== ========== ========== ========== ==========
TOTAL RETURN (a) 11.91% 47.98% 30.01% 3.11% 18.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 535,943 $ 351,376 $ 24,659 $ 15,594 $ 15,283
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.60% 0.66% 1.01% 1.01% 1.32%
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 0.89% 0.69% 1.27% 0.70% 1.28%
Portfolio turnover rate (b) 46% 30% 48% 44% 43%
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 69.12 $ 46.05 $ 32.68 $ 39.07 $ 28.54
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.04) (0.10) (0.22) (0.30) (0.17)
Net realized and unrealized gain (loss) 23.17 13.59 (6.09) 10.70
---------- ---------- ---------- ---------- ----------
Total from investment operations 32.92 23.07 13.37 (6.39) 10.53
========== ========== ========== ========== ==========
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.05) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 101.99 $ 69.12 $ 46.05 $ 32.68 $ 39.07
========== ========== ========== ========== ==========
TOTAL RETURN (a) 47.63% 50.10% 40.91% (16.36)% 36.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $2,126,581 $ 953,910 $ 239,445 $ 183,030 $ 201,220
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.58% 0.60% 0.61% 0.61% 0.66%
Ratio of net expenses to average net
assets 0.58% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.06% (0.26)% (0.48)% (0.54)% (0.60)%
Portfolio turnover rate (b) 58% 48% 39% 44% 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
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 (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST DOW JONES INTERNET INDEX FUND (FDN)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 59.84 $ 39.01 $ 32.28 $ 34.27 $ 25.11
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.08) (0.11) (0.08) (0.10) 0.04
Net realized and unrealized gain (loss) 1.54 20.94 6.81 (1.87) 9.16
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.46 20.83 6.73 (1.97) 9.20
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income -- -- -- (0.02) (0.04)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 61.30 $ 59.84 $ 39.01 $ 32.28 $ 34.27
========== ========== ========== ========== ==========
TOTAL RETURN (a) 2.42% 53.40% 20.85% (5.74)% 36.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,976,793 $1,929,852 $ 557,882 $ 519,683 $ 589,480
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.54% 0.57% 0.60% 0.60% 0.66%
Ratio of net expenses to average net
assets 0.54% 0.57% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets (0.13)% (0.28)% (0.23)% (0.25)% 0.26%
Portfolio turnover rate (b) 27% 17% 33% 18% 16%
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 33.70 $ 25.16 $ 21.82 $ 22.90 $ 20.47
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.72 0.45 0.45 0.35 0.39
Net realized and unrealized gain (loss) 4.43 8.54 3.34 (1.01) 2.44
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.15 8.99 3.79 (0.66) 2.83
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.77) (0.45) (0.45) (0.42) (0.40)
Return of capital -- -- -- -- (0.00) (c)
---------- ---------- ---------- ---------- ----------
Total distributions (0.77) (0.45) (0.45) (0.42) (0.40)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 38.08 $ 33.70 $ 25.16 $ 21.82 $ 22.90
========== ========== ========== ========== ==========
TOTAL RETURN (a) 15.46% 35.90% 17.45% (2.94)% 14.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 85,686 $ 65,706 $ 32,707 $ 31,643 $ 36,633
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.66% 0.76% 0.83% 0.82% 0.86%
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 2.07% 1.59% 1.84% 1.51% 1.58%
Portfolio turnover rate (b) 89% 156% 84% 114% 197%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Amount represents less than $0.01 per share.
Page 60 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST VALUE LINE(R) 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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 25.80 $ 19.34 $ 18.16 $ 20.30 $ 17.21
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.27 0.21 0.34 0.21 0.29
Net realized and unrealized gain (loss) 0.34 6.47 1.24 (2.14) 3.09
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.61 6.68 1.58 (1.93) 3.38
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.28) (0.22) (0.40) (0.21) (0.29)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 26.13 $ 25.80 $ 19.34 $ 18.16 $ 20.30
========== ========== ========== ========== ==========
TOTAL RETURN (a) 2.36% 34.65% 8.74% (9.56)% 19.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 5,225 $ 5,160 $ 3,868 $ 6,357 $ 7,106
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 3.17% 2.01% 1.85% 1.39% 1.35%
Ratio of net expenses to average net
assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 1.05% 0.91% 1.64% 1.05% 1.29%
Portfolio turnover rate (b) 183% 186% 203% 184% 205%
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 21.36 $ 17.29 $ 16.01 $ 15.08 $ 13.37
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.58 0.50 0.50 0.42 0.41 (c)
Net realized and unrealized gain (loss) 2.78 4.06 1.28 0.93 1.71
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.36 4.56 1.78 1.35 2.12
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.59) (0.49) (0.50) (0.42) (0.40)
Return of capital -- -- -- -- (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions (0.59) (0.49) (0.50) (0.42) (0.41)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 24.13 $ 21.36 $ 17.29 $ 16.01 $ 15.08
========== ========== ========== ========== ==========
TOTAL RETURN (a) 15.94% 26.57% 11.17% 9.03% 16.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $1,089,299 $ 796,361 $ 508,103 $ 366,399 $ 218,510
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.75% 0.76% 0.78% 0.79% 0.84%
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 2.63% 2.57% 3.03% 2.84% 2.94%
Portfolio turnover rate (b) 63% 71% 54% 53% 55%
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) 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 (CONTINUED)
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 18.44 $ 13.27 $ 12.37 $ 13.52 10.44
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.11 0.06 0.15 0.08 0.00 (a)
Net realized and unrealized gain (loss) 1.98 5.17 0.90 (1.15) 3.08
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.09 5.23 1.05 (1.07) 3.08
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.12) (0.06) (0.15) (0.08) --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 20.41 $ 18.44 $ 13.27 $ 12.37 $ 13.52
========== ========== ========== ========== ==========
TOTAL RETURN (b) 11.33% 39.44% 8.53% (7.92)% 29.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 60,008 $ 56,058 $ 45,635 $ 55,543 $ 88,431
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net
assets 0.84% 0.87% 0.87% 0.82% 0.87%
Ratio of net expenses to average net
assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income (loss) to
average net assets 0.57% 0.35% 1.03% 0.47% 0.01%
Portfolio turnover rate (c) 325% 350% 304% 202% 266%
(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
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 62 See Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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 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 Fund - (NYSE Arca, Inc.
("NYSE Arca") ticker "FDM")
First Trust Morningstar Dividend Leaders 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 Fund - (NYSE Arca ticker "FDN")
First Trust Capital Strength ETF - (The NASDAQ(R) Stock Market, LLC
("NASDAQ") ticker "FTCS")
First Trust Value Line(R) Equity Allocation Index Fund - (NYSE Arca ticker
"FVI")(1)
First Trust Value Line(R) Dividend Index Fund - (NYSE Arca ticker "FVD")
First Trust Value Line(R) 100 Exchange-Traded Fund - (NYSE Arca ticker
"FVL")
(1) Effective January 9, 2015, First Trust Value Line(R) Equity
Allocation Index Fund changed its name and ticker symbol to First
Trust Total US Market AlphaDEX(R) ETF (NASDAQ ticker "TUSA")
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 Dow Jones Select MicroCap Index Fund Dow Jones Select MicroCap Index(SM)
First Trust Morningstar Dividend Leaders Index Fund Morningstar(R) Dividend Leaders Index(SM)
First Trust US 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 Fund Dow Jones Internet Composite Index(SM)
First Trust Capital Strength ETF The Capital Strength Index(TM)
First Trust Value Line(R) Equity Allocation Index Fund Value Line(R) Equity Allocation Index
First Trust Value Line(R) Dividend Index Fund Value Line(R) Dividend Index(TM)
First Trust Value Line(R) 100 Exchange-Traded Fund Value Line(R) 100 Index
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 as of that time. 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. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e. a regulated market) and are primarily obtained from third
party pricing services. Fair value prices represent any prices not considered
market value prices and are either obtained from a third party pricing service
or are determined by the Pricing Committee of the Fund's investment advisor,
First Trust Advisors L.P. ("First Trust" or the "Advisor") in accordance with
valuation procedures adopted by the Trust's Board of Trustees, and in accordance
with provisions of the 1940 Act. Investments valued by the Advisor's Pricing
Committee, if any, are footnoted as such in the footnotes to the Portfolio of
Investments. Each Fund's investments will be valued as follows:
Page 63
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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 fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Repurchase agreements will be fair valued as follows: Overnight repurchase
agreements will be fair valued at cost. Term repurchase agreements (i.e.,
those whose maturity exceeds seven days) will be fair valued by the
Pricing Committee at the average of the bid quotations obtained daily from
at least two recognized dealers.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's fair value. As a general
principle, the current fair value of a security would appear to be the amount
which the owner might reasonably expect to receive for the security upon its
current sale. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or 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, 2014
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, 2014, is
included with each Fund's Portfolio of Investments.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities transactions are recorded on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income, if any, is
recorded on the accrual basis.
Distributions received from 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 trust
("REITs") may be comprised of return of capital, capital gains and income. The
actual character of the amounts received during the year is not known until
after the REITs' fiscal year end. A Fund records the character of distributions
received from REITs during the year based on estimates available. The
characterization of distributions received by a Fund may be subsequently revised
based on information received from the REITs after their tax reporting periods
conclude.
C. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11") requires entities to disclose both gross and net
information about instruments and transactions eligible for offset on the
Statements of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. In addition, Accounting Standards Update No. 2013-1 "Clarifying the
Scope of Offsetting Assets and Liabilities" ("ASU 2013-1"), specifies 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.
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities." For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency) for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
D. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
If the seller defaults, a Fund could suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held by
the Fund are less than the repurchase price and the Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event of
bankruptcy of the seller, a Fund could suffer additional losses if a court
determines that the Fund's interest in the collateral is not enforceable.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the year ended December 31, 2014, were received as
collateral for lending securities.
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
Page 65
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
securities. The collateral amount is valued at the beginning of each business
day and is compared to the market value of the loaned securities from the prior
business day to determine if additional collateral is required. If additional
collateral is required, a request is sent to the borrower. Securities lending
involves the risk that the Fund may lose money because the borrower of the
Fund's loaned securities fails to return the securities in a timely manner or at
all. The Fund could also lose money in the event of (i) a decline in the value
of the collateral provided for the loaned securities, (ii) a decline in the
value of any investments made with cash collateral or (iii) an increase in the
value of the loaned securities if the borrower does not increase the collateral
accordingly and the borrower fails to return the securities. These events could
also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2014,
only FPX, FBT and FDN have securities in the securities lending program. During
the year ended December 31, 2014, FPX, FBT and FDN participated 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.
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2014 was as follows:
Distributions Distributions Distributions
paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
--------------- --------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 512,148 $ -- $ --
First Trust Morningstar Dividend Leaders Index Fund 27,604,717 -- --
First Trust US IPO Index Fund 4,268,031 -- --
First Trust NYSE Arca Biotechnology Index Fund 1,076,820 -- --
First Trust Dow Jones Internet Index Fund -- -- --
First Trust Capital Strength ETF 1,680,216 -- --
First Trust Value Line(R) Equity Allocation Index Fund 55,881 -- --
First Trust Value Line(R) Dividend Index Fund 24,031,395 -- --
First Trust Value Line(R) 100 Exchange-Traded Fund 352,430 -- --
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
The tax character of distributions paid by each Fund during the fiscal year
ended December 31, 2013 was as follows:
DISTRIBUTIONS DISTRIBUTIONS
DISTRIBUTIONS PAID PAID
PAID FROM FROM CAPITAL FROM RETURN
ORDINARY INCOME GAINS OF CAPITAL
--------------- --------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 986,641 $ -- $ --
First Trust Morningstar Dividend Leaders 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 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 -- --
As of December 31, 2014, the components of distributable earnings on a tax basis
for each Fund were as follows:
ACCUMULATED
UNDISTRIBUTED CAPITAL AND NET UNREALIZED
ORDINARY OTHER APPRECIATION
INCOME GAIN (LOSS) (DEPRECIATION)
--------------- --------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 2,224 $ (18,913,890) $ 5,130,348
First Trust Morningstar Dividend Leaders Index Fund -- (39,357,614) 60,001,415
First Trust US IPO Index Fund 32,444 (13,766,060) 70,275,217
First Trust NYSE Arca Biotechnology Index Fund -- (12,830,204) 395,471,655
First Trust Dow Jones Internet Index Fund -- (23,906,942) 55,959,283
First Trust Capital Strength ETF -- (24,454,825) 10,704,402
First Trust Value Line(R) Equity Allocation Index Fund -- (5,064,831) 186,647
First Trust Value Line(R) Dividend Index Fund -- (38,999,328) 122,735,789
First Trust Value Line(R) 100 Exchange-Traded Fund -- (83,951,813) 2,209,874
G. INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2011, 2012,
2013 and 2014 remain open to federal and state audit. As of December 31, 2014,
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, 2014, 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS POST- TOTAL
AVAILABLE AVAILABLE AVAILABLE AVAILABLE ENACTMENT - CAPITAL
THROUGH THROUGH THROUGH THROUGH NO LOSS
2015 2016 2017 2018 EXPIRATION AVAILABLE
------------ ------------ ------------ ------------ ----------- -----------
First Trust Dow Jones Select MicroCap
Index Fund $ 910,503 $ 902,807 $ 3,227,616 $ 5,096,533 $ 8,776,431 $18,913,890
First Trust Morningstar Dividend Leaders
Index Fund 198,670 14,962,284 16,831,977 473,435 6,891,248 39,357,614
First Trust US IPO Index Fund 740,683 2,682,788 1,127,563 65,058 9,149,968 13,766,060
First Trust NYSE Arca Biotechnology
Index Fund -- 2,061,136 5,787,577 1,039,054 3,942,437 12,830,204
First Trust Dow Jones Internet Index Fund -- 6,295,170 1,163,966 -- 16,447,806 23,906,942
First Trust Capital Strength ETF 180,261 11,401,861 11,336,270 1,367,556 168,877 24,454,825
First Trust Value Line(R) Equity
Allocation Index Fund 1,392,919 1,168,041 2,421,122 -- 82,749 5,064,831
First Trust Value Line(R) Dividend Index
Fund -- 18,915,138 19,646,203 437,987 -- 38,999,328
First Trust Value Line(R) 100
Exchange-Traded Fund 1,905,072 47,805,834 29,477,928 -- 4,762,979 83,951,813
During the taxable year ended December 31, 2014, the following Funds utilized
capital loss carryforwards in the following amounts:
PRE-ENACTMENT CAPITAL LOSS POST-ENACTMENT CAPITAL LOSS
CARRYFORWARD UTILIZED CARRYFORWARD UTILIZED
-------------------------- --------------------------
First Trust Dow Jones Select MicroCap Index Fund $ -- $ 3,882,825
First Trust NYSE Arca Biotechnology Index Fund -- 59,987,496
First Trust Dow Jones Internet Index Fund -- 2,392,511
First Trust Value Line(R) Equity Allocation Index Fund -- 368,963
First Trust Value Line(R) Dividend Index Fund 3,727,147 --
First Trust Value Line(R) 100 Exchange-Traded Fund -- 6,155,428
During the taxable year ended December 31, 2014, the following Fund capital loss
carryforwards expired in the following amount:
CAPITAL LOSS CARRYFORWARD
EXPIRED
--------------------------
First Trust Dow Jones Select MicroCap Index Fund $ 1,604,481
First Trust Morningstar Dividend Leaders Index Fund 202,279
First Trust US IPO Index Fund 303,759
In order to present paid-in capital 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, 2014, 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 Fund $ 26,236 $ (3,932,420) $ 3,906,184
First Trust Morningstar Dividend Leaders Index Fund 324,707 (56,401,956) 56,077,249
First Trust US IPO Index Fund 2,571 (29,554,519) 29,551,948
First Trust NYSE Arca Biotechnology Index Fund 178,479 (249,336,725) 249,158,246
First Trust Dow Jones Internet Index Fund 2,429,166 (348,347,597) 345,918,431
First Trust Capital Strength ETF 89,394 (5,668,691) 5,579,297
First Trust Value Line(R) Equity Allocation Index Fund 1,148 (304,242) 303,094
First Trust Value Line(R) Dividend Index Fund 308,043 (89,756,540) 89,448,497
First Trust Value Line(R) 100 Exchange-Traded Fund 14,929 (580,955) 566,026
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FIRST TRUST EXCHANGE-TRADED FUND
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H. EXPENSES
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund. General expenses of the Trust are allocated to all the
Funds based upon the net assets of each Fund.
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 Fund Dow Jones & Company, Inc.
First Trust Morningstar Dividend Leaders 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 Fund Dow Jones & Company, Inc.
First Trust Capital Strength ETF The NASDAQ OMX Group, Inc.
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)
The respective license agreements allow for the use by First Trust of certain
trademarks and trade names of the respective Licensors. The Funds are
sub-licensees to the applicable license agreement. The respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
I. ACCOUNTING PRONOUNCEMENT
In June 2014, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2014-11, Transfers and Servicing (Topic
860): Repurchase-to-Maturity Transactions, Repurchase Financings, and
Disclosures. A repurchase-to-maturity transaction is one where the repurchase
agreement settles at the same time as the maturity of the transferred financial
asset. These transactions, unlike other repurchase agreements, were accounted
for as sales and purchases instead of being treated as secured borrowings. This
ASU changes that accounting practice and treats all repurchase agreements as
secured borrowings. The ASU additionally requires two new disclosures which are
intended to: a) disclose information on transferred assets accounted for as
sales in transactions that are economically similar to repurchase agreements,
and b) provide increased transparency about the types of collateral pledged in
repurchase agreements and similar transactions accounted for as secured
borrowings.
The ASU impacts all entities that enter into repurchase-to-maturity
transactions, entities that account for these transactions as a sale and a
purchase, and entities that engage in repurchase agreements and securities
lending transactions.
The ASU is effective for financial statements with fiscal years beginning on or
after December 15, 2014 and interim periods within those fiscal years.
Management is evaluating the impact, if any, of this guidance on the Funds'
financial statement disclosures.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For these services, First Trust is entitled to receive monthly fees from each
Fund calculated at the following annual rates:
% OF AVERAGE
DAILY NET ASSETS
----------------
First Trust Dow Jones Select MicroCap Index Fund 0.50%
First Trust Morningstar Dividend Leaders Index Fund 0.30%
First Trust US IPO Index Fund 0.40%
First Trust NYSE Arca Biotechnology Index Fund 0.40%
First Trust Dow Jones Internet Index Fund 0.40%
First Trust Capital Strength ETF 0.50%
First Trust Value Line(R) 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%
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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, 2015.
EXPENSE CAP
----------------
First Trust Dow Jones Select MicroCap Index Fund 0.60%
First Trust Morningstar Dividend Leaders 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 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 a Fund if it results in the Fund exceeding an expense ratio equal to the
Expense Cap in place at the time the expenses were reimbursed or fees were
waived by First Trust. These amounts 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, 2014 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 12/31/2012 12/31/2013 12/31/2014 TOTAL
---------- ------------- ------------ ------------ ------------ ------------
First Trust Dow Jones Select MicroCap
Index Fund $ 66,284 $ -- $ 79,603 $ 115,749 $ 66,284 $ 261,636
First Trust Morningstar Dividend Leaders
Index Fund 273,147 -- 322,632 269,543 273,147 865,322
First Trust US IPO Index Fund 23,043 -- 76,150 70,526 23,043 169,719
First Trust NYSE Arca Biotechnology Index Fund -- -- -- -- -- --
First Trust Dow Jones Internet Index Fund -- -- -- -- -- --
First Trust Capital Strength ETF 4,069 -- 59,498 49,536 4,069 113,103
First Trust Value Line(R) Equity Allocation
Index Fund 26,091 102,599 59,245 59,346 128,690 247,281
First Trust Value Line(R) Dividend Index Fund 408,933 -- 350,127 391,960 408,933 1,151,020
First Trust Value Line(R) 100 Exchange-Traded
Fund 85,675 -- 88,774 81,246 85,675 255,695
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the servicing agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Trust. As custodian, BNYM is responsible for custody of the Trust's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of the Trust's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Trust. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2014, the cost of purchases and proceeds from
sales of investments for each Fund, excluding short-term investments and in-kind
transactions, were as follows:
PURCHASES SALES
--------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ 34,829,168 $ 34,761,724
First Trust Morningstar Dividend Leaders Index Fund 313,014,959 311,168,349
First Trust US IPO Index Fund 221,043,446 219,747,735
First Trust NYSE Arca Biotechnology Index Fund 843,642,230 819,286,078
First Trust Dow Jones Internet Index Fund 516,834,272 519,984,897
First Trust Capital Strength ETF 67,528,361 67,463,682
First Trust Value Line(R) Equity Allocation Index Fund 9,548,079 9,557,104
First Trust Value Line(R) Dividend Index Fund 565,821,039 565,071,367
First Trust Value Line(R) 100 Exchange-Traded Fund 192,657,308 192,553,046
For the year ended December 31, 2014, the cost of in-kind purchases and proceeds
from in-kind sales for each Fund were as follows:
PURCHASES SALES
--------------- ---------------
First Trust Dow Jones Select MicroCap Index Fund $ -- $ 38,817,640
First Trust Morningstar Dividend Leaders Index Fund 491,808,859 258,465,600
First Trust US IPO Index Fund 266,525,896 127,025,810
First Trust NYSE Arca Biotechnology Index Fund 1,216,581,030 580,925,562
First Trust Dow Jones Internet Index Fund 1,278,624,595 1,223,853,793
First Trust Capital Strength ETF 53,108,855 43,251,372
First Trust Value Line(R) Equity Allocation Index Fund 1,260,694 1,276,717
First Trust Value Line(R) Dividend Index Fund 720,677,479 541,597,412
First Trust Value Line(R) 100 Exchange-Traded Fund 8,781,915 10,465,129
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.
Page 71
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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 contractual
arrangements, no 12b-1 fees will be paid any time before April 30, 2015 (April
30, 2016 for First Trust Total US Market AlphaDEX(R) ETF (TUSA)).
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 was the following subsequent event:
Effective January 9, 2015, the First Trust Value Line(R) Equity Allocation Index
Fund changed its name to First Trust Total US Market AlphaDEX(R) ETF and began
trading under its new ticker symbol "TUSA" on the NASDAQ.
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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 Fund, First Trust Morningstar Dividend
Leaders Index Fund, First Trust US IPO Index Fund, First Trust NYSE Arca
Biotechnology Index Fund, First Trust Dow Jones Internet Index Fund, First Trust
Capital Strength ETF, First Trust Value Line(R) Equity Allocation Index Fund,
First Trust Value Line(R) Dividend Index Fund, and First Trust Value Line(R) 100
Exchange-Traded Fund (collectively, the "Funds"), each a series of the First
Trust Exchange-Traded Fund (the "Trust"), including the portfolios of
investments, as of December 31, 2014, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2014 by correspondence with the Trust'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, 2014, 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 25, 2015
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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 Fund'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 Fund'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, 2014, the following percentages of
income dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Dividends Received Deduction
------------------------------
First Trust Dow Jones Select MicroCap Index Fund 100.00%
First Trust Morningstar Dividend Leaders Index Fund 100.00%
First Trust US IPO Index Fund 100.00%
First Trust NYSE Arca Biotechnology Index Fund 100.00%
First Trust Dow Jones Internet Index 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 93.76%
First Trust Value Line(R) 100 Exchange-Traded Fund 100.00%
For the taxable year ended December 31, 2014, 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 Fund 100.00%
First Trust Morningstar Dividend Leaders Index Fund 100.00%
First Trust US IPO Index Fund 100.00%
First Trust NYSE Arca Biotechnology Index Fund 100.00%
First Trust Dow Jones Internet Index 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)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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 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 Fund invests in
micro-capitalization companies. Such companies may be more vulnerable to adverse
general market or economic developments, may be less liquid, and may experience
greater price volatility than larger, more established companies.
The First Trust Dow Jones Internet Index Fund invests in stocks of companies in
the technology sector. You should be aware that an investment in a portfolio
which invests in a particular sector involves additional risks, including
limited diversification. The companies engaged in the technology sector are
subject to fierce competition and high research and development costs, and their
products and services may be subject to rapid obsolescence.
The First Trust NYSE Arca Biotechnology Index Fund is concentrated in stocks of
companies in the biotechnology sector. You should be aware that an investment in
a portfolio which is concentrated in a particular sector involves additional
risks, including limited diversification. The companies engaged in the
biotechnology sector are subject to fierce competition, substantial research and
development costs, governmental regulations and pricing constraints, and their
products and services may be subject to rapid obsolescence.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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 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 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 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 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 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 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
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BOARD OF TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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; 114 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 114 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 and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 114 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 Managing Director and Chief Operating 114 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present),Pelita Covenant
120 East Liberty Drive, o Since Inception Harapan Educational Foundation(Educational Transport, Inc.
Suite 400 Products and Services); President and Chief (May 2003 to
Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014)
D.O.B.: 03/54 2014), Servant Interactive LLC (Educational
Products and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services); President
(June 2002 to June 2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 to 114 None
Chairman of the Board Present), President (until December 2010),
120 East Liberty Drive, o Since Inception First Trust Advisors L.P. and First Trust
Suite 400 Portfolios L.P.; Chairman of the Board of
Wheaton, IL 60187 Directors, BondWave LLC (Software
D.O.B.: 09/55 Development Company/Investment Advisor
and Stonebridge Advisors LLC (Investment
Advisor)
-------------------
(1) Mr. Bowen is deemed an "interested person" of the Trust due to his
position as Chief Executive Officer of First Trust Advisors L.P.,
investment advisor of the Trust.
Page 77
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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 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 Present), 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. and 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
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, (November 2003 to Present),
120 E. Liberty Drive, Vice President (August 2001 to November 2003),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term Senior Vice President (September 2012 to Present),
120 E. Liberty Drive, Vice President (August 2005 to September 2012),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 11/70
-------------------
(2) The term "officer" means the president, vice president, secretary,
treasurer, controller or any other officer who performs a policy making
function.
Page 78
--------------------------------------------------------------------------------
PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and considers your privacy an
important priority in maintaining that relationship. We are committed to
protecting the security and confidentiality of your personal information.
SOURCES OF INFORMATION
We collect nonpublic personal information about you from the following sources:
o Information we receive from you and your broker-dealer, investment
advisor or financial representative through interviews,
applications, agreements or other forms;
o Information about your transactions with us, our affiliates or
others;
o Information we receive from your inquiries by mail, e-mail or
telephone; and
o Information we collect on our website through the use of "cookies".
For example, we may identify the pages on our website that your
browser requests or visits.
INFORMATION COLLECTED
The type of data we collect may include your name, address, social security
number, age, financial status, assets, income, tax information, retirement and
estate plan information, transaction history, account balance, payment history,
investment objectives, marital status, family relationships and other personal
information.
DISCLOSURE OF INFORMATION
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. In addition to using
this information to verify your identity (as required under law), the permitted
uses may also include the disclosure of such information to unaffiliated
companies for the following reasons:
o In order to provide you with products and services and to effect
transactions that you request or authorize, we may disclose your
personal information as described above to unaffiliated financial
service providers and other companies that perform administrative or
other services on our behalf, such as transfer agents, custodians
and trustees, or that assist us in the distribution of investor
materials such as trustees, banks, financial representatives, proxy
services, solicitors and printers.
o We may release information we have about you if you direct us to do
so, if we are compelled by law to do so, or in other legally limited
circumstances (for example to protect your account from fraud).
In addition, in order to alert you to our other financial products and services,
we may share your personal information with affiliates of the Fund.
PRIVACY ONLINE
We allow third-party companies, including AddThis, to collect certain anonymous
information when you visit our website. These companies may use non-personally
identifiable information during your visits to this and other websites in order
to provide advertisements about goods and services likely to be of greater
interest to you. These companies typically use a cookie, third party web beacon
or pixel tags, to collect this information. To learn more about this behavioral
advertising practice, you can visit www.networkadvertising.org.
CONFIDENTIALITY AND SECURITY
With regard to our internal security procedures, we restrict access to your
nonpublic personal information to those individuals who need to know that
information to provide products or services to you. We maintain physical,
electronic and procedural safeguards to protect your nonpublic personal
information.
POLICY UPDATES AND INQUIRIES
As required by federal law, we will notify you of our privacy policy annually.
We reserve the right to modify this policy at any time, however, if we do change
it, we will tell you promptly. For questions about our policy, or for additional
copies of this notice, please go to www.ftportfolios.com, or contact us at
1-800-621-1675 (First Trust Portfolios) or 1-800-222-6822 (First Trust
Advisors).
Page 79
This page intentionally left blank.
FIRST TRUST
First Trust Exchange-Traded Fund
INVESTMENT ADVISOR
First Trust Advisors L.P.
120 East Liberty Drive, Suite 400
Wheaton, IL 60187
ADMINISTRATOR, CUSTODIAN,
FUND ACCOUNTANT &
TRANSFER AGENT
The Bank of New York Mellon
101 Barclay Street
New York, NY 10286
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
111 S. Wacker Drive
Chicago, IL 60606
LEGAL COUNSEL
Chapman and Cutler LLP
111 W. Monroe Street
Chicago, IL 60603
[BLANK BACK COVER]
FIRST TRUST
First Trust Exchange-Traded Fund
Book 2
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)
First Trust S&P REIT Index Fund (FRI)
First Trust 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(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH)
Annual Report
December 31, 2014
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
Shareholder Letter........................................................... 2
Market Overview.............................................................. 3
Fund Performance Overview
First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW)................... 4
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 6
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............. 8
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 10
First Trust S&P REIT Index Fund (FRI)..................................... 12
First Trust 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(R) S&P 500(R) VIX(R) 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 Fund (QQEW)................... 27
First Trust NASDAQ-100-Technology Sector Index Fund (QTEC)................ 30
First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT)............. 31
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (QCLN)........ 33
First Trust S&P REIT Index Fund (FRI)..................................... 36
First Trust ISE Water Index Fund (FIW).................................... 39
First Trust ISE-Revere Natural Gas Index Fund (FCG)....................... 40
First Trust ISE Chindia Index Fund (FNI).................................. 42
First Trust NASDAQ(R) ABA Community Bank Index Fund (QABA)................ 45
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (VIXH).............. 47
Statements of Assets and Liabilities......................................... 54
Statements of Operations..................................................... 56
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, 2014
Dear Shareholders:
I am pleased to present you with the annual report for your investment in First
Trust Exchange-Traded Fund (the "Trust"). This report provides detailed
information about the Trust, including a performance review and the financial
statements for the 12 months ended December 31, 2014. I encourage you to read
this document and discuss it with your financial advisor.
Although markets have seemed choppy over the past 12 months, the U.S. has shown
sustained growth over the period. In fact, the S&P 500(R) Index, as measured on
a total return basis, rose 13.69% in the time covered by this report. First
Trust Advisors L.P. ("First Trust") believes that staying invested in quality
products through different types of markets can benefit investors over the long
term.
First Trust is pleased to offer a variety of products that we believe could fit
the financial plans for many investors seeking long-term investment success. We
invite you to look at our investment products with your financial advisor to
determine if any of them might fit your financial goals. We believe that
regularly discussing your financial objectives and investment options with your
financial advisor can help keep you on track.
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, 2014
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 24 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
The current U.S. economic recovery is 66 months old (June 2009 - December 2014).
From June 2009 - December 2014, GDP growth averaged 2.2%, according to the
Bureau of Economic Analysis. Following what had been characterized as a
weather-induced slowdown in the first quarter of 2014 (GDP was -2.1%
annualized), the rate of GDP growth bounced back markedly in the second quarter
(GDP was 4.6% annualized) and in the third quarter (GDP was 5.0% annualized).
The U.S. GDP forecast for 2015 from the International Monetary Fund (IMF) calls
for a 3.1% growth rate, which is stronger than the 2.2% growth rate posted so
far in the current economic recovery. The last time U.S. GDP growth was 3.0% or
higher was in 2005 (3.3%). The IMF sees the global economy growing by 3.8% in
2015.
In 2014, the combination of a pickup in job growth (nonfarm payrolls) and GDP
growth in the U.S. failed to ignite any meaningful inflationary pressures.
Nonfarm payrolls grew by an average of 233,540 per month in 2014, up from an
average of 195,770 in 2013 and 187,080 in 2012, according to data from the
Bureau of Labor Statistics. At the beginning of the recovery in 2009, many
economists stated that the U.S. would need to create roughly 250,000 new jobs
per month to make a serious dent in unemployment. While the 233,540 average
posted in 2014 falls a bit short of that demarcation line, the number of jobs
created in each the last four months of the year did eclipse that mark.
One of the areas of the U.S. economy to monitor in 2015 is manufacturing. While
it has helped drive the U.S. economic recovery to date, one key indicator,
capacity utilization, has yet to ascend to the levels maintained in 2006 and
2007, when it averaged 80.4% for the year, according to data from the Federal
Reserve. Only once in this 66-month recovery has it topped 80%, and that was in
November 2014.
U.S. STOCKS AND BONDS
In 2014, all of the major U.S. stock indices posted positive total returns. The
S&P 500(R) Index, S&P MidCap 400(R) Index and S&P SmallCap 600(R) Index were up
13.69%, 9.77% and 5.76%, respectively, according to Bloomberg. All but one of
the 10 major S&P 500(R) Index sectors posted positive total returns. The
top-performing sector indices were the S&P 500(R) Utilities Index, S&P 500(R)
Health Care Index and the S&P 500(R) Information Technology Index, up 28.98%,
25.34% and 20.12%, respectively. The only sector index down in 2014 was the S&P
500(R) Energy Index, which posted a total return of -7.79%. Volatility in the
equities markets, which has been relatively subdued over the past couple of
years, did spike a bit in the second half of 2014. The Chicago Board Options
Exchange Market Volatility Index (the "VIX Index"),, which tracks the S&P 500(R)
Index, rose from a reading of 11.57 on June 30, 2014 to 19.20 on December 31,
2014. Over the past 25 years, the VIX Index has averaged 19.97, according to
data from Bloomberg.
The estimated earnings growth rates for 2015 for the S&P 500(R) Index, S&P
MidCap 400(R) Index and S&P SmallCap 600(R) Index were 12.19%, 29.78% and
30.90%, respectively, as of December 31, 2014, according to S&P Dow Jones
Indices. We believe that corporate earnings drive the direction of stock prices
over time, especially when the market is setting record highs. The all-time high
(2090.57) for the S&P 500(R) Index was set on December 29, 2014. The potential
for higher corporate earnings and GDP growth in 2015 are reasons to be
optimistic, in our opinion.
In the U.S. bond market, the top-performing major debt group in 2014 was
municipal bonds. The Barclays Municipal Bond: Long Bond 22+ Index posted a total
return of 15.39%. The next closest domestic category was mortgages, up 6.03%, as
measured by the Barclays GNMA (30 Year) Index. Fixed-income securities benefited
from the retrenchment in interest rates in 2014. The yield on the benchmark
10-Year Treasury note, which had spiked 127 basis points in 2013, declined by 86
basis points in 2014, from 3.03% to 2.17%. Investors should take note that many
economists believe the Federal Reserve could begin raising interest rates in
2015, perhaps by midyear.
FOREIGN STOCKS AND BONDS
The U.S. dollar ("USD") rose 12.79% against a basket of major currencies in
2014, as measured by the U.S. Dollar Index. The entire move up came in the
second half of the year. That strong of a move certainly had a major impact on
the returns for those U.S. investors holding foreign securities. Foreign bond
indices generated modest returns in 2014. The Barclays EM Hard Currency
Aggregate Index of emerging markets debt posted a total return of 3.13% (USD),
while the Barclays Global Aggregate Index of higher quality debt rose by 0.59%
(USD). Foreign equities did not perform as well. The MSCI Emerging Markets Index
of stocks posted a total return of -2.19% (USD), while the MSCI World Index
(excluding the U.S.) posted a total return of -4.32% (USD).
Page 3
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FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
The First Trust NASDAQ-100 Equal Weighted Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Equal
Weighted Index(SM) (the "Index"). The Fund will normally invest at least 90% of
its assets in common stocks that comprise the Index. The Index is the
equal-weighted version of the NASDAQ-100 Index(R) which includes 100 of the
largest non-financial securities listed on the NASDAQ(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 (4/19/06) Ended (4/19/06)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 19.13% 17.68% 9.65% 125.73% 122.83%
Market Value 19.21% 17.68% 9.66% 125.71% 123.03%
INDEX PERFORMANCE
NASDAQ-100 Equal Weighted Index(SM) 19.84% 18.43% 10.33% 132.96% 135.28%
S&P 500(R) Index 13.69% 15.45% 7.61% 105.14% 89.24%
NASDAQ-100 Index(R) 19.40% 19.23% 11.79% 140.97% 163.91%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 19.13% during the 12-month period covered by
this report. During the same period, the NASDAQ-100 Index(R) ("benchmark")
generated a return of 19.40%. The Information Technology sector was the
top-contributing sector in the Fund with a 10.3% contribution. The Fund
allocated 42.1% of its average weight to the sector, which returned 24.8%. Solid
performance from the Health Care sector helped it be the second-best
contributing sector with a 5.0% contribution to the Fund's return. The Fund's
holdings in the sector returned 35.8% and comprised 14.3% of the Fund's average
weight. The Biotechnology industry was the main driver of the Health Care
sector's performance. Vertex Pharmaceuticals, Inc. (59.9% return), Regeneron
Pharmaceuticals, Inc. (49.1%), and Amgen, Inc. (42.2%) boosted the performance
of the Fund's Biotechnology holdings to 41.4%. The Telecommunications sector was
a drag on the Fund's return. Due to the performance of VimpelCom Ltd. (-67.6%)
and Vodafone Group Plc (-27.8%), the Fund's performance in the
Telecommunications sector was -26.1%. However, the Fund's low average weight in
the sector (2.9%) limited the damage and the sector only detracted -0.8% from
the Fund's return. The Fund and its benchmark had very similar performance as
the Fund is an equally weighted version of the benchmark. The Fund's relative
performance was hindered by being underweight Apple, Inc. (40.6% return), but
benefited from being underweight Amazon, Inc. (-22.1% return), Google, Inc.,
Class A (-4.9%) and Google, Inc. Class C (-5.7%).
-------------------
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
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FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 41.81%
Consumer Discretionary 27.49
Health Care 13.70
Industrials 7.06
Consumer Staples 5.95
Telecommunication Services 2.98
Materials 1.01
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Mattel, Inc. 1.06%
American Airlines Group, Inc. 1.06
Express Scripts Holding Co. 1.05
Bed Bath & Beyond, Inc. 1.04
Ross Stores, Inc. 1.04
Amazon.com, Inc. 1.04
Whole Foods Market, Inc. 1.04
Starbucks Corp. 1.04
Staples, Inc. 1.04
Tractor Supply Co. 1.03
-------
Total 10.44%
=======
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.
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 19, 2006 - DECEMBER 31, 2014
First Trust NASDAQ-100 S&P 500(R) NASDAQ-100 Equal NASDAQ-100
Equal Weighted Index Fund Index Weighted Index(SM) Index(R)
04/06 $10,000 $10,000 $10,000 $10,000
12/06 10,060 10,975 10,097 10,168
06/07 11,050 11,739 11,117 11,217
12/07 11,040 11,579 11,142 12,124
06/08 9,673 10,199 9,785 10,708
12/08 6,187 7,295 6,292 7,084
06/09 7,653 7,526 7,803 8,671
12/09 9,871 9,225 10,100 10954
06/10 9,314 8,612 9,561 10,278
12/10 11,968 10,616 12,321 13,161
06/11 12,867 11,254 13,288 13,849
12/11 11,636 10,839 12,063 13,645
06/12 12,704 11,868 13,203 15,750
12/12 13,365 12,574 13,927 16,145
06/13 15,450 14,312 16,172 17,774
12/13 18,704 16,646 19,636 22,109
06/14 20,197 17,835 21,268 23,849
12/14 22,283 18,927 23,531 26,395
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK MIDPOINT VS. NAV AS OF DECEMBER 31, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 161 3 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/14 - 12/31/14 87 1 0 0
Page 5
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
The First Trust NASDAQ-100-Technology Sector Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Technology
Sector 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 24.83% 16.44% 9.86% 114.01% 126.56%
Market Value 24.87% 16.42% 9.87% 113.84% 126.82%
INDEX PERFORMANCE
NASDAQ-100 Technology Sector Index(SM) 25.64% 17.17% 10.55% 120.84% 139.34%
S&P 500 Information Technology Index 20.12% 14.86% 9.49% 99.89% 120.10%
S&P 500(R) Index 13.69% 15.45% 7.61% 105.14% 89.24%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 24.83% during the 12-month period covered by
this report. During the same period, the S&P 500 Information Technology Index
("benchmark") generated a return of 20.12%. The Semiconductor industry was the
heaviest-weighted, top-performing, and best-contributing industry in the Fund.
The Fund's Semiconductor holdings comprised 34.5% of the Fund's weight and
returned 34.3% resulting in an 11.6% contribution to return. The Internet
Software & Services industry was the Fund's second best-contributing industry at
4.0%. The Fund's holdings in the industry returned 23.3% and comprised 16.1% of
the Fund's average weight. Strong returns from Facebook, Inc., Class A (42.7%),
Akamai Technologies, Inc. (33.4%), and Equinix, Inc. (32.7%) helped the
industry's return. Relative to its benchmark, the Fund outperformed. The
previously mentioned Semiconductor industry was the leading cause of
outperformance, as the Fund was overweight the industry 34.5% vs. 12.0%. The
Fund gained additional outperformance in the Internet Software & Services
industry where the Fund's holdings returned 23.3% vs. 8.0% for the benchmark's
constituents. Furthermore, the Fund's relative performance benefited from an
underweight position (2.8% vs. 18.4% average weight) in the weak-performing IT
Services industry. Some of the Fund's outperformance was reversed in the
Technology Hardware Storage & Peripherals industry where the Fund underperformed
(28.9% vs. 38.0% return) and was underweight (12.5% vs. 23.3% average weight).
Most of the performance and weighting difference in the industry came from the
Fund's underweight position in Apple, Inc. (2.6% vs. 17.4% average weight),
which returned 40.6%.
-------------------
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 FUND (QTEC) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 92.19%
Health Care 5.25
Consumer Discretionary 2.56
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Catamaran Corp. 2.66%
Micron Technology, Inc. 2.62
QUALCOMM, Inc. 2.62
Broadcom Corp., Class A 2.61
Citrix Systems, Inc. 2.61
KLA-Tencor Corp. 2.61
Xilinx, Inc. 2.60
Cerner Corp. 2.60
Avago Technologies Ltd. 2.59
Check Point Software Technologies Ltd. 2.59
-------
Total 26.11%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
APRIL 19, 2006 - DECEMBER 31, 2014
First Trust NASDAQ-100
NASDAQ-100-Technology Technology Sector S&P 500 Information S&P 500(R)
Sector Index Fund Index(SM) Technology Index Index
04/06 $10,000 $10,000 $10,000 $10,000
12/06 9,985 10,020 10,296 10,975
06/07 10,925 10,989 11,256 11,739
12/07 10,750 10,847 11,975 11,579
06/08 9,755 9,872 10,409 10,199
12/08 5,885 5,983 6,809 7,295
06/09 7,890 8,048 8,502 7,526
12/09 10,587 10,838 11,011 9,224
06/10 9,782 10,041 9,847 8,611
12/10 12,907 13,293 12,133 10,615
06/11 13,006 13,435 12,383 11,253
12/11 12,165 12,606 12,426 10,839
06/12 12,720 13,222 14,084 11,868
12/12 13,141 13,702 14,269 12,574
06/13 14,681 15,357 15,175 14,312
12/13 18,150 19,047 18,325 16,646
06/14 20,531 21,615 19,963 17,835
12/14 22,656 23,930 22,011 18,927
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 171 4 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%
01/01/10 - 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
01/01/14 - 12/31/14 76 1 0 0
Page 7
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
The First Trust NASDAQ-100 Ex-Technology Sector Index Fund (the "Fund") seeks
investment results that correspond generally to the price and yield (before the
Fund's fees and expenses) of an equity index called the NASDAQ-100 Ex-Tech
Sector 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 15.35% 18.53% 9.65% 133.93% 106.97%
Market Value 15.47% 18.56% 9.67% 134.30% 107.18%
INDEX PERFORMANCE
NASDAQ-100 Ex-Tech Sector Index(SM) 16.03% 19.28% 10.35% 141.41% 117.58%
Russell 1000(R) Index 13.24% 15.64% 6.99% 106.79% 70.42%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 15.35% during the 12-month period covered by
this report. During the same period, the Russell 1000(R) Index ("benchmark")
generated a return of 13.24%. The Health Care sector was the top-contributing
sector in the Fund with a contribution of 7.8%. The Fund's holdings from the
sector returned 39.8% and comprised 20.6% of the Fund's average weight. Much of
the sector's strong performance came from the Biotechnology industry where the
Fund had a 12.1% average weight and received performance of 41.4%. The Consumer
Discretionary sector was the Fund's second-best contributing sector with a
contribution of 3.7%. The Fund's holdings in the sector had a below average
return of 8.8%, but an average of 44.7% of the Fund's weight was allocated to
Consumer Discretionary stocks. Relative to its benchmark, the Fund outperformed.
The Health Care sector was the largest source of outperformance as the Fund was
overweight the sector (20.6% vs. 13.3% average weight) and received
outperformance (39.8% vs. 25.7% return) relative to the benchmark. Additional
outperformance was gained by the Fund having no exposure to the weak-performing
Energy sector. Some of the Fund's outperformance was reversed by the Fund being
overweight the weak-performing Consumer Staples sector (44.7% vs. 12.6% average
weight) 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 FUND (QQXT) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR (1) LONG-TERM INVESTMENTS
Consumer Discretionary 43.34%
Health Care 19.08
Industrials 11.55
Information Technology 9.77
Consumer Staples 9.74
Telecommunication Services 4.87
Materials 1.65
-------
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, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Mattel, Inc. 1.74%
American Airlines Group, Inc. 1.74
Express Scripts Holding Co. 1.72
Bed Bath & Beyond, Inc. 1.70
Ross Stores, Inc. 1.70
Amazon.com, Inc. 1.70
Whole Foods Market, Inc. 1.70
Starbucks Corp. 1.70
Staples, Inc. 1.69
Tractor Supply Co. 1.69
-------
Total 17.08%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 8, 2007 - DECEMBER 31, 2014
First Trust NASDAQ-100 Ex-Technology NASDAQ-100 Ex-Tech Russell 1000(R)
Sector Index Fund Sector Index(SM) Index
02/07 $10,000 $10,000 $10,000
12/07 10,595 10,653 10,282
06/08 9,057 9,126 9,131
12/08 6,029 6,102 6,417
06/09 7,060 7,165 6,694
12/09 8,848 9,009 8,241
06/10 8,454 8,633 7,714
12/10 10,674 10,935 9,568
06/11 11,961 12,294 10,177
12/11 10,558 10,894 9,711
06/12 11,906 12,317 10,622
12/12 12,703 13,172 11,306
06/13 15,089 15,721 12,879
12/13 17,942 18,744 15,050
06/14 18,764 19,668 16,144
12/14 20,697 21,757 17,043
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 151 14 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%
01/01/10 - 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
01/01/14 - 12/31/14 79 7 1 0
Page 9
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
The First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund (the "Fund")
seeks investment results that correspond generally to the price and yield
(before the Fund's fees and expenses) of an equity index called the NASDAQ(R)
Clean Edge(R) Green Energy Index(SM) (the "Index"). The Fund will normally
invest at least 90% of its assets in common stocks that comprise the Index. The
Index is an equity index designed to track the performance of clean energy
companies that are publicly traded in the United States and includes companies
engaged in manufacturing, development, distribution and installation of emerging
clean-energy technologies including, but not limited to, solar photovoltaics,
biofuels and advanced batteries. The Index is a modified market capitalization
weighted index in which larger companies receive a larger Index weighting. The
Index weighting methodology also includes caps to prevent high concentrations
among larger alternative energy stocks. The Index is reconstituted semi-annually
in March and September and rebalanced quarterly. The Fund's shares are listed
for trading on the NASDAQ(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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV -3.05% 1.89% -1.56% 9.81% -11.66%
Market Value -3.05% 1.89% -1.56% 9.82% -11.65%
INDEX PERFORMANCE
NASDAQ(R) Clean Edge(R) Green Energy Index(SM) -3.13% 1.93% -1.28% 10.02% -9.64%
Russell 2000(R) Index 4.89% 15.55% 6.51% 105.95% 64.55%
---------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -3.05% during the 12-month period covered by
this report. During the same period, the Russell 2000(R) Index ("benchmark")
generated a return of 4.89%. In general companies involved in solar power were
down sharply during the year. Lower demand from China caused major solar
providers to cut forward-looking guidance. Most of the Fund's solar holdings are
grouped in the Semiconductor industry as part of the Information Technology
sector, or in the Electrical Equipment industry as part of the Industrials
sector. The Semiconductor industry comprised 56.2% of the Fund's average weight
and returned -6.3% resulting in a -3.5% contribution to the Fund's return. The
Fund's holdings in the Electrical Equipment industry returned -11.1% and
comprised 10.0% of the Fund's average weight resulting in a contribution to
return of -1.9%. Real Goods Solar, Inc., Rene Sola Ltd. and Yingli Green Energy
Holdings were examples of poor-performing solar companies as they returned
-60.6%, -59.1% and -53.4%, respectively, while held in the Fund this reporting
period. Tesla Motors, Inc. was a bright spot in the Fund as the company returned
47.9% and had an average weight in the Fund of 8.8%. Relative to its benchmark,
the Fund underperformed. The majority of the underperformance came from the
previously mentioned Semiconductor and Electrical Equipment industries. In the
Electrical Equipment industry, the Fund was hurt mostly by being overweight the
weak-performing industry. In the Semiconductor industry, the Fund was
overweight, but was hurt most by poor performance. The Semiconductor industry in
general had a strong year, but the Fund's focus on solar companies dragged its
performance in the industry down to -6.3% vs. 36.6% for the benchmark.
-------------------
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, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 61.61%
Industrials 17.08
Utilities 10.12
Consumer Discretionary 7.47
Energy 3.10
Financials 0.62
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
ITC Holdings Corp. 8.30%
Linear Technology Corp. 8.13
Tesla Motors, Inc. 7.47
SunEdison, Inc. 6.97
SolarCity Corp. 6.77
ON Semiconductor Corp. 4.61
Microsemi Corp. 4.26
Hexcel Corp. 3.94
SunPower Corp. 3.77
First Solar, Inc. 3.75
-------
Total 57.97%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
FEBRUARY 8, 2007 - DECEMBER 31, 2014
First Trust NASDAQ(R) NASDAQ(R) Clean
Clean Edge(R) Green Edge(R) Green Energy Russell 2000(R)
Energy Index Fund Index(SM) Index
02/07 $10,000 $10,000 $10,000
12/07 15,430 15,522 9,489
06/08 12,350 12,472 8,599
12/08 5,595 5,675 6,283
06/09 6,920 7,038 6,449
12/09 8,045 8,213 7,990
06/10 6,665 6,824 7,834
12/10 8,210 8,434 10,136
06/11 7,640 7,879 10,765
12/11 4,825 4,992 9,713
06/12 4,670 4,822 10,542
12/12 4,801 4,927 11,301
06/13 7,177 7,346 13,093
12/13 9,111 9,329 15,688
06/14 10,479 10,732 16,188
12/14 8,834 9,037 16,455
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 122 3 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
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
01/01/14 - 12/31/14 124 3 0 0
Page 11
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 29.61% 16.38% 4.02% 113.50% 35.20%
Market Value 29.67% 16.39% 4.03% 113.59% 35.27%
INDEX PERFORMANCE
S&P United States REIT Index* 30.26% 17.01% N/A 119.33% N/A
FTSE EPRA/NAREIT North America Index 28.15% 16.37% 4.25% 113.39% 37.47%
Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08%
---------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
</FN>
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 29.61% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.56%. Overall it was a very strong year for real estate
investment trusts ("REITs"). Retail REITs contributed 8.2% to the Fund's return
to lead all other REIT categories. The Fund's Retail holdings comprised 25.6% of
the Fund's weight and returned 32.3%. Mergers and acquisitions activity among
Malls was a driver of the year's strong returns. Residential REITs were the
best-performing and second-best contributing REIT category in the Fund with a
38.5% return and a 6.0% contribution. Improving housing markets and continued
low interest rates aided the category's returns. Relative to the benchmark, the
Fund outperformed due to the Fund being solely concentrated in the
strong-performing REIT industry.
-------------------
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, 2014
-----------------------------------------------------------
% OF TOTAL
REIT CLASS LONG-TERM INVESTMENTS
Retail 25.63%
Residential 16.23
Office 13.51
Healthcare 13.35
Diversified 10.01
Specialized 8.64
Hotel & Resort 7.94
Industrials 4.69
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Simon Property Group, Inc. 8.12%
Public Storage 3.85
Equity Residential 3.73
Health Care REIT, Inc. 3.56
AvalonBay Communities, Inc. 3.10
Prologis, Inc. 3.09
Ventas, Inc. 3.03
Vornado Realty Trust 2.95
HCP, Inc. 2.90
Boston Properties, Inc. 2.83
-------
Total 37.16%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2014
First Trust S&P REIT FTSE EPRA/NAREIT Russell 3000(R)
Index Fund North America Index Index
05/07 $10,000 $10,000 $10,000
12/07 8,093 8,206 9,811
06/08 7,739 7,843 8,728
12/08 4,947 4,872 6,151
06/09 4,319 4,381 6,405
12/09 6,333 6,442 7,889
06/10 6,679 6,772 7,412
12/10 8,090 8,287 9,225
06/11 8,899 9,163 9,811
12/11 8,729 8,965 9,319
06/12 10,007 10,276 10,188
12/12 10,247 10,593 10,849
06/13 10,871 11,091 12,374
12/13 10,434 10,728 14,489
06/14 12,245 12,560 15,495
12/14 13,523 13,748 16,308
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 12/31/10 185 0 0 0
01/01/11 - 12/31/11 149 1 0 0
01/01/12 - 12/31/12 159 0 0 0
01/01/13 - 12/31/13 130 0 0 0
01/01/14 - 12/31/14 193 0 0 0
--------------------------------------------------------------------------------
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%
01/01/10 - 12/31/10 67 0 0 0
01/01/11 - 12/31/11 102 0 0 0
01/01/12 - 12/31/12 91 0 0 0
01/01/13 - 12/31/13 122 0 0 0
01/01/14 - 12/31/14 59 0 0 0
Page 13
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 0.36% 13.45% 7.90% 87.92% 78.93%
Market Value 0.24% 13.45% 7.90% 87.95% 78.87%
INDEX PERFORMANCE
ISE Water Index(TM) 0.97% 14.25% 8.64% 94.68% 88.47%
Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08%
---------------------------------------------------------------------------------------------------------------------------
(
See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 0.36% during the 12-month period covered by
this report. During the same period, the Russell 3000(R) Index ("benchmark")
generated a return of 12.56%. The Materials sector contributed 1.3% to the
Fund's return to lead all other sectors. The Fund's holdings in the sector
returned 22.1% and had an average Fund weight of 5.9%. Chemical company,
Ashland, Inc. (25.0% return) and Metals & Mining company, AMCOL International
Corp. (35.2%) were the main drivers of the sector's performance. A majority of
the Fund's weight (58.5% average) was allocated to the Industrials sector. For
the most part, the performance the Fund received from the sector was flat,
except for the Construction & Engineering industry. The Construction and
Engineering industry made up 6.9% of the Fund's weight and returned -20.4%
resulting in a -1.6% contribution to the Fund's return. Layne Christensen Co.
(-44.1%) and Northwest Pipe Co. (-20.2%) were the main causes of the negative
return. Relative to its benchmark, the Fund underperformed. Most of the
underperformance came from the Industrials sector, where the Fund was overweight
(58.5% vs. 11.5% average weight) and underperformed (-2.4% vs. 8.0 return).
-------------------
"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, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Industrials 61.03%
Utilities 23.02
Materials 5.45
Information Technology 5.37
Health Care 3.84
Financials 1.29
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Pentair PLC 4.20%
Rexnord Corp. 4.14
Badger Meter, Inc. 4.12
Watts Water Technologies, Inc., Class A 4.00
Xylem, Inc. 3.99
California Water Service Group 3.97
Aqua America, Inc. 3.91
American Water Works Co., Inc. 3.86
Energy Recovery, Inc. 3.70
Northwest Pipe Co. 3.67
-------
Total 39.56%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2014
First Trust ISE ISE Water Russell 3000(R)
Water Index Fund Index(TM) Index
05/07 $10,000 $10,000 $10,000
12/07 11,212 11,260 9,811
06/08 10,992 11,056 8,728
12/08 7,915 7,987 6,151
06/09 8,168 8,276 6,405
12/09 9,522 9,681 7,889
06/10 8,989 9,168 7,412
12/10 11,378 11,653 9,225
06/11 11,910 12,243 9,811
12/11 10,738 11,076 9,319
06/12 11,803 12,225 10,188
12/12 13,619 14,153 10,849
06/13 14,585 15,220 12,374
12/13 17,830 18,667 14,489
06/14 18,338 19,251 15,495
12/14 17,894 18,847 16,308
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 195 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%
01/01/10 - 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
01/01/14 - 12/31/14 56 1 0 0
Page 15
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV -42.02% -8.09% -6.79% -34.40% -41.59%
Market Value -41.99% -8.10% -6.79% -34.43% -41.59%
INDEX PERFORMANCE
ISE-REVERE Natural Gas Index(TM) -42.03% -7.50% -6.25% -32.29% -38.95%
Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08%
S&P Composite 1500 Energy Index -9.16% 8.43% 4.13% 49.91% 36.30%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of -42.02% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Energy Index
("benchmark") generated a return of -9.16%. The Fund's performance was hit hard
by falling natural gas prices. Over the year covered by this report, the S&P
GSCI Natural Gas Spot Index fell -31.7%. Falling prices specifically impacted
exploration and production companies, where an average of 93.9% of the Fund's
weight was allocated. In total, the Oil & Gas Exploration and Production
industry returned -41.2% and contributed -38.5% to the Fund's return. Relative
to the benchmark, the Fund underperformed. The underperformance was caused by
the previously mentioned Oil & Gas Exploration & Production industry where the
Fund was overweight (93.9% vs. 25.5% average weight) relative to the benchmark.
The Fund was significantly underweight other industries such as Oil & Gas
Refining & Marketing and Oil & Gas Storage & Transportation that held up much
better against the drop in energy prices.
-------------------
"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, 2014
-----------------------------------------------------------
% OF TOTAL
SUB-INDUSTRY LONG-TERM INVESTMENTS
Oil & Gas Exploration & Production 96.29%
Integrated Oil & Gas 3.71
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Talisman Energy, Inc. 6.24%
Matador Resources Co. 4.54
Swift Energy Co. 4.50
Comstock Resources, Inc. 4.43
SM Energy Co. 4.28
Stone Energy Corp. 4.23
Devon Energy Corp. 3.95
Encana Corp. 3.89
Chesapeake Energy Corp. 3.88
Goodrich Petroleum Corp. 3.86
-------
Total 43.80%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2014
First Trust ISE-Revere ISE-REVERE Natural Russell 3000(R) S&P Composite 1500
Natural Gas Index Fund Gas Index(TM) Index Energy Index
05/07 $10,000 $10,000 $10,000 $10,000
12/07 11,166 11,213 9,804 12,170
06/08 15,755 15,942 8,721 13,578
12/08 5,967 6,016 6,147 7,810
06/09 6,454 6,518 6,405 7,740
12/09 8,903 9,017 7,889 9,092
06/10 7,752 7,891 7,412 8,016
12/10 9,992 10,254 9,225 11,036
06/11 11,012 11,342 9,811 12,304
12/11 9,308 9,620 9,319 11,469
06/12 8,426 8,735 10,188 11,132
12/12 8,051 8,375 10,849 11,967
06/13 8,290 8,639 12,374 13,130
12/13 10,075 10,530 14,489 15,006
06/14 12,210 12,790 15,495 16,951
12/14 5,842 6,105 16,308 13,630
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 140 1 0 0
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
01/01/10 - 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
01/01/14 - 12/31/14 111 0 0 0
Page 17
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
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 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)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 2.37% 7.37% 5.86% 42.68% 54.61%
Market Value 2.19% 7.33% 5.87% 42.40% 54.66%
INDEX PERFORMANCE
ISE ChIndia Index(TM) 2.75% 7.85% 6.42% 45.91% 60.93%
Russell 3000(R) Index 12.56% 15.63% 6.60% 106.72% 63.08%
MSCI Emerging Markets Index -2.19% 1.78% 1.93% 9.22% 15.71%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 2.37% during the 12-month period covered by
this report. During the same period, the MSCI Emerging Markets Index
("benchmark") generated a return of -2.19%. The Financials sector led all other
sectors in the Fund with a 4.9% contribution to the Fund's return. The Fund's
holdings from the sector returned 41.3% and comprised 13.1% of the Fund's
average weight. The strong performance in the Financials sector came from the
Indian stocks ICICI Bank Ltd., which returned 57.7% and contributed 3.3%, and
HDFC Bank Ltd., which returned 48.4% and contributed 2.0% to the Fund's return.
The Information Technology sector was the largest drag on the Fund's
performance. The Fund allocated an average of 44.2% of its weight to the sector,
which returned -6.9% and contributed -3.1% to the Fund's return. Despite strong
performance from Baidu, Inc. (28.2% return), the Information Technology stocks
from China were the source of the sector's poor returns. The Fund's Chinese
technology holdings comprised 26.9% of the Fund's average weight and returned
-12.7% resulting in a -3.3% contribution to return. NQ Mobile, Inc. and SINA
Corp. were examples of poor-performing Chinese tech companies with returns of
-72.2% and -55.6%, respectively, while held in the Fund this reporting period.
Relative to its benchmark, the Fund outperformed. Most of the outperformance
came from the previously mentioned Financials sector where the Fund's holdings
returned 41.3% vs. 5.7% for the benchmark's constituents. Additional
outperformance was gained by the Fund being underweight the weak-performing
Energy and Materials sectors. In total, the Fund had 3.3% of its average weight
in the sectors vs. 19.1% for the benchmark. Some of the Fund's outperformance
was reversed by the Information Technology sector, where the Fund's
concentration in Chinese companies caused it to underperform -6.9% vs. 9.9% for
the benchmark's technology constituents.
-------------------
"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, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 34.21%
Consumer Discretionary 32.48
Financials 15.55
Telecommunication Services 5.49
Health Care 5.10
Energy 3.62
Materials 2.05
Utilities 0.75
Industrials 0.75
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
HDFC Bank Ltd., ADR 7.16%
Infosys Ltd., ADR 7.06
ICICI Bank Ltd., ADR 7.00
Baidu, Inc., ADR 6.97
Michael Kors Holdings Ltd. 6.85
JD.com, Inc., ADR 6.77
China Mobile Ltd., ADR 4.08
Wipro Ltd., ADR 4.06
Tata Motors Ltd., ADR 3.98
Vipshop Holdings Ltd., ADR 3.98
-------
Total 57.91%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
MAY 8, 2007 - DECEMBER 31, 2014
First Trust ISE Chindia ISE ChIndia Russell 3000(R) MSCI Emerging
Index Fund Index(TM) Index Markets Index
05/07 $10,000 $10,000 $10,000 $10,000
12/07 13,873 13,952 9,804 12,715
06/08 9,985 10,059 8,721 11,220
12/08 5,968 6,031 6,147 5,934
06/09 8,329 8,451 6,405 8,071
12/09 10,836 11,031 7,889 10,593
06/10 10,540 10,767 7,412 9,939
12/10 12,836 13,175 9,225 12,592
06/11 13,047 13,466 9,811 12,703
12/11 9,497 9,771 9,319 10,273
06/12 10,069 10,375 10,188 10,677
12/12 11,121 11,483 10,849 12,145
06/13 11,258 11,659 12,374 10,983
12/13 15,103 15,665 14,489 11,829
06/14 16,047 16,680 15,495 12,555
12/14 15,461 16,096 16,308 11,571
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 96 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%
01/01/10 - 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
01/01/14 - 12/31/14 155 1 0 0
Page 19
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
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 5 Years Inception 5 Years Inception
Ended Ended (6/29/09) Ended (6/29/09)
12/31/14 12/31/14 to 12/31/14 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 2.72% 11.94% 13.23% 75.73% 98.23%
Market Value 2.55% 11.92% 13.25% 75.63% 98.46%
INDEX PERFORMANCE
NASDAQ OMX(R) ABA Community Bank Index(SM) 3.34% 12.66% 13.96% 81.48% 105.40%
S&P Composite 1500 Financials Sector Index 14.89% 13.53% 16.18% 88.57% 128.38%
Russell 3000(R) Index 12.56% 15.63% 18.33% 106.72% 152.70%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 2.72% during the 12-month period covered by
this report. During the same period, the S&P Composite 1500 Financials Index
("benchmark") generated a return of 14.89%. The expectation of continued, albeit
slow, improvement in GDP through 2016 has banks positioning themselves to
benefit from expected rate increases in the future. However, in 2014, the
10-year Treasury yield fell from just over 3.0% to under 2.2%. Consequently, the
performance of regional banks measured broadly was slightly positive, but well
behind the returns of the greater U.S. equity market. Relative to its benchmark,
the Fund underperformed. The underperformance came from the Fund's heavy
exposure to regional banks which had tepid returns relative to other financial
industries such as REITs, Diversified Financial Services, and Capital Markets.
-------------------
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, 2014
-----------------------------------------------------------
% OF TOTAL
INDUSTRY LONG-TERM INVESTMENTS
Commercial Banks 87.69%
Thrifts & Mortgage Finance 11.94
IT Services 0.37
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Signature Bank 3.81%
Zions Bancorporation 3.47
East West Bancorp, Inc. 3.34
PacWest Bancorp 2.78
TFS Financial Corp. 2.68
Commerce Bancshares, Inc. 2.52
BOK Financial Corp. 2.50
Investors Bancorp, Inc. 2.41
Umpqua Holdings Corp. 2.22
Popular, Inc. 2.12
-------
Total 27.85%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
JUNE 29, 2009 - DECEMBER 31, 2014
First Trust NASDAQ(R) ABA NASDAQ OMX(R) ABA S&P Composite 1500 Russell 3000(R)
Community Bank Index Fund Community Bank Index(SM) Financials Sector Index Index
06/09 $10,000 $10,000 $10,000 $10,000
12/09 11,280 11,318 12,112 12,224
06/10 11,438 11,505 11,744 11,484
12/10 12,721 12,846 13,722 14,293
06/11 12,520 12,688 13,420 15,201
12/11 11,898 12,095 11,662 14,439
06/12 13,081 13,343 13,227 15,785
12/12 13,507 13,817 14,806 16,809
06/13 16,006 16,427 17,584 19,172
12/13 19,302 19,873 19,879 22,448
06/14 19,296 19,929 20,907 24,006
12/14 19,827 20,537 22,839 25,266
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, 2014
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, 2010 through
December 31, 2014. 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%
01/01/10 - 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
01/01/14 - 12/31/14 115 9 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%
01/01/10 - 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
01/01/14 - 12/31/14 116 12 0 0
Page 21
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED)
--------------------------------------------------------------------------------
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund seeks investment
results that correspond generally to the price and yield (before the Fund's fees
and expenses) of an equity index called the CBOE(R) VIX(R) Tail Hedge Index (the
"Index"). The Fund will normally invest at least 90% of its assets in common
stocks and call options included in the Index. The Index is composed of each of
the equity securities comprising the S&P 500(R) 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(R) over the next 30-day period. The
Index, and in turn the Fund, tracks the performance of an S&P 500(R) stock
portfolio (with dividends reinvested), and call options on the VIX Index. The
amount of the Index allocated to call options on the VIX Index is reevaluated
and rebalanced each month, depending on the level of forward expected volatility
in the S&P 500(R), 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)
12/31/14 to 12/31/14 to 12/31/14
FUND PERFORMANCE
NAV 15.22% 13.77% 35.24%
Market Value 14.89% 13.69% 35.03%
INDEX PERFORMANCE
CBOE(R) VIX(R) Tail Hedge Index 15.82% 14.28% 36.66%
S&P 500(R) Index 13.69% 20.07% 53.41%
----------------------------------------------------------------------------------------------------------------------------
(See Notes to Fund Performance Overview on page 24.)
PERFORMANCE REVIEW
The Fund generated a NAV return of 15.22% during the 12-month period covered by
this report. During the same period, the S&P 500(R) Index ("benchmark")
generated a return of 13.69%. The Fund is identical to its benchmark except for
the Fund's option overlay. Low volatility, as measured by the VIX Index through
much of the year had the Fund not invested in any VIX Index options. When the
Fund allocates zero weight to options, the Fund tracks the S&P 500(R) Index. In
each of the last three months of the period, the Fund allocated 1.00% of its
weight to a VIX Index call option at its monthly rebalance. In the last month of
the year, an increase in the VIX Index caused the option to be in the money and
boosted the Fund's performance past the S&P 500(R) Index's return for the year
covered by this report.
Page 22
--------------------------------------------------------------------------------
FUND PERFORMANCE OVERVIEW (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH) (CONTINUED)
-----------------------------------------------------------
PORTFOLIO SECTOR ALLOCATION AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECTOR LONG-TERM INVESTMENTS
Information Technology 19.65%
Financials 16.65
Health Care 14.22
Consumer Discretionary 12.15
Industrials 10.41
Consumer Staples 9.80
Energy 8.44
Utilities 3.23
Materials 3.17
Telecommunication Services 2.28
-------
Total 100.00%
=======
-----------------------------------------------------------
TOP TEN PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2014
-----------------------------------------------------------
% OF TOTAL
SECURITY LONG-TERM INVESTMENTS
Apple, Inc. 3.55%
Exxon Mobil Corp. 2.15
Microsoft Corp. 2.10
Johnson & Johnson 1.60
Berkshire Hathaway, Inc., Class B 1.50
Wells Fargo & Co. 1.42
General Electric Co. 1.39
Procter & Gamble (The) Co. 1.35
JPMorgan Chase & Co. 1.28
Chevron Corp. 1.16
-------
Total 17.50%
=======
PERFORMANCE OF A $10,000 INITIAL INVESTMENT
AUGUST 29, 2012 - DECEMBER 31, 2014
First Trust CBOE(R) S&P 500(R) CBOE(R) VIX(R) S&P 500(R)
VIX(R) Tail Hedge Fund Tail Hedge Index Index
08/12 $10,000 $10,000 $10,000
12/12 9,863 9,880 10,193
06/13 10,686 10,719 11,602
12/13 11,738 11,799 13,494
06/14 12,251 12,345 14,457
12/14 13,525 13,666 15,342
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, 2014
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, 2014. Shareholders may pay more than NAV when
they buy Fund shares and receive less than NAV when they sell those shares
because shares are bought and sold at current market price. Data presented
represents past performance and cannot be used to predict future results.
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT AT/ABOVE NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/30/12 - 12/31/12 57 3 0 0
01/01/13 - 12/31/13 155 5 0 0
01/01/14 - 12/31/14 152 2 0 1
--------------------------------------------------------------------------------
NUMBER OF DAYS BID/ASK MIDPOINT BELOW NAV
--------------------------------------------------------------------------------
FOR THE PERIOD 0.00%-0.49% 0.50%-0.99% 1.00%-1.99% >=2.00%
08/30/12 - 12/31/12 21 1 1 0
01/01/13 - 12/31/13 92 0 0 0
01/01/14 - 12/31/14 95 2 0 0
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, 2014 (UNAUDITED)
As a shareholder of First Trust NASDAQ-100 Equal Weighted Index Fund, First
Trust NASDAQ-100-Technology Sector Index Fund, First Trust NASDAQ-100
Ex-Technology Sector Index Fund, First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund, First Trust S&P REIT Index Fund, First Trust 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(R) S&P 500(R) VIX(R) Tail Hedge Fund (each a "Fund" and collectively, the
"Funds"), you incur two types of costs: (1) transaction costs; and (2) ongoing
costs, including management fees, distribution and/or service fees, 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, 2014.
ACTUAL EXPENSES
The first line in the following table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six-Month
Period" to estimate the expenses you paid on your account during this six-month
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the following table provides information about hypothetical
account values and hypothetical expenses based on each Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
each Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs such as brokerage
commissions. Therefore, the second line in the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b)
---------------------------------------------------------------------------------------------------------------------------
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
Actual $1,000.00 $1,103.30 0.60% $3.18
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
Actual $1,000.00 $1,103.50 0.60% $3.18
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
Actual $1,000.00 $1,103.00 0.60% $3.18
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 $ 843.00 0.60% $2.79
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 $1,104.40 0.50% $2.65
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 $ 975.80 0.58% $2.89
Hypothetical (5% return before expenses) $1,000.00 $1,022.28 0.58% $2.96
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
Actual $1,000.00 $ 478.50 0.60% $2.24
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, 2014 (UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------
ANNUALIZED
EXPENSE RATIO EXPENSES PAID
BEGINNING ENDING BASED ON THE DURING THE
ACCOUNT VALUE ACCOUNT VALUE SIX-MONTH SIX-MONTH
JULY 1, 2014 DECEMBER 31, 2014 PERIOD (a) PERIOD (b)
---------------------------------------------------------------------------------------------------------------------------
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
Actual $1,000.00 $ 963.50 0.60% $2.97
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 $1,027.50 0.60% $3.07
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
Actual $1,000.00 $1,104.00 0.60% $3.18
Hypothetical (5% return before expenses) $1,000.00 $1,022.18 0.60% $3.06
(a) These expense ratios reflect expense caps for certain Funds. See Note 3 in
Notes to Financial Statements.
(b) Expenses are equal to the annualized expense ratio as indicated in the
table multiplied by the average account value over the period (July 1,
2014 through December 31, 2014), multiplied by 184/365 (to reflect the
one-half year period).
Page 26
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AIR FREIGHT & LOGISTICS -- 2.0%
76,038 C.H. Robinson Worldwide, Inc. $ 5,694,486
132,664 Expeditors International of
Washington, Inc. 5,918,141
------------
11,612,627
------------
AIRLINES -- 1.1%
114,404 American Airlines Group, Inc. 6,135,487
------------
AUTOMOBILES -- 1.0%
26,457 Tesla Motors, Inc. (a) 5,884,301
------------
BEVERAGES -- 1.0%
51,968 Monster Beverage Corp. (a) 5,630,733
------------
BIOTECHNOLOGY -- 6.7%
30,607 Alexion Pharmaceuticals, Inc. (a) 5,663,213
34,092 Amgen, Inc. 5,430,515
16,090 Biogen Idec, Inc. (a) 5,461,751
49,507 Celgene Corp. (a) 5,537,853
53,494 Gilead Sciences, Inc. (a) 5,042,344
13,564 Regeneron Pharmaceuticals,
Inc. (a) 5,564,631
48,792 Vertex Pharmaceuticals, Inc. (a) 5,796,490
------------
38,496,797
------------
CHEMICALS -- 1.0%
42,496 Sigma-Aldrich Corp. 5,833,426
------------
COMMERCIAL SERVICES &
SUPPLIES -- 1.0%
43,931 Stericycle, Inc. (a) 5,758,476
------------
COMMUNICATIONS EQUIPMENT
-- 2.0%
208,920 Cisco Systems, Inc. 5,811,110
79,012 QUALCOMM, Inc. 5,872,962
------------
11,684,072
------------
FOOD & STAPLES RETAILING
-- 2.0%
40,927 Costco Wholesale Corp. 5,801,402
118,883 Whole Foods Market, Inc. 5,994,081
------------
11,795,483
------------
FOOD PRODUCTS -- 2.9%
42,298 Keurig Green Mountain, Inc. 5,600,044
91,347 Kraft Foods Group, Inc. 5,723,803
155,536 Mondelez International, Inc.,
Class A 5,649,845
------------
16,973,692
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.0%
10,903 Intuitive Surgical, Inc. (a) 5,767,033
------------
HEALTH CARE PROVIDERS &
SERVICES -- 3.1%
115,363 Catamaran Corp. (a) 5,970,035
71,646 Express Scripts Holding Co. (a) 6,066,267
42,189 Henry Schein, Inc. (a) 5,744,032
------------
17,780,334
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
HEALTH CARE TECHNOLOGY -- 1.0%
90,132 Cerner Corp. (a) $ 5,827,935
------------
HOTELS, RESTAURANTS & LEISURE
-- 3.0%
74,933 Marriott International, Inc.,
Class A 5,847,022
73,026 Starbucks Corp. 5,991,783
38,648 Wynn Resorts Ltd. 5,749,277
------------
17,588,082
------------
HOUSEHOLD DURABLES -- 1.0%
108,845 Garmin Ltd. (b) 5,750,281
------------
INTERNET & CATALOG RETAIL -- 5.1%
19,349 Amazon.com, Inc. (a) 6,004,962
101,713 Liberty Interactive Corp.,
Class A (a) 2,992,397
79,144 Liberty Ventures, Series A (a) 2,985,312
17,056 Netflix, Inc. (a) 5,826,500
5,225 Priceline Group (The), Inc. (a) 5,957,597
76,689 TripAdvisor, Inc. (a) 5,725,601
------------
29,492,369
------------
INTERNET SOFTWARE & SERVICES
-- 6.9%
91,798 Akamai Technologies, Inc. (a) 5,779,602
24,772 Baidu, Inc., ADR (a) 5,647,273
101,533 eBay, Inc. (a) 5,698,032
24,786 Equinix, Inc. 5,619,730
72,630 Facebook, Inc., Class A (a) 5,666,592
5,582 Google, Inc., Class A (a) 2,962,144
5,620 Google, Inc., Class C (a) 2,958,368
114,021 Yahoo!, Inc. (a) 5,759,201
------------
40,090,942
------------
IT SERVICES -- 4.0%
68,491 Automatic Data Processing, Inc. 5,710,095
108,464 Cognizant Technology Solutions
Corp., Class A (a) 5,711,714
81,344 Fiserv, Inc. (a) 5,772,984
125,302 Paychex, Inc. 5,785,193
------------
22,979,986
------------
LEISURE PRODUCTS -- 1.1%
198,740 Mattel, Inc. 6,150,009
------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.0%
30,540 Illumina, Inc. (a) 5,637,073
------------
MACHINERY -- 1.0%
83,786 PACCAR, Inc. 5,698,286
------------
MEDIA -- 10.1%
35,246 Charter Communications, Inc.,
Class A (a) 5,872,689
50,742 Comcast Corp., Class A 2,943,543
50,841 Comcast Corp., Special Class A 2,926,662
67,875 DIRECTV (a) 5,884,762
81,879 Discovery Communications,
Inc., Class A (a) 2,820,732
83,991 Discovery Communications, Inc.,
Class C (a) 2,832,177
See Notes to Financial Statements Page 27
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA (CONTINUED)
79,903 DISH Network Corp., Class A (a) $ 5,824,130
59,768 Liberty Global PLC, Series C (a) 2,887,392
57,414 Liberty Global PLC, Class A (a) 2,882,470
84,387 Liberty Media Corp., Class A (a) 2,976,329
85,349 Liberty Media Corp., Class C (a) 2,989,775
1,671,917 Sirius XM Holdings, Inc. (a) 5,851,710
75,326 Twenty-First Century Fox, Inc.,
Class A 2,892,895
78,279 Twenty-First Century Fox, Inc.,
Class B 2,887,712
76,416 Viacom, Inc., Class B 5,750,304
------------
58,223,282
------------
MULTILINE RETAIL -- 1.0%
84,451 Dollar Tree, Inc. (a) 5,943,661
------------
PHARMACEUTICALS -- 1.0%
100,886 Mylan, Inc. (a) 5,686,944
------------
PROFESSIONAL SERVICES -- 1.0%
89,667 Verisk Analytics, Inc., Class A (a) 5,743,171
------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 14.0%
155,871 Altera Corp. 5,757,875
102,237 Analog Devices, Inc. 5,676,198
233,089 Applied Materials, Inc. 5,808,578
57,935 Avago Technologies Ltd. 5,827,682
135,357 Broadcom Corp., Class A 5,865,019
159,519 Intel Corp. 5,788,945
83,213 KLA-Tencor Corp. 5,851,538
72,067 Lam Research Corp. 5,717,796
126,265 Linear Technology Corp. 5,757,684
168,209 Micron Technology, Inc. (a) 5,888,997
284,122 NVIDIA Corp. 5,696,646
75,851 NXP Semiconductors N.V. (a) 5,795,016
106,981 Texas Instruments, Inc. 5,719,739
134,912 Xilinx, Inc. 5,840,340
------------
80,992,053
------------
SOFTWARE -- 9.9%
286,494 Activision Blizzard, Inc. 5,772,854
77,931 Adobe Systems, Inc. (a) 5,665,584
96,857 Autodesk, Inc. (a) 5,817,231
187,661 CA, Inc. 5,714,277
74,063 Check Point Software
Technologies Ltd. (a) 5,819,130
91,890 Citrix Systems, Inc. (a) 5,862,582
122,248 Electronic Arts, Inc. (a) 5,747,490
61,773 Intuit, Inc. 5,694,853
121,729 Microsoft Corp. 5,654,312
224,643 Symantec Corp. 5,763,216
------------
57,511,529
------------
SPECIALTY RETAIL -- 5.2%
78,879 Bed Bath & Beyond, Inc. (a) 6,008,214
30,036 O'Reilly Automotive, Inc. (a) 5,785,534
63,740 Ross Stores, Inc. 6,008,132
SHARES DESCRIPTION VALUE
------------------------------------------------------------
SPECIALTY RETAIL (CONTINUED)
330,570 Staples, Inc. $ 5,989,928
75,951 Tractor Supply Co. 5,986,458
------------
29,778,266
------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 4.9%
51,899 Apple, Inc. 5,728,612
135,105 NetApp, Inc. 5,600,102
58,022 SanDisk Corp. 5,684,995
84,816 Seagate Technology PLC 5,640,264
50,948 Western Digital Corp. 5,639,944
------------
28,293,917
------------
TRADING COMPANIES &
DISTRIBUTORS -- 1.0%
122,631 Fastenal Co. 5,832,330
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 3.0%
51,275 SBA Communications Corp.,
Class A (a) 5,679,219
1,408,313 VimpelCom Ltd., ADR 5,879,707
165,330 Vodafone Group PLC, ADR 5,649,326
------------
17,208,252
------------
TOTAL COMMON STOCKS -- 100.0% 577,780,829
(Cost $526,157,530) ------------
MONEY MARKET FUNDS -- 0.0%
339,899 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.01% (c) (d) 339,899
(Cost $339,899) ------------
PRINCIPAL
VALUE
------------
REPURCHASE AGREEMENTS -- 0.7%
$746,251 JPMorgan Chase & Co., 0.06% (c),
dated 12/31/14, due 01/02/15,
with a maturity value of
$746,254. Collateralized by U.S.
Treasury Notes, interest rates
of 0.750% to 1.250%, due
01/15/17 to 11/30/18. The value
of the collateral including
accrued interest is
$763,581. (d) 746,251
3,242,458 RBC Capital Markets LLC, 0.06%
(c), dated 12/31/14, due
01/02/15, with a maturity value
of $3,242,469. Collateralized by
U.S. Treasury Notes, interest
rates of 0.250% to 1.750%, due
12/31/15 to 09/30/19. The value
of the collateral including
accrued interest is
$3,316,909. (d) 3,242,458
------------
Page 28 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EQUAL WEIGHTED INDEX FUND (QQEW)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
DESCRIPTION VALUE
------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
-- 0.7% $ 3,988,709
(Cost $3,988,709) ------------
TOTAL INVESTMENTS -- 100.7% 582,109,437
(Cost $530,486,138) (e)
NET OTHER ASSETS AND
LIABILITIES -- (0.7)% (4,281,428)
------------
NET ASSETS -- 100.0% $577,828,009
============
(a) Non-income producing security.
(b) All or a portion of this security is on loan. (See Note 2F - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $4,215,306 and the total value of the collateral held by the
Fund is $4,328,608.
(c) Interest rate shown reflects yield as of December 31, 2014.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $534,528,185. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$61,176,846 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$13,595,594.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $577,780,829 $ -- $ --
Money Market Funds 339,899 -- --
Repurchase
Agreement -- 3,988,709 --
-----------------------------------------------
Total Investments $578,120,728 $ 3,988,709 $ --
===============================================
* 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, 2014.
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2D - Offsetting on the Statements of Assets and
Liabilities).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 4,215,306
Non-cash Collateral(2) (4,215,306)
------------------------------------------------------------
Net Amount $ --
============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At December 31, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 3,988,709
Non-cash Collateral(4) (3,988,709)
------------------------------------------------------------
Net Amount $ --
============
(3) The amount is included in "Repurchase agreements, at value" on the
Statements of Assets and Liabilities.
(4) At December 31, 2014, the value of the collateral received from the seller
exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 29
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
COMMUNICATIONS EQUIPMENT
-- 5.2%
341,231 Cisco Systems, Inc. $ 9,491,340
129,044 QUALCOMM, Inc. 9,591,841
------------
19,083,181
------------
HEALTH CARE PROVIDERS &
SERVICES -- 2.7%
188,432 Catamaran Corp. (a) 9,751,356
------------
HEALTH CARE TECHNOLOGY -- 2.6%
147,210 Cerner Corp. (a) 9,518,598
------------
HOUSEHOLD DURABLES -- 2.6%
177,777 Garmin Ltd. 9,391,959
------------
INTERNET SOFTWARE & SERVICES
-- 15.3%
149,931 Akamai Technologies, Inc. (a) 9,439,656
40,456 Baidu, Inc., ADR (a) 9,222,754
40,480 Equinix, Inc. 9,178,031
118,628 Facebook, Inc., Class A (a) 9,255,357
9,111 Google, Inc., Class A (a) 4,834,843
9,178 Google, Inc., Class C (a) 4,831,299
186,240 Yahoo!, Inc. (a) 9,406,982
------------
56,168,922
------------
IT SERVICES -- 2.5%
177,149 Cognizant Technology Solutions
Corp., Class A (a) 9,328,666
------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 36.0%
254,593 Altera Corp. 9,404,666
166,981 Analog Devices, Inc. 9,270,785
380,712 Applied Materials, Inc. 9,487,343
94,619 Avago Technologies Ltd. 9,517,725
221,084 Broadcom Corp., Class A 9,579,570
260,542 Intel Corp. 9,455,069
135,919 KLA-Tencor Corp. 9,557,824
117,704 Lam Research Corp. 9,338,635
206,228 Linear Technology Corp. 9,403,997
274,734 Micron Technology, Inc. (a) 9,618,437
464,075 NVIDIA Corp. 9,304,704
123,887 NXP Semiconductors N.V. (a) 9,464,967
174,737 Texas Instruments, Inc. 9,342,314
220,352 Xilinx, Inc. 9,539,038
------------
132,285,074
------------
SOFTWARE -- 20.5%
127,281 Adobe Systems, Inc. (a) 9,253,329
158,194 Autodesk, Inc. (a) 9,501,131
306,506 CA, Inc. 9,333,108
120,972 Check Point Software
Technologies Ltd. (a) 9,504,770
150,085 Citrix Systems, Inc. (a) 9,575,423
100,891 Intuit, Inc. 9,301,141
198,815 Microsoft Corp. 9,234,957
366,909 Symantec Corp. 9,413,050
------------
75,116,909
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS -- 12.6%
84,771 Apple, Inc. $ 9,357,023
220,676 NetApp, Inc. 9,147,020
94,766 SanDisk Corp. 9,285,173
138,533 Seagate Technology PLC 9,212,445
83,209 Western Digital Corp. 9,211,236
------------
46,212,897
------------
TOTAL INVESTMENTS -- 100.0% 366,857,562
(Cost 291,460,609) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.0% 11,618
------------
NET ASSETS -- 100.0% $366,869,180
============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $293,992,382. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$73,727,095 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$861,915.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $366,857,562 $ -- $ --
===============================================
* 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, 2014.
Page 30 See Notes to Financial Statements
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) -- 99.9%
AIR FREIGHT & LOGISTICS -- 3.3%
25,197 C.H. Robinson Worldwide, Inc. $ 1,887,003
43,968 Expeditors International of
Washington, Inc. 1,961,413
------------
3,848,416
------------
AIRLINES -- 1.7%
37,917 American Airlines Group, Inc. 2,033,489
------------
AUTOMOBILES -- 1.7%
8,769 Tesla Motors, Inc. (b) 1,950,313
------------
BEVERAGES -- 1.6%
17,225 Monster Beverage Corp. (b) 1,866,329
------------
BIOTECHNOLOGY -- 10.9%
10,145 Alexion Pharmaceuticals, Inc. (b) 1,877,129
11,300 Amgen, Inc. 1,799,977
5,330 Biogen Idec, Inc. (b) 1,809,269
16,408 Celgene Corp. (b) 1,835,399
17,728 Gilead Sciences, Inc. (b) 1,671,041
4,496 Regeneron Pharmaceuticals, Inc. (b) 1,844,484
16,171 Vertex Pharmaceuticals, Inc. (b) 1,921,115
------------
12,758,414
------------
CHEMICALS -- 1.7%
14,086 Sigma-Aldrich Corp. 1,933,585
------------
COMMERCIAL SERVICES & SUPPLIES
-- 1.6%
14,559 Stericycle, Inc. (b) 1,908,394
------------
FOOD & STAPLES RETAILING -- 3.3%
13,563 Costco Wholesale Corp. 1,922,555
39,401 Whole Foods Market, Inc. 1,986,599
------------
3,909,154
------------
FOOD PRODUCTS -- 4.8%
14,018 Keurig Green Mountain, Inc. 1,855,913
30,275 Kraft Foods Group, Inc. 1,897,032
51,549 Mondelez International, Inc.,
Class A 1,872,517
------------
5,625,462
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.6%
3,614 Intuitive Surgical, Inc. (b) 1,911,589
------------
HEALTH CARE PROVIDERS &
SERVICES -- 3.3%
23,746 Express Scripts Holding Co. (b) 2,010,574
13,983 Henry Schein, Inc. (b) 1,903,785
------------
3,914,359
------------
HOTELS, RESTAURANTS & LEISURE
-- 5.0%
24,832 Marriott International, Inc.,
Class A 1,937,641
24,203 Starbucks Corp. 1,985,856
12,809 Wynn Resorts Ltd. 1,905,467
------------
5,828,964
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
INTERNET & CATALOG RETAIL
-- 8.3%
6,412 Amazon.com, Inc. (b) $ 1,989,964
33,708 Liberty Interactive Corp.,
Class A (b) 991,689
26,232 Liberty Ventures, Series A (b) 989,471
5,654 Netflix, Inc. (b) 1,931,463
1,732 Priceline Group (The), Inc. (b) 1,974,844
25,417 TripAdvisor, Inc. (b) 1,897,633
------------
9,775,064
------------
INTERNET SOFTWARE & SERVICES
-- 1.6%
33,649 eBay, Inc. (b) 1,888,382
------------
IT SERVICES -- 4.9%
22,699 Automatic Data Processing, Inc. 1,892,416
26,960 Fiserv, Inc. (b) 1,913,351
41,528 Paychex, Inc. 1,917,348
------------
5,723,115
------------
LEISURE PRODUCTS -- 1.7%
65,870 Mattel, Inc. 2,038,347
------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.6%
10,122 Illumina, Inc. (b) 1,868,319
------------
MACHINERY -- 1.6%
27,770 PACCAR, Inc. 1,888,638
------------
MEDIA -- 16.5%
11,679 Charter Communications,
Inc., Class A (b) 1,945,955
33,668 Comcast Corp., Class A 1,945,582
22,496 DIRECTV (b) 1,950,403
27,135 Discovery Communications, Inc.,
Class A (b) 934,801
27,834 Discovery Communications, Inc.,
Class C (b) 938,562
26,481 DISH Network Corp., Class A (b) 1,930,200
19,810 Liberty Global PLC, Series C (b) 957,021
19,025 Liberty Global PLC, Class A (b) 955,150
27,963 Liberty Media Corp., Class A (b) 986,255
28,283 Liberty Media Corp., Class C (b) 990,753
554,109 Sirius XM Holdings, Inc. (b) 1,939,382
24,964 Twenty-First Century
Fox, Inc., Class A 958,742
25,945 Twenty-First Century
Fox, Inc., Class B 957,111
25,326 Viacom, Inc., Class B 1,905,782
------------
19,295,699
------------
MULTILINE RETAIL -- 1.7%
27,987 Dollar Tree, Inc. (b) 1,969,725
------------
PHARMACEUTICALS -- 1.6%
33,434 Mylan, Inc. (b) 1,884,674
------------
PROFESSIONAL SERVICES -- 1.6%
29,719 Verisk Analytics, Inc., Class A (b) 1,903,502
------------
See Notes to Financial Statements Page 31
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
SOFTWARE -- 3.3%
94,950 Activision Blizzard, Inc. $ 1,913,242
40,518 Electronic Arts, Inc. (b) 1,904,954
------------
3,818,196
------------
SPECIALTY RETAIL -- 8.4%
26,142 Bed Bath & Beyond, Inc. (b) 1,991,236
9,956 O'Reilly Automotive, Inc. (b) 1,917,725
21,124 Ross Stores, Inc. 1,991,148
109,559 Staples, Inc. 1,985,209
25,174 Tractor Supply Co. 1,984,215
------------
9,869,533
------------
TRADING COMPANIES &
DISTRIBUTORS -- 1.7%
40,642 Fastenal Co. 1,932,933
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 4.9%
16,993 SBA Communications
Corp., Class A (b) 1,882,145
466,689 VimpelCom Ltd., ADR 1,948,427
54,796 Vodafone Group PLC, ADR 1,872,379
------------
5,702,951
------------
TOTAL COMMON STOCKS -- 99.9% 117,047,546
(Cost $97,620,616)
MONEY MARKET FUNDS -- 0.1%
167,268 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (c) 167,268
(Cost $167,268) ------------
TOTAL INVESTMENTS -- 100.0% 117,214,814
(Cost $97,787,884) (d)
NET OTHER ASSETS AND
LIABILITIES -- (0.0)% (20,130)
------------
NET ASSETS -- 100.0% $117,194,684
============
(a) The industry allocation is based on Standard & Poor's Global Industry
Classification Standard (GICS), and is different than the industry sector
classification system used by the Index to select securities, which is the
Industry Classification Benchmark (ICB) system, which is maintained by
FTSE International Limited.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2014.
(d) Aggregate cost for federal income tax purposes is $99,083,617. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$20,613,725 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$2,482,528.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $117,047,546 $ -- $ --
Money Market Funds 167,268 -- --
-----------------------------------------------
Total Investments $117,214,814 $ -- $ --
===============================================
* 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, 2014
Page 32 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AEROSPACE & DEFENSE -- 3.9%
84,962 Hexcel Corp. (a) $ 3,525,073
------------
AUTOMOBILES -- 7.5%
30,083 Tesla Motors, Inc. (a) 6,690,760
------------
CONSTRUCTION & ENGINEERING
-- 0.3%
40,142 Ameresco, Inc., Class A (a) 280,994
------------
ELECTRIC UTILITIES -- 8.3%
183,972 ITC Holdings Corp. 7,437,988
------------
ELECTRICAL EQUIPMENT -- 11.3%
187,053 Ballard Power Systems, Inc. (a) (b) 370,365
467,571 Capstone Turbine Corp. (a) (b) 345,675
136,243 China Ming Yang Wind Power
Group Ltd., ADR (a) (b) 298,372
61,770 Enphase Energy, Inc. (a) (b) 882,693
401,978 FuelCell Energy, Inc. (a) (b) 619,046
14,285 Hydrogenics Corp. (a) (b) 189,848
245,139 Plug Power, Inc. (a) (b) 735,417
31,675 PowerSecure International, Inc. (a) 369,014
183,783 Revolution Lighting Technologies,
Inc. (a) (b) 248,107
113,407 SolarCity Corp. (a) (b) 6,065,007
------------
10,123,544
------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 8.8%
237,821 AVX Corp. 3,329,494
55,306 Itron, Inc. (a) 2,338,891
42,269 Maxwell Technologies, Inc. (a) (b) 385,493
64,666 Universal Display Corp. (a) (b) 1,794,482
------------
7,848,360
------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 1.8%
65,886 Pattern Energy Group, Inc. 1,624,749
------------
INTERNET SOFTWARE & SERVICES
-- 1.1%
70,575 OPOWER, Inc. (a) (b) 1,004,282
------------
MACHINERY -- 1.5%
37,261 ESCO Technologies, Inc. 1,374,931
------------
OIL, GAS & CONSUMABLE FUELS
-- 3.1%
111,968 Amyris, Inc. (a) (b) 230,654
53,255 Green Plains, Inc. 1,319,659
34,669 Pacific Ethanol, Inc. (a) 358,131
59,904 Renewable Energy Group, Inc. (a) 581,668
112,284 Solazyme, Inc. (a) (b) 289,692
------------
2,779,804
------------
REAL ESTATE INVESTMENT TRUSTS
-- 0.6%
38,723 Hannon Armstrong Sustainable
Infrastructure Capital, Inc. 551,028
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 50.4%
56,774 Advanced Energy Industries,
Inc. (a) $ 1,345,544
77,725 Canadian Solar, Inc. (a) (b) 1,880,168
101,212 Cree, Inc. (a) (b) 3,261,051
168,175 Fairchild Semiconductor
International, Inc. (a) 2,838,794
75,369 First Solar, Inc. (a) 3,361,081
44,667 IXYS Corp. 562,804
61,250 JA Solar Holdings Co., Ltd.,
ADR (a) (b) 501,331
31,817 JinkoSolar Holding Co., Ltd.,
ADR (a) (b) 627,113
159,810 Linear Technology Corp. 7,287,336
134,575 Microsemi Corp. (a) 3,819,239
407,312 ON Semiconductor Corp. (a) 4,126,071
41,807 Power Integrations, Inc. 2,163,094
116,243 ReneSola Ltd., ADR (a) (b) 163,903
37,030 Rubicon Technology, Inc. (a) (b) 169,227
320,096 SunEdison, Inc. (a) 6,245,073
130,612 SunPower Corp. (a) (b) 3,373,708
106,098 Trina Solar Ltd., ADR (a) (b) 982,467
56,946 Veeco Instruments, Inc. (a) 1,986,276
182,081 Yingli Green Energy Holding
Co., Ltd., ADR (a) (b) 427,890
------------
45,122,170
------------
SOFTWARE -- 1.4%
41,311 EnerNOC, Inc. (a) 638,255
69,064 Silver Spring Networks,
Inc. (a) (b) 582,209
------------
1,220,464
------------
TOTAL COMMON STOCKS -- 100.0% 89,584,147
(Cost $98,289,196) ------------
MONEY MARKET FUNDS -- 1.4%
1,286,093 Goldman Sachs Financial Square
Treasury Obligations Fund -
Institutional Class -
0.01% (c) (d) 1,286,093
(Cost $1,286,093) ------------
PRINCIPAL
VALUE
------------
REPURCHASE AGREEMENTS -- 16.8%
$ 2,823,634 JPMorgan Chase & Co., 0.06%
(c), dated 12/31/14, due
01/02/15, with a maturity value
of $2,823,643. Collateralized by
U.S. Treasury Notes, interest
rates of 0.750% to 1.250%, due
01/15/17 to 11/30/18. The value
of the collateral including
accrued interest is
$2,889,205. (d) 2,823,634
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, 2014
PRINCIPAL
VALUE DESCRIPTION VALUE
------------------------------------------------------------
$ 12,268,675 RBC Capital Markets LLC, 0.06% (c),
dated 12/31/14, due 01/02/15,
with a maturity value of
$12,268,716. Collateralized by
U.S. Treasury Notes, interest
rates of 0.250% to 1.750%, due
12/31/15 to 09/30/19. The value
of the collateral including
accrued interest is
$12,550,380. (d) $ 12,268,675
------------
TOTAL REPURCHASE AGREEMENTS
-- 16.8% 15,092,309
(Cost $15,092,309) ------------
TOTAL INVESTMENTS -- 118.2% 105,962,549
(Cost $114,667,598) (e)
NET OTHER ASSETS AND
LIABILITIES -- (18.2)% (16,346,652)
------------
NET ASSETS -- 100.0% $ 89,615,897
============
(a) Non-income producing security.
(b) All or a portion of this security is on loan. (See Note 2F - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $15,995,198 and the total value of the collateral held by
the Fund is $16,378,402.
(c) Interest rate shown reflects yield as of December 31, 2014.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $116,093,593. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$6,337,312 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$16,468,356.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $89,584,147 $ -- $ --
Money Market Funds 1,286,093 -- --
Repurchase Agreements -- 15,092,309 --
-----------------------------------------------
Total Investments $90,870,240 $15,092,309 $ --
===============================================
* 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, 2014.
Page 34 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) CLEAN EDGE(R) GREEN ENERGY INDEX FUND (QCLN)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2D - Offsetting on the Statements of Assets and
Liabilities).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 15,995,198
Non-cash Collateral(2) (15,995,198)
------------------------------------------------------------
Net Amount $ --
============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At December 31, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 15,092,309
Non-cash Collateral(4) (15,092,309)
------------------------------------------------------------
Net Amount $ --
============
(3) The amount is included in "Repurchase agreements, at value" on the
Statements of Assets and Liabilities.
(4) At December 31, 2014, the value of the collateral received from the seller
exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 35
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) -- 99.5%
DIVERSIFIED REITS -- 10.0%
17,960 American Assets Trust, Inc. $ 714,988
439,932 American Realty Capital Properties,
Inc. 3,981,385
12,123 Armada Hoffler Properties, Inc. 115,047
114,796 Chambers Street Properties 925,256
99,659 Cousins Properties, Inc. 1,138,106
165,575 Duke Realty Corp. 3,344,615
47,615 Empire State Realty Trust, Inc.,
Class A 837,072
28,493 First Potomac Realty Trust 352,173
9,168 Gladstone Commercial Corp. 157,414
55,785 Investors Real Estate Trust 455,763
101,277 Lexington Realty Trust 1,112,021
71,979 Liberty Property Trust 2,708,570
6,600 One Liberty Properties, Inc. 156,222
9,391 PS Business Parks, Inc. 746,960
18,016 Select Income REIT 439,771
193,121 Spirit Realty Capital, Inc. 2,296,209
84,603 Vornado Realty Trust 9,958,619
32,304 Washington Real Estate Investment
Trust 893,529
11,067 Whitestone REIT 167,222
46,874 WP Carey, Inc. 3,285,867
------------
33,786,809
------------
HEALTH CARE REITS -- 13.3%
11,902 Aviv REIT, Inc. 410,381
13,547 CareTrust REIT, Inc. 167,034
222,531 HCP, Inc. 9,798,040
158,778 Health Care REIT, Inc. 12,014,731
47,569 Healthcare Realty Trust, Inc. 1,299,585
57,895 Healthcare Trust of America, Inc.,
Class A 1,559,691
16,886 LTC Properties, Inc. 728,969
83,561 Medical Properties Trust, Inc. 1,151,471
15,920 National Health Investors, Inc. 1,113,763
32,169 New Senior Investment Group, Inc. 529,180
61,743 OMEGA Healthcare Investors, Inc. 2,412,299
22,959 Physicians Realty Trust 381,119
26,419 Sabra Health Care REIT, Inc. 802,345
98,787 Senior Housing Properties Trust 2,184,181
6,270 Universal Health Realty
Income Trust 301,712
142,608 Ventas, Inc. 10,224,994
------------
45,079,495
------------
HOTEL & RESORT REITS -- 7.9%
11,446 Ashford Hospitality Prime, Inc. 196,414
37,711 Ashford Hospitality Trust, Inc. 395,211
16,469 Chatham Lodging Trust 477,107
26,592 Chesapeake Lodging Trust 989,488
94,821 DiamondRock Hospitality Co. 1,409,988
53,599 FelCor Lodging Trust, Inc. 579,941
97,264 Hersha Hospitality Trust 683,766
72,632 Hospitality Properties Trust 2,251,592
366,960 Host Hotels & Resorts, Inc. 8,722,639
54,110 LaSalle Hotel Properties 2,189,832
SHARES DESCRIPTION VALUE
------------------------------------------------------------
HOTEL & RESORT REITS (CONTINUED)
34,604 Pebblebrook Hotel Trust $ 1,578,981
63,968 RLJ Lodging Trust 2,144,847
24,723 Ryman Hospitality Properties, Inc. 1,303,891
129,558 Strategic Hotels & Resorts,
Inc. (b) 1,714,052
41,673 Summit Hotel Properties, Inc. 518,412
99,525 Sunstone Hotel Investors, Inc. 1,643,158
------------
26,799,319
------------
INDUSTRIAL REITS -- 4.7%
42,673 DCT Industrial Trust, Inc. 1,521,719
15,471 EastGroup Properties, Inc. 979,624
53,569 First Industrial Realty Trust, Inc. 1,101,379
27,364 Monmouth Real Estate
Investment Corp. 302,919
242,271 Prologis, Inc. 10,424,921
19,798 Rexford Industrial Realty, Inc. 311,027
31,219 STAG Industrial, Inc. 764,865
20,101 Terreno Realty Corp. 414,684
------------
15,821,138
------------
OFFICE REITS -- 13.4%
34,887 Alexandria Real Estate Equities,
Inc. 3,095,872
95,669 BioMed Realty Trust, Inc. 2,060,710
74,182 Boston Properties, Inc. 9,546,482
86,729 Brandywine Realty Trust 1,385,929
60,555 Columbia Property Trust, Inc. 1,535,069
10,524 CoreSite Realty Corp. 410,962
44,830 Corporate Office Properties Trust 1,271,827
17,040 CyrusOne, Inc. 469,452
65,661 Digital Realty Trust, Inc. 4,353,324
65,964 Douglas Emmett, Inc. 1,873,378
31,906 DuPont Fabros Technology, Inc. 1,060,556
62,451 Equity Commonwealth 1,603,117
43,208 Franklin Street Properties Corp. 530,162
34,088 Government Properties Income Trust 784,365
75,781 Gramercy Property Trust, Inc. 522,889
44,223 Highwoods Properties, Inc. 1,958,195
26,639 Hudson Pacific Properties, Inc. 800,768
40,675 Kilroy Realty Corp. 2,809,422
40,551 Mack-Cali Realty Corp. 772,902
78,589 New York REIT, Inc. 832,258
40,797 Parkway Properties, Inc. 750,257
74,776 Piedmont Office Realty Trust, Inc.,
Class A 1,408,780
5,784 QTS Realty Trust, Inc., Class A 195,731
46,771 SL Green Realty Corp. 5,566,684
------------
45,599,091
------------
RESIDENTIAL REITS -- 16.1%
50,931 American Campus Communities, Inc. 2,106,506
68,655 American Homes 4 Rent, Class A 1,169,195
15,607 American Residential Properties,
Inc. (b) 274,215
70,841 Apartment Investment &
Management Co., Class A 2,631,743
27,931 Associated Estates Realty Corp. 648,279
63,960 AvalonBay Communities, Inc. 10,450,424
41,860 Camden Property Trust 3,090,942
Page 36 See Notes to Financial Statements
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (a) (CONTINUED)
RESIDENTIAL REITS (CONTINUED)
31,372 Campus Crest Communities, Inc. $ 229,329
23,013 Education Realty Trust, Inc. 842,046
38,630 Equity LifeStyle Properties, Inc. 1,991,376
175,580 Equity Residential 12,613,667
30,979 Essex Property Trust, Inc. 6,400,261
27,798 Home Properties, Inc. 1,823,549
11,714 Independence Realty Trust, Inc. 109,057
36,470 Mid-America Apartment
Communities, Inc. 2,723,580
26,388 Post Properties, Inc. 1,550,823
9,628 Preferred Apartment Communities,
Inc., Class A 87,615
18,109 Silver Bay Realty Trust Corp. 299,885
18,299 Starwood Waypoint Residential
Trust 482,545
21,865 Sun Communities, Inc. 1,321,958
6,936 Trade Street Residential, Inc. 53,338
123,668 UDR, Inc. 3,811,448
10,534 UMH Properties, Inc. 100,600
------------
54,812,381
------------
RETAIL REITS -- 25.5%
32,752 Acadia Realty Trust 1,049,047
8,343 Agree Realty Corp. 259,384
1,604 Alexander's, Inc. 701,237
8,776 AmREIT, Inc. 232,915
66,056 Brixmor Property Group, Inc. 1,640,831
82,508 CBL & Associates Properties, Inc. 1,602,305
33,387 Cedar Realty Trust, Inc. 245,061
144,966 DDR Corp. 2,661,576
37,201 Equity One, Inc. 943,417
29,615 Excel Trust, Inc. 396,545
33,012 Federal Realty Investment Trust 4,405,782
304,062 General Growth Properties, Inc. 8,553,264
12,632 Getty Realty Corp. 230,029
70,599 Glimcher Realty Trust 970,030
42,691 Inland Real Estate Corp. 467,467
199,357 Kimco Realty Corp. 5,011,835
40,450 Kite Realty Group Trust 1,162,533
68,181 Macerich (The) Co. 5,686,977
63,905 National Retail Properties, Inc. 2,515,940
33,331 Pennsylvania Real Estate
Investment Trust 781,945
37,580 Ramco-Gershenson Properties Trust 704,249
107,907 Realty Income Corp. 5,148,243
45,177 Regency Centers Corp. 2,881,389
45,051 Retail Opportunity Investments
Corp. 756,406
114,448 Retail Properties of America, Inc.,
Class A 1,910,137
16,782 Rouse Properties, Inc. 310,803
5,468 Saul Centers, Inc. 312,715
150,593 Simon Property Group, Inc. 27,424,491
46,471 Tanger Factory Outlet Centers, Inc. 1,717,568
30,679 Taubman Centers, Inc. 2,344,489
13,342 Urstadt Biddle Properties, Inc.,
Class A 291,923
SHARES DESCRIPTION VALUE
------------------------------------------------------------
RETAIL REITS (CONTINUED)
75,178 Washington Prime Group, Inc. $ 1,294,565
54,507 Weingarten Realty Investors 1,903,384
------------
86,518,482
------------
SPECIALIZED REITS -- 8.6%
56,443 Corrections Corp. of America 2,051,139
78,920 CubeSmart 1,741,764
27,698 EPR Properties 1,596,236
53,551 Extra Space Storage, Inc. 3,140,231
43,588 Gaming and Leisure Properties, Inc. 1,278,872
35,931 Geo Group, (The), Inc. 1,450,175
90,352 Iron Mountain, Inc. 3,493,008
70,298 Public Storage 12,994,585
16,357 Sovran Self Storage, Inc. 1,426,658
------------
29,172,668
------------
TOTAL COMMON STOCKS -- 99.5% 337,589,383
(Cost $321,046,483) ------------
MONEY MARKET FUNDS -- 0.1%
338,626 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (c) 338,626
(Cost $338,626) ------------
TOTAL INVESTMENTS -- 99.6% 337,928,009
(Cost $321,385,109) (d)
NET OTHER ASSETS AND
LIABILITIES -- 0.4% 1,201,688
------------
NET ASSETS -- 100.0% $339,129,697
============
(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, 2014.
(d) Aggregate cost for federal income tax purposes is $322,338,768. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$19,157,128 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$3,567,887.
See Notes to Financial Statements Page 37
FIRST TRUST S&P REIT INDEX FUND (FRI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $337,589,383 $ -- $ --
Money Market Funds 338,626 -- --
-----------------------------------------------
Total Investments $337,928,009 $ -- $ --
===============================================
* 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, 2014.
Page 38 See Notes to Financial Statements
FIRST TRUST ISE WATER INDEX FUND (FIW)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.1%
CHEMICALS -- 5.5%
57,044 Ashland, Inc. $ 6,831,590
193,058 Calgon Carbon Corp. (a) 4,011,745
------------
10,843,335
------------
COMMERCIAL SERVICES &
SUPPLIES -- 2.0%
147,092 Tetra Tech, Inc. 3,927,356
------------
CONSTRUCTION & ENGINEERING
-- 8.3%
128,180 AECOM (a) 3,892,827
139,864 Aegion Corp. (a) 2,602,869
286,534 Layne Christensen Co. (a) 2,733,534
242,458 Northwest Pipe Co. (a) 7,302,835
------------
16,532,065
------------
DIVERSIFIED FINANCIAL SERVICES
-- 1.3%
135,518 PICO Holdings, Inc. (a) 2,554,514
------------
ELECTRONIC EQUIPMENT, INSTRUMENTS
& COMPONENTS -- 5.4%
138,015 Badger Meter, Inc. 8,191,190
58,912 Itron, Inc. (a) 2,491,389
------------
10,682,579
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 1.9%
25,316 IDEXX Laboratories, Inc. (a) 3,753,603
------------
INDUSTRIAL CONGLOMERATES -- 6.4%
78,735 Danaher Corp. 6,748,377
37,713 Roper Industries, Inc. 5,896,428
------------
12,644,805
------------
LIFE SCIENCES TOOLS & SERVICES
-- 1.9%
94,876 Agilent Technologies, Inc. 3,884,224
------------
MACHINERY -- 44.4%
104,390 Crane Co. 6,127,693
1,397,216 Energy Recovery, Inc. (a) 7,363,328
68,680 Flowserve Corp. 4,109,125
225,851 Gorman-Rupp (The) Co. 7,254,334
75,815 IDEX Corp. 5,901,440
85,039 Lindsay Corp. 7,291,244
114,893 Mueller Industries, Inc. 3,922,447
386,116 Mueller Water Products, Inc.,
Class A 3,953,828
60,606 Pall Corp. 6,133,933
125,575 Pentair PLC 8,340,692
291,792 Rexnord Corp. (a) 8,231,452
29,222 Valmont Industries, Inc. 3,711,194
125,303 Watts Water Technologies, Inc.,
Class A 7,949,222
208,204 Xylem, Inc. 7,926,326
------------
88,216,258
------------
WATER UTILITIES -- 23.0%
68,668 American States Water Co. 2,586,037
143,918 American Water Works Co., Inc. 7,670,829
290,891 Aqua America, Inc. 7,766,790
SHARES DESCRIPTION VALUE
------------------------------------------------------------
WATER UTILITIES (CONTINUED)
537,571 Cadiz, Inc. (a) $ 6,020,795
320,723 California Water Service Group 7,892,993
1,152,444 Cia de Saneamento Basico do
Estado de Sao Paulo, ADR 7,248,873
377,226 Consolidated Water Co., Ltd. 4,028,774
79,011 SJW Corp. 2,537,833
------------
45,752,924
------------
TOTAL COMMON STOCKS -- 100.1% 198,791,663
(Cost $177,199,074) ------------
MONEY MARKET FUNDS -- 0.3%
650,198 Morgan Stanley Institutional
Liquidity Fund - Treasury
Portfolio - Institutional
Class - 0.03% (b) 650,198
(Cost $650,198) ------------
TOTAL INVESTMENTS -- 100.4% 199,441,861
(Cost $177,849,272) (c)
NET OTHER ASSETS AND
LIABILITIES -- (0.4)% (891,668)
------------
NET ASSETS -- 100.0% $198,550,193
============
(a) Non-income producing security.
(b) Interest rate shown reflects yield as of December 31, 2014.
(c) Aggregate cost for federal income tax purposes is $179,094,377. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$28,234,151 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$7,886,667.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $198,791,663 $ -- $ --
Money Market Funds 650,198 -- --
-----------------------------------------------
Total Investments $199,441,861 $ -- $ --
===============================================
* 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, 2014.
See Notes to Financial Statements Page 39
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
OIL, GAS & CONSUMABLE FUELS -- 100.0%
115,116 Anadarko Petroleum Corp. $ 9,497,070
149,585 Apache Corp. 9,374,492
280,577 Cabot Oil & Gas Corp. 8,307,885
489,707 Chesapeake Energy Corp. 9,583,566
85,712 Cimarex Energy Co. 9,085,472
1,605,044 Comstock Resources, Inc. (a) 10,930,350
159,264 Devon Energy Corp. 9,748,549
692,582 Encana Corp. 9,606,112
106,813 EQT Corp. 8,085,744
3,769,004 EXCO Resources, Inc. (a) 8,178,739
2,148,236 Goodrich Petroleum Corp. (a) (b) 9,538,168
2,542,942 Magnum Hunter Resources
Corp. (a) (b) 7,984,838
553,974 Matador Resources Co. (b) 11,206,894
349,878 Newfield Exploration Co. (b) 9,488,691
192,489 Noble Energy, Inc. 9,129,753
435,857 QEP Resources, Inc. 8,813,029
155,825 Range Resources Corp. 8,328,846
4,716,519 SandRidge Energy, Inc. (a) (b) 8,584,065
273,754 SM Energy Co. 10,561,429
294,065 Southwestern Energy Co. (b) 8,025,034
520,183 Statoil ASA, ADR 9,160,423
618,957 Stone Energy Corp. (b) 10,447,994
2,741,081 Swift Energy Co. (a) (b) 11,101,378
1,967,964 Talisman Energy, Inc. 15,409,158
575,107 Ultra Petroleum Corp. (a) (b) 7,568,408
783,897 WPX Energy, Inc. (b) 9,116,722
------------
TOTAL COMMON STOCKS -- 100.0% 246,862,809
(Cost $407,809,050) ------------
WARRANTS -- 0.0%
OIL, GAS & CONSUMABLE FUELS
-- 0.0%
495,122 Magnum Hunter Resources
Corp., expiring 04/15/16
@ $0 (a) (b) (c) 0
(Cost $8,995) ------------
MONEY MARKET FUNDS -- 1.5%
3,771,235 Goldman Sachs Financial
Square Treasury Obligations
Fund - Institutional Class -
0.01% (d) (e) 3,771,235
(Cost $3,771,235) ------------
PRINCIPAL
VALUE DESCRIPTION VALUE
------------------------------------------------------------
REPURCHASE AGREEMENTS -- 17.9%
$ 8,279,800 JPMorgan Chase & Co., 0.06% (d),
dated 12/31/14, due 01/02/15,
with a maturity value of
$8,279,827. Collateralized by
U.S. Treasury Notes, interest
rates of 0.750% to 1.250%, due
01/15/17 to 11/30/18. The value
of the collateral including
accrued interest is
$8,472,074. (e) $ 8,279,800
35,975,690 RBC Capital Markets LLC, 0.06% (d),
dated 12/31/14, due 01/02/15,
with a maturity value of
$35,975,810. Collateralized by
U.S. Treasury Notes, interest
rates of 0.250% to 1.750%, due
12/31/15 to 09/30/19. The value
of the collateral including
accrued interest is
$36,801,737. (e) 35,975,690
------------
TOTAL REPURCHASE AGREEMENTS
-- 17.9% 44,255,490
(Cost $44,255,490) ------------
TOTAL INVESTMENTS -- 119.4% 294,889,534
(Cost $455,844,770) (f)
NET OTHER ASSETS AND
LIABILITIES -- (19.4)% (47,943,974)
------------
NET ASSETS -- 100.0% $246,945,560
============
(a) All or a portion of this security is on loan. (See Note 2F - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $46,149,597 and the total value of the collateral held by
the Fund is $48,026,725.
(b) Non-income producing security.
(c) This security is fair valued by the Advisor's Pricing Committee 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, 2014, securities noted as such amounted to $0, or
0.00% of net assets.
(d) Interest rate shown reflects yield as of December 31, 2014.
(e) This security serves as collateral for securities on loan.
(f) Aggregate cost for federal income tax purposes is $476,800,078. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$249,586 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$182,160,130.
ADR - American Depositary Receipt
Page 40 See Notes to Financial Statements
FIRST TRUST ISE-REVERE NATURAL GAS INDEX FUND (FCG)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $246,862,809 $ -- $ --
Money Market Funds 3,771,235 -- --
Repurchase Agreements -- 44,255,490 --
Warrants* -- -- ** --
-----------------------------------------------
Total Investments $250,634,044 $44,255,490 $ --
===============================================
* 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, 2014.
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2D - Offsetting on the Statements of Assets and
Liabilities).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 46,149,597
Non-cash Collateral(2) (46,149,597)
------------------------------------------------------------
Net Amount $ --
============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At December 31, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 44,255,490
Non-cash Collateral(4) (44,255,490)
------------------------------------------------------------
Net Amount $ --
============
(3) The amount is included in "Repurchase agreements, at value" on the
Statements of Assets and Liabilities.
(4) At December 31, 2014, the value of the collateral received from the seller
exceeded the value of the repurchase agreements.
See Notes to Financial Statements Page 41
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 100.0%
AUTOMOBILES -- 4.8%
61,814 Kandi Technologies Group,
Inc. (a) (b) $ 866,014
105,108 Tata Motors Ltd., ADR 4,443,966
------------
5,309,980
------------
BANKS -- 14.2%
157,503 HDFC Bank Ltd., ADR 7,993,277
676,666 ICICI Bank Ltd., ADR 7,815,493
------------
15,808,770
------------
DIVERSIFIED CONSUMER
SERVICES -- 1.3%
36,595 New Oriental Education &
Technology Group, Inc., ADR (b) 746,904
26,150 TAL Education Group, ADR (b) 734,553
------------
1,481,457
------------
DIVERSIFIED TELECOMMUNICATION
SERVICES -- 1.4%
13,792 China Telecom Corp., Ltd., ADR 809,729
56,796 China Unicom (Hong Kong)
Ltd., ADR 763,906
------------
1,573,635
------------
HEALTH CARE EQUIPMENT
& SUPPLIES -- 0.7%
27,924 Mindray Medical International
Ltd., ADR (a) 737,194
------------
HOTELS, RESTAURANTS &
LEISURE -- 2.8%
38,422 500.com Ltd., Class A,
ADR (a) (b) 666,622
95,716 Melco Crown Entertainment
Ltd., ADR 2,431,186
------------
3,097,808
------------
INDEPENDENT POWER AND
RENEWABLE ELECTRICITY
PRODUCERS -- 0.7%
15,457 Huaneng Power International, Inc.,
ADR 837,306
------------
INSURANCE -- 0.8%
15,167 China Life Insurance Co., Ltd.,
ADR (a) 890,455
------------
INTERNET & CATALOG
RETAIL -- 16.8%
49,378 Ctrip.com International Ltd.,
ADR (b) 2,246,699
82,930 E-Commerce China Dangdang,
Inc., Class A, ADR (a) (b) 770,420
326,900 JD.com, Inc., ADR (a) (b) 7,564,466
57,006 Jumei International Holding Ltd.,
ADR (a) (b) 776,422
81,857 MakeMyTrip Ltd. (b) 2,127,463
SHARES DESCRIPTION VALUE
------------------------------------------------------------
INTERNET & CATALOG
RETAIL (CONTINUED)
28,524 Qunar Cayman Islands Ltd.,
ADR (a) (b) $ 810,937
227,289 Vipshop Holdings Ltd., ADR (b) 4,441,227
------------
18,737,634
------------
INTERNET SOFTWARE &
SERVICES -- 19.0%
48,956 21Vianet Group, Inc., ADR (a) (b) 757,349
17,889 58.com, Inc., ADR (a) (b) 743,288
21,360 Autohome, Inc., ADR (b) 776,650
34,170 Baidu, Inc., ADR (b) 7,789,735
11,124 Bitauto Holdings Ltd., ADR (b) 783,241
71,060 Leju Holdings Ltd., ADR (a) (b) 764,606
7,738 NetEase, Inc., ADR 767,145
74,354 Qihoo 360 Technology Co.,
Ltd., ADR (b) 4,257,510
20,624 SINA Corp. (b) 771,544
16,093 Sohu.com, Inc. (b) 855,826
99,558 SouFun Holdings Ltd., ADR 735,734
48,009 Weibo Corp., ADR (a) (b) 683,648
43,187 Youku Tudou, Inc., ADR (b) 769,160
11,959 YY, Inc., ADR (a) (b) 745,524
------------
21,200,960
------------
IT SERVICES -- 13.1%
250,585 Infosys Ltd., ADR 7,883,404
400,501 Wipro Ltd., ADR (a) 4,533,671
109,103 WNS Holdings Ltd., ADR (b) 2,254,068
------------
14,671,143
------------
LIFE SCIENCES TOOLS & SERVICES
-- 0.7%
22,635 WuXi PharmaTech Cayman, Inc.,
ADR (b) 762,120
------------
METALS & MINING -- 2.0%
168,331 Sesa Sterlite Ltd., ADR 2,285,935
------------
OIL, GAS & CONSUMABLE
FUELS -- 3.6%
10,110 China Petroleum & Chemical
Corp., ADR 819,011
17,634 CNOOC Ltd., ADR (a) 2,388,349
7,544 PetroChina Co., Ltd., ADR (a) 837,082
------------
4,044,442
------------
PHARMACEUTICALS -- 3.8%
83,072 Dr. Reddy's Laboratories Ltd.,
ADR 4,190,982
------------
PROFESSIONAL SERVICES -- 0.7%
23,257 51job, Inc., ADR (b) 833,763
------------
REAL ESTATE MANAGEMENT
& DEVELOPMENT -- 0.6%
92,945 E-House China Holdings Ltd.,
ADR 672,922
------------
Page 42 See Notes to Financial Statements
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS &
SEMICONDUCTOR
EQUIPMENT -- 1.4%
39,285 JinkoSolar Holding Co., Ltd.,
ADR (a) (b) $ 774,308
87,255 Trina Solar Ltd., ADR (a) (b) 807,981
------------
1,582,289
------------
SOFTWARE -- 0.7%
49,175 Cheetah Mobile, Inc., ADR (a) (b) 743,526
------------
TEXTILES, APPAREL & LUXURY
GOODS -- 6.8%
101,803 Michael Kors Holdings Ltd. (b) 7,645,405
------------
WIRELESS TELECOMMUNICATION
SERVICES -- 4.1%
77,534 China Mobile Ltd., ADR 4,560,550
------------
TOTAL COMMON STOCKS -- 100.0% 111,668,276
(Cost $102,840,356) ------------
MONEY MARKET FUNDS -- 1.2%
1,325,502 Goldman Sachs Financial
Square Treasury Obligations
Fund - Institutional Class -
0.01% (c) (d) 1,325,502
(Cost $1,325,502) ------------
PRINCIPAL
VALUE
------------
REPURCHASE AGREEMENTS -- 13.9%
$ 2,910,158 JPMorgan Chase & Co., 0.06% (c),
dated 12/31/14, due 01/02/15,
with a maturity value of
$2,910,167. Collateralized by
U.S. Treasury Notes, interest
rates of 0.750% to 1.250%, due
01/15/17 to 11/30/18. The value
of the collateral including
accrued interest is
$2,977,737. (d) 2,910,158
12,644,620 RBC Capital Markets LLC, 0.06% (c),
dated 12/31/14, due 01/02/15,
with a maturity value of
$12,644,662. Collateralized by
U.S. Treasury Notes, interest
rates of 0.250% to 1.750%, due
12/31/15 to 09/30/19. The value
of the collateral including
accrued interest is
$12,934,957. (d) 12,644,620
------------
TOTAL REPURCHASE AGREEMENTS
-- 13.9% 15,554,778
(Cost $15,554,778) ------------
TOTAL INVESTMENTS -- 115.1% 128,548,556
(Cost $119,720,636) (e)
NET OTHER ASSETS AND
LIABILITIES -- (15.1)% (16,885,212)
------------
NET ASSETS -- 100.0% $111,663,344
============
(a) All or a portion of this security is on loan. (See Note 2F - Securities
Lending in the Notes to Financial Statements). The aggregate value of such
securities is $16,412,925 and the total value of the collateral held by
the Fund is $16,880,280.
(b) Non-income producing security.
(c) Interest rate shown reflects yield as of December 31, 2014.
(d) This security serves as collateral for securities on loan.
(e) Aggregate cost for federal income tax purposes is $121,101,831. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$12,891,636 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$5,444,911.
ADR - American Depositary Receipt
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $111,668,276 $ -- $ --
Money Market Funds 1,325,502 -- --
Repurchase Agreements -- 15,554,778 --
-----------------------------------------------
Total Investments $112,993,778 $15,554,778 $ --
===============================================
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, 2014.
COUNTRY ALLOCATIONS AS A PERCENTAGE OF NET ASSETS**:
----------------------------------------------------
Cayman Islands 42.0%
India 35.1
United States 16.6
Hong Kong 6.9
British Virgin Islands 6.8
China 3.8
Jersey 2.0
Mauritius 1.9
Net Other Assets and Liabilities (15.1)
-------
100.0%
=======
* See Portfolio of Investments for industry breakout.
** Portfolio securities are categorized based on their country
of incorporation.
See Notes to Financial Statements Page 43
FIRST TRUST ISE CHINDIA INDEX FUND (FNI)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
-----------------------------
OFFSETTING ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Offsetting assets and liabilities requires entities to disclose both gross and
net information about instruments and transactions eligible for offset, and to
disclose instruments and transactions subject to master netting or similar
agreements (see Note 2D - Offsetting on the Statements of Assets and
Liabilities).
The Fund's loaned securities were all subject to an enforceable Securities
Lending Agency Agreement. Securities lent in accordance with the Securities
Lending Agency Agreement on a gross basis were as follows:
SECURITIES LENDING AGENCY AGREEMENT
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(1) $ 16,412,925
Non-cash Collateral(2) (16,412,925)
------------------------------------------------------------
Net Amount $ --
============
(1) The amount presented on the Statements of Assets and Liabilities is not
offset and is shown on a gross basis.
(2) At December 31, 2014, the value of the collateral received from each
borrower exceeded the value of the related securities loaned. This amount
is disclosed on the Portfolio of Investments.
The Fund's investments in repurchase agreements were all subject to an
enforceable Master Repurchase Agreement. Repurchase Agreements on a gross basis
were as follows:
REPURCHASE AGREEMENTS
------------------------------------------------------------
Total gross amount presented on the
Statements of Assets and Liabilities(3) $ 15,554,778
Non-cash Collateral(3) (15,554,778)
------------------------------------------------------------
Net Amount $ --
============
(3) The amount is included in "Repurchase agreements, at value" on the
Statements of Assets and Liabilities.
(4) At December 31, 2014, the value of the collateral received from the seller
exceeded the value of the repurchase agreements.
Page 44 See Notes to Financial Statements
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 99.9%
BANKS -- 87.6%
15,725 1st Source Corp. $ 539,525
18,558 Ameris Bancorp 475,827
8,308 Arrow Financial Corp. 228,387
10,206 BancFirst Corp. 646,958
24,850 Bancorp (The), Inc. (a) 270,616
3,910 Bank of Marin Bancorp 205,627
52,526 Bank of the Ozarks, Inc. 1,991,786
12,898 Banner Corp. 554,872
52,389 BBCN Bancorp, Inc. 753,354
19,438 BNC Bancorp 334,528
45,693 BOK Financial Corp. 2,743,408
54,551 Boston Private Financial
Holdings, Inc. 734,802
9,050 Bryn Mawr Bank Corp. 283,265
4,891 Camden National Corp. 194,857
19,782 Capital Bank Financial Corp.,
Class A (a) 530,158
21,108 Cardinal Financial Corp. 418,572
47,766 Cascade Bancorp (a) 247,906
52,525 Cathay General Bancorp 1,344,115
29,798 Centerstate Banks, Inc. 354,894
21,591 Chemical Financial Corp. 661,548
10,028 City Holding Co. 466,603
26,818 CoBiz Financial, Inc. 352,120
35,078 Columbia Banking System, Inc. 968,504
63,457 Commerce Bancshares, Inc. 2,759,745
11,491 Community Trust Bancorp, Inc. 420,686
19,549 ConnectOne Bancorp, Inc. 371,431
69,739 CVB Financial Corp. 1,117,219
19,799 Eagle Bancorp, Inc. (a) 703,260
94,601 East West Bancorp, Inc. 3,662,005
13,038 Enterprise Financial Services Corp. 257,240
14,055 Fidelity Southern Corp. 226,426
9,291 Financial Institutions, Inc. 233,669
12,986 First Bancorp. 239,851
57,236 First Busey Corp. 372,606
5,658 First Citizens BancShares, Inc.,
Class A 1,430,286
12,128 First Community Bancshares, Inc. 199,748
40,444 First Financial Bancorp 751,854
42,219 First Financial Bankshares, Inc. 1,261,504
8,505 First Financial Corp. 302,948
14,332 First Interstate BancSystem, Inc.,
Class A 398,716
24,812 First Merchants Corp. 564,473
49,619 First Midwest Bancorp, Inc. 848,981
12,241 First NBC Bank Holding Co. (a) 430,883
9,134 First of Long Island (The) Corp. 259,132
108,997 FirstMerit Corp. 2,058,953
19,540 Flushing Financial Corp. 396,076
122,090 Fulton Financial Corp. 1,509,032
8,706 German American Bancorp, Inc. 265,707
49,441 Glacier Bancorp, Inc. 1,372,977
9,047 Great Southern Bancorp, Inc. 358,894
53,754 Hancock Holding Co. 1,650,248
21,025 Hanmi Financial Corp. 458,555
SHARES DESCRIPTION VALUE
------------------------------------------------------------
BANKS (CONTINUED)
12,178 Heartland Financial USA, Inc. $ 330,024
19,939 Heritage Financial Corp. 349,929
44,503 Home BancShares, Inc. 1,431,216
13,511 HomeTrust Bancshares, Inc. (a) 225,093
6,070 Horizon Bancorp 158,670
22,041 IBERIABANK Corp. 1,429,359
15,788 Independent Bank Corp./MA 675,884
15,126 Independent Bank Corp./MI 197,394
11,214 Independent Bank Group, Inc. 438,019
43,887 International Bancshares Corp. 1,164,761
235,763 Investors Bancorp, Inc. 2,646,440
24,983 Lakeland Bancorp, Inc. 292,301
10,905 Lakeland Financial Corp. 474,040
26,365 LegacyTexas Financial Group,
Inc. (a) 628,805
14,292 MainSource Financial Group, Inc. 298,989
49,272 MB Financial, Inc. 1,619,078
11,113 Mercantile Bank Corp. 233,595
9,362 Metro Bancorp, Inc. (a) 242,663
97,108 National Penn Bancshares, Inc. 1,022,062
28,815 NBT Bancorp, Inc. 756,970
75,116 Old National Bancorp 1,117,726
18,527 Opus Bank (a) 525,611
11,133 Pacific Premier Bancorp, Inc. (a) 192,935
67,160 PacWest Bancorp 3,053,094
29,556 Park Sterling Corp. 217,237
8,099 Peapack-Gladstone Financial Corp. 150,317
3,168 Penns Woods Bancorp, Inc. 156,056
9,325 Peoples Bancorp, Inc. 241,797
4,974 Peoples Financial Services Corp. 247,108
23,500 Pinnacle Financial Partners, Inc. 929,190
68,181 Popular, Inc. (a) 2,321,563
8,893 Preferred Bank 248,026
51,300 PrivateBancorp, Inc. 1,713,420
20,782 Renasant Corp. 601,223
12,238 Republic Bancorp, Inc., Class A 302,523
19,636 S&T Bancorp, Inc. 585,349
16,502 Sandy Spring Bancorp, Inc. 430,372
21,826 Seacoast Banking Corp. of
Florida (a) 300,107
16,338 ServisFirst Bancshares, Inc. 538,337
33,158 Signature Bank (a) 4,176,582
11,877 Simmons First National Corp.,
Class A 482,800
15,908 South State Corp. 1,067,109
12,467 Southside Bancshares, Inc. 360,421
12,821 Southwest Bancorp, Inc. 222,573
18,919 Square 1 Financial, Inc.,
Class A (a) 467,299
21,267 State Bank Financial Corp. 424,915
9,694 Stock Yards Bancorp, Inc. 323,198
6,751 Stonegate Bank 199,965
12,249 Sun Bancorp, Inc. (a) 237,631
46,462 Talmer Bancorp, Inc., Class A 652,326
30,118 Texas Capital Bancshares, Inc. (a) 1,636,311
23,507 TowneBank 355,426
14,969 TriCo Bancshares 369,734
18,922 Tristate Capital Holdings, Inc. (a) 193,761
See Notes to Financial Statements Page 45
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BANKS (CONTINUED)
44,443 Trustmark Corp. $ 1,090,631
29,980 UMB Financial Corp. 1,705,562
143,165 Umpqua Holdings Corp. 2,435,237
29,954 Union Bankshares Corp. 721,292
45,606 United Bankshares, Inc. 1,707,945
39,707 United Community Banks, Inc. 752,051
10,686 Univest Corp. of Pennsylvania 216,285
11,022 Washington Trust Bancorp, Inc. 442,864
19,298 WesBanco, Inc. 671,570
17,060 Westamerica Bancorporation 836,281
51,604 Wilshire Bancorp, Inc. 522,749
30,785 Wintrust Financial Corp. 1,439,507
133,732 Zions Bancorporation 3,812,699
------------
96,197,344
------------
IT SERVICES -- 0.4%
7,589 Cass Information Systems, Inc. 404,114
------------
THRIFTS & MORTGAGE FINANCE
-- 11.9%
30,686 Bank Mutual Corp. 210,506
49,528 Beneficial Mutual Bancorp, Inc. (a) 607,709
9,762 BofI Holding, Inc. (a) 759,581
46,145 Brookline Bancorp, Inc. 462,834
92,691 Capitol Federal Financial, Inc. 1,184,591
12,034 Charter Financial Corp. 137,789
17,580 Clifton Bancorp, Inc. 238,912
24,286 Dime Community Bancshares, Inc. 395,376
6,157 First Defiance Financial Corp. 209,707
9,791 HomeStreet, Inc. 170,461
36,053 Meridian Bancorp, Inc. (a) 404,515
4,066 Meta Financial Group, Inc. 142,473
32,278 Northfield Bancorp, Inc. 477,714
62,566 Northwest Bancshares, Inc. 783,952
11,210 OceanFirst Financial Corp. 192,139
29,538 Oritani Financial Corp. 454,885
197,848 TFS Financial Corp. 2,944,968
62,535 TrustCo Bank Corp. NY 454,004
32,745 United Community Financial Corp. 175,841
33,657 United Financial Bancorp, Inc. 483,315
64,702 Washington Federal, Inc. 1,433,149
22,683 Waterstone Financial, Inc. 298,282
6,194 WSFS Financial Corp. 476,257
------------
13,098,960
------------
TOTAL INVESTMENTS -- 99.9% 109,700,418
(Cost $103,735,850) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.1% 117,763
------------
NET ASSETS -- 100.0% $109,818,181
============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $104,412,928. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$6,978,201 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$1,690,711.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $109,700,418 $ -- $ --
===============================================
* 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, 2014.
Page 46 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS -- 99.4%
AEROSPACE & DEFENSE -- 2.7%
141 Boeing (The) Co. $ 18,327
67 General Dynamics Corp. 9,221
166 Honeywell International, Inc. 16,587
18 L-3 Communications Holdings, Inc. 2,272
57 Lockheed Martin Corp. 10,977
43 Northrop Grumman Corp. 6,338
30 Precision Castparts Corp. 7,226
65 Raytheon Co. 7,031
28 Rockwell Collins, Inc. 2,365
59 Textron, Inc. 2,484
180 United Technologies Corp. 20,700
------------
103,528
------------
AIR FREIGHT & LOGISTICS -- 0.8%
31 C.H. Robinson Worldwide, Inc. 2,322
41 Expeditors International of
Washington, Inc. 1,829
56 FedEx Corp. 9,725
148 United Parcel Service, Inc.,
Class B 16,453
------------
30,329
------------
AIRLINES -- 0.4%
178 Delta Air Lines, Inc. 8,756
144 Southwest Airlines Co. 6,094
------------
14,850
------------
AUTO COMPONENTS -- 0.4%
48 BorgWarner, Inc. 2,638
63 Delphi Automotive PLC 4,581
58 Goodyear Tire & Rubber (The) Co. 1,657
141 Johnson Controls, Inc. 6,816
------------
15,692
------------
AUTOMOBILES -- 0.7%
817 Ford Motor Co. 12,664
286 General Motors Co. 9,984
45 Harley-Davidson, Inc. 2,966
------------
25,614
------------
BANKS -- 6.0%
2,232 Bank of America Corp. 39,930
153 BB&T Corp. 5,950
643 Citigroup, Inc. 34,793
38 Comerica, Inc. 1,780
175 Fifth Third Bancorp 3,566
173 Huntington Bancshares, Inc. 1,820
793 JPMorgan Chase & Co. 49,626
184 KeyCorp 2,557
28 M&T Bank Corp. 3,517
112 PNC Financial Services Group
(The), Inc. 10,218
292 Regions Financial Corp. 3,083
111 SunTrust Banks, Inc. 4,651
380 U.S. Bancorp 17,081
1,002 Wells Fargo & Co. 54,930
43 Zions Bancorporation 1,226
------------
234,728
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
BEVERAGES -- 2.1%
33 Brown-Forman Corp., Class B $ 2,899
837 Coca-Cola (The) Co. 35,338
47 Coca-Cola Enterprises, Inc. 2,078
36 Constellation Brands, Inc.,
Class A (a) 3,534
41 Dr. Pepper Snapple Group, Inc. 2,939
34 Molson Coors Brewing Co., Class B 2,534
31 Monster Beverage Corp. (a) 3,359
318 PepsiCo, Inc. 30,070
------------
82,751
------------
BIOTECHNOLOGY -- 2.9%
42 Alexion Pharmaceuticals, Inc. (a) 7,771
161 Amgen, Inc. 25,646
50 Biogen Idec, Inc. (a) 16,973
170 Celgene Corp. (a) 19,016
320 Gilead Sciences, Inc. (a) 30,163
16 Regeneron Pharmaceuticals, Inc. (a) 6,564
51 Vertex Pharmaceuticals, Inc. (a) 6,059
------------
112,192
------------
BUILDING PRODUCTS -- 0.1%
20 Allegion PLC 1,109
76 Masco Corp. 1,915
------------
3,024
------------
CAPITAL MARKETS -- 2.3%
12 Affiliated Managers Group, Inc. (a) 2,547
39 Ameriprise Financial, Inc. 5,158
239 Bank of New York Mellon (The)
Corp. 9,696
27 BlackRock, Inc. 9,654
244 Charles Schwab (The) Corp. 7,366
61 E*TRADE Financial Corp. (a) 1,480
83 Franklin Resources, Inc. 4,596
86 Goldman Sachs Group (The), Inc. 16,669
91 Invesco Ltd. 3,596
21 Legg Mason, Inc. 1,121
324 Morgan Stanley 12,571
47 Northern Trust Corp. 3,168
89 State Street Corp. 6,987
55 T. Rowe Price Group, Inc 4,722
------------
89,331
------------
CHEMICALS -- 2.4%
41 Air Products & Chemicals, Inc. 5,913
14 Airgas, Inc. 1,613
11 CF Industries Holdings, Inc. 2,998
235 Dow Chemical (The) Co. 10,718
192 E.I. du Pont de Nemours & Co. 14,196
32 Eastman Chemical Co. 2,428
57 Ecolab, Inc. 5,958
28 FMC Corp. 1,597
17 International Flavors & Fragrances,
Inc. 1,723
88 LyondellBasell Industries N.V.,
Class A 6,986
103 Monsanto Co. 12,305
67 Mosaic (The) Co. 3,059
29 PPG Industries, Inc. 6,703
See Notes to Financial Statements Page 47
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CHEMICALS (CONTINUED)
62 Praxair, Inc. $ 8,033
17 Sherwin-Williams (The) Co. 4,472
25 Sigma-Aldrich Corp. 3,432
------------
92,134
------------
COMMERCIAL SERVICES &
SUPPLIES -- 0.4%
37 ADT (The) Corp. 1,341
21 Cintas Corp. 1,647
43 Pitney Bowes, Inc. 1,048
54 Republic Services, Inc. 2,173
18 Stericycle, Inc. (a) 2,359
89 Tyco International PLC 3,904
90 Waste Management, Inc. 4,619
------------
17,091
------------
COMMUNICATIONS EQUIPMENT
-- 1.7%
1,085 Cisco Systems, Inc. 30,179
16 F5 Networks, Inc. (a) 2,087
22 Harris Corp. 1,580
82 Juniper Networks, Inc. 1,830
45 Motorola Solutions, Inc. 3,019
353 QUALCOMM, Inc. 26,239
------------
64,934
------------
CONSTRUCTION & ENGINEERING
-- 0.1%
33 Fluor Corp. 2,001
28 Jacobs Engineering Group, Inc. (a) 1,251
46 Quanta Services, Inc. (a) 1,306
------------
4,558
------------
CONSTRUCTION MATERIALS -- 0.1%
13 Martin Marietta Materials, Inc. 1,434
28 Vulcan Materials Co. 1,841
------------
3,275
------------
CONSUMER FINANCE -- 0.9%
189 American Express Co. 17,585
118 Capital One Financial Corp. 9,741
96 Discover Financial Services 6,287
87 Navient Corp. 1,880
------------
35,493
------------
CONTAINERS & PACKAGING -- 0.2%
19 Avery Dennison Corp. 986
29 Ball Corp. 1,977
35 MeadWestvaco Corp. 1,553
35 Owens-Illinois, Inc. (a) 945
45 Sealed Air Corp. 1,909
------------
7,370
------------
DISTRIBUTORS -- 0.1%
32 Genuine Parts Co. 3,410
------------
DIVERSIFIED CONSUMER SERVICES
-- 0.0%
58 H&R Block, Inc. 1,953
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES
-- 2.1%
387 Berkshire Hathaway, Inc.,
Class B (a) $ 58,108
67 CME Group, Inc. 5,939
24 Intercontinental Exchange, Inc. 5,263
67 Leucadia National Corp. 1,502
58 McGraw Hill Financial, Inc. 5,161
39 Moody's Corp. 3,737
25 NASDAQ OMX Group (The), Inc. 1,199
------------
80,909
------------
DIVERSIFIED TELECOMMUNICATION
-- 2.3%
1,101 AT&T, Inc. 36,983
121 CenturyLink, Inc. 4,789
213 Frontier Communications Corp. 1,421
59 Level 3 Communications, Inc. (a) 2,913
881 Verizon Communications, Inc. 41,213
128 Windstream Holdings, Inc. 1,055
------------
88,374
------------
ELECTRIC UTILITIES -- 1.8%
104 American Electric Power Co., Inc. 6,315
150 Duke Energy Corp. 12,531
69 Edison International 4,518
38 Entergy Corp. 3,324
182 Exelon Corp. 6,749
89 FirstEnergy Corp. 3,470
93 NextEra Energy, Inc. 9,885
67 Northeast Utilities 3,586
53 Pepco Holdings, Inc. 1,427
23 Pinnacle West Capital Corp. 1,571
141 PPL Corp. 5,123
191 Southern (The) Co. 9,380
107 Xcel Energy, Inc. 3,843
------------
71,722
------------
ELECTRICAL EQUIPMENT -- 0.6%
52 AMETEK, Inc. 2,737
101 Eaton Corp. PLC 6,864
147 Emerson Electric Co. 9,074
29 Rockwell Automation, Inc. 3,225
------------
21,900
------------
ELECTRONIC EQUIPMENT,
INSTRUMENTS & COMPONENTS
-- 0.4%
66 Amphenol Corp., Class A 3,551
272 Corning, Inc. 6,237
30 FLIR Systems, Inc. 969
86 TE Connectivity Ltd. 5,440
------------
16,197
------------
ENERGY EQUIPMENT & SERVICES
-- 1.3%
92 Baker Hughes, Inc. 5,158
42 Cameron International Corp. (a) 2,098
14 Diamond Offshore Drilling, Inc. 514
50 Ensco PLC, Class A 1,498
50 FMC Technologies, Inc. (a) 2,342
Page 48 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ENERGY EQUIPMENT &
SERVICES (CONTINUED)
180 Halliburton Co. $ 7,079
23 Helmerich & Payne, Inc. 1,551
61 Nabors Industries Ltd. 792
91 National Oilwell Varco, Inc. 5,963
53 Noble Corp. PLC 878
273 Schlumberger Ltd. 23,317
72 Transocean Ltd. 1,320
------------
52,510
------------
FOOD & STAPLES RETAILING
-- 2.5%
93 Costco Wholesale Corp. 13,183
243 CVS Health Corp. 23,403
104 Kroger (The) Co. 6,678
49 Safeway, Inc. 1,721
125 Sysco Corp. 4,961
185 Walgreens Boots Alliance, Inc. 14,097
335 Wal-Mart Stores, Inc. 28,770
76 Whole Foods Market, Inc. 3,832
------------
96,645
------------
FOOD PRODUCTS -- 1.6%
137 Archer-Daniels-Midland Co. 7,124
38 Campbell Soup Co. 1,672
90 ConAgra Foods, Inc. 3,265
128 General Mills, Inc. 6,826
31 Hershey (The) Co. 3,222
29 Hormel Foods Corp. 1,511
22 J.M. Smucker (The) Co. 2,222
53 Kellogg Co. 3,468
26 Keurig Green Mountain, Inc. 3,442
125 Kraft Foods Group, Inc. 7,833
27 McCormick & Co., Inc. 2,006
43 Mead Johnson Nutrition Co. 4,323
357 Mondelez International, Inc.,
Class A 12,968
62 Tyson Foods, Inc., Class A 2,486
------------
62,368
------------
GAS UTILITIES -- 0.0%
25 AGL Resources, Inc. 1,363
------------
HEALTH CARE EQUIPMENT &
SUPPLIES -- 2.2%
320 Abbott Laboratories 14,406
115 Baxter International, Inc. 8,428
41 Becton, Dickinson and Co. 5,706
282 Boston Scientific Corp. (a) 3,736
16 C. R. Bard, Inc. 2,666
43 CareFusion Corp. (a) 2,552
96 Covidien PLC 9,819
30 DENTSPLY International, Inc. 1,598
23 Edwards Lifesciences Corp. (a) 2,930
8 Intuitive Surgical, Inc. (a) 4,231
209 Medtronic, Inc. 15,090
61 St. Jude Medical, Inc. 3,967
63 Stryker Corp. 5,943
SHARES DESCRIPTION VALUE
------------------------------------------------------------
HEALTH CARE EQUIPMENT &
SUPPLIES (CONTINUED)
21 Varian Medical Systems, Inc. (a) $ 1,817
36 Zimmer Holdings, Inc. 4,083
------------
86,972
------------
HEALTH CARE PROVIDERS &
SERVICES -- 2.3%
75 Aetna, Inc. 6,662
44 AmerisourceBergen Corp. 3,967
57 Anthem, Inc. 7,163
70 Cardinal Health, Inc. 5,651
56 Cigna Corp. 5,763
36 DaVita HealthCare Partners, Inc. (a) 2,727
156 Express Scripts Holding Co. (a) 13,209
33 Humana, Inc. 4,740
18 Laboratory Corp. of America
Holdings (a) 1,942
49 McKesson Corp. 10,171
18 Patterson Cos., Inc. 866
31 Quest Diagnostics, Inc. 2,079
21 Tenet Healthcare Corp. (a) 1,064
204 UnitedHealth Group, Inc. 20,622
19 Universal Health Services, Inc.,
Class B 2,114
------------
88,740
------------
HEALTH CARE TECHNOLOGY -- 0.1%
65 Cerner Corp. (a) 4,203
------------
HOTELS, RESTAURANTS & LEISURE
-- 1.6%
96 Carnival Corp. 4,352
7 Chipotle Mexican Grill, Inc. (a) 4,791
28 Darden Restaurants, Inc. 1,641
45 Marriott International, Inc.,
Class A 3,511
207 McDonald's Corp. 19,396
35 Royal Caribbean Cruises Ltd. 2,885
159 Starbucks Corp. 13,046
38 Starwood Hotels & Resorts
Worldwide, Inc. 3,081
26 Wyndham Worldwide Corp. 2,230
17 Wynn Resorts Ltd. 2,529
93 Yum! Brands, Inc. 6,775
------------
64,237
------------
HOUSEHOLD DURABLES -- 0.4%
70 D.R. Horton, Inc. 1,770
26 Garmin Ltd. 1,373
15 Harman International Industries,
Inc. 1,601
29 Leggett & Platt, Inc. 1,236
38 Lennar Corp., Class A 1,703
13 Mohawk Industries, Inc. (a) 2,020
58 Newell Rubbermaid, Inc. 2,209
71 PulteGroup, Inc. 1,524
17 Whirlpool Corp. 3,293
------------
16,729
------------
See Notes to Financial Statements Page 49
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD PRODUCTS -- 2.0%
27 Clorox (The) Co. $ 2,814
182 Colgate-Palmolive Co. 12,592
79 Kimberly-Clark Corp. 9,128
573 Procter & Gamble (The) Co. 52,194
------------
76,728
------------
INDEPENDENT POWER AND RENEWABLE
ELECTRICITY PRODUCERS -- 0.1%
139 AES (The) Corp. 1,914
72 NRG Energy, Inc 1,940
------------
3,854
------------
INDUSTRIAL CONGLOMERATES -- 2.3%
136 3M Co. 22,348
130 Danaher Corp. 11,142
2,131 General Electric Co. 53,851
21 Roper Industries, Inc. 3,283
------------
90,624
------------
INSURANCE -- 2.8%
70 ACE Ltd. 8,042
96 Aflac, Inc. 5,865
89 Allstate (The) Corp. 6,252
297 American International Group, Inc. 16,635
61 Aon PLC 5,785
15 Assurant, Inc. 1,026
50 Chubb (The) Corp. 5,173
31 Cincinnati Financial Corp. 1,607
105 Genworth Financial, Inc.,
Class A (a) 892
92 Hartford Financial Services Group
(The), Inc. 3,835
55 Lincoln National Corp. 3,172
64 Loews Corp. 2,689
115 Marsh & McLennan Cos., Inc. 6,583
241 MetLife, Inc. 13,036
58 Principal Financial Group, Inc. 3,012
114 Progressive (The) Corp. 3,077
97 Prudential Financial, Inc. 8,775
27 Torchmark Corp. 1,463
70 Travelers (The) Cos., Inc. 7,409
53 Unum Group 1,849
55 XL Group PLC 1,890
------------
108,067
------------
INTERNET & CATALOG RETAIL -- 1.2%
81 Amazon.com, Inc. (a) 25,138
21 Expedia, Inc. 1,793
13 Netflix, Inc. (a) 4,441
11 Priceline Group (The), Inc. (a) 12,542
24 TripAdvisor, Inc. (a) 1,792
------------
45,706
------------
INTERNET SOFTWARE & SERVICES
-- 3.2%
38 Akamai Technologies, Inc. (a) 2,392
240 eBay, Inc. (a) 13,469
444 Facebook, Inc., Class A (a) 34,641
60 Google, Inc., Class A (a) 31,840
SHARES DESCRIPTION VALUE
------------------------------------------------------------
INTERNET SOFTWARE &
SERVICES (CONTINUED)
60 Google, Inc., Class C (a) $ 31,584
23 VeriSign, Inc. (a) 1,311
187 Yahoo!, Inc. (a) 9,445
------------
124,682
------------
IT SERVICES -- 3.3%
133 Accenture PLC, Class A 11,878
14 Alliance Data Systems Corp. (a) 4,005
102 Automatic Data Processing, Inc. 8,504
129 Cognizant Technology Solutions
Corp., Class A (a) 6,793
30 Computer Sciences Corp. 1,891
60 Fidelity National Information
Services, Inc. 3,732
52 Fiserv, Inc. (a) 3,690
195 International Business Machines
Corp. 31,286
208 MasterCard, Inc., Class A 17,921
69 Paychex, Inc. 3,186
32 Teradata Corp. (a) 1,398
35 Total System Services, Inc. 1,189
104 Visa, Inc., Class A 27,269
111 Western Union (The) Co. 1,988
228 Xerox Corp. 3,160
------------
127,890
------------
LEISURE PRODUCTS -- 0.1%
24 Hasbro, Inc. 1,320
72 Mattel, Inc. 2,228
------------
3,548
------------
LIFE SCIENCES TOOLS & SERVICES
-- 0.4%
71 Agilent Technologies, Inc. 2,907
24 PerkinElmer, Inc. 1,049
85 Thermo Fisher Scientific, Inc. 10,650
18 Waters Corp. (a) 2,029
------------
16,635
------------
MACHINERY -- 1.5%
128 Caterpillar, Inc. 11,716
36 Cummins, Inc. 5,190
76 Deere & Co. 6,724
35 Dover Corp. 2,510
29 Flowserve Corp. 1,735
76 Illinois Tool Works, Inc. 7,197
56 Ingersoll-Rand PLC 3,550
21 Joy Global, Inc. 977
75 PACCAR, Inc. 5,101
23 Pall Corp. 2,328
32 Parker-Hannifin Corp. 4,126
40 Pentair PLC 2,657
12 Snap-on, Inc 1,641
33 Stanley Black & Decker, Inc. 3,170
39 Xylem, Inc. 1,485
------------
60,107
------------
Page 50 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDIA -- 3.5%
46 Cablevision Systems Corp., Class A $ 949
101 CBS Corp., Class B 5,589
547 Comcast Corp., Class A 31,731
107 DIRECTV (a) 9,277
32 Discovery Communications, Inc.,
Class A (a) 1,102
58 Discovery Communications, Inc.,
Class C (a) 1,956
48 Gannett Co., Inc. 1,533
89 Interpublic Group of Cos. (The),
Inc. 1,849
106 News Corp., Class A (a) 1,663
53 Omnicom Group, Inc. 4,106
22 Scripps Networks Interactive, Inc.,
Class A 1,656
60 Time Warner Cable, Inc. 9,124
178 Time Warner, Inc. 15,205
394 Twenty-First Century Fox, Inc.,
Class A 15,132
78 Viacom, Inc., Class B 5,869
331 Walt Disney (The) Co. 31,177
------------
137,918
------------
METALS & MINING -- 0.4%
250 Alcoa, Inc. 3,948
23 Allegheny Technologies, Inc. 800
221 Freeport-McMoRan, Inc. 5,163
106 Newmont Mining Corp. 2,003
68 Nucor Corp. 3,335
------------
15,249
------------
MULTILINE RETAIL -- 0.8%
64 Dollar General Corp. (a) 4,525
44 Dollar Tree, Inc. (a) 3,097
20 Family Dollar Stores, Inc. 1,584
43 Kohl's Corp. 2,625
73 Macy's, Inc. 4,800
30 Nordstrom, Inc. 2,381
135 Target Corp. 10,248
------------
29,260
------------
MULTI-UTILITIES -- 1.2%
51 Ameren Corp. 2,353
91 CenterPoint Energy, Inc. 2,132
58 CMS Energy Corp. 2,015
62 Consolidated Edison, Inc. 4,093
124 Dominion Resources, Inc. 9,536
38 DTE Energy Co. 3,282
17 Integrys Energy Group, Inc. 1,323
67 NiSource, Inc. 2,842
101 PG&E Corp. 5,377
107 Public Service Enterprise Group,
Inc. 4,431
30 SCANA Corp. 1,812
49 Sempra Energy 5,457
50 TECO Energy, Inc. 1,024
48 Wisconsin Energy Corp. 2,532
------------
48,209
------------
SHARES DESCRIPTION VALUE
------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS
-- 7.0%
107 Anadarko Petroleum Corp. $ 8,827
80 Apache Corp. 5,014
88 Cabot Oil & Gas Corp. 2,606
110 Chesapeake Energy Corp. 2,153
401 Chevron Corp. 44,984
19 Cimarex Energy Co. 2,014
261 ConocoPhillips 18,025
49 CONSOL Energy, Inc. 1,657
75 Denbury Resources, Inc. 610
82 Devon Energy Corp. 5,019
116 EOG Resources, Inc. 10,680
32 EQT Corp. 2,422
899 Exxon Mobil Corp. 83,113
54 Hess Corp. 3,986
361 Kinder Morgan, Inc. 15,274
143 Marathon Oil Corp. 4,045
59 Marathon Petroleum Corp. 5,325
35 Murphy Oil Corp. 1,768
29 Newfield Exploration Co. (a) 786
76 Noble Energy, Inc. 3,605
165 Occidental Petroleum Corp. 13,301
44 ONEOK, Inc. 2,191
117 Phillips 66 8,389
32 Pioneer Natural Resources Co. 4,763
35 QEP Resources, Inc. 708
36 Range Resources Corp. 1,924
75 Southwestern Energy Co. (a) 2,047
142 Spectra Energy Corp. 5,155
27 Tesoro Corp. 2,007
111 Valero Energy Corp. 5,494
143 Williams (The) Cos., Inc. 6,426
------------
274,318
------------
PAPER & FOREST PRODUCTS
-- 0.1%
90 International Paper Co. 4,822
------------
PERSONAL PRODUCTS -- 0.1%
92 Avon Products, Inc. 864
48 Estee Lauder (The) Cos., Inc.,
Class A 3,657
------------
4,521
------------
PHARMACEUTICALS -- 6.2%
338 AbbVie, Inc. 22,119
56 Actavis PLC (a) 14,415
63 Allergan, Inc. 13,393
352 Bristol-Myers Squibb Co. 20,778
208 Eli Lilly & Co. 14,350
36 Hospira, Inc. (a) 2,205
594 Johnson & Johnson 62,115
25 Mallinckrodt PLC (a) 2,476
605 Merck & Co., Inc. 34,358
79 Mylan, Inc. (a) 4,453
30 Perrigo Co. PLC 5,015
1,337 Pfizer, Inc. 41,647
106 Zoetis, Inc. 4,561
------------
241,885
------------
See Notes to Financial Statements Page 51
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PROFESSIONAL SERVICES -- 0.2%
8 Dun & Bradstreet (The) Corp. $ 968
26 Equifax, Inc. 2,103
69 Nielsen N.V. 3,086
29 Robert Half International, Inc. 1,693
------------
7,850
------------
REAL ESTATE INVESTMENT TRUSTS
-- 2.4%
84 American Tower Corp. 8,304
31 Apartment Investment &
Management Co., Class A 1,152
28 AvalonBay Communities, Inc. 4,575
32 Boston Properties, Inc. 4,118
71 Crown Castle International Corp. 5,588
77 Equity Residential 5,532
14 Essex Property Trust, Inc. 2,893
133 General Growth Properties, Inc. 3,741
97 HCP, Inc. 4,271
70 Health Care REIT, Inc. 5,297
161 Host Hotels & Resorts, Inc. 3,827
40 Iron Mountain, Inc. 1,546
87 Kimco Realty Corp. 2,187
30 Macerich (The) Co. 2,502
37 Plum Creek Timber Co., Inc. 1,583
106 Prologis, Inc. 4,561
31 Public Storage 5,730
66 Simon Property Group, Inc. 12,019
62 Ventas, Inc. 4,445
37 Vornado Realty Trust 4,355
111 Weyerhaeuser Co. 3,984
------------
92,210
------------
REAL ESTATE MANAGEMENT
& DEVELOPMENT -- 0.1%
59 CBRE Group, Inc., Class A (a) 2,021
------------
ROAD & RAIL -- 1.1%
211 CSX Corp. 7,644
23 Kansas City Southern 2,807
66 Norfolk Southern Corp. 7,234
11 Ryder System, Inc. 1,021
189 Union Pacific Corp. 22,516
------------
41,222
------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT -- 2.4%
65 Altera Corp. 2,401
66 Analog Devices, Inc. 3,664
259 Applied Materials, Inc. 6,454
54 Avago Technologies Ltd. 5,432
114 Broadcom Corp., Class A 4,940
16 First Solar, Inc. (a) 713
1,026 Intel Corp. 37,234
35 KLA-Tencor Corp. 2,461
34 Lam Research Corp. 2,698
51 Linear Technology Corp. 2,326
43 Microchip Technology, Inc. 1,940
228 Micron Technology, Inc. (a) 7,982
110 NVIDIA Corp. 2,205
SHARES DESCRIPTION VALUE
------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT (CONTINUED)
224 Texas Instruments, Inc. $ 11,976
56 Xilinx, Inc. 2,424
------------
94,850
------------
SOFTWARE -- 3.8%
101 Adobe Systems, Inc. (a) 7,343
48 Autodesk, Inc. (a) 2,883
68 CA, Inc. 2,070
34 Citrix Systems, Inc. (a) 2,169
66 Electronic Arts, Inc. (a) 3,103
61 Intuit, Inc. 5,623
1,749 Microsoft Corp. 81,241
687 Oracle Corp. 30,894
40 Red Hat, Inc. (a) 2,766
125 salesforce.com, inc. (a) 7,414
146 Symantec Corp. 3,746
------------
149,252
------------
SPECIALTY RETAIL -- 2.4%
16 AutoNation, Inc. (a) 966
7 AutoZone, Inc. (a) 4,334
39 Bed Bath & Beyond, Inc. (a) 2,971
62 Best Buy Co., Inc. 2,417
46 CarMax, Inc. (a) 3,063
23 GameStop Corp., Class A 777
57 Gap (The), Inc. 2,400
280 Home Depot (The), Inc. 29,391
52 L Brands, Inc. 4,500
206 Lowe's Cos., Inc. 14,173
22 O'Reilly Automotive, Inc. (a) 4,238
21 PetSmart, Inc. 1,707
45 Ross Stores, Inc. 4,242
136 Staples, Inc. 2,464
24 Tiffany & Co. 2,565
146 TJX (The) Cos., Inc. 10,013
29 Tractor Supply Co. 2,286
21 Urban Outfitters, Inc. (a) 738
------------
93,245
------------
TECHNOLOGY HARDWARE, STORAGE
& PERIPHERALS -- 4.7%
1,245 Apple, Inc. 137,423
432 EMC Corp. 12,848
396 Hewlett-Packard Co. 15,891
66 NetApp, Inc. 2,736
47 SanDisk Corp. 4,605
69 Seagate Technology PLC 4,589
46 Western Digital Corp. 5,092
------------
183,184
------------
TEXTILES, APPAREL & LUXURY
GOODS -- 0.9%
58 Coach, Inc. 2,179
10 Fossil Group, Inc. (a) 1,107
44 Michael Kors Holdings Ltd. (a) 3,304
148 NIKE, Inc., Class B 14,230
17 PVH Corp. 2,179
13 Ralph Lauren Corp. 2,407
Page 52 See Notes to Financial Statements
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 2014
SHARES DESCRIPTION VALUE
------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TEXTILES, APPAREL & LUXURY
GOODS (CONTINUED)
35 Under Armour, Inc., Class A (a) $ 2,377
73 VF Corp. 5,468
------------
33,251
------------
THRIFTS & MORTGAGE FINANCE
-- 0.1%
102 Hudson City Bancorp, Inc. 1,032
65 People's United Financial, Inc. 987
------------
2,019
------------
TOBACCO -- 1.4%
419 Altria Group, Inc. 20,644
76 Lorillard, Inc. 4,783
330 Philip Morris International, Inc. 26,879
65 Reynolds American, Inc. 4,178
------------
56,484
------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.2%
58 Fastenal Co. 2,758
21 United Rentals, Inc. (a) 2,142
13 W.W. Grainger, Inc. 3,314
------------
8,214
------------
TOTAL COMMON STOCKS -- 99.4% 3,872,951
(Cost $3,294,321) ------------
CONTRACTS
------------
OPTIONS PURCHASED -- 0.4%
CALL OPTIONS -- 0.4%
245 VIX US, expiring 01/21/2015,
Strike Price $28 (a) 14,700
(Cost $30,754) ------------
TOTAL INVESTMENTS -- 99.8% 3,887,651
(Cost $3,325,075) (b)
NET OTHER ASSETS AND
LIABILITIES -- 0.2% 7,224
------------
NET ASSETS -- 100.0% $ 3,894,875
============
(a) Non-income producing security.
(b) Aggregate cost for federal income tax purposes is $3,311,111. As of
December 31, 2014, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$626,987 and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over value was
$50,447.
-----------------------------
VALUATION INPUTS
A summary of the inputs used to value the Fund's investments as of December 31,
2014 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* $3,872,951 $ -- $ --
Options Purchased 14,700 -- --
-----------------------------------------------
Total Investments $3,887,651 $ -- $ --
===============================================
* 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, 2014.
See Notes to Financial Statements Page 53
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2014
FIRST TRUST FIRST TRUST
NASDAQ-100 FIRST TRUST NASDAQ-100
EQUAL NASDAQ-100- EX-TECHNOLOGY
WEIGHTED TECHNOLOGY SECTOR SECTOR
INDEX FUND INDEX FUND INDEX FUND
(QQEW) (QTEC) (QQXT)
------------------ ------------------ ------------------
ASSETS:
Investments, at value................................................. $ 578,120,728 $ 366,857,562 $ 117,214,814
Repurchase agreements, at value....................................... 3,988,709 -- --
Cash.................................................................. 237,261 318,133 --
Receivables:
Capital shares sold............................................. -- 6,654,091 --
Investment securities sold...................................... 31 63 --
Dividends....................................................... 352,576 33,283 111,197
Securities lending income....................................... 1,057 -- 23
Interest........................................................ -- -- 3
Prepaid expenses...................................................... 8,060 4,422 1,702
-------------- -------------- --------------
TOTAL ASSETS.................................................... 582,708,422 373,867,554 117,327,739
-------------- -------------- --------------
LIABILITIES:
Due to custodian...................................................... -- -- --
Payables:
Investment securities purchased................................. -- 6,654,641 --
Collateral for securities on loan............................... 4,328,608 -- --
Investment advisory fees........................................ 176,891 109,518 35,681
Licensing fees.................................................. 126,436 79,988 26,178
Audit and tax fees.............................................. 22,925 22,925 22,925
Printing fees................................................... 24,391 15,515 8,396
Trustees' fees.................................................. -- -- 18
Other liabilities..................................................... 201,162 115,787 39,857
-------------- -------------- --------------
TOTAL LIABILITIES............................................... 4,880,413 6,998,374 133,055
-------------- -------------- --------------
NET ASSETS............................................................ $ 577,828,009 $ 366,869,180 $ 117,194,684
============== ============== ==============
NET ASSETS CONSIST OF:
Paid-in capital....................................................... $ 541,644,479 $ 313,303,122 $ 102,424,112
Par value............................................................. 135,000 84,000 29,500
Accumulated net investment income (loss).............................. -- -- --
Accumulated net realized gain (loss) on investments and options....... (15,574,769) (21,914,895) (4,685,858)
Net unrealized appreciation (depreciation) on investments and
options ........................................................... 51,623,299 75,396,953 19,426,930
-------------- -------------- --------------
NET ASSETS............................................................ $ 577,828,009 $ 366,869,180 $ 117,194,684
============== ============== ==============
NET ASSET VALUE, PER SHARE............................................ $ 42.80 $ 43.67 $ 39.73
============== ============== ==============
Number of shares outstanding (unlimited number of shares
authorized, par value $0.01 per share)................................ 13,500,002 8,400,002 2,950,002
-------------- -------------- --------------
Investments, at cost.................................................. $ 526,497,429 $ 291,460,609 $ 97,787,884
============== ============== ==============
Repurchase agreements, at cost........................................ $ 3,988,709 $ -- $ --
============== ============== ==============
Securities on loan, at value.......................................... $ 4,215,306 $ -- $ --
============== ============== ==============
Page 54 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ(R) FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE(R)
CLEAN EDGE(R) S&P ISE ISE-REVERE ISE COMMUNITY S&P 500(R)
GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK VIX(R)
INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND TAIL HEDGE FUND
(QCLN) (FRI) (FIW) (FCG) (FNI) (QABA) (VIXH)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 90,870,240 $ 337,928,009 $ 199,441,861 $ 250,634,044 $ 112,993,778 $ 109,700,418 $ 3,887,651
15,092,309 -- -- 44,255,490 15,554,778 -- --
163,534 -- -- 1,615,204 -- 110,785 4,288
-- -- -- -- -- -- --
-- -- -- -- 239,751 319,026 --
35,463 1,619,765 58,112 14,733 17,667 131,274 5,025
53,533 -- -- 364,924 35,966 -- --
-- 18 16 26 -- -- --
2,342 4,107 3,493 8,565 1,271 1,453 --
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
106,217,421 339,551,899 199,503,482 296,892,986 128,843,211 110,262,956 3,896,964
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
-- 124,173 -- -- 172,164 -- --
83,498 -- 752,516 1,539,887 -- 320,546 153
16,378,402 -- -- 48,026,725 16,880,280 -- --
28,044 77,109 66,995 79,193 40,360 28,788 1,936
26,181 57,199 24,284 79,266 20,534 22,629 --
22,925 15,785 16,093 40,910 5,086 7,364 --
11,814 22,925 22,925 22,925 22,925 22,925 --
-- 81 22 110 13 17 --
50,660 124,930 70,454 158,410 38,505 42,506 --
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
16,601,524 422,202 953,289 49,947,426 17,179,867 444,775 2,089
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 89,615,897 $ 339,129,697 $ 198,550,193 $ 246,945,560 $ 111,663,344 $ 109,818,181 $ 3,894,875
=============== =============== =============== =============== =============== =============== ===============
$ 133,587,012 $ 323,387,956 $ 189,149,635 $ 650,483,719 $ 156,452,587 $ 105,478,607 $ 3,803,660
52,000 152,500 59,000 220,000 39,000 30,000 1,500
510 -- -- 307,369 (80,940) 19,925 56
(35,318,576) (953,659) (12,251,031) (243,110,292) (53,575,223) (1,674,919) (472,917)
(8,705,049) 16,542,900 21,592,589 (160,955,236) 8,827,920 5,964,568 562,576
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 89,615,897 $ 339,129,697 $ 198,550,193 $ 246,945,560 $ 111,663,344 $ 109,818,181 $ 3,894,875
=============== =============== =============== =============== =============== =============== ===============
$ 17.23 $ 22.24 $ 33.65 $ 11.22 $ 28.63 $ 36.61 $ 25.97
=============== =============== =============== =============== =============== =============== ===============
5,200,002 15,250,002 5,900,002 22,000,002 3,900,002 3,000,002 150,002
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 99,575,289 $ 321,385,109 $ 177,849,272 $ 411,589,280 $ 104,165,858 $ 103,735,850 $ 3,325,075
=============== =============== =============== =============== =============== =============== ===============
$ 15,092,309 $ -- $ -- $ 44,255,490 $ 15,554,778 $ -- $ --
=============== =============== =============== =============== =============== =============== ===============
$ 15,995,198 $ -- $ -- $ 46,149,597 $ 16,412,925 $ -- $ --
=============== =============== =============== =============== =============== =============== ===============
See Notes to Financial Statements Page 55
FIRST TRUST EXCHANGE-TRADED FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ-100 NASDAQ-100- NASDAQ-100
EQUAL WEIGHTED TECHNOLOGY SECTOR EX-TECHNOLOGY SECTOR
INDEX FUND INDEX FUND INDEX FUND
(QQEW) (QTEC) (QQXT)
------------------ ------------------ --------------------
INVESTMENT INCOME:
Dividends........................................................ $ 7,325,942 $ 4,719,360 $ 1,439,792
Securities lending income (net of fees).......................... 23,022 -- 4,779
Foreign tax withholding.......................................... (3,204) -- (1,095)
Interest......................................................... -- -- 26
-------------- -------------- --------------
Total investment income....................................... 7,345,760 4,719,360 1,443,502
-------------- -------------- --------------
EXPENSES:
Investment advisory fees......................................... 1,730,741 983,639 383,922
Licensing fees................................................... 432,685 245,910 95,980
Accounting and administration fees............................... 218,833 124,698 49,883
Custodian fees................................................... 68,593 31,209 15,185
Printing fees.................................................... 58,936 36,635 19,861
Registration and filing fees..................................... 29,424 14,764 1,519
Audit and tax fees............................................... 23,424 23,231 23,081
Transfer agent fees.............................................. 21,623 12,278 4,794
Legal fees....................................................... 20,427 13,800 5,153
Trustees' fees and expenses...................................... 11,301 7,975 5,291
Listing fees..................................................... 8,541 7,591 7,350
Expenses previously waived or reimbursed......................... -- -- --
Other expenses................................................... 13,149 7,321 4,126
-------------- -------------- --------------
Total expenses................................................ 2,637,677 1,509,051 616,145
Less fees waived and expenses reimbursed by the investment
advisor (41,566) (33,593) (40,262)
-------------- -------------- --------------
Net expenses.................................................. 2,596,111 1,475,458 575,883
-------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)..................................... 4,749,649 3,243,902 867,619
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................... (4,902,712) (535,124) (813,445)
Options....................................................... -- -- --
In-kind redemptions........................................... 36,756,756 12,560,644 12,367,364
-------------- -------------- --------------
Net realized gain (loss)......................................... 31,854,044 12,025,520 11,553,919
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................... 31,248,859 40,032,392 1,380,688
Options....................................................... -- -- --
-------------- -------------- --------------
Net change in unrealized appreciation (depreciation)............. 31,248,859 40,032,392 1,380,688
-------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS).......................... 63,102,903 52,057,912 12,934,607
-------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................. $ 67,852,552 $ 55,301,814 $ 13,802,226
============== ============== ==============
Page 56 See Notes to Financial Statements
FIRST TRUST FIRST TRUST FIRST TRUST
NASDAQ(R) FIRST TRUST FIRST TRUST FIRST TRUST FIRST TRUST NASDAQ(R) ABA CBOE(R)
CLEAN EDGE(R) S&P ISE ISE-REVERE ISE COMMUNITY S&P 500(R)
GREEN ENERGY REIT WATER NATURAL GAS CHINDIA BANK VIX(R)
INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND INDEX FUND TAIL HEDGE FUND
(QCLN) (FRI) (FIW) (FCG) (FNI) (QABA) (VIXH)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
$ 673,487 $ 6,490,677 $ 2,649,783 $ 3,743,607 $ 662,006 $ 1,731,415 $ 106,636
954,677 -- -- 2,634,113 217,602 -- --
-- -- (33,738) (273,143) (20,813) -- (12)
-- 95 51 122 -- -- --
--------------- --------------- --------------- --------------- --------------- --------------- --------------
1,628,164 6,490,772 2,616,096 6,104,699 858,795 1,731,415 106,624
--------------- --------------- --------------- --------------- --------------- --------------- --------------
537,958 682,225 780,554 1,818,597 299,620 343,729 31,633 (a)
134,489 181,926 97,569 454,649 59,924 77,339 --
68,882 116,620 99,213 228,830 39,271 45,619 --
31,420 28,087 24,462 67,217 15,523 10,742 --
28,554 18,755 40,418 93,470 13,548 19,285 --
1,008 23,946 267 1,783 5,219 7,112 --
23,093 23,181 23,266 23,728 23,049 23,015 --
6,723 11,317 9,748 22,674 3,736 4,295 --
7,143 12,857 10,523 21,595 5,314 5,068 --
6,219 8,373 6,975 11,520 4,985 5,380 --
7,883 7,645 7,645 8,044 8,044 8,135 --
-- 10,421 45,807 -- -- -- --
5,679 11,688 6,316 18,174 6,321 3,051 --
--------------- --------------- --------------- --------------- --------------- --------------- --------------
859,051 1,137,041 1,152,763 2,770,281 484,554 552,770 31,633
(50,372) -- -- (42,386) (33,734) (37,176) --
--------------- --------------- --------------- --------------- --------------- --------------- --------------
808,679 1,137,041 1,152,763 2,727,895 450,820 515,594 31,633
--------------- --------------- --------------- --------------- --------------- --------------- --------------
819,485 5,353,731 1,463,333 3,376,804 407,975 1,215,821 74,991
--------------- --------------- --------------- --------------- --------------- --------------- --------------
(4,242,393) 339,718 870,577 (107,640,639) (2,363,894) (964,488) 20,404
-- -- -- -- -- -- 10,069
24,233,840 18,507,903 11,954,028 71,378,295 7,376,291 2,850,128 896,295
--------------- --------------- --------------- --------------- --------------- --------------- --------------
19,991,447 18,847,621 12,824,605 (36,262,344) 5,012,397 1,885,640 926,768
--------------- --------------- --------------- --------------- --------------- --------------- --------------
(30,603,684) 23,109,804 (14,409,829) (163,962,545) (7,267,776) (1,523,495) (443,162)
-- -- -- -- -- -- 23,707
--------------- --------------- --------------- --------------- --------------- --------------- --------------
(30,603,684) 23,109,804 (14,409,829) (163,962,545) (7,267,776) (1,523,495) (419,455)
--------------- --------------- --------------- --------------- --------------- --------------- --------------
(10,612,237) 41,957,425 (1,585,224) (200,224,889) (2,255,379) 362,145 507,313
--------------- --------------- --------------- --------------- --------------- --------------- --------------
$ (9,792,752) $ 47,311,156 $ (121,891) $ (196,848,085) $ (1,847,404) $ 1,577,966 $ 582,304
=============== =============== =============== =============== =============== =============== ==============
(a) Fund is subject to a Unitary Fee (See Note 3 in the Notes to Financial
Statements.)
See Notes to Financial Statements 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 FUND INDEX FUND
(QQEW) (QTEC)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2014 12/31/2013 12/31/2014 12/31/2013
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)............................... $ 4,749,649 $ 1,133,384 $ 3,243,902 $ 1,048,880
Net realized gain (loss)................................... 31,854,044 34,815,693 12,025,520 3,362,041
Net change in unrealized appreciation (depreciation) ...... 31,248,859 17,842,947 40,032,392 39,185,377
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations......................................... 67,852,552 53,792,024 55,301,814 43,596,298
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (5,254,521) (1,151,465) (3,895,191) (1,166,616)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................. 477,669,678 357,783,254 181,010,141 41,604,720
Cost of shares redeemed.................................... (251,384,716) (206,293,601) (42,712,206) (12,877,761)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions........................... 226,284,962 151,489,653 138,297,935 28,726,959
------------- ------------- ------------- -------------
Total increase (decrease) in net assets.................... 288,882,993 204,130,212 189,704,558 71,156,641
NET ASSETS:
Beginning of period........................................ 288,945,016 84,814,804 177,164,622 106,007,981
------------- ------------- ------------- -------------
End of period.............................................. $ 577,828,009 $ 288,945,016 $ 366,869,180 $ 177,164,622
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period........................................ $ -- $ -- $ -- $ --
============= ============= ============= =============
CHANGES IN SHARES OUTSTANDING:
Shares outstanding, beginning of period.................... 7,950,002 3,250,002 5,000,002 4,100,002
Shares sold................................................ 12,150,000 11,000,000 4,450,000 1,350,000
Shares redeemed............................................ (6,600,000) (6,300,000) (1,050,000) (450,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period.......................... 13,500,002 7,950,002 8,400,002 5,000,002
============= ============= ============= =============
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 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
12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013 12/31/2014 12/31/2013
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 867,619 $ 248,433 $ 819,485 $ 312,837 $ 5,353,731 $ 7,522,197 $ 1,463,333 $ 965,772
11,553,919 6,716,677 19,991,447 1,132,939 18,847,621 40,890,475 12,824,605 7,839,752
1,380,688 14,394,518 (30,603,684) 26,679,735 23,109,804 (32,323,997) (14,409,829) 26,156,476
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
13,802,226 21,359,628 (9,792,752) 28,125,511 47,311,156 16,088,675 (121,891) 34,962,000
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(905,596) (225,875) (857,050) (297,165) (6,113,911) (7,854,961) (1,479,820) (973,210)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
45,510,861 44,880,011 99,521,515 62,114,258 370,499,249 80,241,468 41,982,569 127,825,752
(31,608,677) (17,599,619) (96,829,501) (6,109,034) (220,777,099) (343,153,151) (39,473,865) (36,940,729)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
13,902,184 27,280,392 2,692,014 56,005,224 149,722,150 (262,911,683) 2,508,704 90,885,023
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
26,798,814 48,414,145 (7,957,788) 83,833,570 190,919,395 (254,677,969) 906,993 124,873,813
90,395,870 41,981,725 97,573,685 13,740,115 148,210,302 402,888,271 197,643,200 72,769,387
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 117,194,684 $ 90,395,870 $ 89,615,897 $ 97,573,685 $ 339,129,697 $ 148,210,302 $ 198,550,193 $ 197,643,200
============= ============= ============= ============= ============= ============= ============= =============
$ -- $ 22,558 $ 510 $ 29,696 $ -- $ -- $ -- $ --
============= ============= ============= ============= ============= ============= ============= =============
2,600,002 1,700,002 5,450,002 1,450,002 8,450,002 22,700,002 5,850,002 2,800,002
1,200,000 1,450,000 5,050,000 4,450,000 17,850,000 4,200,000 1,250,000 4,200,000
(850,000) (550,000) (5,300,000) (450,000) (11,050,000) (18,450,000) (1,200,000) (1,150,000)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,950,002 2,600,002 5,200,002 5,450,002 15,250,002 8,450,002 5,900,002 5,850,002
============= ============= ============= ============= ============= ============= ============= =============
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
12/31/2014 12/31/2013 12/31/2014 12/31/2013
------------- ------------- ------------- -------------
OPERATIONS:
Net investment income (loss)............................... $ 3,376,804 $ 1,808,415 $ 407,975 $ 500,083
Net realized gain (loss)................................... (36,262,344) (7,341,006) 5,012,397 3,207,911
Net change in unrealized appreciation (depreciation) ...... (163,962,545) 102,869,319 (7,267,776) 15,391,317
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations............................................ (196,848,085) 97,336,728 (1,847,404) 19,099,311
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income...................................... (3,518,320) (1,716,075) (666,211) (528,875)
------------- ------------- ------------- -------------
SHAREHOLDER TRANSACTIONS:
Proceeds from shares sold.................................. 391,219,526 195,622,338 62,493,569 2,735,518
Cost of shares redeemed.................................... (408,702,370) (214,347,484) (20,278,569) (15,410,341)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from shareholder transactions.............................. (17,482,844) (18,725,146) 42,215,000 (12,674,823)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets.................... (217,849,249) 76,895,507 39,701,385 5,895,613
NET ASSETS:
Beginning of period........................................ 464,794,809 387,899,302 71,961,959 66,066,346
------------- ------------- ------------- -------------
End of period.............................................. $ 246,945,560 $ 464,794,809 $ 111,663,344 $ 71,961,959
============= ============= ============= =============
Accumulated net investment income (loss)
at end of period........................................... $ 307,369 $ 151,483 $ (80,940) $ 9,106
============= ============= ============= =============
CHANGES IN SHARES OUSTANDING:
Shares outstanding, beginning of period.................... 23,800,002 24,750,002 2,550,002 3,150,002
Shares sold................................................ 19,000,000 11,150,000 2,050,000 100,000
Shares redeemed............................................ (20,800,000) (12,100,000) (700,000) (700,000)
------------- ------------- ------------- -------------
Shares outstanding, end of period.......................... 22,000,002 23,800,002 3,900,002 2,550,002
============= ============= ============= =============
Page 60 See Notes to Financial Statements
FIRST TRUST FIRST TRUST
NASDAQ(R) ABA CBOE(R) S&P 500(R)
COMMUNITY BANK VIX(R) TAIL
INDEX FUND HEDGE FUND
(QABA) (VIXH)
----------------------------- -----------------------------
For the Year For the Year For the Year For the Year
Ended Ended Ended Ended
12/31/2014 12/31/2013 12/31/2014 12/31/2013
------------- ------------- ------------- -------------
$ 1,215,821 $ 357,811 $ 74,991 $ 86,613
1,885,640 779,333 926,768 1,712
(1,523,495) 7,480,300 (419,455) 917,769
------------- ------------- ------------- -------------
1,577,966 8,617,444 582,304 1,006,094
------------- ------------- ------------- -------------
(1,203,186) (350,521) (75,215) (85,676)
------------- ------------- ------------- -------------
70,848,157 38,405,721 1,195,628 4,048,627
(13,767,069) (3,255,400) (3,523,628) (2,180,000)
------------- ------------- ------------- -------------
57,081,088 35,150,321 (2,328,000) 1,868,627
------------- ------------- ------------- -------------
57,455,868 43,417,244 (1,820,911) 2,789,045
52,362,313 8,945,069 5,715,786 2,926,741
------------- ------------- ------------- -------------
$ 109,818,181 $ 52,362,313 $ 3,894,875 $ 5,715,786
============= ============= ============= =============
$ 19,925 $ 7,290 $ 56 $ 904
============= ============= ============= =============
1,450,002 350,002 250,002 150,002
1,950,000 1,200,000 50,000 200,000
(400,000) (100,000) (150,000) (100,000)
------------- ------------- ------------- -------------
3,000,002 1,450,002 150,002 250,002
============= ============= ============= =============
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 FUND (QQEW)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 36.35 $ 26.10 $ 22.98 $ 23.74 $ 19.69
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.41 0.17 0.27 0.05 0.15
Net realized and unrealized gain (loss) 6.49 10.25 3.14 (0.70) 4.02
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.90 10.42 3.41 (0.65) 4.17
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.45) (0.17) (0.29) (0.11) (0.12)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 42.80 $ 36.35 $ 26.10 $ 22.98 $ 23.74
========== ========== ========== ========== ==========
TOTAL RETURN (a) 19.13% 39.95% 14.86% (2.77)% 21.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 577,828 $ 288,945 $ 84,815 $ 73,539 $ 75,955
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.61% 0.63% 0.68% 0.68% 0.75%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.10% 0.60% 1.01% 0.23% 0.79%
Portfolio turnover rate (b) 27% 38% 34% 27% 24%
FIRST TRUST NASDAQ-100-TECHNOLOGY SECTOR INDEX FUND (QTEC)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 35.43 $ 25.86 $ 24.14 $ 25.69 $ 21.16
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.45 0.24 0.19 0.00 (c) (d) 0.10
Net realized and unrealized gain (loss) 8.32 9.59 1.74 (1.47) 4.53
---------- ---------- ---------- ---------- ----------
Total from investment operations 8.77 9.83 1.93 (1.47) 4.63
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (loss) (0.53) (0.26) (0.21) (0.08) (0.10)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 43.67 $ 35.43 $ 25.86 $ 24.14 $ 25.69
========== ========== ========== ========== ==========
TOTAL RETURN (a) 24.83% 38.12% 8.02% (5.75)% 21.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 366,869 $ 177,165 $ 106,008 $ 149,660 $ 453,416
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.61% 0.62% 0.65% 0.63% 0.70%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.32% 0.80% 0.63% (0.02)% 0.71%
Portfolio turnover rate (b) 20% 33% 26% 21% 26%
<FN>
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Amount represents less than $0.01 per share.
(d) Per share amounts have been calculated using the average share method.
</FN>
Page 62 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ-100 EX-TECHNOLOGY SECTOR INDEX FUND (QQXT)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 34.77 $ 24.70 $ 20.80 $ 21.10 $ 17.63
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.32 0.10 0.31 0.06 0.17
Net realized and unrealized gain (loss) 4.97 10.06 3.92 (0.28) 3.46
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.29 10.16 4.23 (0.22) 3.63
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.33) (0.09) (0.33) (0.08) (0.16)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 39.73 $ 34.77 $ 24.70 $ 20.80 $ 21.10
========== ========== ========== ========== ==========
TOTAL RETURN (a) 15.35% 41.24% 20.31% (1.08)% 20.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 117,195 $ 90,396 $ 41,982 $ 30,157 $ 22,151
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% 0.67% 0.76% 0.78% 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 0.90% 0.38% 1.34% 0.31% 1.02%
Portfolio turnover rate (b) 23% 33% 40% 37% 19%
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 17.90 $ 9.48 $ 9.65 $ 16.42 $ 16.09
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.13 0.07 0.13 (0.03) (0.01)
Net realized and unrealized gain (loss) (0.66) 8.42 (0.18) (6.74) 0.34
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.53) 8.49 (0.05) (6.77) 0.33
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.14) (0.07) (0.12) -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.23 $ 17.90 $ 9.48 $ 9.65 $ 16.42
========== ========== ========== ========== ==========
TOTAL RETURN (a) (3.05)% 89.79% (0.50)% (41.23)% 2.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 89,616 $ 97,574 $ 13,740 $ 20,740 $ 36,120
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% 0.70% 0.98% 0.77% 0.78%
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 0.61% 0.60% 1.19% (0.18)% (0.07)%
Portfolio turnover rate (b) 37% 49% 24% 22% 22%
<FN>
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
</FN>
See Notes to Financial Statements Page 63
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 17.54 $ 17.75 $ 15.47 $ 14.65 $ 11.72
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.41 0.52 0.38 0.28 0.29
Net realized and unrealized gain (loss) 4.75 (0.19) 2.30 0.88 2.94
---------- ---------- ---------- ---------- ----------
Total from investment operations 5.16 0.33 2.68 1.16 3.23
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.46) (0.54) (0.37) (0.34) (0.30)
Net realized gain -- -- (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (0.46) (0.54) (0.40) (0.34) (0.30)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 22.24 $ 17.54 $ 17.75 $ 15.47 $ 14.65
========== ========== ========== ========== ==========
TOTAL RETURN (a) 29.61% 1.82% 17.39% 7.90% 27.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 339,130 $ 148,210 $ 402,888 $ 324,961 $ 71,066
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.50% 0.50% 0.50% 0.57% 0.69%
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 2.35% 2.31% 2.15% 2.03% 2.60%
Portfolio turnover rate (b) 11% 11% 8% 9% 16%
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 33.79 $ 25.99 $ 20.71 $ 22.13 $ 18.66
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.25 0.21 0.23 0.16 0.18
Net realized and unrealized gain (loss) (0.14) 7.80 5.30 (1.39) 3.43
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.11 8.01 5.53 (1.23) 3.61
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.25) (0.21) (0.25) (0.19) (0.14)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 33.65 $ 33.79 $ 25.99 $ 20.71 $ 22.13
========== ========== ========== ========== ==========
TOTAL RETURN (a) 0.36% 30.91% 26.83% (5.62)% 19.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 198,550 $ 197,643 $ 72,769 $ 57,986 $ 53,111
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.59% 0.60% 0.63% 0.64% 0.69%
Ratio of net expenses to average net assets 0.59% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.75% 0.75% 1.02% 0.79% 0.96%
Portfolio turnover rate (b) 24% 45% 31% 31% 38%
<FN>
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns would have been lower if certain
fees had not been waived and expenses reimbursed by the investment
advisor.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
</FN>
Page 64 See Notes to Financial Statements
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 19.53 $ 15.67 $ 18.19 $ 19.60 $ 17.52
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.14 0.07 0.07 0.08 0.03
Net realized and unrealized gain (loss) (8.30) 3.86 (2.52) (1.41) 2.10
---------- ---------- ---------- ---------- ----------
Total from investment operations (8.16) 3.93 (2.45) (1.33) 2.13
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.15) (0.07) (0.07) (0.08) (0.05)
Return of capital -- -- -- -- (0.00) (a)
---------- ---------- ---------- ---------- ----------
Total distributions (0.15) (0.07) (0.07) (0.08) (0.05)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.22 $ 19.53 $ 15.67 $ 18.19 $ 19.60
========== ========== ========== ========== ==========
TOTAL RETURN (b) (42.02)% 25.13% (13.51)% (6.85)% 12.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 246,946 $ 464,795 $ 387,899 $ 346,556 $ 396,893
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.61% 0.60% 0.63% 0.63% 0.65%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 0.74% 0.40% 0.40% 0.39% 0.19%
Portfolio turnover rate (c) 42% 49% 41% 43% 93%
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
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 28.22 $ 20.97 $ 18.23 $ 25.01 $ 21.28
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.20 0.20 0.35 0.27 0.17
Net realized and unrealized gain (loss) 0.48 7.26 2.74 (6.75) 3.73
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.68 7.46 3.09 (6.48) 3.90
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.27) (0.21) (0.35) (0.30) (0.17)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 28.63 $ 28.22 $ 20.97 $ 18.23 $ 25.01
========== ========== ========== ========== ==========
TOTAL RETURN (b) 2.37% 35.81% 17.11% (26.02)% 18.46%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 111,663 $ 71,962 $ 66,066 $ 79,287 $ 176,352
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.65% 0.66% 0.73% 0.66% 0.66%
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 0.54% 0.79% 1.60% 1.00% 0.74%
Portfolio turnover rate (c) 40% 40% 29% 23% 34%
<FN>
(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
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.
</FN>
See Notes to Financial Statements Page 65
FIRST TRUST EXCHANGE-TRADED FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FIRST TRUST NASDAQ(R) ABA COMMUNITY BANK INDEX FUND (QABA)
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of period $ 36.11 $ 25.56 $ 22.97 $ 24.95 $ 22.41
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.47 0.37 0.48 0.37 0.30
Net realized and unrealized gain (loss) 0.50 10.55 2.62 (1.98) 2.55
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.97 10.92 3.10 (1.61) 2.85
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.47) (0.37) (0.51) (0.37) (0.31)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 36.61 $ 36.11 $ 25.56 $ 22.97 $ 24.95
========== ========== ========== ========== ==========
TOTAL RETURN (a) 2.72% 42.89% 13.52% (6.48)% 12.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 109,818 $ 52,362 $ 8,945 $ 12,634 $ 9,979
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.64% 0.76% 1.04% 0.96% 1.16%
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to
average net assets 1.41% 1.38% 1.90% 1.62% 1.40%
Portfolio turnover rate (b) 26% 29% 17% 29% 26%
FIRST TRUST CBOE(R) S&P 500(R) VIX(R) TAIL HEDGE FUND (VIXH)
FOR THE PERIOD
FOR THE FOR THE 8/29/2012 (c)
YEAR ENDED YEAR ENDED THROUGH
12/31/2014 12/31/2013 12/31/2012
------------ ------------ ------------
Net asset value, beginning of period $ 22.86 $ 19.51 $ 19.89
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.34 0.34 0.11
Net realized and unrealized gain (loss) 3.11 3.34 (0.38)
---------- ---------- ----------
Total from investment operations 3.45 3.68 (0.27)
---------- ---------- ----------
DISTRIBUTIONS PAID TO SHAREHOLDERS FROM:
Net investment income (0.34) (0.33) (0.11)
---------- ---------- ----------
Net asset value, end of period $ 25.97 $ 22.86 $ 19.51
========== ========== ==========
TOTAL RETURN (a) 15.22% 19.00% (1.37)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 3,895 $ 5,716 $ 2,927
RATIOS TO AVERAGE NET ASSETS:
Ratio of total expenses to average net assets 0.60% 0.60% 0.60% (d)
Ratio of net expenses to average net assets 0.60% 0.60% 0.60% (d)
Ratio of net investment income (loss) to
average net assets 1.42% 1.53% 1.97% (d)
Portfolio turnover rate (b) 7% 4% 2%
<FN>
(a) Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all
distributions at net asset value during the period, and redemption at net
asset value on the last day of the period. The returns presented do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption or sale of Fund shares. Total return is
calculated for the time period presented and is not annualized for periods
of less than a year. The total returns for First Trust 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.
(b) Portfolio turnover is calculated for the time period presented and is not
annualized for periods of less than a year and does not include securities
received or delivered from processing creations or redemptions and in-kind
transactions.
(c) Inception date is consistent with the commencement of investment
operations and is the date the initial creation units were established.
(d) Annualized.
</FN>
Page 66 See Notes to Financial Statements
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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 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 Fund - (The NASDAQ(R) Stock
Market, LLC ("NASDAQ") ticker "QQEW")
First Trust NASDAQ-100-Technology Sector Index Fund - (NASDAQ ticker
"QTEC")
First Trust NASDAQ-100 Ex-Technology Sector Index Fund - (NASDAQ ticker
"QQXT")
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund - (NASDAQ
ticker "QCLN")
First Trust S&P REIT Index Fund - (NYSE Arca, Inc. ("NYSE Arca") ticker
"FRI")
First Trust 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(R) S&P 500(R) VIX(R) 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 Fund NASDAQ-100 Equal Weighted Index(SM)
First Trust NASDAQ-100-Technology Sector Index Fund NASDAQ-100 Technology Sector Index(SM)
First Trust NASDAQ-100 Ex-Technology Sector Index Fund NASDAQ-100 Ex-Tech Sector Index(SM)
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund NASDAQ(R) Clean Edge(R) Green Energy Index(SM)
First Trust S&P REIT Index Fund S&P United States REIT Index
First Trust 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(R) S&P 500(R) VIX(R) Tail Hedge Fund CBOE(R) VIX(R) Tail Hedge Index
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. 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. Market
value prices represent last sale or official closing prices from a national or
foreign exchange (i.e., a regulated market) and are primarily obtained from
third party pricing services. Fair value prices represent any prices not
considered market value prices and are either obtained from a third party
pricing service or are determined by the Pricing Committee of the Fund's
investment advisor, First Trust Advisors L.P. ("First Trust" or the "Advisor")
in accordance with valuation procedures adopted by the Trust's Board of
Trustees, and in accordance with the 1940 Act. Investments valued by the
Advisor's Pricing Committee, if any, are footnoted as such in the footnotes to
the Portfolio of Investments. Each Fund's investments are valued as follows:
Page 67
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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 fair valued at the
mean of their most recent bid and asked price, if available, and otherwise
at their closing bid price.
Exchange-traded options contracts are valued at the closing price in the
market where such contracts are principally traded. If no closing price is
available, exchange-traded options contracts are fair valued at the mean
of their most recent bid and asked price, if available, and otherwise at
their closing bid price. Over-the-counter options contracts are fair
valued at the mean of their most recent bid and asked price, if available,
and otherwise at closing bid price.
Repurchase agreements will be fair valued as follows: Overnight repurchase
agreements will be fair valued at cost. Term repurchase agreements (i.e.,
those whose maturity exceeds seven days) will be fair valued by the
Pricing Committee at the average of the bid quotations obtained daily from
at least two recognized dealers.
Certain securities may not be able to be priced by pre-established pricing
methods. Such securities may be valued by the Trust's Board of Trustees or its
delegate, the Advisor's Pricing Committee, at fair value. These securities
generally include, but are not limited to, restricted securities (securities
which may not be publicly sold without registration under the Securities Act of
1933, as amended) for which a pricing service is unable to provide a market
price; securities whose trading has been formally suspended; a security whose
market or fair value price is not available from a pre-established pricing
source; a security with respect to which an event has occurred that is likely to
materially affect the value of the security after the market has closed but
before the calculation of a Fund's NAV or make it difficult or impossible to
obtain a reliable market quotation; and a security whose price, as provided by
the pricing service, does not reflect the security's fair value. As a general
principle, the current fair value of a security would appear to be the amount
which the owner might reasonably expect to receive for the security upon its
current sale. When fair value prices are used, generally they will differ from
market quotations or official closing prices on the applicable exchanges. A
variety of factors may be considered in determining the fair value of such
securities, including, but not limited to, the following:
1) the type of security;
2) the size of the holding;
3) the initial cost of the security;
4) transactions in comparable securities;
5) price quotes from dealers and/or 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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, 2014, is
included with each Fund's Portfolio of Investments.
B. CALL OPTIONS
The First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund ("VIXH") is subject to
equity price risk in the normal course of pursuing its investment objective and
may purchase out-of-the-money call options on the Chicago Board Options Exchange
Market Volatility Index (the "VIX Index") to hedge against changes in the value
of equities. Also, VIXH may sell call options on the VIX Index in order to close
out existing positions. The purchase of call options involves the risk of loss
of all or a part of the cash paid for the call options (the premium). The market
risk associated with purchasing options on the VIX Index is limited to the
premium paid. When VIXH purchases a call option, the premium paid represents the
cost of the call option, which is included in "Investments, at cost" on the
Statements of Assets and Liabilities. Options are marked-to-market daily and
their value will be affected by changes in the market value of the stocks
included in the stock index.
If VIXH elects to exercise a call option on the VIX Index, settlement does not
occur by the delivery of the securities comprising the VIX Index. VIXH, as
holder of the stock index option, receives an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in the
case of a call, or less than in the case of a put, the exercise price of the
option. This amount of cash is equal to the difference between the closing price
of the stock index and the exercise price of the option expressed in dollars
times a specified multiple. If VIXH elects to allow a call option to expire,
then the equity price risk for purchased options is limited to the premium
initially paid. Gain or loss on options is presented separately as "Net realized
gain (loss) on Options" on the Statements of Operations.
For the year ended December 31, 2014, VIXH recorded a change in unrealized gain
of $23,707 on the options, which is included in the "Net change in unrealized
appreciation (depreciation) on Options" on the Statements of Operations. For the
year ended December 31, 2014, VIXH recorded a realized gain on options of
$10,069, which is included in "Net realized gain (loss) on Options" on the
Statements of Operations.
At December 31, 2014, VIXH held 245 options contracts with a notional value of
$6,860. This is representative of contacts 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 Master Limited Partnerships
("MLPs") generally are comprised of return of capital and investment income. A
Fund records estimated return of capital and investment income based on
historical information available from each MLP. The characterization of
distributions received by a Fund may be subsequently revised based on
information received from the MLPs after their tax reporting periods conclude.
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.
D. OFFSETTING ON THE STATEMENTS OF ASSETS AND LIABILITIES
Accounting Standards Update No. 2011-11 "Disclosures about Offsetting Assets and
Liabilities" ("ASU 2011-11") requires entities to disclose both gross and net
information about instruments and transactions eligible for offset on the
Statement of Assets and Liabilities, and disclose instruments and transactions
subject to master netting or similar agreements. These disclosure requirements
are intended to help investors and other financial statement users better assess
the effect or potential effect of offsetting arrangements on a fund's financial
position. In addition, Accounting Standards Update No. 2013-1 "Clarifying the
Scope of Offsetting Assets and Liabilities" ("ASU 2013-1"), specifies 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
This disclosure, if applicable, is included within each Fund's Portfolio of
Investments under the heading "Offsetting Assets and Liabilities". For financial
reporting purposes, the Funds do not offset financial assets and financial
liabilities that are subject to master netting arrangements ("MNAs") or similar
agreements on the Statements of Assets and Liabilities. MNAs provide the right,
in the event of default (including bankruptcy and insolvency) for the
non-defaulting counterparty to liquidate the collateral and calculate the net
exposure to the defaulting party or request additional collateral.
E. REPURCHASE AGREEMENTS
Repurchase agreements involve the purchase of securities subject to the seller's
agreement to repurchase the securities at a mutually agreed upon date and price,
under the terms of a Master Repurchase Agreement ("MRA"). During the term of a
repurchase agreement, the value of the underlying securities held as collateral
on behalf of a Fund, including accrued interest, is required to exceed the value
of the repurchase agreement, including accrued interest. The underlying
securities for all repurchase agreements are held at the Funds' custodian or
designated sub-custodians under tri-party repurchase agreements.
MRAs govern transactions between a Fund and select counterparties. The MRAs
contain provisions for, among other things, initiation, income payments, events
of default, and maintenance of collateral for repurchase agreements.
If the seller defaults, a Fund could suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held by
the Fund are less than the repurchase price and the Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event of
bankruptcy of the seller, a Fund could suffer additional losses if a court
determines that the Fund's interest in the collateral is not enforceable.
While the Funds may invest in repurchase agreements, any repurchase agreements
held by the Funds during the year ended December 31, 2014, were received as
collateral for lending securities.
F. SECURITIES LENDING
The Funds may lend securities representing up to 33 1/3% of the value of their
total assets to broker-dealers, banks and other institutions to generate
additional income. When a Fund loans its portfolio securities, it will receive,
at the inception of each loan, collateral equal to at least 102% (for domestic
securities) or 105% (for international securities) of the market value of the
loaned securities. The collateral amount is valued at the beginning of each
business day and is compared to the market value of the loaned securities from
the prior business day to determine if additional collateral is required. If
additional collateral is required, a request is sent to the borrower. Securities
lending involves the risk that the Fund may lose money because the borrower of
the Fund's loaned securities fails to return the securities in a timely manner
or at all. The Fund could also lose money in the event of (i) a decline in the
value of the collateral provided for the loaned securities, (ii) a decline in
the value of any investments made with cash collateral or (iii) an increase in
the value of the loaned securities if the borrower does not increase the
collateral accordingly and the borrower fails to return the securities. These
events could also trigger adverse tax consequences for the Funds.
Under the Funds' Securities Lending Agency Agreement, the securities lending
agent will generally bear the risk that a borrower may default on its obligation
to return loaned securities. Brown Brothers Harriman & Co. ("BBH") acts as the
Funds' securities lending agent and is responsible for executing the lending of
the portfolio securities to creditworthy borrowers. The Funds, however, will be
responsible for the risks associated with the investment of cash collateral. A
Fund may lose money on its investment of cash collateral, which may affect its
ability to repay the collateral to the borrower without the use of other Fund
assets. Each Fund that engages in securities lending receives compensation (net
of any rebate and securities lending agent fees) for lending its securities.
Compensation can be in the form of fees received from the securities lending
agent or dividends or interest earned from the investment of cash collateral.
The dividend and interest earned on the securities loaned is accounted for in
the same manner as other dividend and interest income. At December 31, 2014,
QQEW, QCLN, FCG and FNI have securities in the securities lending program.
During the year ended December 31, 2014, QQEW, QQXT, QCLN, FCG and FNI
participated 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
G. 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 fiscal year
ended December 31, 2014 was as follows:
Distributions Distributions
Distributions paid paid paid
from Ordinary from Capital from Return
Income Gains of Capital
----------------- ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 5,254,521 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index Fund 3,895,191 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 905,596 -- --
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 857,050 -- --
First Trust S&P REIT Index Fund 6,113,911 -- --
First Trust ISE Water Index Fund 1,479,820 -- --
First Trust ISE-Revere Natural Gas Index Fund 3,518,320 -- --
First Trust ISE Chindia Index Fund 666,211 -- --
First Trust NASDAQ(R)ABA Community Bank Index Fund 1,203,186 -- --
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 75,215 -- --
The tax character of distributions paid by each Fund during the fiscal 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 Fund $ 1,151,465 $ -- $ --
First Trust NASDAQ-100-Technology Sector Index Fund 1,166,616 -- --
First Trust NASDAQ-100 Ex-Technology Sector Index 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(R) S&P 500(R) VIX(R) Tail Hedge Fund 85,676 -- --
Page 71
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
As of December 31, 2014, the components of distributable earnings on a tax basis
for each Fund were as follows:
Accumulated
Undistributed Capital and Net Unrealized
Ordinary Other Appreciation
Income Gain (Loss) (Depreciation)
----------------- ---------------- ----------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ -- $ (11,532,722) $ 47,581,252
First Trust NASDAQ-100-Technology Sector Index Fund -- (19,383,122) 72,865,180
First Trust NASDAQ-100 Ex-Technology Sector Index Fund -- (3,390,125) 18,131,197
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 510 (33,892,581) (10,131,044)
First Trust S&P REIT Index Fund -- -- 15,589,241
First Trust ISE Water Index Fund -- (11,005,926) 20,347,484
First Trust ISE-Revere Natural Gas Index Fund 307,369 (222,154,984) (181,910,544)
First Trust ISE Chindia Index Fund (80,940) (52,194,028) 7,446,725
First Trust NASDAQ(R) ABA Community Bank Index Fund 19,925 (997,841) 5,287,490
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 56 (486,881) 576,540
H. INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company by
complying with the requirements under Subchapter M of the Internal Revenue Code
of 1986, as amended, which includes distributing substantially all of its net
investment income and net realized gains to shareholders. Accordingly, no
provision has been made for federal and state income taxes. However, due to the
timing and amount of distributions, each Fund may be subject to an excise tax of
4% of the amount by which approximately 98% of the Fund's taxable income exceeds
the distributions from such taxable income for the calendar year.
The Funds are subject to accounting standards that establish a minimum threshold
for recognizing, and a system for measuring, the benefits of a tax position
taken or expected to be taken in a tax return. Taxable years ending 2011, 2012,
2013 and 2014 remain open to federal and state audit. As of December 31, 2014,
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, 2014, 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 Enactment - Capital
Through Through Through Through No Loss
2015 2016 2017 2018 Expiration Available
---------- ----------- ----------- ----------- ----------- ------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 54,385 $ 1,957,170 $ 4,681,103 $ -- $ 4,840,064 $ 11,532,722
First Trust NASDAQ-100-Technology Sector
Index Fund 311,155 1,421,664 2,016,911 -- 15,633,392 19,383,122
First Trust NASDAQ-100 Ex-Technology Sector
Index Fund 7,779 143,597 1,051,894 80,899 2,105,956 3,390,125
First Trust NASDAQ(R) Clean Edge(R) Green Energy
Index Fund 141,332 4,246,707 7,483,633 5,884,801 16,136,108 33,892,581
First Trust ISE Water Index Fund 592 318,246 5,768,328 2,198,674 2,720,086 11,005,926
First Trust ISE-Revere Natural Gas Index Fund 5,274 7,264,703 32,569,413 40,089,981 142,225,613 222,154,984
First Trust ISE Chindia Index Fund -- 11,116,593 11,686,955 7,245,147 22,145,333 52,194,028
First Trust NASDAQ(R) ABA Community Bank Index Fund -- -- 4,787 116,604 876,450 997,841
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund -- -- -- -- 486,881 486,881
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
Certain losses realized during the current fiscal year may be deferred and
treated as occurring on the first day of the following fiscal year for federal
income tax purposes. For the fiscal year ended December 31, 2014, the following
Funds incurred and elected to defer net ordinary and capital losses as follows:
Qualified Late Year Losses
---------------------------------
Ordinary Losses Capital Losses
--------------- --------------
First Trust ISE Chindia Index Fund $ 80,940 $ --
During the taxable year ended December 31, 2014, the following Funds utilized
capital loss carryforwards in the following amounts:
Post-Enactment
Capital Loss
Carryforward Utilized
---------------------
First Trust NASDAQ-100-Technology Sector Index Fund $ 729,315
First Trust ISE Water Index Fund 1,446,319
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 56,236
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, 2014, 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 Fund $ 504,872 $ (36,011,145) $ 35,506,273
First Trust NASDAQ-100-Technology Sector Index Fund 651,289 (11,971,772) 11,320,483
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 15,419 (12,226,364) 12,210,945
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 8,379 (20,210,093) 20,201,714
First Trust S&P REIT Index Fund 760,180 (17,922,114) 17,161,934
First Trust ISE Water Index Fund 16,487 (11,444,548) 11,428,061
First Trust ISE-Revere Natural Gas Index Fund 297,402 (51,557,631) 51,260,229
First Trust ISE Chindia Index Fund 168,190 (7,524,392) 7,356,202
First Trust NASDAQ(R)ABA Community Bank Index Fund -- (2,736,522) 2,736,522
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund (624) (889,781) 890,405
I. EXPENSES
Expenses that are directly related to one of the Funds are charged directly to
the respective Fund, except for First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge
Fund (the "Unitary Fee Fund"), for which expenses other than excluded expenses
(discussed in Note 3) are paid by the Advisor. General expenses of the Trust are
allocated to all the Funds based upon the net assets of each Fund.
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 Fund The NASDAQ Stock Market, LLC
First Trust NASDAQ-100-Technology Sector Index Fund The NASDAQ Stock Market, LLC
First Trust NASDAQ-100 Ex-Technology Sector Index Fund The NASDAQ Stock Market, LLC
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund The NASDAQ Stock Market, LLC /Clean Edge(R), Inc.
First Trust S&P REIT Index Fund 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(R) S&P 500(R) VIX(R) Tail Hedge Fund Standard & Poor's Financial Services, LLC
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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(R) S&P 500(R) VIX(R) Tail Hedge Fund, the respective Funds are
required to pay licensing fees, which are shown on the Statements of Operations.
J. ACCOUNTING PRONOUNCEMENT
In June 2014, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2014-11, Transfers and Servicing (Topic
860): Repurchase-to-Maturity Transactions, Repurchase Financings, and
Disclosures. A repurchase-to-maturity transaction is one where the repurchase
agreement settles at the same time as the maturity of the transferred financial
asset. These transactions, unlike other repurchase agreements, were accounted
for as sales and purchases instead of being treated as secured borrowings. This
ASU changes that accounting practice and treats all repurchase agreements as
secured borrowings. The ASU additionally requires two new disclosures which are
intended to: a) disclose information on transferred assets accounted for as
sales in transactions that are economically similar to repurchase agreements,
and b) provide increased transparency about the types of collateral pledged in
repurchase agreements and similar transactions accounted for as secured
borrowings.
The ASU impacts all entities that enter into repurchase-to-maturity
transactions, entities that account for these transactions as a sale and a
purchase, and entities that engage in repurchase agreements and securities
lending transactions.
The ASU is effective for financial statements with fiscal years beginning on or
after December 15, 2014 and interim periods within those fiscal years.
Management is evaluating the impact, if any, of this guidance on the Funds'
financial statement disclosures.
3. INVESTMENT ADVISORY FEE, AFFILIATED TRANSACTIONS AND OTHER FEE ARRANGEMENTS
First Trust, the investment advisor to the Funds, is a limited partnership with
one limited partner, Grace Partners of DuPage L.P., and one general partner, The
Charger Corporation. The Charger Corporation is an Illinois corporation
controlled by James A. Bowen, Chief Executive Officer of First Trust. First
Trust is responsible for the selection and ongoing monitoring of the securities
in each Fund's portfolio, managing the Funds' business affairs and providing
certain administrative services necessary for the management of the Funds.
For the First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund, First Trust is
paid an annual unitary management fee of 0.60% of such Fund's average daily net
assets and is responsible for the expenses of such Fund including the cost of
transfer agency, custody, fund administration, legal, audit and other services,
and excluding distribution and service fees pursuant to a Rule 12b-1 plan, if
any, brokerage expenses, taxes, interest, and extraordinary expenses.
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 Fund 0.40%
First Trust NASDAQ-100-Technology Sector Index Fund 0.40%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.40%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.40%
First Trust S&P REIT Index Fund 0.30%
First Trust 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, 2015.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
Expense Cap
----------------
First Trust NASDAQ-100 Equal Weighted Index Fund 0.60%
First Trust NASDAQ-100-Technology Sector Index Fund 0.60%
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 0.60%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 0.60%
First Trust S&P REIT Index Fund 0.50%
First Trust 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, 2014 and 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 12/31/2012 12/31/2013 12/31/2014 Total
--------- ------------- ---------- ---------- ---------- ---------
First Trust NASDAQ-100 Equal Weighted
Index Fund $ 41,566 $ -- $ 66,409 $ 56,300 $ 41,566 $ 164,275
First Trust NASDAQ-100-Technology Sector
Index Fund 33,593 -- 71,070 32,509 33,593 137,172
First Trust NASDAQ-100 Ex-Technology
Sector Index Fund 40,262 -- 58,392 44,451 40,262 143,105
First Trust NASDAQ(R) Clean Edge(R) Green
Energy Index Fund 50,372 -- 63,185 50,502 50,372 164,059
First Trust S&P REIT Index Fund -- -- 4,444 -- -- 4,444
First Trust ISE Water Index Fund -- -- -- -- -- --
First Trust ISE-Revere Natural Gas Index Fund 42,386 -- 100,098 11,985 42,386 154,469
First Trust ISE Chindia Index Fund 33,734 -- 97,245 35,100 33,734 166,079
First Trust NASDAQ(R) ABA Community
Bank Index Fund 37,176 -- 46,863 40,775 37,176 124,814
During the year ended December 31, 2014, First Trust S&P REIT Index Fund and
First Trust ISE Water Index Fund recovered fees that were previously waived of
$10,421 and $45,807, respectively.
The Trust has multiple service agreements with The Bank of New York Mellon
("BNYM"). Under the servicing agreements, BNYM performs custodial, fund
accounting, certain administrative services, and transfer agency services for
the Trust. As custodian, BNYM is responsible for custody of the Trust's assets.
As fund accountant and administrator, BNYM is responsible for maintaining the
books and records of the Trust's securities and cash. As transfer agent, BNYM is
responsible for maintaining shareholder records for the Trust. BNYM is a
subsidiary of The Bank of New York Mellon Corporation, a financial holding
company.
Each Trustee who is not an officer or employee of First Trust, any sub-advisor
or any of their affiliates ("Independent Trustees") is paid a fixed annual
retainer that is allocated pro rata among each fund in the First Trust Fund
Complex based on net assets. Each Independent Trustee is also paid an annual per
fund fee that varies based on whether the fund is a closed-end or other actively
managed fund or is an index fund.
Additionally, the Lead Independent Trustee and the Chairmen of the Audit
Committee, Nominating and Governance Committee and Valuation Committee are paid
annual fees to serve in such capacities, with such compensation allocated pro
rata among each fund in the First Trust Fund Complex based on net assets.
Trustees are reimbursed for travel and out-of-pocket expenses in connection with
all meetings. The Lead Independent Trustee and Committee Chairmen rotate every
three years. The officers and "Interested" Trustee receive no compensation from
the Trust for acting in such capacities.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
4. PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 2014, the cost of purchases and proceeds from
sales of investments for each Fund, excluding short-term investments and in-kind
transactions, were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 117,129,923 $ 116,420,198
First Trust NASDAQ-100-Technology Sector Index Fund 49,078,840 49,021,602
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 21,977,161 22,017,297
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 49,567,332 49,625,598
First Trust S&P REIT Index Fund 27,195,776 25,248,018
First Trust ISE Water Index Fund 47,533,898 47,476,265
First Trust ISE-Revere Natural Gas Index Fund 188,252,867 188,610,098
First Trust ISE Chindia Index Fund 30,486,490 30,678,465
First Trust NASDAQ(R)ABA Community Bank Index Fund 22,085,500 22,152,198
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 368,429 339,858
For the year ended December 31, 2014, the cost of in-kind purchases and proceeds
from in-kind sales for each Fund were as follows:
Purchases Sales
--------------- ---------------
First Trust NASDAQ-100 Equal Weighted Index Fund $ 477,200,719 $ 251,534,693
First Trust NASDAQ-100-Technology Sector Index Fund 180,847,671 42,650,869
First Trust NASDAQ-100 Ex-Technology Sector Index Fund 45,476,527 31,579,230
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 99,490,139 96,780,966
First Trust S&P REIT Index Fund 369,827,814 220,221,127
First Trust ISE Water Index Fund 41,945,512 39,277,892
First Trust ISE-Revere Natural Gas Index Fund 391,051,955 407,960,750
First Trust ISE Chindia Index Fund 62,461,571 20,267,260
First Trust NASDAQ(R)ABA Community Bank Index Fund 70,798,721 13,741,485
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 1,196,023 3,522,595
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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014
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 April 30, 2015.
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 Fund, First Trust NASDAQ-100-Technology
Sector Index Fund, First Trust NASDAQ-100 Ex-Technology Sector Index Fund, First
Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund, First Trust S&P REIT
Index Fund, First Trust 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(R) S&P 500(R) VIX(R) Tail Hedge
Fund (collectively, the "Funds"), each a series of the First Trust
Exchange-Traded Fund (the "Trust"), including the portfolios of investments, as
of December 31, 2014, and the related statements of operations for the year then
ended, and the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2014 by correspondence with the Trust'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, 2014, and the results of their operations for the year then
ended, and the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 25, 2015
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ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (UNAUDITED)
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Trust uses to determine
how to vote 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 Fund'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 Fund'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, 2014, 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 91.76%
First Trust NASDAQ-100-Technology Sector Index(SM) Fund 100.00%
First Trust NASDAQ-100 Ex-Technology Sector Index(SM) Fund 73.73%
First Trust NASDAQ(R) Clean Edge(R) Green Energy Index Fund 76.89%
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100.00%
First Trust ISE-Revere Natural Gas Index Fund 23.57%
First Trust ISE Chindia Index Fund --
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 100.00%
For the taxable year ended December 31, 2014, 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 75.89%
First Trust S&P REIT Index Fund --
First Trust ISE Water Index Fund 100.00%
First Trust ISE-Revere Natural Gas Index Fund 68.40%
First Trust ISE Chindia Index Fund 100.00%
First Trust NASDAQ(R) ABA Community Bank Index Fund 100.00%
First Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund 100.00%
For the tax year ended December 31, 2014, the First Trust S&P REIT Index Fund
designated $1,867,266, 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, $1,867,266, or amounts necessary,
represents long-term capital gain from the Fund.
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ADDITIONAL INFORMATION (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (UNAUDITED)
The First Trust NASDAQ-100 Equal Weighted Index Fund and the First Trust
NASDAQ-100-Technology Sector Index Fund invest in stocks of companies in the
technology sector. You should be aware that an investment in a portfolio which
invests in a particular sector involves additional risks, including limited
diversification. The companies engaged in the technology sector are subject to
fierce competition and high research and development costs, and their products
and services may be subject to rapid obsolescence.
First Trust S&P REIT Index Fund and First Trust NASDAQ(R) ABA Community Bank
Index Fund invest in securities of companies in the financials 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 Fund, the First Trust NASDAQ-100-Technology Sector Index Fund,
the First Trust CBOE(R) S&P 500(R) VIX(R) 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 Fund and First Trust
NASDAQ-100 Equal Weighted Index Fund invest in the securities of companies in
the consumer discretionary sector. Because companies in the consumer
discretionary sector manufacture products and provide discretionary services
directly to the consumer, the success of these companies is tied closely to the
performance of the overall domestic and international economy, interest rates,
competition and consumer confidence. Success depends heavily on disposable
household income and consumer spending. Changes in demographics and consumer
tastes can also affect the demand for, and success of, consumer discretionary
products in the marketplace.
The First Trust 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 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.
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ADDITIONAL INFORMATION (CONTINUED)
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FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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(R) S&P 500(R) VIX(R) Tail Hedge Fund's use of options and
other derivatives can lead to losses because of adverse movements in the price
or value of the underlying asset, index or rate, which may be magnified by
certain features of the derivatives. These risks are heightened when the First
Trust CBOE(R) S&P 500(R) VIX(R) Tail Hedge Fund's portfolio managers use
derivatives to enhance the Fund's return or as a substitute for a position or
security, rather than solely to hedge (or offset) the risk of a position or
security held by the Fund. The option positions employed, as dictated by the
attempt to replicate the Index, may present additional risk. The value of an
option may be adversely affected if the market for the option becomes less
liquid or smaller, and will be affected by changes in the value and dividend
rates of the stock subject to the option, an increase in interest rates, a
change in the actual and perceived volatility of the stock market and the common
stock and the remaining time to expiration. Additionally, the value of an option
does not increase or decrease at the same rate as the underlying stock (although
they generally move in the same direction).
Unlike most exchange-traded funds, the First Trust CBOE(R) S&P 500(R) VIX(R)
Tail Hedge Fund may effect a portion of creations and redemptions for cash,
rather than in-kind securities. Particularly, the call option portion of the
Fund's portfolio, if applicable, may be redeemed for cash. As a result, an
investment in the Fund may be less tax-efficient than an investment in a more
conventional exchange-traded fund. Because the Fund may effect a portion of
redemptions for cash, rather than in-kind distributions, it may be required to
sell portfolio securities in order to obtain the cash needed to distribute
redemption proceeds. A sale of shares may result in capital gains or losses, and
may also result in higher brokerage costs.
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, 2014 (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; 114 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 114 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 and
D.O.B.: 11/57 Futures Industry
Association
Robert F. Keith, Trustee o Indefinite Term President (2003 to Present), Hibs 114 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 Managing Director and Chief Operating 114 Director of
c/o First Trust Advisors L.P. Officer (January 2015 to Present),Pelita Covenant
120 East Liberty Drive, o Since Inception Harapan Educational Foundation(Educational Transport, Inc.
Suite 400 Products and Services); President and Chief (May 2003 to
Wheaton, IL 60187 Executive Officer (June 2012 to September May 2014)
D.O.B.: 03/54 2014), Servant Interactive LLC (Educational
Products and Services); President and Chief
Executive Officer (June 2012 to September
2014), Dew Learning LLC (Educational
Products and Services); President
(June 2002 to June 2012), Covenant College
------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
James A. Bowen(1), Trustee, o Indefinite Term Chief Executive Officer (December 2010 to 114 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 83
--------------------------------------------------------------------------------
BOARD OF TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (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 Present), 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. and 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
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, (November 2003 to Present),
120 E. Liberty Drive, Vice President (August 2001 to November 2003),
Suite 400 o Since Inception First Trust Advisors L.P. and First Trust Portfolios
Wheaton, IL 60187 L.P.
D.O.B.: 06/66
Stan Ueland Vice President o Indefinite Term 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 84
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PRIVACY POLICY
--------------------------------------------------------------------------------
FIRST TRUST EXCHANGE-TRADED FUND
DECEMBER 31, 2014 (UNAUDITED)
PRIVACY POLICY
First Trust values our relationship with you and consider 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.
(f) The code of ethics is filed as an exhibit to the Registrant's annual
report on this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
trustees has determined that Thomas R. Kadlec and Robert F. Keith are qualified
to serve as audit committee financial experts serving on its audit committee and
that each of them is "independent," as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees -- The aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements were $380,000 for 2013 and $380,000 for 2014.
(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 2013 and $0 for 2014.
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 2013 and $0 for 2014.
(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 $61,750
for 2013 and $55,575 for 2014. 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 2013 and $0 for 2014.
(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 2013 and $0 for 2014.
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 2013 and $0 for 2014.
(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 2013 were $61,750
for the registrant, $38,000 for the registrant's investment adviser and $58,100
for the registrant's distributor and for 2014 were $55,575 for the registrant,
$8,500 for the registrant's investment adviser and $43,500 for the registrant's
distributor.
(h) The registrant's audit committee of its Board of Trustees has
determined that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEMS 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934
consisting of all the independent directors of the Registrant. The audit
committee of the registrant is comprised of: Richard E. Erickson, Thomas R.
Kadlec, Robert F. Keith and Niel B. Nielson.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of trustees, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 407 (c) (2) (iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22 (b) (15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR
270.30a-3 (c))) are effective, as of a date within 90 days of the filing
date of the report that includes the disclosure required by this
paragraph, based on their evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15 (b)).
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal quarter of
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a) (2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a) (3) Not Applicable
(b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section
906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) First Trust Exchange-Traded Fund
------------------------------------------------------
By (Signature and Title)* /s/ Mark R. Bradley
----------------------------------------
Mark R. Bradley, President and
Chief Executive Officer
(principal executive officer)
Date: February 25, 2015
--------------------
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 25, 2015
--------------------
By (Signature and Title)* /s/ James M. Dykas
----------------------------------------
James M. Dykas, Treasurer,
Chief Financial Officer and
Chief Accounting Officer
(principal financial officer)
Date: February 25, 2015
--------------------
* Print the name and title of each signing officer under his or her signature.